PCU 2018 Taxation Law Reviewer PDF

Prepared by:
Emmanuel M. Lardizabal
ACADS Head: Malyn Gonzales

Subject Adviser: Atty. Natividad Roma
ACADS Advisers: Atty. Ismael Sarangaya, Jr. and Atty. Jude Itutud
PCU Bar Operations 2018
PRE-WEEK NOTES TAX LAW
ESSENTIAL NOTATIONS IN Q. Explain the following basis and theory

TAXATION: of taxation:
A PRE-WEEK REVIEW GUIDE a. Lifeblood Theory

b. Necessity Theory
I. GENERAL PRINCIPLES c. Benefits-Protection theory
Q. What is the nature of the power of a. LIFEBLOOD THEORY (1973, 1976,

taxation? (1996, 2005) 1991, 2011, and 2016)
The power to tax is an attribute ofQ. What is the underlying theory of

sovereignty and is inherent in the State. It taxation? –
is a power emanating from necessity
because it imposes a necessary burden Taxes are the lifeblood of the
to preserve the State's sovereignty (Phil government for without taxes, the
Guarantee Co. vs. Commissioner, L- government can neither exist nor endure.
22074, April 30, 1965). It is inherently
legislative in nature and character in that Thus:
the power of taxation can only be
exercised through the enactment of law. a. Collection of the taxes may not be
Q. Why is the power to tax considered enjoined by injunction
inherent in a sovereign State? (2003) b. Taxes could not be the subject of
compensation or set-off
It is considered inherent in a c. A valid tax may result in destruction of
sovereign State because it is a necessary the taxpayers property
attribute of sovereignty. Without this d. Taxation is unlimited and plenary
power no sovereign State can exist or power (CIR v. Pineda, 21 SCRA 105)
endure. The power to tax proceeds upon
the theory that the existence of a b. NECESSITY THEORY (2016)
government is a necessity and this power
is an essential and inherent attribute of The theory behind the exercise of the
sovereignty, belonging as a matter of right power to tax emanates from necessity, for
to every independent state or without taxes, government cannot fulfill its
government. No sovereign state can mandate of promoting the general welfare
continue to exist without the means to pay and well-being of the people.
its expenses; and that for those means, it
has the right to compel all citizens and c. BENEFITS-PROTECTION THEORY
property within its limits to contribute, (SYMBIOTIC RELATIONSHIP)
hence, the emergence of the power to tax
(51 Am. Jur., Taxation 40). The basis of taxation is the symbiotic
relationship which the reciprocal relation
Principles of a sound tax system of protection and support between the
state and taxpayers. The state gives
Q. Explain the principles of a sound tax protection and for it to continue giving
system. (2015) protection it must be supported by
taxpayers in the form of taxes. (CIR v.
A sound tax system must be Aligue, Inc. 158 SCRA 9)
characterized by the following:
―Taxes are what we pay for civilized
a. Fiscal Adequacy – which means that society. Without taxes, the government
the sources of revenue should be would be paralyzed for lack of motive
sufficient to meet the demands of public power to activate and operate it.‖
expenditures;
b. Administrative Feasibility – which Doctrines in Taxation
means that the tax laws should be
capable of convenient, just, and effective Explain the following doctrines in
administration; and taxation:
c. Theoretical Justice or Equality - a. Prospectivity of Tax laws
which means that the tax imposed, should b. Imprescriptibility
be proportionate to the taxpayer‘s ability c. Double Taxation
to pay. Basis and Theory of Taxation
Philippine Christian University College of Law _2 | P a g e

CONFIDENTIALITY NOTICE: The contents of this document and any attachments herewith are intended solely for the PCU College of Law
Alumni who are taking the bar Examinations this November 2018 and may contain confidential and/or privileged information and may be
legally protected from disclosure.
1. Prospectivity of tax laws No. double taxation standing alone

and not being forbidden by our
Tax laws do not have retroactive fundamental law is not a valid defense
application. To give retroactive application against the legality of a tax measure
would violate the due process rights of (Pepsi Cola v. Tanawan 69 SCRA 460).
the taxpayer who should know his
obligations be able to comply with them. However, if double taxation amounts
to a direct duplicate taxation, in that the
2. Imprescriptibility same subject is taxed twice when it
should be taxed but once, in a fashion
General Rule: The right of the that both taxes are imposed for the same
government to collect taxes is purpose by the same taxing authority,
imprescriptible within the same jurisdiction or taxing
district, for the same taxable period and
Except: When the statutes provides for the same kind or character of a tax,
otherwise: then it becomes legally objectionable for
being oppressive and inequitable.
a. NIRC – 3 Years from the actual filing or
last day of filing prescribed by lawQ. Distinguish tax evasion from tax
whichever is earlier. If no return is filed or avoidance. (1996)
return is fraudulent, 10 years from
discovery of omission, fraud or falsity. Tax evasion is a scheme used
outside of those lawful means to escape
b. Tariff and Custom Code – No tax liability and, when availed of, it usually
prescription indicated but any assessment subjects the taxpayer to further or
made shall be final after 1 year from final additional civil or criminal liabilities. Tax
payment. avoidance, on the other hand, is a tax
saving device within the means
c. Local Taxes – assessment must be sanctioned by law, hence legal.
made within 5 years from the date it
became due; 10 years upon discovery in Tax Evasion
case of fraud or intent to evade; 5 years
to collect assessment. Q, What are the factors integrated in Tax
Evasion?
3. Double Taxation
a. The end to be achieved
Q. Differentiate between double
taxation in the strict sense and in a b. An accompanying state of mind which
broad sense and give an example of is described as being ―evil‖ in ―bad faith,‖
each. (2015) ―willful,‖ or ―deliberate and not accidental‖;
and
A: Double taxation in the strict sense
pertains to the direct double taxation. This c. A course of action or failure of action
means that the taxpayer is taxed twice by which is unlawful.
the same taxing authority, within the
same taxing jurisdiction, for the same Tax Evasion is consummated – When
property and for the same purpose. the taxpayer has knowingly and willfully
filed a fraudulent return with intent to
Q. When an item of income is evade and defeat tax. (CIR v. Gonzales,
taxed in the Philippines and the same 633 SCRA 139 (2010)]
income is taxed in another country, is
there a case of double taxation? (1997) Tax avoidance v. Tax Evasion
Yes. However, it is only a case of Q. Distinguish TAX AVOIDANCE and

indirect duplicate taxation which is not TAX EVASION (1966, 1976, 1980, 1989,
legally prohibited because the taxes are 1996)
imposed by different taxing authorities.
The following are the distinctions between
tax avoidance and tax evasion:
Q. Is double taxation a valid defense
against the legality of a tax measure? a. LEGALITY. Tax Avoidance is LEGAL
(1997) while Tax Evasion is ILLEGAL.
contrary to the life-blood theory

b. VALIDITY. Tax Avoidance is VALID which is the underlying basis for
while Tax Evasion is INVALID. taxation.
c. EFFECT. Tax Avoidance is Q. To what kind of tax does this

MINIMIZATION of taxes while Tax exemption apply? (Referring to
Evasion almost always results in Religious, Charitable or
ABSENCE OF TAXPAYMENTS. Educational Institutions indicated
above)
d. PENALTIES. Tax Avoidance DOES
NOT RESULT to any penalties while Tax This exemption applies only to REAL
Evasion WARRANTS imposition of Civil, PROPERTY TAX. What is exempted is
administrative and criminal penalties. not the institution itself but the lands,
buildings and improvements ACTUALLY,
DIRECTLY and EXCLUSIVELY used for
Q. Mr. Pascual's income from leasing RELIGIOUS, CHARITABLE and
his property reaches the maximum EDUCATIONAL PURPOSE.
rate of tax under the law. He donated
one-half of his said property to a non-Q. What is the requisite of proof for
stock, non-profit educational exemption from realty taxation?
institution whose income and assets
are actually, directly and exclusively To be exempt from realty taxation,
used for educational purposes, and there must be a proof of ACTUAL,
therefore qualified for tax exemption DIRECT and EXCLUSIVE use of the
under Article XIV, Sec. 4 (3) of the lands, buildings and improvements for
Constitution and Sec. 30 (h) of the Tax religious or charitable purposes.
Code. Having thus transferred a
portion of his said asset, Mr. Pascual
succeeded in paying a lesser tax on Q: As an incentive for investors, a
the rental income derived from his law was passed giving newly
property. Is there tax avoidance or tax established companies in certain
evasion? Explain. (2000) economic zone exemption from all
taxes, duties, fees, imposts and other
There is tax avoidance. Mr. Pascual charges for a period of three years.
has exploited a fully permissive ABC Corp. was organized and was
alternative method to reduce his income granted such incentive. In the course
tax by transferring part of his rental of business, ABC Corp. purchased
income to a tax exempt entity through a mechanical equipment from XYZ Inc.
donation of one-half of the income Normally, the sale is subject to a sales
producing property. The donation is tax. XYZ Inc. claims, however, that
likewise exempt from the donor's tax. The since it sold the equipment to ABC
donation is the legal means employed to Corp. which is tax exempt, XYZ should
transfer the incidence of income tax on not be liable to pay the sales tax. Is
the rental income. this claim tenable? (2004)
TAX EXEMPTIONS
No. Exemption from taxes is personal
Q. Why are tax exemptions in nature and covers only taxes for which
strictly construed against the the taxpayer-grantee is directly liable. The
taxpayer? (1996) sales tax is a tax on the seller who is not
exempt from taxes. Since XYZ Inc. is
Tax exemptions are strictly directly liable for the sales tax and no tax
construed against the taxpayer exemption privilege is ever given to him,
because such provisions are highly therefore, its claim that the sale is tax
disfavored and may almost be said exempt is not tenable. A tax exemption is
to be odious to the law (Manila construed in strictissimi juris and it
Electric Company vs. Vera, 67 cannot be permitted to exist upon
SCRA 351). The exception vague implications (Asiatic Petroleum
contained in the tax statutes must Co., Ltd. V. Llanes, 49 Phil466 [1926]).
be strictly construed against the
one claiming the exemption Q. What is the Doctrine of Equitable
because the law does not look with Recoupment?
favor on tax exemptions being

The doctrine provides that where the

refund of a tax illegally or erroneously No, taxes cannot be the subject of
collected or overpaid by a taxpayer is set-off even when there is a final
barred by prescription, a tax presently judgment for a sum of money
being assessed against a taxpayer may against the local government making
be recouped or set-off against the tax the assessment. The government
whose refund is now barred by and the taxpayer are not the "mutual
prescription. This doctrine is inapplicable creditors and debtors" of each other
in the Philippines in light of the lifeblood who can avail of the remedy of
theory. (UST V. COLLECTOR [104 PHIL. compensation which Art. 1278 of the
1062] Civil Code is referring to (Republic of
the Philippines v. Mambulao Lumber
TAX AMNESTY v. TAX EXEMPTION Co., G.R. No. L-17725, February 28,
1962; and Francia v. Intermediate
Appellate Court, G.R. No. L-67649,
Q. Distinguish a tax amnesty from a June 28, 1998).
tax exemption. (2001)
Scope and Limitations of Taxation
Tax amnesty is immunity from all
criminal, civil and administrative Justice Holmes once said: The power
liabilities arising from non-payment of to tax is not the power to destroy while
taxes. It is a general pardon given to all this Court (the Supreme Court) sits."
taxpayers. It applies only to past tax Describe the power to tax and its
periods, hence of retroactive application limitations. (2000)
(People v. Castaneda, G.R. No. L-46881,
1988). The power to tax is an inherent power
of the sovereign which is exercised
Tax exemption is immunity from the civil through the legislature, to impose burdens
liability only. It is an immunity or upon subjects and objects within its
privilege, a freedom from a charge or jurisdiction for the purpose of raising
burden to which others are subjected. revenues to carry out the legitimate
(Florer v. Sheridan, 137 Ind. 28, 36 NE objects of government. The underlying
365). It is generally prospective in basis for its exercise is governmental
application. necessity for without it no government can
exist nor endure. Accordingly, it has the
Compensation and Set-Off
broadest scope of all the powers of
Q. May taxes be the subject of set-off government because in the absence of
or compensation? Explain. (2005) limitations, it is considered as unlimited,
plenary, comprehensive and supreme.
No. Taxes cannot be the subject The two limitations on the power of
of set-off or compensation for the taxation are the inherent and
following reasons: taxes are of constitutional limitations which are
distinct kind, essence and nature, intended to prevent abuse on the exercise
and these impositions cannot be of the otherwise plenary and unlimited
classed in merely the same category power. It is the Court's role to see to it
as ordinary obligations; the that the exercise of the power does not
applicable laws and principles transgress these limitations.
governing each are peculiar, not
necessarily common, to each; and Inherent Limitations
public policy is better subserved if
the integrity and independence of Q. Enumerate the four (4) inherent
taxes are maintained [Republic v. limitations on taxation. Explain
Mambulao Lumber Company, 4 each item briefly. (2009)
SCRA 622 (1962)].
The inherent limitations on the power to
Q. Can an assessment for a local tax are:
tax be the subject of set-off or a. Taxation is for a public purpose.
compensation against a final - The proceeds of the tax must be used
judgment for a sum of money (a) for the support of the State or (b)
obtained by the taxpayer against for some recognized objective of the
the local government that made government or to directly promote the
the assessment? Explain. (2005) welfare of the community.

