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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
GENERAL PRINCIPLES AND DETERMINATION OF ESTATE TAX LORENZO v. POSADAS (Arcaina)

[GR. No. L-40382; June 18, 1937]
“Inheritance tax accrues from the death, not anytime later. Syempre pag
magmmove on ka, from the break-up di ba, hindi 10 years after nung break-
SECTION 84. Rates of Estate Tax. - There shall be levied, assessed,
up. Hindi rin kasama yung compensation ng trustees sa pag-determine ng
collected and paid upon the transfer of the net estate as determined in
value ng estate. Grabe so magbibilangan pa kayo? Magsosolian ng gifts
accordance with Sections 85 and 86 of every decedent, whether resident
ganon? Char.”
or nonresident of the Philippines, a tax based on the value of such net
estate, as computed in accordance with the following schedule:
Recit-Ready:
Facts: Thomas Hanley died in May 27, 1922. He left a will and
If the net estate is:
considerable amount of real and personal properties. The will provides
Over But Not The Tax Shall Plus Of the Excess that all real estate must not be sold or disposed of for a period of ten
Over Be Over (10) years after his death, and that the property must be transferred to
P 200,000 Exempt his nephew Matthew Hanley for him to dispose of the properties.
P 200,000 500,000 0 5% P 200,000
500,000 2,000,000 P15,000 8% 500,000 In 1932, Pablo Lorenzo, the trustee of the estate of Thomas Hanley
2,000,000 5,000,000 135,000 11% 2,000,000 (deceased), filed for the refund of P2,052.74, which he paid under protest
5,000,000 10,000,000 456,000 15% 5,000,000 as inheritance tax. Lorenzo insists that there was no delinquency in the
payment of inheritance tax because the same must be computed based
10,000,000 And Over 1,215,000 20% 10,000,000
upon the value of the estate at the expiration of the period of ten years,
when the property was to be delivered to the instituted heir, and not
SECTION. 88. Determination of the Value of the Estate. -
based on the value upon the death of Hanley. He also insists that the
compensation due to the trustees of the estate is a lawful deduction so as
(A) Usufruct. - To determine the value of the right of usufruct, use or
to arrive at the net amount of the estate subject to the inheritance tax.
habitation, as well as that of annuity, there shall be taken into account the
probable life of the beneficiary in accordance with the latest Basic
Issue/s:
Standard Mortality Table, to be approved by the Secretary of Finance,
1) Whether the inheritance tax be computed on the basis of the value of
upon recommendation of the Insurance Commissioner.
the estate at the time of the testator’s death, or on its value ten years later
2) WON compensation due to trustees is a lawful deduction
(B) Properties. - The estate shall be appraised at its fair market value as
of the time of death. However, the appraised value of real property as of
Held:
the time of death shall be, whichever is higher of -
1) Value of the estate at time of testator’s death. In ruling against
(1) The fair market value as determined by the Commissioner; or
Lorenzo, the Court stated that a transmission by inheritance is taxable
(2) The fair market value as shown in the schedule of values fixed by the
at the time of the predecessor’s death, notwithstanding the
Provincial and City Assessors.
postponement of the actual possession or enjoyment of the estate by
the beneficiary, and the tax measured by the value of the property
transmitted at that time regardless of its appreciation or depreciation.
(There is also a specific rule as to when to pay the tax [Sec. 1544 of
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Admin Code], which is on or before the delivery of the properties to o There was no delinquency in the payment of inheritance tax due on
the trustee. Check detailed digest below) the estate of said deceased
o The inheritance tax is not based upon the value of the estate upon
2) NO. Although a trustee is entitled to receive a fair compensation for his the death of the testator, but upon the value thereof at the
services, it does not follow that the compensation due him may expiration of the period of 10 years after which, according to the
lawfully be deducted in arriving at the net value of the estate testator’s will, the property could be and was to be delivered to the
subject to tax. There is no statute in the Philippines which requires instituted heir.
trustees’ commissions to be deducted in determining the net value of o The compensation to the “trustees” were lawful deductions, in
the estate subject to inheritance tax. (detailed explanation below) the determination of the net amount of the estate subject to
inheritance tax
Facts:
 Thomas Hanley died in May 27, 1992. Issue/s: (main tax issues, I think first issue above is a property/succession
 He left a will and a considerable amount of real and personal properties. issue so I will not include it here)
The will provided that, among others: 1) Whether the inheritance tax be computed on the basis of the value
o All real estate owned by him at the time of his death be not sold or of the estate at the time of the testator’s death, or on its value ten
otherwise disposed of for a period of 10 years after his death years later – at time of testator’s death. (BUT! Different rule on
o That the same be handled and managed by the executors; when OBLIGATION TO PAY arises)
o The proceeds be given to his nephew Matthew Hanley and; 2) WON compensation due to trustees is a lawful deduction - NO
o 10 years after his death, his property be given to Matthew
Hanley to be disposed of in the way the latter thinks most Held/Ratio: Judgment of the lower court is accordingly modified, with costs
advantageous. against the plaintiff in both instances.
o The CFI of Zamboanga appointed a trustee to administer the real
properties which were to pass to Matthew Hanley 10 years after. On 1) The inheritance tax must be computed on the basis of the value of
March 10, 1924, a certain PJM Moore took his oath as trustee and gave the estate at the time of the testator’s DEATH. Further, the tax must be
bond. paid before the delivery of the properties in question to the appointed
o He acted as trustee until February 29, 1932. He resigned and Pablo trustee.
Lorenzo (the plaintiff) replaced him. o Section 1536 of the Administrative Code imposes tax upon “every
o During the time Lorenzo was trustee, defendant Posadas, then Collector transmission by virtue of inheritance, devise, bequest, gift mortis
of Internal Revenue assessed against the estate an inheritance tax of causa, or advance in anticipation of inheritance, devise or
P1,434.24, plus penalties for delinquency in payment consisting of bequest.” The tax therefore is upon transmission or transfer or
a 1% monthly interest from July 1, 1931 and 25% surcharge, devolution of property of a decedent, made effect by his death.
totaling to P2,052.74. Posadas filed a motion in the testamentary  It is in reality an excise or privilege tax imposed on the right to
proceedings pending before the CFI of Zamboanga praying that the succeed to, receive, or take property by, or under a will or the
trustee be ordered to pay the said sum. intestacy law, or deed, grant, or gift to become operative
o Lorenzo was ordered to pay the sum but he paid the same under under death.
protest. His contentions were:  If death then is the generating source from which the power
o The real property of Thomas Hanley, deceased, did not pass to his of the estate to impose inheritance taxes takes its being, the
instituted heir from the moment of the death of the former tax should be measured by the value of the estate as it stood
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at the time of the decedent’s death, regardless of any expiration of the period, and that judicial expenses are
subsequent contingency value of any subsequent increase or expenses of administration, the Court cited State vs.
decrease in value. Hennepin County Probate Court which stated:
 A transmission by inheritance is taxable at the time of the  The compensation of a trustee, earned, not in the
predecessor’s death, notwithstanding the postponement of administration of the estate, but in the
the actual possession or enjoyment of the estate by the management thereof for the benefit of the legatees
beneficiary, and the tax measured by the value of the or devises, does not come properly within the class
property transmitted at that time regardless of its appreciation or reason for exempting administration expenses.
or depreciation. Service rendered in that behalf have no reference
o Under Subsection (a), Section 1544 of the Administrative Code in to closing the estate for the purpose of a
relation to Subsection (b), Section 1543, the tax fixed in the law distribution thereof to those entitled to it, and
shall be paid before entrance into possession of the property, in cases are not required or essential to the perfection of
where there is transmission or delivery of the inheritance of legacy to the rights of the heirs or legatees. (I think this
the trustee, as in the case here. should be the ultimate character of the expense so
 Hence, the tax should have been paid before the delivery of that it can be deducted)
the properties to PJM Moore (the first trustee) on March 10,
1924.
Revenue Regulations 02-03 (December 16, 2002), Sections 1-9 only
2) NO. The compensation due the trustees is not a lawful deduction to (Austria)
determine the net value of the estate subject to inheritance tax.
Subject: Consolidated Revenue Regulations on Estate Tax and Donor's
o Under Section 1539 of the Administrative Code, certain items are Tax Incorporating the Amendments Introduced by Republic Act No. 8424,
required by law to be deducted from the appraised gross in arriving the Tax Reform Act of 1997
at the net value of the estate on which the inheritance tax is to be
computed. SECTION 1. Scope. — Pursuant to Section 244, in relation to Sections 84
 In this case, only the sum representing the expenses and to 104 of the Tax Code of 1997 (Code), these Regulations are hereby
disbursements of the executors until March 10, 1924 and promulgated for the purpose of consolidating all the regulations on estate
proven debts of the deceased were allowed. tax and donor's tax, thereby amending Revenue Regulations No. 17-93
 Among these items to be deducted are judicial expenses of relative to the change in the tax rates of estate tax and donor's tax
the testamentary or intestate proceedings. pursuant to Republic Act No. 8424, the manner of claiming the deductions
o A trustee, no doubt is entitled to receive a fair compensation for his from the gross estate of the decedent, and for other purposes. These
services, but it does not follow that the compensation due him may regulations shall govern the taxation of the transmission of the decedent's
lawfully be deducted in arriving at the net value of the estate subject estate and donations made by persons, natural or juridical, whether
to tax. . There is no statute in the Philippines which requires citizens or aliens, residents or non-residents. For purposes of these
trustees’ commissions to be deducted in determining the net value regulations, the provisions of the Family Code of the Philippines (E.O. No.
of the estate subject to inheritance tax. 209) which took effect on August 3, 1988 shall govern the property
 Although the testator provided for in his will that his estate relations between husband and wife whose marriage was celebrated on or
be handled and managed by his executors until the after such date. For marriages celebrated prior to the effectivity of the
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Family Code of the Philippines, the Civil Code of the Philippines shall therein at the time of his death, including revocable transfers and transfers
govern the property relations between husband and wife in relation to the for insufficient consideration, etc.:
pertinent provisions of the Family Code. A) Residents and citizens — all properties, real or personal,
tangible or intangible, wherever situated.
SECTION 2. Rates Of Estate Tax. — The transfer of the net estate of B) Non-resident aliens — only properties situated in the
every decedent, whether resident or non-resident of the Philippines, as Philippines provided, that, with respect to intangible personal
determined in accordance with the Code, shall be subject to the estate tax. property, its inclusion in the gross estate is subject to the
The entire value of the net estate is divided into brackets and each rate is rule of reciprocity provided for under Section 104 of the
imposed on the corresponding bracket. Below is a table showing the tax Code.
on each bracket and the cumulative total tax for the entire net estate,
pursuant to the rates provided in the Code. SECTION 5. Valuation Of The Gross Estate. — The properties comprising
the gross estate shall be valued based on their fair market value as of the
"If the Net Estate is: time of death.
The tax Of the
Over But not over Plus
shall be excess over If the property is a real property, the fair market value shall be the fair
- P200,000 Exempt - - market value as determined by the Commissioner or the fair market value
P200,000 500,000 0 5% P200,000 as shown in the schedule of values fixed by the provincial and city
500,000 2,000,000 P15,000 8% 500,000 assessors, whichever is higher. For purposes of prescribing real property
2,000,000 5,000,000 135,000 11% 2,000,000 values, the Commissioner is authorized to divide the Philippines into
5,000,000 10,000,000 465,000 15% 5,000,000 different zones or areas and shall, upon consultation with competent
10,000,000 And over 1,215,000 20% 10,000,000 appraisers, both from the private and public sectors, determine the fair
market value of real properties located in each zone or area.
SECTION 3. The Law That Governs The Imposition Of Estate Tax. — It is
a well-settled rule that estate taxation is governed by the statute in In the case of shares of stocks, the fair market value shall depend on
force at the time of death of the decedent. The estate tax accrues as whether the shares are listed or unlisted in the stock exchanges. Unlisted
of the death of the decedent and the accrual of the tax is distinct from common shares are valued based on their book value while unlisted
the obligation to pay the same. Upon the death of the decedent, preferred shares are valued at par value. In determining the book value of
succession takes place and the right of the State to tax the privilege common shares, appraisal surplus shall not be considered as well as the
to transmit the estate vests instantly upon death. value assigned to preferred shares, if there are any.
The application of the rates herein prescribed and the procedures in For shares which are listed in the stock exchanges, the fair market value
determining the estate tax due shall apply to estate taxes falling due or shall be the arithmetic mean between the highest and lowest quotation at
have accrued beginning January 1, 1998, the effectivity date of Republic a date nearest the date of death, if none is available on the date of death
Act No. 8424, otherwise known as "The Tax Reform Act of 1997". itself.
SECTION 4. Composition Of The Gross Estate. — The gross estate of a To determine the value of the right to usufruct, use or habitation, as
decedent shall be comprised of the following properties and interest well as that of annuity, there shall be taken into account the probable life
of the beneficiary in accordance with the latest basic standard mortality
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table, to be approved by the Secretary of Finance, upon recommendation

of the Insurance Commissioner. Expenses incurred after the interment, such as for prayers, masses,
entertainment, or the like are NOT. deductible. Any portion of the
SECTION 6. Computation Of The Net Estate Of A Decedent Who Is Either funeral and burial expenses borne or defrayed by relatives and
A Citizen Or Resident Of The Philippines. — The value of the net estate of friends of the deceased are not deductible.
a citizen or resident alien of the Philippines shall be determined by
deducting from the value of the gross estate the following items of Medical expenses as of the last illness will not form part of funeral
deduction: expenses but should be claimed under subsection (F) of this section.
(A) Expenses, losses, indebtedness, and taxes — Such amounts for: Actual funeral expenses shall mean those which are actually incurred in
(1) Actual funeral expenses (whether paid or unpaid) up to the time of connection with the interment or burial of the deceased. The expenses
interment, or an amount equal to five percent (5%) of the gross must be duly supported by receipts or invoices or other evidence to show
estate, whichever is lower, but in no case to exceed P200,000. that they were actually incurred.
Any amount of funeral expenses in excess of the P200,000 threshold, Illustrations on how to determine the amount of allowable funeral
whether the same had actually been paid or still payable, shall not be expenses —
allowed as a deduction under this Subsection. Neither shall the unpaid (a) If five percent (5%) of the gross estate is P70,000 and the amount
portion of the funeral expenses incurred which is in excess of the actually incurred is P50,000, only P50,000 will be allowed as
P200,000 threshold be allowed to be claimed as a deduction under "claims deduction;
against the estate" provided under Subsection (C) hereof. (b) If the expenses actually incurred amount to P90,000 and �ve
percent (5%) of the gross estate is P70,000, only P70,000 will be
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual allowed as deduction;
meaning. They include: (c) If five percent (5%) of the gross estate is P220,000 and the
(a) The mourning apparel of the surviving spouse and unmarried amount actually incurred is P215,000, the maximum amount that
minor children of the deceased bought and used on the may be deducted is only P200,000;
occasion of the burial; (d) If five percent (5%) of the gross estate is P100,000 and the total
(b) Expenses for the deceased's wake, including food and amount incurred is P150,000 where P20,000 thereof is still
drinks; unpaid, the only amount that can be claimed as deduction for
(c) Publication charges for death notices; funeral expenses is P100,000. The entire P50,000 excess amount
(d) Telecommunication expenses incurred in informing relatives consisting of P30,000 paid amount and P20,000 unpaid amount
of the deceased; can no longer be claimed as FUNERAL EXPENSES. Neither can
(e) Cost of burial plot, tombstones, monument or mausoleum the P20,000 unpaid portion be deducted from the gross estate as
but not their upkeep. In case the deceased owns a family CLAIMS AGAINST THE ESTATE under Subsection (C) hereof
estate or several burial lots, only the value corresponding to
the plot where he is buried is deductible; (2) Judicial expenses of the testamentary or intestate proceedings. —
(f) Interment and/or cremation fees and charges; and Expenses allowed as deduction under this category are those incurred in
(g) All other expenses incurred for the performance of the rites the inventory-taking of assets comprising the gross estate, their
and ceremonies incident to interment. administration, the payment of debts of the estate, as well as the
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distribution of the estate among the heirs. In short, these deductible or the action to collect from the decedent must not have
items are expenses incurred during the settlement of the estate but prescribed.
not beyond the last day prescribed by law, or the extension thereof, (ii) Substantiation Requirements. — All unpaid obligations and liabilities of
for the filing of the estate tax return. Judicial expenses may include: the decedent at the time of his death (except unpaid funeral or medical
expenses which are deductible under a different category) are allowed as
(a) Fees of executor or administrator; deductions from gross estate. Provided, however, that the following
(b) Attorney's fees; requirements/documents are complied with/submitted
(c) Court fees; (a) In case of simple loan (including advances):
(d) Accountant's fees; (1) The debt instrument must be duly notarized at the time the
(e) Appraiser's fees; indebtedness was incurred, such as promissory note or
(f) Clerk hire; contract of loan, except for loans granted by financial
(g) Costs of preserving and distributing the estate; institutions where notarization is not part of the business
(h) Costs of storing or maintaining property of the estate; and practice/policy of the financial institution-lender;
(i) Brokerage fees for selling property of the estate. (2) Duly notarized Certification from the creditor as to the unpaid
balance of the debt, including interest as of the time of death.
Any unpaid amount for the aforementioned cost and expenses claimed If the creditor is a corporation, the sworn certification should
under "Judicial Expenses" should be supported by a sworn statement of be signed by the President, or Vice-President, or other
account issued and signed by the creditor. principal officer of tie corporation. If the creditor is a
partnership, the sworn certification should be signed by any of
(3) Claims against the estate. — The word "claims" is generally construed the general partners. In case the creditor is a bank or other
to mean debts or demands of a pecuniary nature which could have been financial institutions, the Certification shall be executed by the
enforced against the deceased in his lifetime and could have been branch manager of the bank financial institution which
reduced to simple money judgements. Claims against the estate or monitors and manages the loan of the decedent debtor. If the
indebtedness in respect of property may arise out of: (1) Contract; (2) Tort; creditor is an individual, the sworn certification should be
or (3) Operation of Law. signed by him. In any of these cases, the one who should
(i) Requisites for Deductibility of Claims Against the Estate — certify must not be a relative of the borrower within the fourth
civil degree, either by consanguinity or affinity, except when
(a) The liability represents ia personal obligation of the deceased the requirement below is complied with.
existing at the time of his death except unpaid obligations incurred
incident to his death such as unpaid funeral expenses (i.e., When the lender, or the President/Vice-president/principal officer
expenses incurred up to the time of interment) and unpaid of the creditor-corporation, or the general partner of the creditor-
medical expenses which are classified under a different category partnership is a relative of the debtor in the degree mentioned
of deductions pursuant to these Regulations; above, a copy of the promissory note or other evidence of the
(b) The liability was contracted in good faith and for adequate and full indebtedness must be filed with the RDO having jurisdiction over
consideration in money or money's worth; the borrower within fifteen days from the execution thereof.
(c) The claim must be a debt or claim which is valid in law and
enforceable in court; (3) In accordance with the requirements as prescribed in existing
(d) The indebtedness must not have been condoned by the creditor or prevailing internal revenue issuances, proof of financial
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capacity of the creditor to lend the amount at the time the loan When the lender, or the President/Vice-President/principal
was granted, as well as its latest audited balance sheet with a officer of the creditor-corporation, or the general
detailed schedule of its receivable showing the unpaid partner of the creditor-partnership is a relative of the
balance of the decedent-debtor. In case the creditor is an debtor in the degree mentioned above, a copy of the
individual who is no longer required to file income tax returns promissory note or other evidence of the
with the Bureau, a duly notarized Declaration by the creditor indebtedness must be filed with the RDO having
of his capacity to lend at the time when the loan was granted jurisdiction over the borrower within fifteen days from
without prejudice to verification that may be made by the BIR the execution thereof.
to substantiate such declaration of the creditor. If the creditor
is a nonresident, the executor/administrator or any of the legal (3) Certified true copy of the latest audited balance sheet of the
heirs must submit a duly notarized declaration by the creditor creditor with a detailed schedule of its receivable showing the
of his capacity to lend at the time when the loan was granted, unpaid balance of the decedent-debtor. Moreover, a certified
authenticated or certified to as such by the tax authority of the true copy of the updated latest subsidiary ledger/records of
country where the non-resident creditor is a resident’ the debt of the debtor-decedent, (certified by the creditor, i.e.,
(4) A statement under oath executed by the administrator or the officers mentioned in the preceding paragraphs) should
executor of the estate reflecting the disposition of the likewise be submitted.
proceeds of the loan if said loan was contracted within three (c) Where the settlement is made through the Court in a testate or
(3) years prior to the death of the decedent; intestate proceeding, pertinent documents filed with the Court
(b) If the unpaid obligation arose from purchase of goods or services: evidencing the claims against the estate, and the Court Order
(1) Pertinent documents evidencing the purchase of goods or approving the said claims, if already issued, in addition to the
service, such as sales invoice/delivery receipt (for sale of documents mentioned in the preceding paragraphs.
goods), or contract for the services agreed to be rendered (for
sale of service), as duly acknowledged, executed and signed (4) Claims of the deceased against insolvent persons where the value of
by decedent-debtor, and creditor, and statement of account the decedent's interest therein is included in the value of the gross
given by the creditor as duly received by the decedent-debtor; estate; and,
(2) Duly notarized Certification from the creditor as to the unpaid (5) Unpaid mortgages, taxes and casualty losses —
balance of the debt, including interest as of the time of death. (a) Unpaid mortgages upon, or any indebtedness in respect to,
If the creditor is a corporation, the sworn Certification should property where the value of the decedent's interest therein,
be signed by the President, or Vice-President, or other undiminished by such mortgage or indebtedness, is included in
principal officer of the corporation. If the creditor is a the value of the gross estate. The deduction herein allowed in the
partnership, the sworn certification should be signed by any of case of claims against the estate, unpaid mortgages or any
the general partners. If the creditor is a sole proprietorship, indebtedness shall, when founded upon a promise or agreement,
the sworn certification should be signed by the owner of the be limited to the extent that they were contracted bona fide and for
business. In any of these cases, the one who issues the an adequate and full consideration in money or money's worth.
certification must not be a relative of the decedent-debtor (b) Taxes which have accrued as of the death of the decedent which
within the fourth civil degree, either by consanguinity or were unpaid as of the time of death. This deduction will not
affinity, except when the requirement below is complied with. include income tax upon income received after death, or property
taxes not accrued before his death, or the estate tax due from the
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transmission of his estate. it is actually occupied as a family residence and is

(c) There shall also be deducted losses incurred during the considered as such for as long as any of its beneficiaries
settlement of the estate arising from fires, storms, shipwreck, or actually resides therein. (Arts. 152 and 153, Family Code)
other casualties, or from robbery, theft or embezzlement, when
such losses are not compensated for by insurance or otherwise, For purposes of these regulations, however, actual occupancy of
and if at the time of the filing of the return such losses have not the house or house and lot as the family residence shall
been claimed as a deduction for income tax purposes in an not be considered interrupted or abandoned in such
income tax return, and provided that such losses were incurred cases as the temporary absence from the constituted
not later than the last day for the payment of the estate tax as family home due to travel or studies or work abroad, etc.
prescribed in Subsections (A) and (B) of Section 91.
In other words, the family home is generally characterized by
In case unpaid mortgage payable is being claimed by the estate, permanency, that is, the place to which, whenever absent
verification must be made as to who was the beneficiary of the for business or pleasure, one still intends to return.
loan proceeds. If the loan is found to be merely an
accommodation loan where the loan proceeds went to another The family home must be part of the properties of the absolute
person, the value of the unpaid loan must be included as a community or of the conjugal partnership, or of the
receivable of the estate. If there is a legal impediment to exclusive properties of either spouse depending upon the
recognize the same as receivable of the estate, said unpaid classification of the property (family home) and the
obligation/mortgage payable shall not be allowed as a deduction property relations prevailing on the properties of the
from the gross estate. In all instances, the mortgaged property, husband and wife. It may also be constitutedby an
TO THE EXTENT OF THE DECEDENT'S INTEREST THEREIN, unmarried head of a family on his or her own property.
should always form part of the gross taxable estate. (Art. 156, Ibid)
"(B) Property previously taxed — . . . For purposes of availing of a family home deduction to the extent
"(C) Transfers for public use — . . . allowable, a person may constitute only one family home.
"(D) The family home — An amount equivalent to the current fair market (Art. 161, Ibid)
value of the decedent's family home: Provided, however, That if the said
current fair market value exceeds One million pesos (P1,000,000), the Husband and Wife — Legally married man and woman.
excess shall be subject to estate tax. As a sine qua non condition for the
exemption or deduction, said family home must have been the decedent's Unmarried Head of a Family — An unmarried or legally separated
family home as certified by the barangay captain of the locality. man or woman with one or both parents, or with one or
more brothers or sisters, or with one or more legitimate,
a) Definition of terms — recognized natural or legally adopted children living with
Family home — The dwelling house, including the land on which it and dependent upon him or her for their chief support,
is situated, where the husband and wife, or a head of the where such brothers or sisters or children are not more
family, and members of their family reside, as certified to than twenty one (21) years of age, unmarried and not
by the Barangay Captain of the locality. The family home gainfully employed or where such children, brothers or
is deemed constituted on the house and lot from the time sisters, regardless of age are incapable of self-support
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because of mental or physical defect, or any of the as a deduction provided that the same are duly substantiated with
beneficiaries mentioned in Article 154 of the Family Code official receipts for services rendered by the decedent's attending
who is living in the family home and dependent upon the physicians, invoices, statements of account duly certified by the hospital,
head of the family for legal support. and such other documents in support thereof and provided, further, that
the total amount thereof, whether paid or unpaid, does not exceed
The beneficiaries of a family home are: Five Hundred Thousand Pesos (P500,000).
(1) The husband and wife, or the head of a family; and
(2) Their parents, ascendants, descendants including legally Any amount of medical expenses incurred within one year from death in
adopted children, brothers and sisters, whether the excess of Five Hundred Thousand Pesos (P500,000) shall no longer be
relationship be legitimate or illegitimate, who are living in the allowed as a deduction under this subsection. Neither can any unpaid
family home and who depend upon the head of the family for amount thereof in excess of the P500,000 threshold nor any unpaid
legal support. (Art. 154, Ibid) amount for medical expenses incurred prior to the one-year period from
date of death be allowed to be deducted from the gross estate as claim
b) Conditions for the allowance of FAMILY HOME as deduction against the estate.
from the gross estate —
1. The family home must be the actual residential home Illustrations on how to determine the amount of allowable medical
of the decedent and his family at the time of his expenses given the P500,000 threshold amount —
death, as certified by the Barangay Captain of the a. If the actual amount of medical expenses incurred is
locality where the family home is situated; P250,000, then only P250,000 shall be allowed as
2. The total value of the family home must be included deduction and not to the extent of the P500,000
as part of the gross estate of the decedent; and threshold amount;
3. Allowable deduction must be in an amount equivalent b. If the actual amount of medical expenses incurred
to the current fair market value of the family home as within the year prior to decedent's death is P600,000,
declared or included in the gross estate, or the extent only the maximum amount of P500,000 shall be
of the decedent's interest (whether allowed as deduction. If in case the excess of
conjugal/community or exclusive property), P100,000 (P600,000-500,000) is still unpaid, such
whichever is lower, but not exceeding P1,000,000. amount shall not be allowed to be deducted from the
gross estate as "claims against the estate".
(E) Standard deduction. — A deduction in the amount of One Million
Pesos (P1,000,000) shall be allowed as an additional deduction without (G) Amount received by heirs under Republic Act No. 4917 — Any amount
need of substantiation. The full amount of P1,000,000 shall be allowed as received by the heirs from the decedent's employer as a consequence of
deduction for the benefit of the decedent. The presentation of such the death of the decedent-employee in accordance with Republic Act No.
deduction in the computation of the net taxable estate of the decedent is 4917 is allowed as a deduction provided that the amount of the separation
properly illustrated in these Regulations. benefit is included as part of the gross estate of the decedent.
(F) Medical expenses. — All medical expenses (cost of medicines, (8) Net share of the surviving spouse in the conjugal partnership or
hospital bills, doctors' fees, etc.) incurred (whether paid or unpaid) community property. — After deducting the allowable deductions
within one (1) year before the death of the decedent shall be allowed appertaining to the conjugal or community properties included in the gross
9
estate, the share of the surviving spouse must be removed to ensure that
only the decedent's interest in the estate is taxed.
SECTION 7. Computation Of The Net Estate Of A Decedent Who Is A

Non-Resident Alien Of The Philippines. — The value of the net estate of a
decedent who is a non-resident alien in the Philippines shall be
determined by deducting from the value of that part of his gross estate
which at the time of his death is situated in the Philippines the following
items of deductions:
(1) Expenses, losses, indebtedness, and taxes — That proportion of the

total expenses, losses, indebtedness, and taxes which the value of such
part bears to the value of his entire gross estate wherever situated. The
allowable deduction under this subsection shall be computed using the
following formula:
"(2) Property previously taxed — . . ."
"(3) Transfers for public use — . . ."
Although the family home is valued at P2 million, the maximum allowable
"(4) Net share of the surviving spouse in the conjugal property or
deduction for the family home is P1million only.
community property. — . . ."
Note: * Medical expenses are not included in the deductions referred

No deduction shall be allowed in the case of a non-resident decedent not a
under Section 86(A)(1) of the Code but are treated as a special item of
citizen of the Philippines, unless the executor, administrator, or anyone of
deduction under Section 86(A)(6) of the same Code.
the heirs, as the case may be, includes in the return required to be filed
under Section 90 of the Code the value at the time of the decedent's death
of that part of his gross estate not situated in the Philippines.
SECTION 8. Proper Presentation Of Funeral Expenses, Family Home,

Standard Deduction, And Medical Expenses As Deductions From The
Gross Estate. — Illustrative examples to properly present the manner of
deducting funeral expenses, family home, standard deduction, and
medical expenses from the gross estate in accordance with the provisions
of the Code.
10
Note: Deduction for family home is allowed for P800,000 only which is the
declared value of the family home.
11
Note: Since the fair market value/zonal value of the conjugal family home
in the above example is P1,500,000, the family home deduction
corresponding to ½ of such fair market value/zonal value is P750,000 only.
12
resident decedent, the administrator or executor shall register the

estate of the decedent and secure a new TIN therefor from the
Revenue District Office where the decedent was domiciled at the
time of his death and shall file the estate tax return and pay the
corresponding estate tax with the Accredited Agent Bank (AAB),
Revenue District Officer, Collection Officer or duly authorized
Treasurer of the city or municipality where the decedent was
domiciled at the time of his death, whichever is applicable,
following prevailing collection rules and procedures.
In case of a non-resident decedent, whether non-resident citizen

or non-resident alien, with executor or administrator in the
Philippines, the estate tax return shall be filed with and the TIN for
the estate shall be secured from the Revenue District Office
where such executor or administrator is registered: Provided,
however, that in case the executor or administrator is not
registered, the estate tax return shall be filed with and the TIN of
the estate shall be secured from the Revenue District Office
SECTION 9. Time And Place Of Filing Estate Tax Return And Payment Of having jurisdiction over the executor or administrator's legal
Estate Tax Due. — residence. Nonetheless, in case the non-resident decedent does
(A) Time for filing estate tax return. — For purposes of determining not have an executor or administrator in the Philippines, the
the estate tax, the estate tax return shall be filed within six (6) estate tax return shall be �led with and the TIN for the estate
months from the decedent's death. The Court approving the shall be secured from the Office of the Commissioner through
project of partition shall furnish the Commissioner with a certified RDO No. 39 — South Quezon City.
copy thereof and its order within thirty (30) days after
promulgation of such order. The foregoing provisions notwithstanding, the Commissioner of
(B) Extension of time to file estate tax return. — The Commissioner or Internal Revenue may continue to exercise his power to allow a
any Revenue Officer authorized by him pursuant to the Code shall different venue/place in the filing of tax returns.
have authority to grant, in meritorious cases, a reasonable
extension, not exceeding thirty (30) days, for filing the return. The (D) Time for payment of the estate tax. — As a general rule, the
application for the extension of time to file the estate tax return estate tax imposed under the Code shall be paid at the time the
must be filed with the Revenue District Office (RDO) where the return is filed by the executor, administrator or the heirs.
estate is required to secure its Taxpayer Identification Number (E) Extension of time to pay estate tax. — When the Commissioner
(TIN) and file the tax returns of the estate, which RDO likewise, finds that the payment of the estate tax or of any part thereof
has jurisdiction over the donor's tax return required to be �led by would impose undue hardship upon the estate or any of the heirs,
any party as a result of the distribution of the assets and liabilities he may extend the time for payment of such tax or any part
of the decedent. thereof not to exceed five (5) years in case the estate is settled
(C) Place of filing the return and payment of the tax . — In case of a through the courts, or two (2) years in case the estate is settled
13
extra-judicially. In such case, the amount in respect of which the payments of the estate tax. The computation of the estate tax,
extension is granted shall be paid on or before the date of the however, shall always be on the cumulative amount of the net
expiration of the period of the extension, and the running of the taxable estate. Any amount paid after the statutory due date of the
statute of limitations for deficiency assessment shall be tax shall be imposed the corresponding applicable penalty
suspended for the period of any such extension. thereto. However, if the payment of the tax after the due date is
approved by the Commissioner or his duly authorized
For purposes of these Regulations, the application for extension representative, the imposable penalty thereon shall only be the
of time to file the return and extension of time to pay estate tax interest. Nothing in this paragraph, however, prevents the
shall be filed with the Revenue District Officer (RDO) where the Commissioner from executing enforcement action against the
estate is required to secure its TIN and file the estate tax return. estate after the due date of the estate tax provided that all the
This application shall be approved by the Commissioner or his applicable laws and required procedures are followed/observed.
duly authorized representative. (G) Liability for payment — The estate tax imposed under the Code
shall be paid by the executor or administrator before the delivery
Where the request for extension is by reason of negligence, of the distributive share in the inheritance to any heir or
intentional disregard of rules and regulations, or fraud on the part beneficiary. Where there are two or more executors or
of the taxpayer, no extension will be granted by the administrators, all of them are severally liable for the payment of
Commissioner. the tax. The estate tax clearance issued by the Commissioner or
the Revenue District Officer (RDO) having jurisdiction over the
If an extension is granted, the Commissioner or his duly estate, will serve as the authority to distribute the
authorized representative may require the executor, or remaining/distributable properties/share in the inheritance to the
administrator, or beneficiary, as the case may be, to furnish a heir or beneficiary.
bond in such amount, not exceeding double the amount of the tax
and with such sureties as the Commissioner deems necessary, The executor or administrator of an estate has the primary
conditioned upon the payment of the said tax in accordance with obligation to pay the estate tax but the heir or beneficiary has
the terms of the extension. subsidiary liability for the payment of that portion of the estate
which his distributive share bears to the value of the total net
Any amount paid after the statutory due date of the tax, but within estate. The extent of his liability, however, shall in no case exceed
the extension period, shall be subject to interest but not to the value of his share in the inheritance.
surcharge.
(F) Payment of the estate tax by installment. — In case the available Revenue Regulations 02-03 (December 16, 2002), Sections 1-9 only
cash of the estate is not sufficient to pay its total estate tax
liability, the estate may be allowed to pay the tax by installment Subject: Consolidated Revenue Regulations on Estate Tax and Donor's Tax
and a clearance shall be released only with respect to the Incorporating the Amendments Introduced by Republic Act No. 8424, the Tax
property the corresponding/computed tax on which has been paid. Reform Act of 1997
There shall, therefore, be as many clearances (Certificates
Authorizing Registration) as there are as many properties Scope (Sec.1)
released because they have been paid for by the installment
14
RR 2-2003 was promulgated for the purpose of consolidating all the Accrual of Estate Tax (Sec.3)
regulations on estate tax and donor's tax, Estate tax accrues as of the death of the decedent
 RR regarding the manner of claiming the deductions from the gross
estate of the decedent, and for other purposes Accrual vs. Obligation to pay (Sec.3)
 These regulations shall govern the taxation of: Accrual Obligation to pay
o the transmission of Upon the death of the decedent, To be paid at the time the estate tax
 the decedent's estate and succession takes place thus the right return is filed by the executor,
 donations of the State to tax the privilege to administrator or the heirs
o made by persons, transmit the estate vests instantly
 natural or juridical, upon death.
 whether citizens or aliens,
 residents or non-residents. Determination of Gross Estate (Sec.4)
 Law governing property relations between husband and wife: Gross estate comprises of properties and interest therein at the time of his
o whose marriage was celebrated on or after such date: The death, including revocable transfers and transfers for insufficient
provisions of the Family Code of the Philippines (E.O. No. consideration, etc. [depending on whether one is an resident or citizen of the
209, August 3, 1988) Philippines]
o for marriages celebrated prior to the effectivity of the Family Residents AND Citizens Non-resident Aliens
Code: the Civil Code of the Philippines shall govern the (resident citizen, non-resident
property relations between husband and wife in relation to citizen or resident alien)
the pertinent provisions of the Family Code. all properties, real or personal, only properties situated in the
tangible or intangible, wherever Philippines
Rate of Estate Tax (Sec.2) situated.
PROVIDED, that, with respect to
The entire value of the net estate is divided into brackets and each rate is intangible personal property, its
imposed on the corresponding bracket. inclusion in the gross estate is
The tax Of the subject to the rule of reciprocity
Over But not over Plus
shall be excess over provided for under Section 104 of the
- P200,000 Exempt - - Code.
P200,000 500,000 0 5% P200,000
500,000 2,000,000 P15,000 8% 500,000 Valuation of Gross Estate based on the fair market value (Sec.5)
2,000,000 5,000,000 135,000 11% 2,000,000 Property Determination of FMV
5,000,000 10,000,000 465,000 15% 5,000,000 Real property 1. determined by the
10,000,000 And over 1,215,000 20% 10,000,000 Commissioner or
2. the fair market value as shown
Law that governs estate tax (Sec.3) in the schedule of values fixed
Estate taxation is governed by the statute in force at the time of death of the by the provincial and city
decedent. assessors, whichever is higher
15
Share of stock If listed ii. Judicial expenses d. Amount received by heir under
 the arithmetic mean between the iii. Claims against the estate RA 4917
highest and lowest quotation at a iv. Claims against insolvent
date nearest the date of death, if persons
none is available on the date of v. Unpaid mortgage or
death itself indebtedness on property
vi. Taxes
If unlisted vii. Losses
1. common shares: valued based b. Vanishing Deduction
on their book value c. Transfer for public use
2. preferred shares: valued at par
value
Right to usufruct, use or probable life of the beneficiary in Ordinary deductions
habitation, as well as that of accordance with the latest basic a. Expenses, losses, indebtedness, taxes, etc. (subsection A)
annuity standard mortality table, i. Actual Funeral expenses (par.1)
 to be approved by the Secretary of  Definition: those which are actually incurred in connection
Finance, upon recommendation of with the interment or burial of the deceased. The expenses
the Insurance Commissioner. must be duly supported by receipts or invoices or other
evidence to show that they were actually incurred. (last part,
Improvement (see Sec.88) 1. The construction cost per subpar.1)
building permit or  Conditions:
2. FMV per latest tax declaration 1. Paid or unpaid
2. Up to the time of interment
Determination of Net Estate (Secs.6 and 7) 3. The actual amount or in an amount equal to 5% of the
1. Citizen Or Resident Of The Philippines (Sec.6) gross estate, whichever is lower, but in no case to
 The value of the net estate of a citizen or resident alien of the Philippines exceed P200,000
shall be determined by deducting from the value of the gross estate the a. The amount in excess of the P200,000
ordinary and special deductions and exclusions allowed by law threshold shall not be allowed as a deduction
2. Non-Resident Alien Of The Philippines (Sec.7) nor will it be allowed to be claimed as a
 Net estate is equal to gross estate less ordinary deductions and deduction under “claims against the estate.
exclusions allowed by law  Deductibles includes:
o The mourning apparel of the surviving spouse and
Deductions from the Gross Estate (Secs. 6; see also sec. 8) unmarried minor children of the deceased bought
Ordinary Special and used on the occasion of the burial;
a. Expenses, losses, indebtedness, a. Family home o Expenses for the deceased's wake, including food
taxes, etc. b. Standard deduction and drinks;
i. Funeral expenses c. Medical expenses o Publication charges for death notices;
16
o Telecommunication expenses incurred in informing o the distribution of the estate among the heirs
relatives of the deceased;  Examples:
o Cost of burial plot, tombstones, monument or o Fees of executor or administrator;
mausoleum but not their upkeep. In case the o Attorney's fees;
deceased owns a family estate or several burial o Court fees;
lots, only the value corresponding to the plot where o Accountant's fees;
he is buried is deductible; o Appraiser's fees;
o Interment and/or cremation fees and charges; and o Clerk hire;
o All other expenses incurred for the performance of o Costs of preserving and distributing the estate;
the rites and ceremonies incident to interment o Costs of storing or maintaining property of the
 NOT deductible: estate; and
o Expenses incurred after the interment, such as for o Brokerage fees for selling property of the estate.
prayers, masses, entertainment, or the like iii. Claims against the estate (par.3)
o Any portion of the funeral and burial expenses 1. Definition: debts or demands of a pecuniary nature
borne or defrayed by relatives and friends of the which could have been enforced against the deceased
deceased in his lifetime and could have been reduced to simple
o Medical expenses as of the last illness money judgements.
 This should instead be claimed as part of 2. Claims against the estate or indebtedness in respect of
the deduction for “medical property may arise out of: (1) Contract; (2) Tort; or (3)
expenses”/subsection F Operation of Law.
ii. Judicial expenses (par.2) 3. Requisites
 Definition: expenses incurred during the settlement of the a. The liability represents a personal obligation of
estate but not beyond the last day prescribed by law, or the the deceased existing at the time of his death
extension thereof, for the filing of the estate tax return except unpaid obligations incurred incident to
o “last day” (Sec.9): within 6 months from the date of his death such as unpaid funeral expenses
death of the decedent) or (i.e., expenses incurred up to the time of
o “the extension thereof”: in meritorious cases, the interment) and unpaid medical expenses which
CIR may grant reasonable extension not exceeding are classified under a different category of
30 days deductions pursuant to these Regulations;
 Any unpaid amount for the aforementioned cost and b. The liability was contracted in good faith and
expenses claimed under "Judicial Expenses" should be for adequate and full consideration in money or
supported by a sworn statement of account issued and money's worth;
signed by the creditor c. The claim must be a debt or claim which is
 Incurred in: valid in law and enforceable in court;
o inventory-taking of assets comprising the gross d. The indebtedness must not have been
estate, condoned by the creditor or the action to
o their administration collect from the decedent must not have
o the payment of debts of the estate prescribed.
17
4. Substantiation Requirements iv. Claims against insolvent persons (par.4) – Requisites:

In case of a. Instrument must be 1. The amount has been initially included as part of the
simple loan duly notarized gross estate; and
b. Duly notarized 2. The incapacity of the debtors to pay their obligations is
Certification from the proven, not merely alleged.
creditor v. Unpaid mortgage or indebtedness on property (par.5) –
c. Proof of financial Requisites:
capacity of the 1. The FMV of the property mortgaged without deducting
creditor to lend; the indebtedness has been initially included as part of
d. Statement under the gross estate; and
oath executed by the 2. The mortgage indebtedness was contracted in good
executor/administrato faith and for an adequate and full consideration in
r of the estate money/money’s worth.
reflecting the vi. Taxes (par.5)
disposition of the 1. Requisites
proceeds of the loan a. Taxes which have accrued as of or before the
(if the loan was death of the decedent; and
contracted within 3 b. Unpaid as of the time of his death, regardless
years prior to the of whether or not it was incurred in connection
death of the with trade or business
decedent) 2. Does NOT include
a. not include income tax upon income received
In unpaid a. Pertinent documents after death, or
obligation evidencing the b. property taxes not accrued before his death, or
arose from purchase of goods or c. the estate tax due from the transmission of his
purchase of service estate
goods or b. Duly notarized vii. Losses (par.5) - Requisites
services Certification from the 1. were incurred during the settlement of the estate
creditor as to the 2. arose from fires, storms, shipwreck or other casualties
unpaid balance of or from robbery, theft or embezzlement
the debt, including 3. are not compensable
interest as of the 4. are not claimed as deduction for income tax purposes
time of death; 5. were incurred not later than the last day for payment of
c. Certified true copy of the estate tax
the latest audited b. Vanishing deductions (subsection B)
balance sheet of the c. Transfer for public use (subsection C)
creditor
Special deductions:
18
a. Family Home (subsection D) – Requisites for deductibility

i. The family home must be the actual residential home of the
decedent and his family at the time of his death as certified by
the barangay captain
ii. The total value of the family home must be included as part of
the gross estate
iii. Allowable deduction must be in an amount equivalent to:
1. the current FMV of the family home as declared or
included in the gross estate or
2. the extent of the decedent’s interest (whether
conjugal/community or exclusive property), whichever
is lower
iv. The deduction not exceed Php 1,000,000.
b. Standard deduction (subsection E)
v. The standard deduction shall be Php 1,000,000 without need of
substantiation.
c. Medical expenses and (subsection F)
vi. Requisites
1. Incurred (whether paid or unpaid) within 1 year before
the death of the decedent
2. duly substantiated with receipts
3. Does not exceed Php 500,000
vii. The amounts of medical expenses incurred in excess of
P500,000 shall no longer be allowed as a deduction for medical
expenses. Neither can any unpaid amount thereof in excess of
the P500,000 threshold nor any unpaid amount for medical
expenses incurred prior to the one-year period from date of
death be allowed to be deducted from the gross estate as claim
against the estate
d. Amount received by heir under RA 4917 (subsection G)
viii. RA 4917: An Act Providing that Retirement Benefits of
Employees of Private Firms shall not be subject to any Tax
whatsoever
ix. Amounts received from the decedent’s employer as a
consequence of the death of the decedent-employee as
retirements benefits under R.A. 4917 is allowed as a deduction
provided that the amount of benefit is included in the gross
estate.
19
cSections 85 & 104, Tax Code shall be considered to exist on the date of the decedent's death even though
the exercise of the power is subject to a precedent giving of notice or even
SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall though the alteration, amendment or revocation takes effect only on the
be determined by including the value at the time of his death of all property, expiration of a stated period after the exercise of the power, whether or not
real or personal, tangible or intangible, wherever situated: Provided, on or before the date of the decedent's death notice has been given or the
however, that in the case of a nonresident decedent who at the time of his power has been exercised. In such cases, proper adjustment shall be made
death was not a citizen of the Philippines, only that part of the entire gross representing the interests which would have been excluded from the power if
estate which is situated in the Philippines shall be included in his taxable the decedent had lived, and for such purpose if the notice has not been given
estate. or the power has not been exercised on or before the date of his death, such
notice shall be considered to have been given, or the power exercised, on
(A) Decedent's Interest. - To the extent of the interest therein of the the date of death.
decedent at the time of his death;
(D) Property Passing Under General Power of Appointment. - To the
(B) Transfer in Contemplation of Death. - To the extent of any interest extent of any property passing under a general power of appointment
therein of which the decedent has at any time made a transfer, by trust or exercised by the decedent: (1) by will, or (2) by deed executed in
otherwise, in contemplation of or intended to take effect in possession or contemplation of, or intended to take effect in possession or enjoyment at, or
enjoyment at or after death, or of which he has at any time made a transfer, after his death, or (3) by deed under which he has retained for his life or any
by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period
period which does not in fact end before his death (1) the possession or which does not in fact end before his death (a) the possession or enjoyment
enjoyment of, or the right to the income from the property, or (2) the right, of, or the right to the income from, the property, or (b) the right, either alone
either alone or in conjunction with any person, to designate the person who or in conjunction with any person, to designate the persons who shall
shall possess or enjoy the property or the income therefrom; except in case possess or enjoy the property or the income therefrom; except in case of a
of a bona fide sale for an adequate and full consideration in money or bona fide sale for an adequate and full consideration in money or money's
money's worth. worth.
(C) Revocable Transfer. - (E) Proceeds of Life Insurance. - To the extent of the amount receivable by
(1) To the extent of any interest therein, of which the decedent has at any the estate of the deceased, his executor, or administrator, as insurance
time made a transfer (except in case of a bona fide sale for an adequate and under policies taken out by the decedent upon his own life, irrespective of
full consideration in money or money's worth) by trust or otherwise, where whether or not the insured retained the power of revocation, or to the extent
the enjoyment thereof was subject at the date of his death to any change of the amount receivable by any beneficiary designated in the policy of
through the exercise of a power (in whatever capacity exercisable) by the insurance, except when it is expressly stipulated that the designation of the
decedent alone or by the decedent in conjunction with any other person beneficiary is irrevocable.
(without regard to when or from what source the decedent acquired such
power), to alter, amend, revoke, or terminate, or where any such power is (F) Prior Interests. - Except as otherwise specifically provided therein,
relinquished in contemplation of the decedent's death. Subsections (B), (C) and (E) of this Section shall apply to the transfers,
trusts, estates, interests, rights, powers and relinquishment of powers, as
(2) For the purpose of this Subsection, the power to alter, amend or revoke severally enumerated and described therein, whether made, created, arising,
existing, exercised or relinquished before or after the effectivity of this Code. respect of intangible personal property of citizens of the Philippines not
residing in that foreign country, or
(G) Transfers for Insufficient Consideration. - If any one of the transfers,
trusts, interests, rights or powers enumerated and described in Subsections (b) if the laws of the foreign country of which the decedent or donor was a
(B), (C) and (D) of this Section is made, created, exercised or relinquished citizen and resident at the time of his death or donation allows a similar
for a consideration in money or money's worth, but is not a bona fide sale for exemption from transfer or death taxes of every character or description in
an adequate and full consideration in money or money's worth, there shall be respect of intangible personal property owned by citizens of the Philippines
included in the gross estate only the excess of the fair market value, at the not residing in that foreign country.
time of death, of the property otherwise to be included on account of such
transaction, over the value of the consideration received therefor by the The term 'deficiency' means:
decedent.
(a) the amount by which tax imposed by this Chapter exceeds the amount
(H) Capital of the Surviving Spouse. - The capital of the surviving spouse shown as the tax by the donor upon his return; but the amount so shown on
of a decedent shall not, for the purpose of this Chapter, be deemed a part of the return shall first be increased by the amount previously assessed (or
his or her gross estate. Collected without assessment) as a deficiency, and decreased by the
amounts previously abated, refunded or otherwise repaid in respect of such
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' tax, or
and 'gifts' include real and personal property, whether tangible or intangible,
or mixed, wherever situated: Provided, however, That where the decedent or (b) if no amount is shown as the tax by the donor, then the amount by which
donor was a nonresident alien at the time of his death or donation, as the the tax exceeds the amounts previously assessed, (or collected without
case may be, his real and personal property so transferred but which are assessment) as a deficiency, but such amounts previously assessed, or
situated outside the Philippines shall not be included as part of his 'gross collected without assessment, shall first be decreased by the amount
estate' or 'gross gift': Provided, further, That franchise which must be previously abated, refunded or otherwise repaid in respect of such tax.
exercised in the Philippines; shares, obligations or bonds issued by any
corporation or sociedad anonima organized or constituted in the Philippines Definitions (Sec.140)
in accordance with its laws; shares, obligations or bonds by any foreign  ‘gross estate' and 'gifts'
corporation eighty-five percent (85%) of the business of which is located in o include
the Philippines; shares, obligations or bonds issued by any foreign  real and personal property,
corporation if such shares, obligations or bonds have acquired a business  whether tangible or intangible, or mixed,
situs in the Philippines; shares or rights in any partnership, business or  wherever situated:
industry established in the Philippines, shall be considered as situated in the o where the decedent or donor was a nonresident alien at
Philippines: Provided, still further, that no tax shall be collected under this the time of his death or donation: property situated outside
Title in respect of intangible personal property: the Philippines shall NOT be included
o the following are considered as situated in the
(a) if the decedent at the time of his death or the donor at the time of the Philippines:
donation was a citizen and resident of a foreign country which at the time of  That franchise which must be exercised in the
his death or donation did not impose a transfer tax of any character, in Philippines;
 shares, obligations or bonds issued by any refunded or otherwise repaid in respect of such tax,
corporation or sociedad anonima organized or or
constituted in the Philippines in accordance with its o if no amount is shown as the tax by the donor, then the
laws; amount by which the tax exceeds the amounts
 shares, obligations or bonds by any foreign previously assessed, (or collected without assessment)
corporation eighty-five percent (85%) of the as a deficiency,
business of which is located in the Philippines;  but such amounts previously assessed, or
 shares, obligations or bonds issued by any foreign collected without assessment, shall first be
corporation if such shares, obligations or bonds decreased by the amount previously abated,
have acquired a business situs in the Philippines; refunded or otherwise repaid in respect of such tax.
 shares or rights in any partnership, business or
industry established in the Philippines Extent of Gross Estate (Sec. 85)
o NO TAX in respect of intangible personal property:
(a) if the decedent at the time of his death or the donor at Decedent’s Interest (Sec.85 (A)) It includes any interest having value
the time of the donation was a or capable of being valued,
i. citizen and resident of a foreign country transferred by the decedent at his
ii. which at the time of his death or donation did death
not impose a transfer tax of any character, in Transfer in Contemplation of To the extent of any interest therein
respect of intangible personal property of Death (Sec.85(B); PM Reyes)
citizens of the Philippines not residing in that  when the impelling motive or
foreign country, or reason for the transfer is the
(b) if the laws of the foreign country of which the decedent thought of death, regardless of
or donor was a whether the transferor is near
i. citizen and resident at the time of his death or the possibility of death or not.
donation
 One should consider the
ii. [his foreign country] allows a similar exemption
following:
from transfer or death taxes of every character
1. The type of heir (whether
or description in respect of intangible personal
compulsory or voluntary)
property owned by citizens of the Philippines
2. The timing of the transfer
not residing in that foreign country.
3. Other special factors
 deficiency
Revocable Transfer (Sec.85(C); To the extent of any interest therein,
o the amount by which tax imposed by this Chapter
PM Reyes) it forms part of the gross estate of
exceeds the amount shown as the tax by the donor
a transfer where the transferor has the decedent
upon his return;
reserved his right to alter, amend or
 but the amount so shown on the return shall first be
revoke such transfer, regardless of
increased by the amount previously assessed (or
whether the power is actually
Collected without assessment) as a deficiency, and
exercised or not during his lifetime
decreased by the amounts previously abated,
and whether the power should be

exercised by him alone or in Capital of the Surviving Spouse  exclusion to gross estate
conjunction with someone else. (Sec.85(H))  See Sec.86(C): share of
surviving spouse in the
ACP/CPG is a deduction
Property Passing Under General
Power of Appointment (Sec.85(D); Property Passing Under General Power of Appointment vs. Special
PM Reyes) POA (PM Reyes)
General POA Special POA
Donor gives the donee the power to Donor gives the donee the power Donor gives the donee the power
appoint any person as successor to to appoint any person as to appoint a person within a limited
enjoy the property successor to enjoy the property. group to succeed in the enjoyment
Proceeds of Life Insurance  To the extent of the amount of the property
(Sec.85(E)) receivable by Shall form part of the gross estate Shall not form part of the gross
o the estate of the deceased,
estate
o his executor, or
o administrator, COLLECTOR OF INTERNAL REVENUE v. FISHER (BAÑADERA)
as insurance under policies [GR. No. L-11622; January 28, 1961]
taken out by the decedent upon “The English man”
his own life, irrespective of
whether or not the insured Recit-Ready:
retained the power of revocation Facts: The case is regarding determination of the hereditary estate of
 amount receivable by any the deceased Walter G. Stevenson. Mr. Stevenson and his wife
beneficiary designated in the are both English subjects who married in the Philippines and has
policy of insurance property here that are now subject of this case. An administrator
 EXCEPT when it is expressly was appointed who filed the appropriate documents for tax
stipulated that the designation of purposes. In the meantime, Mr. Stevenson’s wife assigned all her
the beneficiary is irrevocable rights and interests in the estate to the spouses, Douglas and
Transfers of Insufficient  Bettina Fisher, respondents herein. The case now questions the
Apply (B), (C), and (E)
Consideration Prior Interests propriety of the value of the real and personal properties of Mr.
(Sec.85(F) Stevenson.
Issue/s:
Transfers of Insufficient The excess of the fair market value
Consideration (Sec.85(G)) at the time of the death over the 1) WON in determining the taxable net estate of the decedent, one-
those transfers that are not bona fide value of the consideration received half (½) of the net estate should be deducted therefrom as the
sales of property for an adequate by the decedent share of tile surviving spouse in accordance with our law on
and full consideration in money or conjugal partnership and in relation to section 89 (c) of the
National Internal revenue Code?
money’s worth
—YES
2) WON the estate can avail itself of the reciprocity proviso passing of RA 9257 which amended RA 7432 tax credit computation
embodied in Section 122 of the National Internal Revenue Code into tax deduction. Though the new RA is not applicable in this case.
granting exemption from the payment of estate and inheritance
taxes on the 210,000 shares of stock in the Mindanao Mother 3) NO. See case.
Lode Mines Inc.
—NO 4) NO. For the property in Baguio, it is not impossible that the value of the
3) WON the estate is entitled to the deduction of P4,000.00 allowed property appraised to P52,200.00 from P43,500.00. For the Mindanao
by Section 861, U.S. Internal Revenue Code in relation to section Mother Lode Mines, Inc., the situs of taxation is in the Philippines thus
122 of the National Internal Revenue Code; the fair market value should be taxed on the basis of the price
—NO prevailing in our country.
4) WON the real estate properties of the decedent located in Baguio
5) PARTIALLY YES. The Court believes that the probate court was
City and the 210,000 shares of stock in the Mindanao Mother Lode
correct in allowing some of the items as deductions. The P652.50 is
Mines, Inc., were correctly appraised by the lower court;
really an allowed deduction however it was already included in the
—NO
deduction through some oversight. Funeral expenses worth 2,000
5) WON the estate is entitled to the following deductions: P8,604.39
should be added since this was omitted only by oversight. Lastly, the
for judicial and administration expenses; P2,086.52 for funeral
P10,0,22.47 indebtedness cannot be allowed there was no evidence
expenses; P652.50 for real estate taxes; and P10,0,22.47
of a return made and California court findings are not conclusive to
representing the amount of indebtedness allegedly incurred by
Philippine courts.
the decedent during his lifetime; and
—PARTIALLY YES. Except the indebtedness of P10,022.47.
6) NO. There is no provision of law granting interest.
6) WON the estate is entitled to the payment of interest on the
amount it claims to have overpaid the government and to be
Facts:
refundable to it.
 This case relates to the determination of the hereditary estate of the
—NO
deceased Walter G. Stevenson.
o Mr. Stevenson was born in the Philippines from two British
Held:
parents.
1) YES. Since both parties are English subjects, the law applicable to
o He got married in Manila to another British subject
Stevenson is the English law not the conjugal partnership in our
o He lived and died in Francisco, California, U.S.A.
Filipino law. Article 16 of the Civil Code also speaks only of amount of
o The probate proceedings were also done in California
successional rights NOT property relations.
 Stevenson instituted his wife Beatrice as his sole heiress to the following
1) NO. Since the California laws only exempt inheritance tax, therefore real and personal properties acquired by the spouses while residing in the
there is no reciprocity between Philippine and California. This puts Philippines which are the following:
Filipinos at a disadvantage. Gross Estate
Real Property — 2 parcels of land P43,500.00
2) NO. Cost that could be refunded is the actual sales discount granted in Baguio
by the business to the senior citizens and not just the cost in the Personal Property
acquisition of the goods. Also note that we have a new rule upon 177 shares of stock of Canacao 1,770.00
Estate at P10.00 each from 0.38 per share, as originally declared, to P0.20 per share, or from a
210,000 shares of stock of 79,800.00 total valuation of P79,800.00 to P42,000.00.
Mindanao Mother Lode Mines, Inc. o This change in price per share of stock was based on the
at P0.38 per share market notation of the stock obtaining six months from the
Cash credit with Canacao Estate 4,870.88 death of Stevenson
Inc.  In addition, the ancillary administrator made claims for the following
Cash, with the Chartered Bank of 851.97 deductions:
India, Australia & China
Total Gross Assets P130,792.85
 On May 1951, ancillary administration proceedings were instituted in the

CFI of Manila for the settlement of the estate in the Philippines.
 Stevenson's will was duly admitted to probate by our court and Ian
Murray Statt was appointed ancillary administrator of the estate.
 On July 1951, Mr. Statt filed preliminary estate and inheritance tax return
with the reservation of having the properties declared therein finally
appraised at their values six months after the death of Stevenson.
o The preliminary return was made to secure the waiver of
the Collector of Internal Revenue on the inheritance tax due
on the 210,000 shares of stock in the Mindanao Mother
 The ancillary administrator filed a SECOND amended estate and
Lode Mines Inc. which the estate then desired to dispose in
inheritance tax return. It contained the same deductions asked with the
the United States
following additions:
 After allowing the deductions claimed by the ancillary administrator for
o Deduction in the amount of P4, 000.00 from the gross
funeral expenses in the amount of P2,000.00 and for judicial and
estate of the decedent as provided for in Section 861 (4)
administration expenses in the sum of P5,500.00, the Collector assessed
of the U.S. Federal Internal Revenue Code which according
the state the amount of P5,147.98 for estate tax and P10,875,26 or
to him was allowable by way of the reciprocity granted by
inheritance tax, or a total of P16,023.23.
Section 122 of the NIRC.
o Both of these assessments were paid by the estate on June
o Exemption from the imposition of estate and inheritance
6, 1952.
taxes on the 210,000 shares of stock in the Mindanao
 In the meantime, on December 1952, Beatrice Mauricia Stevenson
Mother Lode Mines, Inc. also pursuant to the reciprocity
assigned all her rights and interests in the estate to the spouses,
provision of Section 122 of the NIRC.
Douglas and Bettina Fisher, respondents herein.
 The estate claimed that it was liable only for the amount of P525.34 for
 Ancillary administer filed an amended return the valuation of the 210,000
estate tax and P238.06 for inheritance tax and that, as a consequence, it
shares of stock in the Mindanao Mother Lode Mines, Inc. was reduced
had overpaid the government.
o They requested a refund of the amount of P15,259.83, —NO

allegedly overpaid 4) WON the real estate properties of the decedent located in Baguio
 Action was commenced in the CFI of Manila by respondents, as City and the 210,000 shares of stock in the Mindanao Mother Lode
assignees of Beatrice Mauricia Stevenson, for the recovery of said Mines, Inc., were correctly appraised by the lower court;
amount. —NO
 CTA1 rendered the following decision: 5) WON the estate is entitled to the following deductions: P8,604.39 for
o One-half (½) share of the surviving spouse in the conjugal judicial and administration expenses; P2,086.52 for funeral
partnership property as diminished by the obligations expenses; P652.50 for real estate taxes; and P10,0,22.47
properly chargeable to such property should be deducted representing the amount of indebtedness allegedly incurred by the
from the net estate of the deceased Walter G. Stevenson. decedent during his lifetime; and
o The intangible personal property belonging to the estate of —PARTIALLY YES. Except the indebtedness of P10,022.47.
said Stevenson is exempt from inheritance tax 6) WON the estate is entitled to the payment of interest on the amount
o For purposes of estate and inheritance taxation the Baguio it claims to have overpaid the government and to be refundable to it.
real estate of the spouses should be valued at P52,200.00 —NO
(note: this was from P43,500.00), and
o 210,000 shares of stock in the Mindanao Mother Lode Held/Ratio: Petition GRANTED. In applying the doctrine of animation, Court
Mines, Inc. should be appraised at P0.38 per share rules for the Applicant.
o Estate shall be entitled to a deduction of P2,000.00 for
funeral expenses and judicial expenses of P8,604.39. 1) YES. Since both parties are English subjects, the law applicable to
 Both parties appealed from such decision Stevenson is the English law not the conjugal partnership in our
Filipino law. Article 16 of the Civil Code also speaks only of amount
Issue/s: of successional rights NOT property relations.
1) WON in determining the taxable net estate of the decedent, one-half o A well-known doctrine in our civil law that in the absence of any ante-
(½) of the net estate should be deducted therefrom as the share of nuptial agreement, the contracting parties are presumed to have
tile surviving spouse in accordance with our law on conjugal adopted the system of conjugal partnership
partnership and in relation to section 89 (c) of the National Internal o The CIR however contends that the national law of the decedent
revenue Code? husband, in this case, the law of England should be followed.
—YES o CIR claims that Article 16 of the New Civil Code states that in testate
2) WON the estate can avail itself of the reciprocity proviso embodied and intestate proceedings, the amount of successional rights, among
in Section 122 of the National Internal Revenue Code granting others, is to be determined by the national law of the decedent.
exemption from the payment of estate and inheritance taxes on the  English laws do not recognize legal partnership between
210,000 shares of stock in the Mindanao Mother Lode Mines Inc. spouses, but their regime of property relation states that
—NO properties acquired during the marriage pertain and belong
3) WON the estate is entitled to the deduction of P4,000.00 allowed by exclusively to the husband.
Section 861, U.S. Internal Revenue Code in relation to section 122 of o Since the marriage of the Stevenson’s in the Philippines took place in
the National Internal Revenue Code; 1909, the applicable law is Article 1325 of the old Civil Code and not
Article 124 of the New Civil Code which became effective only in
1 1950.
Pursuant to RA No. 1125, the case was forwarded to CTA
 Both articles adhere to the so-called nationality theory of o CIR questions the exemption from inheritance tax the stocks in the
determining the property relation of spouses where one of Mindanao Mother Lode Mines. CIR contends that:
them is a foreigner and they have made no prior agreement  The said proviso of the California Revenue and Taxation
as to the administration disposition, and ownership of their Code has not been duly proven by respondents
conjugal properties. In such a case, the national law of the  The reciprocity exemptions granted by section 122 of the
husband becomes the dominant law in determining the National Internal Revenue Code can only be availed of by
property relation of the spouses. residents of foreign countries and not of residents of a state in
 The difference however is that Article 1325 of the old Civil the United States
Code is limited to marriages contracted in a foreign land  There is no "total" reciprocity between the Philippines and the
unlike Article 124 that is applicable regardless of whether the state of California in that while the former exempts payment
marriage was celebrated in the Philippines or not. of both estate and inheritance taxes on intangible personal
o It must be noted, however, that what has just been said refers to properties, the latter only exempts the payment of inheritance
mixed marriages between a Filipino citizen and a foreigner. In the tax.
instant case, both spouses are foreigners who married in the o It is well-settled that foreign laws do not prove themselves in our
Philippines. jurisdiction and our courts are not authorized to take judicial notice of
 LAW APPLICABLE TO STEVENSON is ENGLISH LAW them. However, a reading of sections 300 and 301 of our Code of Civil
 Additionally, although respondents did not prove that English Procedure (now section 41, Rule 123) will convince one that these
laws should apply, in the absence of proof, the Court is sections do not exclude the presentation of other competent evidence
justified, therefore, in indulging in what Wharton calls to prove the existence of a foreign law. We find no error, therefore, on
"processual presumption," in presuming that the law of the part of the Tax Court in considering the pertinent California law as
England on this matter is the same as our law. proved by respondents' witness.
o Also, a reading of Article 16 of the New Civil Code shows that it does o Section 13851 of the California Inheritance Tax Law states
not encompass or contemplate to govern the question of property  SEC. 13851, Intangibles of nonresident: Conditions.
relation between spouses. Said article distinctly speaks of amount of Intangible personal property is exempt from the tax
successional rights. imposed by this part if the decedent at the time of his
 Art. 16 refers to the extent or amount of property that each death was a resident of a territory or another State of the
heir is legally entitled to inherit from the estate available for United States or of a foreign state or country which then
distribution. imposed a legacy, succession, or death tax in respect to
o It needs to be pointed out that the property relation of spouses, as intangible personal property of its own residents, but
distinguished from their successional rights, is governed differently by either
the specific and express provisions  (a) Did not impose a legacy, succession, or death tax of
o We, therefore, find that the lower court correctly deducted the half of any character in respect to intangible personal property
the conjugal property in determining the hereditary estate left by the of residents of this State, or
deceased Stevenson.  (b) Had in its laws a reciprocal provision under which
intangible personal property of a non-resident was
2) NO. Since the California laws only exempt inheritance tax, therefore exempt from legacy, succession, or death taxes of every
there is no reciprocity between Philippine and California. This puts character if the Territory or other State of the United States
Filipinos at a disadvantage. or foreign state or country in which the nonresident resided
allowed a similar exemption in respect to intangible personal our National Internal Revenue Code. Nor is reciprocity authorized
property of residents of the Territory or State of the United under the Federal Law.
States or foreign state or country of residence of the
decedent. 4) NO. For the property in Baguio, it is not impossible that the value of
o In the Philippines, upon the death of any citizen or resident, or non-resident the property appraised to P52,200.00 from P43,500.00. For the
with properties therein, there are imposed upon his estate and its settlement, Mindanao Mother Lode Mines, Inc., the situs of taxation is in the
both an estate and an inheritance tax. Under the laws of California, only Philippines thus the fair market value should be taxed on the basis
inheritance tax is imposed. On the other hand, the Federal Internal Revenue of the price prevailing in our country.
Code imposes an estate tax on non-residents not citizens of the United FOR THE PROPERTY IN BAGUIO
States but does not provide for any exemption on the basis of reciprocity. o CIR claim that the tax rolls 6 months after the death of Stevenson,
Applying these laws in the manner the Court of Tax Appeals did in the instant ought to have been considered by petitioner as their fair market value,
case, we will have a situation where a Californian, who is non-resident in the pursuant to section 91 of the National Internal Revenue Code
Philippines but has intangible personal properties here, will the subject to the  Subpoint here!
payment of an estate tax, although exempt from the payment of the o HOWEVER THE RULE IS THAT: although the provisio states that
inheritance tax. This being the case, will a Filipino, non-resident of California, properties are required to be appraised at their fair market value,
but with intangible personal properties there, be entitled to the exemption the assessed value thereof shall be considered as the fair market
clause of the California law, since the Californian has not been exempted value ONLY when evidence to the contrary has not been shown.
from every character of legacy, succession, or death tax because he is, Evidence of such valuation exists.
under our law, under obligation to pay an estate tax? Upon the other hand,  Here, the administrator assessed the value of the property
if we exempt the Californian from paying the estate tax, we do not at P43,500.00 base from estate and inheritance tax returns .
thereby entitle a Filipino to be exempt from a similar estate tax in On the other hand, defendant appraised the same at
California because under the Federal Law, which is equally enforceable P52,200.00.
in California he is bound to pay the same, there being no reciprocity  It is of common knowledge, and this Court can take judicial
recognized in respect thereto. notice of it, that assessments for real estate taxation
 In both instances, the Filipino citizen is always at a purposes are very much lower than the true and fair market
disadvantage. value of the properties at a given time and place. In fact one
 We do not believe that our legislature has intended such an year after decedent's death or in 1952 the said properties
unfair situation to the detriment of our own government and were sold for a price of P72,000.00
people.  In the light of these facts we believe and therefore hold that
o We, therefore, find and declare that the lower court erred in exempting the the valuation of P52,200.00 of the real estate in Baguio made
estate in question from payment of the inheritance tax. by defendant is fair, reasonable and justified in the premises.
 **NOTE: I feel the reasoning is not clear but I think what is
3) NO. See below mentioned here is that it is not impossible that the value of
o We uphold and adhere to our ruling in the Lara case that the amount the property appreciated overtime so 52,200.00 can be the
of $2,000.00 allowed under the Federal Estate Tax Law is in the basis of valuation.
nature of a deduction and not of an exemption regarding which FOR THE MINDANAO MOTHER LODE MINES, INC
reciprocity cannot be claimed under the provision of Section 122 of
o Respondents contend that their value should be fixed on the basis of  We are not inclined to pass upon the claim of respondents in
the market quotation obtaining at the San Francisco (California) Stock respect to the additional amount of P86.52 for funeral
Exchange, on the theory that the certificates of stocks were then held expenses which was disapproved by the court a quo for lack
in that place and registered with the said stock exchange. of evidence.
o WE DO NOT AGREE o In connection with the deduction of P652.50 representing the amount
o The situs of the shares of stock, for purposes of taxation, being of realty taxes paid in 1951 on the decedent's two parcels of land in
located here in the Philippines, as respondents themselves Baguio City, which respondents claim was disallowed by the Tax
concede and considering that they are sought to be taxed in this Court, we find that this claim has in fact been allowed. the Tax
jurisdiction, consistent with the exercise of our government's Court, in itemizing the liabilities of the estate added the P652.50
taxing authority, their fair market value should be taxed on the for realty taxes as a liability of the estate, to the P1,400.05 for
basis of the price prevailing in our country. judicial and administration expenses approved by the court,
o Also, we find merit in respondents' other contention that the said making a total of P2,052.55 (See below):
shares of stock commanded a lesser value at the Manila Stock
Exchange six months after the death of Stevenson.
o This is because through Atty. Allison Gibbs, respondents have shown
that at that time a share of said stock was bid for at only P.325. There
was also no evidence to the contrary.
5) PARTIALLY YES. The Court believes that the probate court was
correct in allowing some of the items as deductions. The P652.50 is o On the other hand, an evident oversight has involuntarily been made
really an allowed deduction however it was already included in the in omitting the P2,000.00 for funeral expenses in the final
deduction through some oversight. Funeral expenses worth 2,000 computation. This amount has been expressly allowed by the lower
should be added since this was omitted only by oversight. Lastly, court and there is no reason why it should not be
the P10,0,22.47 indebtedness cannot be allowed there was no  Subpoint here!
evidence of a return made and California court findings are not o With regard to the P10,0,22.47 representing the amount of
conclusive to Philippine courts. indebtedness allegedly incurred by the decedent during his
o Petitioner, in this regard, contends that no evidence of record exists to lifetime and supported by evidence of a certificate that such amount
support the allowance of the sum of P8,604.39 for the following was already allowed by the probate court of California.
expenses:. o Similar to the ruling of the probate court we disallow such
indebtedness on two grounds:
 REASON 1: The amount was allowed by the corresponding
probate court in California, situs of the principal or domiciliary
administration. It is true that we have here in the Philippines
only an ancillary administration in this case, but, it has been
o As the Tax Court said, it found no basis for departing from the findings held, the distinction between domiciliary or principal
of the probate court, as it must have been satisfied that those administration and ancillary administration serves only
expenses were actually incurred. Under the circumstances, we see no to distinguish one administration from the other, for the
ground to reverse this finding of fact. two proceedings are separate and independent. The
reason for the ancillary administration is that, a grant of
administration does not ex proprio vigore, have any effect Philippines bears to the total estate wherever situated.
beyond the limits of the country in which it was granted. Stated differently, if the properties in the Philippines
Hence, we have the requirement that before a will duly constitute but 1/5 of the entire assets wherever situated,
probated outside of the Philippines can have effect here, then only 1/5 of the indebtedness may be deducted.
provided it was proven and approved by the court. Otherwise,
we would have the actuations of our own probate court, in the 6) NO. There is no provision of law granting interest
settlement and distribution of the estate situated here, subject o In Collector of Internal Revenue v. St. Paul's Hospital, we held that, "in
to the proceedings before the foreign court over which our the absence of a statutory provision clearly or expressly directing or
courts have no control. authorizing such payment, and none has been cited by respondents,
 REASON 2: Under Section 89, letter (d), number (1), of the the National Government cannot be required to pay interest."
National Internal Revenue Code which reads:
o (d) Miscellaneous provisions — (1) No deductions ZAPANTA v. POSADAS, JR. (Banta)
shall be allowed in the case of a non-resident not a [GR. No. 29204-09; December 29, 1928]
citizen of the Philippines unless the executor, “Not mortis causa, not advanced inheritance = not subject to
administrator or anyone of the heirs, as the case inheritance tax”
may be, includes in the return required to be filed
under section ninety-three the value at the time of his Recit-Ready:
death of that part of the gross estate of the non- Facts: Before his death, Father Braulio Pineda donated some of his
resident not situated in the Philippines." properties to herein plaintiffs (Zapanta, Pineda, Guanzon et al.,
 No such return was submitted to the court or to the office of Leoncia Pineda et al., David et al., and Geronima Pineda),
the petitioner CIR. The purpose of this requirement is to severally, with the condition that some of them would pay him a
enable the revenue officer to determine how much of the certain amount of rice, and others of money every year. Under
indebtedness may be allowed to be deducted, pursuant to protest, all of them paid inheritance tax. They subsequently filed
(b), number (1) of the same section 89 of the Internal actions against the Collector of Internal Revenue to have their
Revenue Code which provides: payments returned.
o (b) Deductions allowed to non-resident estates. — In
the case of a non-resident not a citizen of the Issue/s:
Philippines, by deducting from the value of that part 1) WON the subject properties are donations mortis causa (and therefore,
of his gross estate which at the time of his death is subject to inheritance tax)
situated in the Philippines — —NO
o (1) Expenses, losses, indebtedness, and taxes. — 2) WON the subject properties can be considered as an advance on
That proportion of the deductions specified in inheritance or legacy, according to the terms of Section 1536 of the
paragraph (1) of subjection (a) of this section which Administrative Code
the value of such part bears the value of his entire —NO
gross estate wherever situated;
 In other words, the allowable deduction is only to the Held: The judgment appealed from is AFFIRMED. The Court rules in
extent of the portion of the indebtedness which is favor of plaintiffs. Defendants are NOT justified in collecting from
equivalent to the proportion that the estate in the
the donees the inheritance tax on property which has not been amended by Section 10 of Act No. 2835 and by Section 1 of Act No.
legally transferred to them, and in which they acquired no right. 3031.
o Section 1536 of the Administrative Code reads: “Every
7) NO. Said donations are inter vivos, as expressly stated in the transmission by virtue of inheritance, devise, bequest, gift mortis
instruments in which they appear. causa, or advance in anticipation of inheritance, devise, or
o The effect, that is, the acquisition of, or the right to, the property, bequest of real property located in the Philippine Islands and real
was produced while the donor was still alive. rights in such property; xxx”
 The nature of the donations is not affected by the fact that  All plaintiffs then filed their respective actions against the Collector of
they were subject to a condition, since it was imposed as a Internal Revenue to have their payments returned.
resolutory condition.  Ruling of the Trial Court: they are donations inter vivos, and therefore, not
 Neither does the fact that these donations are revocable subject to the inheritance tax; ordered the defendants to return the sums
give them the character of donations mortis causa, paid.
inasmuch as the revocation is not made to depend on the
donor's exclusive will, but on the failure to fulfill the Issue/s:
condition imposed. 1) WON the subject properties are donations mortis causa
 In relation to the donor’s will alone, these donations are —NO (therefore, not subject to inheritance tax)
irrevocable. 2) WON the subject properties can be considered as an advance on
8) NO. It cannot be said that the plaintiffs received such advance on inheritance or legacy, according to the terms of Section 1536 of the
inheritance or legacy, since they were not heirs or legatees of their Administrative Code
predecessor in interest upon his death (Sec. 1540 of the —NO (therefore, not subject to inheritance tax)
Administrative Code).
Held/Ratio: The judgment appealed from is AFFIRMED. The Court rules in
Facts: favor of plaintiffs. Defendants are NOT justified in collecting from the donees
 In January 1925, Father Braulio Pineda died without any ascendants or the inheritance tax on property which has not been legally transferred to
descendants, leaving only a will that made his sister, Irene Pineda, his them, and in which they acquired no right.
sole heiress.
 Before his death, Father Braulio donated some of his properties to herein 2) NO. Said donations are inter vivos, as expressly stated in the
plaintiffs (Zapanta, Pineda, Guanzon et al., Leoncia Pineda et al., David instruments in which they appear.
et al., and Geronima Pineda), severally, with the condition that some of o Donations mortis causa: it is the donor’s death that determines the
them would pay him a certain amount of rice, and others of money every acquisition of, or the right to, the property, and that is revocable at the
year. will of the donor
o The donations include an express provision that failure to fulfill o In this case (inter vivos): the effect, that is, the acquisition of, or the
the condition would revoke the donations ipso facto. right to, the property, was produced while the donor was still alive.
o They likewise contained a clause stating that the donations  The nature of the donations is not affected by the fact that
would take effect upon acceptance. they were subject to a condition, since it was imposed as a
o Each of the donees accepted during Father Braulio’s lifetime. resolutory condition.
 Under protest, all of them paid inheritance tax on the property donated to  Neither does the fact that these donations are revocable give
them, in accordance with Section 1536 of the Administrative Code, as them the character of donations mortis causa, inasmuch as
the revocation is not made to depend on the donor's exclusive  There is no disagreement that the donations are not taxable for being
will, but on the failure to fulfill the condition imposed. inter vivos, but they must be considered advances in anticipation of
 In relation to the donor’s will alone, these donations are inheritance, and therefore, taxable in that character.
irrevocable.  The device adopted in this case for the distribution of the bulk of the
o The condition, in so far as it renders the donation onerous, takes it property before the donor’s death is a transparent attempt to evade tax.
further away from the dispositions mortis causa and brings it nearer to o The donations were made to all of the persons who would have
contract. been entitled to inherit if no will had been made, except one; and
 By virtue of this condition imposed, they are not donations this one was instituted as sole heir in the will.
throughout their full extent, but only so far as they exceed the o If no will had been left, all of the donees and the heir instituted in
incumbrance imposed, for so far as concerns the portion the will would have shared jointly in the estate by regular
equivalent to or less than said incumbrance, it has the nature succession.
of a real contract and is governed by the rules on contracts  The very reason that the prospective heir to whom no donation had been
(art. 622 of the Civil Code). made was instituted as sole heir in the will is of course found in the fact
 In the part which it is strictly a donation, it is a donation inter that advances had already been made to the others.
vivos, because its effect was produced by the donees'  The purpose of the statute was to impose a tax on successions; and in
acceptance during the donor's lifetime and was not order to prevent the successful use of devices of this kind, the lawmaker
determined by the donor's death expressly made the tax applicable to advances in anticipation of
o The properties donated passed to the ownership of the donees from inheritance.
the acceptance of the donations, and these could not be revoked
except upon the nonfulfillment of the condition imposed; or for other TUAZON v. POSADAS (Bello)
causes prescribed by the law, but not by the mere will of the donor. [GR. No. L-30885; January 23, 1930]
o Besides, if the donations are mortis causa, then they must be “A donee inter vivos who, after the predecessor's death prove to be an heir,
governed by the law on testate succession (Art. 620 of the Civil a legatee, or a donee mortis causa, would have to pay the tax”
Code).
 In such a case, the documents in which these donations
Recit-Ready:
appear, being instruments which do not contain the requisites
Facts: Esperanza made a donation inter vivos of certain property to
of a will, are not valid to transmit the property to the donees
Mariano Tuason and Alfonso Tuason. Then, Esperanza died
(Sec. 618, Code of Civil Procedure).
leaving a will amounting of P5,205 to Mariano Tuason. The CIR
collected the sums of P3,809 and P6,653 from plaintiffs Mariano
3) NO. It cannot be said that the plaintiffs received such advance on
and Alfonso Tuason against their opposition and over their
inheritance or legacy, since they were not heirs or legatees of their
protest as inheritance tax upon the gifts inter vivos made to them.
predecessor in interest upon his death (Sec. 1540 of the
The plaintiff brought this action against the CIR for the recovery of
Administrative Code).
the amounts collected from them as inheritance tax. The plaintiffs
o Neither can it be said they obtained this inheritance or legacy by virtue
had a favorable judgment.
of a document which does not contain the requisites of a will (Sec.
618 of the Code of Civil Procedure).
Issue/s:
WON the plaintiffs are exempt from paying taxes? -NO
STREET, J., DISSENTING:
o The judgment appealed from ordered the defendant to

Held: In ruling for the defendant, the judgment appealed from is return the amounts claimed to the plaintiffs.
reversed, and the defendant is absolved from the complaint, o The appellant contends that the collection of these amounts
without special pronouncement of costs. as inheritance tax is authorized by the law.
Issue/s:
We cannot give to the law an interpretation that would so vitiate its
WON the plaintiffs are exempt from paying taxes?
language. The truth of the matter is that in this section (1540) the law
—NO
presumes that such gifts have been made in anticipation of inheritance,
devise, bequest, or gift mortis causa, when the donee, after the death of
Held/Ratio: The judgment appealed from is reversed, and the defendant is
the donor proves to be his heir, devisee or donee mortis causa, for
absolved from the complaint, without special pronouncement of costs. So
the purpose of evading the tax, and it is to prevent this that it provides that ordered.
they shall be added to the resulting amount.
No. When the law says all gifts, it doubtless refers to gifts inter vivos,
Thus, the plaintiffs after the death of Esperanza Tuason y Chuajap, and not mortis causa immediately.
were found to be legatees under her will, the donation inter vivos she
had made to them in 1922 and 1923, must be added to the net amount Section 1536 of the Administrative Code provides:
that is to be taxed. SEC. 1536. Conditions and rate of taxation. — Every
transmission by virtue of inheritance, devise, bequest, gift mortis
It was said that under such an interpretation, while a donee inter causa, or advance in anticipation of inheritance, devise, or bequest
vivos who, after the predecessor's death prove to be an heir, a legatee, or shall be subject to the following tax;
xxx xxx xxx
a donee mortis causa, would have to pay the tax, another donee inter
vivos who did not prove to be an heir, a legatee, or a donee mortis Section 1539 enumerates the deductions to be made in determining
causa of the predecessor, would be exempt from such a tax. the net sum which must bear the tax.
Facts: Section 1540 then provides:

 Esperanza Tuason y Chuajap made a donation inter vivos of certain SEC. 1540. Additions of gifts and advances. — After the
aforementioned deductions have been made, there shall be added
property to Mariano Tuason y Angeles and to Alfonso Tuason y Angeles.
to the resulting amount the value of all gifts or advances made by
 Afterwards, she died of senile weakness at the age of 73, leaving a will the predecessor to any of those who, after his death, shall prove
bequeathing of P5,025 to Mariano Tuason y Angeles. Her judicial to be his heirs, devisees, legatees, or donees mortis causa.
administratrix (yes! It is administratix, hindi siya typo) paid the prescribed
inheritance tax on these two bequests. o We cannot give to the law an interpretation that would so vitiate its
 The Collector of Internal Revenue a.k.a the defendant collected the sums language. The truth of the matter is that in this section (1540) the law
of P3,809.76 and P6,653.64 from plaintiffs Mariano Tuason y Angeles presumes that such gifts have been made in anticipation of
and Alfonso Tuason y Angeles against their opposition and over their inheritance, devise, bequest, or gift mortis causa, when the donee,
protest as inheritance tax upon the gifts inter vivos made to them. after the death of the donor proves to be his heir, devisee or
 The plaintiffs brought this action against the Collector of Internal Revenue donee mortis causa, for the purpose of evading the tax, and it is to
for the recovery of the amounts of P3,809.76 and P6,653.64 collected prevent this that it provides that they shall be added to the resulting
from them as inheritance tax. amount.
o This being so, and it appearing that the plaintiffs after the death of death of the latter. Sec. 1540 of the Administrative Code did not
Esperanza Tuason y Chuajap, were found to be legatees under tax gifts per se but only those, which are made to those who shall
her will, the donation inter vivos she had made to them in 1922 and prove to be heirs, devisees, legatees, and donees mortis causa
1923, must be added to the net amount that is to be taxed. of the donor. The term ‘heirs’ include those given the status of
o It was said that under such an interpretation, while a heirs irrespective of the quantity of property they may receive as
donee inter vivos who, after the predecessor's death such.
prove to be an heir, a legatee, or a donee mortis causa,
would have to pay the tax, another donee inter vivos Facts:
who did not prove to be an heir, a legatee, or a  Don Felix Dison died on April 21, 1928. Before his death, he made a gift
donee mortis causa of the predecessor, would be inter vivos in favor of plaintiff Luis W. Dison of all his properties according
exempt from such a tax. to a deed. The plaintiff, however, did not receive the properties upon the
said death of Don Felix.
GROSS ESTATE  Don Luis is the legitimate and only son of Don Felix.
 The defendant, the collector of internal revenue made an assessment of
DISON v. POSADAS (Bugay) the said deed of an inheritance tax of Php 2808.73, which Don Luis paid
[GR. No. L-36770 / 57 Phil 465; November 4, 1932] under protest and later filed an action to recover sum of money thus paid.
“1-day time difference between transfer and death ”  Plaintiff alleged that the inheritance tax is illegal because he received the
property prior to the death of Don Felix, and the same was duly accepted
Recit-Ready: and registered before the death of his father.
Facts: Plaintiff Luis Dison filed a suit against CIR to recover inheritance
tax paid under protest amounting to P2,808.73. Felix Dison, Issue: Whether or not he gift inter vivos is subject to inheritance tax.
plaintiff’s father executed a deed of gift, which transferred 22
tracts of land, reserving to himself during his lifetime the usufruct
of 3 tracts. The donation was formally accepted by plaintiff. The Held/Ratio: YES. Section 1540 of the administrative code plainly does not
plaintiff (herein petitioner) alleged in his complaint that the tax is tax gifts per se but only when those gifts are made to those who shall prove
illegal since he received the property by a deed of gift inter vivos to be the heirs, devisees, legatees or donees mortis causa of the donor.
duly accepted and registered before the death of his father. He
also contended that Act 2601 being an inheritance tax statute, In this case, the facts before us may not warrant the inference that the
does not tax gifts. The defendant answered in general denial with conveyance, acknowledged by the donor 5 days before his death and
a countermand. The court dismissed the countermand. Both accepted by the donee one day before the donor’s death, was
sides appealed, but the CIR appeal was dismissed. fraudulently made for the of evading the inheritance tax. But the facts, in
our opinion, do not warrant the inference that the transfer was an
Issue: Whether or not the gifts inter vivos are taxable (inheritance tax) advancement upon the inheritance which the donee as the sole and forced
heir of the donor, would be entitled to receive upon the death of the donor.
Held: YES. Inheritance tax is imposed upon the gift inter vivos that
plaintiff received from his father as this was really advancement
upon the inheritance to which he would be entitled upon the
VIDAL DE ROCES v. POSADAS (Caraan) Said donation was executed and received in public documents and were
[GR. No. L-34937; March 13, 1933] duly recorded in the registry of deeds.
“Donations inter vivos take effect while you’re alive but are made in  (January 5, 1926) The donor died without any heir. In her will, she left
consideration of your death” // “I’m still alive but here’s a piece of land for you Php 5,000 each to the petitioners.
so that you’re happy when I die”  The Collector of Internal Revenue (herein respondent Juan Posadas, Jr.)
ruled that petitioners should pay inheritance taxes:
Recit-Ready: o For Concepcion: Php 15,191.48 tax for the land and Php
Facts: In 1925, petitioners Vidal De Roces, et. al. received from a certain 1,481.52 for the cash received
Esperanza Tuazon certain parcels of land through donation. o For Elvira: Php 12,388.95 for the land and Php 1,462.50 for
When Tuazon died in 1926, she left Php 5,000 to each of the the cash received
petitioners in her will. The Respondent, Collector of Internal  Petitioners paid said taxes under protest then a filed a case for recovery
Revenue, charged the petitioners with inheritance taxes for both of the sums of money they have paid.
the parcels of land they received together with the cash.  The respondent filed a demurrer to the complaint on the ground that the
facts alleged therein were not sufficient to constitute a cause of action.
The respondent filed a demurrer which the trial court granted after The court sustained the demurrer and asked the petitioners to amend
the petitioners failed to amend their complaint. The trial court their complaint, but they failed to do so.
based its dismissal of the complaint on Sec. 1540 of the  The trial court dismissed their complaint and based its judgment on
Administrative Code (check below for the provision). Section 1540 of the Administrative Code, which says:
o SEC. 1540. Additions of gifts and advances. – After the
Issue/s: aforementioned deductions have been made, there shall be
3) WON Section 1540 of the Administrative Code includes donations added to the resulting amount the value of all gifts or
inter vivos advances made by the predecessor to any of those who,
4) WON petitioners have the right to recover the taxes that they paid after his death, shall prove to be his heirs, devisees,
legatees, or donees mortis causa.
Held:  Petitioners’ arguments:
9) YES. Donations inter vivos are included when the provision mentions o The above-mentioned legal provision does not include
of “gifts” as donations inter vivos are those gifts that take effect donations inter vivos
immediately or during the lifetime of the donor but are made in o The Legislature has no authority to impose taxes on
consideration or in contemplation of death. donations inter vivos
10) NO. The petitioners failed to amend their complaint such that the o The provisions contravenes the fundamental rule of
demurrer filed by the respondent would fail, thus, they voluntarily uniformity of taxation
waived the opportunity offered to them.  Respondent’s argument:
o The words “all gifts” as found in the provision clearly refer to
Facts: donations inter vivos
 (March 10 and 12, 1925) Petitioners Concepcion Vidal De Roces, married
to Marcos Roces, and Elvira Vidal De Richards received from a certain Issue/s:
Esperanza Tuazon (“donor”) certain parcels of lands through donation. 3) WON Section 1540 of the Administrative Code includes donations
inter vivos
—YES
4) WON petitioners have the right to recover the taxes that they paid
—NO
Held/Ratio: Petition DENIED. With the petitioners failing to amend their

complaint, as originally ordered by the trial court, Court rules for the
respondent.
4) YES.
o The “gifts” referred to in Section 1540 of the Revised Administrative
Code are those donations inter vivos that take effect immediately or
during the lifetime of the donor but are made in consideration or
in contemplation of death.
 Gifts inter vivos, the transmission of which is not made in
contemplation of the donor's death should not be understood
as included within the said legal provision for the reason that
it would amount to imposing a direct tax on property and not
on the transmission thereof.
o “All gifts” refers to gifts inter vivos inasmuch as the law considers
them as advances on inheritance, in the sense that they are gifts
inter vivos made in contemplation or in consideration of death.
 Thus, the gifts involved cannot be made completely
independent of death or without regard to it
o The tax collected by respondent really constitutes an inheritance tax
imposed on the transmission of said properties in contemplation
or in consideration of the donor's death.
5) NO.
o The petitioners failed to amend their complaint such that the demurrer
filed by the respondent would fail, thus, they voluntarily waived the
opportunity offered to them.
DEDUCTIONS incurred during the settlement of the estate arising from fires,
storms, shipwreck, or other casualties, or from robbery, theft or
embezzlement, when such losses are not compensated for by
SEC. 86. Computation of Net Estate. - For the purpose of the tax insurance or otherwise, and if at the time of the filing of the return
imposed in this Chapter, the value of the net estate shall be such losses have not been claimed as a deduction for the income
determined: tax purposes in an income tax return, and provided that such
losses were incurred not later than the last day for the payment of
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the the estate tax as prescribed in Subsection (A) of Section 91.
case of a citizen or resident of the Philippines, by deducting from the value
of the gross estate – (2) Property Previously Taxed. - An amount equal to the value
specified below of any property forming a part of the gross estate situated
(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts: in the Philippines of any person who died within five (5) years prior to the
death of the decedent, or transferred to the decedent by gift within five (5)
(a) For actual funeral expenses or in an amount equal to five percent years prior to his death, where such property can be identified as having
(5%) of the gross estate, whichever is lower, but in no case to been received by the decedent from the donor by gift, or from such prior
exceed Two hundred thousand pesos (P200,000); decedent by gift, bequest, devise or inheritance, or which can be identified
(b) For judicial expenses of the testamentary or intestate as having been acquired in exchange for property so received:
proceedings; One hundred percent (100%) of the value, if the prior decedent died within
(c) For claims against the estate: Provided, That at the time the one (1) year prior to the death of the decedent, or if the property was
indebtedness was incurred the debt instrument was duly transferred to him by gift within the same period prior to his death;
notarized and, if the loan was contracted within three (3) years Eighty percent (80%) of the value, if the prior decedent died more than
before the death of the decedent, the administrator or executor one (1) year but not more than two (2) years prior to the death of the
shall submit a statement showing the disposition of the proceeds decedent, or if the property was transferred to him by gift within the same
of the loan; period prior to his death;
(d) For claims of the deceased against insolvent persons where the Sixty percent (60%) of the value, if the prior decedent died more than two
value of decedent's interest therein is included in the value of the (2) years but not more than three (3) years prior to the death of the
gross estate; and decedent, or if the property was transferred to him by gift within the same
(e) For unpaid mortgages upon, or any indebtedness in respect to, period prior to his death;
property where the value of decedent's interest therein, Forty percent (40%) of the value, if the prior decedent died more than
undiminished by such mortgage or indebtedness, is included in three (3) years but not more than four (4) years prior to the death of the
the value of the gross estate, but not including any income tax decedent, or if the property was transferred to him by gift within the same
upon income received after the death of the decedent, or property period prior to his death;
taxes not accrued before his death, or any estate tax. The Twenty percent (20%) of the value, if the prior decedent died more than
deduction herein allowed in the case of claims against the estate, four (4) years but not more than five (5) years prior to the death of the
unpaid mortgages or any indebtedness shall, when founded upon decedent, or if the property was transferred to him by gift within the same
a promise or agreement, be limited to the extent that they were period prior to his death;
contracted bona fide and for an adequate and full consideration in These deductions shall be allowed only where a donor's tax or estate tax
money or money's worth. There shall also be deducted losses imposed under this Title was finally determined and paid by or on behalf of
such donor, or the estate of such prior decedent, as the case may be, and exceed Five Hundred Thousand Pesos (P500,000).
only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior (7) Amount Received by Heirs Under Republic Act No. 4917. - Any
decedent, and only to the extent that the value of such property is amount received by the heirs from the decedent - employee as a
included in the decedent's gross estate, and only if in determining the consequence of the death of the decedent-employee in accordance with
value of the estate of the prior decedent, no deduction was allowable Republic Act No. 4917:Provided, That such amount is included in the
under paragraph (2) in respect of the property or properties given in gross estate of the decedent.
exchange therefor. Where a deduction was allowed of any mortgage or
other lien in determining the donor's tax, or the estate tax of the prior (B) Deductions Allowed to Nonresident Estates. - In the case of a
decedent, which was paid in whole or in part prior to the decedent's death, nonresident not a citizen of the Philippines, by deducting from the value of
then the deduction allowable under said Subsection shall be reduced by that part of his gross estate which at the time of his death is situated in the
the amount so paid. Such deduction allowable shall be reduced by an Philippines:
amount which bears the same ratio to the amounts allowed as deductions
under paragraphs (1) and (3) of this Subsection as the amount otherwise (1) Expenses, Losses, Indebtedness and Taxes. - That proportion of
deductible under said paragraph (2) bears to the value of the decedent's the deductions specified in paragraph (1) of Subsection (A) of this Section
estate. Where the property referred to consists of two or more items, the which the value of such part bears to the value of his entire gross estate
aggregate value of such items shall be used for the purpose of computing wherever situated;
the deduction.
(2) Property Previously Taxed. - An amount equal to the value
(3) Transfers for Public Use. - The amount of all the bequests, specified below of any property forming part of the gross estate situated in
legacies, devises or transfers to or for the use of the Government of the the Philippines of any person who died within five (5) years prior to the
Republic of the Philippines, or any political subdivision thereof, for death of the decedent, or transferred to the decedent by gift within five (5)
exclusively public purposes. years prior to his death, where such property can be identified as having
been received by the decedent from the donor by gift, or from such prior
(4) The Family Home. - An amount equivalent to the current fair decedent by gift, bequest, devise or inheritance, or which can be identified
market value of the decedent's family home: Provided, however, That if as having been acquired in exchange for property so received:
the said current fair market value exceeds One million pesos One hundred percent (100%) of the value if the prior decedent died within
(P1,000,000), the excess shall be subject to estate tax. As a sine qua one (1) year prior to the death of the decedent, or if the property was
non condition for the exemption or deduction, said family home must have transferred to him by gift, within the same period prior to his death;
been the decedent's family home as certified by the barangay captain of Eighty percent (80%) of the value, if the prior decedent died more than
the locality. one (1) year but not more than two (2) years prior to the death of the
decedent, or if the property was transferred to him by gift within the same
(5) Standard Deduction. - An amount equivalent to One million pesos period prior to his death;
(P1,000,000). Sixty percent (60%) of the value, if the prior decedent died more than two
(2) years but not more than three (3) years prior to the death of the
(6) Medical Expenses. - Medical Expenses incurred by the decedent decedent, or if the property was transferred to him by gift within the same
within one (1) year prior to his death which shall be duly substantiated with period prior to his death;
receipts:Provided, That in no case shall the deductible medical expenses Forty percent (40%) of the value, if the prior decedent died more than
three (3) years but not more than four (4) years prior to the death of the this Section, be deducted from the net estate of the decedent.
decedent, or if the property was transferred to him by gift within the same
period prior to his death; and (D) Miscellaneous Provisions. - No deduction shall be allowed in the
Twenty percent (20%) of the value, if the prior decedent died more than case of a nonresident not a citizen of the Philippines, unless the executor,
four (4) years but not more than five (5) years prior to the death of the administrator, or anyone of the heirs, as the case may be, includes in the
decedent, or if the property was transferred to him by gift within the same return required to be filed under Section 90 the value at the time of his
period prior to his death. death of that part of the gross estate of the nonresident not situated in the
These deductions shall be allowed only where a donor's tax, or estate tax Philippines.
imposed under this Title is finally determined and paid by or on behalf of
such donor, or the estate of such prior decedent, as the case may be, and (E) Tax Credit for Estate Taxes paid to a Foreign Country. –
only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior (1) In General. - The tax imposed by this Title shall be credited with
decedent, and only to the extent that the value of such property is the amounts of any estate tax imposed by the authority of a
included in that part of the decedent's gross estate which at the time of his foreign country.
death is situated in the Philippines; and only if, in determining the value of (2) Limitations on Credit. - The amount of the credit taken under
the net estate of the prior decedent, no deduction is allowable under this Section shall be subject to each of the following limitations:
paragraph (2) of Subsection (B) of this Section, in respect of the property
or properties given in exchange therefore. Where a deduction was allowed (a) The amount of the credit in respect to the tax paid to any country shall
of any mortgage or other lien in determining the donor's tax, or the estate not exceed the same proportion of the tax against which such credit is
tax of the prior decedent, which was paid in whole or in part prior to the taken, which the decedent's net estate situated within such country
decedent's death, then the deduction allowable under said paragraph shall taxable under this Title bears to his entire net estate; and
be reduced by the amount so paid. Such deduction allowable shall be (b) The total amount of the credit shall not exceed the same proportion of
reduced by an amount which bears the same ratio to the amounts allowed the tax against which such credit is taken, which the decedent's net estate
as deductions under paragraphs (1) and (3) of this Subsection as the situated outside the Philippines taxable under this Title bears to his entire
amount otherwise deductible under paragraph (2) bears to the value of net estate.
that part of the decedent's gross estate which at the time of his death is
situated in the Philippines. Where the property referred to consists of two CIR v. COURT OF APPEALS (Coloquio)
(2) or more items, the aggregate value of such items shall be used for the [GR. No. 123206; March 22, 2000]
purpose of computing the deduction. “Basta essential, deductible”
(3) Transfers for Public Use. - The amount of all bequests, legacies, Recit-Ready:
devises or transfers to or for the use of the Government of the Republic of Facts: Pedro Pajonar, an insane person was placed under the
the Philippines or any political subdivision thereof, for exclusively public guardianship of his sister, Josefina, and his property was placed
purposes. under the guardianship of PNB. Upon Pedro’s death, PNB filed
for the accounting of the property under its guardianship, and so
(C) Share in the Conjugal Property. - the net share of the surviving incurred attorney’s fees. PNB also advised the heirs of Pedro to
spouse in the conjugal partnership property as diminished by the execute an extrajudicial settlement of the property during which
obligations properly chargeable to such property shall, for the purpose of notarial fees were incurred. The BIR claimed for estate tax first at
P2,557 but after a second assessment, the BIR stated that there o The amount protested included notarial fees incurred during
was a deficiency of P1, 527,790.98. Josefina, as administratix the extrajudicial settlement and attorney’s fees for the
filed a protest stating that the attorney’s fees during the guardianship proceeding filed by PNB, allegedly necessary
guardianship proceedings and notarial fees incurred during the for the distribution of the property of the decedent to the
extrajudicial settlement should be deductible as expenses from heirs.
the gross estate of the decedent.  Without waiting for the protest to be resolved, Josefina filed a petition for
review with the CTA for the refund, and the court decided in favor of
Issues: WON the notarial fee for the extrajudicial settlement and the Josefina ordering the CIR to refund the amount of P252,585.59 as
attorney’s fees in the guardianship proceedings may be allowed as erroneously paid taxes for the year 1988.
deductions from the gross estate of the decedent. o Included in the amount deductible are P60,753 for notarial
fees for the Extrajudicial Settlement and P50,000 for
HELD: In ruling for the estate of Pedro, the Court applied US attorney’s fees in the guardianship proceedings were
jurisprudence to interpret our tax laws. US Courts have held that deductible as expenses from the gross estate allowance.
all administrative expenses essential to the collection of the  The CIR assailed the decision and the inclusion of the notarial fees and
assets, payment of debts or the distribution of the property to the the attorney’s fees in the deductible expenses by filing a motion for
persons entitled to it are deductible. Since the notarial fees during reconsideration. The CTA affirmed the deduction of such expenses.
the extrajudicial settlement and the attorney’s fees incurred  The CA affirmed the decision of the CTA, thus this petition.
during the guardianship proceedings contributed to the settlement
of the estate and the distribution of the property to the heirs, such Issue/s:
fees are deductible. WON the notarial fee for the extrajudicial settlement and the attorney’s
fees in the guardianship proceedings may be allowed as deductions
Facts: from the gross estate of the decedent.
 After the Death March during the World War II, Pedro Pajonar became - YES
insane thus his sister, Josefina Pajonar, became the guardian over his
person while his property was placed under the guardianship of the Held/Ratio: The decision of the CA is affirmed, the notarial fee for the
Philippine National Bank (PNB) extrajudicial settlement and the attorney’s fees in the guardianship
 In 1988 when Pedro died, PNB filed for an accounting of the property proceedings are allowable deductions from the gross estate of Pedro
under guardianship valued at P3,037,672.09. PNB did not file an estate Pajonar.
tax return thus the heirs were advised to execute an extrajudicial
settlement and pay the taxes on the estate in the amount of P2,557. YES. The Court found these expenses as necessary to the settlement of
 Subsequently Josefina filed a petition for the issuance in her favor of the estate, therefore deductible.
letters of administration of the estate of her brother, thus she was  The Court stated that the deductions from the gross estate permitted
appointed as the regular administratix. under Sec. 79 of the Tax Code reproduced the deductions allowed under
 Pursuant to a second assessment made by the BIR for deficiency estate Commonwealth Act no. 466 (in 1939), which was in turn based on US tax
tax, the estate of Pedro paid estate tax worth P1,527,790.98. Josefina as laws.
the administratix, filed a protest a month after, stating that the o The Court explained that the decisions of American courts
P1,527,790.98 or at least some portion of it be refunded as erroneously construing the federal tax code are entitled to great weight
paid estate tax. in interpreting our own laws.
 In the administration and settlement of an estate, US Courts have Held: Partially.

included as deductible all administrative expenses essential to the Renovation/improvement valid because it is for preservation of the estate.
collection of the assets, payment of debts or the distribution of the Living expenses of one of the heirs is invalid because its considered
property to the persons entitled to it. personal expense. Stenographic notes, death anniversary expenses and
o In other words: expenses which are essential to the proper unexplained representation expenses are invalid. Irrigation fee is valid
settlement of the estate. because the explanation was not disputed.
o There is no requirement that there be a formal
administration for it is sufficient that the expenses were Facts:
necessary toward the settlement of the case.  This case is about the propriety of allowing as administration
 Judicial expenses are expenses of administration, therefore, are expenses certain disbursements made by the administrator of the
allowable deductions from the gross estate of the decedent to arrive at testate estate of the late Felix J. de Guzman of Gapan, Nueva Ecija.
the value of the net estate.  The deceased testator was survived by eight children, his will was
 In the case at bar, the notarial fee for the extrajudicial settlement is a duly probated, and letters of administration were issued to his son,
deductible expense since the settlement effected a distribution of Pedro’s Dr. Victorino G. de Guzman.
estate to his lawful heirs.  One of the properties left by the decedent was a residential house
 The attorney’s fees paid to PNB for acting as the guardian of Pedro’s and lot, which were adjudicated to his eight children, each one being
property during his lifetime should also be deductible as an administration given a one-eighth pro-indiviso share and which was approved in
expense, for in the proceedings, a detailed accounting of the decedent’s the lower court's order.
property was provided and PNB gave advice as to the proper settlement  The administrator submitted four accounting reports for the period
of the estate: acts which contributed towards the collection of the from June 16, 1964 to September, 1967. Three heirs (respondents)
decedent’s assets and the settlement of the estate. interposed objections to the administrator's disbursements in the
total sum of P13,610.48,which was allowed by the lower court.
TESTATE OF THE LATE FELIX J. DE GUZMAN. VICTORINO G. DE Expenses are broken down as follows:
GUZMAN v. CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN I. Expenses for the improvement and renovation of the decedent's residential
AND HONORATA DE GUZMAN-MENDIOLA (Cualoping) house (P10,399.59):
[GR. No. L-29276; May 18, 1978] 1. Construction of fence - P3,082.07
“testate; deductible administration expenses” 2. Renovation of bathroom - P1,389.52
3. Repair of terrace and interior of house - P5,928.00
Recit-Ready:
Facts: II. Living expenses of Librada de Guzman while occupying the family home
This concerns the propriety of allowing as administration expenses certain without paying rent (P 1,603.11):
disbursements made by the administrator of the testate estate of Felix J. 1. For house helper - P1,170.00
de Guzman. Three of the eight heirs opposed certain expenses amounting 2. Light bills - 227.41
to P 13,610.48. 3. Water bills - 150.80
4. Gas, oil, floor wax and switch nail - 54.90
Issue/s:
WON expenses are valid? III. Other expenses (P 558.20):
1. Lawyer's subsistence - P 19.30
2. Gratuity pay in lieu of medical fee - 144.00 disallowed. Another item, "representation expenses" in the sum of
3. For stenographic notes - 100.00 P26.25 (2nd accounting), was not explained. It should likewise be
4. For food served on decedent's first death anniversary - 166.65 disallowed.
5. Cost of publication of death anniversary of decedent - 102.00 o The probate court erred in allowing as expenses of administration the
6. Representation expenses - P 26.25 sum of P268.65 which was incurred during the celebration of the first
death anniversary of the deceased. Those expenses are disallowed
IV. Irrigation fee - P1,049.58 because they have no connection with the care, management and
settlement of the decedent's estate (Nicolas vs. Nicolas, 63 Phil. 332).
Issue/s: o The other expenses, namely, P19.30 for the lawyer's subsistence and
WON Administrator’s Expenses were valid? P144 as the cost of the gift to the physician who attended to the testator
during his last illness, are allowable expenses.
Held/Ratio: Petition Partially GRANTED.
IV. Irrigation fee - P1,049.58. - VALID
I. Expenses for the renovation and improvement of the family residence - o The administrator in his comment filed on February 28, 1978 explained
P10,399.59. – VALID. that the item of P1,320 represented the "allotments" for irrigation fees to
o As clarified in the Lizarraga case, administration expenses should be eight tenants who cultivated the Intan crop, which allotments were
those which are necessary for the management of the estate, for treated as “assumed expenses" deducted as farming expenses from the
protecting it against destruction or deterioration, and, possibly, for value of the net harvests.
the production of fruits. They are expenses entailed for the o The explanation is not quite clear but it was not disputed by the
preservation and productivity of the estate and its management for appellants. The fact is that the said sum of P1,049.58 was paid by the
purposes of liquidation, payment of debts, and distribution of the administrator to the Peñaranda Irrigation System as shown in Official
residue among the persons entitled thereto. Receipt No. 3596378 dated April 28, 1967. It was included in his
o Obviously, those expenses redounded to the benefit of all the co-owners. accounting as part of the farming expenses. The amount was properly
They were necessary for the preservation and use of the family allowed as a legitimate expense of administration.
residence. As a result of those expenses, the co-owners, including the
three oppositors, would be able to use the family home in comfort, DIZON IN HIS CAPACITY AS ADMINISTRATOR OF
convenience and security. DECEASED FERNANDEZ v. CIR (De Luis)
[G.R. No. 140944; April 30, 2008]
II. Expenses incurred by Librada de Guzman as occupant of the family “date-of-death valuation; Wala ka nang magagawa sa lahat ng mangyayari
residence without paying rent - P1,603.11. – INVALID after mo ma-lynch.”
o We are of the opinion that those expenses were personal expenses of
Librada de Guzman, inuring mainly to her benefit. Those expenses, not Recit-Ready:
being reasonable administration expenses incurred by the administrator, Facts: Jose P. Fernandez died and a petition for the probate of his will
should not be charged against the income of the estate. was fled with the RTC of Manila (probate court). The probate
court then appointed retired SC Justice Arsenio P. Dizon and
III. Other expenses - P558.20. petitioner, Atty. Rafael Dizon, as Special and Assistant Special
o Among these expenses is the sum of P100 for stenographic notes which, Administrator of the Estate of Jose, respectively. Justice Dizon
as admitted by the administrator on page 24 of his brief, should be died, thus the probate court appointed Atty. Dizon as the
administrator of the estate. The petitioner authorized Atty. “claims” required to be presented against a decedent’s estate is generally
Gonzales to file the estate tax return of the Estate of Jose to the construed to mean debts or demands of a pecuniary nature, which could
BIR Regional Office of San Pablo City. The return showed no have been enforced against the deceased in his lifetime, or liability
estate tax liability. Consequently, the BIR Regional Dir. for San contracted by the deceased before his death. Therefore, the claims
Pablo City issued Certificate Nos. 2052 and 2053 stating that the existing at the time of death are significant to, and should be made the
taxes due on the transfer of real and personal properties of Jose basis of, the determination of allowable deductions, and not the post-
had been fully paid and said properties may be transferred to his death developments such as the compromise agreements in this case.
heirs. For some of the claims against the estate, the creditors and
the estate of Jose entered into compromise agreements long Facts:
after the filing of the estate tax return and the issuance of the  On November 7, 1987, Jose P. Fernandez (Jose) died. Consequently, a
certificates. Petitioner requested the probate court’s authority to petition for the probate of his will was filed with the RTC of Manila
sell several properties of the estate, for the purpose of paying its (probate court).
creditors. However, the Assistant Commissioner for Collection of  The probate court then appointed retired SC Justice Arsenio P. Dizon and
the BIR issued an Estate Tax Assessment Notice to petitioner, petitioner, Atty. Rafael Arsenio P. Dizon as Special and Assistant Special
demanding the payment of P66, 973,985.40 as deficiency estate Administrator of the Estate of Jose, respectively.
tax. Petitioner contends that there was no estate tax due because  In a letter dated Oct. 13, 1988, Justice Dizon informed respondent CIR of
the valid claims of creditors against the estate are in excess of the special proceedings for the Estate of Jose.
the gross estate. This is because the claims, according to  Justice Dizon authorized Atty. Jesus M. Gonzales to sign and file on
petitioner, should be deducted in full and the compromise behalf of the Estate the required estate tax return and to represent the
agreements entered into after the death of Jose should not be same in securing a Certificate of Tax Clearance. Eventually, Atty.
considered in determining the deductibility of the claims. Gonzales wrote a letter addressed to the BIR Regional Director for San
Pablo City and filed the estate tax return with the same office. The return
Issue/s: showed no estate tax liability.
WON the actual claims of the Estate’s creditors may be fully allowed  On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo
as deductions from the gross estate of Jose despite the fact that the Umali issued Certification Nos. 2052 and 2053 stating that the taxes
said claims were reduced or condoned through compromise due on the transfer of real and personal properties of Jose had been fully
agreements? –YES paid and said properties may be transferred to his heirs.
 Meanwhile, sometime in August 1990, Justice Dizon passed away. Thus,
Held: YES. The claims against the estate of Jose are fully deductible. the probate court appointed petitioner Atty. Dizon as the administrator of
Since our tax laws are based on the federal tax laws of the U.S., the Court the Estate.
used U.S. jurisprudence in settling the matter. The Court expressed its
 Petitioner requested the probate court’s authority to sell several
agreement with the date-of-death valuation rule, made pursuant to the
properties forming part of the Estate, for the purpose of paying its
ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.
creditors.
First. There is no law, nor any legislative intent in our tax law, which
 However, on Nov. 26, 1991, the Assistant Commissioner for Collection of
disregards the date-of-death valuation principle and particularly provides
the BIR, Themistocles Montalban issued an Estate Tax Assessment
that pos-tdeath developments must be considered in determining the net
Notice to petitioner, demanding the payment of P66, 973, 985.40 as
value of the estate. Second. Such construction finds relevance and
deficiency estate tax.
consistency in our Rules on Special Proceedings wherein the term
 Petitioner moved for the reconsideration of the said estate tax This is relevant to the fourth requisite of deductibility of claims against the
assessment. However, the BIR Commissioner denied the request and estate.
reiterated that the estate is liable for the payment of the said deficiency
estate tax. Issue/s:
 Petitioner then filed a petition for review before the CTA, which was WON the actual claims of the Estate’s creditors may be fully allowed as
eventually denied. Aggrieved, petitioner went to the CA via a petition for deductions from the gross estate of Jose despite the fact that the said
review. The appellate court affirmed the CTA’s ruling and held that the claims were reduced or condoned through compromise agreements?
petitioner’s act of filing an estate tax return with the BIR and the issuance —YES
of BIR Certification Nos. 2052 and 2053 did not deprive the CIR of her
authority to re-examine or re-assess the said return filed on behalf of the Held/Ratio: Petition GRANTED. In applying the date-of-death valuation rule,
Estate. Petitioner filed a motion for reconsideration, which was denied by Court rules for the Petitioner.
the CA.
 In this petition to the SC, the petitioner claims the following: YES. The claims against the estate of Jose are fully deductible.
o There was no estate tax due because the valid claims of o It is admitted that part of the claims of the Estate’s creditors have
creditors against the Estate are in excess of the gross been condoned through the compromise agreements. (Basically, they
estate. paid less than the amount of the debts.)
o The BIR failed to consider that although the actual o REQUISITES FOR DEDUCTIBILITY OF CLAIMS AGAINST THE
payments made to the Estate creditors were lower than ESTATE
their respective claims, such were compromise agreements 1. The liability must represent a personal obligation of the deceased
reached long after the Estate’s liability had been settled by at the time of his death (except unpaid obligations incurred
the filing of its estate tax return and the issuance of the BIR incident to his death and unpaid medical expenses classified as
Certification Nos. 2052 and 2053. a deduction);
o The reckoning date of the claims against the Estate and the 2. The liability was contracted in good faith and for adequate and
settlement of the estate tax due should be at the time the full consideration.
estate tax return was filed by the judicial administrator and 3. The claim must be a debt or claim which is valid in law and
the issuance of said BIR Certifications and not at the time enforceable in court, and;
the aforementioned Compromise Agreements were entered 4. The creditor must not have condoned the indebtedness during
into with the Estate’s creditors. (It wasn’t clearly explained the lifetime of the decedent, or the actions to collect must not
in the case, but I think this contention of the petitioner is for have prescribed.
the purpose of deducting the claims against the estate in o Section 79(c) (now 86(c) of the NIRC provides for “claims against the
the tax payable. If the reckoning date of the claims against estate” as allowable deductions from the gross estate of the decedent.
the Estate is the date when the compromise agreements This is basically a reproduction of the deductions allowed under
were entered into, the claims won’t be deductible in full Section 89 (a) (1) (C) and (E) of the Commonwealth Act No. 466,
because parts were paid.) otherwise known as the NIRC of 1939, and which was the first
codification of Philippine tax laws. Philippine tax laws were, in turn,
Note that the Compromise Agreements were executed after the death of based on the federal tax laws of the United States. Thus, pursuant to
Jose. Hence, the debts were condoned AFTER the death of the decedent. established rules of statutory construction, the decisions of American
courts construing the federal tax code are entitled to great weight in deceased before his death. Therefore, the claims existing at
the interpretation of our own tax laws. the time of death are significant to, and should be made the
o It is noteworthy that even in the United States, there is some dispute basis of, the determination of allowable deductions.
as to whether the deductible amount for a claim against the estate is
fixed as of the decedent’s death which is the general rule, or the EXEMPTIONS
same should be adjusted to reflect post-death developments, such as
where a settlement between the parties results in the reduction of the
amount actually paid. SEC. 87. Exemption of Certain Acquisitions and Transmissions. - The
 On one hand, the U.S. court ruled that the appropriate following shall not be taxed:
deduction is the “value” that the claim had at the date of the
decedent’s death.
(A) The merger of usufruct in the owner of the naked title;
 In Propstra v. U.S. where a lien claimed against the estate
was certain and enforceable on the date of the decedent’s (B) The transmission or delivery of the inheritance or legacy by the
death, the fact that the claimant subsequently settled for fiduciary heir or legatee to the fideicommissary;
lesser amount did not preclude the estate from deducting the (C) The transmission from the first heir, legatee or donee in favor of
entire amount of the claim for estate tax purposes. These another beneficiary, in accordance with the desire of the
pronouncements essentially confirm the general principle predecessor; and
that postdeath developments are not material in determining (D) All bequests, devises, legacies or transfers to social welfare,
the amount of the deduction.
cultural and charitable institutions, no part of the net income of
 On the other hand, the Internal Revenue Service (Service)
opines that postdeath settlement should be taken into which insures to the benefit of any individual:
consideration and the claim should be allowed as a
deduction only to the extent of the amount actually paid. Provided, however, That not more than thirty percent (30%) of the said
Recognizing the dispute, the Service released Proposed bequests, devises, legacies or transfers shall be used by such institutions
Regulations in 2007 mandating that the deduction would be for administration purposes.
limited to the actual amount paid.
o The Court expressed its agreement with the date-of-death valuation
rule, made pursuant to the ruling of the U.S. Supreme Court in
Ithaca Trust Co. v. United States.
 First. There is no law, nor do we discern any legislative intent
in our tax law, which disregards the date-of-death valuation
principle and particularly provides that pos-tdeath
developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are
not to be imposed, nor presumed to be imposed, beyond
what the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the government.
 Second. Such construction finds relevance and consistency
in our Rules on Special Proceedings wherein the term
“claims” required to be presented against a decedent’s
estate is generally construed to mean debts or demands of a
pecuniary nature, which could have been enforced against
the deceased in his lifetime, or liability contracted by the
ADMINISTRATIVE REQUIREMENTS nonresident, not a citizen of the Philippines, of that part of his
gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section 86;
SEC. 89. Notice of Death to be Filed. - In all cases of transfers subject to and
tax, or where, though exempt from tax, the gross value of the estate (c) The amount of tax due whether paid or still due and
exceeds Twenty thousand pesos (P20,000), the executor, administrator or outstanding.
any of the legal heirs, as the case may be, within two (2) months after the
decedent's death, or within a like period after qualifying as such executor (B) Time for Filing. - For the purpose of determining the estate tax
or administrator, shall give a written notice thereof to the Commissioner. provided for in Section 84 of this Code, the estate tax return required
under the preceding Subsection (A) shall be filed within six (6) months
SEC. 90. Estate Tax Returns. from the decedent's death.
(A) Requirements. - In all cases of transfers subject to the tax imposed A certified copy of the schedule of partition and the order of the court
herein, or where, though exempt from tax, the gross value of the estate approving the same shall be furnished the Commissioner within thirty (30)
exceeds Two hundred thousand pesos (P200,000), OR regardless of the after the promulgation of such order.
gross value of the estate, where the said estate consists of registered or (C) Extension of Time. - The Commissioner shall have authority to grant,
registrable property such as real property, motor vehicle, shares of stock in meritorious cases, a reasonable extension not exceeding thirty (30)
or other similar property for which a clearance from the Bureau of Internal days for filing the return.
Revenue is required as a condition precedent for the transfer of ownership
thereof in the name of the transferee, the executor, or the administrator, or (D) Place of Filing. - Except in cases where the Commissioner otherwise
any of the legal heirs, as the case may be, shall file a return under oath in permits, the return required under Subsection (A) shall be filed with an
duplicate, setting forth: authorized agent bank, or Revenue District Officer, Collection Officer, or
(1) The value of the gross estate of the decedent at the time of duly authorized Treasurer of the city or municipality in which the decedent
his death, or in case of a nonresident, not a citizen of the was domiciled at the time of his death or if there be no legal residence in
Philippines, of that part of his gross estate situated in the the Philippines, with the Office of the Commissioner.
Philippines;(
2) The deductions allowed from gross estate in determining the SEC. 91. Payment of Tax. -
estate as defined in Section 86; and
(3) Such part of such information as may at the time be (A) Time of Payment. - The estate tax imposed by Section 84 shall be paid
ascertainable and such supplemental data as may be necessary at the time the return is filed by the executor, administrator or the heirs.
to establish the correct taxes.
(B) Extension of Time. - When the Commissioner finds that the payment
Provided, however, That estate tax returns showing a gross value on the due date of the estate tax or of any part thereof would impose
exceeding Two million pesos (P2,000,000) shall be supported with a undue hardship upon the estate or any of the heirs, he may extend the
statement duly certified to by a Certified Public Accountant containing the time for payment of such tax or any part thereof not to exceed five (5)
following: years, in case the estate is settled through the courts, or two (2) years in
(a) Itemized assets of the decedent with their corresponding case the estate is settled extrajudicially.
gross value at the time of his death, or in the case of a
In such case, the amount in respect of which the extension is granted not notify the executor or administrator of the amount of the tax.
shall be paid on or before the date of the expiration of the period of the
extension, and the running of the Statute of Limitations for assessment as The executor or administrator, upon payment of the amount of which he is
provided in Section 203 of this Code shall be suspended for the period of notified, shall be discharged from personal liability for any deficiency in the
any such extension. tax thereafter found to be due and shall be entitled to a receipt or writing
showing such discharge.
Where the taxes are assessed by reason of negligence, intentional
disregard of rules and regulations, or fraud on the part of the taxpayer, no SEC. 93. Definition of Deficiency. - As used in this Chapter, the term
extension will be granted by the Commissioner. "deficiency" means:
(a) The amount by which the tax imposed by this Chapter exceeds
If an extension is granted, the Commissioner may require the executor, or the amount shown as the tax by the executor, administrator or any
administrator, or beneficiary, as the case may be, to furnish a bond in of the heirs upon his return; but the amounts so shown on the
such amount, not exceeding double the amount of the tax and with such return shall first be increased by the amounts previously assessed
sureties as the Commissioner deems necessary, conditioned upon the (or collected without assessment) as a deficiency and decreased
payment of the said tax in accordance with the terms of the extension. by the amount previously abated, refunded or otherwise repaid in
respect of such tax; or
(C) Liability for Payment.- The estate tax imposed by Section 84 shall be (b) If no amount is shown as the tax by the executor, administrator
paid by the executor or administrator before delivery to any beneficiary of or any of the heirs upon his return, or if no return is made by the
his distributive share of the estate. executor, administrator, or any heir, then the amount by which the
tax exceeds the amounts previously assessed (or collected
Such beneficiary shall to the extent of his distributive share of the estate, without assessment) as a deficiency; but such amounts previously
be subsidiarily liable for the payment of such portion of the estate tax as assessed or collected without assessment shall first be decreased
his distributive share bears to the value of the total net estate. by the amounts previously abated, refunded or otherwise repaid in
respect of such tax.
For the purpose of this Chapter, the term "executor" or "administrator"
means the executor or administrator of the decedent, or if there is no SEC. 94. Payment Before Delivery by Executor or Administrator. - No
executor or administrator appointed, qualified, and acting within the judge shall authorize the executor or judicial administrator to deliver a
Philippines, then any person in actual or constructive possession of any distributive share to any party interested in the estate unless a certification
property of the decedent. from the Commissioner that the estate tax has been paid is shown.
SEC. 92. Discharge of Executor or Administrator from Personal SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds
Liability. - If the executor or administrator makes a written application to shall not register in the Registry of Property any document transferring
the Commissioner for determination of the amount of the estate tax and real property or real rights therein or any chattel mortgage, by way of gifts
discharge from personal liability therefore, the Commissioner (as soon as inter vivos or mortis causa, legacy or inheritance, unless a certification
possible, and in any event within one (1) year after the making of such from the Commissioner that the tax fixed in this Title and actually due
application, or if the application is made before the return is filed, then thereon had been paid is show, and they shall immediately notify the
within one (1) year after the return is filed, but not after the expiration of Commissioner, Regional Director, Revenue District Officer, or Revenue
the period prescribed for the assessment of the tax in Section 203 shall Collection Officer or Treasurer of the city or municipality where their
offices are located, of the non payment of the tax discovered by them. certification.
Any lawyer, notary public, or any government officer who, by reason of his For this purpose, all withdrawal slips shall contain a statement to the effect
official duties, intervenes in the preparation or acknowledgment of that all of the joint depositors are still living at the time of withdrawal by
documents regarding partition or disposal of donation inter vivos or mortis any one of the joint depositors and such statement shall be under oath by
causa, legacy or inheritance, shall have the duty of furnishing the the said depositors.
Commissioner, Regional Director, Revenue District Officer or Revenue
Collection Officer of the place where he may have his principal office, with ADMINISTRATIVE REQUIREMENTS
copies of such documents and any information whatsoever which may
facilitate the collection of the aforementioned tax. GOVERNMENT OF THE PHILIPPINES ISLANDS v. JOSE
PAMINTUAN (Diploma)
Neither shall a debtor of the deceased pay his debts to the heirs, legatee, [G.R. No. L-33139; October 11, 1930]
executor or administrator of his creditor, unless the certification of the “Di kailangan dumaan sa Committee of Claims and Appraisals to collect
Commissioner that the tax fixed in this Chapter had been paid is shown; income tax of deceased”
but he may pay the executor or judicial administrator without said
certification if the credit is included in the inventory of the estate of the
Recit-Ready:
deceased.
Facts: Deceased Florentino Pamintuan filed an income tax return in
1919 and passed away in 1925, leaving the defendants as his
SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding
heirs. The CFI of Manila appointed commissioners of appraisal of
Obligations. - If after the payment of the estate tax, new obligations of the
the property left by Florentino. Eventually, a partition of the estate
decedent shall appear, and the persons interested shall have satisfied
was made and the intestate proceedings closed in October 1926
them by order of the court, they shall have a right to the restitution of the
by court order. In the distribution of the estate, the Govt. of the
proportional part of the tax paid.
Phils. Discovered that deceased Paminutan has not paid the
amount of P462 as additional income tax and surcharge for year
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
1919 from the sale of his house and lot. Therefore, a demand
Bonds or Rights.- There shall not be transferred to any new owner in the
was made on the defendant heirs who however still refused to
books of any corporation, sociedad anonima, partnership, business, or pay. CFI of Manila dismissing plaintiff’s complaint, absolving the
industry organized or established in the Philippines any share, obligation,
defendants, without costs. Therefore, this appeal.
bond or right by way of gift inter vivos or mortis causa, legacy or
inheritance, unless a certification from the Commissioner that the taxes
Issue: WON the Govt. of the Philippines is barred for collecting the
fixed in this Title and due thereon have been paid is shown. If a bank has
tax in question for its failure to file its claim with the committee on
knowledge of the death of a person, who maintained a bank deposit
claims and appraisals
account alone, or jointly with another, it shall not allow any withdrawal
from the said deposit account, unless the Commissioner has certified that
the taxes imposed thereon by this Title have been paid: Provided,
Held: In ruling for the Govt. of the Philippines, the Court said that claims
however, That the administrator of the estate or any one (1) of the heirs of
for income taxes need not be filed with the committee on claims
the decedent may, upon authorization by the Commissioner, withdraw an
and appraisals appointed in the course of testate proceedings
amount not exceeding Twenty thousand pesos (P20,000) without the said
and may be collected even after the distribution of the decedent's  The defendants cannot disprove that the deceased Pamintuan made a
estate among his heirs, who shall be liable therefor in proportion profit of P11,000 in the sale of the house because they have destroyed
to their share in the inheritance. the voluminous records and evidences regarding the sale in question and
other similar transactions which might show repairs on the house,
commissions, and other expenses tending to reduce the profit obtained
as mentioned above.
Facts:  Therefore, a demand for the payment of the income tax referred to herein
 On February 27, 1920, Florentino Pamintuan filed an income-tax return was made on February 24, 1927, on the defendants but they refused.
for the year 1919, paying Php672.99 and P151.01 as a result of a  CFI of Manila ruled in favor of defendant heirs absolving them of liability.
subsequent assessment received from the CIR. He died however in 1925
in Washington DC, leaving the defendants herein as his heirs. Issue: WON the Govt. of the Philippines is barred for collecting the tax
 On April 24, 1925, intestate proceedings were instituted in the CFI of in question for its failure to file its claim with the committee on claims
Manila, which then appointed Maximo de la Paz and Candido Ilagan and appraisals
commissioners of appraisal of the property left by the deceased —NO
Pamintuan.
 The committee on claims and appraisals rendered a report where it Held/Ratio: Petition GRANTED. Court ruled in favor of plaintiffs.
appeared that the only claims presented and that were approved were
those of Tomasa Centeno, Jose, Paz, Caridad, and Natividad Pamintuan NO. Claims for income taxes need not be filed with the committee on
and Cavanna, Aboitiz and Agan. claims and appraisals appointed in the course of testate proceedings
 On June 12, 1926, Jose V. Ramirez, the duly appointed judicial and may be collected even after the distribution of the decedent's
administrator of the estate of the Pamintuan presented a proposed estate among his heirs, who shall be liable therefor in proportion to
partition of the decedent's estate and was approved by the court. The their share in the inheritance.
latter ordered the delivery to the heirs of their inheritance after they have
paid the inheritance taxes.  The Court held in Pineda vs. Court of First Instance of Tayabas and
o Tomasa Pamintuan inherited 0.0571% of the decedent's Collector of Internal:
estate and the other defendants 0.0784% each. While there are a few courts that have expressed themselves
 During the intestate proceedings, the administrator Ramirez filed income- to the effect that a claim for taxes due to the Government
tax returns for the estate of the deceased corresponding to the years should be presented like other claims to the committee
1925 and 1926. The intestate proceedings were definitely closed on appointed for the purpose of passing upon claims, the clear
October 27, 1926 by court order. weight of judicial authority is to the effect that claims for
 In the subsequent to the distribution estate, the Govt. of the Phils. taxes and assessments, whether assessed before or after
discovered that the deceased Pamintuan has not paid the amount of the death of the decedent, are not required to be
Php462 as additional income tax and surcharge for the calendar year presented to the committee.
1919.  The administration proceedings Pamintuan having been closed, and his
o This was on account of the sale made by him of his house estate distributed among his heirs, the defendants herein, the latter are
and lot in M. H. del Pilar, Manila, from which he realized a responsible for the payment of the income tax here in question in
net profit or income of P11,000, which was not included in proportion to the share of each in said estate, in accordance with
his income-tax return filed for said year 1919.
section 731 of the Code of Civil Procedure, and the doctrine of this Issue/s: Whether or not Respondent Manuel Pineda should be liable for
court laid down in Lopez vs. Enriquez as follows: income tax deficiency only to his corresponding proportionate share as an
ESTATE; LIABILITY OF HEIRS AND DISTRIBUTEES. — heir to the estate.—NO, he can be liable for the whole amount due.
Heirs are not required to respond with their own property for
the debts of their deceased ancestors. But even after the Held:
partition of an estate, heirs and distributees are liable  No, he is not. The Government can require respondent Pineda to
individually for the payment of all lawful outstanding claims pay the full amount of the taxes assessed and is liable as an heir
against the estate in proportion to the amount or value of and as a holder-transferee of property belonging to the
the property they have respectively received from the estate/taxpayer. The Government has two (2) ways/remedies of
estate. The hereditary property consists only of that part collecting the tax. First, by going after all the heirs and collecting from
which remains after the settlement of all lawful claims against each one of them the amount of the tax proportionate to the
the estate, for the settlement of which the entire estate is first inheritance received--which was done in the case of Government of
liable. The heirs cannot, by any act of their own or by the Philippine Islands v. Pamintuan. The second way of collecting is
agreement among themselves, reduce the creditors' security pursuant to Section 315 of the Tax Code in which a lien is created
for the payment of their claims. upon all property and rights to the property belonging to the taxpayer
 Defendants were therefore asked to pay the plaintiff the sum of P462, for unpain income tax. The property would be subjected to the
with 1 per centum monthly interest from August 19, 1927 until fully paid, payment of the tax due in the hands of an heir or transferee.
as follows: Tomasa Centeno 0.0571 per cent, and each one of the other
defendants 0.0784 per cent, with costs against the appellees. Facts:
 This case involves the estate of Atanasio Pineda which was divided
COMMISSIONER OF INTERNAL REVENUE v. PINEDA among his surviving wife and 15 children, the eldest of which is Manuel
(FAJARDO, RK) B. Pineda, a lawyer, and respondent in this case.
[L-22734; September 15, 1967]  Estate proceedings were conducted by the Bureau of Internal Revenue
“There are two ways of collecting tax: (1) proportionate share of each heir (2) who found that the estate was liable for income tax returns for the years
subjecting the whole property to a lien” 1945, 1946, 1947 and 1948.
 The Commissioner of Internal Revenue assessed 2,707.44 as the total
Recit-Ready: amount due for the corresponding years.
Facts: Respondent Pineda is one of the heirs to the estate of Atanasio  Respondent Manuel Pineda received the assessment and contested to
Pineda. After estate proceedings, the CIR assessed a deficiency the Court of Tax appeals alleging that he was only appealing the amount
income tax due to the entire estate. Atanasio appealed the "only that proportionate part or portion to him as one of the heirs".
assessment to the CTA only to his corresponding share as an  The CTA reversed the decision of Petitioner CIR on the ground that his
heir. The CTA rendered the action of the CIR to have prescribed. right to assess already prescribed.
Upon appeal to the SC, the case was remanded to the CTA for  Petitioner CIR appealed in which the Supreme Court affirmed the CTA
the assessment of the years 1945 and 1946. The CTA held that decision but held that his right to assess did not prescribe for the years
respondent is only liable up to his proportionate share as an heir 1945 and 1946.
to the estate which the CIR now questions in this case alleging  The Supreme Court remanded the case to the CTA for further
that he should be liable for the whole amount. proceedings.
 The CTA held respondent Pineda liable for the payment only to his o The action rests on the concept that hereditary property consists
corresponding share of the deficiency income tax. only of that part which remains after the settlement of all lawful
 Petitioner CIR appealed this case to this Court stating that respondent claims against the estate, for the settlement of the liability of the
Pineda should be liable for the payment of all the taxes due to the estate entire estate.
amounting to 760.80 PHP instead of his corresponding share. o The suit, which is filed against ALL heirs which tax, would be
levied proportionately against them to achieve (1) the payment
Issue: Whether or not Respondent Manuel Pineda should be liable for of the tax and (2) adjustment of the shares of each heir in the
income tax deficiency only to his corresponding proportionate share as an distributed estate as lessed by the tax.
heir to the estate.—NO, he can be liable for the whole amount due.  The second way of collecting is pursuant to Section 315 of the Tax Code
in which a lien is created upon all property and rights to the property
Held: belonging to the taxpayer for unpaid income tax. The property would be
 No, he is not. The Government can require respondent Pineda to subjected to the payment of the tax due in the hands of an heir or
pay the full amount of the taxes assessed and is liable as an heir transferee.
and as a holder-transferee of property belonging to the  The second remedy is the action taken by the CIR against respondent.
estate/taxpayer.  The CIR should be given the discretion to avail of the most expeditious
 As an heir he is individually liable for the part of the tax proportionate to way to collect the tax because taxes are the lifeblood of the government
the share he received as inheritance and cannot exceed the amount of and their prompt and certain availability is an imperios need. The suit
his share pursuant to Art. 1311 of the Civil Code. seeks to achieve only one purpose that is the payment of the tax.
 As a holder of the property, respondent is liable for the tax up to the  Respondent Manuel B. Pienda is ordered to pay the sum of 760.28 PHP
amount of the property in his possession. as deficiency income tax for 1945 and 1946, and the real estate dealer's
o Pursuant to Section 315 of the Tax Code, the Government has fixed tax without prejudice to his right of contribution for his co-heirs.
a lien on the 2,500 PHP received by him from the estate as his
share in the inheritance, for unpaid income taxes for which said
estate is liable.
COMMISSIONER OF INTERNAL REVENUE v. LILIA YUSAY
o By virtue of the lien, the Government has the right to subject the
GONZALES AND THE COURT OF TAX APPEALS (GO)
property in respondent's possession to satisfy the 2,500 PHP
(the amount received from inheritance) income tax assessments [GR. No. L-19495; November 24, 1966]
in the sum of 760.28 PHP (income tax deficiency 1945 and “CIR could not assess because of insufficient return; right to assess has not
yet prescribed”
1946).
o After the payment, Pineda will have the right to contribution from
his co-heirs to achieve an adjustment of the proper share of Recit-Ready:
each heir in the estate. Facts: Matias Yusay died leaving two heirs: Jose (legitimate child) and
Lilia (acknowledged natural child). Jose was appointed as the
 The Government has two (2) ways/remedies of collecting the tax.
administrator. Jose filed with the BIR an estate and inheritance
 First, by going after all the heirs and collecting from each one of them
tax return, but it was later found out that he filed an under
the amount of the tax proportionate to the inheritance received--which
declared tax return. Because of this, the BIR increased the
was done in the case of Government of the Philippine Islands v.
assessment and demanded payment thereof. There was another
Pamintuan.
reinvestigation of the estate of Matias Yusay, and on Feb. 13,
1958, the CIR issued and assessment. Palay P6,444.00

