TAXATION LAW FUNDAMENTALS
REMINDERS Q: Explain the theory of taxation and the source of
1. The following material does not predict bar
questions. It is meant to orient and prepare the
mind to approach questions in Taxation Law.
2. Do not base your answers on logic, political
beliefs or sense of morality. All answers must be
based on a LEGAL PRINCIPLE. Cite a
constitutional provision (do not quote the
provision, just state the principle), a statutory
provision, a legal doctrine, or jurisprudence (no
need to cite the case title).
3. Do not use civil law, criminal law or remedial
law concepts in answering Taxation Law
questions.
4. Think long, write short. Please go straight to the
point and DO NOT use up an entire page for an
answer. TRY YOUR BEST TO LIMIT THE
ANSWER TO NO MORE THAN 3-4
SENTENCES.
5. Make sure the answer is COMPLETE. It is
complete if it has a LEGAL PRINCIPLE AND IT
IS APPLIED TO THE FACTS. To get full points,
the answer must be SHORT and COMPLETE.
6. Take time to choose the proper words to use in
your answer. In the suggested answers below,
the magic words are in bold. Remember that the
examiner is looking for certain words or
phrases.
YOU WILL PASS THE BAR. TIWALA.
ACKNOWLEDGMENTS
Subject Expert Atty. Virginia B. Viray
UP LAW CENTER TRAINING AND CONVENTION DIVISION
I.
the State‟s power to tax.
A: Taxes are the lifeblood of the government, for
without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise
of taxing power derives its source from the very
existence of the state whose social contract with its
citizens obliges it to promote public interest and
common good.
The theory behind the exercise of the power to tax
emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general
welfare and well-being of the people.
NPC v. City of Cabanatuan, GR No. 149110, April 9,
2003, 259 SCRA 401
II.
Q: What cases fall under the exclusive appellate
jurisdiction of the Court of Tax Appeals to review by
appeal?
A: Under Republic Act No. 9282, the CTA shall exercise
exclusive appellate jurisdiction to review by appeal:
(i) Decisions of the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties in relation thereto, or
other matters arising under the NIRC or
other laws administered by the BIR;
(ii) Inaction by the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties in relations thereto, or
other matters arising under the NIRC or
other laws administered by the BIR,
where the NIRC provides a specific
period of action, in which case the
inaction shall be deemed a denial;
(iii) Decisions, orders or resolutions of the
RTC in local tax cases originally decided
or resolved by them in the exercise of
their original or appellate jurisdiction;
(iv) Decisions of the Commissioner of
Customs in cases involving liability for
customs duties, fees or other money
charges, seizure, detention or release of
property affected, fines, forfeitures or
other penalties in relation thereto, or
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 other matters arising under the Customs
Law or other laws administered by the
Bureau of Customs;
(v) Decisions of the Central Board of
Assessment Appeals in the exercise of
its appellate jurisdiction over cases
involving the assessment and taxation of
real property originally decided by the
provincial or city board of assessment
appeals;
(vi) Decisions of the Secretary of Finance on
customs cases elevated to him
automatically for review from decisions
of the Commissioner of Customs which
are adverse to the Government under
the Tariff and Customs Code;
(vii) Decisions of the Secretary of Trade and
Industry, in the case of nonagricultural
product, commodity or article, and the
Secretary of Agriculture in the case of
agricultural product, commodity or
article, involving dumping and
countervailing duties under the Tariff
and Customs Code, as amended, and
safeguard measures under Republic Act
No. 8800, where either party may appeal
the decision to impose or not to impose
said duties.
III.
Q: What cases involving criminal offenses fall under the
jurisdiction of the Court of Tax Appeals?
A: The following cases involving criminal offenses fall
under the jurisdiction of the Court of Tax Appeals:
(A) Exclusive original jurisdiction over all
criminal offenses arising from violations of
the NIRC and Tariff and Customs Code, as
amended, and other laws administered by
the BIR or the Bureau of Customs: Provided,
that offenses or felonies where the principal
amount of taxes and fees, exclusive of
charges and penalties, claimed is less than
One million pesos (P1,000,000.00) or where
there is no specified amount claimed shall
be tried by the regular Courts and the
jurisdiction of the CTA shall be appellate.
(B) Exclusive appellate jurisdiction in criminal
offenses:
(i) Over appeals from the judgments,
resolutions or orders of the Regional
Trial Courts in tax cases originally
UP LAW CENTER TRAINING AND CONVENTION DIVISION
decided by them, in their respected
territorial jurisdiction.
(ii) Over petitions for review of the
judgments, resolutions or orders of the
Regional Trial Courts in the exercise of
their appellate jurisdiction over tax cases
originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in their
respective jurisdiction.
IV.
Q: What tax collection cases fall under the jurisdiction of
the Court of Tax Appeals?
A: The CTA has jurisdiction over the following tax
collection cases:
A. Exclusive original jurisdiction in tax
collection cases involving final and
executory assessments for taxes, fees,
charges and penalties the principal amount
of which, exclusive of charges and penalties,
is One million pesos (P1,000,000.00) or more.
If the amount claimed is less than One
million pesos, it shall be tried by the proper
Municipal Trial Court, Metropolitan Trial
Court and Regional Trial Court.
B. Exclusive appellate jurisdiction in tax
collection cases:
(i) Over appeals from the judgments,
resolutions or orders of the Regional
Trial Courts in tax collection cases
originally decided by them, in their
respective territorial jurisdiction.
(ii) Over petitions for review of the
judgments, resolutions or orders of the
Regional Trial Courts in the exercise of
their appellate jurisdiction over tax
collection cases originally decided by
the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal
Circuit Trial Courts, in their respective
jurisdiction.
V.
Q: What are national internal revenue taxes?
A: Under [Sec. 21 of] the National Internal Revenue
Code, following taxes, fees and charges are deemed to be
national internal revenue taxes:
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(a) Income tax; (iv) Customs duties, registration fees of
(b) Estate and donor's taxes; vessel and wharfage on wharves,
(c) Value-added tax; tonnage dues, and all other kinds of
(d) Other percentage taxes; customs fees, charges and dues
(e) Excise taxes; except wharfage on wharves
(f) Documentary stamp taxes; and constructed and maintained by the
(g) Such other taxes as are or hereafter may be imposed local government unit;
and collected by the Bureau of Internal Revenue. (v) Taxes, fees and charges and other
impositions upon goods carried into
VI. or out of, or passing through, the
territorial jurisdictions of local
Q: What are the fundamental principles of local government units in the guise of