b. Taxation is inherently legislative. SUGGESTED ANSWER:

- Only the legislature has full discretion as 1. That the classification should be
to the persons, property, occupation or based on substantial distinctions
business to be taxed provided these are which make for real differences, that
all within the State‘s territorial jurisdiction. 2. It must be GERMANE to the
It can also finally determine the amount or purpose of the law,
rate of tax, the kind of tax to be imposed 3. It must not be limited to existing
and the method of collection (1 Cooley
conditions only and that
176184).
4. It must apply EQUALLY to each\h
c. Taxation is territorial. - Taxation member of the class.
may be exercised only within the territorial
jurisdiction of the taxing authority (61 Am. Q: Is uniformity of taxation the same
Jur. 88). Within the territorial jurisdiction, as equality of taxation? Explain (1976)
the taxing authority may determine the
place of taxation‖ or ― tax situs." SUGGESTED ANSWER: No. Uniformity
of taxation requires that there should be
d. Taxation is subject to NO DIRECT DUPLICATION TAXATION
international comity. - This is a limitation while EQUALITY OF TAXATION means
which is founded on reciprocity designed treating persons who are SIMILARLY
to maintain a harmonious and productive SITUATED in the same manner.
relationships among the various states.
Under international comity, a state must Uniformity is satisfied when it operates
recognize the generally-accepted tenets with the same force and effect within
of international law, among which are the the territorial boundaries of taxing
principles of sovereign equality among authority.
states and of their freedom from suit
without their consent, that limit the Q. What is the "rational basis" test?
authority of a government to effectively Explain briefly. (2010)
impose taxes on a sovereign state and its
instrumentalities, as well as on its The ―rational basis test‖ is applied to
property held, and activities undertaken in gauge the constitutionality of an assailed
that capacity. law in the face of an equal protection
challenge. It has been held that ―in areas
Constitutional Limitation of social and economic policy, a statutory
classification that neither proceeds along
Uniformity and equality of taxation suspect lines nor infringes constitutional
rights must be upheld against equal
Q. Explain the requirement of protection challenge if there is any
uniformity as a limitation in the reasonably conceivable state of facts that
imposition and/or collection of could provide a rational basis for the
taxes. (1998) classification‖. Under the rational basis
test, it is sufficient that the legislative
Uniformity in the imposition and/or classification is rationally related to
collection of taxes means that all taxable achieving some legitimate State interest
articles, or kinds of property of the same (British American Tobacco v. Camacho
class shall be taxed at the same rate. and Parayno, GR No. 163583, April 15,
The requirement of uniformity is complied 2009).
with when the tax operates with the same
force and effect in every place where the 18. XYZ Colleges is a non-stock,
subject of it is found (Churchill & Tait non-profit educational institution
v.Conception, 34 Phil. 969). Different run by the Archdiocese of BP
articles maybe taxed at different amounts City. It collected and received the
provided that the rate is uniform on the following:
same class everywhere with all people at (a) Tuition fees
all times. Accordingly, singling out one (b) Dormitory fees
particular class for taxation purposes (c) Rentals from canteen
does not infringe the requirement of concessionaires
uniformity. (d) Interest from money-market
placements of the tuition fees
Q. What are the REQUISITES OF A (e) Donation of a lot and building by
VALID CLASSIFICATION? : school alumni.
of non-impairment clause of the

Which of these above cited Constitution. Thus, the franchise
income and donation would not enjoyed by PAGCOR is revocable
be exempt from taxation? Explain
anytime and its revocation does not
briefly. (1994, 2000, 2004)
violate the Constitution.
The Constitution provides that all Stages of Taxation
revenues and assets of non-stock,
non-profit educational institution which Q. Enumerate the 3 stages or aspects of
are actually, directly and exclusively taxation. Explain each. (2006)
used for educational purposes are
exempt from taxation(Sec.4 par. 3, a. Levy. This refers to the enactment of
Article XIV, 1987 Constitution). a law by Congress authorizing the
imposition of a tax.
All of the income derived by the non-
stock, non-profit educational institution b. Assessment and Collection. This is
will be exempt from taxation provided the act of administration and
they are used actually, directly and implementation of the tax law by the
exclusively for educational purposes. executive through its administrative
agencies
Q. The Constitution exempts from
taxation charitable institutions, c. Payment. This is the act of
churches, parsonages or convents compliance by the taxpayer, including
appurtenant thereto, mosques arid such options, schemes or remedies as
non-profit cemeteries and lands, may be legally available to him.
buildings and improvements actually,
directly and exclusively used for d. Refund. There is a tax collected
religious, charitable and educational erroneously or illegally, or a penalty
purposes. Mercy Hospital is a 100- collected without authority, or a sum
bed hospital organized for charity excessively or wrongfully collected. There
patients. May said hospital claim must be a written claim for refund filed by
exemption from taxation under the the taxpayer to the CIR.
above-quoted constitutional
provision? Explain. (1996) Kinds of Taxes
Yes. Mercy Hospital can claim Q. Distinguish a direct from an

exemption from taxation under the indirect tax. Give examples.
provision of the Constitution, but only (1994, 2000, 2001, 2006)
with respect to real property taxes
Direct taxes are demanded from the
provided that such real properties are very person who, as intended, should
used actually, directly and exclusively pay the tax which he cannot shift to
for charitable purposes. another; while an indirect tax is
demanded in the first instance from one
person with the expectation that he can
Q. PAGCOR contends that RA 9337 shift the burden to someone else, not
as a tax butas a part of the purchase
that withdrew its tax exemption from
price.
corporate income tax is null and void.
That the withdrawal of its franchise Kinds of Tax Payers
violated the non-impairment clause
off the Constitution. Is PAGCOR A Co., a Philippine corporation, has
Correct? an executive(P) who is a Filipino
citizen. A Co. has a subsidiary in Hong
Kong (HK Co.) and will assign P for an
PAGCOR‘s argument that the
indefinite period to work full time for
withdrawal of its exemption is null and HK Co. P will bring his family to reside
void and in violation of non-impairment in HK and will lease out his residence
clause of the Constitution has no legal in the Philippines. The salary of P will
basis. The exemption granted to be shouldered 50% by A Co. while the
PAGCOR is a mere franchise. other 50% plus housing, cost of living
Franchise partakes the nature of a and educational allowances of P's
dependents will be shouldered by HK
grant, which is beyond the purview
Co. A Co. will credit the 50% of P's Venture and Prime Development
salary to P's Philippine bank account. agreed to develop the same into a
P will sign the contract of employment residential subdivision and construct
in the Philippines. P will also be residential houses thereon. They
receiving rental income for the lease of agreed that they would divide the lots
his Philippine residence. Are these between them. (2007)
salaries, allowances and rentals
subject to the Philippine income tax? Does the JVA entered into by and
(1999) between Weber and Prime create a
separate taxable entity? Explain
The salaries and allowances received briefly.
by P are not subject to Philippine income
tax. P qualifies as a nonresident citizen No, since the arrangement between
because he leaves the Philippines for Weber Realty Co. and Prime
employment requiring him to be physically Development Co. is for the purpose of
present abroad most of the time during undertaking a construction project, there
the taxable year (Sec.22(E), NIRC). is no separate taxable entity pursuant to
Anon-resident citizen is taxable only Sec. 22[B] of the NIRC.
on income derived from Philippine The term 'corporation' shall include
sources (Sec. 23,NIRC).The salaries partnerships, no matter how created or
and allowances received from being organized, joint-stock companies, joint
employed abroad are incomes from accounts (cuentas enparticipacion),
without because these are association, or insurance companies, but
compensation for services does not include general professional
partnerships and a joint venture or
Non-resident aliens not engaged in consortium formed for the purpose of
trade or business undertaking construction projects or
engaging in petroleum, coal, geothermal
Is a non-resident alien who is not and other energy operations pursuant to
engaged in trade or business or in the an operating consortium agreement
exercise of profession in the under a service contract with the
Philippines but who derived rental Government (Sec. 22[B], NIRC).
income from the Philippines required
to file an income tax return on April of Q: Foster Corporation (FC) is a
the year following his receipt of said Singapore-based foreign corporation
income? If not, why not? Explain your engaged in construction and
answer. (2001) installation projects. In 2010, Global
Oil Corporation GOC), a domestic
corporation engaged in the refinery
No. The income tax on all income
of petroleum products, awarded an
derived from Philippine sources by a non-
anti- pollution project to Foster
resident alien who is not engaged in trade
Corporation, whereby FC shall design,
or business in the Philippines is withheld
supply machinery and equipment, and
by the lessee as a Final Withholding
install an anti-pollution device for
Tax (Sec. 57(A), NIRC). The government
GOC’s refinery in the Philippines,
cannot require persons outside of its
provided that the installation part of
territorial jurisdiction to file a return; for
the project may be sub-contracted to a
this reason, the income tax on income
local construction company. Pursuant
derived from within must be collected
to the contract, the design and supply
through the withholding tax system and
contracts were done in Singapore by
thus relieve the recipient of the income
FC, while the installation works were
the duty to file income tax returns (Sec.
sub-contracted by the FC with the
51,NIRC).
Philippine Construction Corporation
(PCC), a domestic corporation. The
Corporations
project with a total cost of P100 Million
was completed in 2011 at the following
Weber Realty Company which owns a
cost components: (design –
three-hectare land in Antipolo entered P20Million; machinery and equipment
into a Joint Venture Agreement (JVA) – P50 Million; and installation –P30
with Prime Development Company for Million). Assume that the project was
the development of said parcel of 40% complete in 2010 and 100%
land. Weber Realty as owner of the complete in 2011, based on the
land contributed the land to the Joint certificates issued by the certificates
issued by the architects and engineers canteen, bookstore, dormitory and a

working on the project. GOC paid FC gym within the school campus. Almost
as follows: P60 Million in 2010 and P40 every weekend the gym is leased for a
Million in 2011, and FC paid PCC in fee to some local residents for private
foreign currency through a Philippine functions. X also operates a restaurant
bank as follows: P10 Million in 2010 and dormitory outside the campus the
and P20 Million in 2011. income of which is exclusively used
for the support of the school
Is FC liable to Philippines income tax,
and if so, how much revenue shall be a. Is X liable to pay taxes on its
reported by it in 2010 and in 2011? income from the operation of the
Explain your answer. above mentioned facilities?
NO. FC is not liable to Philippine income SUGGESTED ANSWER:

tax. The revenues from the design and
supply contracts having been all done in X is not liable on its income
Singapore are income from without, realized from the canteen, bookstore and
hence, not taxable to a foreign dormitory located within the school
corporation in the Philippines (Sec. 42, campus provided it is the school itself that
NIRC; CIR v. Marubeni Corporation G.R. operates and maintains the same. But the
No. 137377, December 18, 2001). Also, income realized from the gym during
with respect to the installation of the weekends is subject to tax including the
project which are services performed income from the restaurant and the
within, the same is sub-contracted to dormitory outside the school campus.
PCC, a domestic corporation. Since FC
has no branch or permanent
establishment in the Philippines, business LUNG CENTER OF THE PHILIPPINES
profits earned by it pursuant to our treaty v. QUEZON CITY
with Singapore are exempt from income
tax. Q. Will a hospital lose its tax
exemption privilege if it derives
Q. Noel Langit and his brother, Jovy, income from paying patients? Reason
bought a parcel of land which they
registered in their names as pro- As a general principle, a hospital
indiviso owners (Parcel A). does not lose its tax exemption privilege
Subsequently, they formed a simply because it derives income from
partnership, duly registered with paying patients, whether out-patient or
Securities and Exchange Commission, confined in the hospital. So long as the
which bought another parcel of land money received is devoted or used
(Parcel B). Both parcels of land were altogether to the charitable objective
sold, realizing a net profit of P1, which it is intended to achieve; and no
000,000.00 for parcel A and money inures to the private benefit of any
P500.000.00 for parcel B. The BIR also persons managing or operating the
claims that the sale of parcel B should charitable institution.
be taxed as a sale by a corporation. Is
the BIR correct? (1994) II. INCOME
The BIR is correct, since a Weber Realty Company which owns a

