PROBLEM EXERCISES IN TAXATION

Culled from recent jurisprudence

(Series 2019)
Prepared by: Dr. Jeannie P. Lim

1. Discuss briefly the doctrine of supremacy of national government over local governments.

Answer. It means that no political subdivision can regulate a national instrumentality in such a way as to
prevent it from consummating its responsibilities or even to seriously burden it in the accomplishment of
them. Such regulation includes taxation. (Johnson v. Mayland, 254 US 51; Antieau, Modern Constitutional
Law, Vol. 2, p. 140)

Simply stated, the national government may impose tax on local governments. Conversely, the local
government units are devoid of taxing power over the national government.

2. (a) D was not able to pay his loan with Bank X. X foreclosed D’s house and lot. Is there a tax
implication when a capital asset (house and lot) is foreclosed? (b) What transactions involving
disposition of real properties will be covered by the 6% capital Gains Tax?

Answer. (a) Foreclosure of real estate mortgage in case debtor defaulted in the payment of his loan from
banks is subject to the 6% Capital Gains Tax and 1.5% Documentary Stamps Tax which are payable within
30 days from the expiration of the one (1) year period to redeem without the debtor exercising his right of
redemption.

(b) (1) Voluntary sale of capital asset, (2) Involuntary sale of capital asset (expropriation), (3) Exchanges of
capital assets with or without consideration, (4) Dacion en Pago, (5) Pacto de Retro, (6) Conditional sale of
capital assets and (7) Foreclosure of mortgages.

3. X bought a vacant lot from a friend. Unfortunately, the Certificate of Title given to him by the seller is
not for the property he bought. Both seller and buyer did not notice the error. The capital gains tax
and DST were paid. Subsequently, X found out that he got the wrong title and immediately asked the
seller to give him the correct document. Will there be another capital gains tax and DST payable
because this time the transfer involves another Certificate of Title? Reason.

Answer. There will be no capital gains tax payable under the rectification of the errors committed by the
parties under the given facts because there is no disposition of real property involved. However, DST is
payable should there be another document executed in support of the issuance of a new Certificate of Title.
The DST earlier paid is non-refundable and it cannot be applied to a new instrument because DST is due
and payable upon the issuance of a taxable document. The payment of DST is not depended on the
outcome of the transaction.

4. (a) X and Y validly entered into a commercial contract. Their agreement was embodied in a public
instrument which is subject to documentary stamps tax. If the party primarily liable thereto is tax
exempt. Is the document exempt from the payment of the DST? Reason.

Answer. If the person primarily liable is tax exempt the document remains taxable and the party who is not
exempt shall be the liable for the payment of the DST. This is in view of the fundamental principle in taxation
that says “Tax exemption is non-transferable.”

(b) Who is responsible to pay the DST? Persons primarily liable for the payment of DST are the persons
(a) making, (b) accepting (c) signing, (d) transferring or (e) issuing the taxable document. (Philacor Credit
Corp. vs. CIR, February 6, 2013)

5. B Corporation purchased all properties from S Corporation under a Purchase and Sale Agreement.
The BIR noticed that the seller still has unpaid DST. Having evidence to prove that B is now in
possession of all properties of S, BIR enforces the tax liabilities of S against B. Is the BIR correct?
[CIR vs. Bank of Commerce, GR No. 180529 (2013)]

Answer. The purchase and sale of identified assets between 2 corporations under a Purchase and Sale
Agreement does not constitute a merger as defined under the Tax Code, the seller and purchases are still
considered separate and different entities from one another. Thus, B, the purchaser cannot be held liable for
the payment of the deficiency tax liability of S.

6. What are deposit substitutes? (BDO vs. Republic, G.R. No. 198756, January 13, 2015, En Banc)

Answer. When funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be
a public borrowing and the bonds at that point in time are deemed deposit substitutes. Consequently, the

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 seller is required to withhold the 20% Final Withholding Tax on the passive interest income earned from the
bonds. NOTE: If the funds are obtained from 20 or less creditors, the interest is not subject to the 20%
FWTax but to the normal income tax.

7. Five (5) brothers and sisters co-owned a parcel of land which they inherited from their parents. The
subject property is registered jointly in their name as co-owners. Now, they want to subdivide the
property and have their own independent title of their proportionate share. Is the transfer of title from
the joint names of the co-owners pursuant to an agreement to partition subject to a capital gains tax?

Answer. The partition is exempt from the capital gains tax. Dissolution by co-owners of co-ownership
through an agreement to partition is not covered by the imposition of the said tax because the transfer of title
from the co-owners is not barter, exchange or other disposition of realty that would warrant its imposition.
(BIR Ruling 145-98, October 9, 1998)

8. R Corporation (domestic) entered into a corporate combination agreement (merger and

consolidation) with its wholly-owned domestic subsidiaries S Corporation and U Corporation. S and
U transferred all their assets and liabilities to R. R Corporation is the surviving corporation. R did not
issue any shares of stocks to S and U in consideration of the assets and liabilities it got from S and U
because S and U are wholly-owned by R. Is the merger between R, S and U tax free? Is there any tax
implication under the stated facts?

Answer. This activity is called upstream merger between a parent and its subsidiaries where the parent
company will not be issuing any shares to the subsidiaries in exchange for the assets transferred to it. In
effect, the transfer is in the nature of donation made by the subsidiaries to the parent, hence subject to
donor’s tax. The intended merger has the effect of dissolving and liquidating the subsidiaries without
payment of the corresponding taxes. (BIR Ruling No. 614-12, November 9, 2012)

9. Will the imposition of a business tax by the City government against an entity already paying a
franchise tax result to double taxation considering that both taxes are based on the gross receipts
and sales of taxpayer’s business? (Sky Cable Corp. vs. City Treasurer of Quezon City, CTA case No.
102, February 10, 2014)

Answer. A franchise tax is a tax on the privilege of transacting business in the state and exercising corporate
franchises granted by the state, and is imposed only on franchise holders. On the other hand, a “city or
business tax” is a percentage tax based on a given ratio between the gross sales or receipts and the burden
imposed upon the taxpayer. It is imposed on any person engaged in the sale of goods or services. They are
not of the same kind or character. Hence, no double taxation.

10. X Municipality imposes regulatory fees on the “cell sites“ or telecommunications towers of X
Corporation. X protested contending that the “cell sites” are already subjected to taxes. X argues
that there is double taxation because the same object of taxation is taxed twice for the same
purpose. Rule on the argument.

Answer. An ordinance imposing regulatory fees on project cost whose purpose is to regulate certain
construction activities of the identified special projects, which includes “cell sites” or telecommunications
towers is NOT a tax because the fees imposed in the said ordinance are primarily regulatory in nature and
not primarily revenue-raising in nature. Hence, there is no double taxation considering that the impositions
are not for the same purpose. (SMART vs. Mun. of Malvar, Batangas, GR No. 204429, February 18, 2014)

11. X is an educational institution, organized as non-stock and non-profit. It is owned and operated by a
religious organization. The BOT of the school has been renting out portions of the premises to
private entities for canteens, bookstore, dormitory use, whereas the auditorium and gymnasium are
often leased for private activities and functions. A private individual is also operating the parking at
his own expense with income sharing ratio to the school. Are the monies earned by the school
subject to income?

Answer. All income earned by a non-stock, non-profit educational institution shall be exempt from duties and
taxes provided the income is used actually, directly and exclusively for educational purposes. The exemption
includes exemption from property taxes. Sec. 30 of the Tax Code does not apply to an educational institution.
The legal basis of this exemption is the Constitution providing that assets and income of an educational
institution shall be exempt from duties and taxes. (St. Paul and La Salle cases)

12. Are charitable institutions “organized and operated exclusively” for charitable purposes allowed to
engage in activities conducted for profit without losing its tax-exempt status for its non-profit
activities? (St. Luke’s Hospital vs. CIR)

Answer. Character of a charitable institution from any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax. St. Luke’s Hospital is a corporation that is not
operated exclusively for charitable or social welfare purposes insofar as its revenues from paying patients
are concerned. Services to paying patients are activities conducted for profit as there is a purpose to make

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 profits over and above the cost of the medical services.

(a) They are exempt from income tax but this exemption does not extend to IR taxes imposed under the
Tax Code on its profit or income derived from any of its properties, real or personal, or any activity conducted
for profit regardless of the disposition thereof, (b) their passive income (peso interest from bank and/or time
deposits and the like) are subject to 20%FWtax, (c) they are VAT liable on their sale of goods and/or
services.

Are the traditional exemptees exempt from donor’s tax in case they donate their own properties?

Answer. They are exempt from the payment of donor’s tax in case they donate properties provided no more
than 30% of said gifts shall be used for administrative purposes and the donee corporation or association is
accredited and has a tax exemption certificate.

13. What are the characteristics of a non-stock, non-profit organization? (De La Salle University – College
of St. Benilde, Inc. February 27, 2019)

Answer. (a) It has no capital stock, (b) It does not distribute dividends to its members, trustees and officers,
(c) the Board of Trustees do not receive any compensation for the performance of their duties, including
board fees or honorarium for their attendance in any board meeting.

14. X is a private non-profit hospital. It claims that it is exempt from income tax being a charitable
institution and an organization promoting social welfare. The BIR believes that X is not tax exempt
because of its failure to meet all the requirements under Sec. 30(E) and (G) of the Tax Code, NIRC,
and imposes the 10% preferential tax rate on X based on Sec. 27(B), of the Tax Code. Is the BIR
correct? (St. Luke’s Medical Center, Inc. vs. CIR, September 26, 2012)

Answer. Yes, the BIR is correct. Sec. 27(B), NIRC imposes a 10% preferential tax rate on the income of (a)
proprietary non-profit educational institution and (b) proprietary non-profit hospital. “Proprietary” means
private and “non-profit” means no net income or asset accrues to the benefit of any member or specific
person, with all the net income or asset devoted to the institution’s purposes and all its activities conducted
not for profit. ”Non-profit does not necessarily mean “charitable”. An organization may be considered as non-
profit if it does not distribute any part of its income to stockholders or members but such profits are
reinvested pursuant to its corporate purposes. Sec. 27(B) was introduced to subject the income of private
non-profit schools and private non-profit hospitals to income tax at the rate of 10% instead of the normal 30%
corporate income tax.

15. T has a copy of an RR issued by the CIR. T has a query as to its validity because he believes some of
the provisions therein are not found in the Tax law it seeks to implement. Under the RR the CIR holds
that T is liable. T, however, doubts the unfavorable ruling and would like to question the same?
Where should he contest the validity of the Rec. Regulation?

Answer. T must first file his REQUEST FOR RULING REVIEW before the Secretary of Finance within 30
days from receipt of the unfavorable ruling in compliance with the Principle of Exhaustion of Administrative
Remedies. If SoF sustains the CIRs Ruling, T may then proceed to the RTC via a Petition for Review within
30 days from receipt of the adverse decision of the SoF. (DOF Department Order No. 23-2001, October 25,
2001).

16. CIR’s interpretation of tax laws are subject to review by the Secretary of Finance. If the later renders
an adverse ruling in the exercise of his power to review interpretations of the CIR, where does one
seek recourse? (Philippine American Life and Gen. Insurance Company vs. Sec. of Finance, G. R. No.
210987, November 24, 2014)

Answer. The NIRC is silent on the matter; However, Sec. 7(a)(1) of RA 1125, as amended addresses the
seeming gap. The adverse decision of the Secretary of Finance is appealable to the CTA.

17. When is an appeal (REQUEST FOR RULIUNG REVIEW) before the Sec. of Finance not necessary?
(BDO vs. Republic, GR No. 198756, January 13, 2015)

Answer. The rule on exhaustion of administrative remedies, particularly an appeal to the SoF, may be
dispensed with if, among others: (a) the issue involves purely question of law, (b) when there are
circumstances indicating the urgency of judicial intervention; and (c) when exhaustion will result in an
exercise in futility.

18. What are the two (2) powers of the CIR?

Answer. The CIR exercises (a) Quasi-legislative functions, such as the original and exclusive power of
interpret tax laws, issuing ruling, rules and regulations, and (b) Quasi-judicial functions such as deciding
taxpayers’ disputes on tax assessment and collections and claims for tax refund or tax credit.

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 NOTE: (a) If the ruling of the CIR was issued in the exercise of his quasi-legislative function, and/or rulings of
the Sec. of Finance issued in the exercise of his quasi-legislative function- both should be appealed with the
Regional Trial Court. (b) If the CIR’s ruling was issued in the exercise of his quasi-judicial functions, and/or
the decision of the SoF exercising his quasi-judicial function – both should be appealed to the CTA. (CIR vs.
CTA and Petron, GR No. 207843, July 15, 2015)

19. T filed a petition before the CTA questioning the legality of and constitutionality of the CIR’s
interpretation of the tax provision of the Tax Code (Quasi-legislative power). CIR argues that CTA has
no jurisdiction over the controversy. Is the CIR correct? (CIR vs. CTA and Petron, GR No. 207843, July
15, 2015)

Answer. The CIR is correct. CTA has no jurisdiction to take cognizance of the petition as its resolution would
necessarily involve a declaration of the validity or constitutionality of the CIR’s interpretation of the Tax Code,
which is subject to the exclusive review by the Sec. of Finance and ultimately by the regular courts.

20. X Corporation in engaged in insurance business. Part of its activities is lending money to its policy
holders. The CIR imposes additional percentage tax on the said activity because the former believes
“X” is also a lending investor. Is the tax official correct?

Answer. When a company is taxed on its main business, it is no longer taxable further for engaging in an
activity or work which is merely a part of, incidental to and is necessary to its main business – to require X to
pay additional percentage tax and fixed taxed again for an activity which is necessarily a part of the same
business, the CIR must prove that that is a law expressly requiring X such additional payment of tax because
unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled
rule that imposition of a tax cannot be presumed. (2005 case)

21. (a) X is an international airline corporation with landing rights in our country. It sells airline tickets
here and abroad for passengers leaving the country for abroad. How do we tax this juridical entity?

(b) Y is an international airline company with no landing rights in our country but it sells airline
tickets here through the local travelling agencies. How are the tickets sold here through its agents
taxed? (Air Canada vs. CIR, GR No. 169507, January 11, 2016)

Answer. (a) The airline tickets sold by X regardless of place of issue or payment made shall be subject to
2.5% Gross Philippine Billings Tax provided the passenger exits from the Philippines.

(b) Since Y has no landing rights in our country the 2.5 % GPB tax does not apply to it. Hence, the airline
tickets sold through its agents shall be tax at 30% net.

 Tax treaty prevails over administrative issuances.

 RP and Canada Tax Treaty provide that Air Canada shall be taxed at 1.5% on its airlines tickets for
passengers that exit from the Philippines. This agreement applies if Air Canada does not have a
“permanent establishment” (agent) in the country. Air Canada HAS an authorized permanent agent
in the country. Hence, the tax treaty does not apply. Air tickets of Air Canada shall be taxed at 30%
net as it is deemed to be a resident corporation doing business in our country.