Carabaos 1,000.00 P7,444.00
Jose died, thus, the assessment was sent to his widow, Real properties:
Florencia. Because of non-payment despite several demands, the Capital, 74 parcels )
Conjugal 19 parcels) assessed at P179,760.00
CIR filed a proof of claim for the estate and inheritance taxes due
Total gross estate P187,204.00
and a motion for its allowance with the settlement court in voting
 The return mentioned no heir.
priority of lien pursuant to Sec. 315 of the Tax Code.
 Upon investigation however the BIR found the following properties:
Personal properties:
Lilia filed a petition for review before the CTA assailing the legality
Palay P6,444.00
of the assessment, claiming that the right of the CIR to assess the Carabaos 1,500.00
said taxes has already prescribed. The CTA ruled in favor of Lilia. Packard Automobile 2,000.00
2 Aparadors 500.00 P10,444.00
Issue/s: Real properties:
WON the right of the CIR to assess the said taxes has already prescribed. Capital, 25 parcels assessed at P87,715.32
1/2 of Conjugal, 130 parcels
Held: NO. It is true that Sec. 315 of the Tax Code provides for a five- assessed at P121,425.00 P209,140.32
Total P219,584.32
year prescriptive period. However, this five year period only
 Based on the above findings, the BIR assessed on October 29, 1953
applies if the return is a valid one according to Sec. 93(a) of the
estate and inheritance taxes in the sums of P6,849.78 and P16,970.63,
Tax Code. In this case, the return filed was incomplete, and
respectively. On January 25, 1955 the Bureau of Internal Revenue
mentioned no heir. It was so deficient that it prevented the
increased the assessment to P8,225.89 as estate tax and P22,117.10 as
Commissioner from computing the taxes due on the estate.
inheritance tax plus delinquency interest and demanded payment thereof
It was as though no return was made.
on or before February 28, 1955.
o Jose requested for an extension of time to pay the tax but
Sec. 331 of the Tax Code gives the CIR five years within which to
the CIR denied this request. On May 20, 1955 the
make his assessment. Except, of course, if the taxpayer failed
Provincial Treasurer of Iloilo requested the BIR Provincial
to observe the law, in which case Sec. 332 of the same Code
Revenue Officer to furnish him copies of the assessment
grants the Commissioner a longer period. Hence, prescription
notices to support a motion for payment of taxes, which the
did not abate the Commissioner’s right to issue said assessment.
Provincial Fiscal would file in Special Proceedings No. 459
before the Court of First Instance of Iloilo.
Facts:
o On May 30, 1956 the commissioner appointed by the Court
 In 1948, Matias Yusay died intestate, leaving two heirs, namely, Jose S.
of First Instance for the purpose, submitted a reamended
Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged
project of partition which listed the following properties:
natural child.
Personal properties:
o Jose Yusay was appointed as administrator. Buick Sedan P8,100.00
 On May 11, 1949, Jose filed with the BIR and estate and inheritance tax Packard car 2,000.00
return declaring the following properties: Aparadors 500.00
Cash in Bank (PNB) 8,858.46
Personal properties Palay 6,444.00 P27,402.46
Carabaos 1,500.00
Real properties: Issue:
Land, 174 parcels assessed WON the right of the CIR to assess the said taxes has already
at P324,797.21 prescribed
Buildings 4,500.00 P329,297.21
—NO
Total P356,699.67
 On July 12, 1957, an agent of the BIR apprised the CIR of the existence
Held/Ratio:
of a reamended project of partition. Whereupon, the CIR caused the
 Paragraph (a) of Section 93 of the Tax Code lists the requirements of a
estate of Matias Yusay to be reinvestigated for estate and inheritance tax
valid return. It states:
liability. Accordingly, on February 13, 1958, the CIR issued the following
o (a) Requirements.— In all cases of inheritance or transfers
assessment:
subject to either the estate tax or the inheritance tax, or both, or
Estate tax P16,246.04
5% surcharge 411.29 where, though exempt from both taxes, the gross value of the
Delinquency interest 11,868.90 estate exceeds three thousand pesos, the executor,
Compromise administrator, or anyone of the heirs, as the case may be, shall
No notice of death P15.00 file a return under oath in duplicate, setting forth (1) the value of
Late payment 40.00 55.00 the gross estate of the decedent at the time of his death, or, in
Total P28,581.23 case of a nonresident not a citizen of the Philippines; (2) the
Inheritance Tax P38,178.12 deductions allowed from gross estate in determining net estate
5% surcharge 1,105.86 as defined in section eighty-nine; (3) such part of such
Delinquency interest 28,808.75
information as may at the time be ascertainable and such
Compromise for late payment 50.00
supplemental data as may be necessary to establish the correct
Total P69,142.73
Total estate and inheritance taxes P97,723.96 taxes.
 In view of the demise of Jose Yusay, the assessment was sent to his  A return need not be complete in all particulars. It is sufficient if it
widow, Mrs. Florencia Vda. De Yusay, who succeeded him in the complies substantially with the law. There is substantial compliance
administration of the estate of Matias Yusay. (1) when the return is made in good faith and is not false or
 Because of non-payment despite several demands, the CIR filed a proof fraudulent; (2) when it covers the entire period involved; and (3)
of claim for the estate and inheritance taxes due and a motion for its when it contains information as to the various items of income,
allowance with the settlement court in voting priority of lien pursuant to deduction and credit with such definiteness as to permit the
Sec. 315 of the Tax Code. computation and assessment of the tax.
 On April 13, 1960, Lilia Yusay filed a petition for review before the CTA o First, it was incomplete. It declared only ninety-three parcels of
assailing the legality of the assessment dated February 13, 1958. She land representing about 400 hectares and left out ninety-two
claims that since the latest assessment was issued only on February 13, parcels covering 503 hectares. Said huge under declaration
1958 or eight years, nine months and two days from the filing of the could not have been the result of an over-sight or mistake.
estate and inheritance tax return, the CIR’s right to make it has expired. o Second, the return mentioned no heir. Thus, no inheritance tax
She claims that according to Section 331 of the Tax Code, the right of the could be assessed. As a matter of law, on the basis of the
CIR to assess the taxes is limited to five years from the filing of the return. return, there would be no occasion for the imposition of estate
 The CTA ruled that the right of the CIR to assess the estate and and inheritance taxes. When there is no heir – the return
inheritance taxes in question to have prescribed. showed none – the intestate estate is escheated to the State.
 The return filed in this case was so deficient that it prevented the
Commissioner from computing the taxes due on the estate. It was
as though no return was made. The Commissioner had to determine
and assess the taxes on data obtained, not from the return, but from
other sources. We therefore hold the view that the return in question was
no return at all as required in Section 93 of the Tax Code.
 The law imposes upon the taxpayer the burden of supplying by the
return the information upon which an assessment would be based. His
duty complied with, the taxpayer is not bound to do anything more than
to wait for the Commissioner to assess the tax. However, he is not
required to wait forever. Section 331 of the Tax Code gives the
Commissioner five years within which to make his assessment. Except,
of course, if the taxpayer failed to observe the law, in which case
Section 332 of the same Code grants the Commissioner a longer
period. Non-observance consists in filing a false or fraudulent return
with intent to evade the tax or in filing no return at all.
 As stated, the CIR came to know of the identity of the heirs on
September 24, 1953 and the huge under-declaration in the gross estate
on July 12, 1957. From the latter date, Section 94 of the Tax Code
obligated him to make a return or amend one already filed based on his
own knowledge and information obtained through testimony or
otherwise, and subsequently to assess thereon the taxes due. The
running of the period of limitations under Section 332(a) of the Tax Code
should therefore be reckoned from said date for it is from that time that
the Commissioner was expected by law to make his return and assess
the tax due thereon. From July 12, 1957 to February 13, 1958, the
date of the assessment now in dispute, less than ten years have
elapsed. Hence, prescription did not abate the Commissioner’s right to
issue said assessment.
DEFINITIONS SEC. 100. Transfer for Less Than Adequate and Full Consideration. –
Where property, other than real property referred to in Section 24(D), is
transferred for less than an adequate and full consideration in money or
SEC. 98. Imposition of Tax. – money's worth, then the amount by which the fair market value of the
(A) There shall be levied, assessed, collected and paid upon the transfer property exceeded the value of the consideration shall, for the
by any person, resident or nonresident, of the property by gift, a tax, purpose of the tax imposed by this Chapter, be deemed a gift, and shall
computed as provided in Section 99. be included in computing the amount of gifts made during the calendar
(B) The tax shall apply whether the transfer is in trust or otherwise, year.
whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible. SEC. 102. Valuation of Gifts Made in Property. –
If the gift is made in property, the fair market value thereof at the time of
SEC. 99. Rates of Tax Payable by Donor. – the gift shall be considered the amount of the gift.
(A) In General. - The tax for each calendar year shall be computed on the In case of real property, the provisions of Section 88(B) shall apply to the
basis of the total net gifts made during the calendar year in accordance valuation thereof.
with the following schedule:
If the net gift is: SEC. 104. Definitions. –
OVER BUT NOT OVER THE TAX PLUS OF THE EXCESS For purposes of this Title, the terms "gross estate" and "gifts" include
SHALL BE OVER real and personal property, whether tangible or intangible, or mixed,
P 100,000 Exempt wherever situated:
P 100,000 200,000 0 2% P100,000 Provided, however, That where the decedent or donor was a
200,000 500,000 2,000 4% 200,000 nonresident alien at the time of his death or donation, as the case
500,000 1,000,000 14,000 6% 500,000 may be, his real and personal property so transferred but which are
1,000,000 3,000,000 44,000 8% 1,000,000 situated outside the Philippines shall not be included as part of
3,000,000 5,000,000 204,000 10% 3,000,000 his "gross estate" or "gross gift":
5,000,000 10,000,000 404,000 12% 5,000,000 Provided, further, That franchise which must be exercised in the
10,000,000 1,004,000 15% 10,000,000 Philippines; shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines in
(B) Tax Payable by Donor if Donee is a Stranger. – accordance with its laws; shares, obligations or bonds by any foreign
When the donee or beneficiary is stranger, the tax payable by the donor corporation eighty-five percent (85%) of the business of which is
shall be thirty percent (30%) of the net gifts. located in the Philippines; shares, obligations or bonds issued by any
For the purpose of this tax, a "stranger", is a person who is not a: foreign corporation if such shares, obligations or bonds have acquired
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor a business situs in the Philippines; shares or rights in any partnership,
and lineal descendant; or business or industry established in the Philippines, shall be
(2) Relative by consanguinity in the collateral line within the fourth considered as situated in the Philippines:
degree of relationship. Provided, still further, that no tax shall be collected under this Title
(C) Any contribution in cash or in kind to any candidate, political party or in respect of intangible personal property:
coalition of parties for campaign purposes shall be governed by the (a) if the decedent at the time of his death or the donor at the time
Election Code, as amended. of the donation was a citizen and resident of a foreign country
which at the time of his death or donation did not impose a transfer to STI Investment Inc. Philamlife filed an application for a
tax of any character, in respect of intangible personal property of certificate authorizing registration with the BIR to facilitate the
citizens of the Philippines not residing in that foreign country, or transfer of the shares, but was required to secure a BIR ruling to
(b) if the laws of the foreign country of which the decedent or confirm whether it was subject to donor’s tax. The Commissioner
donor was a citizen and resident at the time of his death or ruled that the difference between the book value and the selling
donation allows a similar exemption from transfer or death taxes of price in the sales transaction is taxable donation subject to a 30%
every character or description in respect of intangible personal donor’s tax under Section 99(B) of the NIRC. Petitioner requested
property owned by citizens of the Philippines not residing in that Secretary of Finance to review the ruling, but to no avail.
foreign country. Petitioner elevated the case to CA, which ratiocinated that it is the
CTA which has jurisdiction over the issued. Petitioner filed MR
The term "deficiency" means: but was also denied.
(a) the amount by which tax imposed by this Chapter exceeds the
amount shown as the tax by the donor upon his return; but the Issue/s:
amount so shown on the return shall first be increased by the amount WON the price difference in petitioner’s adverted sale of
previously assessed (or collected without assessment) as a shares in PhilamCare attracts donor’s tax. (MAIN) —YES
deficiency, and decreased by the amounts previously abated,
refunded or otherwise repaid in respect of such tax, or Held: The Court ruled that the absence of donative intent does not
(b) if no amount is shown as the tax by the donor, then the amount by exempt the sales of stock transaction from donor’s tax since Sec.
which the tax exceeds the amounts previously assessed, (or collected 100 of the NIRC categorically states that the amount by which the
without assessment) as a deficiency, but such amounts previously fair market value of the property exceeded the value of the
assessed, or collected without assessment, shall first be decreased consideration shall be deemed a gift. Thus, even if there is no
by the amount previously abated, refunded or otherwise repaid in actual donation, the difference in price is considered a donation
respect of such tax. by fiction of law.
Moreover, petitioner is mistaken in stating that RMC 25-11,
having been issued after the sale, was being applied retroactively
General Principles & Determination of the Donor’s Tax in contravention to Sec. 246 of the NIRC. Instead, it merely called
for the strict application of Sec. 100, which was already in force
the moment the NIRC was enacted.
PHILIPINE AMERICAN LIFE AND GENERAL INSURANCE
COMPANY v. COMMISSIONER OF INTERNAL REVENUE (Lim,
J.)
[G.R. No. 210987; November 24, 2014]
“Hindi porket walang intent, ” Facts:
 The Philippine American Life and General Insurance Company
Recit-Ready: (Philamlife) used to own 498,590 Class A shares in Philam Care
Facts: The Philippine American Life and General Insurance Company Health Systems, Inc. (PhilamCare).
(Philamlife) owns Class A shares in Philam Care Health Systems,  In 2009, petitioner offered to sell its shareholdings in Philam Care
Inc. (PhilamCare). In 2009, petitioner sold the PhilamCare shares through competitive bidding.
o Thus petitioner’s Class A shares were sold for USD  Aggrieved, petitioner requested Secretary of Finance to review BIR
2,190,000 to STI Investments, Inc. Ruling No. 015-12, but to no avail.
 After the sale was completed and the necessary documentary stamp  Petitioner elevated the case to the CA, which ratiocinated that it is
and capital gains taxes were paid, Philamlife filed an application for the CTA which has jurisdiction over the issues raised.
a certificate authorizing registration with the BIR to facilitate the o The outright dismissal is predicated on the postulate that
transfer of the shares. BIR Ruling No. 015-12 was issued in the exercise of the
 Months later, petitioner was required to secure a BIR ruling in Commissioner’s power to interpret the NIRC and other tax
connection with its application due to potential donor’s tax liability. laws.
 In compliance, petitioner requested a ruling to confirm that the sale o Philamlife eventually sought reconsideration but the CA, in
was not subject to donor’s tax, pointing out, in its request, the its equally assailed January 21, 2014 Resolution,
following: maintained its earlier position. Hence, the instant recourse.
o that the transaction cannot attract donor’s tax liability since
there was no donative intent and, ergo, no taxable Issue/s:
donation; 1) WON CA erred in dismissing the petition for lack of jurisdiction.
o that the shares were sold at their actual fair market value —NO
and at arm’s length; 2) WON the price difference in petitioner’s adverted sale of shares in
o that as long as the transaction conducted is at arm’s PhilamCare attracts donor’s tax. (MAIN)
length––such that a bonafide business arrangement of the —YES
dealings is done in the ordinary course of business––a sale
for less than an adequate consideration is not subject to Held/Ratio: Petition DISMISSED. The Court affirmed the CA decision.
donor’s tax; and
o that donor’s tax does not apply to sale of shares sold in an 1) NO. Admittedly, there is no provision in law that expressly provides
open bidding process. where exactly the ruling of the Secretary of Finance under the
adverted NIRC provision is appealable to.
 However, respondent Commissioner denied Philamlife’s request.
o The selling price of the shares thus sold was lower than  However, the Court finds that Sec. 7(a)(1) of RA 1125 addresses
their book value based on the financial statements of the seeming gap in the law as it vests the CTA, albeit impliedly,
Philam Care as of the end of 2008. with jurisdiction over the CA petition as “other matters” arising
o As such, the Commisioner held, donor’s tax became under the NIRC or other laws administered by the BIR.
imposable on the price difference pursuant to Sec. 100 of  To leave undetermined the mode of appeal from the Secretary of
the National Internal Revenue Code (NIRC). Finance would be an injustice to taxpayers prejudiced by his
adverse rulings.
 The Commissioner ruled that the difference between the book value
o To remedy this situation, the Court implies from the purpose of RA
and the selling price in the sales transaction is taxable donation
1125 that the CTA is the proper forum with which to institute the
subject to a 30% donor’s tax under Section 99(B) of the NIRC.
appeal.
o Respondent Commissioner likewise held that BIR Ruling
 This is not, and should not, in any way, be taken as a derogation
[DA-(DT-065) 715-09], on which petitioner anchored its
of the power of the Office of President but merely as recognition
claim, has already been revoked by Revenue Memorandum
that matters calling for technical knowledge should be handled by
Circular (RMC) No. 25-2011.
the agency or quasi-judicial body with specialization over the Code. The parties claimed that the donor’s tax is not due since it
controversy. was an ordinary commercial transaction negotiated in good faith
 As the specialized quasi-judicial agency mandated to adjudicate between unrelated parties and motivated by legitimate business
tax, customs, and assessment cases, there can be no other court reasons.
of appellate jurisdiction that can decide the issues raised in the
CA petition, which involves the tax treatment of the shares of Issue:
stocks sold. WON the transfer of the shares is subject to donor’s tax
2) YES. The absence of donative intent does not exempt the sales of
stock transaction from donor’s tax since Sec. 100 of the NIRC Held: YES. When the FMV of the stocks sold is greater than the FMV of
categorically states that the amount by which the fair market value the property received, the transaction will be subject to donor’s
of the property exceeded the value of the consideration shall be tax. The Court also upheld the use of the book value of the
deemed a gift. shares as the fair market value for purposes of applying Section
 Thus, even if there is no actual donation, the difference in price is 100 of the Tax Code. Likewise, the same provision shows that no
considered a donation by fiction of law. exemption/exception is permitted. The Court also pointed out that
o Moreover, Sec. 7 of RR 06-08 does not alter Sec. 100 of the NIRC the ruling upholding the Petitioner’s position cannot be relied
but merely sets the parameters for determining the “fair market value” upon since it was a ruling of first impression which was issued by
of a sale of stocks. Such issuance was made pursuant to the the Assistant Commissioner and not the CIR herself, in violation
Commissioner’s power to interpret tax laws and to promulgate rules of Section 7 on the non-delegability of the power to issue rulings
and regulations for their implementation. of first impression.
o Lastly, petitioner is mistaken in stating that RMC 25-11, having been
issued after the sale, was being applied retroactively in contravention Facts:
to Sec. 246 of the NIRC.  Petitioner, Metro Pacific Corporation (“MPC”), sold to Columbus Holdings
 Instead, it merely called for the strict application of Sec. 100, Inc. (“CHI”) 2,597,197 common shares in Bonifacio Land Corporation
which was already in force the moment the NIRC was enacted. (“BLC”).
o With a par value of P100.00 each, for the amount of
P410,357,126.00, or P158.00 per share.
METRO PACIFIC CORPORATION v. COMMISSIONER OF  Petitioner requested respondent, BIR, for confirmation that the sale of
INTERNAL REVENUE (Lim, Q.) BLC shares of stocks owned by MPC to CHI is not subject to donor's tax
[CTA Case No. 8318; June 11, 2014] [as provided in Section 100 of the Internal Revenue Code] as it is an
“FMV of Stocks Sold > FMV of Property Received, the Excess = Subject to ordinary business transaction negotiated in good faith by unrelated
Donor’s Tax” parties for legitimate business purposes.
 The CIR, through the Assisstant Commissioner, then issued BIR Ruling
Recit-Ready: DA (DT- 065)715-2009 confirming that the sales transaction over the BLC
Facts: Petitioner, Metro Pacific Corporation (“MPC”), sold its shares in shares between petitioner as seller and CHI as buyer is not subject to
Bonifacio Land Corporation (“BLC”) for around P400M when the donor's tax because it is an ordinary commercial transaction negotiated in
book value of the unlisted shares was at around P860M. The BIR good faith between unrelated parties and motivated by legitimate
assessed MPC for donor’s tax on the difference between the business reasons.
consideration and the book value citing Section 100 of the Tax
 MPC then received a Final Assessment Notice from the BIR demanding Issue:
payment for the deficiency donor’s tax. WON the transfer of share is subject to donor’s tax, making MPC liable
 Despite MPC’s protest, BIR ruled that MPC ought to pay the deficiency for the deficiency
donor’s tax, and revoked (DT-065)715-2009, declaring it void ab initio. —YES
 BIR issued Revenue Memorandum Circular No. 25-2011, which revoked
BIR Ruling No. DA (DT-065)715-2009. Held/Ratio: Petition is DENIED for lack of merit. Accordingly, petitioner is
o Stating that the provisions—Sec. 100 of the NIRC1 and hereby ORDERED to PAY respondent deficiency donor's tax.
Revenue Regulation No 6-20082, does not provide for any
exemptions. YES. Sec. 100 of the NIRC clearly states that the transaction is subject
o *Summary: In (DT-065)715-2009 the BIR stated that the to donor’s tax.
sales transaction of MPC was not subject to donor’s tax. o In assessing such, it is important to determine the fair market value
o But the BIR then sent MPC an Assessment Notice stating (“FMV”) of the property sold or transferred, and whether it exceeded
that MPC must pay for the donor’s tax and they also the value of the consideration.
revoked (DT- 065)715-2009. o The book value of BLC shares is the same as its fair market value
 Since the BLC shares were not listed and traded in the local
stock exchange, BIR based   it on the definition of the "fair
market value" of the shares of stock as stated in Section 7
1
Section 100 of the National Internal Revenue Code (NIRC) of 1997, as amended, (c.2.2) of RR No. 6-2008.
provides that:  Based on the above provisions, in case the consideration
SEC 100. Transfer for Less Than Adequate and Full Consideration. - Where property other
than real property referred to in Section 24(D) is transferred for less than an adequate and of the sale of shares of stock not listed and traded
full consideration in money or money's worth then the amount by which the fair market through the local stock exchange  is lower than the fair
value of the property exceeded the value of the consideration shall, for the purpose of the market value FMV/ book value of the shares, the
tax imposed by this Chapter, be deemed a gift and shall be included in computing the
amount of gifts made during the calendar year. difference between the book value and the selling price
2
Furthermore, Revenue Regulations No. 6-2008 provides that: of the shares is considered as a gift subject to donor's
SECTION 7. Sale, Barter or Exchange of Shares of Stock Not Traded Through a Local
Stock Exchange Pursuant to Sees. 24(C), 25(A)(3), 25(8), 27{0)(2), 28{A)(7)(C),
tax under Section 100 of the Tax Code.
28{8)(5)(C) o f the Tax Code, as Amended.-  Simply stated, in the case at hand, the book value (“BV”) was
Xxx XXX XXX treated as the FMV in the unlisted shares.
{c.1) Determination of Selling Price.- In determining the selling price, the following rules
shall apply:  XXX XXX XXX o Considering that the FMV/BV of the unlisted shares exceeds the
(c.1.4) In case the fair market value of the shares   of stock sold bartered or exchanged is consideration received, the excess is subject to donor's tax under Sec.
greater than the amount of money and/or fair market value  of the property received the 100 of the NIRC.
excess of the fair market value of the shares of stock sold bartered   or exchanged over the
amount of money and the   fair market value of property, if anv, received as consideration o The petitioner also failed to prove that there is an exemption in
shall be deemed a gift subject to the donor's tax under Sec. 100 of the Tax Code, as Sec. 100 of the NIRC.
amended.
 A plain reading of Sec. 100 of the 1997 NIRC, as amended,
XXX XXX XXX
(c.2) Definition of "fair market value" of the Shares of Stock.- For purposes of this Section, shows that no exemption/exception was stated therein.
"fair market value" of the share of stock sold shall be:
XXX XXX XXX
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the
YES. The provisions of RR No. 6-2008 specifically Section 7-c.1.4 and 7-
book value of the shares of stock as shown in the financial statements duly certified c.2.2 clearly provides that the transaction is subject to donor’s tax.
by and independent certified public accountant nearest to the date of sale shall be
the fair market value.
o In the present case, MPC sold its 2,597,197 BLC shares of stocks to WON the donation in favor of Mercedes was inter vivos or mortis causa.
CHI for a consideration of P410,357,126.00 or P158.00 per share.
However, the financial statements of BLC as of December 31, 2008, Held: In ruling for Mercedes, the Court read together the provisions of
showed that its book value is P332.78 per share. The 2,597,197 the deed of donation and determined that the intention of the
shares of stocks were sold at a price or consideration very much donor was to donate the subject lands to Mercedes out of love
lower than its book value. and affection. Acceptance clause is a mark that the donation is
 Thus, the BLC shares which had a book value of inter vivos. Donations mortis causa are not required to be
P864,303,593.03 was sold for only P410,357,126.00, which is accepted by the donees during the donors’ lifetime. A limitation
less than adequate and full consideration. on the right to sell during the donors’ lifetime implied that
 Applying the provisions stated, the difference of ownership had passed to the donees and donation was already
P453,946,467.03 shall be subject to donor's tax at the rate of effective during the donors’ lifetime. A valid donation, once
30%. accepted, becomes irrevocable, except on account of
o The wordings of Section 7-c.1.4 and 7-c.2.2 of RR No. 6-2008 in officiousness, failure by the donee to comply with the charges
relation to Section 100 of the Tax Code are clear and leave no room imposed in the donation, or ingratitude.
for interpretation.
Facts:
 Spouses Diego and Catalina Danlag were the owners of 6 parcels of
SPS. GESTOPA v. COURT OF APPEALS (Luna) land.
[GR. No. 111904, October 5, 2000]  They executed 3 Deed of Donation Mortis Causa in favor of Mercedes
“Pag galing sa puso, hindi na mababawi.” Danlag-Pilapil (Diego’s illegitimate chils).
o All deeds contained the reservation of the rights of the
[case does not really talk about Donor’s Tax but about Donations, to better donors (1) to amend, cancel or revoke the donation during
understand the application of DT] their lifetime, and (2) to sell, mortgage, or encumber the
Recit-Ready: properties donated during the donors' lifetime, if deemed
Facts: Sps. Danlag donated parcels of land to Mercedes, initially in necessary.
through a Deed of Donation Mortis Causa, then later on in a Deed  Years later, Diego Danlag, with the consent of his wife, Catalina
of Donation Inter Vivos. The deed provided for condition on the Danlag, executed a another Deed of Donation Inter Vivos covering
rights of the donors to continue to enjoy the fruits of the land the aforementioned parcels of land and two others in favor of
during their lifetime and that the donee cannot alienate the land Mercedes containing the two conditions, that
without the consent of the donor. Mercedes accepted, caused o (1) the Danlag spouses shall continue to enjoy the fruits of
transfer of tax declarations in her name and paid taxes thereon. the land during their lifetime, and that (2) the donee can not
Danlag later revoked the donations and sold the lands to Sps. sell or dispose of the land during the lifetime of the said
Gestopa. Mercedes filed a quieting of title against Sps. Danlag spouses, without their prior consent and approval.
and Sps. Gestopa, which the RTC denied. On appeal, CA ruled in  Mercedes caused the transfer of the parcels' tax declaration to her
favor of Mercedes, declaring the donations to be valid and the name and paid the taxes on them.
sales to Sps. Gestopa invalid.  Subsequently, the Spouses Danlag sold 2 parcels to herein
petitioners Spouses Gestopa, and revoked the donation inter vivos
Issue/s:
covering the six parcels of land (Sps. Danlag maintained they o The donor reserved sufficient properties for his maintenance in
intended the donation to be mortis causa). accordance with his standing in society, indicating that the donor
 Mercedes filed with the RTC a petition against the Danlags and intended to part with the 6 parcels of land.
Gestopas for quieting of title, stating that she had already obtained o In Alejandro v. Geraldez, it was held that an acceptance clause is a
ownership over the six parcels of land. mark that the donation is inter vivos. Acceptance is a requirement for
 Trial Court ruled in favor of Danlags and Gestopas. donations inter vivos. Donations mortis causa, being in the form of a
o Both donations declared revoked and with no legal effect will, are not required to be accepted by the donees during the donors
o Diego declared as absolute and exclusive owner lifetime.
o Sale to Sps. Gestopa declared valid  A valid donation, once accepted, becomes irrevocable,
 CA, on appeal by Mercedes, reversed the trial court’s decision. except on account of officiousness, failure by the donee to
o Deed of Donation Inter Vivos declared not revoked and comply with the charges imposed in the donation, or
remains in force – that the reservation by the donor of ingratitude.
lifetime usufruct indicated that he transferred to Mercedes TANG HO v. THE BOARD OF TAX APPEALS (Pascual)
ownership; that right to sell belonged to Mercedes as done, [G.R. No. L-5949; November 19, 1955]
and the donor’s right referred to that of merely giving “TANGinang HOSband, magisa kasi magdonate”
consent; that this intention was made clear when he
changed the donation from mortis causa to inter vivos; and Recit-Ready:
that the transfer of tax declarations to Mercedes’ name Facts: In 1951, examiners of the BIR found that each of the 13 children
impled donation as inter vivos. of petitioner Li Seng Giap and Tang Ho had investments, in a
o Revocation of Donation declared null and void total amount of P63,195.00, in the Li Seng Giap Companies, with
o Sale to Sps. Gestopa declared invalid the shares being issued to them by their father. Thus, the
Collector of Internal Revenue regarded these transfers as
Issue/s: undeclared gifts and assessed against Li Seng Giap and his
WON the donation in favor of Mercedes was inter vivos or mortis causa children donor’s and donee’s taxes in the total amount of
—Inter Vivos. P76,995.31.
Held/Ratio: Petition DENIED. The petitioners paid a portion of the amount but requested the
CIR to revise their tax assessments. They submitted donor’s and
INTER VIVOS. The Court had to determine whether the donor intended donee’s gift tax returns, showing that the donations were made in
to transfer ownership over the properties upon the execution of the cash, either inter vivos or propter nuptias, and that the children’s
deed by reading the provisions of the deed together. shares in the corporations were purchased by them using the
o The granting clause shows that Diego donated the properties out of savings from these cash donations. Their main argument was
love and affection for donee, Mercedes. – a mark of donation inter that the donations were made out of conjugal funds and so they
vivos constituted individual donations by each of the spouses of one
o The reservation of lifetime usufruct indicates that the donor intended half of the amount received by the donees in each instance. If
to transfer the naked ownership over the properties that last sentence didn’t make sense, what they were trying to do
 As CA posed, what was the need for such reservation if the was multiply the number of times they could claim the benefit of
donor and his spouse remained the owners of the properties? gift tax exemptions under Sec 110 and 112 of the Internal
Revenue Code while also multiplying the number of transactions  Petitioner Li Seng Giap, who died during the pendency of the appeal, his
under which they could claim the gift tax exemptions, such that wife Tang Ho, and their 13 children were stockholders of 2 close family
the total liability donor and donee liability due would only be corporations.
P4,838.22.  In 1951, examiners of the BIR found that each of the 13 children had
investments, in a total amount of P63,195.00, in the companies.
The collector refused to revise the original assessments and so o The shares were issued to them by their father , Li Seng
the petitioners appealed to the Board of Tax Appeals but that Giap, in the years 1940, 1942, 1948, 1949, and 1950.
didn’t work out for them. o The Collector of Internal Revenue regarded these transfers
as undeclared gifts and assessed against Li Seng Giap and
Issue: his children donor’s and donee’s taxes in the total amount
1) WON the donations made by petitioner Li Seng Giap from the of P76,995.31 including penalties, surcharges, interests,
conjugal property should be taxed against the husband and compromise fees due to the delayed payment of taxes.
alone or against the husband and wife.  Petitioners paid a portion of the amount, covering basic taxes, and
2) WON the petitioners should be allowed the tax deduction put up a surety bond to guarantee payment of the remaining
claimed by them? balance.
 However, in 1951, they requested the CIR for a revision of their tax
Held: assessments and submitted donor’s and donee’s gift tax returns,
1) HUSBAND ALONE. Under the Spanish Civil Code, the law in showing that the donations were made in cash, either inter vivos or
effect when the donations were made, the relevant provisions propter nuptias, and that the children’s shares in the corporations
clearly differentiated donations made “by the husband” from were purchased by them using the savings from these cash
“donations made by both spouses by common consent.” In this donations.
case, it was only the father who was described as the o Their main argument was that the donations were made out
“undersigned donor,” and the wife did not expressly join the of conjugal funds and so they constituted individual
husband in making the gift. Thus, the donations should be taxed donations by each of the spouses of one half of the amount
only against the husband. received by the donees in each instance.
2) NO. The findings made by the CIR that the donations were in the o If that last sentence didn’t make sense, what they were
nature of stock transfers were supported by sufficient evidence. trying to do was multiply the number of times they could
Petitioners failed to support their contentions that the shares were claim the benefit of gift tax exemptions under Sec 110 and
acquired by purchase and no evidence was presented other than 112 of the Internal Revenue Code while also multiplying the
their belated sworn gift tax returns. By petitioners’ own admission, number of transactions under which they could claim the gift
they failed to file for 10 successive years the corresponding tax exemptions, such that the total liability donor and donee
returns for the allegedly yearly gifts made in cash to each child. liability due would only be P4,838.22.
Thus, they may not complain if collector refuses to revise the  The collector refused to revise the original assessments and so the
assessments made against them, without satisfactory petitioners appealed to the Board of Tax Appeals but that didn’t work
corroborative evidence. out for them.
Facts: Issue:
1) WON the donations made by petitioner Li Seng Giap from the “Deed of Sale and Declaration of Trust,” whereby they
conjugal property should be taxed against the husband alone transferred, sold and assigned, in trust, 53,000 shares of stock of
or against the husband and wife. the Lepanto Consolidated Mining Co., in favor of each one of their
2) WON the petitioners should be allowed the tax deduction 5 children in consideration of the sum of P26,227.70, by selling,
claimed by them? mortgaging, hypothecating, or pledging part or all of the corpus of
the trust. Basically, the mom and dad, Esther and Allison,
transferred the Lepanto shares to their 5 children but executed a
document where the dad’s brother, Finley, will hold the shares or
its proceeds in trust until the children reach the age of 35. The
Held/Ratio: trustee is supposed to pay for the stipulated consideration by
disposing of the shares. The CIR was notified and asked if gift
1) HUSBAND ALONE. Under the Spanish Civil Code, the law in effect taxes were due on the transaction. The CIR gave an assessment
when the donations were made, the relevant provisions clearly based on the difference between the market value of the shares
differentiated donations made “by the husband” from “donations and the stipulated consideration. This was later on increased as
made by both spouses by common consent.” In this case, it was the CIR opined that the gift taxes should be based on the full
only the father who was described as the “undersigned donor,” and market value of the shares. Alison and Esther executed another
the wife did not expressly join the husband in making the gift. Thus, set of deeds, which more or less contain the same provisions as
the donations should be taxed only against the husband. the first. The CIR also assessed it based on the full market value
of the shares.
2) NO. The findings made by the CIR that the donations were in the
nature of stock transfers were supported by sufficient evidence. Date # of Consideration Market Initial Revised
 Petitioners failed to support their contentions that the shares of shares Value assessment assessment
Deed
were acquired by purchase and no evidence was presented
Sept. 53,000 P26,227.70 P34,980 Donor: Donor:
other than their belated sworn gift tax returns. 25, P1548.08 P10,187.42
 By petitioners’ own admission, they failed to file for 10 1950 Donee: Donee:
successive years the corresponding returns for the allegedly P750.40 17,106.50
yearly gifts made in cash to each child.
Dec. 22,400 P17,430 P19,264 Donor: Donor:
 Thus, they may not complain if collector refuses to revise the 28, P604.84 17,577.56
assessments made against them, without satisfactory 1951 Donee: Donee:
corroborative evidence. P366.90 12,040.30
GIBBS v. COLLECTOR OF INTERNAL REVENUE (Ong) Issue/s:

[GR. No. L-14166; April 28, 1962] WON the gift taxes on the transfer of the shares of stock aforementioned
“Lepanto shares donated by mommy and daddy” should be based on the full market value of the said shares of stock at the
time of the transfers.
Recit-Ready:
Facts: Alison Gibbs and Esther Gibbs executed 5 documents entitled Held: YES. The CIR and the CTA CTA both believe that the gift taxes
should be based on the full amount as the considerations (except the VENDOR, TRUSTEE or BENEFICIARY by reason of this
as to the P52,277 paid by the trustee) were simulated. The trust.”
stipulated consideration for the transfer of the shares of stock
involved in the first set of deeds of trust, were to be paid on or
We find no merit in this pretense. The questions as to who shall
before December 23, 1950. Yet, nothing was done pay the (sic)
stipulated consideration on the date set therefor. The trustors did pay any given tax and what shall be the basis thereof are
not even demand payment. About three and a half years after the determined by law, the operation of which can not be affected
payment was due, the trustors executed a compromise by the provisions of a contract to which the Government is not a
agreement suspending the payment. 10 promissory notes were party.
likewise introduced but according to the CTA, these are mere
devises to avoid and evade payment of the gift taxes. The CTA Facts:
found the following:
 There was absolutely no consideration for the release of  On September 25, 1950, Allison Gibbs and his wife, Esther Gibbs,
the trustee from the obligation to pay and that the executed 5 separate documents entitled “Deed of Sale and Declaration of
promissory notes bear no date and were not executed Trust,” whereby they transferred, sold and assigned, in trust, 53,000
before any witness, and that the date of maturity is so shares of stock of the Lepanto Consolidated Mining Co., in favor of each
distant. one of their 5 children (Johnson Kelley, Allison Defrance, Candace,
 When Allison Gibbs was asked on why they required their Douglas, Fletcher, and Reginald Kelley) in consideration of the sum of
children to pay for the shares, he said that it was because P26,227.70, to be paid on or before December 23, 1950, by selling,
of tax considerations. According to him, they could not mortgaging, hypothecating, or pledging part or all of the corpus of the
afford to make it an outright gift considering the Philippine trust. The market value of said 53,000 shares on September 25, 1950
and the US taxes. was P34,980.
 The purpose of the deed was to establish an endowment  The terms and conditions of the 10 deeds trust (5 documents but 10
for the support, maintenance, care, health, higher trusts) were identical.
education, and travel of the beneficiary. This would be o Trustee in the 10 deeds was Finley Gibbs, a brother of
defeated because of the alleged “consideration” and the Allison Gibbs, who as attorney-in-fact of Finley, accepted
taxes to be paid. Only P9,790.244 would be left and this the trust in Finley’s name, for and on behalf of the
could hardly be sufficient for the purpose set above. The aforementioned beneficiaries.
CTA found that the intent was really to donate. o The trust was to terminate upon the respective beneficiary
 The corpus of the trust was never totally or partially sold, reaching the age of 35. If the beneficiary died before
hypothecated, or encumbered. reaching that age, leaving legitimate issue (I think this
The trustee and the trustors maintain that the lower court erred means legitimate heir/s?) the trust would continue for the
in not deducting the amount of the donor gift taxes from the benefit of the latter, and the full distribution and termination
value of the property subject to the donee gift taxes, in view of of the trust with respect to such issue would be effected not
the provision of the trust agreement to the effect — later than 20 years after the death of said beneficiary.
o If the beneficiary died before reaching the age of 35 leaving
“In addition to the foregoing, the TRUSTEE shall pay out of the no legitimate issue, the trustee would turn over the trust
property and/or the gross income of the trust estate all income, corpus or the remainder thereof and any accumulated
estate, gift, succession or inheritance taxes, if any, payable by income, share and share alike, to the other beneficiaries or
children of the trustors.
 Basically, the mom and dad, Esther and Allison, transferred the Lepanto  For these additional deeds, the CIR assessed a donor gift tax of P304.42
shares to their 5 children but executed a document where the dad’s on each trustor (total=P604.84) and a done gift tax of P36.69 on each of
brother, Finley, will hold the shares or its proceeds in trust until the the beneficiaries (total=366.90). These amounts were paid within the
children reach the age of 35. statutory period.
 On October 24, 1950, the trustors (Allison and Esther) gave notice to the  Holding that the gift taxes are available on the full market value of all the
then Collector of Internal Revenue (CIR) of the execution of the 10 deeds shares of stock placed in trust and not just on the difference between the
of trust and requested a ruling on whether or not gift taxes were due market value and the considerations, the CIR then assessed additional
thereon. gift taxes. See below for the summary of the assessments:
 On December 14, 1950, the CIR assessed a donee gift tax of P75 on
each of the beneficiaries in the said trust agreements or a total of  Thus, the total amounts paid under protest for the 2 sets of trusts is
P750.40 and a donor gift tax of P774.04 on each of the trustors, or P56,911.78.
P1548.08 for both. This was based upon the difference between the  In the meantime, the Court of Tax Appeals was created and the records
market value of the shares and the stipulated consideration. of the case was forwarded from the CFI to the CTA. The trustors
 On December 22, 1950, the CIR revised his assessment of the donor gift intervened in the case and asked for the refund of the additional donor
tax by increasing it from P774.04 to P342.84 for each trustor gift taxes paid by them in the aggregate sum of P27,764.98 with interest
(total=P1685.68). The next day, the done gift taxes were, also increased, and attorney’s fees.
from P750.40 to P17,856.90.  The CTA ordered the CIR to refund the sum of P9,387.54. Hence, this
 Within the period fixed by law, the donor and done gift taxes (P1,685.68 appeal.
and P17,856.90) were paid. Subsequently, the refund of P17,106.50
Date # of Consideration Market Initial Revised
representing the difference between the amount of the first assessment
of shares Value assessment assessment
(P750.40) for done gift taxes and that of the second assessment Deed
(P17,856.90) was demanded but the CIR turned this down. Sept. 53,000 P26,227.70 P34,980 Donor: Donor:
 The trustee appealed to the Secretary of Finance but before the latter 25, P1548.08 P10,187.42
could pass upon the appeal, the Board of Tax Appeals was created by 1950 Donee: Donee:
the President of the Philippines. The pertinent records were then P750.40 17,106.50
forwarded to said Board. Dec. 22,400 P17,430 P19,264 Donor: Donor:

 Alleging fear of expiration of the two-year period for the refund of said 28, P604.84 17,577.56
sum of P17,106.50, the trustee instituted a Civil Case with the Court of 1951 Donee: Donee:
First Instance of Manila against the defendant for the recovery of such P366.90 12,040.30
amount.
 On December 28, 1951, the trustors, by 5 separate documents each, Issue/s:
created 10 additional and separate trusts, each involving 22,400 shares WON the gift taxes on the transfer of the shares of stock
of stock of the same mining company, in favor of each of the aforementioned should be based on the full market value of the said
aforementioned beneficiaries, for the stipulated consideration of P17,430, shares of stock at the time of the transfers.
to be paid by the trustees within 120 days after the transfer of the stocks —YES
in the books of the company. The market value of the said 22,400 shares
was then P19,264.
Held/Ratio: Petition DENIED. Thus modified, said decision should be, as it is funds for the consideration stipulated. The trustee could have
hereby affirmed, in all other respects, without pronouncement as to costs. It authorized the trustors to dispose of the shares.
is so ordered. o The trustee and the trustors maintain that the lower court erred in not
deducting the amount of the donor gift taxes from the value of the
YES. The CIR and the CTA both believe that the gift taxes should be property subject to the donee gift taxes, in view of the provision of the
based on the full amount as the considerations (except as to the trust agreement to the effect —
P52,277 paid by the trustee) were simulated.
o The stipulated consideration for the transfer of the shares of stock “In addition to the foregoing, the TRUSTEE shall pay out of the
involved in the first set of deeds of trust, were to be paid on or before property and/or the gross income of the trust estate all income, estate,
December 23, 1950. Yet, nothing was done pay the (sic) stipulated gift, succession or inheritance taxes, if any, payable by the VENDOR,
consideration on the date set therefor. The trustors did not even TRUSTEE or BENEFICIARY by reason of this trust.”
demand payment.
o About three and a half years after the payment was due, the trustors o We find no merit in this pretense. The questions as to who shall pay
executed a compromise agreement suspending the payment. 10 any given tax and what shall be the basis thereof are determined by
promissory notes were likewise introduced but according to the CTA, law, the operation of which can not be affected by the provisions of a
these are mere devises to avoid and evade payment of the gift taxes. contract to which the Government is not a party.
The CTA found the following: o The appeal taken by the CIR also refers to the interest chargeable.
 There was absolutely no consideration for the release of the  The defendant maintains that said interest should be charged
trustee from the obligation to pay and that the promissory from the 15th day of May following the calendar year in which
notes bear no date and were not executed before any the gifts in question had been made.
witness, and that the date of maturity is so distant. o The taxes assessed on the basis of the difference between the market
 When Allison Gibbs was asked on why they required their value and the consideration were paid within the period fixed by law.
children to pay for the shares, he said that it was because of Even the donor gift taxes, under a revised assessment, and the
tax considerations. According to him, they could not afford to deficiency donor gift taxes due on the first set of trusts were paid in
make it an outright gift considering the Philippine and the US due time.
taxes. o With respect to the deficiency donor gift taxes on the two sets of trust
 The purpose of the deed was to establish an endowment for agreements and the deficiency donee gifts taxes assessed on the
the support, maintenance, care, health, higher education, and second set of trust agreements, the CIR demanded payment thereof
travel of the beneficiary. This would be defeated because of on or before June 30, 1954. Had these assessments been paid on
the alleged “consideration” and the taxes to be paid. Only that date, no interest whatsoever would have been due thereon. It is
P9,790.244 would be left and this could hardly be sufficient but fair and just, therefore, that interest be charged only for the period
for the purpose set above. The CTA found that the intent was of the extension secured for the payment of the trust assessments
really to donate. o In support of the theory that interest is due, not only for said period of
 The corpus of the trust was never totally or partially sold, extension but, also, from the fifteenth day of May of the year following
hypothecated, or encumbered. that in which the trust had been constituted, defendant cites section
o They executed compromise agreements for the alleged inability of the 119(b) (2) of the Tax Code, according to which:
trustee to sell, mortgage, hypothecate, or pledge the shares to raise
“If the part of the deficiency the time for payment of which is extended collected. Respondent Commissioner overruled petitioners'
is not paid in accordance with the terms of the extension, there shall claims. The case was brought to the Court of Tax Appeals by the
be collected, as a part of the taxes, interest on such unpaid amount at Petitioners. The CTA ruled that the Petitioners should pay the
the rate of one per centum a month from the date the same donees’ gift tax as well as its surcharge and interest.
was originally due until it is paid.”
o This provision applies only when the taxes are not paid within the Issue/s:
extension granted by the Collector or Commissioner of Internal WON there is a taxable donation against the Petitioners.
Revenue. It is inapplicable to the case at bar, for the taxes involved
herein were paid within said extension of time. Held: In ruling against the Petitioners, the Court noted There is nothing
on record to show that when the late Enrico Pirovano rendered
PIROVANO v. CIR (Reyes) services as President and General Manager of the De la Rama
[G.R. No. L-19865; July 31, 1965] Steamship Co. he was not fully compensated for such services,
“A donation purely out of gratitude is taxable against the donee” or that, because they were "largely responsible for the rapid and
very successful development of the activities of the company.
Recit-Ready: Pirovano expected or was promised further compensation over
 Facts: Enrico Pirovano was President and GM of Dela Rama and in addition to his regular emoluments as President and
Steamship Co. Dela Rama insured the life of Pirovano with General Manager. The fact that his services contributed in a large
various Philippine and American insurance policies. Upon his measure to the success of the company did not give rise to a
death, the BOD of Dela Rama adopted a series of Resolutions recoverable debt, and the conveyances made by the company to
granting and setting aside, out of the proceeds expected to be his heirs remain a gift or donation.
collected from the insurance policies taken on the life of Pirovano, As said in the Resolutions, the donation was made “out of
the sum of P400,000.00 for equal division among the 4 minor gratitude”.
children of the deceased. The majority stockholders of the The true consideration for the donation was, therefore, the
Company however, voted to revoke the resolution approving the company's gratitude for his services, and not the services
donation in favor of the Pirovano children. As a result, Mrs. themselves. Hence the tax, interest and surcharge against the
Pirovano, in behalf of the minor heirs, brought an action against Petitioners remain valid.
the Board of Directors for collection of sum of money and It is also noted that the Petitioners failed to file a tax return. The
damages. The donation was declared valid by the CA. failure to file a return was found by the lower court to be due to
respondent Commissioner of Internal Revenue assessed the reasonable cause and not to willful neglect. On this score, the
amount of P60,869.67 as donees' gift tax, inclusive of surcharges, elimination by the lower court of the 25% surcharge is ad valorem
interests and other penalties, against each of the Petitioners, or penalty which respondent Commissioner had imposed pursuant
for the total sum of P243,478.68; and, on April 23, 1955, a to Section 120 of the Tax Code was proper, since said Section
donor's gift tax in the total amount of P34,371.76 was also 120 vests in the Commissioner of Internal Revenue or in the tax
assessed against De la Rama Steamship Co., which the latter court power and authority to impose or not to impose such
paid. The Petitioners contested respondent Commissioner's penalty depending upon whether or not reasonable cause has
assessment and imposition of the donees' gift taxes and donor's been shown in the non-filing of such return.
gift tax and also made a claim for refund of the donor's gift tax so On the other hand, unlike said Section 120, Section 119,
paragraphs (b) (1) and (c) of the Tax Code, does not confer on o The P400,000.00 was to be convertible into 4,000 shares of
the Commissioner of Internal Revenue or on the courts any stock of the Company, at par, or 1,000 shares for each
power and discretion not to impose such interest and surcharge. child.
It is likewise provided for by law that an appeal to the Court of  The Company received the total sum of P643,000.00 as proceeds
Tax Appeals from a decision of the Commissioner of Internal from the American insurers.
Revenue shall not suspend the payment or collection of the tax  Upon receipt of the last stated sum of money, the Board of Directors
liability of the taxpayer unless a motion to that effect shall have of the Company modified, on January 6, 1947, the above-mentioned
been presented to the court and granted by it on the ground that Resolution by renouncing all its rights title, and interest to the said
such collection will jeopardize the interest of the taxpayer amount of P643,000.00 in favor of the minor children of the
deceased.
o The donation however, is subject to the express condition
that said amount should be retained by the Company in the
Facts: nature of a loan to it, drawing interest at the rate of 5%
 This is a case that stemmed from the case entitled Pirovano vs. Dela annum, and payable to the Pirovano children after the
Rama Steamship Co. Company shall have first settled in full the balance of its
 Enrico Pirovano was the father of the Petitioners in this case. present remaining bonded indebtedness in the sum of
 Sometime in the early part of 1941, De la Rama Steamship Co. (the approximately P5,000,000.00.
Company) insured the life of said Enrico Pirovano, who was then its o This New Resolution was carried out in a Memorandum of
President and General Manager until the time of his death, with various Agreement, executed by Mrs. Estefania R. Pirovano acting
Philippine and American insurance companies for a total sum in her capacity as guardian of her children (the Petitioners).
P1,000,000.00.  Later on, the Board further modified the Resolution by providing that
 The Company designated itself as the beneficiary of the policies obtained the Company shall pay the proceeds of said life insurance policies to
by it. the heirs of the said Enrico Pirovano after the Company shall have
 Due to the Japanese occupation of the Philippines, two things happened: settled in full the balance of its present remaining bonded
o The Company was unable to pay the premiums on the indebtedness, but the annual interests accruing on the principal shall
policies issued by its Philippine insurers and these policies be paid to the heirs of the said Enrico Pirovano, or their duly
lapsed appointed representative, whenever the Company is in a position to
o The policies issued by American insurers however, were meet said obligation.
kept effective and subsisting because the New York office  Mrs. Estefania R. Pirovano, in behalf of her children, executed a
of the Company continued paying it premiums annually. public document formally accepting the donation; and, on the same
 During the latter part of 1944, Enrico Pirovano died. date, the Company through its Board of Directors, took official notice
 After the liberation of the Ph from the Japanese forces, the Board of of this formal acceptance.
Directors (the Board) of the Company adopted a Resolution granting  The majority stockholders of the Company however, voted to revoke
and setting aside, out of the proceeds expected to be collected on the resolution approving the donation in favor of the Pirovano
the insurance policies taken on the life of said Enrico Pirovano, the children.
sum of P400,000.00 for equal division among the 4 minor children of  As a result, Mrs. Pirovano, in behalf of the minor heirs, brought an
the deceased action against the Board of Directors for collection of sum of money
and damages.
o CFI Rizal: Denied

o CA: Reversed the CFI and declared the donation valid. Petitioner’s Arguments:
 Said donation, which amounts to a total of 1) Petitioners contend that the donation is a remuneratory donation instead
P583,813.59, including interest, as it appears in the of a simple donation. Petitioners further contend that the same was
books of the corporation as of August 31, 1951, made not for an insufficient or inadequate consideration but rather it a
plus interest thereon at the rate of 5% per annum was made for a full and adequate compensation for the valuable
from the filing of the complaint, should be paid to services rendered by the late Enrico Pirovano to the De la Rama
the plaintiffs after the defendant corporation shall Steamship Co.; hence, the donation does not constitute a taxable gift
have fully redeemed the preferred shares issued to under the provisions of Section 108 of the National Internal Revenue
the National Development Company under the Code.
terms and conditions stared in the Resolutions of o Court’s ruling: There is nothing on record to show that when the
the Board of Directors. late Enrico Pirovano rendered services as President and General
 The Board shall pay to plaintiffs an additional Manager of the De la Rama Steamship Co. he was not fully
amount equivalent to 10% of said amount of compensated for such services, or that, because they were
P583,813.59 as damages by way of attorney's "largely responsible for the rapid and very successful
fees, and to pay the costs of action. (This was the development of the activities of the company.
ruling in Pirovano v. Dela Rama Steamship Co.) o Pirovano expected or was promised further compensation over
 ISSUE ALERT. On March 6, 1955, respondent Commissioner of and in addition to his regular emoluments as President and
Internal Revenue assessed the amount of P60,869.67 as donees' General Manager. The fact that his services contributed in a
gift tax, inclusive of surcharges, interests and other penalties, large measure to the success of the company did not give rise to
against each of the Petitioners, or for the total sum of P243,478.68; a recoverable debt, and the conveyances made by the company
and, on April 23, 1955, a donor's gift tax in the total amount of to his heirs remain a gift or donation.
P34,371.76 was also assessed against De la Rama Steamship Co., o As said in the Resolutions, the donation was made “out of
which the latter paid. gratitude”.
 The Petitioners contested respondent Commissioner's assessment o The true consideration for the donation was, therefore, the
and imposition of the donees' gift taxes and donor's gift tax and also company's gratitude for his services, and not the services
made a claim for refund of the donor's gift tax so collected. themselves.
Respondent Commissioner overruled petitioners' claims. o That the tax court regarded the conveyance as a simple
 The case was brought to the Court of Tax Appeals by the donation, instead of a remuneratory one as it was declared to be
Petitioners. The CTA ruled that the Petitioners should pay the in our previous decision, is but an innocuous error; whether
donees’ gift tax as well as its surcharge and interest. remuneratory or simple, the conveyance remained a gift, taxable
under Chapter 2, Title III of the Internal Revenue Code.
Issue/s:
WON there is a taxable donation against the Petitioners. 2) Petitioners also contend that the entire property or right donated should
—YES not be considered as a gift for taxation purposes; only that portion of the
value of the property or right transferred, if any, which is in excess of the
Held/Ratio: Petition DENIED. The Court of Tax Appeals decision is value of the services rendered should be considered as a taxable gift.
AFFIRMED.
o They cite in support Section 111 of the Tax Code which taxes provided for in section one hundred twenty is not paid in
provides that — full within thirty days from the date of the notice and demand
 Where property is transferred for less, than an from the Commissioner, there shall be collected as a part of the
adequate and full consideration in money or money's taxes, interest upon the unpaid amount at the rate of one per
worth, then the amount by which the value of the centum a month from the date of such notice and demand until
property exceeded the value of the consideration shall, it is paid. (section 119)
for the purpose of the tax imposed by this Chapter, be
deemed a gift, ... (c) Surcharge. — If any amount of the taxes included in the
o Court’s ruling: the term consideration used in this section refers notice and demand from the Commissioner of Internal Revenue
to the technical "consideration" defined by the American Law is not paid in full within thirty days after such notice and
Institute (Restatement of Contracts) as "anything that is demand, there shall be collected in addition to the interest
bargained for by the promisor and given by the promisee in prescribed above as a part of the taxes a surcharge of five per
exchange for the promise" Pirovano's successful activities as centum of the unpaid amount. (sec. 119)
officer of the De la Rama Steamship Co. cannot be deemed
such consideration for the gift to his heirs, since the services o The failure to file a return was found by the lower court to be
were rendered long before the Company ceded the value of the due to reasonable cause and not to willful neglect. On this
life policies to said heirs; cession and services were not the score, the elimination by the lower court of the 25% surcharge is
result of one bargain or of a mutual exchange of promises. ad valorem penalty which respondent Commissioner had
o What is more, the actual consideration for the cession of the imposed pursuant to Section 120 of the Tax Code was proper,
policies, as previously shown, was the Company's gratitude to since said Section 120 vests in the Commissioner of Internal
Pirovano; so that under section 111 of the Code there is no Revenue or in the tax court power and authority to impose or
consideration the value of which can be deducted from that of not to impose such penalty depending upon whether or not
the property transferred as a gift. Like "love and affection," reasonable cause has been shown in the non-filing of such
gratitude has no economic value and is not "consideration" in return.
the sense that the word is used in this section of the Tax Code. o On the other hand, unlike said Section 120, Section 119,
paragraphs (b) (1) and (c) of the Tax Code, does not confer on
3) Petitioners maintain that the assessment and demand for donees' gift the Commissioner of Internal Revenue or on the courts any
taxes was prematurely made and of no legal effect; hence, they should power and discretion not to impose such interest and surcharge.
not be held liable for such surcharge and interest. It is likewise provided for by law that an appeal to the Court of
o Petitioners however, have failed to file any gift tax return and Tax Appeals from a decision of the Commissioner of Internal
that they also failed to pay the amount of the assessment made Revenue shall not suspend the payment or collection of the tax
against them by respondent in 1955. This situation is covered liability of the taxpayer unless a motion to that effect shall have
by Section 119(b) (1) and (c) and Section 120 of the Tax Code: been presented to the court and granted by it on the ground that
such collection will jeopardize the interest of the taxpayer (Sec.
(b) Deficiency. 11, Republic Act No. 1125; Rule 12, Rules of the Court of Tax
Appeals)
(1) Payment not extended. — Where a deficiency, or any o Petitioners did not file in the lower court any motion for the
interest assessed in connection therewith, or any addition to the suspension of payment or collection of the amount of
assessment made against them. On the basis of the above-

stated provisions of law and applicable authorities, it is evident
that the imposition of 1% interest monthly and 5% surcharge is
justified and legal. Hence, said imposition of interest and
surcharge by the lower court should be upheld.
EXEMPTIONS
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the
Philippines. –
SEC. 101, NATIONAL INTERNAL REVENUE CODE (1) Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for profit,
SECTION 101. Exemption of Certain Gifts. - The following gifts or or to any political subdivision of the said Government.
donations shall be exempt from the tax provided for in this Chapter:
(2) Gifts in favor of an educational and/or charitable, religious, cultural
(A) In the Case of Gifts Made by a Resident.- or social welfare corporation, institution, foundation, trust or
(1) Dowries or gifts made on account of marriage and before its philanthropic organization or research institution or
celebration or within one year thereafter by parents to each of their organization: Provided, however, That not more than thirty percent
legitimate, recognized natural, or adopted children to the extent of the (30%) of said gifts shall be used by such donee for administration
first Ten thousand pesos (P10,000): purposes.
(2) Gifts made to or for the use of the National Government or any (C) Tax Credit for Donor's Taxes Paid to a Foreign Country. –
entity created by any of its agencies which is not conducted for profit, (1) In General. – The tax imposed by this Title upon a donor who was
or to any political subdivision of the said Government; and a citizen or a resident at the time of donation shall be credited with the
amount of any donor's tax of any character and description imposed
(3) Gifts in favor of an educational and/or charitable, religious, cultural by the authority of a foreign country.
or social welfare corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or research institution (2) Limitations on Credit. - The amount of the credit taken under this
or organization: Provided, however, That not more than thirty percent Section shall be subject to each of the following limitations:
(30%) of said gifts shall be used by such donee for administration (a) The amount of the credit in respect to the tax paid to any country
purposes. shall not exceed the same proportion of the tax against which such
credit is taken, which the net gifts situated within such country taxable
For the purpose of the exemption, a 'non-profit educational and/or under this Title bears to his entire net gifts; and
charitable corporation, institution, accredited nongovernment (b) The total amount of the credit shall not exceed the same proportion
organization, trust or philanthropic organization and/or research of the tax against which such credit is taken, which the donor's net
institution or organization' is a school, college or university and/or gifts situated outside the Philippines taxable under this title bears to
charitable corporation, accredited nongovernment organization, trust his entire net gifts.
or philanthropic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no dividends,
REPUBLIC ACT NO. 7166 (RA 7166) - An Act Providing For
governed by trustees who receive no compensation, and devoting all
Synchronized National And Local Elections And For Electoral
its income, whether students' fees or gifts, donation, subsidies or other
Reforms, Authorizing Appropriations Therefor, And For Other
forms of philanthropy, to the accomplishment and promotion of the
Purposes
purposes enumerated in its Articles of Incorporation.
November 26, 1991
be equivalent to 150 percent of the value of such donation. Valuation

Sec. 13. Authorized Expenses of Candidates and Political Parties. - of assistance other than money shall be based on the acquisition cost
The agreement amount that a candidate or registered political party may of the property. Such valuation shall take into consideration the
spend for election campaign shall be as follows: depreciated value of property in case said property has been used;
1. For candidates. - Ten pesos (P10.00) for President and Vice-
President; and for other candidates Three Pesos (P3.00) for (c) Importation of economic, technical, vocational, scientific,
every voter currently registered in the constituency where he filed philosophical, historical and cultural books, supplies and materials duly
his certificate of candidacy: Provided, That a candidate without certified by the Board, including scientific and educational computer
any political party and without support from any political party may and software equipment, shall be exempt from customs duties;
be allowed to spend Five Pesos (P5.00) for every such voter; and
(d) The University shall only pay 0% value-added tax for all
2. For political parties. - Five pesos (P5.00) for every voter currently transactions subject to this tax; and
registered in the constituency or constituencies where it has
official candidates. (e) All academic awards shall be exempt from taxes.
Any provision of law to the contrary notwithstanding any contribution in REPUBLIC ACT NO. 9521 (RA 9521) - An Act Creating A National
cash or in kind to any candidate or political party or coalition of parties for Book Development Trust Fund To Support Filipino Authorship (also
campaign purposes, duly reported to the Commission shall not be subject known as National Book Development Trust Fund Act)
to the payment of any gift tax. March 05, 2009
REPUBLIC ACT NO. 9500 (RA 9500) - An Act To Strengthen The Section 3. The National Book Development Trust Fund. - A National
University Of The Philippines As The National University (also Book Development Trust Fund, hereafter referred to as the Fund, is
known as University of the Philippines Charter of 2008) hereby established exclusively for the support and promotion of Filipino
April 29, 2008 authorship especially in science and technology and in subject areas
wherein locally authored books are either few or nonexistent. The Fund
SEC. 25. Tax Exemptions. - The provisions of any general or special law shall be subject to the following;
to the contrary notwithstanding: (a) The contribution to the Fund shall be sourced from the following:
(a) All revenues and assets of the University of the Philippines used (1) The amount of Fifty million pesos (P50,000,000.00) shall be
for educational purposes or in support thereof shall be exempt from all alloted in the annual General Appropriation Act (GAA) for the next
taxes and duties; five (5) years starting from the enactment of this law;
(2) The amount of Fifty million pesos (P50,000,000.00) shall be
(b) Gifts and donations of real and personal properties of all kinds shall taken from the Philippine Amusement and Gaming Corporation
be exempt from the donor's tax and the same shall be considered as (PAGCOR) fund at Five million pesos (P5,000,000.00) per month
allowable deductions from the gross income of the donor, in for ten (10) months;
accordance with the provisions of the National Internal Revenue Code (3) Another amount of Fifty million pesos (P50,000,000.00) shall
of 1997, as amended: Provided, That the allowable deductions shall be taken from the Philippine Charity Sweepstakes Office (PCSO)
at Five million pesos (P5,000,000.00) per month for ten (10) (1) No part of the seed capital of the Fun, including earnings
months; thereof, shall be used to underwrite overhead expenses for the
administration; and
(b) Only the interest drawn from the Fund from sources cited in (2) There shall be an external auditor to perform an annual audit
Section 3 (a1), (a2) and (a3) shall be awarded as grants to promote of the Fund's performance.
Filipino authorship and to support the completion of local manuscripts
or research works for publication; REPUBLIC ACT NO. 10165 (RA 10165) - An Act To Strengthen And
Propagate Foster Care And To Provide Funds Therefor
(c) The grants can be awarded only after one (1) year from the (also known as Foster Care Act of 2012)
organization of the Fund, and the grants shall be awarded equitably July 2, 2012
among the regions;
SEC. 3. Definition of Terms. – For purposes of this Act, the following
(d) Government corporations are hereby authorized to give grants to terms are defined:
the Fund at their discretion; (a) Agency refers to any child-caring or child-placing institution
licensed and accredited by the Department of Social Welfare and
(e) The private portion of the Fund shall be raised from donations and Development (DSWD) to implement the foster care program.
other conveyances including funds, materials, property and services,
by gratuitous title; (b) Child refers to a person below eighteen (18) years of age, or one
who is over eighteen (18) but is unable to fully take care of or protect
(f) Contributions to the Fund shall be exempt from the donor's tax and oneself from abuse, neglect, cruelty, exploitation or discrimination
the same shall be considered as allowable deductions from the gross because of a physical or mental disability or condition.
income of the donor, in accordance with the provisions of the National
Internal Revenue Code of 1997, as amended: Provided, That the (c) Child Case Study Report refers to a written report prepared by a
allowable deductions shall be equivalent to one hundred fifty percent social worker containing all the necessary information about a child.
(150%) of the value of such donation;
(d) Child with Special Needs refers to a child with developmental or
(g) The National Book Development Board(NBDB) shall be the physical disability.
administrator of the Fund;
(e) Family refers to the parents or brothers and sisters, whether of the
(h) For the sound and judicious management of the Fund, the NBDB full or half-blood, of the child.
shall appoint a government financial institution, with sound track
record on fund management, as portfolio manager of the Fund, subject (f) Foster Care refers to the provision of planned temporary substitute
to guidelines promulgated by the NBDB; and parental care to a child by a foster parent.
(i) The NBDB shall prepare the implementing guidelines and decision- (g) Foster Child refers to a child placed under foster care.
making mechanisms, subject to the following:
(h) Foster Family Care License refers to the document issued by the (b) A child who is a victim of sexual, physical, or any other form of
DSWD authorizing the foster parent to provide foster care. abuse or exploitation;
(i) Foster Parent refers to a person, duly licensed by the DSWD, to (c) A child with special needs;
provide foster care.
(d) A child whose family members are temporarily or permanently
(j) Foster Placement Authority (FPA) refers to the document issued by unable or unwilling to provide the child with adequate care;
the DSWD authorizing the placement of a particular child with the
foster parent. (e) A child awaiting adoptive placement and who would have to be
prepared for family life;
(k) Home Study Report refers to a written report prepared by a social
worker containing the necessary information on a prospective parent (f) A child who needs long-term care and close family ties but who
or family member. cannot be placed for domestic adoption;
(l) Matching refers to the judicious pairing of a child with foster parent (g) A child whose adoption has been disrupted;
and family members based on the capacity and commitment of the
foster parent to meet the individual needs of the particular child and (h) A child who is under socially difficult circumstances such as, but
the capacity of the child to benefit from the placement. not limited to, a street child, a child in armed conflict or a victim of child
labor or trafficking;
(m) Parent refers to the biological or adoptive parent or legal guardian
of a child. (i) A child who committed a minor offense but is released on
recognizance, or who is in custody supervision or whose case is
(n) Placement refers to the physical transfer of the child with the foster dismissed; and
parent.
(j) A child who is in need of special protection as assessed by a social
(o) Relatives refer to the relatives of a child, other than family worker, an agency or the DSWD.
members, within the fourth degree of consanguinity or affinity.
Provided, That in the case of (b), (c), (f), (h), (i), and (j), the child must
(p) Social Worker refers to the registered and licensed social worker of have no family willing and capable of caring and providing for him.
the DSWD, local government unit (LGU) or agency.
SEC. 5. Who May Be a Foster Parent. – An applicant who meets all of
SEC. 4. Who May Be Placed Under Foster Care. – The following may the following qualifications may be a foster parent:
be placed in foster care: (a) Must be of legal age;
(a) A child who is abandoned, surrendered, neglected, dependent or
orphaned; (b) Must be at least sixteen (16) years older than the child unless the
foster parent is a relative;
the Twenty-five thousand pesos (PhP 25,000.00) additional exemption

(c) Must have a genuine interest, capacity and commitment in for foster parents for each dependent not exceeding four (4) as
parenting and is able to provide a familial atmosphere for the child; provided for by Republic Act No. 9504, the definition of the term
“dependent” under Section 35(B) of the National Internal Revenue
(d) Must have a healthy and harmonious relationship with each family Code (NIRC) of 1997 shall be amended to include “foster
member living with him or her; child”: Provided, That all other conditions provided for under the
aforesaid section of the NIRC of 1997 must be complied
(e) Must be of good moral character; with: Provided, further. That this additional exemption shall be allowed
only if the period of foster care is at least a continuous period of one
(f) Must be physically and mentally capable and emotionally mature; (1) taxable year.
(g) Must have sufficient resources to be able to provide for the family’s For purposes of this section, only one (1) foster parent can treat the
needs; foster child as a dependent for a particular taxable year. As such, no
other parent or foster parent can claim the said child as a dependent
(h) Must be willing to further hone or be trained on knowledge, for that period.
attitudes and skills in caring for a child; and
SEC. 23. Incentives to Agencies. – Agencies shall be entitled to the
(i) Must not already have the maximum number of children under his following tax incentives:
foster care at the time of application or award, as may be provided in (a) Exemption from Income Tax. – Agencies shall be exempt from
the implementing rules and regulations (IRR) of this Act. income tax on the income derived by it as such organization pursuant
to Section 30 of the NIRC of 1997, as implemented by Revenue
Provided, That in determining who is the best suited foster parent, the Regulation (RR) No. 13-98; and
relatives of the child shall be given priority, so long as they meet the above
qualifications: Provided, further, That an alien possessing the above (b) Qualification as a Donee Institution. – Agencies can also apply for
qualifications and who has resided in the Philippines for at least twelve qualification as a donee institution.
(12) continuous months and maintains such residence until the termination
of placement by the DSWD or expiration of the foster family license, may SEC. 24. Incentives to Donors. – Donors of an agency shall be entitled
qualify as a foster parent. to the following:
(a) Allowable Deductions. – Donors shall be granted allowable
SEC. 22. Assistance and Incentives to Foster Parent. – deductions from its gross income to the extent of the amount donated
(a) Support Care Services. – The DSWD, the social service units of to agencies in accordance with Section 34(H) of the NIRC of 1997;
LGUs and agencies shall provide support care services to include, but and
not limited to, counseling, visits, training on child care and
development, respite care, skills training and livelihood assistance. (b) Exemption from Donor’s Tax. – Donors shall be exempted from
donor’s tax under Section 101 of the NIRC of 1997: Provided,That not
(b) Additional Exemption for Dependents. – For purposes of claiming more than thirty percent (30%) of the amount of donations shall be
spent for administrative expenses. 3. Any candidate — winning or losing — who fails to file with the
COMELEC the appropriate Statement of Expenditures required under
the Omnibus Election Code, shall be automatically precluded from
February 16, 2011 claiming such expenditures as deductions from his/her campaign
REVENUE REGULATIONS NO. 007-11 contributions. As such, the entire amount of such campaign contributions
SUBJECT : Policies in the Tax Treatment of Campaign Contributions shall be considered as directly subject to income tax.
and Expenditures
TO : All Internal Revenue Officers and Others Concerned SECTION 3. Repealing Clause. — All existing issuances, or portions
thereof, which are inconsistent herewith are hereby revoked, repealed or
SECTION 1. Background. — In the course of an election period, various amended accordingly.
contributions are given to candidates "for the purpose of influencing the
result of the elections" [Sec. 94 (a) of Batas Pambansa Bilang 881, SECTION 4. Effectivity. — These Regulations shall take effect
otherwise known as the Omnibus Election Code of the Philippines]. The immediately.
final paragraph of Section 13 of Republic Act No. 7166, provides that such
campaign contributions in cash or in kind to any candidate, duly reported
to the Commission on Elections (COMELEC), are exempt from the ADMINISTRATIVE REQUIREMENTS
imposition of Donor's Tax.
However, in instances when these campaign contributions are not fully TAX CODE
utilized by a candidate for campaign purposes, there is a need to clarify SEC. 103. Filing of Return and Payment of Tax. –
the treatment of these excess campaign funds, for tax purposes.
(A) Requirements. - any individual who makes any transfer by gift
SECTION 2. Policies and Guidelines. — (except those which, under Section 101, are exempt from the tax
1. As a general rule, campaign contributions are not included in the provided for in this Chapter) shall, for the purpose of the said tax,
taxable income of the candidate to whom they were given, the reason make a return under oath in duplicate.
being that such contributions were given not for the personal
expenditure/enrichment of the concerned candidate, but for the purpose of The return shall set forth:
utilizing such contributions for his/her campaign. Thus, to be considered
as exempt from income tax, these campaign contributions must have been (1) Each gift made during the calendar year which is to be
utilized to cover a candidate's expenditures for his/her electoral campaign. included in computing net gifts;
(2) The deductions claimed and allowable;
2. Unutilized/excess campaign funds, that is, campaign contributions net (3) Any previous net gifts made during the same calendar
of the candidate's campaign expenditures, shall be considered as subject year;
to income tax, and as such, must be included in the candidate's taxable (4) The name of the donee; and
income as stated in his/her Income Tax Return (ITR) filed for the subject (5) Such further information as may be required by rules and
taxable year. regulations made pursuant to law.
(B) Time and Place of Filing and Payment. - The return of the donor If the net gift is:
required in this Section shall be filed within thirty (30) days after
the date the gift is made and the tax due thereon shall be paid at
the time of filing.
Except in cases where the Commissioner otherwise permits, the

return shall be filed and the tax paid to an authorized agent bank,
the Revenue District Officer, Revenue Collection Officer or duly
authorized Treasurer of the city or municipality where the donor
was domiciled at the time of the transfer, or if there be no legal
residence in the Philippines, with the Office of the Commissioner. (B) Tax payable by the donor if donee is a stranger. - When the
donee or beneficiary is a stranger, the tax payable by the donor
In the case of gifts made by a nonresident, the return may be filed
shall be thirty per cent (30%) of the net gifts. For purposes of the
with the Philippine Embassy or Consulate in the country where he
donor's tax, a "stranger" is a person who is NOT a:
is domiciled at the time of the transfer, or directly with the Office
of the Commissioner.
(1) Brother, sister (whether by whole or half blood), spouse,
ancestor, and lineal descendant; or
RR 02-03 (Dec. 16, 2002)
(2) Relative by consanguinity in the collateral line within the
SEC. 10 RATES OF DONOR’S TAX. –
fourth degree of relationship.
(A) Schedular rates of donor’s tax imposable on donation made to a

A legally adopted child is entitled to all the rights and obligations
donee who is not a stranger. The transfer of the total net gifts
provided by law to legitimate children, and therefore, donation to
made during the calendar year shall be subject to tax in
him shall not be considered as donation made to stranger.
accordance with the schedule provided in Section 99 of the Code.
The entire value of the net gifts for each calendar year is divided
Donation made between business organizations and those made
into brackets and each rate is imposed on the corresponding
between an individual and a business organization shall be
brackets as shown below:
considered as donation made to a stranger.
(C) Contribution for election campaign. - Any contribution in cash or in

kind to any candidate, political party or coalition of parties for
campaign purposes, shall be governed by the Election Code, as
amended. The application of the rates as provided above is
imposed on donations made beginning January 1, 1998, which is
the effectivity date of Republic Act No. 8424, otherwise known as
“ The Tax Reform Act of 1997”.
SEC. 11. THE LAW THAT GOVERNS THE IMPOSITION OF DONOR’S consideration in money or money’s worth, then the amount by which the
TAX. - The donor’s tax is not a property tax, but is a tax imposed on the fair market value of the property at the time of the execution of the
transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Contract to Sell or execution of the Deed of Sale which is not preceded by
Internal Revenue, L- 19201, June 16, 1965; 14 SCRA, 292) The donor’s a Contract to Sell exceeded the value of the agreed or actual
tax shall not apply unless and until there is a completed gift. The transfer consideration or selling price shall be deemed a gift, and shall be included
of property by gift is perfected from the moment the donor knows of the in computing the amount of gifts made during the calendar year.
acceptance by the donee; it is completed by the delivery, either actually or
constructively, of the donated property to the donee. Thus, the law in force The law in force at the time of the completion of the donation shall govern
at the time of the perfection/completion of the donation shall govern the the imposition of donor’s tax.
imposition of the donor’s tax.
For purposes of the donor’s tax, “NET GIFT” shall mean the net economic
In order that the donation of an immovable may be valid, it must be made benefit from the transfer that accrues to the donee. Accordingly, if a
in a public document specifying therein the property donated. The mortgaged property is transferred as a gift, but imposing upon the donee
acceptance may be made in the same Deed of Donation or in a separate the obligation to pay the mortgage liability, then the net gift is measured by
public document, but it shall not take effect unless it is done during the deducting from the fair market value of the property the amount of
lifetime of the donor. If the acceptance is made in a separate instrument, mortgage assumed.
the donor shall be notified thereof in an authentic form, and this step shall
be noted in both instruments. SEC. 12. COMPUTATION OF THE DONOR’S TAX. – For donor’s tax
purposes, donations made before January 1, 1998 shall be subject to the
A gift that is incomplete because of reserved powers, becomes complete donor’s tax computed on the basis of the old rates imposed under Section
when either: (1) the donor renounces the power; or (2) his right to exercise 92 of the National Internal Revenue Code of 1977 (R.A. No. 7499), while
the reserved power ceases because of the happening of some event or donations made on or after January 1, 1998 shall be subject to the donor’s
contingency or the fulfilment of some condition, other than because of the tax computed in accordance with the amended schedule of rates
donor’s death. prescribed under Section 99 of the National Internal Revenue Code of
1997 (R.A. No. 8424). THE COMPUTATION OF THE DONOR’S TAX IS
Renunciation by the surviving spouse of his/her share in the conjugal ON A CUMULATIVE BASIS OVER A PERIOD OF ONE CALENDAR
partnership or absolute community after the dissolution of the marriage in YEAR. Husband and wife are considered as separate and distinct
favor of the heirs of the deceased spouse or any other person/s is subject taxpayer’s for purposes of the donor’s tax. However, if what was donated
to donor’s tax whereas general renunciation by an heir, including the is a conjugal or community property and only the husband signed the
surviving spouse, of his/her share in the hereditary estate left by the deed of donation, there is only one donor for donor’s tax purposes, without
decedent is not subject to donor’s tax, unless specifically and categorically prejudice to the right of the wife to question the validity of the donation
done in favor of identified heir/s to the exclusion or disadvantage of the without her consent pursuant to the pertinent provisions of the Civil Code
other co-heirs in the hereditary estate. of the Philippines and the Family Code of the Philippines.
Where property, other than a real property that has been subjected to the
final capital gains tax, is transferred for less than an adequate and full
Illustration: (1) Each gift made during the calendar year which is to be
included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar
year;
(4) The name of the donee;
(5) Relationship of the donor to the donee; and
(6) Such further information as the Commissioner may
require.
(B) Time and place of filing and payment. – The donor’s tax return
shall be filed within thirty (30) days after the date the gift is made
or completed and the tax due thereon shall be paid at the same
time that the return is filed. Unless the Commissioner otherwise
permits, the return shall be filed and the tax paid to an authorized
agent bank, the Revenue District Officer, Revenue Collection
Officer or duly authorized Treasurer of the city or municipality
where the donor was domiciled at the time of the transfer, or if
there be no legal residence in the Philippines, with the Office of
the Commissioner. In the case of gifts made by a non-resident,
the return may be filed with the Philippine Embassy or Consulate
in the country where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner. For this purpose, the
term “OFFICE OF THE COMMISSIONER” shall refer to the
Revenue District Office (RDO) having jurisdiction over the BIR-
National Office Building which houses the Office of the
Commissioner, or presently, to the Revenue District Office No. 39
– South Quezon City.
SEC. 13. FILING OF RETURNS AND PAYMENT OF DONOR’S TAX. –
(C) Notice of donation by a donor engaged in business. – In order to
(A) Requirements. – Any person making a donation (whether direct or be exempt from donor’s tax and to claim full deduction of the
indirect), unless the donation is specifically exempt under the donation given to qualified donee institutions duly accredited by
Code or other special laws, is required, for every donation, to the Philippine Council for NGO Certification, Inc. (PCNC), the
accomplish under oath a donor’s tax return in duplicate. The donor engaged in business shall give a notice of donation on
return shall set forth: every donation worth at least Fifty Thousand Pesos (P50,000) to
the Revenue District Office (RDO) which has jurisdiction over his
place of business within thirty (30) days after receipt of the
qualified donee institution’s duly issued Certificate of Donation,
which shall be attached to the said Notice of Donation, stating
that not more than thirty percent (30%) of the said donation/gifts
for the taxable year shall be used by such accredited non-stock,
non-profit corporation/NGO institution (qualified-donee institution)
for administration purposes pursuant to the provisions of Section
101(A)(3) and (B)(2) of the Code.

be taxable to him in the year in which so distributed to the extent

ESTATES AND TRUSTS that it exceeds the amount contributed by such employee or
distributee.
TAX CODE (C) Computation and Payment. –

SEC. 60. Imposition of Tax. –
(1) In General. - The tax shall be computed upon the taxable
(A) Application of Tax. - The tax imposed by this Title upon income of the estate or trust and shall be paid by the
individuals shall apply to the income of estates or of any kind of fiduciary, except as provided in Section 63 (relating to
property held in trust, including:. revocable trusts) and Section 64 (relating to income for
the benefit of the grantor).
(1) Income accumulated in trust for the benefit of unborn or
unascertained person or persons with contingent (2) Consolidation of Income of Two or More Trusts. - Where,
interests, and income accumulated or held for future in the case of two or more trusts, the creator of the trust
distribution under the terms of the will or trust; in each instance is the same person, and the beneficiary
(2) Income which is to be distributed currently by the in each instance is the same, the taxable income of all
fiduciary to the beneficiaries, and income collected by a the trusts shall be consolidated and the tax provided in
guardian of an infant which is to be held or distributed as this Section computed on such consolidated income, and
the court may direct; such proportion of said tax shall be assessed and
(3) Income received by estates of deceased persons during collected from each trustee which the taxable income of
the period of administration or settlement of the estate; the trust administered by him bears to the consolidated
and income of the several trusts.
(4) Income which, in the discretion of the fiduciary, may be
either distributed to the beneficiaries or accumulated. SEC. 61. Taxable Income. - The taxable income of the estate or trust
shall be computed in the same manner and on the same basis as in the
(B) Exception. - The tax imposed by this Title shall not apply to case of an individual, except that:
employee's trust which forms part of a pension, stock bonus or
profit-sharing plan of an employer for the benefit of some or all of (A) There shall be allowed as a deduction in computing the taxable
his employees (1) if contributions are made to the trust by such income of the estate or trust the amount of the income of the estate
employer, or employees, or both for the purpose of distributing to or trust for the taxable year which is to be distributed currently by the
such employees the earnings and principal of the fund fiduciary to the beneficiaries, and the amount of the income collected
accumulated by the trust in accordance with such plan, and (2) if by a guardian of an infant which is to be held or distributed as the
under the trust instrument it is impossible, at any time prior to the court may direct, but the amount so allowed as a deduction shall be
satisfaction of all liabilities with respect to employees under the included in computing the taxable income of the beneficiaries,
trust, for any part of the corpus or income to be (within the taxable whether distributed to them or not.
year or thereafter) used for, or diverted to, purposes other than
for the exclusive benefit of his employees: Provided, That any Any amount allowed as a deduction under this Subsection shall not
amount actually distributed to any employee or distributee shall be allowed as a deduction under Subsection (B) of this Section in the
same or any succeeding taxable year. discretion of the grantor or of any person not having a substantial
adverse interest in the disposition of such part of the income, be
(B) In the case of income received by estates of deceased persons distributed to the grantor, or (3) is, or in the discretion of the grantor or
during the period of administration or settlement of the estate, and in of any person not having a substantial adverse interest in the
the case of income which, in the discretion of the fiduciary, may be disposition of such part of the income may be applied to the payment
either distributed to the beneficiary or accumulated, there shall be of premiums upon policies of insurance on the life of the grantor, such
allowed as an additional deduction in computing the taxable income part of the income of the trust shall be included in computing the
of the estate or trust the amount of the income of the estate or trust taxable income of the grantor.
for its taxable year, which is properly paid or credited during such
year to any legatee, heir or beneficiary but the amount so allowed as (B) As used in this Section, the term 'in the discretion of the grantor'
a deduction shall be included in computing the taxable income of the means in the discretion of the grantor, either alone or in conjunction
legatee, heir or beneficiary. with any person not having a substantial adverse interest in the
disposition of the part of the income in question.
(C) In the case of a trust administered in a foreign country, the
deductions mentioned in Subsections (A) and (B) of this Section shall SEC. 65. Fiduciary Returns. - Guardians, trustees, executors,
not be allowed: Provided, That the amount of any income included in administrators, receivers, conservators and all persons or corporations,
the return of said trust shall not be included in computing the income acting in any fiduciary capacity, shall render, in duplicate, a return of the
of the beneficiaries. income of the person, trust or estate for whom or which they act, and be
subject to all the provisions of this Title, which apply to individuals in case
SEC. 62. Exemption Allowed to Estates and Trusts. - For the purpose such person, estate or trust has a gross income of Twenty thousand
of the tax provided for in this Title, there shall be allowed an exemption of pesos (P20,000) or over during the taxable year.
Twenty thousand pesos (P20,000) from the income of the estate or trust.
Such fiduciary or person filing the return for him or it, shall take oath that
SEC. 63. Revocable Trusts. - Where at any time the power to revest in he has sufficient knowledge of the affairs of such person, trust or estate to
the grantor title to any part of the corpus of the trust is vested (1) in the enable him to make such return and that the same is, to the best of his
grantor either alone or in conjunction with any person not having a knowledge and belief, true and correct, and be subject to all the provisions
substantial adverse interest in the disposition of such part of the corpus or of this Title which apply to individuals: Provided, That a return made by or
the income therefrom, OR (2) in any person not having a substantial for one or two or more joint fiduciaries filed in the province where such
adverse interest in the disposition of such part of the corpus or the income fiduciaries reside; under such rules and regulations as the Secretary of
therefrom, the income of such part of the trust shall be included in Finance, upon recommendation of the Commissioner, shall prescribe,
computing the taxable income of the grantor. shall be a sufficient compliance with the requirements of this Section.
SEC. 64. Income for Benefit of Grantor. – SEC. 66. Fiduciaries Indemnified Against Claims for Taxes Paid. -
Trustees, executors, administrators and other fiduciaries are indemnified
(A) Where any part of the income of a trust (1) is, or in the discretion against the claims or demands of every beneficiary for all payments of
of the grantor or of any person not having a substantial adverse taxes which they shall be required to make under the provisions of this
interest in the disposition of such part of the income may be held or Title, and they shall have credit for the amount of such payments against
accumulated for future distribution to the grantor, or (2) may, or in the the beneficiary or principal in any accounting which they make as such
trustees or other fiduciaries. subsections (a) and (b) of Section 57 and the net income of the trust
undiminished by any amounts distributed, paid or credited to beneficiaries
will be taxed to the trustees; however, the income included in the return of
Revenue Regulations No. 2 (February 10, 1940) the trustees is not to be included in computing the income of the
Sections 207-213 beneficiaries.
Note: This has been formatted for easier understanding. SECTION 208.Consolidation of incomes of two or more trusts. —
Section 56(b)(2) expressly requires the consolidation of the income of two
SECTION 207. Estates and trusts. — "Fiduciary" is a term which or more trusts where the creator of the trust in each instance is the same
applies to all persons or corporations that occupy positions of peculiar person and the beneficiary in each instance is the same. The tax due on
confidence towards others, such as trustees, executors, or administrators; the consolidated income will be collected from the trustees in proportion to
and a fiduciary, for income tax purposes, is any person or corporation that the net income of the of the respective trusts. (See Section 215 of these
holds in trust an estate of another person or persons. regulations.
In order that a fiduciary relationship may exist, it is necessary that a legal SECTION 209.Estates and trusts taxed to fiduciary. — In the case of a
trust be created. In general, the income of a trust for the taxable year decedent's estate the settlement of which is the object of testamentary or
which is to be distributed to the beneficiaries must be returned by and will intestate proceedings, the fiduciary, executor, or administrator is required
be taxed to the respective beneficiaries, but the income of a trust which is to file an annual return for the estate up to the final settlement thereof.
to be accumulated or held for future distribution, whether consisting of
ordinary income or gain from the sale of assets included in the corpus of In the same manner, the fiduciary is required to file a yearly return
the trust, must be returned by and will be taxed to trustee. covering the income of a trust, whether created by will or deed, for
accumulation of income, whether for unascertained persons or persons
Three exceptions to this general rule are found in the law: with contingent interests or otherwise.
(1) in the case of revocable trust (Section 59);
(2) in the case of a trust the income of which, in whole or in part, may In both cases the income of the estate or trust is taxed to the fiduciary.
be held or distributed for the benefit of the grantor (Section 60); Where under the terms of a will or deed, the trustee, may in his discretion,
and distribute the income or accumulate it, the income is taxed to the trustee,
(3) in the case of a trust administered in a foreign country [Section irrespective of the exercise of his discretion.
57(c)].
The imposition of the tax is not affected by the fact that an ultimate
In the first case, the income from such part of the trust estate title to which beneficiary may be a person exempt from tax.
may be revested in the grantor should be included in the grantor's return.
SECTION 210. Estate and trust taxed to beneficiaries. — In the case of
In the second case, part of the income of the trust, which may be held or (a) a trust the income of which is to be distributed annually or
distributed for the benefit of the grantor, should be included in the regularly;
grantor's return. (b) an estate of a decedent the settlement of which is not the object
of judicial testamentary or intestate proceedings; and
In the third case, the trustee is not entitled to the deductions mentioned in (c) properties held under a co-ownership or tenancy in common,
the income is taxable directly to the beneficiary or beneficiaries. had notice of his tax obligations or failed to exercise due diligence in
determining whether or not such obligations existed.
Each beneficiary must include in his return his distributive share of the net
income of the trust, estate, or co-ownership. Liability for the tax also follows the estate itself, and when the estate has
been distributed, the heirs, devisees, legatees, and distributors may be
In the case of trusts which are in whole or in part subject to revocation by required to discharge the amount of the tax due and unpaid, to the extent
the grantor, or which are for the benefit of the grantor, the income of the of and in proportion to any share received. The same consideration apply
trust is to be included in computing the net income of the grantor. to other trusts.
SECTION 211.Decedent's estate administration. — The "period of Where the tax has been paid on the net income of an estate or trust by the
administration or settlement of the estate" is the period required by the fiduciary, the net income on which the tax is paid is free from tax when
executor or administrator to perform the ordinary duties pertaining to distributed to the beneficiaries.
administration, in particular, the collection of assets and the payment of
debts and legacies. SECTION 213.Exemption allowed to estate or trusts. — An estate or a
trust is allowed a personal exemption of P1,800. Each beneficiary is
Estates during the period of administration have but one beneficiary and entitled to but one personal exemption, no matter from how many trusts he
that beneficiary is the estate. may receive income.(Section 61 of the Code).
No taxable income is realized from the passage of property to the

executor or administrator on the death of the decedent, even though it
may have appreciated in value since the decedent acquired it. In the event
of delivery of property in kind to a legatee or distributee, no income is
realized.
Where, however, prior to the settlement of the estate, the executor or

administrator sells property of a decedent's estate for more than the
appraised value placed upon it at the death of the decedent, the excess is
income, taxable to the estate.
Where property is sold after the settlement of the estate by the devisee,
legatee or heir at a price greater than the appraised value placed upon it
at the time he inherited the property from the decedent, he is taxable
individually on any profit derived. An allowance paid a widow or heir out of
the corpus of the estate is not deductible from gross income.
SECTION 212.Liability for tax on estate or trusts. — Liability for

payment of the tax attaches to the person of an executor or administrator
up to and after his discharge, where prior to distribution and discharge he
CIR v. CA and COMMONWEALTH MANAGEMENT AND added tax (VAT) amounting to P351,851.01, for taxable year 1988,
SERVICES CORPORATION (Villarin, L.) computed as follows:
“Taxable sale/receipt P1,679,155.00
[GR. No. 125355; March 30, 2000]
10% tax due thereon 167,915.50
“What is important is the transaction, not the profit.” 25% surcharge 41,978.88
20% interest per annum 125,936.63
Recit-Ready: Compromise penalty for late payment 16,000.00
Facts: COMASERCO was assessed by the CIR for deficiency VAT for TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01 ”
the year 1988. They claim that they were not engaged in trade or  COMASERCO filed a letter of protest but in response the CIR sent a
business as required by the law to be liable to VAT because his collection letter. So on September 29, 1992, COMASERCO filed with the
services to Philamlife and its affiliates were on a "no-profit, Court of Tax Appeals (CTA) a petition for review contesting the
reimbursement-of-cost-only" basis. The CTA affirmed the CIR’s Commissioner's assessment. COMASERCO asserted that the services it
assessment with modification, but the CA reversed and set aside rendered to Philamlife and its affiliates, relating to collections, consultative
the CTA’s decision. and other technical assistance, including functioning as an internal
auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It
Issue/s: averred that it was not engaged in the business of providing services to
WON COMASERCO was engaged in the sale of services, and thus liable Philamlife and its affiliates. COMASERCO was established to ensure
to pay VAT operational orderliness and administrative efficiency of Philamlife and its
affiliates, and not in the sale of services. COMASERCO stressed that it
Held: YES. In ruling for Petitioner, the Court explained that as long as was not profit-motivated, thus not engaged in business. In fact, it did not
the entity provides service for a fee, remuneration or generate profit but suffered a net loss in taxable year 1988.
consideration, then the service rendered is subject to VAT. It is COMASERCO averred that since it was not engaged in business, it was
immaterial whether profit is derived from rendering the service. not liable to pay VAT.
clarifies that even a non-stock, non-profit, organization or  The CTA rendered a decision affirming the CIR’s assessment with a
government entity, is liable to pay VAT on the sale of goods or slight modification that the penalty of P16,000.00 shall not be included
services. VAT is a tax on transactions, imposed at every stage of because no compromise agreement was entered into.
the distribution process on the sale, barter, exchange of goods or  On appeal, the Court of Appeals (CA) reversed and set aside the decision
property, and on the performance of services, even in the of the CTA.
absence of profit attributable thereto. The term "in the course of  The CA anchored its decision on the ratiocination in another tax case
trade or business" requires the regular conduct or pursuit of a involving the same parties, where it was held that COMASERCO was not
commercial or an economic activity, regardless of whether or not liable to pay fixed and contractor's tax for services rendered to Philamlife
the entity is profit-oriented. The present law merely stresses that and its affiliates. The CA, in that case, reasoned that COMASERCO was
even a nonstock, nonprofit organization or government entity is not engaged in business of providing services to Philamlife and its
liable to pay VAT for the sale of goods and services. affiliates. In the same manner, the Court of Appeals held that
COMASERCO was not liable to pay VAT for it was not engaged in the
business of selling services.
Facts:  Petitioner avers that to "engage in business" and to "engage in the sale of
 On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an services" are two different things. Petitioner maintains that the services
assessment to private respondent COMASERCO for deficiency value- rendered by COMASERCO to Philamlife and its affiliates, for a fee or
consideration, are subject to VAT. VAT is a tax on the value added by the thereto, by any person regardless of whether or not the person engaged therein is
performance of the service. It is immaterial whether profit is derived from a nonstock, nonprofit organization (irrespective of the disposition of its net income
rendering the service. and whether or not it sells exclusively to members of their guests), or government
entity.
 COMASERCO contends that the term "in the course of trade or business"
requires that the "business" is carried on with a view to profit or livelihood. "The rule of regularity, to the contrary notwithstanding, services as defined in this
It avers that the activities of the entity must be profit-oriented. Code rendered in the Philippines by nonresident foreign persons shall be
considered as being rendered in the course of trade or business."
COMASERCO submits that it is not motivated by profit, as defined by its
primary purpose in the articles of incorporation, stating that it is operating  Contrary to COMASERCO's contention the above provision clarifies that
"only on reimbursement-of-cost basis, without any profit." Private even a non-stock, non-profit, organization or government entity, is liable
respondent argues that profit motive is material in ascertaining who to tax to pay VAT on the sale of goods or services. VAT is a tax on transactions,
for purposes of determining liability for VAT. imposed at every stage of the distribution process on the sale, barter,
exchange of goods or property, and on the performance of services, even
Issue/s: in the absence of profit attributable thereto. The term "in the course of
WON COMASERCO was engaged in the sale of services, and thus liable trade or business" requires the regular conduct or pursuit of a commercial
to pay VAT. or an economic activity, regardless of whether or not the entity is profit-
—YES oriented. The present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of
Held/Ratio: Petition GRANTED. As long as the entity provides service for a goods and services.
fee, remuneration or consideration, then the service rendered is subject to  Section 108 of the National Internal Revenue Code of 1997 defines the
VAT. phrase "sale of services" as the "performance of all kinds of services for
others for a fee, remuneration or consideration." It includes "the supply of
YES. It is immaterial whether profit is derived from rendering the technical advice, assistance or services rendered in connection with
service. technical management or administration of any scientific, industrial or
 On May 28, 1994, Congress enacted Republic Act No. 7716, the commercial undertaking or project."
Expanded VAT Law (EVAT), amending among other sections, Section 99  On February 5, 1998, the CIR issued BIR Ruling No. 010-98 emphasizing
of the Tax Code. On January 1, 1998, Republic Act 8424, the National that a domestic corporation that provided technical, research,
Internal Revenue Code of 1997, took effect. The amended law provides management and technical assistance to its affiliated companies and
that: received payments on a reimbursement-of-cost basis, without any
"SEC. 105. Persons Liable. - Any person who, in the course of trade or business, intention of realizing profit, was subject to VAT on services rendered. In
sells, barters, exchanges, leases goods or properties, renders services, and any fact, even if such corporation was organized without any intention of
person who imports goods shall be subject to the value-added tax (VAT) imposed realizing profit, any income or profit generated by the entity in the conduct
in Sections 106 and 108 of this Code. of its activities was subject to income tax.
"The value-added tax is an indirect tax and the amount of tax may be shifted or  Hence, it is immaterial whether the primary purpose of a corporation
passed on to the buyer, transferee or lessee of the goods, properties or services. indicates that it receives payments for services rendered to its affiliates
This rule shall likewise apply to existing sale or lease of goods, properties or on a reimbursement-on-cost basis only, without realizing profit, for
services at the time of the effectivity of Republic Act No.7716. purposes of determining liability for VAT on services rendered. As long as
"The phrase "in the course of trade or business" means the regular conduct or the entity provides service for a fee, remuneration or consideration, then
pursuit of a commercial or an economic activity, including transactions incidental the service rendered is subject to VAT.
 At any rate, it is a rule that because taxes are the lifeblood of the nation, sale.
statutes that allow exemptions are construed strictly against the grantee
and liberally in favor of the government. Otherwise stated, any exemption Held:
from the payment of a tax must be clearly stated in the language of the 1) NO. The sale was NOT in the course of the trade or business of NDC.
law; it cannot be merely implied therefrom. In the case of VAT, Section The fact that the sale is not in the course of trade or business is
109, Republic Act 8424 clearly enumerates the transactions exempted sufficient in itself to declare the sale as outside the coverage of VAT
from VAT. The services rendered by COMASERCO do not fall within the pursuant to Section 99 of the 1986 Tax Code.
exemptions.
Facts:
 Pursuant to a government program of privatization, National Development
CIR v MAGSAYSAY LINES (Villarin,P.) Corp (NDC) decided to sell to a private enterprise all of its shares in its
[GR. No. 146984; July 28, 2006] wholly-owned subsidiary the National Marine Corporation (NMC). The
“Transaction is not in the course of trade or business, then transaction is not NDC decided to sell in one lot its NMC shares and 5 of its ships, which
subject to VAT” are 3,700 DWT Tween-Decker, Kloeckner type vessels.
 The NMC shares and the vessels were offered for public bidding. Among
Recit-Ready: the stipulated terms and conditions for the public auction was that the
Facts: Pursuant to a government program of privatization, National winning bidder was to pay a VAT of 10% on the value of the vessels.
Development Company (NDC) sold in one lot all of its shares in  On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay
its wholly-owned subsidiary, National Marine Corporation (NMC) Lines) offered to buy the shares and the vessels for P168,000,000.00.
and 5 of its ships to private respondent Magsaysay Lines. In their The bid was made by Magsaysay Lines, purportedly for a new company
Contract of Sale, it was stipulated that VAT, is any, shall be paid still to be formed composed of itself, Baliwag Navigation, Inc., and FIM
by the purchaser. Private respondents filed for a formal ruling on Limited of the Marden Group based in Hongkong (collectively, private
whether the sale of the 5 vessels was subject to VAT. The BIR respondents). The bid was approved by the Committee on Privatization,
issued a VAT Ruling that it was because NDC was a VAT- and a Notice of Award dated 1 July 1988 was issued to Magsaysay Lines.
registered enterprise and thus its transactions incident to its  On 28 September 1988, the implementing Contract of Sale was executed
normal VAT registered activity of leasing out personal property between NDC, on one hand, and Magsaysay Lines, Baliwag Navigation,
including sale of its own assets that are movable, tangible objects and FIM Limited, on the other. The contract stipulated that VAT, if any,
which are appropriable or transferable are subject to the 10% shall be for the account of the PURCHASER.
VAT. Private Respondent’s moved for reconsideration but was  Per arrangement, an irrevocable confirmed Letter of Credit previously
denied. As a result they filed an Appeal with the CTA. The CTA filed as bidders bond was accepted by NDC as security for the payment
granted the petition saying that the sale of a vessel was an of VAT, if any. By this time, a formal request for a ruling on whether or not
isolated transaction, not done in the ordinary course of NDCs the sale of the vessels was subject to VAT had already been filed with the
business, and was thus not subject to VAT. The CA affirmed the BIR. Thus, the parties agreed that should no favorable ruling be received
CTA’s decision. from the BIR, NDC was authorized to draw on the Letter of Credit upon
written demand the amount needed for the payment of the VAT.
Issue/s:  In January of 1989, private respondents received VAT Ruling No. 568-88
1) WON the sale by the NDC of its 5 vessels to the Magsaysay Lines is from the BIR, holding that the sale of the vessels was subject to the 10%
subject to VAT under the 1986 Tax Code then prevailing at the time of the VAT. The ruling cited the fact that NDC was a VAT-registered enterprise,
and thus its transactions incident to its normal VAT registered activity of sale was an isolated transaction, not made in the course of NDCs regular
leasing out personal property including sale of its own assets that are trade or business, it nonetheless found that the transaction fell within the
movable, tangible objects which are appropriable or transferable are classification of those deemed sale under R.R. No. 5-87, since the sale of
subject to the 10% VAT. the vessels together with the NMC shares brought about a change of
 Private respondents moved for the reconsideration but their motion was ownership in NMC.
denied. At this point, NDC drew on the Letter of Credit to pay for the  However, the Court of Appeals reversed itself through a Resolution dated
VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 5 February 2001. This time, the appellate court ruled that the change of
1989. ownership of business as contemplated in R.R. No. 5-87 must be a
 On 10 April 1989, private respondents filed an Appeal and Petition for consequence of the retirement from or cessation of business by the
Refund with the CTA, followed by a Supplemental Petition for Review on owner of the goods, as provided for in Section 100 of the Tax Code. The
14 July 1989. Court of Appeals also agreed with the CTA that the classification of
 The CIR opposed the petition, first arguing that private respondents were transactions deemed sale was a classification statute, and not an
not the real parties in interest as they were not the transferors or sellers exemption statute, thus warranting the resolution of any doubt in favor of
as contemplated in Sections 99 and 100 of the then Tax Code. The CIR the taxpayer.
also squarely defended the VAT rulings holding the sale of the vessels
liable for VAT, especially citing Section 3 of R.R. No. 5-87, which Issue/s:
provided that VAT is imposed on any sale or transactions deemed sale of WON the sale by the NDC of its 5 vessels to the Magsaysay Lines is subject
taxable goods (including capital goods, irrespective of the date of to VAT under the 1986 Tax Code then prevailing at the time of the sale.
acquisition). The CIR argued that the sale of the vessels were among —NO
those transactions deemed sale, as enumerated in Section 4 of R.R. No.
5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of the Held/Ratio: Petition DENIED.
Regulation, which classified change of ownership of business as a
circumstance that gave rise to a transaction deemed sale. NO. The sale was NOT in the course of the trade or business of NDC is
 In a Decision dated 27 April 1992, the CTA granted the petition. The CTA sufficient in itself to declare the sale as outside the coverage of VAT.
ruled that the sale of a vessel was an isolated transaction, not done in the  VAT is ultimately a tax on consumption, even though it is assessed on
ordinary course of NDCs business, and was thus not subject to VAT, many levels of transactions on the basis of a fixed percentage.
which under Section 99 of the Tax Code, was applied only to sales in the o It is the end user of consumer goods or services which ultimately
course of trade or business. The CTA further held that the sale of the shoulders the tax, as the liability therefrom is passed on to the
vessels could not be deemed sale, and thus subject to VAT, as the end users by the providers of these goods or services who in turn
transaction did not fall under the enumeration of transactions deemed may credit their own VAT liability (or input VAT) from the VAT
sale as listed either in Section 100(b) of the Tax Code, or Section 4 of payments they receive from the final consumer (or output VAT).
R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should be o The final purchase by the end consumer represents the final link
resolved in favor of private respondents since Section 99 of the Tax Code in a production chain that itself involves several transactions and
which implemented VAT is not an exemption provision, but a several acts of consumption.
classification provision which warranted the resolution of doubts in favor  Yet VAT is not a singular-minded tax on every transactional level. Its
of the taxpayer. assessment bears direct relevance to the taxpayers role or link in the
 The CIR appealed the CTA Decision to the CA, which rendered a production chain. Hence, as affirmed by Section 99 of the Tax Code and
Decision reversing the CTA. While the appellate court agreed that the its subsequent incarnations, the tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such CIR v. SONY PHILIPPINES, INC. (Villarivera)
activities, in the course of trade or business. [GR. No. 178697; November 17, 2010]
 These transactions outside the course of trade or business may invariably “Binigay nga ni Sony International ang funds e (dole-out of an affiliate
contribute to the production chain, but they do so only as a matter of to help Sony Phils’ financial position). There was no sale, barter, or
accident or incident. As the sales of goods or services do not occur within exchange na nangyari. So, not subject to VAT ang money received.”
the course of trade or business, the providers of such goods or services
would hardly, if at all, have the opportunity to appropriately credit any Recit-Ready:
VAT liability as against their own accumulated VAT collections since the Facts:
accumulation of output VAT arises in the first place only through the CIR issued a Letter of Authority (LOA) to review records of Sony Phils.
ordinary course of trade or business. (records from 1997 or unverified prior years).
 In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September CIR assessed VAT Deficiency Due P11.141 Million
30, 1955 (97 Phil. 992), the term carrying on business does NOT mean CTA-1st Division – Disallowed the assessment.
the performance of a single disconnected act, but means conducting, CTA-En Banc – Affirmed.
prosecuting and continuing business by performing progressively SC: This Petition
all the acts normally incident thereof; while doing business conveys The CIR contends that the subsidy given by Sony International Singapore
the idea of business being done, not from time to time, but all the time. to Sony Phils to pay for expenses should be subject to VAT.
 What is clear therefore is that course of business or doing business (Note: Sony International gave money as dole-out to Sony Phils
connotes regularity of activity. to help the latter’s financial position.)
 In the instant case, the sale was an isolated transaction. The sale That Sony Phils did not actually pay for the advertising expense,
which was involuntary and made pursuant to the declared policy of therefore, they are not eligible for any input VAT credit.
Government for privatization could no longer be repeated or carried on
with regularity. It should be emphasized that the normal VAT-registered Issue/s:
activity of NDC is leasing personal property, and not selling of real WON the CTA-EB erred in disallowing the VAT deficiency assessment of
property. the CIR.
 The conclusion that the sale was not in the course of trade or business,
which the CIR does not dispute before this Court, should have definitively Held: No. CTA-EB is correct in disallowing the VAT Deficiency
settled the matter. Any sale, barter or exchange of goods or services assessment because:
not in the course of trade or business is not subject to VAT.
 Section 100 of the Tax Code expressly states that there shall be levied, 1. LOA is for 1997 or unverified prior years. Basis for the
assessed and collected on every sale, barter or exchange of goods, a deficiency were records from Jan – Mar 1998. So review was
value added tax x x x. Section 100 should be read in light of Section 99, not authorized. PLUS, LOA should only cover a review of a
which lays down the general rule on which persons are liable for VAT in taxable period NOT EXCEEDING ONE taxable year.
the first place and on what transaction if at all. It may even be noted that 2. Sony Phils was the one who incurred the advertising
Section 99 is the very first provision in Title IV of the Tax Code, the Title expense, and not Sony International Singapore.
that covers VAT in the law. Before any portion of Section 100, or the rest
of the law for that matter, may be applied in order to subject a transaction a. Sec.110 Tax Code: Advertising expense duly covered
to VAT, it must first be satisfied that the taxpayer and transaction involved by a VAT invoice is a legitimate business expense.
is liable for VAT in the first place under Section 99. b. Aluquin (BIR witness) testified that advertising
companies issued invoices in the name of Sony Phils. 3. Assuming that the LOA was in order, The CIR further argued
and the latter paid for the same. that Sony’s advertising expense could not be considered as an
c. SC: “Where the money came from is another matter all input VAT credit because the same was eventually reimbursed
together but will definitely not change said fact.” by Sony International Singapore (SIS). Therefore, since it was
reimbursed, Sony, Phil did not incur advertising expense,
Note: therefore, no tax credit. SC DID NOT AGREE because:
The subsidy is subject to income tax BUT NOT VAT.
a. Sec.110 Tax Code: Advertising expense duly covered
“Thus, there must be a sale, barter or exchange of goods or by a VAT invoice is a legitimate business expense.
properties before any VAT may be levied. Sony International just gave b. Aluquin (BIR witness) testified that advertising
assistance to Sony Phils. in the amount equivalent to the latters companies issued invoices in the name of Sony Phils.
advertising expense but never received any goods, properties or and the latter paid for the same.
service from Sony.” c. SC: “Where the money came from is another matter all
together but will definitely not change said fact.”
Facts: On the strength of Letter of Authority 19734 (LOA) issued by the “Insofar as the above-mentioned subsidy may be considered as income
CIR, the revenue officers reviewed the records of Sony Phils and and, therefore, subject to income tax, the Court agrees.
assessed Sony Phils. P11,141,014.41 for VAT Deficiency. After trial,
the CTA-First Division disallowed the deficiency VAT assessment However, the Court does not agree that the same subsidy should be
because the subsidized advertising expense paid by Sony which subject to the 10% VAT. To begin with, the said subsidy termed by the
was duly covered by a VAT invoice resulted in an input VAT credit. CIR as reimbursement was not even exclusively earmarked for Sonys
CIR filed a Petition for Review with the CTA-En Banc. The En Banc advertising expense for it was but an assistance or aid in view of Sonys
upheld the disallowance. dire or adverse economic conditions, and was only equivalent to the
latters (Sonys) advertising expenses.”
Issue/s:
WON the CTA-EB erred in disallowing the VAT deficiency assessment of the “Thus, there must be a sale, barter or exchange of goods or properties
CIR. before any VAT may be levied. SIS just gave assistance to Sony in the
amount equivalent to the latters advertising expense but never received
Held: In ruling for Sony, the Court gave the following reasons why the any goods, properties or service from Sony.”
VAT assessment should be disallowed:
MINDANAO GEOTHERMAL v. CIR (Arcaina)
1. The LOA issued was for the review of the records from 1997 or [G.R. No. 193301, G.R. No. 194637; March 11, 2013]
unverified prior years. The bases for the VAT deficiency “Patience is a virtue. But do not be too patient.”
assessment were records from Jan. – March 1998. Therefore,
the revenue officers did not have authority to conduct the review Recit-Ready:
of the records. Facts: Mindanao I and II are partnerships that entered into BOT contracts
2. A Letter of Authority should cover a taxable period not with the PNOC-EDC. Under these contracts, PNOC-EDC would
exceeding one taxable year. supply and deliver steam to MIndanaos I and II at no cost. In
exchange, the Mindanaos would convert the steam into electric  RA 9136 or the Electric Power Industry Reform Act of 2000 (EPIRA)
capacity and energy for PNOC – EDC and deliver the same to the effectively amended the 1997 Tax Code
NPC on behalf of the PNOC-EDC. EPIRA was enacted and o Decreed that sales by power generation companies shall
modified VAT rates under the NIRC applicable to sales of be subject to zero rate of VAT
generated power by generation companies form 10% to 0%.  Pursuant to EPIRA, Mindanao I and II filed claims for refund tax or
Believing that their sale of generated power and delivery of tax credit of accumulated unutilized and/or excess input taxes due to
electrical capacity to NPC fell under the zero-rated sales under VAT zero-rated sales in 2003 with the CIR
EPIRA, Mindanao I and II computed their VAT returns o They filed their claims in 2005
accordingly. They filed for refund and/or issuance of tax credit  Mindanao I and II have similar set of facts:
certificates with the Commissioner based on this belief. The o They entered into Build-Operate-Transfer (BOT) contracts
Commissioner did not act upon their applications. Both cases with the Philippine National Oil Corporation-Energy
elevated through the CTA, the CTA En Banc and finally to the SC Development Company (PNOC-EDC)
on the issue of the timeliness of the filing by Mindanao I and II of  For supply, installation, engineering, testing,
their Administrative and Judicial Claims commissioning, operation, and maintenance of
their respective powerplants
Issues:  PNOC-EDC would supply and deliver steam to
1. Whether Mindanao I and II filed their administrative claims both Mindanaos at no cost
for refund/tax credit on time – Only the claims made for the  In turn, the Mindanaos would convert the steam to
first quarter of 2003 were filed late. Claims made for second, electric capacity and energy for PNOC – EDC
third and fourth quarter of 2003 were filed on time and deliver the same to the NPC on behalf of the
2. Whether Mindanao I and II filed their judicial claims for PNOC-EDC
refund/tax credit on time – Only the claim for the second  EPIRA was enacted. It amendment of NIRC modified VAT rate
quarter of 2003 was prematurely filed. Claims made for the applicable to sales of generated power by generation companies
third and fourth quarter were filed on time. from 10% to 0%
Held:.  Mindanaos allege that their sale of generated power and delivery of
 The applicable law in this case is the 1997 Tax Code which electrical capacity to NPC for and in behalf of PNOC – EDC is their
expressly grants the Commissioner 120 days to decide a only revenue-generating activity which is in the ambit of the zero-
taxpayer’s claim and grants the taxpayer 30 days to appeal the rated sales under EPIRA
decision or inaction of the Commissioner with the CTA  On the belief that their sales qualify for VAT zero-rating, Mindanaos
 Under the Code, failure to comply with the 120 + 30 day adopted the VAT zero-rating of the EPIRA in computing for its VAT
mandatory period renders the petition for review with the CTA payable when it filed its Quarterly VAT returns
void.  Both filed for refund and/or issuance of tax credit certificate with
Commissioner on the belief that they had accumulated unutilized
Facts: creditable input from their only income-generating activity
 Mindanao I and II are partnerships registered with the SEC, BIR,  For both cases, CIR did not act on the petitions.
and Block Power Production Facilities accredited by Department of  Both cases were elevated to the CTA
Energy  Mindanao II CTA decision:
o Mindanao II had satisfied the twin requirements for VAT substantiated excess input VAT due to
zero rating under EPIRA disallowances by the Independent Certified Public
o Mindanao II had also complied with the five requirements to Accountant
be entitled to a refund:  Mindanao I’s accumulated excess input VAT for
o The amount originally granted by the CTA to Mindanao II the second quarter of 2003 that was carried to the
was lowered through an amended decision issued upon third quarter of 2003 is net of the claimed input
filing of the CIR of a motion for partial reconsideration VAT for the first quarter of 2003, and the same
 CIR’s MR was based on the grounds that the procedure done to the second, third, and fourth
claims filed by Mindanao I and II were beyond the quarters
period allowed by Sec 112(A) of the Tax Code  Mindanao I’s administrative claims were filed within
o Mindanao II filed a Petition for review with the CTA En Banc the two-year prescriptive period reckoned from the
o CTA En Banc denied Mindanao II’s petition and ruled that: respective dates of filing for the quarterly VAT
 Sec 112(A) clearly provides that the reckoning of returns
the two-year prescriptive period for filing the o Mindanao I filed MR on grounds that CTA should not have
application for refund or credit of input VAT allocated proportionately its unutilized creditable input taxes
attributable to zero-rated sales or effectively zero- for the taxable year 2003 because the proportionate
rated sales shall be counted from the close of the allocation of the amount of creditable taxes in Sec 112(A)
taxable quarter when the sales are made applied only when the creditable input taxes due cannot be
 The Atlas and Mirant cases applied different tax directly and entirely attributed to any of the zero-rated or
codes. effectively zero-rated sales
 Atlas – 1977 Tax Code o CIR also filed an MR claiming that Mindanao I failed to
 Mirant – 1997 Tax Code exhaust administrative remedies before filing its petition for
 Sale of fully-depreciated Nissan Patrol in incidental review.
to Mindanao II’s VAT zero-rated transactions o MRs were denied.
pursuant to Sec 105 o CTA En Banc denied the subsequent petitions made by CIR
 Mindanao II failed to comply with the substantiation and Mindanao I
requirements provided under Sec 113(A) in relation
to Sec 237 of the 1997 Tax Code Issue
 Doctrine of strictissimi juris on tax exemptions 1. Whether Mindanao I and II filed their administrative claims for
cannot be relaxed in the present case refund/tax credit on time – Only the claims made for the first
 Mindanao I CTA decision: quarter of 2003 were filed late. Claims made for second, third
o CTA lowered tax credit granted to Mindanao I on the and fourth quarter of 2003 were filed on time
grounds that: 2. Whether Mindanao I and II filed their judicial claims for
 Mindanao I can only claim 90.27% of the amount of refund/tax credit on time – Only the claim for the second
substantiated excess input VAT because a portion quarter of 2003 was prematurely filed. Claims made for the third
was not reported in its quarterly VAT returns and fourth quarter were filed on time.
 Out of the excess input VAT applied for refund,
only P11,657,447.14 can be considered Held/Ratio:
the 1997 Tax