"corporation" as defined the Tax Code three-hectare land in Antipolo entered
includes partnerships, no matter how into a Joint Venture Agreement (JVA)
created or organized, except general with Prime Development Company for
professional partnerships. The business the development of said parcel of land.
partnership, in the instant case, shall Weber Realty as owner of the land
therefore be taxed in the same manner as contributed the land to the Joint
a corporation on the sale of parcel B. The
Venture and Prime Development
sale shall thus be subject to the creditable
agreed to develop the same into a
withholding tax on the sale of parcel B,
and the partnership shall report the gain residential subdivision and construct
realized from the sale when it files its residential houses thereon. They
income tax return. agreed that they would divide the lots
between them. (2007)
Q. X, a non-stock. Non-profit
educational institution maintains a

a.) Are the allocation and distribution Q. Ms. C, a resident citizen, bought
of the saleable lots to Weber and prime ready-to-wear goods from Ms. B, a
subject to income tax and to expanded nonresident citizen. (2015)
withholding tax? Explain briefly.
No, the allocation of saleable lots to If the goods were produced from
Weber and Prime is not subject to income Ms. B's factory in the Philippines,
tax and the expanded withholding tax. is Ms. B's income from the sale to
There is no income realized in the Ms. C taxable in the Philippines?
distribution of property, but merely a Explain.
return of capital. If Ms. B is an alien individual and
the goods were produced in her
b. Is the sale by Weber or Prime of factory in China, is Ms. B's income
their respective shares in the saleable from the sale of the goods to Ms. C
lots to third parties subject to income taxable in the Philippines? Explain.
tax and to expanded withholding tax?
Explain briefly.
Yes, the income of Ms. B from the
Yes, the sale by Weber and Prime of sale of ready-to-wear goods to Ms. C
their respective shares results in the is taxable. A nonresident citizen is
realization of income subject to income taxable only on income derived from
tax and expanded withholding tax. sources within the Philippines (Sec.
23 [B]), NIRC). In line with the source
Q. What is the "all events test"? rule of income taxation, since the
Explain briefly. (2010) goods are produced and sold within
the Philippines, Ms. B‘s Philippine
The ―all events test‖ is a test applied in sourced income is taxable in the
the realization of income and expense by Philippines.
an accrual-basis taxpayer.
Yes, but only a proportionate part
To warrant the inclusion of the income or
of the income. Gains, profits and
expense in the gross income or
income from the sale of personal
deductions during the taxable year, the
property produced by the taxpayer
all-events test requires (1) the right to
without and sold within the
income or liability be fixed, and (2) the
Philippines, shall be treated as
amount of such income or liability be
derived partly from sources within
determined with reasonable accuracy.
and partly from sources without the
However, the test does not demand that
Philippines (Sec. 42[E], NIRC).
the amount of income or liability be
known absolutely, only that a taxpayer
has at his disposal the information
necessary to compute the amount with
What is the principle of mobilia
reasonable accuracy. The all-events test
sequuntur personam in income
is satisfied where computation remains
taxation? (1994)
uncertain, if its basis is unchangeable; the
test is satisfied where a computation may
This is the principle in income
be unknown, but is not as much
taxation where the income follows the
unknowable, within the taxable year. The
income earner. The income is taxed in
amount of liability does not have to be
the place where the owner is located
determined exactly; it must be determined
and not the place where the income is
with ―reasonable accuracy.‖ (CIR vs.
earned or where the income
Isabela Cultural Corporation, G.R. No.
originated. Applies only to Resident
172231 February 12, 2007)
Citizens on their incomes derived
from sources WITHOUT the
Q. What is a Tax Pyramiding?
Philippines (Sec. 23. (A) of NIRC
The practice of imposing a tax upon
1997)
another. It is a situation where some
or all of the stages of distribution of
Q. What is the Principle of Res Mobilia
goods or services are taxed, with the Sequuntur in Transfer Taxes?
accumulation borne by the final
consumer. ―Chattels follow the person‖). In other
words, the intangible property is taxed
SITUS OF INCOME TAXATION based on the domicile of the owner.

However, SECTION 104 provides that constructively received by a non-resident

certain intangibles be deemed located alien engaged in trade or business
in the Philippines, namely: from BBB, Inc(Sec. 24 (a)(2), NIRC).
1. Franchises being exercised in the A final withholding tax equal to 25% of

Philippines the entire income received from all
2. Shares, obligations, or bonds sources within the Philippines, including
issued by domestic corporations, or the cash dividends received from BBB,
partnerships, business or industry Inc(Sec. 25 (b), NIRC).
located in the Philippines Dividends received by a domestic
3. Shares, obligations or bonds issued corporation from another domestic
by foreign corporations: corporation, such as BBB, Inc., shall not
a. at least 85% of the business of be subject to tax(Sec. 27 (d) (4), NIRC).
which is located in the Philippines; or Dividends received by a non-resident
b. which have acquired situs in the foreign corporation from a domestic
Philippines corporation are generally subject to an
4. All intangibles owned by residents income tax of 30% to be withheld at
source (Sec. 28 (b)(1), NIRC).However,
a final withholding tax of 15% is
13th Month pay and other benefits imposed on the amount of cash
dividends received from a domestic
Q. State with reasons the tax treatment corporation like BBB, Inc. if the tax
of the following in the preparation of sparing rule applies (Sec. 28(B)(5)(b),
annual income tax returns: 13th month NIRC).Pursuant to this rule, the lower
pay (2005) rate of tax would apply if the country in
which the non-resident foreign
13th month pay is excluded from the corporation is domiciled would allow as a
gross income for income tax purposes tax credit against the tax due from it,
to the extent of P82, 000. Any excess taxes deemed paid in the Philippines of
will be included in the gross income 15% representing the difference between
per income tax return as part of gross the regular income tax rate and the
compensation income. (Sec. 32 (B) preferential rate.
(7) (e), NIRC).
Dividends Q. State with reasons the tax

treatment of the following in the
Q. BBB, Inc., a domestic preparation of annual income tax
corporation, enjoyed a particularly returns: Dividends received by a
profitable year in 2014. In June 2015, domestic corporation from (i) another
its Board of Directors approved the domestic corporation; and (ii) a
distribution of cash dividends to its foreign corporation; (2005)
stockholders. BBB, Inc. has individual
and corporate stockholders. What is Dividends received by a domestic
the tax treatment of the cash dividends corporation from another domestic
received from BBB, Inc. by the corporation are not subject to income
following stockholders: (2015) tax hence should not be declared in the
income tax return (Sec. 27 (D)(4),
a. A resident citizen NIRC). A dividend received by a
b. Non-resident alien engaged in trade or domestic corporation from a foreign
business corporation is subject to income tax and
c. Non-resident alien not engaged in shall form part of the gross income.
trade or business There is no law exempting this type of
d. Domestic corporation dividend from income tax (Sec. 32 (7),
e. Non-resident foreign corporation NIRC).
A final withholding tax of 10% shall be Q. What are ―disguised dividends‖ in

imposed upon cash dividends actually or income taxation? Give an example.
constructively received by a resident (1994)
citizen from BBB, Inc. (Sec. 24
(b)(2),NIRC). Disguised dividends are those income
payments made by a domestic
A final withholding tax of 20% shall be corporation, which is a subsidiary of a
imposed upon cash dividends actually or non-resident foreign corporation, to the
latter ostensibly for services rendered by distinguished from economic incidence) is

the latter to the former, but which that person who, in case of non-payment,
payments are disproportionately larger can be legally demanded to pay the tax.
than the actual value of the services
rendered. In such case, the amount over
and above the true value of the service Q. Capt. Canuto is a member of the
rendered shall be treated as a dividend, Armed Forces of the Philippines. Aside
and shall be subjected to the from his pay as captain, the
government gives him free uniforms,
corresponding tax of 35% (now 30%) on
free living quarters in whatever military
Philippine sourced gross income, or such
camp he is assigned, and free meals
other preferential rate as may be
inside the camp. Are these benefits
provided under a corresponding Tax income of Capt. Canuto? Explain.
Treaty. (1995)
Example: Royalty payments under a No, the free uniforms, free living
corresponding licensing agreement. quarters and the free meals inside the
camp are not income to Capt. Canute
INTEREST INCOME because these are facilities or privileges
furnished by the employer for the
Q. State with reasons the tax employer's convenience which are
treatment of the following in the necessary incidents to proper
preparation of annual income tax performance of the military personnel's
returns: Interest on deposits with: (i) duties.
BPI Family Bank; and (ii) a local
offshore banking unit of a foreign DE MINIMIS
bank; (2005)
Q. What are de minimis benefits and
Interest on deposit with BPI Family Bank how are these taxed? (2015)
is a passive income subject to a final
withholding tax rate of 20%; the De minimis benefits are facilities and
interest on deposit with a local offshore privileges furnished or offered by an
banking unit of a foreign bank is a employer to his employees, which are
passive income subject to a final not considered compensation subject to
withholding tax rate of 7.5% (Sec. income tax and consequently to
24(B)(1), NIRC).Both interest incomes withholding tax, if such facilities or
are not to be declared as part of gross privileges are of relatively small value
income in the income tax return. and are offered or furnished by the
employer merely as means of promoting
FRINGE BENEFIT the health, goodwill, contentment, or
efficiency of his employees. If received
Q. A "fringe benefit" is defined as by rank-and-file employees, they are
being any good, service or other exempt from income tax on wages, if
benefit furnished or granted in cash or received by supervisory or managerial
in kind by an employer to an individual employees, they are exempt from the
employee. Would it be the employer or fringe benefit tax (RR No. 2-98, as
the employee who is legally required amended by RR No. 8-2000)
to pay an income tax on it? Explain.
(2003) Q. Proceeds from life insurance
policies
It is the employer who is legally State with reasons the tax treatment
required to pay an income tax on the of the following in the preparation of
fringe benefit. The fringe benefit taxis annual income tax returns: Proceeds
imposed as a final withholding tax of life insurance received by a child an
placing the legal obligation to remit the irrevocable beneficiary; (2005)
tax on the employer, such that, if the tax
is not paid the legal recourse of the BIR is The proceeds of life insurance received
to go after the employer. Any amount or by a child as irrevocable beneficiary are
value received by the employee as a not to be reported in the annual income
fringe benefit is considered tax paid tax returns, because they are excluded
hence, net of the income tax due thereon. from gross income. This kind of receipt
The person who is legally required to pay
does not fall within the definition of
(same as statutory incidence as
income – ―any wealth which flows into
the taxpayer other than a mere return of his cost of doing business while personal
capital‖. exemptions are allowed to cover
Since insurance is compensatory in personal, family and living expenses.
nature, the receipt is merely considered As to claimants — Allowable
as a return of capital (Sec. 32 (B) deductions can be claimed by all
(1),NIRC; Fisher v. Trinidad, 43 Phil. 73). taxpayers, corporate or otherwise, while
personal exemptions can be claimed only
by individual taxpayers.
Pensions, retirement benefit, or
separation pay UPDATED PERSONAL
EXEMPTIONS (Under TRAIN Law)
Q. To start a business of his own, Mr.
Mario de Guzman opted for an early NIRC NIRC TRAIN
retirement from a private company Provision
after ten (10) years of service. Section 31 Means the The phrase
Pursuant to the company's qualified Definition of pertinent items ―and/or
and approved private retirement Taxable of gross income personal and
benefit plan, he was paid his Income specified in this additional
retirement benefit which was Code, less the exemptions‖
subjected to withholding tax. Is the deductions is removed in
employer correct in withholding the and/or personal the definition.
tax? Explain. (2000) and additional
exemptions, if
It depends. An employee retiring under any, authorized
a company's qualified and private for such types of
retirement plan can only be exempt from income by this
income tax on his retirement benefits Code or other
if the following requisites are met: special laws
a. that the retiring employee must
have been in service of the same Section 35 Individual The Basic
employer for Personal taxpayers are Personal and
b. at least ten (10) years; Exemptions entitled to: Additional
c. that he is not less than 50 years Basic Personal Exemptions
of age at the time of retirement; Exemption – of individual
d. And the benefit is availed of P50,000 taxpayers are
only once. and removed.
Additional The related
DEDUCTIONS FROM GROSS Exemption – provision on
INCOME P25,000 per furnishing
qualified exemption
Q. Distinguish Allowable dependent child certificate is
Deductions from Personal likewise
Exemptions. Give an example of removed.
an allowable deduction and Section 32 The amount of The amount
another example for personal (B)(7)(e) tax-exempt 13th of tax-exempt
exemption. (2001) Tax exempt month pay and 13th month
13th month other benefits is pay and
The distinction between allowable pay P82,000. other benefits
deductions and personal is increased
exemptions are as follows: to P90,000.
Section 33 Fringe benefits The Fringe
As to amount — Allowable (A) given to non- Benefits Tax
deductions generally refer to actual Tax on rank and file is increased
expenses incurred in the pursuit of trade, fringe employees are to 35%
business or practice of profession while benefits subject to 32% effective
personal exemptions are arbitrary given to final tax January 1,
amounts allowed by law. non-rank The grossed up 2018
As to nature — Allowable deductions and file monetary value The grossed
constitute business expenses while employees of the fringe up monetary
personal exemptions pertain to personal benefit given to value of the
expenses. non-rank and fringe benefit
As to purpose — Deductions are file employees given to non-
allowed to enable the taxpayer to recoup shall be rank and file
determined by employees deductions.

