TAX 2 UPDATED the subsidy should not be
subject to VAT.
BUSINESS TAX
VALUE-ADDED TAX
VAT is a tax on the value-
added
As its name implies, VAT is a tax
on the value added by the
taxpayer in the chain of
transactions.
But for simplicity and efficiency
in tax collection, VAT is
imposed not just on the value
added by the taxpayer, but on
the entire selling price of his
goods, properties or services.
However, the taxpayer is
allowed a refund or credit on
the VAT previously paid by
those who sold him the inputs
for his goods, properties, or
services.
The net effect is that the
taxpayer pays the VAT only on
the value that he adds to the
goods, properties, or services
that he actually sells.
CIR v. Mindanao II Geothermal
Partnership, GR 191498, Jan.
15, 2014
Subsidy NOT SUBJECT TO VAT
Sec. 106, NIRC explains when
VAT may be imposed or
exacted if there is a sale, barter
or exchange of goods or
properties.
Certainly, if there was no such
sale, barter or exchange in the
subsidy given by SIS to Sony,
Is the sale of power plant by
PSALM subject to VAT?
It was but a dole out by SIS and
not in payment for goods or
properties sold, bartered or
exchanged by Sony.
Sony did not render any service
to SIS at all.
The services rendered by the
advertising companies, paid for
by Sony using SIS dole-out,
were for Sony and not SIS.
SIS just gave assistance to Sony
in the amount equivalent to the
latter’s advertising expense but
never received any goods,
properties or service from
Sony.
CIR vs. Sony Philippines, Inc.,
G.R. 178697, Nov. 17, 2010.
Incidental transaction subject
to VAT
Transactions “in the course of
trade or business” include
“transactions incidental
thereto.”
In this case wherein A Corp
which is primarily engaged in
the business of conversion of
steam to electricity, which sold
its fully depreciated patrol car
which is part of its PPE account,
it was held that said sale of fully
depreciated patrol car is an
incidental transaction made in
the course of trade or business,
thus subject to VAT.
Mindanao Geothermal v. CIR,
GR 193301, March 11, 2013
The sale of the power plants by
PSALM in this case is not
subject to VAT since the sale
was made pursuant to PSALM' s
mandate to privatize NPC
assets, and was NOT
undertaken in the course of
trade or business.
It is similar to the sale of the
vessels of the NDC to
Magsaysay Lines, Inc. which
was not subjected also to VAT
since it was not in the course of
trade or business, as it was
involuntary and made pursuant
to the government's policy of
privatization.
Since the sale of the vessels
was an isolated transaction,
made pursuant to the
government's privatization
policy, and which transaction
could no longer be repeated or
carried on with regularity, such
sale was not in the course of
trade or business and was not
subject to VAT.
Destination Principle and
Cross-Border Doctrine
As a general rule, the VAT
system adheres to the
“DESTINATION PRINCIPLE” and
“CROSS-BORDER DOCTRINE” as
a basis for the jurisdictional
reach of the tax.
Goods and services are taxed
only in the country where they
are CONSUMED. Thus, exports
are zero-rated, while imports
are taxed. The PLACE WHERE
SERVICE IS ENTERED
determines the jurisdiction to the purchaser’s proper formerly the the person who
impose the VAT. The place of recourse is not against the BIR, BUYER or the is STATUTORILY
payment is immaterial much but against the seller who person to whom or DIRECTLY
less is the place where the shifted or passed on to it the the VAT was LIABLE TO PAY
output of the service will be VAT. passed on and THE TAX or the
further or ultimately used. who derived one who paid
PAGCOR is exempt from VAT INPUT TAXES on the tax.
This is the DESTINATION despite the enactment of RA such purchases;
PRINCIPLE. 9337 (but who is this
time around THE
CIR v. American Express Provision subjecting PAGCOR to
SELLER)
International, Inc. 462 SCRA VAT under RR 16-2005 is invalid Sale of the seller Not necessary.
197 (2005) for being contrary to RA 9337.
should either be Mere PAYMENT
On the other hand, the “CROSS ZERO-RATED or of a tax which is
Nowhere in RA 9337 is it
BORDER DOCTRINE” mandates EFFECTIVELY erroneous,
provided that PAGCOR can be
that no VAT shall be imposed to subject to VAT. ZERO-RATED illegal, or
form part of the cost of the SALE. beyond what is
goods destined for RA 9337 is clear only as to the legally due can
consumption OUTSIDE the removal of PAGCOR’s be claimed as a
TERRITORIAL BORDER of the exemption from the payment refund or credit.
taxing authority. Hence, actual of 30% corporate income tax The person Person claiming
export of goods and services on the income from other seeking the VAT the refund
from the Philippines to a related services, such as refund or credit claims that he
foreign country must be free of income from entertainment. has accumulated has
VAT, while those DESTINED for INPUT TAXES erroneously,
use or consumption within the PAGCOR is exempt from VAT derived from its illegally or
Philippines shall be imposed because PD 1869, PAGCOR’s purchases EXCESSIVELY
with 12% VAT. Charter (a special law), grants it ATTRIBUTABLE PAID the tax or
exemption from taxes. TO ITS ZERO penalty.
-PAGCOR v. BIR, GR 172087, RATED SALE
March 15, 2011 Prescriptive Prescriptive
Sale to PEZA-registered period for filing period for filing
enterprise should be free of Tax Refund under Sec. 112 vis- of of
VAT. à-vis Tax Refund under Sec. ADMINISTRATIVE ADMINISTRATIV
229 CLAIM for refund E CLAIM for
Following the Cross-Border
of excess input refund of tax
Doctrine and Destination Sec. 112, NIRC Sec. 229, NIRC
Principle, purchases of goods taxes is 2 YEARS erroneously/ille
and services that are destined Refers to refund Refers to refund from the close of gally/excessively
for consumption within the of of ERRONEOUS, the taxable paid is 2 YEARS
Ecozone (as a separate customs UNUTILIZED/EXC ILLEGAL, quarter when the from the date of
territory) should be free of VAT, ESS input VAT EXCESSIVE SALE was made. PAYMENT of the
hence, VAT should not be INTERNAL tax
passed on by the seller to the REVENUE TAX
buyer on the said sale. PAYMENTS
There is a 90-day No such waiting
Party claiming Party claiming
However, if the VAT had been WAITING PERIOD period.
the refund is the refund is
passed on the said sale, then for the CIR to
 decide i.e., 2 years (730 the claim was duly SUPERVENING
days) for filing of administrative filed within 2 CAUSE.
administrative claim and the years from the
Prescriptive Prescriptive claim; 90 days judicial claim, CLOSE OF THE
period for filing a period for filing waiting period i.e. which must QUARTER when
JUDICIAL CLAIM the JUDICIAL for the CIR to be filed within the ZERO-RATED
to the CTA is 30 CLAIM to the decide; 30 days the same 2-year OR EFFECTIVELY
DAYS from the CTA is also 2 for filing of period from the ZERO-RATED sale
RECEIPT of the years from the JUDICIAL CLAIM. date of payment was made.
DENIAL by the date of payment Taxpayer will of tax regardless
CIR . or within 30 always have 30 of any
DAYS from the days to file the supervening
receipt of the judicial claim cause.
DENIAL but even if the CIR Requisites for
which should acts only on the ADMINISTRATIVE CLAIM FOR
not exceed the 90th day. REFUND/TCC of unutilized
SAME 2-year input tax
period from the
date of There is no There must be a TP-claimant must be VAT-
PAYMENT of the wrongful wrongful registered person.
tax regardless of payment of tax payment, thus,
TP-claimant is engaged in the
any supervening because the what has been
Zero-rated Sales
cause. excess input VAT paid is not
is correctly and legally due or The input taxes are due or paid.
properly due to a
Filing of the Filing of the collected tax MISTAKE OF TP-claimant is applying for tax
administrative administrative FACT. refund or issuance of TCC on
claim and judicial and judicial excess input taxes attributable
claim CANNOT claims can be to such zero-rated sales,
BE DONE ON done even on The "excess" The “EXCESS” / EXCEPT TRANSITIONAL INPUT
THE SAME DAY. the SAME DAY input VAT erroneous / TAX.
BUT it is only attributable to illegal tax
required that zero-rated or payment must Said input taxes have not been
the effectively zero- have been paid applied vs. output tax during
administrative rated sale may for not more and in the succeeding quarters.
claim must be have been PAID than 2 years
PRIORLY MADE for more than 2 because both ADMINISTRATIVE CLAIM must
and must be years but this the be filed with the BIR within 2
within the 2- does not bar the ADMINISTRATIV years after the close of the
taxable quarter when the SALES
year period filing of a claim E and JUDICIAL
were made. - Silicon Phils. V.
from the date of for claim for refund
CIR, GR 182737, March 2, 2016
payment of tax. "excess“/unutiliz MUST be filed
ed INPUT VAT within 2 years For zero-rated sales under
under Section from the date of Section 106(A)(2)(a)(1), (2) and
There are 3 There is just one 112(A) for as long PAYMENT (b); and Sec. 108(B)(1) and (2),
important period involved as the REGARDLESS OF the acceptable foreign currency
periods involved, for filing both administrative ANY exchange proceeds have been
duly accounted for in
accordance with BSP rules and
regulations;
Where there are both zero-
rated or effectively zero-rated
sales and taxable or exempt
sales, and the input taxes
cannot be directly and entirely
attributable to any of these
sales, the input taxes shall be
proportionately allocated on
the basis of sales volume;
TP must comply with the
invoicing requirements and
accounting requirements and
the claim for refund must be
accompanied by supporting
documents that will prove its
compliance with all the
documentary and evidentiary
requirements.
Summary Rules on Prescriptive
Periods Involving Refund of
Input VAT
1. ADMINISTRATIVE CLAIM –
must be filed with the CIR
within 2 years from the close
of the taxable quarter when the
zero-rated sales were made.
2. WAITING PERIOD – CIR has
90 days from the date of FILING
AND SUBMISSION of complete
documents in support of the
administrative claim within
which to decide. Non-
observance of this period
would warrant the DISMISSAL
of the judicial claim for lack of
jurisdiction.
3. JUDICIAL CLAIM – must be
filed with the CTA within 30
days from receipt of CIR’s
decision denying the
administrative claim.
San Roque doctrine – DA 489-
83 need not wait for lapse of
120 day period to seek judicial
relief - provided there is a valid
claim for EQUITABLE ESTOPPEL
under Sec. 246, NIRC
(ALLOWED FROM 12-10-03 to
10-6-10 – PREMATURE FILING
(Gen Interpretative Ruling)
AICHI doctrine-reinstated the
120+30 day period as
Mandatory and Jurisdictional
What must be proven to be
entitled to a refund of
unutilized input VAT
In a claim for tax refund or tax
credit, the CLAIMANT must
prove not only entitlement to
the grant of the claim under
substantive law.
It must also show satisfaction
of all the documentary and
evidentiary requirements for an
administrative claim for a
refund or tax credit.
Hence, the mere fact that
petitioner's application for
zero-rating has been approved
by the CIR does not, by itself
justify the grant of a refund or
tax credit.
The taxpayer claiming the
refund must further comply
with the invoicing and
accounting requirements
mandated by the NIRC, as well
as by revenue regulations
implementing them
Takenaka Corp. – Phil. Branch v.
CIR, G.R. 193321. Oct. 19, 2016
Documents to be submitted to
prove zero-rated export sales.
A VAT-registered person must
present the following:
( 1) the sales invoice as proof of
the ZERO-RATED sale of goods;
(2) the export declaration or bill
of lading/airway bill as proof of
actual shipment of the goods
from the Phils to a foreign
country; and
(3) bank credit advice or
certificate of remittance or any
other document proving
payment for the goods in
acceptable foreign currency or
its equivalent in goods and
services.
Silicon Phils. V. CIR, GR 182737,
March 2, 2016
Under the present RULES,
when should the submission of
documents be deemed
“completed” for purposes of
determining the running of the
120-day period?
Application for VAT refund/tax
credit must be accompanied by
complete supporting
documents.
TP shall attach a statement
under oath attesting to the
completeness of the submitted
documents.
Affidavit shall further state that
the said documents are the
only documents which the TP
will present to support the
claim.
If TP is a juridical person, there
should be a sworn statement
that the officer signing the
affidavit (i.e., at least, the Chief
Financial Officer) has been
authorized by the Board of
Directors of the company.
(RMC 54-2014, June 11, 2014)
TP is barred from submitting
additional documents after he
has filed his administrative
claim.
Can the Court apply
retroactively this new
obligations upon taxpayers?
No. The new rules cannot be
applied rectroactively since it
imposes new obligations upon
taxpayers in order to perfect
their administrative claim, that
is, [1] compliance with the
mandate to submit the
"supporting documents"
enumerated under RMC 54-
2014 at the time of filing his
administrative claim; and [2]
the filing of "a statement under
oath attesting to the
completeness of the submitted
documents."
This should not prejudice
taxpayers who have every right
to pursue their claims in the
manner provided by existing
regulations at the time it was
filed, as provided for under
Sec.246 of the Tax Code.
Word “zero-rated” required to
be printed/written on the
Sales Invoices or Official
Receipts issued by VAT
taxpayers for purposes of tax
refund.
An applicant for a claim for
tax refund/TCC attributable
from his zero-rated sales must
not only prove entitlement to
the claim but also compliance
with all the documentary and
evidentiary requirements.