A Summary of the Administrative and Judicial Claims of Mindanao I Code
and Mindanao II 4th Quarter Filed on time Filed late (Sept 9 Deny, pursuant
(April 13 2005) 2005) to Sec 112 (A) of
Mindanao I the 1997 Tax
Code
2003 Administrative Judicial Claim Action on Claim
Claim  1997 Tax Code is the applicable law at time of the filing of claims by
1st Quarter Filed late -- Deny, pursuant Mindanao I and II
to Sec 112 (A) of  Sec 112 of the 1997 Tax Code provides that:
the 1997 Tax (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered
Code person, whose sales are zero-rated or effectively zero-rated may,
2nd Quarter Filed on time Prematurely filed Grant, pursuant within two (2) years after the close of the taxable quarter when the
(April 4 2005) (July 7 2005) to BIR Ruling sales were made, apply for the issuance of a tax credit certificate or
No. DA-489-03 refund of creditable input tax due or paid attributable to such sales,
3rd Quarter Filed on time Filed late (Sept 9 Deny, pursuant except transitional input tax, to the extent that such input tax has not
(April 4 2005) 2005) to Sec 112 (A) of been applied against output tax: Provided, however, That in the
the 1997 Tax case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B)
Code and Section 108 (B)(1) and (2), the acceptable foreign currency
4th Quarter Filed on time Filed late (Sept 9 Deny, pursuant exchange proceeds thereof had been duly accounted for in
(April 4 2005) 2005) to Sec 112 (A) of accordance with the rules and regulations of the Bangko Sentral ng
the 1997 Tax Pilipinas (BSP): Provided, further, That where the taxpayer is
Code engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or services, and the
Mindanao II amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated
2003 Administrative Judicial Claim Action on Claim proportionately on the basis of the volume of sales.
Claim
1st Quarter Filed late -- Deny, pursuant xxxx
to Sec 112 (A) of
the 1997 Tax (D) Period within which Refund or Tax Credit of Input Taxes shall be
Code Made. - In proper cases, the Commissioner shall grant a refund or
2nd Quarter Filed on time Prematurely filed Grant, pursuant issue the tax credit certificate for creditable input taxes within one
(April 13 2005) (July 7 2005) to BIR Ruling hundred twenty (120) days from the date of submission of complete
No. DA-489-03 documents in support of the application filed in accordance with
3rd Quarter Filed on time Filed late (Sept 9 Deny, pursuant Subsections (A) and (B) hereof.
(April 13 2005) 2005) to Sec 112 (A) of
In case of full or partial denial of the claim for tax refund or tax credit,
or the failure on the part of the Commissioner to act on the o In short: The 2-year prescriptive period does not refer
application within the period prescribed above, the taxpayer affected to the filing of the judicial claim with the CTA but to the
may, within thirty (30) days from the receipt of the decision denying filing of the administrative claim with the Commissioner
the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of 3. If the 30-day period, or any part of it, is required to fall within the 2-
Tax Appeals. year period (equivalent to 730 days) when the taxpayer must file
his administrative claim for refund or credit within the first 610 days
of the two-year prescriptive period. Otherwise, the filing of the
 Mindanao I and II filed their claims in 2005, when neither Atlas nor
administrative claims beyond the first 610 days will result in the
Mirant rulings had been promulgated
appeal to the CTA being filed beyond the two-year prescriptive
 CIR v. San Roque and Philex Mining Corp v. CIR are to be followed
period
o Both cases state that the compliance with the 120-day waiting
period is mandatory and jurisdictional o If the taxpayer filed his administrative claim on the 611th
o Failure to comply with the 120-day mandatory period renders its day, the Commissioner, within his 120-day period will
petition for review with the CTA void. have until the 731st day to decide the claim
 Sec 112(C) expressly grants:
1. Commissioner 120 days within which to decide the taxpayer’s claim o If the Commissioner decides only on the 731st day, or
2. The taxpayer a 30-day period to appeal to the CTA the decision or does not decide at all, the taxpayer can no longer file
inaction of the Commissioner his judicial claim with the CTA because the 2-year
 Three reasons why the 30-day period need not necessarily fall within prescriptive period has lapsed
the 2-year prescriptive period, as long as the administrative claim is filed
 In San Roque, the SC ruled that all taxpayers can rely on BIR Ruling
within the 2-year prescriptive period
No. DA-489-03 from the time of its issuance on Dec 10 2003 up to
1. Sec 112(A) clearly states that the taxpayer “may, within 2 years after its reversal in Aichi on Oct 6 2010 where this Court held that the
the close of the taxable quarter when the sales were made, apply 120+30 day periods are mandatory and jurisdictional
for the issuance of a tax credit certificate or refund of the creditable
o So basically, GR: 120+30 days is mandatory; XPN: cases
input tax due or paid to such sales”
filed from Dec 10 2003 to Oct 6 2010 (effectivity of BIR
o In short, taxpayer may file with Commissioner for Ruling)
refund or credit “within 2 years” which means at
 San Roque Ruling: recognized that BIR Ruling No. DA-489-03
anytime within 2 years
constitutes equitable estoppel in favor of tax payers
2. Sec 112(C) provides that the Commissioner shall decide the
o BIR Ruling states: “taxpayer-claimant need not wait for the
application for refund or credit within 120 days from the date of
lapse of the 120-day period before it could seek judicial
submission of complete documents in support of the application
relief with the CTA by way of Petition for Review”
filed in accordance with Subsection (A)”
o Subsection A – application in Sec 112(A) is the

administrative claim that the Commissioner must
decide within the 120-day period
BASIC ELEMENTS - VAT this case since the petitioner admitted that it did not issue a VAT
official receipt which will provide proof that VAT was indeed included in
LAPANDAY FOODS CORPORATION v. CIR (Ocampo) the interest income received by the petitioner. Hence, 10% VAT
[CTA EB No. 367 (CTA Case No. 7097); January 29, 2009] should be multiplied to the amount of gross receipts in accordance
“Interest sa pautang sa affiliates? May VAT yan!” with Section 108(A) of the NIRC.
Recit-Ready: Facts:
Facts: Petitioner received a FAN covering the taxable year 2000 from  Lapanday Foods Corporation (petitioner) is a domestic corporation
the BIR included therein is a VAT deficiency assessment engaged in rendering management services. Petitioner received a Formal
amounting to P8.6 million. Upon petitioner’s protest, the amount Assessment Notice (FAN) on January 21, 2004 from the BIR
was reduced to P7.9 million. Such VAT deficiency arose from the (respondent). The latter alleged that petitioner was liable for the following
interest income received by petitioner in relation to the loans it deficiency taxes covering taxable year 2000:
extended to its affiliates. o VAT – P8,561,775.88
o EWT – P374,749.21
Issue/s: o FWT – P5,815,233.36
2) WON respondent’s right to assess the petitioner for deficiency VAT for o DST – P1,578,579.59
the first quarter of 2000 has prescribed  Petitioner then filed a formal protest to the above assessments on
3) WON the interests on loans extended by petitioner to its affiliates are February 20, 2004 and completed the submission of pertinent documents
subject to VAT on April 20 of the same year. Petitioner then received from the
4) WON the gross receipts should be multiplied by 1/11 respondent Amended Assessment Notices with the following amounts
(i.e., inclusive of surcharge and interest, if any):
Held: o VAT – P7,879,593.84
o EWT – P410,236.79
2) NO. The Court found the petitioner’s contention that the three-year o DST – P514,881.47
prescriptive period under the Tax Code should be counted from its  However, petitioner was not amenable to pay the revised assessments.
filing of its monthly VAT declaration on April 25, 2000 (instead of its Thus, it filed a Petition for Review with the CTA.
quarterly VAT return on September 4, 2001) untenable. The Court  Respondent alleged that the VAT deficiency arose from interest income
held that the monthly declaration and quarterly return are distinct and derived by petitioner from its inter-company loans to its affiliates, as a
different under Section 114 of the NIRC. Under Section 203, it is also form financial assistance in the course of trade or business. On the other
clear that the prescriptive period should be reckoned from September hand, deficiency EWT is in relation to Section 2.57.2 (B) of RR No. 2-98.
4, 2001. Thus, the issuance of FAN is not barred by prescription. Lastly, the deficiency DST under Section 180 of the NIRC arose from the
3) YES. The Court held that the inter-company loans made by the loan agreements petitioner made with its affiliates, which were presumed
petitioner to its affiliates are transactions incidental to its business. to be in writing as they earned interest.
Hence, they are subject to VAT under Section 108 of the NIRC. The  On October 8, 2007, CTA First Division cancelled deficiency EWT and
Court also added whether or not the petitioner realized a profit from DST assessments by respondent. However, it affirmed petitioner’s VAT
such transactions is insignificant as long as the petitioner provided the liability amounting to P3,464,253.56. It also denied petitioner’s
financial assistance for a fee, remuneration or consideration. subsequent Motion for Partial Consideration and Supplement to said
4) NO. The Court held that Section 108(C) of the NIRC cannot apply in motion. Hence, petitioner filed this Petition for Review.
Quarterly VAT Return are substantially the same, thus, there is no

Issue/s: substantial amendment.
1) WON respondent’s right to assess the petitioner for deficiency VAT o The CTA stated that, pursuant to Section 114 of the NIRC, monthly
for the first quarter of 2000 has prescribed VAT declaration and quarterly VAT return are distinct and different.
—NO  The CTA further noted that it is more practical and
2) WON the interests on loans extended by petitioner to its affiliates reasonable for the government to assess deficiency VAT from
are subject to VAT the time of the filing of the VAT quarterly return as it is only
—YES when the taxpayer prepares and submits to the BIR the
3) WON the gross receipts should be multiplied by 1/11 quarterly VAT return that one can determine with certainty the
—NO net VAT payable or excess input/overpayments.
o The CTA also stated that it is clear under Section 203 of the NIRC that
Held/Ratio: Petition GRANTED. In applying the doctrine of animation, Court the three-year prescriptive period should be reckoned from September
rules for the Applicant. 4, 2001 when petitioner filed its VAT return for the first quarter of
2000. Accordingly, respondent had until September 4, 2004 to assess
1) No. The CTA stated that, pursuant to Sections 114 1 and 2032 of the herein petitioner. Thus, the FAN dated January 21, 2004 issued by
NIRC, respondent’s right to assess has not yet prescribed. respondent to petitioner is not barred by prescription.
o Petitioner contended that respondent’s right to assess for the first
quarter of 2000 has already prescribed asserting that the three-year 2) YES. The income generated by petitioner from the loans granted to
prescriptive period should be counted from April 25, 2000 when its affiliates is subject to VAT pursuant to Section 105, in relation to
petitioner filed its Monthly VAT Declaration (BIR Form No. 2550M) to Section 108 of the NIRC.
and not on September 4, 2001 when it filed its Quarterly VAT Return o Pursuant to Section 105 of the NIRC, any person who, in the course
(BIR Form No. 2550Q). Petitioner also contended that the figures of his trade or business, sells, barters, exchanges or leases goods,
reported on the previously filed Monthly VAT Declaration and the properties, or renders services shall be liable to VAT imposed in
Section 106 or Section 108 of the NIRC.
 The CTA found that in this case, petitioner is engaged in
1
“Sec. 114. Return and Payment of Value-Added Tax. – (A) In General. – managing, promoting, administering or assisting in any
Every person liable to pay value-added tax imposed under this title shall file business or activity of corporations, partnerships,
a quarterly return of the amount of his gross sales or receipts within twenty- associations, individual or firm. When petitioner extended
five (25 days) following the close of each taxable quarter prescribed for each loans to its affiliates, it provided assistance to corporations,
taxpayer: Provided, however, that VAT-registered persons shall pay the and thus performed services incidental to its business.
value-added tax on a monthly basis.”  The CTA held that the phrase “in the course of trade and
2
“Sec. 203. Period of Limitation Upon Assessment and Collection. – Except
business” means the regular conduct or pursuit of a
as provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the return, commercial or an economic activity, including transactions
and no proceeding in court without assessment for the collection of such incidental thereto. “Incidental” means depending upon or
taxes shall be begun after the expiration of such period; Provided, that in a appertaining to something else primary; something necessary
case where a return is filed beyond the period prescribed by law, the three appertaining to, or depending upon another, which is termed
(3)-year period shall be counted from the day the return was filed. For the principal; something incidental to the main purpose.
purposes of this Section, a return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on such last day.”
o The CTA further held that if the income from the main business MAXICARE HEALTHCARE CORPORATION v.
activity is subject to VAT, the incidental income shall also be subject COMMISSIONER OF INTERNAL REVENUE (BAÑADERA)
to VAT, provided there is no particular provision applicable to the
[C.T.A. CASE NO. 8441; May, 05, 2015]
specific transaction.
“The whole payment made to HMOs are part of the taxes considered in
 Considering the petitioner’s income from its management
determining their VAT”
services is subject to VAT, it necessarily follows then, that the
interests from loan which is an incidental income, is also
Recit-Ready:
subject to VAT.
Facts: This case is a partial motion for reconsideration for the 21 April
o The CTA also held that whether the petitioner realized profit or not is
2014 decision that required Maxicare Healthcare to pay
insignificant, as long as the petitioner provided financial assistance or
deficiency taxes for its alleged erroneous payment of its VAT.
services for a fee, remuneration or consideration, such service
Issue/s:
rendered is subject to VAT.
1) WON base from the definition of gross receipts, the money paid
to HMOs are merely “money in trust” (which are paid later to
3) NO. Section 108(A) of the NIRC provides that a VAT equivalent to
hospitals or doctors) and cannot be considered as redounding to
10% of gross receipts shall be levied, assessed and collected from
HMO’s benefit and thus are not part of VAT?
sale or exchange of services, including use or lease of properties.
—NO
o The CTA held that the term “gross receipts” means the total amount of
2) WON RMC No. 39-2010 revoking BIR Ruling [DA- (VAT-026)-375-
money or its equivalent representing the contract price, compensation,
08] should not be retroactively applied to petitioner?
service fee, rental or royalty, including the amount charged for
—NO
materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable
Held:
quarter for the services performed or to be performed for another
4) NO. Gross receipts shall be the total amount of money or its equivalent
person excluding VAT.
representing the service fee actually or constructively received during
o The CTA noted that Section 108(C) provides that the tax shall be
the taxable period for the services performed or to be performed for
computed by multiplying the total amount indicated in the official
another person, excluding the value-added tax. Therefore HMOs are
receipt by one-eleventh (1/11).
not merely holding the money paid by its customers as mere “money in
 In this case, petitioner admitted that it did not issue VAT
trust” to be paid to third persons. HMOs exercise ownership over the
official receipts to affiliates. Consequently there is no
money and are thus computed as part of VAT.
documentary evidence that will show that VAT was indeed
included in the interest income collected by petitioner. Thus,
5) NO. Petitioners followed in good faith the previous BIR ruling and there
the amount of actual gross receipts should be multiplied by
is no ground to nullify the non-retroactivity provision of Art. 246 to allow
10% in accordance with Section 108(A).
BIR to apply the new RMC to payments made in 2008.
Facts:
 This case is a partial motion for reconsideration for the 21 April 2014
decision that UPHELD IN PART the assessment of CIR to the
deficiencies of VAT paid by Maxicare Healthcare. Maxicare then was
DIRECTED TO PAY respondent basic deficiency VAT in the amount of —NO

P125,726,203.58 and the corresponding / twenty-five percent (25°/o) 2) WON RMC No. 39-2010 revoking BIR Ruling [DA- (VAT-026)-375-08]
surcharge of P31,431,550.89. should not be retroactively applied to petitioner?
 Petitioner insists that it is not liable for any deficiency VAT based on the —NO
provision of second paragraph of Section 4.108-3(k) of Revenue
Regulations (RR) No. 16- 2005, which defines HEALTH MAINTENANCE Held/Ratio: Petition GRANTED. In applying the doctrine of animation, Court
ORGANIZATIONS (HMOS) and specific rules on what constitutes its rules for the Applicant.
gross receipt for purposes of determining its tax base for VAT.
 Petitioner submits that only 20°/o of the total enrollment fees 1) NO. Gross receipts shall be the total amount of money or its
received from its members belongs to it and constitutes its gross equivalent representing the service fee actually or
income subject to VAT, it being merely an intermediary or conduit constructively received during the taxable period for the
between purchasers of health care services known as its members and services performed or to be performed for another person,
health care providers. The other amount equivalent to 80°/o of the total excluding the value-added tax. Therefore HMOs are not merely
enrollment fees which is earmarked for medical/hospital utilization holding the money paid by its customers as mere “money in
expenses does not belong to it nor does it redound to its benefit, trust” to be paid to third persons. HMOs exercise ownership
hence, should not be considered part of its gross receipts for VAT over the money and are thus computed as part of VAT.
purposes
o It claims that Gross receipts subject to VAT under the Tax (Codal provisions only)
Code do not include monies or receipts entrusted to the Source Definition of Gross Receipt
taxpayer,./ which do not belong to it and do not redound to Last paragraph of Gross receipts is defined therein as "the total amount of
its benefit. Section 108 money or its equivalent representing the contract price,
 Petitioner also claims that if there is a change in the construction and (A)(8) of the compensation, service fee, rental or royalty, including
interpretation of what is gross receipt, the same should not be applied to National Internal the amount charged for materials supplied with the
petitioner retroactively. Revenue Code of services and deposits and advance payments actually
o Petitioner claims that it merely relied in good faith on the 1997 or constructively received during the taxable quarter for
validity of BIR Ruling DA-(VAT-026)-375-08, which the services performed or to be performed for another
excluded that portion· of enrollment fees received and person, excluding value-added tax.".
earmarked for payment to unrelated third party; i.e. health Revenue "The total amount of money or its equivalent
care providers, hospitals or clinics, or those received as Regulations No. representing the contract price, compensation, service
reimbursement for advance payment on behalf of another 16- 2005 fee, rental or royalty, including the amount charged for
and which do not redound to its benefit implementing materials supplied with the services and deposits
 Respondent did not file any comment. Title IV (Value- applied as payments for services rendered and advance
Added Tax) of the payments actually or constructively received during the
Issue/s: Tax Code taxable period for the services performed or to be
1) WON base from the definition of gross receipts, the money paid to performed for another person, excluding the VAT."
HMOs are merely “money in trust” (which are paid later to hospitals
or doctors) and cannot be considered as redounding to HMO’s Revenue "SEC. 4.108-4. Definition of Gross Receipts. - 'Gross
benefit and thus are not part of VAT? Regulations No. receipts' refers to the total amount of money or its
4- 2007 equivalent representing the contract / price, members plus other charges received."
amended certain compensation, service fee, rental or royalty, including
provisions of the amount charged for materials supplied with the o Therefore, petitioner's gross receipts shall be the total amount of
Revenue services and deposits applied as payments3 for services money or its equivalent representing the service fee actually or
Regulations No. rendered and advance payments4 actually or constructively received during the taxable period for the services
16-2005 constructively received during the taxable period for the performed or to be performed for another person, excluding the value-
services performed or to be performed for another added tax.
*Important since person, excluding the VAT, except those amounts o Also FLAWED is petitioner's argument that gross receipts subject to
this is the recent earmarked for payment to unrelated third (3rd) tax under the Tax Code do not include monies or receipts entrusted to
one! party5 or received as reimbursement for advance the taxpayer which do not belong to them and do not redound to their
payment on behalf of another which do not redound to benefit.
the benefit of the payor. o In Medicard Philippines, Inc. vs. Commissioner of Internal Revenue,
Section 4.108- "SEC. 4.108-3. Definitions and Specific Rules on the court distinguished the difference between a travel agency and an
3(k) of Revenue Selected Services. HMO with respect to the application of the concept of "money in trust."
Regulations No. As it stated:
16-2005 HMOs gross receipts shall be the total amount of  An HMO, compared to a taxpayer-local travel agency, had
money or its equivalent representing the service fee nothing at all to do with the contract or engagement between
*Note this is actually or constructively received during the the payers (i.e. in travel agencies the tourists or foreign travel
about HMO’s taxable period for the services performed or to be agents) and the payees (i.e. hotels), or how the amount
gross receipts. performed for another person, excluding the value- payable to the payees were negotiated or arrived at. As
added tax. The compensation for their services distinguished then from travel agencies, the alleged
representing their service fee, is presumed to be the amounts earmarked for payment, or actually paid, to
total amount received as enrollment fee from their hospitals and doctors by petitioner HMO, in this case,
form part and parcel of the entire package offered to its
3 members.
A payment is a payment to a third (3rd) party if the same is made to settle an
 There is no portion of the moneys that go into the hands of
obligation of another person, e.g., customer or client, to the said third party, which
obligation is evidenced by the sales invoice/official receipt issued by said third party HMOs that is delineated for "delivery" to an identified third
to the obligor/debtor (e.g., customer or client of the payor of the obligation) (RR party. Rather, all moneys are surrendered to HMOs in lump
No. 4-2007) sum by its members in exchange of an obligation or service
4 to ensure that medical services will be provided the members
An advance payment is an advance payment on behalf of another if the same is
paid to a third (3rd) party for a present or future obligation of said another party without the usual payment protocols. How the HMO does this
which obligation is evidenced by a sales invoice/official receipt issued by the is entirely the essence of its business as a service contractor.
obligee/creditor to the obligor/debtor (i.e., the aforementioned "another party")  The members are deemed to have prepaid to the HMO, and
for the sale of goods or services by the former to the latter (RR No. 4-2007) not to the doctors and hospitals, the professional fees and
5
'Unrelated party' shall not include taxpayer's employees, partners, affiliates bills which may or may not be due the latter
(parent, subsidiary and other related companies), relatives by consanguinity or
 Therefore the aforementioned facts negate the concept
affinity within the fourth (4th) civil degree, and trust fund / where the taxpayer is
of "money in trust." The act of "earmarking or
the trustor, trustee or beneficiary, even if covered by an agreement to the contrary
(RR No. 4-2007) allocation" is by itself an act of ownership and
management over the funds, the entire disposition of o This started when BIR issued BIR Ruling [DA-(VAT-026)-375-08]7
which is in truth surrendered to it by the members. o Respondent then in good faith followed the provision and used as tax
o Note as well that when RR 16-2005 excludes from base only twenty percent (20°/o) of its actual gross receipts or total
"gross receipt" those amounts earmarked for enrollment fees as the eighty percent (80°/o) thereof was earmarked
payment to unrelated third (3rd) party or received as for medical/hospital utilization expenses.
reimbursement for advance payment on behalf of o About two (2) years thereafter or on May 2010, respondent issued
another which do not redound to the benefit of the RMC 39-2010, totally revoking BIR Ruling [DA-(VAT -026)-375-08]
payor, the requirement is that the act of payment o Base from the facts, respondent's sudden change of heart some two
to a 3rd party, whether as reimbursement or years thereafter should not be countenanced to the undue prejudice of
advance, is pursuant to an obligation between petitioner insofar as taxable year 2008 is concerned.
such 3rd party-recipient and another person not o BIR is precluded from adopting a position contrary to one previously
the taxpayer. taken where injustice would result to the taxpayer… where petitioner
 In the case of HMOs, it is they, not their members, who are relied in good faith on the respondent's ruling issued in accord with the
obligated to the doctors and hospitals for payment of the then prevailing revenue regulations.
latter's bills. The contractual vinculum, insofar as the
provision of medical services is concerned,
 Therefore, all payments to doctors and hospitals,
whether earmarked or actually paid… are inextricably
intertwined with the total fees payable to petitioner by the
members and area crucial factor in the over-all design of the
terms and conditions stated in every contract for coverage.
They form part of the gross receipt of petitioner subject
to VAT."
o Base from the quoted decision, the payments made by petitioner to Sections or any of the rulings or circulars promulgated by the Commissioner shall
doctors, hospitals and for other medical utilization do not constitute not be given retroactive application if the revocation modification or reversal will
"money in trust" that should be excluded from the computation be prejudicial to the taxpayers, except in the following cases: (a) Where the
of its gross receipts for VAT purposes. taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue; (b) Where the facts
2) NO. Petitioners followed in good faith the previous BIR ruling subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad
and there is no ground to nullify the non-retroactivity provision
faith.
of Art. 246 to allow BIR to apply the new RMC to payments 7
Maxicare, being an intermediary between the purchaser of health care
made in 2008.
services (members) and the health care providers (hospitals and clinics),
o Petitioner invokes Art. 246 of NIRC6 (non-retroactivity clause) and
does not exercise any beneficial ownership of the amount transferred
claims that RMC No. 39-2010 revoking BIR Ruling [DA- (VAT-026)-
and earmarked for medical utilization and which amount does not redound to
375-08] should not be retroactively applied to them.
the benefit of the corporation, the same shall be excluded from its gross
receipts for purposes of VAT. Only gross receipts constituting part of
6
Sec. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal gross income of the recipient shall be subject to VAT.
of any of the rules and regulations promulgated in accordance with the preceding
VAT ON IMPORTATIONS VAT-TAXABLE TRANSACTIONS
SECTION 107. Value-Added Tax on Importation of Goods. – SECTION 106. Value-Added Tax on Sale of Goods or Properties. –
(A) In General. – There shall be levied, assessed and collected on (A) Rate and Base of Tax. – There shall be levied, assessed and
every importation of goods a value-added tax equivalent to ten collected on every sale, barter or exchange of goods or properties,
percent (10%) based on the total value used by the Bureau of value-added tax equivalent to ten percent (10%) of the gross selling
Customs in determining tariff and customs duties plus customs price or gross value in money of the goods or properties sold,
duties, excise taxes, if any, and other charges, such tax to be paid bartered or exchanged, such tax to be paid by the seller or transferor:
by the importer prior to the release of such goods from customs Provided, That the President, upon the recommendation of the
custody: Secretary of Finance, shall, effective January 1, 2006, raise the rate
Provided, That where the customs duties are determined on the of value-added tax to twelve percent (12%), after any of the following
basis of the quantity or volume of the goods, the value-added conditions has been satisfied:
tax shall be based on the landed cost plus excise taxes, if any (i) Value-added tax collection as a percentage of Gross
Provided, further, That the President, upon the Domestic Product (GDP) of the previous year exceeds two
recommendation of the Secretary of Finance, shall, and four-fifth percent (2 and 4/5%); or
effective January 1, 2006, raise the rate of the value- (ii) National government deficit a percentage of GDP of the
added tax to twelve percent (12%), after any of the previous year exceeds one and one-half percent (1½%).
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross (1) “Goods or Properties.” The term “goods" or "properties" shall
Domestic Product (GDP) of the previous year exceeds mean all tangible and intangible objects which are capable of
two and four-fifth percent (2 and 4/5%); or pecuniary estimation and shall include:
(ii) National government deficit a percentage of GDP of the (a) Real properties held primarily for sale to customers or held
previous year exceeds one and one-half percent for lease in the ordinary course of trade or business;
(1½%). (b) The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark,
(B) Transfer of Goods by Tax-Exempt Persons. – In the case of tax- trade brand or other like property or right;
free importation of goods into the Philippines by persons, (c) The right or the privilege to use in the Philippines of any
entities or agencies exempt from tax where such goods are industrial, commercial or scientific equipment;
subsequently sold, transferred or exchanged in the Philippines to (d) The right or the privilege to use motion picture films, tapes
non-exempt persons or entities, the purchasers, transferees or and discs; and
recipients shall be considered the importers thereof, who shall (e) Radio, television, satellite transmission and cable television
be liable for any internal revenue tax on such importation. The time.
tax due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the The term “gross selling price” means the total amount of
possessor thereof. money or its equivalent which the purchaser pays or is obligated
1
to pay to the seller in consideration of the sale, barter or

exchange of the goods or properties, excluding the value-added (6) The sale of goods, supplies, equipment and fuel to
tax. The excise tax, if any, on such goods or properties shall persons engaged in international shipping or
form part of the gross selling price. international air transport operations.
(b) Foreign Currency Denominated Sale. – The phrase
(2) The following sales by VAT-registered persons shall be subject "foreign currency denominated sale" means sale to a
to zero percent (0%) rate: nonresident of goods, except those mentioned in Sections
(a) Export Sales. – The term “export sales” means: 149 and 150, assembled or manufactured in the Philippines
(1) The sale and actual shipment of goods from the for delivery to a resident in the Philippines, paid for in
Philippines to a foreign country, irrespective of any acceptable foreign currency and accounted for in
shipping arrangement that may be agreed upon which accordance with the rules and regulations of the Bangko
may influence or determine the transfer of ownership of Sentral ng Pilipinas (BSP).
the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, (c) Sales to persons or entities whose exemption under special
and accounted for in accordance with the rules and laws or international agreements to which the Philippines is
regulations of the Bangko Sentral ng Pilipinas (BSP); a signatory effectively subjects such sales to zero rate.
(2) Sale of raw materials or packaging materials to a (B) Transactions Deemed Sale. – The following transactions shall be
nonresident buyer for delivery to a resident local export- deemed sale:
oriented enterprise to be used in manufacturing, (1) Transfer, use or consumption not in the course of business of
processing, packing or repacking in the Philippines of goods or properties originally intended for sale or for use in the
the said buyer's goods and paid for in acceptable course of business;
foreign currency and accounted for in accordance with (2) Distribution or transfer to:
the rules and regulations of the Bangko Sentral ng (a) Shareholders or investors as share in the profits of the VAT-
Pilipinas (BSP); registered persons; or
(b) Creditors in payment of debt;
(3) Sale of raw materials or packaging materials to export- (3) Consignment of goods if actual sale is not made within sixty (60)
oriented enterprise whose export sales exceed seventy days following the date such goods were consigned; and
percent (70%) of total annual production; (4) Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); cessation.
and
(C) Changes in or Cessation of Status of a VAT-registered Person. –
(5) Those considered export sales under Executive Order The tax imposed in Subsection (A) of this Section shall also apply to
NO. 226, otherwise known as the "Omnibus Investment goods disposed of or existing as of a certain date if under
Code of 1987", and other special laws; and circumstances to be prescribed in rules and regulations to be
2
promulgated by the Secretary of Finance, upon recommendation of The phrase “sale or exchange of services” means the performance
the Commissioner, the status of a person as a VAT-registered person of all kinds of services in the Philippines for others for a fee,
changes or is terminated. remuneration or consideration, including those performed or rendered
by construction and service contractors; stock, real estate,
(D) Sales Returns, Allowances. – The value of goods or properties sold commercial, customs and immigration brokers; lessors of property,
and subsequently returned or for which allowances were granted by whether personal or real; warehousing services; lessors or
a VAT-registered person may be deducted from the gross sales or distributors of cinematographic films; persons engaged in milling
receipts for the quarter in which a refund is made or a credit processing, manufacturing or repacking goods for others; proprietors,
memorandum or refund is issued. Sales discount granted and operators or keepers of hotels, motels, rest houses, pension houses,
indicated in the invoice at the time of sale and the grant of which inns, resorts; proprietors or operators of restaurants, refreshment
does not depend upon the happening of a future event may be parlors, cafes and other eating places, including clubs and caterers;
excluded from the gross sales within the same quarter it was given. dealers in securities; lending investors; transportation contractors on
their transport of goods or cargoes, including persons who transport
(E) Authority of the Commissioner to Determine the Appropriate goods or cargoes for hire another domestic common carriers by land
Tax Base. – The Commissioner shall, by rules and regulations relative to their transport of goods or cargoes; common carriers by air
prescribed by the Secretary of Finance, determine the appropriate tax and sea relative to their transport of passengers, goods or cargoes
base in cases where a transaction is deemed a sale, barter or from one place in the Philippines to another place in the Philippines;
exchange of goods or properties under Subsection (B) hereof, or sales of electricity by generation companies, transmission, and
where the gross selling price is unreasonably lower than the actual distribution companies; services of franchise grantees of electric
market value. utilities; telephone and telegraph, radio and television broadcasting
and all other franchise grantees except those under section 119 of
SECTION 108. Value-added Tax on Sale of Services and Use or this Code, and non-life insurance companies (except their crop
Lease of Properties. – insurances), including surety, fidelity, indemnity, and bonding
(A) Rate and Base of Tax. – There shall be levied evied, assessed and companies; and similar services regardless of whether or not the
collected, a value-added tax equivalent to ten percent (10%) 10 of performance thereof calls for the exercise or use of the physical or
gross receipts derived from the sale or exchange of services, mental faculties. The phrase "sale or exchange of services" shall
including the use or lease of properties: Provided, That the President, likewise include:
upon the recommendation of the Secretary of Finance, shall, effective (1) The lease or the use of or the right or privilege to use any
January 1, 2006,raise the value-added tax to twelve percent (12%), copyright, patent, design or model, plan secret formula or
after any of the following conditions has been satisfied: process, goodwill, trademark, trade brand or other like property
(i) Value-added tax collection as a percentage of Gross or right;
Domestic Product (GDP) of the previous year exceeds two (2) The lease of the use of, or the right to use of any industrial,
and four-fifth percent (2 and 4/5%); or commercial or scientific equipment;
(ii) National government deficit as a percentage of GDP of the (3) The supply of scientific, technical, industrial or commercial
previous year exceeds one and one-half percent (1½%). knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to
3
and is furnished as a means of enabling the application or Asia Realty Development Corporation (First Asia) are domestic
enjoyment of any such property, or right as is mentioned in corporations engaged in the business of operating cinema
subparagraph (2) or any such knowledge or information as is houses, duly organized and existing under the laws of the
mentioned in subparagraph (3); Philippines. Both of them received Preliminary Assessment
(5) The supply of services by a nonresident person or his employee Notices (PANs) for VAT deficiency on cinema ticket sales on
in connection with the use of property or rights belonging to, or different years. These PANs are now the subject of the petition
the installation or operation of any brand, machinery or other before the Court. The CIR presented the following arguments:
apparatus purchased from such nonresident person. o The enumeration of services subject to VAT in Section
(6) The supply of technical advice, assistance or services rendered 108 of the NIRC is not exhaustive because it covers all
in connection with technical management or administration of sales of services unless exempted by law; and
any scientific, industrial or commercial undertaking, venture, o The provision is clear and unambiguous; the exhibition
project or scheme; of movies by cinema operators or proprietors to the
(7) The lease of motion picture films, films, tapes and discs; and paying public, being a sale of service, is subject to VAT.
(8) The lease or the use of or the right to use radio, television, However, according to respondents”
satellite transmission and cable television time. o Gross receipts of proprietors or operators of
cinemas/theaters derived from public admission are not
Lease of properties shall be subject to the tax herein imposed among the services subject to VAT;
irrespective of the place where the contract of lease or licensing o The absence of gross receipts from cinema/theater
agreement was executed if the property is leased or used in the admission tickets from the list of services, which are
Philippines. subject to the national amusement tax under Section
125 of the NIRC of 1997 reinforces this legislative
The term "gross receipts" means the total amount of money or its intent; and
equivalent representing the contract price, compensation, service o RMC No. 28-2001 on which the deficiency assessments
fee, rental or royalty, including the amount charged for materials were based is an unpublished administrative ruling.
supplied with the services and deposits and advanced payments
actually or constructively received during the taxable quarter for the Issue/s:
services performed or to be performed for another person, excluding 1) WON the enumeration in Section 108 of the NIRC of 1997 is
value-added tax. exhaustive in coverage
—NO
CIR v. PRIME HOLDINGS, INC. (Banta) 2) WON the gross receipts derived by the operators/proprietors of
[GR. No. 183505; February 26, 2010] cinema houses from admission tickets are subject o 10% VAT
“Gross receipts derived by the operators/proprietors of cinema houses from —NO
admission tickets are NOT subject to 10% VAT” 3) WON the repeal of the Local Tax Code by the LGC 1991 provided
basis for the imposition of VAT
Recit-Ready: —NO
Facts: Respondents PRIME HOLDINGS, INC. (SM Prime) and First 4) WON Revenue Memorandum Circular No. 28-2001 is invalid
4
—YES transferred to the local government.

5) WON respondents need to prove their entitlement to an exemption o Under the NIRC of 1977, the national government imposed
from the coverage of VAT amusement tax only on proprietors, lessees or operators of
—NO cabarets, day and night clubs, Jai-Alai and race tracks.
o The VAT law was enacted to replace the tax on original and
Held: The petition is BEREFT OF MERIT. The assailed Decision subsequent sales tax and percentage tax on certain
which ruled that gross receipts derived by respondents from services.
admission tickets in showing motion pictures, films or movies o When the VAT law was implemented, it exempted persons
are NOT subject to VAT under Section 108 NIRC is AFFIRMED. subject to amusement tax under the NIRC from the coverage
of VAT.
1) NO. The enumeration of services subject to VAT under Section o When the Local Tax Code was repealed by the LGC of 1991,
108 of the NIRC is NOT exhaustive. the local government continued to impose amusement tax
o The words, “including,” “similar services,” and “shall likewise on admission tickets from theaters, cinematographs, concert
include,” indicate that the enumeration is by way of example halls, circuses and other places of amusements.
only. o Amendments to the VAT law have been consistent in
o The “lease of motion picture films, films, tapes and discs” is exempting persons subject to amusement tax under the
not similar to the showing or exhibition of motion pictures or NIRC from the coverage of VAT.
films. o Only lessors or distributors of cinematographic films are
o PRELIMINARILY, since the activity of showing motion included in the coverage of VAT.
pictures, films or movies by cinema/ theater operators or
proprietors is not included in the enumeration, it is incumbent 3) NO. The removal of the prohibition [on the national government to
upon the court to the determine whether such activity falls impose business tax on gross receipts from admission of persons to
under the phrase “similar services.” The intent of the places of amusement] did not grant or restor to the national
legislature must therefore be ascertained government the power to impose amusement tax on
cinema/theater operators or proprietors.
2) NO. The legislature never intended operators or proprietors of
cinema or theater houses to be covered by VAT. 4) YES. RMC No. 28-2001 is invalid. Considering that there is no
o Historically, the activity of showing motion pictures, films or provision of law imposing VAT on the gross receipts of
movies by cinema/theater operators or proprietors has cinema/theater operators or proprietors derived from admission
always been considered as a form of entertainment subject tickets, RMC No. 28- 2001 which imposes VAT on the gross
to amusement tax. receipts from admission to cinema houses must be struck
o Prior to the Local Tax Code, all forms of amusement tax down.
were imposed by the national government.
o When the Local Tax Code was enacted, amusement tax on 5) NO. Respondents need not prove their entitlement to an
admission tickets from theaters, cinematographs, concert exemption from the coverage of VAT. Unless a statute imposes a
halls, circuses and other places of amusements were tax clearly, expressly and unambiguously, what applies is the equally
5
well-settled rule that the imposition of a tax cannot be presumed, and o The enumeration of services subject to VAT in Section 108 of the
that in cases of doubt, tax laws must be construed strictly against the NIRC is not exhaustive because it covers all sales of services
government and in favor of the taxpayer. unless exempted by law.
o Provision is clear and unambiguous; the exhibition of movies by
Facts: cinema operators or proprietors to the paying public, being a sale
• Respondents PRIME HOLDINGS, INC. (SM Prime) and First Asia of service, is subject to VAT.
Realty Development Corporation (First Asia) are domestic • Respondent’s arguments:
corporations engaged in the business of operating cinema houses, duly o Gross receipts of proprietors or operators of cinemas/theaters
organized and existing under the laws of the Philippines. derived from public admission are not among the services
• September 26, 2003: the BIR sent SM Prime a Preliminary Assessment subject to VAT.
Notice for VAT deficiency on cinema ticket sales in the amount of o The absence of gross receipts from cinema/theater admission
P119,276,047.40 for taxable year 2000. tickets from the list of services, which are subject to the national
o SM Prime filed a letter-protest as a response. amusement tax under Section 125 of the NIRC of 1997
o BIR sent a Formal Letter of Demand for the alleged deficiency, reinforces this legislative intent.
which SM Prime once again protested in January. o RMC No. 28-2001 on which the deficiency assessments were
o September 2004: BIR denied SM Prime’s protest and ordered it based is an unpublished administrative ruling.
to pay the deficiency. • Ruling of the CTA First Division:
o Thereafter, SM Prime filed a Petition for Review before the CTA. o Petition for Review granted;
• May 15, 2002: BIR sent First Asia a Preliminary Assessment Notice for o The activity of showing cinematographic films is not a service
VAT deficiency on cinema ticket sales for taxable year 1999, totaling to covered by VAT under the National Internal Revenue Code
P35,823,680.93. (NIRC) of 1997, as amended, but an activity subject to
o Letters of protest and demands were likewise exchanged as in amusement tax under RA 7160 (Local Government Code of
the case of SM Prime. 1991);
o Eventually, BIR rendered a decision denying the protest. o Revenue Memorandum Circular No. 28-2001, which imposes
o Accordingly, First Asia filed a Petition for Review before the CTA. VAT on gross receipts rom admission to cinema houses, cannot
• April 16, 2004: BIR sent another Preliminary Assessment Notice to First be given force and effect because it failed to comply with the
Asia for VAT deficiency (P35,840,895.78). Again, this eventually resulted procedural due process for tax issuances under RMC No. 20-86.
to First Asia filing a Petition for Review before the CTA. • Ruling of the CTA En Banc:
• Preliminary Assessment Notices were issued again to First Asia in 2002 o Section 108 of the NIRC actually sets forth an exhaustive
(P32,802,912.21) and 2003 (P28,196,376.46). enumeration of what services are intended to be subject to VAT.
• The petitions were consolidated on the grounds that the issues raised o Since the showing of motion pictures, films, or movies by cinema
therein are identical and that SM Prime is a majority shareholder of First operators or proprietors is not among the enumerated activities
Asia. contemplated in the phrase “sale or exchange of services,” then
• Petitioner’s arguments: gross receipts derived by cinema/theater operators or proprietors
from admission tickets in showing motion pictures, film or movie
are not subject to VAT.
6
processing, manufacturing or repacking goods for others; proprietors,

Issue/s: operators or keepers of hotels, motels, rest houses, pension houses,
1) WON the enumeration in Section 108 of the NIRC of 1997 is inns, resorts; proprietors or operators of restaurants, refreshment
exhaustive in coverage parlors, cafes and other eating places, including clubs and caterers;
—NO dealers in securities; lending investors; transportation contractors on
2) WON the gross receipts derived by the operators/proprietors of their transport of goods or cargoes, including persons who transport
cinema houses from admission tickets are subject o 10% VAT goods or cargoes for hire and other domestic common carriers by
—NO land, air and water relative to their transport of goods or cargoes;
3) WON the repeal of the Local Tax Code by the LGC 1991 provided services of franchise grantees of telephone and telegraph, radio and
basis for the imposition of VAT television broadcasting and all other franchise grantees except those
—NO under Section 119 of this Code; services of banks, non-bank financial
4) WON Revenue Memorandum Circular No. 28-2001 is invalid intermediaries and finance companies; and non- life insurance
—YES companies (except their crop insurances), including surety, fidelity,
5) WON respondents need to prove their entitlement to an exemption indemnity and bonding companies; and similar services regardless
from the coverage of VAT of whether or not the performance thereof calls for the exercise or use
—NO of the physical or mental faculties.
! It shall likewise include: “The lease of motion picture films,
Held/Ratio: The petition is BEREFT OF MERIT. The assailed Decision films, tapes, and discs;”
which ruled that gross receipts derived by respondents from admission o The words, “including,” “similar services,” and “shall likewise
tickets in showing motion pictures, films or movies are NOT subject to VAT include,” indicate that the enumeration is by way of example only.
under Section 108 NIRC is AFFIRMED. o The “lease of motion picture films, films, tapes and discs” is not
similar to the showing or exhibition of motion pictures or films.
1) NO. The enumeration of services subject to VAT under Section 1081 o PRELIMINARILY, since the activity of showing motion pictures,
of the NIRC is NOT exhaustive. films or movies by cinema/ theater operators or proprietors is
o The phrase “sale or exchange of services” meanse the not included in the enumeration, it is incumbent upon the court
performance of all kinds of services in the Philippines for others for a to the determine whether such activity falls under the phrase
fee, remuneration or consideration, including those performed or “similar services.” The intent of the legislature must therefore be
rendered by construction and service contractors; stock, real estate, ascertained.
commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or 2) NO. The legislature never intended operators or proprietors of
distributors of cinematographic films; persons engaged in milling, cinema or theater houses to be covered by VAT.
o Section 11 of the Local Tax Code amended the 1939 NIRC by
transferring the power to impose amusement tax on admission from
1
SEC. 108. Value-added Tax of Services and Use or Lease of Properties.— theaters, cinematographs, concert halls, circuses, and other places of
(A) Rate and Base of Tax.—There shall be levied, assessed and collected, a value-
added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
amusements exclusively to the local government.
exchange of services, including the use or lease of properties.
7
! Thus, when the 1977 NIRC was enacted, the national government, pursuant to Section 11 of P.D. 231, otherwise known as
government imposed amusement tax only on proprietors, the Local Tax Code.”
lessees or operators of cabarets, day and night clubs, Jai-Alai

and race tracks. o Upon the passage of the 1991 LGC into law, the LGU retained the
o Subsequently, the VAT Law (promulgated on 1 January 1988) power to impose amusement tax on proprietors, lessees, or
amended certain provisions of the 1977 NIRC by imposing a multi- operators of theaters, cinemas, concert halls, circuses, boxing
stage VAT to replace the tax on original and subsequent sales tax and stadia, and other places of amusement at a rate of not more than thirty
percentage on certain services (see SECTION 102 thereof). percent (30%) of the gross receipts from admission fees under
! Person subject to amusement tax under the NIRC of Section 140 thereof.
1977, as amended, however, were exempted from the ! In the case of theaters or cinemas, the tax shall first be
coverage of VAT. deducted and withheld by their proprietors, lesses, or
o February 19, 1988: Commissioner Bienvenido Tan issued RMC 8-99, operators and paid to the local government before the gross
which clarified that the power to impose amusement tax on gross receipts are divided between said proprietors, lessees, or
receipts derived from admission tickets was exclusive with the operators and the distributors of the cinematographic films.
local government units and that only the gross receipts of ! However, the provision in the Local Tax Code expressly
amusement places derived from sources other than from excluding the national government from collecting tax from
admission tickets were subject to amusement tax under the the proprietors, lessees, or operators of theaters,
NIRC of 1977, as amended. cinematographs, concert halls, circuses and other places of
o Since the promulgation of the Local Tax Code which took effect on amusements was no longer included.
June 28, 1973, none of the amendatory laws which amended the o In 1997, several amendments were made to expand the coverage of
National Internal Revenue Code, including the value added tax law VAT. However, none pertain to cinema/theater operators or
under Executive Order No. 273, has amended the provisions of proprietors.
Section 11 of the Local Tax Code. o At present, only lessors or distributors of cinematographic films are
o Since the BIR is an agenecy of the national government, then it subject to VAT, while persons subject to amusement tax under the
follows that it has no legal mandate to levy amusement tax on NIRC of 1997 are exempt from the coverage of VAT.
admission receipts in the said places of amusement. o IN SUMMARY:
o Thus, Section 123 NIRC pertaining to amusement taxes on places of a. Historically, the activity of showing motion pictures,
amusement shall be implemented in accordance with BIR Ruling films or movies by cinema/theater operators or
(December 4, 1973) and BIR Ruling No. 231-86 (November 5, 1986), proprietors has always been considered as a form of
to wit: entertainment subject to amusement tax.
“x x x Accordingly, only the gross receipts of the amusement places b. Prior to the Local Tax Code, all forms of amusement tax
derived from sources other than from admission tickets shall be were imposed by the national government.
subject to x x x amusement tax prescribed under Section 228 of the c. When the Local Tax Code was enacted, amusement tax
Tax Code, as amended (now Section 123, NIRC, as amended by E.O. on admission tickets from theaters, cinematographs,
273). The tax on gross receipts derived from admission tickets shall
concert halls, circuses and other places of amusements
be levied and collected by the city government pursuant to Section 23
of Presidential Decree No. 231, as amended x x x” or by the provincial were transferred to the local government.
8
d. Under the NIRC of 1977, the national government o Since the imposition of a tax is a burden on the taxpayer, it cannot be
imposed amusement tax only on proprietors, lessees or presumed nor can it be extended by implication.
operators of cabarets, day and night clubs, Jai-Alai and o As it is, the power to impose amusement tax on cinema/theater
race tracks. operators or proprietors remains with the local government.
e. The VAT law was enacted to replace the tax on original
and subsequent sales tax and percentage tax on certain 4) YES. RMC No. 28-2001 is invalid. Considering that there is no
services. provision of law imposing VAT on the gross receipts of
f. When the VAT law was implemented, it exempted cinema/theater operators or proprietors derived from admission
persons subject to amusement tax under the NIRC from tickets, RMC No. 28- 2001 which imposes VAT on the gross receipts
the coverage of VAT. from admission to cinema houses must be struck down.
g. When the Local Tax Code was repealed by the LGC of o Thus, there is no need to discuss whether RMC No. 28-2001 complied
1991, the local government continued to impose with the procedural due process for tax issuances as prescribed under
amusement tax on admission tickets from theaters, RMC No. 20-86
cinematographs, concert halls, circuses and other
places of amusements. 5) NO. Respondents need not prove their entitlement to an exemption
h. Amendments to the VAT law have been consistent in from the coverage of VAT.
exempting persons subject to amusement tax under the o The rule that tax exemptions should be construed strictly against the
NIRC from the coverage of VAT. taxpayer presupposes that the taxpayer is clearly subject to the tax
i. Only lessors or distributors of cinematographic films are being levied against him.
included in the coverage of VAT. ! It is both illogical and impractical to determine who are
o The foregoing reveals the legislative intent not to impose VAT on exempted without first determining who is covered by the
persons already covered by the amusement tax. provision.
o The VAT Law was intended to replace the percentage tax on certain o Unless a statute imposes a tax clearly, expressly and unambiguously,
services. what applies is the equally well-settled rule that the imposition of a tax
o To rule otherwise would impose an unreasonable burden on cannot be presumed, and that in cases of doubt, tax laws must be
cinema/theater houses operators or proprietors who would be paying construed strictly against the government and in favor of the taxpayer.
an additional 10% VAT in top of the 30% amusement tax imposed by
Section 140 of the 1991 LGC. VAT-TAXABLE TRANSACTIONS
3) NO. The removal of the prohibition [on the national government to DIAZ v. SECRETARY OF FINANCE (Bello)
impose business tax on gross receipts from admission of persons to [GR. No. 193007; July 19, 2011]
places of amusement] did not grant or restor to the national “VAT – did not expand its coverage to include tollway operations; VAT – not
government the power to impose amusement tax on cinema/theater a tax but earnings of tollway operators”
operators or proprietors.
o Neither did it expand the coverage of VAT. Recit-Ready:
Facts: BIR to impose VAT on toll fees. Petitioners filed this petition for
9
declaratory relief. Petitioners argued that franchise grantees and sale of services under Section 108 of the
1. Congress did not, when it enacted the NIRC, intend to Code?
include toll fees within the meaning of sale of services —NO
that are subject to VAT; 2. WON the imposition of VAT on tollway operators amounts to a tax on
tax and not a tax on services?
2. That a toll fee is a users tax, not a sale of services;
—NO
3. That to impose VAT on toll fees would amount to a tax on
3. WON the imposition of VAT on tollway operators will impair the
public service; tollway operators right to a reasonable return of investment under
4. And that, since VAT was never factored into the formula for their TOAs?
computing toll fees, its imposition would violate the non- —NO
impairment clause of the constitution. 4. WON the imposition of VAT on tollway operators is not
administratively feasible and cannot be implemented?
However, the Office of the Solicitor General filed the —YES
governments comment.
5. The government avers that the NIRC imposes VAT on all Held: Court DENIES respondents Secretary of Finance and
kinds of services of franchise grantees, including Commissioner of Internal Revenues motion for reconsideration of
tollway operations, except where the law provides its August 24, 2010 resolution, DISMISSES the petitioners
otherwise. Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of
6. The imposition of VAT on tollway operations has been the merit, and SETS ASIDE the Courts temporary restraining order
subject as early as 2003 of several BIR rulings and dated August 13, 2010.
circulars.
7. Non-inclusion of VAT in the parametric formula for 1. NO. The Commissioner of Internal Revenue did not usurp legislative
computing toll rates cannot exempt tollway operators prerogative or expand the VAT laws coverage when she sought to
from VAT. . Further, the imposition of VAT on toll fees impose VAT on tollway operations. Section 108(A) of the Code clearly
would have very minimal effect on motorists using the states that services of all other franchise grantees are subject to VAT,
tollways. except as may be provided under Section 119 of the Code. Tollway
operators are not among the franchise grantees subject to franchise
In their reply to the governments comment, petitioners point out tax under the latter provision. Neither are their services among the
that tollway operators cannot be regarded as franchise VAT-exempt transactions under Section 109 of the Code.
grantees under the NIRC since they do not hold legislative
franchises. Further, the BIR intends to collect the VAT by Section 108 subjects to VAT all kinds of services rendered for a
rounding off the toll rate and putting any excess collection in an fee regardless of whether or not the performance thereof calls
escrow account. for the exercise or use of the physical or mental faculties. This
means that services to be subject to VAT need not fall under the
Issue/s: traditional concept of services, the personal or professional kinds that
1. WON the government is unlawfully expanding VAT coverage by require the use of human knowledge and skills.
including tollway operators and tollway operations in the terms
10
2. NO. Tollway fees are not taxes. Indeed, they are not assessed belongs to the private tollway investors.
and collected by the BIR and do not go to the general coffers of
the government. 4. YES, the VAT on tollway operations is not administratively
feasible. Administrative feasibility is one of the canons of a sound tax
What the government seeks to tax here are fees collected from system. It simply means that the tax system should be capable of being
tollways that are constructed, maintained, and operated by private effectively administered and enforced with the least inconvenience to the
tollway operators at their own expense under the build, operate, and taxpayer. Non-observance of the canon, however, will not render a
transfer scheme that the government has adopted for expressways. tax imposition invalid except to the extent that specific
Except for a fraction given to the government, the toll fees essentially constitutional or statutory limitations are impaired. Thus, even if the
end up as earnings of the tollway operators. imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown
In sum, fees paid by the public to tollway operators for use of the to violate any law or the Constitution.
tollways, are not taxes in any sense. A tax is imposed under the
taxing power of the government principally for the purpose of raising Facts:
revenues to fund public expenditures. Toll fees, on the other hand, • Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition
are collected by private tollway operators as reimbursement for for declaratory relief assailing the validity of the impending imposition of
the costs and expenses incurred in the construction, value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the
maintenance and operation of the tollways, as well as to assure collections of tollway operators.
them a reasonable margin of income. Although toll fees are • Petitioners claim that, since the VAT would result in increased toll fees,
charged for the use of public facilities, therefore, they are not they have an interest as regular users of tollways in stopping the BIR
government exactions that can be properly treated as a tax. Taxes action. Petitioners allege that the BIR attempted during the administration
may be imposed only by the government under its sovereign of President Gloria Macapagal-Arroyo to impose VAT on toll fees. The
authority, toll fees may be demanded by either the government or imposition was deferred, however, in view of the consistent opposition of
private individuals or entities, as an attribute of ownership. Diaz and other sectors to such move. But, upon President Benigno C.
Aquino IIIs assumption of office in 2010, the BIR revived the idea and
VAT on tollway operations cannot be deemed a tax on tax due to the would impose the challenged tax on toll fees beginning August 16, 2010
nature of VAT as an indirect tax. Consequently, VAT on tollway unless judicially enjoined.
operations is not really a tax on the tollway user, but on the • Petitioners hold the view that
tollway operator. o Congress did not, when it enacted the NIRC, intend to
include toll fees within the meaning of sale of services
3. NO. Petitioner Timbol has no personality to invoke the non-impairment that are subject to VAT;
of contract clause on behalf of private investors in the tollway projects. o That a toll fee is a users tax, not a sale of services;
She will neither be prejudiced by nor be affected by the alleged o That to impose VAT on toll fees would amount to a tax on
diminution in return of investments that may result from the VAT public service;
imposition. She has no interest at all in the profits to be earned under
the TOAs. The interest in and right to recover investments solely
11
o And that, since VAT was never factored into the formula for entities that first become liable to VAT a transitional input tax credit of 2%
computing toll fees, its imposition would violate the non- on beginning inventory. For this reason, the VAT on toll fees cannot be
impairment clause of the constitution. implemented.
• The Court issued a temporary restraining order (TRO), enjoining the
implementation of the VAT. The Court required the government to Issue/s:
comment on the petition. 1) WON the government is unlawfully expanding VAT coverage by
• The Office of the Solicitor General filed the governments comment. The including tollway operators and tollway operations in the terms
government avers that the NIRC imposes VAT on all kinds of services franchise grantees and sale of services under Section 108 of the
Code?
of franchise grantees, including tollway operations, except where
—NO
the law provides otherwise; that the Court should seek the meaning
2) WON the imposition of VAT on tollway operators amounts to a tax
and intent of the law from the words used in the statute; and that the on tax and not a tax on services?
imposition of VAT on tollway operations has been the subject as early as —NO
2003 of several BIR rulings and circulars. 3) WON the imposition of VAT on tollway operators will impair the
• The government also argues that petitioners have no right to invoke the tollway operators right to a reasonable return of investment under
non-impairment of contracts clause since they clearly have no personal their TOAs?
interest in existing toll operating agreements (TOAs) between the —NO
government and tollway operators. At any rate, the non-impairment 4) WON the imposition of VAT on tollway operators is not
clause cannot limit the States sovereign taxing power which is generally administratively feasible and cannot be implemented?
—YES
read into contracts.
• Finally, the government contends that the non-inclusion of VAT in the
Held/Ratio: Court DENIES respondents Secretary of Finance and
parametric formula for computing toll rates cannot exempt tollway
Commissioner of Internal Revenues motion for reconsideration of its August
operators from VAT. In any event, it cannot be claimed that the rights of 24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora
tollway operators to a reasonable rate of return will be impaired by the Ma. F. Timbols petition for lack of merit, and SETS ASIDE the Courts
VAT since this is imposed on top of the toll rate. Further, the imposition of temporary restraining order dated August 13, 2010.
VAT on toll fees would have very minimal effect on motorists using the
tollways. 6) NO. The Commissioner of Internal Revenue did not usurp legislative
• In their reply to the governments comment, petitioners point out that prerogative or expand the VAT laws coverage when she sought to
tollway operators cannot be regarded as franchise grantees under impose VAT on tollway operations. Section 108(A) of the Code clearly
the NIRC since they do not hold legislative franchises. Further, the states that services of all other franchise grantees are subject to VAT,
BIR intends to collect the VAT by rounding off the toll rate and putting any except as may be provided under Section 119 of the Code. Tollway
excess collection in an escrow account. operators are not among the franchise grantees subject to franchise tax
• But this would be illegal since only the Congress can modify VAT rates under the latter provision. Neither are their services among the VAT-
and authorize its disbursement. Finally, BIR Revenue Memorandum exempt transactions under Section 109 of the Code. The third paragraph
Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to of Section 108 defines sale or exchange of services as follows:
record an accumulated input VAT of zero balance in their books as of xxx services of franchise grantees of electric utilities, telephone
August 16, 2010, contravenes Section 111 of the NIRC which grants and telegraph, radio and television broadcasting and all other
12
franchise grantees except those under Section 119 of this personal or professional kinds that require the use of human
Code xxx knowledge and skills.
o It is plain from the above that the law imposes VAT on all kinds of o And not only do tollway operators come under the broad term all kinds
services rendered in the Philippines for a fee, including those specified of services, they also come under the specific class described in
in the list. The enumeration of affected services is not exclusive. Section 108 as all other franchise grantees who are subject to VAT,
By qualifying services with the words all kinds, Congress has except those under Section 119 of this Code.
given the term services an all-encompassing meaning. The listing o Tollway operators are franchise grantees and they do not belong
of specific services are intended to illustrate how pervasive and broad to exceptions (the low-income radio and/or television broadcasting
is the VATs reach rather than establish concrete limits to its companies with gross annual incomes of less than P10 million and
application. Thus, every activity that can be imagined as a form of gas and water utilities) that Section 119 spares from the payment of
service rendered for a fee should be deemed included unless some VAT. The word franchise broadly covers government grants of a
provision of law especially excludes it. special right to do an act or series of acts of public concern.
o Now, do tollway operators render services for a fee? Presidential o Tollway operators are, owing to the nature and object of their
Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal business, franchise grantees. The construction, operation, and
basis for the services that tollway operators render. Essentially, maintenance of toll facilities on public improvements are activities of
tollway operators construct, maintain, and operate expressways, also public consequence that necessarily require a special grant of
called tollways, at the operators expense. Tollways serve as authority from the state. Indeed, Congress granted special franchise
alternatives to regular public highways that meander through for the operation of tollways to the Philippine National Construction
populated areas and branch out to local roads. Traffic in the regular Company, the former tollway concessionaire for the North and South
public highways is for this reason slow-moving. In consideration for Luzon Expressways. Apart from Congress, tollway franchises may
constructing tollways at their expense, the operators are allowed also be granted by the TRB, pursuant to the exercise of its
to collect government-approved fees from motorists using the delegated powers under P.D. 1112 The franchise in this case is
tollways until such operators could fully recover their expenses evidenced by a Toll Operation Certificate.
and earn reasonable returns from their investments. o Petitioners contend that the public nature of the services rendered by
o When a tollway operator takes a toll fee from a motorist, the fee is in tollway operators excludes such services from the term sale of
effect for the latters use of the tollway facilities over which the operator services under Section 108 of the Code. But, again, nothing in Section
enjoys private proprietary rights that its contract and the law 108 supports this contention. The reverse is true. In specifically
recognize. In this sense, the tollway operator is no different from the including by way of example electric utilities, telephone,
following service providers under Section 108 who allow others to use telegraph, and broadcasting companies in its list of VAT-covered
their properties or facilities for a fee. businesses, Section 108 opens other companies rendering
o It does not help petitioners cause that Section 108 subjects to VAT public service for a fee to the imposition of VAT. Businesses of a
all kinds of services rendered for a fee regardless of whether or public nature such as public utilities and the collection of tolls or
not the performance thereof calls for the exercise or use of the charges for its use or service is a franchise.
physical or mental faculties. This means that services to be subject
to VAT need not fall under the traditional concept of services, the 7) NO. Petitioners argue that a toll fee is a users tax and to impose VAT on
toll fees is tantamount to taxing a tax. Actually, petitioners base this
13
argument on the following discussion in Manila International Airport are collected by private tollway operators as reimbursement for
Authority (MIAA) v. Court of Appeals. the costs and expenses incurred in the construction,
o Petitioners assume that what the Court said in MIAA case, equating maintenance and operation of the tollways, as well as to assure
terminal fees to a users tax must also pertain to tollway fees. But the them a reasonable margin of income. Although toll fees are
main issue in the MIAA case was whether or charged for the use of public facilities, therefore, they are not
not Paranaque City could sell airport lands and buildings under government exactions that can be properly treated as a tax. Taxes
MIAA administration at public auction to satisfy unpaid real may be imposed only by the government under its sovereign authority,
estate taxes. Since local governments have no power to tax the toll fees may be demanded by either the government or private
national government, the Court held that the City could not proceed individuals or entities, as an attribute of ownership.
with the auction sale. MIAA forms part of the national government o Parenthetically, VAT on tollway operations cannot be deemed a
although not integrated in the department framework. Thus, its airport tax on tax due to the nature of VAT as an indirect tax. In indirect
lands and buildings are properties of public dominion beyond the taxation, a distinction is made between the liability for the tax and
commerce of man under Article 420(1) of the Civil Code and could not burden of the tax. The seller who is liable for the VAT may shift or
be sold at public auction. pass on the amount of VAT it paid on goods, properties or services to
o As can be seen, the discussion in the MIAA case on toll roads and toll the buyer. In such a case, what is transferred is not the sellers liability
fees was made, not to establish a rule that tollway fees are users tax, but merely the burden of the VAT.
but to make the point that airport lands and buildings are properties of o Consequently, VAT on tollway operations is not really a tax on the
public dominion and that the collection of terminal fees for their use tollway user, but on the tollway operator. Under Section 105 of the
does not make them private properties. Tollway fees are not Code, VAT is imposed on any person who, in the course of trade or
taxes. Indeed, they are not assessed and collected by the BIR business, sells or renders services for a fee. In other words, the
and do not go to the general coffers of the government. seller of services, who in this case is the tollway operator, is the
o It would of course be another matter if Congress enacts a law person liable for VAT. The latter merely shifts the burden of VAT
imposing a users tax, collectible from motorists, for the construction to the tollway user as part of the toll fees.
and maintenance of certain roadways. The tax in such a case goes o For this reason, VAT on tollway operations cannot be a tax on tax
directly to the government for the replenishment of resources it even if toll fees were deemed as a users tax. VAT is assessed against
spends for the roadways. This is not the case here. What the the tollway operators gross receipts and not necessarily on the toll
government seeks to tax here are fees collected from tollways fees. Although the tollway operator may shift the VAT burden to the
that are constructed, maintained, and operated by private tollway tollway user, it will not make the latter directly liable for the VAT. The
operators at their own expense under the build, operate, and shifted VAT burden simply becomes part of the toll fees that one
transfer scheme that the government has adopted for has to pay in order to use the tollways
expressways. Except for a fraction given to the government, the
toll fees essentially end up as earnings of the tollway operators. 8) NO. Petitioner Timbol has no personality to invoke the non-impairment of
o In sum, fees paid by the public to tollway operators for use of the contract clause on behalf of private investors in the tollway projects.
tollways, are not taxes in any sense. A tax is imposed under the o She will neither be prejudiced by nor be affected by the alleged
taxing power of the government principally for the purpose of raising diminution in return of investments that may result from the VAT
revenues to fund public expenditures. Toll fees, on the other hand, imposition. She has no interest at all in the profits to be earned under
14
the TOAs. The interest in and right to recover investments solely an accumulated input VAT of zero balance in their books as of
belongs to the private tollway investors. August 16, 2010, the date when the VAT imposition was
o Besides, her allegation that the private investors rate of recovery will supposed to take effect. The issuance allegedly violates Section
be adversely affected by imposing VAT on tollway operations is purely 111(A) of the Code which grants first time VAT payers a transitional
speculative. Equally presumptuous is her assertion that a stipulation in input VAT of 2% on beginning inventory.
the TOAs known as the Material Adverse Grantor Action will be o The BIR explained that BIR RMC 63-2010 is actually the product of
activated if VAT is thus imposed. The Court cannot rule on matters negotiations with tollway operators who have been assessed VAT as
that are manifestly conjectural. Neither can it prohibit the State from early as 2005, but failed to charge VAT-inclusive toll fees which by
exercising its sovereign taxing power based on uncertain, prophetic now can no longer be collected. The tollway operators agreed to
grounds. waive the 2% transitional input VAT, in exchange for cancellation of
their past due VAT liabilities. Notably, the right to claim the 2%
9) YES, the VAT on tollway operations is not administratively transitional input VAT belongs to the tollway operators who have not
feasible. questioned the circulars validity. They are thus the ones who have a
o Administrative feasibility is one of the canons of a sound tax system. It right to challenge the circular in a direct and proper action brought for
simply means that the tax system should be capable of being the purpose.
effectively administered and enforced with the least inconvenience to
the taxpayer. Non-observance of the canon, however, will not REVENUE MEMORANDUM CIRCULAR NO. 016-13
render a tax imposition invalid except to the extent that specific
constitutional or statutory limitations are impaired. Thus, even if SUBJECT : Clarifying the Tax Implications and Recording of
Deposits/Advances for Expenses Received by Taxpayers Not
the imposition of VAT on tollway operations may seem burdensome to
Covered by Revenue Memorandum Circular No. 89-2012
implement, it is not necessarily invalid unless some aspect of it is
shown to violate any law or the Constitution. TO : All Internal Revenue Officers and Others Concerned
o Here, it remains to be seen how the taxing authority will actually
implement the VAT on tollway operations. Any declaration by the This Circular is being issued to provide guidelines to be observed in
Court that the manner of its implementation is illegal or accounting and recording of deposits/advances for the payment of the
unconstitutional would be premature. Although the transcript of the pertinent expenses received by taxpayers other than General Professional
Partnerships (GPP) covered by Revenue Memorandum Circular (RMC)
August 12, 2010 Senate hearing provides some clue as to how the
No. 89-2012 dated December 28, 2012.
BIR intends to go about it. the facts pertaining to the matter are not
sufficiently established for the Court to pass judgment on. Besides, I. Policies and Guidelines
any concern about how the VAT on tollway operations will be enforced
must first be addressed to the BIR on whom the task of implementing Deposits/Advances Part of Gross Receipts
tax laws primarily and exclusively rests. The Court cannot preempt the
BIRs discretion on the matter, absent any clear violation of law or the When cash deposits or advances are received by taxpayers other than
Constitution. GPP covered by RMC 89-2012 from the Client/Customer, a corresponding
Of cial Receipt shall be issued. The amount received shall be booked as
o For the same reason, the Court cannot prematurely declare as
Income and shall form part of the Gross Receipts and subject to Value-
illegal, BIR RMC 63-2010 which directs toll companies to record added Tax (VAT) or Percentage Tax (Gross Receipt Tax), if applicable,
15
and shall in turn be deductible as expense by the Client/Customer Cash

provided that it is duly substantiated by Official Receipts pursuant to Prepaid Income Tax (Creditable)
Section 34 (A) (1) of the Tax Code. Income
Output VAT
Claim for Deduction of Expenses
b. For Non-VAT Taxpayers
Receipts incurred, paid for and issued in the name of the taxpayer shall be Cash
recorded as its own expenses for income tax purposes. These expenses Prepaid Income Tax (Creditable)
shall be claimed as deductions from gross income provided these are duly Income
substantiated by Official Receipts/Invoices issued by third-party
establishments. In turn, upon making deposit/advances for the necessary expenses, the
Client/Customer shall treat such deposit/advances as an outright expense.
Income Payments are subject to appropriate Withholding Taxes
Accounting entries in the Books of the Client/Customer
All Client/Customer shall, upon payment of deposits/advances, withhold a. For VAT Taxpayers
tax at the rate prescribed in Revenue Regulations No. (RR) 2-98, as Expense
amended, which shall be remitted/paid on or before the 10th day of the Input Vat
following month using the Monthly Remittance Return of Creditable Cash
Income Taxes Withheld (Expanded) [BIR Form No. 1601E] except for Withholding Tax Payable
taxes withheld for the month of December of each year, which shall be led
on or before January 15 of the following year pursuant to RR 2-98, as b. For Non-VAT Taxpayers
amended. For those ling using the Electronic Filing and Payment System Expense
(EFPS), the regulations pertaining to EFPS filers shall apply. Cash
Withholding Tax Payable
Issuing Official Receipts for the Deposit and Advances
All revenue of cials and employees are enjoined to give this Revenue
An Official Receipt shall be issued for every deposit and advances Memorandum Circular as wide a publicity as possible.
pursuant to Section 113 of the Tax Code. The Official Receipt shall cover
the entire amount which the Client/Customer pays. This Circular shall take effect immediately.
For VAT Taxpayers, the VAT Official Receipt will constitute the Output Tax
for taxpayers other than GPP and in turn, the input tax of its
client/customer.
II. Pro-Forma Entries
Upon receipt of the deposit/advances, the same shall be treated and

recorded as outright Income.
Accounting entries in the Books of the Taxpayer other than GPP

a. For VAT Taxpayers
16
VAT-EXEMPT TRANSACTIONS
"(g) Importation of passenger and/or cargo vessels of more than five
thousand tons (5,000), whether coastwise or ocean-going, including
SECTION 109. Exempt Transactions. – The following shall be exempt engine and spare parts of said vessel to be used by the importer himself
from the value-added tax: as operator thereof;
"(a) Sale of nonfood agricultural products; marine and forest products "(h) Importation of personal and household effects belonging to the
in their original state by the primary producer or the owner of the land residents of the Philippines returning from abroad and nonresident citizens
where the same are produced; coming to resettle in the Philippines: Provided, That such goods are
exempt from customs duties under the Tariff and Customs Code of the
"(b) Sale of cotton and cotton seeds in their original state; and copra; Philippines;
"(c) Sale or importation of agricultural and marine food products in "(i) Importation of professional instruments and implements, wearing
their original state, livestock and poultry of a kind generally used as, or apparel, domestic animals, and personal household effects (except any
yielding or producing foods for human consumption; and breeding stock vehicle, vessel, aircraft, machinery, other goods for use in the
and genetic materials therefor. manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own use
"Products classified under this paragraph and paragraph (a) shall be and not for sale, barter or exchange, accompanying such persons, or
considered in their original state even if they have undergone the simple arriving within ninety (90) days before or after their arrival, upon the
processes of preparation or preservation for the market, such as freezing, production of evidence satisfactory to the Commissioner, that such
drying, salting, broiling, roasting, smoking or stripping. Polished and/or persons are actually coming to settle in the Philippines and that the
husked rice, corn grits, raw cane sugar and molasses, and ordinary salt change of residence is bona fide;
shall be considered in their original state:
"(j) Services subject to percentage tax under Title V;
"(d) Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds, including ingredients, whether "(k) Services by agricultural contract growers and milling for others of
locally produced or imported, used in the manufacture of finished feeds palay into rice, corn into grits and sugar cane into raw sugar;
(except specialty feeds for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets); "(l) Medical, dental, hospital and veterinary services subject to the
provisions of Section 17 of Republic Act No. 7716, as amended;
"(e) Sale or importation of coal and natural gas, in whatever form or
state, and petroleum products (except lubricating oil, processed gas, "(m) Educational services rendered by private educational institutions,
grease, wax and petrolatum) subject to excise tax imposed under Title VI; duly accredited by the Department of Education, Culture and Sports
(DECS) and the Commission on Higher Education (CHED), and those
"(f) Sale or importation of raw materials to be used by the buyer or rendered by government educational institutions;
importer himself in the manufacture of petroleum products subject to
excise tax, except lubricating oil, processed gas, grease, wax and "(n) Sale by the artist himself of his works of art, literary works,
petrolatum; musical compositions and similar creations, or his services performed for
the production of such works;

"(v) Export sales by persons who are not VAT-registered;
"(o) Services rendered by individuals pursuant to an employer-
employee relationship; "(w) Sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business or real property
"(p) Services rendered by regional or area headquarters established utilized for low-cost and socialized housing as defined by Republic Act No.
in the Philippines by multinational corporations which act as supervisory, 7279, otherwise known as the Urban Development and Housing Act of
communications and coordinating centers for their affiliates, subsidiaries 1992, and other related laws, house and lot and other residential dwellings
or branches in the Asia-Pacific Region and do not earn or derive income valued at One million pesos (P1,000,000) and below: Provided, That not
from the Philippines; later than January 31st of the calendar year subsequent to the effectivity
of this Act and each calendar year thereafter, the amount of One million
"(q) Transactions which are exempt under international agreements to pesos (P1,000,000) shall be adjusted to its present value using the
which the Philippines is a signatory or under special laws, except those Consumer Price Index, as published by the National Statistics Office
under Presidential Decree Nos. 66, 529 and 1590; (NSO);
"(r) Sales by agricultural cooperatives duly registered with the "(x) Lease of a residential unit with a monthly rental not exceeding
Cooperative Development Authority to their members as well as sale of Eight thousand pesos (P8,000): Provided, That not later than January 31st
their produce, whether in its original state or processed form, to non- of the calendar year subsequent to the effectivity of Republic Act No. 8241
members; their importation of direct farm inputs, machineries and and each calendar year thereafter, the amount of Eight thousand pesos
equipment, including spare parts thereof, to be used directly and (P8,000) shall be adjusted to its present value using the Consumer Price
exclusively in the production and/or processing of their produce; Index as published by the National Statistics Office (NSO);
"(s) Sales by electric cooperatives duly registered with the "(y) Sale, importation, printing or publication of books and any
Cooperative Development Authority or National Electrification newspaper, magazine, review or bulletin which appears at regular
Administration, relative to the generation and distribution of electricity as intervals with fixed prices for subscription and sale and which is not
well as their importation of machineries and equipment, including spare devoted principally to the publication of paid advertisements; and
parts which shall be directly used in the generation and distribution of
electricity; "(z) Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the preceding
"(t) Gross receipts from lending activities by credit or multi-purpose paragraphs, the gross annual sales and/or receipts do not exceed the
cooperatives duly registered with the Cooperative Development Authority amount of Five hundred fifty thousand pesos (P550,000): Provided, That
whose lending operation is limited to their members; not later than January 31st of the calendar year subsequent to the
effectivity of Republic Act No. 8241 and each calendar year thereafter, the
"(u) Sales by non-agricultural, non-electric and non-credit amount of Five hundred fifty thousand pesos (P550,000) shall be adjusted
cooperatives duly registered with the Cooperative Development Authority: to its present value using the Consumer Price Index, as published by the
Provided, That the share capital contribution of each member does not National Statistics Office (NSO).
exceed Fifteen thousand pesos (P15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the members; "The foregoing exemptions to the contrary notwithstanding, any person
whose sale of goods or properties or services which are otherwise not

subject to VAT, but who issues a VAT invoice or receipt therefor shall, in REPUBLIC ACT NO. 9994
addition to his liability to other applicable percentage tax, if any, be liable February 15, 2010 (Caraan)
to the tax imposed in Section 106 or 108 without the benefit of input tax
credit, and such tax shall also be recognized as input tax credit to the An Act Granting Additional Benefits and Privileges to Senior
purchaser under Section 110, all of this Code. Citizens, Further Amending Republic Act No. 7432, as amended,
Otherwise Known As “An Act to Maximize the Contribution of Senior
TAX IMPLICATIONS OF RA 9994 – For Senior Citizens (Caraan) Citizens to Nation Building, Grant Benefits and Special Privileges
and for Other Purposes”
*Focus on Section 4 of the law
 Grant of 20% discount and exemption from the value-added Section 1. Title. - This Act Shall be known as the “Expanded Senior
tax (VAT), if applicable, on the sale of the following goods and Citizens Act of 2010.”
services from all establishments, for the exclusive use and
enjoyment or availment of the senior citizen: Section 2. Section 1 of Republic Act No. 7432, as amended by Republic
 Medicines and other essential medical supplies, accessories Act No. 9257, otherwise known as the “Expanded Senior Citizens Act of
and equipment 2003”, is hereby further amended to read as follows:
 Professional fees of attending physician/s “SECTION 1. Declaration of Policies and Objectives. – As provided in
 Professional fees of licensed professional health providing the Constitution of the Republic of the Philippines, it is the declared
home health care services policy of the State to promote a just and dynamic social order that will
 Medical and dental services, diagnostic and laboratory fees ensure the prosperity and independence of the nation and free the
in all private hospitals, medical facilities, outpatient clinics, people from poverty through policies that provide adequate social
and home health care services services, promote full employment, a rising standard of living and an
 Actual fare for land transportation travel in public utility buses improved quality of life. In the Declaration of Principles and State
(PUBs), public utility jeepneys (PUJs), taxis, Asian utility Policies in Article II, Sections 10 and 11, it is further declared that the
vehicles (AUVs), shuttle services and public railways, State shall provide social justice in all phases of national development
including Light Rail Transit (LRT), Mass Rail Transit (MRT), and that the State values the dignity of every human person and
and Philippine National Railways (PNR) guarantees full respect for human rights.
 Actual transportation fare for domestic air transport services
and sea shipping vessels “Article XIII, Section 11 of the Constitution provides that the Sate shall
 Utilization of services in hotels and similar lodging adopt an integrated and comprehensive approach to health
establishments, restaurants and recreation centers development which shall endeavor to make essential goods, health
and other social services available to all the people at affordable cost.
 Admission fees charged by theaters, cinema houses and
concert halls, circuses, leisure and amusement; and There shall be priority for the needs of the underprivileged, sick,
elderly, disabled, women and children. Article XV, Section 4 of the
 Funeral and burial services for the death of senior citizens
Constitution Further declares that it is the duty of the family to take
 Exemption from the payment of individual income taxes of
care of its elderly members while the State may design programs of
senior citizens who are considered to be minimum wage
social security for them.
earners
“Consistent with these constitutional principles, this Act shall serve the “(b) Geriatrics refer to the branch of medical science devoted to
following objectives: the study of the biological and physical changes and the diseases
“(a) To recognize the rights of senior citizens to take their proper of old age;
place in society and make it a concern of the family, community,
and government; “(c) Lodging establishment refers to a building, edifice,
“(b) To give full support to the improvement of the total well-being structure, apartment or house including tourist inn, apartelle,
of the elderly and their full participation in society, considering motorist hotel, and pension house engaged in catering, leasing or
that senior citizens are integral part of Philippine society; providing facilities to transients, tourists or travelers;
“(c) To motivate and encourage the senior citizens to contribute to
nation building; “(d) Medical Services refer to hospital services, professional
“(d) To encourage their families and the communities they live services of physicians and other health care professionals and
with to reaffirm the valued Filipino tradition of caring for the senior diagnostics and laboratory tests that the necessary for the
citizens; diagnosis or treatment of an illness or injury;
“(e) To provide a comprehensive health care and rehabilitation
system for disabled senior citizens to foster their capacity to attain “(e) Dental services to oral examination, cleaning, permanent
a more meaningful and productive ageing; and and temporary filling, extractions and gum treatments, restoration,
“(f) To recognize the important role of the private sector in the replacement or repositioning of teeth, or alteration of the alveolar
improvement of the welfare of senior citizens and to actively seek or periodontium process of the maxilla and the mandible that are
their partnership. necessary for the diagnosis or treatment of an illness or injury;
“In accordance with these objectives, this Act shall: “(f) Nearest surviving relative refers to the legal spouse who
“(1) establish mechanisms whereby the contributions of the senior survives the deceased senior citizen: Provided, That where no
citizens are maximized; spouse survives the decedent, this shall be limited to relatives in
“(2) adopt measures whereby our senior citizens are assisted and the following order of degree of kinship: children, parents,
appreciated by the community as a whole; siblings, grandparents, grandchildren, uncles and aunts;
“(3) establish a program beneficial to the senior citizens, their
families and the rest of the community they serve: and “(g) Home health care service refers to health or supportive care
“(4) establish community-based health and rehabilitation provided to the senior citizen patient at home by licensed health
programs for senior citizens in every political unit of society.” care professionals to include, but not limited to, physicians,
nurses, midwives, physical therapist and caregivers; and
Section 3. Section 2 of Republic Act No. 7432, as amended by Republic
Act No. 9257, otherwise known as the “Expanded Senior Citizens Act of “(h) Indigent senior citizen, refers to any elderly who is frail,
2003”, is hereby further amended to read as follows: sickly or with disability, and without pension or permanent source
SEC. 2. Definition of terms. – For purposes of this Act, these terms of income, compensation or financial assistance from his/her
are defined as follows: relatives to support his/her basic needs, as determined by the
“(a) Senior citizen or elderly refers to any resident citizen of the Department of Social Welfare and development (DSWD) in
Philippines at least sixty (60) years old; consultation with the National Coordinating and Monitoring
Board.”
“(7) on the utilization of services in hotels and similar lodging

Section 4. Section 4 of Republic Act No. 7432, as amended by Republic establishments, restaurants and recreation centers;
Act No. 9257, otherwise known as the “Expanded Senior Citizens Act of “(8) on admission fees charged by theaters, cinema houses and
2003”, is hereby further amended to read as follows: concert halls, circuses, leisure and amusement; and
“SEC. 4. Privileges for the Senior Citizens. – The senior citizens shall “(9) on funeral and burial services for the death of senior citizens;
be entitled to the following:
“(a) the grant of twenty percent (20%) discount and exemption from “(b) exemption from the payment of individual income taxes of senior
the value-added tax (VAT), if applicable, on the sale of the following citizens who are considered to be minimum wage earners in
goods and services from all establishments, for the exclusive use and accordance with Republic Act No. 9504;
enjoyment or availment of the senior citizen
“(1) on the purchase of medicines, including the purchase of “(c) the grant of a minimum of five percent (5%) discount relative to
influenza and pnuemococcal vaccines, and such other essential the monthly utilization of water and electricity supplied by the public
medical supplies, accessories and equipment to be determined utilities: Provided, That the individual meters for the foregoing utilities
by the Department of Health (DOH). are registered in the name of the senior citizen residing therein:
“The DOH shall establish guidelines and mechanism of Provided, further, That the monthly consumption does not exceed one
compulsory rebates in the sharing of burden of discounts among hundred kilowatt hours (100 kWh) of electricity and thirty cubic meters
retailers, manufacturers and distributors, taking into consideration (30 m3) of water: Provided, furthermore, That the privilege is granted
their respective margins; per household regardless of the number of senior citizens residing
“(2) on the professional fees of attending physician/s in all private therein;
hospitals, medical facilities, outpatient clinics and home health
care services; “(d) exemption from training fees for socioeconomic programs;
“(3) on the professional fees of licensed professional health
providing home health care services as endorsed by private “(e) free medical and dental services, diagnostic and laboratory fees
hospitals or employed through home health care employment such as, but not limited to, x-rays, computerized tomography scans
agencies; and blood tests, in all government facilities, subject to the guidelines
“(4) on medical and dental services, diagnostic and laboratory to be issued by the DOH in coordination with the PhilHealth;
fees in all private hospitals, medical facilities, outpatient clinics,
and home health care services, in accordance with the rules and “(f) the DOH shall administer free vaccination against the influenza
regulations to be issued by the DOH, in coordination with the virus and pneumococcal disease for indigent senior citizen patients;
Philippine Health Insurance Corporation (PhilHealth);
“(5) in actual fare for land transportation travel in public utility “(g) educational assistance to senior citizens to pursue pot secondary,
buses (PUBs), public utility jeepneys (PUJs), taxis, Asian utility tertiary, post tertiary, vocational and technical education, as well as
vehicles (AUVs), shuttle services and public railways, including short-term courses for retooling in both public and private schools
Light Rail Transit (LRT), Mass Rail Transit (MRT), and Philippine through provision of scholarships, grants, financial aids, subsides and
National Railways (PNR); other incentives to qualified senior citizens, including support for
“(6) in actual transportation fare for domestic air transport books, learning materials, and uniform allowances, to the extent
services and sea shipping vessels and the like, based on the feasible: Provided, That senior citizens shall meet minimum admission
actual fare and advanced booking; requirements;
citizen of the Republic and is at least sixty (60) years of age as

“(h) to the extent practicable and feasible, the continuance of the further provided in the implementing rules and regulations.
same benefits and privileges given by the Government Service
Insurance System (GSIS), the Social Security System (SSS) and the “In the purchase of goods and services which are on promotional
PAG- IBIG, as the case may be, as are enjoyed by those in actual discount, the senior citizen can avail of the promotional discount or
service; the discount provided herein, whichever is higher.
“(i) retirement benefits of retirees from both the government and the “The establishment may claim the discounts granted under
private sector shall be regularly reviewed to ensure their continuing subsections (a) and (c) of this section as tax deduction based on the
responsiveness and sustainability, and to the extent practicable and cost of the goods sold or services rendered: Provided, That the cost
feasible, shall be upgraded to be at par with the current scale enjoyed of the discount shall be allowed as deduction from gross income for
by those in actual service; the same taxable year that the discount is granted: Provided, further,
That the total amount of the claimed tax deduction net of VAT, if
“(j) to the extent possible, the government may grant special applicable, shall be included in their gross sales receipts for tax
discounts in special programs for senior citizens on purchase of basic purposes and shall be subject to proper documentation and to the
commodities, subject to the guidelines to be issued for the purpose by provisions of the National Internal Revenue Code (NICR), as
the Department of Trade and Industry (DTI) and the Department of amended.”
Agriculture (DA);
Section 5. Section 5 of the same Act, as amended, is hereby further
“(k) provision of express lanes for senior citizens in all commercial amended to read as follows:
and government establishments; in the absence thereof, priority shall “SEC. 5. Government Assistance. – The government shall provide the
be given to them; and following:
“(a) Employment
“(l) death benefit assistance of a minimum of Two thousand pesos “Senior citizens who have the capacity and desire to work, or be
(Php 2,000.00) shall be given to the nearest surviving relative of a re-employed, shall be provided information and matching services to
deceased senior citizen which amount shall be subject to adjustments enable them to be productive members of society. Terms of
due to inflation in accordance with the guidelines to be issued by the employment shall conform with the provisions of the Labor Code, as
DSWD. amended, and other laws, rules and regulations.
“In the availment of the privileges mentioned above, the senior citizen, “Private entities that will employ senior citizens as employees, upon
or his/her duly authorized representative, may submit as proof of the effectivity of this Act, shall be entitled to an additional deduction
his/her entitled thereto any of the following: from their gross income, equivalent to fifteen percent (15%) of the
“(1) an identification card issued by the Office of the Senior total amount paid as salaries and wages to senior citizens, subject to
Citizen Affairs (OSCA) of the place where the senior citizen the provision of Section 34 of the NIRC, as amended: Provided,
resides: Provided, That the identification card issued by the however, That such employment shall continue for a period of at least
particular OSCA shall be honored nationwide; six (6) months: Provided, further, That the annual income of the senior
“(2) the passport of the senior citizen concerned; and citizen does not exceed the latest poverty threshold as determined by
“(3) other documents that establish that the senior citizen is a the National Statistical Coordination Board (NSCB) of the National
Economic and Development Authority (NEDA) for that year. “At least fifty percent (50%) discount shall be granted on the
consumption of electricity, water, and telephone by the senior citizens
“The Department of Labor and Employment (DOLE), in coordination center and residential care/group homes that are government-run or
with other government agencies such as, but not limited to, the non-stock, non-profit domestic corporation organized and operated
Technology and Livelihood Resource Center (TLRC) and the primarily for the purpose of promoting the well-being of abandoned,
Department of Trade and Industry (DTI), shall assess, design and neglected, unattached, or homeless senior citizens, subject to the
implement training programs that will provide skills and welfare or guidelines formulated by the DSWD.
livelihood support for senior citizens. “(1) “self and social enhancement services” which provide senior
citizens opportunities for socializing, organizing, creative
“(b) Education expression, and self-improvement;
“The Department of Education (DepED), the Technical Education and “(2) “after care and follow-up services” for citizens who are
Skills Development Authority (TESDA) and the Commission on Higher discharged from the homes or institutions for the aged, especially
Education (CHED), in consultation with nongovernmental those who have problems of reintegration with family and
organizations (NGOs) and people's organizations (POs) for senior community, wherein both the senior citizens and their families are
citizens, shall institute programs that will ensure access to formal and provided with counseling;
nonformal education. “(3) “neighborhood support services” wherein the community or
family members provide caregiving services to their frail, sick, or
“(c) Health bedridden senior citizens; and
“The DOH, in coordination with local government units (LGUs), NGOs “(4) “substitute family care” in the form of residential care or group
and POs for senior citizens, shall institute a national health program homes for the abandoned, neglected, unattached or homeless
and shall provide an integrated health service for senior citizens. It senior citizens and those incapable of self-care.
shall train community-based health workers among senior citizens
and health personnel to specialize in the geriatric care and health “(e) Housing
problems of senior citizens. “The national government shall include in its national shelter program
the special housing needs of senior citizens, such as establishment of
“The national health program for senior citizens shall, among others, housing units for the elderly.
be harmonized with the National Prevention of Blindness Program of
the DOH. “(f) Access to Public Transport
“The Department of Transportation and Communications (DOTC)
“Throughout the country, there shall be established a “senior citizens' shall develop a program to assist senior citizens to fully gain access
ward” in every government hospital. This geriatric ward shall be for to public transport facilities.
the exclusive use of senior citizens who are in need of hospital
confinement by reason of their health conditions. However, when “(g) Incentive for Foster Care
urgency of public necessity purposes so require, such geriatric ward “The government shall provide incentives to individuals or
may be used for emergency purposes, after which, such “senior nongovernmental institution caring for or establishing homes,
citizens' ward” shall be reverted to its nature as geriatric ward. residential communities or retirement villages solely for, senior
citizens, as follows:
“(d) Social Services “(1) realty tax holiday for the first five (5) years starting from the
first year of operation; and “The head of the OSCA shall be appointed to serve the interest of
“(2) priority in the construction or maintenance of provincial or senior citizens and shall not be removed or replaced except for
municipal roads leading to the aforesaid home, residential reasons of death permanent disability or ineffective performance of
community or retirement village. his duties to the detriment of fellow senior citizens.
“(h) Additional Government Assistance “The head of the OSCA shall be entitled to receive an honorarium of
“(1) Social Pension an amount at least equivalent to Salary Grade 10 to be approved by
“Indigent senior citizens shall be entitled to a monthly stipend the LGU concerned.
amounting to Five hundred pesos (Php500.00) to augment the
daily subsistence and other medical needs of senior citizens, “The head of the OSCA shall be assisted by the City Social Welfare
subject to a review every two (2) years by Congress, in and Development officer or by the Municipal Social Welfare and
consultation with the DSWD. Development Officer, in coordination with the Social Welfare and
Development Office.
“(2) Mandatory PhilHealth Coverage
“All indigent senior citizens shall be covered by the national “The Office of the Mayor shall exercise supervision over the OSCA
health insurance program of PhilHealth. The LGUs where the relative to their plans, activities and programs for senior citizens. The
indigent senior citizens resides shall allocate the necessary funds OSCA shall work together and establish linkages with accredited
to ensure the enrollment of their indigent senior citizens in NGOs Pos and the barangays in their respective areas.
accordance with the pertinent laws and regulations.
“The OSCA shall have the following functions:
“(3) Social Safety Nets “(a) To plan, implement and monitor yearly work programs in
“Social safety assistance intended to cushion the effects of pursuance of the objectives of this Act;
economics shocks, disasters and calamities shall be available for “(b) To draw up a list of available and required services which can
senior citizens. The social safety assistance which shall include, be provided by the senior citizens;
but not limited to, food, medicines, and financial assistance for “(c) To maintain and regularly update on a quarterly basis the list
domicile repair, shall be sourced from the disaster/calamity funds of senior citizens and to issue national individual identification
of LGUs where the senior citizens reside, subject to the cards, free of charge, which shall be valid anywhere in the
guidelines to be issued by the DSWD.” country;
“(d) To serve as a general information and liason center for senior
Section 6. Section 6 of the same Act, as amended, is hereby further citizens;
amended to read as follows: “(e) To monitor compliance of the provisions of this Act
“SEC. 6. The Office for Senior Citizens Affairs (OSCA). – There shall particularly the grant of special discounts and privileges to senior
be established in all cities and municipalities an OSCA to be headed citizens;
by a senior citizen who shall be appointed by the mayor for a term of “(f) To report to the mayor, any individual, establishments,
three (3) years without reappointment but without prejudice to an business entity, institutions or agency found violating any
extension if exigency so requires. Said appointee shall be chosen provision of this Act; and
from a list of three (3) nominees as recommended by a general “(g) To assist the senior citizens in filing complaints or charges
assembly of senior citizens organizations in the city or municipality. against any individual, establishments, business entity, institution,
or agency refusing to comply with the privileges under this Act

before the Department of Justice (DOJ), the Provincial Section 8. Section 11 of the same Act, as amended, is hereby further
Prosecutor's Office, the regional or the municipal trial court, the amended to read as follows:
municipal trial court in cities, or the municipal circuit trial court.” “SEC. 11. Monitoring and Coordinating Mechanism. – A National
Coordinating and Monitoring Board shall be established which shall
Section 7. Section 10 of the same Act, as amended, is hereby further be composed of the following:
amended to read as follows: “(a) Chairperson - the Secretary of the DSWD or an authorized
“SEC. 10. Penalties. – Any person who refuses to honor the senior representative;
citizen card issued by this the government or violates any provision of “(b) Vice Chairperson - the Secretary of the Department of the Interior
this Act shall suffer the following penalties: and Local Government (DILG) or an authorized representative; and
“(a) For the first violation, imprisonment of not less than two (2) years “(c) Members:
but not more than six (6) years and a fine of not less than Fifty “(1) the Secretary of the DOJ or an authorized representative;
thousand pesos (Php50,000.00) but not exceeding One hundred “(2) the Secretary of the DOH or an authorized representative;
thousand pesos (Php100,000.00); “(3) the Secretary of the DTI or an authorized representative; and
“(4) representatives from five (5) NGOs for senior citizens which
“(b) For any subsequent violation, imprisonment of not less than two are duly accredited by the DSWD and have service primarily for
(2) years but not more than six (6) years and a fine of not less than senior citizens. Representatives of NGOs shall serve a period of
One Hundred thousand pesos (Php100,000.00) but not exceeding three (3) years.
Two hundred thousand pesos (Php200,000.00); and
“The Board may call on other government agencies, NGOs and Pos
“(c) Any person who abuses the privileges granted herein shall be to serve as resource persons as the need arises. Resource person
punished with imprisonment of not less than six (6) months and a fine have no right to vote in the National Coordinating and Monitoring
of not less than Fifty thousand pesos (Php50,000.00) but not more Board.”
than One hundred thousand pesos (Php100,000.00).
Section 9. Implementing Rules and Regulations. – Within sixty (60) days
“If the offender is a corporation, partnership, organization or any from the effectivity of this Act, the Secretary of the DSWD shall formulate
similar entity, the officials thereof directly involved such as the and adopt amendments to the existing rules and regulations implementing
president, general manager, managing partner, or such other officer Republic Act No. 7432, as amended by Republic Act No. 9257, to carry
charged with the management of the business affairs shall be liable out the objectives of this Act, in consultation with the Department of
therefor. Finance, the Department of Tourism, the Housing and Urban
Development Coordinating Council (HUDCC), the DOLE, the DOJ, the
“If the offender is an alien or a foreigner, he/she shall be deported DILG, the DTI, the DOH, the DOTC, the NEDA, the DepED, the TESDA,
immediately after service of sentence. the CHED, and five (5) NGOs or POs for the senior citizens duly
“Upon filing of an appropriate complaint, and after due notice and accredited by the DSWD. The guidelines pursuant to Section 4(a)(i) shall
hearing, the proper authorities may also cause the cancellation or be established by the DOH within sixty (60) days upon the effectivity of
revocation of the business permit, permit to operate, franchise and this Act.
other similar privileges granted to any person, establishment or
business entity that fails to abide by the provisions of this Act.” Section 10. Appropriations. – The Necessary appropriations for the
operation and maintenance of the OSCA shall be appropriated and of the ticket or passage document.
approved by the LGUs concerned. For national government agencies, the (b) International Shipping – Gross Philippine Billings refers to:
requirements to implement the provisions of this Act shall be included in  Gross revenue
their respective budgets: Provided, That the funds to be used for the  For passenger, cargo or mail
national health program and for the vaccination of senior citizens in the  Originating from the Philippines up to the final destination
first year of the DOH and thereafter, as a line item under the under the  Regardless of the place of sale or payments of the passage
DOH budget in the subsequent General Appropriations Act (GAA): or freight documents
Provided, further, That the monthly social pension for indigent senior International carriers doing business in the Philippines may avail of a
citizens in the first year of implementation shall be added to the regular preferential rate or exemption from the tax herein imposed due to a tax
appropriations of the DSWD budget in the subsequent GAA. treaty or international agreement to which the Philippines is a signatory or
on the basis of reciprocity as long as the carrier, whose home country
Section 11. Repealing Clause. – All law, executive orders, rules and grants income tax exemption to Philippine carriers, shall likewise be
regulations or any part hereof inconsistent herewith are deemed repealed exempt from the tax under this provision.
or modified accordingly.
Sec. 2 – amended Sec. 109 of the NIRC:
Section 12. Separability Clause. – If any part or provision of this Act shall The following shall be exempt from the value-added tax:
be declared unconstitutional and invalid, such 18 declaration shall not “ A. xxx
invalidate other parts thereof which shall remain in full force and effect. xxx
Section 13. Effectivity. – This Act shall take effect fifteen (15) days its S. Transport of passengers by international carriers
complete publication in the Official Gazette or in at least two (2) T. Sale, importation or lease of passenger or cargo vessels and aircraft,
newspapers of general circulation, whichever comes earlier. including engine, equipment and spare parts thereof for domestic or
international transport operations
RA No. 10378 (Summary) (COLOQUIO) xxx
Section 1. amended Sec. 28 of the NIRC: U. Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations
(3) International Carrier – An international carrier doing business in the V. Services of bank, non-bank financial intermediaries performing quasi-
Philippines, shall pay 2 ½% of tax on its gross Philippine billings: baking functions and other non-bank financial intermediaries
(a) International Air Carrier – Gross Philippine Billings refers to: xxx
 The amount of gross revenue
 From the carriage of persons, excess baggage, cargo and X. Sale or lease of goods or properties or services other than those
mail mentioned above, the gross annual sales/ receipts do not exceed
 Originating from the Philippines P1,500,000”
 In a continuous and uninterrupted flight
 Irrespective of the place or issue and the place of payment Sec. 3 – amended Sec. 118 of the NIRC
1. International air carriers doing business in the Philippines shall be
taxed by 3% of their quarterly gross receipts derived from Depends on the time period and which laws apply. Since petitioner is a
transport of cargo from the Philippines to another country. non-bank financial intermediary, it is subject to 10% VAT for the tax
2. International shipping carriers doing business in the Philippines, years 1996 to 2002; however, with the levy, assessment and collection of
shall be taxed as well by 3% of their quarterly gross receipts VAT from non-bank financial intermediaries being specifically deferred by
derived from the transport of cargo from Philippines to another law, then petitioner is not liable for VAT during these tax years. But with
country. the full implementation of the VAT system on non-bank financial
intermediaries starting January 1, 2003, petitioner is liable for 10% VAT
Sec. 4 – amended Sec. 236 of the NIRC for said tax year. And beginning 2004 up to the present, by virtue of
R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to
“xxx percentage tax on gross receipts from 0% to 5%, as the case may be.
Persons required to register for VAT: Facts:

1. Any person who, in the course of trade or business, sells, barters  CIR sent the Tambunting Pawnshop, Inc. an assessment notice dated
or exchanges goods or properties, or engages in the sale or January 15, 2003 for P3,055,564.34 deficiency VAT, P406,092.50
exchange of services, shall be liable to register for VAT if: deficiency documentary stamp tax on pawn tickets, P67,201.55
a. His gross sales or receipts for the past 12 months, other than deficiency withholding tax on compensation, and P21,723.75 deficiency
those exempted under Sec. 109 have exceeded P1,500,000. expanded withholding tax, all inclusive of interests and surcharges for the
b. There are reasonable grounds to believe that his gross sales taxable year 1999.
or receipts for the next 12 months other than those exempt  Tambunting Pawnshop protested the assessment and filed a Petition for
under Sec. 109 will exceed P1,500,000.” Review with the Court of Tax Appeals (CTA) pursuant to Section 228 of
the National Internal Revenue Code, raising the following arguments:
TAMBUNTING PAWNSHOP, INC v. CIR (Cualoping)
[GR. No. 179085; January 21, 2010] A. Pawnshops are not subject to Value Added Tax pursuant to Section
“pawnshop; VAT” 108 of the National Internal Revenue Code.
Recit-Ready: B. Petitioner properly withheld and remitted to the respondent the

correct amount of expanded withholding tax for taxable year 1999.
Facts:
CIR sent the Tambunting Pawnshop, Inc. an assessment notice for
C. Petitioner has already paid the assessed amount of P14,398.38
deficiency VAT, P406,092.50 deficiency documentary stamp tax on pawn [sic], representing deficiency withholding tax on compensation, thus,
tickets, P67,201.55 deficiency withholding tax on compensation, and assessment on withholding on compensation must be cancelled.
P21,723.75 deficiency expanded withholding tax, all inclusive of interests
and surcharges for the taxable year 1999. This was protested by the D. Petitioner's pawn tickets are not subject to documentary stamp tax
pawnshop. pursuant to existing laws and jurisprudence.
Issue/s:  First Division of the CTA ruled that petitioner is liable for VAT and
WON pawnshops liable to pay VAT? documentary stamp tax but not for withholding tax on compensation and
expanded withholding tax.
Held:
 Tambunting argues that a pawnshop is not enumerated as one of those VAT, and the 0% to 5% percentage tax on gross receipts on other
engaged in "sale or exchange of services" in Section 108 of the National non-bank financial intermediaries was reimposed under Section
Internal Revenue Code. 122 of the Tax Code of 1997.
 Also argues that tickets are not securities nor printed evidence of
indebtedness, therefore not subject to documentary stamp tax.
Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT
for the tax years 1996 to 2002; however, with the levy, assessment and
Issue/s:
collection of VAT from non-bank financial intermediaries being
WON pawnshops are liable to pay VAT?
specifically deferred by law, then petitioner is not liable for VAT during these
tax years. But with the full implementation of the VAT system on non-
Held/Ratio: Depends on the time period. In this case (1999), NOT liable.
bank financial intermediaries starting January 1, 2003, petitioner is liable
for 10% VAT for said tax year. And beginning 2004 up to the present, by
History of Laws:
virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject
o NIRC of 1977: should have been levied the 5% percentage tax on gross
to percentage tax on gross receipts from 0% to 5%, as the case may be.
receipts imposed on bank and non-bank financial intermediaries under
Section 119 (now Section 121 of the Tax Code of 1997);
o R.A. No. 7716 (EVAT Law): pawnshops should have been subjected to CIR v. PHIL. HEALTH CARE PROVIDERS (De Luis)
[G.R. No. 168129; April 24, 2007]
the 10% VAT imposed on banks and non-bank financial intermediaries
“A mere health maintenance organization, not engaged in medical/hospital
and financial institutions under Section 102 of the Tax Code of 1977
services is not VAT-exempt.”
(now Section 108 of the Tax Code of 1997);
o This was restated by R.A. No. 8241, which amended R.A. No. 7716.
Recit-Ready:
BUT: the levy, collection and assessment of the 10% VAT on services
Facts: Phil. Health Care Providers, Inc. is a domestic corporation, which
rendered by banks, non-bank financial intermediaries, finance
arranges medical/hospital services for its members by contracting
companies, and other financial intermediaries not performing quasi-
with their accredited and recognized hospitals and clinics. Before
banking functions, were made effective January 1, 1998;
the effectivity of E.O. 273, which imposed VAT on the sale of
goods and services, the respondent inquired with the CIR
o R.A. No. 8424 (Tax Reform Act of 1997): likewise imposed a 10% VAT
whether the services it provides are exempt from VAT. The CIR
under Section 108 but the levy, collection and assessment thereof were
issued VAT Ruling 231-88 stating that respondent, as provider of
again deferred until December 31, 1999;
medical services, is exempt from the VAT coverage. Regional
o The levy, collection and assessment of the 10% VAT was further
Director Osmundo Umali subsequently confirmed this ruling.
deferred by R.A. No. 8761 until December 31, 2000, and by R.A. No.
However, on Oct. 1, 1999, the BIR sent respondent a preliminary
9010, until December 31, 2002;
assessment notice for deficiency in its payment of VAT and DST
o With no further deferments given by law, the levy, collection and
taxes for years 1996 and 1997. Respondent, then, filed a protest
assessment of the 10% VAT on banks, non-bank financial
with the BIR. The CIR did not take action on respondent’s protest.
intermediaries, finance companies, and other financial intermediaries not
Hence, the latter’s resort to the courts.
performing quasi-banking functions were finally made effective
beginning January 1, 2003;
Issue/s:
o R.A. No. 9238 in 2004: the services of banks, non-bank financial
1. WON respondent’s services are subject to VAT? —YES
intermediaries, finance companies, and other financial intermediaries not
2. WON the revocation of VAT Ruling No. 231-88 should be applied
performing quasi-banking functions were specifically exempted from
retroactively? –NO  The CIR, through the VAT Review Committee of the BIR, issued VAT
Ruling 231-88 stating that Phil. Health Care Providers, Inc., as a provider
Held: of medical services, is exempt from the VAT coverage. This Ruling was
1. YES. The respondent’s services are subject to VAT. Section 103(1) of subsequently confirmed by Regional Director Osmundo G. Umali of
the Tax Code specifies “medical, dental, hospital and veterinary Revenue Region No. 8 in a letter dated April 22, 1994.
services except those rendered by professionals” as a VAT exempt  The 1997 NIRC became effective on Jan. 1, 1998. This new Tax Code
transaction. As held by the CTA and the CA, respondent does not
substantially adopeted and reproduced the provisions of E.O. 273 on VAT
actually provide medical and/or hospital services; it merely arranges
for the same. Hence, its services are not VAT-exempt. These factual and R.A. 7716 on E-VAT.
findings of the CTA were neither modified nor reversed by the CA.  On Oct. 1, 1999, BIR sent respondent a Preliminary Assessment Notice
Findings of fact of the CTA are generally regarded as final, binding, for deficiency in its payment of the VAT and documentary stamp taxes
and conclusive upon the SC, more so where these do not conflict with (DST) for taxable years 1996 and 1997. Consequently, respondent filed a
the findings of the CA. protest with the BIR.
2. NO. The revocation of VAT Ruling 231-88 should not be applied
 The CIR sent another letter demanding payment of “deficiency VAT” in
retroactively. Respondent was in good faith when it obtained VAT
Ruling 231-88 from the BIR. Phil. Health Care Providers, Inc.’s failure the amount of P100,505,030.26 and DST in the amount of
to describe itself as a “health maintenance organization,” which is P124,196,610.92, or a total of P224,702,641.18 for taxable years 1996
subject to VAT, is not tantamount to bad faith. When VAT Ruling No. and 1997. Attached to the demand letter were four (4) assessment
23188 was issued in respondent’s favor, the term “health notices.
maintenance organization” was yet unknown or had no significance  The CIR did not take any action on respondent’s protests. Hence,
for taxation purposes. The rule is that the BIR rulings have no
respondent filed with the CTA a petition for review, which was partially
retroactive effect where a grossly unfair deal would result to the
prejudice of the taxpayer, as in this case. granted. The CTA ordered respondent to pay the deficiency VAT. The
decision also declared VAT Ruling No. 231-88 void and without force and
Facts: effect. However, the deficiency DST assessment against respondent was
 Philippine Health Care Providers, Inc. is a corporation organized and cancelled and set aside.
existing under the laws of the Republic of the Philippines. Its primary  Respondent filed a motion for partial reconsideration of the CTA judgment
purposes is “to establish, maintain, conduct and operate a prepaid group concerning Phil. Health Care Provider’s liability to pay the deficiency VAT.
practice health care delivery system or a health maintenance organization Said motion for partial reconsideration was granted and the VAT
to take care of the sick and disabled persons enrolled in the health care assessment against respondent was withdrawn. This CTA decision is
plan and to provide for the administrative, legal, and financial mainly grounded Sec. 246 of the Tax Code which provides for the non-
responsibilities of the organization.” retroactivity of rulings, as there will be undue prejudice to respondent if
 On July 25, 1987, Pres. Corazon Aquino issued E.O No. 273, amending the revocation of VAT Ruling No. 231-88 will be retroactively applied.
the NIRC of 1977 by imposing Value-Added Tax (VAT) on the sale of  The CIR filed with the CA a petition for review. Nonetheless, the CA
goods and services. This E.O. took effect on Jan. 1, 1988. affirmed the CTA Resolution. The CIR filed a motion for reconsideration,
 Before the effectivity of E.O. No. 273, Phil. Health Care Providers, inc. but the appellate court denied it.
wrote the CIR, inquiring whether the services it provides to the
participants in its health care program are exempt from the payment of Issue/s:
the VAT. 1. WON respondent’s services are subject to VAT? —YES
2. WON the revocation of VAT Ruling No. 231-88 should be applied
retroactively? –NO
members and their accredited and recognized

Held/Ratio: Petition DENIED. The assailed decisions of the CA are affirmed. hospitals and clinics.
Respondent’s services are subject to VAT because it is not an institution  It merely “provides and arranges for the provision of
engaged in medical/hospital services. However, the revocation of the VAT preneed health care services to its members for a
Ruling, which granted it VAT exemption, should not be applied retroactively. fixed prepaid fee for a specified period of time.”
 It then “contracts the services of physicians, medical
1. YES. The respondent’s services are subject to VAT. and dental practitioners, clinics and hospitals to
o Section 103(1) of the Tax Code specifies “medical, dental, hospital perform such services to its enrolled members”; and
and veterinary services except those rendered by professionals” as a  Respondent “also enters into contract with clinics,
VAT exempt transaction. hospitals, medical professionals and then negotiates
 The import of the above provision is plain. It requires no with them regarding payment schemes, financing
interpretation. It contemplates the exemption from VAT of and other procedures in the delivery of health
taxpayers engaged in the performance of medical, dental,
services.”
hospital, and veterinary services.
o Respondent does not actually provide medical and/or hospital  These factual findings of the CTA were neither modified nor
services; it merely arranges for the same. Hence, its services reversed by the CA. Findings of fact of the CTA are generally
are not VAT-exempt. regarded as final, binding, and conclusive upon the SC,
 In Commissioner of International Revenue v. Seagate more so where these do not conflict with the findings of the
Technology (Philippines), we defined an exempt CA. Hence, as respondent does not actually provide medical
transaction as one involving goods or services which, by and/or hospital services, as provided under Section 103 on
their nature, are specifically listed in and expressly exempted
exempt transactions, but merely arranges for the same, its
from the VAT, under the Tax Code, without regard to the tax
status of the party in the transaction. services are not VAT-exempt.
 Respondent described its services as follows: 2. NO. The revocation of VAT Ruling 231-88 should not be applied
“Under the prepaid group practice health care delivery retroactively.
system adopted by Health Care, individuals enrolled in o Respondent was in good faith when it obtained VAT Ruling 231-88
Health Care’s health care program are entitled to preventive, from the BIR. Phil. Health Care Providers, Inc.’s failure to describe
diagnostic, and corrective medical services to be dispensed itself as a “health maintenance organization,” which is subject to
by Health Care’s duly licensed physicians, specialists, and
VAT, is not tantamount to bad faith.
other professional technical staff participating in said group
practice health care delivery system established and  The Court noted that the term “health maintenance
operated by Health Care. Such medical services will be organization” was first recorded in the Philippine statute
dispensed in a hospital or clinic owned, operated, or books only upon the passage of “The National Health
accredited by Health Care. To be entitled to receive such Insurance Act of 1995” (Republic Act No. 7875). Section 4
medical services from Health Care, an individual must enroll (o) (3) thereof defines a health maintenance organization as
in Health Care’s health care program and pay an annual fee.
“an entity that provides, offers, or arranges for coverage of
Enrollment in Health Care’s health care program is on a year
to year basis and enrollees are issued identification cards.” designated health services needed by plan members for a
 From the foregoing, the CTA concluded that: fixed prepaid premium.” Under this law, a health
 Respondent is not actually rendering medical maintenance organization is one of the classes of a “health
service but merely acting as a conduit between the care provider.”
 It is thus apparent that when VAT Ruling No. 23188 was CPI = Consumer Price Index
issued in respondent’s favor, the term “health maintenance CP 2010 = 166.1
organization” was yet unknown or had no significance for CP 2005 = 129.8
taxation purposes. Respondent, therefore, believed in good
faith that it was VAT exempt for the taxable years 1996 and
1997 on the basis of VAT Ruling No. 23188. the adjusted threshold amounts, rounded off to the nearest hundred are
o In ABSCBN Broadcasting Corp. v. Court of Tax Appeals, this as follows:
Court held that under Section 246 of the 1997 Tax Code, the Section Amount in Php (2005) Adjusted Threshold
Commissioner of Internal Revenue is precluded from adopting a Amounts
position contrary to one previously taken where injustice would result Section 109 (P) 1,500,000 1,919,500
to the taxpayer.
Section 109 (P) 2,500,000 3,199,200
 The rule is that the BIR rulings have no retroactive effect
where a grossly unfair deal would result to the prejudice of Section 109 (Q) 10,000 12,800
the taxpayer, as in this case. Section 109 (V) 1,500,000 1,919,500
REVENUE REGULATIONS NO. 16-11 (DIPLOMA) SECTION 2. Sale of Real Properties. — Pertinent portions of Section
4.106-3 of Revenue Regulations No. 16-2005, as amended is hereby
Increasing the Amount of Threshold Amounts for Sale of Residential further amended to read as follows:
Lot, Sale of House and Lot, Lease of Residential Unit and Sale or "Section 4.106-3. Sale of Real Properties. — Sale of real
Lease of Goods or Properties or Performance of Services Covered properties held primarily for sale to customers or held for lease in
by Section 109 (P), (Q) and (V) of the Tax Code of 1997, as Amended, the ordinary course of trade or business of the seller shall be
Thereby Amending Certain Provisions of Revenue Regulations No. subject to VAT.
16- 2005, as Amended Otherwise Known as Consolidated VAT
Regulations of 2005 Sale of residential lot with gross selling price exceeding
P1,919,500.00, residential house and lot or other residential
dwellings with gross selling price exceeding P3,199,200.00,
SECTION 1. Background. — Section 109 (P), (Q) and (V) of the Tax where the instrument of sale (whether the instrument is
Code of 1997, as amended provides that the amounts stated therein shall nominated as a deed of absolute sale, deed of conditional sale or
be adjusted to their present values using the Consumer Price Index as otherwise) is executed on or after Nov. 1, 2005, shall be subject
published by the National Statistics Office (NSO). to ten percent (10%) output VAT, and starting Feb. 1, 2006, to
twelve percent (12%) output VAT.
Using the following formula/information: xxx xxx xxx"
= SECTION 3. Vat Exempt Transactions. — Section 4.109.1 (B) (1) (e) (1),
(p) (4), (q) and (v) of Revenue Regulations No. 16-2005, as amended, is
hereby further amended to read as follows:
=
"(e) Services subject to percentage tax under Title V of the Tax
Where: Code, as enumerated below:
(1) Sale or lease of goods or properties or the do not exceed P1,919,500.00. Adjacent residential lots,
performance of services of non-VAT-registered persons, although covered by separate titles and/or separate tax
other than the transactions mentioned in paragraphs (A) declarations, when sold or disposed to one and the same
to (U) of Sec. 109(1) of the Tax Code, the gross annual buyer, whether covered by one or separate Deed of
sales and/or receipts of which does not exceed the Conveyance, shall be presumed as a sale of one
amount of One Million Nine Hundred Nineteen residential lot.
Thousand Five Hundred Pesos (P1,919,500.00);
Provided, That every three (3) years thereafter, the (q) Lease of residential units with a monthly rental per unit not
amount herein stated shall be adjusted to its present exceeding Twelve Thousand Eight Hundred Pesos
value using the Consumer Price Index, as published (P12,800.00), regardless of the amount of aggregate rentals
by the National Statistics Office (NSO) (Sec. 116 of received by the lessor during the year; Provided, every three
the Tax Code); Provided, further, that such (3) years thereafter, the amount shall be adjusted to its
adjustment shall be published through revenue present value using the Consumer Price Index, as published
regulations to be issued not later than March 31 of by the NSO; Provided, further, that such adjustment shall be
each year; published through revenue regulations to be issued not later
xxx xxx xxx  than March 31 of each year;
(p) The following sales of real properties are exempt from VAT, The foregoing notwithstanding, lease of residential units where
namely: the monthly rental per unit exceeds Twelve Thousand Eight
(4) Sale of residential lot valued at One Million Nine Hundred Pesos (P12,800.00) but the aggregate of such rentals
Hundred Nineteen Thousand Five Hundred Pesos of the lessor during the year do not exceed One Million Nine
(P1,919,500.00) and below, or house & lot and other Hundred Nineteen Thousand Five Hundred Pesos
residential dwellings valued at Three Million One (P1,919,500.00) shall likewise be exempt from VAT, however, the
Hundred Ninety-Nine Thousand Two Hundred Pesos same shall be subjected to three percent (3%) percentage tax.
(P3,199,200.00)and below where the instrument of
sale/transfer/disposition was executed on or after In cases where a lessor has several residential units for lease,
July 1, 2005; Provided, That every three (3) years some are leased out for a monthly rental per unit of not exceeding
thereafter, the amounts stated herein shall be P12,800.00 while others are leased out for more than P12,800.00
adjusted to its present value using the Consumer per unit, his tax liability will be as follows:
Price Index, as published by the National Statistics
Office (NSO); Provided, further, that such adjustment 1. The gross receipts from rentals not exceeding
shall be published through revenue regulations to be P12,800.00 per month per unit shall be exempt from
issued not later than March 31 of each year; VAT regardless of the aggregate annual gross
receipts.
If two or more adjacent residential lots are sold or 2. The gross receipts from rentals exceeding
disposed in favor of one buyer, for the purpose of P12,800.00 per month per unit shall be subject to
utilizing the lots as one residential lot, the sale shall be VAT if the aggregate annual gross receipts from said
exempt from VAT only if the aggregate value of the lots units only (not including the gross receipts from units
leased for not more than P12,800.00) exceeds