government taxation? charges for wharfage, tolls for
bridges or otherwise, or other taxes,
A: Under the Local Government Code, the following fees or charges in any form
fundamental principles shall govern the exercise of the whatsoever upon such goods or
taxing and other revenue-raising powers of local merchandise;
government units: (vi) Taxes, fees or charges on agricultural
and aquatic products when sold by
(a) Taxation shall be uniform in each local government marginal farmers or fishermen;
unit; (vii) Taxes on business enterprises
(b) Taxes, fees, charges and other impositions shall: certified to by the BOI as pioneer or
(1) be equitable and based as far as practicable on non-pioneer for a period of six (6)
the taxpayer's ability to pay; and four (4) years, respectively from
(2) be levied and collected only for public purposes; the date of registration;
(3) not be unjust, excessive, oppressive, or (viii) Excise taxes on articles enumerated
confiscatory; under the NIRC, as amended, and
(4) not be contrary to law, public policy, national taxes, fees or charges on petroleum
economic policy, or in restraint of trade; products;
(c) The collection of local taxes, fees, charges and other (ix) Percentage or value-added tax (VAT)
impositions shall in no case be let to any private person; on sales, barters or exchanges or
(d) The revenue collected pursuant to the provisions of similar transactions on goods or
this Code shall inure solely to the benefit of, and be services except as otherwise
subject to disposition by, the local government unit provided herein;
levying the tax, fee, charge or other imposition unless (x) Taxes on the gross receipts of
otherwise specifically provided herein; and transportation contractors and
(e) Each local government unit shall, as far as persons engaged in the
practicable, evolve a progressive system of taxation. transportation of passengers or
freight by hire and common carriers
VII. by air, land or water;
(xi) Taxes on premiums paid by way of
Q: What are the common limitations to the local reinsurance or retrocession;
government power‟s to tax? (xii) Taxes, fees or charges for the
registration of motor vehicles and for
A: Under the Local Government Code, unless expressly the issuance of all kinds of licenses or
provided, the exercise of the taxing powers of provinces, permits for the driving thereof,
cities, municipalities, and barangays shall not extend to except tricycles;
the levy of the following: (xiii) Taxes, fees, or other charges on
Philippine products actually
(i) Income tax, except when levied on exported;
banks and other financial (xiv) Taxes, fees, or charges, on duly
institutions; registered Countryside and Barangay
(ii) Documentary stamp tax; Business Enterprises and
(iii) Taxes on estates, inheritance, gifts, cooperatives under the Cooperatives
legacies and other acquisitions mortis Code of the Philippines; and
causa; (xv) Taxes, fees or charges of any kind on
the National Government, its
UP LAW CENTER TRAINING AND CONVENTION DIVISION Page 3 of 14
 agencies and instrumentalities, and
local government units.
VIII.
Q: What is the nature of the taxing power of the
provinces, municipalities and cities? How will the local
government units be able to exercise their taxing
powers?
A: The local governments‟ taxing power is not inherent,
but is granted by the Constitution subject to such
guidelines and limitations as the Congress may provide.
(Sec. 5 Article X, 1987 Constitution)
Through ordinances passed by their respective
Sanggunian, each local government unit shall exercise its
power to create its own sources of revenue and to levy
taxes, fees, and charges subject to the provisions of the
Local Government Code, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local government units.
IX.
Q: A, the sole employer of B, has correctly withheld the
taxes of B for taxable year 2018. Was B required to file
his income tax return for 2018 on or before April 15,
2019?
A: No, B was not longer required to file his 2018 income
tax return. Under [Sec. 51-A of] the National Internal
Revenue Code, as amended by the TRAIN Act,
individual taxpayers receiving purely compensation
income, regardless of amount, from only one employer
in the Philippines for the calendar year, the income tax
of which has been withheld correctly by the said
employer (tax due equals tax withheld) shall not be
required to file an annual income tax return. The
certificate of withholding filed by the respective
employers, duly stamped „received‟ by the BIR, shall be
tantamount to the substituted filing of income tax
returns by said employees.
X.
Q: What deductions are allowed to the estate of a citizen
or a resident of the Philippines?
A: In the case of a citizen or resident of the Philippines,
the following deductions from the value of the gross
estate are allowed under the NIRC -
(1) Standard Deduction - An amount equivalent
to Five million pesos (₱5,000,000).
UP LAW CENTER TRAINING AND CONVENTION DIVISION
(2) For claims against the estate: Provided, That
at the time the indebtedness was incurred the
debt instrument was duly notarized and, if
the loan was contracted within three (3) years
before the death of the decedent, the
administrator or executor shall submit a
statement showing the disposition of the
proceeds of the loan.
(3) For claims of the deceased against insolvent
persons where the value of decedent‟s
interest therein is included in the value of the
gross estate.
(4) For unpaid mortgages upon, or any
indebtedness in respect to, property where
the value of decedent‟s interest therein,
undiminished by such mortgage or
indebtedness, is included in the value of the
gross estate.
(5) Property Previously Taxed.
(6) Transfers for Public Use - The amount of all
bequests, legacies, devises or transfers to or
for the use of the Government of the Republic
of the Philippines, or any political
subdivision thereof for exclusively public
purposes.
(7) The Family Home. - An amount equivalent to
the current fair market value of the
decedent‟s family home: Provided, however,
That if the said current fair market value
exceeds Ten million pesos (₱10,000,000), the
excess shall be subject to estate tax.
(8) Any amount received by the heirs from the
decedent‟s employee as a consequence of the
death of the decedent-employee in
accordance with Republic Act No. 4917:
Provided, That such amount is included in
the gross estate of the decedent.
XI.
Q: X passed away on 1 December 2018, leaving
20Million in time deposit in RoboBank. The
administrator of X‟s estate tried to withdraw the said
deposit, but the bank manager required the presentation
of a BIR Certificate Authorizing Registration (CAR) to
prove that the estate taxes on X‟s estate have been paid.
According to the bank manager, until settlement of all
taxes on the estate as evidenced by the CAR, X‟s bank
deposits are frozen; the administrator may only
withdraw an amount not exceeding Twenty thousand
pesos (P20,000) upon authorization by the
Commissioner. Is the bank manager correct?
A: No, the bank manager is wrong. Under [Sec. 97 of]
the NIRC, as amended by the TRAIN Act, if a bank has
knowledge of the death of a person, who maintained a
bank deposit account alone, or jointly with another, it