dividing the shall be
actual monetary determined
value by 68% by dividing WITHHOLDING TAX
the actual
monetary Failure of a withholding agent to collect
value by 65% and remit tax:
Fringe
benefits ―Any person required to withhold,
furnished to account for and remit any tax imposed by
employees the NIRC or who willfully fails to withhold
and taxable such tax, or account for and remit such
under tax, or aids or abets in any manner to
Subsections evade any such tax or the payment
(B), (C), (D) thereof, shall in addition to other than the
and (E) of surcharges and interest, liable upon
Sec. 25 shall conviction to a penalty equal to the total
be taxed at amount of the tax not withheld.
the applicable
rates imposed EXCLUSIONS FROM INCOME
The grossed- TAXATION
up monetary
value of the
fringe benefit 36. Distinguish "Exclusion from
shall be Gross Income" from "Deductions
determined From Gross Income". Give an
by dividing example of each. (2001)
the actual
monetary Exclusions from gross income refer to a
value of the flow of wealth to the taxpayer which are
fringe benefit not treated as part of gross income, for
by the purposes of computing the taxpayer‘s
difference taxable income, due to the following
between reasons: (1) It is exempted by the
100% and fundamental law; (2) It is exempted by
the statute; and
applicable
(3) It does not come within the definition
rates of
of income. (Sec.61, RR No. 2)
income tax
under Deductions from gross income,
Subsections on the other hand, are the amounts,
(B), (C), (D) which the law allows to be deducted from
and (E) of gross income in order to arrive at net
Sec. 25 income.
Section 34 Individual For GPPs
(L) taxpayers and the Exclusions pertain to the
Optional (except non- partners computation of gross income, while
Standard resident alien) comprising deductions pertain to the computation of
Deduction may elect a them, OSD net income.
standard may be
deduction not availed only
exceeding 40% once, i.e., DAMAGES RECOVERED IN SUIT
of gross either by the OF PERSONAL INJURIES AND
sales/receipts GPP itself or DAMAGES TO PROPERTIES:
and by the NOT TAXABLE:
corporations partners
may elect comprising  Nominal, Actual, Moral, and
standard the GPP. Exemplary (NAME) damages are not
deduction not taxable
exceeding 40%
 Attorney‘s fees awarded under said
gross income, in
action is not taxable
lieu of itemized
 Reimbursement of litigation cost
allowable
is not taxable
 Award of damages for WORTHLESS SECURITIES

infringement of intellectual
property is not taxable Q. Explain if the following items are
 Award of damages for breach of deductible from gross income for
promises to marry is not taxable income tax purposes. Disregard who
is the person claiming the deduction.
TAXABLE:
Punitive Damages when awarded is Worthless securities (1999)
taxable
Award of damages for Breach of Contract Worthless securities, which are
is taxable ordinary assets, are not allowed as
deduction from gross income because
Q. X was illegally terminated from the loss is not realized. However, if
work. He filed a case against his these worthless securities are capital
employer. The case was decided in assets, the owner is considered to have
favor of X who refused to go back to incurred a capital loss as of the last
work because of strained relationship. day of the taxable year and, therefore,
X received the following amount: (a) deductible to the extent of capital
80K Separation pay, (b) 52k back gains. (Sec. 34 (D)(4), NIRC).This
wages, and (c) the money equivalent deduction, however, is not allowed to a
of all his other incentives. Is the bank or trust company.
money taxable to X?
40. Explain if the following items are
Separation pay to X is not taxable but deductible from gross income for
all others are subject to income tax. income tax purposes. Disregard who is
the person claiming the deduction:
ITEMIZED DEDUCTION (TAXES) Reserves for bad debts. (1999)
Explain briefly whether the following Reserves for bad debts are not allowed
items are taxable or non-taxable: as deduction from gross income. Bad
TAXES paid and subsequently debts must be charged off during the
refunded; (2005) taxable year to be allowed as deduction
from gross income. The mere setting up
Taxable only if the taxes were paid and of reserves will not give rise to any
claimed as deduction and which are deduction (Sec. 34 (B), NIRC).
subsequently refunded or credited. It
shall be included as part of gross income
in the year of the receipt to the extent of Taxable under the TAX BENEFIT
the income tax benefit of said deduction. RULE. Recovery of bad debts
Not taxable if the taxes refunded were previously allowed as deduction in the
not originally claimed as deductions preceding years shall be included as part
(Sec.34[C][1], NIRC). of the gross income in the year of
recovery to the extent of the income tax
ITEMIZED DEDUCTION (LOSSES) benefit of said deduction. This is
sometimes referred as the RECAPTURE
Q: Give the requisites for deducibility RULE (Sec. 34[E][1], NIRC).
of a loss. (1998)
Q. Explain if the following items are
The requisites for deductibility of a loss deductible from gross income for
are a) loss belongs to the taxpayer; b) income tax purposes. Disregard who
actually sustained and charged off is the person claiming the expense:
during the taxable year; c) evidenced Depreciation of goodwill. xxx (1999)
by a closed and completed
transaction; d) not compensated by Depreciation for goodwill is not allowed
insurance or other forms of indemnity; as deduction from gross income. While
e) not claimed as a deduction for intangibles maybe allowed to be
estate tax purposes in case of depreciated or amortized, it is only
individual taxpayers; and f) if it is a allowed to those intangibles whose use
casualty loss it is evidenced by a in the business or trade is definitely
declaration of loss filed not less than limited in duration (Basilan Estates, Inc.
thirty (30) days nor more than ninety (90) v, CIR,21 SCRA 17). Such is not the
days from the date of discovery thereof. case with goodwill.
urn
Q. What is the "immediacy test"?

Explain briefly. (2010) As to May be Allows
period of carried over carryover of
The ―immediacy test‖ is applied to carry-over only in the operating
determine whether the accumulation of next loss in 3
the tax profits by a domestic or resident succeeding succeeding
foreign corporation is really for the taxable year taxable
reasonable needs of the business. The years or in
corporation should be able to prove an case of
immediate need for the accumulation of mining
earnings and profits, or the direct companies
correlation of anticipated needs to such 5 years
accumulation of profits to justify the said
accumulation (Sec. 3, RR No. 2- MINIMUM CORPORATE INCOME TAX
2001;Mertens, Law of Federal Income Concept and rationale of MCIT
Taxation, Vol 7, Chapter 39, p. 103, cited
in Manila Wine Merchants, Inc. v. CIR, MCIT is a new concept introduced by
GR No. L-26145, Feb. 20, 1984). R.A. 8424 to the Philippine taxation
system. It came about as a result of the
Q. Is the hospital subject to tax on its perceived inadequacy of the self-
income? If it is, at what rate? (2013) assessment system in capturing the true
income of corporations.
Yes. Although a non-stock non- Congress intended to put a stop to the
profit hospital organized for charitable practice of corporations which, while
purposes is generally exempt from having large turnovers, report minimal or
income tax, it becomes taxable on negative net income resulting in minimal
income derived from activities or zero income taxes year in and year
conducted for profit. Services out, through under-declaration of income
rendered to paying patients are or over-deduction of expenses otherwise
considered activities conducted for called tax shelters. The MCIT serves to
profit which are subject to income tax, put a cap on such tax shelters.
regardless of the disposition of said As a tax on gross income, it prevents tax
income. The hospital is subject to evasion and minimizes tax avoidance
income tax of 10% of its net income schemes achieved through sophisticated
derived from the paying patients and artful manipulations of deductions
considering that the income earned and other stratagems. Since the tax base
was broader, the tax rate was lowered
appears to be derived solely from
(Chamber of Real Estate and Builders’
hospital-related activities (CIR v. St.
Association, Inc. v. Hon. Executive
Luke’s Medical Center, Secretary, G.R. No. 160756, March 9,
Inc., G.R. Nos. 195909 & 195960, Sept 2010).
26, 2012). ---
Q: What is the purpose of MCIT? (2001
NELCO vs NOLCO Bar)
Net Operating
Loss Carry A: The imposition of the MCIT is
Over designed to forestall the prevailing
practice of corporations of over claiming
BASIS NELCO NOLCO deductions in order to reduce their
As to Arises from Arises from income tax payments.
source capital ordinary
transactions transactions BLOOMBERRY RESORTS & HOTELS
meaning meaning v. BIR
involving involving
capital asset ordinary FACTS:
asset 1.Petition for Certiorari and Prohibition to
annul Revenue Memo Circular No. 33-
As to who Can be Can be 2013 subjecting contractees and
can avail availed of by availed of by licensees of PAGCOR to income tax.
individual individual
taxpayer and 2. 04/08/09: PAGCOR granted
only corporate to petitioner a provisional license to
taxpayer operate a resort-casino complex at the
Entertainment City project site of
PAGCOR (particularly, Solaire Resort and WN Petitioner is liable for corporate