P1,919,500.00. Otherwise, the gross receipts will be SECTION 4. Repealing Clause. — All existing rules and regulations and
subject to the 3% tax imposed under Section 116 of other issuances or parts thereof which are inconsistent with the provisions
the Tax Code. of these Regulations are hereby modified, amended or revoked
accordingly.
The term 'residential units' shall refer to apartments and houses & SECTION 5. Effectivity. — These Regulations shall take effect starting
lots used for residential purposes, and buildings or parts or units January 1, 2012.
thereof used solely as dwelling places (e.g., dormitories, rooms
and bed spaces) except motels, motel rooms, hotels, hotel
rooms, lodging houses, inns and pension houses. SUMMARY OF RR 16-11
The term 'unit' shall mean an apartment unit in the case of The RR talks about the increase in the Threshold Amounts for Sale of
Residential Lot, Sale of House and Lot, Lease of Residential Unit and
apartments, house in the case of residential houses; per person
Sale or Lease of Goods or Properties or Performance of Services covered
in the case of dormitories, boarding houses and bed spaces; and by certain provisions of the Tax Code, amending certain provisions of the
per room in case of rooms for rent. VAT Regulations of 2005.
xxx xxx xxx
The RR provides that the amounts stated in the Tax Code of 2005 shall be
(v) Sale or lease of goods or properties or the performance of adjusted to their present values using the Consumer Price Index as
services other than the transactions mentioned in the preceding published by the National Statistics Office (NSO). [See formula above and
paragraphs, the gross annual sales and/or receipts do not exceed table.]
the amount of One Million Nine Hundred Nineteen Thousand
Five Hundred Pesos (P1,919,500.00); Provided, every three Sale of Real Properties:
(3) years thereafter, the amount shall be adjusted to its  Subject to VAT if primarily for customers or held for lease in the
present value using the Consumer Price Index, as published ordinary course of business of seller.
by the NSO; Provided, further, that such adjustment shall be  Exempt from VAT if:
published through revenue regulations to be issued not later 1. Sale of residential lot valued at P1,919,500.00 and below, or
than March 31 of each year; house & lot and other residential dwellings valued at
P3,199,200.00 and below where the instrument of
For purposes of the threshold of P1,919,500.00, the husband and sale/transfer/disposition was executed on or after July 1, 2005
the wife shall be considered separate taxpayers. However, the i. Provided, that every 3 years thereafter, the amounts stated
aggregation rule for each taxpayer shall apply. For instance, if a herein shall be adjusted to its present value using the CPI, as
professional, aside from the practice of his profession, also published by the NSO.
derives revenue from other lines of business which are otherwise 2. 2 or more adjacent lots sold to 1 buyer for the purpose of being a
subject to VAT, the same shall be combined for purposes of residential lot if aggregate value of the lots do not exceed
determining whether the threshold has been exceeded. Thus, the P1,919,500.
VAT-exempt sales shall not be included in determining the Note: Adjacent residential lots, although covered by separate
threshold. titles and/or separate tax declarations, when sold to one buyer,
xxx xxx xxx" whether covered by one or separate Deed of Conveyance, shall
be presumed as a sale of one residential lot. i. Gross annual sales and/or receipts does not exceed P1,919,500
3. Lease of residential units with a monthly rental per unit not ii. Every 3 years thereafter, the amount shall be adjusted to its
exceeding P12,800.00 (regardless of the amount of aggregate rentals present value using the Consumer Price Index, as published by
the NSO
during the year)
iii. Such adjustment shall be published through revenue regulations
i. Provided, every 3 years thereafter, the amount shall be to be issued not later than March 31 of each year
adjusted to its present value using the CPI, as published by
the NSO. Note: For purposes of the threshold of P1,919,500.00, the husband and
ii. Such adjustment shall be published through revenue the wife shall be considered separate taxpayers. However, the
regulations to be issued not later than March 31 of each year. aggregation rule for each taxpayer shall apply.
4. Lease of residential units where monthly rental per unit EXCEEDS
For instance, if a professional, aside from the practice of his profession,
P12,800 BUT the aggregate rentals of lessor during the year do not
also derives revenue from other lines of business which are otherwise
exceed P1,919,500. But the same shall be subject to 3% percentage subject to VAT, the same shall be combined for purposes of determining
tax. whether the threshold has been exceeded. Thus, the VAT-exempt sales
i. There are separate rules if some of the units are leased on a shall not be included in determining the threshold.
monthly rental not exceeding P12,800.00 while others are
leased out for more than P12,800.00 per unit.
1. The gross receipts from rentals not exceeding
P12,800.00 per month per unit shall be exempt from REVENUE REGULATIONS NO. 07-04 (MAY 7, 2004) (DIPLOMA)
VAT regardless of the aggregate annual gross
receipts. Implementing Section 109 (bb) and (cc) of the National Internal
Revenue Code, as Amended by Republic Act No. 9238, Excluding
2. The gross receipts from rentals exceeding
Services Rendered by Doctors of Medicine duly Registered with the
P12,800.00 per month per unit shall be subject to Professional Regulatory Commission (PRC), and Services Rendered
VAT if the aggregate annual gross receipts from by Lawyers Duly Registered with the Integrated Bar of the
said units exceeds P1,919,500.00. Otherwise, the Philippines (IBP) from the Coverage of Value Added Tax
gross receipts will be subject to the 3% tax imposed
under Section 116 of the Tax Code. SECTION 1. Scope. — Pursuant to the provisions of Section 244 and 109
(bb) and (cc) of the National Internal Revenue Code of 1997 (Code), in
relation to Section 5 of Republic Act No. 8424, as last amended by
Sale of Residential Lot:
Section 2 of Republic Act No. 9238, these Regulations are hereby
 Subject to 10% output VAT if instrument of sale is executed on or promulgated to amend certain provisions of Revenue Regulations No. 1-
after Nov. 1, 2005 or 12% output VAT starting Feb. 1, 2006 if: 2003, as last amended by RR No. 11-2003, governing the imposition of
o Residential Lot’s Gross Selling Price greater than P1,919,500.00 Value Added Tax (VAT) on the sale of services by persons engaged in the
or; practice of profession or calling and professional services rendered by
o Residential house & lot or other residential dwellings with GSP general professional partnerships, in order to exclude from its coverage
greater than P3,199,200.00 services rendered by doctors of medicine duly Registered with the
Professional Regulatory Commission (PRC), and services rendered by
lawyers duly registered with the Integrated Bar of the Philippines (IBP)
Amended VAT Exempt Transactions: from value added tax.
1. Sale/lease of goods/properties or the performance of services of non-
VAT-registered persons where: SECTION 2. Coverage. — Beginning January 1, 2004, medical services
rendered by doctors of medicine duly registered with the Professional composing the partnership. Provided, further, that all gross receipts
Regulatory Commission (PRC) and legal services rendered by lawyers from sales of services rendered by the partners for and in the name
duly registered with the Integrated Bar of the Philippines (IBP) shall no of the partnership shall entirely be taxable against the partnership.
longer be subject to value added tax. Provided, further, that sales of services made by any partners
thereof in his personal and individual capacity shall not be
Services rendered by doctors of medicine specifically excluded from the attributed to the partnership but shall rather be taxable against
coverage of value added tax under Section 109(bb) of the Code, are such partner in his individual capacity. [Amended Portion are the
limited to services rendered by individuals duly licensed as doctor of following] Provided, finally, that beginning January 1, 2004,
medicine by and of good standing with the PRC, or by general services rendered by the following shall be excluded from the
professional partnership whose partners are composed solely of coverage thereof in accordance with Section 2 of Republic Act No.
individuals duly licensed as doctor of medicine by and of good standing 9238:
with the PRC, organized solely and exclusively for the practice of medical
profession. Provided, further, that the services rendered by doctors of a. services rendered by a doctor of medicine duly registered and
medicine excluded from the coverage of value added tax shall be limited of good standing with the PRC in the practice of his medical
to those services which may be rendered, under existing law, only by profession, for such services which may be rendered, under
doctors of medicine duly licensed by and of good standing with the PRC. existing law, only by a duly licensed doctor of medicine in good
standing with the PRC,
Legal services specifically excluded from the coverage of value added tax,
are limited to those rendered by individual lawyer duly registered with and b. legal services rendered by a lawyer duly registered and of
of good standing with the IBP, or by general professional partnership good standing with the IBP in the practice of his legal profession for such
whose partners are solely composed of lawyers duly registered with the services which may be rendered, under existing law, only by a lawyer duly
IBP in the practice of legal profession and organized solely and registered and in good standing with the IBP,
exclusively for the practice of law. And provided, further, that the legal
services rendered by the foregoing which shall be excluded from the c. medical services rendered by a general professional
coverage of value added tax shall be limited to those legal services which partnership whose partners are composed exclusively of doctors of
may be rendered, under existing law, only by a lawyer duly registered with medicine registered with the PRC where the general professional
and of good standing with the IBP. partnership was organized solely and exclusively for the practice of
medical profession, and for such services which may be rendered, under
SECTION 3. Amendatory Provision Excluding Doctors of Medicine existing law, only by a duly licensed doctor of medicine in good standing
Duly Registered with PRC and Services Rendered by Lawyers Duly with the PRC, or
Registered with the IBP as well as General Professional Partnerships
for the Sole and Exclusive Purpose of Practicing Law or Medicine d. legal services rendered by a general professional partnership
from the Coverage of VAT on Services. — Section 2 of RR No. 1-2003, whose partners are composed exclusively of lawyers duly registered with
as amended by RR No. 11-2003, is hereby amended to read as follows: the IBP in the practice of legal profession where the general professional
partnership was organized solely and exclusively for the practice of law,
“SECTION 2. Coverage. — Beginning January 1, 2003, general and for such services which may be rendered, under existing law, only by
professional partnerships, professionals, brokers and other a lawyer duly registered and of good standing with the IBP.”
persons enumerated under Section 1 hereof shall be governed by
the provisions of Revenue Regulations No. 7-95, as amended, SECTION 4. Transitory Provisions. — During the transition, the
otherwise known as the “Consolidated Value-Added Tax following guidelines shall be followed:
Regulations”. Provided, however, that for purposes of these
Regulations, a professional partnership shall be treated as a a. Registration. — Doctors of medicine and lawyers and general
separate and distinct taxable persons from the individual partners professional partnerships referred to above whether registered as a VAT
taxpayer or a NON-VAT taxpayer are required to update their b. Services rendered by lawyers duly registered with the Integrated
corresponding registration records with the concerned RDOs on or before Bar of the Philippines (IBP) from value added tax.
June 20, 2004, by filing the necessary registration update forms (BIR
Form No. 1905) converting their status from that of a VAT to NON-VAT or Starting January 1, 2004, such enumerated doctors and lawyers will NO
non-percentage tax taxpayer for those whose services were not subject to LONGER be subject to VAT.
VAT but to percentage tax.
Requisites for Medical Services to be exempted:
b. Unused receipts. — Doctors of medicine and lawyers and 1. Rendered by individual doctor duly licensed by PRC
general professional partnerships referred to in this Regulations, who 2. By and of good standing with the PRC
change status from VAT to NON-VAT as a result of the effectivity of RA 3. Or by general professional partnership
9238 should submit on or before the date he/she/it registered as a NON- a. Partners must be solely of individuals duly licensed as
VAT taxpayer, which shall in no case be later than June 30, 2004, an doctor of medicine by and of good standing with the PRC
inventory of unused receipts as of the date he registered as a NON-VAT b. GPP must be organized solely and exclusively for the
taxpayer, indicating the number of booklets and the corresponding serial practice of medical profession.
numbers. Unused VAT receipts included in the said inventory submitted to c. Meets requisites 1 and 2 as well
the BIR shall be allowed for use in transactions provided the phrase
“NON-VAT registered as of ________________” is stamped on all copies Requisites for Legal Services to be exempted:
thereof. These receipts with the proper stamp shall be allowed for use until 1. Rendered by individual lawyer duly registered with IBP
July 31, 2004. 2. Has good standing with the IBP
3. Or by general professional partnership
c. Services For Which VAT Invoices were Issued . — Any a. Partners must be composed of lawyers duly registered
doctor/lawyer/general professional partnerships referred to in this with the IBP
Regulations, who had issued VAT invoices for services rendered, whether b. Organized solely and exclusively for the practice of law.
or not they have updated their registration, are liable for value added tax c. Meets requisites 1 and 2 as well
in accordance with the last paragraph of Section 109 (z), and are
therefore require to pay and remit value added tax due thereon, and file a Guidelines during the transitory period:
monthly VAT return for the month where VAT invoices were issued. 1. Doctors and lawyers required to update their corresponding
registration records with the concerned RDOs on or before June
SECTION 5. Repealing Clause. — Any revenue issuance inconsistent 20, 2004, by filing the necessary registration update forms to
herewith is hereby amended, revoked, modified or repealed accordingly. convert their status from VAT to NON-VAT or non-percentage tax
taxpayer for those whose services were not subject to VAT but to
SECTION 6. Effectivity Clause. — These regulations shall take effect percentage tax.
immediately unless otherwise provided in R.A. No. 9238. 2. They must submit an inventory of unused receipts as of the date
he registered as a NON-VAT taxpayer.
a. Unused VAT receipts included in the said inventory
submitted to the BIR shall be allowed for use in
SUMMARY OF RR 07-04 transactions provided the phrase “NON-VAT registered
The RR talks about the imposition of Value Added Tax (VAT) on the sale as of ____.” is stamped on all copies thereof.
of services by persons engaged in the practice of profession or calling
and professional services rendered by general professional If the doctor or lawyer issued VAT invoices for services rendered,
partnerships, in order to exclude from its coverage: regardless if they updated their registration, they are liable for VAT and
required to pay and remit VAT due thereon, and file a monthly VAT return
a. Services rendered by doctors of medicine duly Registered with for the month where VAT invoices were issued.
the Professional Regulatory Commission (PRC),
VAT ZERO-RATED TRANSACTIONS (1) "Goods or Properties." The term "goods" or "properties"
shall mean all tangible and intangible objects which are capable
of pecuniary estimation and shall include:
SECTION 106
*Please take note of the footnotes. Several amendments have already been made by law (a) Real properties held primarily for sale to customers or held
and jurisprudence. Thank you Lex Libris! 
for lease in the ordinary course of trade or business;
SECTION 106. Value-Added Tax on Sale of Goods or Properties1. -
(b) The right or the privilege to use patent, copyright, design or
(A) Rate and Base of Tax. - There shall be levied, assessed and
model, plan, secret formula or process, goodwill, trademark, trade
collected on every sale, barter or exchange of goods or
brand or other like property or right;
properties, value-added tax equivalent to ten percent (10%)2 of
the gross selling price or gross value in money of the goods or
(c) The right or the privilege to use in the Philippines of any
properties sold, bartered or exchanged, such tax to be paid by the
industrial, commercial or scientific equipment;
seller or transferor: Provided, That the President, upon the
recommendation of the Secretary of Finance, shall, effective
(d) The right or the privilege to use motion picture films, tapes and
January 1, 2006, raise the rate of value-added tax to twelve
discs; and
percent(12%), after any of the following conditions has been
satisfied:
(e) Radio, television, satellite transmission and cable television
time.
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or The term "gross selling price" means the total amount of money
(ii) National Government deficit as a percentage of GDP of or its equivalent which the purchaser pays or is obligated to pay
the previous year exceeds one and one-half percent to the seller in consideration of the sale, barter or exchange of the
(1 1/2%). goods or properties, excluding the value-added tax. The excise
tax, if any, on such goods or properties shall form part of the
gross selling price.
1
Tax Code excludes VAT from the "gross selling price" to avoid a "tax on the (2) The following sales by VAT-registered persons shall be subject to
tax". zero percent (0%) rate:
China Banking Corp. vs. Court of Appeals, G.R. No. 146749, June 10, 2003
For purposes of the value-added tax, Section 106 of the Tax Code expressly (a) Export Sales. - The term "export sales" means:
excludes the value-added tax from the "gross selling price" to avoid a "tax on
the tax." To clarify that only the value-added tax does not form part of the
(1) The sale and actual shipment of goods from the Philippines to
gross selling price, Section 106 expressly states that the gross selling price shall
a foreign country, irrespective of any shipping arrangement that
include any excise tax, effectively resulting in a "tax on a tax." Of course, the
may be agreed upon which may influence or determine the
"tax on a tax" is in reality a tax on the portion of the income or receipt that is
transfer of ownership of the goods so exported and paid for in
equivalent to the tax, usually withheld and remitted to the government.
2
Now 12% acceptable foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and regulations of signatory effectively subjects such sales to zero rate.
the Bangko Sentral ng Pilipinas (BSP);
(B) Transactions Deemed Sale3. - The following transactions shall be
(2) Sale of raw materials or packaging materials to a nonresident deemed sale:
buyer for delivery to a resident local export-oriented enterprise to
be used in manufacturing, processing, packing or repacking in the (1) Transfer, use or consumption not in the course of business of
Philippines of the said buyer's goods and paid for in acceptable goods or properties originally intended for sale or for use in the
foreign currency and accounted for in accordance with the rules course of business;
and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Distribution or transfer to:
(3) Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed seventy percent (a) Shareholders or investors as share in the profits of
(70%) of total annual production; the VAT-registered persons; or
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and (b) Creditors in payment of debt;
(5) Those considered export sales under Executive Order NO. (3) Consignment of goods if actual sale is not made within sixty
226, otherwise known as the "Omnibus Investment Code of (60) days following the date such goods were consigned; and
1987", and other special laws; and
(4) Retirement from or cessation of business, with respect to
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations. 3
San Roque Power Corp. vs. Commissioner of Internal Revenue, G.R. No.
180345, November 25, 2009
(b) Foreign Currency Denominated Sale. - The phrase "foreign Conspicuously, Section 106 (B) of the NIRC, which deals with the imposition of
currency denominated sale" means sale to a nonresident of the VAT, does not limit the term "sale" to commercial sales; rather it extends
goods, except those mentioned in Sections 149 and 150, the term to transactions that are "deemed" sale.
assembled or manufactured in the Philippines for delivery to a After carefully examining this provision, this Court finds it an equitable
resident in the Philippines, paid for in acceptable foreign currency construction of the law that when the term "sale" is made to include certain
and accounted for in accordance with the rules and regulations of transactions for the purpose of imposing a tax, these same transactions should
the Bangko Sentral ng Pilipinas (BSP). be included in the term "sale" when considering the availability of an
exemption or tax benefit from the same revenue measures. It is undisputed
(c) Sales to persons or entities whose exemption under special that during the fourth quarter of 2002, petitioner transferred to NPC all the
laws or international agreements to which the Philippines is a electricity that was produced during the trial period. The fact that it was not
transferred through a commercial sale or in the normal course of business does
not deflect from the fact that such transaction is deemed as a sale under the
law.
inventories of taxable goods existing as of such retirement or (1) Processing, manufacturing or repacking goods for other
cessation. persons doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in
(C) Changes in or Cessation of Status of a VAT-registered Person. - acceptable foreign currency and accounted for in accordance with
The tax imposed in Subsection (A) of this Section shall also apply to the rules and regulations of the Bangko Sentral ng Pilipinas
goods disposed of or existing as of a certain date if under circumstances (BSP);
to be prescribed in rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, the (2) Services other than those mentioned in the preceding
status of a person as a VAT-registered person changes or is terminated. paragraph rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in
(D) Sales Returns, Allowances and Sales Discounts. - The value of business who is outside the Philippines when the services are
goods or properties sold and subsequently returned or for which performed, the consideration for which is paid for in acceptable
allowances were granted by a VAT-registered person may be deducted foreign currency and accounted for in accordance with the rules
from the gross sales or receipts for the quarter in which a refund is made and regulations of the Bangko Sentral ng Pilipinas (BSP);
or a credit memorandum or refund is issued. Sales discount granted and SHADcT
indicated in the invoice at the time of sale and the grant of which does not
depend upon the happening of a future event may be excluded from the (3) Services rendered to persons or entities whose
gross sales within the same quarter it was given. exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply
(E) Authority of the Commissioner to Determine the Appropriate Tax of such services to zero percent (0%) rate;
Base. - The Commissioner shall, by rules and regulations prescribed by
the Secretary of Finance, determine the appropriate tax base in cases (4) Services rendered to persons engaged in international
where a transaction is deemed a sale, barter or exchange of goods or shipping or international air transport operations, including leases
properties under Subsection (B) hereof, or where the gross selling price is
unreasonably lower than the actual market value.
Significantly, the amended Section 108 (B) [previously Section 102 (b)] of the
SECTION 108 (B) present Tax Code clarifies this legislative intent [that only the services are
different between subparagraphs 1 and 2. The requirements for zero-rating,
including the essential condition that the recipient of services is doing business
(B) Transactions Subject to Zero Percent (0%) Rate4. — The
outside the Philippines, remain the same under both subparagraphs.]. Expressly
following services performed in the Philippines by VAT-registered persons
included among the transactions subject to 0% VAT are "[s]ervices other than
shall be subject to zero percent (0%) rate:
those mentioned in the [first] paragraph [of Section 108 (b)] rendered to a
person engaged in business conducted outside the Philippines or to a
nonresident person not engaged in business who is outside the Philippines
when the services are performed, the consideration for which is paid for in
4
CIR vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. acceptable foreign currency and accounted for in accordance with the rules and
No. 153205, January 22, 2007 regulations of the BSP."
The amended Section 108 (B) clarifies legislative intent.
of property for use thereof; Agreement, as well as ―a fee agreed to 1% of such costs.‖
(5) Services performed by subcontractors and/or contractors PDTSL (Phils.) declared a total input VAT payment of P43M, and
in processing, converting, or manufacturing goods for an P42M as its total excess input VAT. However, it filed an
enterprise whose export sales exceed seventy percent (70%) of administrative claim for refund of its reported total input VAT
total annual production; payments in relation to the project it contracted with PDTSL
stating that the revenues it derived from services rendered to
(6) Transport of passengers and cargo by air or sea vessels PDTSL qualified as zero-rated sales.
from the Philippines to a foreign country; and
Issue:
(7) Sale of power or fuel generated through renewable WON the revenues PDTSL (Phils.) derived from services rendered to
sources of energy such as, but not limited to, biomass, solar, PDTSL qualified as zero-rated sales.
wind, hydropower, geothermal, ocean energy, and other
emerging energy sources using technologies such as fuel cells
and hydrogen fuels. Held: YES. As a general rule, the VAT system uses the destination
principle 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.
However, the law clearly provides for an exception to the
destination principle; that is, for a zero percent VAT rate for
COMMISSIONER OF INTERNAL REVENUE v. PLACER DOME services that are performed in the Philippines, "paid for in
TECHNICAL SERVICES (PHILS.), INC. (GO) acceptable foreign currency and accounted for in
[GR. No. 164365; June 8, 2007] accordance with the rules and regulations of the BSP." Thus,
“zero-rated because payment was in dollars” for the supply of service to be zero-rated as an exception, the law
merely requires that first, the service be performed in the
Recit-Ready: Philippines; second, the service fall under any of the
Facts: In 1996, San Antonio Mines owned by Marcopper Mining, caused categories in Section 102(b) of the Tax Code; and, third, it be
potential environmental damage to two rivers. To contain the paid in acceptable foreign currency accounted for in
damage, Placer Dome, owner of 39% of Marcopper, undertook to accordance with BSP rules and regulations.
perform the clean up and rehabilitation of the rivers. To
accomplish this, Placer Dome engaged the services PDTSL, a Facts:
non-resident foreign corporation. In turn, PDTSL engaged the  On March 24, 1996, at the San Antonio Mines in Marinduque owned by
services of PDTSL (Phils.) a domestic corporation and registered Marcopper Mining Corporation (Marcopper), mine tailings from the Taipan
VAT entity, to implement the project in the Philippines. Pit started to escape through the Makulapnit Tunnel and Boac Rivers,
causing the cessation of mining and milling operations, and causing
In their Agreement, it was stipulated that PDTSL was to pay potential environmental damage to the rivers and the immediate area.
PDTSL (Phils.) an amount of money in US funds equal to all
costs incurred for Implementation Services performed under the
 To contain the damage and prevent the spread of the tailing leak, Placer WON the revenues PDTSL (Phils.) derived from services rendered to
Dome, owner of 39% of Marcopper, undertook to perform the cleanup PDTSL qualified as zero-rated sales.
and rehabilitation of the rivers. —YES
o To accomplish this, PDI engaged Placer Dome Tech
Services Limited (PDTSL), a non-resident foreign Held/Ratio:
corporation, with office in Canada.  YES. The Court emphasized that the evaluation of the petition must
o In turn, PDTSL, engaged PDTSL (Phils.), a domestic begin with the statutory scope of the services performed in the
corporation and registered VAT entity, to implement the Philippines by VAT-registered persons, referred to in the law applicable
project in the Philippines. at the time of the subject incidents, the 1986 NIRC. Section 102(b) of the
 PDTSL and PDTSL (Phils.) entered into an Implementation Agreement. 1986 NIRC reads:
The Agreement stipulated that PDTSL was to pay PDTSL (Phils.) an  Section 102. Value-Added Tax on Sale of Services and Use or Lease of
amount of money in US funds equal to all costs incurred for Properties.
Implementation Services performed under the Agreement, as well as ―a (b) Transactions Subject to Zero Percent (0%) Rate. ─ The following
fee agreed to 1% of such costs.‖ services performed in the Philippines by VAT-registered persons shall be
 In 1998, PDTSL (Phils.) amended its VAT returns. It declared a total input subject to zero percent (0%) rate:
VAT payment of P43M, and P42M as its total excess input VAT for the (1) Processing, manufacturing or repacking goods for other
same period. Then in September 1998, it filed an administrative claim for persons doing business outside the Philippines which
refund of its reported total input VAT payments in relation to the project it goods are subsequently exported, where the services are
contracted with PDTSL. paid for in acceptable foreign currency and accounted for in
o In support of this claim for refund, it argued that the accordance with the rules and regulations of the Bangko
revenues it derived from services rendered to PDTSL, Sentral ng Pilipinas (BSP);
pursuant to the Agreement, qualified as zero-rated sales, (2) Services other than those mentioned in the preceding
since it was paid in foreign currency inwardly remitted to the subparagraph, the consideration for which is paid for in
Philippines. acceptable foreign currency and accounted for in
 When the CIR did not act on this claim, respondent filed a petition for accordance with the rules and regulations of the BSP.
review with the CTA, praying for the refund of its total reported excess  As explicitly provided in the law, a zero-rated VAT transaction includes
input vat of P42M. services by VAT-registered persons other than processing,
o The CTA held that the sale of services to PDTSL manufacturing or repacking goods for other persons doing business
constituted a zero-rated transaction but it pointed out that outside the Philippines, which goods are subsequently exported, the
only $14M out of the $27M paid by PDTSL was inwardly consideration for which is paid in foreign currency and accounted
remitted and accounted for in accordance with the BSP. for in accordance with the rules and regulations of the BSP.
o The CTA also noted that not all the reported total input VAT  Still, this provision was interpreted by the BIR through RR No. 5-96,
payments were properly supported by VAT invoices or Section 4.102(b)(2) of which states:
receipts, and that not all of the allowable input VAT could be o Section 4.102(b)(2) - Services other than processing,
directly attributed to its zero-rated sales. manufacturing or repacking for other persons doing business
o In the end, the CTA found that only the resulting input VAT outside the Philippines for goods which are subsequently
of P17M could be refunded. exported, as well as services by a resident to a non-resident
Issue: foreign client such as project studies, information services,
engineering and architectural designs and other similar consumption outside of the Philippines as clearly ultra vires
services, the consideration for which is paid for in acceptable and invalid.
foreign currency and accounted for in accordance with the rules o American Express explained the nature of VAT imposed on
and regulations of the BSP. services in this manner: The VAT is a tax on consumption
 Petitioner’s arguments: expressed as a percentage of the value added to goods or
o Petitioner argues that following Sec. 4.102(b)(2) of RR No. 5-96, services purchased by the producer or taxpayer. As an indirect
there are only two categories of services that are subject to zero tax on services, its main object is the transaction itself or,
percent VAT, namely: services other than processing, more concretely, the performance of all kinds of services
manufacturing or repacking for other persons doing business conducted in the course of trade or business in the
outside the Philippines for goods which are subsequently Philippines. These services must be regularly conducted in this
exported; and services by a resident to a non-resident foreign country; undertaken in pursuit of a commercial or an economic
client, such as project studies, information services, engineering activity; for a valuable consideration; and not exempt under the
and architectural designs and other similar services. Tax Code, other special laws, or any international agreement.
o Petitioner explains that the services rendered by respondent  Petitioner presently invokes the destination principle, citing that
were not for goods which were subsequently exported. respondent’s services, while rendered to a non-resident foreign
Likewise, it is argued that the services rendered by respondent corporation, are not destined to be consumed abroad. Hence, the situs
were not similar to project studies, information services, of taxation of the revenue arising therefrom, for VAT purposes, is also
engineering and architectural designs which were destined to be within the Philippines. Yet the Court in American Express debunked this
consumed abroad by non-resident foreign clients. argument when it rebutted the theoretical underpinnings of VAT Ruling
 VAT Ruling No. 040-98 expresses that the zero-rating may apply only No. 040-98, particularly its reliance on the destination principle in
when the services are destined for consumption abroad. This view aligns taxation:
with the theoretical principle that the VAT is ultimately levied on o As a general rule, the VAT system uses the destination
consumption. If the service were destined for consumption in the principle as a basis for the jurisdictional reach of the tax.
Philippines, the service provider would have the faculty to pass on its Goods and services are taxed only in the country where they
VAT liability to the end-user, thus avoiding having to shoulder the tax are consumed. Thus, exports are zero-rated, while imports are
itself. taxed.
 Unfortunately for petitioner, his arguments have already been discredited o However, the law clearly provides for an exception to the
by the SC in the case of Commissioner of Internal Revenue v. American destination principle; that is, for a zero percent VAT rate for
Express. services that are performed in the Philippines, "paid for in
o American Express involved transactions invoked as zero-rated acceptable foreign currency and accounted for in
by a VAT-registered person that facilitates the collection and accordance with the rules and regulations of the BSP."
payment of receivables belonging to its non-resident foreign Thus, for the supply of service to be zero-rated as an exception,
client, for which it gets paid in acceptable foreign currency the law merely requires that first, the service be performed in
inwardly remitted and accounted for in conformity with BSP the Philippines; second, the service fall under any of the
rules and regulations. The CIR in that case relied extensively on categories in Section 102(b) of the Tax Code; and, third, it be
the same VAT Ruling No. 040-98. However, the Court held that paid in acceptable foreign currency accounted for in
the opinion which states that the service must be destined for accordance with BSP rules and regulations.
o Finally, the Court in American Express found support from the The Court ruled that if this is not the case, taxpayers can
legislative record that revealed that consumption abroad is not a circumvent just by stipulating payment in foreign currency.
pertinent factor to imbue the zero-rating on services by VAT- The refund was partially allowed since Burmeister secured a
registered persons performed in the Philippines. ruling from the BIR allowing zero-rating of its sales to foreign
consortium. However, the ruling is only valid until the time that
COMMISSIONER OF INTERNAL REVENUE v. BURMEISTER CIR filed its Answer in the CTA which is deemed revocation of
AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. the previously-issued ruling. The Court said the revocation can
not retroact since none of the instances in Section 246 (bad faith,
(Lim, J.)
omission of facts, etc.) are present.
[GR. No. 153205; January 22, 2007]
“Anong point kung parehas tayo andito?”
Facts:
 A foreign consortium was formed between BWSC-Denmark, Mitsui
Recit-Ready:
Engineering and Shipbuilding, and Mitsui and Co.
Facts: A foreign consortium, parent company of Burmeister, entered into
o It entered into a contract with NAPOCOR for the operation &
an Operation & Maintenance contract with NAPOCOR for two
maintenance of two power barges.
power barges. The foreign entity then subcontracted the actual
 BWSC-Denmark established Burmeister which subcontracted the actual
contract to Burmeister. NAPOCOR paid the foreign consortium a
operation and maintenance of NAPOCOR’s two power barges as well as
mixture of currencies while the consortium, in turn, paid
the performance of other duties and acts which necessarily have to be
Burmeister foreign currency inwardly remitted into the Philippines.
done in the Philippines.
Burmeister filed and paid taxes. Eventually, Burmeister filed for
 This is paid with a mixture of currency. (important)
refund due to its misinterpretation of RR No. 5-96. CTA and CA
 In order to ascertain the tax implications of the above transactions,
granted Burmeister’s petition and ordered CIR to issue tax credit
Burmeister sought a ruling from the BIR.
certificate.
o It declared that - if Burmeister chooses to register as a VAT person
Issue/s: and the consideration for its services is paid for in acceptable foreign
WON Burmeister is entitled to tax credit. –NO currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas, the aforesaid
Held: The claim has no merit. The services referring to ―processing, services shall be subject to VAT at zero-rate.
o Burmeister then chose to register as a VAT Tax payer.
manufacturing, repacking‖ and ―services other than those in (1)‖
of Sec. 102 both require:  For the year 1996, Burmeister seasonably filed its quarterly VAT Returns
(i) payment in foreign currency; reflecting a total zero-rated sales of P147,317,189.62 with VAT input
(ii) inward remittance; taxes of P3,361,174.14.
(iii) accounted for by the BSP; AND  In 1997, Burmeister availed of the Voluntary Assessment Program (VAP)
(iv) that the service recipient is doing business outside the of the BIR.
Philippines.
In this case, since the consortium, which was the recipient of
services rendered by Burmeister, was deemed doing business
within the Philippines, it cannot be allowed to have the 0%VAT.
o It allegedly misinterpreted Revenue Regulations No. 5-965 dated which held that respondent’s services are subject to 0% VAT and
February 20, 1996 to be applicable to its case. which respondent invoked in applying for refund of the output VAT.
o Burmeister subjected its sale of services to the Consortium to the  Section 102(b) of tax code is the applicable provision in 1996 when
10% VAT in the total amount of P103,558,338.11 representing April respondent rendered the services and paid the VAT in question.
to December 1996 sales since said Revenue Regulations No. 5-96 o It enumerates which services are zero-rated.
became effective only on April 1996. o It requires that the services be other than "processing,
manufacturing or repacking of goods" and that payment for
o The sum of P43,893,951.07, representing January to March 1996
such services be in acceptable foreign currency accounted for
sales was subjected to zero rate. in accordance with BSP rules.
 In 1999, Burmeister secured a ruling from the VAT committee saying  Another essential condition for such is that the recipient of such
that the services of Burmeister is really VAT-Free. In short, it affirmed services is doing business outside the Philippines.
the ruling of BIR. o This is clearly provided in Sec. 102(b) where the listed services must
 Burmeister now filed a claim for the issuance of a tax credit certificate be "for other persons doing business outside the Philippines."
o This phrase pertains to all services in Sec. 102 (b).
with BIR.
o In short, services other than processing, manufacturing, or
o Burmeister believed that it erroneously paid the output VAT for 1996 repacking of goods must likewise be performed for persons doing
due to its availment of the Voluntary Assessment Program (VAP) of business outside the Philippines.
the BIR.  Logical interpretation of Sec. 102(b)(2):
 CTA and CA ruled in favor of Burmeister and ordered CIR to issue tax o If the provider and recipient of the "other services" are both doing
credit certificate. business in the Philippines, the payment of foreign currency is
Issue/s: irrelevant.
o Otherwise, those subject to the regular VAT under Sec. 102(a) can
WON Burmeister is entitled to a tax credit
avoid paying the VAT by simply stipulating payment in foreign
—NO currency inwardly remitted by the recipient of services.
o To interpret Sec. 102(b)(2) to apply to a payer-recipient of services
Held/Ratio: Petition DENIED. doing business in the Philippines is to make the payment of the
NO. The Court declares that the denial of the instant petition is not on the regular VAT under Sec. 102(a) dependent on the generosity of the
ground that respondent’s services are subject to 0% VAT. taxpayer.
o Rather, it is based on the non-retroactivity of the prejudicial o The provider of services can choose to pay the regular VAT or avoid
it by stipulating payment in foreign currency inwardly remitted by the
revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, payer-recipient.
o Such interpretation removes Sec. 102(a) as a tax measure in the
Tax Code, an interpretation this Court cannot sanction. A tax is a
5 mandatory exaction, not a voluntary contribution.
SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue Regulations No. 7-95 are  When Sec. 102(b)(2) stipulates payment in "acceptable foreign currency"
hereby amended to read as follows: under BSP rules, the law clearly envisions the payer-recipient of
Section 4.102-2(b)(2) – "Services other than processing, manufacturing or services to be doing business outside the Philippines.
repacking for other persons doing business outside the Philippines for goods o Only those not doing business in the Philippines can be required
which are subsequently exported, as well as services by a resident to a non- under BSP rules to pay in acceptable foreign currency for their
resident foreign client such as project studies, information services, engineering purchase of goods or services from the Philippines.
and architectural designs and other similar services, the consideration for  In this case, the payer-recipient of respondent’s services is the
which is paid for in acceptable foreign currency and accounted for in Consortium which is a joint-venture doing business in the
Philippines.
accordance with the rules and regulations of the BSP."
o While the Consortium’s principal members are non-resident foreign ACCENTURE INC. v. COMMISSIONER OF INTERNAL
corporations, the Consortium itself is doing business in the
REVENUE (Lim, Q.)
Philippines.
o This is shown clearly in BIR Ruling No. 023-95 which states that the [G.R. No. 190102; July 11, 2012]
contract between the Consortium and NAPOCOR is for a 15-year “Services must be rendered to a nonresidents to be zero-rated”
term.
 Considering this length of time, the Consortium’s operation and Recit-Ready:
maintenance of NAPOCOR’s power barges cannot be classified as a Facts: Accenture filed a VAT claim for refund on unutilized input VAT
single or isolated transaction. premised on its claim that its sales were zero-rated for being in
o The Consortium does not fall under Sec. 102(b)(2) which requires
connection with services rendered to nonresident recipients. The
that the recipient of the services must be a person doing business
outside the Philippines. CIR denied the claim stating that Accenture failed to prove that its
o Therefore, respondent’s services to the Consortium, not being foreign clients did business outside the Philippines.
supplied to a person doing business outside the Philippines, cannot
legally qualify for 0% VAT. Issue/s:
 NEVERTHELESS, in seeking a refund of its excess output tax, 1) WON the recipient of the services need to be ―doing business outside
respondent relied on VAT Ruling No. 003-99, which reconfirmed BIR the Philippines‖ for the transaction to be zero-rated under Section
Ruling No. 023-95 "insofar as it held that the services being rendered by
108(B)(2) of the 1997 Tax Code
BWSCMI is subject to VAT at zero percent (0%)."
o Respondent’s reliance on these BIR rulings binds petitioner. 2) WON Accenture was able to prove that its clients are entities doing
 However, CIR’s filing of answer before the CTA challenging business outside the Philippines
respondent’s claim for refund effectively serves as a revocation of VAT 3) *This is the simplified issue of the case/ the summary: WON Accenture
Ruling No. 003-99 and BIR Ruling No. 023-95. is entitled to the VAT refund.
o Such revocation cannot be given retroactive effect since it will
prejudice respondent. Held:
o Changing respondent’s status will deprive respondent of a refund of
a substantial amount representing excess output tax.
o Section 246 of the Tax Code provides that any revocation of a ruling 1) YES. The Court ruled that the recipient of the service must be doing
by the Commissioner of Internal Revenue shall not be given business outside the Philippines for the transaction to qualify for zero-
retroactive application if the revocation will prejudice the taxpayer. rating under Section 108(B) of the Tax Code.
o Further, there is no showing of the existence of any of the 2) NO. Accenture failed to establish that the recipients of its services do
exceptions enumerated in Section 246 of the Tax Code for the business outside the Philippines. To come within the purview of
retroactive application of such revocation. Section 108(B)(2), it is not enough that the recipient of the service be
 However, upon the filing of petitioner’s Answer dated 2 March 2000
proven to be a foreign corporation. It must be specifically proven to be
before the CTA contesting respondent’s claim for refund, respondent’s
services shall be subject to the regular 10% VAT. a nonresident foreign corporation.
o Such filing is deemed a revocation of VAT Ruling No. 003-99 and 3) NO. Accenture failed to prove that services were rendered for
BIR Ruling No. 023-95. nonresidents. The Amex case did not rule that the services recipients
o Hence, they are liable for VAT from the date of filing of the answer need not be doing business outside the Philippines but only that the
only. consumption need not be abroad. However, Accenture failed to prove
that the clients/service recipients are doing business outside the
Philippines as they only submitted SEC certifications showing that
their clients have not established any branch offices in the Philippines 1) WON the recipient of the services need to be “doing business
and billing statements issued to the said clients. The Court ruled that outside the Philippines” for the transaction to be zero-rated under
while it did prove that its clients are foreign, there was no proof that Section 108(B)(2) of the 1997 Tax Code
they were doing business outside the Philippines. —YES
2) WON Accenture was able to prove that its clients are entities doing
Facts: business outside the Philippines
 Petitioner, Accenture Inc., filed its VAT Returns for the various months of —NO
the year 2002. *Simplified Issue: WON Accenture is entitled to a VAT refund.
 The monthly and quarterly VAT returns of Accenture show that, —NO
notwithstanding its application of the input VAT credits earned from its
zero-rated transactions against its output VAT liabilities, it still had excess Held/Ratio: Petition DENIED. Accenture is not entitled to a refund.
or unutilized input VAT credits.
o These VAT credits total ₱37,038,269.18 1) YES. The Court ruled that the recipient of the service must be doing
 Out of the ₱37,038,269.18, only ₱35,178,844.21 pertained to the business outside the Philippines for the transaction to qualify for
allocated input VAT on Accenture’s ―domestic purchases of taxable zero-rating under Section 108(B) of the Tax Code.
goods which cannot be directly attributed to its zero-rated sale of o The Court upholds the position of the CTA En Banc that because
services.‖ Section 108(B) of the 1997 Tax Code is a verbatim copy of Section
 The excess input VAT was not applied to any output VAT that Accenture 102(b) of the 1977 Tax Code, any interpretation of the latter holds true
was liable for in the same quarter. Instead, it was carried forward to for the former.
petitioner’s 2nd Quarterly VAT Return for 2003. o When the Court interpreted Section 102(b) of the 1977 Tax Code in
 Accenture filed a claim for a refund or the issuance of a Tax Credit Burmeister, this interpretation became part of the law from the
Certificate (TCC), which was denied. moment it became effective. It is elementary that the interpretation of
a law by this Court constitutes part of that law from the date it was
 Accenture claims that nowhere does Section 108(B) of the 1997 Tax
Code state that services, to be zero-rated, should be rendered to clients originally passed.
o The Court ruled in Amex that Section 102 of the 1977 Tax Code does
doing business outside the Philippines, the requirement introduced by
R.A. 9337. not require that the services be consumed abroad to be zero-rated.
However, nowhere in that case did the Court discuss the
o Thus, it claims that since it complied with all the conditions
necessary qualification of the recipient of the service. In fact, the
imposed in Section 108(B), it is entitled to the refund prayed
recipient of the service in Amex is a nonresident foreign client.
for.
 In Amex, the Court explained how the credit card system
 The parties cited two case—Commissioner of Internal Revenue v.
works.
American Express (“Amex”) and Commissioner of Internal Revenue v.
 The Court also explained how the services rendered in Amex
Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
were considered to have been performed and consumed in
(―Burmeister”) as basis. *It might be important because it was thoroughly
the Philippines
discussed so I included it.
o In Amex The Court ruled that the place of performance and/or
consumption of the service is immaterial.
Issues:
o In Burmeister, the Court found that, although the place of the
consumption of the service does not affect the entitlement of a
transaction to zero-rating, the place where the recipient conducts its o Accenture failed to discharge this burden. It alleged and presented
business does. evidence to prove only that its clients were foreign entities. However,
 These cases are not conflicting, but should be taken together. as found by both the CTA Division and the CTA En Bane, no evidence
o The zero-rating of the services performed by respondent in Amex was presented by Accenture to prove the fact that the foreign clients
was affirmed by the Court, because although the services to whom petitioner rendered its services were clients doing business
rendered were both performed and consumed in the Philippines, outside the Philippines.
the recipient of the service was still an entity doing business
outside the Philippines as required in Burmeister. CIR v. SEKISUI JUSHI PHILS., INC. (Luna)
o That the recipient of the service should be doing business outside the [GR. No. 149671; July 21, 2006]
Philippines to qualify for zero-rating is the only logical interpretation of “Since 100% of Sekisui's products are exported, all its transactions are
Section 102(b)(2) of the 1977 Tax Code, as explained in Burmeister.6 deemed export sales and are thus VAT zero-rated.”
2) NO. Accenture failed to establish that the recipients of its services Recit-Ready:
do business outside the Philippines. Facts: Sekisui Jushi is a PEZA entity engaged in manufacture and
o The documents presented by Accenture merely substantiate the export of strapping bands and other packaging materials.
existence of the sales, receipt of foreign currency payments, and Respondent is availing of the incentive under EO No. 226 thus
inward remittance of the proceeds of these sales duly accounted for in entitled to an income tax holiday. It registered with the BIR as a
accordance with BSP rules. Petitioner presented no evidence VAT taxpayer and exported all of its products. Since it has
whatsoever that these clients were doing business outside the unutilized input taxes, it is seeking for refund of unutilized input
Philippines. taxes.
 The evidence presented by Accenture may have established
that its clients are foreign. This fact does not automatically Issue/s:
mean, however, that these clients were doing business WON Sekisui Jushi, being a PEZA exporter, can claim its unutilized input
outside the Philippines. VAT?
o 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. It Held: In ruling for Sekisui Jushi, the Court explained that PEZA entities
must be specifically proven to be a nonresident foreign
can avail of two alternative or subsequent incentives of Income
corporation.
Tax Holiday and 5% preferential tax rate on its gross income. It is
only in the latter where the VAT is not imposed on the PEZA
6
entity on its sales. Being under ITH, it will be subject to VAT on
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102 (a) governing domestic sale
sales and should VAT-register. However, (1) sales to the PEZA
or exchange of services. Indeed, this is a purely local sale or exchange of services subject entity, regardless of incentive availed, is zero-rated on the part of
to the regular VAT, unless of course the transaction falls under the other provisions of the seller since PEZA is considered ―foreign soil‖ and thus sales
Section 102 (b).
Thus, when Section 102 (b) (2) speaks of ―[s]ervices other than those mentioned in the to them are considered as ―export sales‖ and (2) if the PEZA
preceding subparagraph,‖ the legislative intent is that only the services are different entity is an exporter, its input VAT are subject to refund not by
between subparagraphs 1 and 2. The requirements for zero-rating, including the essential virtue of its PEZA status (and thus regardless of whether it’s at
condition that the recipient of services is doing business outside the Philippines, remain the
same under both subparagraphs. 5% GIE or ITH) but due to the nature of its transactions (i.e.,
export sales).  Under the second, it is exempt from income taxes for a number of years,
but not from other national internal revenue taxes like the VAT.
Facts:  A perusal of the pleadings and supporting documents indicates that
 SEKISUI JUSHI is a domestic corporation with principal office located in Sekisui availed itself of the income tax holiday (second). By doing so, it
the Special Export Processing Zone in Laguna. became subject to VAT. It correctly registered as a VAT taxpayer,
 It is principally engaged in the business of manufacturing, importing, because its transactions were not VAT-exempt.
exporting, buying, selling wholesale such goods as strapping bands and  Notwithstanding the fact that its purchases should have been zero-rated,
other packaging materials. Sekisui was able to prove that it had paid input taxes in the amount of
 Having registered with the BIR as a VAT taxpayer, Sekisui filed its P4M, as substantially supported by invoices and ORs.
quarterly returns with the BIR, in the amount of P4M paid by it in  While an ecozone is within the Philippines, it is deemed a separate
connection with its domestic purchase of capital goods and services. customs territory. Sales by suppliers from outside the borders of the
 Said input taxes remained unutilized since Sekisui has not engaged in ecozone to this separate customs territory are deemed as exports and
any business activity or transaction for which it may be liable for output treated as export sales.
tax and for which said input taxes may be credited.  Since 100% of Sekisui's products are exported, all its transactions are
 Sekisui then filed with the One-Stop-Shop Inter-Agency Tax Credit and deemed export sales and are thus VAT zero-rated. Sekisui has no
Duty Drawback Center of the Department of Finance (CENTER-DOF) output tax with which it could offset its paid input tax. Since the subject
two separate applications for tax credit/refund of VAT input taxes paid. input tax it paid for its domestic purchases of capital goods and services
 CIR denied this, but CTA ruled that Sekisui was entitled to refund. remained unutilized, it can claim a refund for the input VAT previously
charged by its suppliers.
Issue/s:
WON SEKISUI is entitled to the refund/tax credit certificate as alleged CIR v. SEAGATE TECH (Pascual)
unutilized input taxes paid on domestic purchase of capital goods and [G.R. No. 153866; February 11, 2005]
services “Zero-Rated Seagate”
—Yes.
Recit-Ready:
Held/Ratio: Petition DENIED and assailed decision in favor of Sekisui is Facts: Respondent Seagate Tech is a resident foreign corporation doing
affirmed. business in a Special Economic Zone in Cebu and engaged in
the manufacture of recording components primarily used in
Yes, it is entitled to refund. computers for export. As a PEZA-registered enterprise within an
 Business enterprises registered with the Philippine Export Zone SEZ, respondent availed of fiscal incentives under the Omnibus
Authority (PEZA) may choose between two fiscal incentive schemes: Investment Code instead of PD 66 and of Sec 24 of RA 7916, the
o (1) to pay a 5% preferential tax rate on its gross income and implication being that it opted for the income tax holiday in lieu of
thus be exempt from all other taxes; or the 5% preferential tax on gross income earned.
o (2) to enjoy an income tax holiday, in which case it is not
exempt from applicable national revenue taxes including the Seagate filed an administrative claim for refund of VAT input taxes
value-added tax (VAT). but this was not acted upon by the CIR. The claim for refund was,
 If the entity avails itself of the 5% preferential tax rate under the first however, granted by the CTA and this decision was affirmed by
scheme, it is exempt from all taxes, including the VAT;
the CA. o And, somewhat importantly, it a VAT-registered entity as

evidenced by a VAT Registration Certificate.
Petitioner’s argument is that as respondent is a PEZA registered  As a PEZA-registered enterprise within an SEZ, respondent availed
Ecozone enterprise, then its business is not subject to VAT of fiscal incentives under the Omnibus Investment Code, instead of
pursuant to Sec 24 of RA 7916, in relation to Sec 103 of the Tax PD 66 and of Sec 24 of RA 7916.
Code. As the business is not subject to VAT, they argue that  Seagate filed an administrative claim for refund of VAT input taxes
capital goods and services it alleged to have purchased are but this was not acted upon by the CIR. The claim for refund was,
considered not used in VAT taxable business and thus however, granted by the CTA and this decision was affirmed by the
respondent is not entitled to refund of input taxes on such capital CA.
goods and of input taxes on services.  Petitioner’s argument is that as respondent is a PEZA registered
Ecozone enterprise, then its business is not subject to VAT pursuant
Issue: to Sec 24 of RA 7916, in relation to Sec 103 of the Tax Code.
WON respondent is entitled to the refund or issuance of Tax Credit o As the business is not subject to VAT, they argue that
Certificate in the amount representing alleged unutilized input VAT capital goods and services it alleged to have purchased are
paid on capital goods purchased? considered not used in VAT taxable business and thus
respondent is not entitled to refund of input taxes on such
Held: capital goods and of input taxes on services.
YES. Business companies registered in and operating from the SEZs are Issue:
entities exempt from all internal revenue taxes and all the IRRs relevant WON respondent is entitled to the refund or issuance of Tax Credit
thereto, including VAT. Respondent’s status as being exempt from internal Certificate in the amount representing alleged unutilized input VAT paid on
revenue taxes and IRRs, however, does not preclude it from being able to capital goods purchased?
claim tax credits on unutilized input VAT paid on capital goods purchased.
Here, export sales made by respondent are not deemed exempt Held/Ratio:
transactions, but are nonetheless zero-rated. And as Seagate has  YES. Respondent’s status as being exempt from internal revenue
complied with all requisites for claiming a tax refund or credit for the input taxes and IRRs, however, does not preclude it from being able to
VAT it paid on capital goods it purchased, they are entitled to the refund or claim tax credits on unutilized input VAT paid on capital goods
issuance of tax credits. purchased.
o On Zero-Rated and Effectively Zero-Rated Transactions
Facts:  Both are taxable and similar in effect, zero-rated
 Respondent Seagate Tech is a resident foreign corporation doing transactions differ from effectively zero-rated
business in a Special Economic Zone in Cebu and engaged in the transactions as to their source.
manufacture of recording components primarily used in computers for  Zero-rated transactions refer to the export sale of
export. goods and supply of services, with the tax rate
o It is registered with the SEC as a resident foreign being set at 0.
corporation engaged to do business in the Philippines.  Effectively zero-rated transactions refer to the sale
o It is registered with the Philippine Export Zone Authority and of goods or supply of services to persons or
has been issued a PEZA Certificate pursuant to PD 66. entities whose exemptions under special laws or
international agreements to which the Philippines is
a signatory effectively subjects such transactions to o In these cases, the seller is not
a zero rate. allowed any tax refund or credit
 The results are the same, however, in that: for any input taxes paid.
 No tax chargeable against the purchaser;  Exempt parties, though, are persons or
 Seller charges no output tax; but entities granted VAT exemption under
 The seller can claim a refund of or a tax either the Tax Code, special laws, or
credit certificate for the VAT previously international agreements.
charged by suppliers. o In these cases, such parties are
 In terms of VAT computation, zero rating and not subject to the VAT, but may
exemption are the same, but the extent of relief be allowed a tax refund of or
that results from either is not. credit for input taxes paid.
 Automatic zero-rating is primarily intended o Putting All This Together…
to be enjoyed by the seller while effective  Respondent, as an entity, is exempt from VAT.
zero-rating is intended to benefit the However, the transactions it enters into are not
purchaser. necessarily so. (Recall: VAT is meant to be
o In both instances of zero-rating, understood in the context of consumption, not on
there is total relief for the the person or entity.)
purchaser from the burden of the  The transactions entered into by respondent are,
tax however, zero-rated.
o It is important to understand that,  Since the purchases made by respondent are not
under the present system of VAT, exempt from the VAT, the rate to be applied to
an entity can credit against or such would be zero. (Remember that the zero-
subtract from the VAT charged on rating things afford total relief to the purchaser.)
its sales or outputs the VAT paid  Under special laws, respondent can neither be
on its purchases, inputs and directly charged for the VAT on its sales nor can it
imports. be indirectly made to bear, as added cost to its
 In an exemption, however, there is only sales, the equivalent VAT on its purchases.
partial relief because the purchaser is not  Thus, while respondent does enjoy exemption
allowed any tax refund or credit for input under special laws, the transactions it enters into
taxes paid. are not necessarily exempt. While they aren’t
o On Exempt Transactions v. Exempt Parties exempt, they are still to be taxed at a zero-rate.
 The object of exemption from VAT may either be And as a VAT-registered entity, respondent can
the transaction itself or any of the parties to the claim for tax credits made on its purchases on
transaction. capital goods.
 Exempt transactions are those which are o Final Formality: Requisites for Claiming a VAT Refund
specifically listed as exempted from VAT  First, respondent is a VAT-registered entity.
under the Tax Code, without regard to the
tax status of the party to the transaction.
 Second, the input taxes paid on the capital goods purchases of capital goods and services.
of respondent are duly supported by VAT invoices
and have not been offset against any output taxes. Held: YES. An ECOZONE enterprise is a VAT-exempt entity. Sales of
Third, no question as to either the filing of such claims within the prescriptive goods, properties, and services by persons from the Customs
period or the validity of the VAT returns has been raised. Territory to ECOZONE enterprises shall be subject to VAT at
zero percent (0%). Toshiba bases its claim for tax refund on
Section 106(b) of the Tax Code of 1977.
CIR v. TOSHIBA INFORMATION EQUIPMENT (Ong) CIR argues that although respondent Toshiba may be a VAT-
registered taxpayer, it is not engaged in a VAT-taxable business.
[GR. No. 150154; August 9, 2005]
Toshiba is actually VAT-exempt, invoking Sec. 103 of the Tax
“Toshiba PEZA registered – allowed refund of unitized input vat” Code of 1977. Since Toshiba is a PEZA-registered enterprise, it
is subject to the five percent (5%) preferential tax rate imposed
Recit-Ready: under The Special Economic Zone Act of 1995, as
Facts: Toshiba is a domestic corporation with the primary purpose of amended. Thus, petitioner CIR contends that respondent Toshiba
engaging in the business of manufacturing and exporting of is VAT-exempt by virtue of a special law, Rep. Act No. 7916, as
electrical and mechanical machinery, equipment, systems, amended.
It would seem that petitioner CIR failed to differentiate between
accessories, parts, components, materials and goods of all kinds.
VAT-exempt transactions from VAT-exempt entities. In the case
Toshiba is also registered with the Philippine Economic Zone of Commissioner of Internal Revenue v. Seagate Technology
Authority (PEZA) as an ECOZONE Export Enterprise, It is also (Philippines), this Court already made such distinction:
registered with the BIR as a VAT taxpayer and withholding agent.  An exempt transaction, on the one hand, involves goods or
Toshiba filed its VAT returns for the taxable year 1996, reporting services which, by their nature, are specifically listed in and
input VAT in the amount of P18,247,303.94. It alleged that the expressly exempted from the VAT under the Tax Code,
without regard to the tax status VAT-exempt or not of the
said input VAT was from its purchases of capital goods and
party to the transaction.
services which remained unutilized since it had not yet engaged  An exempt party, on the other hand, is a person or entity
in any business activity or transaction for which it may be liable granted VAT exemption under the Tax Code, a special law
for any output VAT. Consequently, Toshiba filed with the One- or an international agreement to which the Philippines is a
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of signatory, and by virtue of which its taxable transactions
the Department of Finance (DOF) applications for tax become exempt from VAT.
credit/refund of its unutilized input VAT totaling P19,338,422.07. Section 103(q) of the Tax Code of 1977, as amended, relied upon
by petitioner CIR, relates to VAT-exempt transactions. Since such
To toll the running of the two-year prescriptive period for judicially
transactions are not subject to VAT, the sellers cannot pass on
claiming a tax credit/refund, respondent Toshiba, on 31 March any output VAT to the purchasers of goods, properties, or
1998, filed with the CTA a Petition for Review. The CTA, in its services, and they may not claim tax credit/refund of the input
Decision dated 10 March 2000, ordered petitioner CIR to refund, VAT they had paid thereon.
or in the alternative, to issue a tax credit certificate to respondent Section 103(q) of the Tax Code of 1977, as amended, cannot
Toshiba in the amount of P16,188,045.44. The CA affirmed the apply to transactions of respondent Toshiba because although
CTA’s decision. the said section recognizes that transactions covered by special
laws may be exempt from VAT, the very same section provides
that those falling under Presidential Decree No. 66 are not.
Issue/s: Presidential Decree No. 66, creating the Export Processing Zone
WON Toshiba is entitled to the tax credit/refund of its input VAT on its Authority (EPZA), is the precursor of Rep. Act No. 7916, under
which the EPZA evolved into the PEZA. Consequently, the exempt depended on the type of fiscal incentives availed of by the said
exception of Presidential Decree No. 66 from Section 103(q) of enterprise.
the Tax Code of 1977, as amended, extends likewise to Rep. Act The old VAT rule for PEZA-registered enterprises was based on their
No. 7916, as amended.
choice of fiscal incentives: (1) five percent (5%) preferential tax on its
This Court agrees, however, that PEZA-registered enterprises, which
gross income, in lieu of all taxes - then it would be VAT-exempt; (2)
would necessarily be located within ECOZONES, are VAT-exempt
income tax holiday - it shall be subject to VAT at ten percent (10%).
entities, not because of Section 24 of Rep. Act No. 7916, as amended,
The sale of capital goods by suppliers from the Customs Territory to
which imposes the five percent (5%) preferential tax rate on gross income
respondent Toshiba in the present Petition took place during the first and
of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of
second quarters of 1996 when the old rule was accepted and
Section 8 of the same statute which establishes the fiction that
implemented. Since respondent Toshiba opted to avail itself of the income
ECOZONES are foreign territory.
tax holiday, then it was deemed subject to the ten percent (10%) VAT.
The Philippine VAT system adheres to the Cross Border Doctrine,
This Court gives due respect to and adopts herein the CTAs findings that
according to which, no VAT shall be imposed to form part of the cost of
the suppliers of capital goods from the Customs Territory did pass on
goods destined for consumption outside of the territorial border of the
output VAT to respondent Toshiba and the amount of input VAT which
taxing authority. Hence, actual export of goods and services from the
respondent Toshiba could claim as credit/refund.
Philippines to a foreign country must be free of VAT; while, those destined
for use or consumption within the Philippines shall be imposed with ten
Facts:
percent (10%) VAT.
 Toshiba is a domestic corporation with the primary purpose of engaging
No output VAT may be passed on to an ECOZONE enterprise since it is a
in the business of manufacturing and exporting of electrical and
VAT-exempt entity. The VAT treatment of sales to it, however, varies
mechanical machinery, equipment, systems, accessories, parts,
depending on whether the supplier from the Customs Territory is VAT-
registered or not. components, materials and goods of all kinds, including, without
If such sales are made by a VAT-registered supplier, they shall be subject limitation, to those relating to office automation and information
technology, and all types of computer hardware and software.
to VAT at zero percent (0%). In zero-rated transactions, the VAT-
registered supplier shall not pass on any output VAT to the ECOZONE  Toshiba is also registered with the Philippine Economic Zone Authority
enterprise, and at the same time, shall be entitled to claim tax (PEZA) as an ECOZONE Export Enterprise, with principal office in
credit/refund of its input VAT attributable to such sales. Meanwhile, sales Laguna Technopark, Laguna. It is also registered with the BIR as a VAT
to an ECOZONE enterprise made by a non-VAT or unregistered supplier taxpayer and withholding agent.
would only be exempt from VAT and the supplier shall not be able to claim  Toshiba filed its VAT returns for the first and second quarters of taxable
credit/refund of its input VAT. year 1996, reporting input VAT in the amount of P13,118,542.00
Toshiba is basing its claim for tax credit or refund on Sec. 4.106-1(b) of and P5,128,761.94, respectively, or a total of P18,247,303.94. It alleged
RR No. 7-95, which allows a VAT-registered person to apply for tax that the said input VAT was from its purchases of capital goods and
credit/refund of the input VAT on its capital goods. services which remained unutilized since it had not yet engaged in any
The rule that any sale by a VAT-registered supplier from the Customs business activity or transaction for which it may be liable for any output
Territory to a PEZA-registered enterprise shall be considered an export VAT.
sale and subject to zero percent (0%) VAT was clearly established only on  Consequently, Toshiba filed with the One-Stop Shop Inter-Agency Tax
15 October 1999, upon the issuance of RMC No. 74-99. Prior to the said Credit and Duty Drawback Center of the Department of Finance (DOF)
date, however, whether or not a PEZA-registered enterprise was VAT- applications for tax credit/refund of its unutilized input VAT for 01 January
to 31 March 1996 in the amount of P14,176,601.28, and for 01 April to 30 o Petitioner CIR, on the other hand, opposes such claim on account of
June 1996 in the amount ofP5,161,820.79, for a total of P19,338,422.07. Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95, otherwise
 To toll the running of the two-year prescriptive period for judicially known as the VAT Regulations, as amended, which provides as
claiming a tax credit/refund, respondent Toshiba, on 31 March 1998, filed follows:
with the CTA a Petition for Review.
 The CTA, in its Decision dated 10 March 2000, ordered petitioner CIR to Sec. 4.106-1. Refunds or tax credits of input tax.
refund, or in the alternative, to issue a tax credit certificate to respondent ...
Toshiba in the amount of P16,188,045.44. (b) Capital Goods. -- Only a VAT-registered person may apply for
 The CA affirmed the CTA’s decision. issuance of a tax credit certificate or refund of input taxes paid on
 The CIR now comes assailing the decision of the CA. capital goods imported or locally purchased. The refund shall be
allowed to the extent that such input taxes have not been applied
Issue/s: against output taxes. The application should be made within two (2)
WON Toshiba is entitled to the tax credit/refund of its input VAT on its years after the close of the taxable quarter when the importation or
purchases of capital goods and services. purchase was made.
—YES
Refund of input taxes on capital goods shall be allowed only to the
Held/Ratio: Petition DENIED. Court AFFIRMS the decision of the Court of extent that such capital goods are used in VAT taxable business. If it
Appeals and the order of the CTA ordering said petitioner CIR to refund or, in is also used in exempt operations, the input tax refundable shall only
the alternative, to issue a tax credit certificate to respondent Toshiba, in the be the ratable portion corresponding to the taxable operations.
amount of P16,188,045.44, representing unutilized input VAT for the first and
second quarters of 1996. Capital goods or properties refer to goods or properties with estimated
useful life greater than one year and which are treated as depreciable
YES. An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, assets under Section 29(f), used directly or indirectly in the production
properties, and services by persons from the Customs Territory to or sale of taxable goods or services.
ECOZONE enterprises shall be subject to VAT at zero percent (0%).
o Petitioner CIR argues that although respondent Toshiba may be a
o Toshiba bases its claim for tax refund on Section 106(b) of the Tax VAT-registered taxpayer, it is not engaged in a VAT-taxable business.
Code of 1977, as amended which reads: Toshiba is actually VAT-exempt, invoking the following provision of
the Tax Code of 1977, as amended:
SEC. 106. Refunds or tax credits of creditable input tax.
SEC. 103. Exempt transactions. The following shall be exempt from
(b) Capital goods. A VAT-registered person may apply for the issuance of a value-added tax.
tax credit certificate or refund of input taxes paid on capital goods imported (q) Transactions which are exempt under special laws, except those
or locally purchased, to the extent that such input taxes have not been granted under Presidential Decree No. 66, 529, 972, 1491, and 1590,
applied against output taxes. The application may be made only within two and non-electric cooperatives under Republic Act No. 6938, or
(2) years after the close of the taxable quarter when the importation or international agreements to which the Philippines is a signatory.
purchase was made.
o Since respondent Toshiba is a PEZA-registered enterprise, it is o This Court agrees, however, that PEZA-registered enterprises,
subject to the five percent (5%) preferential tax rate imposed under which would necessarily be located within ECOZONES, are VAT-
Chapter III, Section 24 of Republic Act No. 7916, otherwise known as exempt entities, not because of Section 24 of Rep. Act No. 7916, as
The Special Economic Zone Act of 1995, as amended. Thus, amended, which imposes the five percent (5%) preferential tax rate
petitioner CIR contends that respondent Toshiba is VAT-exempt by on gross income of PEZA-registered enterprises, in lieu of all taxes;
virtue of a special law, Rep. Act No. 7916, as amended. but, rather, because of Section 8 of the same statute which
o It would seem that petitioner CIR failed to differentiate between VAT- establishes the fiction that ECOZONES are foreign territory.
exempt transactions from VAT-exempt entities. In the case o As a result, sales made by a supplier in the Customs Territory to a
of Commissioner of Internal Revenue v. Seagate Technology purchaser in the ECOZONE shall be treated as an exportation from
(Philippines), this Court already made such distinction: the Customs Territory. Conversely, sales made by a supplier from
 An exempt transaction, on the one hand, involves goods or the ECOZONE to a purchaser in the Customs Territory shall be
services which, by their nature, are specifically listed in and considered as an importation into the Customs Territory.
expressly exempted from the VAT under the Tax Code, o The Philippine VAT system adheres to the Cross Border Doctrine,
without regard to the tax status VAT-exempt or not of the according to which, no VAT shall be imposed to form part of the cost
party to the transaction. of goods destined for consumption outside of the territorial border of
 An exempt party, on the other hand, is a person or entity the taxing authority. Hence, actual export of goods and services
granted VAT exemption under the Tax Code, a special law or from the Philippines to a foreign country must be free of VAT; while,
an international agreement to which the Philippines is a those destined for use or consumption within the Philippines shall be
signatory, and by virtue of which its taxable transactions imposed with ten percent (10%) VAT.
become exempt from VAT. o Applying said doctrine to the sale of goods, properties, and services
o Section 103(q) of the Tax Code of 1977, as amended, relied upon to and from the ECOZONES, the BIR issued Revenue
by petitioner CIR, relates to VAT-exempt transactions. These are Memorandum Circular (RMC) No. 74-99, on 15 October 1999. Of
transactions exempted from VAT by special laws or international particular interest to the present Petition is Section 3 thereof, which
agreements to which the Philippines is a signatory. Since such reads:
transactions are not subject to VAT, the sellers cannot pass on any
output VAT to the purchasers of goods, properties, or services, and SECTION 3. Tax Treatment Of Sales Made By a VAT
they may not claim tax credit/refund of the input VAT they had paid Registered Supplier from The Customs Territory, To a
thereon. PEZA Registered Enterprise.
o Section 103(q) of the Tax Code of 1977, as amended, cannot apply (1) If the Buyer is a PEZA registered enterprise which is
to transactions of respondent Toshiba because although the said subject to the 5% special tax regime, in lieu of all taxes,
section recognizes that transactions covered by special laws may be except real property tax, pursuant to R.A. No. 7916, as
exempt from VAT, the very same section provides that those falling amended:
under Presidential Decree No. 66 are not. Presidential Decree No. (a) Sale of goods (i.e., merchandise). This shall be
66, creating the Export Processing Zone Authority (EPZA), is the treated as indirect export hence, considered subject to
precursor of Rep. Act No. 7916, under which the EPZA evolved into zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5),
the PEZA. Consequently, the exception of Presidential Decree No. NIRC and Sec. 23 of R.A. No. 7916, in relation to ART.
66 from Section 103(q) of the Tax Code of 1977, as amended, 77(2) of the Omnibus Investments Code.
extends likewise to Rep. Act No. 7916, as amended.
(b) Sale of service. This shall be treated subject to zero sufficient compliance to the requirement for prior approval
percent (0%) VAT under the cross border doctrine of the of zero-rating imposed by Revenue Regulations No. 7-95
VAT System, pursuant to VAT Ruling No. 032-98 dated effective as of the date of the issuance of this Circular.
Nov. 5, 1998.
(2) If Buyer is a PEZA registered enterprise which is not o Indubitably, no output VAT may be passed on to an ECOZONE
embraced by the 5% special tax regime, hence, subject to enterprise since it is a VAT-exempt entity. The VAT treatment of
taxes under the NIRC, e.g., Service Establishments which sales to it, however, varies depending on whether the supplier from
are subject to taxes under the NIRC rather than the 5% the Customs Territory is VAT-registered or not.
special tax regime: o If such sales are made by a VAT-registered supplier, they shall be
(a) Sale of goods (i.e., merchandise). This shall be subject to VAT at zero percent (0%). In zero-rated transactions, the
treated as indirect export hence, considered subject to VAT-registered supplier shall not pass on any output VAT to the
zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), ECOZONE enterprise, and at the same time, shall be entitled to
NIRC and Sec. 23 of R.A. No. 7916 in relation to ART. claim tax credit/refund of its input VAT attributable to such sales.
77(2) of the Omnibus Investments Code. Zero-rating of export sales primarily intends to benefit the exporter
(b) Sale of Service. This shall be treated subject to zero (i.e., the supplier from the Customs Territory), who is directly and
percent (0%) VAT under the cross border doctrine of the legally liable for the VAT, making it internationally competitive by
VAT System, pursuant to VAT Ruling No. 032-98 dated allowing it to credit/refund the input VAT attributable to its export
Nov. 5, 1998. sales.
(3) In the final analysis, any sale of goods, property or o Meanwhile, sales to an ECOZONE enterprise made by a non-VAT
services made by a VAT registered supplier from the or unregistered supplier would only be exempt from VAT and the
Customs Territory to any registered enterprise operating in supplier shall not be able to claim credit/refund of its input VAT.
the ecozone, regardless of the class or type of the latters o CIR opposed the grant of tax credit/refund to respondent Toshiba,
PEZA registration, is actually qualified and thus legally reasoning that Toshiba could not have paid input taxes on its
entitled to the zero percent (0%) VAT. Accordingly, all purchases of goods and services from VAT-registered suppliers
sales of goods or property to such enterprise made by a because such purchases being zero-rated, that is, no output tax was
VAT registered supplier from the Customs Territory shall paid by the suppliers, no input tax was shifted or passed on to
be treated subject to 0% VAT, pursuant to Sec. respondent.
106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the o This Court wishes to point out that petitioner CIR is working on the
Omnibus Investments Code, while all sales of services to erroneous premise that respondent Toshiba is claiming tax credit or
the said enterprises, made by VAT registered suppliers refund of input VAT based on Section 4.100-2, in relation to Section
from the Customs Territory, shall be treated effectively 4.106-1(a), of RR No. 7-95, as amended, which allows the tax
subject to the 0% VAT, pursuant to Section 108(B)(3), credit/refund of input VAT on zero-rated sales of goods, properties
NIRC, in relation to the provisions of R.A. No. 7916 and or services. Instead, respondent Toshiba is basing its claim for tax
the Cross Border Doctrine of the VAT system. credit or refund on Sec. 4.106-1(b) of the same regulations, which
This Circular shall serve as a sufficient basis to entitle allows a VAT-registered person to apply for tax credit/refund of the
such supplier of goods, property or services to the benefit input VAT on its capital goods. While in the former, the seller of the
of the zero percent (0%) VAT for sales made to the goods, properties or services is the one entitled to the tax
aforementioned ECOZONE enterprises and shall serve as credit/refund; in the latter, it is the purchaser of the capital goods.
o Nevertheless, petitioner CIR validly raised the question of whether income tax holiday, for input VAT on their purchases made prior to
any output VAT was actually passed on to respondent Toshiba RMC No. 74-99.
which it could claim as input VAT subject to credit/refund. o It therefore seems irrational and unreasonable for petitioner CIR to
o The rule that any sale by a VAT-registered supplier from the oppose respondent Toshibas application for tax credit/refund of its
Customs Territory to a PEZA-registered enterprise shall be input VAT, when such claim had already been determined and
considered an export sale and subject to zero percent (0%) VAT approved by the CTA after due hearing, and even affirmed by the
was clearly established only on 15 October 1999, upon the issuance Court of Appeals.
of RMC No. 74-99. Prior to the said date, however, whether or not a
PEZA-registered enterprise was VAT-exempt depended on the type CONTEX CORPORATION v. CIR (Reyes)
of fiscal incentives availed of by the said enterprise. [G.R. No. 151135; July 2, 2004]
o The old VAT rule for PEZA-registered enterprises was based on “A VAT-exempt taxpayer is not the proper party to claim for a tax credit or
their choice of fiscal incentives: tax refund for VAT erroneously paid.”
(1) If the PEZA-registered enterprise chose the five percent (5%) preferential
tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. Recit-Ready:
7916, as amended, then it would be VAT-exempt;  Facts: Contex Corporation is a domestic corporation registered
(2) If the PEZA-registered enterprise availed of the income tax holiday under as a non-VAT taxpayer in the Subic Bay Freeport Zone.
Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent From January 1, 1997 to December 31, 1998, petitioner
(10%). purchased various supplies and materials necessary in the
o Such distinction was abolished by RMC No. 74-99, which conduct of its manufacturing business. The suppliers of these
categorically declared that all sales of goods, properties, and goods shifted unto petitioner the 10% VAT on the purchased
services made by a VAT-registered supplier from the Customs items, which led the petitioner to pay input taxes in the amounts
Territory to an ECOZONE enterprise shall be subject to VAT, at zero of P539,411.88 and P504,057.49 for 1997 and 1998,
percent (0%) rate, regardless of the latters type or class of PEZA respectively. Contex filed for a claim for tax refund or tax credit for
registration; and, thus, affirming the nature of a PEZA-registered or amounts it erroneously paid. The claim was denied by BIR
an ECOZONE enterprise as a VAT-exempt entity. Regional offices. The CTA partially granted the claim. The CA
o The sale of capital goods by suppliers from the Customs Territory to denied the claim.
respondent Toshiba in the present Petition took place during the first
and second quarters of 1996, way before the issuance of RMC No.
74-99, and when the old rule was accepted and implemented by no Issue/s:
less than the BIR itself. Since respondent Toshiba opted to avail 1) WON Petitioner is exempt from paying the VAT.
itself of the income tax holiday under Exec. Order No. 226, as —NO
amended, then it was deemed subject to the ten percent (10%) VAT. 2) WON Petitioner is entitled to a tax credit or refund.
o This Court gives due respect to and adopts herein the CTAs findings —NO
that the suppliers of capital goods from the Customs Territory did
pass on output VAT to respondent Toshiba and the amount of input Held:
VAT which respondent Toshiba could claim as credit/refund.
o Under RMC No. 42-2003, the DOF would still accept applications for 1) NO.
tax credit/refund filed by PEZA-registered enterprises, availing of the The value-added tax is an indirect tax which means the amount of tax
paid on the goods, properties or services bought, transferred, or  The suppliers of these goods shifted unto petitioner the 10% VAT on the
leased may be shifted or passed on by the seller, transferor, or lessor purchased items, which led the petitioner to pay input taxes in the
to the buyer, transferee or lessee. amounts of P539,411.88 and P504,057.49 for 1997 and 1998,
Unlike a direct tax, such as the income tax, which primarily taxes an respectively
individuals ability to pay based on his income or net wealth, an indirect  Acting on the belief that it was exempt from all national and local taxes,
tax, such as the VAT, is a tax on consumption of goods, services, or including VAT, pursuant to Rep. Act No. 7227, petitioner filed two
certain transactions involving the same. The VAT, thus, forms a
applications for tax refund or tax credit of the VAT it paid. Mr. Edilberto
substantial portion of consumer expenditures.
Carlos, revenue district officer of BIR RDO No. 19, denied the first
While it is true that the petitioner should not have been liable for the application letter.
VAT inadvertently passed on to it by its supplier since such is a zero-  Petitioner then filed another application for tax refund/credit, this time
rated sale on the part of the supplier, the petitioner is not the proper directly with Atty. Alberto Pagabao, the regional director of BIR Revenue
party to claim such VAT refund. Region No. 4. The second letter sought a refund or issuance of a tax
credit certificate in the amount of P1,108,307.72, representing
Please see the discussion below.
erroneously paid input VAT for the period January 1, 1997 to November
30, 1998.
2) NO.  Eventually, the case was elevated to the CTA. Petitioner stressed that it
As an exempt VAT taxpayer, Petitioner is not allowed any tax credit on was not liable in any way for any VAT.
VAT (input tax) previously paid. Rather, it is the suppliers who are the  In opposing the claim for tax refund or tax credit, the BIR asked the CTA
proper parties to claim the tax credit and accordingly refund the to apply the rule that claims for refund are strictly construed against the
petitioner of the VAT erroneously passed on to the latter. taxpayer. Since petitioner failed to establish both its right to a tax refund
or tax credit and its compliance with the rules on tax refund, its claim
Facts: should be denied.
 Petitioner is a domestic corporation engaged in the business of  The CTA partially granted Petitioner’s claim and ordered the BIR to
manufacturing hospital textiles and garments and other hospital supplies refund or issue a tax credit certificate in favor of the Petitioner.
for export.  Respondent CIR then filed a petition for review of the CTA decision by
 Petitioners place of business is at the Subic Bay Freeport Zone the Court of Appeals. Respondent maintained that the exemption of
(SBFZ). It is duly registered with the Subic Bay Metropolitan Authority Contex Corp. under Rep. Act No. 7227 was limited only to direct taxes
(SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of and not to indirect taxes such as the input component of the VAT. The
Republic Act No. 7227. Commissioner pointed out that from its very nature, the value-added tax
 As an SBMA-registered firm, petitioner is exempt from all local and is a burden passed on by a VAT registered person to the end users;
national internal revenue taxes except for the preferential tax provided for hence, the direct liability for the tax lies with the suppliers and not Contex.
in Section 12 (c) of Rep. Act No. 7227. Petitioner also registered with the  The CA reversed and set aside the CTA decision.
Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under
Certificate of Registration RDOControl No. 95-180-000133 Issue/s:
 From January 1, 1997 to December 31, 1998, petitioner purchased 1) WON Petitioner is exempt from paying the VAT.
various supplies and materials necessary in the conduct of its —NO
manufacturing business. 2) WON Petitioner is entitled to a tax credit or refund.
—NO
(b) Zero-rated Sales. These are sales by VAT-registered persons which are
Held/Ratio: Petition DENIED. subject to 0% rate, meaning the tax burden is not passed on to the
purchaser. A zero-rated sale by a VAT-registered person, which is a taxable
1) No. transaction for VAT purposes, shall not result in any output tax. However, the
o Petitioner’s view: It should be exempt from all kinds of taxes, local and input tax on his purchases of goods, properties or services related to such
international, direct and indirect pursuant to R.A. 7227 and other zero-rated sale shall be available as tax credit or refund in accordance with
SBMA Regulations. these regulations.
o Respondent’s view: SBFZ-registered enterprises are only exempt  Under Zero-rating, all VAT is removed from the zero-rated goods,
from direct taxes and not indirect taxes. activity or firm. In contrast, exemption only removes the VAT at the
o NOTE: The value-added tax is an indirect tax which means the exempt stage, and it will actually increase, rather than reduce the
amount of tax paid on the goods, properties or services bought, total taxes paid by the exempt firms business or non-retail
transferred, or leased may be shifted or passed on by the seller, customers. It is for this reason that a sharp distinction must be
transferor, or lessor to the buyer, transferee or lessee. made between zero-rating and exemption in designating a value-
o Unlike a direct tax, such as the income tax, which primarily taxes an added tax.
individuals ability to pay based on his income or net wealth, an indirect  Petitioner rightly claims that it is indeed VAT-Exempt and this fact is
tax, such as the VAT, is a tax on consumption of goods, services, or not controverted by the respondent. In fact, petitioner is registered
certain transactions involving the same. The VAT, thus, forms a as a NON-VAT taxpayer per Certificate of Registration[25] issued by
substantial portion of consumer expenditures. the BIR. As such, it is exempt from VAT on all its sales and
importations of goods and services.
This is the part where it gets tricky so I’m just going to copy-paste everything  Petitioner’s claim, however, for exemption from VAT for its
from the original case. purchases of supplies and raw materials is incongruous with its
claim that it is VAT-Exempt, for only VAT-Registered entities can
 Exemptions from VAT are granted by express provision of the Tax claim Input VAT Credit/Refund.
Code or special laws. Under VAT, the transaction can have  While it is true that the petitioner should not have been liable for the
preferential treatment in the following ways: VAT inadvertently passed on to it by its supplier since such is a
(a) VAT Exemption. An exemption means that the sale of goods or properties zero-rated sale on the part of the supplier, the petitioner is not the
and/or services and the use or lease of properties is not subject to VAT proper party to claim such VAT refund.
(output tax) and the seller is not allowed any tax credit on VAT (input tax)  Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or
previously paid.This is a case wherein the VAT is removed at the exempt the Consolidated Value-Added Tax Regulations provide:
stage (i.e., at the point of the sale, barter or exchange of the goods or  Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT
properties). registered person, which is a taxable transaction for VAT purposes,
The person making the exempt sale of goods, properties or services shall not shall not result in any output tax. However, the input tax on his
bill any output tax to his customers because the said transaction is not purchases of goods, properties or services related to such zero-
subject to VAT. On the other hand, a VAT-registered purchaser of VAT- rated sale shall be available as tax credit or refund in accordance
exempt goods/properties or services which are exempt from VAT is not with these regulations.
entitled to any input tax on such purchase despite the issuance of a VAT The following sales by VAT-registered persons shall be subject to 0%:
invoice or receipt. (a) Export Sales
Export Sales shall mean
...
(5) Those considered export sales under Articles 23 and 77 of Executive

Order No. 226, otherwise known as the Omnibus Investments Code of 1987,
and other special laws, e.g. Republic Act No. 7227, otherwise known as the
Bases Conversion and Development Act of 1992.
...
 (c) Sales to persons or entities whose exemption under special laws,

e.g. R.A. No. 7227 duly registered and accredited enterprises with
Subic Bay Metropolitan Authority (SBMA) and Clark Development
Authority (CDA), R. A. No. 7916, Philippine Economic Zone
Authority (PEZA), or international agreements, e.g. Asian
Development Bank (ADB), International Rice Research Institute
(IRRI), etc. to which the Philippines is a signatory effectively subject
such sales to zero-rate.
 Since the transaction is deemed a zero-rated sale, petitioners

supplier may claim an Input VAT credit with no corresponding
Output VAT liability. Congruently, no Output VATmay be passed
on to the petitioner.
2) NO.
o As an exempt VAT taxpayer, Petitioner is not allowed any tax credit
on VAT (input tax) previously paid. Rather, it is the suppliers
who are the proper parties to claim the tax credit and accordingly
refund the petitioner of the VAT erroneously passed on to the latter.
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
rendered abroad. It is a settled rule of legal hermeneutics that the

VAT ZERO-RATED TRANSACTIONS implementing rules and regulations cannot amend the act of
Congress for administrative rules and regulations are intended to
AMERICAN EXPRESS INTERNATIONAL v. CIR (FajardoRK) carry out, not supplant or modify, the law.
[CTA Case No. 6099; April 19, 2002] (2) In order to claim a zero-rate VAT, an entity has to comply with the
“Claim of tax refund under the zero-rated VAT transactions need to comply requirements set by law that is:
with the requirements set by law” –MAGULO ITONG CASE NA ITO sorry! L (1) there must be a zero-rate or effectively zero-rate sales;
Recit-Ready: (2) that input taxes were incurred or paid;
Facts: AMEX is a Philippine branch of American Express International (3) that such input VAT payment are directly attributable to zero-
US and a servicing unit of AMEX Hongkong Branch. The BIR rate sales or effectively zero-rate sales;
issued VAT Ruling 080-89 that stated that as a VAT registered (4) that the input VAT payments were not applied against any
entity whose services is paid for in acceptable foreign currency output VAT liabillity
remitted inwardly in the Philippines, Petitioner AMEX’s service (5) that the claim for refund was filed within the 2-year
incomes automatically is zero-rated. Petitioner asserts that their prescriptive period.
revenue of 81M PHP paid in HKD remiitted inwardly is covered by All of which were complied by petitioner. They can claim for refund.
the VAT ruling and that they should be refunded for the payments
made.
FACTS:
Issue/s: • This case involves a claim for refund of unapplied or initialized input
(1) Whether or not VAT ruling 080-89 is applicable to the transactions VAT paid by petitioner on domestic purchases of goods/services for the
involved in this petition to entitle AMEX to a refund of its excess 1998 period January 1 to December 31, 1998 in the total amount of 3,967,561.06
input VAT payments as zero-rated taxpayer—NO, it is not PHP.
• Petitioner is a Philippine branch of American Express International,
(2) Assuming that VAT ruling is not applicable, whether AMEX, based on Inc., a corporation organized under the US.
the services it renders and the matter by which it is compensated for such o It is a servicing unit of American Express International—
services qualifies as zero-rated VAT entity pursuant to Section 108(B)(2) Hongkong Branch, engaged primarily to facilitate the collection of
of the NIRC—YES, it does. Annex Honking’s receivables from AMEX cardholders residing or
Held: situated in the Philippines.
(1) VAT ruling 040-98 expands the language of Section (108)(B)(2) • Petitioner is a VAT entity since March 1988 under VAT Registration
but also of RR 5-96 which interprets the statute—such cannot be Certificate pursuant to Section 107 of the Tax Code.
done. Section 108(b)(2) of the Tax Code only requires payment of the • The BIR issued VAT Ruling 080-89 that stated that as a VAT
services in acceptable foreign currency, accounted for in accordance registered entity whose services is paid for in acceptable foreign currency
with existing BSP regulations, VAT Ruling No. 040-8 requires that the which is remitted inwardly to the Philippines, their service income is
services be “destined for consumption abroad” and “not rendered automatically zero rate effective Jan 1988.
within the Philippines”. RR No. 5-96 does not require that the services • For the taxable year 1998, petitioner generated and recorded
be rendered by a VAT registered person be destined, consumed or revenues in the total amount of 81M PHP which were paid for in Honkong in
foreign currency inwardly remitted to the Philippines and accounted for in “(1) Processing, manufacturing or repacking of goods for other persons
accordance with the rules and regulations of the BSP. doing business outside the Philippines which goods are subsequently
• Petitioner asserts that those revenues qualify as zero-rated pursuant exported, where the services are paid for in acceptable ·foreign currency and
to Section 108(B)(2) of the Tax Code as confirmed in VAT 080-89. For the accounted for in accordance with the rules and regulations of the BSP;”
same period petitioner allegedly paid input VAT amounting to 3.9M PHP on
its domestic purchases of taxable goods/services. • In interpreting the amendment by RR 5-96 respondent issued VAT
• Petitioner claims that its output VAT liability for the period amounted Ruling No. 040-88 providing that sales of services to zero percent
only to 4,688 PHP leaving an initialized input VAT of 3.9M PHP averred to be VAT under Section 108(B)(2) of the Tax Code of 1997 are limited to
zero-rated sales. such sales which are destined for consumption outside the
Philippine…sold by a resident of the Philippines to a non-resident
• Petitioner filed a claim for refund contention that the input VAT
payments in 1998 were paid in the course of trade or business and that foreign client because these services are likewise destined to be
unapplied input VAT payments had not been carried over to the succeeding consumed abroad. Accordingly, the onus of taxation under our VAT
first quarter of 1999. system is in the country where the goods, property or services are
ISSUE: destined and consumed.
(1) Whether or not VAT ruling 080-89 is applicable to the transactions • Respondent in citing VAT ruling 040-98, while purportedly interpreting
involved in this petition to entitle AMEX to a refund of its excess 1998 input Section 4.102-2(b)(2) of RR 5-96 cannot contravene the terms of the
VAT payments as zero-rated taxpayer—NO, it is not statute itself, the language of which is clear and unequivocal.
• A tabular presentation of the requirement under Section 108(B)(2) of
(2) Assuming that VAT ruling is not applicable, whether AMEX, based on the the Tax Code under Sextion 4.102-2(b)(2) of RR 5-96 under VAT
services it renders and the matter by which it is compensated for such ruling 040-98 shows the discrepancy as follows:
services qualifies as zero-rated VAT entity pursuant to Section 108(B)(2) of
Section 108(B)(2) Section 4.102- Interpretation of
the NIRC—YES, it does.
of the Tax Code 2(b)(2) of Revenue the petitioner in
Regulations No. 5- VAT Ruling No.
HELD:
96 040-98
(1) RR No. 5-96 dated Feb 20, 1996 was promulgated to implement Section
102 of the Tax Code that states:
Services other than Services other than "The sales of services
those Mentioned in the processing, subject to zero percent
“Section 4.102-2(b)(2) - "Services other than processing,
preceding paragraph, manufacturing or (0%) VAT under
manufacturing or repacking for other persons doing business
the consideration for in repacking for other Section 108(b)(2), of
outside the Philippines for goods which are subsequently
acceptable foreign persons doing business the Tax Code of 1997,
exported, as well as services by a resident to a non-resident foreign
client such as project studies, information services, engineering and
currency and outside the Philippines are limited to such
architectural designs and other similar services, the consideration for accounted for in for goods which are sales which are
which is paid for in acceptable foreign currency and accounted for accordance with the subsequently exported, destined for
in accordance, with the rules and regulations.” rules and regulations of as well as services by a consumption outside of
the Bangko Sentral ng resident to a non- the Philippines in that
• In relation, Section 4.102-2(b) of RR No. 7-95: resident foreign client, such services are
Pilipinas (BSP). such as project studies, tacked-in as part of cost applicable, petitioner qualified as zero-rate VAT entity pursuant to
information services, of goods exported. The Section 108(B)(2) of the Tax Code.
engineering and zero-rating also
architectural designs extends to project (2) Governing law in this case is Section 112(A) in relation to Section
and other similar studies, information 108(B)(2) of the Tax Code regarding zero rated or effectively zero-rate sales
services, the services, engineering (quote provision).
consideration for which and architectural • To be entitled to a refund or tax credit of input VAT payments directly
is paid for in acceptable designs and other attributable to zero-rated or effectively zero-rated sales, the following
foreign currency and similar services sold by requisites must be complied with:
accounted for in a resident of the (1) there must be a zero-rate or effectively zero-rate sales;
accordance with the Philippines to a non- (2) that input taxes were incurred or paid;
rules and regulations resident foreign client (3) that such input VAT payment are directly attributable to zero-
ofthe BSP . which services are rate sales or effectively zero-rate sales;
likewise destined to (4) that the input VAT payments were not applied against any
be consumed abroad output VAT liabillity
and are not rendered (5) that the claim for refund was filed within the 2-year prescriptive
within the Philippines. period.
(1) Under the first requirement, petitioner’s sales of services qualify as zero-
rated sales. It is a vat registered entity and its sales serves to AMEZ
Honkong falls under Section 108(B)(2). Further, their service fee earnings
• While Section 108(b)(2) of the Tax Code only requires payment of the were paid for in acceptable foreign currency and account with the rules and
services in acceptable foreign currency , accounted for in accordance regulations of the BSP
with existing BSP regulations, VAT Ruling No. 040-8 requires that the (2) Petitioner submitted various supplier’s invoices and official receipts which
services be “destined for consumption abroad” and “not rendered within are valid documents in accordance to the Tax Code. It established that it
the Philippines”. RR No. 5-96 does not require that the services be paid input VAT in sum of 3,972,025.15 PHP for its domestics purchases of
rendered by a VAT registered person be destined, consumed or taxable goods/ services for 1998
rendered abroad. (3) The court found that not all of the substantiated input VAT payments of
3.9M PHP were directly attributable to petitioner’s zero-rated sales. Only the
IN sum, VAT ruling 040-98 expands the language of Section (108)(B)(2) input VAT of 3.9M PHP arrived at by deducting the output VAT of 4,688.18
but also of RR 5-96 which interprets the statute—such cannot be done. PHP from the substantiated input VAT of 3.9M can be directly attributed to
It is a settled rule of legal hermeneutics that the implementing rules and petitioner’s zero-rate sales for the subject period.
regulations cannot amend the act of Congress for administrative rules (4) Petitioner offered in evidence the quarterly VAT return for the first quarter
and regulations are intended to carry out, not supplant or modify, the of 1999 to prove that the subject claim was not applied or carried over to the
law. In other word, even assuming that VAT Ruling 080-89 is no longer said quarter.
Petitioner complied with the last requirement. Counting the 2-year
prescriptive period from the date of filing petitioner’s 1998 1st quarterly VAT
returns on April 20, 1998 both the administrative and judicial claims for
refund were filed within the 2-year period mandate by law.
GRANTED.
INPUT VAT Total input tax which can be directly attributed to transactions subject to
value-added tax; and
(b) A ratable portion of any input tax which cannot be directly attributed
SEC. 110, NATIONAL INTERNAL REVENUE CODE to either activity.
SECTION 110. Tax Credits. – The term "input tax" means the value-added tax due from or paid by a VAT-
registered person in the course of his trade or business on importation of
(A) Creditable Input Tax. – goods or local purchase of goods or services, including lease or use of
(1) Any input tax evidenced by a VAT invoice or official receipt issued in property, from a VAT-registered person.
accordance with Section 113 hereof on the following transactions shall
be creditable against the output tax: It shall also include the transitional input tax determined in accordance with
Section 111 of this Code.The term "output tax" means the value-added tax
(a) Purchase or importation of goods: due on the sale or lease of taxable goods or properties or services by any
(i) For sale; or person registered or required to register under Section 236 of this Code.
(ii) For conversion into or intended to form part of a finished product
for sale including packaging materials; or (B) Excess Output or Input Tax.- If at the end of any taxable quarter the
(iii) For use as supplies in the course of business; or output tax exceeds the input tax, the excess shall be paid by the VAT-
(iv) For use as materials supplied in the sale of service; or registered person.
(v) For use in trade or business for which deduction for depreciation If the input tax exceeds the output tax, the excess shall be carried over to
or amortization is allowed under this Code, except automobiles, the succeeding quarter or quarters.
aircraft and yachts. any input tax attributable to the purchase of capital goods or to zero-rated
sales by a VAT-registered person may at his option be refunded or credited
(b) Purchase of services on which a value-added tax has been actually against other internal revenue taxes, subject to the provisions of Section
paid. 112.
(2) The input tax on domestic purchase of goods or properties shall be (C) Determination of Creditable Input Tax.- The sum of the excess input
creditable: tax carried over from the preceding month or quarter and the input tax
(a) To the purchaser upon consummation of sale and on importation of creditable to a VAT-registered person during the taxable month or quarter
goods or properties; and shall be reduced by the amount of claim for refund or tax credit for value-
added tax and other adjustments, such as purchase returns or allowances
(b) To the importer upon payment of the value-added tax prior to the and input tax attributable to exempt sale.
release of the goods from the custody of the Bureau of Customs. The claim for tax credit referred to in the foregoing paragraph shall include
However, in the case of purchase of services, lease or use of properties, not only those filed with the Bureau of Internal Revenue but also those filed
the input tax shall be creditable to the purchaser, lessee or licensee with other government agencies, such as the Board of Investments the
upon payment of the compensation, rental, royalty or fee. Bureau of Customs.
(3) A VAT-registered person who is also engaged in transactions not

ABAKADA GURO PARTY LIST v. ERMITA (Trias)
subject to the value-added tax shall be allowed tax credit as follows: (a)
[G.R. No. 168056; September 1, 2005]
“Bahala na si VATman” and they should not pass to the President the decision to impose taxes.
They also argue that the law also effectively nullified the President’s
Recit-Ready: power of control, which includes the authority to set aside and nullify the
Facts: acts of her subordinates like the Secretary of Finance, by mandating the
This case is a consolidation of complaints on the constitutionality of RA fixing of the tax rate by the President upon the recommendation of the
9337 amending the NIRC on the rates of VAT on certain goods and Secretary of Justice.
services. The main contention against the enactment of the law revolves
around the proviso authorizing the President, upon recommendation of Issue/s:
the Secretary of Finance, to raise the VAT rate to 12%, effective January 1) WON there is a violation of Article VI, Section 24 of the Constitution
1, 2006, after specified conditions have been satisfied. 2) WON there is undue delegation of legislative power in violation of Article
VI Sec 28(2) of the Constitution
On May 24, 2005, the President GMA signed into law Republic Act 9337 3) WON there is a violation of the due process and equal protection under
or the VAT Reform Act. Before the law took effect on July 1, 2005, the Article III Sec. 1 of the Constitution.
Court issued a TRO enjoining government from implementing the law in
response to a numerous petitions for certiorari and prohibition questioning Held:
the constitutionality of the new law. 1) NO. Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was acting
The challenged section of R.A. No. 9337 is the common proviso in within its constitutional power to introduce amendments to the House
Sections 4, 5 and 6: “That the President, upon the recommendation of the Bill when it included provisions in Senate Bill No. 1950 amending
Secretary of Finance, shall, effective January 1, 2006, raise the rate of corporate income taxes, percentage, and excise and franchise taxes.
value-added tax to 12%, after any of the following conditions has been
satisfied: (i) Value-added tax collection as a percentage of Gross Upon transmittal of the House bills to the Senate, the Senate came out with
Domestic Product (GDP) of the previous year exceeds two and four-fifth Senate Bill No. 1950 proposing amendments not only to NIRC provisions
percent (2 4/5%); or (ii) National government deficit as a percentage of on the value-added tax but also amendments to NIRC provisions on other
GDP of the previous year exceeds one and one-half percent (1½%)” kinds of taxes. Article VI, Section 24 of the Constitution does not contain
any prohibition or limitation on the extent of the amendments that may be
Petitioners allege that the grant of stand-by authority to the President to introduced by the Senate to the House revenue bill.
increase the VAT rate is an abdication by Congress of its exclusive power The sections introduced by the Senate are germane to the subject matter
to tax because such delegation is not covered by Section 28 (2), Article and purposes of the house bills, which is to supplement our country’s fiscal
VI Consti. They argue that VAT is a tax levied on the sale or exchange of deficit, among others. Thus, the Senate acted within its power to propose
goods and services which cannot be included within the purview of tariffs those amendments.
under the exemption provided for in the Constitution since the latter refers
to customs duties, tolls or tribute payable upon merchandise to the 2) NO. There is no undue delegation of legislative power but only of the
government and usually imposed on imported/exported goods. discretion as to the execution of a law. This is constitutionally
permissible. Congress does not abdicate its functions or unduly
Petitioners further alleged that delegating to the President the legislative delegate power when it describes what job must be done, who must do
power to tax is contrary to republicanism. They insist that accountability, it, and what is the scope of his authority; in our complex economy that
responsibility and transparency should dictate the actions of Congress
is frequently the only way in which the legislative process can go 3) NO. The power of the State to make reasonable and natural
forward. classifications for the purposes of taxation has long been established.
Whether it relates to the subject of taxation, the kind of property, the
If you recall from Admin Law, there are exceptions to non-delegation of rates to be levied, or the amounts to be raised, the methods of
legislative powers. A delegation is valid if it is complete in itself and it assessment, valuation and collection, the State’s power is entitled to
provides a sufficient standard (thanks Ylagan). A sufficient standard is one presumption of validity. As a rule, the judiciary will not interfere with such
which defines legislative policy, marks its limits, maps out its boundaries power absent a clear showing of unreasonableness, discrimination, or
and specifies the public agency to apply it. arbitrariness.
In this case, it is not a delegation of legislative power but a delegation of Facts:

ascertainment of facts upon which enforcement and administration of the  R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill
increased rate under the law is contingent. The legislature has made the Nos. 3555 and 3705, and Senate Bill No. 1950.
operation of the 12% rate effective January 1, 2006, contingent upon a  A Conference Committee on the Disagreeing Provisions of House Bill No.
specified fact or condition. It leaves the entire operation or non-operation of 3555, House Bill No. 3705, and Senate Bill No. 1950, after having met and
the 12% rate upon factual matters outside of the control of the executive. discussed in full free and conference, recommended the approval of its
No discretion would be exercised by the President. Highlighting the report, which the Senate did on May 10, 2005, and with the House of
absence of discretion is the fact that the word “shall” is used in the common Representatives agreeing thereto the next day, May 11, 2005.
proviso in imposing the 12% rate. Its use in a statute denotes an imperative  On May 23, 2005, the enrolled copy of the consolidated House and Senate
obligation and is inconsistent with the idea of discretion. version was transmitted to the President, who signed the same into law
on May 24, 2005. Thus, came R.A. No. 9337.
Thus, it is the ministerial duty of the President to immediately impose the  July 1, 2005 is the effectivity date of R.A. No. 9337. When said date came,
12% rate upon the existence of any of the conditions specified by Congress. the Court issued a temporary restraining order, effective immediately and
This is a duty, which cannot be evaded by the President. It is a clear continuing until further orders, enjoining respondents from enforcing and
directive to impose the 12% VAT rate when the specified conditions are implementing the law.
present.  Numerous petitions question the constitutionality of Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
Congress just granted the Secretary of Finance the authority to ascertain National Internal Revenue Code (NIRC).
the existence of a fact as to meet the conditions. In making his o Section 4 imposes a 10% VAT on sale of goods and
recommendation to the President on the existence of either of the two properties;
conditions, the Secretary of Finance is not acting as the alter ego of the o Section 5 imposes a 10% VAT on importation of goods; and
President or even her subordinate. He is acting as the agent of the o Section 6 imposes a 10% VAT on sale of services and use
legislative department, to determine and declare the event upon which its or lease of properties.
expressed will is to take effect. The Secretary of Finance becomes the  These questioned provisions contain a uniform proviso authorizing the
means or tool by which legislative policy is determined and implemented, President, upon recommendation of the Secretary of Finance, to raise the
considering that he possesses all the facilities to gather data and VAT rate to 12%, effectiveJanuary 1, 2006, after any of the following
information and has a much broader perspective to properly evaluate them. conditions have been satisfied, to wit:
“xxx That the President, upon the recommendation of the Secretary of a high ratio of input tax; or (2) invests in capital equipment; or (3) has
Finance, shall, effective January 1, 2006, raise the rate of value-added tax several transactions with the government, is not based on real and
to twelve percent (12%), after any of the following conditions has been substantial differences to meet a valid classification.
satisfied:  Petitioners contend that the 70% limit is anything but progressive, violative
of Article VI, Section 28(1) of the Constitution, and that it is the smaller
(i) Value-added tax collection as a percentage of Gross Domestic Product businesses with higher input tax to output tax ratio that will suffer the
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or consequences thereof for it wipes out whatever meager margins the
petitioners make.
(ii) National government deficit as a percentage of GDP of the previous  Last of the many feelings of the petitioners, they are alleging
year exceeds one and one-half percent (1 %).” unconstitutionality of the law on the ground that the limitation on the
 Petitioners argue that the law is unconstitutional, as it constitutes creditable input tax in effect allows VAT-registered establishments to retain
abandonment by Congress of its exclusive authority to fix the rate of taxes a portion of the taxes they collect, thus violating the principle that tax
under Article VI, Section 28(2) of the 1987 Philippine Constitution. collection and revenue should be solely allocated for public purposes and
 Petitioners also contend that the increase in the VAT rate to 12% expenditures. Petitioner Garcia further claims that allowing these
contingent on any of the two conditions being satisfied violates the due establishments to pass on the tax to the consumers is inequitable, in
process clause embodied in Article III, Section 1 of the Constitution, as it violation of Article VI, Section 28(1) of the Constitution.
imposes an unfair and additional tax burden on the people, in that:  The OSG countered petitioners’ contentions in arguing on the following
o the 12% increase is ambiguous because it does not state if grounds:
the rate would be returned to the original 10% if the o R.A. No. 9337 enjoys the presumption of constitutionality and
conditions are no longer satisfied; petitioners failed to cast doubt on its validity;
o the rate is unfair and unreasonable, as the people are unsure o Respondents contend that the law is complete and leaves no
of the applicable VAT rate from year to year; and discretion to the President but to increase the rate to 12%
o the increase in the VAT rate, which is supposed to be an once any of the two conditions provided therein arise.
incentive to the President to raise the VAT collection to at o Respondents also refute petitioners argument that the
least 2 4/5 of the GDP of the previous year, should only be increase to 12%, as well as the 70% limitation on the
based on fiscal adequacy. creditable input tax, the 60-month amortization on the
 Petitioners further claim that the inclusion of a stand-by authority granted purchase or importation of capital goods
to the President by the Bicameral Conference Committee is a violation of exceedingP1,000,000.00, and the 5% final withholding tax by
the no-amendment rule upon last reading of a bill laid down in Article VI, government agencies, is arbitrary, oppressive, and
Section 26(2) of the Constitution. confiscatory, and that it violates the constitutional principle
 Petitioners contend that these provisions are unconstitutional for being on progressive taxation, among others.
arbitrary, oppressive, excessive, and confiscatory. Petitioners argument is o Respondents manifest that R.A. No. 9337 is the anchor of
premised on the constitutional right of non-deprivation of life, liberty or the governments fiscal reform agenda. A reform in the value-
property without due process of law under Article III, Section 1 of the added system of taxation is the core revenue measure that
Constitution. will tilt the balance towards a sustainable macroeconomic
 Petitioners also believe that these provisions violate the constitutional environment necessary for economic growth.
guarantee of equal protection of the law under Article III, Section 1 of the
Constitution, as the limitation on the creditable input tax if: (1) the entity has
 The Court deems it apt to restate the general principles and concepts 1) WON R.A. No. 9337 violates the following provisions of the
of value-added tax (VAT), as the confusion and inevitably, litigation, Constitution (1) Article VI, Section 24 1; and (2) Article VI, Section 26
breeds from a fallacious notion of its nature. (2)2
 The VAT is a tax on spending or consumption. It is levied on the sale, —NO
barter, exchange or lease of goods or properties and services. SUBSTANTIVE:
 Being an indirect tax on expenditure, the seller of goods or services 2) WON Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
may pass on the amount of tax paid to the buyer, with the seller acting 107 and 108 of the NIRC, violate the following provisions of the
merely as a tax collector. The burden of VAT is intended to fall on the Constitution (1) Article VI, Section 28(1) 3; and (2) Article VI, Section
immediate buyers and ultimately, the end-consumers. In contrast, a 28(2)4
direct tax is a tax for which a taxpayer is directly liable on the —NO
transaction or business it engages in, without transferring the burden 3) WON Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and
to someone else. Examples are individual and corporate income 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending
taxes, transfer taxes, and residence taxes. Section 114(C) of the NIRC, violate the following provisions of the
 In the Philippines, the value-added system of sales taxation has long Constitution (1) Article VI, Section 28(1); and (2) Article III, Section 1 5
been in existence, albeit in a different mode. Prior to 1978, the system —NO
was a single-stage tax computed under the cost deduction method
and was payable only by the original sellers. The single-stage system Held/Ratio: Petition DENIED. In applying the doctrine of presumption of
was subsequently modified, and a mixture of the cost deduction constitutionality and the correct application of pertinent Constitutional
method and tax credit method was used to determine the value-added provisions, Court rules for the Respondents.
tax payable. Under the tax credit method, an entity can credit against
or subtract from the VAT charged on its sales or outputs the VAT paid 1) NO.
on its purchases, inputs and imports. o Article VI, Section 24 on Exclusive Origination of Revenue Bills is not
 It was only in 1987, when President Corazon C. Aquino issued violated.
Executive Order No. 273, that the VAT system was rationalized by  In the present cases, petitioners admit that it was indeed House
imposing a multi-stage tax rate of 0% or 10% on all sales using the Bill Nos. 3555 and 3705 that initiated the move for amending
tax credit method. provisions of the NIRC dealing mainly with the value-added tax.
Upon transmittal of said House bills to the Senate, the Senate
Issue/s: came out with Senate Bill No. 1950 proposing amendments not
PROCEDURAL: only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes.
1SECTION 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public 3 SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall
debt, bills of local application, and private bills shall originate exclusively in the House of evolve a progressive system of taxation.
Representatives, but the Senate may propose or concur with amendments. 4 (2) The Congress may, by law, authorize the President to fix within specified limits, and
2 SECTION 26, (2) No bill passed by either House shall become a law unless it has passed subject to such limitations and restrictions as it may impose, tariff rates, import and export
three readings on separate days, and printed copies thereof in its final form have been quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
distributed to its Members three days before its passage, except when the President certifies national development program of the Government.
to the necessity of its immediate enactment to meet a public calamity or emergency. Upon 5 SECTION 1. No person shall be deprived of life, liberty, or property without due process of
the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall law, nor shall any person be denied the equal protection of the laws.
be taken immediately thereafter, and the yeas and nays entered in the Journal.
o Article VI, Section 26 (2) on the No-Amendment Rule is not violated. no relation with the VAT system inasmuch as the VAT paid by the
 The Court reiterates here that the no-amendment rule refers only consumer or business for every goods bought or services enjoyed
to the procedure to be followed by each house of Congress with is the same regardless of income.
regard to bills initiated in each of said respective houses, before  In other words, the VAT paid eats the same portion of an income,
said bill is transmitted to the other house for its concurrence or whether big or small. The disparity lies in the income earned by a
amendment. person or profit margin marked by a business, such that the higher
 Verily, to construe said provision in a way as to proscribe any the income or profit margin, the smaller the portion of the income
further changes to a bill after one house has voted on it would lead or profit that is eaten by VAT.
to absurdity as this would mean that the other house of Congress  In the Tolentino case, the Court held that the Constitution does not
would be deprived of its constitutional power to amend or introduce really prohibit the imposition of indirect taxes which, like the VAT,
changes to said bill. are regressive. What it simply provides is that Congress shall
 Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to evolve a progressive system of taxation. The constitutional
mean that the introduction by the Bicameral Conference provision has been interpreted to mean simply that direct taxes are
Committee of amendments and modifications to disagreeing to be preferred and as much as possible, indirect taxes should be
provisions in bills that have been acted upon by both houses of minimized.
Congress is prohibited.
2) NO. o Article VI, Section 28(2) on Undue Delegation of Power to Tax is not
o Article VI, Section 28(1) on Uniformity, Equitability and Progressivity violated.
of Taxation is not violated.  Clearly, the legislature may delegate to executive officers or
 Uniformity in taxation means that all taxable articles or kinds of bodies the power to determine certain facts or conditions, or the
property of the same class shall be taxed at the same rate. happening of contingencies, on which the operation of a statute is,
Different articles may be taxed at different amounts provided that by its terms, made to depend, but the legislature must prescribe
the rate is uniform on the same class everywhere with all people sufficient standards, policies or limitations on their authority.
at all times.  While the power to tax cannot be delegated to executive agencies,
 In this case, the tax law is uniform as it provides a standard rate of details as to the enforcement and administration of an exercise of
0% or 10% (or 12%) on all goods and services. Sections 4, 5 and such power may be left to them, including the power to determine
6 of R.A. No. 9337, amending Sections 106, 107 and 108, the existence of facts on which its operation depends.
respectively, of the NIRC, provide for a rate of 10% (or 12%) on  The rationale for this is that the preliminary ascertainment of facts
sale of goods and properties, importation of goods, and sale of as basis for the enactment of legislation is not of itself a legislative
services and use or lease of properties. These same sections also function, but is simply ancillary to legislation. Thus, the duty of
provide for a 0% rate on certain sales and transaction. correlating information and making recommendations is the kind
 R.A. No. 9337 is also equitable. The law is equipped with a of subsidiary activity which the legislature may perform through its
threshold margin. The VAT rate of 0% or 10% (or 12%) does not members, or which it may delegate to others to perform. The
apply to sales of goods or services with gross annual sales or Constitution as a continuously operative charter of government
receipts not exceeding P1,500,000.00. does not require that Congress find for itself every fact upon which
 Progressive taxation is built on the principle of the taxpayers ability it desires to base legislative action or that it make for itself detailed
to pay. The VAT is an antithesis of progressive taxation. By its very determinations which it has declared to be prerequisite to
nature, it is regressive. The principle of progressive taxation has application of legislative policy to particular facts and
circumstances impossible for Congress itself properly to  The input tax is not a property or a property right within the
investigate. constitutional purview of the due process clause. A VAT-registered
persons entitlement to the creditable input tax is a mere statutory
3) NO. privilege.
o Article VI, Section 28(1) on is not violated. – same as  The equal protection clause does not require the universal
abovementioned. application of the laws on all persons or things without distinction.
o Article III, Section 1 on the right to due process and equal protection This might in fact sometimes result in unequal protection. What the
is not violated. clause requires is equality among equals as determined according
 Input Tax is defined under Section 110(A) of the NIRC, as to a valid classification. By classification is meant the grouping of
amended, as the value-added tax due from or paid by a VAT- persons or things similar to each other in certain particulars and
registered person on the importation of goods or local purchase of different from all others in these same particulars.
good and services, including lease or use of property, in the course
of trade or business, from a VAT-registered person, and Output ABAKADA Guro Partylist v Ermita (Tuazon)
Tax is the value-added tax due on the sale or lease of taxable [GR. No. 168056; October 18, 2005]
goods or properties or services by any person registered or
required to register under the law. Recit-Ready:
 As earlier stated, the input tax is the tax paid by a person, passed Facts: Same. Motions for Reconsideration filed by petitioners. Among
on to him by the seller, when he buys goods. Output tax meanwhile others, petitioners reiterate their argument that the input tax is a
is the tax due to the person when he sells goods. In computing the property or a property right. Petitioners also contend that even if
VAT payable, three possible scenarios may arise: the right to credit the input VAT is merely a statutory privilege, it
o First, if at the end of a taxable quarter the output taxes has already evolved into a vested right that the State cannot
charged by the seller are equal to the input taxes that he paid and remove.
passed on by the suppliers, then no payment is required;
o Second, when the output taxes exceed the input taxes, the Issue/s: WON RA 9337 is constitutional
person shall be liable for the excess, which has to be paid to the
Bureau of Internal Revenue (BIR); and Held: Court reiterated its finding that the input tax is not a property or a
o Third, if the input taxes exceed the output taxes, the excess property right, and a VAT-registered person’s entitlement to the
shall be carried over to the succeeding quarter or quarters. Should creditable input tax is a mere statutory privilege. As the Court
the input taxes result from zero-rated or effectively zero-rated stated in its Decision, the right to credit the input tax is a mere
transactions, any excess over the output taxes shall instead be creation of law. More importantly, the assailed provisions of R.A.
refunded to the taxpayer or credited against other internal revenue No. 9337 already involve legislative policy and wisdom. So long as
taxes, at the taxpayers option. there is a public end for which R.A. No. 9337 was passed, the
means through which such end shall be accomplished is for the
 In laymans term, the value-added taxes that a person/taxpayer legislature to choose so long as it is within constitutional bounds.
paid and passed on to him by a seller can only be credited up to
70% of the value-added taxes that is due to him on a taxable
transaction. Facts:
 Motions for Reconsideration filed by petitioners, ABAKADA Guro Article VI, Section 24 of the Constitution provides that All appropriation,
party List Officer and et al., insist that the bicameral conference revenue or tariff bills, bills authorizing increase of the public debt, bills of local
committee should not even have acted on the no pass-on provisions application, and private bills shall originate exclusively in the House of
since there is no disagreement between House Bill Nos. 3705 and Representatives, but the Senate may propose or concur with amendments.
3555 on the one hand, and Senate Bill No. 1950 on the other, with The Court reiterates that in making his recommendation to the President on
regard to the no pass-on provision for the sale of service for power the existence of either of the two conditions, the Secretary of Finance is not
generation because both the Senate and the House were in acting as the alter ego of the President or even her subordinate. He is acting
agreement that the VAT burden for the sale of such service shall not as the agent of the legislative department, to determine and declare the event
be passed on to the end-consumer. As to the no pass-on provision upon which its expressed will is to take effect. The Secretary of Finance
for sale of petroleum products, petitioners argue that the fact that the becomes the means or tool by which legislative policy is determined and
presence of such a no pass-on provision in the House version and implemented, considering that he possesses all the facilities to gather data
the absence thereof in the Senate Bill means there is no conflict and information and has a much broader perspective to properly evaluate
because “a House provision cannot be in conflict with something that them. His function is to gather and collate statistical data and other pertinent
does not exist.” information and verify if any of the two conditions laid out by Congress is
 Escudero, et. al., also contend that Republic Act No. 9337 grossly present.
violates the constitutional imperative on exclusive origination of
revenue bills under Section 24 of Article VI of the Constitution when In the same breath, the Court reiterates its finding that it is not a property or a
the Senate introduced amendments not connected with VAT. property right, and a VAT-registered person’s entitlement to the creditable
 Petitioners Escudero, et al., also reiterate that R.A. No. 9337’s stand- input tax is a mere statutory privilege. As the Court stated in its Decision, the
by authority to the Executive to increase the VAT rate, especially on right to credit the input tax is a mere creation of law. Prior to the enactment of
account of the recommendatory power granted to the Secretary of multi-stage sales taxation, the sales taxes paid at every level of distribution
Finance, constitutes undue delegation of legislative power. They are not recoverable from the taxes payable. With the advent of Executive
submit that the recommendatory power given to the Secretary of Order No. 273 imposing a 10% multi-stage tax on all sales, it was only then
Finance in regard to the occurrence of either of two events using the that the crediting of the input tax paid on purchase or importation of goods and
Gross Domestic Product (GDP) as a benchmark necessarily and services by VAT-registered persons against the output tax was established.
inherently required extended analysis and evaluation, as well as This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax
policy making. Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against
 Petitioners also reiterate their argument that the input tax is a property the output tax is clearly a privilege created by law, a privilege that also the law
or a property right. Petitioners also contend that even if the right to can limit. It should be stressed that a person has no vested right in statutory
credit the input VAT is merely a statutory privilege, it has already privileges.
evolved into a vested right that the State cannot remove.
Rights are considered vested when the right to enjoyment is a present interest,
Issue/s: absolute, unconditional, and perfect or fixed and irrefutable. As adeptly stated
WON RA 9337 is constitutional—YES by Associate Justice Minita V. Chico-Nazario in her Concurring Opinion, which
the Court adopts, petitioners right to the input VAT credits has not yet vested,
Held/Ratio: The Motions for Reconsideration are hereby DENIED WITH thus
FINALITY. The temporary restraining order issued by the Court is LIFTED.
It should be remembered that prior to Rep. Act No. 9337, the petroleum CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATION
dealers input VAT credits were inexistent they were unrecognized and (Vanslembrouck)
disallowed by law. The petroleum dealers had no such property called input [GR. No. 147295; February 16, 2007]
VAT credits. It is only rational, therefore, that they cannot acquire vested rights “Exempt si PAGCOR, exempt din sa indirect tax si Acesite”
to the use of such input VAT credits when they were never entitled to such
credits in the first place, at least, not until Rep. Act No. 9337. Recit-Ready:
Facts: Acesite owned the Manila Pavillion Hotel. The hotel leased a part
My view, at this point, when Rep. Act No. 9337 has not yet even been of the property to PAGCOR for casino operations. It also catered
implemented, is that petroleum dealers right to use their input VAT as credit food and beverages to the casino’s patrons through their
against their output VAT unlimitedly has not vested, being a mere expectancy restaurants. For the period of 1996 – 1997 Acesite incurred P30M
of a future benefit and being contingent on the continuance of Section 110 of in VAT from rent and the sale of foods and beverages to PAGCOR.
the National Internal Revenue Code of 1997, prior to its amendment by Rep. Acesite tried to shift the payment of the VAT to PAGCOR, but the
Act No. 9337. latter refused on account of its tax exempt status. Thus, Acesite
paid to avoid legal consequences. It filed for a refund with the CIR,
The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy who however, was unable to resolve the same. Acesite then filed
of note, to wit: a petition with the CTA which ruled in favor of Acesite. The CA
affirmed.
Moreover, there is no vested right in generally accepted accounting
principles. These refer to accounting concepts, measurement techniques, and Issue/s:
standards of presentation in a company’s financial statements, and are not 1) WON PAGCOR is exempt from indirect tax?
rooted in laws of nature, as are the laws of physical science, for these are 2) WON the VAT exemption applies to Acesite?
merely developed and continually modified by local and international
regulatory accounting bodies. To state otherwise and recognize such asset Held:
account as a vested right is to limit the taxing power of the State. Unlimited, 1) YES. The charter of PAGCOR (PD 1869) uses the term “No tax of any
plenary, comprehensive and supreme, this power cannot be unduly restricted kind or form”. It makes no distinction on whether the taxes are direct or
by mere creations of the State. indirect. Furthermore, although the law does not specifically mention
PAGCORs exemption from indirect taxes, PAGCOR is undoubtedly
More importantly, the assailed provisions of R.A. No. 9337 already involve exempt from such taxes because the law exempts from taxes
legislative policy and wisdom. So long as there is a public end for which R.A. persons or entities contracting with PAGCOR in casino
No. 9337 was passed, the means through which such end shall be operations.
accomplished is for the legislature to choose so long as it is within 2) YES. Sec. 108 [b] [3] of R.A. 8424 provides that services rendered to
constitutional bounds. persons or entities whose exemption under special laws subjects the
supply of such services to zero (0%) rate are subject to 0% VAT rate.
Facts:
 Acesite is the owner of the Holiday Inn Manila Pavilion Hotel.
 It leases a part of its property to PAGCOR for casino operations. It also  Sec. 13(2)(b) of the charter undoubtedly makes the exemption from
caters food and beverages to PAGCORs casino patrons through the hotel’s indirect taxes even clearer:
restaurants. (b) Others: The exemptions herein granted for earnings derived from
 For the period of January 1996 to April 1997, Acesite incurred VAT the operations conducted under the franchise specifically from the
payment of any tax, income or otherwise, as well as any form of
amounting to P30M (P30,054,148.64) from its rental income and sale of
charges, fees or levies, shall inure to the benefit of and extend to
food and beverages to PAGCOR. corporation(s), association(s), agency(ies), or individual(s) with
 Acesite tried to shift the said taxes to PAGCOR by incorporating it in the whom the Corporation or operator has any contractual relationship
amount assessed to PAGCOR but the latter refused to pay the taxes on in connection with the operations of the casino(s) authorized to be
account of its tax exempt status. conducted under this Franchise and to those receiving compensation
or other remuneration from the Corporation or operator as a result of
 Thus, Acesite paid the VAT to the CIR as it feared the legal consequences essential facilities furnished and/or technical services rendered to the
of non-payment of the tax. However, Acesite belatedly arrived at the Corporation or operator. (Emphasis supplied.)
conclusion that its transaction with PAGCOR was subject to zero rate as it  Although the law does not specifically mention PAGCORs exemption from
was rendered to a tax-exempt entity. indirect taxes, PAGCOR is undoubtedly exempt from such taxes because
 Thus, Acesite filed an administrative claim for refund with the CIR but the the law exempts from taxes persons or entities contracting with
latter failed to resolve the same. Acesite then filed a petition with the CTA. PAGCOR in casino operations. In fact, it goes one step further by
The CTA decided in Acesite’s favor and recommended the refund of the granting tax exempt status to persons dealing with PAGCOR in casino
VAT paid. The CA affirmed in toto the decision of the CTA. operations.
 It must be noted that the indirect tax of VAT, as in the instant case, can be
Issue/s: shifted or passed to the buyer, transferee, or lessee of the goods,
(1) WON PAGCORs tax exemption privilege includes the indirect tax of properties, or services subject to VAT. Thus, by extending the tax
VAT to entitle Acesite to zero percent (0%) VAT rate? exemption to entities or individuals dealing with PAGCOR in casino
—YES operations, it is exempting PAGCOR from being liable to indirect taxes.
(2) WON the zero percent (0%) VAT rate under then Section 102 (b)(3) of
the Tax Code (now Section 108 (B)(3) of the Tax Code of 1997) legally (2) The VAT exemption extends to Acesite.
applies to Acesite.  Thus, while it was proper for PAGCOR not to pay the 10% VAT, Acesite
—YES Is also not liable for the payment of it as it is exempt in this particular
transaction by operation of law to pay the indirect tax.
Held/Ratio: The Decision of the CA is affirmed.
 Such exemption falls within Section 102 (b) (3) of the 1977 Tax Code, as
(1) PAGCOR has a blanket exemption to taxes with no distinction on whether
amended (now Sec. 108 [b] [3] of R.A. 8424).
the taxes are direct or indirect.
 It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the Section 102. Value-added tax on sale of services (a) Rate and base of tax There shall
latter an exemption from the payment of taxes. 6 be levied, assessed and collected, a value-added tax equivalent to 10% of gross
6
Sec. 13. Exemptions. except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the
Corporation from its operation under this Franchise. Such tax shall be due and payable
(2) Income and other taxes. (a) Franchise Holder: No tax of any kind or form, income or quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or
otherwise, as well as fees, charges or levies of whatever nature, whether National or assessments of any kind, nature or description, levied, established or collected by any
Local, shall be assessed and collected under this Franchise from the Corporation; nor municipal, provincial, or national government authority.
shall any form of tax or charge attach in any way to the earnings of the Corporation,
receipts derived by any person engaged in the sale of services x x x; Provided, that the
following services performed in the Philippines by VAT-registered persons shall be Recit-Ready:
subject to 0%.
Facts: The CIR issued LOA 19734 authorizing certain revenue officers to
(b) Transactions subject to zero percent (0%) rated. examine Sony’s books of accounts and other accounting records
regarding revenue taxes for the period 1997 and unverified prior
(3) Services rendered to persons or entities whose exemption under special laws years. Sony sought re-evaluation of the aforementioned
or international agreements to which the Philippines is a signatory effectively subjects assessment and later filed a petition for review before the CTA.
the supply of such services to zero (0%) rate (emphasis supplied).
The CTA-First Division disallowed the deficiency VAT assessment
because the subsidized advertising expense paid by Sony which
 The rationale for the exemption from indirect taxes provided for in P.D.
was duly covered by a VAT invoice resulted in an input VAT credit.
1869 and the extension of such exemption to entities or individuals dealing
As regards the EWT, the CTA-First Division also assessed the
with PAGCOR in casino operations are best elucidated from the 1987
amounts paid to sales agents as commissions with 5% EWT
case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc.
pursuant to Section 1(g) of RR No. 6-85. It, however, disallowed
o We held in said case that the exemption of contractee WHO
the EWT assessment on rental expense since it found that the total
should be implemented to mean that the entity or person exempt
rental deposit was incurred from January to March 1998 which was
is the contractor itself who constructed the building owned by
again beyond the coverage of LOA 19734. Except for the
contractee WHO, and such does not violate the rule that tax
compromise penalties, the CTA-First Division also upheld the
exemptions are personal because the manifest intention of the
penalties for the late payment of VAT on royalties, for late
agreement is to exempt the contractor so that no contractors tax
remittance of final withholding tax on royalty as of December 1997
may be shifted to the contractee WHO.
and for the late remittance of EWT by some of Sony’s branches. In
 Thus, the proviso in P.D. 1869, extending the exemption to entities or sum, the CTA-First Division partly granted Sony’s petition by
individuals dealing with PAGCOR in casino operations, is clearly to cancelling the deficiency VAT assessment but upheld a modified
proscribe any indirect tax, like VAT, that may be shifted to PAGCOR. deficiency EWT assessment as well as the penalties.
Issue/s:
WON the CTA-EB erred in ruling that:
1) Sony is not liable for deficiency VAT
2) the commission expense should be subjected to a withholding tax of
5% instead of the 10% tax rate
3) the assessment with respect to the 5% withholding tax on rental deposit
is not proper
4) the final withholding tax on royalties covering the period January to
March 1998 was filed on time
Held: In denying the petition, the Court noted the following:

CIR v. SONY PHILIPPINES, INC. (Villarin, L.) 1) NO. The LOA covered the period 1997 and unverified prior years. The
[GR. No. 178697; November 17, 2010] assessment was based on January to March 1998. Also, RMO No. 43-
“May pagkakataon ka nang sabihin (yung covered period), hindi mo pa sinabi.”
90 provides that a LOA cannot cover more than one taxable year. Penalties Due on Late Remittance of Income Payments 10,923.60
Hence, the deficiency VAT assessment should have been disallowed. GRAND TOTAL 15,895,632.65
2) NO. The withholding tax on brokers and agents was only increased to
10% much later or by the end of July 2001 under RR No. 6-2001. Until  Sony sought re-evaluation of the aforementioned assessment by filing a
then, the rate was only 5%. protest and submitting relevant documents in support of its protest. After
3) NO. Sony incurred the subject rental deposit in the amount of the lapse of 180 days, Sony filed a petition for review before the CTA.
P10,523,821.99 only from January to March 1998. As stated earlier, in  After trial, the CTA-First Division disallowed the deficiency VAT
the absence of the appropriate LOA specifying the coverage, the CIRs assessment because the subsidized advertising expense paid by Sony
deficiency EWT assessment from January to March 1998, is not valid which was duly covered by a VAT invoice resulted in an input VAT credit.
and must be disallowed. As regards the EWT, the CTA-First Division maintained the deficiency EWT
4) NO. Under Article X(5) of the MLA between Sony and Sony-Japan, assessment on Sony’s motor vehicles and on professional fees paid to
Sony was to pay Sony-Japan royalty within two (2) months after every general professional partnerships. It also assessed the amounts paid to
semi-annual period which ends in June 30 and December 31. However, sales agents as commissions with 5% EWT pursuant to Section 1(g) of RR
the CTA-First Division found that there was accrual of royalty by the end No. 6-85. The CTA-First Division, however, disallowed the EWT
of December 1997 as well as by the end of June 1998. Given this, the assessment on rental expense since it found that the total rental deposit of
FWTs should have been paid or remitted by Sony to the CIR on January P10,523,821.99 was incurred from January to March 1998 which was
10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First again beyond the coverage of LOA 19734. Except for the compromise
Division and the CTA-EB in ruling that the FWT for the royalty from penalties, the CTA-First Division also upheld the penalties for the late
January to March 1998 was seasonably filed. Although the royalty from payment of VAT on royalties, for late remittance of final withholding tax on
January to March 1998 was well within the semi-annual period ending royalty as of December 1997 and for the late remittance of EWT by some
June 30, which meant that the royalty may be payable until August 1998 of Sony’s branches. In sum, the CTA-First Division partly granted Sony’s
pursuant to the MLA, the FWT for said royalty had to be paid on or petition by cancelling the deficiency VAT assessment but upheld a modified
before July 10, 1998 or 10 days from its accrual at the end of June 1998. deficiency EWT assessment as well as the penalties.
Thus, when Sony remitted the same on July 8, 1998, it was not yet late.  The CIR sought a reconsideration of the above decision. On April 28, 2005,
the CTA-First Division denied the motion for reconsideration. Unfazed, the
Facts: CIR filed a petition for review with the CTA-EB. Finding no cogent reason
 On November 24, 1998, the CIR issued Letter of Authority No. 19734 (LOA to reverse the decision of the CTA-First Division, the CTA-EB dismissed
19734) authorizing certain revenue officers to examine Sony’s books of the petition..
accounts and other accounting records regarding revenue taxes for the Issue/s:
period 1997 and unverified prior years. On December 6, 1999, a 1) WON the CTA-EB erred in ruling that Sony is not liable for deficiency
preliminary assessment for 1997 deficiency taxes and penalties was VAT
issued by the CIR which Sony protested. Thereafter, acting on the protest, —NO
the CIR issued final assessment notices, the formal letter of demand and 2) WON the CTA-EB erred in ruling that the commission expense should
the details of discrepancies. The following are the amounts summarized: be subjected to a withholding tax of 5% instead of the 10% tax rate
Deficiency VAT Due 11,141,014.41 —NO
Deficiency EWT Due 1,992,462.72 3) WON the CTA-EB erred in ruling that the assessment with respect to
Penalties Due on Deficiency of VAT on Royalty Payments 462,758.14 the 5% withholding tax on rental deposit is not proper
Penalties Due on Late Remittance of Final Withholding Tax 2,288,473.78 —NO
4) WON the CTA-EB erred in ruling that the final withholding tax on dated September 20, 1990, which provides that “A LOA should cover a
royalties covering the period January to March 1998 was filed on time taxable period not exceeding one taxable year. The practice of
—NO issuing LOAs covering audit of unverified prior years is hereby
prohibited. If the audit of a taxpayer shall include more than one taxable
Held/Ratio: Petition DENIED. In applying the doctrine of animation, Court period, the other periods or years shall be specifically indicated in the
rules for the Applicant. LOA.”
o On this point alone, the deficiency VAT assessment should have been
1) NO. Sony is not liable for deficiency VAT for the following reasons: disallowed. Be that as it may, the CIR contends that since Sony’s
o Based on Section 13 of the Tax Code, a LOA is the authority given to advertising expense was reimbursed by Sony International Singapore
the appropriate revenue officer assigned to perform assessment (SIS), the former never incurred any advertising expense. As a result,
functions. It empowers or enables said revenue officer to examine the Sony is not entitled to a tax credit.
books of account and other accounting records of a taxpayer for the o The Court is not persuaded. Sony’s deficiency VAT assessment
purpose of collecting the correct amount of tax. stemmed from the CIRs disallowance of the input VAT credits that
SEC. 6. Power of the Commissioner to Make Assessments and should have been realized from the advertising expense of the latter. It
Prescribe Additional Requirements for Tax Administration and is evident under Section 110 of the 1997 Tax Code that an advertising
Enforcement. expense duly covered by a VAT invoice is a legitimate business
(A) Examination of Returns and Determination of tax Due. After a expense. Indubitably, Sony incurred and paid for advertising expense/
return has been filed as required under the provisions of this services. Where the money came from is another matter all together
Code, the Commissioner or his duly authorized representative but will definitely not change said fact.
may authorize the examination of any taxpayer and the o The CIR further argues that Sony itself admitted that the reimbursement
assessment of the correct amount of tax: Provided, however, from SIS was income and, thus, taxable. Insofar as the subsidy may be
That failure to file a return shall not prevent the Commissioner considered as income and, therefore, subject to income tax, the Court
from authorizing the examination of any taxpayer. x x x agrees. However, the Court does not agree that the same subsidy
o Clearly, there must be a grant of authority before any revenue officer should be subject to the 10% VAT. To begin with, the said subsidy was
can conduct an examination or assessment. Equally important is that not even exclusively earmarked for Sony’s advertising expense for it
the revenue officer so authorized must not go beyond the authority was but an assistance or aid in view of Sony’s dire or adverse economic
given. In the absence of such an authority, the assessment or conditions.
examination is a nullity. o Section 106 of the Tax Code explains when VAT may be imposed or
o LOA 19734 covered the period 1997 and unverified prior years. For said exacted. Thus:
reason, the CIR acting through its revenue officers went beyond the SEC. 106. Value-added Tax on Sale of Goods or Properties.
scope of their authority because the deficiency VAT assessment they (A) Rate and Base of Tax. There shall be levied, assessed and
arrived at was based on records from January to March 1998 or using collected on every sale, barter or exchange of goods or properties,
the fiscal year which ended in March 31, 1998. As pointed out by the value-added tax equivalent to 10% of the gross selling price or gross
CTA-First Division, the CIR knew which period should be covered by value in money of the goods or properties sold, bartered or
the investigation. Thus, it should have included it in the LOA or issued exchanged, such tax to be paid by the seller or transferor.
another LOA. o Thus, there must be a sale, barter or exchange of goods or properties
o The CTA-EB added that the phrase “and unverified prior years” in the before any VAT may be levied. Certainly, there was no such sale, barter
LOA violated Section C of Revenue Memorandum Order No. 43-90 or exchange in the subsidy given by SIS to Sony. It was but a dole out
by SIS and not in payment for goods or properties sold, bartered or o The CIR insists that under Section 3 of RR No. 5-82 and Sections
exchanged by Sony. 2.57.4 and 2.58(A)(2)(a) of RR No. 2-98, Sony should also be made
o In the case of CIR v. CA and COMASERCO, the Court ruled that liable for the FWT on royalties from January to March of 1998. At the
services rendered to affiliates for a fee even on reimbursement-on-cost same time, it downplays the relevance of the Manufacturing License
basis only and without realizing profit are also subject to VAT. This is Agreement (MLA) between Sony and Sony-Japan, particularly in the
not the case here. Sony did not render any service to SIS at all. The payment of royalties.
services rendered by the advertising companies, paid for by Sony using o Based on the revenue regulations mentioned, Sony is required to
SIS dole-out, were for Sony and not SIS. SIS just gave assistance to deduct and withhold final taxes on royalty payments when the royalty is
Sony in the amount equivalent to the latter’s advertising expense but paid or is payable. After which, the corresponding return and remittance
never received any goods, properties or service from Sony. must be made within 10 days after the end of each month. The question
now is when does the royalty become payable?
2) NO. The commission expense should be subjected to a withholding o Under Article X(5) of the MLA between Sony and Sony-Japan, Sony
tax of 5%. was to pay Sony-Japan royalty within two (2) months after every semi-
o The CIR insists that said deficiency EWT assessment is subject to the annual period which ends in June 30 and December 31. However, the
10% rate instead of the 5% citing RR No. 2-98 dated April 17, 1998. On CTA-First Division found that there was accrual of royalty by the end of
the other hand, the application of the 5% rate by the CTA-First Division December 1997 as well as by the end of June 1998. Given this, the
is based on Section 1(g) of RR No. 6-85 which provides: FWTs should have been paid or remitted by Sony to the CIR on January
(g) Amounts paid to certain Brokers and Agents. On gross payments 10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First
to customs, insurance, real estate and commercial brokers and Division and the CTA-EB in ruling that the FWT for the royalty from
agents of professional entertainers 5%. January to March 1998 was seasonably filed. Although the royalty from
o The applicable rule is RR No. 6-85, as amended by RR No. 12-94, January to March 1998 was well within the semi-annual period ending
which was the applicable rule during the subject period of examination June 30, which meant that the royalty may be payable until August 1998
and assessment as specified in the LOA. RR No. 2-98, cited by the CIR, pursuant to the MLA, the FWT for said royalty had to be paid on or
was only adopted in April 1998 and, therefore, cannot be applied in the before July 10, 1998 or 10 days from its accrual at the end of June 1998.
present case. Besides, the withholding tax on brokers and agents was Thus, when Sony remitted the same on July 8, 1998, it was not yet late.
only increased to 10% much later or by the end of July 2001 under RR
No. 6-2001. Until then, the rate was only 5%. SECTION 4.110-4. Apportionment of Input Tax on Mixed Transactions.
-
3) NO. The assessment with respect to the 5% withholding tax on rental A VAT-registered person who is also engaged in transactions NOT subject
deposit is not proper. to VAT shall be allowed to recognize input tax credit on transactions subject
o Sony incurred the subject rental deposit in the amount of to VAT as follows:
P10,523,821.99 only from January to March 1998. As stated earlier, in
the absence of the appropriate LOA specifying the coverage, the CIRs 1. All the input taxes that can be directly attributed to transactions
deficiency EWT assessment from January to March 1998, is not valid subject to VAT may be recognized for input tax credit; Provided, that input
and must be disallowed. taxes that can be directly attributable to VAT taxable sales of goods
and services to the Government or any of its political subdivisions,
4) NO. The final withholding tax on royalties covering the period January instrumentalities or agencies, including government-owned or controlled
to March 1998 was filed on time.
corporations (GOCCs) shall NOT be credited against output taxes Input tax on depreciable capital good not P20,000.00
arising from sales to non-Government entities; and attributable to any specific activity (monthly
amortization for 60 months)
2. If any input tax cannot be directly attributed to either a VAT taxable or
VAT-exempt transaction, the input tax shall be pro-rated to the VAT A. The creditable input tax for the month shall be computed as follows:
taxable and VAT-exempt transactions and ONLY the ratable portion Input tax on sale subject to 10% P5,000.00
pertaining to transactions subject to VAT may be recognized for input tax Input tax on zero-rated sale 3,000.00
credit. Ratable portion of the input tax not directly
attributable to any activity:
Taxable Sale to private x Input Tax = Creditable Subject to Taxable sales (0% and 10%) X Amount of Input tax
Total Sales 70% output VAT limit Total Sales not directly attributable
Taxable Sale to Gov’t x Input Tax = Creditable up to 5% of P200,000.00 X P20,000.00 P10,000.00

Total Sales the 10% output VAT 400,000.00
Total creditable input tax for the month: P18,000.00
Exempt sales x Input Tax = Expense or Cost
Total Sales B. The input tax attributable to sales to government for the month shall
Table Source: http://www.scp-ph.com/pdf/Comparison_VAT..pdf be computed as follows:
Input tax on sale to gov't. P4,000.00

Illustration: Ratable portion of the input tax not directly
ERA Corporation has the following sales during the month:
Sale to private entities subject to 10% P100,000.00 Taxable sales government X Amount of Input tax
Total Sales not directly attributable
Sale to private entities subject to 0% 100,000.00
Sale of exempt goods 100,000.00
P100,000.00 X P20,000.00 P5,000.00
Sale to gov't. subjected to 5% final VAT 100,000.00
400,000.00
Withholding
Total input tax attributable to sales to P9,000.00
Total sales for the month P400,000.00
government:
The following input taxes were passed on by its VAT suppliers:

C. The input tax attributable to VAT-exempt sales for the month shall be
Input tax on taxable goods (10%) P5,000.00
computed as follows:
Input tax on zero-rated sales 3,000.00
Input tax on sale of exempt goods 2,000.00
Input tax on VAT-exempt sales P2,000.00
Input tax on sale to government 4,000.00
Ratable portion of the input tax not directly
VAT Exempt Sales X Amount of Input tax “In reply, please be informed that Section 110(B), in relation to Section
Total Sales not directly attributable 112(A) of the 1997 Tax Code, as amended, provides for the remedy of a
taxpayer to recover the unapplied accumulated input VAT arising from
P100,000.00 X P20,000.00 P5,000.00 zero-rated transactions, viz:
400,000.00
Total input tax attributable to VAT-exempt sales: P7,000.00 ‘110. Tax Credits. -
xxx xxx xxx
The table below shows a summary of the foregoing transactions of ERA “B) Excess Output or Input Tax. – If at the end of any taxable quarter the
Corporation:
- output tax exceeds the input tax, the excess shall be paid by the
VAT-registered person.
- If the input tax exceeds the output tax, the excess shall be carried
over to the succeeding quarter or quarters.
- Any input tax attributable to the purchase of capital goods or to

zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112.
* These amounts are not available for input tax credit but may be recognized as cost or
expense. xxx xxx xxx
** Standard input VAT of 5% on sales to Government as provided in SEC. 4.114-2(a)
*** Withheld by Government entity as Final Withholding VAT
In addition thereto, Section 112(A) of the same Code states
The input tax attributable to VAT-exempt sales shall not be allowed as credit
against the output tax but should be treated as part of cost or expense. “(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT registered
person, whose sales are zero-rated or effectively zero-rated may, within
Notwithstanding the foregoing provisions, for persons engaged in both zero- two (2) years after the close of the taxable quarter when the sales were
rated sales under Sec. 108(B)(6) of the Tax Code and non-zero rated sales, made, apply for the issuance of a tax credit certificate OR refund of
the aggregate input taxes shall be allocated ratably between the zero-rated creditable input tax due or paid attributable to such sales, EXCEPT
sale and non-zero-rated sale. transitional input tax, to the extent that such input tax has not been applied
against output tax: xxx xxx xxx (Underscoring supplied)
REVENUE MEMORANDUM CIRCULAR 57-2013 (August 29, 2013)

It is noted, based on the above-cited provisions, that unutilized creditable
input taxes attributable to zero-rated sales can only be recovered
For the information and guidance of all internal revenue officials and
through the application for refund or tax credit. Nowhere in the Tax
employees concerned, quoted hereunder is the relevant portion BIR Ruling
Code can we find a specific provision expressly providing for another mode
No. 123-2013 dated March 25, 2013 concerning the recovery of unutilized
of recovering unapplied input taxes, particularly your proposition that
creditable input taxes attributable to VAT zero-rated sales:
unapplied input taxes may be treated outright as deductible expense for
income tax purposes. Thus, your proposition, that accumulated and (2%) of the value of such inventory or the actual value-added tax paid
unapplied input value-added tax (VAT) arising from Cekas’ purchase of on such goods, materials and supplies, whichever is higher, which
goods and services after the expiration of the two (2) year prescriptive shall be creditable against the output tax.
period may be expensed outright, is hereby denied for lack of legal basis.”
(B) Presumptive Input Tax Credits. –
It is a governing principle in taxation that tax exemptions must be construed
in strictissimi juris against the taxpayer and liberally in favour of the taxing (1) Persons or firms engaged in the processing of sardines, mackerel
authority. The basic principle in the construction of laws granting tax and milk, and in manufacturing refined sugar and cooking oil and
exemptions has been very stable. He who claims an exemption from his packed noodle-based instant meals, shall be allowed a presumptive
share of the common burden of taxation must justify his claim by showing input tax, creditable against the output tax, equivalent to four
that the Legislature intended to exempt him by words too plain to be beyond percent (4%) of the gross value in money of their purchases of
doubt or mistake (City of Iloilo, et.al. vs. Smart Communications, Inc. G.R. primary agricultural products which are used as inputs to their
No. 167260, dated February 27, 2009). And since a deduction for income production. (As amended by R.A. No. 9337)
tax purposes partakes the nature of a tax exemption, then it must also be
strictly construed (CIR vs. Isabela Cultural Corporation, G.R. No. 172231 As used in this Subsection, the term “processing” shall mean
dated February 12, 2007).” All other issuances inconsistent herewith are pasteurization, canning and activities which through physical or
hereby repealed or modified accordingly. chemical process alter the exterior texture or form or inner
substance of a product in such manner as to prepare it for special
BOTTOMLINE: use to which it could not have been put in its original form or
Based on Sections 110(B) and 112(A) of the 1997 Tax Code, as amended, condition.
the unutilized creditable input taxes attributable to zero-rated sales
can only be recovered through the application for refund or tax credit.
FORT BONIFACIO DEVELOPMENT CORP. v. CIR (Villarivera)
[GR. No. 175707; November 19, 2014]
“Fort Boni is entitled to transitional input tax credit on total value of real
properties. The term “goods and properties” includes real properties. No
law excluded it.”
Recit-Ready:
Withholding, Presumptive, Transitional Input VAT Facts: Petitioner was a real estate developer that bought from the national
government a parcel of land that used to be the Fort Bonifacio
SECTION 111 military reservation. At the time of the said sale there was as yet
(A) Transitional Input Tax Credits. – A person who becomes liable to no VAT imposed so Petitioner did not pay any VAT on its purchase.
value-added tax or any person who elects to be a VAT-registered Subsequently, Petitioner sold two parcels of land to Metro Pacific
person shall, subject to the filing of an inventory according to rules and Corp. In reporting the said sale for VAT purposes (because the
regulations prescribed by the Secretary of Finance, upon VAT had already been imposed in the interim), Petitioner claimed
recommendation of the Commissioner, be allowed input tax on his transitional input VAT corresponding to its inventory of land. The
beginning inventory of goods, materials and supplies equivalent to two
BIR disallowed the claim of presumptive input VAT and thereby owned in part by the Bases Conversion Development Authority, and the
assessed Petitioner for deficiency VAT. remaining 55% is owned by Bonifacio Land Corporation, a consortium of
private domestic corporations.
Issue/s:
Is Petitioner entitled to claim the transitional input VAT on its sale of real Respondents are the Commissioner of Internal Revenue and the Revenue
properties given its nature as a real estate dealer and if so District Officer Chief of Taguig and Pateros.
(i) is the transitional input VAT applied only to the improvements It was established before the CTA that petitioner is engaged in the
on the real property or is it applied on the value of the entire development and sale of real property. It is the owner of, and is developing
real property; and and selling, parcels of land within a “newtown” development area known as
the Fort Bonifacio Global City (the Global City). The National Government was
(ii) should there have been a previous tax payment for the the one that conveyed to petitioner these parcels of land on February 8, 1995.
transitional input VAT to be creditable?
In May 1996, petitioner commenced developing the Global City, and since
Held: YES. Petitioner is entitled to claim transitional input VAT based on October 1996, had been selling lots to interested buyers. At the time of
the value of not only the improvements but on the value of the acquisition, value-added tax (VAT) was not yet imposed on the sale of real
entire real property and regardless of whether there was in fact properties. Republic Act No. 7716 (the Expanded Value-Added Tax [E-VAT]
actual payment on the purchase of the real property or not. Law), which took effect on January 1, 1996, restructured the VAT system by
further amending pertinent provisions of the National Internal Revenue Code
The amendments to the VAT law do not show any intention to (NIRC). Section 100 of the old NIRC was so amended by including “real
make those in the real estate business subject to a different properties” in the definition of the term “goods or properties,” thereby
treatment from those engaged in the sale of other goods or subjecting the sale of “real properties” to VAT. The provision, as amended
properties or in any other commercial trade or business. On the reads:
scope of the basis for determining the available transitional input
VAT, the CIR has no power to limit the meaning and coverage of SEC. 100. Value-Added Tax on Sale of Goods or Properties. — (a) Rate
the term "goods" in Section 105 of the Tax Code without statutory and Base of Tax. — There shall be levied, assessed and collected on
authority or basis. The transitional input tax credit operates to every sale, barter or exchange of goods or properties, a value-added tax
benefit newly VAT-registered persons, whether or not they equivalent to 10% of the gross selling price or gross value in money of the
previously paid taxes in the acquisition of their beginning inventory goods or properties sold, bartered or exchanged, such tax to be paid by
of goods, materials and supplies. the seller or transferor.
(1) The term “goods or properties” shall mean all tangible and intangible
Facts: objects which are capable of pecuniary estimation and shall include:
The Court has consolidated these three petitions as they involve the same
parties, similar facts and common questions of law. (A) Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business[.]
Petitioner FBDC (petitioner) is a domestic corporation duly registered and
existing under Philippine laws. Its issued and outstanding capital stock is
While prior to Republic Act No. 7716, real estate transactions were not subject
to VAT, they became subject to VAT upon the effectivity of said law. Held/Ratio: Petition GRANTED.
Thus, the sale of the parcels of land by petitioner became subject to a 10% 1) On its face, there is nothing in Section 105 of the Old NIRC that
VAT, and this was later increased to 12%, pursuant to Republic Act No. 9337. prohibits the inclusion of real properties, together with the
improvements thereon, in the beginning inventory of goods, materials
Petitioner afterwards became a VAT-registered taxpayer. and supplies, based on which inventory the transitional input tax credit
is computed.
On September 19, 1996, petitioner submitted to respondent BIR, an inventory 2) It is apparent that the transitional input tax credit operates to
list of its properties as of February 29, 1996. The total book value of benefit newly VAT-registered persons, whether or not they
petitioner’s land inventory amounted to P71,227,503,200.00. previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies. During that period of
On the basis of Section 105 of the NIRC,petitioner claims a transitional or transition from non-VAT to VAT status, the transitional input tax credit
presumptive input tax credit of 8% of the total value of the real properties serves to alleviate the impact of the VAT on the taxpayer. At the very
listed in its inventory. beginning, the VAT-registered taxpayer is obliged to remit a
significant portion of the income it derived from its sales as output
What petitioner seeks to be refunded are the actual VAT payments made by it VAT. The transitional input tax credit mitigates this initial diminution of
in cash, which it claims were either erroneously paid by or illegally collected the taxpayer's income by affording the opportunity to offset the losses
from it. Each Claim for Refund is based on petitioner’s position that it is incurred through the remittance of the output VAT at a stage when
entitled to a transitional input tax credit under Section 105 of the old the person is yet unable to credit input VAT payments.
NIRC, which more than offsets the aforesaid VAT payments.
The Court found that petitioner is entitled to the 8% transitional input
tax credit, and clearly said that the fact that petitioner acquired the
Issue/s: Global City property under a tax-free transaction makes no difference
as prior payment of taxes is not a prerequisite. This argument has
The main issue before us now is whether or not petitioner is entitled to a refund long been settled. To reiterate, prior payment of taxes is not
of the amounts of: 1) P486,355,846.78 in G.R. No. 175707, 2) P77,151,020.46 necessary before a taxpayer could avail of the 8% transitional
for G.R. No. 180035, and 3) P269,340,469.45 in G.R. No. 181092, which it input tax credit.
paid as value-added tax, or to a tax credit for said amounts.
First . Section 105 of the old National Internal Revenue Code (NIRC)
To resolve the issue stated above, it is also necessary to determine: clearly provides that for a taxpayer to avail of the 8% transitional input
tax credit, all that is required from the taxpayer is to file a beginning
1) Whether the transitional/presumptive input tax credit under Section inventory with the Bureau of Internal Revenue (BIR). It was never
105 of the NIRC may be claimed only on the “improvements” on real mentioned in Section 105 that prior payment of taxes is a requirement
properties;
2) Whether there must have been previous payment of sales tax or Second. Since the law (Section 105 of the NIRC) does not provide
value-added tax by petitioner on its land before it may claim the input for prior payment of taxes, to require it now would be tantamount to
tax credit granted by Section 105 of the NIRC judicial legislation which, to state the obvious, is not allowed.
paid the contract price less the appropriate retention value as stipulated in
Third. A transitional input tax credit is not a tax refund per se but a the contract. Sanchez issued BIR registered receipts to LVM for every
tax credit. Logically, prior payment of taxes is not required before a payment made by LVM to the Join Venture.
taxpayer could avail of transitional input tax credit. As we have
declared in our September 4, 2012 Decision, “[t]ax credit is not LVM apprised the Joint Venture of the fact that its auditors have belatedly
synonymous to tax refund. Tax refund is defined as the money that a discovered that no deductions for E-VAT had been made from its payments
taxpayer overpaid and is thus returned by the taxing authority. Tax on Billing Nos. 1 to 26 and that it was, as a consequence, going to deduct
credit, on the other hand, is an amount subtracted directly from one's the 8.5% payments for said tax from the amount still due in the premises.
total tax liability. It is any amount given to a taxpayer as a subsidy, a
refund, or an incentive to encourage investment.” Issue/s:
WON the Joint Venture are deemed to have already paid VAT and therefore
Fourth. The issue of whether prior payment of taxes is necessary to LVM can not retain part of the billings as payment in its share in the E-VAT?
avail of transitional input tax credit is no longer novel. It has long been —YES
settled by jurisprudence.
Held:
Fifth . Moreover, in Commissioner of Internal Revenue v. Central YES. LVM was liable for the 8.5% VAT which was withheld by the DPWH
Luzon Drug Corp., this Court had already declared that prior payment from its payments, pursuant to Section 114 (C) of the NIRC. Absent any
of taxes is not required in order to avail of a tax credit. agreement to that effect, LVM cannot deduct the amounts thus withheld
from the sums it still owed the Joint Venture which, as Sub-Contractor of
30% of the Project, had its own liability for 10% VAT insofar as the sums
PETITION GRANTED. Fort Bonifacio Development Corp is entitled to the
paid for the sub-contracted works were concerned.
refund sought.
Although the burden to pay an indirect tax like VAT can, admittedly, be
passed on to the purchaser of the goods or services, it bears emphasizing
that the liability to pay the same remains with the manufacturer or seller like
LVM and the Joint Venture. In the same manner that LVM is liable for the
VAT due on the payments made by the DPWH pursuant to the contract on
the Project, the Joint Venture is, consequently, liable for the VAT due on
LVM CONSTRUCTION CORPORATION v. SANCHEZ (Agatep) the payments made by LVM pursuant to the parties’ Sub-Contract.
[GR. No. 181961; December 5, 2011]
“VAT mo, bayad mo. VAT ko, bayad ko” Sanchez (Joint Venture) was required to issue official receipts registered
with which it did. For each official receipt, Sanchez is deemed already paid
Recit-Ready: 10% VAT to the BIR. LVM must pay its output Vat based on its receipts and
Facts: LVM Corp. was awarded by the DPWH a construction project. LVM Sanchez must also pay output VAT based on its receipts. Clearly, therefore,
sub-contracted approximately 30% of the contract amount with the Joint LVM, has to its credit the 10% output VAT paid by the Joint Venture. LVM
Venture composed of respondents F.T. Sanchez Corp. et. al. can use this input VAT to offset any output VAT LVM must pay for any of its
other projects.
The Joint Venture made a total of 27 billings for the construction works it
performed under the subcontract agreement. For Billing nos. 1 to 26, LVM Facts:
 LVM Construction Corp. (LVM) is engaged in the construction of roads and

bridges for the DPWH. Awarded the construction of the Arterial Road Link  The CIAC granted the Joint Venture’s claims for the payment of the
Development Project (the Project), LVM sub-contracted approximately retention money for Billing Nos. 1 to 26 as well as the interest thereon and
30% of the contract amount with the Joint Venture composed of the other unpaid balance.
respondents F.T. Sanchez Corp. et. al.
 Elevated by LVM to the CA, the CIAC’s decision was affirmed in toto. The
 With LVM as the Contractor and the Joint Venture as Sub-Contractor, the CA ruled that there was no provision in the Sub-Contract Agreement that
Sub-Contract Agreement executed by the parties pertinently provided as would hold Sanchez liable for EVAT on the amounts paid to it by LVM. Any
follows: other deduction must be clearly stated in the provisions of the contract or
upon agreement of the parties.
 That payment to the SUB-CONTRACTORat awarded unit cost of
the project less NINE PERCENT (9%). The SUB-CONTRACTOR  Further, the CA pointed out that Sanchez was required to issue official
shall issue a BIR registered receipt. receipts registered with which it did. For each official receipt, Sanchez is
deemed already paid 10% VAT to the BIR. LVM must pay its output Vat
 Ten percent (10%) retention to be deducted for every billing of based on its receipts and Sanchez must also pay output VAT based on its
sub-contractor as prescribed under the Tender Documents. receipts. Clearly, therefore, LVM, has to its credit the 10% output VAT paid
by the Joint Venture. LVM can use this input VAT to offset any output VAT
 The payment to the SUB-CONTRACTOR shall be made after the LVM must pay for any of its other projects.
check issued by DPWH to CONTRACTOR has already been
made good. Issue:
WON the Joint Venture are deemed to have already paid VAT and therefore
 For Billing Nos. 1 to 26, LVM paid the Joint Venture the total sum of P80.4 LVM can not retain part of the billings as payment in its share in the VAT?
million and retained the 10% as stipulated. For Billing No. 27 in the sum of
—YES
P5.9 on the other hand, LVM paid the Joint Venture the partial sum of P2.5
million, claiming that it had not yet been fully paid by the DPWH.
Held/Ratio: Petition DENIED for lack of merit.
 LVM apprised the Joint Venture of the fact that its auditors have belatedly YES
discovered that no deductions for E-VAT had been made from its payments  There are two contracts under the factual milieu of the case: the main
on Billing Nos. 1 to 26 and that it was, as a consequence, going to deduct contract DPWH entered into with LVM for The Project and the Sub-
the 8.5% payments for said tax from the amount still due in the premises. Contract Agreement the latter in turn concluded with the Joint Venture over
30% of said project’s contract amount. As the entity which directly dealt
 With its claims unpaid after four (4) years from completion, the Joint with the government insofar as the main contract was concerned, LVM was
Venture filed a complaint for sum of money, interest and damages before itself required by law to pay the 8.5% VAT which was withheld by the
the Construction Industry Arbitration Commission (CIAC). DPWH.
 LVM maintained that it did not release the 10% retention for Billing Nos. 1  For the Sub-Contract Agreement, respondent F. Sanchez Construction,
to 26 on the ground that it had yet to make the corresponding 8.5% acting on behalf of the Joint Venture, issued BIR-registered receipts for the
deductions for E-VAT which the Joint Venture should have paid to the BIR sums paid by LVM for Billing Nos. 1 to 26. As the VAT-registered person,
and that there is a need to offset the sums corresponding thereto from the Sanchez, filed the corresponding Monthly VAT Declarations with the BIR
retention money still in its possession. Moreover, LVM alleged that the Joint which, by themselves, are evidence of the Joint Venture’s VAT liability for
Venture’s claims failed to take into consideration its own outstanding LVM’s payments on its billings.
obligation in the total amount of P21.7 million, representing damages it
incurred as a consequence of its delays in the completion of the project.
 LVM was liable for the 8.5% VAT which was withheld by the DPWH from
its payments, pursuant to Section 114 (C) of the NIRC. Absent any
agreement to that effect, LVM cannot deduct the amounts thus withheld
from the sums it still owed the Joint Venture which, as Sub-Contractor of
30% of the Project, had its own liability for 10% VAT insofar as the sums
paid for the sub-contracted works were concerned.
 Although the burden to pay an indirect tax like VAT can, admittedly, be
passed on to the purchaser of the goods or services, it bears emphasizing
that the liability to pay the same remains with the manufacturer or seller
like LVM and the Joint Venture. In the same manner that LVM is liable for
the VAT due on the payments made by the DPWH pursuant to the contract
on the Project, the Joint Venture is, consequently, liable for the VAT due
on the payments made by LVM pursuant to the parties’ Sub-Contract.
VAT REFUNDS expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals.
SECTION 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered (D) Manner of Giving Refund. - Refunds shall be made upon warrants
person, whose sales are zero-rated or effectively zero-rated may, within drawn by the Commissioner or by his duly authorized representative
two (2) years after the close of the taxable quarter when the sales were without the necessity of being countersigned by the Chairman,
made, apply for the issuance of a tax credit certificate or refund of Commission on audit, the provisions of the Administrative Code of 1987 to
creditable input tax due or paid attributable to such sales, except the contrary notwithstanding: Provided, That refunds under this paragraph
transitional input tax, to the extent that such input tax has not been applied shall be subject to post audit by the Commission on Audit.
against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), Section 112. Refunds or Tax Credits of Input Tax. -
the acceptable foreign currency exchange proceeds thereof had been duly (A) Zero-rated or Effectively Zero-rated Sales. –
accounted for in accordance with the rules and regulations of the Bangko Any VAT-registered person,
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is  Whose sales are zero-rated or
engaged in zero-rated or effectively zero-rated sale and also in taxable or  Effectively zero-rated
exempt sale of goods of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to May, within two (2) years
any one of the transactions, it shall be allocated proportionately on the  After the close of the taxable quarter when the sales were
basis of the volume of sales. Provided, finally, That for a person making made,
sales that are zero-rated under Section 108(B) (6), the input taxes shall be
allocated ratably between his zero-rated and non-zero-rated sales. Apply for the issuance of a
 Tax credit certificate or
(B) Cancellation of VAT Registration. - A person whose registration has  Refund of creditable input tax
been cancelled due to retirement from or cessation of business, or due to o Due or paid attributable to such sales,
changes in or cessation of status under Section 106(C) of this Code may,
within two (2) years from the date of cancellation, apply for the issuance of Except transitional input tax,
a tax credit certificate for any unused input tax which may be used in o To the extent that such input tax has not been
payment of his other internal revenue taxes. applied against output tax:
(C) Period within which Refund or Tax Credit of Input Taxes shall be Provided, however, that in the case of zero-rated sales under Section
Made. - In proper cases, the Commissioner shall grant a refund or issue 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2),
the tax credit certificate for creditable input taxes within one hundred  The acceptable foreign currency exchange proceeds thereof
twenty (120) days from the date of submission of complete documents in o Had been duly accounted for in accordance with the rules
support of the application filed in accordance with Subsections (A) hereof. and regulations of the Bangko Sentral ng Pilipinas (BSP):
In case of full or partial denial of the claim for tax refund or tax credit, or Provided, further, that where the taxpayer is
the failure on the part of the Commissioner to act on the application within  Engaged in zero-rated or effectively zero-rated sale AND ALSO
the period prescribed above, the taxpayer affected may, within thirty (30)
 In taxable or exempt sale of goods of properties or services, AND
days from the receipt of the decision denying the claim or after the
 The amount of creditable input tax due or paid cannot be directly  Within thirty (30) days from the receipt of the decision denying the
and entirely attributed to any one of the transactions, claim or
It shall be allocated proportionately on the basis of the volume of sales.  After the expiration of the one hundred twenty day-period,
Appeal the decision or the unacted claim with the Court of Tax Appeals.
Provided, finally,
That for a person making sales that are zero-rated under Section 108(B) (6), (D) Manner of Giving Refund. –
 The input taxes shall be allocated ratably between his zero-rated Refunds shall be made upon warrants
and non-zero-rated sales.  Drawn by the Commissioner or
 By his duly authorized representative
(B) Cancellation of VAT Registration. –
A person whose registration Without the necessity of being countersigned by
 Has been cancelled due to retirement from or  The Chairman,
 Cessation of business, or  Commission on audit,
 Due to changes in or cessation of status under Section 106(C) of
this Code The provisions of the Administrative Code of 1987 to the contrary
notwithstanding:
May, within two (2) years from the date of cancellation, Provided, that refunds under this paragraph
 Apply for the issuance of a tax credit certificate  Shall be subject to post audit by the Commission on Audit.
o For any unused input tax which may be used in
payment of his other internal revenue taxes. CIR v. MIRANT (Alarcon)
[GR. No. 172129; September 12, 2008]
(C) Period within which Refund or Tax Credit of Input Taxes shall “BIR Rulings overturned; Peace bonds are deposit substitutes”
be Made. –
In proper cases, the Commissioner shall Recit-Ready:
 Grant a refund or Facts: MPC is engaged in generation of power which it sells to National
 Issue the tax credit certificate Power Corportaion (NPC). Under Sec 13 of RA 6935, NPC is
o For creditable input taxes within one hundred twenty exempt from all taxes, direct or indirect. Upon the belief that its sale
(120) days from the date of submission of complete to NPC of power was zero rated for tax purposes, MPC applied for
documents in support of the application filed effective zero rating for the Build, Operate, Transfer scheme of its
o In accordance with Subsections (A) hereof. Pagbilao Power station. MPC acquired goods and services from
Mitsubishi Japan for the construction of its plant amounting to P
In case of 135,993,570 for the years 1993-1996. With its belief to be zero-
 Full or partial denial of the claim for tax refund or tax credit, or rated, it opted not to pay the VAT component of its billings from
 The failure on the part of the Commissioner to act on the application Mitsubishi. This caused Mitsubishi to advance payments for the VAT
within the period prescribed above, components as this serves as their output VAT which is essential in
the determination of their VAT payments. It was only on April 14,
The taxpayer affected may, 1998 that MPC paid Mitsubishi for its VAT component for purchases
for 1993-1996, such was evidenced by OR No. 0189 issued by o In Maceda v Macaraig, it was ruled that this exemption
Mitsubishi. On Aug 25, 1998 when MPC filed its 2nd quarter tax covered both direct and indirect taxes.
return, it stated an input VAT of PhP 148,003,047.62, which included  MPC on the belief that its sale of power generation services to NPC
PhP 135,993,570 supported by OR No. 0189. On December 20, is, pursuant to Sec. 108(B)(3) of the Tax Code,1 zero-rated for VAT
1999 it filed for an administrative claim for refund for unutilized input purposes, filed on December 1, 1997 with Revenue District Office
VAT for the amount of P148,003,047.62. BIR Commissioner did not (RDO) No. 60 in Lucena City an Application for Effective Zero
grant his claim as these were not supported by documents. With Rating.
regard to OR No. 0189, it is of doubtful veracity as it is dated at 1998 o This application covered the construction and operation of
but pertains to purchases rendered for the years 1993 to 1996. It its Pagbilao power station under a Build, Operate, and
shall also be denied for the reason that it has prescribed from the 2 Transfer scheme.
year period to claim for refund from the date of purchase.  Not getting any response from the BIR district office, MPC refiled its
application in the form of a “request for ruling” with the VAT Review
Issue: WON MPC can claim for creditable VAT refund for the amount of Committee at the BIR national office on January 28, 1999.
P148, 003, 047.62? – No, only P10, 733, 969 o May 13, 1999, CIR Commissioner issued VAT Ruling No.
052-99 stating that “the supply of electricity by Hopewell
Held: No. Petition Partly granted. CTA employed the services of SGV and Phil. (MPC) to the NPC, shall be subject to the zero percent
findings of such firm with regard to the amounts unsupported by (0%) VAT, pursuant to Section 108 (B) (3) of the National
documentary evidence shall be relied upon. With regard to the Internal Revenue Code of 1997.”
amount supported by OR No. 0189, Sec 110 of the NIRC provides  Consistent with its belief to be zero-rated, MPC opted not to pay the
that the a VAT invoice or an Official Receipt is the best evidence to VAT component of the progress billings from Mitsubishi for the
prove such payment of VAT. However, the petition should be denied period covering April 1993 to September 1996—for the E & M
as the claim for refund has prescribed. The prescription period for Equipment Erection Portion of MPC’s contract with Mitsubishi.
claims of refund are to be reckoned from the end of the quarter from o This prompted Mitsubishi to advance the VAT component
where the purchases were made and not when such tax was as this serves as its output VAT which is essential for the
actually paid as claim by MPC, as such tax was not erroneously determination of its VAT payment.
paid.  It was only on April 14, 1998 that MPC paid Mitsubishi the VAT
component for the progress billings from April 1993 to September
Facts: 1996, and for which Mitsubishi issued Official Receipt (OR) No.
 Mirant Pagbilao Corporation (MPC) is domestic firm engaged in the 0189 in the aggregate amount of PhP 135,993,570.
generation of power which it sells to National Power Corporation  On August 25, 1998, MPC, while awaiting approval of its application,
(NPC). filed its quarterly VAT return for the second quarter of 1998 where it
o MPC was formerly Southern Energy Quezon, Inc. and also reflected an input VAT of PhP 148,003,047.62, which included
formerly Hopewell (Phil.)Corp
 For the construction of its electrical and mechanical equipment 1
Transactions Subject to Zero Percent (%) Rate.—The following services performed in the
portion of its Pagbilao, Quezon plant from the years1993-1996, MPC Philippines by VAT-registered persons shall be subject to zero- percent rate: x x x (3)
secured the services of Mitsubishi Corporation (Mitsubishi) of Japan. Services rendered to persons whose exemption under special laws x x x effectively
subjects the supply of such services to zero percent (0%) rate.
 Under Section 13 of RA 6935, the revised charter of NPC, NPC is
exempt from all taxes.
PhP 135,993,570 supported by OR No. 0189.

o Pursuant to procedure in RR-7-95, MPC filed on December
20, 1999 an administrative claim for refund of unutilized
input VAT in the amount of PhP 148,003,047.62.
 BIR Commissioner failed to act on its claim for refund (MPC) and
obviously to forestall the running of the two-year prescriptive period
under Sec. 229 of the National Internal Revenue Code (NIRC), MPC
went to the CTA via a petition for review, docketed as CTA Case No.
6133.
o Answering the petition, BIR Commissioner citing Kumai-
Gumi Co. Ltd. V CIR asserted that MPC’s claim for refund
cannot be granted for this main reason: MPC’s sale of
electricity to NPC is not zero-rated for its failure to secure
an approved application for zero-rating.
 March 18, 2003- Court of Tax Appeals granted MPC’s claim for input
VAT refund or credit, but only for the amount of PhP
10,766,939.48.
o To provide support to the CTA in verifying and analyzing
documents and figures and entries contained therein, the
Sycip Gorres & Velayo (SGV), an independent auditing firm,
 BIR Commissioner argues against the sufficiency of OR No. 0189 to
was commissioned.
prove unutilized input payment by MPC. He states that BIR can
require additional evidence to prove and ascertain payment of
credible input VAT, or that the claim was filed on time or not
previously refunded:
1. OR No. 0189 covers purchases from MPC to Mitsubishi
from 1993 to 1996 however MPC’s claim for refund was
filed on Dec 20, 1999, clearly way beyond the 2 year
prescriptive period in Sec 112 of NIRC
2. MPC failed to explain why OR No. 0189 was issued by
Mitsubishi (Manila) when the invoices which the VAT were
originally billed came from Mitsubishi Japan.
3. Exchange rate in OR No. 0189 was pegged at P26.203=$1
or the exchange rate in 1993 to 1996, when on April 14,
1998, the date when OR No. 0189 was issued, the rate was
already P38 to $1
4. MPC failed to present its VAT returns for 2nd and 3rd quarter
of 1995, when such was necessary to determine whether
the amount in OR No. 0189 was not previously refunded or in disallowing said claim since the OR from
credited; Mitsubishi was the best evidence for the
5. No other documents proving the said input VAT payment payment of input VAT by MPC to Mitsubishi as
were presented other than OR No. 0189 required under Sec. 110(A)(1)(b) of the NIRC.
 must be viewed as conclusive proof of the
o CTA: “We agree with the above SGV findings that out of the payment of input VAT
remaining taxes of P136,246,017.45, the amount of
P252,477.45 was not supported by any document and Issues:
should therefore be outrightly disallowed. 1) Whether or not respondent [MPC] is entitled to the refund of its
o As to the claimed input tax of P135,993,570.00 input VAT payments made from 1993 to 1996 amounting to
(P136,246,017.45 less P252,477.45) on purchases [PhP] 146,760,509.48.- No, only 10,766,939.48
of services from Mitsubishi Corpora- tion, Japan, 2) Whether or not MPC is entitled to a refund or a TCC for the
the same is found to be of doubtful veracity. alleged unutilized input VAT of PhP 135,993,570 covered by OR
While it is true that said amount is substantiated No. 0189 which sufficiently proves payment of the input VAT. –
by a VAT official receipt with Serial No. 0189 No.
dated April 14, 1998 x x x, it must be observed,
however, that said VAT allegedly paid pertains Held/Ratio: Petition partly GRANTED.
to the services which were rendered for the 1. YES. A claim for tax refund may be based on a statute granting tax
period 1993 to 1996. x x x” exemption, or, the result of legislative grace, in which case, the claim is to be
construed strictissimi juris against the taxpayer; On the other hand, as in
 CA rendered its assailed decision modifying that of the CTA decision this case, a tax refund may be predicated on tax refund provisions
by granting most of MPC’s claims for tax refund or credit. allowing a refund of erroneous or excess payment of tax, on which
o CA agreed with the CTA on MPC’s entitlement to : case it is founded on the principle of solutio indebiti, a basic postulate
 (1) a zero- rating for VAT purposes for its sales and that no one should unjustly enrich himself at the expense of another;
services to tax-exempt NPC; and  A claim for tax refund proper, as here, necessitates only the
 (2) a refund or tax credit for its unutilized input VAT preponderance-of-evidence threshold like in any ordinary civil
for the second quarter of 1998. case.
o Their disagreement, however, centered on the issue of  OR No. 0189 issued only on April 14, 1998 clearly reflects the
proper documentation, particularly the evidentiary value belated payment of MPC of input VAT. This is supported by a bank
of OR No. 0189. statement evidencing payment to Mitsubishi Japan with the amount
 CA upheld the disallowance of PhP 1,242,538.14 of P135,993, 570 and a May 12, 1995 letter from Mitsubishi where it
representing zero-rated input VAT claims apprised MPC of the advances Mitsubishi made for the VAT
supported only by photocopies of VAT OR/Invoice, payments, i.e., MPC’s creditable input VAT, and for which it was
and mere broker’s computations. holding MPC accountable for interest therefor.
 CA allowed MPC’s refund claim of PhP o Based from the letter, it is understandable why Mitsubishi
135,993,570 representing input VAT payments for used P26.203=$1 exchange rate in OR No. 0189 for the
purchases of goods and/or services from VAT payments it advanced in 1993-1996
Mitsubishi supported by OR No. 0189. CTA erred o While no available records indicate when the actually
payment for creditable input VAT was made, it is any internal revenue tax due the taxpayer must be claimed within two years
presumably paid on April 14, 1998, the date appearing reckoned from the close of the taxable quarter when the relevant sales were
in OR No. 0189. made pertaining to the input Value Added Tax (VAT) regardless of whether
 Undoubtedly, OR No. 0189 by itself proves payment of MPC of its said tax was paid or not—the reckoning frame would always be the end
creditable input VAT relative to its purchases payment from of the quarter when the pertinent sales or transaction was made,
Mitsubishi. regardless when the input VAT was paid.
Sec. 110(A)(1)(B) of the NIRC pertinently provides:  MPC cannot avail itself of the provisions of either Sec. 204(C) or 229
“Section 110. Tax Credits.—  A. Creditable Input Tax.—  of the NIRC which, for the purpose of refund, prescribes a different
(1) Any input tax evidenced by a VAT invoice or official starting point for the two-year prescriptive limit for the filing of a
receipt issued in accordance with Section 113 hereof on claim therefor.
the following transactions shall be creditable against the o Secs. 204(C) and 229 respectively provide: x x x Notably,
output tax: the above provisions also set a two-year prescriptive period,
(a) Purchase or importation of goods:   xxxx  reckoned from date of payment of the tax or penalty, for the
(b) Purchase of services on which a value- filing of a claim of refund or tax credit. Notably too, both
added tax has been actually paid.” provisions apply only to instances of erroneous
 The law considers a duly-executed Value Added Tax (VAT) invoice payment or illegal collection of internal revenue taxes.
or Official Receipt referred to in Section 110(A)(1)(B) of the National
Internal Revenue Code as sufficient evidence to support a claim for  MPC’s creditable input VAT not erroneously paid
input tax credit. o Fact that the subsequent sale or transaction involves a
o And any doubt as to what OR No. 0189 was for or tended to wholly-tax exempt client, resulting in a zero-rated or
prove should reasonably be put to rest by the SGV report effectively zero-rated transaction, does not deprive the
on which the CTA notably placed much reliance. taxpayer of its right to a refund for any unutilized creditable
o Matter of nonpayment of MPC of the interest demanded by input VAT, albeit the erroneous, illegal, or wrongful
Mitsubishi in the letter, does not invalidate the authenticity payment angle does not enter the equation.
of payment of VAT in OR No. 0189 as the interest is a o Zero-rated transactions generally refer to the export sale
matter between MPC and Mitsubishi. of goods and supply of services. The tax rate is set at
2. No, The claim for refund or tax credit for the creditable input VAT payment zero. When applied to the tax base, such rate obviously
made by MPC embodied in OR No. 0189 was filed beyond the period results in no tax chargeable against the purchaser. The
provided by law for such claim. seller of such transactions charges no output tax, but
Sec. 112(A) of the NIRC pertinently reads: can claim a refund of or a tax credit certificate for the
(A) Zero-rated or Effectively Zero-rated Sales.—Any VAT-registered VAT previously charged by suppliers.”
person, whose sales are zero-rated or effectively zero-rated may, within two o Should the input taxes result from zero-rated or effectively
(2) years after the close of the taxable quarter when the sales were zero-rated transactions or from the acquisition of capital
made, apply for the issuance of a tax credit certificate or refund of goods, any excess over the output taxes shall instead be
creditable input tax due or paid attributable to such sales, except refunded to the taxpayer or credited against other internal
transitional input tax, to the extent that such input tax has not been applied revenue taxes.
against output tax: x x x.” (Emphasis ours.) Hence Sec 112 A not Sec 204 (c) and 209 of the NIRC is controlling in this
Unutilized input Value Added Tax (VAT) payments not otherwise used for case, prescriptive period for a claim for refund shall commence from
the end of the quarter of the sale of goods or serves and not the date of from the time the official receipt was issued.” (so emphasis on
payment of the tax. MPC’s claim for refund is denied for such has TRANSACTION, and not payment of tax.
prescribed. 3. Although the administrative claim was filed on time, the judicial claim
was prematurely filed because it is mandated under Section 112(D)
CIR v. AICHI FORGING (Arcaina) that claimant must wait for 120 days within which the CIR will decide
[GR. No. 184823; October 6, 2010] on the administrative claim before filing with the CTA. In this case,
“Counting of prescriptive period begins from sale/transaction and not from Aichi violated the provision when it simultaneously filed the
payment of tax.” administrative and judicial claims.
Recit-Ready: Facts:
Facts: Aichi Forging Company is engaged in the manufacturing, producing  Aichi Forging Company of Asia (Aichi), a Philippine Corporation, is
and processing of steel and its by-products. It is a registered VAT engaged in the manufacturing, producing and processing of steel and its
entity. On September 30, 2004, it filed a claim for refund/credit of by-products.
input VAT for the period of July 1 – September 30, 2002 with the o It’s registered as a VAT entity and its products such as close
CIR (under Section 112). On the same day, it filed a Petition for impression die steel forgings and tool and dies, are registered with
Review for the same refund with the CTA division. CIR assailed the the BOI.
CTA division decision granting the refund. The CTA En Banc  On September 30, 2004, Aichi filed a claim for refund/credit of input VAT
affirmed the refund and said that in fact and in law, Aichi still has for July 1, 2002 to September 30, 2002 (P3,891,123.82) with the CIR. It
until October 25, 2004 (25 days after the close of taxable quarter or filed a Petition for Review with the CTA for the same refund/credit on the
from October 25, 2002, applying Section 114). same date.
CIR assailed the Decision on 2 grounds and claimed that: (1) the 2-  Aichi’s allegations before the CTA:
year period lapsed on September 29, 2004 because 2004 was a o From July 1 – September 30, 2002: it generated and recorded zero-
leap year and under the Civil Code, there are 365 days in a year rated sales (P131,791,399). And it paid this amount.
and; (2) the judicial claim was premature o For said period, it incurred and paid input VAT amounting to
P3,912,088.14 from purchases and importation attributable to
Issue: WON the administrative and judicial claims were filed on time – its zero-rated sales.
administrative – YES; judicial - PREMATURE o BUT it only claimed P3,891,123.82 with the CIR (so there’s a
Held: In ruling for the CIR, the Court said that: difference of around less than P100K)
1. While there is conflict between the Administrative Code (1 year = 12  CIR’s side:
months) and the Civil Code (1 year = 365 days), what will prevail in o Claim for refund is subject to administrative investigation by the
this case is the Administrative Code since leap year or not, there will Bureau
always be 12 months in a year. SO following this, September 30, o Aichi must prove it paid VAT input taxes for the period
2004 is when the prescriptive period expires. o Aichi must prove that its sales are export sales under Sections
2. Section 112, and not Section 114 applies as to the reckoning point 106(A)(2)(a) and 108(B)(1).
of the prescriptive period. (more on this on the detailed digest, o Must prove that the claim was filed with the 2-year prescriptive
please check). But Section 112 provides that “Prescriptive period period under Section 229
commences from the close of the taxable quarter when the sales
were made and not from the time the input VAT was paid nor
o In an action for refund, the burden of proof is on the taxpayer to 229 of the NIRC – for administrative claim, YES; but judicial claim was
establish its right to refund, and failure to sustain the burden is PREMATURE.
fatal to the claim of refund
o Claims for refund are construed strictly against the claimant. Held/Ratio: Petition GRANTED. The assailed July 30, 2008 Decision and
 CTA partially granted the claim for credit, citing Section 112. Why partial the October 6, 2008 Resolution of the Court of Tax Appeals are hereby
only? Check the following elements for refund: REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is
o Taxpayer engaged in sales which are zero-rated or effectively zero- DIRECTED to dismiss CTA Case No. 7065 for having been prematurely
rated – substantiated so complied with filed.
o the taxpayer is VAT-registered – substantiated so complied with
o the claim must be filed within two years after the close of the taxable 1) First, Section 112 (A) and NOT Section 114 is the applicable
quarter when such sales were made – complied with (as per the 2 provision in determining the start of the 2-year period for claiming a
year prescriptive period since the filing was made on September 30, refund/credit of unutilized input VAT. Court reiterates Mirant ruling.
2004, to be counted from the closing of the period applied for which 4. That Section 204(C) and 229 are inapplicable as both provisions
is September 30, 2002) apply only to instances of erroneous payment or illegal collection of
o the creditable input tax due or paid must be attributable to such internal revenue taxes.
sales, except the transitional input tax, to the extent that such input 5. SEC 112(A): Prescriptive period commences from the close of the
tax has not been applied against the output tax – some claims are taxable quarter when the sales were made and not from the time the
baseless and not substantiated. input VAT was paid nor from the time the official receipt was issued.
o Effectively: CTA Division granted the refund for P3,239,119.25 6. Thus, when a zero-rated VAT taxpayer pays its input VAT a year
because Aichi substantially proved that it was entitled to the same. after the pertinent transaction, said taxpayer only has a year to
 CIR sought for reconsideration, insisting that the judicial and admin file a claim for refund or tax credit of the unutilized creditable
claims were filed beyond the 2-year period, kasi raw leap year yung input VAT. So reckoning frame is: end of the quarter when the
2004 SO the 2-year period expired on September 29, and not pertinent sales or transaction was made, regardless when the
September 30. He cited Art. 13 of the Civil Code. input VAT was paid.
o He added that a prior filing of an administrative claim is a
“condition precedent” before a judicial claim can be filed. 2) Admin claim – TIMELY FILED. The Administrative Code which
o This motion for partial reconsideration was denied. provides that a year is composed of 12 calendar months, must
 CIR filed petition before the En Banc, and this was likewise denied. It prevail over the Civil Code which provides that a year is 365 days.
affirmed the Division Decision but ruled that the reckoning point for the (Primetown Property Group case)
prescriptive period is 25 days after the close of each taxable o Under this case, it was ruled that leap year or not, the months will
quarter. (In this case, October 25, 2002 is the reckoning point so the always be equal to 12 months.
filing of a claim prescribes on October 25, 2004) This is based from o Applying such in the case at hand, the 2-year period to file for a tax
Section 114. refund/credit for the July 1-September 30, 2002 period expired on
September 30, 2004.
Issue:
Whether Aichi Forging’s judicial and administrative claims were filed 3) Judicial claim – PREMATURE. Aichi filed in violation of Section
within the 2-year prescriptive period provided in Sections 112(A) and 112(D) when it filed its administrative and judicial claims
simultaneously.
o SEC. 112. Refunds or Tax Credits of Input Tax.— x x x x (D) Period that the latter's Official Receipts do not contain the phrase zero--
within which Refund or Tax Credit of Input Taxes shall be Made.—In rated.
proper cases, the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes submission of complete Held: NO. The CTA En Banc did not err in dismissing the claim for
documents in support of the application filed in accordance with tax credit for failing to meet the documentary and evidentiary
Subsections (A) and (B) hereof. In case of full or partial denial of requirements. The Supreme Court has consistently held as
the claim for tax refund or tax credit, or the failure on the part of fatal the failure to print the word "zero-rated" on the Value-
the Commissioner to act on the application within the period Added Tax (VAT) invoices or official receipts in claims for a
prescribed above, the taxpayer affected may, within thirty (30) refund or credit of input VAT on zero-rated sales.
days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals. Facts:
o In this case, Aichi did not wait for the decision of the CIR or the  This is a petition for review of CTA En Banc’s Resolution denying the
lapse of the 120-day period because it filed the claims Petition for refund of unutilized input Value Added Tax (VAT) on the
simultaneously. ground that the Official Receipts of petitioner Western Mindanao Power
o Aichi’s assertion that the non-observance of this rule is not fatal has Corporation (WMPC) did not contain the phrase "zero-rated," as required
no legal basis. What Section 112 refers to when it says that “the filing under Revenue Regulations No. 7 95 (RR 795).
may be made within 2 years after the close of the taxable quarter  Petitioner WMPC is a domestic corporation engaged in the
when the sales were made”, is the period to apply for the issuance of production and sale of electricity [to the NPC].
the tax credit certificate/refund WITH THE CIR, and not appeals o Petitioner alleges that it sells electricity solely to the National
made to the CTA. Power Corporation (NPC), which is in turn exempt from the
payment of all forms of taxes, duties, fees and imposts,
WESTERN MINDANAO v. CIR (Austria) pursuant to Section 132 of Republic Act (R.A.) No. 6395 (An Act
[GR. No. 181136; June 13, 2012] Revising the Charter of the National Power Corporation).
“If you liked it, then you shoulda put a [stamp] on it oh oh oh” o In view thereof and pursuant to Section 108(B) (3) of the
National Internal Revenue Code (NIRC), petitioner's power
Recit-Ready: generation services to NPC is zero-rated.
Facts: This case is about the denial of the CTA En Banc of the Petition  Under Section 112(A) of the NIRC, 4 a VAT-registered taxpayer may,
for refund of unutilized input Value Added Tax (VAT) of petitioner within two years after the close of the taxable quarter, apply for the
Western Mindanao Power Corporation (WMPC), a seller of issuance of a tax credit or refund of creditable input tax due or paid and
electricity to NAPOCOR (exempted entity), on the ground that the attributable to zero-rated or effectively zero-rated sales.
Official Receipts of petitioner did not contain the phrase "zero-- o Hence, on 20 June 2000 and 13 June 2001, WMPC filed with
rated," as required under Revenue Regulations No. 7-95 (RR 7-- the Commissioner of Internal Revenue (CIR) applications for a
95). tax credit certificate of its input VAT covering the taxable 3rd
and 4th quarters of 1999 (amounting to P3,675,026.67) and all
Issue: Whether the CTA En Banc seriously erred in dismissing the claim the taxable quarters of 2000 (amounting to P5,649,256.81)
of petitioner for a refund or tax credit on input tax on the ground  CTA Division: Noting that the CIR was not acting on its application, AND
fearing that its claim would soon be barred by prescription, WMPC on 28
September 2001 filed with the Court of Tax Appeals (CTA) in Division a receipt for sales subject to zero percent (0%)
Petition for Review docketed as C.T.A. Case No. 6335, seeking VAT—appeared in Section 113 of the NIRC
refund/tax credit certificates for the total amount of P9,324,283.30. only after it was amended by Section 11 of
o CIR Comment: WMPC was not entitled to the latter's claim for a R.A. 9337.8
tax refund in view of its failure to comply with the invoicing  This amendment cannot be applied retroactively
requirements under Section 113 of the NIRC in relation to considering that it took effect only on 1 July 2005, or
Section 4.1081 of RR 795 (see no.5 ‘the word “zero rated” long after petitioner filed its claim for a tax refund, and
imprinted on the invoice covering zero rated sales’. 2 considering further that the RR 795 is punitive in
o WMPC: countered that nature.
 the invoicing and accounting requirements laid down in  Further, since there was no statutory requirement for
RR 795 were merely "compliance requirements," which imprinting the phrase "zero-rated" on official receipts
were not indispensable to establish the claim for refund prior to 1 July 2005, the RR 795 constituted undue
of excess and unutilized input VAT. expansion of the scope of the legislation it sought to
 Also, Section 113 of the NIRC prevailing at the time the implement.
sales transactions were made did not expressly state  Petitioner moved for reconsideration, but the motion was denied
that failure to comply with all the invoicing requirements  CTA Second Division Decision: On 1 September 2006, the CTA Second
would result in the disallowance of a tax credit refund. Division dismissed the Petition. It held that:
 The express requirement—that "the term 'zero o while petitioner submitted in evidence its Quarterly VAT Returns
rated sale' shall be written or printed for the periods applied for, "the same do not reflect any zero--
prominently" on the VAT invoice or official rated or effectively zero-rated sales allegedly incurred during
said periods. The spaces provided for such amounts were left
2 blank, which only shows that there existed no zero rated or
SECTION 4.1081. Invoicing Requirements.—All VAT registered persons shall, for every
sale or lease of goods or properties or services, issue duly registered rec eipts or sales or effectively zero-rated sales for the 3rd and 4th quarters of 1999
commercial invoices which must show: 1. the name, TIN and address of seller; 2. date of and the four quarters of 2000."
transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the o Moreover, it found that petitioner's VAT Invoices and Official
name, TIN, business style, if any, and address of the VAT registered purchaser, customer Receipts did not contain on their face the phrase "zero-rated,"
or client; 5. the word "zero rated" imprinted on the invoice covering zero rated sales;
contrary to Section 4.1081 of RR 795.
and 6. the invoice value or consideration. In the case of sale of real property subject to VAT
and where the zonal or market value is higher than the actual consideration, the VAT shall  CTA En Banc Decision: dismissing the appeal and affirming the CTA
be separately indicated in the invoice or receipt. ruling.
Only VAT-registered persons are required to print their TIN followed by the word o In addition, the CTA En Banc noted that petitioner's Official
"VAT" in their invoice or receipts and this shall be considered as a "VAT Invoice." All Receipts and VAT Invoices did not have the word "zero-rated"
purchases covered by invoices other than "VAT" Invoice" shall not give rise to any
imprinted/stamped thereon, contrary to the clear mandate of
input tax.
If the taxable person is also engaged in exempt operations, he should issue separate
Section 4.1081 of RR 795.
invoices or receipts for the taxable and exempt operations. A "VAT Invoice" shall be issued o Dissenting of Justice Ernesto Acosta; the absence of the term
only for sales of goods, properties or services subject to VAT imposed in Sections 100 and "zero-rated" in an invoice or official receipt does not affect its
102 of the Code. The invoice or receipt shall be prepared at least in duplicate, the original admissibility or competency as evidence in support of a refund
to be given to the buyer and the duplicate to be retained by the seller as part of his claim. Also, assuming that stamping the term "zero-rated" on an
accounting records." (Underscoring supplied.)
invoice or official receipt is a requirement of the current NIRC,
the denial of a refund claim is not the imposable penalty for Finance by the NIRC for the efficient enforcement of the
failure to comply with that requirement. same Tax Code and its amendments
 WMPC filed a Motion for Reconsideration, which was denied by the CTA o In Panasonic Communications Imaging Corporation of the
En Banc Philippines v. Commissioner of Internal Revenue: The
provision is "reasonable and is in accord with the efficient
Issue/s: Whether the CTA En Banc seriously erred in dismissing the claim collection of VAT from the covered sales of goods and
of petitioner for a refund or tax credit on input tax on the ground that the services.
latter's Official Receipts do not contain the phrase zero-rated – NO, receipts o In Kepco Philippines Revenue Corporation v. Commissioner
should contain “zero-rated” of Internal: the subsequent incorporation of Section 4.1081
of RR 795 in Section 113 (B) (2) (c) of R.A. 9337 actually
Held/Ratio: Petition DENIED. confirmed the validity of the imprinting requirement on VAT
invoices or official receipts—a case falling under the
NO. The CTA En Banc did not err in dismissing the claim for tax credit principle of legislative approval of administrative
for failing to meet the documentary and evidentiary requirements. The interpretation by reenactment this Court has consistently
Supreme Court has consistently held as fatal the failure to print the held as fatal the failure to print the word "zero-rated" on the
word "zero-rated" on the Value-Added Tax (VAT) invoices or official VAT invoices or official receipts in claims for a refund or
receipts in claims for a refund or credit of input VAT on zero-rated sales credit of input VAT on zero-rated sales, even if the claims
were made prior to the effectivity of R.A. 9337.20
 In the present case, petitioner's claim for a refund or tax credit of input  In addition, it is notable that the CTA Second Division and the CTA En
VAT is anchored on Section 112(A) of the NIRC (see codal: Section 112. Banc, including Presiding Justice Acosta in his Concurring and
Refunds or Tax Credits of Input Tax.— (A) Zerorated or Effectively Zero- Dissenting Opinion, both found that petitioner failed to sufficiently
rated Sales.) substantiate the existence of its effectively zero-rated sales to NPC
 Under the NIRC, a creditable input tax should be evidenced by a VAT for the 3rd and 4th quarters of taxable year 1999, as well as all four
invoice or official receipt, which may only be considered as such when it quarters of taxable year 2000
complies with the requirements of RR 795, particularly Section 4.1081.  It must also be noted that the CTA is a highly specialized court
o This section requires, among others, that "(i)f the sale dedicated exclusively to the study and consideration of revenue--
is subject to zero percent (0%) value-added tax, the related problems, in which it has necessarily developed an expertise.
term 'zero-rated sale' shall be written or printed Hence, its factual findings, when supported by substantial evidence, will
prominently on the invoice or receipt. not be disturbed on appeal.
 We are not persuaded by petitioner's argument that RR 7-95 constitutes  A taxpayer engaged in zero-rated or effectively zero rated sale may
undue expansion of the scope of the legislation it seeks to implement on apply for the issuance of a tax credit certificate, or refund of
the ground that the statutory requirement for imprinting the phrase "zero creditable input tax due or paid, attributable to the sale
rated" on VAT official receipts appears only in Republic Act No. 9337.  Requirements: In a claim for tax refund or tax credit, the applicant must
This law took effect on 1 July 2005, or long after petitioner had filed its prove not only entitlement to the grant of the claim under substantive
claim for a refund. law. It must also show satisfaction of all the documentary and
o RR 795, which took effect on 1 January 1996, proceeds evidentiary requirements for an administrative claim for a refund or
from the rulemaking authority granted to the Secretary of tax credit.
o Hence, the mere fact that petitioner's application for zero-rating has denial but added that the law gives the taxpayer only 30 days
been approved by the CIR does not, by itself, justify the grant of a after the lapse of 120 days to file their claim. Philex filed their
refund or tax credit. claim 426 days after the lapse of 30 days so denied.
o 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. Issue/s:
 Being a derogation of the sovereign authority, a statute granting tax 1) WON a taxpayer could file a judicial claim without having to wait the
exemption is strictly construed against the person or entity claiming decision on their administrative claim. In short, can the taxpayer file a
the exemption. judicial claim without waiting for the lapse of 120 days? Also, does the
o When based on such statute, a claim for tax refund Atlas doctrine still apply?
partakes of the nature of an exemption. —NO with the exception of Philex and as for Atlas, it is not applicable
o Hence, the same rule of strict interpretation against the 2) WON the 30-day period for judicial appeal falls within the two-year
taxpayer-claimant applies to the claim. period for prescription of the refund.
—NO
COMMISSIONER OF INTERNAL REVENUE v. SAN ROQUE 3) WON the word “excess” mentioned under Section 229 is similar to
(BAÑADERA) “excess” under 110(B) and 112(A) for purposes of counting the
[GR. No. 187485; February 12, 2013] reckoning period and the prescription period of refund.
“The 120+30 day rule//two-year judicial claim rule//operative fact rule case” —NO
4) WON the Atlas doctrine allows the filing of judicial claims despite the
lapse of 120 days and whether Section 112(C)’s use of “may” allows
Recit-Ready:
Facts: This case consists of three cases filed by San Roque, Taganito, the filing of judicial claim before the 120 day lapse.
and Philex for their tax refund. San Roque’s claim was granted by —NO
5) WON Revenue Memorandum Circular No. 49-03 (RMC 49-03) allows
the court citing Atlas and RMC 49-03 wherein both claimed that a
taxpayer may file a judicial claim before the lapse of the 120 the filing of claims before the lapse of 120 days.
days. Thus, the judicial claim of San Roque is valid despite it —NO
6) WON BIR Ruling No. DA-489-03 is an exception to the mandatory 120
being filed 13 days after the administrative claim was filed. In
Taganito, the court denied the refund since Taganito filed the day rule.
judicial claim just 92 days after its administrative claim. The court —YES but only from 10 December 2003 up to its reversal by this Court
cited Mirant and Aichi claiming the periods are mandatory. One in Aichi on 6 October 2010. (Take note: Operative Fact question
Justice dissented to the decision claiming the contrary. Philex on according to reviewers)
the other hand only filed the case for a judicial claim after CIR’s 7) WON existing jurisprudence does not distinguish as to the filing dates
of administrative and judicial claims as long as they are made within
inaction for two years on their administrative claim. The court
denied the refund since the claim was filed beyond the two-year the two-year period.
prescription period and that Philex should have filed their claim —NO
8) WON Section 4.106-2(c) of Revenue Regulations No. 7-95 allows
after the lapse of 120 days. The court stated in the DIVISION
level that judicial claims should be filed within the two-year premature filing of judicial claims.
prescription. At the En Banc level, the court similarly affirmed the —NO
Held: as long as the administrative and judicial claims are filed within the
1) NO with exception with Philex. San Roque must wait for the 120 days two-year prescriptive period.
as the requirement is mandated by law and that no “decision” can
result without the lapse of 120 days therefore CTA cannot also acquire 8) NO. Section 4.106-2(c) of Revenue Regulations No. 7-95 did not allow
jurisdiction. For Philex, the court allowed to file ahead of 120 days premature filing of judicial claims. Even assuming the contrary, Section
citing BIR Ruling No. DA-489-03. Philex was really late in filing. 4.106-2(c), a mere administrative issuance, becomes inconsistent with
Section 112(D), a later law. Obviously, the later law prevails over a
2) NO. Careful scrutiny of the Code reveals that the two-year period only prior inconsistent administrative issuance
refers to administrative claims and not judicial claims.
Facts:
3) NO. Section 229’s term "excessively collected” occurs when the G.R. No. 187485
person liable for the tax actually pays more than what is legally due. CIR v. San Roque Power Corporation (San Roque)
The prescriptive period is reckoned from the date the person liable for  San Roque is a domestic corporation whose function is to design,
the tax pays the tax. Alternatively, under Section 110(B) and Section construct, erect, assemble, own, commission and operate power-
112(A), the prescriptive period for filing a judicial claim for "excess" generating plants and related facilities pursuant to and under contract
input VAT is two years from the close of the TAXABLE QUARTER, with the Government of the Philippines or any of its subdivision,
when the sale was made by the person legally liable to pay the instrumentality or agency.
output VAT. Aside from the reckoning date, it is important also to know  San Roque entered into a Power Purchase Agreement ("PPA") with the
this since under Section 229, tax can be claimed as a credit or refund National Power Corporation ("NPC") to develop hydro-potential of the
while Sections 110(B) and Section 112(A) require first that the Lower Agno River and generate additional power and energy for the
taxpayer must have an output VAT to which input tax would be Luzon Power Grid, by building the San Roque Multi-Purpose Project.
attributed to (with the exception of course of zero-rated transactions)  On the construction and development of the San Roque Multi- Purpose
Project which comprises of the dam, spillway and power plant, San
4) NO. Atlas doctrine has nothing to do with 120+30 days and whatever Roque allegedly incurred, excess input VAT in the amount of
its doctrine was, it was abandoned last June 2007 with the ₱559,709,337.54 for taxable year 2001. On March 28, 2003 it then filed
pronouncement in Mirant. “May” refers to the choice of the taxpayer on with BIR for a refund.
whether they would like to file an appeal or not o CIR’s inaction though prompted San Roque to file a Petition
for Review with CTA on April 10, 2003. (13 days)
5) NO. The RMC 49-03 clarifies that the filing of judicial claims does not  CTA denied the petition for lack of recorded zero-rated or effectively zero-
divest the CIR of his jurisdiction to decide on administrative claims rated sales; failure to submit documents specifically identifying the
purchased goods/services related to the claimed input VAT.
6) YES from 10 December 2003 up to its reversal by this Court o CTA required San Roque to prove the existence of Sec.
in Aichi on 6 October 2010. BIR Ruling No. DA-489-03 is a general 112 (B) of RA 8424 namely:
interpretative rule and the Commissioner cannot then question the  (1) it is a VAT-registered entity;
CTA’s jurisdiction and equitable estoppel has set in.  (2) its input taxes claimed were paid on capital
goods duly supported by VAT invoices and/or
7) NO. None of these five cases mention, cite, discuss, rule or even hint official receipts;
that compliance with the 120-day mandatory period is inconsequential
 (3) it did not offset or apply the claimed input VAT provision. The respondent is also covered by the two (2)
payments on capital goods against any output VAT year prescriptive period.
liability; and o In the case of Atlas Consolidated Mining and Development
 (4) its claim for refund was filed within the two-year Corporation vs. Commissioner of Internal Revenue (Atlas)
prescriptive period the two-year prescriptive period for filing a claim for input
 CTA Second Division reversed the decision and found that San Roque tax is reckoned from the date of the filing of the
complied with the first, third, and fourth requirements. quarterly VAT return and payment of the tax due. If the
 San Roque filed a Motion for New Trial and/or Reconsideration said period is about to expire but the BIR has not yet
 CTA Second Division found legal basis to partially grant San Roque’s acted on the application for refund, the taxpayer may
claim. The CTA Second Division ordered the Commissioner to REFUND interpose a petition for review with this Court within the
or issue a tax credit in favor of San Roque in the amount of two year period.
₱483,797,599.65  In Gibbs, the court held that if the two-year period
o The amount represents San Roque’s unutilized input VAT is about to expire but no reply yet has been given
on its purchases of capital goods and services for the by BIR, the taxpayer may start the petition to Court
taxable year 2001. (Compared to the 1st decision, court of Tax Appeals before the end of the two-year
managed to amend their decision since they hired now an period without awaiting the decision of the
independent CPA to do the computation WOW!) Collector.
o The court reasoned that the deduction from the total  This Court ruled in several cases that the Court is
amount asked by San Roque was based on the not bound to wait indefinitely for no reason for
discrepancy of evidence it presented. The receipts and whatever action respondent (herein petitioner) may
invoices contradicted the amount that is reflected in its take.
books. Further  Also, A-17 of Revenue Memorandum Circular No.
o Also, San Roque’s claim for refund or tax credit of its 42-2003 states: In cases where the taxpayer has
unutilized input VAT for the last quarter of 2001 was denied filed a "Petition for Review" with the Court of
as well since there is no record of sales that would relate to Tax Appeals involving a claim for refund/TCC
zero-rated or effectively zero-rated transaction. that is pending at the administrative agency
 CIR appealed but was still denied by CTA En Banc reasoning: (Bureau of Internal Revenue or OSS-DOF), the
o It is true that Section 112(D) 3 of the abovementioned administrative agency and the tax court may
provision applies to the present case. However, what the act on the case separately.
petitioner failed to consider is Section 112(A)4 of the same
of a tax credit certificate or refund of creditable input tax due or paid attributable to such
3
SECTION 112(D) Period within which Refund or Tax Credit of Input Taxes shall be sales, except transitional input tax, to the extent that such input tax has not been applied
Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit against output tax: Provided, however, That in the case of zero-rated sales under Section
certificate for creditable input taxes within one hundred twenty (120) days from the date 106(A)(2)(a)(1),(2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency
of submission of complete documents in support of the application filed in accordance exchange proceeds thereof had been duly accounted for in accordance with the rules and
with Subsections (A) and (B) hereof. regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or
4
SECTION 112 (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered exempt sale of goods or properties or services, and the amount of creditable input tax due
person, whose sales are zero-rated or effectively zero-rated may, within two (2) years or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
after the close of the taxable quarter when the sales were made, apply for the issuance allocated proportionately on the basis of the volume of sales.
 Lastly, it is apparent from the following provisions of Revenue o The court has no jurisdiction over the entertain the instant
Memorandum Circular No. 49-03 dated August 18, 2003, that [the CIR] petition for review for failure on the part of Taganito to
knows that claims for VAT refund or tax credit filed with the Court [of Tax comply with the provision of Section 112 (D) of the 1997
Appeals] can proceed simultaneously with the ones filed with the BIR and Tax Code which provides
that taxpayers need not wait for the lapse of the subject 120-day period  (D) Period within which refund or Tax Credit of
(This pronouncement is important for the fifth issue) Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax
G.R. No. 196113 credit certificate for creditable input taxes within
Taganito Mining Corporation v. CIR (Taganito) one hundred (120) days from the date of
 Taganito Mining Corporation, is a corporation whose business is to carry submission of complete documents in support
on the business, for itself and for others, of mining lode and/or placer of the application filed in accordance with
mining, developing, exploiting, extracting, milling, concentrating, Subsections (A) and (B) hereof.
converting, smelting, treating, refining, preparing for market,
manufacturing, buying, selling, exchanging, shipping, transporting, and In cases of full or partial denial for tax refund or tax
otherwise producing and dealing in nickel, chromite, cobalt, gold, silver, credit, or the failure on the part of the
copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, Commissioner to act on the application within the
metals and their by-products and which by-products thereof of every kind period prescribed above, the taxpayer affected
and description and by whatsoever process the same can be or may may, within thirty (30) days from the receipt of
hereafter be produced and generally and without limit as to amount, to the decision denying the claim or after the
buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and expiration of the one hundred twenty
mineral rights and claims and to conduct all business appertaining thereto dayperiod, appeal the decision or the unacted
o (In short, they buy, sell, and/or produce ores or business claim with the Court of Tax Appeals.
related thereto) o CIR claimed that the 120 days has already passed.
 Taganito filed all its Monthly VAT Declarations and Quarterly Vat Returns Taganito filed the administrative claim on November 14,
for the period January 1, 2005. Taganito reported zero-rated sales 2006 and subsequently the petition for review, herein
amounting to P1,446,854,034.68; input VAT on its domestic purchases petition, was filed last February 14, 2007.
and importations of goods (other than capital goods) and services  CTA ruled that Taganito complied with the requirements of Section
amounting to P2,314,730.43; and input VAT on its domestic purchases 112(A) of RA 8424, as amended, to be entitled to a tax refund or credit of
and importations of capital goods amounting to P6,050,933.95. This input VAT attributable to zero-rated or effectively zero-rated sales.
amounted to P8,365,664.38 o Records show that Taganito’s administrative claim filed on
o November 14, 2006, Taganito filed for a tax credit/refund of November 14, 2006, which was amended on November 29,
its supposed input VAT amounting to ₱8,365,664.38 2006, and the Petition for Review filed with this Court on
 As the statutory period within which to file a claim for refund for said input February 14, 2007 are well within the two-year prescriptive
VAT is about to lapse without action on the part of the CIR, Taganito filed period, reckoned from March 31, 2005, June 30, 2005,
the instant Petition for Review on February 17, 2007.(less than 3 September 30, 2005, and December 31, 2005, respectively,
months) the close of each taxable quarter covering the period
 Taganito sent a letter January 1, 2005 to December 31, 2005. January 1, 2005 to December 31, 2005.
 On March 2007, CIR replied and ruled:  Commissioner filed a Reconsideration.
 CTA En Banc reversed the decision and denied the refund to Taganito  Philex filed its Original VAT Return for the third quarter of taxable year
claiming: 2005 and Amended VAT Return for the same quarter on December 1,
o The CTA EB declared that Section 112(A) and (B) of the 2005.
1997 Tax Code both set forth the reckoning of the two-year o On March 20, 2006, Philex filed its claim for refund/tax
prescriptive period for filing a claim for tax refund or credit credit of the amount of ₱23,956,732.44
over input VAT to be the close of the taxable quarter when  Due to CIR’s failure to act on such claim, on October 17, 2007, pursuant
the sales were made. to Sections 112 and 229 of the NIRC of 1997, as amended, Philex filed a
o The CTA EB also relied on this Court’s rulings in the cases Petition for Review.
of Commissioner of Internal Revenue v. Aichi Forging  CTA Division ruled:
Company of Asia, Inc. (Aichi) and Commisioner of Internal o Philex’s claim prescribed. The CTA Second Division ruled
Revenue v. Mirant Pagbilao Corporation (Mirant). that the two-year prescriptive period specified in Section
 The cases ruled that the two-year prescriptive 112(A) of RA 8424, as amended, applies not only to the
period to file a refund for input VAT arising from filing of the administrative claim with the BIR, but also
zero-rated sales should be reckoned from the to the filing of the judicial claim with the CTA. (So
close of the taxable quarter when the sales petition for review should be within the two-years)
were made. o Since Philex’s claim covered the 3rd quarter of 2005, its
 Aichi further emphasized that the failure to administrative claim filed on 20 March 2006 was timely filed,
await the decision of the Commissioner or the while its judicial claim filed on 17 October 2007 was filed
lapse of 120-day period prescribed in Section late.
112(D) amounts to a premature filing.  MR was denied
o Although the administrative claim was filed on time, the  CTA En Banc AFFIRMED:
CTA EB found that Taganito’s judicial claim was o Records show that an administrative claim was filed on
prematurely filed. Taganito filed its Petition for Review March 20, 2006. The CIR has 120 days, or until July 18,
before the CTA Second Division on 14 February 2007. The 2006, within which to decide the claim. Within 30 days
judicial claim was filed after the lapse of only 92 days from from the lapse of the 120-day period, or from July 19,
the filing of its administrative claim before the CIR, in 2006 until August 17, 2006, Philex should have elevated
violation of the 120-day period prescribed in Section 112(D) its claim for refund to the CTA. However in this case,
of the 1997 Tax Code. Philex filed its Petition for Review only on October 17, 2007,
 Associate Justice Bautista dissented to the decision claiming that the which is 426 days way beyond the 30- day period
taxpayer has a right to file before the lapse of 120 days. prescribed by law.
 CTA En Banc denied the MR.
Issues:
G.R. No. 197156 1) WON a taxpayer could file a judicial claim without having to wait the
Philex Mining Corporation v. CIR (Philex) decision on their administrative claim. In short, can the taxpayer file
 Philex is a corporation engaged in the mining business, which includes a judicial claim without waiting for the lapse of 120 days? Also, does
the exploration and operation of mine properties and commercial the Atlas doctrine still apply?
production and marketing of mine products —NO with the exception of Philex and as for Atlas, it is not applicable
2) WON the 30-day period for judicial appeal falls within the two-year acquire jurisdiction. For Philex, the court allowed to file ahead of
period for prescription of the refund. 120 days citing BIR Ruling No. DA-489-03. Philex was really late in
—NO filing.
3) WON the word “excess” mentioned under Section 229 is similar to
“excess” under 110(B) and 112(A) for purposes of counting the SAN ROQUE
reckoning period and the prescription period of refund. o Base from records, San Roque did not wait for first wait for the 120-
—NO day period to lapse before filing its judicial claim. Also, San Roque
4) WON the Atlas doctrine allows the filing of judicial claims despite filed its judicial claim more than four (4)
the lapse of 120 days and whether Section 112(C)’s use of “may” years BEFORE the Atlas doctrine was promulgated.
allows the filing of judicial claim before the 120 day lapse. o Clearly, San Roque failed to comply with the 120-day waiting period,
—NO the time expressly given by law to the Commissioner to decide
5) WON Revenue Memorandum Circular No. 49-03 (RMC 49-03) allows whether to grant or deny San Roque’s application for tax refund or
the filing of claims before the lapse of 120 days. credit. It is indisputable that compliance with the 120-day waiting
—NO period is mandatory and jurisdictional.
6) WON BIR Ruling No. DA-489-03 is an exception to the mandatory o This waiting period has been in our statute books
120 day rule. for more than fifteen (15) years before San Roque
—YES but only from 10 December 2003 up to its reversal by this Court filed its judicial claim. In the past, it was only 60 days.
in Aichi on 6 October 2010. (Take note: Operative Fact question o Failure to comply with the 120-day waiting period
according to reviewers) violates a mandatory provision of law. It violates the
7) WON existing jurisprudence does not distinguish as to the filing doctrine of exhaustion of administrative remedies
dates of administrative and judicial claims as long as they are made and renders the petition premature and thus without a
within the two-year period. cause of action, with the effect that the CTA does not
—NO acquire jurisdiction over the taxpayer’s petition.
8) WON Section 4.106-2(c) of Revenue Regulations No. 7-95 allows o CTA expressly provides that its jurisdiction is to review
premature filing of judicial claims. on appeal "decisions” for refunds of taxes. Without
—NO waiting for the period, there can be no “decision” that
could be reviewed by CTA. The charter of the CTA also
Held/Ratio: WHEREFORE, the Court hereby (1) GRANTS the petition of the expressly provides that if the Commissioner fails to
Commissioner of Internal Revenue in G.R. No. 187485 to DENY the decide within "a specific period" required by law, such
P483,797,599.65 tax refund or credit claim of San Roque Power Corporation; "inaction shall be deemed a denial"
(2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 o San Roque cannot also claim being misled, misguided or confused
for a tax refund or credit of P8,365,664.38; and (3)DENIES the petition of by the Atlas doctrine because San Roque filed its petition for
Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of review with the CTA more than four years before Atlas was
P23,956,732.44.. promulgated.
o In any event, the Atlas doctrine merely stated that the
1) NO with exception with Philex. San Roque must wait for the 120 two-year prescriptive period should be counted from the
days as the requirement is mandated by law and that no “decision” date of payment of the output VAT, not from the close of
can result without the lapse of 120 days therefore CTA cannot also the taxable quarter.
 In Atlas the petitioner there filed their tax return o However, Philex filed its Petition for Review with the CTA only on 17
after the close of quarter (e.g. Quarter closed October 2007, or four hundred twenty-six (426) days after the last day
on 30 June 1990, Atlas only paid on 20 July of filing. In short, Philex was late by one year and 61 days in filing
1990) its judicial claim.
 The court ruled that the two-year prescriptive o Compared to the previous two cases, Philex filed its judicial
period ends on 20 July 1992 or two years after claim long after the expiration of the 120-day period, in fact 426 days
the filing of return. after the lapse of the 120-day period. In any event, whether
o The Atlas doctrine does not interpret, expressly or governed by jurisprudence before, during, or after the Atlas case,
impliedly, the 120+30 day periods. Philex’s judicial claim will have to be rejected because of late
o Atlas doctrine cannot be invoked by anyone to filing.
disregard compliance with the 30-day mandatory o The Atlas doctrine cannot save Philex (so immaterial) from the late
and jurisdictional period. filing of its judicial claim. The inaction of the Commissioner on
o Atlas is immaterial Philex’s claim during the 120-day period is, by express provision of
o At the time San Roque filed its petition for review with the CTA, law, "deemed a denial" of Philex’s claim.
the 120+30 day mandatory periods were already in the law.
Section 112(C) expressly grants the Commissioner 120 days 2) NO. Careful scrutiny of the Code reveals that the two-year period
within which to decide the taxpayer’s claim. only refers to administrative claims and not judicial claims.
o First, Section 112(A) clearly, plainly, and unequivocally provides that
TAGANITO the taxpayer "may, within two (2) years after the close of the taxable
o Like San Roque, Taganito also filed its petition for review with the quarter when the sales were made, apply for the issuance of a tax
CTA without waiting for the 120-day period to lapse. Also, like San credit certificate or refund of the creditable input tax due or paid to
Roque, Taganito filed its judicial claim four months (4) before the such sales.
promulgation of the Atlas doctrine. o "Within two (2) years," which means at anytime
o HOWEVER UNLIKE SAN ROQUE it invoked BIR Ruling No. DA- within two years whether it would be on the last or first.
489-035 but before the adoption of the Aichi doctrine (explained later). o Second, Section 112(C) provides that the Commissioner shall decide
o Thus Taganito’s refund is valid. the application for refund or credit "within one hundred twenty (120)
days from the date of submission of complete documents in support
PHILEX of the application filed in accordance with Subsection (A)."
o To recall, the Commissioner had until 17 July 2006, the last day of the o The highlighted part above means that the provision
120-day period, to decide Philex’s claim. Since the Commissioner did ONLY REFERS TO ADMINISTRATIVE CLAIMS.
not act on Philex’s claim on or before 17 July 2006, Philex had until 17  In Aichi, the words clearly refer to refund or
August 2006, the last day of the 30-day period, to file its judicial credit not appeal to CTA.
claim. The CTA EB held that 17 August 2006 was indeed the last o Stated otherwise, the two-year prescriptive period
day for Philex to file its judicial claim. does not refer to the filing of the judicial claim with
the CTA but to the filing of the administrative claim
5
BIR RULING NO. DA-489-03 - Taxpayer-claimant need not wait for the lapse of the
with the Commissioner.
120-day period before it could seek judicial relief with the CTA by way of Petition for o Third, if the 30-day period, or any part of it, is required to fall within the
Review. two-year prescriptive period (equivalent to 730 days), then the
taxpayer must file his administrative claim for refund or credit within registered person, who is not legally liable for the input
the first 610 days of the two-year prescriptive period. VAT, is the one who applies the input VAT as credit for
o The theory that the 30-day period must fall within the two-year his own output VAT. If the input VAT is in fact
prescriptive period adds a condition that is not found in the law. "excessively" collected as understood under Section
o The taxpayer can file his administrative claim for refund or credit 229, then it is the first VAT-registered person - the
at anytime within the two-year prescriptive period. taxpayer who is legally liable and who is deemed to
have legally paid for the input VAT.
3) NO. Section 229’s term "excessively collected” occurs when the o The person legally liable for the input VAT cannot claim that he
person liable for the tax actually pays more than what is legally due. overpaid the input VAT by the mere existence of an "excess" input
The prescriptive period is reckoned from the date the person liable VAT. The term "excess" input VAT simply means that the input
for the tax pays the tax. Alternatively, under Section 110(B) and VAT available as credit exceeds the output VAT, not that the
Section 112(A), the prescriptive period for filing a judicial claim for input VAT is excessively collected because it is more than what
"excess" input VAT is two years from the close of the TAXABLE is legally due.
QUARTER, when the sale was made by the person legally liable to o Under Section 229, the prescriptive period for filing a judicial claim for
pay the output VAT. Aside from the reckoning date, it is important refund is two years.
also to know this since under Section 229, tax can be claimed as a o The prescriptive period is reckoned from the date the
credit or refund while Sections 110(B) and Section 112(A) require person liable for the tax pays the tax.
first that the taxpayer must have an output VAT to which input tax  This means the date when the taxpayer pays
would be attributed to (with the exception of course of zero-rated more than he should have under the
transactions). assessment.
o The input VAT is not "excessively" collected as understood under  Taxpayer here is the person legally
Section 2296 because at the time the input VAT is collected the liable to pay the tax and NOT the
amount paid is correct and proper. person to whom the tax is passed
o To recall, an input VAT is a tax liability of, and legally on as part of the purchase price.
paid by, a VAT-registered seller. The second VAT- o Under Section 110(B)7 and Section 112(A), the prescriptive period for
filing a judicial claim for "excess" input VAT is two years from the close
6
of the taxable quarter when the sale was made by the person legally
SECTION 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or
proceeding shall be maintained in any court for the recovery of any national internal liable to pay the output VAT. This prescriptive period has no relation
revenue tax hereafter alleged to have been erroneously or illegally assessed or c ollected, to the date of payment of the "excess" input VAT. The "excess" input
or of any penalty claimed to have been collected without authority, or of any sum alleged to VAT may have been paid for more than two years but this does not
have been excessively or in any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such suit or proceeding may be bar the filing of a judicial claim for "excess" VAT under Section 112(A),
maintained, whether or not such tax, penalty, or sum has been paid under protest or which has a different reckoning period from Section 229.
duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
7
years from the date of payment of the tax or penalty regardless of any supervening cause SECTION 110. (B) Excess Output or Input Tax. - If at the end of any taxable quarter the
that may arise after payment: Provided, however, That the Commissioner may, even output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If
without a written claim therefor, refund or credit any tax, where on the face of the return the input tax exceeds the output tax, the excess shall be carried over to the succeeding
upon which payment was made, such payment appears clearly to have been erroneously quarter or quarters. Any input tax attributable to the purchase of capital goods or to zero-
paid. rated sales by a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.
o The person claiming the refund or credit of the input 229, should be effective only from its promulgation on 8 June
VAT is not the person who legally paid the input VAT. 2007 until its abandonment on 12 September 2008 in Mirant.
o To recall, under Section 110(B), a taxpayer can apply his input VAT o Reckoning period is the date of payment of the output
only against his output VAT. The only exception is when the taxpayer VAT
is expressly "zero-rated or effectively zero-rated" under the law, like o Any payment of output VAT BEFORE Atlas follows the
companies generating power through renewable sources of energy. verba legis rule of Section 112(A).
o Thus, a non zero-rated VAT-registered taxpayer who o Payment AFTER Atlas also follows the verba legis rule
has no output VAT because he has no sales cannot of Mirant doctrine, which is basically Section 112(A).
claim a tax refund or credit of his unused input VAT o As mentioned, Atlas has no application when it comes to the 120+30
under the VAT System. (Exception is if you are zero- day periods. The 120+30 day rule was first raised in Aichi, which
rated) adopted the verba legis rule in holding that the 120+30 day periods
o The said unused input VAT is then NOT “excess.” are mandatory and jurisdictional.
o The VAT System does not allow such refund or credit. o This means that a judicial claim can only be filed after
Such "excess" input VAT is not an "excessively" the lapse of said periods.
collected tax under Section 229. o When Section 112(C) states that "the taxpayer affected may, within
o As the Court held in Mirant, Section 229 should "apply only to thirty (30) days from receipt of the decision denying the claim or after
instances of erroneous payment or illegal collection of internal the expiration of the one hundred twenty-day period, appeal the
revenue taxes." Erroneous or wrongful payment includes excessive decision or the unacted claim with the Court of Tax Appeals," the law
payment because they all refer to payment of taxes not legally does not make the 120+30 day periods optional just because the law
due. uses the word "may." The word "may" simply means that the
o Any suggestion that the "excess" input VAT under the VAT System is taxpayer may or may not appeal.
an "excessively" collected tax under Section 229 may lead taxpayers o The old rule when it comes to judicial appeals is that before the
to file a claim for refund or credit for such "excess" input VAT under expiration of the 120 days, the taxpayer can file immediately a petition
Section 229 as an ordinary tax refund or credit outside of the VAT for review. Now, the VAT system adopts a 30 day rule after the 120
System. days.
o Under Section 229, mere payment of a tax beyond what o PURPOSE: The 30-day period was adopted precisely
is legally due can be claimed as a refund or credit. to do away with the old rule, so that under the VAT
There is no requirement under Section 229 for an output System the taxpayer will always have 30 days to file
VAT or subsequent sale of goods, properties, or the judicial claim even if the Commissioner acts
services using materials subject to input VAT. only on the 120th day, or does not act at all during
the 120-day period.
4) NO. Atlas doctrine has nothing to do with 120+30 days and whatever
its doctrine was, it was abandoned last June 2007 with the 5) NO. The RMC 49-03 clarifies that the filing of judicial claims does not
pronouncement in Mirant. “May” refers to the choice of the taxpayer divest the CIR of his jurisdiction to decide on administrative claims.
on whether they would like to file an appeal or not.
o The Atlas doctrine, which held that claims for refund or credit of input
VAT must comply with the two-year prescriptive period under Section
o There is nothing in RMC 49-038 that states, expressly or impliedly, o Second exception is where the Commissioner, through a
that the taxpayer need not wait for the 120-day period to expire before general interpretative rule issued under its power in
filing a judicial claim with the CTA. RMC 49-03 merely authorizes the Section 4 of the Tax Code (power of the Commissioner
BIR to continue processing the administrative claim even after the to interpret laws relating to tax and issue regulations),
taxpayer has filed its judicial claim. misleads all taxpayers into filing prematurely judicial
o PURPOSE: The internal administrative evaluation of the claims with the CTA.
taxpayer’s claim must necessarily continue to enable the  Commissioner cannot then question the CTA’s
BIR to oppose intelligently the judicial claim or, if the jurisdiction and equitable estoppel has set in as
facts and the law warrant otherwise, for the BIR to expressly authorized under Section 246 of the
concede to the judicial claim, resulting in the termination Tax Code9.
of the judicial proceedings.  Since the Commissioner has exclusive and
o The expiration of the 120-day period cannot operate to divest the original jurisdiction to interpret tax laws,
Commissioner of his jurisdiction to decide an administrative taxpayers acting in good faith should not be
claim within the 120-day mandatory period, unless the made to suffer for adhering to general
Commissioner has clearly given cause for equitable estoppel to interpretative rules of the Commissioner
apply as expressly recognized in Section 246 of the Tax Code. o BIR Ruling No. DA-489-03 is a general interpretative rule because it
was a response to a query made, not by a particular taxpayer, but by
6) YES from 10 December 2003 up to its reversal by this Court a government agency tasked with processing tax refunds and credits,
in Aichi on 6 October 2010. BIR Ruling No. DA-489-03 is a general that is, the One Stop Shop Inter-Agency Tax Credit and Drawback
interpretative rule and the Commissioner cannot then question the Center of the Department of Finance.
CTA’s jurisdiction and equitable estoppel has set in. o Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the
o To recall, BIR Ruling No. DA-489-03 expressly states that the time of its issuance on 10 December 2003 up to its reversal by this
"taxpayer-claimant need not wait for the lapse of the 120-day Court in Aichi on 6 October 2010, where this Court held that the
period before it could seek judicial relief with the CTA by way of 120+30 day periods are mandatory and jurisdictional.
Petition for Review." o However, BIR Ruling No. DA-489-03 cannot be given retroactive
o There is no dispute that the 120-day period is mandatory and effect for four reasons:
jurisdictional. There are, however, two exceptions to this rule. o First, it is admittedly an erroneous interpretation of the
o The first exception is if the Commissioner, through a law;
specific ruling, misleads a particular taxpayer to
prematurely file a judicial claim with the CTA.
 Such specific ruling is applicable only to such 9
Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any
particular taxpayer. of the rules and regulations promulgated in accordance with the preceding Sections or
any of the rulings or circulars promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification or reversal will be prejudicial to
the taxpayers, except in the following cases:
8
RMC 49-03 - In cases where the taxpayer has filed a ‘Petition for Review’ with the Court (a) Where the taxpayer deliberately misstates or omits material facts from his return or any
of Tax Appeals involving a claim for refund/TCC that is pending at the administrative document required of him by the Bureau of Internal Revenue;
agency (either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
Credit and Duty Drawback Center of the Department of Finance), the administrative agency materially different from the facts on which the ruling is based; or
and the court may act on the case separately. (c) Where the taxpayer acted in bad faith.
o Second, prior to its issuance, the BIR held that the 120- o In CIR v. Ironcon Builders and Development Corporation was about
day period was mandatory and jurisdictional, which is the issue on the validity for refund of excess creditable VAT withheld.
the correct interpretation of the law; o In CIR v. Cebu Toyo Corporation, the issue was whether Cebu Toyo
o Third, prior to its issuance, no taxpayer can claim that it was exempt or subject to VAT.
was misled by the BIR into filing a judicial claim
prematurely; and 8) NO. Section 4.106-2(c) of Revenue Regulations No. 7-95 did not
o Fourth, a claim for tax refund or credit, like a claim for allow premature filing of judicial claims. Even assuming the
tax exemption, is strictly construed against the taxpayer. contrary, Section 4.106-2(c), a mere administrative issuance,
o Given its non-retroactivity, San Roque, cannot benefit from BIR Ruling becomes inconsistent with Section 112(D), a later law. Obviously,
No. DA-489-03 because it filed its judicial claim prematurely on 10 the later law prevails over a prior inconsistent administrative
April 2003, BEFORE the issuance of BIR Ruling No. DA-489-03 on 10 issuance.
December 2003. o (This issue is pertinent since San Roque claims that the case is one
o Taganito, however, filed its judicial claim with the CTA on 14 February under the 1977 Tax Code which was amended by Section 4.106-2(c)
2007, AFTER the issuance of BIR Ruling No. DA-489-03 on 10 of Revenue Regulations No. 7-95. San Roque assumes that the old
December 2003. law allows premature filing)
o Philex’s situation is not a case of premature filing of its judicial claim o Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own
but of late filing, indeed very late filing. express terms, applies only if the taxpayer files the judicial claim
"after" the lapse of the 60-day period, a period with which San Roque
7) NO. None of these five cases mention, cite, discuss, rule or even failed to comply. Under Section 4.106-2(c), the 60-day period is still
hint that compliance with the 120-day mandatory period is mandatory and jurisdictional.
inconsequential as long as the administrative and judicial claims are o Under the 1977 Tax Code (Yes, the OLD pa cinite ng court just to
filed within the two-year prescriptive period. prove na luma na yung mandatory periods even before we had the
o In CIR v. Toshiba Information Equipment (Phils.), Inc., the issue was 120 days!)
whether any output VAT was actually passed on to Toshiba that it o (d) Period within which refund or tax credit of input tax
could claim as input VAT subject to tax credit or refund. shall be made - In proper cases, the Commissioner shall
o In Intel Technology Philippines, Inc. v. CIR, the Court stated: "The grant a refund or issue the tax credit for creditable input
issues to be resolved in the instant case are (1) whether the absence taxes within sixty (60) days from the date of
of the BIR authority to print or the absence of the TIN-V in petitioner’s submission of complete documents in support of the
export sales invoices operates to forfeit its entitlement to a tax application filed in accordance with subparagraphs (a)
refund/credit of its unutilized input VAT attributable to its zero-rated and (b) hereof. In case of full or partial denial of the
sales; and (2) whether petitioner’s failure to indicate "TIN-V" in its claim for tax refund or tax credit, or the failure on the
sales invoices automatically invalidates its claim for a tax credit part of the Commissioner to act on the application
certification.. within the period prescribed above, the taxpayer
o In AT&T Communications Services Philippines, Inc. v. CIR, the Court affected may, within thirty (30) days from receipt of
denied the claim ‘for lack of substantiation given that "valid VAT the decision denying the claim or after the
official receipts, and not mere sale invoices, should have been expiration of the sixty-day period, appeal the
submitted. decision or the unacted claim with the Court of Tax
Appeals.
o Revenue Regulations No. 7-95 (1996) Dissenters: (1) CJ MARIA LOURDES P. A. SERENO, (2) PRESBITERO J.
o However, if no action on the claim for tax VELASCO, JR., (3) JOSE C. MENDOZA, and (4) ESTELA M. PERLAS-
credit/refund has been taken by the Commissioner BERNABE
of Internal Revenue after the sixty (60) day
period from the date of submission of the NIPPON EXPRESS CORPORATION v. COMMISSIONER OF
application but before the lapse of the two (2) year INTERNAL REVENUE (Banta)
period from the date of filing of the VAT return for [GR. No. 196907; March 13, 2013]
the taxable quarter, the taxpayer may appeal to the “Matuto kang maghintay. 120 days lang naman (ang kailangang mag-lapse).
Court of Tax Appeals. Hindi yung lilipat ka agad sa iba.”
o Base from above, Revenue Regulations No. 7-95 (1996) did not
allow the filing of claims before the lapse of 60 days. Recit-Ready:
o Section 4.106-2(c) itself expressly states that if, "after Facts: Petitioner Nippon Philippines filed an administrative claim for
the sixty (60) day period," refund with the BIR, representing excess input tax attributable to
o Even assuming the contrary, Section 4.106-2(c), a mere its effectively zero-rated sales in 2001. The day after it filed in the
administrative issuance, becomes inconsistent with Section 112(D), a BIR, and while its claim was still pending review, it already filed a
later law. Section 112(D) of the 1997 Tax Code is clear, unequivocal, petition for review with the CTA, requesting for the issuance of a
and categorical that the Commissioner has 120 days to act on an tax credit certificate.
administrative claim. The taxpayer can file the judicial claim (1) only
within thirty days after the Commissioner partially or fully denies The subsequent rulings of the lower courts are as follows:
the claim within the 120- day period, or (2) only within thirty days
 CTA First Division: denied petitioner for insufficiency of
from the expiration of the 120- day period if the Commissioner
evidence
does not act within the 120-day period.
 Upon MR: reversed
o There can be no dispute that upon effectivity of the 1997 Tax Code on
 CTA En Banc: reversed the CTA Amended Decision and
1 January 1998, or more than five years before San Roque filed its
denied petitioner’s claim for lack of merit
administrative claim on 28 March 2003, the law has been clear: the
 CTA reversed its decision and affirmed the final decision
120- day period is mandatory and jurisdictional. San Roque’s claim,
of the First Division
having been filed administratively on 28 March 2003, is governed by
 Upon MR by the CIR: the CTA did another reversal and
the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its
held that the CTA has no jurisdiction over the petition for
judicial claim before the expiration of the 120-day mandatory and
review because it was filed before the lapse of the 120-
jurisdictional period, San Roque’s claim cannot prosper.
day period accorded to the CIR
o San Roque cannot also invoke Section 4.106-2(c),
which expressly provides that the taxpayer can only file
Issues:
the judicial claim "after" the lapse of the 60-day period
from the filing of the administrative claim. San Roque 1) WON the CTA has jurisdiction over the instant case
—NO
filed its judicial claim just 13 days after filing its
2) WON the petitioner’s VAT invoices are insufficient proof to
administrative claim.
support its zero-rated sales
*Did not include the Dissenting Opinions so that the case won’t be too long.
—No need to discuss
o Also, it is a VAT-registered entity with the Large Taxpayer District

Held: of the BIR
1) NO. Petition is without merit. A simple reading of Section 112(D) o 2001: it regularly filed its amended quarterly VAT returns
reveals that the taxpayer may appeal the denial or the inaction of  April 24, 2003: petitioner filed an administrative claim for refund of
the CIR only within thirty (30) days from receipt of the decision P20,345,824.29 representing excess input tax attributable to its
denying the claim or the expiration of the 120-day period given to effectively zero-rated sales in 2001
the CIR to decide the claim.  April 25, 2003: pending review by the BIR, petitioner filed a petition for
review with the CTA, requesting for the issuance of a tax credit certificate
Contrary to petitioner’s position, the 120+30-day period is indeed in the amount of P20,345,824.29
mandatory and jurisdictional from the time of effectivity of R.A. No. o CTA First Division: denied the petition for insufficiency of
8424, as recently ruled in CIR V. SAN ROQUE POWER CORPORATION. evidence
Thus, the failure to observe the said period before filing a judicial o Upon MR, CTA First Division: reversed its decision and ordered
claim with the CTA would not only make such petition premature, respondent CIR to issue a tax credit certificate in favor of
but would also result in the non-acquisition by the CTA of petitioner, representing excess or unutilized input tax for the
jurisdiction to hear the said case. second-fourth quarters of 2001
o As to the TIMELINESS OF THE CLAIM:
The Court however took into consideration the issuance by the BIR of  CTA First Division recognizes that the claim was
Ruling No. DA- 489-03, which expressly stated that the taxpayer need premature because pursuant to Section 112(D) of the
not wait for the lapse of the 120-day period before seeking judicial NIRC, petitioner should have made its appeal with the
relief. Because taxpayers cannot be faulted for relying on this CTA 30 days from the receipt of the decision of the CIR
declaration by the BIR, the Court deemed it reasonable to allow denying the claim, OR after the expiration of the 120-day
taxpayers to file its judicial claim even before the expiration of period without action from the CIR
the 120-day period.  However, since the CIR did not register any objection
with regard to the timeliness of the claim, it has been
SO AGAIN, GENERAL RULE (as laid down by San Roque case): deemed waived
judicial claims filed from January 1, 1998 until the present should  June 11, 2010: CTA En Banc reversed and set aside the Amended
strictly adhere to the 120+30-day period referred to in Section 112 Decision and Resolution of the First Division; denied petitioner’s claim for
of the NIRC. EXCEPTION: period from December 10, 2003 until lack of merit
October 6, 2010, during which, judicial claims may be filed even before o According to the CTA En Banc:
the expiration of the 120-day period granted to the CIR to decide on  The sales invoices issued by petitioner were insufficient
the claim for refund. to establish its zero-rated sale of services;
 Without the proper VAT official receipts issued to tis
2) Having thus concluded, the Court sees no need to discuss other clients, the payments received by petitioner could not
issues which may have been raised in the petition. qualify for zero-rating for VAT purposes
Facts:  September 22, 2010: CTA En Banc reversed its own decision, and
 Petitioner NIPPON EXPRESS (PHILIPPINES) CORPORATION is a affirmed the initially struck down Amended Decision of the First Division
corporation duly organized and registered with the Securities and o In light of the case of AT&T COMMUNICATIONS SERVICES
Exchange Commission PHILIPPINES, INC. V. COMMISSIONER OF INTERNAL REVENUE, where it
was ruled that Section 113 does not distinguish between a sales
invoice and an official receipt, the CTA found petitioner’s sales (D) Period within which Refund or Tax Credit of Input Taxes shall be Made.―In
invoices to be acceptable proof for the refund or issuance of tax proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from
credit certificate representing its excess or unutilized input VAT
the date of submission of complete documents in support of the application
 CIR then filed a motion for reconsideration, arguing that a sales receipt filed in accordance with Subsections (A) and (B) hereof.
and a sales invoice are not the same, and that the CTA has no
jurisdiction over the petition for review because it was filed before the In case of full or partial denial of the claim for tax refund or tax credit, or the
lapse of the 120-day period accorded to the CIR failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days
o CTA granted CIR’s MR and once again reversed its decision,
from the receipt of the decision denying the claim or after the expiration
dismissing the petition for lack of jurisdiction of the one hundred twenty day-period, appeal the decision or the unacted
o Also, KEPCO PHILIPPINES CORPORATION V. CIR: a VAT invoice claim with the Court of Tax Appeals. (Emphasis Supplied)
(seller’s proof of sale) and a VAT receipt (buyer’s best evidence
of payment) should not be confused as referring to the same o Contrary to petitioner’s position, the 120+30-day period is indeed
thing mandatory and jurisdictional from the time of effectivity of R.A. No.
8424, as recently ruled in CIR V. SAN ROQUE POWER CORPORATION
Issues:  Thus, failure to observe the said period before filing a
1) WON the CTA has jurisdiction over the instant case judicial claim with the CTA would not only make such
—NO petition premature, but would also result in the non-
2) WON the petitioner’s VAT invoices are insufficient proof to support acquisition by the CTA of jurisdiction to hear the said
its zero-rated sales case
—No need to discuss o Because the 120+30 day period is jurisdictional, the issue of whether
petitioner complied with the said time frame may be breached at any
Held/Ratio: The Court finds the petition WITHOUT MERIT. stage, even on appeal
 Jurisdiction cannot be waived because it is conferred by law
1) NO. Petitioner is mistaken. A simple reading of Section 112(D) and is not dependent on the consent or objection or the acts
reveals that the taxpayer may appeal the denial or the inaction of or omissions of the parties or any one of them
the CIR only within thirty (30) days from receipt of the decision o The Court however took into consideration the issuance by the BIR of
denying the claim or the expiration of the 120-day period given to Ruling No. DA- 489-03, which expressly stated that the taxpayer
the CIR to decide the claim. need not wait for the lapse of the 120-day period before seeking
o Petitioner contends that: judicial relief
 Non-exhaustion of remedies is not a jurisdictional defect;  Because taxpayers cannot be faulted for relying on this
 CIR failed to seasonably object therefore, it is deemed declaration by the BIR, the Court deemed it reasonable to
waived; allow taxpayers to file its judicial claim even before the
 It cannot be faulted for relying on prevailing CTA expiration of the 120-day period
jurisprudence requiring that both administrative and judicial  This exception is to be observed from December 10, 2003
claims for refund be filed within the two (2) years from the until its REVERSAL by AICHI in October 6, 2010
date of the filing of the return and the payment of the tax due  In the case of AICHI, the Court made a definitive
o Section 112(D) (now Subpar. 6) of the NIRC is clear: statement that the failure of a taxpayer to wait for the
decision of the CIR or the lapse of the 120-day Appeals (CTA) and rendered a Decision partially granting petitioner’s
period will render the filing of the judicial claim with claim for refund in the reduced amount of P40,875,208.64 on the basis
the CTA premature that the official receipts under the name "Bonifacio GDE Water
o SO AGAIN, GENERAL RULE (as laid down by San Roque case): Corporation" were disallowed on the ground that the use of said business
judicial claims filed from January 1, 1998 until the present should name by petitioner was never approved by the Securities and Exchange
strictly adhere to the 120+30-day period referred to in Section 112 Commission (SEC).
of the NIRC
 EXCEPTION: period from December 10, 2003 until October BWC filed its Petition for review with the CTA En Banc. However, the CTA
6, 2010, during which, judicial claims may be filed even En Banc, affirmed in toto the assailed Decision and Resolution of the CTA
before the expiration of the 120-day period granted to the CIR Second Division
to decide on the claim for refund
Issue: WON the CTA En Banc erred in not granting petitioner’s claim
2) Having thus concluded, the Court sees no need to discuss other issues for refund or issuance of a tax credit certificate in the amount
which may have been raised in the petition. of P65,642,814.65? – NO! (hindi siya nagkamali)
BONIFACIO WATERS v. CIR (Bello) Held: WHEREFORE, premises considered, the instant petition is
[GR. No. 175142; July 22, 2013 DENIED. The Court of Tax Appeals En Banc Decision dated
“Taxpayers must show satisfaction of all the documentary and evidentiary June 26, 2006, and Resolution dated October 19, 2006, are
requirements before an administrative claim for refund or tax credit will be hereby AFFIRMED.
granted”
NO! The requisite that the receipt be issued showing the name, business
Recit-Ready: style, if any, and address of the purchaser, customer or client is precise so
Facts: Bonifacio Water Corporation (BWC) is a domestic corporation that when the books of accounts are subjected to a tax audit examination,
engaged in the collection, purification and distribution of water. BWC duly all entries therein could be shown as adequately supported and
filed with the BIR its quarterly VAT returns for the year 1999-2000. proven as legitimate business transactions. The absence of official
receipts issued in the taxpayer’s name is tantamount to non-
For said period, BWC alleges that its input VAT included, among others, compliance with the substantiation requirements provided by law.
input VAT paid on purchases of capital goods amounting
to P65,642,814.65. Thus, the change of petitioner’s name to "Bonifacio GDE Water
Corporation," being unauthorized and without approval of the SEC,
These purchases supposedly pertain to payment to contractors in and the issuance of official receipts under that name which were
connection with the construction of petitioner’s Sewage Treatment Plant, presented to support petitioner’s claim for tax refund, cannot be
Water and Waste System, and Water Treatment Plant. Hence, BWC filed used to allow the grant of tax refund or issuance of a tax credit
a claim for refund amounting P65,642,814.65 representing unutilized certificate in petitioner’s favor. The absence of official receipts issued in
input VAT on capital goods purchased for the period beginning the 4th its name is tantamount to noncompliance with the substantiation
quarter of 1999 up to the 4th quarter of 2000. requirements provided by law and, hence, the CTA En Banc’s partial grant
of its refund on that ground should be upheld.
The next day, petitioner filed its Petition for Review with the Court of Tax
Facts:
 Bonifacio Water Corporation (BWC) is a domestic corporation engaged in  BWC thereafter filed its petition for review with the CTA En Banc arguing
the collection, purification and distribution of water. It is registered with that it has presented substantial evidence that proves its input VAT on
the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) purchases of capital goods from the 4th quarter of 1999 to the 4th quarter
taxpayer, with VAT Registration/Taxpayer Identification No. 201-403-657- of 2000, as well as the fact that petitioner and "Bonifacio GDE
000. Corporation" are one and the same entity. (Dahil hindi siya makuntento
 BWC duly filed with the BIR its quarterly VAT returns for the 4th sa 45k, nag appeal siya sa CTA En Banc”
quarter of 1999, 1st quarter of 2000, 2nd quarter of 2000, 3rd quarter of “In a Decision dated June 26, 2006, the CTA En Banc affirmed in toto the
2000, and 4th quarter of 2000, declaring the following information: assailed Decision and Resolution of the CTA Second Division. “
 For said period, BWC alleges that its input VAT included, among
others, input VAT paid on purchases of capital goods amounting Issue:
to P65,642,814.65. These purchases supposedly pertain to payment to WON the CTA En Banc erred in not granting petitioner’s claim for
contractors in connection with the construction of petitioner’s Sewage refund or issuance of a tax credit certificate in the amount
Treatment Plant, Water and Waste System, and Water Treatment Plant. of P65,642,814.65?
 On January 22, 2002, petitioner filed with Revenue District Office No. 44– —NO
Pateros and Taguig, Revenue Region No. 8 of the BIR, an You may opt not to read this part:
administrative claim for refund or issuance of a tax credit certificate PETITIONER’s ARGUMENTS RESPONDENT’s ARGUMENTS
1. That Non-compliance with the A. that the instant petition raises
in the amount of P65,642,814.65 representing unutilized input VAT
invoicing requirements under purely questions of fact which is
on capital goods purchased for the period beginning the 4th quarter the 1997 Tax Code does not not allowed under Rule 45 of the
of 1999 up to the 4th quarter of 2000. (In short, ito basis niya to claim automatically result in the Rules of Court. He highlights the
refund or issuance of tax credit) denial of a claim for refund or fact that the issue of whether or
 The next day, petitioner filed its Petition for Review with the Court of Tax tax credit when the same is not petitioner was able to present
supported by substantial substantial evidence to prove and
Appeals (CTA), to toll the running of the two-year prescriptive period.
evidence. It contends that the support its claim for tax refund or
(Dahil alam niya mag prescribe na, nagfile sa CTA – galing niya eh) On CTA En Banc erred in sustaining tax credit calls for this Court to
March 29, 2005, the CTA Second Division rendered a Decision partially the ruling that petitioner is not review and evaluate all the
granting petitioner’s claim for refund in the reduced amount entitled to a refund of the input evidence to enable it to determine
of P40,875,208.64. (Partially granting lang so hindi buong 65k yung allow VAT evidenced by official receipts and resolve the issues raised by
na refund) in the name of "Bonifacio GDE petitioner.
Water Corporation.
2. that the CTA erred in failing to B. that the CTA En Banc committed
“CTA Second Division held that an examination of the various official receipts properly apply the definition of no error in not applying the rules
presented by petitioner, to support its purchases for capital goods, shows capital goods and insists that regarding judicial admissions,
that some of its purchases, such as rental, management fees and direct services incurred in the since no judicial admission was
overhead, cannot be considered as capital goods. Further, it ruled that the construction and installation of made by or was attributable to
capital assets and goods should respondent, either in the
official receipts under the name "Bonifacio GDE Water Corporation" were
be included in the cost of capital pleadings or in the course of the
disallowed on the ground that the use of said business name by petitioner goods for purposes of trial proceedings. He argues that
was never approved by the Securities and Exchange Commission (SEC).” determining the proper amount of the admission made by a
(Ito yung wherefore ni CTA Second Division, medyo important yung decision refundable input VAT. subordinate BIR official in support
niya lalo na yung hindi approve yung “new alleged business name ni BWC”) of the course of action which he
had proposed or submitted for audit examination, all entries therein could be shown as
approval by his superior cannot adequately supported and proven as legitimate business
by any stretch of imagination be
transactions. The absence of official receipts issued in the
considered an admission, much
less a judicial admission, of the taxpayer’s name is tantamount to non-compliance with the
latter. substantiation requirements provided by law.
3. that respondent made an C. that the CTA En Banc did not err o Petitioner cannot raise the argument that, "non-compliance with the
"informal judicial admission" and in using stricter rules of evidence invoicing requirements under the 1997 NIRC, as amended, does not
partially recognized its claims for in cases involving claims for tax automatically result in the denial of a claim for refund or tax credit
excess input VAT on purchases refund or tax credit as the same
when the same is supported by substantial evidence" and that, "In civil
of capital goods when Revenue are in the nature of tax
District No. 44 issued a exemptions and are regarded as cases, such as claims for refund, strict compliance with technical rules
memorandum acknowledging, in derogation of sovereign of evidence is not required.
inter alia, that the input taxes authority and to be construed o Moreover, a mere preponderance of evidence will suffice to
claimed as refund were duly strictissimi juris against the entity justify the grant of a claim," in addition to its first ground in the
supported by valid VAT invoices claiming the exemption.
instant petition. Taxpayers claiming for a refund or tax credit
and/or receipts.
4. that the CTA imposed an overly
certificate must comply with the strict and mandatory invoicing
strict standard of evidence in and accounting requirements provided under the 1997 NIRC, as
disallowing petitioner’s invoices amended, and its implementing rules and regulations. Rules and
bearing the name "Bonifacio GDE regulations with regard to procedures are implemented not to be
Water Corporation." It claims that ignored or to be taken for granted, but are strictly adhered to for they
the denial of the claim in its
are developed from the law itself.
entirety based purely on technical
grounds unduly deprives o From the foregoing, it is clear that petitioner must show satisfaction of
petitioner of a right granted by law all the documentary and evidentiary requirements before an
and constitutes an undue administrative claim for refund or tax credit will be granted. Perforce,
deprivation of its property. the taxpayer claiming the refund must comply with the invoicing and
accounting requirements mandated by the Tax Code, as well as the
Held/Ratio: WHEREFORE, premises considered, the instant petition is revenue regulations implementing them.
DENIED. The Court of Tax Appeals En Banc Decision dated June 26, 2006, o Thus, the change of petitioner’s name to "Bonifacio GDE Water
and Resolution dated October 19, 2006, are hereby AFFIRMED. Corporation," being unauthorized and without approval of the
SEC, and the issuance of official receipts under that name which
NO. The change of name to Bonifacio GDE Corporation being were presented to support petitioner’s claim for tax refund,
unauthorized and without approval from the Securities and Exchange cannot be used to allow the grant of tax refund or issuance of a
Commission, petitioner cannot now seek for a refund of input taxes, tax credit certificate in petitioner’s favor. The absence of official
which are supported by receipts under that name. (Pwede ka naman receipts issued in its name is tantamount to noncompliance with the
bigyan ng refund eh, yung receipt mo lang sa iba na nakapangalan) substantiation requirements provided by law and, hence, the CTA En
Banc’s partial grant of its refund on that ground should be upheld.
o The requisite that the receipt be issued showing the name, business
style, if any, and address of the purchaser, customer or client is OTHERS (you may opt not to read this)
precise so that when the books of accounts are subjected to a tax
Also, petitioner’s allegation that some of the disallowed input taxespaid on

services related to the construction of petitioner’s Waste Water Treatment Recit-Ready:
and Water Sewerage Distribution Networks, should be included as part of its Facts: Respondent GST is a VAT registered domestic corporation
capital goods, must fail. primarily engaged in steel and iron products. During taxable years
o Only real accounts provided above are to be considered as capital 2004-2005, GST filed claimed for unutilized excess input VAT
goods since "capital goods" is defined as: "Capital goods or attributable to its zero rated sales. For failure of CIR to act on its
properties" refer to goods or properties with estimated useful life administrative claims, GST filed for a petition for review before
greater than one year and which are treated as depreciable assets the CTA. The CTA granted the petition. CIR filed an MR but was
under Section 29(f), used directly or indirectly in the production or denied. In a petition for review before the CTA En Banc, CIR
sale of taxable goods or services. raised that the appeal before the CTA was filed beyond the
o Had petitioner intended the aforementioned itemized expenses reglementary period. GST asserts that under Section 112 (A) of
to be part of Property, Plant & Equipment, then it should have the Tax Code, the prescriptive period is complied with if both the
recorded the same to the foregoing specific accounts. Except administrative and judicial claims are filed within the two-year
for the account "Construction in Progress," the other expense items prescriptive period; and that compliance with the 120-day and 30-
do not fall within the definition of capital goods pursuant to Section day periods under Section 112 (D) of the Tax Code is not
4.106-1(b) of Revenue Regulations No. 7-95. mandatory.
o As a final point, it is doctrinal that the Court will not lightly set
aside the conclusions reached by the CT A which, by the very Issue: WON GST’s action for refund has complied with the
nature of its function of being dedicated exclusively to the prescriptive periods under the Tax Code.
resolution of tax problems, has accordingly developed an
expertise on the subject, unless there has been an abuse or Held: The claims of respondent GST Philippines, Inc. for refund or tax
improvident exercise of authority. credit for unutilized excess input VAT for the four quarters of
o In fact, in Barcelon, Roxas Securities, Inc. v. Commissioner of taxable year 2004, as well as the first quarter of taxable year
Internal Revenue, this Court held that it accords the findings of fact 2005 are hereby DENIED for being filed beyond the prescriptive
by the CT A with the highest respect. It ruled that factual findings period, while the claims for refund for the second and third
made by the CTA can only be disturbed on appeal if they are quarters of taxable year 2005 are GRANTED. Accordingly, the
supported by substantial evidence or there is a showing of gross Commissioner of Internal Revenue is ordered to refund or, in the
error or abuse on the part of the Tax Court. In the absence of any alternative, to issue a tax credit certificate to respondent GST
clear and convincing proof to the contrary, this Court must presume Philippines, Inc. corresponding only to the amount representing
that the CT A rendered a decision which is valid in every respect. unutilized excess input VAT for the second and third quarters of
o In the present case, no cogent reason exists for this Court to deviate taxable year 2005 out of the total amount of P27,369,114.36
from this well-entrenched principle, since the CT A En Bane neither awarded by the CTA.
abused its authority nor committed gross error in partially denying
petitioner's refund claim. Facts:
 GST is a corporation duly organized and existing under the laws of the
CIR v. GST PHILIPPINES, INC. (Bugay) Philippines, and primarily engaged in the business of manufacturing,
[GR. No. 190872; October 17, 2013] processing, selling, and dealing in all kinds of iron, steel or other metals.
“120 + 30- day period mandatory and jurisdictional”
o Duly registered VAT enterprise, which deals with

companies registered with: Issue:
 The Board of Investments (BOI), whose WON GST’s action for refund has complied with the prescriptive
manufactured products are 100% exported to periods under the Tax Code. – No and Yes.
foreign countries; and
 The Philippine Economic Zone Authority (PEZA) Held/Ratio: Petition is PARTLY GRANTED. The Decision dated October 30,
 Sales made by a VAT-registered person to 2009 of the Court of Tax Appeals En Banc in C.T.A. EB No. 484, affirming
a PEZA-registered entity are considered the Decision dated January 27, 2009 of the CTA First Division in C.T.A. Case
exports to a foreign country subject to a No. 7419, is AFFIRMED with10 MODIFICATION. The claims of respondent
zero rate. GST Philippines, Inc. for refund or tax credit for unutilized excess input
 During the taxable year, GST filed Quarterly VAT returns showing its VAT for the four quarters of taxable year 2004, as well as the first
zero-rated sales: quarter of taxable year 2005 are hereby DENIED for being filed beyond
Period Date of Filing Zero-Rated Sales the prescriptive period, while the claims for refund for the second and
1st Quarter 2004 April 16, 2004 P 77,687,420.54 third quarters of taxable year 2005 are GRANTED.
2nd Q. 2004 July 15, 2004 53, 737,063.05
3rd Q. 2004 October 15, 74,280,682.00  Refund or tax credit of unutilized excess input VAT has been
2004 allowed as early as in the Original VAT Law — EO 273. Since
GST's claims for refund covered the periods before the
4th Q. 2004 January 11, 104,633,604.23
2005 effectivity of RA 9337, the old provision on VAT refund,
specifically Section 112, as amended by RA 8424, shall apply.
1st Q. 2005 April 25, 2005 37,742,969.02
nd
 The claims filed for the four quarters of taxable year 2004, as well as
2 Q. 2005 July 19, 2005 56,133,761.00 the first quarter of taxable year 2005, had already prescribed. While
3rd Q. 2005 October 26, 51,147,677.60 those of the second and third quarters of taxable year 2005 were
2005 prematurely filed.
o Claiming unutilized excess input VAT in the total amount of
P32,722,109.68 attributable to the foregoing zero-rated 10
Section 112.Refunds or Tax Credits of Input Tax. —
sales, GST filed before the BIR separate claims for refund. (A) Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered person, whose sales
are zero- rated or effectively zero-rated may, within two (2) years after the close of the
Period Date of Filing Admin. Claim
taxable quarter when the sales were made, apply for the issuance of a tax credit
for Refund certificate or refund of creditable input tax due or paid attributable to such sales, except
st transitional input tax, to the extent that such input tax has not been applied against output
1 Quarter 2004 June 9, 2004
tax: . . . . (Emphasis supplied)
2nd Q. 2004 August 12, 2004 xxx xxx xxx
3rd Q. 2004 February 18, 2005 (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
4th Q. 2004 February 18, 2005
input taxes within one hundred twenty (120) days from the date of submission of
st
1 Q. 2005 May 11, 2005 complete documents in support of the application filed in accordance with Subsections (A)
2nd Q. 2005 November 18, 2005 and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
3rd Q. 2005 November 18, 2005 part of the Commissioner to act on the application within the period prescribed above, the
 For failure of the CIR to act on it administrative claims, GST filed a taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the
petition for review before the CTA on March 17, 2006. decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
 The Court held in Cir v. Aichi Forging Company of Asia, Inc., that the Section 4 of the Tax Code, misleads all
two-year prescriptive period applies only to administrative claims taxpayer into filing prematurely judicial
and not to judicial claims. Further, it ruled that the 120-day and 30- claims with the CTA.
day periods are mandatory.  In these cases, the Commissioner cannot be
o “The second paragraph of Section 112(D) [now Section allowed to later on question the CTA’s assumption
112(C)] of the NIRC envisions two scenarios: (1) when a of jurisdiction over such claim since equitable
decision is issued by the CIR before the lapse of the estoppel has set in as expressly authorized under
120-day period; and (2) when no decision is made after Section 246 of the Tax Code.
the 120-day period. In both instances, the taxpayer has  BIR Ruling No. DA-489-03 was classified in San Roque as a
30 days within which to file an appeal with the CTA. general interpretative rule having been made in response to a
o The taxpayer will always have 30 days to file the judicial query by a government agency tasked with processing tax refunds
claim even if the Commissioner acts only on the 120th day, and credits – the One Stop Shop Inter-Agency Tax Credit and
or does not act at all during the 120-day period. With the Drawback Center of the Department of Finance.
30-day period always available to the taxpayer, the o Therefore, GST can benefit from BIR Ruling No. DA-489-03
taxpayer can no longer file a judicial claim for refund or tax with respect to its claims for refund of unutilized excess
credit of unutilized excess input VAT without waiting for the input VAT for the second and third quarters of taxable year
Commissioner to decide until the expiration of the 120-day 2005, which were filed before the CIR on November 18,
period. Failure to comply with the 120-day waiting 2005, but elevated to the CTA on March 17, 2006 before
period violates the doctrine of exhaustion of the expiration of the 120-day period. BIR Ruling No. DA-
administrative remedies and renders the petition 489-03 effectively shielded the filing of GST’s judicial claim
premature and thus without a cause of action, with the from the vice of prematurity.
effect that the CTA does not acquire jurisdiction over Taxable Period Remarks Action on Claim
the taxpayer's petition. 1st Q. 2004 Filed Late DENY
o In CIR v. San Roque Power Corporation, the Court held that nd
2 Q. 2004 Filed Late DENY
BIR Ruling No. DA-489-03 dated December 10, 2003 3rd Q. 2004 Filed Late DENY
provided a valid claim for equitable estoppel under Section th
4 Q. 2004 Filed Late DENY
246 of the Tax Code. BIR Ruling No. DA-489-03 expressly
1st Q. 2005 Filed Late DENY
states that the “taxpayer-claimant need not wait for the
2nd Q. 2005 Prematurely Filed GRANT
lapse of the 120-day period before it could seek judicial
3rd Q. 2005 Prematurely Filed GRANT
relief with the CTA by way of Petition for Review.”
o It can be observed from the Court’s application of the 120+ 30-day
 There are two exceptions to this rule:
period to GST’s claims, the 120-day period is uniformly reckoned
 First, if the Commissioner, through a
from the date of the filing of the administrative claims.
specific ruling, misleads a particular
o The reckoning date of the 120-day period commenced
taxpayer to prematurely file a judicial claim
simultaneously with the filing of the administrative claims when
with the CTA. Such specific ruling is
GST was presumed to have attached the relevant document to
applicable only to such particular taxpayer.
support its applications for refund or tax credit.
 Second, where the Commissioner, through
a general interpretative rule issued under
o The Court further emphasized that tax refunds partake of the nature of 1) YES. The claim for refund / tax credit can be filed with the CIR within
tax exemptions which are a derogation of the power of taxation of the two years from the close of the taxable quarter when the relevant
State. Consequently, they are construed strictly against a taxpayer and sales were made. (So Mindanao II had two years from the close of the
liberally in favor of the State. Thus, a taxpayer must prove not only its 2nd, 3rd, and 4th quarters of 2004 to file its claim to the CIR. But it filed
entitlement to a refund, but also its compliance with the prescribed early naman, so yeah)
procedures. 2) NO. (Dito na nagkamali and nawalan si Mindanao II) When the CIR
failed to act on Mindanao II’s application within 120 days, Mindanao II
CIR v. MINDANAO II GEOTHERMAL PARTNERSHIP (Caraan) only had a period of 30 days to appeal to the CTA. It did not have the
[GR. No. 191498; January 15, 2014] full two-year period as the two-year period is only for when the
“Taxpayer may file his application for refund/tax credit within 2 years from the taxpayer could file his claim for refund/tax credit.
close of the taxable quarter when the relevant sales were made.
CIR has 120 days after the application is filed to act on it. Facts:
Upon denial of the claim/inaction of the CIR after 120 days, the taxpayer has  Respondent Mindanao II is a partnership engaged in the business of
30 days to appeal to the CTA” power generation and sale of electricity to the National Power
Corporation (NAPOCOR). It filed its Quarterly VAT Returns for the
Recit-Ready: second, third, and fourth quarters of 2004 on the dates below:
Facts: Mindanao II is engaged in the business of power generation and o 2nd Quarter: 26 July 2004
sale of electricity to NAPOCOR. It filed its Quarterly VAT Returns o 3rd Quarter: 22 October 2004
for the 2nd-4th Quarters of 2004 then filed an application for the o 4th Quarter: 25 January 2005
refund/credit of accumulated unutilized creditable input taxes on  (October 6, 2005) Mindanao II filed with BIR its application for the refund
October 6, 2005. Pursuant to Section 112(D) of the 1997 Tax or credit of accumulated unutilized creditable input taxes. It alleged that:
Code, the CIR had 120 days (or until February 3, 2006) to act on o It was registered with the BIR as a value-added taxpayer
such application; however, this remained unresolved. and all its sales are zero-rated under the EPIRA law; and
o It paid input VAT of P7,167,005.84, which were directly
Such inaction from the CIR can be treated as a denial of the claim attributable to the zero-rated sales and the input taxes had
for refund/tax credit; thus, the provision states that the taxpayer not been applied against output tax
has 30 days to appeal to the CTA. Mindanao II did not appeal to  Pursuant to Section 112(D) of the 1997 Tax Code, petitioner CIR had a
the CTA within 30 days because it believed that the prescriptive period of 120 days (or February 3, 2006) to act on the claim of Mindanao
period was two years to file an appeal. II; however, it remained unresolved.
o Under the same provision; Mindanao II could treat such
Issues: inaction as a denial of its claim, and thus, it can file an
1) WON Mindanao II filed its claim on time by relying on the two-year appeal to the CTA after 30 days (or March 5, 2006)
prescriptive period for filing an application for refund or credit of o But Mindanao II did not file an appeal within such period
unutilized input VAT  Mindanao II believed that the judicial claim (the appeal to the CTA) must
2) WON Mindanao II filed its appeal to the CTA on time by relying on the be filed within two years and so it filed its Petition for Review to the CTA
two-year period as well on July 21, 2006.
o While this was pending, the SC promulgated Atlas
Held: Consolidated Mining and Development Corporation v. CIR
(“Atlas”) and held that the two-year prescriptive period for o The CTA En Banc also ruled that the 30-day prescriptive
the filing of a claim for an input VAT refund or credit is to be period that CIR was pushing only applies if CIR actually
reckoned from the date of filing of the corresponding denied the claim. But in cases of CIR inaction (as in the
quarterly VAT return and payment of the tax. present case), the 30-day period is not a mandatory
 The CTA rendered its decision and ordered CIR to grant the refund or tax requirement; the judicial claim is seasonably filed as long as
credit certificate to Mindanao II. it is filed after the lapse of the 120-day waiting period but
o It ruled that Mindanao II complied with the twin requisites of within two years from the date of filing of the return.
the EPIRA Law:
 It is a generation company; and Issue/s:
 It derived sales from power generation 1) WON Mindanao II filed its claim on time by relying on the two-year
o It also ruled that Mindanao II satisfied the requirements for prescriptive period for filing an application for refund or credit of
refund/tax credit under Section 112 of the Tax Code: unutilized input VAT
 There must be zero-rated or effectively zero-rated —YES
sales; 2) WON Mindanao II filed its appeal to the CTA on time by relying on
 Input taxes must have been incurred or paid; the two-year period as well
 The creditable input tax due or paid must be —NO
attributable to zero-rated sales or effectively zero-
rated sales; Held/Ratio: We deny Mindanao II’s claim for refund or credit of unutilized
 The input VAT payments must not have been input VAT on the ground that its judicial claims were filed out of time, even as
applied against any output liability; and we hold that its application for refund was filed on time.
 The claim must be filed within the two-year
prescriptive period 1) YES. The two-year period within which to file a claim is correct.
 CIR filed a Motion for Partial Consideration, arguing that the prescriptive o Mindanao II’s application for refund was filed on time; however, its
period lapsed on March 5, 2006, or 30 days after, and not two years. judicial claim was filed out of time. This is why the Court ruled that it is
They relied on Section 112(D) of the 1997 Tax Code. not entitled to refund/credit of unutilized input VAT.
o While this was pending, the SC then promulgated CIR v. o The Court emphasized two points:
Mirant Pagbilao Corporation (“Mirant”). Mirant fixed the  It is only the administrative claim that must be filed within the
reckoning date of the two-year prescriptive period for two-year prescriptive period; the judicial claim need not fall
the application for refund or credit of unutilized input VAT at within the two-year prescriptive period; and
the close of the taxable quarter when the relevant sales  The reckoning date of the two-year period is the close of the
were made, as stated in Section 112(A) Taxable Quarter when the relevant sales were made
 CTA denied CIR’s Motion for Partial Consideration and stood by its o So, a taxpayer has two years from the close of the taxable quarter
reliance to Atlas. when the relevant sales were made to apply for a refund/tax credit to
 CIR elevated the case to the CTA En Banc and was denied. the CIR
o The CTA En Banc said that Mirant cannot be applied to the
present case because such cannot be applied retroactively 2) NO. The 30-Day Period to Appeal is mandatory and jurisdictional.
to Mindanao II who relied on Atlas and acted on the faith o So this is the real timeline:
thereof.
 When a taxpayer files his claim for refund / tax credit, he has force [but now, it’s not, so it does not apply in the case
up to two years from the close of the taxable quarter when anymore]
the relevant sales were made to apply to the CIR.
 The CIR, upon such application, has 120 days to resolve the
matter.
 If the CIR denies the claim / does not act on it (which is
equivalent to denying the claim), the taxpayer has 30 days to
appeal to the CTA.
o Mindanao II should have filed its appeal to the CTA after 30 days from
the lapse of the 120-day period within which the CTA was supposed
to act on its claim.
o The Court also had its own summary, as follows:
o A. Two-Year Prescriptive Period
 It is only the administrative claim that must be filed within the
two-year prescriptive period.
 The proper reckoning date for the two-year prescriptive
period is the close of the taxable quarter when the relevant
sales were made.
 The only other rule is the Atlas ruling, which applied only from
8 June 2007 to 12 September 2008. Atlas states that the two-
year prescriptive period for filing a claim for tax refund or
credit of unutilized input VAT payments should be counted
from the date of filing of the VAT return and payment of the
tax.
o B. 120+30 Day Period
 The taxpayer can file an appeal in one of two ways: (1) file
the judicial claim within thirty days after the Commissioner
denies the claim within the 120-day period, or (2) file the
judicial claim within thirty days from the expiration of the 120-
day period if the Commissioner does not act within the 120-
day period.
 The 30-day period always applies, whether there is a denial
or inaction on the part of the CIR.
 As a general rule, the 30-day period to appeal is both
mandatory and jurisdictional.
 As an exception to the general rule, premature filing is
allowed only if filed between 10 December 2003 and 5
October 2010, when BIR Ruling No. DA-489-03 was still in
VAT ON REAL PROPERTIES