The invoicing requirements that
all VAT-registered taxpayers
should observe, such as:
(a) the BIR Permit to Print;
(b) the TIN of the VAT-
registered purchaser; and
(c) the word “zero-rated”
imprinted/or written on the
invoices/receipts issued by the
VAT registered TP.
Thus, the failure to comply
with the invoicing requirements
on the documents supporting
the sale will result to the
disallowance of the claim for
input tax by the purchaser-
claimant.
Can a taxpayer outrightly
deduct for income tax
purposes his accumulated and
unapplied input VAT
attributable to zero-rated
sales?
No. Unutilized creditable input
taxes attributable to zero-rated
sales can ONLY be recovered
through the application for
refund or tax credit.
Nowhere in the NIRC can we
find a specific provision
expressly providing for another
mode of recovering unapplied
input taxes, such as treating it
as outright deductible expense
for income tax purposes.
Thus, a proposition that
accumulated and unapplied
input VAT arising from
purchase of goods and services
attributable to zero-rated sale
after the expiration of the 2-
year prescriptive period may be
expensed outright has NO
LEGAL BASIS.
Are the amounts earmarked by
the HMO to the medical
service providers form part of
the gross receipts for VAT
purposes?
NO. The amounts earmarked
and actually spent for medical
utilization of its members
should not be included in the
computation of its gross
receipts for VAT purposes.
Since an HMO is primarily
engaged in arranging for
coverage or designated
managed care services that are
needed by plan holders for
fixed prepaid membership fees
and for a specified period of
time, then it is principally
engaged in the sale of services.
Thus, based on industry
practice, HMO informs its
would-be member beforehand
that 80% of the amount would
be earmarked for medical
utilization and only the
remaining 20% comprises its
service fee. In the latter case,
MEDICARD's sale of its services
is exempt from VAT under
Section 109(G).
Hence, its gross receipts
exclude the 80% of the amount
of the contract price earmarked
as fiduciary funds for the
medical utilization of its
members.
 Medicard Phils v. CIR,
GR 222743, April 5, 2017.
Zero-Rated Sale of Service
To come within the purview of
Section 108(B)(2), it is not
enough that the recipient of
the service be proven to be a
foreign corporation; rather, it
must be specifically proven to
be a nonresident foreign
corporation.
The Tax Code not only requires
that the services be other than
"processing, manufacturing or
repacking of goods" and that
payment for such services be in
acceptable foreign currency
accounted for in accordance
with BSP rules.
Another essential condition for
qualification to zero-rating
under Section 102(b )(2) is that
the recipient of such services is
doing business outside the
Philippines
If the provider and recipient of
the "other services" are both
doing business in the
Philippines, the payment of
foreign currency is irrelevant.
A taxpayer claiming for a VAT
refund or credit of unutilized
input taxes under Section
108(B) has the burden to prove
not only that the recipient of
the service is a foreign
corporation, but also that said
corporation is doing business
outside the Philippines.
Compliance with Invoicing
Requirement for VAT refund
In a claim for tax refund or tax
credit, the applicant must
prove not only entitlement to
the grant of the claim under
substantive law, but he must
also show satisfaction of all the
documentary and evidentiary
requirements for an
administrative claim for a
refund or tax credit and
compliance with the invoicing
and accounting requirements.
The NIRC requires that the
creditable input VAT should be
evidenced by a VAT invoice or
official receipt, which may only
be considered as such when
the TIN-VAT is printed thereon,
as required by Section 4.108-1
of RR 7-95.
Western Mindanao Power
Corp. v. CIR, 687 Phil. 328, 340
(2012),
VAT Invoice as source of input
tax
Only VAT registered persons
are required to print their TIN
followed by the word "VAT" in
their invoice or receipts and
this shall be considered as a
"VAT" Invoice. All purchases
covered by invoices other than
'VAT Invoice' shall not give rise
to any input tax.
Input VAT on purchases
supported by invoices or official
receipts which are NON-VAT
are disallowed because these
invoices or official receipts are
not considered as 'VAT
Invoices.“
Kepco Philippines Corp. v. CIR,
650 Phil. 525 (2010); Sitel
Whether the sale of coal of
Semirara Mining is now
subject to VAT.
No. The tax exemption
provided under Section 16 of
PD 972 was not revoked,
withdrawn or repealed
expressly or impliedly - by
Congress with the enactment of
RA 9337.
SMC is exempt from the
payment of VAT on the sale of
coal produced under its COC,
because Section 16(a) of PD
972, a special law, grants SMC
exemption from all national
taxes except income tax.
EXCISE TAX (“Sin Taxes”)
Imposed on
(1) Alcohol products
(2) Tobacco products
(3) Petroleum products
(4) Miscellaneous products
a. automobiles,
b. non-essential goods (ex.
Jewelries)
c.Non-essential services(ex.
Invasive Cosmetic surgery)
D. Sweetened beverages
(5) Mineral products
Goods and Services Subject to
Excise Taxes
Excise taxes apply to goods
manufactured or produced in
the Philippines for domestic
sale or consumption or for any
other disposition and to things
imported and on certain
services. The excise tax
imposed herein shall be in
addition to the VAT imposed
under Title IV, NIRC.
(1) Excise taxes imposed and
based on weight or volume
capacity or any other physical
unit of measurement shall be
referred to as “SPECIFIC TAX”
and
(2) Excise tax imposed and
based on selling price or other
specified value of the good
shall be referred to as “AD
VALOREM TAX.” (Sec. 129,,
NIRC)
Chevron Phils., Inc. v. CIR, G.R.
210836
Excise tax is an indirect tax.
Excise taxes are considered as a
kind of indirect tax, the liability
for the payment of which may
fall on a person other than
whoever actually bears the
burden of the tax.
Thus, the statutory taxpayer
may shift the economic burden
of the excise tax payment to
another – usually the BUYER.
In cases involving excise tax
exemptions on petroleum
products, it is the STATUTORY
TAXPAYER, not the party who
only bears the economic
burden, who is entitled to claim
the tax refund or tax credit.
However, the rule does not
apply where the law GRANTS
the party to whom the
economic burden of the tax is
shifted by virtue of an
EXEMPTION FROM BOTH
DIRECT AND INDIRECT TAXES.
In which case, such party must
be allowed to claim the tax
refund or tax credit even if it is
not considered as the statutory
taxpayer under the law.
Chevron Phils., Inc. v. CIR, G.R.
210836
Excise tax is a tax on property.
Excise tax imposed on
domestic products under said
Section is a TAX ON PROPERTY.
With respect to imported
things, Sec. 131, NIRC, declares
that excise taxes on imported
things shall be paid by the
IMPORTER to the Customs
officers before the release of
such articles from the customs
house, UNLESS the imported
things are exempt from excise
taxes and the person found to
be in possession of the same is
other than those legally
entitled to such tax exemption.
For this purpose, in the case of
importation, the statutory
taxpayer is the IMPORTER of
the things subject to excise tax.
 Chevron Phils., Inc. v.
CIR, G.R. 210836
Excise Tax is a tax on
production.
Excise tax is a tax on the
production, sale, or
consumption of a specific
commodity in a country.
Section 110 of the 1986 Tax
Code explicitly provides that
the "excise taxes on domestic
products shall be paid by the
manufacturer or producer
BEFORE THE REMOVAL of those
products FROM THE PLACE OF
PRODUCTION."
It does not matter to what use
the article subject to tax is put;
the excise taxes are still due,
even though the articles are
removed merely for storage in
some other place and are not
actually sold or consumed.
La Suerte Cigar & Cigarette
Factory v. CA / CIR v. Fortune
Tobacco Corporation,
International carriers are
exempt from aviation fuel
excise tax; hence,
manufacturers/importers
entitled to a refund of the
excise tax they already paid.
In fulfillment of international
agreement and practice to
exempt aviation fuel from
excise tax and other
impositions, petroleum
products SOLD by local
manufacturers/sellers to
international carriers are
EXEMPT from the imposition of
excise taxes as these
international carriers enjoy
exemption from payment of
excise taxes. (Section 135(a),
NIRC)
Thus, as the statutory taxpayer
who is directly liable to pay the
excise tax on its petroleum
products, they are entitled to a
refund or credit of the excise
taxes they paid for petroleum
products sold to international
carriers, the latter having been
granted exemption from the
payment of said excise tax.
Likewise, it involves the refund
of excise taxes paid on the
IMPORTATION of petroleum
products sold to tax exempt
entities.
The basic tax principle
applicable was the same in
both cases - that excise tax is a
TAX ON PROPERTY; hence, the
exemption from the excise tax
expressly granted under
Section 135 of the NIRC must
be construed IN FAVOR OF THE
PETROLEUM PRODUCTS on
which the excise tax was
initially imposed.
CIR v. Pilipinas Shell Petroleum
Corp., G.R. 180402. Feb. 10,
2016
Court cannot grant a
“shotgun” approach in
nullifying BIR issuances
allowing refund of excise tax.
The court cannot grant a
“shotgun” approach to the
CIR’s prayer that BIR Rulings,
and Regulations allowing tax
refund of excise taxes paid on
petroleum products sold to tax-
exempt entities or agencies
should be declared invalid.
What the CIR wants is a
wholesale invalidation of the
said issuances.
For one, SC has already ruled
that petroleum products sold to
them are exempt from excise
tax.
For another, the CIR failed to
state with specificity the tenor
of those issuances.
CIR v. Pilipinas Shell Petroleum
Corp., G.R. 180402. Feb. 10,
2016
Claim for Refund of Excise Tax
on Petroleum Products
Excise tax on petroleum
products is essentially a tax on
property, the direct liability for
which pertains to the statutory
taxpayer (i.e., manufacturer,
producer or importer).
Any excise tax paid by the
statutory TP on petroleum
products sold to any of the TAX
EXEMPT ENTITIES or AGENCIES
named in Sec. 135, NIRC is
deemed illegal or erroneous,
and should be credited or
refunded to the payor pursuant
to Secs. 204 and 229, NIRC.
This is because the exemption
granted under Sec. 135, NIRC
must be construed in favor of
the PROPERTY itself, that is, the
petroleum products.
The exemption cannot be
granted to the buyers – that is,
the entities that are by law
exempt from direct and indirect
taxes – because they are not
under any legal duty to pay the
excise tax.
Chevron Phils., Inc. v. CIR, G.R.
210836 ,
Section 141, NIRC, subjects
partially prepared tobacco,
such as stemmed leaf tobacco,
to excise tax
Stemmed leaf tobacco is
subject to the specific tax under
Section 141(b).
It is a partially prepared
tobacco.
The removal of the stem or
midrib from the leaf tobacco
makes the resulting stemmed
leaf tobacco a prepared or
partially prepared tobacco.
In the process of removng the
stems, the whole leaf tobacco
breaks into pieces; after the
stems or midribs are removed,
the tobacco is threshed (cut by
machine into fine narrow
strips) and then undergoes a
process of redrying,
undoubtedly showing that
stemmed leaf tobacco is a
partially prepared tobacco.
Since the Tax Code contained
no definition of "partially
prepared tobacco," then the
term should be construed in its
general, ordinary, and
comprehensive sense
 Stemmed leaf tobacco
transferred in bulk between
cigarette manufacturers are
exempt from excise tax
‘Stemmed leaf tobacco' means
leaf tobacco which has had the
stem or midrib removed.
The term does not include
broken leaf tobacco.
Section 137 authorizes a tax
exemption subject to the
following:
(1) that the stemmed leaf
tobacco is sold in bulk as raw
material by one manufacturer
directly to another; and
(2) that the sale or transfer has
complied with the conditions
prescribed by the DoF.
That the title of Section 137
uses the term "without
prepayment" while the body
itself uses "without payment" is
of no moment.
Both terms simply mean that
stemmed leaf tobacco may be
removed from the factory or
place of production without
prior payment of the specific
tax.
DOCUMENTARY
STAMP TAX
Nature of Documentary Stamp
Tax and Persons Primarily
Liable
The documentary stamp tax is a
tax on certain transactions.
Actually, all parties to a
transaction are primarily liable
for the DST, and not only the
person making, signing, issuing,
accepting or transferring the
same becomes liable as the law
provides.
Any of the parties to the
transaction shall be liable for
the full amount of the tax due:
Provided, however, that as
between themselves, the said
parties may agree on who shall
be liable or how they may share
on the cost of the tax.
Exception: Whenever one of
the parties to the taxable
transaction is exempt from the
tax imposed under Title VII of
the Code, the other party
thereto who is not exempt shall
be the one directly liable for
the tax.
Philacor Credit Corp. v. CIR,
690 SCRA 28 (2013)
When DST is deemed paid in
case TP uses a DS metering
machine.
 Payment of DST and
filing of the DST Declaration
Return upon loading/reloading
of the DS metering machine
must not be considered as the
"date of payment" when the
prescriptive period to file a
claim for a refund/credit must
commence.
For DS metering machine users,
the payment of the DST upon
loading/reloading is merely an
advance payment for future
application.
The liability for the payment of
the DST falls due only upon the
occurrence of a taxable
transaction.
Therefore, it is only then that
payment may be considered for
the purpose of filing a claim for
a refund or tax credit.