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shall allow any withdrawal from the said deposit
account, subject to a final withholding tax of six percent Q: What is the tax base for VAT on importation of
(6%). For this purpose, all withdrawal slips shall contain goods?
a statement to the effect that all of the joint depositors
are still living at the time of withdrawal by any one of A: Under [Section 107 of] the NIRC, as amended by the
the joint depositors and such statement shall be under TRAIN Act, the VAT on importation of goods is 12%
oath by the said depositors. based on the total value used by the Bureau of Customs
in determining tariff and customs duties, plus customs
XII. duties, excise taxes, if any, and other charges, such tax to
be paid by the importer prior to the release of such
Q: Y owns 1,000 shares of stock in A Corporation, which goods from customs custody: Provided, That where the
has a fair market value of PhP5Million. Y posted it for customs duties are determined on the basis of the
sale in all his social media accounts for a period of one quantity or volume of the goods, the value-added tax
month, and J‟s offer to purchase for PhP4Million was the shall be based on the landed cost plus excise taxes, if
highest offer; thus Y sold his shares of stock to J. The BIR any.
subsequently assessed Y Donors Tax of PhP60,000,
computed at 6% of the PhP1Million difference between XV.
the FMV of the shares and Y‟s selling price to J. Is the
BIR correct in assessing Y? Q: Upon the successful establishment and
implementation of an enhanced VAT refund system that
A: No, the BIR is not correct because the transaction was grants refunds of creditable input tax within ninety (90)
arms-length. days from the filing of the VAT refund application with
the Bureau, which of the VAT zero-rated services will
Under Section 100 of the NIRC, as amended by TRAIN already be subject to 12% VAT?
Act, a sale, exchange, or other transfer of property made
in the ordinary course of business (a transaction which is A:
a bona fide, at arm‟s length, and free from any donative
intent) will be considered as made for an adequate and (a) The following VAT zero-rates services will
full consideration in money or money‟s worth. already be subject to 12% VAT the
successful establishment and
The sale transaction between Y and J is an arms-length implementation of an enhanced VAT refund
transaction and free from any intent to donate, as shown system:
by the fact that the sale was made to the highest bidder.
The PhP4Million purchase price is thus considered (i) Processing, manufacturing or
adequate and full consideration for the shares of stock, repacking goods for other persons
and no Donors Tax is due on the transaction. doing business outside the
Philippines which goods are
XIII. subsequently exported, where the
services are paid for in acceptable
Q: Y sold his beach house for PhP10Million because he foreign currency and accounted for
has been unable to use it often, and the maintenance cost in accordance with the rules and
too high. The fair market value of the property (highest regulations of the Bangko Sentral ng
of zonal and FMV of assessor) is PhP15Million. The BIR Pilipinas; and
assessed Y for donor‟s tax on the difference between his (ii) Services performed by
selling price of PhP10Million and the FMV of subcontractors and/or contractors
PhP15Million. Is the BIR correct? in processing, converting, or
manufacturing goods for an
A: No, the BIR is not correct because the sale of real enterprise whose export sales
property held as capital asset is expressly excluded from exceed seventy percent (70%) of
the coverage of Section 100 of the NIRC on transfers for total annual production.
less than adequate and full consideration.
(b) The following VAT zero-rates sale of goods
Considering that the beach house fall under the NIRC will already be subject to 12% VAT, and no
definition of capital asset, the sale for less than FMV will longer considered export sales, upon the
not result in any donor‟s tax liability. successful establishment and
implementation of an enhanced VAT refund
XIV. system:
UP LAW CENTER TRAINING AND CONVENTION DIVISION Page 5 of 14
 (i) Sale of raw materials or packaging
materials to a nonresident buyer for
delivery to a resident local export-
oriented enterprise to be used in
manufacturing, processing, packing
or repacking in the Philippines of
the said buyer‟s goods and paid for
in acceptable foreign currency and
accounted for in accordance with
the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(ii) Sale of raw materials or packaging
materials to export-oriented
enterprise whose export sales
exceed seventy percent (70%) of
total annual production;
(iii) Those considered export sales under
Executive Order No. 226, otherwise
known as the Omnibus Investment
Code of 1987, and other special
laws.
XVI.
Q: N, a resident Filipino citizen engaged in the practice
of his profession, projects that his income for the taxable
year will be less than PhP3Million. He is a non-VAT
registered taxpayer. What are his options for paying his
taxes, and what taxes are payable for each option?
A: N may opt to be taxed either:
(i) At 8% of gross sales or gross receipts and
other non-operating income in excess of
Two hundred fifty thousand pesos
(₱250,000), in lieu of the graduated income
tax rates applicable to resident Filipino
citizens and the percentage tax under the
NIRC; or
(ii) At the graduated income tax rates applicable
to resident Filipino citizens, based on his
taxable (net) income. In which case, he will
also be subject to percentage tax.
N must indicate his option to be taxed at 8% of gross
sales or gross receipts in his first quarter income tax
return; otherwise, he shall be deemed to have opted to
be taxed at the graduated income tax rates.
XVII.
Q: What is the value of real properties for purposes of
computing any internal revenue tax?
A: Under [Sec. 6 of] the NIRC, as amended by the
TRAIN Act, for purposes of computing any internal
revenue tax, the value of the property shall be,
whichever is the higher of:
UP LAW CENTER TRAINING AND CONVENTION DIVISION
(1) the fair market value as determined by the
Commissioner; or
(2) the fair market value as shown in the schedule of
values of the Provincial and City Assessors.
XVIII.
Q: X and 2 other investors, Y and Z, exchanged their
shares in DCorp for shares of Company A. Prior to the
exchange, X owned 100% of the shares of Co. A. After
the exchange X, Y, and Z owned 1/3 each of the shares
of Co. A; and they then paid CGT on the transfer of their
DCorp shares to Co. A. X subsequently filed for refund,
but the BIR denied X‟s request because: (a) X was
already a shareholder of Co. A prior to exchange, and in
fact, X‟s ownership in Co. A decreased after the
exchange. Thus, the transaction does not qualify under
Section 40(C)(2) as an “acquisition of control”; and (ii) X,
Y, and Z did not file for confirmation of exemption of the
exchange with the CIR as required by regulations. Is
the BIR correct on points (i) and (ii)?
A:
(i) No, CIR is wrong that X‟s transfer is not
exempt. Sections 40(C)(2) and 40(C)(6)(c)
speak of control being acquired 'alone or
together with others, not exceeding four
persons.' The control requirement is