Section 1. SCOPE. Pursuant to provisions of Sec. 244 and 245 of the
NIRC of 1997, as amended, in relation to Title IV of the same Tax Code,
SUMMARY: Revenue Regulations 10-2011 (Coloquio) these Regulations are hereby promulgated to amend certain provisions of
Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007,
Scope: Amends the Consolidated VAT Regulations of 2005. otherwise known as the Consolidated Value-Added Tax Regulations of
2005.
Sec. 2 – amending Sec. 4.106-8 of the Consolidated VAT Regulations of
2005, to read: Section 2. CHANGE OR CESSATION OF STATUS AS VAT-
REGISTERED PERSON. Sec. 4.106-8 of RR No. 16-2005 as amended by
“Sec. 4.106-8. Change or Cessation of Status as VAT-Registered RR No. 4-2007 is hereby further amended to read as follows:
Person:
(b) Not subject to output tax: “Sec.4.106-8. Change or Cessation of Status as VAT-Registered
VAT shall not apply to goods or properties which are originally Person.-
intended for sale or for use in the course of business, existing as the
occurrence of the following: xxx xxx xxx
1. Change of control of a corporation by acquisition of the
controlling interest by another stockholder, individual or (b) Not subject to output tax. –
corporate, or a group of stockholders.
- However, the exchange of goods or properties The VAT shall not apply to goods or properties which are originally
including the real estate properties used in the intended for sale or for use in the course of business existing as
business or held for sale or for lease by the the occurrence of the following:
transferor, for shares of stocks, whether resulting in
corporate control or not, is subject to VAT. (1) Change of control of a corporation by acquisition of the
2. Change in the trade or corporate name of the business. controlling interest of such corporation by another stockholder
3. Merger or consolidation of corporations. The unused (individual or corporate) or group of stockholders. The goods
input tax of the dissolved corporation, as of the date of or properties used in business (including those held for lease)
merger or consolidation, shall be absorbed by the or those comprising the stock in trade of the corporation having
surviving new corporation.” a change in corporate control will not be considered sold,
bartered, or exchanged despite the change in ownership
interest in the said corporation.
Revenue Regulations 10-2011 However, the exchange of goods or properties including the
real estate properties used in business or held for sale or for
Subject: Amending Certain Provisions of Revenue Regulations no. 16- lease by the transferor, for shares of stocks, whether resulting
2005 as amended by Revenue Regulations No. 4-2007, Otherwise Known in corporate control or not, is subject to VAT.
as the Consolidated Value-Added Tax Regulations of 2005, as amended.
(A) Invoicing Requirements. - A VAT-registered person shall issue:

Illustration: Abel Corporation (transferee) is a merchandising (1) A VAT invoice for every sale, barter or exchange of goods or
concern and has an inventory of goods for sale amounting to properties; and
Php 1 Million. Nel Corporation (transferor), a real estate (2) A VAT official receipt for every lease of goods or properties,
developer, exchanged its real properties for shares of stock of and for every sale, barter or exchange of services.
Abel Corporation resulting in the acquisition of corporate
control. The inventory of goods owned by Abel Corporation is (B) Information Contained in the VAT Invoice or VAT Official Receipt. -
not subject to output tax despite the change in corporate The following information shall be indicated in the VAT invoice or VAT
control because the same corporation still owns them. This is official receipt:
in recognition of the separate and distinct personality of the (1) A statement that the seller is a VAT-registered person,
corporation from its stockholders. However, the exchange of followed by his Taxpayer's Identification Number (TIN); and
real properties held for sale or lease by Nel Corporation, for (2) The total amount which the purchaser pays or is obligated to
the shares of stocks of Abel Corporation, whether resulting in pay to the seller with the indication that such amount includes the
corporate control or not, is subject to VAT. value-added tax. Provided, That:
(a) The amount of the tax shall be known as a separate item
(2) Change in the trade or corporate name of the business; in the invoice or receipt;
(3) Merger or consolidation of corporations. The unused input tax (b) If the sale is exempt from value-added tax, the term
of the dissolved corporation, as of the date of merger or "VAT-exempt sale: shall be written or printed prominently on the
consolidation, shall be absorbed by the surviving new invoice or receipt;
corporation.” (c) If the sale is subject to zero percent (0%) value-added
tax, the term "zero-rated sale" shall be written or printed
Section 3. REPEALING CLAUSE. The provisions of RR No. 16-2005, RR prominently on the invoice or receipt.
No. 14-2007 and all other issuances or portions thereof which are (d) If the sale involved goods, properties or services some of
inconsistent with the provisions of these Regulations are hereby repealed, which are subject to and some of which are VAT zero-rated or Vat
amended or modified accordingly. exempt, the invoice or receipt shall clearly indicate the break-
down of the sale price between its taxable, exempt and zero-rated
Section 4. EFFECTIVITY. These Regulations shall take effect components, and the calculation of the value-added tax on each
immediately. portion of the sale shall be known on the invoice or receipt:
Provided, That the seller may issue separate invoices or receipts
for the taxable, exempt, and zero-rated components of the sale.
ADMINISTRATIVE PROVISIONS
(3) The date of transaction, quantity, unit cost and description of
the goods or properties or nature of the service; and
SEC. 113. Invoicing and Accounting Requirements for VAT-
Registered Persons. – (4) In the case of sales in the amount of One thousand pesos
(P1,000) or more where the sale or transfer is made to a VAT- the period July 1, 2005 to December 31, 2005 in accordance with Bureau
registered person, the name, business style, if any, address and of Internal Revenue administrative practices that existed as of December
Taxpayer Identification Number (TIN) of the purchaser, customer 31, 2004.
or client.
SEC. 114. Return and Payment of Value-Added Tax. -
(C) Accounting Requirements. - Notwithstanding the provisions of Section
233, all persons subject to the value-added tax under Sections 106 and (A) In General. - Every person liable to pay the value-added tax imposed
108 shall, in addition to the regular accounting records required, maintain under this Title shall file a quarterly return of the amount of his gross sales
a subsidiary sales journal and subsidiary purchase journal on which the or receipts within twenty-five (25) days following the close of each taxable
daily sales and purchases are recorded. The subsidiary journals shall quarter prescribed for each taxpayer: Provided, however, That VAT-
contain such information as may be required by the Secretary of Finance. registered persons shall pay the value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with
(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official Section 236, shall file a return and pay the tax due thereon within twenty-
Receipt. - five (25) days from the date of cancellation of registration: Provided, That
(1) If a person who is not a VAT-registered persons issues an only one consolidated return shall be filed by the taxpayer for his principal
invoice or receipt showing his Taxpayer Identification Number place of business or head office and all branches.
(TIN), followed by the word "VAT";
(a) The issuer shall, in addition to any liability to other (B) Where to File the Return and Pay the Tax. - Except as the
percentage taxes, be liable to: Commissioner otherwise permits, the return shall be filed with and the tax
(i) The tax imposed in Section 106 or 108 without the paid to an authorized agent bank, Revenue Collection Officer or duly
benefit of any input tax credit; and authorized city or municipal Treasurer in the Philippines located within the
(ii) A 50% surcharge under Section 248(B) of this Code; revenue district where the taxpayer is registered or required to register.
(b) The VAT shall, if the other requisite information required
under Subsection (B) hereof is shown on the invoice or receipt, be (C) Withholding of Value-added Tax. - The Government or any of its
recognized as an input tax credit to the purchaser under Section political subdivisions, instrumentalities or agencies, including government-
110 of this Code. owned or -controlled corporations (GOCCs) shall, before making payment
on account of each purchase of goods and services which are f are
(2) If a VAT-registered person issues a VAT invoice or VAT subject to the value-added tax imposed in Sections 106 and 108 of this
official receipt for a VAT-exempt transaction, but fails to display Code, deduct and withhold the value-added tax imposed in Sections 106
prominently on the invoice or receipt the term 'VAT exempt sale', and 108 of this Code, deduct and withhold a final value-added tax at the
the issuer shall be liable to account for the tax imposed in section rate of five percent (5%) of the gross payment thereof: Provided, That the
106 or 108 as if Section 109 did not apply. payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of
(E) Transitional Period. - Notwithstanding Subsection (B) hereof, payment. For purposes of this Section, the payor or person in control of
taxpayers may continue to issue VAT invoices and VAT official receipt for the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within Coverage, Nature, Basis, and Rate of Value-Added Tax (VAT)
ten (10) days following the end of the month the withholding was made. SECTION 4.105-1. Persons Liable. — Any person who, in the course of his
trade or business, sells, barters, exchanges or leases goods or properties, or
SEC. 115. Power of the Commissioner to Suspend the Business renders services, and any person who imports goods, shall be liable to VAT
Operations of a Taxpayer. - The Commissioner or his authorized imposed in Secs. 106 to 108 of the Tax Code.
representative is hereby empowered to suspend the business operations However, in the case of importation of taxable goods, the importer, whether
and temporarily close the business establishment of any person for any of an individual or corporation and whether or not made in the course of his
the following violations: trade or business, shall be liable to VAT imposed in Sec. 107 of the Tax
Code.
(a) In the case of a VAT-registered Person. - "Person" refers to any individual, trust, estate, partnership, corporation, joint
(1) Failure to issue receipts or invoices; venture, cooperative or association.
(2) Failure to file a value-added tax return as required under "Taxable person" refers to any person liable for the payment of VAT, whether
Section 114; or registered or registrable in accordance with Sec. 236 of theTax Code.
(3) Understatement of taxable sales or receipts by thirty percent "VAT-registered person" refers to any person who is registered as a VAT
(30%) or more of his correct taxable sales or receipts for the taxpayer under Sec. 236 of the Tax Code.His status as a VAT-registered
taxable quarter. person shall continue until the cancellation of such registration.
"Taxable sale" refers to the sale, barter, exchange and/or lease of goods or
(b) Failure of any Person to Register as Required under Section 236. properties, including transactions "deemed sale" and the performance of
The temporary closure of the establishment shall be for the duration of not service for a consideration, whether in cash or in kind, all of which are
less than five (5) days and shall be lifted only upon compliance with subject to tax under Secs. 106 and 108 of the Tax Code.
whatever requirements prescribed by the Commissioner in the closure SECTION 4.105-2. Nature and Characteristics of VAT. — VAT is a tax on
order. consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into
the Philippines. The seller is the one statutorily liable for the payment of the
tax but the amount of the tax may be shifted or passed on to the buyer,
REVENUE REGULATIONS NO. 16-05 (Cualoping) transferee or lessee of the goods, properties or services. This rule shall
SUBJECT: Consolidated Value-Added Tax Regulations of 2005 likewise apply to existing contracts of sale or lease of goods, properties or
To: All internal Revenue Officers and Others Concerned services at the time of the effectivity of RA No. 9337. However, in the case of
importation, the importer is the one liable for the VAT.
Pursuant to the provisions of Secs. 244 and 245 of the National Internal SECTION 4.105-3. Meaning of "In the Course of Trade or Business". — The
Revenue Code of 1997, as last amended by Republic Act No. 9337 (Tax term "in the course of trade or business" means the regular conduct or
Code), in relation to Sec. 23 of the said Republic Act, these Regulations are pursuit of a commercial or economic activity, including transactions incidental
hereby promulgated to implement Title IV of the Tax Code,as well as other thereto, by any person regardless of whether or not the person engaged
provisions pertaining to Value-Added Tax (VAT). These Regulations therein is a non-stock, non-profit private organization (irrespective of the
supersedes Revenue Regulations No. 14-2005 dated June 22, 2005. disposition of its net income and whether or not it sells exclusively to
members or their guests), or government entity.
Non-resident persons who perform services in the Philippines are deemed to or otherwise) was executed prior to July 1, 2005, shall be subject to 10%
be making sales in the course of trade or business, even if the performance VAT.
of services is not regular.
"Sale of real property on installment plan" means sale of real property by a
SECTION 4.106-1. VAT on Sale of Goods or Properties. — VAT is imposed real estate dealer, the initial payments of which in the year of sale do not
and collected on every sale, barter or exchange, or transactions "deemed exceed twenty-five percent (25%) of the gross selling price.
sale" of taxable goods or properties at the rate of 10% of the gross selling
However, in the case of sale of real properties on the deferred-payment
price or gross value in money of the goods or properties sold, bartered, or
basis, not on the installment plan, the transaction shall be treated as cash
exchanged, or deemed sold in the Philippines.
sale which makes the entire selling price taxable in month of sale.
SECTION 4.106-2. Meaning of the Term "Goods or Properties". — The term
"Sale of real property by a real estate dealer on a deferred payment basis,
"goods or properties" refers to all tangible and intangible objects which are
not on the installment plan" means sale of real property, the initial payments
capable of pecuniary estimation and shall include, among others: HEISca
of which in the year of sale exceed twenty-five percent (25%) of the gross
(1) Real properties held primarily for sale to customers or held for lease in selling price.
the ordinary course of trade or business;
"Initial payments" means payment or payments which the seller receives
(2) The right or the privilege to use patent, copyright, design or model, plan, before or upon execution of the instrument of sale and payments which he
secret formula or process, goodwill, trademark, trade brand or other like expects or is scheduled to receive in cash or property (other than evidence of
property or right; indebtedness of the purchaser) during the year when the sale or disposition
of the real property was made. It covers any down payment made and
(3) The right or the privilege to use any industrial commercial or scientific
includes all payments actually or constructively received during the year of
equipment;
sale, the aggregate of which determines the limit set by law.
(4) The right or the privilege to use motion picture films, films, tapes and
Initial payments do not include the amount of mortgage on the real property
discs; and
sold except when such mortgage exceeds the cost or other basis of the
(5) Radio, television, satellite transmission and cable television time. property to the seller, in which case, the excess shall be considered part of
SECTION 4.106-3. "Sale of Real Properties". — Sale of real properties held the initial payments.
primarily for sale to customers or held for lease in the ordinary course of Also excluded from initial payments are notes or other evidence of
trade or business of the seller shall be subject to VAT. indebtedness issued by the purchaser to the seller at the time of the sale.
In the case of sale of real properties on the installment plan, the real estate Pre-selling of real estate properties by real estate dealers shall be subject to
dealer shall be subject to VAT on the installment payments, including interest VAT in accordance with rules prescribed above.
and penalties, actually and/or constructively received by the seller.
"Real estate dealer" includes any person engaged in the business of buying,
Sale of residential lot exceeding P1,500,000.00, residential house and lot or developing, selling, exchanging real properties as principal and holding
other residential dwellings exceeding P2,500,000.00, where the instrument of himself out as a full or part-time dealer in real estate.
sale (whether the instrument is nominated as a deed of absolute sale, deed
Transmission of property to a trustee shall not be subject to VAT if the
of conditional sale or otherwise) is executed on or after July 1, 2005, shall be
property is to be merely held in trust for the trustor and/or beneficiary.
subject to 10% VAT.
However, if the property transferred is one for sale, lease or use in the
Installment sale of residential house and lot or other residential dwellings ordinary course of trade or business and the transfer constitutes a completed
exceeding P1,000,000.00, where the instrument of sale (whether the gift, the transfer is subject to VAT as a deemed sale transaction pursuant to
instrument is nominated as a deed of absolute sale, deed of conditional sale Sec. 4.106-7(a)(1) of these Regulations. The transfer is a completed gift if
the transferor divests himself absolutely of control over the property, i.e., manufacturing, processing, packing or repacking in the Philippines of the
irrevocable transfer of corpus and/or irrevocable designation of beneficiary. said buyer's goods, paid for in acceptable foreign currency, and accounted
for in accordance with the rules and regulations of the BSP;
SECTION 4.106-4. Meaning of the Term "Gross Selling Price". — The term
"gross selling price" means the total amount of money or its equivalent which (3) The sale of raw materials or packaging materials to an export-oriented
the purchaser pays or is obligated to pay to the seller in consideration of the enterprise whose export sales exceed seventy percent (70%) of total annual
sale, barter or exchange of the goods or properties, excluding VAT. The production;
excise tax, if any, on such goods or properties shall form part of the gross
Any enterprise whose export sales exceed 70% of the total annual
selling price.
production of the preceding taxable year shall be considered an export-
In the case of sale, barter or exchange of real property subject to VAT, gross oriented enterprise.
selling price shall mean the consideration stated in the sales document or the
(4) Sale of gold to the BSP; and
fair market value whichever is higher. The term "fair market value" shall
mean whichever is the higher of: 1) the fair market value as determined by (5) Transactions considered export sales under Executive Order No. 226,
the Commissioner (zonal value), or 2) the fair market value as shown in otherwise known as the Omnibus Investments Code of 1987, and other
schedule of values of the Provincial and City Assessors (real property tax special laws.
declaration). However, in the absence of zonal value, gross selling price "Considered export sales under Executive Order No. 226" shall mean the
refers to the market value shown in the latest real property tax declaration or Philippine port F.O.B. value determined from invoices, bills of lading, inward
the consideration, whichever is higher. If the gross selling price is based on letters of credit, landing certificates, and other commercial documents, of
the zonal value or market value of the property, the zonal or market value export products exported directly by a registered export producer, or the net
shall be deemed inclusive of VAT. If the VAT is not billed separately, the selling price of export products sold by a registered export producer to
selling price stated in the sales document shall be deemed to be inclusive of another export producer, or to an export trader that subsequently exports the
VAT. same; Provided, That sales of export products to another producer or to an
SECTION 4.106-5. Zero-Rated Sales of Goods or Properties. — A zero- export trader shall only be deemed export sales when actually exported by
rated sale of goods or properties (by a VAT-registered person) is a taxable the latter, as evidenced by landing certificates or similar commercial
transaction for VAT purposes, but shall not result in any output tax. However, documents; Provided, further, That without actual exportation the following
the input tax on purchases of goods, properties or services, related to such shall be considered constructively exported for purposes of these provisions:
zero-rated sale, shall be available as tax credit or refund in accordance with (1) sales to bonded manufacturing warehouses of export-oriented
these Regulations. manufacturers; (2) sales to export processing zones; (3) sales to registered
export traders operating bonded trading warehouses supplying raw materials
The following sales by VAT-registered persons shall be subject to zero
in the manufacture of export products under guidelines to be set by the
percent (0%) rate:
Board in consultation with the Bureau of Internal Revenue (BIR) and the
(a) Export sales. — "Export Sales" shall mean: Bureau of Customs (BOC); (4) sales to diplomatic missions and other
agencies and/or instrumentalities granted tax immunities, of locally
(1) The sale and actual shipment of goods from the Philippines to a foreign
manufactured, assembled or repacked products whether paid for in foreign
country, irrespective of any shipping arrangement that may be agreed upon
currency or not.
which may influence or determine the transfer of ownership of the goods so
exported, paid for in acceptable foreign currency or its equivalent in goods or For purposes of zero-rating, the export sales of registered export traders
services, and accounted for in accordance with the rules and regulations of shall include commission income. The exportation of goods on consignment
the Bangko Sentral ng Pilipinas (BSP); cAHIaE shall not be deemed export sales until the export products consigned are in
fact sold by the consignee; and Provided, finally, that sales of goods,
(2) The sale of raw materials or packaging materials to a non-resident buyer
properties or services made by a VAT-registered supplier to a BOI-registered
for delivery to a resident local export-oriented enterprise to be used in
manufacturer/producer whose products are 100% exported are considered Regulations, transactions which, although not involving actual export, are
export sales. A certification to this effect must be issued by the Board of considered as "constructive export" shall be entitled to the benefit of zero-
Investment (BOI) which shall be good for one year unless subsequently re- rating, such as local sales of goods and properties to persons or entities
issued by the BOI. covered under pars. (a) no. (3) — (sale to export-oriented enterprises), (a)
no. (6) — (sale of goods, supplies, equipment and fuel to persons engaged
(6) The sale of goods, supplies, equipment and fuel to persons engaged in
in international shipping or international air transport operations), (b) (Foreign
international shipping or international air transport operations; Provided, That
Currency Denominated Sale) and (c) (Sales to Tax-Exempt Persons or
the same is limited to goods, supplies, equipment and fuel pertaining to or
Entities) of the preceding section.
attributable to the transport of goods and passengers from a port in the
Philippines directly to a foreign port without docking or stopping at any other Except for Export Sale under Sec. 4.106-5(a) and Foreign Currency
port in the Philippines; Provided, further, that if any portion of such fuel, Denominated Sale under Sec. 4.106-5(b), other cases of zero-rated sales
goods or supplies is used for purposes other than that mentioned in this shall require prior application with the appropriate BIR office for effective
paragraph, such portion of fuel, goods and supplies shall be subject to 10% zero-rating. Without an approved application for effective zero-rating, the
VAT. transaction otherwise entitled to zero-rating shall be considered exempt. The
foregoing rule notwithstanding, the Commissioner may prescribe such rules
(b) "Foreign Currency Denominated Sale". — "Foreign Currency
to effectively implement the processing of applications for effective zero-
Denominated Sale" means the sale to a non-resident of goods, except those
rating.
mentioned in Secs. 149 and 150 of the Tax Code,assembled or
manufactured in the Philippines for delivery to a resident in the Philippines, SECTION 4.106-7. Transactions Deemed Sale. —
paid for in acceptable foreign currency and accounted for in accordance with
(a) The following transactions shall be "deemed sale" pursuant to Sec. 106
the rules and regulations of the BSP.
(B) of the Tax Code:
Sales of locally manufactured or assembled goods for household and
(1) Transfer, use or consumption not in the course of business of goods or
personal use to Filipinos abroad and other non-residents of the Philippines
properties originally intended for sale or for use in the course of business.
as well as returning Overseas Filipinos under the Internal Export Program of
Transfer of goods or properties not in the course of business can take place
the government paid for in convertible foreign currency and accounted for in
when VAT-registered person withdraws goods from his business for his
accordance with the rules and regulations of the BSP shall also be
personal use;
considered export sales.
(2) Distribution or transfer to:
(c) "Sales to Persons or Entities Deemed Tax-exempt under Special Law or
International Agreement". — Sales of goods or property to persons or entities i. Shareholders or investors share in the profits of VAT-registered
who are tax-exempt under special laws, e.g. sales to enterprises duly person; DSAICa
registered and accredited with the Subic Bay Metropolitan Authority (SBMA) Property dividends which constitute stocks in trade or properties primarily
pursuant to R.A. No. 7227, sales to enterprises duly registered and held for sale or lease declared out of retained earnings on or after January 1,
accredited with the Philippine Economic Zone Authority (PEZA) or 1996 and distributed by the company to its shareholders shall be subject to
international agreements to which the Philippines is signatory, such as, Asian VAT based on the zonal value or fair market value at the time of distribution,
Development Bank (ADB), International Rice Research Institute (IRRI), etc., whichever is applicable.
shall be effectively subject to VAT at zero-rate.
ii. Creditors in payment of debt or obligation.
SECTION 4.106-6. Meaning of the Term "Effectively Zero-rated Sale of
Goods and Properties". — The term "effectively zero-rated sale of goods and (3) Consignment of goods if actual sale is not made within 60 days following
properties" shall refer to the local sale of goods and properties by a VAT- the date such goods were consigned. Consigned goods returned by the
registered person to a person or entity who was granted indirect tax consignee within the 60-day period are not deemed sold;
exemption under special laws or international agreement. Under these
(4) Retirement from or cessation of business with respect to all goods on engages instead in life insurance business or in any other business not
hand, whether capital goods, stock-in-trade, supplies or materials as of the subject to VAT;
date of such retirement or cessation, whether or not the business is
(2) Approval of a request for cancellation of registration due to reversion to
continued by the new owner or successor. The following circumstances shall,
exempt status.
among others, give rise to transactions "deemed sale" for purposes of this
Section; (3) Approval of a request for cancellation of registration due to a desire to
revert to exempt status after the lapse of three (3) consecutive years from
i. Change of ownership of the business. There is a change in the ownership
the time of registration by a person who voluntarily registered despite being
of the business when a single proprietorship incorporates; or the proprietor of
exempt under Sec. 109 (2) of theTax Code.
a single proprietorship sells his entire business.
(4) Approval of a request for cancellation of registration of one who
ii. Dissolution of a partnership and creation of a new partnership which takes
commenced business with the expectation of gross sales or receipts
over the business.
exceeding P1,500,000.00, but who failed to exceed this amount during the
(b) The Commissioner of Internal Revenue shall determine the appropriate first twelve months of operation.
tax base in cases where a transaction is deemed a sale, barter or exchange
(b) Not subject to output tax
of goods or properties under Sec. 4.106-7 paragraph (a) hereof, or where the
gross selling price is unreasonably lower than the actual market value. The The VAT shall not apply to goods or properties existing as of the occurrence
gross selling price is unreasonably lower than the actual market value if it is of the following:
lower by more than 30% of the actual market value of the same goods of the (1) Change of control of a corporation by the acquisition of the controlling
same quantity and quality sold in the immediate locality on or nearest the interest of such corporation by another stockholder or group of stockholders.
date of sale. The goods or properties used in business or those comprising the stock-in-
For transactions deemed sale, the output tax shall be based on the market trade of the corporation, having a change in corporate control, will not be
value of the goods deemed sold as of the time of the occurrence of the considered sold, bartered or exchanged despite the change in the ownership
transactions enumerated in Sec. 4.106-7(a)(1),(2), and (3) of these interest in the said corporation.
Regulations. However, in the case of retirement or cessation of business, the Illustration: Abel Corporation is a merchandising concern and has an
tax base shall be the acquisition cost or the current market price of the goods inventory of goods for sale amounting to Php1 million. Nel Corporation, a real
or properties, whichever is lower. estate developer, exchanged its real estate properties for the shares of
In the case of a sale where the gross selling price is unreasonably lower than stocks of Abel Corporation resulting to the acquisition of corporate control.
the fair market value, the actual market value shall be the tax base. The inventory of goods owned by Abel Corporation (Php1 million worth) is
not subject to output tax despite the change in corporate control because the
SECTION 4.106-8. Change or Cessation of Status as VAT-registered
same corporation still owns them. This is in recognition of the separate and
Person. —
distinct personality of the corporation from its stockholders. However, the
(a) Subject to output tax exchange of real estate properties held for sale or for lease, for shares of
stocks, whether resulting to corporate control or not, is subject to VAT. This
The VAT provided for in Sec. 106 of the Tax Code shall apply to goods or
is an actual exchange of properties which makes the transaction taxable.
properties originally intended for sale or use in business, and capital goods
which are existing as of the occurrence of the following: (2) Change in the trade or corporate name of the business;
(1) Change of business activity from VAT taxable status to VAT-exempt (3) Merger or consolidation of corporations. The unused input tax of the
status. An example is a VAT-registered person engaged in a taxable activity dissolved corporation, as of the date of merger or consolidation, shall be
like wholesaler or retailer who decides to discontinue such activity and absorbed by the surviving or new corporation.
SECTION 4.106-9. Allowable Deductions from Gross Selling Price. — In exempt persons or entities who acquire tax-free imported goods from exempt
computing the taxable base during the month or quarter, the following shall persons, entities or agencies.
be allowed as deductions from gross selling price:
(c) Sale, transfer or exchange of imported goods by tax-exempt persons. —
(a) Discounts determined and granted at the time of sale, which are In the case of goods imported into the Philippines by VAT-exempt persons,
expressly indicated in the invoice, the amount thereof forming part of the entities or agencies which are subsequently sold, transferred or exchanged
gross sales duly recorded in the books of accounts. in the Philippines to non-exempt persons or entities, the latter shall be
considered the importers thereof and shall be liable for VAT due on such
Sales discount indicated in the invoice at the time of sale, the grant of which
importation. The tax due on such importation shall constitute a lien on the
is not dependent upon the happening of a future event, may be excluded
goods, superior to all charges/or liens, irrespective of the possessor of said
from the gross sales within the same month/quarter it was given. ECSHID
goods.
(b) Sales returns and allowances for which a proper credit or refund was
SECTION 4.108-1. VAT on the Sale of Services and Use or Lease of
made during the month or quarter to the buyer for sales previously recorded
Properties. — Sale or exchange of services, as well as the use or lease of
as taxable sales.
properties, as defined in Sec. 108 (A) of the Tax Code shall be subject to
SECTION 4.107-1. VAT on Importation of Goods. — VAT, equivalent to 10% of the gross receipts (excluding VAT).
(a) In general. — VAT is imposed on goods brought into the Philippines, SECTION 4.108-2. Meaning of "Sale or Exchange of Services". — The term
whether for use in business or not. The tax shall be based on the total value "sale or exchange of services" means the performance of all kind of services
used by the BOC in determining tariff and customs duties, plus customs in the Philippines for others for a fee, remuneration or consideration, whether
duties, excise tax, if any, and other charges, such as postage, commission, in kind or in cash, including those performed or rendered by the following:
and similar charges, prior to the release of the goods from customs custody.
(1) construction and service contractors;
In case the valuation used by the BOC in computing customs duties is based
(2) stock, real estate, commercial, customs and immigration brokers;
on volume or quantity of the imported goods, the landed cost shall be the
basis for computing VAT. Landed cost consists of the invoice amount, (3) lessors of property, whether personal or real;
customs duties, freight, insurance and other charges. If the goods imported
(4) persons engaged in warehousing services;
are subject to excise tax, the excise tax shall form part of the tax base.
(5) lessors or distributors of cinematographic films;
The same rule applies to technical importation of goods sold by a person
located in a Special Economic Zone to a customer located in a customs (6) persons engaged in milling, processing, manufacturing or repacking
territory. goods for others;
No VAT shall be collected on importation of goods which are specifically (7) proprietors, operators, or keepers of hotels, motels, rest houses, pension
exempted under Sec. 109 (1) of the Tax Code. houses, inns, resorts, theaters, and movie houses;
(b) Applicability and payment. — The rates prescribed under Sec. 107 (A) of (8) proprietors or operators of restaurants, refreshment parlors, cafes and
the Tax Code shall be applicable to all importations withdrawn from customs other eating places, including clubs and caterers;
custody. (9) dealers in securities;
The VAT on importation shall be paid by the importer prior to the release of (10) lending investors;
such goods from customs custody.
(11) transportation contractors on their transport of goods or cargoes,
"Importer" refers to any person who brings goods into the Philippines, including persons who transport goods or cargoes for hire and other
whether or not made in the course of his trade or business. It includes non- domestic common carriers by land relative to their transport of goods or
cargoes;
(12) common carriers by air and sea relative to their transport of passengers, (8) The lease or the use of, or the right to use, radio, television, satellite
goods or cargoes from one place in the Philippines to another place in the transmission and cable television time.
Philippines;
SECTION 4.108-3. Definitions and Specific Rules on Selected Services. —
(13) sales of electricity by generation, transmission, and/or distribution
a. Lessors of Property. — All forms of property for lease, whether real or
companies;
personal, are liable to VAT subject to the provisions of Sec. 4.109-1(B)(1)(v)
(14) franchise grantees of electric utilities, telephone and telegraph, radio of these Regulations.
and/or television broadcasting and all other franchise grantees, except
"Real estate lessor" includes any person engaged in the business of leasing
franchise grantees of radio and/or television broadcasting whose annual
or subleasing real property.
gross receipts of the preceding year do not exceed Ten Million Pesos
(P10,000,000.00), and franchise grantees of gas and water utilities; Lease of property shall be subject to VAT regardless of the place where the
contract of lease or licensing agreement was executed if the property leased
(15) non-life insurance companies (except their crop insurances), including
or used is located in the Philippines.
surety, fidelity, indemnity and bonding companies; and
VAT on rental and/or royalties payable to non-resident foreign corporations
(16) similar services regardless of whether or not the performance thereof
or owners for the sale of services and use or lease of properties in the
calls for the exercise or use of the physical or mental faculties.
Philippines shall be based on the contract price agreed upon by the licensor
The phrase "sale or exchange of services" shall likewise include: and the licensee. The licensee shall be responsible for the payment of VAT
on such rentals and/or royalties in behalf of the non-resident foreign
(1) The lease or the use of or the right or privilege to use any copyright,
corporation or owner in the manner prescribed in Sec. 4.114-2(b) hereof.
patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right; "Non-resident lessor/owner" refers to any person, natural or juridical, an
alien, or a citizen who establishes to the satisfaction of the Commissioner of
(2) The lease or the use of, or the right to use any industrial, commercial or
Internal Revenue the fact of his physical presence abroad with a definite
scientific equipment;
intention to reside therein, and who owns/leases properties, real or personal,
(3) The supply of scientific, technical industrial or commercial knowledge or whether tangible or intangible, located in the Philippines.
information; cACEaI
In a lease contract, the advance payment by the lessee may be:
(4) The supply of any assistance that is ancillary and subsidiary to and is
(i) a loan to the lessor from the lessee, or
furnished as a means of enabling the application or enjoyment of any such
property, or right as is mentioned in subparagraph (2) hereof or any such (ii) an option money for the property, or
knowledge or information as is mentioned in subparagraph (3) hereof;
(iii) a security deposit to insure the faithful performance of certain obligations
(5) The supply of services by a non-resident person or his employee in of the lessee to the lessor, or
connection with the use of property or rights belonging to, or the installation
(iv) pre-paid rental.
or operation of any brand, machinery or other apparatus purchased from
such nonresident person; If the advance payment is actually a loan to the lessor, or an option money
for the property, or a security deposit for the faithful performance of certain
(6) The supply of technical advice, assistance or services rendered in
obligations of the lessee, such advance payment is not subject to VAT.
connection with technical management or administration of any scientific,
However, a security deposit that is applied to rental shall be subject to VAT
industrial or commercial undertaking, venture, project or scheme;
at the time of its application.
(7) The lease of motion picture films, films, tapes, and discs; and
If the advance payment constitutes a pre-paid rental, then such payment is power or fuel generated through renewable sources of energy such as, but
taxable to the lessor in the month when received, irrespective of the not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy,
accounting method employed by the lessor. and other emerging energy sources using technologies such as fuel cells
and hydrogen fuels shall be subject to 0% VAT. ICAcaH
(b) "Warehousing service" means rendering personal services of a
warehouseman such as: "Generation companies" refers to persons or entities authorized by the
Energy Regulatory Commission (ERC) to operate facilities used in the
(1) engaging in the business of receiving and storing goods of others for
generation of electricity. For this purpose, generation of electricity refers to
compensation or profit;
the production of electricity by a generation company or a co-generation
(2) receiving goods and merchandise to be stored in his warehouse for hire; facility pursuant to the provisions of the RA No. 9136 (EPIRA). They shall
or include all Independent Power Producers (IPPs) and NPC/Power Sector
(3) keeping and storing goods for others, as a business and for use. Assets and Liabilities Management Corporation (PSALM)-owned generation
facilities.
(c) A miller, who is a person engaged in milling for others (except palay into
rice, corn into corn grits, and sugarcane into raw sugar), is subject to VAT on "Transmission companies" refers to any person or entity that owns and
sale of services. If the miller is paid in cash for his services, VAT shall be conveys electricity through the high voltage backbone system and/or
based on his gross receipts for the month or quarter. If he receives a share subtransmission assets, e.g. NPC or TRANSCO. 'Subtransmission assets'
of the milled products instead of cash, VAT shall be based on the actual shall refer to the facilities related to the power delivery service below the
market value of his share in the milled products. Sale by the owner or the transmission voltages and based on the functional assignment of asset
miller of his share of the milled product (except rice, corn grits and raw including, but not limited to step-down transformers used solely by load
sugar) shall be subject to VAT. customers, associated switchyard/substation, control and protective
equipment, reactive compensation equipment to improve power factor,
(d) All receipts from service, hire, or operating lease of transportation overhead lines, and the land where such facilities/equipments are located.
equipment not subject to the percentage tax on domestic common carriers These include NPC assets linking the transmission system and the
and keepers of garages imposed under Sec. 117 of the Tax Code shall be distribution system which are neither classified as generation or
subject to VAT. transmission.
"Common carrier" refers to persons, corporations, firms or associations "Distribution companies" refer to persons or entities which operate a
engaged in the business of carrying or transporting passengers or goods or distribution system in accordance with the provisions of the EPIRA. They
both, by land, water, or air, for compensation, offering their services to the shall include any distribution utility such as an electric cooperative organized
public and shall include transportation contractors. pursuant to Presidential Decree No. 269, as amended, and/or under RA No.
Common carriers by land with respect to their gross receipts from the 6938, or as otherwise provided in the EPIRA, a private corporation, or a
transport of passengers including operators of taxicabs, utility cars for rent or government-owned utility or existing local government unit which has an
hire driven by the lessees (rent-a-car companies), and tourist buses used for exclusive franchise to operate a distribution system in accordance with
the transport of passengers shall be subject to the percentage tax imposed the EPIRA.
under Sec. 117 of the Tax Code,but shall not be liable for VAT. For this purpose, a distribution system refers to the system of wires and
(e) Domestic common carriers by air and sea are subject to 10% VAT on associated facilities belonging to a franchised distribution utility extending
their gross receipts from their transport of passengers, goods or cargoes between the delivery points on the transmission or subtransmission system
from one place in the Philippines to another place in the Philippines. or generator connection and the point of connection to the premises of the
end-users.
(f) Sale of electricity by generation, transmission, and distribution companies
shall be subject to 10% VAT on their gross receipts;Provided, That sale of "Gross Receipts" under this Subsection (f) shall refer to the following:
(a) Total amount charged by generation companies for the sale of electricity Code.This includes among others, the Philippine and Amusement Gaming
and related ancillary services; and/or Corporation (PAGCOR), and its licensees or franchisees.
(b) Total amount charged by transmission companies for transmission of Franchise grantees of telephone and telegraph shall be subject to VAT on
electricity and related ancillary services; and/or their gross receipts derived from their telephone, telegraph, telewriter
exchange, wireless and other communication equipment services. However,
(c) Total amount charged by distribution companies and electric cooperatives
amounts received for overseas dispatch, message, or conversation
for distribution and supply of electricity, and related electric service. The
originating from the Philippines are subject to the percentage tax under Sec.
universal charge passed on and collected by distribution companies and
120 of the Tax Code and hence exempt from VAT.
electric cooperatives shall be excluded from the computation of the Gross
Receipts. (i) Non-life insurance companies including surety, fidelity, indemnity and
bonding companies are subject to VAT. They are not liable to the payment of
(g) Dealers in securities and lending investors shall be subject to VAT on the
the premium tax under Sec. 123 of the Tax Code.
basis of their gross receipts. However, for Dealer in Securities, the term
"gross receipts" means gross selling price less cost of the securities sold. "Non-life insurance companies" including surety, fidelity, indemnity and
bonding companies, shall include all individuals, partnerships, associations,
"Dealer in securities" means a merchant of stock or securities, whether an
or corporations, including professional reinsurers defined in Sec. 280 of PD
individual partnership or corporation, with an established place of business,
612, otherwise known as The Insurance Code of the Philippines, mutual
regularly engaged in the purchase of securities and their resale to
benefit associations and government-owned or controlled corporations,
customers, that is, one who as a merchant buys securities and sells them to
engaging in the business of property insurance, as distinguished from
customers with a view to the gains and profits that may be derived therefrom.
insurance on human lives, health, accident and insurance appertaining
"Lending investor" includes all persons other than banks, non-bank financial thereto or connected therewith which shall be subject to the percentage tax
intermediaries, finance companies and other financial intermediaries not under Sec. 123 of the Tax Code.
performing quasi-banking functions who make a practice of lending money
The gross receipts from non-life insurance shall mean total premiums
for themselves or others at interest.
collected, whether paid in money, notes, credits or any substitute for money.
(h) Services of franchise grantees of telephone and telegraph, radio and/or
Non-life reinsurance premiums are subject to VAT. Insurance and
television broadcasting, toll road operations and all other franchise grantees,
reinsurance commissions, whether life or non-life, are subject to VAT.
except gas and water utilities, shall be subject to VAT in lieu of franchise tax,
pursuant to Sec. 20 of RA No. 7716, as amended. However, franchise VAT due from the foreign reinsurance company is to be withheld by the local
grantees of radio and/or television broadcasting whose annual gross receipts insurance company and to be remitted to the BIR in accordance with Sec.
of the preceding year do not exceed Ten Million Pesos (P10,000,000.00) 4.114-2(b)(2) hereof by filing the Monthly Remittance Return of Value-Added
shall not be subject to VAT, but to the three percent (3%) franchise tax Tax Withheld (BIR Form 1600).
imposed under Sec. 119 of the Tax Code,subject to the optional registration
(j) Pre-need Companies are corporations registered with the Securities and
provisions under Sec. 9.236-1(c) hereof.
Exchange Commission and authorized/licensed to sell or offer for sale pre-
Likewise, franchise grantees of gas and water utilities shall be subject to two need plans, whether a single plan or multi-plan. They are engaged in
percent (2%) franchise tax on their gross receipts derived from the business business as seller of services providing services to plan holders by managing
covered by the law granting the franchise pursuant to Sec. 119 of the Tax the funds provided by them and making payments at the time of need or
Code. maturity of the contract. DEIHSa
Gross receipts of all other franchisees, other than those covered by Sec. 119 As service providers, the compensation for their services is the premiums or
of the Tax Code,regardless of how their franchises may have been granted, payments received from the plan holders.
shall be subject to the 10% VAT imposed under Sec. 108 of the Tax
(k) Health Maintenance Organizations (HMOs) are entities, organized in (1) Processing, manufacturing or repacking goods for other persons doing
accordance with the provisions of the Corporation Code of the Philippines business outside the Philippines, which goods are subsequently exported,
and licensed by the appropriate government agency, which arranges for where the services are paid for in acceptable foreign currency and accounted
coverage or designated managed care services needed by plan for in accordance with the rules and regulations of the BSP;
holders/members for fixed prepaid membership fees and for a specified
(2) Services other than processing, manufacturing or repacking rendered to a
period of time.
person engaged in business conducted outside the Philippines or to a non-
HMO's gross receipts shall be the total amount of money or its equivalent resident person not engaged in business who is outside the Philippines when
representing the service fee actually or constructively received during the the services are performed, the consideration for which is paid for in
taxable period for the services performed or to be performed for another acceptable foreign currency and accounted for in accordance with the rules
person, excluding the value-added tax. The compensation for their services and regulations of the BSP;
representing their service fee, is presumed to be the total amount received
(3) Services rendered to persons or entities whose exemption under special
as enrollment fee from their members plus other charges received.
laws or international agreements to which the Philippines is a signatory
SECTION 4.108-4. Definition of Gross Receipts. — "Gross receipts" refers to effectively subjects the supply of such services to zero percent (0%) rate;
the total amount of money or its equivalent representing the contract price,
(4) Services rendered to persons engaged in international shipping or air
compensation, service fee, rental or royalty, including the amount charged
transport operations, including leases of property for use thereof; Provided,
for materials supplied with the services and deposits applied as payments for
however, that the services referred to herein shall not pertain to those made
services rendered and advance payments actually or constructively received
to common carriers by air and sea relative to their transport of passengers,
during the taxable period for the services performed or to be performed for
goods or cargoes from one place in the Philippines to another place in the
another person, excluding VAT.
Philippines, the same being subject to 10% VAT under Sec. 108 of the Tax
"Constructive receipt" occurs when the money consideration or its equivalent Code;
is placed at the control of the person who rendered the service without
(5) Services performed by subcontractors and/or contractors in processing,
restrictions by the payor. The following are examples of constructive receipts:
converting, or manufacturing goods for an enterprise whose export sales
(1) deposit in banks which are made available to the seller of services exceed seventy percent (70%) of the total annual production;
without restrictions;
(6) Transport of passengers and cargo by domestic air or sea carriers from
(2) issuance by the debtor of a notice to offset any debt or obligation and the Philippines to a foreign country. Gross receipts of international air
acceptance thereof by the seller as payment for services rendered; and carriers doing business in the Philippines and international sea carriers doing
business in the Philippines are still liable to a percentage tax of three percent
(3) transfer of the amounts retained by the payor to the account of the
(3%) based on their gross receipts as provided for in Sec. 118 of the Tax
contractor.
Code but shall not to be liable to VAT; and
SECTION 4.108-5. Zero-Rated Sale of Services. —
(7) Sale of power or fuel generated through renewable sources of energy
(a) In general. — A zero-rated sale of service (by a VAT-registered person) is such as, but not limited to, biomass, solar, wind, hydropower, geothermal
a taxable transaction for VAT purposes, but shall not result in any output tax. and steam, ocean energy, and other emerging sources using technologies
However, the input tax on purchases of goods, properties or services related such as fuel cells and hydrogen fuels; Provided, however,that zero-rating
to such zero-rated sale shall be available as tax credit or refund in shall apply strictly to the sale of power or fuel generated through renewable
accordance with these Regulations. sources of energy, and shall not extend to the sale of services related to the
(b) Transactions Subject to Zero Percent (0%) VAT Rate. — The following maintenance or operation of plants generating said power.
services performed in the Philippines by a VAT-registered person shall be SECTION 4.108-6. Effectively Zero-Rated Sale of Services. The term
subject to zero percent (0%) VAT rate: "effectively zero-rated sales of services" shall refer to the local sale of
services by a VAT-registered person to a person or entity who was granted such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other
indirect tax exemption under special laws or international agreement. Under similar packaging methods.
these Regulations, effectively zero-rated sale of services shall be limited to
Polished and/or husked rice, corn grits, raw cane sugar and molasses,
local sales to persons or entities that enjoy exemptions from indirect taxes
ordinary salt and copra shall be considered as agricultural food products in
under subparagraph (b) nos. (3), (4) and (5) of this Section. The concerned
their original state.
taxpayer must seek prior approval or prior confirmation from the appropriate
offices of the BIR so that a transaction is qualified for effective zero-rating. Sugar whose content of sucrose by weight, in the dry state, has a
Without an approved application for effective zero-rating, the transaction polarimeter reading of 99.5º and above are presumed to be refined sugar.
otherwise entitled to zero-rating shall be considered exempt. The foregoing Cane sugar produced from the following shall be presumed, for internal
rule notwithstanding, the Commissioner may prescribe such rules to revenue purposes, to be refined sugar:
effectively implement the processing of applications for effective zero-rating.
(1) product of a refining process,
SECTION 4.109-1. VAT-Exempt Transactions. —
(2) products of a sugar refinery, or
(A) In general. — "VAT-exempt transactions" refer to the sale of goods or
properties and/or services and the use or lease of properties that is not (3) product of a production line of a sugar mill accredited by the BIR to be
subject to VAT (output tax) and the seller is not allowed any tax credit of VAT producing and/or capable of producing sugar with polarimeter reading of
(input tax) on purchases. 99.5o and above, and for which the quedan issued therefor, and verified by
the Sugar Regulatory Administration, identifies the same to be of a
The person making the exempt sale of goods, properties or services shall not polarimeter reading of 99.5º and above.
bill any output tax to his customers because the said transaction is not
subject to VAT. DITEAc Bagasse is not included in the exemption provided for under this section.
(B) Exempt transactions. — (b) Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish,
prawn, livestock and poultry feeds, including ingredients, whether locally
(1) Subject to the provisions of Subsection (2) hereof, the following produced or imported, used in the manufacture of finished feeds (except
transactions shall be exempt from VAT: specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals
(a) Sale or importation of agricultural and marine food products in their and other animals generally considered as pets);
original state, livestock and poultry of a kind generally used as, or yielding or "Specialty feeds" refers to non-agricultural feeds or food for race horses,
producing foods for human consumption; and breeding stock and genetic fighting cocks, aquarium fish, zoo animals and other animals generally
materials therefor. considered as pets.
Livestock shall include cows, bulls and calves, pigs, sheep, goats and (c) Importation of personal and household effects belonging to residents of
rabbits. Poultry shall include fowls, ducks, geese and turkey. Livestock or the Philippines returning from abroad and non-resident citizens coming to
poultry does not include fighting cocks, race horses, zoo animals and other resettle in the Philippines; Provided, that such goods are exempt from
animals generally considered as pets. customs duties under the Tariff and Customs Code of the Philippines;
Marine food products shall include fish and crustaceans, such as, but not (d) Importation of professional instruments and implements, wearing apparel,
limited to, eels, trout, lobster, shrimps, prawns, oysters, mussels and clams. domestic animals, and personal household effects (except any vehicle,
Meat, fruit, fish, vegetables and other agricultural and marine food products vessel, aircraft, machinery and other goods for use in the manufacture and
classified under this paragraph shall be considered in their original date even merchandise of any kind in commercial quantity) belonging to persons
if they have undergone the simple processes of preparation or preservation coming to settle in the Philippines, for their own use and not for sale, barter
for the market, such as freezing, drying, salting, broiling, roasting, smoking or or exchange, accompanying such persons, or arriving within ninety (90) days
stripping, including those using advanced technological means of packaging, before or after their arrival, upon the production of evidence satisfactory to
the Commissioner of Internal Revenue, that such persons are actually "Agricultural contract growers" refers to those persons producing for others
coming to settle in the Philippines and that the change of residence is poultry, livestock or other agricultural and marine food products in their
bonafide; original state.
(e) Services subject to percentage tax under Title V of the Tax Code,as (g) Medical, dental, hospital and veterinary services, except those rendered
enumerated below: by professionals.
(1) Sale or lease of goods or properties or the performance of services of Laboratory services are exempted. If the hospital or clinic operates a
non-VAT-registered persons, other than the transactions mentioned in pharmacy or drug store, the sale of drugs and medicine is subject to VAT.
paragraphs (A) to (U) of Sec. 109(1) of the Tax Code,the gross annual sales
(h) Educational services rendered by private educational institutions duly
and/or receipts of which does not exceed the amount of One Million Five
accredited by the Department of Education (DepED), the Commission on
Hundred Thousand Pesos (P1,500,000.00); Provided, That not later than
Higher Education (CHED) and the Technical Education and Skills
January 31, 2009 and every three (3) years thereafter, the amount herein
Development Authority (TESDA) and those rendered by government
stated shall be adjusted to its present value using the Consumer Price Index,
educational institutions;
as published by the National Statistics Office (NSO) (Sec. 116 of the Tax
Code); "Educational services" shall refer to academic, technical or vocational
education provided by private educational institutions duly accredited by the
(2) Services rendered by domestic common carriers by land, for the transport
DepED, the CHED and TESDA and those rendered by government
of passengers and keepers of garages (Sec. 117);
educational institutions and it does not include seminars, in-service training,
(3) Services rendered by international air/shipping carriers (Sec. 118); review classes and other similar services rendered by persons who are not
accredited by the DepED, the CHED and/or the TESDA;
(4) Services rendered by franchise grantees of radio and/or television
broadcasting whose annual gross receipts of the preceding year do not (i) Services rendered by individuals pursuant to an employer-employee
exceed Ten Million Pesos (P10,000,000.00), and by franchise grantees of relationship;
gas and water utilities (Sec. 119);
(j) Services rendered by regional or area headquarters established in the
(5) Service rendered for overseas dispatch, message or conversation Philippines by multinational corporations which act as supervisory,
originating from the Philippines (Sec. 120); communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia Pacific Region and do not earn or derive income from
(6) Services rendered by any person, company or corporation (except purely
the Philippines;
cooperative companies or associations) doing life insurance business of any
sort in the Philippines (Sec. 123); (k) Transactions which are exempt under international agreements to which
the Philippines is a signatory or under special laws except those granted
(7) Services rendered by fire, marine or miscellaneous insurance agents of
under PD No. 529 — Petroleum Exploration Concessionaires under the
foreign insurance companies (Sec. 124); TESDcA
Petroleum Act of 1949; and
(8) Services of proprietors, lessees or operators of cockpits, cabarets, night
(l) Sales by agricultural cooperatives duly registered and in good standing
or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and
with the Cooperative Development Authority (CDA) to their members, as well
race tracks (Sec. 125); and
as sale of their produce, whether in its original state or processed form, to
(9) Receipts on sale, barter or exchange of shares of stock listed and traded non-members; their importation of direct farm inputs, machineries and
through the local stock exchange or through initial public offering (Sec. 127). equipment, including spare parts thereof, to be used directly and exclusively
(f) Services by agricultural contract growers and milling for others of palay in the production and/or processing of their produce;
into rice, corn into grits, and sugar cane into raw sugar;
(m) Gross receipts from lending activities by credit or multi-purpose Housing Act of 1992" and RA No. 7835 and RA No. 8763. "Socialized
cooperatives duly registered and in good standing with the Cooperative housing" shall also refer to projects intended for the underprivileged and
Development Authority, homeless wherein the housing package selling price is within the lowest
interest rates under the Unified Home Lending Program (UHLP) or any
(n) Sales by non-agricultural, non-electric and non-credit cooperatives duly
equivalent housing program of the Government, the private sector or non-
registered with and in good standing with the CDA; Provided, That the share
government organizations. TcSICH
capital contribution of each member does not exceed Fifteen Thousand
Pesos (P15,000.00) and regardless of the aggregate capital and net surplus (4) Sale of residential lot valued at One Million Five Hundred Thousand
ratably distributed among the members. Pesos (P1,500,000.00) and below, or house & lot and other residential
dwellings valued at Two Million Five Hundred Thousand Pesos
Importation by non-agricultural, non-electric and non-credit cooperatives of
(P2,500,000.00) and below where the instrument of sale/transfer/disposition
machineries and equipment, including spare parts thereof, to be used by
was executed on or after July 1, 2005; Provided, That not later than January
them are subject to VAT.
31, 2009 and every three (3) years thereafter, the amounts stated herein
(o) Export sales by persons who are not VAT-registered; shall be adjusted to its present value using the Consumer Price Index, as
(p) The following sales of real properties are exempt from VAT, namely: published by the National Statistics Office (NSO); Provided, further, that such
adjustment shall be published through revenue regulations to be issued not
(1) Sale of real properties not primarily held for sale to customers or held for later than March 31 of each year;
lease in the ordinary course of trade or business.
If two or more adjacent residential lots are sold or disposed in favor of one
(2) Sale of real properties utilized for low-cost housing as defined by RA No. buyer, for the purpose of utilizing the lots as one residential lot, the sale shall
7279, otherwise known as the "Urban Development and Housing Act of be exempt from VAT only if the aggregate value of the lots do not exceed
1992" and other related laws, such as RA No. 7835 and RA No. 8763. P1,500,000.00. Adjacent residential lots, although covered by separate titles
"Low-cost housing" refers to housing projects intended for homeless low- and/or separate tax declarations, when sold or disposed to one and the
income family beneficiaries, undertaken by the Government or private same buyer, whether covered by one or separate Deed of Conveyance, shall
developers, which may either be a subdivision or a condominium registered be presumed as a sale of one residential lot.
and licensed by the Housing and Land Use Regulatory Board/Housing (q) Lease of residential units with a monthly rental per unit not exceeding Ten
(HLURB) under BP Blg. 220, PD No. 957 or any other similar law, wherein Thousand Pesos (P10,000.00), regardless of the amount of aggregate
the unit selling price is within the selling price ceiling per unit of P750,000.00 rentals received by the lessor during the year; Provided, that not later than
under RA No. 7279, otherwise known as the "Urban Development and January 31, 2009 and every three (3) years thereafter, the amount of
Housing Act of 1992" and other laws, such as RA No. 7835 and RA No. P10,000.00 shall be adjusted to its present value using the Consumer Price
8763. Index, as published by the NSO;
(3) Sale of real properties utilized for socialized housing as defined under RA The foregoing notwithstanding, lease of residential units where the monthly
No. 7279, and other related laws, such as RA No. 7835and RA No. 8763, rental per unit exceeds Ten Thousand Pesos (P10,000.00) but the aggregate
wherein the price ceiling per unit is P225,000.00 or as may from time to time of such rentals of the lessor during the year do not exceed One Million Five
be determined by the HUDCC and the NEDA and other related laws. Hundred Pesos (P1,500,000.00) shall likewise be exempt from VAT,
"Socialized housing" refers to housing programs and projects covering however, the same shall be subjected to three percent (3%) percentage tax.
houses and lots or home lots only undertaken by the Government or the In cases where a lessor has several residential units for lease, some are
private sector for the underprivileged and homeless citizens which shall leased out for a monthly rental per unit of not exceeding P10,000.00 while
include sites and services development, long-term financing, liberated terms others are leased out for more than P10,000.00 per unit, his tax liability will
on interest payments, and such other benefits in accordance with the be as follows:
provisions of RA No. 7279, otherwise known as the "Urban Development and
1. The gross receipts from rentals not exceeding P10,000.00 per month per port without stopping at any other port in the Philippines; Provided, further,
unit shall be exempt from VAT regardless of the aggregate annual gross that if any portion of such fuel, goods or supplies is used for purposes other
receipts. than that mentioned in this paragraph, such portion of fuel, goods and
supplies shall be subject to 10% VAT;
2. The gross receipts from rentals exceeding P10,000.00 per month per unit
shall be subject to VAT if the aggregate annual gross receipts from said units (u) Services of banks, non-bank financial intermediaries performing quasi-
only (not including the gross receipts from units leased for not more than banking functions, and other non-bank financial intermediaries subject to
P10,000.00) exceeds P1,500,000.00. Otherwise, the gross receipts will be percentage tax under Secs. 121 and 122 of the Tax Code,such as money
subject to the 3% tax imposed under Section 116 of the Tax Code. changers and pawnshops; and
The term 'residential units' shall refer to apartments and houses & lots used (v) Sale or lease of goods or properties or the performance of services other
for residential purposes, and buildings or parts or units thereof used solely as than the transactions mentioned in the preceding paragraphs, the gross
dwelling places (e.g., dormitories, rooms and bed spaces) except motels, annual sales and/or receipts do not exceed the amount of One Million Five
motel rooms, hotels and hotel rooms. Hundred Thousand Pesos (P1,500,000.00); Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the amount of
The term 'unit' shall mean an apartment unit in the case of apartments,
P1,500,000.00 shall be adjusted to its present value using the Consumer
house in the case of residential houses; per person in the case of
Price Index, as published by the NSO. AHcCDI
dormitories, boarding houses and bed spaces; and per room in case of
rooms for rent. For purposes of the threshold of P1,500,000.00, the husband and the wife
shall be considered separate taxpayers. However, the aggregation rule for
(r) Sale, importation, printing or publication of books and any newspaper,
each taxpayer shall apply. For instance, if a professional, aside from the
magazine, review, or bulletin which appears at regular intervals with fixed
practice of his profession, also derives revenue from other lines of business
prices for subscription and sale and which is not devoted principally to the
which are otherwise subject to VAT, the same shall be combined for
publication of paid advertisements;
purposes of determining whether the threshold has been exceeded. Thus,
(s) Sale, importation or lease of passenger or cargo vessels and aircraft, the VAT-exempt sales shall not be included in determining the threshold.
including engine, equipment and spare parts thereof for domestic or
SECTION 4.109-2. A VAT-registered person may, in relation to Sec. 9.236-
international transport operations; Provided, that the exemption from VAT on
1(c) of these Regulations, elect that the exemption in Subsection (1) hereof
the importation and local purchase of passenger and/or cargo vessels shall
shall not apply to his sales of goods or properties or services. Once the
be limited to those of one hundred fifty (150) tons and above, including
election is made, it shall be irrevocable for a period of three (3) years
engine and spare parts of said vessels; Provided, further, that the vessels to
counted from the quarter when the election was made.
be imported shall comply with the age limit requirement, at the time of
acquisition counted from the date of the vessel's original commissioning, as SECTION 4.110-1. Credits For Input Tax. — "Input tax" means the VAT due
follows: (i) for passenger and/or cargo vessels, the age limit is fifteen (15) on or paid by a VAT-registered person on importation of goods or local
years old, (ii) for tankers, the age limit is ten (10) years old, and (iii) For high- purchases of goods, properties, or services, including lease or use of
speed passenger crafts, the age limit is five (5) years old; Provided, finally, properties, in the course of his trade or business. It shall also include the
that exemption shall be subject to the provisions of Section 4 of Republic Act transitional input tax and the presumptive input tax determined in accordance
No. 9295, otherwise known as "The Domestic Shipping Development Act of with Sec. 111 of the Tax Code.
2004";
It includes input taxes which can be directly attributed to transactions subject
(t) Importation of fuel, goods and supplies by persons engaged in to the VAT plus a ratable portion of any input tax which cannot be directly
international shipping or air transport operations; Provided, that the said fuel, attributed to either the taxable or exempt activity.
goods and supplies shall be used exclusively or shall pertain to the transport
of goods and/or passenger from a port in the Philippines directly to a foreign
Any input tax on the following transactions evidenced by a VAT invoice or (a) If the estimated useful life of a capital good is five (5) years or more —
official receipt issued by a VAT-registered person in accordance with Secs. The input tax shall be spread evenly over a period of sixty (60) months and
113 and 237 of the Tax Code shall be creditable against the output tax: the claim for input tax credit will commence in the calendar month when the
capital good is acquired. The total input taxes on purchases or importations
(a) Purchase or importation of goods
of this type of capital goods shall be divided by 60 and the quotient will be
(1) For sale; or the amount to be claimed monthly.
(2) For conversion into or intended to form part of a finished product for sale, (b) If the estimated useful life of a capital good is less than five (5) years —
including packaging materials; or The input tax shall be spread evenly on a monthly basis by dividing the input
(3) For use as supplies in the course of business; or tax by the actual number of months comprising the estimated useful life of
the capital good. The claim for input tax credit shall commence in the
(4) For use as raw materials supplied in the sale of services; or calendar month that the capital goods were acquired.
(5) For use in trade or business for which deduction for depreciation or Where the aggregate acquisition cost (exclusive of VAT) of the existing or
amortization is allowed under the Tax Code, finished depreciable capital goods purchased or imported during any
(b) Purchase of real properties for which a VAT has actually been paid; calendar month does not exceed One million pesos (P 1,000,000.00), the
total input taxes will be allowable as credit against output tax in the month of
(c) Purchase of services in which a VAT has actually been paid; acquisition; Provided, however, that the total amount of input taxes (input tax
(d) Transactions "deemed sale" under Sec. 106 (B) of the Tax Code; on depreciable capital goods plus other allowable input taxes) allowed to be
claimed against the output tax in the quarterly VAT Returns shall be subject
(e) Transitional input tax allowed under Sec. 4.111 (a) of these Regulations;
to the limitation prescribed under Sec. 4.110-7 of these Regulations.
(f) Presumptive input tax allowed under Sec. 4.111 (b) of these Regulations;
The aggregate acquisition cost of a depreciable asset in any calendar month
(g) Transitional input tax credits allowed under the transitory and other refers to the total price agreed upon for one or more assets acquired and not
provisions of these Regulations. on the payments actually made during the calendar month. Thus, an asset
SECTION 4.110-2. Persons Who Can Avail of the Input Tax Credit. — The acquired in installment for an acquisition cost of more than P 1,000,000.00
input tax credit on importation of goods or local purchases of goods, will be subject to the amortization of input tax despite the fact that the
properties or services by a VAT-registered person shall be creditable: monthly payments/installments may not exceed P1,000,000.00.
(a) To the importer upon payment of VAT prior to the release of goods from Illustration: LBH Corporation sold capital goods on installment on October 1,
customs custody; 2005. It is agreed that the selling price, including the VAT, shall be payable in
five (5) equal monthly installments. The data pertinent to the sold assets are
(b) To the purchaser of the domestic goods or properties upon as follows: caHCSD
consummation of the sale; or
(c) To the purchaser of services or the lessee or licensee upon payment of
the compensation, rental, royalty or fee. Selling Price P5,000,000.00 (exclusive of VAT)
SECTION 4.110-3. Claim for Input Tax on Depreciable Goods. — Where a Passed-on VAT 500,000.00
VAT-registered person purchases or imports capital goods, which are Original Cost of Asset 3,000,000.00
depreciable assets for income tax purposes, the aggregate acquisition cost
of which (exclusive of VAT) in a calendar month exceeds One Million pesos Accumulated Depreciation
(P1,000,000.00), regardless of the acquisition cost of each capital good, shall at the time of sale 1,000,000.00
be claimed as credit against output tax in the following manner:
Unutilized Input Tax (Sold Asset) 100,000.00
Accounting Entries:
SELLER BUYER
Oct. 1, 2005 Oct. 1, 2005

Cash P1,100,000.00 Asset P5,000,000.00
Installment Receivable 4,400,000.00 Input Tax 500,000.00
Accumulated Depreciation 1,000,000.00
Output Tax 500,000.00 Cash 1,100,000.00
Asset 3,000,000.00 Installment Payable 4,400,000.00
Gain on sale of asset 3,000,000.00
To Record VAT Liability: ------------
Output Tax 500,000.00
Input Tax 100,000.00
VAT Payable 400,000.00
Periodic Receipt of Installment: Periodic Subsequent Payment:
Cash 1,100,000.00 Installment Payable 1,100,000.00
Installment Receivable 1,100,000.00 Cash 1,100,000.00
* The input tax of P 500,000.00 on the bought capital goods worth P 5,000,000.00 shall be spread evenly over a period of 60 months starting the month of
purchase.
If the depreciable capital good is sold/transferred within a period of five (5) years or prior to the exhaustion of the amortizable input tax thereon, the entire
unamortized input tax on the capital goods sold/transferred can be claimed as input tax credit during the month/quarter when the sale or transfer was made but
subject to the limitation prescribed under Sec. 4.110-7 of these Regulations.
SECTION 4.110-4. Apportionment of Input Tax on Mixed Transactions. — A VAT-registered person who is also engaged in transactions not subject to VAT shall
be allowed to recognize input tax credit on transactions subject to VAT as follows:
1. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit; Provided, that input taxes that can be
directly attributable to VAT taxable sales of goods and services to the Government or any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall not be credited against output taxes arising from sales to non-Government entities; and
2. If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-
exempt transactions and only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit.
Illustration: ERA Corporation has the following sales during the month:
Sale to private entities subject to 10% P100,000.00

Sale to private entities subject to 0% 100,000.00
Sale of exempt goods 100,000.00
Sale to gov't. subjected to
5% final VAT Withholding 100,000.00
—————
Total sales for the month P400,000.00
The following input taxes were passed on by its VAT suppliers:
Input tax on taxable goods (10%) P5,000.00

Input tax on sale of exempt goods 2,000.00
Input tax on sale to government 4,000.00
Input tax on depreciable capital good
not attributable to any specific activity P20,000.00
(monthly amortization for 60 months)
A. The creditable input tax for the month shall be computed as follows:
Input tax on sale subject to 10% P5,000.00

Input tax on zero-rated sale 3,000.00
Ratable portion of the input tax not
directly attributable to any activity:
Taxable sales (0% and 10%) X Amount of

——————————— input tax
Total Sales not directly
attributable
P200,000.00
————— X P20,000.00 P10,000.00
400,000.00
Total creditable input tax for the month P18,000.00
B. The input tax attributable to sales to government for the month shall be computed as follows:
Input tax on sale to gov't. P4,000.00
Taxable sales to government X Amount of

——————————— input tax
attributable
P100,000.00 X P20,000.00 P5,000.00

—————
400,000.00
Total input tax attributable to sales to government P9,000.00
C. The input tax attributable to VAT-exempt sales for the month shall be computed as follows: TaCSAD
Input tax on VAT-exempt sales P2,000.00

VAT-exempt sales X Amount of
——————— input tax
attributable
P100,000.00 X P20,000.00 P5,000.00
—————
400,000.00
Total input tax attributable to VAT-exempt
P7,000.00
sales
The table below shows a summary of the foregoing transactions of ERA Corporation:
Input VAT Input VAT not Total Creditable Net VAT Input Input Unrecoverable
Output directly directly Input Input Payable VAT for VAT for input
VAT Attributable Attributable VAT VAT carry- refund VAT
to any Activity over/
Sale Subject to 10%
VAT 10,000 5,000 5,000 10,000 10,000 0 0 0 0
Sale Subject to 0%
VAT 0 3,000 5,000 8,000 8,000 0 0 8,000 0
Sale of Exempt
Goods 0 2,000 5,000 7,000 0 0 0 0 7,000*
Sale to Government
subject to 5% Final
withholding VAT 10,000 4,000 5,000 9,000 5,000** 5,000*** 0 0 4,000*
* These amounts are not available for input tax credit but may be recognized as cost or expense.
** Standard input VAT of 5% on sales to Government as provided in SEC. 4.114-2(a)
*** Withheld by Government entity as Final Withholding VAT
(a) If at the end of any taxable quarter the output tax exceeds the input tax,
The input tax attributable to VAT-exempt sales shall not be allowed as credit
the excess shall be paid by the VAT-registered person.
against the output tax but should be treated as part of cost or expense.
Illustration:
Notwithstanding the foregoing provisions, for persons engaged in both zero-
rated sales under Sec. 108(B)(6) of the Tax Code and non-zero rated sales, For a given taxable quarter ABC Corp. has output VAT of 100 and input VAT
the aggregate input taxes shall be allocated ratably between the zero-rated of 80. Since output tax exceeds the input tax for such taxable quarter, all of
sale and non-zero-rated sale. the input tax may be utilized to offset against the output tax. Thus, the net
VAT payable is 100 minus 80 = 20.
SECTION 4.110-5. Determination of Input Tax Creditable during a Taxable
Month or Quarter. — The amount of input taxes creditable during a month or (b) If the input tax inclusive of input tax carried over from the previous quarter
quarter shall be determined in the manner illustrated above by adding all exceeds the output tax, the input tax inclusive of input tax carried over from
creditable input taxes arising from the transactions enumerated under the the previous quarter that may be credited in every quarter shall not exceed
preceding subsections of Sec. 4.110 during the month or quarter plus any seventy percent (70%) of the output tax; Provided, That, the excess input tax
amount of input tax carried-over from the preceding month or quarter, shall be carried over to the succeeding quarter or quarters; Provided,
reduced by the amount of claim for VAT refund or tax credit certificate however, that any input tax attributable to zero-rated sales by a VAT-
(whether filed with the BIR, the Department of Finance, the Board of registered person may at his option be refunded or applied for a tax credit
Investments or the BOC) and other adjustments, such as purchases returns certificate which may be used in the payment of internal revenue taxes,
or allowances, input tax attributable to exempt sales and input tax subject to the limitations as may be provided for by law, as well as, other
attributable to sales subject to final VAT withholding. implementing rules.
SECTION 4.110-6. Determination of the Output Tax and VAT Payable and Illustration:
Computation of VAT Payable or Excess Tax Credits. — In a sale of goods or
For a given taxable quarter XYZ Corp. has output VAT of 100 and input VAT
properties, the output tax is computed by multiplying the gross selling price
of 110. Since input tax exceeds the output tax for such taxable quarter, the
as defined in these Regulations by the regular rate of VAT. For sellers of
70% limitation is imposed to compute the amount of input tax which may be
services, the output tax is computed by multiplying the gross receipts as
utilized. The total allowable input tax which may be utilized is 70 (70% of the
defined in these Regulations by the regular rate of VAT.
output tax). Thus, the net VAT payable is 100 less 70 = 30. The unutilized
In all cases where the basis for computing the output tax is either the gross input tax amounting to 40 is carried over to the succeeding month. cATDIH
selling price or the gross receipts, but the amount of VAT is erroneously
SECTION 4.110-8. Substantiation of Input Tax Credits. —
billed in the invoice, the total invoice amount shall be presumed to be
comprised of the gross selling price/gross receipts plus the correct amount of (a) Input taxes for the importation of goods or the domestic purchase of
VAT. Hence, the output tax shall be computed by multiplying the total invoice goods, properties or services is made in the course of trade or business,
amount by a fraction using the rate of VAT as numerator and one hundred whether such input taxes shall be credited against zero-rated sale, non-zero-
percent (100%) plus rate of VAT as the denominator. Accordingly, the input rated sales, or subjected to the 5% Final Withholding VAT, must be
tax that can be claimed by the buyer shall be the corrected amount of VAT substantiated and supported by the following documents, and must be
computed in accordance with the formula herein prescribed. reported in the information returns required to be submitted to the Bureau:
There shall be allowed as a deduction from the output tax the amount of (1) For the importation of goods — import entry or other equivalent document
input tax deductible as determined under Sec. 4.110-1 to 4.110-5 of these showing actual payment of VAT on the imported goods.
Regulations to arrive at VAT payable on the monthly VAT declaration and the (2) For the domestic purchase of goods and properties — invoice showing
quarterly VAT returns, subject to the limitations set forth in Section 4.110-7. the information required under Secs. 113 and 237 of theTax Code.
SECTION 4.110-7. VAT Payable (Excess Output)t or Excess Input Tax. —
(3) For the purchase of real property — public instrument i.e., deed of The transitional input tax shall be two percent (2%) of the value of the
absolute sale, deed of conditional sale, contract/agreement to sell, etc., beginning inventory on hand or actual VAT paid on such, goods, materials
together with VAT invoice issued by the seller. and supplies, whichever is higher, which amount shall be creditable against
the output tax of VAT-registered person. The value allowed for income tax
(4) For the purchase of services — official receipt showing the information
purposes on inventories shall be the basis for the computation of the 2%
required under Secs. 113 and 237 of the Tax Code.
transitional input tax, excluding goods that are exempt from VAT under Sec.
A cash register machine tape issued to a registered buyer shall constitute 109 of the Tax Code.
valid proof of substantiation of tax credit only if it shows the information
The threshold amount of P1,500,000.00 shall be adjusted, not later than
required under Secs. 113 and 237 of the Tax Code.
January 31, 2009 and every three years thereafter, to its present value using
(b) Transitional input tax shall be supported by an inventory of goods as the Consumer Price Index as published by the NSO.
shown in a detailed list to be submitted to the BIR.
(b) Presumptive Input Tax Credits
(c) Input tax on "deemed sale" transactions shall be substantiated with the
Persons or firms engaged in the processing of sardines, mackerel, and milk,
invoice required under Sec. 4.113-2 of these Regulations.
and in manufacturing refined sugar, cooking oil and packed noodle-based
(d) Input tax from payments made to non-residents (such as for services, instant meals, shall be allowed a presumptive input tax, creditable against
rentals and royalties) shall be supported by a copy of the Monthly the output tax, equivalent to four percent (4%) of the gross value in money of
Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by their purchases of primary agricultural products which are used as inputs to
the resident payor in behalf of the non-resident evidencing remittance of VAT their production.
due which was withheld by the payor.
As used in this paragraph, the term processing shall mean pasteurization,
(e) Advance VAT on sugar shall be supported by the Payment Order canning and activities which through physical or chemical process alter the
showing payment of the advance VAT. exterior texture or form or inner substance of a product in such manner as to
SECTION 4.111-1. Transitional/Presumptive Input Tax Credits. — prepare it for special use to which it could not have been put in its original
form or condition.
(a) Transitional Input Tax Credits on Beginning Inventories
SECTION 4.112-1. Claims for Refund/Tax Credit Certificate of Input Tax. —
Taxpayers who became VAT-registered persons upon exceeding the
minimum turnover of P1,500,000.00 in any 12-month period, or who (a) Zero-rated and Effectively Zero-rated Sales of Goods, Properties or
voluntarily register even if their turnover does not exceed P1,500,000.00 Services
(except franchise grantees of radio and television broadcasting whose A VAT-registered person whose sales of goods, properties or services are
threshold is P10,000,000.00) shall be entitled to a transitional input tax on zero-rated or effectively zero-rated may apply for the issuance of a tax credit
the inventory on hand as of the effectivity of their VAT registration, on the certificate/refund of input tax attributable to such sales. The input tax that
following: may be subject of the claim shall exclude the portion of input tax that has
(1) goods purchased for resale in their present condition; been applied against the output tax. The application should be filed within
two (2) years after the close of the taxable quarter when such sales were
(2) materials purchased for further processing, but which have not yet made.
undergone processing;
In case of zero-rated sales under Secs. 106(A)(2)(a)(1) and (2), and Sec.
(3) goods which have been manufactured by the taxpayer; 106(A)(2)(b) and Sec. 108(B)(1) and (2) of the Tax Code,the payments for
(4) goods in process for sale; or the sales must have been made in acceptable foreign currency duly
accounted for in accordance with the BSP rules and regulations.
(5) goods and supplies for use in the course of the taxpayer's trade or
business as a VAT-registered person. Where the taxpayer is engaged in both zero-rated or effectively zero-rated
sales and in taxable (including sales subject to final withholding VAT) or
exempt sales of goods, properties or services, and the amount of creditable Commissioner of Internal Revenue after the one hundred twenty (120) day
input tax due or paid cannot be directly and entirely attributed to any one of period from the date of submission of the application with complete
the transactions, only the proportionate share of input taxes allocated to documents, the taxpayer may appeal to the CTA within 30 days from the
zero-rated or effectively zero-rated sales can be claimed for refund or lapse of the 120-day period.
issuance of a tax credit certificate. STaHIC
(e) Manner of giving refund
In the case of a person engaged in the transport of passenger and cargo by
Refund shall be made upon warrants drawn by the Commissioner of Internal
air or sea vessels from the Philippines to a foreign country, the input taxes
Revenue or by his duly authorized representative without the necessity of
shall be allocated ratably between his zero-rated sales and non-zero-rated
being countersigned by the Chairman, Commission on Audit (COA), the
sales (sales subject to regular rate, subject to final VAT withholding and
provision of the Revised Administrative Code to the contrary notwithstanding;
VAT-exempt sales).
Provided, that refunds under this paragraph shall be subject to post audit by
(b) Cancellation of VAT registration the COA.
A VAT-registered person whose registration has been cancelled due to SECTION 4.113-1. Invoicing Requirements. —
retirement from or cessation of business, or due to changes in or cessation
(A) A VAT-registered person shall issue: —
of status under Sec. 106 (C) of the Tax Code may, within two (2) years from
the date of cancellation, apply for the issuance of a tax credit certificate for (1) A VAT invoice for every sale, barter or exchange of goods or properties;
any unused input tax which he may use in payment of his other internal and
revenue taxes; Provided, however, that he shall be entitled to a refund if he (2) A VAT official receipt for every lease of goods or properties, and for every
has no internal revenue tax liabilities against which the tax credit certificate sale, barter or exchange of services.
may be utilized.
Only VAT-registered persons are required to print their TIN followed by the
(c) Where to file the claim for refund/tax credit certificate word "VAT" in their invoice or official receipts. Said documents shall be
Claims for refunds/tax credit certificate shall be filed with the appropriate BIR considered as a "VAT Invoice" or VAT official receipt. All purchases covered
office (Large Taxpayers Service (LTS) or Revenue District Office (RDO)) by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not
having jurisdiction over the principal place of business of the give rise to any input tax.
taxpayer; Provided, however, that direct exporters may also file their claim VAT invoice/official receipt shall be prepared at least in duplicate, the original
for tax credit certificate with the One Stop Shop Center of the Department of to be given to the buyer and the duplicate to be retained by the seller as part
Finance; Provided, finally, that the filing of the claim with one office shall of his accounting records.
preclude the filing of the same claim with another office.
(B) Information contained in VAT invoice or VAT official receipt. — The
(d) Period within which refund or tax credit certificate/refund of input taxes following information shall be indicated in VAT invoice or VAT official receipt:
shall be made
(1) A statement that the seller is a VAT-registered person, followed by his
In proper cases, the Commissioner of Internal Revenue shall grant a tax TIN;
credit certificate/refund for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete documents in support of (2) The total amount which the purchaser pays or is obligated to pay to the
the application filed in accordance with subparagraph (a) above. seller with the indication that such amount includes the VAT; Provided, That:
In case of full or partial denial of the claim for tax credit certificate/refund as (a) The amount of tax shall be shown as a separate item in the invoice or
decided by the Commissioner of Internal Revenue, the taxpayer may appeal receipt;
to the Court of Tax Appeals (CTA) within thirty (30) days from the receipt of (b) If the sale is exempt from VAT, the term "VAT-exempt sale" shall be
said denial, otherwise the decision shall become final. However, if no action written or printed prominently on the invoice or receipt;
on the claim for tax credit certificate/refund has been taken by the
(c) If the sale is subject to zero percent (0%) VAT, the term "zero-rated sale" paid corresponding to the goods sold should be separately indicated in the
shall be written or printed prominently on the invoice or receipt; instrument of sale.
(d) If the sale involves goods, properties or services some of which are Example: "A", at the time of retirement, had 1,000 pieces of merchandise
subject to and some of which are VAT zero-rated or VAT-exempt, the invoice which was deemed sold at a value of P20,000.00 with an output tax of
or receipt shall clearly indicate the break-down of the sale price between its P2,000.00. After retirement, "A" sold to "B", 500 pieces for P12,000.00. In the
taxable, exempt and zero-rated components, and the calculation of the VAT contract of sale or invoice, "A" should state the sales invoice number wherein
on each portion of the sale shall be shown on the invoice or receipt. The the output tax on "deemed sale" was imposed and the corresponding tax
seller has the option to issue separate invoices or receipts for the taxable, paid on the 500 pieces is P1,000.00, which is included in the P12,000.00, or
exempt, and zero-rated components of the sale. he should indicate it separately as follows:
(3) In the case of sales in the amount of one thousand pesos (P1,000.00) or Gross selling price P11,000.00
more where the sale or transfer is made to a VAT-registered person, the
VAT previously paid on "deemed sale" 1,000.00
name, business style, if any, address and TIN of the purchaser, customer or
client, shall be indicated in addition to the information required in (1) and (2) —————
of this Section. Total P12,000.00
SECTION 4.113-2. Invoicing and Recording Deemed Sale Transactions. —
In the case of Sec. 4.106-7(a) (1) of these Regulations, a memorandum entry
in the subsidiary sales journal to record withdrawal of goods for personal use In this case, "B" shall be entitled only to P1,000 as input tax and not 1/11 of
is required. In the case of Sec. 4.106-7(a) (2) and (3) of these Regulations, P12,000.00
an invoice shall be prepared at the time of the occurrence of the transaction, SECTION 4.113-3. Accounting Requirements. — Notwithstanding the
which should include, all the information prescribed in Sec. 4.113-1. The data provisions of Sec. 233, all persons subject to VAT under Sec. 106 and 108 of
appearing in the invoice shall be duly recorded in the subsidiary sales the Tax Code shall, in addition to the regular accounting records required,
journal. The total amount of "deemed sale" shall be included in the return to maintain a subsidiary sales journal and subsidiary purchase journal on which
be filed for the month or quarter. IDTSaC every sale or purchase on any given day is recorded. The subsidiary journal
In the case of Sec. 4.106-7(a) (4) an inventory shall be prepared and shall contain such information as may be required by the Commissioner of
submitted to the RDO who has jurisdiction over the taxpayer's principal place Internal Revenue.
of business not later than 30 days after retirement or cessation from A subsidiary record in ledger form shall be maintained for the acquisition,
business. purchase or importation of depreciable assets or capital goods which shall
An invoice shall be prepared for the entire inventory, which shall be the basis contain, among others, information on the total input tax thereon as well as
of the entry into the subsidiary sales journal. The invoice need not enumerate the monthly input tax claimed in VAT declaration or return.
the specific items appearing in the inventory, but it must show the total SECTION 4.113-4. Consequences of Issuing Erroneous VAT Invoice or VAT
amount. It is sufficient to just make a reference to the inventory regarding the Official Receipt. —
description of the goods. However, the sales invoice number should be
indicated in the inventory filed and a copy thereof shall form part of this (A) Issuance of a VAT Invoice or VAT Receipt by a non-VAT person. — If a
invoice. If the business is to be continued by the new owners or successors, person who is not VAT-registered issues an invoice or receipt showing his
the entire amount of output tax on the amount deemed sold shall be allowed TIN, followed by the word "VAT", the erroneous issuance shall result to the
as input taxes. If the business is to be liquidated and the goods in the following:
inventory are sold or disposed of to VAT-registered buyers, an invoice or (1) The non-VAT person shall be liable to:
instrument of sale or transfer shall to prepared citing the invoice number
(i) the percentage taxes applicable to his transactions;
wherein the tax was imposed on the deemed sale. At the same time the tax
(ii) VAT due on the transactions under Sec. 106 or 108 of the Tax thereon be paid, after crediting payments reflected in the Monthly VAT
Code,without the benefit of any input tax credit; and declarations, on or before February 25, May 25, August 25, and November
25, 2003, respectively.
(iii) a 50% surcharge under Sec. 248 (B) of the Tax Code;
The monthly VAT Declarations (BIR Form 2550M) of taxpayers whether
(2) VAT shall be recognized as an input tax credit to the purchaser under
large or non-large shall be filed and the taxes paid not later than the 20th day
Sec. 110 of the Tax Code,provided the requisite information required under
following the end of each month.
Subsection 4.113 (B) of these Regulations is shown on the invoice or receipt.
For purposes of filing returns under the Electronic Filing and Payment
(B) Issuance of a VAT Invoice or VAT Receipt on an Exempt Transaction by
System (EFPS) the taxpayers classified under the following business
a VAT-registered Person. — If a VAT-registered person issues a VAT invoice
industries shall be required to file Monthly VAT Declarations on or before the
or VAT official receipt for a VAT-exempt transaction, but fails to display
dates prescribed as follows: ECSHID
prominently on the invoice or receipt the words "VAT-exempt sale", the
transaction shall become taxable and the issuer shall be liable to pay VAT
thereon. The purchaser shall be entitled to claim an input tax credit on his
purchase.
SECTION 4.113-5. Transitional Period. — Notwithstanding Sec. 4.113-1 (B)
hereof, taxpayers may continue to issue VAT invoices and VAT official
Business Industry Period for filing of
receipts for the period July 1, 2005 to December 31, 2005, in accordance
Monthly VAT
with BIR administrative practices that existed as of December 31, 2004 but
Declarations
subject to the Transitory and Other Provisions of these Regulations.
SECTION 4.114-1. Filing of Return and Payment of VAT. —
Group A
(A) Filing of Return. — Every person liable to pay VAT shall file a quarterly
return of the amount of his quarterly gross sales or receipts within twenty five
(25) days following the close of taxable quarter using the latest version of Insurance and Pension Funding 25 days following
Quarterly VAT Return. The term "taxable quarter" shall mean the quarter that Activities Auxiliary to Financial Intermediation the end of the
is synchronized to the income tax quarter of the taxpayer (i.e., the calendar
quarter or fiscal quarter). Construction month
Amounts reflected in the monthly VAT declarations for the first two (2) Water Transport
months of the quarter shall still be included in the quarterly VAT return which Hotels and Restaurants
reflects the cumulative figures for the taxable quarter. Payments in the
Land Transport
monthly VAT declarations shall, however, be credited in the quarterly VAT
return to arrive at the net VAT payable or excess input tax/over-payment as
of the end of a quarter. Group B
Example. — Suppose the accounting period adopted by the taxpayer is fiscal
year ending October 2003, the taxpayer has to file monthly VAT declarations
Manufacture & Repair of Furniture 24 days following
for the months of November 2002, December 2002, and for the months of
February, March, May, June, August, and September for Year 2003, on or Manufacture of Basic Metals the end of the
before the 20th day of the month following the close of the taxable month. Manufacture of Chemicals and Chemical Products month
His quarterly VAT returns corresponding to the quarters ending January,
Manufacture of Coke, Refined Petroleum & Fuel
April, July, and October 2003 shall, on the other hand, be filed and taxes due
Products
Manufacture of Electrical Machinery & Apparatus Real Estate Activities

N.E.C.
Manufacture of Fabricated Metal Products
Group D
Manufacture of Food, Products & Beverages
Manufacture of Machinery & Equipment NEC
Air Transport 22 days following
Manufacture of Medical, Precision, Optical
Instruments Electricity, Gas, Steam & Hot Water Supply the end of the
Manufacture of Motor Vehicles, Trailers & Semi- Postal & Telecommunications month
Trailers
Publishing, Printing & Reproduction of Recorded
Manufacture of Office, Accounting & Computing
Media
Machinery
Recreational, Cultural & Sporting Activities
Manufacture of Other Non-Metallic Mineral Products
Recycling
Manufacture of Other Transport Equipment
Renting of Goods & Equipment
Manufacture of Other Wearing Apparel
Supporting & Auxiliary Transport Activities
Manufacture of Paper and Paper Products
Manufacture of Radio, TV & Communication
Equipment/Apparatus Group E
Manufacture of Rubber & Plastic Products
Manufacture of Textiles Activities of Membership Organizations Inc. 21 days following
Manufacture of Tobacco Products Health and Social Work the end of the
Manufacture of Wood & Wood Products Public Admin & Defense Compulsory Social Security month
Manufacturing N.E.C. Research and Development
Metallic Ore Mining Agricultural, Hunting, and Forestry
Non-Metallic Mining & Quarrying Farming of Animals
Fishing
Group C Other Service Activities
Miscellaneous Business Activities
Retail Sale 23 days following Unclassified
Wholesale Trade and Commission Trade the end of the
Sale, Maintenance, Repair of Motor Vehicle, month It is reiterated and clarified, however, that the return for withholding of VAT
Sale of Automotive Fuel shall be filed on or before the tenth (10th) day of the following month, which
is likewise the due date for the payment of this type of withholding tax.
Collection, Purification And Distribution of Water
Computer and Related Activities
To erase any doubt and to ensure receipt by the BIR before midnight of the kg. bag for refined sugar produced by a sugar refinery, and P 760.00 per 50
due dates prescribed above for the filing of a return, the electronic return kg. bag for refined sugar produced by a sugar mill.
shall be filed on or before 10:00 p.m. of the above prescribed due dates.
ii. Subsequent Base Price Adjustments. — The base price upon which the
For the electronic payment of tax for the returns required to be filed earlier advance payment of VAT will be computed under the preceding paragraph
under the staggered filing system, the taxpayer upon e-filing shall, still using shall be adjusted when deemed necessary by the Commissioner of Internal
the facilities of EFPS, likewise give instruction to the Authorized Agent Bank Revenue, upon consultation with the Chairman of the Sugar Regulatory
(AAB) to debit its account for the amount of tax on or before the due date for Administration. TcSCEa
payment thereof as prescribed under the prevailing/applicable
d. Proof of Advance Payment. — The RDO concerned or the duly constituted
laws/regulations.
unit in its place such as the Regional Task Force on Sugar, as the Regional
For purposes of these Regulations, the industry of the taxpayer is its primary Director may decide, shall issue a Certificate of Advance Payment of VAT.
line of business or the primary purpose of its existence as stated in the This certificate shall serve as the authority of the sugar mill/refinery to
Articles of Incorporation, for corporate taxpayers. release the refined sugar described therein, and together with the payment
form (BIR Form No. 0605 or its equivalent) and the BIR-prescribed deposit
(B) Payment of VAT
slip duly validated by the AAB, or the Revenue Official Receipt (ROR) issued
I. Advance Payment — The following are subject to the advance payment of by the RCO or the duly authorized City or Municipal Treasurer, as the case
VAT: may be, shall serve as proof of the payment for the advance VAT which can
1. Sale of Refined Sugar. — be credited against VAT liability/payable in VAT return/s to be filed.
a. Requirement to Pay Advance VAT on Sale of Refined Sugar. — An e. Proof of exemption from the advance payment. — If a duly-registered
advance VAT on the sale of refined sugar shall be paid by the owner/seller to agricultural cooperative claims ownership of refined sugar stocked in the
the BIR through an AAB or to the Revenue Collection Officer (RCO) or sugar mill/refinery, the latter shall not release the said refined sugar unless
deputized City or Municipal Treasurer in places where there are no AABs an Authorization Allowing the Release of Refined Sugar is first secured from
before any refined sugar can be withdrawn from any sugar refinery/mill. the RDO or any duly constituted unit in its place such as the Regional Task
Force on Sugar created by the Regional Director as the latter may decide, of
b. Prohibition of Withdrawal/Transfer of Ownership. — The proprietor or the BIR office having jurisdiction over the physical location of the sugar
operator of a sugar mill/refinery shall not allow any withdrawal of refined mill/refinery. In securing such authorization, the cooperative shall, in addition
sugar from its premises without the advance payment of VAT and to that of satisfying VAT-exemption requirements under RR No. 20-2001,
submission of proof of such payment, except when the refined sugar is submit to the RDO or Regional Task Force concerned a Sworn Statement to
owned and withdrawn by the cooperative, in which case the evidence of the effect that —
ownership, Authorization Allowing the Release and Sworn Statements
provided in these Regulations must be presented. (1) The sugar has not been bid, sold or otherwise transferred in ownership,
at anytime prior to the removal from the refinery, to a trader or another entity;
The Regional Director, upon the recommendation of the RDO of the district and
having jurisdiction over the physical location of the sugar mill/refinery, may
direct an internal revenue officer to be present during the withdrawal of (2) The refined sugar is the property of the cooperative at the time of removal
refined sugar from the premises of the sugar mill/refinery in order to confirm and it will not charge advance VAT or any other tax to the future buyer.
and/or verify that the requirements of this Section are complied with. If the cooperative invokes ownership over the sugar cane and the
c. Basis for Determining the Amount of Advance VAT Payment. — milled/refined sugar, the sugar quedans must be in the name of the
cooperative.
i. Base Price. — The amount of advance VAT payment shall be determined
by applying VAT rate of 10% on the applicable base price of P850.00 per 50 In the event the refined sugar is owned and/or withdrawn from the
mill/refinery by a duly accredited and registered agricultural cooperative of
good standing and said cooperative presents the "Authorization Allowing the
Release of Refined Sugar", the mill/refinery shall release the same but only ii. Purchases by flour millers of imported wheat from traders shall also be
after notifying the RDO or the assigned duty officer with jurisdiction over the subjected to advance VAT and shall be paid by the flour miller prior to
mill of the time and date of the release from the mill and the names and plate delivery.
numbers of the carrying trucks so that the release can be given proper
b. Prohibition of Withdrawal of Shipment Before Payment of Advance VAT.
supervision and that advance VAT is collected from the
transferee/buyer/customer should evidence show that the refined sugar has Withdrawal, either partial or full of imported wheat to be used in the milling of
already been sold by the cooperative. flour from custom's custody shall not be allowed prior to payment of the
Advance VAT and submission of documentary proof of payment such as the
f. Information Returns to be Filed by the Proprietor or Operator of a Sugar
Authority to Release Imported Goods (ATRIG) issued by the BIR and the BIR
Refinery and Cooperatives.
Payment Form No. 0605 together with the deposit slip issued by the AAB or
Every proprietor or operator of a sugar refinery or mill with production line the ROR issued by the RCO in the absence of an AAB.
accredited by the BIR to be capable of producing sugar with a polarimeter
Importation of wheat by any trader shall still be exempt from the payment of
reading of 99.5º or above, or mill producing sugar with polarimeter reading of
VAT. However, in order to monitor all importation of wheat regardless of its
99.5º or above shall render an Information Return to the RDO having
intended use, the importer, whether miller or trader, shall be required to
jurisdiction over the physical location of the said sugar refinery/mill which
secure ATRIG from the BIR. CScaDH
issues the Certificate of Advance Payment of VAT or Authorization Allowing
the Release of Refined Sugar not later than the 10th day following the end of The BOC will require the submission of the ATRIG by the importer before
the month. The aforesaid Information Return shall reflect the following releasing the imported wheat from its custody. For this purpose, importation
information: of wheat shall be treated as an exception to the list of imported articles
exempted from the issuance of ATRIG as contained in the BIR-BOC Joint
i. Name, TIN and RDO number of the Owner of the Refined Sugar;
Memorandum Circular No. 1-2002 dated September 16, 2002.
ii. Number of bags of refined sugar released;
c. Securing the ATRIG and the Payment Form of the Advance VAT. —
iii. Amount of Advance VAT Paid.
To afford expediency and to minimize delay in the processing of ATRIG, the
Likewise, every cooperative shall submit to RDO where it is registered a List flour miller shall compute the Advance VAT payable and fill up the Payment
of Buyers of Sugar together with a copy of the Certificate of Advance Form Order (BIR Form No. 0605). The flour miller shall pay the amount
Payment of VAT, made by each of the respective buyer appearing in the list, indicated in the Payment Order to the AAB of the LTS/Large Taxpayers
not later than the 10th day following the end of the month with the following District Office (LTDO)/RDO where the flour miller is registered. In the
information: absence of an AAB in the RDO where the flour miller is registered, the
payment shall be made to the RCO of said district.
i. Name, address, TIN and RDO No. of the Buyer;
Upon payment, the flour miller will then present a copy of the duly validated
ii. Number of bags of refined sugar sold/LKG;
payment form to the RDO having jurisdiction over the port of entry. Upon
iii. Amount of sales. receipt of the properly validated and stamped Payment Order, the RDO
iv. Amount of Advance VAT paid by the buyer. having jurisdiction over the port of entry shall issue the ATRIG covering the
importation of wheat by the flour miller in accordance with Revenue
2. Sale of Flour. — Memorandum Order No. 35-2002, which prescribes the guidelines for the
a. Requirement to Pay in Advance VAT on Sale of Flour and Time of issuance of ATRIG for Excise and VAT purposes.
Payment of Advance VAT. — For purchases of wheat from traders, the flour miller shall be required to
i. VAT on the sale of flour milled from imported wheat shall be paid prior to present proof of payment of advance VAT to the trader prior to delivery or
the release from the Bureau of Custom's custody of the wheat, which is withdrawal of wheat from the latter's premises.
imported and declared for flour milling. d. Basis for Determining the Amount of Advance VAT Payment. —
i. Determination of advance VAT. — The amount of advance VAT payment following the end of the taxable quarter, and no monthly VAT declaration
shall be determined by applying VAT rate of 10% on the tax base. need be filed for the initial quarter.
ii. Tax Base — Considering that in the course of the milling process, not all (D) Where to File and Pay
wheat is turned into flour, the tax base shall be as follows:
The monthly VAT declaration and quarterly return shall be filed with, and
For wheat imported by the flour millers — 75% of the sum of: (a) the invoice VAT due thereon paid to, an AAB under the jurisdiction of the Revenue
value multiplied by the currency exchange rate on the date of payment; (b) District/BIR Office where the taxpayer (head office of the business
estimated customs duties and other charges prior to the release of the establishment) is required to be registered.
imported wheat from customs custody, except for the advance VAT; and (c)
In cases where there are no duly accredited agent banks within the
Five percent (5%) on the sum of (a) and (b).
municipality or city, the monthly VAT declaration and quarterly VAT return,
iii. Subsequent tax base adjustments — The tax base shall be adjusted shall be filed with and any amount due shall be paid to the RDO, Collection
whenever deemed necessary by the Commissioner of Internal Revenue, Agent or duly authorized Treasurer of the Municipality/City where such
after proper prior consultations with the flour milling industry associations and taxpayer (head office of the business establishment) is required to be
upon approval by the Secretary of Finance. registered.
e. Credit for Advance VAT Payments — The amount of advance VAT The quarterly VAT return and the monthly VAT declaration, where no
payments made by the flour miller shall be allowed as tax credit against payment is involved, shall be filed with the RDO/LTDO/Large Taxpayers
VAT liability/payable of the flour miller. The Payment Order, together with the Assistance Division (LTAD), Collection Agent, duly authorized Municipal/City
deposit slip issued by the AAB or the ROR issued by the RCO, shall serve as Treasurer of Municipality/City where the taxpayer (head office of the
proof for the credit of such advance payment. business establishment) is registered or required to be registered."
f. Reporting Requirements — All importers of wheat regardless of use, Taxpayers filing via EFPS shall comply with the provisions of the EFPS
whether miller or trader, shall submit quarterly summary list of sales, Regulations.
purchases and importations.
Only one consolidated quarterly VAT return or monthly VAT declaration
(C) Short Period Return covering the results of operation of the head office as well as the branches
for all lines of business subject to VAT shall be filed by the taxpayer, for
Any person who retires from business with due notice to the BIR office where
every return period, with the BIR office where said taxpayer is required to be
the taxpayer (head office) is registered or whose VAT registration has been
registered.
cancelled shall file a final quarterly return and pay the tax due thereon within
twenty five (25) days from the end of the month when the business ceases to SECTION 4.114-2. Withholding of VAT on Government Money Payments
operate or when VAT registration has been officially cancelled; Provided, and Payments to Non-Residents. —
however, that subsequent monthly declarations/quarterly returns are still
(a) The government or any of its political subdivisions, instrumentalities or
required to be filed if the results of the winding up of the affairs/business of
agencies, including government-owned or controlled corporations (GOCCs)
the taxpayer reveal taxable transactions. All persons first registered under
shall, before making payment on account of each purchase of goods and/or
Secs. 9.236-1 of these Regulations shall be liable to VAT on the effective
of services taxed at 10% VAT pursuant to Secs. 106 and 108 of the Tax
date of registration stated in their Certificates of Registration; i.e., the first
Code,deduct and withhold a final VAT due at the rate of five percent (5%) of
day of the month following their registration. If the effective date of
the gross payment thereof. SDATEc
registration falls on the first or second month of the taxable quarter, initial
monthly VAT declaration shall be filed within twenty (20) days after the end The five percent (5%) final VAT withholding rate shall represent the net VAT
of the month, and the initial quarterly return shall be filed on or before the payable of the seller. The remaining five percent (5%) effectively accounts
25th day after the end of the taxable quarter. On the other hand, if the for the standard input VAT for sales of goods or services to government or
effective date of registration falls on the third month of the taxable quarter the any of its political subdivisions, instrumentalities or agencies including
quarterly returns shall be filed on or before the 25th day of the month GOCCs, in lieu of the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT exceed five percent (5%) (2) Persons Required to Submit Summary Lists of Purchases. — All persons
of gross payments, the excess may form part of the sellers' expense or cost. liable for VAT such as manufacturers, service-providers, among others, with
On the other hand, if actual input VAT is less than 5% of gross payment, the quarterly total purchases (net of VAT) exceeding One Million Pesos (P
difference must be closed to expense or cost. 1,000,000.00).
(b) The government or any of its political subdivisions, instrumentalities or b. When and Where to File the Summary Lists of Sales/Purchases. — The
agencies, including GOCCs, as well as private corporations, individuals, quarterly summary list of sales or purchases, whichever is applicable, shall
estates and trusts, whether large or non-large taxpayers, shall withhold ten be submitted in diskette form to the RDO or LTDO or LTAD having
percent (10%) VAT with respect to the following payments: jurisdiction over the taxpayer, on or before the twenty-fifth (25th) day of the
month following the close of the taxable quarter (VAT quarter)-calendar
(1) Lease or use of properties or property rights owned by non-residents;
quarter or fiscal quarter. However, taxpayers under the jurisdiction of the
(2) Services rendered to local insurance companies, with respect to LTS, and those enrolled under the EFPS, shall, through electronic filing
reinsurance premiums payable to non-residents; and facility submit their Summary List of Sales/Purchases to the
(3) Other services rendered in the Philippines by non-residents. RDO/LTDO/LTAD, on or before the thirtieth (30th) day of the month following
the close of the taxable quarter.
In remitting VAT withheld, the withholding agent shall use BIR Form No.
1600 Remittance Return of VAT and Other Percentage Taxes Withheld. c. Information that Must be Contained in the Quarterly Summary List of Sales
to be Submitted. — The quarterly summary list must contain the monthly
VAT withheld and paid for the non-resident recipient (remitted using BIR total sales generated from regular buyers/customers, regardless of the
Form No. 1600), which VAT is passed on to the resident withholding agent amount of sale per buyer/customer, as well as from casual buyers/customers
by the non-resident recipient of the income, may be claimed as input tax by with individual sales amounting to P100,000.00 or more. For this purpose,
said VAT-registered withholding agent upon filing his own VAT Return, the term "regular buyers/customers" shall refer to buyers/customers who are
subject to the rule on allocation of input tax among taxable sales, zero-rated engaged in business or exercise of profession and those with whom the
sales and exempt sales. The duly filed BIR Form No. 1600 is the proof or taxpayer has transacted at least six (6) transactions regardless of amount
documentary substantiation for the claimed input tax or input VAT. per transaction either in the previous year or current year. The term "casual
Nonetheless, if the resident withholding agent is a non-VAT taxpayer, said buyers/customers", on the other hand, shall refer to buyers/customers who
passed-on VAT by the non-resident recipient of the income, evidenced by are engaged in business or exercise of profession but did not qualify as
the duly filed BIR Form No. 1600, shall form part of the cost of purchased regular buyers/customers as defined in the preceding statement.
services, which may be treated either as an "asset" or "expense", whichever The foregoing paragraph, notwithstanding, information pertaining to sales
is applicable, of the resident withholding agent. made to buyers not engaged in business or practice of profession (e.g.,
VAT withheld under this Section shall be remitted within ten (10) days foreign embassies) may still be required from the seller.
following the end of the month the withholding was made. The Quarterly Summary List of Sales to Regular Buyers/Customers and
SECTION 4.114-3. Submission of Quarterly Summary List of Sales and Casual Buyers/Customers and Output Tax shall reflect the following:
Purchases. — (1) BIR-registered name of the buyer who is engaged in business/exercise of
a. Persons Required to Submit Summary Lists of Sales/Purchases. — profession;
(1) Persons Required to Submit Summary Lists of Sales. — All persons (2) TIN of the buyer (Only for sales that are subject to VAT);
liable for VAT such as manufacturers, wholesalers, service-providers, among (3) Exempt Sales;
others, with quarterly total sales/receipts (net of VAT) exceeding Two Million
Five Hundred Thousand Pesos (P2,500,000.00). (4) Zero-rated Sales;
(5) Sales Subject to VAT (exclusive of VAT);
(6) Sales Subject to Final VAT Withheld; and (h) Landed cost:
(7) Output Tax (VAT on sales subject to 10%). (i) Exempt;
(The total amount of sales shall be system-generated) (ii) Taxable (Subject to VAT);
d. Information that must be Contained in the Quarterly Summary List of (i) VAT paid;
Purchases. — The following information must be indicated in the following
(j) Official Receipt (OR) Number of the OR evidencing payment of the tax;
quarterly summary schedules of purchases:
and
(1) The Quarterly Summary List of Local Purchases and Input Tax. —
(k) Date of VAT payment
a. BIR-registered name of the seller/supplier/service-provider;
For the claimed input tax arising from services rendered in the Philippines by
b. Address of seller/supplier/service-provider; nonresidents, no summary list is required to be submitted.
c. TIN of the seller; TcADCI e. Rules in the Presentation of the Required Information in the Summary
Schedules. —
d. Exempt Purchases;
(1) The summary schedules of sales to regular buyers/customers shall not
e. Zero-rated Purchases;
only refer to sales subject to VAT but shall likewise include sales subject to
f. (i) Purchases Subject to VAT (exclusive of VAT) — on services; final VAT withheld, exempt and zero-rated sales.
(ii) Purchases Subject to VAT (exclusive of VAT) — on capital goods; and (2) The summary schedule of purchases likewise shall not only refer to
(iii) Purchases Subject to VAT (exclusive of VAT) — on goods other than purchases subject to VAT but also to exempt and zero-rated purchases.
capital goods (3) The names of sellers/suppliers/service-providers and the
(iv) Purchases Subject to Final VAT Withheld buyers/customers shall be alphabetically arranged and presented in the
schedules.
g. Creditable Input Tax; and }
(4) All the summary lists or schedules mentioned above for submission to the
} (to be computed not BIR shall mention as heading or caption of the report/list/schedule the BIR-
registered name, trade name, address and TIN of the taxpayer-filer and the
h. Non-Creditable Input Tax.} on a per supplier basis
but on a per month basis) covered period of the report/list/schedule.
(5) Failure to mention the TIN of the buyer in the "Schedule of Sales" may be
(The total amount of purchases shall be system-generated)
a ground for the audit of the records of the buyer or of both the buyer and the
(2) The Quarterly Summary List of Importations. — seller.
(a) The import entry declaration number; (6) The quarterly summary lists shall reflect the consolidated monthly
(b) Assessment/Release Date; transactions per seller/supplier or buyer for each of the three (3) months of
VAT taxable quarter of the taxpayer as reflected in the quarterly VAT return
(c) The date of importation; except the summary list of importation which shall show the individual
(d) The name of the seller; transactions for the month for each month of the taxable quarter/VAT
quarter. Thus, the period covered by the aforementioned summary list
(e) Country of Origin; required to be submitted to the BIR shall be the covered period of the
(f) Dutiable Value; corresponding quarterly VAT return.
(g) All Charges Before Release From Customs' Custody;
(7) The Quarterly Summary List of Sales and Purchases shall be submitted (2) Taxpayer's own extract program; or
in magnetic form using 3.5-inch floppy diskettes following the format provided
(3) The Data Entry Module developed by the BIR that will be available upon
in Subsection (g) hereof. To provide for a clear-cut rule on the mandatory
request or by downloading from the BIR's web site at http://www.bir.gov.ph,
submission of the said summary lists in diskette form, the following shall be
with the corresponding job aid.
observed:
For those who would choose either option 1 or option 2, such taxpayers shall
(a) Submission of said summary lists in diskette form shall be required for the
use a validation module developed by the BIR, which can either be
taxable quarter where the total sales (taxable-net of VAT, zero-rated,
downloaded from the BIR website or made available in diskette form upon
exempt) exceed Two Million Five Hundred Thousand (P2,500,000.00) or
request.
total purchases (taxable-net of VAT, zero-rated, exempt) exceed One Million
Pesos (P1,000,000.00). Thus, if the total quarterly sales amounted to Only diskettes readable upon submission shall be considered as duly
P3,000,000.00 and the total quarterly purchases amounted to P900,000.00, filed/submitted Quarterly Summary List of Sales and Output Tax/Purchases
the quarterly summary list to be submitted shall only be for sales and not for and Input Tax/importations. Failure to submit the aforementioned quarterly
purchases. On the other hand, if the total quarterly sales amounted to summary lists in the manner prescribed above shall be punishable under the
P2,000,000.00 and the total quarterly purchases amounted to P1,500,000 pertinent provisions of the Tax Code and regulations and shall trigger an
then the quarterly summary list to be submitted shall only be for purchases audit of taxpayer's VAT liabilities.
and not for sales. (h) Issuance of Certificate of VAT Withheld at Source
(b) Once any of the taxable quarters total sales and/or purchases exceed the The certificate or statement to be issued is the Certificate of Final Tax
threshold amounts as provided above, VAT taxpayer, in addition to the Withheld at Source (BIR Form No. 2306), a copy of which should be issued
requirement that the summary list for such quarter be submitted in to the payee.
accordance with the herein prescribed electronic format, shall be further
required to submit the summary lists for the next three (3) succeeding (i) Penalty Clause
quarters, still in accordance with the herein prescribed electronic format, (1) In addition to the penalties imposed for other violations of the withholding
regardless of whether or not such succeeding taxable quarter sales and/or tax regulation, payors reported by the payees for not having issued the
purchases exceed the herein set threshold amounts of P2,500,000.00 for Certificate of Tax Withheld at Source, which report has been validated to be
sales and P1,000,000.00 for purchases. SDHTEC correct, shall be subject to mandatory audit on their withholding tax liabilities
f. The threshold amounts as herein set for sales and purchases may be and to other appropriate sanctions under the Tax Code and applicable
increased/modified by the Commissioner of Internal Revenue if it is regulations.
necessary for the improvement in tax administration. (2) Penalties in case of failure to submit quarterly summary list of sales and
g. Required Procedure and Format in the Submission of Quarterly List of purchases. — In accordance with the provisions of the Tax Code of 1997, a
Sales/Purchases. — person who fails to file, keep or supply a statement, list, or information
required herein on the date prescribed therefor shall pay, upon notice and
The Quarterly Summary List of Sales and Purchases as required above shall demand by the Commissioner of Internal Revenue, an administrative penalty
be submitted directly to the RDO or LTDO or LTAD having jurisdiction over of One Thousand Pesos (P1,000.00) for each such failure, unless it is shown
the taxpayer on the same date when the Quarterly VAT return is due for filing that such failure is due to reasonable cause and not to willful neglect. For this
with and the tax thereon due for payment to the appropriate AAB or BIR purpose, the failure to supply the required information for each buyer or
Office, whichever is applicable. The list shall contain all the information seller of goods and services shall constitute a single act or omission
required in the preceding paragraphs and shall conform to the electronic punishable hereof. However, the aggregate amount to be imposed for all
format to be prescribed in a Revenue Memorandum Circular (RMC), using such failures during a taxable year shall not exceed Twenty-five Thousand
any of the following: Pesos (P25,000.00).
(1) Excel format;
(3) In addition to the imposition of the administrative penalty, willful failure by SECTION 9.236-1. Registration of VAT Taxpayers. —
such person to keep any record and to supply the correct and accurate
(a) In general. — Any person who, in the course of trade or business, sells,
information at the time or times as required herein, shall be subject to the
barters, exchanges goods or properties, or engages in the sale of services
criminal penalty under the relevant provisions of the Tax Code (e.g., Sec.
subject to VAT imposed in Secs. 106 and 108 of the Tax Code shall register
255, Sec. 256, etc.,), upon conviction of the offender.
with the appropriate RDO using the appropriate BIR forms and pay an
(4) The imposition of any of the penalties under the Tax Code and the annual registration fee in the amount of Five Hundred Pesos (P500) using
compromise of the criminal penalty on such violations, notwithstanding, shall BIR Form No. 0605 for every separate or distinct establishment or place of
not in any manner relieve the violating taxpayer from the obligation to submit business (save a warehouse without sale transactions) before the start of
the required documents. such business and every year thereafter on or before the 31st day of
January. STADIH
(5) Finally, the administrative penalty shall be imposed at all times, upon due
notice and demand by the Commissioner of Internal Revenue. A subpoena "Separate or distinct establishment" shall mean any branch or facility where
duces tecum for the submission of the required documents shall be issued sale transactions occur.
on the second offense. A third offense shall set the motion for a criminal
"Branch" means a fixed establishment in a locality which conducts sales
prosecution of the offender.
operation of the business as an extension of the principal office.
SECTION 4.115-1. Administrative and Penal Provisions. —
"Principal place of business" refers to the place where the head or main
(a) Suspension of business operations. — In addition to other administrative office is located as appearing in the corporation's Articles of Incorporation. In
and penal sanctions provided for in the Tax Code and implementing the case of an individual, the principal place of business shall be the place
regulations, the Commissioner of Internal Revenue or his duly authorized where the head or main office is located and where the books of accounts
representative may order suspension or closure of a business establishment are kept.
for a period of not less than five (5) days for any of the following violations:
"Warehouse" means the place or premises where the inventory of goods for
(1) Failure to issue receipts and invoices. sale are kept and from which such goods are withdrawn for delivery to
customers, dealers, or persons acting in behalf of the business.
(2) Failure to file VAT return as required under the provisions of Sec. 114 of
the Tax Code. Any person who maintains a head or main office and branches in different
places shall register with the RDO which has jurisdiction over the place
(3) Understatement of taxable sales or receipts by 30% or more of his correct
wherein the main or head office or branch is located. However, the
taxable sales or receipt for the taxable quarter.
registration fee shall be paid to any accredited bank in the Revenue District
(4) Failure of any person to register as required under the provisions of Sec. where the head office or branch is registered provided that in areas where
236 of the Tax Code. there are no accredited banks, the same shall be paid to the RDO, collection
(b) Surcharge, interest and other penalties. — The interest on unpaid amount agent, or duly authorized treasurer of the municipality where each place of
of tax, civil penalties and criminal penalties imposed in Title XI of the Tax business or branch is situated.
Code shall also apply to violations of the provisions of Title IV of the Tax Each VAT-registered person shall be assigned only one TIN. The branch
Code. shall use the 9-digit TIN of the Head Office plus a 3-digit Branch Code.
SECTION 4.116-1. Tax on Persons Exempt from VAT. — Any person, "VAT-registered person" refers to any person registered in accordance with
whose sales or receipts are exempt under Sec. 109 (1) (V) of the Tax this section.
Code from the payment of VAT and who is not a VAT-registered person shall
"VAT-registrable person" refers to any person who is required to register
pay a tax equivalent to three percent (3%) of his gross monthly sales or
under the provisions of this section but failed to register.
receipts; Provided, that cooperatives shall be exempt from the three (3%)
gross receipts tax herein imposed. (b) Mandatory:
Any person who, in the course of trade or business, sells, barters or The above-stated taxpayers may apply for VAT registration not later than ten
exchanges goods or properties or engages in the sale or exchange of (10) days before the beginning of the calendar quarter and shall pay the
services shall be liable to register if: registration fee prescribed under sub-paragraph (a) of this Section, unless
they have already paid at the beginning of the year. In any case, the
i. His gross sales or receipts for the past twelve (12) months, other than
Commissioner of Internal Revenue may, for administrative reason deny any
those that are exempt under Sec. 109 (1)(A) to (U) of the Tax Code,have
application for registration. Once registered as a VAT person, the taxpayer
exceeded One million five hundred thousand pesos (P1,500,000.00); or
shall be liable to output tax and be entitled to input tax credit beginning on
ii. There are reasonable grounds to believe that his gross sales or receipts the first day of the month following registration.
for the next twelve (12) months, other than those that are exempt under Sec.
SECTION 9.236-2. Registration of Non-VAT or Exempt Taxpayer. — Every
109 (1)(A) to (U) of the Tax Code,will exceed One million five hundred
person, other than those required to be registered as VAT persons, engaged
thousand pesos (P1,500,000.00).
in any business, shall, on or before the commencement of his business, or
Every person who becomes liable to be registered under paragraph (1) of whenever he transfers to another revenue district, register with the RDO
this subsection shall register with the RDO which has jurisdiction over the concerned within 10 days from the commencement of business or transfer in
head office or branch of that person, and shall pay the annual registration fee the manner prescribed under this Section and shall pay the applicable
prescribed in subsection 9.236-1(a) hereof. If he fails to register, he shall be registration fee of Five Hundred Pesos (P500.00) for every separate or
liable to pay the output tax under Secs. 106 and/or 108 of the Tax Code as if distinct establishment or place of business, if he has not paid the registration
he were a VAT-registered person, but without the benefit of input tax credits fee in the beginning of the taxable year. The fee shall be paid to any AAB,
for the period in which he was not properly registered. where each place of business or branch is situated. In areas where there is
Moreover, franchise grantees of radio and television broadcasting, whose no AAB, such person shall pay the fee prescribed herein with the RDO,
gross annual receipt for the preceding calendar year exceeded RCO, or authorized municipal treasurer. The registration shall contain his
P10,000,000.00, shall register within thirty (30) days from the end of the name or style, place of residence, business, the place where such business
calendar year. is carried on, and such information as may be required by the Commissioner
of Internal Revenue in the form prescribed therefor.
(c) Optional VAT Registration. —
The following are required to register as non-VAT persons and pay the
(1) Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not applicable registration fee:
required to register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-
registered by registering with the RDO that has jurisdiction over the head 1) VAT-exempt persons under Sec. 109 of the Tax Code who did not opt to
office of that person, and pay the annual registration fee of P500.00 for every register as VAT taxpayers;
separate and distinct establishment. 2) Individuals engaged in business where the gross sales or receipts do not
(2) Any person who is VAT-registered but enters into transactions which are exceed One Hundred Thousand Pesos P100,000.00 during any 12-month
exempt from VAT (mixed transactions) may opt that the VAT apply to his period. They are required to register but will not be made to pay the
transactions which would have been exempt under Section 109(1) of the Tax registration fee of FIVE HUNDRED PESOS (P500.00). cHAaCE
Code,as amended. [Sec. 109(2)] 3) Non-stock, non-profit organizations and associations engaged in trade or
(3) Franchise grantees of radio and/or television broadcasting whose annual business whose gross sales or receipts do not exceed P1,500,000.00 for any
gross receipts of the preceding year do not exceed ten million pesos 12-month period or in an amount as adjusted thereafter every three (3) years
(P10,000,000.00) derived from the business covered by the law granting the depending on the annual Consumer Price Index as published by the NSO;
franchise may opt for VAT registration. This option, once exercised, shall be 4) Cooperatives other than electric cooperatives. However, they are not
irrevocable. (Sec. 119, Tax Code) required to pay the registration fee imposed in these Regulations.
Any person who elects to register under this subsections (1) and (2) above SECTION 9.236-3. Application for Registration. — The application shall be
shall not be allowed to cancel his registration for the next three (3) years. filed with the RDO where the principal place of business, branch, storage
place or premises is located, as the case may be, before commencement of 2. A change in the nature of the business itself from sale of taxable goods
business or production or qualification as a withholding agent. In the case of and/or services to exempt sales and/or services;
storage places, the application shall be filed within thirty (30) days from the
3. A person whose transactions are exempt from VAT who voluntarily
date the aforesaid premises have been used for storage.
registered under VAT system, who after the lapse of three years after his
In any case, the Commissioner of Internal Revenue may, for administrative registration, applies for cancellation of his registration as such; and
and meritorious reasons, deny or revoke any application for registration.
4. A VAT-registered person whose gross sales or receipts for three
SECTION 9.236-4. Certificate of Registration. — The certificate shall be consecutive years did not exceed P1,500,000.00 beginning July 1, 2005,
issued to the applicant by the BIR office concerned upon compliance with the which amount shall be adjusted to its present value every three years using
requirements for registration. the Consumer Price Index, as published by the NSO. Upon updating his
registration, the taxpayer shall become liable to the percentage tax imposed
SECTION 9-236-5. Posting of Registration Certificate. — Every registered
in Sec. 116 of the Tax Code.A short period return for the remaining period
taxpayer shall post or exhibit his Registration Certificate and duly validated
that he was VAT-registered shall be filed within twenty five (25) days from
Registration Fee Return at a conspicuous place in his principal place of
the date of cancellation of his registration.
business and at each branch in such a way that is clearly and easily visible
to the public. For purposes of the percentage tax, the taxpayer shall file a monthly return.
An initial return shall be filed for the month following the month of
SECTION 9.236-6. Cancellation of VAT Registration. — A VAT-Registered
cancellation / update of his registration.
person may cancel his registration for VAT if:
All applications for cancellation of registration due to closure/cessation or
a. He makes written application and can demonstrate to the Commissioner of
termination of business shall be subjected to immediate investigation by the
Internal Revenue's satisfaction that his gross sales or receipts for the
BIR office concerned to determine the taxpayer's tax liabilities.
following twelve (12) months, other than those that are exempt under Sec.
109 (1) (A) to (U) of the Tax Code,will not exceed One Million Five Hundred Any minor change in the original registration (such as change of address
Thousand pesos (P1,500,000.00); or within the same RDO, typographical errors, and etc.) which may not
necessitate cancellation of the registration shall be effected by accomplishing
b. He has ceased to carry on his trade or business, and does not expect to
the Registration Update Form (BIR Form No. 1905).
recommence any trade or business within the next twelve (12) months.
Any person, who opted to be registered as a VAT taxpayer, may apply for
Some other instances where a VAT-registered person may apply for
cancellation of such registration. However, the optional registration as a VAT
cancellation of registration are:
taxpayer of a franchise grantee of radio and/or television broadcasting whose
1. A change of ownership, in the case of a single proprietorship; gross receipts for the preceding year did not exceed P10,000,000.00 shall
2. Dissolution of a partnership or corporation; not be revocable.
3. Merger or consolidation with respect to the dissolved corporation(s); TRANSITORY AND OTHER PROVISIONS
4. A person who has registered prior to planned business commencement, (a) Transitional Input Tax Credit —
but failed to actually start his business; (i) For goods, materials or supplies not for sale but purchased for use in
Some instances where taxpayer will update his registration by submitting a business in their present condition, which are not intended for further
duly accomplished Registration Update Form (BIR Form No. 1905): processing and are on hand as of the last day immediately preceding the
effectivity of RA No. 9337, a transitional input tax equivalent to 2% of the
1. A person's business has become exempt in accordance with Sec. 4.109- value of the beginning inventory on hand or actual VAT paid on such goods,
1(B) (1) of these Regulations, materials or supplies, whichever is higher, shall be allowed.
(ii) For goods purchased with the object of resale in their present condition, (ii) The seller billed the unpaid amount before the effectivity of RA No. 9337,
the same transitional input tax equivalent to 2% of the value of such goods and a copy of such billing is attached to the information return required in (i)
unsold or actual VAT paid thereon whichever is higher, as of the day hereof;
immediately preceding the effectivity of RA No. 9337 shall be allowed which
(iii) The seller has recorded in his books of accounts as of the day
amount may also be credited against the output tax of a VAT-registered
immediately preceding the effectivity of RA No. 9337 the amount receivable;
person. aSIATD
and
For this purpose, an inventory as of the day immediately preceding the
(iv) The seller files on or before the 20th day after each month, the regular
effectivity of RA No. 9337 of such goods or supplies showing the quantity,
percentage tax return for the payment of the percentage tax on payments
description and amount should be filed with the RDO or concerned BIR office
received after the effectivity of RA No. 9337.
not later than thirty (30) days from the effectivity of RA No. 9337.
In the case of sale of electricity, if a billing period covers power consumption
In recognizing transitional input tax as of the day immediately preceding the
for the period before and after the effectivity of RA No. 9337, 10% VAT shall
effectivity of RA No. 9337, a journal entry should be made in the books
be applied only to electricity consumption for the period on or after the
debiting the input tax account and crediting the inventory account.
effectivity of RA No. 9337. The electricity consumption before the effectivity
The term "goods" herein mentioned does not include capital goods. of RA No. 9337 shall not be subject to 10% VAT but to the applicable
franchise/percentage tax.
(b) Unused invoice or receipts. — Taxpayers who changed status from NON-
VAT to VAT or from VAT to NON-VAT as a result of the implementation Failure to comply with the above-stated conditions shall automatically subject
of RA No. 9337 should submit within thirty (30) days from effectivity of the the gross receipts to the VAT.
law an inventory of unused invoices or receipts as of the day immediately
(d) Importation. — Goods previously VAT-exempt but became subject to
preceding the effectivity of RA No. 9337 indicating the number of booklets
VAT under RA No. 9337 imported into the Philippines prior tothe effectivity
and the corresponding serial numbers. Unused non-VAT invoices/receipts
of RA No. 9337 shall remain VAT-exempt. On the other hand, goods
shall be allowed for use in transactions subject to VAT provided the phrase
previously VAT taxable but became VAT-exempt under RA No.
"VAT -registered as of [effectivity date ofRA No. 9337]" is stamped on all
9337 imported into the Philippines prior to the effectivity of RA No.
copies thereof. Likewise, unused VAT invoices/receipts shall be allowed in
9337 shall, upon withdrawal from customs custody, be subject to VAT.
VAT-exempt transactions provided the phrase "Non-VAT-registered as
of _________________" is stamped on all copies thereof. These unused (e) Clarificatory Rules to be Issued through Revenue Memorandum Circulars
invoices or receipts with the proper stamp shall be allowed for use in (RMCs) — The Commissioner of Internal Revenue shall issue Revenue
transactions subject to VAT/Non-VAT up to December 31, 2005. Memorandum Circulars to clarify the rules of implementation affecting certain
peculiarities of each industry groupings such as but not limited to the power
(c) Billed but uncollected sale of services. — Amounts due on sale of
sector, oil and petroleum, and telecommunications.
services becoming liable to VAT under RA No. 9337 rendered before the
effectivity of RA No. 9337, payments of which are receivable on or after the REPEALING CLAUSE
effectivity of RA No. 9337, shall be considered as accrued as of the day All other laws, acts, decrees, executive orders, issuances and rules and
immediately preceding the effectivity of RA No. 9337 for the purpose of VAT regulations or parts thereof which are contrary to and inconsistent with any
exemption and payment of any applicable percentage tax, if any, or VAT provisions of R.A. No. 9337 are deemed repealed, amended or modified. All
exemption as the case may be, subject to the following conditions: other issuances and rules and regulations or parts thereof which are contrary
(i) Information return to be filed on or before sixty (60) days from the to and inconsistent with any provisions of these Regulations are deemed
effectivity of RA No. 9337 showing the name(s) of the contractor(s), client(s), repealed, amended or modified.
customer(s) and the amount(s) of the contract price outstanding as of the No VAT exemptions may be granted by the BIR except those explicitly stated
day immediately preceding the effectivity of RA No. 9337, and containing a in Sec. 109(1) of the Tax Code,as amended by RA No. 9337. All previous
declaration of the obligation to pay the applicable percentage tax due if any; exemptions granted through laws, acts, decrees, executive orders, issuances
and rules and regulations or parts thereof promulgated or issued prior to the instrument of sale (whether the instrument is nominated as a deed of
effectivity of RA No. 9337 are deemed repealed, amended or modified absolute sale, deed of conditional sale or otherwise) was executed prior
accordingly. to November 1, 2005, shall be subject to ten percent (10%) output VAT.
Sale of real property on installment plan means sale of real property
by a real estate dealer, the initial payments of which in the year of sale do
February 7, 2007 (Cualoping)
not exceed twenty-five (25%) of the gross selling price.
REVENUE REGULATIONS NO. 04-07
SUBJECT: Amending Certain Provisions of Revenue Regulations No. In case of installment sale, the seller shall be subject to output VAT
16-2005, As Amended, Otherwise Known as the Consolidated Value- on the installment payments received, including the interests and penalties
Added Tax Regulations of 2005 for late payment, actually and/or constructively received, subject to the
TO: All Internal Revenue Officers and Others Concerned provisions of Sec. 4.106-4 hereof. Correspondingly, the buyer of the property
can claim the input tax in the same period as the seller recognized the output
SECTION 1. Scope. — Pursuant to the provisions of Sec. 244 and
tax.
245 of the National Internal Revenue Code of 1997, as amended, in relation
to Title IV of the same Tax Code, these Regulations are hereby promulgated Installment payments, including interests and penalties, actually
to amend certain provisions of Revenue Regulations (RR) No. 16-2005, as and/or constructively received starting February 1, 2006 shall be subject to
amended, otherwise known as the Consolidated Value-Added Tax twelve percent (12%) output VAT.
Regulations of 2005.
Sale of real property by a real estate dealer on a deferred payment
SECTION 2. VAT on Sale of Goods or Properties. — Sec. 4.106-1 basis not on the installment plan means sale of real property, the initial
of RR No. 16-2005 is hereby amended to read as follows: payments of which in the year of sale exceed twenty-five percent (25%) of
the gross selling price.
"SEC. 4.106-1. VAT on Sale of Goods or Properties. — VAT is
imposed and collected on every sale, barter or exchange, or transactions "Initial payments" means payment or payments which the seller
"deemed sale" of taxable goods or properties at the rate of twelve percent receives before or upon execution of the instrument of sale and payments
(12%) (starting February 1, 2006) of the gross selling price or gross value in which he expects or is scheduled to receive in cash or property (other than
money of the goods or properties sold, bartered, or exchanged, or deemed evidence of indebtedness of the purchaser) during thetaxable year when the
sold in the Philippines." sale or disposition of the real property was made. It covers any down
payment made and includes all payments actually or constructively received
SECTION 3. Sale of Real Properties. — Sec. 4.106-3 of RR No. 16-
during the year of sale, the aggregate of which determines the limit set by
2005 is hereby amended to read as follows:
law.
"SEC. 4.106-3. Sale of Real Properties. — Sale of real properties
Initial payments do not include the amount of mortgage on the real
held primarily for sale to customers or held for lease in the ordinary course of
property sold except when such mortgage exceeds the cost or other basis of
trade or business of the seller shall be subject to VAT.
the property to the seller, in which case the excess shall be considered part
Sale of residential lot with gross selling price exceeding of the initial payments.
P1,500,000.00, residential house and lot or other residential dwellings with
Also excluded from the initial payments are notes or other evidence
gross selling price exceeding P2,500,000.00, where the instrument of sale
of indebtedness issued by the purchaser to the seller at the time of the sale.
(whether the instrument is nominated as a deed of absolute sale, deed of
conditional sale or otherwise) is executed on or after Nov. 1, 2005, shall be In the case of sale of real properties on a deferred-payment basis
subject to ten percent (10%) output VAT, and starting Feb. 1, 2006, to twelve not on the installment plan, the transaction shall be treated as cash sale
percent (12%) output VAT . which makes the entire selling price taxable in the month of sale. Output tax
shall be recognized by the seller and input tax shall accrue to the buyer at
Installment sale of residential house and lot or other residential
the time of the execution of the instrument of sale.
dwellings with gross selling price exceeding P1,000,000.00, where the
Payments subsequent to "initial payments" shall no longer be If the sale of real property is on installment plan where the zonal
subject to output VAT, in the case of sale on a deferred payment basis. value/fair market value is higher than the consideration/selling price,
exclusive of the VAT, the VAT shall be based on the ratio of actual collection
Pre-selling of real estate properties by real estate dealers shall be
of the consideration, exclusive of the VAT, against the agreed consideration,
subject to VAT in accordance with the rules prescribed above.
exclusive of the VAT, appearing in the Contract to Sell/Contract of Sale
Real estate dealer includes any person engaged in the business of applied to the zonal value/fair market value of the property at the time of the
buying, developing, selling, exchanging real properties as principal and execution of the Contract to Sell/Contract of Sale at the inception of the
holding himself out as a full or part-time dealer in real estate. contract. Thus, since the output VAT is based on the market value of the
Transmission of property to a trustee shall not be subject to VAT if property which is higher than the consideration/selling price in the sales
the property is to be merely held in trust for the trustor and/or beneficiary. document, exclusive of the VAT, the input VAT that can be claimed by the
However, if the property transferred is one for sale, lease or use in the buyer shall be the separately-billed output VAT in the sales document issued
ordinary course of trade or business and the transfer constitutes a completed by the seller. Therefore, the output VAT which is based on the market value
gift, the transfer is subject to VAT as a deemed sale transaction pursuant to must be billed separately by the seller in the sales document with specific
Section 4.106-7(a)(1) of these Regulations. The transfer is a completed gift if mention that the VAT billed separately is based on the market value of the
the transferor divests himself absolutely of control over the property, i.e., property.
irrevocable transfer of corpus and/or irrevocable designation of beneficiary." Illustration:
SECTION 4. Gross Selling Price. — Sec. 4.106-4 of RR No. 16- ABC Corporation sold a parcel of land to XYZ Company on July 2,
2005 is hereby amended to read as follows: 2006 for P1,000,000.00, plus the output VAT, with a monthly installment
"SEC. 4.106-4. Meaning of the Term 'Gross Selling Price'. — The payment of P10,000.00, plus the output VAT. The zonal value of the subject
term "gross selling price" means the total amount of money or its equivalent property at the time of sale amounted to P1,500,000.00. Compute for the
which the purchaser pays or is obligated to pay to the seller in consideration output tax due on the installment payment.
of the sale, barter or exchange of the goods or properties, excluding VAT. Formula:
The excise tax, if any, on such goods or properties shall form part of the
gross selling price. Actual collection (exclusive of the VAT) x Zonal value x 12%
In the case of sale, barter or exchange of real property subject to ———————————————