Since actual payment was
already made upon
loading/reloading of the DS
metering machine and the filing
of the DST Declaration Return,
the date of imprinting the
documentary stamp on the
taxable document must be
considered as the date of
payment contemplated under
Section 229 of the NIRC.
Do interbank call loan fall
under the definition of LOAN
AGREEMENTS subject to DST?
No. Interbank call loans,
although not considered as
deposit substitutes under Sec.
20(y), are not expressly
included among the taxable
instruments listed in Section
180 (now Sec. 179); hence, they
may not be held as taxable.
Even if it does, the DST liability
under Sec, 180 will only attach
if the loan agreement was
signed abroad but the object of
the contract is located or used
in the Phils which is not the
case in regard to PNB’s
interbank call loans
Besides, under Sec. 199(n) of
the NIRC of 1997, Interbank Call
Loans with maturity of not
more than 7 days to cover
deficiency in reserves against
deposit liabilities including
those between or among banks
and quasi-banks are not subject
to DST.
CIR v. PNB, G.R. 95147, June
11, 2016
Transfer of real properties to
the surviving corporation
pursuant to a MERGER NOT
subject to DST under Sec. 196.
NO. Because there is no
purchaser or buyer in the case
of merger.
DST under Sec. 196 is imposed
only on all conveyances, deeds,
instruments or writing where
realty sold shall be conveyed to
a PURCHASER.
If the transfer of real property
is neither a sale nor a
conveyance of real property
FOR A CONSIDERATION
contracted to be paid, then it is
not the one contemplated
under Sec. 196 of the Tax Code.
In a merger, the real properties
are not deemed "sold" to the
surviving corporation and the
latter could not be considered
as "purchaser" of realty since
the real properties subject of
the merger are merely
absorbed by the surviving
corporation by operation of law
and these properties are
deemed automatically
transferred to and vested in the
surviving corporation without
further act or deed.
Besides, Section 199, NIRC,
specifically exempts from the
payment of DST the transfer of
property pursuant to a merger.
Therefore, the transfer of real
properties to the surviving
corporation in pursuance of a
merger is not subject to DST.
Trust Indenture Agreement
which is not written constitute
as deposits or trusts subject to
DST.
Trust Indenture Agreements
between TRB and its clients are
simple loans governed by Art.
1980 of the Civil Code: Fixed,
savings, and current deposits of
money in banks and similar
institutions shall be governed
by the provisions concerning
simple loan.
The trust funds, being generic,
could not be segregated from
the other funds/deposits held
by TRB.
While TRB had the obligation to
return the equivalent amount
deposited, it had no obligation
to return or deliver the same
money deposited.
Legal title to the trust funds
was vested/transmitted to TRB
upon perfection of the trust
agreement.
It then followed that TRB could
make use of the funds/deposits
for its banking operations, such
as to pay interest on deposits,
to pay withdrawals and dispose
of the amount borrowed for
any purpose such as investing
the funds/deposits into a
profitable venture.
Trust Indenture Agreements
may be considered as “loan
agreements” or “debt
instruments” subject to DST
under Secs. 173 and 179, NIRC.
CIR v. Traders Royal Bank, GR
67134, March 18, 2015
No DST on electronic messages
Indeed, there had been no
acceptance of a bill of exchange
or order for the payment of
money on the part of HSBC.
To reiterate, there was no bill
of exchange or order for the
payment drawn abroad and
made payable here in the
Philippines.
Thus, there was no acceptance
as the ELECTRONIC MESSAGES
DID NOT CONSTITUTE THE
WRITTEN and signed
manifestation of HSBC to a
drawer's order to pay money.
As HSBC could not have been
an acceptor, then it could not
have made any payment of a
bill of exchange or order for the
payment of money drawn
abroad but payable here in the
Philippines.
In other words, HSBC could not
have been held liable for DST
under NOW Sec. 181, NIRC, as
it is NOT "a person making,
signing, issuing, accepting, or,
transferring" the taxable
instruments under the said
provision.
Thus, HSBC erroneously paid
DST on the said electronic
messages, hence, entitled to a
tax refund.
HSBC v. CIR, GR
166018/167728, June 4, 2014
Cooperative insurance
company is exempt from DST
If it conforms with the
elements of a cooperative as
defined in the NIRC in that it is
managed by members,
operated with money collected
from the members and has for
its main purpose the mutual
protection of members for
profit, then it is a cooperative,
and that registration with the
CDA is not necessary for it to
claim exemption from DST.
This absence of the registration
requirement under Sec, 199
clearly manifests the intention
of the Legislative branch of the
government to do away with
registration before the CDA for
a cooperative to benefit from
the DST exemption under this
particular section.
CIR v. Insular Life Assurance
Co., Ltd., GR 197192
REMEDIES RECKONING OF THE REGULAR
3-YEAR Prescriptive period for
Assessment and Collection of
PRESCRIPTION OF PERIOD TO
National Internal Revenue
ASSESS AND COLLECT TAXES
Taxes
Statute of Limitations on the
BIR has 3 years from the
Right to Assess and Collect
ACTUAL date of FILING of the
Taxes
return or from the LAST DAY
prescribed by law for the filing
Section 203, NIRC mandates
of return, whichever COMES
the BIR to ASSESS internal
LATER, TO ASSESS INTERNAL
revenue taxes within 3 years
REVENUE TAXES, or
from the last day prescribed by
law for the filing of the tax
to commence COURT
return OR the actual date of
proceedings for the
filing of such return, whichever
COLLECTION thereof WITHOUT
comes LATER.
AN ASSESSMENT.
And no proceeding in court
Hence, an assessment notice
without assessment for the
issued after the 3-year
COLLECTION of such taxes shall
prescriptive period is not valid
be begun after the expiration of
and effective.
such period
CIR v. Next Mobile, Inc., GR
Thus, an assessment notice
212825, Dec. 7, 2015;
issued after the 3-year
prescriptive period is not valid
However, when BIR validly
and effective, and therefore
issued an assessment within
may be cancelled and
the 3-year period, it has
withdrawn for being issued
another 3 years within which to
beyond the 3-year period.
COLLECT the tax due by
DISTRAINT, LEVY or COURT
Accordingly, once the period
PROCEEDING following the
established by law for the
assessment of the tax.
assessment of internal revenue
taxes has ALREADY LAPSED, the
government’s right to enforce EXCEPTIONS: (Sec. 222,
the action for assessment Is NIRC)
BARRED by provision of law.
CIR v. Next Mobile, Inc., G.R. EXCEPTION NO. 1: In case of
212825. Dec. 7, 2015. CIR v. false or fraudulent return with
intent to evade tax or of
Systems Technology Institute,
failure to file a return
Inc., G.R. 220835, July 26, 2017
CAGUIOA, J.:
1) In the 3 different cases of
(a) FALSE return (implies
deviation from the truth,
whether intentional or
not) or
(b) FRAUDULENT return with
intent to evade tax (intentional
or deceitful entry with intent to
evade taxes due), (c) FAILURE
to file a return,
the tax may be ASSESSED, or a
proceeding in court for the
COLLECTION of such tax may be
begun WITHOUT ASSESSMENT,
at any time WITHIN 10 YEARS
AFTER THE DISCOVERY OF THE
FALSITY, FRAUD or OMISSION.
in a fraud assessment which
has become final and
executory, the fact of fraud
shall be JUDICIALLY TAKEN
cognizance of in the civil or
criminal action for the
collection thereof (Sec. 222(a)
But any internal revenue tax
which has been assessed within
the period of limitation as
stated above may be
COLLECTED by distraint or levy
or by a proceeding in court
within 5 years following the
assessment of the tax. (Sec.
222(c )
When do we say that fraud is
duly established?
In the case of FRAUDULENT
RETURN, the fraud
contemplated by law must be
ACTUAL.
It must be intentional,
consisting of deception willfully
and deliberately done or
resorted to in order to induce
another to give up some right.
CIR v. Next Mobile, Inc., GR
212825, Dec. 7, 2015
Pertinent portion of RMO 27-10
reads:
B. Issuance of LOA in RATE
cases. – In all RATE cases, a
PRELIMINARY INVESTIGATION
must first be conducted to
establish prima facie evidence
of fraud or tax evasion.
Such investigation shall include
the verification and
determination of the schemes
employed and the extent of
fraud perpetrated by the
subject taxpayer.” Pacquiao v.
CIR
What would constitute as
PRIMA FACIE evidence of false
or fraudulent return?
If the expenses are overstated
and the income is
underdeclared by more than
30% of taxpayer’s reported or
declared expenses or income,
this constitutes as prima facie
evidence of false or fraudulent
return.
But the computation, as well as
the method used in
determining the tax liability,
should be clearly explained and
it should be shown that the
underdeclaration exceeded
30% of the reported or
declared income.
BIR v. CA, Spouses Antonio
Villan Manly, and Ruby Ong
Manly, G.R. 197590. Nov. 24,
2014
Difference between “false
return” and “fraudulent
return”.
That there is a difference
between "false return" and
"fraudulent return" cannot be
denied.
While the FALSE RETURN
merely implies deviation from
the truth, whether intentional
or not,
FRAUDULENT RETURN implies
intentional or deceitful entry
WITH INTENT TO EVADE THE
TAXES due .CIR v. Philippine
Daily Inquirer, Inc., G.R.
213943. March 22, 2017
When is tax evasion deemed
complete?
Tax evasion is deemed
complete when the violator has
knowingly and willfully filed a
fraudulent return with intent to
evade and defeat a part or all
of the tax.
An assessment of the tax
deficiency is not required in a
criminal prosecution for tax
evasion.
However, In CIR v. CA, the
Court clarified that although a
deficiency assessment is not
necessary, the fact that a tax is
due must first be proved before
one can be prosecuted for tax
evasion.
In the case of income, for it to
be taxable, there must be a
gain realized or received by the
taxpayer, which is not excluded
by law or treaty from taxation.
The government is allowed to
resort to all evidence or
resources available to
determine a taxpayer’s income
and to use methods to
reconstruct his income.
A method commonly used by
the government is the
EXPENDITURE METHOD, which
is a method of reconstructing a
taxpayer’s income by deducting
the aggregate yearly
expenditures from the declared
yearly income.
The theory of this method is
that when the amount of the
money that a taxpayer spends
during a given year exceeds his
reported or declared income
and the source of such money
is unexplained, it may be
inferred that such expenditures
represent unreported or
undeclared income. BIR v. CA,
Spouses Antonio Villan Manly,
and Ruby Ong Manly, G.R.
197590. Nov. 24, 2014
EXCEPTION NO. 2: When there
is a VALID WAIVER of the
Statute of Limitations
If before the expiration of the
regular 3-year period to assess
the tax, both the CIR and the TP
have agreed in writing to its
assessment after such time, the
tax may be assessed within the
period agreed upon.
The period so agreed upon may
be extended by subsequent
written agreement made
before the expiration of the
period previously agreed upon.
(Sec. 222(b)
But any internal revenue tax,
which has been assessed within
the period agreed upon, may
be COLLECTED by distraint or
levy or by a proceeding in court
WITHIN THE PERIOD AGREED
UPON in writing BEFORE THE
EXPIRATION OF the 5-year
period.
The period so agreed upon may
be extended by subsequent
written agreements made
before the expiration of the
period previously agreed upon.
(Sec. 222(d)
The regular 3-year period to
ASSESS deficiency taxes may be
extended only upon a written
agreement (WAIVER) between
the CIR and the TP executed
BEFORE THE EXPIRATION of the
3-year prescriptive period to
assess. (Sec. 222 (b), NIRC).
Assessment AGREED UPON
may be further extended by
subsequent written agreement
made before the expiration of
the period previously agreed
upon.
BUT Assessment made within
the period agreed upon may
be COLLECTED by distraint or
levy, or by a proceeding in
court BEFORE THE EXPIRATION
OF THE 5-YEAR PERIOD.
The period of collection agreed
upon may be extended by a
subsequent written agreement
MADE before the expiration of
the period previously agreed
upon. CIR v. Next Mobile, Inc.,
GR 212825, Dec. 7, 2015
What is a Waiver of the
Statute of Limitations?
This is a bilateral written
agreement between the
taxpayer and the CIR or his
authorized representative
executed before the expiration
of the regular 3-year
prescriptive period or before
the lapse of the period agreed
upon in case a subsequent
agreement is executed waiving
the said prescriptive period to
assess and collect the internal
revenue taxes and thereby
extending the said periods to
assess or collect to a certain
period agreed upon thru a
“Waiver of the Statute of
Limitations” in accordance with
the form and procedures laid
down by the law and
regulations.
Nature of the Waiver of the
Statute of Limitation
It is a derogation of the
taxpayer's right to security
against prolonged and
unscrupulous investigations,
thus, waivers of this kind must
be carefully and strictly
construed.
BUT It is NOT a waiver of the
right to invoke the defense of
prescription but rather an
agreement between the
taxpayer and the BIR that the
period to issue an assessment
and collect the taxes due is
extended to a date certain.
It is NOT a unilateral act by the
taxpayer or the BIR, but is a
bilateral agreement between
the taxpayer and the BIR.
 Requisites for the Proper
Execution of the Waiver of the
Statute of Limitations
Prior to RMO 14-2016 (April 18,
2016), the rule prevailing was
that the Waiver must faithfully
comply with the provisions of
RMC 29-2012 in order to be
valid and binding, viz:
1. Waiver must be in the proper
form prescribed in RMC 29-
2012 . (New: Waiver may NOT
necessarily be in the form
prescribed)
2. Phrase “but not later than
________”, which indicates the
expiry date of the period
agreed upon to assess/collect
the tax after the
ordinary/regular 3-year period
of prescription, should be filled
up.