22. Real Estate dealers are required to withhold taxes on every sale of real property they make. These
dealers argued that they are being singled out because other businesses are not required to withhold
taxes on every sale they conclude during the course of their business operations. The dealers
believe that there is violation of the uniformity and equality clause of the Constitution. Are the
dealers correct?

Answer. The taxing authority has the power to make reasonable classifications for purposes of taxation.
Inequalities resulting from a singling out of one particular class for taxation or exemption do not infringe any
constitutional limitation. The real estate industry is, by itself, a class and can be validly treated differently from
other business enterprises. The Congress has the power to choose the subject or object of taxation provided
all those similarly situated in that group are treated alike without distinction. (CREBA, Inc. vs. the Hon.
Executive Sec. Alberto Romulo, March 9, 2010)

 The choice of the legislative body is valid only when the requisites of classification statutes are met.

23. What are the requisites of a valid deduction of business expenses:

Answer.
a) It must be ordinary and necessary
b) It must be paid or incurred within the taxable year
c) It must be paid or incurred in carrying on, or directly attributable to, the development, management,
operation and/or conduct of the trade, business or exercise of profession; and

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 d) It must substantially be proven, by evidence or records, the deductions claimed under the law, otherwise,
the same will be disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and
necessary does not justify its deduction. (Atlas Mining vs. BIR, 102 SCRA 246)

22. What are the requisites for the deductibility of bad debts from gross income?

Answer.
a) There is an existing indebtedness due to the taxpayer which must be valid and legally demandable.
b) The same must be connected with the taxpayer’s trade, business or practice of profession;
c) The same must not be sustained in a transaction entered into between related parties enumerated under
Sec. 36(B) of the Tax Code;
d) The same must be actually charged-off in the books of accounts of the taxpayer as of the end of the
taxable year,
e) The same must be actually ascertained to be worthless and uncollectible as of the end of the taxable
year, and
f) The debts are uncollectible despite diligent efforts exerted by the taxpayer, and
g) The debtor must be insolvent.

23. X Corporation was able to sell one of its commercial properties. The BOD decided to give bonuses to
their directors and officers by virtue of their position in the corporation. Are the bonuses deductible
from the gross income of X?

Answer. In the case of Aguinaldo Industries Corp. vs. CIR, February 25, 1982, the SC held that the said
bonuses cannot be deducted because there is no evidence that the said officers did any work which would
be the basis of the grant of the bonuses. One of the requisites for the deductibility of bonuses is that they are
given for personal services actually rendered.

24. X, is an incumbent director of Trendline Corporation. He religiously attends the monthly meetings of
the corporation. Board fees are paid to all directors attending meetings. X’s name is not included in
the Alpha list of the corporation as among its employees. Are the monthly board fees paid to X
subject to withholding taxes?

Answer. For taxation purposes, a director is considered an employee of the corporation whether he performs
services for the corporation or merely acts as a director whose duties are confined to attendance at and
participation in the monthly meetings of the Board of Directors, he is considered an employee thereof. The
mere fact that his name is not included in the payroll list of employees does not ipso facto create the
presumption that he is not an employee of the corporation. The imposition of withholding tax on
compensation hinges upon the nature of work performed by such individual in the company. His attendance
and participation in the board is considered services rendered and therefore, his board fees shall be covered
by the creditable withholding tax. (First Lepanto Taisho Ins. Corp., vs. CIR, April 10, 2013)

25. X Corporation sent 4 of its field engineers abroad to work on a project. The engineers are required to
be present abroad for most of the time during the year. In fact they stay there for almost 7 months
(210 days) in a year. Are the engineers considered non-resident citizens such that their salaries
produced from services rendered abroad are exempt from income taxation?

Answer. While the employment of the employees requires them to be present abroad most of the time
during the year, they are still in the Philippine office’s payroll. They cannot be qualified as non-resident
citizens as defined in the NIRC. The subject employees are only on temporary assignment abroad. From
their employment contracts, it appears that they do not have intention to reside in the areas where they are
assigned on a permanent basis. Moreover, their salaries are paid by a domestic corporation in the
Philippines whether while in the Philippines or abroad. There compensation cannot be considered as income
derived from abroad since they are not rendering services for another corporation but for services rendered
under an employer-employee relationship with a domestic corporation. Hence, the 4 field engineers are to be
treated as resident citizens for income tax purposes whose compensation are subject to creditable
withholding tax. (BIR Ruling No. 512-2011, December 20, 2011)

26. Where is the reckoning point of the 3-year leeway under the requirement of an MCIT?
Answer. The MCIT is imposed on the 4 th year immediately following the year in which such corporation
commenced its business operation which is reckoned upon the issuance of the BIR Certificate of Registration
and NOT from registration with the SEC or from actual business operation. (RR 9-98) Whereas, for a thrift
bank, the grace period is four (4) years) counted from date when the BSP issued the Certificate of Authority
to operate as a thrift bank.

27. X Corporation is a domestic corporation engaged in the manufacture of laundry soap. In 2011 it has a
gross income of Php 22 million. After deducting all its allowable business expenses, it paid an
income tax of Php 25,000 only. During a tax audit the BIR assessed X of deficiency income tax
payment and avers that the 2% MCIT should have been paid for that period instead of the regular
corporate income tax of Php 25,000. X insists that the 2% MCIT applies to corporations sustaining

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 losses and for the year 2011 it did not sustain any loss, hence it should only pay the corresponding
income tax due from its net taxable income for that period. Is X correct?

Answer. No, X is not correct. As a general rule, a domestic corporation must pay whichever is higher of (a)
the income tax under Section 27(A) of the NIRC computed by applying the tax rate to the taxable income of
the corporation, OR (b) the minimum corporate income tax under Section 27(E) of the NIRC which is
equivalent to 2% of the gross income of the corporation. (CIR vs. PAL, Inc., September 25, 2013)

 Under PAL’s charter, it is not subject to the normal corporate income tax, but shall pay whichever is
lower of the basic corporate income tax or the franchise tax, and the tax so paid shall be in lieu of all
other taxes, except real property taxes.
 PAL it is exempt from 2% MCIT and 20%FWTax on its bank deposits.
 It is allowed to deduct from its gross income (1) depreciation of assets at twice the normal rate, and (2)
net loss carry-over up to 5 years following the year of such loss.

28. PAGCOR has other income realized from other related services. (a) Is the income subject to
corporate income tax? (b) PAGCOR Gives benefits to its managerial and supervisory employees, is
PAGCOR subject to Fringe Benefit Taxes? (c) Is PAGCOR exempt from the payment of VAT on its
purchases of goods and services? (PAGCOR vs. CIR, GR Nos. 210704 & 210725, November 22, 2017)

Answer. (a) PAGCOR’S income from gaming operations is subject only to 5% franchise tax under PD 1869,
as amended. All other income from other related services is subject to the normal corporate income tax of
30%. (b) PAGCOR is a mere withholding agent in the Fringe Benefit Tax. The FBT is imposed on
PAGCOR’S managerial and supervisory employees who received the benefit. PAGCOR’S liability as a
withholding agent is NOT covered by the tax exemption it enjoys under its Charter. (c) PAGCOR enjoys
exemption from indirect taxes (VAT) under its Charter.

29. X, a domestic corporation declares dividends in favor of its own stockholders. Y a non-resident
foreign corporation is a stockholder of X. Is the dividend received by Y taxable?

Answer. Under the Tax Sparing Rule, dividends received by non-resident foreign corporation from a
domestic corporation are subject to 15% final withholding tax. If Y is domiciled in a country that does not
taxed dividends declared by a domestic corporation where it has invested money or allows a credit of up to
17% on such dividend we shall subject the dividend due to Y at a tax rate of 15%. But if the Y’s country
allows only a credit of 10% on said dividends then we shall imposed a 22% tax (32% - 10% = 22%) and not
15%.

30. Is there tax difference between interest income earned from saving deposits and from deposit
substitutes? (BDO vs. Republic, GR No. 198756, January 13, 2015, En Banc)

Answer. Interest income earned in Philippine peso from bank deposits (savings accounts, time deposits and
other similar arrangements) is subject to 20% FINAL WITHHOLDING TAX.

Deposit substitutes mean that “when funds are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public borrowing and the bonds issued by the borrowing at that
point in time are deemed deposit substitutes. The seller of the bonds is required to withhold the 20% FINAL
WITHHOLDING TAX on the imputed interest income from the bonds.

31. In the case of BDO VS. Republic, GR No. 198756, January 13, 2015, the following rules are established:

a. The BIR Ruling stating that all government bonds regardless of the number of
lenders/purchasers are DEPOSIT SUBSTITUTES is INVALID because it disregarded the “20
LENDER RULE.”

b. The BIR Ruling stating that the “20 Lender Rule” is determined only at the time of origination is
INVALID. The phrase “at any one time” for purposes of determining the 20 lender rule would
mean every transaction executed in the primary or secondary market in connection with the
purchase or sale of securities.

c. If the debt instrument has 20 or more lenders, the interest income or discount is generally
subject to the 20% Final Withholding Tax; whereas, if the debt instrument has 19 or less
lenders, the interest income or discount forms part of the gross income and is subject to the
regular income tax.

32. Is there a distinction between the imposable interest on bonds or deposit substitutes and interest on
long-term time deposits?

Answer. Interest income earned from bonds or deposit substitutes is subject to 20% final withholding tax
because this is viewed as gains derived from “dealings in property”; this final tax is also application to sale,
exchange or retirement of bonds or other certificates of indebtedness. Whereas, interests or gains derived
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 from long-term deposits (more than 5 years and 1 day) are exempt from the 20% final withholding tax and
ordinary income tax.

33. X is a stockholder of W Corporation. He decided to exchange his real property to shares of stocks of
said corporation without monetary consideration so that he can gain control of the corporation. What
is the tax implication of said transaction?

Answer. Transfer of real property in exchange for controlling shares of stock is a tax-free exchange
transaction under Sec. 40(C)(2) of the NIRC but is subject to VAT under Sec. 109 of the Tax Code. (Kudao &
Sons, Inc. vs. CIR, CTA case No. 8501, January 13, 2014) Tax base for DST purposes in a sale of shares of
stock is the total par value of the shares sold and NOT the gross purchase price. (CIR vs. Eco Leisure &
Hospitality Holding Co., Inc. CTE EB No. 1013, January 14, 2014)

34. X is a stockholder of W Corporation. He decided to exchange his real property to shares of stocks of
said corporation without monetary consideration so that he can gain control of the corporation. What
is the tax implication of said transaction? (Kudao & Sons, Inc. vs. CIR, CTA case No. 8501, January 13,
2014)

Answer. Transfer of real property in exchange for controlling shares of stock is a tax-free exchange
transaction under Sec. 40(C)(2) of the NIRC but is subject to VAT under Sec. 109 of the Tax Code.

35. In 2005 X invested Php 250,000 in some shares of stocks. Today, the value of his investment has
gone up to almost Php 1.0 million. The tax official avers that the increase should now be subject to
income tax. Is that correct?

Answer. No, that is not correct. An increase in X’s shareholdings is a mere paper gain. It is not an income
yet until he sells the share of stocks. A mere advance in the value of the property of a person or corporation
is in no sense constitutes the “income” specified in the revenue law.” The increase or appreciation in value of
his investments can be treated merely as an increase of capital until the same is actually sold and profit or
gain realized therefrom. (CIR vs. Filinvest Dev’t. Corp., July 19, 2011)

36. The decision of the SC in the case of CIR vs. Pilipinas Shell Petroleum Corp., April 25, 2012 that the
excise tax imposed on petroleum products is the direct liability of the manufacturer, hence, it cannot
shift the excise taxes it paid to international carriers buying its petroleum products because the latter
are exempt from excise taxes. Manufacturers are not entitled to claim tax refund. The SC recently re-
examined said ruling and in the latest case of CIR vs. Pilipinas Shell Petroleum Corp., February 19,
2014, The SC granted the petroleum manufacturer’s claim for refund or tax credit of excise taxes on
petroleum sold to international carriers exempt from excise taxes on petroleum products giving primary
consideration to its broad implication on the country’s commitment to international agreement.

37. X, a local domestic bank earned income on its foreign currency loans granted to its borrowers. X was
supposed to pay the onshore (local) tax on interest derived from such loan thru its payor-borrower
acting as the withholding agent and payment done thru the withholding tax system. The payor-
borrower failed to withhold the onshore tax on its payment made to X. The BIR enforces collection of
the tax against X, the interest income earner. X contends that it is not liable because the tax was
supposed to be the liability of the payor-borrower being the withholding agent. Is X correct? (RCBC
vs. CIR, Sept. 7, 2011)

Answer. The liability of the withholding agent (WA) for its failure or negligence to withhold taxes is different
and independent from the liability of the income earner to pay the tax on the corresponding income earned.
The WA cannot be made liable for the tax due because it is X who earned the income subject to the
withholding tax. The WA is liable only insofar as he failed to perform his duty to withhold the tax and remit the
same to the government. But the liability for the tax remains with X, the taxpayer, who had earned the
income on the transaction.

38. Bank X earned interest income from its passive investments. The corresponding 20% final
withholding tax was deducted from said income before it was sent to X. When X was paying its 5%
Gross Receipt Tax (GRT) it deducted the 20% final tax from its gross income. The BIR disallowed
such deduction. Is the BIR correct? (China Banking Corp. vs. CIR, February 27, 2013)

Answer. Interest earned by banks even if subject to the 20% final tax and excluded from taxable gross
income, forms part of its gross receipt for GRT purposes. Gross receipts means the entire receipts without
any deduction, otherwise the word net receipts should have been used if deductions were allowed by law.
Interest income earned by banks even if already subjected to the final withholding tax is still part of their
gross receipts. Furthermore, exclusions of the final withholding tax from gross receipts operate as a tax
exemption which the law must expressly grant. In this case, the law did not specifically grant such
exemptions under a clear, unequivocal statement. Tax exemption is never presumed.