Casino). Pursuant to such license and to income tax: - NO
PAGCOR‘s Charter (PD 1869), Petitioner
only paid license fees in lieu of taxes. HELD:
PAGCOR‘s charter provided for 1. The Court then referred to the case of
exemptions in favor of entities contracting PAGCOR v. BIR, wherein it held that
with it. (1) RA 337, which amended the NIRC
and removed the exemption of PAGCOR
3. RA 9337 amended Sec. 27 (c) of was valid; (2) PAGCOR‘s income from
the NIRC, which excluded PAGCOR from gaming operations is subject only to the
the GOCCs exempt from paying 5% franchise tax; and PAGCOR‘s income
corporate income tax. In the case of from other related services is subject to
PAGCOR v. BIR, PAGCOR assailed the corporate income tax only. RA 9337
constitutionality of the amendment, but merely reinstated the tax liability of
the Court upheld its validity. Hence, PAGCOR from other related services
PAGCOR‘s exemption was removed. (shows, entertainment, etc.), without
affecting its tax privilege (5% franchise
4. BIR then issued the said RMC to tax only) on gaming operations. The
implement RA 9337, which provided Court in that case held that the issuance
that in addition to the 5%franchise tax on of the RMC, subjecting BOTH income
its gross revenue; PAGCOR will now from gaming operations AND related
have to pay corporate income tax. The services to corporate income tax, as with
said law also provides that PAGCOR‘s grave abuse of discretion.
contractees and licensees, including
entities involving gambling/recreation, are 2. (As to WN the provision applies
also subject to income tax. to contractees and licensees
of PAGCOR) The Charter provides for the
5. Petitioner (direct to SC): PD exemption of PAGCOR and its
1869 (PAGCOR Charter) as amended contractees and licensees from payment
by RA 9487, is a valid existing law, of all other taxes aside from the franchise
expressly exempting PAGCOR‘s fee. This includes corporate income tax.
contractees and licensees from all taxes
except the 5% franchise tax; that such III. ESTATE TAX
was not repealed by the deletion of
PAGCOR from the list of tax-exempt Q. Are donations inter vivos and
entities; that BIR acted with grave abuse donations mortis causa subject to
of discretion in issuing the RMC as it, in estate taxes? (1994)
effect, repealed/amended the Charter;
and that the RMC will adversely affect an Donations inter vivos are not subject to
industry seeking to promote tourism and estate taxes because the transfer of the
generate jobs. property takes effect during the lifetime of
the donor. The transfer is therefore
6. Petitioner (justifications): this involves subject to the donor‘s tax. On the other
a pure question of law; the hand, donations mortis causa are subject
gaming industry is one involving national to estate taxes since the transfer of the
interest; In essence, Petitioner contends properties takes effect after the death of
that the CIR cannot issue RMCs that are the decedent. Such donated properties,
inconsistent with law; and that since the real or personal, tangible or intangible,
RMC would affect the exemption granted, shall form part of the gross estate.
it was issued by the CIR with grave abuse
of discretion. Q. Discuss the rule on situs of taxation
with respect to the imposition of the
7. Henares: no grave abuse of discretion estate tax on property left behind by a
as the RMC did not alter, modify, or non-resident decedent. (2000)
amend the intent of the Charter. It merely The value of the gross estate of a non-
clarified the taxability of PAGCOR and its resident decedent who is a Filipino citizen
contractees and licensees for income tax at the time of his death shall be
purposes. determined by including the value at the
time of his death of all property, real or
ISSUE: WN the RMC is valid and personal, tangible or intangible, wherever
constitutional despite the exemption situated to the extent of the interest
granted by the Charter: - YES therein of the decedent at the time of his
death [Sec. 85(A), NIRC of 1997]. These

properties shall have a situs of taxation in Q. What conditions must occur in

the Philippines hence subject to order that all grants, donations and
Philippine estate taxes. contributions to non-stock, non-profit
private educational institutions may be
On the other hand, in the case of a non- exempt from the donor's tax under
resident decedent who at the time of his Sec. 101 (a) of the Tax Code? (2000,
death was not a citizen of the Philippines, 2002)
only that part of the entire gross estate
which is situated in the Philippines to the The following are the conditions:
extent of the interest therein of the a. Not more than thirty percent (30%) of
decedent at the time of his death shall be said gifts shall be used by such donee
included in his taxable estate. Provided, for administration purposes;
that, with respect to intangible personal b. The educational institution is
property, we apply the rule of reciprocity. incorporated as a non-stock entity;
(Ibid) c. Paying no dividends;
d. Governed by trustees who receive no
Q. What is ―Vanishing deductions‖ or compensation; and
PROPERTY PREVIOUSLY TAX (PPT) e. Devoting all its income, whether
in estate taxation? (1994) students' fees or gifts, donations,
subsidies or other forms of
Vanishing deductions or property philanthropy, to the accomplishment
previously taxed in estate taxation refers and promotion of the purposes
to the diminishing deductibility/ exemption, enumerated in its Articles of
at the rate of 20% over a period of five (5) Incorporation. (Sec. 101 (A) (3), NIRC
years until it is lost after the fifth year, of of 1997]
any property (situated in the Philippines)
forming part of the gross estate, acquired Q. The Congregation of the Mary
by the decedent from a prior decedent Immaculate donated a land a dormitory
who died within a period of five (5) years
building located along España St. in
from the decedent‘s death or received as
favor of the Sisters of the Holy Cross,
gift from a donor within a period of five (5)
years from the decedent‘s death where a group of nuns operating a free clinic
the resulting gift tax has been paid. and high SCHOOLTEACHING basic
spiritual values. Is the donation
Q. What is the Date-of Death Valuation subject to donor's tax? Reason Briefly.
Principle? (2007)
The rule provides that the deductible The donation is not subject to donor‘s
amount to be claimed against the estate tax. Gifts made in favor of educational
is fixed as of the death of the decedent. and/or charitable or religious institutions
Hence, post-death developments are not shall be exempt from the donor‘s tax
material in determining the amount of the provided that not more than 30% of said
deduction. (DIZON v. CIR, April 30, 2008) gifts shall be used by such donee for
administration purposes. (Sec.101[A][3];
III. DONORS TAX CIR v. Court of Appeals, Court of Tax
Appeals and Ateneo de Manila
Q. When the donee or beneficiary is a University, G.R. No. 115349, April 18,
stranger, the tax payable by the donor 1997).
shall be 30% of the net gifts. For
purposes of this tax, who is a Contributions for Election
stranger? (2000)
Q. Are contributions to a candidate in
A stranger is a person who is not a: an election subject to donor's tax?
On the part of the contributor, is it
Brother, sister (whether by whole or half- allowable as a deduction from
blood), spouse, ancestor and lineal gross income? (1998)
descendant; or
Relative by consanguinity in the collateral No, provided the recipient candidate
line within the fourth degree of had complied with the requirement for
relationship. [Sec. 98 (B), NIRC of 1997] filing of returns of contributions with the
Commission on Elections as required
under the Omnibus Election Code.

The contributor is not allowed to more than Php 100k then the dowry
deduct the contributions because the deduction of Php10k is applicable.
said expense is not directly e. Yes Corporations are also
attributable to, the development, subject to gift tax. They are
management, operation and/or considered as gifts to strangers;
conduct of a trade, business or hence, tax rate is 30%
profession (Sec. 34[Al (l) (a),
NIRC).Furthermore, if the candidate is an IV. VAT
incumbent government official or
employee, it may even be considered as Q. What are the characteristics of the
a bribe or a kickback (Sec. 34[A] (I) (c), Value-Added Tax? (1996)
NIRC)
The value-added tax is an indirect tax
and the amount of tax may be shifted or
Q. (a) X, a non-resident citizen, passed on to the buyer, transferee or
donated a property abroad worth lessee of the goods, properties or
Php 200k to a relative here services.
(Resident Citizen). Is the donation
taxable? Q. What are the distinctions between
an Impact and an Incidence?
(b) X, a non-resident alien, donated
a property worth Php 200k and Impact of taxation is on the statutory
located in the Philippines to a done taxpayer, the one from whom the
abroad. Is the donation taxable? government collects. Thus, for VAT the
impact of tax is on the seller or importer.
(c) X, a resident alien, donated
shares of stocks of a domestic The incidence of tax is on the one
corporation worth P200k to his who bears the burden of taxation. Thus
brother abroad who is getting
for VAT, the incidence of tax is on the
married in two (2) months from date
consumer.
of donation. Is the donation
taxable?
Q. What is (a) Automatic zero rate vat?
(b) Effectively Zero Rate Vat, (c)
(d) X, a resident citizen, gave a
Exempt Vat?
wedding gift (home appliances and
computer valued at Php 75k) to his
legitimate daughter on account of
her marriage within taxable period.
Is the gift subject to Dowry
Deduction?
(e) Are Corporations subject to

donor’s tax?
Answers:
a. The donation is taxable. X, a NRC

is taxed on all donations made within or
without the Philippines, if the gift given is
more than Php 100k
b. The donation is taxable. X, a NRA
taxed on any donations located in the
Philippines, if the value of the gift is Php
100k.
c. The donation is taxable, shares of
stocks of a domestic corporation are
considered property located in the
Philippines. Whoever is the donor, if the
value of donated is more than Php
100,000
d. No. The gift is not subject to
dowry deduction. If the value of the gift is

AUTOMATIC EFFECTIVELY VAT EXEMPT

Requirements for VAT Zero-rating/ ZERO-RATE ZERO RATE TRANSACTION
VAT Refund VAT VAT
1. This refers 1. This refers 1. Sale of
Q. Who are liable for the payment of to the export to the local Goods or
Value-Added Tax? (1996) sales of sale of goods properties and
goods and or supply of the use or lease
The persons liable for the value-added supply of services by a of properties
tax are: services by a VAT- that is not
a. Sellers of goods and properties in the VAT Registered subject to
course of trade or business; registered persons or output tax and
b. Sellers of services in the course of person entities that the seller is not
trade or business, including lessors of 2. The tax was granted allowed any tax
goods and properties; rate is set at indirect tax credit of input
c. Importers of taxable goods, whether zero, when exemption tax on
in the course of business or not applied to the under special purchases.
tax base, laws or
Q. What is tax pyramiding? What is such rate agreements.
its basis in law? (2006) results in no 2. Business who
tax 2. The seller are not vatable
Tax pyramiding refers to the imposition chargeable charges no because they
of a tax upon a tax. This occurs when the against the output tax, but have not meet
tax is added as part of the tax base. It purchaser. can claim a the
has no basis in law (People v. refund of tax Php 1919500 of
Sandiganbayan, 467SCRA 137 [2005]; credit for the gross sales or
CIR v. American Rubber Co., 18 SCRA VAT previously receipt.
842 [1966]). charged to him
by suppliers.
Q. X, a non-VAT businessman (gross converted the remitted US$ 1,000
sales the preceding year did not to pesos and deposited the
exceed Php 1,919,500) are buyers converted amount in the XYZ Law
in his store VATable? Offices account.
What are the tax implications of
The purchasers of X are still VATable the payment to XYZ Law Offices in
because the VAT is merely added as part terms of VAT and income taxes?
of the price and not as a tax because the
(2013)
burden is merely shifted to them. X
should not bill the end-consumers with The payment to XYZ Law Office by
separate 12% VAT. X is still exempt from Gainsburg Corporation is subject to VAT
VAT because he could pass on the and income tax in the Philippines.
burden of paying the tax to the purchaser.
For VAT purposes, the transaction is a
ZERO RATED SALE OF GOODS OR zero-rated sale of services where the
PROPERTIES
output tax is zero percent and XYZ is
entitled to claim as refund or tax credit
Q. XYZ Law Offices, a law partnership
certificate the input taxes attributable to
in the Philippines and a VAT-
the zero- rated sale. The services were
registered taxpayer, received a
rendered to a nonresident person,
query by e-mail from Gainsburg
engaged in business outside the
Corporation, a corporation
Philippines, which services are paid for in
organized under the laws of
foreign currency inwardly remitted
Delaware, but the e-mail came
through the banking system, thereby
from California where Gainsburg
making the sale of services subject to tax
has an office. Gainsburg has no
at zero-rate. (Sec. 108 (B)(2), NIRC)
office in the Philippines and does
no business in the Philippines.
Summary of rules on prescriptive
XYZ Law Offices rendered its periods for claiming refund or credit of
opinion on the query and billed input tax
Gainsburg US$1,000 for the
opinion. Gainsburg remitted its Administrative Claim: Two-Year
payment through Citibank which Prescriptive Period

Only the administrative claim that must destined for use or consumption within
be filed within the period the Philippines shall be imposed with 12%
GR: The reckoning date is the close of VAT. (Atlas Consolidated Mining and
the taxable quarter when the relevant Development Corporation v. CIR, 524
sales were made SCRA 73, 103).
XPN: From June 8, 2007 to September
12, 2008 the two-year prescriptive period VAT VS. SALES TAX
for filing a claim for tax refund or credit
should be counted from the date of filing Value Added Tax (VAT) is a business tax
of the VAT return and payment of the tax imposed and collected on every (a) sale,
(Atlas Consolidated Mining and Dev. Corp barter, or exchange of goods or
v CIR, G.R. No. 141104, June 8, 2007). properties (real or personal), (b) lease of
goods or properties (real or personal) or
Judicial Claim: 120+30 Day Period (c) rendition of services, all in the course
of trade or business, and (d) importation
Two ways of filing an appeal to the CTA: of goods (whether or not in the course of
a. Within 30 days after the CIR denies trade or business). It is an indirect tax,
the claim within the 120-day period, or thus, it can be shifted or passed on to the
b. Within 30 days from the expiration of buyer, transferee or lessee of goods,
the 120-day period if the CIR does not act properties or services (Sec. 105, NIRC).
within the 120-day period.
GR: The 30-day period to appeal always VAT is a tax on consumption levied on
applies as it is both mandatory and the sale, barter, exchange or lease of
jurisdictional. goods or properties and services in the
Philippines and on importation of goods
XPN: As an exception, premature filing is into the Philippines. The seller is the one
allowed only if filed between 10 statutorily liable for the payment of the tax
December 2003 and 5 October 2010, but the amount of the tax may be shifted
when BIR Ruling No. DA-489-03 was still or passed on to the buyer, transferee or
in force. lessee of the goods, properties or
services. This rule shall likewise apply to
NOTE: Late filing is absolutely prohibited existing contracts of sale or lease of
(Commissioner of Internal Revenue v. goods, properties or services at the time
Mindanao II Geothermal Partnership, of the effectivity of RA No. 9337.
G.R. No. 191498, January 15, 2014) However, in the case of importation, the
importer is the one liable for the VAT (RR
NOTE: The rule on a claim for refund or 16-05).
credit of an erroneously or illegally
collected tax under Section 229 of the The current VAT rate is 12% (effective
NIRC is different. Under such, both the January 1, 2006, VAT rate was increased
administrative and judicial claim must be from 10 to 12%).
filed within the two (2)-year prescriptive
period from the date of payment. The NOTE: The Supreme Court upheld the
claim for refund or credit and the appeal validity of raising the VAT rate from 10%
to CTA may occur simultaneously. to 12% (ABAKADA Guro v. Ermita, G.R.
No. 168056, September 1, 2005).
Sales tax – VAT is a tax on the taxable