sufficiently met when after the transfer, the
transferors, not more than five, collectively
become the owners of at least 51% of the
equity of the transferee, or if already owning
51%, increase their equity further in the
transferee corporation. It is not required that
each of the several transferors individually
gains control or individually increases
his/her interest.
(ii) No, CIR is wrong that a BIR ruling is a
prerequisite for exemption. Revenue
Regulations No. 18-2001 merely provides for
guidelines in monitoring tax-free exchange
of property. The BIR ruling/certification
required under RR No. 18-2001 is for
determining gain or loss on a subsequent
sale or disposition of property subject of the
tax-free exchange, and not as a precondition
for availment of a tax exemption of the
current transfer.
(CIR v. Co. CTA EB NO. 1522, Feb 28, 2018.)
XIX.
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Q: Father and son bought a parcel of land and a
building from their common fund. They appointed a
property manager to collect lease rentals and manage
the property. Father and son divided the income
equally. Later the BIR assessed them for alleged
deficiency income taxes as an unregistered partnership.
Questions: (i) What is the tax consequence of the income
earned by an unregistered partnership? (ii) differentiate
a co-ownership from an unregistered partnership. (iii)
Does the sharing of profits or the pooling of funds
automatically denominate a transaction among persons
an unregistered partnership? (iv) In the instant case,
what is the nature of the transaction of father and son?
A:
(i) Income earned by an unregistered
partnership are generally taxed as dividends
because a partnership, no matter how
created or organized, fall under the term
“Corporation” under Section 22(B) of the
National Internal Revenue Code, as
amended.
(ii) Co-ownership is the ownership of one asset
by two or more persons. On the other hand,
the essential elements of a partnership are
two, namely: (a) an agreement to contribute
money, property or industry to a common
fund; and (b) intent to divide the profits
and losses among the contracting parties.
The common ownership of property does
not itself create a partnership between the
owners, though they may use it for the
purpose of making gains.
(iii) No, the sharing of profits or the pooling of
funds does not automatically denominate a
transaction among persons as an
unregistered partnership. In order to
constitute a partnership there must be:
(a) An intent to form the same;
(b) generally participating in both profits
and losses;
(c) and such a community of interest, as far
as third persons are concerned as enables
each party to make contract, manage the
business, and dispose of the whole property.
Thus, in the 2018 case of Pascual and
Dragon v. CIR, the Supreme Court held that
two isolated transactions whereby the
parties purchased properties and sold the
same a few years thereafter did not thereby
make them partners. (Pascual and Dragon v.
CIR, G.R. No. 78133 October 18, 1988)
UP LAW CENTER TRAINING AND CONVENTION DIVISION
(iv) Father and son had an unregistered
partnership engaged in the business of real
estate leasing. Their intention to engage in
real estate transactions for profit, and then
divide the same among themselves, is
apparent from the fact that they appointed a
property manager to manage the property
and collect rentals. Thus, the affairs relative
to said property have been handled as if the
same belonged to a corporation or business
enterprise operated for profit. (Evangelista
v. Collector, G.R. No. 9996, Oct. 15,1957,102
Phil. 140)
Pascual and Dragon v. CIR, G.R. No. 78133 October 18,
1988; citing Evangelista v. Collector, G.R. No. 9996, Oct.
15,1957,102 Phil. 140
XX.
Q: What are the requisites for a taxpayer engaged in
zero-rated or effectively zero-rated transactions to claim
a refund or tax credit certificate for excess input tax
credits?
A: A taxpayer engaged in zero-rated or effectively zero-
rated transactions may claim a refund or tax credit
certificate for excess input tax credits upon compliance
with the following requisites:
1. That the taxpayer must be VAT -registered;
2. That the claim for refund was filed within the two-
year prescriptive period;
3. That there must be zero-rated or effectively zero-rated
sales;
4. That input taxes were incurred or paid;
5. That such input VAT payments are directly
attributable to zero-rated sales or effectively zero-rated
sales; and
6. That the input VAT payments were not applied
against any output VAT liability.
CIR v. Taganito Mining (CTA EB No. 1404, June 11, 2018)
XXI.
Q: NPC, a GOCC, entered into a BOT scheme with
Luzon Hydro Corporation ("LHC") for the construction,
operation and maintenance of the Bakun AC
Hydroelectric Plant (the "Power Plant"). This
arrangement was defined in a Power Purchase
Agreement ("PPA"). Under the PPA and pursuant to the
Page 7 of 14
BOT Law, LHC undertook to construct, operate and
maintain the Power Plant for NPC and to deliver to NPC
all electricity generated by the Power Plant. In every
sense of the word, NPC is the sole beneficiary of all
electricity generated by the Power Plant. Further, under
the PPA, NPC acknowledged and assumed
responsibility for the payment of real property taxes
levied on the Power Plant and its facilities.
Subsequently, LHC declared the Power Plant
machineries in its name as naked owner of the
properties, and informed the Provincial Assessor of
Benguet regarding the arrangement (i.e., that NPC shall
be liable for payment of real property taxes). The
Provincial Assessor thereafter issued a notice of
assessment to LNC, which LNC, pursuant to the PPA,
referred to NPC. NPC filed a protest on the ground that
the machineries are exempt from real property taxes
pursuant to Section 234 (c) of the Local Government
Code, because: (i) NPC is the sole beneficiary of all
electricity generated by the Power Plant; and (ii) under
the PPA, NPC – a GOCC-is responsible for the real
property tax. Is NPC correct that the machineries should
be exempt under Section 234 of the LGC?
A: No, NPC is not correct in claiming that the
machineries of LNC are exempt from real property tax.
of Pasig. Thus, the Treasurer‟s Office of the City of Pasig
informed the Manila Electric Company (Meralco), a
legislative franchise grantee, that it is liable to pay the
franchise tax and demanded from it the payment for
taxes for the period covering 1996 to 1999, pursuant to
the ordinance. Does
Pasig City have the authority to levy franchise taxes on
Meralco for the period 1996 to 1999?
A: No, Pasig City had no authority to levy the franchise
tax on Meralco.
A municipality has no authority to levy and impose
franchise tax on franchise holders within its jurisdiction,
since only cities and provinces have such authority
under the Local Government Code. At the time the
ordinance in question was enacted in 1992, the local
government of Pasig, then a municipality, had no
authority to levy franchise tax; the ordinance was
therefore void. The conversion of the municipality into a
city does not remove the original infirmity of the
ordinance.
The assessment and collection made pursuant to a void
ordinance are likewise void. (City of Pasig v. Manila
Electric Company, G.R. No. 181710, March 7, 2018)