39. Is a withholding agent authorized to claim tax refund in behalf of a taxpayer?

7
 Answer. Yes, a withholding agent (WA) is given the authority to file a claim for refund. A withholding agent
has a legal right to file a claim for refund for two reasons: (a) he is considered a “taxpayer” under the NIRC
as he is personally liable for the withholding tax as well as for deficiency assessment, surcharges, and
penalties should the amount of the tax withheld be finally found to be less than the amount that should have
been withheld under the law. (b) As an agent of the taxpayer, his authority to file the necessary income tax
and to remit the tax withheld to the government impliedly includes the authority to file a claim for refund and
to being an action for recovery of such acclaim. (CIR vs. Smart Communication, Inc., 629 SCRA 342 (2010)

40. When should the withholding agent withhold income paid on accrual basis?

Answer. The withholding agent shall withhold the tax on income reported by the earner on the accrual basis
at the time when the income is reportable by the payee because it is at this time where all the events have
occurred that fix the taxpayer’s right to receive the income, and the amount thereof at this precise moment
can be determined with reasonable certainty. Thus, it is the right to receive income, and not the actual
receipt, that determines when to include the amount in the gross income. It is at this time that the withholding
of taxes at source shall be made by the payor. (Filipinas Synthetic vs. CA, October 12, 1999)

41. Where is the reckoning point of the 2-year period to claim refund for excess creditable withholding
taxes (CWT)?

Answer. To an individual taxpayer, the 2-year period for claiming a refund of excess creditable withholding
tax is reckoned from the time of payment of tax pursuant to Sec. 204(C), in relation to Sec. 229 of the NIRC.
To a corporate taxpayer, the reckoning point is the date of filing of its annual ITR. (Jardine Lloyd Ins. vs. CIR.
9/23/2-11) But the excess CWT NOT reflected in the annual ITR of a taxpayer exempt from income tax, the
reckoning point is the date of the monthly remittance of the claimed CWT. (Locators’ Association Inc., vs.
CIR, CTA case No. 7906, September 22, 2011)

42. Rural Banks are enjoying tax exemption under RA 7353. X, Y and Z are rural banks. An agreement
among them to merge and consolidate was arrived at in order to expand their business operations.
What is the tax implication of their agreement to merge and consolidate? (One Network Bank, Inc. vs.
CIR, CTA case No. 8640, April 11, 2014)

Answer. Section 15 of RA 7353, which grants tax exemption in favor of rural banks, does not extend to
mergers or consolidations of banks. While Sec. 18 thereof encourages the consolidation and mergers of rural
banks, the law did not go so far as to give a fresh tax exemption to consolidated rural banks for another five
(5) years of operation. Tax exemption is never presumed. The law granting the exemption must be clear,
unequivocal and stated in clear language to plain to be mistaken. Moreover, tax exemption is non-
transferrable.

43. X Corporation enjoys blanket tax exemption under PD 1869 (the Charter creating PAGCOR). X rents a
building from Y where it operates its casino activities. Y passes to X the 12% VAT on lease as
required by law. X refused to pay invoking its blanket tax exemption. Y paid the subject taxes for fear
of the legal consequences of non-payment of the tax to the BIR. Thereafter, albeit belatedly Y realized
it should not have paid because the transactions it had with X is subject to “zero rate” VAT.
Immediately, Y filed an administrative claim for tax refund with the CIR, but the latter failed to resolve
in favor of Y. Is the refusal of the CIR on Y’s claim for refund valid? Reason. [CIR vs. Acecite (Phils.)
Hotel Corporation, February 16, 2007]

Answer. The blanket tax exemption of X under PD 1869 applies to both direct and indirect taxes which
extend to entities and individuals dealing with it in its casino operations. Considering that Y paid the tax
under a mistake of fact and was not aware at the time of payment that the transactions it has with X is “zero-
rated”, the invalid payment can be recovered or refunded. The principle of solution indebeti” applies to the
Government as well, the basis thereto is grounded upon the right of recovery of money paid through
misapprehensions of facts belongs in equity and in good conscience to the person who paid it and the
government cannot enrich itself at the expense of another

44. X ceased business operations effective December 31, 2012. On July 1, 2013, it filed an Application for
Registration Update with the BIR. On July 7, 2013, it filed an administrative claim for issuance of a
Tax Credit Certificate (TCC) of its unutilized input VAT with the BIR. The BIR denied the claim for
being premature. Is the denial correct? (Associated Swedish Steels Phils., Inc. vs. CIR, CTA EB case No.
854, August 23,2013)

Answer. The administrative claim for issuance of TCC is prematurely filed since the effectivity date of X’s
formal cessation of business is reckoned from the first day of the following month, or on August 1, 2013,
where the Application for Registration Update (notice of dissolution) was filed on July 1, 2013.

45. The CIR is given 120 days to resolve a claim for unutilized input taxes. Where is the reckoning point

8
 of the 120-day period? (CIR vs. CE Casecnan Water and Energy Co., CTA En Banc case No. 971, January
7, 2014)

Answer. The 120 day-day period is reckoned from the submission of the “complete documents” necessary to
support the application for tax credit as determined by the taxpayer. Should the taxpayer decide to submit
only certain documents, or should the taxpayer fail, or opted not to submit any document at all, in support of
its application for refund or tax credit certificate under Sec. 112, NIRC, it is reasonable to conclude that the
reckoning date of the 120-day period thereunder, should be reckoned from the filing of the said application.
Hence, the completeness of documents to support a claim is determined by the taxpayer.
NOTE: Under the TRAIN LAW (RA 11963) the 120-day period is reduced to 90 days only. This 90-day
period shall apply to all claims beginning January 1, 2018 and thereafter.
46. Under the VAT law, the CTA does not acquire jurisdiction over a judicial claim for unutilized input
taxes in zero-rated sales that is filed before the expiration of the 120-day period because the 120+30
day periods are mandatory and jurisdictional. What are the exceptions to this rule? (CIR vs. San
Roque Power Corp/ Taganito Mining Corp vs. CIR/ Philex Mining Corp. vs. CIR, February 12, 2013)

Answer. Under the doctrine of equitable promissory estoppel, such as (a) if the CIR, through specific ruling,
misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is
applicable only to such particular taxpayer and (b) where the CIR, through a general interpretative rule
issued under Sec. 4 of the NIRC, misleads the taxpayer into filing prematurely judicial claims with the CTA. In
these cases, the CIR cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Sec. 246 of the NIRC. Taxpayers
should not be prejudiced by an erroneous interpretation by the CIR, particularly on a difficult question of law.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, NOT
by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits.

47. Briefly summarize the procedures in claiming for the unutilized creditable input VAT? (Nippon
Express (Phils.) Corp., vs. CIR, March 13, 2013)

Answer.
a) An administrative claim (before the CIR) must be filed within 2 years after the close of the taxable quarter
when the zero-rated or effectively zero-rated sales were made,
b) The CIR has 120 days from the date of submission of complete documents in support of the administrative
claim within which to decide whether to grant the credit or issue a tax credit certificate.
c) If the 120-day period expires without any decision of the CIR, such inaction may be considered an implied
denial of the claim,
d) A judicial claim with the CTA must be filed within 30 days from receipt of a denial of said claim or from the
expiry of the 120-day period without a decision from the CIR.

48. What are the exceptions to the prescriptive period of 120 (90) + 30-day Rule within which to appeal to
the CTA in the event the taxpayer’s claim for unutilized input tax is denied or not acted upon by the
CIR?

Answer. (a) Where the CIR through a specific ruling misleads a particular taxpayer to prematurely file a
judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer.

(b) Where the CIR through a general interpretative rule (such as the issuance of DA-489-03) issued under
Sec. 4 of the Tax Code misleads all taxpayers into filing prematurely judicial claims with the CTA.

Under both instances, the CIR cannot be allowed to later on question the CTA’s assumption of
jurisdiction over such claim because equitable estoppel has set in as expressly authorized under Sec. 246 of
the Tax Code. (Procter and Gamble Asia Pte. Ltd., vs. CIR, GR No. 205652, September 6, 2017)

49. Explain the Destination Principle vis-à-vis the Cross Border Doctrine under the VAT system.

Answer. Destination principle dictates that goods and services are taxed only in the country where these are
consumed (GR 153205, Jan22, 2007). In connection with the said principle, the Cross Border Doctrine
mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for use or consumption within the
Philippines shall be imposed with 12% VAT. (Atlas Consolidated Mining and Development Corporation v.
CIR, 524 SCRA 73)

50. X, a domestic corporation is engaged in the manufacture of raw materials for the production of
medicines. X sells to many PEZA-registered enterprises operating within the export processing zone.
(a) What is the nature of the sale of X to the businesses inside the ecozone? (b) Is X entitled to any
tax privilege?

Answer. While an ecozone is geographically within the Philippines, it is deemed a separate customs territory
and is regarded in law as foreign soil. Sales by suppliers from outside the borders to the ecozone to this
9
 separate customs territory are deemed as exports and treated as export sales. X is entitled to input tax credit
if X is a registered VAT-businessman. (2006 case)

NOTE: Under the TRAIN Law, sale of a VAT-registered businessman/entity to businesses operating
and registered with PEZA inside the export processing zone is VATABLE because the exemption as
provided by law applies only to direct export not to technical exports.

51. X Corporation is registered with the PEZA engage in the manufacture of garments for sale abroad. X
joins local trade fairs to show case its products and it made sales in those occasions. (a) Is X
VATable on its sales during those occasions? Reason. (b) If X sells its used vehicle to its manager, is
the sale VATable? Reason. (c) Is X VATable on its sales of garments to its employees whether
payable in cash or installment? Reason. (CS Garments, Inc. vs. CIR, March 12, 2014)

Answer.
a) Sales in local trade fairs are considered ordinary sales and therefore are VATable. These sales are not
included in the exemptions from VAT of a Zero-rate Sales of exporters.
b) Sale of ordinary assets used in business is an incidental sale that is VATable.
c) Sale of goods to one’s own employees is an ordinary sale covered by VAT.

52. Ma-ingat Transportation Corporation (MTC) is a Value-Added Tax (VAT)-registered company which
has been engaged in logistics management for the past 10 years. It has invested a substantial
portion of its capital in delivery vans, crating equipment, heavy lift cranes, and forklifts. MTC sold its
first delivery van, already 10 years and idle, to Mapagpala Gravel and Sand Corp. (MGSC), a
corporation engaged in the business of buying and selling gravel and sand. The selling price of the
delivery van was way below its acquisition price. Is the sale of the delivery van by MTC to MGSC
subject to VAT?

Answer. Yes. The sale is subject to VAT. A transaction “in the course of trade or business” includes
“transactions incidental thereto”. Prior to the sale, the depreciated vehicle is part of the company's property,
plant, and equipment. Therefore, the sale of the vehicle is an incidental transaction made in the course of
business for which MTC should be liable for VAT. (See Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue, 693 SCRA 49)

53. X Corporation, a VAT-registered taxpayer, has formally dissolved its operation due to business
reverses. While it is under liquidation. X decided to sell its truck to Y, a private businessman. Is the
sale of X’s properties subject to VAT?

Answer. Since X is no longer operational, sale of its remaining assets are considered isolated transactions
because they were not met in the regular course of business and in furtherance of profit. If X is still an on-
going concern and sells some of its equipment or motor vehicle that are no lo9nger in used. The sale is
considered an incidental transaction subject to VAT.

54. X is PEZA-Registered. Sometimes it engages in activities which are not registered with PEZA. Is
income derived from unregistered activities of X taxable? (Sutherland Global Services, Phil. Inc. vs.
CIR, CTA case No. 8180, January 13, 2014, CIR vs. First Sumiden Realty, Inc. CTA EB No. 975, January 7,
2014)

Answer. The income tax exemption of a PEZA-Registered Enterprise applies only to income derived from its
registered activities. When X engages in activities which are not registered with PEZA, the income or receipts
derived from all its unregistered activities shall be subject to regular internal revenue tax, such as VAT. In
such case, X is obliged to register as a VAT taxpayer and issue a VAT official receipt or invoice for every
sale or transaction which is subject to VAT, Should X use its VAT official receipt or invoice to evidence its
VAT exempt sale, the words “VAT Exempt Sale” must be prominently printed on the VAT official
receipts/invoice as failure to do so make it liable to account for the VAT as if the sale is not VAT exempt.

55. X Corporation is a VAT registered enterprise engaged in export activities. On January 4, 2015 it
bought plenty of local raw materials and had used them in the production of its goods which were
exported on July 11, 2015. The purchase invoices of raw materials reflected the value of input taxes X
absorbed from all its purchases. Granting that X filed its final adjustment income tax return on April
15, 2016 and included therein the profit it earned for exports of 2015. If today is April 17, 2018 and X
would like to seek for the refund of its unutilized input taxes from the Office of the CIR and comes to
you for your legal services to effect that claim can you still do it in its behalf knowing that tax
refund/credit involving corporate taxpayers must be effected within 2-years from the filing of its Final
adjusted tax return? Reason.

Answer. The two-year period to claim for tax refund or tax credit of unutilized input taxes is reckoned from
the last day of the last month of the quarter of export. Under the given facts that 2-year period commences to
run from September 30, 2015 – September 30, 2017. So, if I file for the refund/credit of X’s unutilized input
taxes today, April 17, 2018. It is a valid claim as the same is well within the 2-year prescriptive period.

10
 The prescriptive period of “2-years from payment” is not used in a claim for unutilized input taxes under a
zero-rate sale, rather, this is applied in instances where there is an invalid payment under the Section 229.

56. X is a VAT registered taxpayer. It is engaged in export activities. The goods it produced were actually
exported abroad on August 24, 2012. All receipts and documents relative to the export are intact and
available. Thereafter, X applied for the refund of its unutilized creditable input taxes. The BIR
disallowed the claim for reason that the sales receipts of X did not indicate that the transaction was a
“Zero-rated Sales.” X contends that such requirement is not provided under the Tax Code. Is the
BIR’s disallowance valid? (Eastern Telecommunication Phils., Inc. vs. CIR, August 12, 2012, Microsoft
Phils., Inc., vs. CIR, April 67, 2011)
Answer. Sec. 244 of the Tax Code explicitly grants the Sec. of Finance the authority to promulgate the
necessary rules and regulations for the effective enforcement of the provisions of the Tax Code. The
invoicing requirements he set under RR No. 7-95 was integrated with Sec. 113 of the NIRC when RA 9337
was adopted. Thus, the need for taxpayers engaged in export activities to indicate in their receipts and
invoices that fact that the sale is “zero-rated” is mandatory. Failure to comply will warrant the disallowance for
any claim for credit of unutilized input taxes. Hence, BIR is correct.

The SC ruled that the printing of the word “zero-rated” is required to be placed on VAT invoices covering
the zero-rated sales in order to be entitles to claim for tax credit or refund. This requirement prevents buyers
from falsely claiming input VAT from their purchases when no VAT is actually paid. Absent of such word, the
government may be refunding taxes it did not collect. (Microsoft Phils., Inc., vs. CIR, April 6, 2011,
Panasonic vs. CIR)

57. X, is a VAT-registered businessman engage in export activities. X filed a claim for tax credit of his
unutilized input taxes within the reglamentary period. X has submitted all documents in support of
said claim. CIR denied his claim for reason that the word “Zero-Rated Sales” is not duly imprinted in
X’s sales invoices and receipts but was merely rubber stamped ion violation of the invoicing
requiring under the VAT law. Is the denial valid?