3. Waiver must be signed by TP
himself or his duly authorized
representative & such
delegation should be in
WRITING. (New: In the case of
corp., by any of its responsible
officials.)
4. Waiver should be duly
notarized. (NEW: It MAY BE
NOTARIZED. It is sufficient that
it is in writing.)
5. The CIR or the revenue
official authorized by him shall
sign the waiver indicating the
date when it was signed and
that the BIR has accepted and
agreed to the waiver. It is a
BILATERAL AGREEMENT
between the parties.
6. Both the date of execution
by the TP and date of
acceptance by the BIR should
be BEFORE the expiration of
the period of prescription or
before the lapse of the period
agreed upon in case a
subsequent agreement is
executed.
7. Waiver must be executed in
3 copies (Orig copy attached to
docket of the case, 2nd copy
for TP; 3rd copy for the Office
accepting the waiver). The fact
of receipt by the TP of his file
copy must be indicated in the
orig copy to show that the TP
was notified of the acceptance
of the BIR and the perfection of
the agreement.
ADDITIONAL NEW RULES ON
WAIVER OF THE STATUTE OF
LIMITATIONS
1. Except for waiver of period
to collect taxes which shall
indicate the particular taxes
assessed, waiver of the period
to assess need not specify the
particular taxes to be assessed
nor the amount thereof, and it
may simply state "all internal
revenue taxes" considering that
during the assessment stage,
the CIR or her duly authorized
representative is still in the
process of examining and
determining the tax liability of
the TP.
2.Since TP is the applicant and
the executor of the extension
of the period of limitation for
its benefit in order to submit
the required documents and
accounting records, the TP is
charged with the burden of
ensuring that the waivers are
validly executed by its
authorized representative who
participated in the conduct of
audit or investigation, whose
authority shall not be
thereafter contested to
invalidate the waiver.
3. Considering that waiver is a
voluntary act of the TP, it shall
take legal effect and be binding
on the TP upon its execution
thereof.
4. lt shall be the duty of the TP
to submit its duly executed
waiver to the CIR or officials
previously designated in the
LOA/MOA 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.
TP shall have the duty to retain
a copy of the accepted waiver.
5. 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 TP or its authorized
representative; and
b) The expiry date of the period
the TP waives the statute of
limitations (RMO 14-2016, April
18, 2016)
 Effects if the Waiver is not in
accordance with the
Requirements and Procedures
The 3-year period of limitation
to assess deficiency taxes is not
extended; nor
That the extension of the
period of limitation for
assessment from 3 years to 10
years will not apply if the
allegation of false and
fraudulent return is not proven;
The Waiver will have no binding
effect if there are irregularities
in the execution thereof.
Estoppel does not apply in
questioning the validity of a
waiver of the Statute of
Limitations because BIR cannot
hide behind the doctrine of
estoppel to cover its failure to
comply with the rules.
Waiver not to be construed as
a waiver of the right to invoke
the defense of prescription
Waiver of the statute of
limitations, whether on
assessment or collection,
should not be construed as a
waiver of the right to invoke
the defense of prescription but,
rather, an agreement between
the TP and the BIR to EXTEND
the period to a date certain,
within which the latter could
still assess or collect taxes due.
Waiver does not imply that the
taxpayer relinquishes the right
to invoke the defense of
prescription unequivocally.
When Waiver is defective and
therefore invalid, it produces
no effect; thus, the prescriptive
period for collecting deficiency
income tax will never be
suspended nor tolled. CIR v.
Next Mobile, Inc. GR 212825,
Dec. 7, 2015
Is the TP estopped from
impugning the validity of the
Waiver as regards the
remaining tax deficiency in
view of a partial payment
made on the deficiency tax
being collected?
No. Although the taxpayer paid
the deficiency tax being
collected, it did not waive the
defense of prescription as
regards the remaining tax
deficiencies, especially if said
taxpayer continues to raise the
issue of prescription. CIR v.
Standard Chartered Bank, GR
192173, July 29, 2015
What is the GEN. RULE in the
interpretation of the waiver of
the Statute of Limitations?
General Rule: When a waiver
does not comply with the
requisites for its validity
specified under then RMC 29-
2012 (now amended by RMO
14-2016) , it is invalid and
ineffective to extend the
prescriptive period to assess or
collect taxes.
Are there Exceptions to the
General Rule?
Yes. In CIR v. Next Mobile, the
Court treated the case as an
exception to the rule and find
the Waivers VALID for the FF.
reasons:
(1) the parties are in pari
delicto or "in equal fault."
“In pari delicto” connotes that
the 2 parties to a controversy
are equally culpable or guilty
and they shall have no action
against each other.
However, although the parties
are in pari delicto, the Court
may interfere and grant relief
at the suit of one of them,
where public policy requires its
intervention (in consonance
with the principle that taxes
are the lifeblood of the
government, and their prompt
and certain availability is an
imperious need), even though
the result may be that a benefit
will be derived by one party
who is in equal guilt with the
other. Enrique T Yuchengco,
Inc. v. Velayo, No. L-50439, July
20, 1982 (115 SCRA 307).
(2) The Court has repeatedly
pronounced that parties must
come to court with clean
hands. Osmena v. Osmena,G.R.
171911, Jan.26,2010 (611 SCRA
164)
Parties who do not come to
court with clean hands cannot
be allowed to benefit from
their own wrongdoings. DPWH
v. Quiwa, G.R. 183444, Feb. 8,
2012 (665 SCRA 479).
Following the foregoing
principle, respondent should
not be allowed to benefit from
the flaws in its own Waivers
and successfully insist on their
invalidity in order to evade its
responsibility to pay taxes.
(3) Respondent is estopped
from questioning the validity of
its Waivers.
While it is true that the Court
has repeatedly held that the
doctrine of estoppel must be
sparingly applied as an
exception to the statute of
limitations for assessment of
taxes, the Court finds that the
application of the doctrine is
justified in this case.
Verily, the application of
estoppel in this case would
promote the administration of
the law, prevent injustice and
avert the accomplishment of a
wrong and undue advantage.
Here, Respondent executed 5
Waivers and delivered them to
BIR, one after the other.
It allowed BIR to rely on them
and did not raise any objection
against their validity until BIR
assessed taxes and penalties
against it.
Moreover, the application of
estoppel is necessary to
prevent the undue injury that
the government would suffer
because of the cancellation of
BIR’s assessment of
respondent's tax liabilities.
(4) The Court cannot tolerate
this highly suspicious situation.
Because the TP, after
voluntarily executing waivers,
insisted on their INVALIDITY by
raising the very same defects it
caused.
On the other hand, the BIR
miserably failed to exact from
respondent compliance with its
rules.
BIR's negligence in the
performance of its duties was
so gross that it amounted to
malice and bad faith.
Moreover, the BIR was so lax
such that it seemed that it
consented to the mistakes in
the Waivers.
Such a situation is dangerous
and open to abuse by
unscrupulous TPs who intend
to escape their responsibility to
pay taxes by mere expedient of
hiding behind technicalities.
It is true that BIR was also at
fault because it was careless in
complying with the
requirements of RMO 20-90
and RDAO 01-05.
Nevertheless, BIR’s negligence
may be addressed by enforcing
the provisions imposing
administrative liabilities upon
the officers responsible for
these errors.
But BIR's RIGHT TO ASSESS AND
COLLECT SHOULD NOT BE
JEOPARDIZED merely because
of the mistakes and lapses of its
officers, especially in cases like
this where the TP is obviously
in BAD FAITH. CIR v. Next
Mobile, Inc., G.R. 212825, Dec.
7, 2015
Prescription of Govt.’s Right to
Collect Taxes in Exceptional
Cases
The time limit for the
government to collect the
assessed tax is set at 5 years, to
be reckoned from the date
when the assessment notice
had been mailed / released
/sent to the taxpayer.
Further, Section 222(c) now
states that the assessed tax
must be collected by distraint
or levy and/or court proceeding
within the 5-year period- China
Banking Corporation v. CIR, GR
172509, Feb. 4, 2015
Suspension of the Running of
the Statute of Limitations
The running of the Statute of
Limitations provided in Secs.
203 and 222 on the making of
assessment and the beginning
of distraint or levy or a
proceeding in court for
collection, in respect of any tax
deficiency, shall be suspended
as follows:
(1) for the period during which
the CIR is prohibited from
making the assessment or
beginning distraint or levy or a
proceeding in court for
collection and for 60 days
thereafter;
(2) when the taxpayer requests
for a reinvestigation which is
granted by the CIR;
(3) when the taxpayer cannot
be located in the address given
by him in the return filed upon
which a tax is being assessed or
collected;
Provided, That, if the taxpayer
informs the CIR of any change
in address, the running of the
Statute of Limitations will not
be suspended; CIR v. Basf + Inks
Phils, Inc., G.R. 198677, Nov.
26, 2014
(4) when the warrant of
distraint or levy is duly served
upon the taxpayer, his
authorized representative, or a
member of his household with
sufficient discretion, and no
property could be located; and
(5) when the taxpayer is out of
the Philippines. - Sec. 223, NIRC
Running of period to assess
when not suspended
The suspension of the 3-year
period to assess applies only if
the CIR is not aware of the
whereabouts of the taxpayer.
Hence, despite the absence of a
formal written notice of the
TP’s change of address, the fact
remains that the BIR became
aware of TP’s new address as
shown by documents replete in
its records.
As a consequence, the running
of the 3-year period to assess
TP was not suspended and has
already prescribed. CIR v. Basf
Coating + Inks Phils, GR 198677,
Nov. 2014
When a Request for
Reinvestigation suspends the
Statute of Limitation
A request for reinvestigation
alone will not suspend the
statute of limitations.
Two things must concur:
(1) there must be a request for
reinveStigation and
(2) the CIR must have GRANTED
it. The burden of proof that the
request for reinvestigation had
been actually granted shall be
on the CIR.
Such grant may be expressed in
its communications with the
taxpayer or implied from the
action of the CIR or his
authorized representative in
response to the request for
reinvestigation. -China Banking
Corp. v. CIR. G.R. 172509. Feb.
4, 2015;
Failure to raise prescription at
the administrative level/lower
court as a defense is of no
moment
As a general rule, the failure to
raise the defense of
prescription at the
administrative level prevents
the taxpayer from raising it at
the appeal stage.
This rule, however, is not
absolute.
When the pleadings or the
evidence on record show that
the claim is barred by
prescription, the court may
motu proprio dismiss the claim
even if prescription is not
raised as a defense.
The provisions on prescription
were enacted to benefit and
protect taxpayers from
investigation after a reasonable
period of time. (Sec. 1, Rule 9,
RoC).China Banking Corp. v.
CIR. G.R. 172509. Feb. 4, 2015
When tax abatement is
deemed approved.
An application for tax
abatement is deemed approved
only upon the issuance of a
termination letter by the BIR.
The last step in the tax
abatement process is the
issuance of the termination
letter.
The presentation of the
termination letter is essential as
it proves that the taxpayer's
application for tax abatement
has been approved.
Thus, without a termination
letter, a tax assessment cannot
be considered closed and
terminated.
In case of denial, can the
payment made for the
abatement be considered as
double taxation?
However, in case the taxpayer’s
application for tax abatement is
denied, any payment made by
it would be applied to its
outstanding tax liability.
For this reason, taxpayer’s
allegation of double taxation
must fail.
 ASSESSMENT AND
COLLECTION OF TAXES
Meaning of the term
“Assessment”.
The term “assessment” refers
to the determination of
amounts due from a person
obligated to make payments.
In the context of national
internal revenue collection, it
refers the determination of the
taxes due from a taxpayer
under the NIRC of 1997.
The power and duty to assess
national internal revenue taxes
are lodged with the BIR.
When is the BIR required to
make assessment.
Taxes are generally self-
assessed because they are
initially computed and
voluntarily paid by the
taxpayer.
The government does not have
to demand it.
If the tax payments are correct,
the BIR is not mandated to
make an assessment because
tax returns filed with the BIR
enjoy the presumption that
these are in accordance with
the law.
Tax returns are also presumed
correct since these are filed
under the penalty of perjury.
Generally, however, the BIR
assesses taxes when it appears,
after a return had been filed,
that the taxes paid were
incorrect, false, or fraudulent.
The BIR also assesses taxes
when taxes are due but no
return is filed.
All PRESUMPTIONS are in favor
of the CORRECTNESS OF TAX
ASSESSMENTS
Tax assessments made by the
BIR shall be prima facie
PRESUMED CORRECT and made
in good faith,
TP has the burden of proof of
showing the incorrectness of
such assessment
In the absence of proof of any
irregularities in the
performance of duties, an
assessment duly made by a BIR
examiner and approved by his
superior officers will not be
disturbed.
Even an assessment based on
estimates is prima facie VALID
and lawful where it does not
appear to have been arrived at
arbitrarily or capriciously
Failure to present proof of
error in the assessment will
justify the judicial affirmance of
said assessment. - CIR v.
Traders Royal Bank, G.R. L-
167134, March 18, 2015
Does the CTA have the power
to make assessment?