(i) To be entitled to exemption from real property

tax under Section 234(c) of the Local Government Code,
there must be actual, direct, and exclusive use of the
machineries by a GOCC or local water district. In
defining "actual use", the actor identified by the LGC is
simply and solely "the person in possession" of the
property. Thus, it is LHC, which is not a GOCC, that is
the user. What NPC should prove is that it has the
actual, direct, exclusive use of the subject machineries
and equipment- rather than of all the power generated
by the plant.

(ii) The PPA cannot amend the LGC's provisions on

real property taxation. It is basic that the law is deemed
written into every contract.

NPC v Luzon Hydro Corporation (CTA EB No 1022, May

20, 2018)

XXII.

Q. In 1992, the Sangguniang Bayan of the

Municipality of Pasig enacted Ordinance No. 25 which
imposed a franchise tax on all business venture
operations carried out through a franchise within the
municipality. In 1995, the Municipality of Pasig was
converted into a highly urbanized city known as the City
UP LAW CENTER TRAINING AND CONVENTION DIVISION Page 8 of 14
 XXIII.
Q. The City of Manila assessed X Corporation local
business taxes (manufacturer‟s tax) for the taxable year
2007 using a computation based on gross sales for the
calendar year 2005. The assessment was based on “X”
Corporation protested the assessment, arguing that: (a)
the computation of the business tax should be on the
basis of its gross sales in 2006, which amount,
incidentally, was lower than its gross sales in 2005; and
(b) the assessment constitutes obnoxious double taxation
since Section 14 of Tax Ordinance No. 7794, which
imposes a business tax on manufacturers, etc. pursuant
to Section 143(a) of the Local Government Code may no
longer subject the same manufacturers, etc. to a business
tax under Section 21 of the ordinance, which is based on
Section 143(h) of the Local Government Code. Is “X”
Corporation correct?
A. (a) Yes, X Corporation is correct that the
computation of the business tax for 2007 should be
based on its gross sales in 2006.
Section 14 of the Revenue Code of Manila is derived
from the Section 143 of the Local Government Code
(LGC), which provides that the municipality may
impose taxes on manufacturers based on their gross
sales or receipts for the preceding calendar year.
The LGC provides for the legislative guidelines and
limitations on the local government‟s power to
create its own sources of revenues and to levy taxes,
to which any local business tax imposed by the City
of Manila must conform.
(b) Yes, X Corporation is correct that the
assessment constitutes obnoxious double taxation. As
stated by the Supreme Court [in the case of City of
Manila v. Cosmos Bottling Corporation], when the city
has already imposed a business tax on manufacturers
pursuant to Section 143(a) of the LGC, the city may no
longer subject the same manufacturers to a business tax
under Section 143(h) of the same Code. Section 143(h)
may be imposed only on businesses that are "not
otherwise specified in preceding paragraphs."
(City of Manila v. Cosmos Bottling Corp., G.R. No. 196681,
[June 27, 2018])
XXIV.
Q. On January 15, 2007, “X” Corporation received
an assessment from the City of Manila for deficiency
local business taxes. “X” Corporation protested the
assessment in a letter dated January 18, 2008 and
tendered payment of an amount which they argued was
the correct computation of their local business tax. The
City Treasurer refused to receive the payment and
UP LAW CENTER TRAINING AND CONVENTION DIVISION
denied “X” Corporation‟s protest, which denial was
received on February 6, 2007. “X” Corporation was then
constrained to pay the assessment and filed a claim for
refund with the City Treasurer raising the same grounds
as discussed in its protest. “X” Corporation filed its
complaint with the Regional Trial Court of Manila for
the refund on March 8, 2007. The City of Manila argues
that the assessment against “X” Corporation became
final and executory when the latter effectively
abandoned its protest and instead sued in court for a
refund of the assessed tax and charges.
(a) Is the City of Manila correct?
(b) What are the remedies of a taxpayer in case of
an assessment for deficiency local taxes?
A. (a) No, the City of Manila‟s argument is
wrong. As stated by the Supreme Court [in the 2018 case
of City of Manila v. Cosmos Bottling Corporation], a
taxpayer who protested and paid an assessment is not
precluded from later instituting an action for refund or
credit. If the deficiency local tax assessment was paid,
the taxpayer may maintain an action in court
questioning the validity and correctness of the
assessment and at the same time, seek a refund of the
taxes.
1) The remedies available to the taxpayer depend
on whether or not payment of the assessed
deficiency tax was made by the taxpayer. A
taxpayer may:
(i) If no payment was made, contest the
assessment by filing a written protest before
the local treasurer within 60 days from
receipt of assessment. The local treasurer
has 60 days to decide the protest. Should the
local treasurer deny or ignore the protest,
the taxpayer may appeal with the court of
competent jurisdiction (Section 195 of the
Local Government Code).
(ii) If payment was made, file a written claim
for refund before bringing a suit in court
within two years from the date of payment.
The written claim for refund from the local
treasurer must be initiated within such two-
year prescriptive period, but before the
judicial action. A taxpayer may proceed to
the remedy of refund even without a prior
protest against an assessment. (Section 196
of the Local Government Code)
(City of Manila v. Cosmos Bottling Corporation, G.R.
No. 196681, June 27, 2018)
XXV.
Page 9 of 14