Answer. The words “Zero-Rated Sales” although merely stamped and not pre-printed in the sales invoices
and receipts constitutes sufficient compliance with law. Since the imprinting of the words “ZRS” was required
merely to distinguish sales subject to 12% VAT from those that are subject to 0% VAT and exempt sales, to
enable the BIR to properly implement and enforce the other VAT provisions of the Tax Code. The CIR should
not literally interpret the provisions of the Tax Code to the extent of denial of taxpayer’s right when the later
has proven compliance to all requisites of law. (Toledo Power, Inc. vs. CIR, January 20, 2014)

58. T filed a claim for its unutilized input VAT on capital goods purchased. CIR did not act on T’s claim.
Within the reglamentary period T filed a judicial claim before the CTA. In CIR’s answer to the petition
he claimed that T is not entitled to a refund for reason that T have not yet submitted some documents
required in support of his claim as provided under the VAT law. CTA ordered both parties to file their
Memorandum. T complied but CIR did not despite notice. Thereafter, CTA – Division rendered a
decision in favor of T and ordered CIR to issue a Certificate of Tax Credit. CIR did not file an MR to
said decision. Hence, said decision became final and executory. CIR filed his MR before the CTA En
Banc praying for the annulment of the CTA Decision’s on the order of issuance of tax credit
certificate in favor of T. May CTA en banc annul final decision of the CTA in division? (CIR vs. KEPCO
Ilijan Corp., GR No. 1994322, June 21, 2016)

Answer. CTA en banc is NOT allowed to annul a decision of its division which had become final and
executory for it is tantamount to allowing a court to annul its own judgment and acknowledging that a
hierarchy exists within such court. To allow the CTA en banc to revisit its own final judgment leaves the door
open to possible endless reversals or modification which is anathema to a stable legal system.

59. Who are the customers or recipient of services under a “Zero-Rated Sales” for VAT purposes?
(Accenture, Inc. vs. CIR, July 11, 2011)

Answer. It is not enough that the recipient of the services be proven to be a foreign corporation doing
business outside of the Philippines; it must be specifically proven that the recipient of services must a non-
resident foreign corporation as well.

60. Can a Motion for Reconsideration and Motion for Reinvestigation be interchanged as a mode of
dispute? (BPI vs. CIR, 473 SCRA 205 (2005)

Answer. Request for reconsideration and request for reinvestigation can no longer be used interchangeably
and their differences so lightly brushed aside. Sec. 223 of the Tax Code provides that the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation NOT
request for reconsideration for the reason that a reinvestigation which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to
the evidence already at hand; this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter cannot.

11
61. Differentiate request for reconsideration from request for reinvestigation for purposes of protest
under Section 228 of the National Internal Revenue Code (NIRC).

Answer. A request for reconsideration refers to a plea of re-evaluation of an assessment on the basis of
existing records without need of additional evidence, whereas, request for reinvestigation refers to a plea of
re-evaluation of an assessment on the basis of newly discovered evidence or additional evidence that a
taxpayer intends to present in the investigation. A request for reconsideration does not suspend the running
of the prescriptive periods under Sections 203 and 222 of the NIRC, while request for reinvestigation
suspends the running of the prescriptive periods. (Revenue Regulations 18-2013; Section 223, NIRC)

62. (a) What is the requirement of a valid assessment? (CIR vs. Metro Star Superama, December 8, 2010)

Answer. (a) The assessment is made within the prescriptive period as provided by law, (b) There was no
agreement arrived at between the taxpayer and the tax official during the pre-assessment stage, (c) It must
be in writing which contains the facts, law, rules and regulations or jurisprudence on which the assessment is
based, otherwise the formal letter of demand and assessment notice shall be void.

(b) What is the prescriptive period for tax assessment under the Tax Code (RA 8424) and provide the
exceptions thereto? (2005 case)

Answer. The right of the government to assess is three (3) years after the last day prescribed by law for the
filing of the return or from actual payment of the tax whichever is later. A tax return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on the last day. (Sec. 203)

Exceptions:
a) If during the 3-year period to assess, there is a valid written agreement entered into between the
taxpayer and the government to suspend the period of assessment. (Sec. 222)
b) Where there is a discovery that the taxpayer failed a fraudulent return or failed to file a tax return
when one is required, the period to assess is 10 years from discovery of the fraud or the omission to
file a return; (sec. 222)
c) In case of waiver by the taxpayer.
d) When there is injunction duly issued by the CTA; (Sec. 223)
e) When the taxpayer requests for a reinvestigation which is granted by the CIR; (Sec. 223)
f) When the taxpayer cannot be located in the address given by him in the tax return upon which a tax
is being assessed or collected; (Sec. 223)
g) When the taxpayer is out of the country. (Sec. 223)
h) When a warrant of distraint or levy is duly served upon the taxpayer, his authorized representative or
a member of his household with sufficient discretion, and NO property could be located. (Sec. 223)

(c) When a there a valid taxpayer’s dispute of an assessment?

Answer. The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on
which the protest is based, otherwise, his protest shall be considered void and without force and effect. If
there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the
applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several
issues on which the assessment is based, the same shall be considered undisputed issue(s), in which case
the taxpayer shall be required to pay the corresponding deficiency tax(es) attributable thereto.

63. What are the three (3) options available to a taxpayer who has earlier seasonably disputed an
assessment? (PAGCOR vs. CIR and Rev. Director, GR No. 208731, January 27, 2016)

Answer.
a) If “T’s” protest is wholly or partially denied by the CIR or his authorized representative with the 180-day
ruling period, “T” may appeal to the CTA within 30 days from receipt of the wholly or partially denied
protest.

b) If T’s protest was seasonably made before the CIR’s authorized representative (Regional Director) and
the protest was wholly or partially denied by the representative within the 180-dqay ruling period, T may
appeal to the CIR within 30 days from receipt of the wholly or partially denied protest.

c) If the CIR OR his authorized representative failed to act upon T’s protest within 180-day ruling period
from submission of the required supporting documents, T’s recourse is to appeal to the CTA within 30
days from the lapse of the 180-day period.

64. On February 13, 2004 X taxpayer received from the CIR a preliminary assessment notice arising from
a deficiency in the payment of Documentary Stamps Tax (DST). X seasonably protested the same on
February 27, 2014. CIR did not resolve the protest but instead sent X a formal demand latter dated
March 27, 2014. On April 22, 2014 X requested for reconsideration but CIR did not act on the same.
On December 4, 2014 the CIR issued a FDDA dated November 25, 2014 declaring X liable. On
December 11, 2014 X sought reconsideration of the FDDA and objected to the tax imposed being
violative of the constitutional limitations on taxation. In addition, X received a demand letter for the
12
 payment of deficiency income tax, VAT, premium tax, expanded withholding tax and fringe benefit
tax for the taxable year 2012.

On December 19, 2014, X filed a Civil case with prayer for issuance of TRO or of a writ of
preliminary injunction before the RTC for the judicial determination of the constitutionality of Sec.
108 and Sec. 184 of the NIRC with respect to the taxes payable by non-life insurance companies at
5% as X believes that RA No. 10001 (An Act Reducing the Taxes on Life Insurance Policies at 2%)
should prevail over that which is provided under the Tax Code and that HB No. 3235 (An Act
Rationalizing the taxes Imposed on Non-life Insurance Policies) is yet to be resolved by the Congress
as there is an unequal treatment of life and non-life insurance companies under RA No. 10001.
RTC issued the TRO prayed for by X. CIR moved for reconsideration. Among the issues brought
on appeal before the SC are: (a) WON a petition for Declaratory Relief is applicable to contest a tax
assessment? (b) Has the RTC the legal competence to take cognizance of the action filed by X? (CIR
vs. Stronghold Insurance Co., Inc., GR No. 219340, November 7, 2018)

Answer. (a) Section 218 of the Tax Code expressly provides that no court shall have the authority to grant
an injunction to restrain the collection of any internal revenue tax, fee or charge imposed under the NIRC. In
addition, Sec. 11 of RA 1125 provides that decisions or rulings of the CIR are immediately executory and
their enforcement is not to be suspended by an appeal thereof to the CTA. Hence, Declaratory relief is NOT
available to contest a tax assessment validly issued by the CIR.

(b) RTC acted grossly without jurisdiction when it gave due course to X’s petition for declaratory relief. A
pending house bill of the Congress is not yet a law and therefore it has no bearing at all to an existing law
neither is it enforceable nor will it suspend any law in place.

65. T seasonably disputed an assessment before the CIR, among his defenses is a question on the
validity or constitutionality of the tax law adopted by the CIR in its investigation. Subsequently, the
CIR denied T’s dispute and issued its final decision on the disputed assessment (FDDA). T comes to
you for your legal services. Where will you file your appeal?

Answer. The CTA has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or
regulation when raised by the taxpayer as a defense in disputing or contesting as assessment or even in
claiming for a refund. It is only in the lawful exercise of its power to pass upon all matters brought before it,
as sanctioned by Sec. 7 of RA 1125, as amended.

The Supreme Court held in the case of BDO vs. Republic, GR No. 198756, August 16, 2016 that the
CTA may take cognizance of cases directly challenging the constitutionality or validity of a tax law or
regulation or administrative issuance (revenue orders, revenue memorandum circulars and rulings) The law
intends the CTA to have exclusive jurisdiction to resolve all tax problems. Petitions for writs of certiorari
against the acts and omissions of the said quasi-judicial agencies should, thus, be filed before the CTA.

66. X received a valid assessment from RDO. X failed to dispute the same seasonably within the 30-day
period from receipt thereof. Thereafter, BIR enforces tax collection. X appealed to the CTA disputing
the validity of the assessment which was used as the basis of the BIR’s collection. Did the CTA
acquire jurisdiction on X’s appeal? (Castalloy Technology et.al., vs. RDO of Cebu City (Region 13) for
and in behalf of CIR, CTA case No. 8244, January 30, 2014)

Answer. When X received the assessment from the BIR, he has an administrative remedy. He should have
initiated the prescribed administrative procedure to obtain relief and to pursue it to its appropriate conclusion
before seeking judicial intervention in order to give the administrative agency an opportunity to decide the
matter correctly and prevent unnecessary and premature resort to court. Before a taxpayer is allowed to seek
judicial remedy, he must prove that the principles of administrative remedies were exhausted. Since X did not
dispute the assessment he cannot avail of the remedy of appeal before the CTA. Furthermore, CTA does not
take cognizance of an undisputed or uncontested assessment. Hence, CTA did not acquire jurisdiction over
X’ appeal.

67. X validly disputed an assessment. While his protest has not yet been resolved by the CIR, X
submitted a compromise proposal to the BIR. Upon receipt of the proposal CIR dismissed the protest
of X contending that there is now an abandonment of X's protest of the assessment. Is the CIR
correct?

Answer. The mere act of applying for a compromise does not equate to abandonment of any claim/protest
against the validity of an assessment and/or a waiver. It is the act of immediately paying the tax assessment
covered by the waiver of the statute of limitations that renders the taxpayer estopped from questioning the
validity of said waivers. (Dole Phils., Inc. v. CIR, CTA Case No. 8155, 21 March 2014)

68. (a) What cases may be the subject matter of compromise settlement?
a) Delinquent accounts

13
 b) Cases under administrative protest pending in the Regional Offices, Revenue District Offices, Legal
Service, large Taxpayer Service, Collection Service, Enforcement Service and other offices in the
National Office of the BIR;
c) Civil tax cases being disputed before the courts, e.g., MTC, RTC, CTA, CA and SC.
d) Collection cases filed in courts;
e) Criminal violations, other than those already filed in court or those involving criminal tax fraud, and
f) Cases covered by pre-assessment notices but the taxpayer is not agreeable to the findings of the audit
office as confirmed by the review office.

(b) What cases may NOT be the subject matter of compromise settlement?
a) Withholding taxes
b) Criminal tax fraud cases
c) Criminal violations already filed in court
d) Transfer taxes
e) Surcharge
f) Delinquent accounts with duly approved schedule of installment payments
g) Cases which has become final and executory after final judgment of a court
h) Cases where the final reports of reinvestigation or reconsideration have been issued, resulting in
reduction in the original assessment and the taxpayer is agreeable to such decision.
i) Other protest cases shall be handled by the Regional Evaluation Board (REB) or the National
Evaluation Board (NEB) on a case-to-case basis.

69. What is a compromise penalty?

Answer. A taxpayer’s criminal liability from his violation of the pertinent provisions of the Tax Code may be
settled extra-judicially instead of the BIR instituting a criminal action in court against the taxpayer. It is now a
well settled doctrine that compromise penalty cannot be imposed or collected without the agreement and
conformity of the taxpayer. (CIR vs. UST, November 28, 1958, Wander Mechanical Engineering Corp. vs.
CTA, et. al., 64 SCRA 555). If an offer of compromise by the BIR is rejected by the taxpayer, the CIR should
file a criminal action if it believes that the taxpayer is criminally liable for violation of the tax law as the only
way to enforce a penalty. Thus, compromise penalty is in lieu of a criminal prosecution. As penalty, it can be
imposed only on a finding of criminal liability. (CIR vs. Abad, 23 SCRA 1132)

70. What will happen to an assessment if the final decision on the disputed assessment (FDDA) is found
to be void for failure to state facts and law as bases of the its issuance? (CIR vs. Liquigaz Phils. Corp.,
GR No. 215557, April 18, 2016)

Answer. The assessment remains valid notwithstanding the nullity of the FDDA because assessment itself
differs from a decision on the disputed assessment. When FDDA is void, it is as if there was no decision
rendered by the CIR. It is tantamount to a denial by inaction by the CIR which may be appealed before the
CTA.

71. Does the CTA acquired jurisdiction of a taxpayer’s appeal contesting a final assessment of the CIR?
(CIR vs. Villa, 22 SCRA 3)

Answer. No. The jurisdiction of the CTA is to review on appeal decisions of the CIR on disputed
assessment and NOT those that are uncontested or those that have become final already.

72. When is direct appeal to the CTA allowed? (same as: instances where CTA will have jurisdiction over
tax cases even if no final decision yet is issued by the Commissioners)

Answer. (1) Inaction of the CIR after 180 days of dispute, (2) inaction of CIR on T’s application for tax
refund/credit and the 2-year period is about to lapse, (3) In case of automatic review of SOF of the decision
of Collector in favor of the taxpayer, (4) In case of automatic review of SOF in seizure and forfeiture cases
where value of importation exceeds Php 5.0 million, (5) If the CC has not rendered a decision and the suit is
about to prescribe, (6) In cases where the CC affirmed the decision of the Collector to fully or partially
release goods seized by the BOC, (7) Decisions of the STI and SA in cases of special levies. The
TAXPAYER affected thereby by appeal to the Tax Court within 30 days.