The CTA has no power to make
an assessment at the first
instance.
On matters such as tax
collection, tax refund, and
others related to the national
internal revenue taxes, the
CTA’s jurisdiction is appellate in
nature.
When is Assessment Deemed
Made?
Assessment of the tax is
deemed made and the period
to COLLECT the assessed tax
begins to run on the date the
FINAL ASSESSMENT NOTICE
and FORMAL LETTER OF
DEMAND had been released,
mailed or sent to the taxpayer.
What is a Letter of Authority
(LOA)?
A LOA is the authority given to
the appropriate revenue officer
assigned to perform
assessment functions.
It empowers or enables said
revenue officer to examine the
books of account and other
accounting records of a
taxpayer for the purpose of
collecting the correct amount
of tax.
A LOA is premised on the fact
that the examination of a
taxpayer who has already filed
his tax returns is a power that
statutorily belongs only to the
CIR himself or his duly
authorized representatives. CIR
v. Sony Phils., Inc., 649 Phil. 519
(2010) cited in Medicard v. CIR,
G.R. 222743, April 5, 2017
 What is a Letter Notice (LN)?
LN is merely similar to a Notice
for Informal Conference (NIC).
However, for a Notice of
Informal Conference, which
generally precedes the issuance
of an assessment notice to be
valid, the same presupposes
that the revenue officer who
issued the same is properly
authorized in the first place,
which is not so in the case of
LN. Medicard v. CIR, G.R.
222743, April 5, 2017
Differences between LOA & LN
A LOA addressed to a revenue
officer is specifically required
under the NIRC before an
examination of a taxpayer may
be had while an LN is not found
in the NIRC and is only for the
purpose of notifying the
taxpayer that a discrepancy is
found based on the BIR' s
RELIEF System.
A LOA is valid only for 30 days
from date of issue while an LN
has no such limitation.
A LOA gives the revenue officer
only a period of 12O days from
receipt of LOA to conduct his
examination of the taxpayer
whereas an LN does not
contain such a limitation.
Simply put, LN is entirely
different. and serves a different
purpose than a LOA.
Due process demands that
after an LN has served its
purpose, the revenue officer
should have properly secured a
LOA before proceeding with the
further examination and
assessment of the taxpayer.
 BIR's General Audit
Procedures and Documentation
A LOA cannot be dispensed
with just because none of the
financial books or records being
physically kept by the TP was
examined.
To begin with, Sec. 6 of the
NIRC requires an authority from
the CIR or from his duly
authorized representatives
before an examination "of a
taxpayer" may be made.
The requirement of
authorization is therefore not
dependent on whether the TP
may be required to physically
open his books and financial
records but only on whether a
taxpayer is being subject to
examination.
Is the absence of a LOA fatal?
Yes. It is clear that unless
authorized by the CIR himself
or by his duly authorized
representative, through a LOA,
an examination of the taxpayer
CANNOT ordinarily be
undertaken.
The circumstances
contemplated under Sec. 6
where the taxpayer may be
assessed through best-evidence
obtainable, inventory-taking, or
surveillance among others has
nothing to do with the LOA.
These are simply methods of
examining the taxpayer in
order to arrive at the correct
amount of taxes.
Hence, unless undertaken by
the CIR himself or his duly
authorized representatives,
other tax agents may not
validly conduct any of these
kinds of examinations without
prior authority.
Is the issuance of a LOA
covering audit of unverified
prior years valid?
A LOA should cover a taxable
period NOT exceeding ONE
taxable year.
The practice of issuing LOAs
covering audit of unverified
prior years is prohibited.
If the audit of a taxpayer shall
include more than one taxable
period, the other periods or
years shall be specifically
indicated in the LOA.
What is the “No-contact audit
approach”?
RMO 30-2003 was
supplemented by RMO 42-
2003, which laid down the "no-
contact-audit approach" in the
CIR's exercise of its •power to
authorize any examination of
taxpayer arid the assessment of
the correct amount of tax.
The no-contact-audit approach
includes the process of
computerized matching of sales
and purchases data contained
in the Schedules of Sales and
Domestic Purchases~ and
Schedule of Importation
submitted by VAT taxpayers
under the RELIEF System
pursuant to RR 7-95, as
amended.
This may also include the
matching of data from other
information or returns filed by
the taxpayers with the BIR such
as Alphalist of Payees subject to
Final or Creditable Withholding
'Taxes.
Under this. policy, even without
conducting a detailed
examination of taxpayer's
books and records, if the
computerized/manual
matching of sales and
purchases/expenses appears to
reveal discrepancies, the same
shall be communicated to the
concerned taxpayer through
the issuance of LN.
Notice for Informal
Conference.
The Revenue Officer who
audited the taxpayer's records
shall state in his report whether
or not the taxpayer agrees with
his findings that the taxpayer is
liable for deficiency tax or
taxes.
lf the taxpayer is not amenable,
based on the said Officer's
submitted report of
investigation, the taxpayer shall
be informed, in writing, by the
RDO or by the SID, as the case
may be (in the case of RROs) or
by the Chief of Division
concerned (in the case of the
BIR NO) of the discrepancy/ies
in the taxpayer's payment of his
internal revenue taxes, for the
purpose of "Informal
Conference," in order to afford
the taxpayer with an
opportunity to present his side
of the case.
The IC shall in no case extend
beyond 30 days from receipt of
the NIC.
lf it is found that the taxpayer is
still liable for deficiency tax or
taxes after presenting his side,
and the taxpayer is not
amenable, the RDO or the
Chief, SID of the RRO, or the
Chief of Division in the NO, as
the case may be, shall endorse
the case within 7 days from the
conclusion of the IC to the
Assessment Div of the Region
or to the CIR or his duly
authorized representative for
issuance of a PAN.
Failure on the part of RO to
comply with the periods
indicated herein shall be meted
with penalty. - As amended by
RR 7-2018 issued on Jan. 31,
2018 reinstating the old
provision of RR 12-99, as
amended by RR 18-2013.
Requisites of Valid Assessment
Notice
1. Assessment SHALL be in
writing INFORMING the
taxpayer the LEGAL and
FACTUAL BASES of the tax
assessment made against him,
and not just “estimates based
on best possible sources.”
Pacquiao v. CIR, GR 213394,
April 6, 2016
(Use of the word “shall”
indicates the MANDATORY
nature of the requirements,
otherwise, the assessment is
VOID.)
2. Assessment should conform
with the provisions of Sec. 228,
NIRC. Old requirement of
merely NOTIFYING the taxpayer
of the CIR’s findings was
changed into INFORMING the
TP of not only the LAW, but
also of the FACTS on which an
assessment would be made,
OTHERWISE, the assessment
itself would be VOID or
INVALID.
3. An assessment, in order to
stand judicial scrutiny, MUST be
based on facts. The
presumption of the correctness
of an assessment, being a mere
presumption, cannot be made
to rest on another
presumption. Pacquiao v. CIR,
GR 213394, April 6, 2016
4. The law requires that the
legal and factual bases of the
assessment be stated in the
FORMAL letter of demand
(FLD)and FINAL ASSESSMENT
NOTICE(FAN).
5. A void assessment bears NO
VALID FRUIT.
Date of issuance of the notice
of assessment determines
which law to apply.
Date of issuance of the notice
of assessment determines
which LAW applies - the 1997
NIRC or the old Tax Code.
The claim that RR 12-99 is not
applicable at the time the PAN
and FAN for the deficiency EWT
has no basis.
Considering that such
regulations merely implements
the law, and does not create or
take away vested rights under
the law, the new law (even if
RR were issued much later)
may be applied retroactively.
Absence of the regulation does
not automatically mean that
the law itself would become
inoperative.
Procedures in tax assessments.
Under Sec 228, NIRC, a
taxpayer shall be informed in
writing of the law and the facts
on which the assessment is
made, otherwise, the
assessment shall be void.
The procedures are as follows:
1. NIC - RO who audited the
TP’s records shall state in his
report whether or not TP
agrees with his findings.
2. PAN - Issuance of a PAN
showing in detail, the facts and
the law, rules and regulations,
or jurisprudence on which the
proposed assessment is based.
2. REPLY - If the TP fails to
respond within 15 days from
date of receipt of the PAN, he
shall be considered in default.
3. Formal Letter of Demand
and Final Assessment Notice
(FLD and FAN) shall be issued
calling for payment of the TP’s
deficiency tax which shall state
the facts, the law, rules and
regulations, or jurisprudence
on which the assessment is
based, otherwise, the FLD and
FAN shall be void.
4.PROTEST (Disputed
Assessment) – The TP may
protest ADMINISTRATIVELY
against the FLD/FAN within 30
days from date of receipt either
thru a request for
reinvestigation or a request for
reconsideration.
Request for Reinvestigation – If
the protest is in the form of a
Request for Reinvestigation, TP
can submit documents relative
to the request within 60 days
from The filing of the request.
If the Request is a Request for
Reconsideration, then the
period to collect shall run from
the issuance of the FAN/FLD.
5. Final Decision on Disputed
Assessment (FDDA) – The CIR
has 180 DAYS within which to
grant or deny the protest. The
decision, however, of the CIR or
his duly authorized
representative SHALL
(a) state the facts, the
applicable law, rules and
regulations, or jurisprudence
on which such decision is
based, otherwise, the decision
shall be VOID, in which case,
the same shall not be
considered a decision on a
disputed assessment; AND
(2) that the same is his FINAL
DECISION.
(The use of the word “shall” in
Sec. 228 of the NIRC and in RR
No. 12-99, as amended,
indicates that the requirement
of informing the taxpayer of
the legal and factual bases of
the assessment and the
decision made against him is
MANDATORY. The requirement
of providing the taxpayer with
written notice of the factual
and legal bases applies both to
the FLD/FAN and the FDDA.)
Requirement of due process
NOT violated by the issuance
of RR 18-2013
So long as the parties are given
the opportunity to explain their
side (SUCH AS ISSUANCE to TPs
OF ASSESSMENT NOTICES), the
requirements of due process
are satisfactorily complied with
To proceed heedlessly with tax
collection without first
establishing a valid assessment
is evidently violative of the
cardinal principle in
administrative investigations:
that taxpayers should be able
to present their case and
adduce supporting evidence.
Thus, requirement of due
process is NOT violated when
the notice of informal
conference was removed from
the assessment process (RR 18-
2013), since a TP could still be
properly informed of the basis
of its tax liabilities thru the
issuance of assessment notice.
However, prior to the issuance
of the PAN, the TP may be
allowed to make VOLUNTARY
PAYMENTS of probable
deficiency taxes and penalties
(RMC 11-2014)
So after the review &
evaluation of the tax case, and
there is a sufficient basis to
assess the TP, a PAN shall be
issued to the TP which shall
show in detail the FACTS and
the LAW, RULES & REGS or
JURISPRUDENCE on which the
proposed assessment is based,
otherwise, the assessment
itself would be invalid.
Is the issuance of Notice of
Informal Conference
mandatory prior to RR 18-
2013?
One of the first requirements of
Sec.3 of RR 12-99, the then
prevailing RR on on the due
process requirement in tax
audits and/or investigation, is
that a NIC be first accorded to
the taxpayer.
The use of the word “shall” in
subsection 3.1.1 describes the
mandatory nature of the
service of a NIC.
The purpose of sending a NIC is
but part of the “due process
requirement in the issuance of
a deficiency tax assessment,”
the absence of which renders
nugatory any assessment made
by the tax authorities.
While R.R. 12-99 was recently
amended by R.R. 18-2013 on
Nov. 28, 2013, the same should
not be deemed to have
retroactive effect and cure the
otherwise fatal defect
committed by the CIR. R.R. 18-
2013 is bereft of any indication
that the RR shall operate
retroactively.
Spouses Paquiao v. CTA and
CIR, GR 213394, April 6, 2016
Sending the assessment notice
to the wrong address will never
attain finality of the assessment
notice.
The letter or notice must be
properly addressed.
It is not enough that the notice
is sent by registered mail as
provided under the Regulation.
Assessment notice which was
sent to the wrong address
would never attain finality if the
taxpayer never received it,
either ACTUALLY or
CONSTRUCTIVELY.
When is the assessment (FAN)
deemed made?
While it is true that an
assessment is made when the
notice is sent within the 3-year
period from the date of the
actual filing of the return or
from the last day prescribed by
law for the filing of the return,
whichever is later, the release,
mailing, or sending of the FAN
must still be clearly and
satisfactorily proved.
When an assessment is made
within the prescriptive period,
receipt by the taxpayer may or
may not be within said period.
If the TP denies having received
an assessment from the BIR, it
then becomes incumbent upon
the latter to prove by
competent evidence that such
notice was indeed received by
the TP. CIR v. Metro Star
Superama, Inc. 652 Phil. 172
(2010)
Mere notations made without
the taxpayer’s intervention,
notice or control, and without
adequate supporting evidence
cannot suffice.
When Assessment Notice
Deemed Received.
When an assessment is made
within the prescriptive period,
receipt by the taxpayer may or
may not be within said period.
If the taxpayer denies having
received an assessment from
the BIR, it then becomes
incumbent upon the latter to
prove by competent evidence
that such notice was indeed
received by the addressee.
Here the onus probandi has
shifted to the BIR to show by
contrary evidence that the
taxpayer indeed received the
assessment in the due course
of mail.