Q. (a) What are the requisites for claiming a
refund of excess creditable withholding taxes?
(b) If there is a finding by the BIR of a tax
deficiency of a taxpayer for the taxable year since the
taxpayer had carried over to the taxable year the prior
year‟s excess credits which have already been fully
applied against its income tax liability for the prior
taxable year, is the BIR required to issue both the
preliminary assessment notice and the final assessment
notice and demand to enforce the deficiency income tax
liability of the taxpayer for the taxable year?
(c ) When the two-year period is about to
prescribe and the claim for refund with the BIR
Commissioner has not been acted upon, what should the
taxpayer do?
A.
(a) The three requisites for claiming a refund of excess
creditable withholding taxes are:
1) the claim for refund was filed within the two-
year prescriptive period;
2) 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 of tax withheld therefrom; and
3) the income upon which the taxes were withheld
was included in the income tax return of the
recipient as part of its gross income.
(Commissioner of Internal Revenue v. Cebu Holdings, Inc.,
G.R. No. 189792, June 20, 2018)
(b) No, a preliminary assessment notice is no longer
required; but a final assessment notice and demand will
still be required.
Section 228 of the National Internal Revenue Code, as
amended, states that a pre-assessment notice shall no
longer be required when a taxpayer who opted to claim
a refund or tax credit of excess creditable withholding
tax for a taxable period was determined to have carried
over and automatically applied the same amount
claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable
year.
However, the BIR is still required to issue a final
assessment notice and demand letter to enforce the
deficiency income tax liability of the taxpayer.
(Commissioner of Internal Revenue v. Cebu Holdings, Inc.,
G.R. No. 189792, June 20, 2018)
(c) When the two-year period is about to prescribe and
the claim for refund with the Commissioner of Internal
UP LAW CENTER TRAINING AND CONVENTION DIVISION
Revenue (CIR) has not been acted upon, the taxpayer
should file a Petition for Review with the CTA within
the said two-year period. The law fixed the same period
of two (2) years for filing an administrative claim for
refund with the CIR, and for filing a petition with the
CTA. (Mindanao II Geothermal Partnership v. Commissioner
of Internal Revenue, C.T.A. Case No. 8251, [February 27,
2014]; NEC Logistics Phils., Inc. v. Commissioner of Internal
Revenue, C.T.A. Case No. 8533, [December 18, 2014])
XXVI.
Q. Philippine Airlines made US dollar and
Philippine peso deposits and placements in several
banks. PAL earned interest income from these deposits
and the banks deducted final withholding taxes. PAL
claims that it is exempt from paying income tax on
interest earned by virtue of its charter, Presidential
Decree No. 1590, and consequently, for as long as it duly
established that taxes were withheld from its income, it
must be refunded. To prove that withholding tax on the
interest income were remitted to the BIR, PAL presented
the Certificates of Final Tax Withheld at Source issued
by the banks. The BIR questions the grant of refund to
PAL for the final income taxes withheld because there
was no proof of actual remittance by the banks. Is the
BIR correct?
A. No, the BIR is not correct. A taxpayer claiming
for refund of tax withheld does not have the duty to
prove that the taxes withheld were in fact remitted to the
BIR. The responsibility to remit the taxes withheld is
with the withholding agent, not the taxpayer. Thus,
should the BIR find that taxes were not properly
remitted, its action is against the withholding agent and
not against the taxpayer. (Philippine Airlines, Inc. v.
Commissioner of Internal Revenue, G.R. Nos. 201225-26,
201132, 201133, April 18, 2018)
XXVII.
Q. Can evidence not presented in the
administrative claim for refund in the Bureau of Internal
Revenue be presented in the Court of Tax Appeals?
A. Yes, new evidence not presented in the
administrative claim for refund may be presented to the
Court of Tax Appeals to support the claimant‟s case for
tax refund.
The power of the Court of Tax Appeals to
exercise its appellate jurisdiction under Republic Act No.
1125, as amended by Republic Act No 9282, does not
preclude it from considering evidence that was not
presented in the administrative claim in the Bureau of
Internal Revenue. As evidence is considered and
evaluated again, the scope of the Court of Tax Appeals'
Page 10 of 14
review covers factual findings. (Philippine Airlines, Inc. v.
Commissioner of Internal Revenue, G.R. Nos. 206079-80 &
206309, [January 17, 2018])
XXVIII.
Q. What are the requirements and procedure for a
taxpayer to file a VAT refund?
A. Under Section 112, Subsections (A) and (C) of
the NIRC, the procedure to be followed in claiming a
refund or tax credit of unutilized input VAT is as
follows:
1. The taxpayer must first file an initial
administrative claim with the BIR.
This claim for refund or tax credit
must be filed within two years after
the close of the taxable quarter
when the sales were made.
2. The CIR is given a period of 90 days
from the submission of complete
documents in support of the
application to either grant or deny
the claim.
3. If the claim is denied by the CIR or
the latter has not acted on it within
the 90-day period, the taxpayer-
claimant is then given a period of 30
days to file a judicial claim via
petition for review with the CTA.
XXIX.
Q: The taxpayer filed its administrative claim with
the BIR for the refund or tax credit of unutilized input
VAT within two-years after the close of the taxable
quarter when the sales were made. The taxpayer filed a
judicial claim for refund with the CTA when the
Commissioner of Internal Revenue (CIR) failed to
resolve the claim within the same two-year period. The
CIR moved to dismiss the judicial claim on the ground
that it was filed prematurely. Is the CIR correct?
A: Yes, the CIR is correct that the judicial claim was
filed prematurely.
The law provides for two scenarios before a judicial
claim for refund may be filed with the CTA: (1) the full
or partial denial of the claim within the 90-day period
from the filing of the adminstrative claim for refund or
tax credit, or (2) the lapse of the said 90-day period
without the CIR having acted on the claim. The
taxpayer-claimant may only file its judicial claim for
UP LAW CENTER TRAINING AND CONVENTION DIVISION
refund or tax credit for unutilized input VAT upon the
happening of any one of the two scenarios.
The failure of the taxpayer to observe the said period
renders the judicial claim premature, divesting the CTA
of jurisdiction to act on it.
(See Team Sual Corporation vs. Commissioner of Internal
Revenue, G.R. Nos. 201225-26, 201132, 201133, April 18,
2018)
XXX.
Q. Are invoices and official receipts as evidence in
a claiming for refund of unutilized input VAT
interchangeable?
A. No, invoices and official receipts are not
interchangeable as evidence in a claiming for refund of
unutilized input VAT.
As stated by the Supreme Court [in the case 2018 of
Republic versus Team Energy Corporation], in a claim a
refund of unutilized or excess input VAT, the purchase
of goods or properties must be supported by VAT
invoices, while the purchase of services must be
supported by VAT official receipts.
(Republic of the Philippines v. Team Energy Corporation, ,
G.R. No. 197663, March 14, 2018)
XXXI.
Q. Distinguish “excess input VAT” and an
“excessively collected tax.” Does proof of excess input
VAT entitle a taxpayer to a tax refund or credit?
A. The term “excess input VAT” means that the
input VAT available as credit exceeded the output VAT;
whereas “excessively collected tax” is a result of error or
mistake in payment or collection of taxes.
The mere fact that a taxpayer has proved its excess input
VAT does not entitle it as a matter of right to a tax
refund or credit. A claim for input VAT refund or credit
is in the nature of tax exemption; and thus construed
strictly against the taxpayer. There must be strict
compliance with the prescriptive periods and
substantive requirements set by law before a claim for
tax refund or credit of excess input VAT may prosper.
(Team Energy Corp. v. Commissioner of Internal Revenue,
G.R. Nos. 197663 & 197770, [March 14, 2018]).
XXXII.
Q. Chevron Philippines, Inc. (Chevron) filed an
administrative claim for refund or credit with the BIR for
Page 11 of 14
alleged overpayment of taxes on imported finished
gasoline and diesel fuel. The BIR, however, did not act
on Chevron's claim. Thus, Chevron elevated the case to
the CTA-Special First Division via a petition for review.
The CTA-Special First Division rendered its decision
partly granting the petition. The BIR moved for the
reconsideration of this decision. Chevron filed its
opposition to the motion for reconsideration and
asserted that the BIR's motion for reconsideration was a
pro forma motion because the BIR failed to set the
motion for hearing pursuant to Revised Rules of the
CTA. The CTA-Special First Division agreed with