 The issuance of a warrant of distraint and levy is not a decision appealable to the Tax Court if the same
is issued for failure to dispute a valid assessment because for CTA to acquire jurisdiction, an
assessment must first be disputed by the taxpayer and ruled upon by the CIR to warrant a decision from
which a petition for review may be taken to the CTA.

73. Is the collection of taxes suspended if taxpayer has seasonably perfected an appeal before the CTA?

Answer. Appeal to the CTA (from decision of the CIR, CC, SF, STI, SA, CBAA or the RTC) shall NOT
suspend collection of taxes, levy, distraint and/or sale of any property of the taxpayer for the satisfaction of
his tax liability. Except (at the option of the CTA) such collection is enjoined.

14
74. The BIR filed a collection case against X before the regular court. X believes that the right of the BIR
to collect has prescribed. The regular court decided the case against X. Where will X file his appeal
questioning the validity of the collection? Is it before the CA or the CTA? (CIR vs. Hambrecht & Quist
Phils., Inc., November 17, 2010)

Answer. His appeal (petition for review) must be filed with the CTA within 30 days from receipt of the
adverse decision of the regular court and not with the CA. In the case at bar, the issue at hand is whether or
not the BIR’s right to collect the taxes had already prescribed. The validity of the assessment itself is a
separate and distinct issue from the issue of whether to the right of the CIR to collect the validly assessed tax
has prescribed. This issue of prescription, being a matter provided under the NIRC, is well within the
jurisdiction of the CTA to decide.
75. (a) X, a businessman is under tax investigation. He was required to produce all his business records,
sales invoices, purchase receipt, proof of tax payments and other papers used in his business
operations. X was not able to comply contending that his business establishment inclusive of all his
business records, documents, tax returns and papers were totally submerged and destroyed in flood
water during the super typhoon that hit the country. Is X exempt from tax investigation under his
allegations?

Answer. No. the absence of taxpayer’s business records and other documents used relative to his business
operations and proof of tax payments will not exempt him from tax examination by the tax officials. The
investigating revenue officers should continue with the tax investigation and may resort to the “Best Evidence
Obtainable” Rule as provided in Sec. 5(B) of the NIRC in their audit.

(b) How will the BIR pursue tax audit of investigation if the taxpayer does not cooperate with the
production of his records? (CIR vs. Hon. Gonzalez, LM Camus Engineering Corporation, October 13,
2010)

Answer. The tax official(s) should proceed with the tax assessment and investigation using the “Best
Evidence Obtainable Rule” if the taxpayer does not cooperate with in an investigation. The audit must be
undertaken within by the tax official(s) within the prescriptive period provided by law.

76. Can the BIR enforce collection of deficiency taxes without a preliminary assessment?

Answer. The sending of a preliminary assessment notice (PAN) to the taxpayer to inform him of the
assessment is part of the “due process requirement in the issuance of a deficiency tax assessment.” The
absence of which render nugatory any assessment made by the tax authorities. Hence, failure to send a
“PAN” stating the facts and the law, Rules and Regulations on which the assessment was made as required
under Sec. 228, NIRC, the assessment made the CIR is VOID. Thereby, any collection under a void
assessment has no leg to stand on.

NOTE: Under the TRAIN Law, the three (3) stages of an assessment are: (a) sending the taxpayer a
Notice of Informal Conference (NIC), (b) Sending the taxpayer a Preliminary Assessment Notice
(PAN) and (c) sending the taxpayer a Final Assessment Notice (FAN).

77. The tax examiners under the authority of the CIR sent X a Letter of Authority in support of a tax
investigation. The LA (authority to investigate) states that X is being investigated on his business
activities covering the year 2012 and all “unverified prior years”. Is the LA valid?

Answer. The practice of the BIR of issuing Letters of Authority covering an audit of “unverified prior years” is
prohibited. If the audit of a taxpayer shall include more than one (1) taxable period the other periods or years
shall be specifically indicated in the LA. (CIR vs. Sony Phils., Inc. November 17, 2010)

78. X, a domestic corporation, received an income tax deficiency assessment from the BIR on May 17,
2010. On June 15, 2010, “X” filed its protest with the BIR. On August 13, 2010, it submitted to the BIR
all relevant supporting documents in support of its protest. The CIR did not formally rule on the
protest but on February 10, 2012 the Bureau filed a collection case against X. On March 5, 2012 X was
served a summons and a copy of the complaint for collection of tax deficiency tax filed by the BIR
with the RTC. On the following day, X brought a petition for review before the CTA. The BIR
contended that the petition is premature since there was no formal denial of the protest of X and
should therefore be dismissed. (a) Has the CTA acquired jurisdiction over the case? (b) Does the
RTC have jurisdiction over the collection case filed by the BIR? Explain. (Republic vs. Lim Tian Teng &
Sons, Inc., Dayrit vs. Cruz)

Answer. Yes, the CTA has acquired jurisdiction over the case because this qualifies as an appeal from the
CIR’s decision on the disputed assessment. When the CIR decided to collect the tax assessed against X
without first deciding on the taxpayer’s protest, that is an implied denial of X’s protest, in which event the
taxpayer may file an appeal with the CTA.

15
 The filing of an appeal with the CTA has the effect of divesting the RTC of jurisdiction over the CIR’s
filing of the collection case with the RTC which was considered as an implied decision of denial, it gives a
justifiable basis for the taxpayer to move for dismissal in the RTC of the Government’s action to collect the
tax liability under dispute. (Yabes vs. Flojo, San Juan vs. Vasquez). There is no final, executory and
demandable assessment that can be enforced by the BIR, once a timely appeal is filed before the CTA.

79. X seasonably perfected an appeal before the Tax Court. While his appeal is pending before the CTA,
the BIR discovered certain documents showing that X is liable for additional taxes, fees and charges.
Accordingly, the BIR amended its assessment to include the newly discovered alleged obligations.
Should the amendment be allowed? (BF Goodrich Rubber case)

Answer. The Supreme Court held that amendment pending appeal should not be allowed. The CTA, being a
court with purely appellate jurisdiction, has no jurisdiction over additional charges considering that the same
were not originally on issue when the case was elevated to the tax court. To allow amendment would violate
the due process clause of the Constitution because X was not given an opportunity to dispute the additional
charges assessed. CIR vs. Guerrero, 19 SCRA 205. (Exception – when the amendment applies only to the
surcharge and interest it should be allowed but NOT to the main tax involved

80. T received a notice a preliminary assessment notice from the tax official. He disputed the same
within 15 days from receipt. The BIR did not resolve his dispute but instead sent T a final assessment
notice and demanded the payment of his alleged tax liability. Upon receipt of the FAN, T filed before
the CTA a petition for review. Did the CTA acquire jurisdiction on his appeal? Reason.
Answer. CTA has no jurisdiction over undisputed assessment. The jurisdiction of the CTA is to review by
appeal decisions of the CIR on disputed assessment and NOT those that are uncontested or those that have
become final already. (CIR vs. Villa, 22 SCRA 3)

 An assessment per se is not appealable to the CTA.

 The CTA has no jurisdiction. If an assessment is not protested within 30 days from receipt, the
taxpayer is no longer allowed to contest the correctness of the assessment by elevating the case to
the CTA. (Protector’s Services, Inc. vs. CIR, Feb. 12, 2000)

81. What will happen to an assessment if the final decision on the disputed assessment (FDDA) is found
to be void for failure to state facts and law as bases of its issuance? (CIR Vs Liquigaz Phils. Corp., GR
No. 215557, April 18, 2016)

Answer. The assessment is not invalidated by a wrong decision of the CIR on a disputed assessment. The
wrong decision of the CIR may be subjected to an appeal before the CTA.

82. Suppose a taxpayer lost his right to dispute the validity of a tax assessment because of his failure to
protest within 30 days from receipt thereof, may he be given a relief through the filing of a claim for
tax refund after paying the tax assessed? (CIR vs. Jose Concepcion, 22 SCRA 1058)

Answer. The relief sought is not justified. Once an assessment has become final and executory and
therefore binding upon the taxpayer, the procedure for refund is not available to revive the right to contest the
validity of the assessment.

Disputing an assessment and tax refund are not continuing remedies. Once an assessment has
become final and executory and therefore binding upon the taxpayer, the procedure for refund is not
available to revive the right to contest the validity of the assessment. (CIR vs. Jose Concepcion, 22 SCRA
1058)

83. What are the requisites of taxpayer’s valid waiver?

a) It must not be an indefinite waiver. There should be an agreed date between the BIR and the taxpayer
within which the former may assess and/or credit revenue taxes.

b) It must be signed by the taxpayer and accepted by the CIR before the expiration of the original period to
assess or to collect, and

c) A copy of the accepted waiver must be duly served upon the taxpayer. (Phil. Journalists, Inc. vs. CIR,
2004)

In the case of Asian Transmission Corporation vs. CIR, GR No. 230861, September 19, 2018, the SC
held that the taxpayer has the primary responsibility for the proper preparation of a tax waiver of the
prescriptive period for assessing deficiency taxes, hence, the CIR may not be blamed for any defects in the
execution of the waiver.

84. What is considered an invalid payment for tax purposes? (Sec. 76)

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 Answer. An invalid payment refers to an overpayment, illegal payment (collection without legal basis),
erroneous payment and penalties imposed in relation thereto.

85. An invalid payment of internal revenue tax may be claimed as tax refund or tax credit within a period
of two (2) years. Where is the reckoning point of the 2-year period?

Answer.
a) To an individual taxpayer - The 2-year period commences to run from payment of the tax if the tax
was paid on or before due date. However, if the tax was paid beyond the due date the 2-year period
to claim is reckoned from due date of the subject tax.

b) To a corporate taxpayer – The 2-year period is reckoned from the date of filing of the Final
Adjustment Return (“FAR”)
Note, however that the above rule applies only when the invalid payment is an
INCOME TAX, when the invalid payment is a final withholding tax (not income tax)
then the 2-year period is reckon FROM PAYMENT. (MetroBank case)

c) To a corporation operating inside the export processing zone – the period to claim an invalid
payment is SIX (6) YEARS counted from date of payment.

86. What are the requisites in a claim for tax refund in case there is an overpayment of income tax?

Answer. (a) The claim for refund should be filed within 2 years as prescribed under Sec. 229, NIRC, (b) the
income upon which the taxes were withheld were included in the return of the recipient, and (c) the fact of
withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee
showing the amount paid and the tax withheld therefrom. (United Int’l. Pictures AB vs. CIR, October 11,
2012, CIR vs. Mirant (Phils.) Operations Corp. June 15, 2011)

87. X Corporation overpaid its withholding taxes. Within 2 years from the filing of its final adjustment
return (FAR), it opted to carry-over such overpayment to the succeeding taxable quarters as tax
credit against income tax due. However, X was not able to deduct the over payment because there no
tax payable in the following year. X then moved for the issuance of a tax credit certificate but the CIR
denied the request invoking the Irrevocable Rule under Section 76. Is the refusal meritorious?
Answer. Yes, the refusal of the CIR is meritorious because once the option to carry-over is taken it becomes
irrevocable. However, if the first option is to apply for tax refund or for the issuance of a tax credit certificate
is chosen, the taxpayer is allowed to change his choice and instead to carry-over the invalid payment in the
succeeding taxable period. (University Physician Services, Inc. – Management, Inc. vs. CIR, GR No.
205955, March 7, 2018)
88. X corporation cease operation due to very poor business activities. It has excess income tax
payments and decided to claim refund thereof. Where is the reckoning point of the 2-year
prescriptive period to validly claim the same? (Mindanao Geothermal Partnership vs. CIR, CTA case No.
8250, November 9, 2012)
Answer. In case of DISSOLUTION, the 2-YEAR prescriptive period to file claim for refund of taxes begins 30
DAYS AFTER APPROVAL BY SEC of dissolution.

89. X overpaid his income tax in 2010. He applied for tax credit so that the excess payment will be
deducted from his tax liabilities the following year. However, in the succeeding two years, he
sustained losses in his business operation. Having realized no income, he had nowhere to apply the
excess payment. Instead, X applied from tax refund to recover the overpayment in 2010. Is X correct?
(Belle Corporation vs. CIR, January 10, 2011, CIR vs. PI Management International Phils., Inc. April 4, 2011)

Answer. No. X cannot alter his choice of tax credit. Such option shall be considered irrevocable for that
taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed. (Sec.
76, NIRC) The carry-over of the excess income tax payments in not limited only to the following taxable year
but is carried over to the succeeding taxable year(s) until it is fully utilized.

In view of its irrevocable choice, a taxpayer remained entitled to utilize that amount of excess tax in
succeeding taxable years. There is no prescriptive period for the unutilized excess income tax payments as a
tax credit and it can be applied in subsequent taxable years until it is fully utilized.

90. X overpaid his income tax in the year 2009. He decided to avail of tax credit for the succeeding year.
However, in the next following 2 years he sustained losses in his business operation as a result of
which he could not deduct his 2009 overpayment. X moved for the refund of the money overpaid to
the government but the CIR denied his claim under the IRREVOCABLE RULE of Sec. 76, NIRC. Is the
tax official correct?

Answer. Yes, the CIR is correct. Once the taxpayer has chosen an option to either seek refund or to credit
his invalid payments against his future tax liabilities, he could no longer make another choice. His crediting of
17
 that overpayment shall continue until the whole amount of the excess payment has been fully applied, no
matter how many tax cycles it takes. His right thereto will not prescribe. (United Int’l. Pictures AB vs. CIR,
October 11, 2012, CIR vs. Mirant (Phils.) Operations Corp. June 15, 2011; Belle Corp. vs. CIR, January 10,
2011; CIR vs. BPI, July 7, 2009; CIR vs. McGeorge Food Industries, October 20, 2010; CIR vs. Phil-Am Life
& Gen. Insurance Company, September 29, 2010; AsiaWorld Properties Phil. Corp. vs. CIR, July 29, 2010))

Sec. 76, NIRC states that the “option shall be considered irrevocable for that taxable period” –
referring to the period comprising the succeeding taxable period until the excess payment is fully utilized. It
further states that “no application for cash refund or issuance of a tax credit certificate shall be allowed
therefore.”

91. X, a businessman, has an excess payment of his income tax in 2007. He indicated in his return of his
desire to avail of tax credit on that excess payment in the subsequent taxable years. X’s application
was approve by the CIR. Thereafter, without availment of that tax credit X left to work abroad. X came
back in 2013 and engages in a new business venture. At the end of 2013, X deducted his excess
payment in 2007 from his tax payment for 2013. If you are the tax official, will you allow X such tax
credit? Reason. (CIR vs. PL Management Int’l. Phils., Inc. April 4, 2011)

Answer. If I am the tax official, I will allow X to avail of his tax credit in view of the Irrevocability Rule, X is
entitled to utilize that amount of excess payment as tax credit in succeeding taxable years until fully
exhausted provided he can prove compliance with the requisites of a valid claim. In this regard, prescription
did not bar him from applying the amount as tax credit considering that there is no prescription period for the
carrying-over of the amount as tax credit in subsequent taxable years. He may consume the same until
wholly utilized.