VAT, gross selling price shall mean the consideration stated in the sales Agreed consideration (exclusive of the VAT)
document or the fair market value whichever is higher. If the VAT is not billed
P10,000.00 x P1,500,000.00 = P15,000.00
separately in the document of sale, the selling price or the consideration
stated therein shall be deemed to be inclusive of VAT. The term 'fair market —————
value' shall mean whichever is higher of: 1) the fair market value as P1,000,000.00
determined by the Commissioner/zonal value, or 2) the fair market value as
P15,000.00 x 12%
shown in schedule of values of the Provincial and City Assessors (real P1,800.00
=
property tax declaration). However, in the absence of zonal value/fair market
value as determined by the Commissioner, gross selling price refers to the =======
market value shown in the latest real property tax declaration or the
consideration, whichever is higher. If the gross selling price is based on the Selling price is the amount of consideration in a contract of sale
zonal value or market value of the property, the zonal or market value shall between the buyer and seller or the total price of the sale which may include
be deemedexclusive of VAT. Thus, the zonal value/market value, net of the cash or property and evidence of indebtedness issued by the buyer,
output VAT, should still be higher than the consideration in the document of excluding the VAT."
sale, exclusive of the VAT. aSTAIH
SECTION 5. Zero-Rated Sales. — Sec. 4.106-5 of RR No. 16-2005 or stopping at any other port in the Philippines unless the docking or stopping
is hereby amended to read as follows: at any other Philippine port is for the purpose of unloading passengers
and/or cargoes that originated from abroad, or to load passengers and/or
"SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. — . . . .
cargoes bound for abroad; Provided, further, that if any portion of such fuel,
The following sales by VAT-registered persons shall be subject to goods or supplies is used for purposes other than that mentioned in this
zero percent (0%) rate: paragraph, such portion of fuel goods and supplies shall be subject to twelve
(a) Export Sales. — . . . . percent (12%) output VAT starting February 1, 2006.
(5) Transactions considered export sales under Executive Order No. (b) Foreign Currency Denominated Sale. — . . .
226, otherwise known as the Omnibus Investments Code of 1987, and other xxx xxx xxx.
special laws.
(c) Sales to Persons or Entities Deemed Tax-exempt Under Special
"Considered export sales under Executive Order No. 226" shall Law or International Agreement. — Sale of goods or property to persons or
mean the Philippine port F.O.B. value determined from invoices, bills of entities who are tax-exempt under special laws or international agreements
lading, inward letters of credit, landing certificates, and other commercial to which the Philippines is a signatory, such as, Asian Development Bank
documents, of export products exported directly by a registered export (ADB), International Rice Research Institute (IRRI), etc., shall be effectively
producer, or the net selling price of export products sold by a registered subject to VAT at zero-rate."
export producer to another export producer, or to an export trader that
SECTION 6. Effectively Zero-Rated. — Sec. 4.106-6 of RR No. 16-
subsequently exports the same; Provided, That sales of export products to
another producer or to an export trader shall only be deemed export sales
when actually exported by the latter, as evidenced by landing certificates or "SEC. 4.106-6. Meaning of the term 'Effectively Zero-Rated Sale of
similar commercial documents; Provided, further, That pursuant to EO Goods and Properties'. — The term 'effectively zero-rated sale of goods and
226 and other special laws, even without actual exportation, the following properties' shall refer to the local sale of goods and properties by a VAT-
shall be considered constructively exported: (1) sales to bonded registered person to a person or entity who was granted indirect tax
manufacturing warehouses of export-oriented manufacturers; (2) sales to exemption under special laws or international agreement."
export processing zones pursuant to Republic Act (RA) Nos. 7916, as
SECTION 7. Transactions Deemed Sale. — Sec. 4.106-7 of RR No.
amended, 7903, 7922 and other similar export processing zones; (3) sale to
16-2005 is hereby amended to read as follows:
enterprises duly registered and accredited with the Subic Bay Metropolitan
Authority pursuant to RA 7227; (4) sales to registered export traders "SEC. 4.106-7. Transactions Deemed Sale. — . . .
operating bonded trading warehouses supplying raw materials in the xxx xxx xxx.
manufacture of export products under guidelines to be set by the Board in
consultation with the Bureau of Internal Revenue (BIR) and the Bureau of (b) The Commissioner of Internal Revenue shall determine the
Customs (BOC); (5) sales to diplomatic missions and other agencies and/or appropriate tax base in cases where a transaction is deemed a sale, barter
instrumentalities granted tax immunities, of locally manufactured, assembled or exchange of goods or properties under Sec. 4.106-7 paragraph (a) hereof,
or repacked products whether paid for in foreign currency or not. or where the gross selling price is unreasonably lower than the actual market
value. The gross selling price is unreasonably lower than the actual market
xxx xxx xxx. value if it is lower by more than 30% of the actual market value of the same
(6) The sale of goods, supplies, equipment and fuel to persons goods of the same quantity and quality sold in the immediate locality on or
engaged in international shipping or international air transport operations; nearest the date of sale.Nonetheless, if one of the parties in the transaction
Provided, that the same is limited to goods, supplies, equipment and fuel is the government as defined and contemplated under the Administrative
pertaining to or attributable to the transport of goods and passengers from a Code, the output VAT on the transaction shall be based on the actual selling
port in the Philippines directly to a foreign port, or vice versa, without docking price.
xxx xxx xxx." "SEC. 4.108-1. VAT on the Sale of Services and Use or Lease of
Properties. — Sale or exchange of services, as well as the use or lease of
SECTION 8. Change or Cessation of Status as VAT-Registered
properties, as defined in Sec. 108(A) of the Tax Code shall be subject to
Person. — Sec. 4.106-8 of RR No. 16-2005 is hereby amended to read as
VAT, equivalent to twelve percent (12%) of the gross receipts (excluding
follows:
VAT) starting February 1, 2006."
"SEC. 4.106-8. Change or Cessation of Status as VAT-registered
SECTION 10. Definitions and Specific Rules on Selected Services.
Person. — . . . .
— Sec. 4.108-3 of RR No. 16-2005 is hereby amended to read as follows:
(b) Not subject to output tax
"SEC. 4.108-3. Definitions and Specific Rules on Selected Services.
The VAT shall not apply to goods or properties existing as of the —
occurrence of the following:
xxx xxx xxx.
(1) Change of control of a corporation by the acquisition of the
(e) Domestic common carriers by air and sea are subject to twelve
controlling interest of such corporation by another stockholder or group of
percent (12%) VAT on their gross receipts from their transport of
stockholders. The goods or properties used in business or those comprising
passengers, goods or cargoes from one place in the Philippines to another
the stock-in-trade of the corporation, having a change in corporate control,
place in the Philippines starting Feb. 1, 2006.
will not be considered sold, bartered or exchanged despite the change in the
ownership interest in the said corporation. (f) Sale of electricity by generation, transmission, and distribution
companies shall be subject to twelve percent (12%) VAT on their gross
Illustration: Abel Corporation is a merchandising concern and has an
receipts starting Feb. 1, 2006; Provided, that sale of power or fuel generated
inventory of goods for sale amounting to Php 1 million. Nel Corporation, a
through renewable sources of energy such as, but not limited to, biomass,
real estate developer, exchanged its real estate properties for the shares of
solar, wind, hydropower, geothermal, ocean energy, and other emerging
stocks of Abel Corporation resulting to the acquisition of corporate control.
energy sources using technologies such as fuel cells and hydrogen fuels
The inventory of goods owned by Abel Corporation (Php 1 million worth) is
shall be subject to 0% VAT.
not subject to output tax despite the change in corporate control because the
same corporation still owns them. This is in recognition of the separate and xxx xxx xxx.
distinct personality of the corporation from its stockholders. However, the
(h) Services of franchise grantees . . . .
exchange of real estate properties held for sale or for lease, for shares of
stocks, whether resulting to corporate control or not, is subject to Gross receipts of all other franchisees, other than those covered by
VAT,subject to exceptions provided under Section 4.106-3 hereof. On the Sec. 119 of the Tax Code, regardless of how their franchises may have been
other hand, if the transferee of the transferred real property by a real estate granted, shall be subject to the twelve percent (12%) VAT imposed under
dealer is another real estate dealer, in an exchange where the transferor Sec. 108 of the Tax Code starting Feb. 1, 2006. This includes among others,
gains control of the transferee-corporation, no output VAT is imposable on the Philippine and Amusement Gaming Corporation (PAGCOR), and its
the said transfer. licensees or franchisees.
(2) Change in the trade or corporate name of the business; xxx xxx xxx.
(3) Merger or consolidation of corporations. The unused input tax of (i) Non-life insurance companies including surety, fidelity, indemnity
the dissolved corporation, as of the date of merger or consolidation, shall be and bonding companies are subject to VAT. They are not liable to the
absorbed by the surviving or new corporation." payment of the premium tax under Sec. 123 of the Tax Code.
SECTION 9. VAT on the Sale of Services and Use or Lease of 'Non-life insurance companies' including surety, fidelity, indemnity
Properties. — Sec. 4.108-1 of RR No. 16-2005 is hereby amended to read and bonding companies, shall include all individuals, partnerships,
as follows: associations, or corporations, including professional reinsurers defined in
Sec. 280 of PD 612, otherwise known as the Insurance Code of the
Philippines, mutual benefit associations and government-owned or controlled companies), relatives by consanguinity or affinity within the fourth (4th) civil
corporations, engaging in the business of property insurance, as degree, and trust fund where the taxpayer is the trustor, trustee or
distinguished from insurance on human lives, health, accident and insurance beneficiary, even if covered by an agreement to the contrary. aHcACT
appertaining thereto or connected therewith which shall be subject to the
'Constructive receipt' occurs when the money consideration or its
percentage tax under Sec. 123 of the Tax Code.
equivalent is placed at the control of the person who rendered the service
The gross receipts from non-life insurance shall mean total without restrictions by the payor. The following are examples of constructive
premiums collected whether paid in money, notes, credits or any substitute receipts:
for money.
(1.) deposits in banks which are made available to the seller of services without
Non-life insurance premiums are subject to VAT whereas non-life restrictions;
reinsurance premiums are not subject to VAT, the latter beingalready
(2.) issuance by the debtor of a notice to offset any debt or obligation and acceptance
subjected to VAT upon receipt of the insurance premiums. Insurance and
thereof by the seller as payment for services rendered; and
reinsurance commissions, whether life of non-life, are subject to VAT.
(3.) transfer of the amounts retained by the payor to the account of the contractor."
(j) Pre-need Companies . . . .
SECTION 12. Zero-Rated Sale of Services. — Sec. 4.108-5(b)(4) of
xxx xxx xxx."
RR No. 16-2005 is hereby amended to read as follows:
SECTION 11. Gross Receipts. — Sec. 4.108-4 of RR No. 16-2005 is
"SEC. 4.108-5. Zero-Rated Sale of Services. —
hereby amended to read as follows:
xxx xxx xxx.
"SEC. 4.108-4. Definition of Gross Receipts. — 'Gross receipts'
refers to the total amount of money or its equivalent representing the contract (b) Transactions Subject to Zero Percent (0%) VAT Rate. — . . .
price, compensation, service fee, rental or royalty, including the amount (4) Services rendered to persons engaged in international shipping
charged for materials supplied with the services and deposits applied as or air transport operations, including leases of property for use thereof;
payments for services rendered and advance payments actually or Provided, however, that the services referred to herein shall not pertain to
constructively received during the taxable period for the services performed those made to common carriers by air and sea relative to their transport of
or to be performed for another person, excluding the VAT, except those passengers, goods or cargoes from one place in the Philippines to another
amounts earmarked for payment to unrelated third (3rd) party or received as place in the Philippines, the same being subject to twelve percent (12%) VAT
reimbursement for advance payment on behalf of another which do not under Sec. 108 of the Tax Code starting Feb. 1, 2006;
redound to the benefit of the payor.
xxx xxx xxx."
A payment is a payment to a third (3rd) party if the same is made to
settle an obligation of another person, e.g., customer or client, to the said SECTION 13. Effectively Zero-Rated Sale of Services. — Sec.
third party, which obligation is evidenced by the sales invoice/official receipt 4.108-6 of RR No. 16-2005 is hereby amended to read as follows:
issued by said third party to the obligor/debtor (e.g., customer or client of the "SEC. 4.108-6. Meaning of the term 'Effectively Zero-Rated Sale of
payor of the obligation). Services'. The term 'effectively zero-rated sales of services' shall refer to the
An advance payment is an advance payment on behalf of another if local sale of services by a VAT-registered person to a person or entity who
the same is paid to a third (3rd) party for a present or future obligation of said was granted indirect tax exemption under special laws or international
another party which obligation is evidenced by a sales invoice/official receipt agreement."
issued by the obligee/creditor to the obligor/debtor (i.e., the aforementioned SECTION 14. VAT-Exempt Transactions. — Sec. 4.109-1(B)(1) of
"another party") for the sale of goods or services by the former to the latter. RR No. 16-2005 is hereby amended to read as follows:
For this purpose 'unrelated party' shall not include taxpayer's "SEC. 4.109-1. VAT-Exempt Transactions. —
employees, partners, affiliates (parent, subsidiary and other related
xxx xxx xxx. of dormitories, boarding houses and bed spaces; and per room in case of
rooms for rent.
(B) Exempt transactions. — Subject to the provisions of Sec. 4.109-
2 hereof, the following transactions shall be exempt from VAT: xxx xxx xxx.
xxx xxx xxx. (t) Importation of life-saving equipment, safety and rescue
equipment and communication and navigational safety equipment, steel
(I) Sales by agricultural cooperatives duly registered and in good
plates and other metal plates including marine-grade aluminum plates, used
standing with the Cooperative Development Authority (CDA) to their
for shipping transport operations; Provided, that the exemption shall be
members, as well as sale of their produce, whether in its original state or
subject to the provisions of Section 4 of Republic Act No. 9295, otherwise
processed form, to non-members, their importation of direct farm inputs,
known as 'The Domestic Shipping Development Act of 2004';
machineries and equipment, including spare parts thereof, to be used directly
and exclusively in the production and/or processing of their produce. (u) Importation of capital equipment, machinery, spare parts, life-
saving and navigational equipment, steel plates and other metal plates
Sale by agricultural cooperatives to non-members can only be
including marine-grade aluminum plates to be used in the construction,
exempted from VAT if the producer of the agricultural products sold is the
repair, renovation or alteration of any merchant marine vessel operated or to
cooperative itself. If the cooperative is not the producer (e.g., trader), then
be operated in the domestic trade. Provided, that the exemption shall be
only those sales to its members shall be exempted from VAT;
subject to the provisions of Section 19 of Republic Act No. 9295, otherwise
It is to be reiterated however, that sale or importation of agricultural known as ‘The Domestic Shipping Development Act of 2004';
food products in their original state is exempt from VAT irrespective of the
(v) Importation of fuel, goods and supplies by persons engaged in
seller and buyer thereof, pursuant to Subsection (a) hereof.
international shipping or air transport operations; Provided, that the said fuel,
xxx xxx xxx. goods and supplies shall be used exclusively or shall pertain to the transport
(p) The following sales of real properties are exempt from VAT, of goods and/or passenger from a port in the Philippines directly to a foreign
namely: port, or vice versa, without docking or stopping at any other port in the
Philippines unless the docking or stopping at any other Philippine port is for
(1) Sale of real properties not primarily held for sale to customers or the purpose of unloading passengers and/or cargoes that originated from
held for lease in the ordinary course of trade or business. abroad, or to load passengers and/or cargoes bound for abroad; Provided,
However, even if the real property is not primarily held for sale to further, that if any portion of such fuel, goods or supplies is used for
customers or held for lease in the ordinary course of trade or business but purposes other than that mentioned in this paragraph, such portion of fuel,
the same is used in the trade or business of the seller, the sale thereof shall goods and supplies shall be subject to twelve percent (12%) VAT starting
be subject to VAT being a transaction incidental to the taxpayer's main February 1, 2006;
business. (w) Services of banks, non-bank financial intermediaries performing
xxx xxx xxx. quasi-banking functions, and other non-bank financial intermediaries, such
as money changers and pawnshops, subject to percentage tax under Secs.
(q) . . . . 121 and 122, respectively, of the Tax Code; and
The term 'residential units' shall refer to apartments and houses & (x) Sale or lease of goods or properties or the performance of
lots used for residential purposes, and buildings or parts or units thereof services other than the transactions mentioned in the preceding paragraphs,
used solely as dwelling places (e.g., dormitories, rooms and bed spaces) the gross annual sales and/or receipts do not exceed the amount of One
except motels, motel rooms, hotels, hotel rooms, lodging houses, inns and Million Five Hundred Thousand Pesos (P1,500,000.00). Provided, that not
pension houses. later than January 31, 2009 and every three (3) years thereafter, the amount
The term 'unit' shall mean an apartment unit in the case of of P1,500,000.00 shall be adjusted to its present value using the Consumer
apartments, house in the case of residential houses; per person in the case Price Index, as published by the NSO.
For purposes of the threshold of P1,500,000.00, the husband and calendar month refers to the total price, excluding the VAT, agreed upon for
the wife shall be considered separate taxpayers. However, the aggregation one or more assets acquired and not on the payments actually made during
rule for each taxpayer shall apply, for instance, if a professional, aside from the calendar month. Thus, an asset acquired on installment for an acquisition
the practice of his profession, also derives revenue from other lines of cost of more than P1,000,000.00, excluding the VAT, will be subject to the
business which are otherwise subject to VAT, the same shall be combined amortization of input tax despite the fact that the monthly
for purposes of determining whether the threshold has been exceeded. Thus, payments/installments may not exceed P1,000,000.00.
the VAT-exempt sale shall not be included in determining the threshold."
xxx xxx xxx.
SECTION 15. VAT Registered Person may Elect that Exempt
Construction in progress (CIP) is the cost of construction work which
Transactions Under Sec. 4.109-1 be Registered for VAT Purposes. — Sec.
is not yet completed. CIP is not depreciated until the asset is placed in
4.109-2 of RR No. 16-2005 is hereby amended to read as follows:
service. Normally, upon completion, a CIP item is reclassified and the
"SEC. 4.109-2. Exempt Transactions May be Registered for VAT reclassified asset is capitalized and depreciated.
Purposes. — A VAT-registered person may, in relation to Sec. 9.236-1(c) of
CIP is considered, for purposes of claiming input tax, as a purchase
these Regulations, elect that the exemption in Sec. 4.109-1(B) hereof shall
of service, the value of which shall be determined based on the progress
not apply to his sales of goods or properties or services. Once the election is
billings. Until such time the construction has been completed, it will not
made, it shall be irrevocable for a period of three (3) years counted from the
qualify as capital goods as herein defined, in which case, input tax credit on
quarter when the election was made except for franchise grantees of radio
such transaction can be recognized in the month the payment was made;
and TV broadcasting whose annual gross receipts for the preceding year do
Provided, that an official receipt of payment has been issued based on the
not exceed ten million pesos (P10,000,000.00) where the option becomes
progress billings.
perpetually irrevocable."
In case of contract for the sale of service where only the labor will be
SECTION 16. Input Tax on Depreciable Goods. — Sec. 4.110-3 of
supplied by the contractor and the materials will be purchased by the
contractee from other suppliers, input tax credit on the labor contracted shall
"SEC. 4.110-3. Claim for Input Tax on Depreciable Goods. — . . . still be recognized on the month the payment was made based on a progress
billings while input tax on the purchase of materials shall be recognized at
(a) . . . .
the time the materials were purchased.
(b) If the estimated useful life of a capital good is less than five (5)
Once the input tax has already been claimed while the construction
years — The input tax shall be spread evenly on a monthly basis by dividing
is still in progress, no additional input tax can be claimed upon completion of
the input tax by the actual number of months comprising the estimated useful
the asset when it has been reclassified as a depreciable capital asset and
life of a capital good. The claim for input tax credit shall commence in the
depreciated."
month that the capital goods were acquired. cEAIHa
SECTION 17. Input Tax on Mixed Transactions. — Sec. 4.110-4 of
Where the aggregate acquisition cost (exclusive of VAT) of the
existing or finished depreciable capital goods purchased or imported during
any calendar month does not exceed one million pesos (P1,000,000.00), the "SEC. 4.110-4. Apportionment of Input Tax on Mixed Transactions.
total input taxes will be allowable as credit against output tax in the month of —....
acquisition.
1. All the input taxes that can be directly attributed to transactions
Capital goods or properties refers to goods or properties with subject to VAT may be recognized for input tax credit; Provided, that input
estimated useful life greater than one (1) year and which are treated as taxes that can be directly attributable to VAT taxable sales of goods and
depreciable assets under Sec. 34(F) of the Tax Code, used directly or services to the Government or any of its political subdivisions,
indirectly in the production or sale of taxable goods or services. instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall not be credited against output taxes arising from
The aggregate acquisition cost of depreciable assets in any
sales to non-Government entities. Ratable portion of the input tax not

Claims for VAT refund/Tax Credit Certificate (TCC) with the Bureau directly attributable to any activity:
of Internal Revenue, Board of Investment, and One-Stop-Shop and Duty Taxable sales (12%) x Amount of
Drawback Center of the Dept. of Finance should be deducted from the
allowable input tax that are attributable to zero-rated sales. Total Sales input tax
2. . . . not directly
Illustration: ERA Corporation has the following sales during the month: attributable to
any activity
Sale to private entities subject to 12% P100,000.00 P100,000.00 X P20,000.00 — P5,000.00
Sale to private entities subject to 0% 100,000.00 400,000.00
Sale of exempt goods 100,000.00 Total input tax attributable to sales to private entities
Sale to gov't. subjected to for the month — P10,000.00
5% final VAT Withholding 100,000.00 ========
—————
B. The input tax attributable to zero-rated sales for the month shall be
Total Sales for the month P400,000.00
=========
P
Input tax directly attributable to zero-rated sale —
The following input taxes were passed on by its VAT suppliers: 3,000.00
Input tax on taxable goods 12% P5,000.00
Taxable sales (0% ) x Amount of
Total Sales input tax
Input tax on sale of exempt
2,000.00 not directly
goods
Input tax on sale to government 4,000.00 attributable to
Input tax on depreciable capital any activity
good not attributable to any P100,000.00 X P20,000.00 — P5,000.00
specific activity (monthly 400,000.00
amortization for 60 months) P20,000.00 Total input tax attributable to zero-rated sales for
======== the month P8,000.00
A. The input tax attributable to sales to private entities subject to 12%, for the =======
month, shall be computed as follows C. The input tax attributable to VAT-exempt sales for the month shall be
P5,000.00
Input tax directly attributable to sale subject to 12%
Input tax directly attributable to VAT-exempt sale — P
2,000.00 VAT Attributabl Attributabl VAT VAT Payabl VAT for VAT
e e e for refun
Ratable portion of the input tax not to any carry- d
Activity over
Sale
VAT-exempt sales x Amount of Subject to
12%
Total Sales input tax 12,00 10,00
VAT 5,000 5,000 10,000 2,000 0 0 0
not directly 0 0
Sale
attributable to Subject to
any activity 0%
VAT 0 3,000 5,000 8,000 8,000 0 0 8,000 0
P100,000.00 X P20,000.00 — P5,000.00
Sale of
400,000.00 Exempt
Total input tax attributable to VAT-exempt sales — P7,000.00 Goods 0 2,000 5,000 7,000 0 0 0 0 7,000*
======= Sale to
Governmen
D. The input tax attributable to sales to government for the month t
subject to
shall be computed as follows:
5% Final
Input tax directly attributable to sale to gov't. P 4,000.00 withholding 12,00 5,000**
4,000 5,000 9,000 7,000** 0 0 2,000*
VAT 0 *
directly attributable to any activity: * These amounts are not available for input tax credit but may be recognized
Taxable sales to government x Amount of as cost or expense.
Total Sales input tax
not directly
** Standard input VAT of 7% on sales to Government as provided in SEC.
attributable to 4.114-2(a).
any activity *** Withheld by Government entity as Final Withholding VAT.
P100,000.00 X P20,000.00 —P5,000.00 xxx xxx xxx."
400,000.00
SECTION 18. Determination of the Output Tax and VAT Payable
Total input tax attributable to sale to gov't. —P9,000.00 and Computation of VAT Payable or Excess Tax Credits. — Sec. 4.110-6 of
The table below shows a summary of the foregoing transactions of ERA "SEC. 4.110-6. Determination of the Output Tax and VAT Payable
Corporation: and Computation of VAT Payable or Excess Tax Credits. . . .
There shall be allowed as a deduction from the output tax the
Input VAT Creditabl Exces Unrecoverabl amount of input tax deductible as determined under Sec. 4.110-1 to 4.110-5
Outpu Input VAT not Total e Net s Input e of these Regulations to arrive at VAT payable on the monthly declaration and
t directly directly Input Input VAT Input VAT Input the quarterly VAT returns."
SECTION 19. VAT Payable (Excess Output) or Excess Input Tax. — 12/112 x 12,000."
Sec. 4.110-7 of RR No. 16-2005, as last amended by RR No. 2-2007, is
SECTION 21. Filing of Return and Payment of VAT. — SEC. 4.114-
"SEC. 4.110-7. VAT Payable (Excess Output) or Excess Input Tax.
"SEC. 4.114-1. Filing of Return and Payment of VAT. —
xxx xxx xxx.
(A) Filing of Return. — . . . .
(b.) If the input tax inclusive of input tax carried over from the previous
xxx xxx xxx.
quarter exceeds the output tax, the excess input tax shall be carried over to
the succeeding quarter or quarters; Provided, however, that any input tax (B) Payment of VAT
attributable to zero-rated sales by a VAT-registered person may at his option I. Advance Payment. — . . . .
be refunded or applied for a tax credit certificate which may be used in the
payment of internal revenue taxes, subject to the limitations as may be 1. Sale of Refined Sugar
provided for by law, as well as, other implementing rules. (a) . . . .
Illustration: (b) . . . .
For a given taxable quarter, XYZ Corporation has output VAT of 100 (c) Basis for Determining the Amount of Advance VAT Payment. —
and input VAT of 110. Since input tax exceeds the output tax for such
taxable quarter, there is an excess input tax at the end of the quarter of 10 i. Base Price. — The amount of advance VAT payment shall be
which may be carried over to the next quarter or quarters." determined by applying VAT rate of 12% on the applicable base price of
P850.00 per 50 kg. bag for refined sugar produced by a sugar refinery, and
SECTION 20. Invoicing and Recording Deemed Sale Transactions. P760.00 per 50 kg. bag for refined sugar produced by a sugar mill.
— Sec. 4.113-2 of RR No. 16-2005 is hereby amended to read as follows:
ii. Subsequent Base Price Adjustments. —
"SEC. 4.113-2. Invoicing and Recording Deemed Sale Transactions.
xxx xxx xxx.
xxx xxx xxx.
(d) . . . .
Example: "A" at the time of retirement, had 1,000 pieces of
merchandise which was deemed sold at a value of P20,000.00 with an (e) . . . .
output tax of P2,000.00. After retirement, "A" sold to "B", 500 pieces for (f) . . . .
P12,000.00. In the contract of sale or invoice, "A" should state the sales
2. Sale of Flour
invoice number wherein the output tax on "deemed sale" was imposed and
the corresponding tax paid on the 500 pieces is P1,000.00, which is included (a) . . . .
in the P12,000.00, or he should indicate it separately as follows: (b) . . . .
(c) . . . .
Gross selling price P11,000.00
(d) Basis of Determining the Amount of Advance VAT Payment. —
VAT previously paid on "deemed sale" 1,000.00
i. Determination of advance VAT. — The amount of advance VAT
—————
payment shall be determined by applying VAT rate of 12% on the tax base.
Total P12,000.00
ii. Tax Base. — . . . .
iii. Subsequent tax base adjustments. — . . . .
In this case, "B" shall be entitled only to P1,000 as input tax and not
(e) . . . .
(f) . . . . "SEC. 8.229-1. Issuance of Tax Credit Certificate for Unutilized

Advance VAT Payments. —
(C) . . . .
The advance payments made by the seller/owner of refined sugar
(D) . . . ."
and importer/miller of wheat/flour shall be allowed as credit against their
SECTION 22. Withholding of VAT. — Sec. 4.114-2 of RR No. 16- output tax on the actual gross selling price of refined sugar/flour. However,
2005 is hereby amended to read as follows: advance payments which remains unutilized at the end of taxpayer's taxable
"SEC. 4.114-2. Withholding of VAT on Government Money year where the advance payment was made, which is tantamount to excess
Payments and Payments to Non-Residents. — payment, may, at the option of the owner/seller/taxpayer or
importer/miller/taxpayer, be available for the issuance of TCC upon
(a) The government or any of its political subdivisions, application duly filed with the BIR by the seller/owner or importer/miller within
instrumentalities or agencies including government-owned or controlled two (2) years from the date of filing of the 4th quarter VAT return of the year
corporations (GOCCs) shall, before making payment on account of each such advance payments were made, or if filed out of time, from the last day
purchase of goods and/or of services taxed at twelve percent (12%)VAT prescribed by law for filing the return.
pursuant to Secs. 106 and 108 of the Tax Code, deduct and withhold a final
VAT due at the rate of five percent (5%) of the gross payment Advance VAT payments which have been the subject of an
thereof. aIcDCH application for the issuance of TCC shall not be allowed as carry-over nor
credited against the output tax of the succeeding quarter/year.
The five percent (5%) final VAT withholding rate shall represent the
net VAT payable of the seller. The remaining seven percent (7%)effectively Advanced VAT payments which remained unutilized for more than
accounts for the standard input VAT for sales of goods or services to one (1) year prior to the effectivity of these regulations may, at the option of
government or any of its political subdivisions, instrumentalities or agencies the seller/owner of the refined sugar or importer/miller of wheat/flour, be the
including GOCCs in lieu of the actual input VAT directly attributable or ratably subject of application for TCC to be filed within two (2) years from the date of
apportioned to such sales. Should actual input VAT attributable to sale to filing of the last quarterly VAT return where the unutilized advance VAT
government exceeds seven percent (7%) of gross payments, the excess payments appeared, or if filed out of time, from the last day prescribed by law
may form part of the sellers' expense or cost. On the other hand, if actual for filing the return.
input VAT attributable to sale to government is less than seven percent Issuance of TCC shall be limited to the unutilized advance VAT
(7%) of gross payment, the difference must be closed to expense or cost. payment and shall not include excess input tax. Issuance of TCC for input
(b) The government or any of its political subdivisions, tax attributable to zero-rated sales shall be covered by a separate application
instrumentalities or agencies including GOCCs, as well as private for TCC following applicable rules."
corporation, individuals, estates and trusts, whether large or non-large SECTION 24. Registration. — Sec. 9.236-1(b) and (c) of RR No. 16-
taxpayers, shall withhold twelve percent (12%) VAT, starting February 1, 2005 is hereby amended to read as follows:
2006, with respect to the following payments:
"SEC. 9.236-1. Registration of VAT Taxpayers. —
(1) Lease or use of properties or property rights owned by non-
xxx xxx xxx.
residents; and
(b) Mandatory:
(2) Other services rendered in the Philippines by non-residents.
xxx xxx xxx.
xxx xxx xxx."
Moreover, franchise grantees of radio and television broadcasting,
SECTION 23. Issuance of Tax Credit Certificates for Unutilized
whose gross annual receipt for the preceding taxable year exceeded
Advance VAT Payments. — Sec. 8.229-1 is hereby added to the provisions
P10,000,000.00 shall register within thirty (30) days from the end of
of RR 16-2005, to read as follows:
the taxable year.
(c) Optional VAT Registration: keepers of garages shall pay a tax equivalent to three percent (3%) of
their quarterly gross receipts.
xxx xxx xxx.
The above-stated taxpayers may apply for VAT registration not later The gross receipts of common carriers derived from their incoming and
than ten (10) days before the beginning of the taxable quarter and shall pay outgoing freight shall not be subjected to the local taxes imposed under
the registration fee prescribed under sub-paragraph (a) of this Section, Republic Act No. 7160, otherwise known as the Local Government Code
unless they have already paid at the beginning of the year. In any case, the of 1991.
Commissioner of Internal Revenue may, for administrative reason deny any
application for registration. Once registered as VAT person, the taxpayer In computing the percentage tax provided in this Section, the following
shall be liable to output tax and be entitled to input tax credit beginning on shall be considered the minimum quarterly gross receipts in each
the first day of the month following registration." particular case:
SECTION 25. Registration of Non-VAT or Exempt Taxpayer. — Sec. Jeepney for hire -
9.236-2 of RR No. 16-2005 is hereby amended to read as follows: 1. Manila and other Cities P 2,400
2. Provincial 1,200
"SEC. 9.236-2. Registration of Non-VAT or Exempt Taxpayer. —. . .
Public utility bus -
.
Not exceeding 30 passengers P 3,600
5) Radio and TV broadcasting whose gross annual receipts do not Exceeding 30 but not exceeding 50 passengers 6,000
exceed ten million pesos (P10,000,000) and which do not opt to be VAT Exceeding 50 passengers 7,200
registered; Taxis -
6.) PEZA and other ecozone registered enterprises enjoying the 1. Manila and other Cities P 3,600
preferential tax rate of 5% in lieu of all taxes; 2. Provincial 2,400
Car for hire (with chauffer) P 3,000
7.) SBMA and other free port zone-registered enterprises enjoying Car for hire (without chauffer) 1,800
the preferential tax rate of 5% in lieu of all taxes."
SECTION. 118 Percentage Tax on International Carriers. – (as
amended by R.A. 10378)
(A) International air carriers doing; business in the Philippines on their
PERCENTAGE TAX gross receipts derived from transport of cargo from the Philippines to
another country shall pay a tax of three percent (3%) of their quarterly
SECTION. 116. Tax on Persons Exempt from Value-Added Tax gross receipts.
(VAT). - Any person whose sales or receipts are exempt under Section
109(V) of this Code from the payment of value-added tax and who is not a (B) International shipping carriers doing business in the Philippines on
VAT-registered person shall pay a tax equivalent to three percent (3%) of their gross receipts derived from transport of cargo from the Philippines to
his gross quarterly sales or receipts: Provided, That cooperatives shall be another country shall pay a tax equivalent to three percent (3%) of their
exempt from the three percent (3%) gross receipts tax herein imposed. quarterly gross receipts.
SECTION. 117. Percentage Tax on Domestic Carriers and Keepers of SECTION. 119. Tax on Franchises. - Any provision of general or special
Garages. - Cars for rent or hire driven by the lessee, transportation law to the contrary notwithstanding, there shall be levied, assessed and
contractors, including persons who transport passengers for hire, and collected in respect to all franchises on radio and/or television
other domestic carriers by land, for the transport of passengers [except broadcasting companies whose annual gross receipts of the preceding
owners of bancas] and owners of animal-drawn two wheeled vehicle), and year do not exceed Ten million pesos (P10,000.00), subject to Section
236 of this Code, a tax of three percent (3%) and on gas and water press association, radio or television newspaper, broadcasting agency, or
utilities, a tax of two percent (2%) on the gross receipts derived from the newstickers services, to any other newspaper, press association, radio or
business covered by the law granting the franchise: Provided, however, television newspaper broadcasting agency, or newsticker service or to a
That radio and television broadcasting companies referred to in this bona fide correspondent, which messages deal exclusively with the
Section shall have an option to be registered as a value-added taxpayer collection of news items for, or the dissemination of news item through,
and pay the tax due thereon: Provided, further, That once the option is public press, radio or television broadcasting or a newsticker service
exercised, said option shall not be irrevocable. furnishing a general news service similar to that of the public press.
The grantee shall file the return with, and pay the tax due thereon to the SECTION. 121. Tax on Banks and Non-Bank Financial Intermediaries
Commissioner or his duly authorized representative, in accordance with Performing Quasi- Banking Functions. - There shall be collected a tax
the provisions of Section 128 of this Code, and the return shall be subject on a gross receipt derived from sources within the Philippines by all banks
to audit by the Bureau of Internal Revenue, any provision of any existing and non-bank financial intermediaries in accordance with the following
law to the contrary notwithstanding. schedule:
SECTION. 120. Tax on Overseas Dispatch, Message or Conversation a) On interest, commissions and discounts from lending activities as
Originating from the Philippines. - well as income from financial leasing, on the basis of remaining
(A) Persons Liable. - There shall be collected upon every overseas maturities of instruments from which such receipts are derived:
dispatch, message or conversation transmitted from the Philippines by Maturity period is five years or less 5%
telephone, telegraph, telewriter exchange, wireless and other Maturity period is more than five years 1%
communication equipment service, a tax of ten percent (10%) on the
amount paid for such services. The tax imposed in this Section shall be (b) On dividends and equity shares and net income of 0%
payable by the person paying for the services rendered and shall be paid subsidiaries
to the person rendering the services who is required to collect and pay the
tax within twenty (20) days after the end of each quarter. (c) On royalties, rentals of property, real or personal, profits, 7%
from exchange and all other items treated as gross income
(B) Exemptions. - The tax imposed by this Section shall not apply to: under Section 32 of this Code
(1) Government. - Amounts paid for messages transmitted by the (d) On net trading gains within the taxable year on foreign 7%
Government of the Republic of the Philippines or any of its political currency, debt securities, derivatives, and other similar
subdivisions or instrumentalities; financial instruments.
(2) Diplomatic Services. - Amounts paid for messages transmitted by Provided, however, That in case the maturity period referred to in
any embassy and consular offices of a foreign government; paragraph (a) is shortened thru pre-termination, then the maturity period
shall be reckoned to end as of the date of pre-termination for purposes of
(3) International Organizations. - Amounts paid for messages classifying the transaction and the correct rate of tax shall be applied
transmitted by a public international organization or any of its agencies accordingly.
based in the Philippines enjoying privileges, exemptions and immunities
which the Government of the Philippines is committed to recognize Provided, finally, That the generally accepted accounting principles as
pursuant to an international agreement; and may be prescribed by the Bangko Sentral ng Pilipinas for the bank or
non0bank financial intermediary performing quasi-banking functions shall
(4) News Services. - Amounts paid for messages from any newspaper, likewise be the basis for the calculation of gross receipts. (as amended by
R.A. 9238 and R.A. 9337) collected, whether such premiums are paid in money, notes, credits or any
substitute for money; but premiums refunded within six (6) months after
Nothing in this Code shall preclude the Commissioner from imposing the payment on account of rejection of risk or returned for other reason to a
same tax herein provided on persons performing similar banking activities. person insured shall not be included in the taxable receipts; nor shall any
tax be paid upon reinsurance by a company that has already paid the tax;
SECTION. 122. Tax on Other Non-Bank Financial Intermediaries. (as nor upon doing business outside the Philippines on account of any life
1 insurance of the insured who is a nonresident, if any tax on such premium
amended by R.A. 9238 ) - There shall be collected a tax of five percent
(5%) on the gross receipts derived by other non-bank financial is imposed by the foreign country where the branch is established nor
intermediaries doing business in the Philippines, from interests, upon premiums collected or received on account of any reinsurance , if
commissions, discounts and all other items treated as gross income under the insured, in case of personal insurance, resides outside the Philippines,
this code.: Provided, That interests, commissions and discounts from if any tax on such premiums is imposed by the foreign country where the
lending activities, as well as income from financial leasing, shall be taxed original insurance has been issued or perfected; nor upon that portion of
on the basis of the remaining maturities of the instruments from which the premiums collected or received by the insurance companies on
such receipts are derived, in accordance with the following schedule: variable contracts (as defined in Section 232(2) of Presidential Decree No.
612), in excess of the amounts necessary to insure the lives of the
variable contract workers.
Maturity period is five years or less 5%
Maturity period is more than five years 1%
'Cooperative companies or associations' are such as are conducted by
the members thereof with the money collected from among themselves
Provided, however, That in case the maturity period is shortened thru pre- and solely for their own protection and not for profit.
termination, then the maturity period shall be reckoned to end as of the
date of pre-termination for purposes of classifying the transaction and the SECTION. 124. Tax on Agents of Foreign Insurance Companies. -
correct rate of tax shall be applied accordingly. Every fire, marine or miscellaneous insurance agent authorized under the
Insurance Code to procure policies of insurance as he may have
Provided, finally, That the generally accepted accounting principles as previously been legally authorized to transact on risks located in the
may be prescribed by the Securities and Exchange Commission for other Philippines for companies not authorized to transact business in the
non-bank financial intermediaries shall likewise be the basis for the Philippines shall pay a tax equal to twice the tax imposed in Section 123:
calculation of gross receipts. (as amended by R.A. 9238 and 9337) Provided, That the provision of this Section shall not apply to reinsurance:
Provided, however, That the provisions of this Section shall not affect the
Nothing in this Code shall preclude the Commissioner from imposing the right of an owner of property to apply for and obtain for himself policies in
same tax herein provided on persons performing similar financing foreign companies in cases where said owner does not make use of the
activities. services of any agent, company or corporation residing or doing business
in the Philippines. In all cases where owners of property obtain insurance
SECTION. 123. Tax on Life Insurance Premiums. - There shall be directly with foreign companies, it shall be the duty of said owners to
collected from every person, company or corporation (except purely report to the Insurance Commissioner and to the Commissioner each case
cooperative companies or associations) doing life insurance business of where insurance has been so effected, and shall pay the tax of five
any sort in the Philippines a tax of two percent (2%) of the total premium percent (5%)on premiums paid, in the manner required by Section 123.
SECTION. 125. Amusement Taxes. - There shall be collected from the

1
RA 9238 re-imposed the gross receipts tax on other non-bank financial intermediaries, proprietor, lessee or operator of cockpits, cabarets, night or day clubs,
which includes pawnshops beginning January 1, 2004. boxing exhibitions, professional basketball games, Jai-Alai and racetracks,

a tax equivalent to: the case of winnings from double, forecast/quinella and trifecta bets, the
tax shall be four percent (4%). In the case of owners of winning race
(a) Eighteen percent (18%) in the case of cockpits; horses, the tax shall be ten percent (10%) of the prizes.
(b) Eighteen percent (18%) in the case of cabarets, night or day clubs; The tax herein prescribed shall be deducted from the 'dividends'
corresponding to each winning ticket or the 'prize' of each winning race
(c) Ten percent (10%) in the case of boxing exhibitions: Provided, horse owner and withheld by the operator, manager or person in charge of
however, That boxing exhibitions wherein World or Oriental the horse races before paying the dividends or prizes to the persons
Championships in any division is at stake shall be exempt from entitled thereto.
amusement tax: Provided, further, That at least one of the contenders for
World or Oriental Championship is a citizen[s] of the Philippines and said The operator, manager or person in charge of horse races shall, within
exhibitions are promoted by a citizen/s of the Philippines or by a twenty (20) days from the date the tax was deducted and withheld in
corporation or association at least sixty percent (60%) of the capital of accordance with the second paragraph hereof, file a true and correct
which is owned by such citizens; return with the Commissioner in the manner or form to be prescribed by
the Secretary of Finance, and pay within the same period the total amount
(d) Fifteen percent (15%) in the case of professional basketball games as of tax so deducted and withheld.
envisioned in Presidential Decree No. 871: Provided, however, That the
tax herein shall be in lieu of all other percentage taxes of whatever nature SECTION. 127. Tax on Sale, Barter or Exchange of Shares of Stock
and description; and Listed and Traded through the Local Stock Exchange or through
Initial Public Offering. -
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks - of their (A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and
gross receipts, irrespective, of whether or not any amount is charged for Traded through the Local Stock Exchange.- There shall be levied,
admission. assessed and collected on every sale, barter, exchange, or other
For the purpose of the amusement tax, the term 'gross receipts' disposition of shares of stock listed and traded through the local stock
embraces all the receipts of the proprietor, lessee or operator of the exchange other than the sale by a dealer in securities, a tax at the rate of
amusement place. Said gross receipts also include income from one-half of one percent (1/2 of 1%) of the gross selling price or gross value
television, radio and motion picture rights, if any. A person or entity or in money of the shares of stock sold, bartered, exchanged or otherwise
association conducting any activity subject to the tax herein imposed shall disposed which shall be paid by the seller or transferor.
be similarly liable for said tax with respect to such portion of the receipts
derived by him or it. (B) Tax on Shares of Stock Sold or Exchanged Through Initial Public
Offering. - There shall be levied, assessed and collected on every sale,
The taxes imposed herein shall be payable at the end of each quarter and barter, exchange or other disposition through initial public offering of
it shall be the duty of the proprietor, lessee or operator concerned, as well shares of stock in closely held corporations, as defined herein, a tax at the
as any party liable, within twenty (20) days after the end of each quarter, rates provided hereunder based on the gross selling price or gross value
to make a true and complete return of the amount of the gross receipts in money of the shares of stock sold, bartered, exchanged or otherwise
derived during the preceding quarter and pay the tax due thereon. disposed in accordance with the proportion of shares of stock sold,
bartered, exchanged or otherwise disposed to the total outstanding shares
SECTION. 126. Tax on Winnings. - Every person who wins in horse of stock after the listing in the local stock exchange:
races shall pay a tax equivalent to ten percent (10%) of his winnings or
'dividends', the tax to be based on the actual amount paid to him for Up to twenty-five percent (25%) 4%
every winning ticket after deducting the cost of the ticket: Provided, That in Over twenty-five percent (25%) but not over thirty-three and 2%
one third percent (33 1/3%) 1% Listed and Traded in the Local Stock Exchange. - It shall be the duty of
Over thirty-three and one third percent (33 1/3%) every stock broker who effected the sale subject to the tax imposed herein
to collect the tax and remit the same to the Bureau of Internal Revenue
The tax herein imposed shall be paid by the issuing corporation in primary within five (5) banking days from the date of collection thereof and to
offering or by the seller in secondary offering. submit on Mondays of each week to the secretary of the stock exchange,
of which he is a member, a true and complete return which shall contain a
For purposes of this Section, the term 'closely held corporation' means declaration of all the transactions effected through him during the
any corporation at least fifty percent (50%) in value of outstanding capital preceding week and of taxes collected by him and turned over to the
stock or at least fifty percent (50%) of the total combined voting power of Bureau Of Internal Revenue.
all classes of stock entitled to vote is owned directly or indirectly by or for
not more than twenty (20) individuals. (2) Return on Public Offerings of Shares of Stock. - In case of primary
offering, the corporate issuer shall file the return and pay the
For purposes of determining whether the corporation is a closely held corresponding tax within thirty (30) days from the date of listing of the
corporation, insofar as such determination is based on stock ownership, shares of stock in the local stock exchange. In the case of secondary
the following rules shall be applied: offering, the provision of Subsection (C) (1) of this Section shall apply as
to the time and manner of the payment of the tax.
(1) Stock Not Owned by Individuals. - Stock owned directly or indirectly
by or for a corporation, partnership, estate or trust shall be considered as (D) Common Provisions. - any gain derived from the sale, barter,
being owned proportionately by its shareholders, partners or beneficiaries. exchange or other disposition of shares of stock under this Section shall
be exempt from the tax imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c),
and 28(B)(5)(c) of this Code and from the regular individual or corporate
(2) Family and Partnership Ownerships. - An individual shall be
income tax. Tax paid under this Section shall not be deductible for income
considered as owning the stock owned, directly or indirectly, by or for his
tax purposes.
family, or by or for his partner. For purposes of the paragraph, the 'family
SECTION. 128. Returns and Payment of Percentage Taxes. -
of an individual' includes only his brothers and sisters (whether by whole
or half-blood), spouse, ancestors and lineal descendants. (A) Returns of Gross Sales, Receipts or Earnings and Payment of
Tax. -
(3) Option. - If any person has an option acquire stock, such stock shall (1) Persons Liable to Pay Percentage Taxes. - Every person subject to
the percentage taxes imposed under this Title shall file a quarterly return
be considered as owned by such person. For purposes of this paragraph,
an option to acquire such an option and each one of a series of options of the amount of his gross sales, receipts or earnings and pay the tax due
thereon within twenty-five (25) days after the end of each taxable quarter:
shall be considered as an option to acquire such stock.
Provided, That in the case of a person whose VAT registration is
cancelled and who becomes liable to the tax imposed in Section 116 of
(4) Constructive Ownership as Actual Ownership. - Stock
this Code, the tax shall accrue from the date of cancellation and shall be
constructively owned by reason of the application of paragraph (1) or (3)
paid in accordance with the provisions of this Section.
hereof shall, for purposes of applying paragraph (1) or (2), be treated as
actually owned by such person; but stock constructively owned by the
(2) Person Retiring from Business. - Any person retiring from a
individual by reason of the application of paragraph (2) hereof shall not be
treated as owned by him for purposes of again applying such paragraph in business subject to percentage tax shall notify the nearest internal
revenue officer, file his return and pay the tax due thereon within twenty
order to make another the constructive owner of such stock.
(20) days after closing his business.
(C) Return on Capital Gains Realized from Sale of Shares of Stocks. -
(3) Exceptions. - The Commissioner may, by rules and regulations,
(1) Return on Capital Gains Realized from Sale of Shares of Stock
prescribe: paid through PLDT for the overseas calls it made under the latter.
(a) The time for filing the return at intervals other than the time prescribed They argue that they were exempt from OCT based on its
in the preceding paragraphs for a particular class or classes of taxpayers franchise under PD 1590. it had the option to pay basic corporate
after considering such factors as volume of sales, financial condition,
income tax on its annual net taxable income or 2% franchise tax
adequate measures of security, and such other relevant information
required to be submitted under the pertinent provisions of this Code; and on gross revenues, whichever was lower. It was likewise exempt
(b) The manner and time of payment of percentage taxes other than as from all other taxes, duties, royalties, registration, license and
hereinabove prescribed, including a scheme of tax prepayment. other fees and charges imposed by any municipal, city, provincial
or national authority or government agency, now or in the future,
(4) Determination of Correct Sales or Receipts. - When it is found that except only real property tax. Other than being liable for basic
a person has failed to issue receipts or invoices, or when no return is filed, corporate income tax or the franchise tax, whichever was lower,
or when there is reason to believe that the books of accounts or other
PAL was clearly exempted from all other taxes, including
records do not correctly reflect the declarations made or to be made in a
return required to be filed under the provisions of this Code, the OCT, by virtue of the “in lieu of all taxes” clause in Section
Commissioner, after taking into account the sales, receipts or other 13. If PAL incurs a net loss for the taxable year resulting in zero
taxable base of other persons engaged in similar businesses under similar basic corporate income tax liability, which they alleged, they
situations or circumstances, or after considering other relevant information cannot be required to pay the franchise tax before it could avail of
may prescribe a minimum amount of such gross receipts, sales and the Sec. 13 exemption.
taxable base and such amount so prescribed shall be prima facie correct
for purposes of determining the internal revenue tax liabilities of such
Issue: WON the OCT, a percentage tax, is included in the taxes PAL
person.
is exempt from and therefore entitled to recover the refund
(B) Where to File. - Except as the Commissioner otherwise permits,
every person liable to the percentage tax under this Title may, at his
option, file a separate return for each branch or place of business, or a Held: Yes. OCT is not even an income tax. It is a business tax, which
consolidated return for all branches or places of business with the the government imposes on the gross annual sales of operators
authorized agent bank, Revenue District Officer, Collection Agent or duly of communication equipment sending overseas dispatches,
authorized Treasurer of the city or municipality where said business or
messages or conversations from the Philippines. According to
principal place of business is located, as the case may be.
Section 120 of the NIRC, the person paying for the services
rendered (PAL, in this case) shall pay the OCT to the person
PERCENTAGE TAX rendering the service (PLDT); the latter, in turn, shall remit the
amount to the BIR. If this Court deems that final tax on interest
CIR v. PAL (Diploma) income (which is also an income tax, but distinct from basic
[G.R. No. 180043; July 14, 2009] corporate income tax) is included among the all other taxes from
“OCT is included under the “in lieu of other taxes” of PD1590 which PAL is which respondent is exempt, then with all the more reason should
exempt from” the Court consider OCT, which is altogether a different type of
tax, as also covered by the said exemption. In its previous
Recit-Ready: discussion, the Court has already established that by merely
Facts: PAL was seeking a refund of the Overseas Communication Tax it exercising its option to pay for basic corporate income tax - even
if it had zero liability for the same due to its net loss position in prescribed after the passing of more than two years since said
2001, PAL was already exempted from all other taxes, including amount was paid
the OCT. Therefore, respondent is entitled to recover the • PAL alleged that per its computation, reflected in its annual income tax
return, it incurred a net loss in 2001 resulting in zero basic
amount of OCT erroneously collected from it in 2001.
corporate income tax liability, which was necessarily lower than the
franchise tax due on its gross revenues.
• So in opting for the basic corporate income tax, regardless of whether or
not it actually paid any amount as tax, PAL was already entitled to the
exemption from all other taxes granted to it by Section 13 of Presidential
Facts: Decree No. 1590.
• CTA First Decision granted their petition and ordered BIR to refund the
• PAL is a domestic corporation organized under the corporate laws of the erroneously collected 10% OCT
Philippines o It reasoned that under Sec. 13 of PD 1590, they had the option
• It was a grantee under PD No. 15904 of a franchise to establish, to choose the 2 alternatives mentioned earlier, also with the
stipulation that it would be in lieu of all other taxes (except real
operate, and maintain transport services for the carriage of passengers,
mail, and property by air, in and between any and all points and places property tax)
o If PAL incurs a net loss for the taxable year resulting in zero
throughout the Philippines, and between the Philippines and other
countries. basic corporate income tax liability, PAL cannot be required to
pay the franchise tax before it could avail of the Sec. 13
• PLDT collected 10% Overseas Communication Tax (OCT) from PAL for
exemption
Jan – Dec 2001 for the amount paid by PAL for overseas calls it made
o The possibility of PAL incurring a net loss is already anticipated
through PLDT
by Sec. 13 since it also authorized PAL to carry over its excess
• In 2003, PAL filed with the BIR an administrative claim for a refund of the
net loss as a deduction for the next five taxable year
total OCT it allegedly erroneously paid for 2001 amounting to
o PAL was also able to prove that the OCT collected by PLDT
P202,471.81
from it was INCLUDED in the quarterly percentage tax returns
o This claim was based on its franchise (PD 1590 Sec. 13)
of PLDT for 2nd, 3rd and 4th quarters of 2001.
§ Under the PD, it had the option to pay basic corporate
• CIR filed an MR and an appeal saying the reliance on CIR v. PAL cited
income tax on its annual net taxable income or 2%
by CTA En Banc is misplaced because it involved final withholding tax
franchise tax on gross revenues, whichever was lower
on interest income and in this case, it is another type of tax which is the
§ It was likewise exempt from all other taxes, duties,
OCT
royalties, registration, license and other fees and
charges imposed by any municipal, city, provincial or
national authority or government agency, now or in the Issue: WON the OCT, a percentage tax, is included in the taxes PAL is
future, except only real property tax exempt from, and therefore entitled to recover a refund
§ Other than being liable for basic corporate income tax —YES
or the franchise tax, whichever was lower, PAL was
clearly exempted from all other taxes, including OCT, Held/Ratio: The instant Petition for Review is DENIED. Decision of the Court
by virtue of the “in lieu of all taxes” clause in Section
of Tax Appeals En Banc which granted the claim of Philippine Airlines, Inc.
13
• PAL sought the refund of the OCT it erroneously paid to PLDT for a refund of Overseas Communications Tax erroneously collected from it
o The claim of respondent for the refund of the OCT for the first for the period April to December 2001, in the amount of P126,243.80, is
quarter of 2001, amounting to P75,323.26, had already AFFIRMED.
• In its previous discussion, the Court has already established that by

• The language used in Section 13 of Presidential Decree No. 1590, merely exercising its option to pay for basic corporate income tax -
granting respondent tax exemption, is clearly all-inclusive. The basic even if it had zero liability for the same due to its net loss position in
corporate income tax or franchise tax paid by respondent shall be “in 2001, PAL was already exempted from all other taxes, including the
lieu of all other taxes, duties, royalties, registration, license, and OCT.
other fees and charges of any kind, nature, or description imposed, o Therefore, respondent is entitled to recover the amount
levied, established, assessed or collected by any municipal, city, of OCT erroneously collected from it in 2001.
provincial, or national authority or government agency, now or in
the future, except only real property tax.” Even a meticulous Note: Generally, percentage taxes are based on gross receipts. The
examination of Presidential Decree No. 1590 will not reveal any provision percentage taxes are payable by the seller of the services. EXCEPT the
therein limiting the tax exemption of respondent to final withholding tax on overseas communications tax, which is payable by the user of the facilities
interest income or excluding from said exemption the OCT. of the seller.
• Comparing CIR v. PAL (previous case on MCIT)
o It is true that the discussion in the PAL case on gross
income is immaterial to the case at bar. OCT is not even PERCENTAGE TAX
an income tax. It is a business tax, which the
government imposes on the gross annual sales of CHINA BANKING CORPORATION v. CIR (FajardoRK)
operators of communication equipment sending [GR. No. 175108; February 27, 2013]
overseas dispatches, messages or conversations from “20% FWT on passive income form part of the gross receipts tax”
the Philippines.
o According to Section 120 of the NIRC, the person paying Recit-Ready:
for the services rendered (PAL, in this case) shall pay Facts: Petitioner China Baking is seeking a reimbursement in th amount
the OCT to the person rendering the service (PLDT); the of 6,6426,829.67 of their payment of gross receipts tax for 1996.
latter, in turn, shall remit the amount to the BIR. If this In computing the gross receipts tax, petitioner included the 20%
Court deems that final tax on interest income (which is FWT on passive interest income. It relies on the decision of the
also an income tax, but distinct from basic corporate income CTA on Jan 1996 that stated that the 20% FWT on a bank’s
tax) is included among the all other taxes from which passive intereset income should not form part of its taxable gross
respondent is exempt, then with all the more reason receipts.
should the Court consider OCT, which is altogether a
different type of tax, as also covered by the said Issue/s: Whether the 20% final tax withheld on a bank’s passive income
exemption. should be included in the computation of the GRT—YES, it should be.
• Moreover, a ruling by this Court compelling respondent to pay a
franchise tax when it incurs a net loss and is, thus, not liable for any Held:
basic corporate income tax would be contrary to the evident intent of 1) The 20% final tax should be included in computing the gross receipts
the law to give respondent options and to make the latter liable for tax pursuant to the latest ruling of the court in the case of Far East
the least amount of tax. Bank & Trust Co. v. CIR that stated that the FWT forms part of the
bank’s gross receipt in computing the gross receipts tax. Since the • On appeal, CA also denied petitioner’s appeal and agreed with the
exclusion of the FWT from gross receipts operate as a tax ruling of the CTA.
exemption—it should be expressly granted by law. No law provides for
such exemption. ISSUE: Whether the 20% final tax withheld on a bank’s passive income
2) Under BIR Nos. 12-80 and 17-84, the term gross receipts of admit of should be included in the computation of the GRT—YES, it should be.
any deduction. Gross receipts should be interpreted as the whole
amount received as interest without deductions. Otherwise, if HELD:
deductions were made from gross receipts, it would be considered as The 20% final tax should be included in computing the gross receipts
net receipts. tax—contrary to petitioner’s stand.
3) Since gross receipts have no statutory definition, the BIR has • In China Banking Corporation v. CA, we ruled that the mount of
consistently applied it in its ordinary meaning that is “without interest income withheld, in payment of the 20% FWT forms part of
deduction”. In sum, “gross receipts” comprise “the entire receipts the bank’s gross receipts in computing the GRT on banks.
without any deduction” and clearly the 20% FWT form part of • In the case of Asia bank, the CTA held that the FWT is not part of
petitioner’s total gross receipts for purposes of computing the GRT. the bank’s taxable gross receipts since the bank does not actually
RR 17-84 that supereded RR 12-80 states that the RR requires receive all the items where the FWT is imposed.
interest income, whether actually receive or merely accrued, to form • Subsequently, in Far East Bank & Trust Co. v. CIR, the tax court
part of the bank’s taxable gross receipts. ruled that the final withholding tax forms part of the bank’s gross
receipt in computing the gross receipts tax.
FACTS: o The CTA held that Section 4(e) of RR 12-80 did not
• This case involves Petitioner China Banking Corporation who paid a prescribe the computation of the gross receipts but merely
total of 93,119,433.50 PHP as gross receipts tax (1996) on its authorized “the determination of the amount of gross
income from the interests on loan investments, commissions, receipts on the basis of the method of accounting being
service and collection charges, foreign exchange profit and other used by the taxpayer.
operating earnings. o The court held that the exclusion of the FWT from gross
• In computing the taxable gross receipts, petitioner included the 20% receipts operates as a tax exemption which the law must
final withholding tax on its passive interest income. expressly grant. No law provides for such exemption.
• However, on Jan 1996, the CTA rendered a decision that the 20% o In addition, the tax court pointed out that Section 7(c) of RR
final withholding tax on a bank’s passive interest income should not 17-84 had already superseded Section 4(e) of RR 12-80.
form part of its taxable gross receipts. Under BIR Nos. 12-80 and 17-84, the term gross receipts of admit of any
• Due to this, petitioner filed with respondent a claim for refund on deduction.
April 1998 regarding their overpayment of gross receipts tax for 4 • It emphasized that interest earned by bank, even if subject to the
quarters of 1996, with the amount of 6,646,829.67. final tax and excluded from taxable gross income, forms part of its
• The CTA agreed with petitioner that the 20% FTW on interest gross receipt for GRT purposes.
incomes does not form part of its taxable gross receipts however it • The interest earned refers to the gross interest without deduction
dismissed the case for failure to prove that the 20% FWT forms part since the regulations do not provide for any deduction.
of its 1996 taxable gross receipts. • Gross receipts refer to the total, as opposed to the net income.
• Gross receipts should be interpreted as the whole amount received update the minimum monthly/quarterly gross receipts of domestic
as interest without deductions. Otherwise, if deductions were made carriers and keepers of garages subject to the three percent (3%)
from gross receipts, it would be considered as net receipts. percentage tax imposed under Section 117 of the Code, as amended by
Since gross receipts have no statutory definition, the BIR has RA 9337, and further amended by RA 9361.
consistently applied it in its ordinary meaning that is “without
deduction”. In sum, “gross receipts” comprise “the entire receipts SEC. 2. MINIMUM GROSS RECEIPTS OF DOMESTIC LAND CARRIERS
without any deduction” and clearly the 20% FWT form part of AND KEEPERS OF GARAGES. – Cars for rent or hire driven by the lessee;
petitioner’s total gross receipts for purposes of computing the GRT. transportation contractors, including persons who transport passengers for
• Petitioners cannot rely on Sectin 4(e) of RR 12-80 since it has been hire, and other domestic carriers by land for the transport of passengers
superseded by RR No. 17-84 which includes all interest incomes in (except owners of animal-drawn two-wheeled vehicle), and keepers of
computing the GRT if the recipient of the items of income are garages shall pay a tax equivalent to three percent (3%) of their quarterly
financial institutions, the same shall be included as part of the tax gross receipts.
base upon which the gross receipts tax is imposed.
• Simply put, the RR requires interest income, whether actually Using the average consumer price index (CPI) for the transportation and
receive or merely accrued, to form part of the bank’s taxable gross communication sector in Year 2006, it is apparent that the minimum gross
receipts. receipts per unit of carrier set under Section 117 of the Code, which figures
DENIED were originally fixed in Year 1978, are no longer reflective of the true value of
the minimum gross receipts that are being derived by domestic land carriers,
PERCENTAGE TAX as shown in the sample computation illustrated below:
REVENUE REGULATION 9 – 2007 (GO) (A) Average Consumer Price Indices where Year 2000 is considered as the
July 4, 2007 international base year:
SUBJECT: Prescribing the Updated Minimum Monthly/Quarterly Gross 1. Year 1978 – P6.38
Receipts in Computing the Percentage Tax of Domestic Carriers and 2. Year 2000 – P100.00
Keepers of Garages. 3. Year 2006 – P174.60
TO: All Internal Revenue Officers and Others Concerned.
(B) Using the average consumer price index (CPI) provided in item (A)
SECTION 1. SCOPE. - Pursuant to Section 244 of the National Internal above, the formula to arrive at the present value is as follows:
Revenue Code of 1997 (Code), in relation to Section 128 of the same Code
which provides the Commissioner the power to prescribe the minimum 2006 Gross Receipts = 1978 Gross Receipts x CPI 2006
amount of gross receipts, sales, and taxable base of persons subject to CPI 1978
other percentage taxes under Title V of the Code, after taking into account (C) Sample Computation:
the sales, receipts or other taxable base of other persons engaged in similar Jeepneys in Manila and Other Cities –
businesses under similar situations or circumstances, or after considering 2006 Gross Receipts = P2,400 x P174.60
other relevant information, these Regulations are hereby promulgated to P6.38
= P65,680.25 ~ P65,700.00 prescribed minimum gross receipts for Manila and other cities.
Thus, after considering the foregoing relevant information, the updated SEC. 3. EFFECTIVITY CLAUSE. - These Regulations shall take effect
minimum gross receipts per unit of carrier for purposes of computing the beginning August 1, 2007, or after fifteen (15) days following complete
percentage tax provided in Section 117 of the Code as of year 2006 price publication in a newspaper of general circulation, whichever comes later.
index shall be as follows:
REVENUE MEMORANDUM CIRCULAR 18-2010 (GO)
DOMESTIC YEAR 1978 YEAR 2006 YEAR 2006
CARRIERS Old Minimum Updated Updated SUBJECT: Clarification on the Coverage and Taxability of Amusement
Gross Minimum Minimum Places under Section 125(b) of the National Internal Revenue Code of 1997,
Quarterly Gross Grss Monthly as Amended
Receipts Quarterly Receipts TO: Internal Revenue Officials, Revenue Officers and Others Concerned
Receipts
Jeepney for hire -
Section 125(b) of the Tax Code, as amended, provides that an 18%
1. Manila and other P2,400 P65,700 P21,900
amusement tax be imposed on proprietors, lessees or operators of
cities
cabarets, night or day clubs.
2. Provincial P1,200 P32,900 P10,967
Public Utility Bus -
Night and day clubs are drinking, dancing and entertainment venues which
1. Not exceeding 30
passengers P3,600 P98,600 P32,867
oftentimes also serve food and provide entertainment. Cabarets, on the
2. Exceeding 30 otherhand, are restaurants or clubs where liquor and food are served, with a
passengers stage provided for performances by musicians, dancers, or comedians,
but not exceeding 50 including venue for dancing by patrons/customers, similar to that of night
passengers P6,000 P164,200 P54,733 clubs. With the advent of modern interactive entertainment, along with
3. Exceeding 50 recorded music (and/or music video) using a microphone and public address
passengers P7,200 P197,100 P65,700 system, the proprietors/lessees or operators of these amusement places
Taxis - have pursued a new form of lounge and club entertainment. Most of these
1. Manila and other establishments provide facilities to allow patrons to sing with the expectation
cities P3,600 P98,600 P32,867 that sufficient revenue will be made selling food and drinks to customers. The
2. Provincial P2,400 P65,700 P21,900 “terms” night and day clubs and cabarets have become passé. Amusement
Car for hire (with places which offer the same pleasurable diversion entertainment and
chauffeur) P3,000 P82,100 P27,367 function now include videoke bars, karaoke bars, karaoke televisions,
Car for hire (without karaoke boxes and music lounges.
chauffeur) P1,800 P49,300 P16, 434
As such, the proprietors, lessees or operations of the aforementioned
For clarification, common carriers which ply the routes from/to Metro establishments are deemed also subject to the 18% amusement tax
Manila and/or other cities in the country shall be covered by the under Section 125(b) of the Tax Code of 1997, as amended, and not to
the 12 % VAT on Gross receipts.
All concerned are hereby enjoined to be guided accordingly and to give this
Circular as wide publicity as possible.
EXCISE TAX Should domestic products be removed from the place of production
without the payment of the tax, the owner or person having possession
GENERAL PROVISIONS thereof shall be liable for the tax due thereon.
SEC.129. Goods subject to Excise Taxes. - Excise taxes apply to goods (2) Time for Filing of Return and Payment of the Tax. - Unless
manufactured or produced in the Philippines for domestic sales or otherwise specifically allowed, the return shall be filed and the excise tax
consumption or for any other disposition and to things imported. The paid by the manufacturer or producer before removal of domestic products
excise tax imposed herein shall be in addition to the value-added tax from place of production: Provided, That the excise tax on locally
imposed under Title IV. manufactured petroleum products and indigenous petroleum levied under
Sections 148 and 151(A)(4), respectively, of this Title shall be paid within
For purposes of this Title, excise taxes herein imposed and based on ten (10) days from the date of removal of such products for the period
weight or volume capacity or any other physical unit of measurement shall from January 1, 1998 to June 30, 1998; within five (5) days from the date
be referred to as 'specific tax' and an excise tax herein imposed and of removal of such products for the period from July 1, 1998 to December
based on selling price or other specified value of the good shall be 31, 1998; and, before removal from the place of production of such
referred to as 'ad valorem tax.' products from January 1, 1999 and thereafter: Provided, further, That the
excise tax on nonmetallic mineral or mineral products, or quarry resources
SEC. 130. Filing of Return and Payment of Excise Tax on Domestic shall be due and payable upon removal of such products from the locality
Products. - where mined or extracted, but with respect to the excise tax on locally
produced or extracted metallic mineral or mineral products, the person
(A) Persons Liable to File a Return, Filing of Return on Removal and
liable shall file a return and pay the tax within fifteen (15) days after the
Payment of Tax. - end of the calendar quarter when such products were removed subject to
such conditions as may be prescribed by rules and regulations to be
(1) Persons Liable to File a Return. - Every person liable to pay excise
promulgated by the Secretary of Finance, upon recommendation of the
tax imposed under this Title shall file a separate return for each place of
Commissioner. For this purpose, the taxpayer shall file a bond in an
production setting forth, among others the description and quantity or
amount which approximates the amount of excise tax due on the removals
volume of products to be removed, the applicable tax base and the
for the said quarter. The foregoing rules notwithstanding, for imported
amount of tax due thereon: Provided, however, That in the case of
mineral or mineral products, whether metallic or nonmetallic, the excise
indigenous petroleum, natural gas or liquefied natural gas, the excise tax
tax due thereon shall be paid before their removal from customs custody.
shall be paid by the first buyer, purchaser or transferee for local sale,
barter or transfer, while the excise tax on exported products shall be paid (3) Place of Filing of Return and Payment of the Tax. - Except as the
by the owner, lessee, concessionaire or operator of the mining claim.
Commissioner otherwise permits, the return shall be filed with and the tax
paid to any authorized agent bank or Revenue Collection Officer, or duly
authorized City or Municipal Treasurer in the Philippines. are finally sold, then a proportionate margin of profit, not less than ten
percent (10%) of such manufacturing cost and expenses, shall be added
(4) Exceptions. - The Secretary of Finance, upon recommendation of the to constitute the gross selling price.
Commissioner may, by rules and regulations, prescribe:
(C) Manufacturer's or Producer's Sworn Statement. - Every
(a) The time for filing the return at intervals other than the time prescribed manufacturer or producer of goods or products subject to excise taxes
in the preceding paragraphs for a particular class or classes of taxpayers shall file with the Commissioner on the date or dates designated by the
after considering factors such as volume of removals, adequate measures latter, and as often as may be required, a sworn statement showing,
of security and such other relevant information required to be submitted among other information, the different goods or products manufactured or
under the pertinent provisions of this Code; and produced and their corresponding gross selling price or market value,
together with the cost of manufacture or production plus expenses
(b) The manner and time of payment of excise taxes other than as herein
incurred or to be incurred until the goods or products are finally sold.
prescribed, under a tax prepayment, advance deposit or similar schemes.
In the case of locally produced of extracted minerals and mineral products (D) Credit for Excise tax on Goods Actually Exported. - When goods
or quarry resources where the mine site or place of extraction is not the locally produced or manufactured are removed and actually exported
same as the place of processing or production, the return shall be filed without returning to the Philippines, whether so exported in their original
with and the tax paid to the Revenue District Office having jurisdiction over state or as ingredients or parts of any manufactured goods or products,
the locality where the same are mined, extracted or quarried: Provided, any excise tax paid thereon shall be credited or refunded upon submission
however, That for metallic minerals processed abroad, the return shall be of the proof of actual exportation and upon receipt of the corresponding
filed and the tax due thereon paid to the Revenue District Office having foreign exchange payment: Provided, That the excise tax on mineral
jurisdiction over the locality where the same are mined, extracted or products, except coal and coke, imposed under Section 151 shall not be
quarried. creditable or refundable even if the mineral products are actually exported.
(B) Determination of Gross Selling Price of Goods Subject to Ad SEC. 131. Payment of Excise Taxes on Imported Articles. -
Valorem Tax. - Unless otherwise provided, the price, excluding the value-
added tax, at which the goods are sold at wholesale in the place of (A) Persons Liable. - Excise taxes on imported articles shall be paid by
production or through their sales agents to the public shall constitute the the owner or importer to the Custom Officers, conformably with the
gross selling price. If the manufacturer also sells or allows such goods to regulations of the Department of Finance and before the release of such
be sold at wholesale in another establishment of which he is the owner or articles from the customs house, or by the person who is found in
in the profits of which he has an interest, the wholesale price in such possession of articles which are exempt from excise taxes other than
establishment shall constitute the gross selling price. Should such price be those legally entitled to exemption.
less than the cost of manufacture plus expenses incurred until the goods
In the case of tax-free articles brought or imported into the Philippines by
persons, entities, or agencies exempt from tax which are subsequently duty-free shops which are not labeled as herein above required, as well as
sold, transferred or exchanged in the Philippines to non-exempt persons tax and duty-free articles obtained from a duty free shop and subsequently
or entitles, the purchasers or recipients shall be considered the importers found in a non duty-free shop to be offered for resale shall be confiscated,
thereof, and shall be liable for the duty and internal revenue tax due on and the perpetrator of such non-labeling or re-selling shall be punishable
such importation. under the applicable provisions of this Code.
The provision of any special or general law to the contrary Articles confiscated shall de destroyed using the most environmentally
notwithstanding, the importation of cigars and cigarettes, distilled spirits, friendly method available in accordance with the rules and regulations to
fermented liquors and wines into the Philippines, even if destined for tax be promulgated by the Secretary of Finance, upon recommendation of the
and duty free shops, shall be subject to all applicable taxes, duties, Commissioners of Customs and Internal Revenue.
charges, including excise taxes due thereon. This shall apply to cigars and
cigarettes, distilled spirits, fermented liquors and wines brought directly The tax due on any such goods, products, machinery, equipment or other
into the duly chartered or legislated freeports of the Subic Special similar articles shall constitute a lien on the article itself, and such lien
Economic and Freeport Zone, created under Republic Act No. 7227; the shall be superior to all other charges or liens, irrespective of the possessor
Cagayan Special Economic Zone and Freeport, created under Republic thereof.
Act No. 7922; and the Zamboanga City Special Economic Zone, created
(B) Rate and Basis of the Excise Tax on Imported Articles. - Unless
under Republic Act No. 7903,and such other freeports as may hereafter
otherwise specified imported articles shall be subject to the same rates
be established or created by law: Provided, further, That nothwithstanding
and basis of excise taxes applicable to locally manufactured articles.
the provisions of Republic Act Nos. 9400 and 9593, importations of cigars
and cigarettes, distilled spirits, fermented liquors and wines made directly
SEC. 132. Mode of Computing Contents of Cask or Package. - Every
by a government-owned and operated duty-free shop, like the Duty-Free
fractional part of a proof liter equal to or greater than a half liter in a cask
Philippines (DFP), shall be exempted from all applicable duties only:
or package containing more than one liter shall be taxed as a liter, and
Provided, still further, That such articles directly imported by a
any smaller fractional part shall be exempt; but any package of spirits, the
government-owned and operated duty-free shop like the Duty-Free
total content of which are less than a proof liter, shall be taxed as one liter.
Philippines, shall be labeled 'duty-free' and 'not for resale': Provided,
finally, That the removal and transfer of tax and duty-free goods, products, CHAPTER II
machinery, equipment and other similar articles other than cigars and
cigarettes, distilled spirits, fermented liquors and wines, from one freeport EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL OF CERTAIN
to another freeport, shall not be deemed an introduction into the Philippine ARTICLES
[89]
customs territory.
SEC. 133. Removal of Wines and distilled Spirits for Treatment of
Cigars and cigarettes, distilled spirits and wines within the premises of all Tobacco Leaf. - Upon issuance of a permit from the Commissioner and
subject to the rules and regulations prescribed by the Secretary of other international agreements for their use of consumption: Provided,
Finance, manufacturers of cigars and cigarettes may withdraw from bond, however, That the country of said foreign international carrier or exempt
free of excise local and imported wines and distilled spirits in specific entities or agencies exempts from similar taxes petroleum products sold to
quantities and grades for use in the treatment of tobacco leaf to be used in Philippine carriers, entities or agencies; and
the manufacture of cigars and cigarettes; but such wines and distilled
spirits must first be suitably denatured. (c) Entities which are by law exempt from direct and indirect taxes.
SEC. 134. Domestic Denatured Alcohol. - Domestic alcohol of not less SEC. 136. Denaturation, Withdrawal and Use of Denatured Alcohol. -
than one hundred eighty (180) degrees proof (ninety percent (90%) Any person who produces, withdraws, sells, transports or knowingly uses,
absolute alcohol) shall, when suitably denatured and rendered unfit for or is in possession of denatured alcohol, or articles containing denatured
oral intake, be exempt from the excise tax prescribed in Section 141: alcohol in violation of laws or regulations now or hereafter in force
Provided, however, That such denatured alcohol shall be subject to tax pertaining thereto shall be required to pay the corresponding tax, in
under Section 106(A) of this Code: Provided, further, That if such alcohol addition to the penalties provided for under Title X of this Code.
is to be used for motive power, it shall be taxed under Section 148(d) of
SEC. 137. Removal of Spirits Under Bond for Rectification. - Spirits
this Code: Provided, finally, That any alcohol, previously rendered unfit for requiring rectification may be removed from the place of production to
oral intake after denaturing but subsequently rendered fit or oral intake another establishment for the purpose of rectification without prepayment
of the excise tax: Provided, That the distiller removing such spirits and the
after undergoing fermentation, dilution, purification, mixture or any other
rectifier receiving them shall file with the Commissioner their joint bond
similar process shall be taxed under Section 141 of this Code and such conditioned upon the payment by the rectifier of the excise tax due on the
tax shall be paid by the person in possession of such reprocessed spirits. rectified alcohol: Provided, further, That in cases where alcohol has
already been rectified either by original and continuous distillation or by re-
distillation, no loss for rectification and handling shall be allowed and the
SEC. 135. Petroleum Products Sold to International Carriers and rectifier thereof shall pay the excise tax due on such losses: Provided,
Exempt Entities or Agencies. -Petroleum products sold to the following finally, That where a rectifier makes use of spirits upon which the excise
tax has not been paid, he shall be liable for the payment of the tax
are exempt from excise tax:
otherwise due thereon.
(a) International carriers of Philippine or foreign registry on their use or SEC. 138. Removal of Fermented Liquors to Bonded Warehouse. -
consumption outside the Philippines: Provided, That the petroleum Any brewer may remove or transport from his brewery or other place of
products sold to these international carriers shall be stored in a bonded manufacture to a bonded warehouse used by him exclusively for the
storage or sale in bulk of fermented liquors of his own manufacture, any
storage tank and may be disposed of only in accordance with the rules quantity of such fermented liquors, not less than one thousand (1,000)
and regulations to be prescribed by the Secretary of Finance, upon liters at one removal, without prepayment of the tax thereon under a
permit which shall be granted by the Commissioner. Such permit shall be
recommendation of the Commissioner;
affixed to every package so removed and shall be cancelled or destroyed
in such manner as the Commissioner may prescribe. Thereafter, the
(b) Exempt entities or agencies covered by tax treaties, conventions and manufacturer of such fermented liquors shall pay the tax in the same
manner and under the same penalty and liability as when paid at the
brewery. 2. In addition to the ad valorem tax herein imposed, a specific tax of

Twenty pesos (P20.00) per proof liter.
SEC. 139. Removal of Damaged Liquors Free of Tax. - When any
fermented liquor has become sour or otherwise damaged so as to be unfit
for use as such, brewers may sell and after securing a special permit from (b) Effective on January 1, 2015
the Commissioner, under such conditions as may be prescribed in the
rules and regulations prescribed by the Secretary of Finance, remove the 1. An ad valorem equivalent to twenty percent (20%) of the net retail price
same without the payment of tax thereon in cask or other packages,
distinct from those ordinarily used for fermented liquors, each containing (excluding the excise tax and the value-added tax) per proof; and
not less than one hundred seventy-five (175) liters with a note of their
contents permanently affixed thereon. 2. In addition to the ad valorem tax herein imposed, the specific tax rate of
Twenty pesos (P20.00) per proof liter.
SEC. 140. Removal of Tobacco Products without Prepayment of
Tax. - Products of tobacco entirely unfit for chewing or smoking may be
removed free of tax for agricultural or industrial use, under such conditions (c) In addition to the ad valorem tax herein imposed, the specific tax rate
as may be prescribed in the rules and regulations prescribed by the of Twenty pesos (P20.00) imposed under this Section shall be increased
Secretary of Finance. Stemmed leaf tobacco, fine-cut shorts, the refuse of
by four percent (4%) every year thereafter effective on January 1. 2016,
fine-cut chewing tobacco, scraps, cuttings, clippings, stems, or midribs,
and sweepings of tobacco may be sold in bulk as raw material by one through revenue regulations issued by the Secretary of Finance.
manufacturer directly to another without payment of the tax, under such
conditions as may be prescribed in the rules and regulations prescribed by Medicinal preparations, flavoring extracts, and all other preparations,
the Secretary of Finance.
except toilet preparations, of which, excluding water, distilled spirits for the
'Stemmed leaf tobacco,' as herein used, means leaf tobacco which has chief ingredient, shall be subject to the same tax as such chief ingredient.
had the stem or midrib removed. The term does not include broken leaf
tobacco. This tax shall be proportionally increased for any strength of the spirits
taxed over proof spirits, and the tax shall attach to this substance as soon
CHAPTER III
as it is in existence as such, whether it be subsequently separated as pure
EXCISE TAX ON ALCOHOL PRODUCTS or impure spirits, or transformed into any other substance either in the
process of original production or by any subsequent process.
SEC. 141. Distilled Spirits. - On distilled spirits, subject to the provisions
of Section 133 of this Code, an excise tax shall be levied, assessed and
'Spirits or distilled spirits' is the substance known as ethyl alcohol,
collected based on the following schedules:
ethanol or spirits of wine, including all dilutions, purifications and mixtures
(a) Effective on January 1, 2013 thereof, from whatever source, by whatever process produced, and shall
include whisky, brandy, rum, gin and vodka, and other similar products or
1. An ad valorem tax equivalent to fifteen percent (15%) of the net retail mixtures.
price (excluding the excise tax and the value-added tax) per proof; and
'Proof spirits' is liquor containing one-half (1/2) of its volume of alcohol of
a specific gravity of seven thousand nine hundred and thirty-nine or importer liable for additional excise tax equivalent to the tax due and
thousandths (0.7939) at fifteen degrees centigrade (15 ̊C). A 'proof liter' difference between the understated suggested and the actual net retail
means a liter of proof spirits. price.
'Net retail price' shall mean the price at which the distilled spirit is sold on Distilled spirits introduced in the domestic market after the effectivity of
retail in at least five (5) major supermarkets in Metro Manila, excluding the this Act shall be initially taxed according to their suggested net retail
amount intended to cover the applicable excise tax and the value-added prices.
tax. For distilled spirits which are marketed outside Metro Manila, the 'net
retail price' shall mean the price at which the distilled spirits is sold in at 'Suggested net retail price' shall mean the net retail price at locally
least five (5) major supermarkets in the region excluding the amount manufactured or imported distilled spirits are intended by the manufacturer
intended to cover the applicable excise tax and the value-added tax. or importer to be sold on retail in major supermarkets or retail outlets in
Metro Manila for those marketed nationwide, and in other regions, for
Major supermarkets, as contemplated under this Act, shall be those with those with regional markets. At the end of three (3) months from the
the highest annual gross sales in Metro Manila or the region, as the case product launch, the Bureau of Internal Revenue shall validate the
may be, as determined by the National Statistics Office, and shall exclude suggested net retail price of the new brand against the net retail price as
retail outlets or kiosks, convenience or sari-sari stores, and others of a defined herein and initially determine the correct tax on a newly introduced
similar nature: Provided, That no two (2) supermarkets in the list to be distilled spirits. After the end of nine (9) months from such validation, the
surveyed are affiliated and/or branches of each other: Provided, finally, Bureau of Internal Revenue shall revalidate the initially validated net retail
That in case a particular distilled spirit is not sold in major supermarkets, price against the net retail price as of the time of revalidation in order to
the price survey can be conducted in retail outlets where said distilled finally determine the correct tax on a newly introduced distilled spirits.
spirit is sold in Metro Manila or the region, as the case maybe, upon
determination of the Commissioner of the Internal Revenue. All distilled spirits existing in the market at the time of the effectivity of this
Act shall be taxed according to the tax rates provided above based on the
The net retail price shall be determined by the Bureau of Internal Revenue latest price survey of the distilled spirits conducted by the Bureau of
(BIR) through a price survey under oath. Internal Revenue.
The methodology and all pertinent documents used in the conduct of the The methodology and all pertinent documents used in the conduct of the
latest price survey shall be submitted to the Congressional Oversight latest price survey shall be submitted to the Congressional Oversight
Committee on the Comprehensive Tax Reform Program created under Committee on the Comprehensive Tax Reform Program created under
Republic Act No. 8240. Republic Act No. 8240.
Understatement of the suggested net retail price by as much as fifteen Manufacturers and importers of distilled spirits shall, within thirty (30) days
percent (15%) of the actual net retail price shall render the manufacturer from the effectivity of this Act, and within the first five (5) days of every
third month thereafter, submit to the Commissioner a sworn statement of (1) Five hundred pesos (P500) or less - Two hundred fifty pesos
the volume of sales for each particular brand of distilled spirits sold at his (P250.00); and
establishment for the three-month period immediately preceding.
(2) More than Five hundred pesos (P500) -Seven hundred pesos
Any manufacturer or importer who, in violation of this Section, misdeclares (P700.00)
or misrepresents in his or its sworn statement herein required any
pertinent data or information shall, upon final findings by the (b) Still wines containing and carbonated wines containing fourteen
Commissioner that the violation was committed, be penalized by a percent (14%) of alcohol by volume or less, Thirty pesos (P30.00); and
summary cancellation or withdrawal of his or its permit to engage in
(c) Still wines and carbonated wines containing more than fourteen
business as manufacturer or importer of distilled spirits.
percent (14%) but not more than twenty-five percent (25%) of alcohol by
Any corporation, association or partnership liable for any of the acts or volume, Sixty pesos (P60.00).
omissions in violation of this Section shall be fined treble the amount of
The rates of tax imposed under this Section shall be increased by four
deficiency taxes, surcharges and interest which may be assessed
percent (4%) every year thereafter effective on January 1, 2014, through
pursuant to this Section.
revenue regulations issued by the Secretary of Finance.
Any person liable for any of the acts or omissions prohibited under this
Fortified wines containing more than twenty-five percent of alcohol by
Section shall be criminally liable and penalized under Section 254 of this
volume shall be taxed as distilled spirits. 'Fortified wines' shall mean
Code. Any person who wilfully aids or abets in the commission of any
natural wines to which distilled spirits are added to increase their alcoholic
such act or omission shall be criminally liable in the same manner as the
strength.
principal.
'Net retail price', shall mean the price at which sparkling wine/champagne
If the offender is not a citizen of the Philippines, he shall be deported
is sold on retail in at least (5) major supermarkets in Metro Manila,
immediately after serving the sentence, without further proceedings for
excluding the amount intended to cover the applicable excise tax and the
deportation.
vale-added-tax. For sparkling wines/champagnes which are marketed
SEC. 142. Wines. - On wines, there shall be collected per liter of volume outside Metro Manila, the 'net retail price' shall mean the price at which
capacity effective on January 1, 2013, the following excise taxes: the wine is sold in at least five (5) major supermarkets in the region
excluding the amount intended to cover the applicable excise tax and the
(a) Sparkling wines/champagnes regardless of proof, if the net retail price value-added tax.
per bottle of seven hundred fifty milliliter (750 ml.) volume capacity
(excluding the excise tax and value-added tax) is: Major supermarkets, as contemplated under this Act, shall be those with
the highest annual gross sales in Metro Manila or the region, as the case
may be, as determined by the National Statistics Office, and shall exclude regions, for those with regional markets. At the end of three (3) months
retail outlets or kiosks, convenience or sari-sari stores, and others of a from the product launch, the Bureau of Internal Revenue shall validate the
similar nature: Provided, That no two (2) supermarkets in the list to be suggested net retail price of the sparkling wine /champagne against the
surveyed are affiliated and/or branches of each other: Provided, finally, net retail price as defined herein and initially determine the correct tax
that in case a particular sparkling wine/champagne is not sold in major bracket to which a newly introduced sparkling wine/champagne shall be
supermarkets, the price survey can be conducted in retail outlets where classified. After the end of nine (9) months from such validation, the
said sparkling wine/champagne is sold in Metro Bureau of Internal Revenue shall revalidate the initially validated net retail
price against as of the time of revalidation in order to finally determine the
Manila or the region, as the case maybe upon the determination of the correct tax bracket to which a newly introduced sparkling wine/champagne
Commissioner of Internal Revenue. shall be classified.
The net retail price shall be determined by the Bureau of Internal Revenue The proper tax classification of sparkling wines/champagnes, whether
(BIR) through a price survey under oath. registered before or after the effectivity of this Act, shall be determined
every two (2) years from the date of effectivity of this Act.
The methodology and all pertinent documents used in the conduct of the
latest price survey shall be submitted to the Congressional Oversight All sparkling wines/champagnes existing in the market at the time of the
Committee on the Comprehensive Tax Reform Program created under effectivity of this Act shall be classified according to the net retail prices
Republic Act No. 8240. and the tax rates provided above based on the latest price survey of the
sparkling wines/champagnes conducted by the Bureau of Internal
Understatement of the suggested net retail price by as much as fifteen
Revenue.
percent (15%) of the actual net retail price shall render the manufacturer
or importer liable for additional excise tax equivalent to the tax due and The methodology and all pertinent documents used in the conduct of the
difference between the understated suggested net retail price and the latest price survey shall be submitted to the Congressional Oversight
actual net retail price. Committee on the Comprehensive Tax Reform Program created under
Republic Act No. 8240.
Sparkling wines/champagnes introduced in the domestic market after the
effectivity of this Act shall be initially tax classified according to their Manufacturers and importers of wines shall, within thirty (30) days from
suggested net retail prices. the effectivity of this Act, and within the first five (5) days of every month
thereafter, submit to the Commissioner a sworn statement of the volume
'Suggested net retail price' shall mean the net retail price at which locally
of sales for each particular brand of wines sold at his establishment for the
manufactured or imported sparkling wines/champagnes are intended by
three-month period immediately preceding.
the manufacturer or importer to be sold on retail in major supermarkets or
retail outlets in Metro Manila for those marketed nationwide, and in other Any manufacturer or importer who, in violation of this Section, misdeclares
or misrepresents in his or its sworn statement herein required any per liter of volume capacity is more than Fifty pesos and sixty centavos
pertinent data or information shall, upon final findings by the (P50.60), the tax shall be Twenty pesos (P20.00) per liter.
Commissioner that the violation was committed be penalized by a
summary cancellation or withdrawal of his or its permit to engage in Effective on January 1, 2014
business as manufacturer or importer of wines.
(a) If the net retail price (excluding the excise tax and the value-added tax)
Any corporation, association or partnership liable for any of the acts or per liter of volume capacity is Fifty pesos and sixty centavos (P50.60) or
omissions in violation of this Section shall be fined treble the amount of less, the tax shall be Seventeen pesos (P17.00) per liter; and
deficiency taxes, surcharges and interest which may be assessed
(b) If the net retail price (excluding the excise tax and the value-added tax)
per liter of volume capacity more than Fifty pesos and sixty centavos
Any person liable for any of the acts or omissions prohibited under this (P50.60), the tax shall be Twenty-one pesos (P21.00) per liter.
Section shall be criminally liable and penalized under Section 254 of this
Effective on January 1, 2015
Code. Any person who willfully aids or abets in the commission of any
such act or omission shall be criminally liable in the same manner as the
principal.
per liter of volume capacity is Fifty pesos and sixty centavos (P50.60) or
less, the tax shall be Nineteen pesos (P19.00) per liter; and
If the offender is not a citizen of the Philippines, he shall be deported
immediately after serving the sentence, without further proceedings for
deportation.
per liter of volume capacity is more than Fifty pesos and sixty centavos
(P50.60), the tax shall be Twenty-two pesos (P22.00) per liter.
Sec. 143. Fermented Liquor. - There shall be levied, assessed and
collected an excise tax on beer, lager beer, ale, porter and other
fermented liquors except tuba, basi, tapuy and similar domestic fermented
liquors in accordance with the following schedule: (a) If the net retail price (excluding the excise tax and the value-added tax)
less, the tax shall be Twenty-one pesos (P21.00) per liter; and
per liter of volume capacity is more than Fifty pesos and sixty centavos
less, the tax shall be Fifteen pesos (P15.00) per liter; and
(P50.60), the tax shall be Twenty-three pesos (P23.00) per liter.
Effective on January 1, 2017, the tax on all fermented liquors shall be
Twenty-three pesos and fifty centavos (P23.50) per liter. to finally determine the correct tax bracket which a newly introduced
fermented liquor shall be classified.
percent (4%) every year thereafter effective on January 1, 2018, through 'Net retail price' shall mean the price at which the fermented liquor is sold
revenue regulations issued by the Secretary of Finance. However, in case on retail in at least five (5) major supermarkets in Metro Manila (for brands
of fermented liquors affected by the 'no downward reclassification' of fermented liquor marketed nationally), excluding the amount intended to
provision prescribed under this Section, the four percent (4%) increase cover the applicable excise tax and the value-added tax. For brands which
shall apply to their respective applicable tax rates. are marketed outside Metro Manila, the 'net retail price' shall mean the
price at which the fermented liquor is sold in at least five (5) major
Fermented liquors which are brewed and sold at micro-breweries or small supermarkets in the region excluding the amount intended to cover the
establishments such as pubs and restaurants shall be subject to the rate applicable excise tax and the value-added tax.
of Twenty-eight pesos (P28.00) per liter effective on January 1, 2013:
Provided, That this rate shall be increased by four percent (4%) every year Major supermarkets, as contemplated under this Act, shall be those with
thereafter effective on January 1, 2014, through revenue regulations the highest annual gross sales in Metro Manila or the region, as the case
issued by the Secretary of Finance. may be, as determined by the National Statistics Office, and shall exclude
retail outlets or kiosks, convenience or sari-sari stores, and others of a
Fermented liquors introduced in the domestic market after the effectivity of similar nature: Provided, That no two (2) supermarkets in the list to be
this Act shall be initially tax classified according to their suggested net surveyed are affiliated and/or branches of each other: Provided, finally,
retail prices. That in case a particular fermented liquor is not sold in major
supermarkets, the price survey can be conducted in retail outlets where
'Suggested net retail price' shall mean the net retail price at which locally
said fermented liquor is sold in Metro Manila or the region, as the case
manufactured or imported fermented liquor are intended by the
may be, upon the determination of the Commissioner of Internal Revenue.
manufacturer or importer to be sold on retail in major supermarkets or
retail outlets in Metro Manila for those marketed nationwide, and in other The net retail price shall be determined by the Bureau of Internal Revenue
regions, for those with regional markets. At the end of three (3) months (BIR) through a price survey under oath.
from the product launch, the Bureau of Internal Revenue shall validate the
suggested net retail price of the newly introduced fermented liquor against The methodology and all pertinent documents used in the conduct of the
the net retail price as defined herein and initially determine the correct tax latest price survey shall be submitted to the Congressional Oversight
bracket to which a newly introduced fermented liquor, as defined above, Committee on the Comprehensive Tax Reform Program created under
shall be classified. After the end of nine (9) months from such validation, Republic Act No. 8240.
the Bureau of Internal Revenue shall revalidate the initially validated net
retail price against the net retail price as of the time of revalidation in order Understatement of the suggested net retail price by as much as fifteen
percent (15%) of the actual net retail price shall render the manufacturer
or importer liable for additional excise tax equivalent to the tax due and withdrawal of his or its permit to engage in business as brewer or importer
difference between the understated suggested net retail price and the of fermented liquor.
actual net retail price.
Any corporation, association or partnership liable for any of the acts or
Any downward reclassification of present categories, for tax purposes, of omissions in violation of this Section shall be fined treble the amount of
fermented liquors duly registered at the time of the effectivity of this Act deficiency taxes, surcharges and interest which may be assessed
which will reduce the tax imposed herein, or the payment thereof, shall be pursuant to this Section.
prohibited.
Any person liable for any of the acts or omissions prohibited under this
The proper tax classification of fermented liquors, whether registered Section shall be criminally liable and penalized under Section 254 of this
before or after the effectivity of this Act, shall be determined every two (2) Code. Any person who willfully aids or abets in the commission of any
years from the date of effectivity of this Act. such act or omission shall be criminally liable in the same manner as the
principal.
All fermented liquors existing in the market at the time of the effectivity of
this Act shall be classified according to the net retail prices and the tax If the offender is not a citizen of the Philippines, he shall be deported
rates provided above based on the latest price survey of the fermented immediately after serving the sentence, without further proceedings for
liquors conducted by the Bureau of Internal Revenue. deportation.
The methodology and all pertinent documents used in the conduct of the
latest price survey shall be submitted to the Congressional Oversight CHAPTER IV
Committee on the Comprehensive Tax Reform Program created under
Republic Act No. 8240. EXCISE TAX ON TOBACCO PRODUCTS
Every brewer or importer of fermented liquor shall, within thirty (30) days   SEC. 144. Tobacco Products. - There shall be collected an excise tax
from the effectivity of this Act, and within the first five (5) days of every of One peso and seventy-five centavos (P1.75) effective on January 1,
month thereafter, submit to the Commissioner a sworn statement of the 2013 on each kilogram of the following products of tobacco:
volume of sales for each particular brand of fermented liquor sold at his
(a) Tobacco twisted by hand or reduced into a condition to be consumed
establishment for the three-month period immediately preceding.
in any manner other than the ordinary mode of drying and curing;
Any brewer or importer who, in violation of this Section, misdeclares or
(b) Tobacco prepared or partially prepared with or without the use of any
misrepresents in his or its sworn statement herein required any pertinent
machine or instruments or without being pressed or sweetened except as
data or information shall, upon final findings by the Commissioner that the
violation was committed, be penalized by a summary cancellation or
otherwise provided hereunder; and countries shall not be allowed entry without posting a bond equivalent to
the amount of customs duty, excise and value-added taxes due thereon if
(c) Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sold domestically.
sweepings of tobacco except as otherwise provided hereunder.
Manufacturers and importers of tobacco products shall, within thirty (30)
Stemmed leaf tobacco, tobacco prepared or partially prepared with or days from the effectivity of this Act, and within the first five (5) days of
without the use of any machine or instrument or without being pressed or every month thereafter, submit to the Commissioner a sworn statement of
sweetened, fine-cut shorts and refuse, scraps, clippings, cuttings, stems, the volume of sales for each particular brand of tobacco products sold for
midribs, and sweepings of tobacco resulting from the handling or stripping the three-month period immediately preceding.
of whole leaf tobacco shall be transferred, disposed of, or otherwise sold,
without any prepayment of the excise tax herein provided for, if the same Any manufacturer or importer who, in violation of this Section, misdeclares
are to be exported or to be used in the manufacture of cigars, cigarettes, or misrepresents hi his or its sworn statement herein required any
or other tobacco products on which the excise tax will eventually be paid pertinent data or information shall, upon final findings by the
on the finished product, under such conditions as may be prescribed in Commissioner that the violation was committed, be penalized by a
the rules and regulations promulgated by the Secretary of Finance, upon summary cancellation or withdrawal of his or its permit to engage in
recommendation of the Commissioner. business as manufacturer or importer of cigars or cigarettes.
On tobacco specially prepared for chewing so as to be unsuitable for use Any corporation, association or partnership liable for any of the acts or
in any other manner, on each kilogram, One peso and fifty centavos omissions in violation of this Section shall be fined treble the amount of
(P1.50) effective on January 1, 2013. deficiency taxes, surcharges and interest which may be assessed
percent. (4%) every year thereafter effective on January 1, 2014, through Any person liable for any of the acts or omissions prohibited under this
revenue regulations issued by the Secretary of Finance. Section shall be criminally liable and penalized under Section 254 of this
No tobacco products manufactured in the Philippines and produced for such act or omission shall be criminally liable in the same manner as the
export shall be removed from their place of manufacture or exported principal.
without posting of an export bond equivalent to the amount of the excise
tax due thereon if sold domestically: Provided, however, That tobacco If the offender is not a citizen of the Philippines, he shall be deported
products for export may be transferred from the place of manufacture to a immediately after serving the sentence, without further proceedings for
bonded facility, upon posting of a transfer bond, prior to export. deportation.
Tobacco products imported into the Philippines and destined for foreign
Sec. 145. Cigars and Cigarettes. regulations issued by the Secretary of Finance.
(A) Cigars. - There shall be levied, assessed and collected on cigars an Duly registered cigarettes packed by hand shall only be packed in
excise tax in accordance with the following schedule:  twenties and other packaging combinations of not more than twenty.
(1) Effective on January 1, 2013 'Cigarettes packed by hand' shall refer to the manner of packaging of
cigarette sticks using an individual person's hands and not through any
(a) An ad valorem tax equivalent to twenty percent (20%) of the net retail other means such as a mechanical device, machine or equipment.
price (excluding the excise tax and the value-added tax) per cigar; and
(C) Cigarettes Packed by Machine. - There shall be levied, assessed
(b) In addition to the ad valorem tax herein imposed, a specific tax of Five and collected on cigarettes packed by machine a tax at the rates
pesos (P5.00) per cigar. prescribed below:
(2) In addition to the ad valorem tax herein imposed, the specific tax rate Effective on January 1, 2013
of Five pesos (P5.00) imposed under this subsection shall be increased by
four percent (4%) effective on January 1, 2014 through revenue (1) If the net retail price (excluding the excise tax and the value-added tax)
regulations issued by the Secretary of Finance. is Eleven pesos and fifty centavos (P11.50) and below per pack, the tax
shall be Twelve pesos (P12.00) per pack; and
(B) Cigarettes Packed by Hand. - There shall be levied, assessed and
collected on cigarettes hand an excise tax based on the following (2) If the net retail price (excluding the excise tax and the value-added tax)
schedules: is more than Eleven pesos and fifty centavos (P11.50) per pack, the tax
shall be Twenty-five pesos (P25.00) per pack.
Effective on January 1, 2013, Twelve pesos (P12.00) per pack;
Effective on January 1, 2014, Fifteen pesos (P15.00) per pack; 
(1) If the net retail price (excluding the excise tax and the value-added tax)
Effective on January 1, 2015, Eighteen pesos (P18.00) per pack; is Eleven pesos and fifty centavos (P11.50) and below per pack, the tax
shall be Seventeen pesos (P17.00) per pack; and
Effective on January 1, 2016, Twenty-one pesos (P21.00) per pack; and
Effective on January 1, 2017, Thirty pesos (P30.00) per pack.
is more than Eleven pesos and fifty centavos (P11.50) per pack, the tax
shall be Twenty-seven pesos (P27.00) per pack.
The rates of tax imposed under this subsection shall be increased by four
percent (4%) every year effective on January 1, 2018, through revenue
Effective on January 1, 2015 difference between the understated suggested net retail price and the
actual net retail price.
is Eleven pesos and fifty centavos (P11.50) and below per pack, the tax Cigarettes introduced in the domestic market after the effectivity of this Act
shall be Twenty-one pesos (P21.00) per pack; and shall be initially tax classified according to their suggested net retail prices.
(2) If the net retail price (excluding the excise tax and the value-added tax) 'Suggested net retail price' shall mean the net retail price at which locally
is more than Eleven pesos and fifty centavos (P11.50) per pack, the tax manufactured or imported cigarettes are intended by the manufacturer or
shall be Twenty-eight pesos (P28.00) per pack. importer to be sold on retail in major supermarkets or retail outlets in
Metro Manila for those marketed nationwide, and in other regions, for
Effective on January 1, 2016 those with regional markets. At the end of three (3) months from the
product launch, the Bureau of Internal Revenue shall validate the
suggested net retail price of the newly introduced cigarette against the net
is Eleven pesos and fifty centavos (P11.50) and below per pack, the tax
retail price as defined herein and initially determine the correct tax bracket
shall be Twenty-five pesos (P25.00) per pack; and
under which a newly introduced cigarette shall be classified. After the end
of nine (9) months from such validation, the Bureau of Internal Revenue
shall revalidate the initially validated net retail price against the net retail
is more than Eleven pesos and fifty centavos (P11.50) per pack, the tax
price as of the time of revalidation in order to finally determine the correct
shall be Twenty-nine pesos (P29.00) per pack.
tax bracket under which a newly introduced cigarette shall be classified.
Effective on January 1, 2017, the tax on all cigarettes packed by machine
'Net retail price' shall mean the price at which the cigarette is sold on
shall be Thirty pesos (P30.00) per pack.
retail in at least five (5) major supermarkets in Metro Manila (for brands of
The rates of tax imposed under this subsection shall be increased by four cigarettes marketed nationally), excluding the amount intended to cover
percent (4%) every year thereafter effective on January 1, 2018, through the applicable excise tax and the value-added tax. For cigarettes which
revenue regulations issued by the Secretary of Finance. are marketed only outside Metro Manila, the 'net retail price' shall mean
the price at which the cigarette is sold in at least five (5) major
Duly registered cigarettes packed by machine shall only be packed in supermarkets in the region excluding the amount intended to cover the
twenties and other packaging combinations of not more than twenty. applicable excise tax and the value-added tax.
Understatement of the suggested net retail price by as much as fifteen Major supermarkets, as contemplated under this Act, shall be those with
percent (15%) of the actual net retail price shall render the manufacturer the highest annual gross sales in Metro Manila or the region, as the case
or importer liable for additional excise tax equivalent to the tax due and may be, as determined by the National Statistics Office, and shall exclude
retail outlets or kiosks, convenience or sari-sari stores, and others of a tax due thereon if sold domestically: Provided, however, That tobacco
similar nature: Provided, That no two (2) supermarkets in the list to be products for export may be transferred from the place of manufacture to a
surveyed are affiliated and/or branches of each other: Provided, finally, bonded facility, upon posting of a transfer bond, prior to export.
That in case a particular cigarette is not sold in major supermarkets, the
price survey can be conducted in retail outlets where said cigarette is sold Tobacco products imported into the Philippines and destined for foreign
in Metro Manila or the region, as the case may be, upon the determination countries shall not be allowed entry without posting a bond equivalent to
of the Commissioner of Internal Revenue. the amount of customs duty, excise and value-added taxes due thereon if
sold domestically.
The net retail price shall be determined by the Bureau of Internal Revenue
through a price survey under oath. Of the total volume of cigarettes sold in the country, any manufacturer
and/or seller of tobacco products must procure at least fifteen percent
The methodology and all pertinent documents used in the conduct of the (15%) of its tobacco leaf raw material requirements from locally grown
latest price survey shall be submitted to the Congressional Oversight sources, subject to adjustments based on international treaty
Committee on the Comprehensive Tax Reform Program created under commitments.
Republic Act No. 8240.
Manufacturers and importers of cigars and cigarettes shall, within thirty
The proper tax classification of cigarettes, whether registered before or (30) days from the effectivity of this Act and within the first five (5) days of
after the effectivity of this Act, shall be determined every two (2) years every month thereafter, submit to the Commissioner a sworn statement of
from the date of effectivity of this Act. the volume of sales for cigars and/or cigarettes sold for the three-month
period immediately preceding.
All cigarettes existing in the market at the time of the effectivity of this Act
shall be classified according to the net retail prices and the tax rates Any manufacturer or importer who, in violation of this Section, misdeclares
provided above based on the latest price survey of cigarettes conducted or misrepresents in his or its sworn statement herein required any
by the Bureau of Internal Revenue. pertinent data or information shall, upon final findings by the
Commissioner that the violation was committed, be penalized by a
The methodology and all pertinent documents used in the conduct of the summary cancellation or withdrawal of his or its permit to engage in
latest price survey shall be submitted to the Congressional Oversight business as manufacturer or importer of cigars or cigarettes.
Committee on the Comprehensive Tax Reform Program created under
Republic Act No. 8240. Any corporation, association or partnership liable for any of the acts or
omissions in violation of this Section shall be fined treble the aggregate
No tobacco products manufactured in the Philippines and produced for amount of deficiency taxes, surcharges and interest which may be
export shall be removed from their place of manufacture or exported assessed pursuant to this Section.
without posting of an export bond equivalent to the amount of the excise
Any person liable for any of the acts or omissions prohibited under this official forms prescribed hereunder, the following terms shall have the
Section shall be criminally liable and penalized under Section 254 of this meaning indicated:
such act or omission shall be criminally liable in the same manner as the (a) 'Cigars' mean all rolls of tobacco or any substitute thereof, wrapped in
principal. leaf tobacco. 
If the offender is not a citizen of the Philippines, he shall be deported (b) 'Cigarettes' mean all rolls of finely-cut leaf tobacco, or any substitute
immediately after serving the sentence, without further proceedings for therefor, wrapped in paper or in any other material.
deportation.
(c) 'Wholesale price' shall mean the amount of money or price paid for
SEC. 146. Inspection Fee. - For inspection made in accordance with this cigars or cigarettes purchased for the purpose of resale, regardless of
Chapter, there shall be collected a fee of Fifty centavos (P0.50) for each quantity.
thousand cigars or fraction thereof; Ten centavos (P0.10) for each
(d) 'Retail price' shall mean the amount of money or price which an
thousand cigarettes of fraction thereof; Two centavos (P0.02) for each
ultimate consumer or end-user pays for cigars or cigarettes purchased.
kilogram of leaf tobacco or fraction thereof; and Three centavos (P0.03)
for each kilogram or fraction thereof, of scrap and other manufactured
tobacco.
CHAPTER V
The inspection fee on leaf tobacco, scrap, cigars, cigarettes and other
EXCISE TAX ON PETROLEUM PRODUCTS
tobacco products as defined in Section 147 of this Code shall be paid by
the wholesaler, manufacturer, producer, owner or operator of redrying SEC. 148. Manufactured Oils and Other Fuels. - There shall be
plant, as the case may be, immediately before removal thereof from the collected on refined and manufactured mineral oils and motor fuels, the
establishment of the wholesaler, manufacturer, owner or operator of the following excise taxes which shall attach to the goods hereunder
re-drying plant. In case of imported leaf tobacco and products thereof, the enumerated as soon as they are in existence as such:
inspection fee shall be paid by the importer before removal from customs'
custody. (a) Lubricating oils and greases, including but not limited to, base stock for
lube oils and greases, high vacuum distillates, aromatic extracts, and
Fifty percent (50%) of the tobacco inspection fee shall accrue to the other similar preparations, and additives for lubricating oils and greases,
Tobacco Inspection Fund created by Section 12 of Act No. 2613, as whether such additives are petroleum based or not, per liter and kilogram
amended by Act No. 3179, and fifty percent (50%) shall accrue to the respectively, of volume capacity or weight, Four pesos and fifty centavos
Cultural Center of the Philippines. (P4.50): Provided, however, That the excise taxes paid on the purchased
feedstock (bunker) used in the manufacture of excisable articles and
SEC. 147. Definition of Terms. - When used herein and in statements or
forming part thereof shall be credited against the excise tax due therefrom: or less the same generating power, which are produced in the processing
Provided, further, That lubricating oils and greases produced from base of naphtha into petrochemical products shall be subject to the applicable
stocks and additives on which the excise tax has already been paid shall excise tax specified in this Section, except when such by- products are
no longer be subject to excise tax: Provided, finally, That locally produced transferred to any of the local oil refineries through sale, barter or
or imported oils previously taxed as such but are subsequently exchange, for the purpose of further processing or blending into finished
reprocessed, re-refined or recycled shall likewise be subject to the tax products which are subject to excise tax under this Section;
imposed under this Section.
(f) Leaded premium gasoline, per liter of volume capacity, Five pesos and
(b) Processed gas, per liter of volume capacity, Five centavos (P0.05); thirty-five centavos (P5.35); unleaded premium gasoline, per liter of
volume capacity, Four pesos and thirty-five centavos (P4.35);
(c) Waxes and petrolatum, per kilogram, Three pesos and fifty centavos
(P3.50); (g) Aviation turbo jet fuel, per liter of volume capacity, Three pesos and
sixty-seven centavos (P3.67);
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, Five centavos (P0.05): Provided, That unless otherwise provided (h) Kerosene, per liter of volume capacity, Zero (P0.00): Provided, That
by special laws, if the denatured alcohol is mixed with gasoline, the excise kerosene, when used as aviation fuel, shall be subject to the same tax on
tax on which has already been paid, only the alcohol content shall be aviation turbo jet fuel under the preceding paragraph (g), such tax to be
subject to the tax herein prescribed. For purposes of this Subsection, the assessed on the user thereof;
removal of denatured alcohol of not less than one hundred eighty degrees
o (i) Diesel fuel oil, and on similar fuel oils having more or less the same
(180 ) proof (ninety percent (90%) absolute alcohol) shall be deemed to
generating power, per liter of volume capacity, One peso and zero
have been removed for motive power, unless shown otherwise;
(P0.00);
(e) Naphtha, regular gasoline and other similar products of distillation, per
(j) Liquefied petroleum gas, per liter, Zero (P0.00): Provided, That liquefied
liter of volume capacity, Four pesos and thirty five centavos (P4.35):
petroleum gas used for motive power shall be taxed at the equivalent rate
Provided, however, That naphtha, when used as a raw material in the
as the excise tax on diesel fuel oil;
production of petrochemical products or as replacement fuel for natural-
gas-fired-combined cycle power plant, in lieu of locally-extracted natural
(k) Asphalts, per kilogram, Fifty-six centavos (P0.56); and
gas during the non-availability thereof, subject to the rules and regulations
to be promulgated by the Secretary of Energy, in consultation with the (l) Bunker fuel oil, and on similar fuel oils having more or less the same
Secretary of Finance, per liter of volume capacity, Zero (P0.00): Provided, generating power, per liter of volume capacity, zero (P0.00).
further, That the by-product including fuel oil, diesel fuel, kerosene,
pyrolysis gasoline, liquefied petroleum gases and similar oils having more
CHAPTER VI  Philippine peso against the U.S dollar is at least twenty percent (20%) at
any time within the two (2) year period referred to above, the Secretary of
EXCISE TAX ON MISCELLANEOUS ARTICLES Finance shall index the brackets reflecting the manufacturer's price or
importer's selling price, net of excise and value added-taxes, by the full
SEC. 149. Automobiles. - There shall be levied, assessed and collected
rate of the peso depreciation or appreciation, as the case may be.
an ad valorem tax on automobiles based on the manufacturer's or
importer's selling price, net of excise and value-added tax, in accordance As used in this Section-
with the following schedule:
(a) Automobile shall mean any four (4) or more wheeled motor vehicle
Net manufacturer’s price/ regardless of seating capacity, which is propelled by gasoline, diesel,
Importer’s selling price Rate electricity or any other motive power. Provided, That for purposes of this
Act, buses, trucks, cargo vans, jeeps/jeepneys/ shall not be considered
Up to P600,000 2% as automobiles.
Over P600,000-P1.1 Million P12,000 + 20% of value in excess
P600,000 (b) Trucks/cargo van shall mean a motor vehicle of any configuration that
Over P1.1 Million-P2.1 Million P112,00 + 40% of value in excess of is exclusively designed for the carriage of goods and with any number of
P1.1M wheels and axles: provided, that pick-ups shall not be considered as
Over P2.1 Million P512,00 + 60% of value in excess of trucks.
P2.1M
(c) Jeep/jeepney/jeepney substitutes shall mean as "Philippine jeep or
Provided, That the brackets reflecting the manufacturer's price or jeepney " which are of the jitney type locally designed and manufactured
importer's selling price, net of excise and value added-taxes, will be generally from surplus parts and components. It shall also include jeepney
indexed by the Secretary of Finance once every two years if the change in substitutes that are manufactured from brand-new single cab chassis or
the exchange rate of the Philippine peso against the United States (U.S) cowl chassis and locally customized rear body that has continuous
dollar is more ten percent (10%) from the date of effectivity of this Act, in sideway row seats with open rear door and without retractable glass
the case of initial adjustments and from the last revision date in the case windows.
of subsequent adjustments.
(d) Bus shall mean a motor vehicle of any configuration with gross vehicle
The manufacturer's price or importer's selling price, net of excise and weight of 4.0 tons or more with any number of wheels and axles, which is
value added taxes, shall be indexed by the full rate of the peso generally accepted and specifically designed for mass or public
depreciation or appreciation, as the case may be. transportation.
Provided, further, That in case the change in the exchange rate of the (e) Single cab chassis shall mean a motor vehicle with complete engine
power train and chassis equipped with a cab that has a maximum of two pleasure or sports.
(2) doors and only one (1) row of seats.
(f) Special purpose vehicle shall mean a motor vehicle designed for CHAPTER VII
specific applications such as cement mixer, fine truck, boom truck,
ambulance and/or medical unit, and off-road vehicles for heavy industries EXCISE TAX ON MINERAL PRODUCTS SEC.
and not for recreational activities.
151. Mineral Products. -
Provided, That in the case of imported automobiles not for sale, the tax
(A) Rates of Tax. - There shall be levied, assessed and collected on
imposed herein shall be based on the total landed value, including
minerals, mineral products and quarry resources, excise tax as follows:
transaction value, customs duty and all other charges.
(1) On coal and coke, a tax of Ten pesos (P10.00) per metric ton;
Automobiles used exclusively within the Freeport zone shall be exempt
from excise tax.
(2) On all nonmetallic minerals and quarry resources, a tax of two percent
(2%) based on the actual market value of the gross output thereof at the
SEC. 150. Non-essential Goods. - There shall be levied, assessed and
time of removal, in the case of those locally extracted or produced; or the
collected a tax equivalent to twenty- percent (20%) based on the
value used by the Bureau of Customs in determining tariff and customs
wholesale price or the value of importation used by the Bureau of
duties, net of excise tax and value-added tax, in the case of importation.
Customs in determining tariff and customs duties, net of excise tax and
value-added tax, of the following goods:
Notwithstanding the provision of paragraph (4) of Subsection (A) of this
Section, locally extracted natural gas and liquefied natural gas shall not be
(a) All goods commonly or commercially known as jewelry, whether real or
subject to the excise tax imposed herein.
imitation, pearls, precious and semi-precious stones and imitations
thereof; goods made of, or ornamented, mounted or fitted with, precious
(3) On all metallic minerals, a tax based on the actual market value of the
metals or imitations thereof or ivory (not including surgical and dental
gross output thereof at the time of removal, in the case of those locally
instruments, silver-plated wares, frames or mountings for spectacles or
extracted or produced; or the value used by the Bureau of Customs in
eyeglasses, and dental gold or gold alloys and other precious metals used
determining tariff and customs duties, net of excise tax and value-added
in filling, mounting or fitting the teeth); opera glasses and lorgnettes. The
tax, in the case of importation, in accordance with the following schedule;
term 'precious metals' shall include platinum, gold, silver and other
metals of similar or greater value. The term 'imitations thereof' shall (a) Copper and other metallic minerals; 
include platings and alloys of such metals;
(i) On the first three (3) years upon the effectivity of Republic Act
(b) Perfumes and toilet waters;  (c) Yachts and other vessels intended for No. 7729, one percent (1%);
(ii) On the fourth and the fifth years, one and a half percent (1 traded in commodity exchanges in the Philippines or abroad, such as
1 copper concentrate, the actual market value shall be the world price
/2%); and 
(iii) On the sixth year and thereafter, two percent (2%);  quotations of the refined mineral products content thereof prevailing in the
said commodity exchanges, after deducting the smelting, refining and
(b) Gold and chromite, two percent (2%). other charges incurred in the process of converting the mineral
concentrates into refined metal traded in those commodity exchanges.
(4) On indigenous petroleum, a tax of three percent (3%) of the fair
international market price thereof, on the first taxable sale, barter, (2) 'Minerals' shall mean all naturally occurring inorganic substances
exchange or such similar transaction, such tax to be paid by the buyer or (found in nature) whether in solid, liquid, gaseous or any intermediate
purchaser before removal from the place of production. The phrase 'first state.
taxable sale, barter, exchange or similar transaction' means the
(3) 'Mineral products' shall mean things produced and prepared in a
transfer of indigenous petroleum in its original state to a first taxable
marketable state by simple treatment processes such as washing or
transferee. The fair international market price shall be determined in
drying, but without undergoing any chemical change or process or
consultation with an appropriate government agency;
manufacturing by the lessee, concessionaire or owner of mineral lands.
For the purpose of this Subsection, 'indigenous petroleum' shall include
(4) 'Quarry resources' shall mean any common stone or other common
locally-extracted mineral oil, hydrocarbon gas, bitumen, crude asphalt,
mineral substances as the Director of the Bureau of Mines and Geo-
mineral gas and all other similar or naturally associated substances with
Sciences may declare to be quarry resources such as, but not restricted
the exception of coal, peat, bituminous shale and/or stratified mineral
to, marl, marble, granite, volcanic cinders, basalt, tuff and rock phosphate:
deposits.
Provided, That they contain no metal or other valuable minerals in
(B) For purposes of this Section, the term - economically workable quantities.
(1) 'Gross output' shall be interpreted as the actual market value of

minerals or mineral products or of bullion from each mine or mineral land CHAPTER VIII
operated as a separate entity, without any deduction from mining, milling,