Q. What is the principle of Destination sale, barter or exchange of goods,
or Cross Border Doctrine? properties or services. A barter or
exchange has the same tax consequence
According to the Destination as a sale. A sale may be an actual or
Principle, goods and services are taxed deemed sale, or an export sale or local
sale (Mamalateo, 2014). The buyer is
only in the country where these are informed that the price includes VAT and
consumed. In connection with the said the computation is shown in the official
principle, the Cross Border Doctrine receipt/sales invoice.
mandates that no VAT shall be imposed
to form part of the cost of the goods VAT EXEMPT TRANSACTION
destined for consumption outside the
territorial border of the taxing authority. Q. State whether the following
transactions are a) VAT Exempt, b)
Hence, actual export of goods and subject to VAT at 12%; or c) subject to
services from the Philippines to a foreign VAT at 0%: Services rendered by
country must be free of VAT while those Jake's Construction Company, a

contractor to the World Health

Organization in the renovation of its Taxpayer must await the lapse of the
offices in Manila. (1998) 120-day period before taxpayer can
appeal to CTA
VAT at 0%. Since Jake's
Construction Company has The second paragraph of Section 112(D)
rendered services to the World of the NIRC envisions two scenarios: (1)
Health Organization, which is an when a decision is issued by the CIR
entity exempted from taxation under before the lapse of the 120-day period;
international agreements to which and (2) when no decision is made after
the Philippines is a signatory, the the 120-day period. In both instances, the
supply of services is subject to zero taxpayer has 30 days within which to file
percent (0%) rate. (Sec. 108[B1 (3), an appeal with the CTA. As we see it
NIRC). then, the 120-day period is crucial in filing
an appeal with the CTA (CIR v. Aichi
ASSOCIATION DUES Forging Company of Asia, Inc., GR
184823, and October 6, 2010).
The association dues,
membership fees, and other Failure to comply with the 120-day waiting
assessment/charges do not constitute period violates a mandatory provision of
income payments because they were law. It violates the doctrine of exhaustion
collected for the benefit of the unit owners of administrative remedies and renders
and the condominium corporation is not the petition premature and thus without a
created as a business entity. The cause of action, with the effect that the
collection is the money of the unit owners CTA does not acquire jurisdiction over the
pooled together and will be spent taxpayer's petition.
exclusively for the purpose of maintaining
and preserving the building and its One of the conditions for a judicial claim
premises which they themselves own and of refund or credit under the VAT System
possess. (First e-Bank Tower is compliance with the 120+30 day
Condominium Corp., v. BIR, Special Civil mandatory and jurisdictional periods.
Action No. 12-1236, RTC Br. 146, Makati Thus, strict compliance with the 120+30
City) day periods is necessary for such a claim
to prosper, whether before, during or after
REFUND OF UNUTILIZED INPUT TAX the effectivity of the Atlas doctrine, except
for the period from the issuance of Bill
Q. X is a VAT registered businessman Ruling No. DA-489-03 on December 10,
engaged in export activities. He 2003 to October 6, 2010 when the Aichi
exported his products on April 26, doctrine was adopted, which again
2011. At the end of April 2011 he has reinstated the 120+30 day periods as
Php 1.0 Million unutilized input taxes. mandatory and jurisdictional (CIR v.
(1) When may he file a claim for the Mirant Pagbilao Corp., G.R. No. 180434,
refund or credit of his unutilized January 20, 2016).
input taxes?
(2) What is the possible remedy of Rule of reciprocity
X if there is inaction of the CIR on his
claim? Non-Resident Aliens Engaged in Trade or
Business are taxed on their income
Answer: derived from all sources within the
f. The 2-year period to claim for the Philippines in the same manner as an
refund or credit of unutilized input individual citizen or a resident alien
taxes is reckoned from the end of the individual, subject to the schedule rate of
quarter of date of export and not from 5-32% and are granted Personal and
payment of the input taxes. Additional Exemptions, subject to the rule
g. The CIR is mandated to resolve of reciprocity.
the claim for refund or credit of
unutilized input taxes within 120 days V. LOCAL GOVERNMENT
from claim thereof. The inaction of the
CIR within 120 days is an implied Local governments have no power to tax
denial of X‘s claim. Thereafter, X may instrumentalities of the National
file a petition for review with the CTA. Government. Settled is the rule that the
states have no power by taxation or
Aichi doctrine otherwise, to retard, impede, burden or
any manner control the operation of of treatment in the

constitutional laws enacted by Congress telecommunications industry.
to carry into execution the powers vested RESOLVE.
in the federal government (McCulloch v.
Maryland, 4 Wheat 316, 4 L Ed. 597) PLDT is subject to franchise tax.
Taxing Power of LGUs The Supreme Court rejected PLDT‘s
contention that ―in-lieu-of-all taxes‖ clause
In case of doubt, any tax does not refer to ―tax exemption‖ but to
ordinance or revenue measure shall be ―tax exclusion‖ and hence, the strictissimi
construed strictly against the local juris rule does not apply. The en banc
government unit enacting it and liberally explains that these two terms actually
in favor of the taxpayer. Any tax mean the same thing, such that the rule
exemption, incentive or relief granted by that tax exemption should be applied in
any local government shall be construed strictissimi juris against the taxpayer and
strictly against the person claiming it liberally in favor of the government
(Sec. 5 (b), RA 7160). applies equally to tax exclusions:
In interpreting statutory provisions Indeed, both in their nature and in their

on municipal taxing powers, doubts effect there is no difference between tax
should be resolved in favor of municipal exemption and tax exclusion. Exemption
corporations (PLDT v. Province of is an immunity or privilege; it is freedom
Laguna, 467 SCRA 93). from a charge or burden to which others
are subjected. Exclusion, on the other
Section 193 of the Local hand, is the removal of otherwise taxable
Government Code buttresses the items from the reach of taxation, e.g.,
withdrawal of extant tax exemption exclusions from gross income and
privileges. The general rule is that tax allowable deductions. Exclusion is thus
exemptions or incentives granted to or also an immunity or privilege which frees
presently enjoyed by natural or juridical a taxpayer from a charge to which others
persons are withdrawn upon the are subjected. Consequently, the rule
effectivity of the LGC except with respect that tax exemption should be applied in
to those entities expressly enumerated. strictissimi juris against the taxpayer and
In the same vein, the express withdrawal liberally in favor of the government
upon effectivity of the LGC of all applies equally to tax exclusions. To
exemptions except only as provided construe otherwise the ‗in lieu of all taxes‘
therein, can no longer be invoked by provision invoked is to be inconsistent
MERALCO to disclaim liability for the with the theory that R.A. No. 7925, § 23
local tax (Mactan Cebu International grants tax exemption because of a similar
Airport Authority v. Marcos, 261 SCRA grant to Globe and Smart (PLDT v. City
667; City Government of San Pablo, of Bacolod, 463 SCRA 528, 540).
Laguna v. Reyes, 305 SCRA 362).
Q. Discuss the meaning of the
Q. Section 12 of RA 7082 doctrine of preemption in local
embodies the so-called “in-lieu- government taxation.
of-all taxes” clause, whereunder
PLDT shall pay a franchise tax Preemption in the matter of
equivalent to three percent (3%) taxation simply refers to an instance
of all its gross receipts, which where the national government elects to
franchise tax shall be “in lieu of tax a particular area, impliedly withholding
all taxes”. Invoking its from the local government the delegated
authority under Section 137 of power to tax the same field. This doctrine
RA 7160, the Province of rests upon the intention of Congress.
Laguna, through its Local Conversely, should Congress allow
Legislative Assembly enacted municipal corporations to cover fields of
Provincial Ordinance No. 01-92, taxation it already occupies, and then the
imposing a franchise tax upon doctrine of preemption will not apply
all businesses enjoying a (Victorias Milling Co., Inc. v.
franchise, PLDT included. Municipality of Victorias, Negros
PLDT invoked the “in-lieu-of-all- Occidental, and 25 SCRA 192).
taxes” clause and Section 23 of
RA No. 7925 also known as the
“most-favored treatment”
clause providing for an equality
LOCAL GOVERNMENT UNIT (LGU) the taxpayer has shown a clear and
HAS NO POWER TO IMPOSE unmistakable right to refuse or to hold in
BUSINESS TAXES ON PERSONS OR abeyance the payment of taxes. In this
ENTITIES ENGAGED IN THE SALE OF case we note that respondent contested
PETROLEUM PRODUCTS the revised assessment on the following
grounds: that the subject assessment
Section 133 prescribes the pertained to properties that have been
limitations on the capacity of local previously declared; that the assessment
government units to exercise their taxing covered periods of more than 10 years
powers otherwise granted to them under which is not allowed under the LGC; that
the LGC. Apparently, paragraph (h) of the the fair market value or replacement cost
Section mentions two kinds of taxes used by petitioner included items which
which cannot be imposed by local should be properly excluded; that prompt
government units, namely: ―excise taxes payments of discounts were not
on articles enumerated under the National considered in determining the fair market
Internal Revenue Code [(NIRC)], as value; and that the subject assessment
amended‖; and ―taxes, fees or charges on should take effect a year after or on
petroleum products.‖ January 1, 2008. To our mind, the
resolution of these issues would have a
The language of Section 133(h) direct bearing on the assessment made
makes plain that the prohibition with by petitioner. Hence, it is necessary that
respect to petroleum products extends the issues must first be passed upon
not only to excise taxes thereon, but all before the properties of respondent are
―taxes, fees and charges.‖ The earlier sold in public auction. (Talento v.
reference in paragraph (h) to excise taxes Escalada, Jr., 556 SCRA 491, 500-501
comprehends a wider range of subjects of [2008]).
taxation: all articles already covered by
excise taxation under the NIRC, such as
alcohol products, tobacco products, A TAX ORDINANCE MAY BE
mineral products, automobiles, and such ASSAILED BEFORE THE
non-essential goods as jewelry, goods SECRETARY OF JUSTICE WITHIN
made of precious metals, perfumes, and THIRTY (30) DAYS
yachts and other vessels intended for FROM EFFECTIVITY THEREOF
pleasure or sports. In contrast, the later
reference to ―taxes, fees and charges‖ Clearly, the law requires that the
pertains only to one class of articles of the dissatisfied taxpayer who questions the
many subjects of excise taxes, validity or legality of a tax ordinance must
specifically, ―petroleum products.‖ While file his appeal to the Secretary of Justice,
local government units are authorized to within 30 days from effectivity thereof. In
burden all such other class of goods with case the Secretary decides the appeal, a
―taxes, fees and charges,‖ excepting period also of 30 days is allowed for an
excise taxes, a specific prohibition is aggrieved party to go to court. But if the
imposed barring the levying of any other Secretary does not act thereon, after the
type of taxes with respect to petroleum lapse of 60 days, a party could already
products (Petron Corporation v. proceed to seek relief in court. These
Tiangco, 551 SCRA 484 [2008]). three separate periods are clearly given
for compliance as a prerequisite before
seeking redress in a competent court.
AN APPEAL SHALL NOT SUSPEND Such statutory periods are set to prevent
THE COLLECTION OF REALTY TAXES delays as well as enhance the orderly and
EXCEPT WHERE THE TAXPAYER HAS speedy discharge of judicial functions. For
SHOWN A CLEAR AND this reason, the courts construe these
UNMISTAKABLE RIGHT TO REFUSE provisions of statutes as mandatory.
OR HOLD IN ABEYANCE THE [Cagayan Electric Power and Light Co.,
PAYMENT OF TAXES Inc. v. City of Cagayan De Oro, 685
SCRA 609, (14 November 2012)]
We are not unaware of the
doctrine that taxes are the lifeblood of the
government, without which it cannot THERE IS NO EXPRESS PROVISION IN
properly perform its functions; and that THE LGC PROHIBITING
appeal shall not suspend the collection of COURTS FROM ISSUING AN
realty taxes. However, there is an INJUNCTION TO RESTRAIN LOCAL
exception to the foregoing rule, i.e., where
GOVERNMENTS FROM COLLECTING Q. Can the National Power