 Refund of taxes under the Doctrine of Solutio indebitii is six (6) years from payment not 2 years! (CBK
Power Company Ltd. vs. CIR, GR 198729-30, January 15, 2014)

 Solutio indebitii DOES NOT apply to TR or TC of invalid payments or claim for unutilized input taxes
because under both instances the payor and the government has a binding relationship as that of
taxpayer and government.

Under this doctrine – (a) there is payment made where there exist no binding relation between the payor,
who has no duty to pay and the person who received the payment, and (b) payment is made through
mistake and not through liability or some other cause.

 Sec. 229 – applies to claim for TR/TC under an invalid payment.

 Sec. 112 – applies to a claim for TC of unutilized input taxes under 0% rate VAT.

92. X filed a claim for tax refund. The CIR did not act on the claim. Did the inaction create a presumption
in favor of the correctness of the tax return that entitled the taxpayer to a claim for tax refund? (CIR
vs. Far East Bank & Trust Company, etc. March 15, 2015)

Answer. The burden of establishing the factual basis of a claim for a refund rests on the taxpayer. There is
no presumption of correctness of a tax return in case of inaction of the CIR; the taxpayer must still present
substantial evidence to prove his claim for refund. There is no automatic grant of tax refund.

93. Philippine Amusement and Gaming Corporation (PAGCOR), a duly organized government-owned and
controlled corporation existing under and by virtue of Presidential Decree No. 1869, received
assessment on deficiency fringe benefit tax arising from a car plan program to its qualified officers
under which sixty percent (60%) of the car plan availment is shouldered by PAGCOR and the
remaining forty percent (40%) for the account of the officer, payable in five (5) years.

On 17 January 2012, PAGCOR received a Final Assessment Notice (FAN) with demand for
payment of deficiency FBT for taxable year 2008 in the amount of Php 68,589,507.65. On 24 January
2012, PAGCOR filed a protest to the FAN addressed to BIR Revenue Regional Director Alfredo
Misajon (RD Misajon).

RD Misajon having taken no action on such protest, PAGCOR elevated its protest to the
Commissioner of Internal Revenue (CIR) on 21 August 2012, 30 days after the expiration of the one
hundred eighty (180)-day period.

On 21 May 2012, the CIR denied the protest for lack of merit. On 21 June 2012, PAGCOR filed a
petition for review with the CTA in division.

On 21 September 2012, the CTA in division dismissed PAGCOR's petition. PAGCOR timely filed a
motion for reconsideration which was subsequently denied by the CTA in division.

18
 In its petition for review with the CTA en banc, PAGCOR asserted that it strictly complied with
prescriptive period set forth in Section 228 and existing revenue regulations.

DECIDE. Cite recent jurisprudential ruling in support of your answer.

I
Answer. The petition has no merit. If the CIR or his authorized representative failed to act upon the protest
within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the
CTA within 30 days from the lapse of the 180-day period. Section 228 of the NIRC and Revenue Regulations
12-99 (Now RR 18-2013) made no mention of an appeal to the CIR from the failure to act by the CIR's
authorized representative.

In this case, PAGCOR should have filed an appeal to the CTA, not with the CIR, 30 days from the
expiration of the 180-day period. It is clear that when PAGCOR filed an appeal to the CTA in division, the 30-
day period had long lapsed. Ergo, the CTA in division correctly dismissed PAGCOR's petition. (PAGCOR v.
CIR, G.R. No. 208731, 27 January 2016)

94. When will of a criminal action for tax liabilities prescribed?

Answer. The period for filing a criminal case for violation of the Tax Code is five (5) years from commission
or discovery of violation whichever is later. (Sec. 281)

Where there was a failure to effect a timely valid assessment, the period for filing a criminal case for tax
liabilities prescribed. (CIR vs. BPI, 411 SCRA 456 [2003])

95. Can the civil aspect (tax collection) of a criminal case for violation of the Tax Code be pursued
separately?

Answer. The criminal action and the corresponding civil action for the recovery of the civil liability for taxes
and penalties shall at all times be simultaneously instituted with and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of
the civil action, hence, no right to reserve the civil aspect thereof separately will be recognized.

NOTE: CTA has exclusive original jurisdiction of civil cases involving collection of taxes, fees exclusive of
charges and penalties where the assessment has become final and executory and the amount involved is
more than Php 1.0 million.

96. X filed his tax return and paid the corresponding income tax for the year 2002 on April 14, 2003.
Today, he received a notice of assessment from the BIR demanding the settlement of X’s alleged
deficiency income tax. X protested on the ground of prescription. The tax official argues that the
collection is valid because of the Lifeblood Doctrine. Resolve.

Answer. The right of the government to assess is three (3) years commencing from when the tax is due or
when it was actually paid whichever is later. If the government did not assess or collect within this period its
right to act has prescribed and thereafter the taxpayer is deemed to have paid the right tax to the government
provided the return is regular and there is no falsity involved. The government may no longer invoke the
“Lifeblood Doctrine” is justify a collection beyond the prescriptive period.

97. (A) Manuel, an individual, sold to Jejomar, his brother-in-law, his lot with a market value of PHP
1,000,000 for PHP 600,000. Manuel's cost in the lot was PHP 100,000. Jejomar is financially capable of
buying the lot.

Answer. Manuel also owns Hopeful Company (HOCO) which has a fast growing business. Manuel sold
some of his shares of stock in HOCO to his key executives therein. These executives are not related to
Manuel. The selling price is PHP 3,000,000, which is the book value of the shares sold but with a market
value of PHP 5,000,000. Manuel's cost in the shares sold is PHP 1,000,000. The purpose of Manuel in
selling the shares is to enable his key executives to acquire a propriety interest in the business and have a
personal stake in the business.

(B) Explain if the above transactions are subject to donor's tax.

Answer. All the transactions are subject to donor's tax. The transfers were all made for less than an
adequate and full consideration in money's worth; hence, the excess of the fair market value of the property
over the actual value of the consideration shall be subject to donor's tax.

(C) Is there any difference in “transfers for insufficient consideration” for purposes of estate tax and
donor's tax? Explain briefly.

Answer. In estate tax, the difference between the fair market value of the subject property at the time of
death and the value of the consideration received at the time of transfer forms part of the decedent's gross
estate subject to estate tax. This real property here refers to all property without distinction [Sec. 85(G)]. On

19
 the other hand, in donor's tax, the property subject of transfer for insufficient consideration must be real
properties classified as ordinary assets. Thus, when a real property (ordinary asset) is transferred for less
than an adequate and full consideration, the difference between the FMV and the consideration received is
subject to donor's tax. (Sec. 100)

98. “M” Resources, Inc. filed its corporate income tax return before the due date. Subsequently, it
amended its tax return within the reglamentary period. Under audit, “M” challenges the validity of the
assessment on the ground that the same is based on its first “tentative return” and not on the
amended return it filed. It is the position of “M” that the BIR should have confined its assessment to
the “final (amended) return” filed. Is “M” correct?

Answer. Sections 5(A) and 6(A) of the NIRC provide that once tax return has been filed, CIR or his duly
authorized representative is authorized to examine correctness of return filed. In ascertaining the correctness
of “M's” final return, the CIR is not prevented from looking into the taxpayer's tentative return. In determining
taxpayer's tax liability, CIR may examine any book, paper, record or any material relevant to such inquiry,
including any return, statement or declaration filed by the taxpayer. (Magnetic Resonance Services, Inc. v.
CIR, CTA Case No. 6608, 20 October 2009)

99. Islands Petroleum Corporation (IPC) operates an oil refinery and depot in Zamboanga City, which
manufactures and produces petroleum products that are distributed nationwide.

Sometime in late 2015, the City Treasurer sent a notice of assessment to IPC demanding the
payment of Php 92,373,720.50 and Php 312,656,253.04 as business taxes for its manufacture and
distribution of petroleum products and the amount of Php 4,299,851.00 as Mayor's Permit Fee based
on the gross sales of its refinery. The assessment was allegedly made pursuant to Section 134 of the
Local Government Code of 1991 and Section 23 of the Zamboanga City Tax Code of 2010.

IPC protested contending, among others, that it is not liable for the payment of the local business
tax either as a manufacturer or distributor of petroleum products. It further argued that the Mayor's
Permit Fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurable with the
cost of issuing a license.

Rule on the validity of the impositions.

Answer. The impositions are invalid. Indisputably, LGUs have the power to impose business taxes but
subject to the explicit statutory impediment which prohibits them from imposing “taxes, fees or charges on
petroleum products.”

Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum
products per se or even the activity or privilege related to the petroleum products, such as manufacturing and
distribution of said products, it is covered by the said limitation and thus, no levy can be imposed. (Petron
Corporation v. Mayor Tiangco, et al., 574 Phil. 620, 636 (2008) cited in Batangas City, et al. v. Pilipinas Shell
Petroleum Corporation, G.R. No. 187631, July 8, 2015)

The amount being collected as Mayor Permit Fee is also invalid because of the above.

100. Where is the reckoning of the prescriptive period for collection of real property taxes? (Tacloban
City Government vs. Leyte Park Hotel, Inc. CTA OC No. 012, November 15. 2011)

Answer. The local government unit concerned has five (5) years counting from the end of each quarter
rather than on a yearly basis to initiate either an administrative or judicial action to collect the deficiency tax
for said period.

--------------------------------------------------------------------------

NOTE: The 120 - day period given to the CIR to resolve taxpayer’s claim of his/its unutilized
input taxes under the 0% rate VAT his now reduced to 90 DAYS ONLY under the TRAIN
LAW. The 90-day applies to claims beginning January 1, 2018 and thereafter.

Reiterations: Important cases on the “120 (90) + 30 day Rule” on claim of unutilized input
taxes under the VAT “Zero-Rated” Sale.

A. Atlas Consolidated Mining & Development Corp., vs. CIR, GR Nos. 141104 & 128763, June 8,
2007 – The SC held that the 2-year prescriptive period for filing a claim for unutilized input
taxes is reckoned from the date of the filing of the quarterly VAT return and payment of the tax
due. If the said period is about to expire and the CIR has not yet acted on the taxpayer’s
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 written claim, the taxpayer MAY interpose a petition for review with the CTA within the two-
year period. (Abandoned!)

B. CIR vs. Mirant Pagbilao Corp, GR No. 172129, September 12, 2008 - This case OVERTURNED
the ATLAS case above. The SC held that the 2-year prescriptive period to file a refund of
unutilized input taxes arising from a zero-rated sale should be reckoned from the CLOSE OF
THE TAXABLE QUARTER when the sales were made.

C. In the case of CIR vs. Aichi Forging Asia, GR No. 184823, October 6, 2010 – The 120 + 30-day
Rule on appeal to the CTA was established. This holds that the taxpayer has 30 days to file an
appeal to the CTA if the CIR denies his claim within the 120-day period or if there is inaction
within the said period, the taxpayer has 30 days to appeal to the CTA which period is reckoned
immediately from the expiration of the 120-day period. The 30-day period to appeal to the CTA
is both mandatory and jurisdictional.

D. In the case of Aichi Forging Company of Asia, Inc., vs. CTA, GR. 193625, August 30, 2917 –
The SC reiterates the proper interpretation of the 2-year period under Sec. 112 (VAT). There
are 2 instances when an appeal to the CTA is considered fatally defective even when the
appeal was initiated WITHIN the 2-year period: (a) when there is no decision and the appeal is
take PRIOR to the lapse of the 120—day mandatory waiting period, except only when the
appeal was make within the window period of December 10, 2002 to October 6, 2010; (b) when
the appeal to the CTA is taken BEYOND 30 days from either decision or inaction (deemed a
denial) of the CIR.

An appeal OUTSIDE the 2-year period is NOT legally infirm for as long as it is taken
WITHIN 30 days from decision or inaction on the administrative claim that must have been
initiated within the 2-year prescriptive period of claim.

E. In the case of CIR vs. San Roque Power Corporation, GR No. 187485, February 12, 2013 – The
SC ruled that the 2-year period to file a claim for tax refund or credit of unutilized input tax
applies to taxpayer’s administrative claim before the CIR. It does not apply to a judicial claim
before the CTA, i.e., an appeal to the CTA can be pursued even outside of the 2-year period).

On March 28, 2003, San Roque filed an amended quarterly VAT return for 2001 by increasing its
input VAT. It filed a claim for refund on the same day. Due of CIR’s inaction, it filed a Petition for Review
with the CTA on April 10, 2003.

Ruling. San Roque failed to comply with the 120-day waiting period which is mandatory and
jurisdictional, the time expressly given by law to the CIR to decide whether to grant or deny the claim. In
this case, San Roque did not wait for the expiration of the 120-day period. Without a decision on its claim
and still within the 120-day it filed its judicial claim before the CTA. It violated the doctrine of exhaustion
of administrative remedies and renders the petition premature and thus without a cause of action, with
the effect that CTA dies not acquire jurisdiction over its petition.

San Roque case gave the exception to the 120 (90) +30-day Rule. See No. 48 above.

F. Taganito case. (Taganito Mining Corporation vs. CIR, G. R. No. 196113, February 12, 2013

Taganito filed a written claim for refund of input VAT on November 14, 2006. Ninety two (92) days
later, or on February 14, 2007, it filed a petition for Review with the CTA for reason of inaction on the part
of the CIR to resolve its claim. The judicial claim before the CTA was given due course because of BIR
Ruling No. DA-489-03 issued on December 10, 2003 and revoked on October 6, 2010 under the Aichi
case.

Ruling. Taganito’s claim was filed after BIR Ruling No. DA-489-03 dated December 10. 2003 was
issued. Taganito filed its claim for unutilized input taxes before the CTA without waiting for the 120-day
period to expire, under the BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of said BIR
Ruling which shields the filing of its judicial claim before the CTA from the vice of prematurity. Claims
filed between December 10, 2003 – October 6, 2010 need not comply with the 120 +30 Rule because of
the Doctrine of Operative Facts.

G. Philex Mining case. (Philex Mining Corporation vs. CIR, G. R. No. 196113, February 12, 2013)

On October 21, 2005 Philex filed its original VAT Return for the third quarter of taxable year 2005
and amended the VAT Return for the same quarter on December 1, 2005. On March 20, 2006, Philex
filed its claim for tax credit. However, due to the CIR’s inaction on subject claim, Philex filed a Petition for
Review before the CTA on October 17, 2007 pursuant to Sections 112 and 229 of the Tax Code.