Chevron and denied the BIR's motion for
reconsideration. The BIR once again moved for a
reconsideration of the resolution, which the CTA-Special
First Division denied with finality. After having
confirmed that the BIR did not elevate the issue before
the CTA En Banc within the 15-day reglementary period
to appeal, issued an entry of judgment. The BIR filed a
special civil action for certiorari under Rule 65 of the
Rules of Court with the Supreme Court. Rule on the
petition. Will the special civil action for certiorari
prosper?
A. No, the BIR‟s petition should be dismissed.
For cases before the CTA, a decision rendered by a
division of the CTA is appealable to the CTA En Banc as
provided by Section 18 of R.A. No. 1125, as amended by
R.A. No. 9282. The appropriate remedy to challenge the
resolution of the CTA Division is an ordinary appeal to
the CTA En Banc, not a petition for certiorari with the
Supreme Court.
(Bureau of Internal Revenue v. Acosta, G.R. No. 195320,
[April 23, 2018])
XXXIII.
Q. The Philippine Ports Authority (PPA) received a
letter from the City Assessor of Davao for the
assessment and collection of real property taxes against
its administered properties located at Sasa Port. PPA
appealed the assessment through the Office of the City
Treasurer of Davao. The City Treasurer forwarded the
appeal to the Local Board of Assessment Appeals
(LBAA); which was eventually appealed to the Central
Board of Assessment Appeals (CBAA), then to the CTA.
While the case was pending, the City of Davao posted a
notice of sale of delinquent real properties of PPA, and
then sold the said properties. Subsequently, PPA filed a
petition for certiorari with the Court of Appeals (CA),
questioning the City of Davao‟s taxation of its properties
and the subsequent auction and sale of the properties,
which were without or in excess of its jurisdiction. The
CA dismissed the petition, holding that the CTA had
exclusive jurisdiction to determine the issues and that
UP LAW CENTER TRAINING AND CONVENTION DIVISION
the PPA should have applied for the issuance of writ of
injunction or prohibition before the CTA. To this, PPA,
filed a motion for reconsideration which was denied by
the CA. Thus, PPA filed a Petition for Review before the
Supreme Court. Does the CA have jurisdiction to issue
the injunctive relief prayed for by PPA?
A. No, the CA has no jurisdiction to issue the
injunctive relief prayed for by PPA.
Republic Act No. 1125, as amended by Republic Act No.
9282, provides that the Court of Tax Appeals has
exclusive appellate jurisdiction over decisions of the
CBAA in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real
property originally decided by the provincial or city
board of assessment appeal. Once a court acquires
jurisdiction over a case, it also has the power to issue all
auxiliary writs necessary to maintain and exercise its
jurisdiction, to the exclusion of all other courts.
Thus, once the Court of Tax Appeals acquired
jurisdiction over petitioner's appeal, the Court of
Appeals would have been precluded from taking
cognizance of the case. (Philippine Ports Authority v. City
of Davao, G.R. No. 190324 , [June 6, 2018])
XXXIV.
Q. When is a taxpayer be entitled to the immunities
and privileges of a tax amnesty program?
A. A taxpayer is entitled to the immunities and
privileges of a tax amnesty program upon complying
with the documentary submissions to the Bureau of
Internal Revenue and paying the applicable amnesty tax.
However, the immunities and privileges granted to
taxpayers may not be absolute since the tax amnesty law
concerned may impose suspensive conditions or
resolutory conditions. (Commissioner of Internal Revenue
v. Covanta Energy Philippine Holdings, Inc., G.R. No.
203160, January 24, 2018)
Page 12 of 14
 XXXV.
Q: (a) Does the CTA have jurisdiction to determine
the constitutionality or validity of tax laws, rules and
regulations, and other administrative issuances?
(b) In what cases does the CTA have
authority to issue injunctive writs to restrain the
collection of tax?
A: (a) Yes, the Court of Tax Appeals has
jurisdiction to pass upon the constitutionality or validity
of a tax law or regulation when raised by the taxpayer as
a defense in disputing or contesting an assessment or
claiming a refund, pursuant to its powers under
Republic Act No. 1125, as amended.
Further, the Supreme Court [in the 2018 case of
Steel Corporation of the Philippines v. Bureau of
Customs] has declared that the Court of Tax Appeals
may likewise take cognizance of cases directly
challenging the constitutionality or validity of a tax law
or regulation or administrative issuance (revenue orders,
revenue memorandum circulars, rulings).
(b) Section 11, Paragraph 4 of R.A. No. 1125, as
amended by R.A. No. 9282, provides that an appeal to
the CTA will not suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing
law. However when, in the opinion of the CTA, the
collection may jeopardize the interest of the Government
and/or the taxpayer, it may suspend the said collection
and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double
the amount. Further, the requirement of deposit or
surety bond may be dispensed with by the CTA.
(Steel Corporation of the Philippines v. Bureau of Customs,
G.R. No. 220502, [February 12, 2018]; citing Pacquiao v.
Court of Tax Appeals, First Division (G.R. No. 213394, April
6, 2016, 789 SCRA 19):
XXXVI.
Q. What are the remedies for excess creditable
withholding taxes or overpayment?
A. The remedies are as follows:
1. They are allowed as automatic credit
against the taxpayer‟s income tax due for the taxable
quarters/years immediately succeeding the taxable
quarters/years in which the excess credit arose.
2. In lieu of the automatic application,
apply for (a) cash refund, or (b) tax credit certificate.
UP LAW CENTER TRAINING AND CONVENTION DIVISION
Q: May a taxpayer revoke its choice to claim for a
refund, and instead, after having claimed for refund in
his return proceed to exercise the option to credit the tax
in the succeeding taxable quarters/years?
A: No, the taxpayer may not revoke its claim for refund
and proceed to credit the tax in the succeeding taxable
quarters/years. In the 2018 case of Rhombus Energy Inc
v. CIR, the Supreme Court clarified that the
irrevocability rule applies not only in the exercise of the
option to carry over but also in the exercise of the option
to claim for refund.
(Rhombus Energy v. CIR, G.R. No. 206362, August 1, 2018.
Note: it is important to cite the case of Rhombus if this
question comes up because of a conflicting earlier ruling by the
SC)
XXXVII.
Q. Moog Controls Corporation – Philippine Branch
(Moog) was assessed by the CIR for alleged deficiency
income tax for fiscal year ended October 3, 2009. Moog
protested the assessment, which was denied by the BIR
on June 8, 2015. Moog filed a petition for review with
the CTA. The CTA Second Division partially granted the
petition in its decision dated January 3, 2018 and
reduced the deficiency tax assessment and penalties.
Both parties moved for the reconsideration of the
decision. Moog argued that the simultaneous
imposition of both deficiency and delinquency is already
prohibited under the clear provisions of Republic Act
No. 10963 or the TRAIN Law with its effectivity on
January 1, 2018. Can deficiency interest and delinquency
interest be imposed simultaneously?
A. No, deficiency interest and delinquency
interest may not be imposed simultaneously.
Section 249 (A) and (B) of the NIRC of 1997 was
amended by the TRAIN law provides that Interest
shall be assessed and collected on any unpaid
amount of tax at the rate of double the legal
interest for loans or forbearance of money in the
absence of any express stipulation set by the
Bangko Sentral ng Pilipines, from the date
prescribed for payment until the amount is fully
paid; provided that in no case shall be deficiency
and delinquency interest be imposed
simultaneously.
Q: When shall deficiency interest and delinquency
interest be imposed?
Page 13 of 14
A: Under Section 249 (A) and (B), respectively:
(i) Deficiency interest is imposed on any
deficiency tax due, which will be
assessed and collected from the date
prescribed for payment until the full
payment, or upon the issuance of a
notice of demand by the BIR,
whichever comes first.
(ii) Delinquency interest, on the other
hand, is imposed on the failure to pay
the amount of tax due on any return
to be filed, the amount of tax due for
which no return is required, or
deficiency tax or any surcharge or
interest appearing in the notice of
demand.
action does not carry with it the extinction of the civil
liability.
(b) No, the assessment is not valid. As the Supreme
Court held in Medicard Philippines, Inc. vs. CIR (GR
222743, April 5, 2017), an examination of the taxpayer
may not be validly conducted without prior authority
from the Commissioner of Internal Revenue himself or
by his duly authorized representative, through a Letter
of Authority (LOA). Without an LOA, the assessment
issued by the BIR is void.
(People of the Philippines vs. Robert Sia and John Kenneth L.
Ocampo, CTA (En Banc) Criminal Case No. 045, December
12, 2018)