TAXES Corporation (NPC), a
government-owned and
A principle deeply embedded in controlled corporation, claim
our jurisprudence is that taxes being the tax exemption under Section
lifeblood of the government should be 234 of the Local Government
collected promptly, without unnecessary Code for the taxes due from
hindrance or delay. In line with this Mirant Pagbilao Corporation
principle, the National Internal Revenue (Mirant) whose tax liabilities the
Code of 1997 (NIRC) expressly provides NPC has contractually
that no court shall have the authority to assumed?
grant an injunction to restrain the
collection of any national internal revenue The stipulation between NPC and
tax, fee or charge imposed by the Code. Mirant does not bind third persons who
An exception to this rule obtains only are not privy to the contract between
when in the opinion of the Court of Tax these parties. There is no privity between
Appeals (CTA) the collection thereof may the local government units and the NPC,
jeopardize the interest of the government even though both are public corporations.
and/or the taxpayer. Unlike the National The tax due will not come from one
Internal Revenue Code, the Local Tax pocket and go to another pocket of the
Code does not contain any specific same governmental entity.
provision prohibiting courts from enjoining
the collection of local taxes. Such Only the parties to the agreement can
statutory lapse or intent, however it may exact and demand the enforcement of the
be viewed, may have allowed preliminary rights and obligations it established—only
injunction where local taxes are involved Mirant can demand compliance from the
but cannot negate the procedural rules NPC for the payment of the real property
and requirements under Rule 58. tax the NPC assumed to pay. The local
[Angeles City v. Angeles Electric government units cannot demand
Corporation, 622 SCRA 43 (2010)] payment from the NPC.
LOCAL BUSINESS TAX SHALL BE The government-owned or controlled

BASED ON GROSS RECEIPTS corporation claiming exemption must be
the entity actually, directly, and
The imposition of local business exclusively using the real properties and
tax based on gross revenue will inevitably the use must be devoted to the
result in the constitutionally proscribed generation and transmission of electric
double taxation—taxing of the same power. Although the plant's machineries
person twice by the same jurisdiction for are devoted to the generation of electric
the same thing—inasmuch as petitioner‘s power, by the NPC's own admission and
gross revenue or income for a taxable as previously pointed out, Mirant—a
year will definitely include its gross private corporation—uses and operates
receipts already reported during the them. That Mirant operates the
previous year and for which local machineries solely in compliance with the
business tax has already been paid. will of the NPC only underscores the fact
Gross revenue covers money or that NPC does not actually, directly, and
its equivalent actually or constructively exclusively use them.
received, including the value of services
rendered or articles sold, exchanged or The test of exemption is the use,
leased, the payment of which is yet to be not the ownership of the machineries
received. This is in consonance with the devoted to the generation and
International Financial Reporting transmission of electric power.
Standards, which defines revenue as the [National Power Corporation v.
gross inflow of economic benefits (cash, Province of Quezon and Municipality
receivables, and other assets) arising of Pagbilao, 593 SCRA 47 (2009)]
from the ordinary operating activities of an
enterprise (such as sales of goods, sales
of services, interest, royalties, and VI.TARIFF AND CUSTOMS CODE
dividends), which is measured at the fair
value of the consideration or receivable  Seizure and forfeiture proceedings are
(Ericsson Telecommunications, Inc. v. within the exclusive jurisdiction of the
City of Pasig, 538 SCRA 99 [2007]). Collector of Customs to the exclusion
of regular courts. Regional Trial
Courts are devoid of competence to customs duties usually to protect

pass upon the validity or regularity of local industries against foreign
seizure and forfeiture proceedings competition.
conducted by the Bureau of Customs
and to enjoin or otherwise interfere a. Anti-Dumping Duty — Imposed
with these proceedings (Jao v. CA, upon foreign products with value lower
249 SCRA 36). than their fair market value to the
detriment of local products; it is the
 The customs authorities do not have difference between the export price
to prove to the satisfaction of the court and the normal value of such product,
that the articles on board a vessel commodity or article.
were imported from abroad or are
intended to be shipped abroad before  Imposing authority — The
they may exercise the power to effect Secretary of Trade and Industry (non-
customs‘ searches, seizures or agricultural products) OR Secretary of
arrests provided by law and continue Agriculture (agricultural products) after
with the administrative hearings. As formal investigation and affirmative
held in Ponce v. Vinuya: “The finding of the Tariff Commission.
governmental agency concerned, the
Bureau of Customs, is vested with b. Countervailing Duty — Imposed
exclusive authority. Even if it be upon foreign goods enjoying subsidy
assumed that in the exercise of such thus allowing them to sell at lower
exclusive competence a taint of prices to the detriment of local
illegality may be correctly imputed, the products similarly situated; it is
most that can be said is that under equivalent to the value of the subsidy.
certain circumstances the grave
abuse of discretion conferred may Imposing authority — Secretary of
oust it of such jurisdiction. It does not Trade and Industry (non-agricultural
mean however that correspondingly a products); Secretary of Agriculture
CFI (now RTC) is vested with (agricultural products) after formal
competence when clearly in the light investigation and affirmative finding of
of the above decisions the law has not the Tariff Commission.
seen fit to do so. The proceeding
before the Collector of Customs is not a. Marking Duty — imposed upon
final. An appeal lies to the those not properly marked as to place
Commissioner of Customs and of origin of the goods.
thereafter to the Court of Tax Appeals.
It may even reach (the Supreme  Imposing authority —
Court) through the appropriate petition Commissioner of Customs.
for review. The proper ventilation of
the legal issues raised is thus b. Discriminatory Duty — imposed
indicated. Certainly a CFI (now RTC) upon goods coming from countries that
is not therein included. It is devoid of discriminate against Philippine
jurisdiction” (Rallos v. Gako, 344 products.
SCRA 175).
 Imposing authority — President
Classification of Customs Duties of the Philippines.
1. Regular Duties — those imposed Flexible Tariff Clause

and collected merely as a source
of revenue.  Under Sec. 28, Article VI, 1987
Constitution — the Congress may, by
a. Ad valorem Duty — Based on the law, authorize the President to fix,
value of imported article. within specified limits, and subject to
b. Specific Duty —Based on dutiable such limitations and restrictions as it
weight of goods. may impose:
c. Alternating Duties — Which
alternates ad valorem and specific. a. Tariff rates, imports and
d. Compound Duty— Consisting of export quotas, tonnage and wharfage
ad valorem and specific. dues;
b. Other duties or imposts
2. Special Duties — those imposed within the framework of the national
in additional to the ordinary
development program of the vessel constitutes implied abandonment

Government. of its importations. After the lapse of this
30-day period, the abandoned shipments
 Under the Tariff and Customs become government property.
Code Sec. 401 — in the interest of
national economy, general welfare Under the Tariff and Customs
and/or national security, the President, Code (TCC), imported articles must be
upon recommendation by NEDA, is entered within a non-extendible period of
empowered: 30 days from the date of discharge of the
last package from a vessel. Otherwise,
a. To increase, reduce or the BOC will deem the imported goods
remove existing protective rates of impliedly abandoned in favor of the
import duty, provided that the increase government. Chevron argued that the
shall not be higher than 100% ad import entry declarations (IED) it filed
valorem; within the 30-day period for some of its oil
b. To establish import quota or shipments is the entry contemplated by
to ban imports to any commodity; the TCC, and not the import entry and
c. To impose additional duty on internal revenue declaration (IEIRD),
all imports not exceeding 10% ad which it failed to file within the same
valorem; period. The SC disagreed, holding that
d. To modify the forms of duty, both the IED and IEIRD should be filed
whether ad valorem or specific. within 30 days from the date of discharge
of the last package from the vessel or
Exemption from payment of all duties aircraft (Chevron Phils. Inc. v.
and taxes of officer or employee Commissioner of the Bureau of
returning from regular assignment Customs, 561 SCRA 710, 721-722, 728,
abroad for reassignment to the home 742).
office
Any officer or employee returning Q. When does importation begin

from a regular assignment abroad for and when is it terminated?
reassignment to the home office x xx
shall be exempt from the payment of all Importation begins when the carrying
duties and taxes on his personal and vessel or aircraft enters the jurisdiction of
household effects, including one (1) used the Philippines with intention to unlade
motor car duly registered in his name for therein. Importation is deemed terminated
at least six (6) months: Provided, upon payment of the duties, taxes and
however, That the exemption shall apply other charges due upon the articles, or
only to the value of the motor car and to secured to be paid, at a port of entry and
the aggregate assessed value of said the legal permit for withdrawal shall have
personal and household effects, the latter been granted, or in case said articles are
not to exceed fifty percent (50%) of the free of duties, taxes and other charges,
total amount received by such officer or until they have legally left the jurisdiction
employee in salary and allowances during of the customs. (Section 1202 of the
his latest assignment abroad but not to TCCP)
exceed four (4) years: Provided, further,
That this exception shall not be availed of
more often than once every four (4) VII. REMEDIES
years(Republic Act No. 7157, Section
81). Q. What are the requisites for valid
assessment?
IMPORTER’S FAILURE TO FILE
REQUIRED ENTRIES WITHIN A NON- The assessment must:
EXTENDIBLE PERIOD OF 30 DAYS a. Be in writing and signed by the BIR;
FROM DATE OF DISCHARGE OF THE b. Contain the law and the facts on which
LAST PACKAGE CONSTITUTES the assessment is made; and
IMPLIED ABANDONMENT OF ITS c. Contain a demand for payment.
IMPORTATIONS d. Must be issued and received within the
prescriptive period.
An importer‘s failure to file the
required entries within a non-extendible Q. What is a Jeopardy
period of 30 days from date of discharge assessment?
of the last package from the carrying
A delinquency tax assessment d. When the warrant is duly served upon

made without the benefit of a complete or the taxpayer and no property could be
partial investigation by a belief that the located
assessment and collection of a deficiency
tax will be jeopardized by delay caused e. When the taxpayer is out of the
by the taxpayer‘s failure to: Philippines
a. Comply with audit and investigation f. When there is an Answer filed by the
requirements to present his books of BIR to the petition for review in the
accounts and/or pertinent records, or
g. CTA where the court justified this by
b. Substantiate all or any of the saying that in the answer filed by the BIR,
deductions, exemptions or credits claimed it prayed for the collection of taxes.
in his return.
Issuance of formal letter of demand
An assessment made demanding and assessment notice/final
immediate payment of the tax due without assessment notice
the usual formalities in instances when
the Commissioner believes that if the tax Notice of Assessment is a formal letter
will be collected under normal of demand where a declaration of
procedures, the collection of such tax is at deficiency
risk which might result in loss to the taxes are issued to a taxpayer who fails to
government. respond to a pre-assessment notice
within the prescribed period of time, or
whose reply to the PAN was found to be
Q. What are the instances when jeopardy without merit. This is commonly known as
assessment may be issued? the Final Assessment Notice. An
assessment contains not only a
When it shall come to the knowledge of computation of under declaration of
the Commissioner that a taxpayer is: taxable sales, receipts or income, or a
substantial overstatement of deductions.
a. retiring from business subject to tax; or
General rule: Taxes are self-assessing
b. intending to leave the Philippines or and do not require the issuance of an
remove his property therefrom; or to hide assessment notice in order to establish
or conceal his property; the tax liability of a taxpayer.
c. performing any act tending to obstruct Exceptions

the proceedings for the collection of the 1. Tax period of a taxpayer is terminated
tax for the past or current quarter or year; (Sec. 6 (d), NIRC)
or to render the same totally or partly 2. Deficiency tax liability arising from a tax
ineffective unless such proceedings are audit conducted by a BIR (sec 56b, NIRC)
begun immediately 3. Tax lien (Sec. 219, NIRC)
4. Dissolving Corporation (Sec. 52 (c),
Q. What are the grounds for NIRC)
suspension of prescriptive periods? :
Protesting assessment
a. Commissioner is prohibited from
making the assessment or beginning It is the act by the taxpayer of questioning
distraint or levy or a proceeding in court the validity of the imposition of the
and for 60 days thereafter corresponding delinquency increments for
internal revenue taxes as shown in the
b. Taxpayer requests for Reinvestigation notice of assessment and letter of
which is granted. demand.
c. Taxpayer cannot be located in the Q. When to file a protest?