Ruling. Philex’es Vat claim was amended on December 1, 2005. Since no additional supporting
documents were submitted then the 120-day period to resolve commences to run from the filing of the

21
written claim. Since there was inaction on the part of the CIR, the 120-day period expired on March 1,
2006. Thereafter, Philex had 30 days or until April 30, 2006 to file its judicial claim before the CTA. It filed
its claim only on October 17, 2007 which is way beyond the 30-day provided by law. Thus, Philex’es
claim is time barred.

0 – 0 -0 – 0 – 0 – 0 - 0

GOOD LUCK AND GOD BLESS.

22
 REMEDIES and PRESCRIPTIVE PERIODS
NIRC, Local, Real Property Taxation and Tariff Code
Prepared by: Dr. Jeannie P. Lim
Particulars NIRC
Gen. Rule: 3 years from due
date of tax or actual payment
whichever is later.
Assessment of EXCEPTIONS:
taxes 1) 10 years in cases of fraud
or failure to file a tax return.
2) Waiver
3) Valid written agreement
entered into between Taxpayer
and CIR to extend period
1) During the time of an
assessment (3 years) but
without one made in cases of
self-assessing taxes
Collection of 2) With assessment and with
taxes valid protest within 5 years from
the finality of an assessment
3) With an assessment but w/out
valid protest, within 5 years from
assessment
4) Within 10 years from
discovery of fraud or omission to
file a return
1) Within 15 days from receipt of
the pre-assessment notice
(PAN) “T” must explain why
he should not be the subject
of an assessment.
2) Within 30 days from receipt of
official or formal or final
assessment (FAN) when no
agreement was arrived at
Disputing an between CIR and “T” during
assessment the pre-assessment
level/stage.
3) After formal dispute “T”
submits all documentary
evidence within 60 days from
dispute in support of his
protest. Failure to do so will
dissolve his valid dispute as if
“T” has not disputed at all.
4) After submission of all
evidentiary documents CIR
has 180 days to resolve “T’s”
dispute.
Contesting the
validity of a tax
ordinance
(PART II - Series 2019)
LTC
Within 5 years from due date
of subject tax
Within 5 years from
assessment. Within 10 years
from discovery of fraud
60 days from receipt of an
assessment
a) Any affected “T” may ask
for an opinion/query from
the Provincial Fiscal (for
provincial, municipal or
barangay tax ordinances) or
City fiscal (for city tax
ordinances or barangay
ordinances within the city)
about the legality of the
subject ordinance
b) Within 30 days from
effectivity of the ordinance
23
RPTC
Within 5 years from due date
of subject tax
Within 5 years from
assessment
An owner of a real property
who is not satisfied with the
assessment (valuation) of his
property may within 60 days
from receipt of an assessment
appeal to the Local Board of
Assessment Appeals (LBAA),
if an adverse decision has
been rendered to appeal to
the CBAA – within 30 days,
then to the CTA En Banc – 30
days, and 15 days to SC.
Payment under protest must
be made before “T” is allowed
to question the excessiveness
of the amount of property tax.
NOTE: Solutio indebeti and
issues questioning validity of
tax ordinance do not require
payment of real property tax
under protest.
TCC
Protective duties are
imprescriptible
Collectible until importation
has ended
1) At the time when
payment is made or within
15 days thereafter file a
written protest against the
assessment before the
Collector of Customs. (NO
PAYMENT NO DISPUTE)
2) Upon receipt of adverse
decision of the Collector,
“T” has 30 days to appeal
to the Commissioner of
Customs
3) From Commissioner T
has 30 to appeal to the
CTA and thereafter 15 days
to appeal to the SC.
 appeal to the Sec. of
Justice questioning its
legality

c) Within 30 days from

adverse decision of the
Sec. of Justice appeal to
Contesting the the RTC
validity of a tax D) In case of inaction (60
ordinance days) of SOJ, T may appeal
within 30 days from
expiration of the 60-day
period to the RTC.

NOTE: This procedure is not

applied in questioning the
validity of a “FEE” or
regulatory imposition.
a) When the owner,
importer, consignee or
interested party after due
notice fails to file an entry
within 30 days (non-
When may extendible) from the
customs officials discharge of the last
consider goods package from the vessel or
abandoned in aircraft OR
favor of the
government? (b) Having filed the entry for
his shipment fails to claim
the importation within 15
days (non-extendible) from
date of posting the notice to
claim such importation.
1) To an individual taxpayer - the
2 year period to claim is from
payment of the tax if said
payment was made on or
before due date; If payment
was made after due date the 2
year period to claim for TR or
Refund of taxes TC is reckoned from payment
invalidly paid of the tax. - do - - do - - do -
(Sec. 229, NIRC)
2) If “T” is a corporate taxpayer
the 2 year period is reckoned
from the date of submission of
the final adjustment return
(FAR).

3) If Corporation is operating
inside the Freeport Ecozone
Zone, 6 years from payment.
a)VAT-registered T must file his
claim within a 2-year period
reckoned from the last day of
the last month of quarter of
export.

Refund of b)CIR is given 120 days to

unutilized input resolve validity of claim. (the
taxes under the 120-day period commences to
0% rate VAT run from submission of
(Sec. 112, NIRC) complete documents to CIR)

c) If T receives an adverse
decision from CIR within the
120-day period T has 30 days
to appeal to the CIR from
receipt thereof. If there is

24
 inaction T may ONLY appeal
within 30 days from the
expiration of the 120-day
Refund of period. Any appeal beyond
unutilized input this point will be considered
taxes under the time-barred.
0% rate VAT NOTE: Under the TRAIN Law,
(Sec. 112, NIRC) CIR has only 90 days to
resolve the claim.
a) Within 30 days from express Within 30 from adverse
or implied denial of request decision of the Commr. of
for reconsideration or Customs.
reinvestigation by the CIR
Within 30 days from
b) Within 30 days from the adverse decision of the
expiration of the 180-day STI or SA on imposition
period to resolve without any of dumping duties or
Appeal to CTA action from the CIR. Within 30 days from adverse Within 30 days from adverse countervailing duties as
decision of the RTC decision of the CBAA the case may be
NOTE: Appeal to CTA in
Division first then to CTA En
Banc except real property
taxes and an appeal from
RTC exercising an appellate
jurisdiction (direct to CTA En
Banc) before an appeal in
certiorari to the SC
Criminal action for Within 5 years from commission
violation of the of the offense or from discovery
Tax Code of the violation whichever is
later.

Reckoning point of prescriptive periods under the NIRC:

 Tax refund or tax credit of invalid payments under Sec. 229, NIRC:
a) Individual taxpayers – If the invalid payment was paid on or before the due date, the 2-year period
commences to run from payment whereas, if the invalid payment was paid after the due date, the 2-
year period is reckoned from due date.

b) Corporate taxpayers involving income tax – The 2-year period to claim for tax refund or tax credit
is reckoned from the date of submission of the final adjustment return (FAR) to the BIR.

c) Corporate taxpayers involving other internal revenue taxes – The 2-year period to claim for tax
refund or tax credit is reckoned from the date of payment.

d) Corporations operating inside the export processing zones - Claim for an invalid payment is 6-
years reckoned from payment.

e) In case of substantial amendment of a tax return, the 2-year period is reckoned from date of
amendment.

 Claim for unutilized input taxes under a 0% VAT transaction:

The qualified exporter may file a claim for tax credit within 2 years reckoned from the last day
of the last month of quarter of export. (March 31, June 30, September 30 or December 31)

 Period to appeal to the CTA if claim for unutilized input taxes under the 0% VAT is
denied:

a) Once the claim is validly filed, the CIR is given 120 days (90 days under the TRAIN Law) to
resolve the validity of the claim. The 120-day period commences to run from submission of
complete documents in support of the claim.

b) If CIR resolves the claim within the 120 day period, the aggrieved taxpayer may appeal to the
CTA in Division within 30 days from receipt of the denial;

25
 c) If there is inaction on the part of the CIR, the claimant may appeal to the CTA within 30 days
from the expiration of the 120-day period to resolve. (Any appeal beyond this period is time
barred)

 3-year period provided for government to assess taxpayer of deficiency tax or

delinquent tax under a valid or regular tax return:

If the IR was paid on or before due date, the 3-year period to assess commences to run one day
after due date or actual payment whichever is later.

 10-year period to assess if there is a finding to a fraudulent return or omission or failure

to file a tax return:
If there is finding of a fraudulent tax return or failure to file when one is required. The right of the
government to assess is automatically extended to ten (10) years which is reckoned from discovery
of the fraud or failure to file the tax return.

 The CIR is given 180 days to resolve a valid taxpayer’s dispute or tax protest.

The 180 days is counted from submission by taxpayer of all his documentary evidences in
support of his protest or dispute. (NOTE: If the particular month of the year is not given, we count the
period by using 30 days per month. Example: 2 months = 60 days only. )

Example No. 1: T submitted all his documentary evidences in support of his tax protest on March 7, 2015.
CIR has 180 days to resolve the protest which will expire on September 3, 2015. NOT on September
7, 2015!

No. 2: On May 11, 2016 T submitted all complete documents in support of a claim for tax credit of his
unutilized input taxes under the VAT zero-rate sale. The CIR is given 120 days to resolve the validity
of the claim. The last day of the 120-day period is September 8, 2016. NOT September 11, 2016!

This is important in cases of an appeal to the CTA.

 Local taxes and real property taxes:

Local government has 5-years to assess local or real property taxes reckoned from due date
(January 20) and 5 years to collect from assessment.

Taxpayer’s Remedies under the NIRC/BIR RR 18-2013

ON TAX ASSESSMENT:

 General Rule - The BIR has a 3-year period to assess. The 3-year period commences to run one (1)
day after due date if the tax was paid on or before due date or from actual payment if the tax was paid
late.

 If during the 3-year period of assessment, the BIR finds that the taxpayer has submitted or filed a
FRAUDULENT tax return or FAILURE/OMISSION to file a tax return, the BIR has 10 years to assess
from discovery of the FRAUD or OMISSION to file a tax return.

I. BIR sends taxpayer a notice of informal conference (NIC). This is not mandatory under the Tax
Code. (NOTE: Under the TRAIN Law this is now mandatory in cases of tax assessment.)

II. The BIR issues a Preliminary Assessment Notice (PAN) within the 3-year period stating the basis of
the assessment, (detailed facts, laws, rules upon which is assessment is based) unless not required
under Sec. 228, NIRC)

 PAN is mandatory. Without a PAN the final/formal assessment (FAN) is VOID.

 The PAN should be sent to the taxpayer within the 3-year period to assess.

 Sec. 228 enumerates the different instances when PAN may be dispensed with.

 The assessment notice at this stage is referred to as a PROSPECTIVE ASSESSMENT NOTICE.

III. If the taxpayer does not agree with the PAN, he may dispute the same within 15 days from receipt
thereof. Taxpayer’s dispute must also contain a recital of facts, laws, rules and jurisprudences, if
26
 there be any, in support of his protest.

IV. If taxpayer fails to dispute the PAN, the BIR issues a FLD/FAN (Final Letter of Demand or Final
Assessment Notice) for the payment of the tax due. Both the FLD and the FAN must contain detailed
facts, laws, rules, regulations, supporting the CIR’s findings including a computation of the tax due,
penalties and interest.)

 If the deficiency tax is not paid within the period provided in the FLD/FAN, a deficiency interest
of 20% per annum on the total amount due shall be imposed computed from due date as stated
in the FLD/FAN until fully paid.

 The FAN need not be released, sent or mailed to the taxpayer within the 3-year period to assess.
It is still a valid assessment notice even if sent outside the 3-year period to assess, provided it is
preceded by a valid PAN.

V. Upon receipt of the FAN, the taxpayer may dispute the same within 30 days from receipt thereof.

 To dispute – the taxpayer may file a (a) Motion for Reconsideration (based on existing
documents submitted) or (b) Motion for Reinvestigation (based on newly discovered evidences
which were not submitted earlier)

 If taxpayer’s Motion for Reinvestigation is granted by the CIR, the prescriptive period to collect is
suspended.

VI. After taxpayer’s valid dispute he has 60 days from dispute to submit all his documentary evidences
in support of his protest. Failure on his part to comply with this will dissolve his dispute, i, e., as if
there was no dispute at all.

VII. If taxpayer did not dispute/protest the FAN within 30 days from receipt. The assessment becomes
final and it ripens to a collection case.

 If BIR enforces collection, taxpayer cannot allege that the collection is pre-mature because he
was waived all his defenses as to the validity of the assessment having failed to contest it within
30 days from receipt.

 Taxpayer cannot also go on appeal questioning the collection because CTA has no jurisdiction
over an uncontested assessment. .

VIII. After taxpayer has submitted complete documents in support of his dispute the CIR is given 180
days to resolve or rule on his protest;

IX. If taxpayer’s protest is given due course (granted) within the 180-day period, the CIR will issue a
second assessment. Thereafter, the taxpayer upon receipt of the second assessment has a fresh
30-day period within which to dispute the second assessment.

X. If taxpayer’s protest is denied within the 180-day period, he may within 30 days file an MR with the
CIR but this MR will not toll/extend the 30-day period of appeal to the CTA Division. Hence, the
decision of the CIR adversely affecting taxpayer’s interest shall be brought on appeal within 30 days
from receipt thereof to the CTA Division otherwise the decision becomes final and executory.

 The 30-day period of appeal to the CTA is mandatory and jurisdictional.

XI. Failure of taxpayer to seasonably appeal CIR’s adverse decision to the CTA Division within 30 days
will result to the finality of the decision and it then ripens to the collection case.

 When CTA Division denies taxpayer’s petition for review he may file an MR with the same
division within 15-days from receipt of the Division’s adverse decision.

 If division denies the MR, taxpayer may file a petitioner for review before the CTA En Banc within
30 days from division’s adverse decision.

XII. The decision of the CTA En Banc may be brought by the taxpayer to the attention of the Supreme
Court within 15 days from receipt via a petition for review on certiorari . .

On COLLECTION OF IR TAXES:

1. Collection of an IR tax without an assessment is valid, because IR taxes are self-assessing. The CIR
has 3 years to enforce such collection and the period is reckoned from due date.

27
 2. If CIR made a valid assessment but taxpayer failed to seasonably dispute the same, the CR has 5
years to collect which is reckoned from assessment.

3. If CIR made a valid assessment and taxpayer seasonably disputed the same, the CIR can collect the
assessed tax within 5 years from the finality of the assessment.

4. The CIR can collect within the period agreed upon in case taxpayer submits a valid waiver.

5. In case of finding of fraud or failure to file a tax return, the CIR may proceed to collect the tax without
an assessment within 10 years from discovery of the fraud or omission. In this situation the CIR can
enforce collection by judicial proceedings ONLY. Administrative collection is not allowed.