It has been settled that while a
mailed letter is deemed
received by the addressee in
the course of mail, this is
merely a disputable
presumption subject to
controversion, the direct denial
of which shifts the burden to
the sender to prove that the
mailed letter was, in fact ,
received by the addressee.
 Is the advice of tax deficiency
given to an employee a valid
substitute for the FAN?
No. The requirement for issuing
a PAN FAN informing a TP of
the existence of a deficiency tax
assessment is markedly
different from the requirement
of what such notice to an
employee,
Just because the CIR issued an
advice, a preliminary letter
during the preassessment stage
and a final notice, in the order
required by law, does not
necessarily mean that the TP
was informed of the law and
the facts on which the
deficiency tax assessment was
made.
The law requires that the legal
and factual bases of the a
ssessment be state in the
formal letter of demand and
assessment notice. Thus, such
cannot be presumed.
Is the issuance of a FAN arising
from an LN valid?
No. Failure to convert
previously issued LN to a LOA is
a clear and unequivocal
violation of a taxpayer’s right to
due process.
A LOA is the authority given to
the appropriate revenue officer
assigned to perform
assessment functions.
It empowers or enables said
revenue officer to examine the
books of account and other
accounting records of a
taxpayer for the purpose of
collecting the correct amount
of tax.
Not having authority to
examine the TP, the resulting
assessment issued against him
shall be deemed void.
Can the courts exercise
assessment power?
No. The courts have no
assessment powers, and
therefore, cannot issue
assessments against taxpayers.
The courts can only review the
assessments issued by the CIR,
who under the law is vested
with the powers to assess and
collect taxes and the duty to
issue tax assessments within
the prescribed period.
It would be unfair to allow the
CIR to use a claim for refund
under Sec. 112, NIRC as a
means to assess a taxpayer for
any deficiency VAT, especially if
the period to assess had
already prescribed.
When is it deemed that
collection process is already
made?
The period to collect the
assessed tax begins to run on
the date the FAN/FLD had been
released, mailed or sent by the
BIR to the taxpayer.
Evidence must be established
that a warrant of distraint or
levy has been served on the
properties of the taxpayer, or
any judicial proceedings had
been initiated by the BIR.
PROTEST
(Disputed
Assessment)
Requisites of a Valid Protest
(1) It must be made in writing
and addressed to the CIR or his
duly authorized representative,
filed by the TP or his duly
authorized representative (who
must be an accredited BIR tax
agent/practitioner), in person
or through registered mail with
return card with the Office of
the concerned RD, ACIR-LTS
and ACIR-EAS, who signed the
PAN/FAN/FLD, for proper
recording of the protest, and
evaluation if the same is in
accordance with Sec. 228 of the
Tax Code.
(2) It should be filed within 30
days from the receipt of the
FLD/FAN.
(3) It must contain all the
information required by the
rules, viz:
(a) Name of the TP and
address for the immediate past
3 taxable years;
(b) The nature of protest
whether a request for
reconsideration or
reinvestigation, specifying
newly discovered or additional
evidence he intends to present
if it is a request for
reinvestigation,
(c) Taxable periods covered
by the assessment;
(d) Amount and kind of tax
involved and the assessment
notice and number;
(e) Date of the assessment
notice, and date of receipt
thereof;
(f) Itemized statement of the
findings to which the taxpayer
agrees (if any) as basis for the
computation of the tax due,
which must be paid
immediately upon the filing of
the protest;
If there are several issues
involved in the FLD/FAN but the
TP only disputes or protests
against the validity of some of
the issues raised, the
assessment attributable to the
undisputed issue or issues shall
become final, executory and
demandable; and the taxpayer
shall be required to pay the
deficiency tax or taxes
attributable thereto.
(g) Itemized schedule of the
adjustments to which the
taxpayer does not agree;
(4) It should state the facts,
applicable law, rules and
regulations or jurisprudence on
which his protest is based,
otherwise the protest shall be
considered void and without
force and effect.
When the taxpayer fails to
state the facts, the applicable
law, rules and regulations, or
jurisprudence in support of his
protest against some of the
several issues on which the
assessment is based, the same
shall be considered undisputed
issue or issues, in which case,
the assessment attributable
thereto shall become final,
executory and demandable;
and the taxpayer shall be
required to pay the deficiency
tax or taxes attributable
thereto and a collection letter
shall be issued to the taxpayer
calling for payment of the said
deficiency tax, inclusive of the
applicable surcharge and/or
interest.
For request for reinvestigation,
the TP shall SUBMIT ALL
RELEVANT SUPPORTING
DOCUMENTS IN SUPPORT OF
HIS PROTEST WITHIN 60 DAYS
FROM THE DATE OF FILING OF
HIS LETTER OF PROTEST,
otherwise, the assessment shall
become final. The sixty (60)-
day period for the submission
of all relevant supporting
documents shall NOT apply to
request for reconsideration.
The CIR has 180 days within
which to decide on the protest
from the submission of all
relevant supporting
documents, in case the protest
is in the form of a request for
reinvestigation.
The request for reinvestigation
MUST BE GRANTED BY THE CIR.
Sec. 223, NIRC of 1997, as
amended. BPI vs. CIR, GR
139736, Oct. 17, 2005
RMC 38-2013 (May 2, 2013 )
provides that any legal petition
notice (LPN), declaration or any
similar document protesting
the assessment addressed to
the CIR or any official in the NO
without the issuance of a Final
Decision on Disputed
Assessment (FDDA) from the
regional office shall be
considered premature and
invalid. Dayrit v. Cruz, GR
39919, Sept. 26, 1988
Request for Reinvestigation vs.
Request for Reconsideration
(a) Request for
reconsideration– refers to a
plea for a re-evaluation of an
assessment on the basis of
existing records without need
of additional evidence; may
involve both a question of fact
or of law or both.
(b) Request for reinvestigation–
refers to a plea for re-
evaluation of an assessment on
the basis of newly-discovered
evidence or additional evidence
that a taxpayer intends to
present in the reinvestigation;
may also involve a question of
fact or law or both.
Request for reinvestigation
must be GRANTED first by the
CIR to suspend the running of
the prescriptive periods
A request for reinvestigation
alone will NOT suspend the
statute of limitations .
Two things must concur:
(1) there must be a request for
reinvestigation and
(2) the CIR must have granted
it
In order to effect suspension
OF THE PERIOD TO COLLECT.
Undoubtedly, it entails the
reception and evaluation of
additional evidence & will take
more time than a Motion for
Reconsideration, and thus
justifying why it can suspend
the running of the statute of
limitations, while the former
can not.
What is the proof that the
request for reinvestigation is
granted?
The burden of proof that the
request for reinvestigation had
been actually granted shall be
on the CIR.
Such grant may be EXPRESSED
in its communications with the
taxpayer or IMPLIED from the
action of the CIR or his
authorized representative in
response to the request for
reinvestigation.
If there is no showing that it
has been granted, it cannot be
said that the running of the 3-
year prescriptive period was
effectively suspended.
Can the BIR demand what type
of supporting documents to
submit?
No. The term “relevant
supporting documents” should
be understood as those
documents necessary to
support the legal basis in
disputing a tax assessment as
determined by the TP.
The BIR can only inform the TP
to submit additional
documents.
But it cannot demand what
type of supporting documents
should be submitted.
Otherwise, a TP will be at the
mercy of the BIR, which may
require the production of
documents that a TP cannot
submit.
Meaning of the term
“the assessment shall become
final”
The term “the assessment shall
become final” – means that the
failure of the TP who requested
for a reinvestigation to submit
all relevant supporting
documents within 60-day
period shall render the
FLD/FAN FINAL by operation
of law.
TP shall be barred from
disputing the correctness of the
FLD/FAN by the introduction of
newly discovered or additional
evidence because he is deemed
to have lost his chance to
present these evidence.
The BIR shall then DENY the
request for reinvestigation
through the issuance of an
FDDA.
(RMC 11-2014)
FINAL DECISION ON
DISPUTED
ASSESSMENT (FDDA)
 Adverse Decision of
CIR’s Representative
The term “CIR’s duly authorized
representatives” refers to
 Rev. Regional Directors,
 ACIR-LTS, and
 ACIR-EAS.
 Accordingly, responses
to PAN and protests (request
for
reconsideration/reinvestigation
) to the FLD/FAN should be
submitted to those who signed
the PAN and FLD/FAN.
 But protests in the
nature of REQUEST FOR
RECONSIDERATION arising from
adverse decisions (DENIAL) of
the duly authorized
representatives shall be filed
with the Office of the CIR.
 (RMC 39-2013; RMC 11-
2014)
Remedial Options of a
Protesting Taxpayer in case of
DENIAL or INACTION of the CIR
or authorized representative.
I. Protest filed to CIR’s
authorized representative
A. If the protest is DENIED, in
whole or in part, by the CIR’s
authorized representative, TP
may either:
i. APPEAL to the CTA within 30
days from date of re ceipt of
the decision;
Ii. Elevate his protest thru
REQUEST FOR
RECONSIDERATION to the CIR
within 30 days from date of
receipt of the decision. (No
Request for Reinvestigation
shall be allowed in
administrative appeal and only
issues raised in the decision
shall be entertained by the CIR)
B. In case of INACTION by the
CIR’s duly authorized
representative within 180 days
from filing of a Request for
Recon; or from date of
submission of documents
within 60 days from the date of
filing of a Request for
Reinvestigation, TP may either:
i. APPEAL to the CTA within 30
days after the expiration of the
180-day period; or
ii. AWAIT the final decision of
the CIR’s duly authorized
representative on the FDDA.
and once denied, he may
appeal to the CTA within 30
days from the receipt of the
decision.
Protest filed to the CIR –
A. If the protest or
administrative appeal, as the
case may be, is DENIED, in
whole or in part, by the CIR,
i. TP may APPEAL to the CTA
within 30 days from date of
receipt of the said decision.
Otherwise, the assessment
shall become final, executory
and demandable.
Ii. A motion for reconsideration
of the CIR’s denial of the
protest or administrative
appeal, as the case may be,
shall NOT toll the 30-day period
to appeal to the CTA.
B. In case of INACTION by the
CIR within 180 days counted
from the date of filing of the
protest, the taxpayer may
either:
i. APPEAL to the CTA within 30
days from the expiration of the
180-day period; or
Ii. AWAIT the final decision of
the CIR on the FDDA and appeal
such final decision to the CTA
within 30 days after the receipt
of a copy of such decision.
C. It must be emphasized,
however, that in case of
INACTION on protested
assessment within the 180-day
period, the option of the
taxpayer to either:
i. File a Petition for Review
with the CTA within 30 days
after the expiration of the 180-
day period; or
Ii. AWAIT the final decision of
the CIR or his duly authorized
representative on the disputed
assessment and APPEAL such
FDDA to the CTA within 30 days
after the receipt of a copy of
such decision, are MUTUALLY
EXCLUSIVE and the resort to
one bars the application of the
other.
RR v SC decision in case of
inaction
To further clarify the options:
A whole or partial denial by the
CIR's authorized representative
may be appealed to the CIR or
the CTA.
A whole or partial denial by the
CIR may be appealed to the
CTA.
The CIR or the CIR's authorized
representative's failure to act
may be appealed to the CTA.
There is no mention of an
appeal to the CIR from the
failure to act by the CIR's
authorized representative.
Requisites of a valid FDDA
The decision of the CIR on a
disputed assessment SHALL
state the
(1) facts, the applicable law,
rules and regulations, or
jurisprudence on which such
decision is based, otherwise,
the decision shall be VOID, and
(2) that the same is his final
decision.
The use of the word “shall” in
Section 228 of the NIRC and in
RR No. 12-99 indicates that the
requirement of informing the
taxpayer of the legal and
factual bases of the assessment
and the decision made against
him is MANDATORY.
The appealable DECISION is the
one which categorically states
that the CIR’s action on the
disputed assessment is FINAL,
and therefore, the reckoning of
the 30-day period to appeal to
the CTA is from the receipt of
that final decision of the CIR.
A void FDDA does NOT ipso
facto render the ASSESSMENT
void.
In resolving the issue on the
effects of a void FDDA, it is
necessary to differentiate an
“assessment” from a "assessment" and failure of the
“deciSion.”
Where a TP questions an
assessment and asks the CIR to
reconsider or cancel the same
because the TP believes he is
not liable thereto, the
assessment becomes a by implication beyond the clear
"disputed assessment" that the
CIR must decide, and the TP
can appeal to the CTA only
upon receipt of the decision of
the CIR on the disputed
assessment, in accordance with
par.(1) of sec. 7, RA 1125,
conferring appellate jurisdiction
upon the CTA to review
"decisions of the CIR in cases
involving disputed
assessment” .
What is appealable to the CTA
is the “decision” of the CIR on
disputed assessment and NOT
the assessment itself.
An assessment becomes a
disputed assessment after a
taxpayer has filed its protest to
the assessment in the
administrative level.
Thereafter, the CIR either issues
a decision on the disputed
assessment OR fails to act on it
and is, therefore, considered
denied.
Clearly, a decision of the CIR on
a disputed assessment differs
from the assessment itself.
Hence, the invalidity of one
does not necessarily result to
the invalidity of the other—
unless the law or regulations
otherwise provide.
A "decision" differs from an
FDDA to state the facts and law
on which it is based renders the
decision void- BUT NOT
NECESSARILY THE
ASSESSMENT.