If the tax liabilities or deficiencies became due before the

effectivity of the Train Law on Jan. 1, 2018 and if the tax
liabilities or deficiencies were fully paid after the said
effectivity date, the previous 20 percent interest rate will
still apply up to Dec. 31, 2017 and the new 12 percent
interest rate from Jan. 1, 2018 onwards.

(Moog Controls Corp. v. Commissioner of Internal Revenue,

C.T.A. Case No. 9077, [February 22, 2018])

XXXVIII.

Q. Erwin Santos was criminally charged for

violation of Sec. 255 of the Tax Code, or failure to pay
deficiency taxes for taxable year 2015 despite notice and
demand. Santos, the President of Asia-Pacific Industrial
Sales Corporation (APISC), pleaded “Not Guilty” during
arraignment. The CTA Third Division dismissed the case
and acquitted the accused for failure of the prosecution
to prove their guilt beyond reasonable doubt. Upon
denial of the Motion for Reconsideration, the BIR filed a
Petition for Review at the CTA En Banc. The BIR
contended that the deficiency assessments have become
final, executory, and demandable for failure of Santos to
protest. It appeared that the revenue officer who
investigated the books of APISC did so with a mere
referral letter and not a “letter of authority”.

(a) Can the accused be held civilly liable for the tax
assessments despite his acquittal from the criminal case?

(b) Is the BIR‟s assessment valid?

A. (a) Yes. Despite acquittal in a criminal case

based on reasonable doubt, a taxpayer can be held civilly
liable for a tax assessment when the prosecution proves
its case in the civil action by a preponderance of
evidence. It is settled that the extinction of the penal
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