address given in the return filed, except if
the taxpayer informs the Commissioner of Within thirty (30) days from receipt of
a change in address the prescriptive assessment.
period will not be suspended
Q. What are the forms of protest?
a. Request for reconsideration

a. Written claim for refund (mandatory)

A claim for re-evaluation of the exc: Where on the face of the return upon
assessment based on existing records which payment is made, such payment
without need of additional evidence. It appears clearly to have been erroneous.
may involve a question of fact or law or
both. It does not toll the statute of b. Claim containing a categorical demand
limitations. for reimbursement
c. Filing of administrative claim for refund

b. Request for reinvestigation and the suit/proceeding before the CTA
within 2 years from date of payment
A claim for re-evaluation of the regardless of any supervening cause.
assessment based on newly-discovered (Sec.229, NIRC)
or additional evidence. It may also involve
a question of fact or law or both. It tolls Note: It refers not only to the
the statute of limitations. ―administrative‖ claim that the taxpayer
should file within 2 years from date of
Remedies of taxpayer to action by payments with the BIR, but also the
Commissioner judicial claim or the action for refund the
taxpayer should commence with the CTA.
a. In case of denial of protest Thus, a taxpayer claiming for refund must
file his appeal to CTA within two years
Appeal the decision to the Court of Tax from payment of the tax notwithstanding
Appeals (CTA) within 30 days from the inaction of the Commissioner, the
receipt of decision denying the protest. taxpayer need not to wait the expiration of
the 120 day period if the same shall
b. In case of inaction by Commissioner exceed the 2-year period. He must
within 180 days from submission of perfect his appeal before the lapse of the
documents 2 year period.
The taxpayer has two alternative options:

Q. Distinguish Tax Refund and Tax
a. File a petition for review with the CTA Credit
within 30 days after the expiration of the
180-day period; or Tax refund - Requires a physical return
of the sum erroneously paid by the
b. Wait for the final decision of the CIR on taxpayer.
the disputed assessment and appeal the
final decision to the CTA within 30 days Tax credit - Generally refers to an
from the receipt of the decision. (Note that amount that is subtracted directly from
the ―inaction deemed denial rule‖ applies one‘s total tax liability, an allowance
only to claims for refund or tax credit against the tax itself, or a deduction from
certificate. It is incumbent upon the State what is owned.
to pursue its claims in assessments in
case of protest while it is incumbent upon
the taxpayer to pursue its claims for Q. What are the essential requisites for
refund in case of erroneously paid taxes, a claim of refund?
illegally collected taxes or input tax credit
on zero-rated transactions.) a. The claim is filed with the
Commissioner of Internal Revenue within
Assessments are deemed final when: the two-year period from the date of the
a. The taxpayer failed to file a protest 30 payment of the tax.
days from receipt of the assessment
b. It is shown on the return of the recipient
b. After the 180 day period and the CIR that the income payment received was
has not yet acted on the protest the declared as part of the gross income
taxpayer fails to appeal it after 30 days
from the receipt of the decision of the CIR c. The fact of withholding is established
the taxpayer fails to appeal. by a copy of a statement duly issued by
the payee showing the amount paid and
Requirements for refund as laid down the amount of tax withheld therefrom.
by cases
Remedies – Government Remedies
unscrupulous investigations and must

Q. Distinguish Distraint from Levy therefore be carefully and strictly
construed (Phil. Journalists, Inc. v. CIR,
Distraint is applied to personal properties G.R. No. 162852, December 16, 2004).
while levy is to real property. The CIR cannot validly agree to reduce
the prescriptive period to less than that
Right of Pre-emption – At any time granted by law because it would result to
before the day fixed for the sale, the the detriment of the State. Such reduction
taxpayer may discontinue all proceedings diminishes the Government‘s opportunity
by paying the taxes, penalties, and to collect taxes (Republic v. Lopez, G.R.
interest. L-18007, March 30, 1967).
The taxpayer‘s waiver of statute of
Authority of the Commissioner to limitation does not cover taxes already
compromise and abate taxes prescribed (Republic v. Lim De Yu, G.R.
No. L-17438, April 30, 1964).
1. Compromise the payment of any
internal revenue tax Guidelines on proper execution of
a. There is reasonable doubt as to the waivers
validity of the claim against the taxpayer;
or 1. The waiver may be, but not
b. The financial position of the taxpayer necessarily, in the form prescribed by
demonstrates a clear inability to pay the RMO No. 20-90 or RDAO No. 05-01. The
assessed tax. (Commissioner may order taxpayer's failure to follow the aforesaid
the inspection of bank accounts of forms does not invalidate the executed
taxpayer in this case. This is an exception waiver, for as long as the following are
to Bank Secrecy law) complied with:
2. Abate or cancel a tax liability a) The Waiver of the Statute of

a. The tax or any portion thereof appears Limitations under Section 222 (b) and (d)
to be unjustly or excessively assessed; shall be executed before the expiration of
b. The administration and collection costs the period to assess or to collect taxes.
involved do not justify the collection of the The date of execution shall be specifically
amount due. (Cost-benefit rule) indicated in the waiver.
Waiver of the Statute of Limitations b) The waiver shall be signed by the

taxpayer himself or his duly authorized
Section 222 (b) of the NIRC, as amended, representative. ln the case of a
provides that the CIR or her duly corporation, the waiver must be signed by
authorized representative and the any of its responsible officials;
taxpayer or its authorized representative
may agree in writing as to a specific c) The expiry date of the period agreed
future date within which to assess the upon to assess/collect the tax after the
taxpayer for internal revenue taxes for a regular three-year period of prescription
given taxable period, before the expiration should be indicated;
of the period to assess taxes.
2. Except for waiver of collection of taxes
The waiver of the Statute of Limitations which shall indicate the particular taxes
should not be construed as a waiver of assessed, the waiver need not specify the
the right to invoke the defense of particular taxes to be assessed nor the
prescription but rather an agreement amount thereof, and it may simply state
between the taxpayer and the BIR to "all internal revenue taxes" considering
extend the period to a date certain, within that during the assessment stage, the
which the latter could still assess or Commissioner of lnternal Revenue or her
collect taxes due. The waiver does not duly authorized representative is still in
mean that the taxpayer relinquishes the the process of examining and determining
right to invoke prescription unequivocally the tax liability of the taxpayer.
(BPI v. CIR, GR No. 139736, October 17,
2005). 3. Since the taxpayer is the applicant and
the executor of the extension of the
A waiver of the statute of limitation under period of limitation for its benefit in order
the NIRC, to a certain extent, is a to submit the required documents and
derogation of the taxpayer‘s right to accounting records, the taxpayer is
security against prolonged and charged with the burden of ensuring that
the waivers of statute of limitation are

validly executed by its authorized
representative. The authority of the
taxpayer's representative who
participated in the conduct of audit or
investigation shall not be thereafter
contested to invalidate the waiver.
4. The waiver may be notarized.

However, it is sufficient that the waiver is
in writing as specifically provided by the
NIRC, as amended.
5. Considering that the waiver is a

voluntary act of the taxpayer, the waiver
shall take legal effect and be binding on
the taxpayer upon its execution thereof.
6. lt shall be the duty of the taxpayer to

submit its duly executed waiver to the CIR
or official is previously designated in
existing issuances or the concerned
revenue district officer or group
supervisor as designated in the Letter Of
Authority/Memorandum of Assignment
who shall then indicate acceptance by
signing the same. Such waiver shall be
executed and duly accepted prior to the
expiration of the period to assess or to
collect. The taxpayer shall have the duty
to retain a copy of the accepted waiver.
7. Note that there shall only be two (2)

material dates that need to be present on
the waiver:
a. The date of execution of the waiver by

the taxpayer or its authorized
representative; and
b. The expiry date of the period the

taxpayer waives the statute of limitations
8. Before the expiration of the period set

on the previously executed waiver, the
period earlier set may be extended by
subsequent written waiver (RMO 14-
2016).
Effect of failure to conform to the

requirements of waiver of the statute
of limitations
It is invalid and ineffective to extend the

prescriptive period to assess taxes (CIR
v. Next Mobile Inc., G.R. No. 212825,
December 07, 2015).


PCU 2018 Taxation Law Reviewer PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PCU 2018 Taxation Law Reviewer PDF

Uploaded by

Copyright:

Available Formats

Prepared by:

ACADS Head: Malyn Gonzales

ESSENTIAL NOTATIONS IN Q. Explain the following basis and theory

A PRE-WEEK REVIEW GUIDE a. Lifeblood Theory

Q. What is the nature of the power of a. LIFEBLOOD THEORY (1973, 1976,

The power to tax is an attribute ofQ. What is the underlying theory of

Philippine Christian University College of Law _2 | P a g e

1. Prospectivity of tax laws No. double taxation standing alone

Yes. However, it is only a case of Q. Distinguish TAX AVOIDANCE and

contrary to the life-blood theory

c. EFFECT. Tax Avoidance is Q. To what kind of tax does this

Philippine Christian University College of Law _4 | P a g e

The doctrine provides that where the

Philippine Christian University College of Law _5 | P a g e

b. Taxation is inherently legislative. SUGGESTED ANSWER:

of non-impairment clause of the

Yes. Mercy Hospital can claim Q. Distinguish a direct from an

issued by the architects and engineers canteen, bookstore, dormitory and a

NO. FC is not liable to Philippine income SUGGESTED ANSWER:

The BIR is correct, since a Weber Realty Company which owns a

Philippine Christian University College of Law _9 | P a g e

Philippine Christian University College of Law _10 | P a g e

However, SECTION 104 provides that constructively received by a non-resident

1. Franchises being exercised in the A final withholding tax equal to 25% of

Dividends Q. State with reasons the tax

A final withholding tax of 10% shall be Q. What are ―disguised dividends‖ in

latter ostensibly for services rendered by distinguished from economic incidence) is

determined by employees deductions.

 Award of damages for WORTHLESS SECURITIES

Q. What is the "immediacy test"?

PAGCOR (particularly, Solaire Resort and WN Petitioner is liable for corporate

Philippine Christian University College of Law _17 | P a g e

properties shall have a situs of taxation in Q. What conditions must occur in

Philippine Christian University College of Law _18 | P a g e

(e) Are Corporations subject to

a. The donation is taxable. X, a NRC

Philippine Christian University College of Law _19 | P a g e

AUTOMATIC EFFECTIVELY VAT EXEMPT

Philippine Christian University College of Law _20 | P a g e

Sales tax – VAT is a tax on the taxable

Philippine Christian University College of Law _21 | P a g e

contractor to the World Health

any manner control the operation of of treatment in the

In interpreting statutory provisions Indeed, both in their nature and in their

GOVERNMENTS FROM COLLECTING Q. Can the National Power

LOCAL BUSINESS TAX SHALL BE The government-owned or controlled

Courts are devoid of competence to customs duties usually to protect

1. Regular Duties — those imposed Flexible Tariff Clause

development program of the vessel constitutes implied abandonment

Any officer or employee returning Q. When does importation begin

A delinquency tax assessment d. When the warrant is duly served upon

c. performing any act tending to obstruct Exceptions

c. Taxpayer cannot be located in the Q. When to file a protest?

a. Request for reconsideration

a. Written claim for refund (mandatory)

c. Filing of administrative claim for refund

The taxpayer has two alternative options:

unscrupulous investigations and must

2. Abate or cancel a tax liability a) The Waiver of the Statute of

Waiver of the Statute of Limitations b) The waiver shall be signed by the

the waivers of statute of limitation are

4. The waiver may be notarized.

5. Considering that the waiver is a