Tax laws may not be extended
import of their language, nor
their operation enlarged so as
to embrace matters not
specifically provided.
Effects of a VOID FDDA
An FDDA that does not inform
the taxpayer in writing of the
facts and law on which it is
based renders the decision
void.
Therefore, it is as if there was
no decision rendered by the
CIR.
It is tantamount to a DENIAL BY
INACTION by the CIR, which
may still be appealed before
the CTA and the assessment
evaluated on the basis of the
available evidence and
documents.
Thus the merits of the
assessment should have been
discussed and not merely
brushed aside on account of
the void FDDA.
Tax laws may not be extended
by implication beyond the clear
import of their language, nor
their operation enlarged so as
to embrace matters not
specifically provided.
Clearly, a decision of the CIR on
a disputed assessment differs
from the assessment itself.
Hence, the invalidity of one
does not necessarily result to
the invalidity of the other—
unless the law or regulations
otherwise provide.
Section 228 of the NIRC
provides that an assessment
shall be void if the taxpayer is
not informed in writing of the
law and the facts on which it is
based.
It is, however, silent with
regards to a decision on a
disputed assessment by the CIR
which fails to state the law and
facts on which it is based.
This void is filled by RR No. 12-
99 where it is stated that failure
of the FDDA to reflect the facts
and law on which it is based
will make the decision void.
It, however, does not extend
to the nullification of the entire
assessment.
Effects of a VOID ASSESSMENT
The reason for requiring that
taxpayers be informed in
writing of the facts and law on
which the assessment is made
is the constitutional guarantee
that no person shall be
deprived of his property
without due process of law.
 Merely notifying the taxpayer
of its tax liabilities without
elaborating on its details is
insufficient.
The old requirement of merely
notifying the taxpayer of the
CIR's findings was changed in
1998 to informing the taxpayer
of not only the law, but also of
the facts on which an
assessment would be made;
otherwise, the assessment
itself would be invalid.
The cardinal rule in
administrative law is that the
taxpayer be accorded due
process. Not only was the law
here disregarded, but no valid
notice was sent, either. A void
assessment bears no valid fruit.
The law imposes a substantive,
not merely a formal,
requirement. To proceed
heedlessly with tax collection
without first establishing a valid
assessment is evidently
violative of the cardinal
principle in administrative
investigations: that taxpayers
should be able to present their
case and adduce supporting
evidence.
CLAIM FOR REFUND/
TAX CREDIT
CERTIFICATE
What is the general rule
regarding tax refunds?
Tax refunds are based on the
general premise that taxes
have either been erroneously,
illegally or excessively
PAID.
Though the Tax Code
recognizes the right of
taxpayers to request the return
of such excess/erroneous
payments from the
government, they must do so
within a prescribed period.
Further, "a taxpayer must
prove not only his entitlement
to a refund, but also his
compliance with the procedural
due process as non-observance
of the prescriptive periods
within which to file the
administrative and the judicial
claims would result in the
denial of his claim.
Differentiate tax refund from
tax credit
Tax refund is defined as the
money that a taxpayer overpaid
and is thus returned by the
taxing authority.
Tax credit is an amount
subtracted directly from one’s
total tax liability. It is an
amount given to a taxpayer as a
subsidy, a refund, or an
incentive to encourage
investment
What is the nature of a claim
for refund?
Claims for tax refunds are in
the nature of tax exemptions
which result in loss of revenue
for the government.
Upon the person claiming an
exemption from tax payments
rests the burden of justifying
the exemption by words too
plain to be mistaken and too
categorical to be
misinterpreted; it is never
presumed nor be allowed solely
on the ground of equity.
In addition, one who claims
that he is entitled to a tax
refund must not only claim that
the transaction subject of tax is
clearly and unequivocally not
subject to tax - the amount of
the claim must still be proven in
the normal course, in
accordance with the prescribed
rules on evidence.
What are “erroneously paid
taxes”?
The self-assessing and
voluntarily paying taxpayer,
however, may later find that he
or she has erroneously paid
taxes.
Erroneously paid taxes may
come in the form of
(1) amounts that should not
have been paid, or
(2) in the form of tax payments
for the wrong category of tax.
In these instances, the taxpayer
may ask for a refund.
If the BIR fails to act on the
request for refund, the TP may
bring the matter to the CTA.
CTA may acquire jurisdiction
over cases even if they do not
involve BIR assessments or
decisions, SUCH AS IN A CLAIM
FOR REFUND where the CIR had
failed to act (INACTION) on its
claim for refund of erroneously
paid taxes.
Reckoning of the 2-year period
with respect to payment
effected thru the WHT System
Payment is a mode of
extinguishing obligations (Art.
1231, NCC) and it means not
only the delivery of money but
also the performance, in any
other manner, of an obligation.
A taxpayer, resident or non-
resident, does so - not really to
deposit an amount to the CIR,
but to perform and extinguish
his tax obligation for the year
concerned.
In other words, he is paying his
tax liabilities for that year.
Consequently, a taxpayer
whose income is withheld at
source will be deemed to have
paid his tax liability when the
same falls due at the end of the
tax year.
It is from this latter date then,
or when the tax liability falls
due, that the 2-year
prescriptive period under Sec.
229 of the NIRC starts to run
with respect to payments
effected through the
withholding tax system.
The aforequoted ruling
presents two alternative
reckoning dates: (I) the end of
the tax year; and (2) the date
when the tax liability falls due,
as the case may be.
Reckoning of the 2-year period in
the case of final withholding tax
The tax involved in this case is a
10% FWHT on Metrobank's
interest income on its foreign
currency denominated loan
extended to LHC.
FWHTs are considered as full
and final payment of the
income tax due, and thus, are
not subject to any adjustments.
Thus, the 2-year prescriptive
period commences to run from
the time the refund is
ascertained, i.e., the date such
tax was paid, and not upon the
discovery by the taxpayer of
the erroneous or excessive
payment of taxes.
Reckoning of the 2-year period
in the case of corporate
income tax
Claim for refund of erroneously
paid taxes must be done within
2 years from the DATE OF
PAYMENT (i.e., when the tax
liability FALLS DUE; ex. From
filing of FAR in the case of
corporations (for income tax),
because a TP whose income is
withheld at source will be
deemed to have paid his tax
liability when the same falls
due at the END OF THE YEAR,
(and it was only at that time
when its right to a refund was
ascertained.
The quarterly tax payments
which are computed based on
the cumulative figures of gross
receipts and deductions in
order to arrive at a net taxable
income, should be treated as
advances or portions (or mere
installments) of the annual tax
due , to be adjusted at the end
of the calendar or fiscal year
Reckoning of the 2-year period
for the claim for refund in the
case of erroneous payment of
DST
For DST metering machine
users, the payment of the DST
upon loading/reloading is
merely an ADVANCE PAYMENT
for future application.
The liability for the payment of
the DST falls due only upon the
occurrence of a taxable
transaction.
Therefore, it is only then that
payment may be considered for
the purpose of filing a claim for
a refund or tax credit.
Since actual payment was
already made upon
loading/reloading of the DS
metering machine and the filing
of the DST Declaration Return,
the date of IMPRINTING the
DST on the TAXABLE
DOCUMENT must be
considered as the date of
payment contemplated under
Section 229, in relation to Sec.
200 of the NIRC.
Refund under Sec. 204
vs. Refund under Sec.
229
Both sections pertain to the
refund of erroneously or
illegally collected taxes.
But Refund under Sec. 204
applies to ADMINISTRATIVE
CLAIM for refund, while Refund
under Sec. 229 applies to
JUDICIAL CLAIM for refund.
In both instances, TP’s claim
must be filed within 2 years
from the date of PAYMENT of
the tax or penalty.
Sec. 229 though further
requires the condition that a
judicial claim may not be
maintained until a claim for
refund or credit has been been
duly filed with the CIR.
However, the law simply
requires that an administrative
claim should be PRIORLY FILED
with the CIR before a JUDICIAL
CLAIM for refund can be filed.
Should judicial claim for refund
be dismissed for non-
exhaustion of administrative
remedies.
ADMINISTRATIVE CLAIM FOR
REFUND is meant simply that
the CIR shall be given an
opportunity to consisder his
mistake, if mistake has been
committed, before he is sued.
So it is intended PRIMARILY as a
notice of WARNING to the CIR
that unless the tax or penalty
alleged to have been collected
erroneously or illegally is
refunded, court action will
follow.
Nowhere and in NO wise does
the law imply that the CIR must
act upon the claim, or that the
taxpayer shall not go to court
before he is notified of the
CIR’s action.
Hence, an administrative claim
and a judicial claim for refund
filed within the same 2-year
period should not be treated as
violative of non-exhaustion of
administrative remedies
because the law did not require
that the CIR must act upon the
claim and that the taxpayer
shall not go to court before he
is notified of the CIR’s action.
All that is needed is that the
administrative claim should be
priorly made.
Requisites of claim for refund
of erroneously paid or illegally
collected NATIONAL INTERNAL
REVENUE TAXES
(1)TP should file a WRITTEN
ADMINISTRATIVE CLAIM for
refund or tax credit with the
CIR within 2 years from the
date of PAYMENT of the tax or
penalty; If it files its claim on
the last day of said period, it is
still filed on time
(2) But a return filed showing
an overpayment shall be
considered as a written claim
for credit or refund.
(3) Claim for refund must be a
categorical demand for
reimbursement;
(3) There must be a proof of
payment of the erroneously or
illegally collected taxes altho it
is NOT NECESSARY THAT THE
TAX HAD BEEN PAID UNDER
PROTEST or DURESS.
(4) JUDICIAL CLAIM, however,
should be filed within the same
2 year period from the date of
payment of the tax or penalty
REGARDLESS OF ANY
SUPERVENING CAUSE that may
arise after payment. If it files its
claim on the last day of said
period, it is still filed on time
provided that the
ADMINISTRATIVE CLAIM had
been PRIORLY MADE.
(5) If the claim for refund was
denied by the CIR within the 2-
year period, the TP may elevate
his claim to the CTA within 30
days from receipt of the denial
which must not exceed 2 years
from payment of the tax. Sec.
3(a), RRCTA
(6)The denial of the claim for
refund filed with the CIR is the
one which will vest the CTA’s
jurisdiction over the refund
case should the TP decide to
appeal on time.
(7) But No refund shall be
given resulting from availment
of incentives granted pursuant
to special laws for which no
actual payment was made.
Section 229, NIRC
 What is the theory of
“supervening cause”?
The theory of supervening
cause expresses that regardless
of any event which is beyond
the control of the parties that
may arise after payment,
recovery of erroneously or
illegally collected taxes cannot
be allowed when it has been
made beyond the prescriptive
period from the occurrence of
such event.
The 2-year period of limitation
for filing a claim for refund is
not only a limitation for
pursuing the claim at the
administrative level but also a
limitation for appealing the
casE to the CTA.
The law provides that “no suit
or proceeding shall be filed
after the expiration of 2 years
from the date of the payment
of the tax or penalty regardless
of any supervening cause that
may arise after payment.
Thus, claims for refund MUST
be elevated to the CTA as well
before the expiration of the 2-
year period because the
prescriptive period will not be
suspended regardless of any
supervening event.
What is the primary purpose of
filing an administrative claim
for refund?
The primary purpose of filing an
administrative claim for refund
is to serve as a notice or
warning to the CIR that court
action would follow unless the
tax or penalty alleged to have
been collected erroneously or
illegally is refunded.
It simply means that the CIR
shall be given an opportunity to
consider his mistake, if mistake
has been committed, before he
is sued,
Nowhere and in no wise does
the law imply that the CIR must
act upon the claim, or that the
taxpayer shall not go to court
before he is notified of the
CIR’s action.
It does not mean that the
taxpayer must await the final
resolution of its administrative
claim, since doing so would be
tantamount to the taxpayer's
forfeiture of his right to seek
judicial recourse should the 2-
year prescriptive period expire
without the appropriate judicial
claim being filed.
It is only required that an
administrative claim should BE
PRIORLY FILED.
If a TP chooses to await for the
decision of the CIR knowing
fully well that the prescriptive
period is about to lapse, it
would resultantly forfeit its
right to seek a judicial review of
its claim, thereby suffering
irreparable damage.
Presentation of Quarterly ITRs
of the succeeding year NOT
MANDATORY in a claim for
refund
(1) There is no question that
those who claim must not only
prove its entitlement to the
excess credits, but likewise
must prove that no carry-over
has been made in cases where
refund is sought.
But requiring that the
Quartterly ITR or the FAR of the
succeeding year be presented
to the BIR in requesting a tax
refund has no basis in law and
jurisprudence.
Sec. 76 merely requires the
filing of the FAR for the
preceding (NOT succeeding)
taxable year.
Indeed, any refundable amount
indicated in the FAR of the
preceding taxable year may be
credited against the estimated
income tax liabilities for the
taxable quarters of the
succeeding taxable year.
However, nowhere is there
even a tinge of a hint in any
provisions of the NIRC that the
FAR of the taxable year
following the period to which
the tax credits are originally
being applied should also be
presented to the BIR.
At best, the existence of
quarterly ITRs would have the
effect of strengthening a
proven fact.
And as such, may only be
considered corroborative
evidence, obviously not
indispensable in character.