6. (a) Upon issuance by the CIR or his authorized representative of his Final Decision on Disputed
assessment (FDDA) BIR can immediately enforce collection via the issuance of a warrant of distraint,
levy or garnishment, UNLESS the taxpayer perfects his appeal before the CTA and in that appeal he
prays for an injunction to enjoin BIR from collection, or (b) when taxpayer files a Petition for Review
before the CTA on the CIR’s FDDA, BIR can likewise immediately enforce collection UNLESS taxpayer
files an injunction before the CTA to enjoin tax collection.

MODES OF COLLECTION: (A) Administrative, (b) Judicial, or (c) Administrative and Judicial
simultaneously.

I. Administrative collection is effected by the CIR. He issues warrant of distraint, levy or

garnishment in lieu of an answer to taxpayer’s protest. (The assumption is that the BIR has issued a
valid FAN to the taxpayer whereby the later has disputed the same seasonably)

The issuance of a warrant in lieu of an answer to taxpayer’s dispute is an implied denial of

taxpayer’s protest. Hence, within 30 days from receipt of the warrant taxpayer may file a Petition for
Review before CTA Division. In taxpayer’s appeal he may pray for injunction so that the BIR will not
pursue the taking of his property in satisfaction of his tax liability.

Should the taxpayer fail to appeal to the CTA Division within the reglamentary period of 30 days
from receipt of the warrant, the assessed tax becomes final and executory.

The taxpayer may opt to pay the assessed tax, or he may move before the CTA the issuance of
an injunction by posting a cash bond equal to the assessed tax or a property bond at double the
amount of the assessed tax.

 In case the taxpayer prays for injunction before the CTA to enjoin BIR from enforcing tax
collection pending appeal, the required bond if paid in cash is equal to the amount of the tax
sought to be collected excluding surcharge and interest, if bond is not in cash it is twice the
amount of the main tax excluding surcharge and interest.

II. JUDICIAL COLLECTION is effected by filing a civil case for sum of money against the taxpayer
before the regular courts.

 Within Metro-Manila - If the assessed tax is Php 400,000 and below, the civil case for
collection is filed before the MTC, METC, or MCTC. If amount is more than Php 400,000 it is filed
with the RTC and if the assessed tax is Php 1.0 million and above, exclusive of surcharge and
penalties, the collection shall be filed with the CTA.

 Outside of Metro-Manila - If the assessed tax is Php 300,000 and below, the civil case for
collection is filed before the MTC, METC, or MCTC. If amount is more than Php 300,000 it is filed
with the RTC and if the assessed tax is Php 1.0 million and above, exclusive of surcharge and
penalties, the collection shall be filed with the CTA.

 Taxpayer has 15 days from receipt of the court’s summons to file his answer, if he fails to file his
answer, BIR shall present evidence ex-parte. Thereafter court decides and shall issue an order
to enforce collection.

NOTE: (a) If court of origin is MTC, METC, MCTC, the prejudiced party may appeal to RTC within 15
days from receipt of the adverse decision, then to CTA En Banc within 30 days, thereafter within 15
days to the SC. (b) Whereas, if the appeal is from RTC exercising an original jurisdiction, the
prejudiced party may appeal to CTA Division within 15 days, then to CTA En Banc within 30 days
and finally to the SC within 15 days.

CRIMINAL CASES AGAINST TAXPAYER FOR VIOLATION OF THE NIRC:

28
 When CIR finds that the taxpayer is criminally, he shall endorse the case to the Fiscal’s Office. If
Prosecutor finds probable cause, he files information in ordinary courts. Taxpayer files his counter-affidavit
before the Fiscal. Trial shall proceed in court. Taxpayer is the accused.

I. If with specified amount, the jurisdiction of courts in criminal cases is as follows:

 Within Metro-Manila - If the assessed tax is Php 400,000 and below, the civil case for
collection is filed before the MTC, METC, or MCTC. If amount is more than Php 400,000 it is filed
with the RTC and if the assessed tax is Php 1.0 million and above, exclusive of surcharge and
penalties, the collection shall be filed with the CTA.

 Outside of Metro-Manila - If the assessed tax is Php 300,000 and below, the civil case for
collection is filed before the MTC, METC, or MCTC. If amount is more than Php 300,000 it is filed
with the RTC and if the assessed tax is Php 1.0 million and above, exclusive of surcharge and
penalties, the collection shall be filed with the CTA.

NOTE: If court of origin is MTC, METC, MCTC, the prejudiced party may appeal to RTC within 15
days from receipt of the adverse decision, then to CTA En Banc within 30 days, thereafter within 15
days to the SC. Whereas, if the court of origin is the RTC, exercising an original jurisdiction the
prejudiced party may appeal to CTA Division within 15 days, then within 30 days to CTA En Banc
and finally to the SC within 15 days.

II. If without specified amount, the jurisdiction of courts in criminal cases is determined as
follows:

 Within or Outside Metro Manila

1. MTC/METC/MCTC if penalty is 6 years and 1 day and below

2. RTC if penalty is more than 6 years and 1 day

3. CTA has no criminal jurisdiction.

NOTE: If court of origin is MTC, METC, MCTC, the prejudiced party may appeal to RTC within 15
days from receipt of the adverse decision, then to CTA En Banc within 30 days, thereafter within 15
days to the SC. Whereas, if the court of origin is the RTC, the prejudiced party may appeal to CTA
Division within 30 days, then to CTA En Banc within 15 days and finally to the SC within 15 days.

Prescriptive period for INVALID PAYMENTS of IR Taxes: (Sec. 229)

 INVALID PAYMENTS refer to overpayment, illegal payment (collection without legal basis, erroneous
payment (violation of tax situs) and penalties imposed without authority.

 In case of an invalid payment, taxpayer has two (2) remedies: (a) apply for tax refund via the issuance
of Tax Credit Certificate OR (b) apply for a tax credit (referred to as the carry-over option).

 A claim for tax refund or tax credit must be in writing addressed to the CIR.

 The option to choose between these two (2) remedies is IREVOCABLE (The IRREVOCABLE RULE of
Sec. 76, NIRC)

If the taxpayer opted to avail of the carry-over option (tax credit) he CANNOT later on insist that he
be refunded his invalid payment because his choice is irrevocable. HOWEVER, if his first choice is
TAX REFUND, he may later on avail of TAX CREDIT but only after he has withdrawn his application
for tax refund and re-applies for tax credit within the 2- year period. (University Physicians Services,
Inc. Management Inc. vs. CIR, GR No. 205955, March 7, 2018)

 The period to claim an invalid payment is 2 YEARS. Where is the reckoning point of the 2-year period?

1. Individual taxpayer – Within two (2) years from payment if the tax was paid early OR from due date
if the tax was paid late.

2. Corporate taxpayer – Within two (2) years from the filing of the Final Adjustment Return (FAR) for
income tax purposes. But, if the payment is a FINAL withholding tax the 2-year period is reckoned
from payment of the said tax.

3. If the corporation is operating inside the ECOZONE - Within six (6) years from payment.

 In case of an adverse decision of the CIR on the claim for tax refund or tax credit of an invalid payment
29
 and the taxpayer decides to appeal the adverse decision to the CTA Division. The appeal must be filed
WITHIN the original 2-year prescriptive period of claim. (DOCTRINE OF TWIN PRESCRIPTIVE
PERIOD)

Taxpayer cannot appeal to the CTA outside of the TWO (2) YEAR PERIOD of claim!

Prescriptive period for claims of UNUTILIZED INPUT TAXES under a 0% VAT Sale or
Effectively Zero-Rate Sale – Sec. 112.

a) The VAT-Registered persons must file his/its claim within TWO (2) years, which is reckoned from the
last day of the last month of the quarter of export.

b) Upon submission of complete documents, the CIR is given 120 days (now 90 days only, TRAIN Law)
to resolve the validity of the claim. (NOTE: completion of documents MUST BE DONE WITHIN THE 2-
YEAR PERIOD)

c) In case the CIR denies taxpayer’s claim within the 120-day period OR in case CIR failed to act on the
claim within the 120-day period (inaction is deemed an implied denial of taxpayer’s claim), taxpayer
may appeal to the CTA Division within thirty (30) days from receipt of the adverse decision or within 30
days from the expiration of the 120-day period in case of inaction.

d) When taxpayer-claimant or CIR receives an adverse decision of the CTA Division either one of them
or both may file a Motion for Reconsideration (MR) with the same Division within 15-days from receipt
of said adverse decision;

e) If the CTA Division denied the MR, the taxpayer and/or the CIR may file an appeal before the CTA En
Banc within 15-days from receipt of the denial;

f) If CTA En Banc sustains the findings of the CTA Division, taxpayer and/or CIR may file a Petition of
Review before the Supreme Court within 15 days from receipt the CTA En Banc’s decision.

REMINDER:

 The CIR’s 120-day period to resolve the administrative claim of the taxpayer commences to
run from the submission of complete document in support of the claim. (NOTE: THE
SUBMISSION OF COMPLETE DOCUMENTS MUST BE MADE WITHIN THE 2-YEAR PERIOD OF
CLAIM!)

 Taxpayer CANNOT appeal to the CTA Division within the 120-day period without a CIR’s
resolution on his claim. (Pre-mature appeal).

 Taxpayer may appeal to the CTA Division even outside of the TWO (2) YEAR PERIOD of claim
provided he/it has an adverse decision of the CIR rendered within the 120-day period or in
case of CIR’s inaction.

 In case of CIR’s inaction. (no decision on taxpayer’s claim within the 120-day period of
taxpayer’s administrative claim, the inaction is DEEMED AN IMPLIED DENIAL of taxpayer’s
claim; thereafter, the taxpayer may appeal to the CTA Division within 30 days immediately
following the expiration of the 120-day period ONLY;

 In case of inaction, an appeal outside the 30-day period immediately following the expiration
of the 120-day is TIME BARRED.

Questioning LEGALITY OF TAX ORDINANCE under the Local Government Code (Sec.187, LGC)

 If new imposition is the subject matter of the tax ordinance, prior public hearing is mandatory prior to its
enactment.

 Taxpayer questioning the constitutionality or legality of the tax ordinance or revenue measure may rise
on appeal within 30 days from the effectivity thereof to the Sec. of Justice. The Sec. of Justice shall
render a decision within 60 days from date of receipt of the appeal.

 The appeal will not suspend the tax ordinance and the accrual and payment of the tax, fee or charge
levied therein.

 Within 30 days from receipt of the SOJ’s decision or lapsed of 60 days of inaction, the aggrieved party
may file appropriate proceedings with a court of competent jurisdiction RTC, then to the CA and finally to
the SC.

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 NOTE. Under Sec. 7, RA 9282 does not make any mention of an appellate jurisdiction of CTA over decisions
of the DOJ. However, in the case of NPC vs. Municipal Gov’t of Navotas, Nov. 24, 2014, it was ruled that
CTA has jurisdiction over decisions, orders and resolution of RTC on local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction. Hence, RTC’s adverse decision is
appealable within 30 days to the CTA Division, then within 15 days to the CTA En Banc and finally within
15 days to the SAC.

On Assessment and Collection of LOCAL TAXES:

a) If there is a finding of deficiency or delinquency tax, the Local Treasurer shall send the
taxpayer an assessment notice within 5 years from due date.

b) If taxpayer does not agree he may protest/dispute the same within 60 days from receipt
thereof with the local treasurer. NO NEED OF PAYMENT OF THE ASSESSED TAX.

c) Treasurer is given 60 days to decide the protest from its filing. If there is a decision or there
be inaction, within 30 days therefrom taxpayer may appeal to court depending on the
jurisdictional amount.

d) If court of origin is MTC, METC, MCTC, the prejudiced party may appeal to RTC within 15
days from receipt of the adverse decision, then to CTA En Banc within 30 days, thereafter
within 15 days to the SC. Whereas, if the court of origin is the RTC, the prejudiced party may
appeal to CTA Division within 30 days, then to CTA En Banc within 15 days and finally to the
SC within 15 days.

 No action for collection of local taxes, fees and charges, whether administrative or judicial
shall be instituted after the expiration of the prescriptive period provided. (5 years to assess
from due date and 5 years to collect from assessment)

 In case of discovery of fraud or intent to evade payment of taxes, fees and charges, the same
may be assessed within a period of 10 years from discovery thereof.

 The prescriptive period of “FIVE and FIVE” shall be suspended (a) if the treasurer is legally
prevented from making the assessment or collection, (when there is a injunction); (2) When
the taxpayer request for a reinvestigation and executes a waiver in writing before expiration
of the period within which to assess or collect, and (c) when the taxpayer is out of the country
or otherwise cannot be located.

 In case of an invalid payment of a local tax, the taxpayer has 2 years to file for its
refund/credit. The period is reckoned from payment.

On Assessment or valuation of REAL PROPERTY:

I. Appraisal (valuation) and Assessment of Real Property by the Assessor’s Office:

 All real property, whether taxable or exempt, shall be appraised at the current and fair
market value prevailing in the locality where the property is located.

 The City/Provincial/Municipal Assessor shall undertake a general revision of real property

assessments (valuation) once every three (3) years. All assessment shall take effect
January 1 the following year.

 When real properties are assessed, the Assessor shall within 30 days send notice of his
new valuation to the registered property owner.

II. The property owner who is not satisfied with the new valuation of his property may within 60
days from receipt of the written notice of assessment, appeal to the Local Board of
Assessment Appeals (LBAA) of the Province or City. The LBAA shall decide the
dispute/protest within 120 days from receipt of such appeal.

III. If the property owner is not satisfied with the LBAA’s decision, he may within 30 days from
receipt of such decision appeal to the Central Board of Assessment Appeals (CBAA)

IV. From the CBAA, the property owner may appeal to the CTA En Banc within 30 days from
receipt of the adverse decision of the CBAA. The to the SC within 15 days
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 NOTE: Appeal on assessment of real property made shall not suspend the collection of the real
property taxes on the property involved in the assessment by the Assessor, without prejudice to
subsequent adjustment depending on the outcome of the appeal.

On Assessment and Collection of REAL PROPERTY TAXES by the Local Treasurer:

 The annual real property ad valorem tax on land, building, machinery and improvements shall
be at a rate not exceeding 1% of the assessed value if located in the province and not
exceeding 2% in City, or municipality within Metro Manila.

 The real property tax is payable on or before January 20 of every year.

I. If the property owner does not agree with the levy or imposition of real property tax on
his real property, he may dispute the same before the local treasurer within 30 days
from payment. (PAYMENT UNDER PROTEST IS A REQUIREMENT OF THE
DISPUTE!)

II. The treasurer shall resolve the protest within 60 days from receipt. Within 30 days from
decision or within 60 days from inaction of the treasurer, the prejudiced property owner
may appeal to the LBAA within 30 days therefrom. Then to the CBAA within 30 days
and then to CTA En Banc also within 30 days from adverse decision of the CBAA and
finally within 15 days to the Supreme Court.

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GOOD LUCK AND GOD BLESS

JPL/2019
ALL RIGHTS RESERVED.

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