Requirements to be entitled to
a TCC of excess creditable
withholding tax
RR 2-98 provides that claims for
refund of income taxes
deducted and withheld from
income payments shall be given
due course subject to the
satisfaction of the ff
requirements:
(1) The claim for refund should
be filed with the CIR within the
2-year reglementary period
pursuant to Sec. 204, NIRC.
(2) It is shown in the ITR of the
recipient that the income
payment received was declared
as part of the gross income
(Sec. 2.58.3, RR 2-98); and
(3) That the fact of withholding
is established by a copy of the
withholding tax statement, duly
issued by the payor to the
payee, showing the amount
paid and the income tax
withheld therefrom (as
evidenced by the "x" mark in
the appropriate box of its
income tax return, and the
same was not carried over in its
income tax return; ).
FAR can prove that prior years
excess credits were not utilized
for the year
Sec. 76, NIRC, requires a
corporation to file a FAR (or
Annual ITR) covering the total
taxable income for the
preceding calendar or fiscal
year.
The total taxable income
contains the combined income
for the 4 quarters of the
taxable year, as well as the
deductions and excess tax
credits carried over in the
quarterly ITRs for the same
period.
If the excess tax credits of the
preceding year were deducted,
whether in whole or in part,
from the estimated income tax
liabilities of any of the taxable
quarters of the succeeding
taxable year, the total amount
of the tax credits deducted for
the entire taxable year should
appear in the FAR under the
item “Prior Year’s Excess
Credits.”
Otherwise, or if the tax credits
were carried over to the
succeeding quarters and the
corporation did not report it in
the FAR, there would be a
discrepancy in the amounts of
combined income and tax
credits carried over for all
quarters and the corporation
would end up shouldering a
bigger tax payable.
It must be remembered that
taxes computed in the
quarterly returns are mere
estimates.
It is the FAR which shows the
aggregate amounts of income,
deductions, and credits for all
quarters of the taxable year.
It is the FAR which shows
whether a corporation incurred
a loss or gained a profit during
the taxable quarter.
Thus, the presentation of the
FAR would suffice in proving
that prior year’s excess credits
were not utilized for the
taxable year in order to make a
final determination of the total
tax due.
Mechanisms and Remedies
that a corporate taxpayer may
opt to exercise under Sec. 76,
NIRC
Domestic Corporations liable
to tax shall file a FAR covering
the total taxable income for the
preceding calendar or fiscal
year.
If the sum of the quarterly tax
payments made during the said
TY is not equal to the total tax
due on the entire taxable
income of that year, the
corporation shall either:
(A) Pay the balance of the tax
still due; or
(B) Carry over the excess credit;
or
(C) Be credited or refunded
with the excess amount paid, as
the case may be.
In case the corporation is
entitled to a tax credit/refund,
the excess amount on its FAR
may be CARRIED OVER AND
CREDITED against the
estimated quarterly income tax
liabilities for the taxable
QUARTERS of the succeeding
taxable YEARS.
Once the OPTION TO CARRY
OVER and apply the excess
quarterly income tax against
income tax due for the taxable
years of the succeeding taxable
years has been made, such
option shall be considered
IRREVOCABLE FOR THAT
TAXABLE PERIOD and no
application for cash refund or
issuance of a tax credit
certificate shall be allowed
therefor.
The two options are
ALTERNATIVE and not
cumulative in nature, that is,
the choice of one precludes the
other. The logic behind the rule
is to ease tax administration,
particularly the self-assessment
and collection aspects.
RP, represented by the CIR v.
Team (Phils. ) Energy Corp.
(formerly Mirant [Phils. ]
Energy Corp.), G.R. 188016, Jan.
14, 2015
Basis of the Claim for Refund
Tax refunds are based on the
general premise that taxes
have either been erroneously
or excessively paid.
Though the Tax Code
recognizes the right of
taxpayers to request the return
of such excess/erroneous
payments from the
government, they must do so
within a prescribed period.
Further, "a taxpayer must
prove not only his entitlement
to a refund, but also his
compliance with the procedural
due process as nonobservance
of the prescriptive periods
within which to file the
administrative and the judicial
claims would result in the
denial of his claim."
Nature of Claims for Refund
Claims for refund are civil in
nature and as such, claimant,
though having a heavy burden
of showing entitlement, need
only prove preponderance of
evidence in order to recover
excess credit in cold cash.
Preponderance of evidence is
defined as the weight, credit,
and value of the aggregate
evidence on either side and is
usually considered to be
synonymous with the term
‘greater weight of the evidence’
or ‘greater weight of the
credible evidence.’
It is evidence which is more
convincing to the court as
worthy of belief than that
which is offered in opposition
thereto.
May the Court determine if a
TP claiming refund is more
properly liable for taxes other
than that paid?
Yes, If the issue of a TP’s claim
for refund is intertwined with
the issue of the proper taxes
that are due from him.
A claim for tax refund carrIes
the assumption that the tax
return filed were correct.
If the tax return filed was not
proper, the correctness of the
amount paid and, therefore,
the claim for refund become
questionable.
In that case, the court must
determine if a taxpayer
claiming refund of erroneously
paid taxes is more properly
liable for taxes other than that
paid.
Determining the proper
category of tax that should
have been paid is not an
assessment.
It is incidental to determining
whether there should be a
refund.
Can the issue of tax deficiency
and tax refund be determined
at the same time by the Court?
No. Any liability in excess of
the refundable amount,
however, may not be collected
in a case involving solely the
issue of the taxpayer’s
entitlement to refund.
The question of tax deficiency is
distinct and unrelated to the
question of entitlement to
refund.
Tax deficiencies should be
subject to assessment
procedures and the rules of
prescription.
The court cannot be expected
to perform the BIR’s duties
whenever it fails to do so either
through neglect or oversight.
Neither can court processes be
used as a tool to circumvent
laws protecting the rights of
taxpayers.
When may the Court not grant
a claim for refund?
When an assessment is made in
case of any list, statement, or
return, which in the opinion of
the CIR was false or fraudulent
or contained any
understatement or
undervaluation, no tax
collected under such
assessment shall be recovered
by any suits unless it is proved
that the said list, statement, or
return was not false nor
fraudulent and did not contain
any understatement or
undervaluation;
But this provision shall not
apply to statements or returns
made or to be made in good
faith regarding annual
depreciation of oil or gas wells
and mines. Sec. 72, NIRC.
It means that the grant of a
refund is founded on the
assumption that the tax return
is valid, that is, the facts stated
therein are true and correct.
If the deficiency assessment,
although not yet final, created
a doubt as to and constitutes a
challenge against the truth and
accuracy of the facts stated in
said return, it cannot by itself
and without unquestionable
evidence, be the basis for the
grant of the refund.
May interest be awarded on a
claim for refund?
The rule is that no interest on
refund of tax can be awarded
unless authorized by law or the
collection of the tax was
attended by arbitrariness.
An action is not arbitrary when
exercised honestly and upon
due consideration where there
is room for two opinions,
however much it may be
believed that an erroneous
conclusion was reached.
Arbitrariness presupposes
inexcusable or obstinate
disregard of legal provisions.
Thus, unjustified refusal to
release the funds to be
deposited in escrow, in utter
disregard of the orders of the
Court constitute arbitrariness,
in which case it was held that
respondent is held liable to pay
the legal interest of 6% p.a. of
the 20% FWHT on the
PEACEBonds.
Effect when a claimant of tax
refund violates the
“irrevocability rule”
The irrevocability rule under
Section 76, NIRC, means that
once an option, either for
refund or issuance of TCC or
carry-over of CWT has been
exercised, the same can no
longer be modified for the
succeeding taxable years.
However, should there be a
possibility that a claimant may
have violated the irrevocability
rule and thereafter claim twice
from its credits, no one is to be
blamed but the CIR for not
discharging its burden of
evidence to destroy a succeeding taxable years has
claimant’s right to a refund.
At any rate, a claimant who
defrauds the government
cannot escape liability be it
criminal or civil in nature.
Remedies that a corporate
taxpayer may opt to exercise:
Every corporation liable to tax
under Sec. 27 shall file a FAR
covering the total taxable
income for the preceding
calendar of fiscal year.
If the sum of the quarterly tax
payments made during the said
taxable year is not equal to the
total tax due on the entire
taxable income of that year,
the corporation shall either:
(A) Pay the balance of the tax
still due; or
(B) Carry over the excess credit;
or
(C) Be credited or refunded
with the excess amount paid, as
the case may be.
In case the corporation is
entitled to a tax credit or
refund of the excess estimated
quarterly income taxes paid,
the excess amount shown on
its FAR may be carried over and
credited against the estimated
quarterly income tax liabilities
for the taxable quarters of the
succeeding taxable years.
Once the option to carry over
and apply the excess quarterly
income tax against income tax
due for the taxable years of the
been made, such option shall
be considered IRREVOCABLE for
that taxable period and no
application for cash refund or
issuance of TCC shall be
allowed therefor.
The two options are
ALTERNATIVE and not
cumulative in nature, that is,
the choice of one precludes the
other.
The logic behind the rule is to
ease tax administration,
particularly the self-assessment
and collection aspects.
(1) REFUND - Any tax on
income that is paid in excess of
the amount due the
government may be
REFUNDED, provided that a
taxpayer properly applies for
the refund.
(2) Tax Credit - The second
option works by applying the
refundable amount, as shown
on the FAR of a given taxable
year, against the estimated
quarterly income tax liabilities
of the succeeding taxable year.
A corporation must signify its
intention – whether to request
a TAX REFUND or claim a TAX
CREDIT – by marking the
corresponding option box
provided in the FAR.
While a taxpayer is required to
mark its choice in the form
provided by the BIR, this
requirement is only for the
purpose of facilitating tax
collection.
One cannot get a tax refund
and a tax credit at the same
time for the same excess
income taxes paid.
Controlling factor for the
operation of IRREVOCABILITY
RULE
The controlling factor for the
operation of the irrevocability
rule is that the taxpayer chose
an option; and once it had
already done so, it could no
longer make another one.
Consequently, after the
taxpayer opts to carry-over its
excess tax credit to the
following taxable period, the
question of whether or not it
actually gets to apply said tax
credit is irrelevant.
Section 76 of the NIRC of 1997
is explicit in stating that once
the option to carry over has
been made, “no application for
tax refund or issuance of a tax
credit certificate shall be
allowed therefor.”
Meaning of the term “For that
taxable period”
The phrase “for that taxable
period” merely identifies the
excess income tax, subject of
the option, by referring to the
taxable period when it was
acquired by the taxpayer.
In the present case, the excess
income tax credit, which BPI
opted to carry over, was
acquired by the said bank
during the taxable year 1998.
The option of BPI to carry over
its 1998 excess income tax
credit is irrevocable;
it cannot later on opt to apply
for a refund of the very same
1998 excess income tax credit.
Probative value of Form 2307
for purposes of income tax
refund
In claims for excess and
unutilized creditable
withholding tax, the submission
of BIR Form 2307 is to prove
the fact of withholding of the
excess creditable withholding
tax being claimed for refund.
This is clear in the provision of
Sec. 58.3, RR 2-98, as amended,
which says , “That the fact of
withholding is established by a
copy of a statement duly issued
by the payor (withholding
agent) to the payee showing
the amount paid and the
amount of tax withheld
therefrom.”
Hence, the probative value of
BIR Form 2307, which is
basically a statement showing
the amount paid for the subject
transaction and the amount of
tax withheld therefrom, is to
establish only the fact of
withholding of the claimed
creditable withholding tax.
There is nothing in BIR Form
No. 2307 which would establish
either utilization or non-
utilization, as the case may be,
of the creditable withholding
tax.
Can the Bureau of Treasury be
made to pay interest for
delayed release of refund?
The rule is that no interest on
refund of tax can be awarded
unless authorized by law or the
collection of the tax was
attended by arbitrariness.
An action is not arbitrary when
exercised honestly and upon
due consideration where there
is room for two opinions,
however much it may be
believed that an erroneous
conclusion was reached.
Arbitrariness presupposes
inexcusable or obstinate
disregard of legal provisions.
In this particular case, due to
the Bureau of Treasury's
unjustified refusal to release
the funds to be deposited in
escrow, in utter disregard of
the orders of the Court, it is
held liable to pay legal interest
of 6% p.a. on the amount of
P4,966,207, 796.41
representing the 20% final
withholding tax on the PEACe
Bonds.
Is a PEZA-registered enterprise
which never commenced its
operation entitled to the
benefits given to a
PEZApregistered enterprise?
No. Essentially, the purpose of
RA 7916 is to promote
development and encourage
investments and business
activities that will generate
employment.
Giving fiscal incentives to
businesses is one of the means
devised to achieve this
purpose.
It comes with the expectation
that persons who will avail
these incentives will contribute
to the purpose’s achievement.
Hence, to avail the fiscal
incentives under RA 7916, the
law did not say that mere PEZA
registration is sufficient.
A business is considered in
operation when it starts
entering into commercial
transactions that are not
merely incidental to but are
related to the purposes of the
business.
Therefore, it cannot avail the
incentives provided under RA
7916.
It is not entitled to the
preferential tax rate of 5% on
gross income in lieu of all taxes.
Because petitioner is not
entitled to a preferential rate, it
is subject to ordinary tax rates
under the NIRC of 1997.
Good Luck,
Pray hard and study very well
and
May God Bless all of you!