ADMINISTRATIVE PROVISIONS REGULATING BUSINESS OF
refining (including all expenses incurred to prepare the said minerals or
PERSONS DEALING IN ARTICLES SUBJECT TO EXCISE TAX
mineral products in a marketable state), as well as transporting, handling,
marketing or any other expenses: Provided, That if the minerals or mineral SEC. 152. Extent of Supervision Over Establishments Producing
products are sold or consigned abroad by the lessee or owner of the mine Taxable Output. - The Bureau of Internal Revenue has authority to
under C.I.F. terms, the actual cost of ocean freight and insurance shall be supervise establishments where articles subject to excise tax are made or
deducted: provided, however, That in the case of mineral concentrate, not kept. The Secretary of Finance shall prescribe rules and regulations as to
the mode in which the process of production shall be conducted insofar as Metering Devices to Determine Production. - Manufacturers of
may be necessary to secure a sanitary output and to safeguard the cigarettes, alcoholic products, oil products and other articles subject to
revenue. excise tax that can be similarly measured shall provide themselves with
such necessary number of suitable counting or metering devices to
SEC. 153. Records to be Kept by Manufacturers; Assessment Based determine as accurately as possible the volume, quantity or number of the
Thereon. - Manufacturers of articles subject to excise tax shall keep such articles produced by them under rules and regulations promulgated by the
records as required by rules and regulations recommended by the Secretary of Finance, upon recommendation of the Commissioner.
Commissioner and approved by the Secretary of Finance, and such
records, whether of raw materials received into the factory or of articles This requirement shall be complied with before commencement of
produced therein, shall be deemed public and official documents for all operations.
purposes.
SEC. 156. Labels and Form of Packages. - All articles of domestic
The records of raw materials kept by such manufacturers may be used as manufacture subject to excise tax and all leaf tobacco shall be put up and
evidence by which to determine the amount of excise taxes due from prepared by the manufacturer or producer, when removed for sale or
them, and whenever the amounts of raw material received into any factory consumption, in such packages only and bearing such marks or brand as
exceeds the amount of manufactured or partially manufactured products shall be prescribed in the rules and regulations promulgated by the
on hand and lawfully Secretary of Finance; and goods of similar character imported into the
Philippines shall likewise be packed and marked in such a manner as may
removed from the factory, plus waste removed or destroyed, and a be required.
reasonable allowance for unavoidable loss in manufacture, the
Commissioner may assess and collect the tax due on the products which SEC. 157. Removal of Articles After the Payment of Tax. - When the
should have been produced from the excess. tax has been paid on articles or products subject to excise tax, the same
shall not thereafter be stored or permitted to remain in the distillery,
The excise tax due on the products as determined and assessed in distillery warehouse, bonded warehouse, or other factory or place where
accordance with this Section shall be payable upon demand or within the produced. However, upon prior permit from the Commissioner, oil
period specified therein. refineries and/or companies may store or deposit tax-paid petroleum
products and commingle the same with its own manufactured products not
SEC. 154. Premises Subject to Approval by Commissioner. - No
yet subjected to excise tax. Imported petroleum products may be allowed
person shall engage in business as a manufacturer of or dealer in articles
to be withdrawn from customs custody without the prepayment of excise
subject to excise tax unless the premises upon which the business is to
tax, which products may be commingled with the tax-paid or bonded
conducted shall have been approved by the Commissioner.
products of the importer himself after securing a prior permit from the
Commissioner: Provided, That withdrawals shall be taxed and accounted
SEC. 155. Manufacturers to Provide Themselves with Counting or
for on a 'first-in, first-out' basis. such business is followed, with laws and rules and regulations relating to
such business and for the satisfaction of all fines and penalties imposed
SEC. 158. Storage of Goods in Internal-revenue Bonded Warehouses. by this Code.
- An internal-revenue bonded warehouse may be maintained in any port of
entry for the storing of imported or manufactured goods which are subject SEC. 161. Records to be Kept by Wholesale Dealers. - Wholesale
to excise tax. The taxes on such goods shall be payable only upon dealers shall keep records of their purchases and sales or deliveries of
removal from such warehouse and a reasonable charge shall be made for articles subject to excise tax, in such form as shall be prescribed in the
their storage therein. The Commissioner, may, in his discretion, exact a rules and regulations by the Secretary of Finance. These records and the
bond to secure the payment of the tax on any goods so stored. entire stock of goods subject to tax shall be subject at all times to
inspection of internal revenue officers.
SEC. 159. Proof of Exportation; Exporter's Bond. - Exporters of goods
that would be subject to excise tax, if sold or removed for consumption in SEC. 162. Records to be Kept by Dealers in Leaf Tobacco. - Dealers in
the Philippines, shall submit proof of exportation satisfactory to the leaf tobacco shall keep records of the products sold or delivered by them
Commissioner, and , when the same is deemed necessary, shall be to other persons in such manner as may be prescribed in the rules and
required to give a bond prior to the removal of the goods for shipment, regulations by the Secretary of Finance, such records to be at all times
conditioned upon the exportation of the same in good faith. subject to inspection of internal revenue officers.
SEC. 160. Manufacturers' and Importers' Bond. - Manufacturers and SEC. 163. Preservation of Invoices and Stamps. - All dealers
importers of articles subject to excise tax shall post a bond subject to the whosoever shall preserve, for the period prescribed in Section 235, all
following conditions: official invoices received by them from other dealers or from
manufacturers, together with the fractional parts of stamps affixed thereto,
(A) Initial Bond. - In case of initial bond, the amount shall be equal to One if any, and upon demand, shall deliver or transmit the same to any interval
Hundred thousand pesos (P100,000): Provided, That if after six (6) revenue officer.
months of operation, the amount of initial bond is less than the amount of
the total excise tax paid during the period, the amount of the bond shall be SEC. 164. Information to be Given by Manufacturers, Importers,
adjusted to twice the tax actually paid for the period. Indentors, and Wholesalers of any Apparatus or Mechanical
Contrivance Specially for the Manufacture of Articles Subject to
(B) Bond for the Succeeding Years of Operation. - The bonds for the Excise Tax and Importers, Indentors, Manufacturers or Sellers of
succeeding years of operation shall be based on the actual total excise Cigarette Paper in Bobbins, Cigarette Tipping Paper or Cigarette
tax paid during the period the year immediately preceding the year of Filter Tips. - Manufacturers, indentors, wholesalers and importers of any
operation. apparatus or mechanical contrivance specially for the manufacture of
articles subject to tax shall, before any such apparatus or mechanical
Such bond shall be conditioned upon faithful compliance, during the time
contrivance is removed from the place of manufacture or from the customs be kept securely locked, and shall at no time be unlocked or opened or
house, give written information to the Commissioner as to the nature and remain unlocked or opened unless in the presence of such revenue
capacity of the same, the time when it is to be removed, and the place for inspector or other person who may be designated to act for him as
which it is destined, as well as the name of the person by whom it is to be provided by law.
used; and such apparatus or mechanical contrivance shall not be set up
nor dismantled or transferred without a permit in writing from the SEC. 167. Limitation on Quantity of Spirits Removed from
Commissioner. Warehouse. - No distilled spirits shall be removed from any distillery,
distillery warehouse, or bonded warehouse in quantities of less than
A written permit from the Commissioner for importing, manufacturing or fifteen (15) gauge liters at any one time, except bottled goods, which may
selling of cigarette paper in bobbins or rolls, cigarette tipping paper or be removed by the case of not less than twelve (12) bottles.
cigarette filter tips is required before any person shall engage in the
importation, manufacture or sale of the said articles. No permit to sell said SEC. 168. Denaturing Within Premises. - For purposes of this Title, the
articles shall be granted unless the name and address of the prospective process of denaturing alcohol shall be effected only within the distillery
buyer is first submitted to the Commissioner and approved by him. premises where the alcohol to be denatured is produced in accordance
Records, showing the stock of the said articles and the disposal thereof by with formulas duly approved by the Bureau of Internal Revenue and only
sale of persons with their respective addresses as approved by the in the presence of duly designated representatives of said Bureau.
Commissioner, shall be kept by the seller, and records, showing stock of
SEC. 169. Recovery of Alcohol for Use in Arts and Industries. -
said articles and consumption thereof, shall be kept by the buyer, subject
Manufacturers employing processes in which denatured alcohol used in
to inspection by internal revenue officers.
arts and industries is expressed or evaporated from the articles
SEC. 165. Establishment of Distillery Warehouse. - Every distiller, manufactured may, under rules and regulations to be prescribed by the
when so required by the Commissioner, shall provide at his own expense Secretary of Finance, upon recommendation of the Commissioner, be
a warehouse, and shall be situated in and constitute a part of his distillery permitted to recover the alcohol so used and restore it again to a condition
premises and to be used only for the storage of distilled spirits of his own suitable solely for use in manufacturing processes.
manufacture until the tax thereon shall have been paid; but no dwelling
SEC. 170. Requirements Governing Rectification and Compounding
house shall be used for such purpose. Such warehouse, when approved
of Liquors. - Persons engaged in the rectification or compounding of
by the Commissioner, is declared to be a bonded warehouse, and shall be
liquors shall, as to the mode of conducting their business and supervision
known as a 'distillery warehouse'.
over the same, be subject to all the requirements of law applicable to
SEC. 166. Custody of Distillery or Distillery Warehouse. - Every distilleries: Provided, That where a rectifier makes use of spirits upon
distillery or distillery warehouse shall be in the joint custody of the revenue which the excise tax has been paid, no further tax shall be collected on
inspector, if one is assigned thereto, and of the proprietor thereof. It shall any rectified spirits produced exclusively therefrom: Provided, further, That
compounders in the manufacture of any intoxicating beverage whatever, There are two kinds of excise taxes, namely: 1. Specific tax, and   2. Ad
shall not be allowed to make use of spirits upon which the excise tax has valorem tax  
not been previously paid.
Specific taxes are those based on weight or volume capacity or any other
SEC. 171. Authority of Internal Revenue Officer in Searching for physical unit of measurement.   
Taxable Articles. - Any internal revenue officer may, in the discharge of
his official duties, enter any house, building or place where articles subject Ad valorem taxes are those based on the selling price or other specified
to tax under this Title are produced or kept, or are believed by him upon value of the   article.
reasonable grounds to be produced or kept, so far as may be necessary
to examine, discover or seize the same. “Suggested net retail price” apply to new brands to be introduced. It’s
the net retail price at which new brands are intended to be sold on retail in
He may also stop and search any vehicle or other means of transportation major supermarkets or retail outlets in Metro Manila for those marketed
when upon reasonable grounds he believes that the same carries any nationwide, and in other regions, for those with regional markets.
article on which the excise tax has not been paid.
“Net retail price” apply to those brands already in the market. It is the
SEC. 172. Detention of Package Containing Taxable Articles. - Any price at which the goods are sold on retail in at least 5 major supermarkets in
revenue officer may detain any package containing or supposed to Metro Manila.   For brands marketed outside Metro Manila, the 'net retail
contain articles subject to excise tax when he has good reason to believe price' shall mean the price at which the goods are sold in at least 5 major
that the lawful tax has not been paid or that the package has been or is supermarkets in the region.
being removed in violation of law, and every such package shall be held
by such officer in a safe place until it shall be determined whether the The following are exempt from paying excise taxes, or articles which can
property so detained is liable by law to be proceeded against for forfeiture; be removed, without paying the excise tax, subject to a condition:
but such summary detention shall not continue in any case longer than
seven (7) days without due process of law or intervention of the officer to 1. Wines and distilled spirits for treatment of tobacco leaf, but with prior
whom such detention is to be reported. approval of the Commissioner and with corresponding bond  
2. Domestic alcohol of not less than 180 degree proof (or 90% absolute
alcohol), when suitably denatured and rendered unfit for oral intake  
EXCISE TAX
Sections 129-172 3.Petroleum products sold to the following are exempt:
Excise taxes are applicable only to Manufacturers and Importers a. International carriers of Philippine or foreign registry on their
use or consumption   outside the Philippines, provided that foreign exchange payment.
the petroleum products sold to these   international carriers
shall be stored in a bonded storage tank, or  
b. Exempt entities or agencies covered by tax treaties,

conventions and other international agreements for their
use or consumption, provided that the country of said
foreign international carrier exempts from similar taxes
petroleum products sold   to Philippine carriers, or  
c. Entities which are by law exempt from direct and indirect taxes
 
4. Spirits requiring rectification upon filing of a bond  
5. Fermented liquors removed by brewers from brewery to a bonded

warehouse used exclusively for the storage or sale in bulk of fermented
liquors, not less than 1000 liters   at one removal   RA 9224
6. Damaged fermented liquor unfit for use removed by brewers upon AN ACT RATIONALIZING THE EXCISE TAX ON AUTOMOBILES,
approval by the Commissioner. The damaged fermented liquor must be AMENDING FOR
THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE OF 1997,
in distinct packages different from those used for fermented liquors.   AND FOR OTHER PURPOSES.
7.Tobacco products entirely unfit for chewing or smoking   Section 1. Section 149 of the National Internal Revenue Code of 1997 is
hereby amended to read as follows:
Credits for Excise tax on goods actually exported- When goods locally
"SEC. 149. Automobiles. – There shall be levied, assessed and
produced or manufactured (except coal and coke under sec 151) are removed collected an ad valorem tax on automobiles based on the
and actually exported without returning to the Philippines, whether exported in manufacturer's or importer's selling price, net of excise and value-
added taxes, in accordance with the following schedule:
their original state or as ingredient or part of any manufactured goods or
products, any excise tax paid on such goods shall be credited or refunded Net manufacturer's price/ Rate
upon submission of actual exportation and upon receipt of the corresponding Importer's selling price
Up to P600 Thousand 2% and with any number of wheels and axles. Provided, That pick-ups
shall not be considered as trucks.
Over P600 Thousand to P1.1 Million P12,000 + 20% of value in
excess of P600 Thousand
(c) Jeep/jeepneys/jeepney substitutes shall mean as "Philippine
Over P1.1 Million to P2.1 Million P112,000 + 40% of value jeep or jeepney" which are of the jitney type locally designed and
in excess of P1.1 Million manufactured generally from surplus parts and components. It shall
also include jeepney substitutes that are manufactured from brand-
Over P2.1 Million P512,000 + 60% of value news single cab chassis or cowl chassis and locally customized rear
excess of P2.1 Million body that has continuous sideway row seats with open rear door
and without retractable glass windows.
Provided, That the brackets reflecting the manufacturer's price or
importer's selling price, net of excise and value-added taxes, will be (d) Bus shall mean a motor vehicle of any configuration with gross
indexed by the Secretary of Finance once every two (2) years if the vehicle weight of 4.0 tons or more with any number of wheels and
change in the exchange rate of the Philippine peso against the axles, which is generally accepted and specially designed for mass
United States (U.S) dollar is more than ten percent (10%) from the or public transportation.
date of effectivity of this Act, in the case of initial adjustment and
from the last revision date in the case of subsequent adjustments. (e) Single cab chassis shall mean a motor vehicle with complete
engine power train and chassis equipped with a cab that has a
The manufacturer's price or importer's selling price, net of excise maximum of two (2) doors and only (1) row pf seats.
and value-added taxes, shall indexed by the full rate of the peso
depreciation or appreciation, as the case may be. (f) Special purpose vehicle shall mean a motor vehicle designed for
specific application such as cement mixer, fire truck, boom truck,
Provided, further, That in case the change in the exchange rate of ambulance and/or medical unit, and off-road vehicles for heavy
the Philippine peso against the U.S dollar is at least twenty percent industries and not for the recreational activities.
(20%) at anytime within the two-year period referred to above, the
Secretary of Finance shall index the brackets reflecting the Provided. That in the case of imported automobiles not for sale, the
manufacturer's price or importer's selling price, net of excise and tax imposed herein shall be based on the total landed value,
value-added taxes, by the full rate of the peso depreciation or including transaction value, customs duty and all other charges.
appreciation, as the case may be.
Automobiles used exclusively within the freeport zones shall be
As used in this Section – exempt from excise tax.
(a) Automobile shall mean any four (4) or more wheeled motor Section 2. Rules and Regulations - The Secretary of Finance, upon the
vehicle regardless of seating capacity, which is propelled by recommendation of the Commissioner of Internal Revenue shall promulgated
gasoline, diesel, electricity or any other motive the necessary rules and regulation for the effective implementation of the
power: Provided, That for purposes of this Act, buses, trucks, cargo provision of the provisions of this Act within thirty (30) days from the date of
vans, jeeps/jeepneys/jeepney substitutes, single cab, chassis, and approval.
special-purpose vehicles shall not be considered as automobiles
Section 3. Separablitiy Clause - If any provision of this Act is held
(b) Truck/cargo van shall mean a motor vehicle of any unconstitutional or invalid, all other provisions not affected thereby shall
configuration that is exclusively designed for the carriage of goods remain valid.
Section 4. Repealing Clause - All laws, decrees, executive order, letters of the writs?
instruction, rules and regulations or parts thereof which are inconsistent with
this Act are hereby repealed, amended or modified accordingly: Held: Yes. The requisites for the valid issuance of a writ of preliminary
injunction were not complied with but Judge Caguioa still
Section 5. Effectivity Clause - This Act shall take effect fifteen (15) days approved the issuance of the writs. All told, while the grant or
after the publication of the approved implementing ruled and regulations.
denial of an injunction generally rests on the sound discretion of
the lower court, this Court may and should intervene in a clear
case of abuse. One such case of grave abuse obtained in this
RESIDENT CITIZENS AND RESIDENT ALIENS
case when public respondent issued his Order of May 4, 2005
and the Writ of Preliminary Injunction on May 11, 2005 despite
REPUBLIC v. CAGUIOA (Layno)
the absence of a clear and unquestioned legal right of private
[GR. No. 168584; October 15, 2007]
respondents. In holding that the presumption of constitutionality
“Free from taxes and duties before, not anymore.”
and validity of R.A. No. 9334 was overcome by private
respondents for the reasons public respondent cited in his May 4,
Recit-Ready:
2005 Order, he disregarded the fact that as a condition sine qua
Facts: In 1992, RA7227 was enacted thereby creating, among other
non to the issuance of a writ of preliminary injunction, private
things, the Subic Special Economic and Freeport Zone and the
respondents needed also to show a clear legal right that ought to
Subic Bay Metropolitan Authority. Pursuant to the law, private
be protected. That requirement is not satisfied in this case.
respondents Indigo Distribution, W Star Trading, Freedom Brands
By subsequently enacting R.A. No. 9334, however, Congress
and other companies/enterprises doing business within the said
expressed its intention to withdraw private respondents' tax
Freeport Zone’s premises applied for and were granted
exemption privilege on their importations of cigars,
Certificates of Registration and Tax Exemption by the SBMA. It is
cigarettes, distilled spirits, fermented liquors and wines. The
to be noted that RA 7227 rendered the SSEZ to be of a separate
feared injurious effects of the imposition of duties, charges
customs territory providing incentives such as tax and duty-free
and taxes on imported cigars, cigarettes, distilled spirits,
importations of raw materials and capital equipment and also,
fermented liquors and wines on private respondents'
states that the provisions of existing laws, rules, and regulations
businesses cannot possibly outweigh the dire
to the contrary notwithstanding, no taxes both local and national
consequences that the non- collection of taxes, not to
shall be imposed within the Zone. However, come 2005, RA 9334
mention the unabated smuggling inside the SBF, would
was enacted and it effectively amended Sec. 131 of NIRC, hence
wreak on the government. Whatever damage would befall
subjecting the importation of cigars and liquors to tax even if they
private respondents must perforce take a back seat to the
were to be delivered to tax and duty free shops (like Subic
pressing need to curb smuggling and raise revenues for
Freeport Zone). Respondents were not happy with this of course governmental functions
cause this means to say they have to pay tax so they filed
injunctive writs and prohibition with the court of respondent Judge
Caguioa. The latter granted the writs, hence this petition.
Facts:
Issue/s:
WON Respondent Judge committed grave abuse of discretion for issuing  In 1992, Congress enacted Republic Act (R.A) No. 7227 or the BASES
CONVERSION AND DEVELOPMENT ACT OF 1992 which, among other  On February 15, 2005, private respondents wrote the offices of
things, created the Subic Special Economic and Freeport Zone (SBF) and respondent Collector of Customs and the SBMA Administrator requesting
the Subic Bay Metropolitan Authority (SBMA). for a reconsideration of the directives on the imposition of duties and
taxes, particularly excise taxes. Despite these letters, they were not
 Pursuant to the law, private respondents Indigo Distribution Corporation, allowed to file any warehousing entry for their shipments thus they
W Star Trading and Warehousing Corporation, and several others are all brought before RTC of Olongapo City a special civil action for declaratory
domestic corporations doing business at the SBF, applied for and were relief to have certain provisions of RA 9334 declared as unconstitutional
granted Certificates of Registration and Tax Exemption by the SBMA. and also a TRO and/or preliminary injunction be issued to prevent the
These certificates allowed them to engage in the business either of great and irreparable loss or injury that would befall them as a
trading, retailing or wholesaling, import and export and uniformly granted consequence of the imposition of taxes on alcohol and tobacco products
them tax exemptions for certain importations as contained in Art. IV of brought into SBF.
their respective certificates. 1
 Petitioners in opposing the issuance of said writs, said that an increase
 Congress however subsequently passed R.A. No. 9334, Sec. 6 of which in business expense is not the injury contemplated by law, it being a case
amended Sec. 131 of the NIRC regarding payment of excise taxes on of damnum absque injuria; and the drawback mechanism established in
imported articles. The amendment was effective Jan. 1, 2005 and it the law clearly negates the possibility of the feared injury.
subjected the importation of cigars and liquors to tax even if they were to
be delivered to tax and duty free shops (e.g. SBF), including those  RTC through an Order dated May 4, 2005 granted the writs (and Prelim
intended to be transshipped to other free ports in the Philippines, shall be Injunction and Prohibition on Implementation) and held that private
treated as ordinary importations subject to all applicable taxes, duties and respondents were entitled to enjoy the benefits of tax exemptions as
charges, including excise taxes. 2 contemplated in RA 7227 particularly the exemption from local and
national taxes. It reasoned the following: 1) RA 9334 was violative of this
 On February 3, 2005, former IR Commissioner Parayno requested then right and would compel the respondents to pay more than what they
Customs Commissioner Jereos to immediately collect the excise tax due should by way of taxes to the national government; 2) the repealing
on imported alcohol and tobacco products brought to the Duty Free provision of Section 10 of R.A. No. 9334 does not expressly mention the
Philippines (DFP) and Freeport zones. This was immediately done and all repeal of R.A. No. 7227, hence, its repeal can only be an implied repeal,
transactions involving said items were covered by consumption entry and which is not favored; 3) since R.A. No. 9334 imposes new tax burdens,
not warehousing entry (I dunno what these are, it wasn’t explained in the whatever doubts arising therefrom should be resolved against the taxing
case). authority and in favor of the taxpayer; and 4) R.A. No. 9334 violates the
terms and conditions of private respondents' subsisting contracts with
SBMA, which are embodied in their Certificates of Registration and
1 Exemptions in contravention of the constitutional guarantee against the
ARTICLE IV. The Company shall be entitled to tax and duty-free importation of raw
impairment of contractual obligations. Additionally, the trial court pointed
materials, capital equipment, and household and personal items for use solely within the
Subic Bay Freeport Zone… out that private respondents' taxes have not yet been assessed, as they
have not filed consumption entries on all their imported tobacco and
2
The provision of any special or general law to the contrary notwithstanding, the alcohol products, hence, their duty to pay the corresponding excise taxes
importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the and the concomitant right of the government to collect the same have not
Philippines, even if destined for tax and duty free shops, shall be subject to all applicable yet materialized.
taxes, duties, charges, including excise taxes due thereon. This shall apply to cigars and
cigarettes, distilled spirits, fermented liquors and wines brought directly into the duly
chartered or legislated freeports of the Subic Economic Freeport Zone, created under  Without moving for MR, the petitioners went directly to SC alleging grave
Republic Act No. 7227 abuse of discretion against public respondent Judge Caguioa.
 Respondents emphatically argue that 1) public respondent peremptorily

and unjustly issued the injunctive writ despite the absence of the legal enjoyed tax-exempt status until the effectivity of R.A. No. 9334.3
requisites for its issuance, resulting in heavy government revenue losses;
2) the writ should not have been issued because taxes are the lifeblood of  By subsequently enacting R.A. No. 9334, however, Congress
the Governement; 3) since the tax exemption previously enjoyed by expressed its intention to withdraw private respondents' tax
private respondents has clearly been withdrawn by R.A. No. 9334, private exemption privilege on their importations of cigars, cigarettes,
respondents do not have any right in esse nor can they invoke legal injury distilled spirits, fermented liquors and wines.
to stymie the enforcement of R.A. No. 9334; and 4) Regarding the P1
million injunction bond fixed by public respondent, petitioners argue that  Without necessarily passing upon the validity of the withdrawal of
the same is grossly disproportionate to the damages that have been and the tax exemption privileges of private respondents, it behooves this
continue to be sustained by the Republic. Court to state certain basic principles and observations that should
throw light on the propriety of the issuance of the writ of preliminary
Issue/s: injunction in this case:
1) WON public respondent committed grave abuse of discretion for
issuing the writs? o Every presumption must be indulged in favor of the
—YES constitutionality of a statute
Held/Ratio: Petition is PARTLY GRANTED. The writ of certiorari to nullify o A tax exemption cannot be grounded upon the continued
and set aside the Order of May 4, 2005 as well as the Writ of Preliminary existence of a statute which precludes its change or repeal.
Injunction issued by respondent Judge Caguioa on May 11, 2005 is Flowing from the basic precept of constitutional law that no law
GRANTED. The writ of prohibition prayed for is, however, DENIED. is irrepealable, Congress, in the legitimate exercise of its
lawmaking powers, can enact a law withdrawing a tax
1) YES. It must first be cleared that this decision is not issued so as to exemption just as efficaciously as it may grant the same under
answer the constitutionality of the law, as it is not the reason why Section 28 (4) of Article VI of the Constitution.
petitioners filed the present petition for certiorari. What is to be
answered is whether respondent judge committed grave abuse of o The rights granted under the Certificates of Registration and
discretion in approving the writs (but along the way, we get Tax Exemption of private respondents are not absolute and
enlightened with tax matters for our class discussion). unconditional as to constitute rights in esse — those clearly
 For a writ of preliminary injunction to issue, the plaintiff must be able founded on or granted by law or is enforceable as a matter of
to establish that (1) there is a clear and unmistakable right to be law. These certificates granting private respondents a "permit to
protected, (2) the invasion of the right sought to be protected is operate" their respective businesses are in the nature of
material and substantial, and (3) there is an urgent and paramount licenses, which the bulk of jurisprudence considers as neither a
necessity for the writ to prevent serious damage. Conversely, failure property nor a property right.
to establish either the existence of a clear and positive right which
should be judicially protected through the writ of injunction, or of the
o The Certificates of Registration of private respondents may
acts or attempts to commit any act which endangers or tends to
endanger the existence of said right, or of the urgent need to
prevent serious damage, is a sufficient ground for denying the 3
To note, the old Section 131 of the NIRC expressly provided that all taxes, duties,
preliminary injunction—these were not established in the case at charges, including excise taxes shall not apply to importations of cigars, cigarettes,
hand. fermented spirits and wines brought directly into the duly chartered or legislated freeports of
the SBF. On the other hand, Section 131, as amended by R.A. No. 9334, now provides that
such taxes, duties and charges, including excise taxes, shall apply to importation of cigars
 It is beyond cavil that R.A. No. 7227 granted private respondents and cigarettes, distilled spirits, fermented liquors and wines into the SBF.
exemption from local and national taxes, including excise taxes, on
their importations of general merchandise, for which reason they
have been part of the inducement for carrying on their [1st Case: G.R. No. 173594; February 6, 2008] [2nd Case: G.R. Nos. 171383
businesses in the SBF, this exemption, nevertheless, is far from & 172379; November 14, 2008] [3rd Case: January 12, 2012]
being contractual in nature hence no violation of the non- “Potangina mo Silkair, hindi ka na natuto”
impairment clause.
Recit-Ready:
o The feared injurious effects of the imposition of duties,
charges and taxes on imported cigars, cigarettes, distilled Facts: Petitioner Silkair (Singapore) Pte. Ltd. is a foreign corporation
spirits, fermented liquors and wines on private duly licensed by the SEC to do business in the Philippines as an
respondents' businesses cannot possibly outweigh the dire on-line international carrier operating the Cebu-Singapore-Cebu
consequences that the non- collection of taxes, not to and Davao-Singapore-Davao routes. In the course of its
mention the unabated smuggling inside the SBF, would international flight operations, petitioner purchased aviation fuel
wreak on the government. Whatever damage would befall
from Petron Corporation (Petron).
private respondents must perforce take a back seat to the
pressing need to curb smuggling and raise revenues for The (3) three cases assigned are:
governmental functions. Feb. 2008 for the tax refund claimed from January to June
2000. (1st Silkair Case)
 All told, while the grant or denial of an injunction generally rests on Nov. 2008 for the tax refund claimed from January 1, 1999 to
the sound discretion of the lower court, this Court may and should December 31, 1999. (2nd Silkair Case)
intervene in a clear case of abuse. One such case of grave abuse Jan. 2012 for the tax refund claim from July 1, 1998 to
obtained in this case when public respondent issued his Order of December 31, 1998, (4th Silkair Case)
May 4, 2005 and the Writ of Preliminary Injunction on May 11, 2005
In all three cases, the payment was advanced by Singapore
despite the absence of a clear and unquestioned legal right of
private respondents. In holding that the presumption of Airlines, Ltd. on behalf of petitioner. It filed for a refund in BIR and
constitutionality and validity of R.A. No. 9334 was overcome by CTA, but was denied. It anchored its claim on Section 135 (a) and
private respondents for the reasons public respondent cited in his (b) of the1997 Tax Code4 and Article 4(2) of the Air Transport
May 4, 2005 Order, he disregarded the fact that as a condition sine Agreement between RP and Singapore. It was denied by CTA
qua non to the issuance of a writ of preliminary injunction, private due to it not being the proper party to file the refund.
respondents needed also to show a clear legal right that ought to be
protected. That requirement is not satisfied in this case.
Issue/s:
WON Silkair is the proper party to file for the refund of excise tax? NO.
 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. That the enforcement of Held: In ruling for CIR, the Court REPEATEDLY ruled that excise
tax laws and the collection of taxes are of paramount
importance for the sustenance of government has been
repeatedly observed. Taxes being the lifeblood of the 44 Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of Agencies. –
government that should be collected without unnecessary Petroleum products sold to the following are exempt from excise tax:
hindrance, every precaution must be taken not to unduly xxxx
suppress it. (b) Exempt entities or agencies covered by tax treaties, conventions, and other international
agreements for their use and consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes petroleum products
sold to Philippine carriers, entities or agencies; x x x
SILKAIR (SINGAPORE) PTE. LTD.v. COMMISSIONER OF x x x x,
INTERNAL REVENUE (Lim, J.)
taxes, which apply to articles manufactured or produced in the o It was denied by CTA due to it not being the proper party to file
Philippines for domestic sale or consumption or for any other the refund.
disposition and to things imported into the Philippines, is basically Issue/s:
an indirect tax. While the tax is directly levied upon the WON Silkair is the proper party to file the refund of excise tax?
manufacturer/importer upon removal of the taxable goods from its —NO
place of production or from the customs custody, the tax, in
reality, is actually passed on to the end consumer as part of the Held/Ratio: Petition DENIED. (The Held part is based on the 4th Silkair case)
transfer value or selling price of the goods, sold, bartered or NO. In THREE PREVIOUS CASES involving the same parties, this Court
exchanged. In early cases, we have ruled that for indirect taxes has already settled the issue of whether petitioner is the proper party to
(such as valued-added tax or VAT), the proper party to question seek the refund of excise taxes paid on its purchase of aviation fuel
or seek a refund of the tax is the statutory taxpayer, the person from a local manufacturer/seller. The proper party to file the refund is
on whom the tax is imposed by law and who paid the same even the statutory taxpayer, which is Petron.
when he shifts the burden thereof to another.  The core issue presented is the legal personality of petitioner to file an
administrative claim for refund of excise taxes alleged to have been
General Facts: erroneously paid to its supplier of aviation fuel here in the Philippines.
 Excise taxes, which apply to articles manufactured or produced in the
 Petitioner Silkair (Singapore) Pte. Ltd. is a foreign corporation duly
Philippines for domestic sale or consumption or for any other disposition
licensed by the SEC to do business in the Philippines as an on-line and to things imported into the Philippines, is basically an indirect tax.
international carrier operating the Cebu-Singapore-Cebu and Davao-  While the tax is directly levied upon the manufacturer/importer upon
Singapore-Davao routes. In the course of its international flight removal of the taxable goods from its place of production or from the
operations, petitioner purchased aviation fuel from Petron Corporation customs custody, the tax, in reality, is actually passed on to the end
(Petron). consumer as part of the transfer value or selling price of the goods, sold,
 The (3) three cases assigned are: bartered or exchanged.
 In early cases, the Court has ruled that for indirect taxes (such as valued-
o Feb. 2008 for the tax refund claimed from January to June
added tax or VAT), the proper party to question or seek a refund of the
2000. (1st Silkair Case) tax is the statutory taxpayer, the person on whom the tax is imposed by
o Nov. 2008 for the tax refund claimed from January 1, 1999 to law and who paid the same even when he shifts the burden thereof to
December 31, 1999. (2nd Silkair Case) another.
o Jan. 2012 for the tax refund claim from July 1, 1998 to
December 31, 1998, (4th Silkair Case)  In the FIRST SILKAIR CASE decided on February 6, 2008, this Court
 In all three cases, the payment was advanced by Singapore Airlines, Ltd. categorically declared:
o The proper party to question, or seek a refund of, an indirect tax
on behalf of petitioner. It filed for a refund in BIR and CTA, but was
is the statutory taxpayer, the person on whom the tax is imposed
denied.
o It anchored its claim on Section 135 (a) and (b) of the1997 Tax
Code5 and Article 4(2) of the Air Transport Agreement between
RP and Singapore. (b) Exempt entities or agencies covered by tax treaties, conventions, and other international
agreements for their use and consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes petroleum products
55
sold to Philippine carriers, entities or agencies; x x x
Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of Agencies. –
x x x x,
Petroleum products sold to the following are exempt from excise tax:
xxxx
by law and who paid the same even if he shifts the burden  What Silkair should have done is to submit a valid exemption certificate to
thereof to another. Petron for petron to not transfer the burden of the tax to them, as stated
o Section 130 (A) (2) of the NIRC provides that “[u]nless otherwise in their contract6.
specifically allowed, the return shall be filed and the excise tax o The above observation remains pertinent to this case because
paid by the manufacturer or producer before removal of domestic the very same provision also appears in the documentary
products from place of production.” evidence submitted by petitioner before the CTA.
o Thus, Petron Corporation, not Silkair, is the statutory o Except for its bare allegation of being “placed in a very
taxpayer which is entitled to claim a refund based on complicated situation” because Petron, “for fear of being
Section 135 of the NIRC of 1997 and Article 4(2) of the Air assessed by Respondent, will not allow the withdrawal and
Transport Agreement between RP and Singapore. delivery of the petroleum products without Petitioner’s pre-
o Even if Petron Corporation passed on to Silkair the burden of the payment of the excise taxes,” petitioner has not demonstrated
tax, the additional amount billed to Silkair for jet fuel is not a tax that it dutifully complied with its contractual undertaking to timely
but part of the price which Silkair had to pay as a purchaser. submit to Petron a valid certificate of exemption so that Petron
may subsequently file a claim for excise tax credit/refund
 In the SECOND SILKAIR CASE decided on November 2008, this Court pursuant to Revenue Regulations No. 3-2008 (RR 3-2008).
reiterated the rule that in the refund of indirect taxes such as excise o It was indeed premature for petitioner to assert that the denial of
taxes, the statutory taxpayer is the proper party who can claim the refund. its claim for tax refund nullifies the tax exemption granted to it
under Section 135 (b) of the 1997 Tax Code and Article 4 of
o The Court also clarified that Silkair, as the purchaser and end- the Air Transport Agreement.
consumer, ultimately bears the tax burden, but this does not
transform its status into a statutory taxpayer. (Read if you don’t understand and if Bibo ka.)
o The excise tax is due from the manufacturers of the petroleum HELD from 1st Case:
products and is paid upon removal of the products from their
 The proper party to question, or seek a refund of, an indirect tax is the
refineries.
 Even before the aviation jet fuel is purchased from statutory taxpayer, the person on whom the tax is imposed by law and
Petron, the excise tax is already paid by Petron. Petron, who paid the same even if he shifts the burden thereof to another.
being the manufacturer, is the “person subject to tax.” o Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise
 In this case, Petron is the “person liable for tax.” specifically allowed, the return shall be filed and the excise tax
Petitioner is neither a “person liable for tax” nor “a paid by the manufacturer or producer before removal of domestic
person subject to tax.” products from place of production."
 There is also no legal duty on the part of petitioner to
o Thus, Petron Corporation, not Silkair, is the statutory taxpayer
pay the excise tax; hence, petitioner cannot be
considered the taxpayer. which is entitled to claim a refund based on Section 135 of the
o Even if the tax is shifted by Petron to its customers and even if NIRC of 1997 and Article 4(2) of the Air Transport Agreement
the tax is billed as a separate item in the aviation delivery between RP and Singapore.
receipts and invoices issued to its customers, Petron remains
the taxpayer because the excise tax is imposed directly on
Petron as the manufacturer.
o Hence, Petron, as the statutory taxpayer, is the proper party
that can claim the refund of the excise taxes paid to the BIR. 6The General Terms & Conditions for Aviation Fuel Supply (Supply Contract) signed
between petitioner (buyer) and Petron (seller) provide:
“11.3 If Buyer is entitled to purchase any Fuel sold pursuant to the Agreement free of
any taxes, duties or charges, Buyer shall timely deliver to Seller a valid exemption
certificate for such purchase.”
 Even if Petron Corporation passed on to Silkair the burden of the tax, the  Petron, as manufacturer or producer, is the person liable for the payment
additional amount billed to Silkair for jet fuel is not a tax but part of the of the excise tax as shown in the Excise Tax Returns filed with the BIR.
price which Silkair had to pay as a purchaser.  Stated otherwise, Petron is the taxpayer that is primarily, directly and
 The exemption granted under Section 135 (b) of the NIRC of 1997 and legally liable for the payment of the excise taxes.
Article 4(2) of the Air Transport Agreement between RP and Singapore o However, since an excise tax is an indirect tax, Petron can
cannot, without a clear showing of legislative intent, be construed as transfer to its customers the amount of the excise tax paid by
including indirect taxes. treating it as part of the cost of the goods and tacking it on to the
 Statutes granting tax exemptions must be construed in strictissimi juris selling price.
against the taxpayer and liberally in favor of the taxing authority, and if an  Even if the consumers or purchasers ultimately pay for the tax, they are
exemption is found to exist, it must not be enlarged by construction. not considered the taxpayers.
o The fact that Petron, on whom the excise tax is imposed, can
HELD from 2nd Case: shift the tax burden to its purchasers does not make the latter the
 An excise tax is an indirect tax where the tax burden can be shifted to the taxpayers and the former the withholding agent.
consumer but the tax liability remains with the manufacturer or producer.  Petitioner, as the purchaser and end-consumer, ultimately bears the tax
 Section 129 of the NIRC provides that excise taxes refer to taxes burden, but this does not transform petitioner’s status into a statutory
imposed on specified goods manufactured or produced in the Philippines taxpayer.
for domestic sale or consumption or for any other disposition and to  In the refund of indirect taxes, the statutory taxpayer is the proper party
things imported. who can claim the refund.
o The excise taxes are collected from manufacturers or producers  Section 204(c) of the NIRC provides that the person entitled to claim a tax
before removal of the domestic products from the place of refund is the statutory taxpayer. Section 22(N) of the NIRC defines a
production. taxpayer as any person subject to tax.
o Although excise taxes can be considered as taxes on production, o Petron, being the manufacturer, is the person subject to tax and
they are really taxes on property as they are imposed on certain person liable for tax.
specified goods. o Petitioner is neither a person liable for tax nor a person subject to
 Section 148(g) of the NIRC provides that there shall be collected on tax.
aviation jet fuel an excise tax of P3.67 per liter of volume capacity. o Hence, petitioner cannot be considered the taxpayer.
o Since the tax imposed is based on volume capacity, the tax is  The (Supply Contract) signed between petitioner (buyer) and Petron
referred to as specific tax. (seller) provide:
o However, excise tax, whether classified as specific or ad valorem o 11.3 If Buyer is entitled to purchase any Fuel sold pursuant to the
tax, is basically an indirect tax imposed on the consumption of a Agreement free of any taxes, duties or charges, Buyer shall
specified list of goods or products. timely deliver to Seller a valid exemption certificate for such
o The tax is directly levied on the manufacturer upon removal of purchase.[52] (Emphasis supplied)
the taxable goods from the place of production but in reality, the  This provision instructs petitioner to timely submit a valid exemption
tax is passed on to the end consumer as part of the selling price certificate to Petron in order that Petron will not pass on the excise tax to
of the goods sold. petitioner.
 When Petron removes its petroleum products from its refinery, it pays the  As correctly suggested by the CTA, petitioner should invoke its tax
excise tax due on the petroleum products thus removed. exemption to Petron before buying the aviation jet fuel. Petron, however,
remains the statutory taxpayer on those excise taxes.
 Exxon is engaged in the business of selling petroleum products to

EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, domestic and international carriers.
 In pursuit of its business, Exxon purchased from Caltex Philippines, Inc.
INC.–PHILIPPINE BRANCH v. CIR (Lim, Q.)
(“Caltex”) and Petron Corporation (“Petron”) Jet A-1 fuel and other
[GR. No. 180909; January 19, 2011]
petroleum products, the excise taxes on which were paid for and remitted
“Only the statutory tax payer can claim for a refund!”
by both Caltex and Petron.
o Said taxes, however, were passed on to Exxon, which ultimately
Recit-Ready:
shouldered the excise taxes on the fuel and petroleum products.
Facts: Exxon is engaged in the business of selling petroleum products to
 From November 2001 to June 2002, Exxon sold a total of 28,635,841
domestic and international carriers. In pursuit of its business,
liters of Jet A-1 fuel to international carriers, free of excise taxes
Exxon purchased from Caltex Philippines, Inc. (“Caltex”) and
amounting to Php105,093,536.47.8 On various dates, it filed
Petron Corporation (“Petron”) Jet A-1 fuel and other petroleum
administrative claims for refund with the Bureau of Internal Revenue
products, the excise taxes on which were paid for and remitted by
(“BIR”) amounting to Php105,093,536.47.
both Caltex and Petron. Said taxes, however, were passed on to
 From November 2001 to June 2002, Exxon sold a total of 28,635,841
Exxon, which ultimately shouldered the excise taxes on the fuel
liters of Jet A-1 fuel to international carriers.
and petroleum products. Exxon filed a petition for review with the
 On October 30, 2003, Exxon filed a petition for review with the CTA
CTA claiming a refund or tax credit representing the amount of
claiming a refund or tax credit in the amount of Php105,093,536.47,
excise taxes paid on Jet A-1 fuel and other petroleum products it
representing the amount of excise taxes paid on Jet A-1 fuel and other
sold.
petroleum products it sold to international carriers from November 2001
to June 2002.
Issue/s:
WON Exxon is the proper party to claim a tax refund for the
Issue/s:
excise taxes paid by the manufacturers, which the manufacturers
WON Exxon is the proper party to claim a tax refund for the excise
passed on to it as part of the purchase price. –NO.
taxes paid by the manufacturers, which the manufacturers passed on
to it as part of the purchase price.
Held: NO. As provided for in Sections 129 and 130 of the NIRC and in
various cases already decided by the Court, the proper party to —NO
question, or to seek a refund of, an indirect tax, is the
statutory taxpayer, or the person on whom the tax is Held/Ratio: Petition DENIED.
imposed by law and who paid the same, even if he shifts the
burden thereof to another. Therefore, as Exxon is not the party NO. The proper party to question, or to seek a refund of, an indirect tax,
statutorily liable for payment of excise taxes under Section 130, in is the statutory taxpayer, or the person on whom the tax is imposed by
relation to Section 129 of the NIRC, it is not the proper party to
claim a refund of any taxes erroneously paid.  law and who paid the same, even if he shifts the burden thereof to
another.
o The excise tax, when passed on to the purchaser, becomes part of
Facts: the purchase price.
 Petitioner, Exxon, is a foreign corporation duly organized and existing o Excise tax apply to specific goods manufactured or produced in the
under the laws of the State of Delaware, United States of America. Philippines for domestic sale or consumption or for any other
disposition, and to those that are imported.
o In effect, these taxes are imposed when two conditions concur:

1. That the articles subject to tax belong to any of the categories Excise Tax
of goods enumerated in Title VI of the NIRC; and
2. That said articles are for domestic sale or consumption,
Commissioner of Internal Revenue vs. Pilipinas Shell
excluding those that are actually exported.
o There are, however, certain exemptions to the coverage of excise
Petroleum Corporation (Luna)
taxes, such as petroleum products sold to international carriers and [GR. No. 188497; April 25, 2012]
exempt entities or agencies. “Petroleum products sold by manufacturers to international carriers are NOT
o Under Section 135, petroleum products sold to international carriers of exempt from excise tax”
foreign registry on their use or consumption outside the Philippines
*Note that this is the first decision of the SC re this matter. The SC reversed this
are exempt from excise tax, provided that the petroleum products sold
decision on February 19, 2014
to such international carriers shall be stored in a bonded storage tank
Recit-Ready:
and may be disposed of only in accordance with the rules and
Facts: Shell filed a claim for refund for excise taxes it paid on sales of
regulations to be prescribed by the Secretary of Finance, upon
gas and fuel oils to various international carriers.
recommendation of the Commissioner.
o The confusion here stems from the fact that excise taxes are of the
Issue/s:
nature of indirect taxes, the liability for payment of which may fall
WON manufacturers or producers of petroleum products are exempt from
on a person other than he who actually bears the burden of the
the payment of excise tax on petroleum sold to international carriers. --
tax.
NO
o The party liable for the tax can shift the burden to another, as part of
the purchase price of the goods or services. Although the
Held: In ruling for the CIR, the Court held that the intent of Section 135
manufacturer/seller is the one who is statutorily liable for the tax, it is
is to grant excise tax exemption to international carriers and
the buyer who actually shoulders or bears the burden of the tax, albeit
exempt entities as buyers of petroleum products and not to the
not in the nature of a tax, but part of the purchase price or the cost of
manufacturers or producers of said goods. Since the excise taxes
the goods or services sold.
are collected from manufacturers or producers before removal of
o As provided for in Sections 129 and 130 of the NIRC and in various
the domestic products from the place of production, Petron paid
cases already decided by the Court, the proper party to question, or
the excise taxes as manufacturer or producer of the petroleum
to seek a refund of, an indirect tax, is the statutory taxpayer, or
products pursuant to Sec. 148 of the NIRC. Thus, regardless of
the person on whom the tax is imposed by law and who paid the
who the buyer/purchaser is, the excise tax on petroleum products
same, even if he shifts the burden thereof to another. (*Here the Court
attached to the said goods before their sale or delivery to
cited various cases we already discussed before like Silkair and
international carriers.
Philippine Acetylene, which just reiterates the said doctrine.)
Sec. 135 (a) and (c) granting exemption from the payment of
o Therefore, as Exxon is not the party statutorily liable for payment of
excise tax on petroleum products can only be interpreted to mean
excise taxes under Section 130, in relation to Section 129 of the
that Petron cannot pass on to international carriers and exempt
NIRC, it is not the proper party to claim a refund of any taxes
agencies the excise taxes it paid as a manufacturer or producer.
erroneously paid. 
Hence, Petron is not entitled to a refund of the excise taxes it paid
for the petroleum products sold to international carriers.
As to petroleum products, Sec. 148 provides that excise

Facts: taxes attach to refined and manufactured mineral oils and
 Respondent Pilipinas Shell – engaged in the business of processing, motor fuels as soon as they are in existence [see Code for
treating and refining petroleum for the purpose of producing marketable enumeration].
products and the subsequent sale thereof.  Sec. 135 deals with the tax treatment of a specified article
 Filed formal claims for refund or tax credit representing amounts of (petroleum products) in relation to its buyer or consumer.
P28million, P41million, and P30million for excise taxes it paid to BIR Respondent’s failure to make this important distinction
covering the period of Oct-Dec 2001, Jan-March 2002, and April-June apparently led it to mistakenly assume that the tax exemption
2002. Ground for claim: respondent is entitled to the refund on the basis under Sec. 135 (a) “attaches to the goods themselves” such
of excise tax exemption for petroleum products sold to international that the excise tax should not have been paid in the first
carriers for their use or consumption outside the PH. place.
 When no action was taken by petitioner on the claims, respondent filed o RR 8-96 (“Excise Taxation of Petroleum Products” provide that locally
petitions for review before the CTA, which granted it. Thus, this petition in manufactured petroleum products shall be paid by the manufacturer,
SC. producer, owner or person having possession of the same, and such
 BIR anchors it petition on the ff grounds: shall be paid within 15 days from date of removal from the place
o Sec. 148 of NIRC expressly subjects the petroleum production.
products to an excise tax before they are removed from  Since the excise tax must be paid upon withdrawal from the
place of production. place of production, respondent cannot anchor its claim for
o The only specific provision of the law which grants tax credit refund on the theory that the excise taxes due thereon should
or tax refund of the excise taxes paid refers to those cases not have been collected or paid in the first place.
where goods local produced or manufactured are actually o Applying the ruling in Philippine Acetylene Co., Inc. v. CIR, the Court
exported, which is not so in the case. agrees with SolGen when it argued that respondent cannot shift the
tax burden to international carriers who are allowed to purchase its
Issue/s: petroleum products without having to pay the added cost of the excise
WON respondent as manufacturer or producer of petroleum products is tax.
exempt from the payment of excise tax on such petroleum products it  Court held that petitioner manufacturer who sold its oxygen
sold to international carriers. and acetylene gases to NPC, a tax-exempt entity, cannot
—NO claim exemption from the payment of sales tax simply
because its buyer NPC is exempt from taxation. The Court
Held/Ratio: Petition DENIED. explained that the percentage tax on sales of merchandise
imposed by the Tax Code is due from the manufacturer and
NO. not from the buyer.
o Excise taxes -- taxes applicable to certain specified goods or articles  The language of Sec. 135 indicates that the tax exemption
manufactured or produced in the Philippines for domestic sales or mentioned therein is conferred on specified buyers or
consumption or for any other disposition and to things imported into consumers of the excisable articles or goods (petroleum
the Philippines. These taxes are imposed in addition to the value- products). The excise tax imposed on petroleum products
added tax (VAT). under Sec. 148 is the direct liability of the manufacturer who
cannot thus invoke the excise tax exemption granted to its importation of aviation gas, fuel, and oil, including those which
buyers who are international carriers. were passed on to it by the seller and/or importer. The CIR
o Applying Maceda v. Macaraig, Jr., the Court specifically mentioned ignored them and the CTA denied PAL’s petition on the grounds
excise tax as an example of an indirect tax where the tax burden that only the statutory taxpayer could seek a refund of the excise
can be shifted to the buyer. taxes, and that a Letter of Instruction had withdrawn the tax
 Court ruled that because of the tax exemptions privileges exemptions previously granted to PAL on its purchase of
being enjoyed by NPC under existing laws, the tax burden domestic products.
may not be shifted to it by the oil companies who shall pay for
fuel oil taxes on oil they supplied to NPC Issue/s:
 Because an excise tax is a tax on the manufacturer and not 1) WON PAL has the legal personality to file a claim for refund of the
on the purchaser, and there being no express grant under the passed on excise taxes?—YES
NIRC of exemption from payment of excise tax to local 2) WON the purchase of the aviation fuel imported by Caltex was a
manufacturers of petroleum products sold to international purchase of “domestic petroleum products” and thus one of the
carriers, and absent any provision in the Code authorizing the tax exemption privileges withdrawn by LOI 1483?—NO
refund or crediting of such excise taxes paid, the Court holds 3) WON PAL has sufficiently proven its entitlement to refund?—YES
that Sec. 135 (a) should be construed as prohibiting the
shifting of the burden of the excise tax to the international Held:
carriers who buys petroleum products from the local 1) YES. Where the law clearly grants the party—to which the
manufacturers. Said provision thus merely allows the economic burden of the tax is shifted—an exemption from both
international carriers to purchase petroleum products without direct and indirect taxes, the latter must be allowed to claim a tax
the excise tax component as an added cost in the price fixed refund even if it is not considered as the statutory taxpayer under
by the manufacturers or distributors/sellers. the law.
o Consequently, the oil companies that sold such petroleum products to 2) NO. The phrase “purchase of domestic petroleum products for
international carriers are not entitled to a refund of excise taxes use in its domestic operations”—which characterizes the tax
previously paid on the goods. privilege LOI 1483 withdrew, refers only to PAL’s tax exemptions
on passed on excise tax costs due from the seller,
PHILIPPINES AIRLINES v. CIR (Pascual) manufacturer/producer of locally manufactured/produced goods
[GR. No. 198759; July 1, 2013] for domestic sale, and does not in any way pertain to any of
“Bearer of economic burden may file a claim for refund or tax credit, even if PAL’s tax privileges concerning imported goods.
not the statutory taxpayer, when granted an exemption from both direct and 3) YES. As PAL had [1] timely filed its claim for refund, [2] paid the
indirect taxes by law.” lower of the basic corporate income tax or the franchise tax as
provided for in its franchise, and [3] duly declared and remitted
Recit-Ready: the subject excise taxes to the BIR, the Court ruled that PAL had
Facts: Caltex sold imported jet fuel to PAL for the latter’s domestic sufficiently proved its entitlement to a tax refund of the excise
operations, passing on to PAL the related excise taxes due on the taxes subject of the case.
transactions. PAL then sought refund of the excise taxes passed
on to it by Caltex based on the argument that PAL’s franchise Facts:
conferred upon it tax exemption privileges on its purchase and/or
 For the period July 24 to 28, 2004, Caltex sold 803,370 liters of imported 3) WON the purchase of the aviation fuel imported by Caltex is a
jet fuel to PAL for the latter’s domestic operations. purchase of “domestic petroleum products” and thus one of the tax
o Consequently, Caltex filed with the BIR its Excise Tax exemption privileges withdrawn by LOI 1483?
Returns for Petroleum products, declaring a total amount of —NO
P2,975,892.90 as the excise taxes due thereon. 4) WON PAL has sufficiently proven it entitlement to refund?
 On August 3, 2004, PAL received from Caltex an Aviation Billing Invoice —YES
for the purchased aviation fuel in amount of $313,949.54, reflecting the
amount of $52,669.33 as the related excise taxes on the transaction. Held/Ratio: Petition GRANTED. The Decision and Resolution of the CTA
o This was then confirmed by Caltex in a Certification which were ANULLED AND SET ASIDE and Respondent CIR was ORDERED to
indicated [1] the equivalent peso value, [2] that the excise refund or issue a tax credit certificate in favor of Petitioner PAL in the amount
tax payment was passed on by it to PAL and [3] that Caltex of P2,952,037.90.
had not filed any claim for the refund of the said excise tax
with the BIR. 2) YES. Where the law clearly grants the party—to which the economic
 PAL then sought a refund, through a letter-request addressed to burden of the tax is shifted—an exemption from both direct and
respondent CIR, of the excise taxes passed on to it by Caltex based on indirect taxes, the latter must be allowed to claim a tax refund even
the arguments that [1] PAL’s franchise conferred upon it tax exemption if it is not considered as the statutory taxpayer under the law.
privileges on its purchase and/or importation of aviation gas, fuel and oil, o Under Sec. 129 of the NIRC, excise taxes (a kind of indirect tax) are
including those which were passed on to it by the seller and/or importer imposed on two kinds of goods:
thereof, and [2] that it had the legal personality to file the tax refund o Goods manufactured or produced in the Philippines for
claim. domestic sales or consumption or for any other
o The CIR, however, did not act on the request and so PAL disposition;
filed a Petition for Review with the CTA.  Statutory taxpayer is the
o The CIR, in its answer, argued that since Caltex paid the manufacturer/producer.
excise taxes, PAL had no cause of action. o Things imported.
 The CTA denied PAL’s petition on the grounds that [1] only the statutory  Statutory taxpayer is the owner or importer.
taxpayer, which in this case was Caltex, could seek a refund of the o While the above-mentioned persons may shift the economic burden
excise taxes it paid and [2] that Letter of Instruction (LOI) 1483 withdrew of such payments to someone else—usually the purchaser of the
the tax exemptions previously granted to PAL on its purchase of goods—through a shifting process otherwise known as “passing on,”
domestic petroleum products, of which it found (incorrectly btw) that the they are still considered the statutory taxpayers under the law.
subject transactions between PAL and Caltex were characterized. o In this relation, Sec 204(c) of the NIRC states that it is
o PAL moved for reconsideration but the same was denied. the statutory taxpayer (either the manufacturer/producer
 Thus, the case before the SC. or the owner/importer) which has the legal personality to
file a claim for refund and not the party who merely
Issue/s: bears its economic burden (the purchaser).
2) WON PAL has the legal personality to file a claim for refund of the o However, the abovementioned rule should not apply to instances
passed on excise taxes? where the law clearly grants the party to which the economic burden
—YES. of the tax is shifted an exemption from both direct and indirect
taxes.
o In which case, the latter must be allowed to claim a tax o All taxes due on importations by PAL of aviation gas,
refund even if it is not considered as the statutory fuel, and oil.
taxpayer under the law. o LOI 1483 was meant to divest PAL of its tax exemption on aviation
o In this case, PAL’s franchise7 grants it an exemption from both direct gas, fuel, and oil, which are manufactured or produced in the
and indirect taxes on its purchase of petroleum products, in Philippines for domestic sales.
consideration of PAL’s payment of either the basic corporate income o In this case, the CIR argued that the purchase of the
tax or franchise tax, whichever is lower. importation fuel imported by Caltex was a “purchase of
o PAL is exempt from paying [a] taxes directly due from domestic petroleum products,” simply because the same
or imposable upon it as the purchaser of the subject was not purchased abroad by PAL but the SC
petroleum products; and [b] the cost of the taxes billed disagreed.
or passed on to it by the seller. o In this case, Caltex imported aviation fuel from abroad
o Thus, given the direct and indirect tax exemptions under and merely re-sold the same to PAL, tacking the amount
PAL’s franchise, and applying the principles as above- of excise taxes it paid or would be liable to pay to the
discussed, PAL is endowed with the legal standing to government on to the purchase price.
file the subject tax refund claim, notwithstanding the o Clearly then, the petroleum products are in the nature of
fact that it is not the statutory taxpayer as “things imported” and thus beyond the coverage of
contemplated by law. LOI 1483 and so PAL was allowed to claim a tax refund
on the excise taxes imposed and due thereon.
3) NO. The phrase “purchase of domestic petroleum products for use
in its domestic operations”—which characterizes the tax privilege 4) YES. As PAL had [1] timely filed its claim for refund, [2] paid the
LOI 1483 withdrew, refers only to PAL’s tax exemptions on passed lower of the basic corporate income tax or the franchise tax as
on excise tax costs due from the seller, manufacturer/producer of provided for in its franchise, and [3] duly declared and remitted the
locally manufactured/produced goods for domestic sale, and does subject excise taxes to the BIR, the Court ruled that PAL had
not in any way pertain to any of PAL’s tax privileges concerning sufficiently proved its entitlement to a tax refund of the excise taxes
imported goods. subject of the case.
o Based on Sec 13 of PAL’s franchise, PAL’s tax exemptions on all
taxes on aviation gas, fuel, and oil may be classified intro 3 kinds:
o All taxes due on PAL’s local purchase of aviation gas, B. EXCISE TAX
fuel, and oil;
o All taxes directly due from or imposable upon the BRITISH AMERICAN TOBACCO v. CAMACHO (Ocampo)
purchaser or the seller, producer, manufacturer, or [G.R. No. 163583; August 20, 2008]
importer of aviation gas, fuel and oil but are billed or “Legislative classification freeze provision on excise tax due on cigarette
passed on to PAL; and products”
7
Sec 13. xxx The tax paid by the grantee under either of the above alternatives shall Recit-Ready:
be in lieu of all other taxes….including but not limited to: Facts: Petitioner assails the constitutionality of the classification freeze
1. All taxes…directly due from or imposable upon the purchaser or the seller, provision by Congress regarding the excise tax due on cigarette
producer, manufacturer, or importer of said petroleum products but are
billed or passed on the grantee…” products. Petitioner contends that it unduly favors old brands
while making it more difficult for new brands to compete with the  To implement RA No. 8240, the BIR issued RR No. 1-97, which classified
former. Hence, petitioner contends that such provision violates existing brands of cigarettes as those duly registered or active brands
the equal protection clause of the Constitution. prior to January 1, 1997.
o New brands, or those registered after January 1, 1997, shall
Issue: WON the legislative classification freeze provision is be initially assessed at their suggested retail price until such
unconstitutional on the ground of being violative of the equal protect time that the appropriate survey to determine their current
clause net retail price is conducted.
 In June 2001, petitioner introduced into the market Lucky Strike Filter,
o Held: NO. The Court held that the classification freeze provision Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a
has sufficient rational basis. The provision addressed Congress’s suggested retail price of P9.90 per pack. Pursuant to Section 145 (c) of
administrative concerns in the simplification of tax administration of the NIRC, the Lucky Strike brands were initially assessed the excise tax
sin products, elimination of potential areas for abuse and corruption at P8.96 per pack.
in tax collection, buoyant and stable revenue generation, and ease  On February 17, 2003, RR No. 9-2003 amended RR No. 1-97 by
of projection of revenues. Consequently, there can be no denial of providing, among others, a periodic review every two years or earlier of
the equal protection of the laws since the rational-basis test is the current net retail price of new brands and variants thereof for the
amply satisfied. purpose of establishing and updating their tax classification, thus:
o For the purpose of establishing or updating the tax
classification of new brands and variant(s) thereof, their
Facts: current net retail price shall be reviewed periodically
 Petition for review assails the validity of the following as violative of the through the conduct of survey or any other appropriate
equal protection clause: activity, as mentioned above, every two years unless earlier
o Section 145 of the NIRC, as recodified by RA No 8424 ordered by the Commissioner. However, notwithstanding
o RA No. 9334, which further amended Section 145 of the any increase in the current net retail price, the tax
NIRC on January 1, 2005 classification of such new brands shall remain in force until
o RR Nos. 1-97, 9-2003 and 22-2003 the same is altered or changed through the issuance of an
o RMO No. 6-2003 appropriate RR.
 Paragraph (c) of Section 145 provides for four tiers of tax rates based on o Pursuant thereto, RMO No. 6-2003 was issued on March
the net retail price per pack of cigarettes. To determine the applicable tax 11, 2003 prescribing the guidelines and procedures in
rates of existing cigarette brands, a survey of the net retail prices per establishing current net retail prices of new brands of
pack of cigarettes was conducted as of October 1, 1996. The results of cigarettes and alcohol products.
which were embodied in Annex D of the NIRC as the duly registered,  Subsequently, RR No. 22-2003 was issued on August 8, 2003 to
existing or active brands of cigarettes. implement the revised tax classification of certain new brands introduced
o The law further provided that as such, new brands of in the market after January 1, 1997 based on the survey of their current
cigarettes are taxed according to their current net retail net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike
price while existing or “old” brands shall be taxed based on Lights and Lucky Strike Menthol Lights are sold at the current net retail
their net retail price as of October 1, 1996. prices of P22.54, P22.61 and P21.23 per pack, respectively.
o Respondent CIR thus recommended the applicable tax rate
of P13.44 per pack inasmuch as Luck Strike’
 On September 1, 2003, petitioner filed before the RTC a petition for —NO
injunction with prayer for the issuance of a TRO and/or writ of preliminary
injunction. Said petition sought to enjoin the implementation of Section Held/Ratio: Wherefore, the petition is partially granted and the decision of
145 of the NIRC, RR Nos. 1-97, 9-2003, 22-2003 and RMO No. 6-2003 RTC of Makati, Branch 61 is affirmed with modification.
on the ground that they discriminate against new brands of cigarettes, in
violation of the equal protection clause and uniformity provisions of the 5) No. The classification freeze provision has sufficient rational basis.
Constitution. o Within the present context of tax legislation on sin products which
 While the petition was pending, RA 9334 took effect on January 1, 2005. neither contains a suspect classification nor impinges on a
The statute among others: fundamental right, the rational-basis test thus finds application. Under
o Increased the excise tax rates provided in paragraph (c) of this test, a legislative classification, to survive an equal protect
Section 145 of the NIRC challenge, must be shown to rationally further a legitimate state
o Mandated that new brands of cigarettes shall initially be interest.
classified according to their suggested net retail price, until o The classification freeze provision was the main result of the earnest
such time that their correct tax bracket is finally determined efforts of the Congress to improve the efficiency and effectivity of the
under a specified period and, after which, their classification tax administration over sin products while trying to balance the same
shall remain in force until revised by the Congress with other state interests.
o Retained Annex D of the NIRC as the tax base of those o In particular, the questioned provision addressed the administrative
surveyed as of October 1, 1996 including the classification concerns of Congress regarding delegating too much authority to the
of brands for the same products which, although not st forth Department of Finance and BIR as this will open the tax system to
in said Annex D, were registered on or before January 1, potential areas for abuse and corruption.
1997 and were being commercially produced and marketed o Congress may have reasonably conceived that a tax system, which
on or after October 1, 1996, and which continue to be would give the least amount of discretion to the tax implementers,
commercially produced and marketed after the effectivity of would address the problems of tax avoidance and tax evasion.
this Act. Said classification shall remain in force until o Aside from the major concern regarding the elimination of potential
revised by Congress areas for abuse and corruption from the tax administration of sin
o Provided a legislative freeze on brands of cigarettes products, the legislative deliberations also show that classification
introduced between the period January 2, 1997 to freeze provision was intended to generate buoyant and stable
December 31, 2003, such that said cigarettes shall remain revenues for government. With the frozen tax classifications, the
in the classification under which the BIR has determined revenue inflow would remain stable and the government would be
them to belong as of December 31, 2003. able to predict with a greater degree of certainty the amount of taxes
 Hence, petitioner filed a motion to admit a supplement to the petition for that a cigarette manufacturer would pay given the trend in its sales
review assailing the constitutionality of RA No. 9334 insofar as it retained volume over time.
Annex D and praying for a downward classification of Lucky Strike o All in all, the classification freeze provision addressed Congress’s
products at the bracket taxable at P8.96 per pack. administrative concerns in the simplification of tax administration of sin
products, elimination of potential areas for abuse and corruption in tax
Issues: collection, buoyant and stable revenue generation, and ease of
5) WON the tax classification freeze provision violates the equal projection of revenues. Consequently, there can be no denial of the
protection clause
equal protection of the laws since the rational-basis test is amply Parenthetically, Section 145 states that during the transition
satisfied. period, i.e., within the next three (3) years from the effectivity of
the Tax Code, the excise tax from any brand of cigarettes
CIR v. FORTUNE TOBACCO CORP (Ong) shall not be lower than the tax due from each brand on 1
[GR. No. 167274-75; July 21, 2008] October 1996. This qualification, however, is conspicuously
“Ad valorem tax on cigarettes shifted to specific tax. RR exceeded allowable absent as regards the 12% increase which is to be applied
legislative delegation.” on cigars and cigarettes packed by machine, among others,
effective on 1 January 2000. Clearly and unmistakably, Section
Recit-Ready: 145 mandates a new rate of excise tax for cigarettes packed
Facts: Fortune is the manufacturer of certain cigarette brands. Prior to by machine due to the 12% increase effective on 1 January
January 1, 1997 (when RA 8240 took effect), these brands were 2000 without regard to whether the revenue collection
subjected to ad valorem tax. Because of RA 8240, there was a starting from this period may turn out to be lower than that
shift from ad valorem taxes to specific taxes, and these brands collected prior to this date.
were subjected to specific taxes. Revenue Regulation 17-99 was By adding the qualification that the tax due after the 12% increase
also implemented providing that: “…the new specific tax rate for becomes effective shall not be lower than the tax actually paid
any existing brand of cigars, cigarettes packed by machine, prior to 1 January 2000, Revenue Regulation No. 17-99
distilled spirits, wines, and fermented liquor shall not be lower effectively imposes a tax which is the higher amount
than the excise tax that is actually being paid prior to between the ad valorem tax being paid at the end of the three
January 1, 2000.” Fortune paid the specific taxes but claimed for (3)-year transition period and the specific tax under paragraph
a refund/tax credit for overpayment of excise taxes for various C, sub-paragraph (1)-(4), as increased by 12%—a situation not
periods. It alleges that the CIR went beyond his delegated supported by the plain wording of Section 145 of the Tax
rule-making power when he promulgated, enforced and Code.
implemented Revenue Regulation No. 17-99, which effectively The foregoing leads us to conclude that Revenue Regulation
created a separate classification for cigarettes based on the No. 17-99 is indeed indefensibly flawed. The Commissioner
excise tax actually being paid prior to January 1, 2000. The CTA cannot seek refuge in his claim that the purpose behind the
and the CA ruled in favor of Fortune. passage of the Tax Code is to generate additional revenues for
the government. The shift from the ad valorem system to the
Issue/s: specific tax system is likewise meant to promote fair competition
WON Revenue Regulation 17-99 exceeded the allowable limits of among the players in the industries concerned, to ensure an
legislative delegation - YES equitable distribution of the tax burden and to simplify tax
administration.
Held: YES. In ruling for Fortune, the Court said that the CIR exceeded
the allowable limits of legislative delegation when Revenue Facts:
Regulation No. 17-99 went further and added that “[T]he new  Fortune is a domestic corporation duly organized and existing under and
specific tax rate for any existing brand of cigars, cigarettes by virtue of the laws of the Phil. It is the manufacturer of, among others,
packed by machine, distilled spirits, wines and fermented liquor cigarette brands: Champion, Salem, Camel, Winston (tax rate for all is P1
shall not be lower than the excise tax that is actually being paid except Winston P5).
prior to January 1, 2000.”
 Prior to January 1, 1997, the above brands were subjected to ad valorem in excise tax of more than seventy percent (70%), for a brand of
tax (AVT) pursuant to Section 142 of the Tax Code of 1977. However, on cigarette, the increase shall take effect in two tranches: fifty percent
January 1, 1997, RA 8240 took effect whereby a shift from AVT to (50%) of the increase shall be effective in 1997 and one hundred
specific tax system was made, subjecting the aforesaid cigarette brands percent (100%) of the increase shall be effective in 1998.
to the specific tax system under Section 142 (now 145): Mahaba but Duly registered or existing brands of cigarettes or new brands
kailangan. thereof packed by machine shall only be packed in twenties.
The rates of excise tax on cigars and cigarettes under
Section 145. Cigars and Cigarettes— paragraphs (1), (2) (3) and (4) hereof, shall be increased by
  (A) Cigars.—There shall be levied, assessed and collected on twelve percent (12%) on January 1, 2000.
cigars a tax of One peso (P1.00) per cigar. New brands shall be classified according to their current net retail
  (B) Cigarettes packed by hand.—There shall be levied, assessed price.
and collected on cigarettes packed by hand a tax of Forty centavos For the above purpose, ‘net retail price’ shall mean the price at
(P0.40) per pack. which the cigarette is sold on retail in twenty (20) major
(C) Cigarettes packed by machine.—There shall be levied, supermarkets in Metro Manila (for brands of cigarettes marketed
assessed and collected on cigarettes packed by machine a tax at nationally), excluding the amount intended to cover the applicable
the rates prescribed below: excise tax and value-added tax. For brands which are marketed only
(1) If the net retail price (excluding the excise tax and the outside Metro Manila, the ‘net retail price’ shall mean the price at
value-added tax) is above Ten pesos (P10.00) per pack, the tax which the cigarette is sold in five (5) major intended to cover the
shall be Twelve pesos (P12.00) per pack; applicable excise tax and the value-added tax.
(2) If the net retail price (excluding the excise tax and the value The classification of each brand of cigarettes based on its average
added tax) exceeds Six pesos and Fifty centavos (P6.50) but retail price as of October 1, 1996, as set forth in Annex “D,” shall
does not exceed Ten pesos (P10.00) per pack, the tax shall be remain in force until revised by Congress.
Eight Pesos (P8.00) per pack. ‘Variant of a brand’ shall refer to a brand on which a modifier is
(3) If the net retail price (excluding the excise tax and the prefixed and/or suffixed to the root name of the brand and/or a
value-added tax) is Five pesos (P5.00) but does not exceed Six different brand which carries the same logo or design of the existing
Pesos and fifty centavos (P6.50) per pack, the tax shall be Five brand.”
pesos (P5.00) per pack;  RR No. 17-99 (Sec. 1 last paragraph) likewise provides that: ”the new
(4) If the net retail price (excluding the excise tax and the specific tax rate for any existing brand of cigars, cigarettes packed by
value-added tax) is below Five pesos (P5.00) per pack, the tax machine, distilled spirits, wines, and fermented liquor shall not be lower
shall be One peso (P1.00) per pack; than the excise tax that is actually being paid prior to January 1,
Variants of existing brands of cigarettes which are introduced in the 2000.”
domestic market after the effectivity of R.A. No. 8240 shall be taxed  For the period covering January 1-31, 2000, Fortune allegedly paid the
under the highest classification of any variant of that brand. specific taxes on all brands manufactured and removed in the total of
The excise tax from any brand of cigarettes within the next three (3) P585,705,250.
years from the effectivity of R.A. No. 8240 shall not be lower than  On February 7, 2000, Fortune filed with CIR’s appellate division a claim
the tax, which is due from each brand on October 1, 1996. Provided, for refund or tax credit of its purportedly overpaid excise tax in the amount
however, That in cases where the excise tax rates imposed in of P35,651,410. On June 21, 2001, it also filed with respondent’s Legal
paragraphs (1), (2), (3) and (4) hereinabove will result in an increase Service a letter reiterating all the claims for refund/credit.
 As there was no action on the part of respondent, Fortune filed a petition under Annex “D” referred to in par. 8, Sec. 145 of
for review with the CTA on December 11, 2001 in order to comply with the Tax Code;
the 2-year period for filing a claim for refund.  3. The 12% increment shall be computed based on
 CIR’s defenses: the net retail price as indicated in par. C, sub-par.
o The amount of P35M being claimed by petitioner as alleged (1)-(4), Sec. 145 of the Tax Code even if the
overpaid excise tax for the month of January was not resulting figure will be lower than the amount
properly documented. already being paid at the end of the transition
o The last paragraph of RR No. 17-99 is a valid implementing period. This is the interpretation followed by both
regulation which has the force and effect of law. the CTA and the Court of Appeals.
 There is another petition filed with the CTA which contains essentially o The interpretation which will give life to the legislative intent
similar facts except that this questions the 2003 CTA decision granting to raise revenue should govern.
Fortune’s claim for refund of the amount of P355M covering the period  Arguments of Fortune:
January 1, 2002 to December 31, 2002. o The CTA and the CA merely followed the letter of the law
 The CTA ordered the refund but reconsidered and granted the CIR’s MR, when they ruled hat the basis for the 12% increase in the
thereby denying Fortune’s claim for refund. However, the CTA changed tax rate should be the net retail price of the cigarettes in
its mind again and ruled with a semblance of finality that Fortune is the market as outlined in paragraph C, sub paragraphs
entitled to the refund of overpaid excise tax claimed. (1)-(4), Section 145 of the Tax Code.
o December 21, 2002 decision – refund P680M (Jan 1-31, o The Commissioner allegedly has gone beyond his
2000 and Feb 1-Dec 31, 2000) delegated rule-making power when he promulgated,
o December 4, 2003 decision – refund P355M (Jan 1-Dec 31, enforced and implemented Revenue Regulation No. 17-99,
2002. which effectively created a separate classification for
 CIR appealed to the CA but the CA denied it. cigarettes based on the excise tax “actually being paid prior
 Arguments of CIR through OSG: to January 1, 2000.”
o The literal interpretation given by the CTA and the CA
would lead to a lower tax imposable on 1 January 2000 Issue/s:
than that imposable during the transition period. Instead of WON Revenue Regulation 17-99 exceeded the allowable limits of
n increase of 12% in the tax rate, it would result in a legislative delegation.
significant decrease in the rate by as much as 66%. — YES
o The OSG argues that Section 145 of the Tax Code admits
of several interpretations, such as: Held/Ratio: Petition denied, judgment and resolution affirmed.
 “1. That by January 1, 2000, the excise tax on
cigarettes should be the higher tax imposed under YES.
the specific tax system and the tax imposed under o The entire controversy revolved around the interplay between Section
the ad valorem tax system plus the 12% increase 145 of the Tax Code and Revenue Regulation 17-99.
imposed by par. 5, Sec. 145 of the Tax Code; o RR 17-99 interprets the provisions of Section 145 and reflects the
 2. The increase of 12% starting on January 1, 2000 12% increase in excise taxes in the following manner:
does not apply to the brands of cigarettes listed
Description of Articles Present Specific New Specific Tax
Tax Rates Prior to Rate Effective Jan 1, (1)-(4), as increased by 12%—a situation not supported by the
Jan 1, 2000 2000 plain wording of Section 145 of the Tax Code.
(A) Cigars P1.00/cigar P1.12/cigar
o The Court then gave examples of cases where national revenue
(B) Cigarettes packed by machine
officials had ventured into unauthorized administrative legislation (Ang
(1) Net Retail Price (excluding VAT P12.00/pack P13.44/pack
and excise) exceeds P10.00/pack dami bes, kung gusto mo check mo nalang sa orig but those are not
(2) Net Retail Price (excluding VAT P8.00/pack P8.96/pack important to resolve the issue in this case).
and excise) is P6.51 up to  Para may masabi if ever magatanong: in PBC v. CIR, the CIR
P10.00/pack issued a circular changing the prescriptive period of 2 years
(3) Net Retail Price (excluding VAT P5.00/pack P5.60/pack to 10 years for claims of excess quarterly income tax
and excise) is P5.00 to P6.50/pack
payments. The Court nullified the circular.
(4) Net Retail Price (excluding VAT P1.00/pack P1.12/pack
and excise) is below P5.00/pack o OSG’s argument that by January 1, 2000, the excise tax on cigarettes
should be the higher tax imposed under the specific tax system and
o This table reflects Section 145 of the Tax Code insofar as it mandates the tax imposed under the ad valorem tax system plus the 12%
a 12% increase effective on 1 January 2000 based on the taxes increase imposed by Section 145 is an unsuccessful attempt to justify
indicated under paragraph C, sub-paragraph (1)-(4). However, what is clearly an impermissible incursion into the limits of
Revenue Regulation No. 17-99 went further and added that “[T]he administrative legislation. This is not supported by the law.
new specific tax rate for any existing brand of cigars, cigarettes o The contention that the increase of 12% starting on 1 January 2000
packed by machine, distilled spirits, wines and fermented liquor shall does not apply to the brands of cigarettes listed under Annex “D” is
not be lower than the excise tax that is actually being paid prior to likewise unmeritorious, absurd even. Paragraph 8, Section 145 of the
January 1, 2000.” Tax Code simply states that, “[T]he classification of each brand of
o Parenthetically, Section 145 states that during the transition period, cigarettes based on its average net retail price as of October 1, 1996,
i.e., within the next three (3) years from the effectivity of the Tax Code, as set forth in Annex ‘D,’ shall remain in force until revised by
the excise tax from any brand of cigarettes shall not be lower Congress.”
than the tax due from each brand on 1 October 1996. This o This declaration certainly does not lend itself to the interpretation
qualification, however, is conspicuously absent as regards the 12% given to it by the OSG. As plainly worded, the average net retail prices
increase which is to be applied on cigars and cigarettes packed of the listed brands under Annex “D,” which classify cigarettes
by machine, among others, effective on 1 January 2000. Clearly according to their net retail price into low, medium or high, obviously
and unmistakably, Section 145 mandates a new rate of excise tax remain the bases for the application of the increase in excise tax rates
for cigarettes packed by machine due to the 12% increase effective on 1 January 2000.
effective on 1 January 2000 without regard to whether the o The foregoing leads us to conclude that Revenue Regulation No.
revenue collection starting from this period may turn out to be 17-99 is indeed indefensibly flawed. The Commissioner cannot
lower than that collected prior to this date. seek refuge in his claim that the purpose behind the passage of the
o By adding the qualification that the tax due after the 12% increase Tax Code is to generate additional revenues for the government.
becomes effective shall not be lower than the tax actually paid prior to o The shift from the ad valorem system to the specific tax system is
1 January 2000, Revenue Regulation No. 17-99 effectively likewise meant to promote fair competition among the players in the
imposes a tax which is the higher amount between the ad industries concerned, to ensure an equitable distribution of the tax
valorem tax being paid at the end of the three (3)-year transition burden and to simplify tax administration by classifying cigarettes,
period and the specific tax under paragraph C, sub-paragraph
among others, into high, medium and low-priced based on their net similar goods.
retail price and accordingly graduating tax rates. The rule of uniformity of taxation violated by the proviso in Section
o Finally, the Commissioner’s contention that a tax refund partakes the 1, RR 17-99 when it was applied in certain cases. (See example
nature of a tax exemption does not apply to the tax refund to which below)
Fortune Tobacco is entitled. There is parity between tax refund and In the process, the CIR also perpetuated the unequal tax treatment
tax exemption only when the former is based either on a tax of similar goods that was supposed to be cured by the shift from ad
exemption statute or a tax refund statute. Obviously, that is not the valorem to specific taxes.
situation here. The omission in the law in fact reveals the legislative intent not to
o What is controlling in this case is the well-settled doctrine of strict adopt the higher tax rule.
interpretation in the imposition of taxes, not the similar doctrine as
applied to tax exemptions. Facts:
 Manufacturers of cigarettes are subject to pay excise taxes on their
CIR v. FORTUNE TOBACCO CORP (Ong) products. Prior to January 1, 1997, the excise taxes were in the form of
[GR. No. 180006; September 28, 2011] ad valorem taxes. Beginning January 1, 1997, RA 8240 took effect and a
“Same ruling as the 2008 but better ratio” shift from ad valorem to specific taxes was made.
 Section 142(c) of the Tax Code as amended, reads in part (I’ll quote
Recit-Ready: based on how the court quoted it mas marami yung sa nauna):
Facts: Same facts different period (2003 and 2004).
Section 145. Cigars and Cigarettes—
Issue/s:   (A) Cigars.—There shall be levied, assessed and collected on
WON Revenue Regulation 17-99 exceeded the allowable limits of cigars a tax of One peso (P1.00) per cigar.
legislative delegation - YES   (B) Cigarettes packed by hand.—There shall be levied, assessed
and collected on cigarettes packed by hand a tax of Forty centavos
o Held: YES. In ruling for Fortune, the Court said that the CIR (P0.40) per pack.
exceeded the allowable limits of legislative delegation when (C) Cigarettes packed by machine.—There shall be levied,
Revenue Regulation No. 17-99 went further and added that assessed and collected on cigarettes packed by machine a tax at
“[T]he new specific tax rate for any existing brand of cigars, the rates prescribed below:
cigarettes packed by machine, distilled spirits, wines and fermented (1) If the net retail price (excluding the excise tax and the
liquor shall not be lower than the excise tax that is actually being value-added tax) is above Ten pesos (P10.00) per pack, the tax
paid prior to January 1, 2000.” shall be Twelve pesos (P12.00) per pack;
Raising government revenue is not the sole objective of RA (2) If the net retail price (excluding the excise tax and the value
8240. It is also intended to curb the corruption that became added tax) exceeds Six pesos and Fifty centavos (P6.50) but
endemic to the imposition of ad valorem taxes. Since ad does not exceed Ten pesos (P10.00) per pack, the tax shall be
valorem taxes were based on the value of the goods, the prices of Eight Pesos (P8.00) per pack.
the goods were often manipulated to yield lesser taxes. The (3) If the net retail price (excluding the excise tax and the
imposition of specific taxes, which are based on the volume of value-added tax) is Five pesos (P5.00) but does not exceed Six
goods produced, would prevent price manipulation and also cure Pesos and fifty centavos (P6.50) per pack, the tax shall be Five
the unequal tax treatment created by the skewed valuation of pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the Senate deliberation that conveyed the legislative intent to
value-added tax) is below Five pesos (P5.00) per pack, the tax increase the excise taxes being paid.
shall be One peso (P1.00) per pack; o The CIR points out that Section 145(c) of the new tax code
xxx categorically declares that the excise tax from any brand of
The excise tax from any brand of cigarettes within the next cigarettes within the [three-year transition period from January 1,
three (3) years from the effectivity of R.A. No. 8240 shall not be 1997 to December 31, 1999] shall not be lower than the tax,
lower than the tax, which is due from each brand on October 1, which is due from each brand on October 1, 1996.
1996. Provided, however, That in cases where the excise tax rates o He posits that there is no plausible reason why the new specific
imposed in paragraphs (1), (2), (3) and (4) hereinabove will result in tax rates due beginning January 1, 2000 should not be subject to
an increase in excise tax of more than seventy percent (70%), for a the same rule as those due during the transition period.
brand of cigarette, the increase shall take effect in two tranches: fifty  Arguments of Fortune
percent (50%) of the increase shall be effective in 1997 and one o Section 145(c) of the 1997 Tax Code read and interpreted as it is
hundred percent (100%) of the increase shall be effective in 1998. written; it imposes a 12% increase on the rates of excise taxes
xxx provided under subparagraphs (1), (2), (3), and (4) only; it does
The rates of excise tax on cigars and cigarettes under not say that the tax due during the transition period shall continue
paragraphs (1), (2) (3) and (4) hereof, shall be increased by to be collected if the amount is higher than the new specific tax
twelve percent (12%) on January 1, 2000. rates.
o It contends that the higher tax rule applies only to the three-year
 The 1977 Tax Code was later repealed by RA 8424, or the NIRC of 1997 transition period to offset the burden caused by the shift from ad
and Section 142 was renumbered as Section 145. To implement this, the valorem to specific taxes.
CIR issued RR 17-99 (same as above but I will quote the important part):
Issue/s:
Provided, however, that the new specific tax rate for any existing WON Revenue Regulation 17-99 exceeded the allowable limits of
brand of cigars [and] cigarettes packed by machine, distilled spirits, legislative delegation.
wines and fermented liquors shall not be lower than the excise — YES
tax that is actually being paid prior to January 1, 2000.
Held/Ratio: Petition denied, judgment and resolution affirmed.
 Fortune paid in advance excise taxes for the year 2003 in the amount of
P11.15 billion, and for the period covering Jan 1- May 31, 2004 in the YES.
amount of P4.90 billion. o Except for the tax period and the amounts involved, the case at bar
 In June 2004, Fortune filed an administrative claim for tax refund with the presents the same issue that the Court already resolved in 2008 in
CIR for erroneously and/or illegally collected taxes in the amount of CIR v. Fortune Tobacco Corp (yes it’s the case above).
P491M. Without waiting for the CIR’s action, Fortune filed with the CTA a o Following the principle of stare decisis, our ruling in the present case
judicial claim for tax refund which ruled in its favor. should no longer come as a surprise. The proviso in Section 1 of RR
 Arguments of the CIR 17-99 clearly went beyond the terms of the law it was supposed to
o The CIR posits that the inclusion of the proviso in Section 1 of implement, and therefore entitles Fortune to claim a refund of the
RR 17-99 was made to carry into effect the law’s intent and is overpaid excise taxes collected pursuant to this provision.
well within the scope of delegated legislative authority. He cites
o Raising government revenue is not the sole objective of RA 8240. o The omission in the law in fact reveals the legislative intent not to
It is also intended to curb the corruption that became endemic to adopt the higher tax rule. Had the intention of Congress been solely to
the imposition of ad valorem taxes. Since ad valorem taxes were increase revenue collection, a provision similar to the third paragraph
based on the value of the goods, the prices of the goods were often of Section 145(c) (distilled spirits and wines) would have been
manipulated to yield lesser taxes. The imposition of specific taxes, incorporated in Sections 141 and 142 of the 1997 Tax Code. This,
which are based on the volume of goods produced, would prevent however, is not the case.
price manipulation and also cure the unequal tax treatment created by o We note that Congress was not unaware that the higher tax rule is a
the skewed valuation of similar goods. proviso that should ideally apply to the increase after the transition
o The rule of uniformity of taxation violated by the proviso in Section 1, period (as the CIR embodied in the proviso in Section 1 of RR 17-99).
RR 17-99 when it was applied in certain cases. During the deliberations for the law amending Section 145 of the 1997
o To illustrate this point, we consider three brands of Tax Code (RA 9334), Rep. Jesli Lapuz adverted to the higher tax rule
cigarettes, all classified as lower-priced cigarettes under after December 31, 1999. This remark notwithstanding, the final
Section 145(c)(4) of the 1997 Tax Code, since their net version of the bill that became RA 9334 contained no provision similar
retail price is below P5.00 per pack: to the proviso in Section 1 of RR 17-99 that imposed the tax due as of
Brand Net retail Ad Specific Specific New New December 31, 1999 if this tax is higher than the new specific tax rates.
price/pack Valorem Tax under Tax Due Specific Specific Thus, it appears that despite its awareness of the need to protect the
Tax due Sec. 145 Jan Tax Tax due
increase of excise taxes to increase government revenue, Congress
prior to 1997- imposing by Jan
Jan Dec 12% 2000 per ultimately decided against adopting the higher tax rule.
1997 1999 increase RR 17-99 EXCISE TAX
by Jan
2000
Camel 4.71 5.50 1.00/pack 5.50 1.12/pack 5.50
KS SUMMARY OF REVENUE REGULATIONS NO. 4-2003
Cham 4.56 3.30 1.00/pack 3.30 1.12/pack 3.30 Amendment of Previous Revenue Regulations Governing the
pion Imposition of Excise Tax on Automobiles
Union 4.64 1.09 1.00/pack 1.09 1.12/pack 1.12
Ameri REVENUE REGULATIONS NO. 4-2003 issued on January 30, 2003
can amends certain sections of Revenue Regulations No. 14-97, as
Blend
amended, otherwise known as the Revenue Regulations Governing
the Imposition of Excise Tax on Automobiles.
o Although the brands all belong to the same category, the proviso in
Section 1, RR 17-99 authorized the imposition of different (and grossly Automobile refer to any four- (4) or more-wheeled vehicle, other than a
disproportionate) tax rates (see column [D]). It effectively extended the truck, pick-up, jeep/jeepney, bus, or vehicle used for special purpose,
qualification stated in the third paragraph of Section 145(c) of the which is propelled by gasoline or diesel and specially designed to
1997 Tax Code that was supposed to apply only during the transition transport persons and not primarily to transport freight or merchandise.
period. The term automobile shall also include utility vehicles and Light
Commercial Vehicles (LCVs) designed to carry both passenger and cargo,
o In the process, the CIR also perpetuated the unequal tax treatment of
except when the seating capacity thereof is at least 10 or more adult
similar goods that was supposed to be cured by the shift from ad passengers, including the driver, subject to the criteria used in determining
valorem to specific taxes. the seating capacity prescribed in the Regulations.
Regulations are hereby promulgated to implement the provisions of

Closed or covered four-wheel drive vehicle, primarily designed to carry Section 149 of Title VI of the said Code, imposing an excise tax on
passengers, regardless of the number of seats, shall be considered and automobiles.
taxed as an automobile for purposes of the Regulations.
SEC. 2. THE DEFINITION OF TERMS. - Section 2 of Revenue
The Excise Tax shall be imposed on the production, assembly or Regulations No. 14-97, as amended by Revenue Regulations No. 14-99,
importation of automobiles, including Light Commercial Vehicles, is hereby further amended to read as follows:
payable before removal from place of production/assembly or from
Bureau of Customs' custody. “(a) AUTOMOBILE – shall refer to any four-
(4) or more-wheeled vehicle, other than a truck, pick-up, jeep/jeepney,
Every manufacturer, assembler, producer, and importer of bus, or vehicle used for special purpose, which is propelled by gasoline
automobiles shall, before commencement of actual manufacture, or diesel and specially designed to transport persons and not primarily
assembly, production or importation, file with the appropriate BIR to transport freight or merchandise. The term automobile shall also
office having jurisdiction over the taxpayer-registrant an application include utility vehicles and Light Commercial Vehicles (LCVs)
designed to carry both passenger and cargo, except when the seating
for brand/model registration. In cases where previously registered
capacity thereof is at least 10 or more adult passengers, including the
brands/models are modified, any modification shall be compared with
driver, subject to the criteria used in determining the seating capacity
international version thereof as reflected in the original
herein prescribed;
assembler's/manufacturer's certification and the published international
catalogue, brochure or other advertising materials to determine whether or
Provided that, notwithstanding any contrary rule, closed or
not such modified version conforms to the requirements of the covered four-wheel drive vehicle, primarily designed to carry
Regulations. Accordingly, such modified version shall thereafter be passengers, regardless of the number of seats, shall be considered and
registered with the appropriate BIR office having jurisdiction over the taxed as an automobile for purposes of these Regulations.
taxpayer-registrant.
Provided, finally, that ocular inspection must be conducted in
Every manufacturer/assembler/producer and/or importer of automobiles all cases, taking careful consideration of the criteria stated in this
for sale shall post a surety bond which shall be conditioned upon the subparagraph (a) for the proper determination as to whether or not said
faithful compliance with laws and regulations relating to such business and vehicle is an automobile. A written report of each ocular inspection must
for the satisfaction of all fines and penalties imposed by the Code. be prepared by the inspecting officer to enable the reviewing officer to
determine whether the inspected vehicle meets the criteria of an
automobile as defined in these Regulations.
The passenger seats must conform to the following rules and

REVENUE REGULATIONS NO. 4-2003 area specifications for the uniform application of the number of seats
criterion:
SUBJECT : Amending Certain Sections of Revenue Regulations
No. 14-97, as Amended by Revenue Regulations 1. Each seat shall be of a horizontal rectangular area with seat
No. 14-99, Otherwise Known as the Revenue and feet space of not less than thirty-five centimeters (35 cm.)
Regulations Governing the Imposition of Excise wide and sixty centimeters (60 cm.) long for each passenger,
Tax on Automobiles. and fifty centimeters (50 cm.) wide and sixty centimeters (60
cm.) long for the driver or operator. Provided, in cases of
SECTION 1. SCOPE. - Pursuant to the provisions of Section contoured and bucket type-seats or with shapes other than
244 in relation to Section 245 of the Tax Code of 1997 (Code), these the conventional horizontal rectangular form, seat width shall
be measured at the middle portion thereof. Provided further, meets the area measurements, shall not be counted as a
that for the corresponding space that will be occupied by any passenger seat.
obstruction such as, but not limited to, doorside built-in
armrest, overhead air condition duct, protruding amplifier box For this purpose, the feet space shall refer to the
or wheel house, an imaginary straight line along the corresponding floor area of a passenger seat, upon which a
obstructed space shall be drawn, measured and deducted sitting passenger normally rests both his feet. A passenger
from the total width of the seat. The length of seats located at seat whose corresponding feet space is obstructed by a gear
the front row shall be measured from the lowest point of the box shall be considered without seat space. Leg room shall
backrest in a straight and level line up to the dashboard. mean that the passenger seat shall have enough elevation
Moreover, the distance between the passenger shoulder level from the floor so as to allow the normal bending of the knees
and the backrest of the seat in front shall always approximate and positioning of the legs of a seated passenger. A seat laid
the minimum length measurement prescribed herein. In down directly on the floor with only the seat itself providing its
cases of passenger seats facing opposite each other, the elevation from it or whose elevation is lower than the rest of
length of each passenger seat, representing one half (1/2) of the passenger seats thereby depriving the passenger to seat
the entire distance between the points where the inner edge normally, shall be considered without leg room. Head room
of each seat will intersect with the lowest part of its backrest, shall refer to the unobstructed ceiling space of a passenger
shall likewise meet the prescribed minimum length. seated upright. It shall be considered without head room if the
ceiling or any side of the vehicle touches any part of the head
2. The number of seats of an automobile as defined by these of a passenger seated upright. These requirements shall be
Regulations shall be determined by counting the number of applicable to all seats of the vehicle.
seat spaces that meet the minimum area specifications
prescribed herein. Half-seat shall not be counted as one All seats, whether or not these are jump seats, fold-away or
passenger seat even if there are multiples of half-seats. Thus, fold-down seats, shall be considered passenger seats if the
a utility vehicle with nine (9) and one-half (½) seat or nine (9) intended passengers thereof will have access thereto through
and two (2) half-seats and so on shall be considered as an the side door(s) of the motor vehicle and that they are factory
automobile subject to ad valorem tax. A contiguous row of installed and meet the area specifications prescribed in these
seats shall have as many number of passenger seats as regulations; provided, that seats located at the rear portion of
there are seat spaces that meet the minimum prescribed the vehicle normally utilized as cargo compartment and
measurements. However, any seat space in excess of the accessible through the back door shall not be considered as
aforesaid area specifications, if any, shall not be counted as passenger seats if these are foldable or adjustable to allow
one seat even if it meets the half-seat specifications of for cargo storage even if the same are factory installed and
seventeen and one-half (17 ½) wide. In cases of contiguous meet the area specifications.
row of seats with shapes other than the conventional
horizontal rectangular form, each seat shall be treated 4. A factory-installed seat shall be consideredas a seat if the
individually applying the minimum prescribed measurements intended passenger is seated comfortably thereat with his
for such type of seats. back, including his shoulder, fully rested on the back rest of
the seat. Accordingly, a seat without its own back rest shall
3. Aside from meeting the aforesaid measurements, the seat not be counted notwithstanding that such seat is factory
area must include the corresponding feet spaces, leg and installed and complies with the requirements on seat
head rooms as described herein that will afford an average- measurements, feet spaces, leg and head rooms.
built adult passenger to sit. Any seat space without the
corresponding feet spaces, leg and head rooms, even if it (b) LIGHT COMMERCIAL VEHICLE (LCV) - shall refer to a motor
vehicle, whether four-wheel drive or not, such as commuter vans; utility

vehicles; Sports Utility Vehicles (SUVs); and the like, except pick-ups. “SEC.10. REGISTRATION OF BRANDS/MODELS AND
VARIANTS . – Every manufacturer, assembler, producer, and
(c) VEHICLE USED FOR SPECIAL PURPOSE - shall refer to a importer of automobiles shall, before commencement of actual
vehicle designed and used for a special purpose or for a specific manufacture, assembly, production or importation, file with the
application such as cement mixer, fire truck, ambulance and/or medical appropriate BIR Office having jurisdiction over the taxpayer-
unit, armored military vehicle, crane, hearse, and the like. registrant an application for brand/model registration. In cases
where previously registered brands/models are modified, any
(d) TRUCK - shall refer to a motor vehicle of 3.5 tons gross modification shall be compared with the international version
vehicle weight or more of any configuration that is primarily designed for thereof as reflected in the original assembler’s/manufacturer’s
the carriage of goods and with any number of wheels and axles. certification and the published international catalogue, brochure or
other advertising materials to determine whether or not such
modified version conforms to the requirements of these
(e) JEEP/JEEPNEY - shall refer to a locally assembled
Regulations. Accordingly, such modified version shall thereafter
military type vehicle manufactured by local firms with no foreign affiliation,
be registered with the appropriate BIR Office having jurisdiction
which is similar in appearance to the MacArthur or Eisenhower type with
over the taxpayer-registrant.”
canvas or hard top shell. It shall also include locally assembled variant of
the said vehicle primarily used for transport of passengers.
“xxx xxx xxx.”
(f) BUS - shall refer to a motor vehicle of 3.5 tons gross vehicle
SEC. 5. AMENDATORY PROVISION ON MANUFACTURER’S OR
weight or more of any configuration, which is generally accepted and
IMPORTER’S BOND. - Section 12 (a) of Revenue Regulations
specially designed for the public transportation of persons and with any
No. 14-97, as amended by Revenue Regulations No. 14-99, is hereby
number of wheels and axles.”
further amended as follows:
Items (e) to (n) of Revenue Regulations No. 14-97, as amended by
“SEC. 12. MANUFACTURER'S AND IMPORTER'S BOND.-
Revenue Regulations No. 14-99, are accordingly re-numbered as Items
Every manufacturer/assembler and/or importer of automobiles for
(g) to (p).
sale shall post a surety bond which shall be conditioned upon the
faithful compliance with laws and regulations relating to such
SEC. 3. AMENDATORY PROVISION ON AUTOMOBILES
business and for the satisfaction of all fines and penalties
SUBJECT TO EXCISE TAX. - Section 4 of Revenue Regulations No. 14-
imposed by the Code.
97, as amended by Revenue Regulations No. 14-99, is hereby
further amended to read as follows:
(a) Basis of surety bond to be posted. -
“SECTION. 4. AUTOMOBILES SUBJECT TO EXCISE TAX. –
(1) Initial Bond. - In case of initial bond, the amount shall be
The excise tax under Section 149 of the Tax Code of 1997 shall
equal to one hundred thousand pesos (P100,000): Provided,
be imposed on the production, assembly or importation of
however, that if after six (6) months of operation, the amount of
automobiles, including LCVs as herein defined payable before
the initial bond is less than the amount of the total excise tax paid
removal from place of production/assembly or from Bureau of
during the period, the amount of the bond shall be adjusted to
Customs’ custody.”
twice the tax actually paid for the period.
SEC. 4. AMENDATORY PROVISION ON THE REGISTRATION OF
(2) Bond for the Succeeding Years of Operation. - The
BRAND NAMES UNDER RR 14-97.- Section 10 of RR 14-97 is hereby
bonds for the succeeding years of operation shall be based on the
amended to read as follows:
actual total excise tax paid during the year immediately preceding Section 8 hereof, an ocular inspection and measurement
the year of operation.” shall be conducted on the different brands/models of
vehicles to determine whether or not such brands/models
“ xxx xxx xxx.” are considered automobiles as defined under the
provisions of these Regulations.
SEC. 6. TRANSITORY PROVISIONS. - SEC. 7. REPEALING CLAUSE. – Subject to the provisions of Section 6
(a) The provisions of Revenue Regulations No. 14-97, as (b) (iii) hereof, any provision of Revenue Regulations No.14-97, as
amended by Revenue Regulations No. 14-99 shall be amended by Revenue Regulations No.14-99, or portions thereof which are
applicable to all automobiles completely assembled or inconsistent herewith are hereby amended accordingly.
imported (Completely-Built-Up (CBU) units, including
Completely-Knocked-Down (CKD) and Semi-Knocked-Down
(SKD) units), that are still in the custody of the Bureau of
Customs or in the place of production, assembly plant or
warehouse, as the case may be, as of the date immediately
preceding the date the Regulations become effective.
(b) For this purpose, the following must be complied with:

SUMMARY OF REVENUE REGULATIONS NO. 25-2003
(i) All importers and/or assemblers shall submit a duly Amendment of Previous Revenue Regulations Governing the
notarized list of inventory on-hand of completely Imposition of Excise Tax on Automobiles
assembled automobiles or CBUs, including Completely-
Knocked-Down (CKD) and Semi-Knocked Down (SKD) REVENUE REGULATIONS NO. 25-2003 issued on September 16, 2003
units, that are located within the assembly plant or amends the Revenue Regulations governing the imposition of Excise
warehouse or the customs’ premises as of the date Tax on automobiles.
immediately preceding the date of effectivity of these
Regulations, indicating the engine, body and chassis Automobiles refer to any four (4) or more-wheeled motor vehicle
numbers thereof. The list shall be submitted to the regardless of seating capacity, which is propelled by gasoline, diesel,
Commissioner of Internal Revenue, thru the Chief, Large electricity or any other motive power. Buses, trucks, cargo van,
Taxpayers Assistance Division II, within ten (10) days jeeps/jeepneys/jeepney substitutes, single cab chassis, and special
from the date of effectivity of these Regulations. Failure purpose vehicles, as defined in the Regulations, shall not be considered
to submit the inventory list on the part of the as automobiles.
importers/assemblers shall be construed that said
importers/assemblers do not have any inventory on hand The Excise Tax on locally manufactured/assembled automobiles shall be
of CBUs, CKDs, and SKDs as of the date immediately paid by the manufacturer/assembler of automobiles. Should
preceding the effectivity of these Regulations. domestically manufactured/assembled automobiles be removed from the
place of manufacture/assembly without the payment of the tax, the
(ii) A stocktaking of the aforesaid inventories shall be dealer/trader, owner, or person having possession thereof shall be liable
conducted by the Bureau of Internal Revenue for for the Excise Tax due thereon. In case of transfer of locally
purposes of validating the said list, within five (5) days manufactured/assembled automobiles from a tax-exempt person to a non-
from the date of submission thereof. tax exempt individual or entity, the transferee or possessor thereof shall be
the one liable for the said tax.
(iii) Prior to the date of effectivity of these Regulations per
(See Section 3 Persons Liable) be less than the cost of manufacture/assembly/importation plus the
industry profit margin of 10% and other expenses incurred before the
In case of imported automobiles, the Excise Tax shall be paid by the automobiles are sold to the market. The suggested retail price shall not be
owner or importer of the automobile or by the dealer/trader, or by any less than the actual selling price of the automobiles when sold to the
person who is found in possession of any untaxed automobiles including market.
any person other than the one legally entitled to exemption from the ad
valorem tax. In cases where automobiles are brought or imported tax free The brackets reflecting the manufacturer's/assembler's or importer's
into the country by persons, entities, or agencies exempt from tax and are selling price, net of Excise and Value-Added Taxes, shall be indexed once
subsequently sold, transferred, or exchanged in the Philippines to non- every two (2) years if the change in the exchange rate of the Philippine
exempt persons, or entities, including the introduction and re-introduction Peso against the United States (U.S.) dollar is more than ten percent
into customs territory of automobiles intended for exclusive use within the (10%) from the date of effectivity of the Act or from the last revision date in
freeport zones, the purchaser or transferee, owner/possessor of the the case of subsequent adjustment, which shall be referred to as an
automobiles shall be considered as the importer, and shall be liable for the ordinary indexation.
Excise Tax due on such importation.
(See Section 3 Persons Liable) Provided, that in case the change in the exchange rate of the Philippine
Peso against the U.S. dollar is at least twenty percent (20%) for a
Should a locally manufactured/assembled or imported motor vehicle continuous period of at least ten (10) days at anytime within the said two-
originally classified as truck, jeep/jeepney/jeepney substitute, single cab year period, an indexation, referred to as extraordinary indexation, of the
chassis and special purpose vehicle is converted anytime from its removal manufacturer's/assembler's or importer's selling price, net of Excise and
from the place of manufacture/assembly or release from customs custody Value-Added Taxes, shall be effected.
into a type of motor vehicle subject to ad valorem tax, the (See Section 5 and Section 6)
owner/possessor shall be liable to the ad valorem tax on such converted
motor vehicle based on acquisition price plus cost of conversion and shall In case of automobiles that are imported for personal use and not for sale
be subjected to applicable penalties. by the importer, the Excise Tax shall be computed based on the total
(Section 3) landed value.
(See Section 7)
The ad valorem tax on automobiles shall be levied, assessed and
collected based on the manufacturer's/assembler's or importer's selling In cases where a tax-exempt person/entity acquired an automobile,
price, net of Excise and Value- Added Tax, in accordance with the whether locally purchased or imported, without payment of the tax by
following schedule: reason of his/their exemption, the purchase thereof by a non-exempt
person/entity shall be subjected to the ad valorem tax based on the higher
Net Manufacturer’s/Importer’s Tax Rate of (i) actual consideration between the tax-exempt person/entity and the
Selling Price non-exempt person/entity; or (ii) the depreciated value of the automobile at
Up to P 600,000 2% the time of sale, transfer, or exchange which depreciation rate shall be at
Over P 600,000 to P 1,100,000 P 12,000 plus 20% of the value in ten percent (10%) per year, but in no case shall the total amount of
excess of P 600,000 depreciation be more than fifty percent (50%) of the original cost or value.
Over P 1,100,000 to P 2,100,000 P 112,000 plus 40% of the value However, in case where the automobile was acquired by the tax-exempt
in excess of P 1,100,000 person or entity prior to but sold after the effectivity of the Act, the
Over P 2,100,000 P 512,000 plus 60% of the value computation of the ad valorem tax shall be governed by the Act.
in excess of P2,100,000 (See Section 8)
The manufacturer's/assembler's or importer's selling price shall in no case The following removals of locally manufactured/assembled or release of
imported automobiles from the place of production or from customs'

custody, respectively, are exempt from the payment of Excise Taxes, Upon prior permit from the CIR, raw materials, semi-processed and/or
subject to conditions specified in the intermediate units may be transferred under bond, filed on a case-to-case
Regulations: basis, by the assembler or manufacturer to any processing plant for initial
a. Removals for export assembly or further assembly into finished units. Such transfer shall only
b. Delivery to tax-exempt persons or entities be allowed if the sub-contractor or sub-assembler is duly registered as
c. Removals for delivery and use exclusively within the freeport zone such with the BIR and is a holder of a valid Permit to Operate as an excise
d. Removal of automobiles for test run taxpayer.
Any person who is liable to pay the ad valorem tax on locally produced or When the ad valorem tax has been paid on the automobiles, the same
assembled automobiles shall file in triplicate for each place of production a shall not thereafter be stored or permitted to remain in the
separate consolidated excise tax return and pay the ad valorem tax before manufacturing/assembly plant or place of production. All automobiles
removal thereof from the place of production/assembly. Said person may, subjected to ad valorem tax that are stored or allowed to remain in the
at his option, pay to the BIR an advance deposit, and be allowed to place of manufacture or assembly plant after the tax thereon has been
remove automobiles from the place of production/assembly without prior paid shall be forfeited.
filing of the prescribed excise tax returns, provided that he has sufficient
balance of deposits with the BIR to cover full payment of the ad valorem After every six (6) months reckoned from the date of the initial or last
tax due on said removals. stocktaking, the BIR shall conduct a general or total physical inventory by
actual count and/or volume of the entire stock of raw materials (including
No changes, alterations, or new constructions shall be made in the in-process or intermediate units) and finished automobiles then existing
establishment as per plat and plan originally approved by the and on hand, in the presence of the representative of the
Commissioner of Internal Revenue or his duly authorized representative, manufacturer/assembler or importer concerned who shall jointly attest to
nor alterations of new equipment, transferring or putting up of new the fact of witnessing and verifying the results thereof by affixing their
warehouse or storage facilities, or any other form of changes or signatures on the attestation clause in the inventory certificate.
alterations, shall be made without first securing the necessary permit from
the Commissioner of Internal Revenue (CIR) or his duly authorized All manufacturer's/assembler's or importers are required to file an updated
representative. In case any changes shall be made, the plat and plan, as manufacturer's/assemblers or importer's sworn statement for each
amended, shall be submitted for approval. brand/model of automobiles, as well as a duly notarized list of inventory
on-hand of completely built-up (CBU) automobiles, including Completely-
Prior to every actual removal of automobiles, the following shall be Knocked-Down (CKD) and Semi-Knocked Down (SKD) units that are
required to be complied with: located within the manufacturing/assembly plant or warehouse or the
a. Preparation of Withdrawal Certificate customs' premises for which import entries have been filed, as of the day
b. Alteration of prepared Withdrawal Certificates c. Withdrawal Certificate immediately before the date of effectivity of the Regulations.
to accompany shipment
Failure to submit the inventory list on the part of the
The manufacturing/assembly plants of automobiles shall remain closed manufacturers/assemblers/importers shall be construed that the said
until the authorized internal revenue officer on duty thereat is present and manufacturers/assemblers/importers do not have any inventory on hand of
no assembled units or raw materials shall be removed from their CBUs, CKDs and SKDs as of the day immediately before the date of
respective premises in the absence of such internal revenue officer. effectivity of the Regulations. A stocktaking of the said inventories shall be
Unless otherwise especially allowed by the CIR, automobiles shall be conducted by the BIR for purposes of validating the said list within five (5)
removed from the place of production/assembly either between 7:00 a.m. days from the date of submission thereof.
to 4:00 or 8:00 a.m. to 5:00 p.m.
Likewise, the BIR shall establish the price indices at the time of the classified as automobile and therefore subject to excise tax.
effectivity of the Regulations to serve as the basis for the initial adjustment
or revision of the brackets of the manufacturer's/assembler's or importer's (c) TRUCK/CARGO VAN - shall refer to a motor vehicle of
selling price. any configuration and with any number of wheels and axles that is
exclusively designed for the carriage of goods and actually used and
registered as such with the Land Transportation Office; provided,
that pick-ups shall not be considered as trucks or cargo van.
(d) JEEP/JEEPNEY/JEEPNEY SUBSTITUTES - shall refer to the
SUBJECT : Amended Revenue Regulations Governing the “Philippine jeep or jeepney” which are of the jitney type locally
Imposition of Excise Tax on Automobiles pursuant designed and manufactured generally from surplus parts and
to the Provisions of Republic Act No. 9224, An Act components. It shall also include jeepney substitutes that are
Rationalizing the Excise Tax on Automobiles, manufactured for brand new single cab chassis or cowl chassis and
Amending for the Purpose the National Internal locally customized rear body that has continuous sideway row seats
Revenue Code of 1997, and For Other Purposes. with open rear door and without retractable glass windows.
CHAPTER I – SCOPE AND DEFINITION (e) BUS – shall refer to a motor vehicle of any configuration with gross
vehicle weight of four (4) tons or more with any number of wheels and
SECTION 1. SCOPE. - Pursuant to the provisions of Section axles, which is generally accepted and specially designed for mass or
244 in relation to Section 245 of the National Internal Revenue Code public transportation.
of 1997 (NIRC), these Regulations are hereby promulgated to amend,
update and consolidate the existing revenue regulations on (f) SINGLE CAB CHASSIS – shall refer to a motor vehicle with complete
automobiles in the light of the enactment of Republic Act No. 9224, An Act engine power train and chassis equipped with a cab that has a
Rationalizing the Excise Tax on Automobiles, amending the provisions of maximum of two (2) doors and only one (1) row of seats.
Section 149 of the National Internal Revenue Code of 1997.
(g) SPECIAL PURPOSE VEHICLE – shall refer to a motor vehicle, other
SEC. 2. DEFINITION OF TERMS. – For purposes of these than truck, cargo van, jeep/jeepney/jeepney substitute, bus, single cab
Regulations, the following words and phrases shall have the meaning chassis as defined herein, designed for specific applications such as
indicated below: cement mixer, fire truck, boom truck, ambulance and/or medical unit,
and off-road vehicles for heavy industries and not for recreational
(a) ACT – shall refer to Republic Act No. 9224. activities. For this purpose, “designed for specific applications” shall
mean the motor vehicle is designed in such a manner that it can only
(b) AUTOMOBILE – shall refer to any four (4) or more-wheeled be used strictly for the intended purpose for which it was
motor vehicle regardless of seating capacity, which is propelled manufactured.
by gasoline, diesel, electricity or any other motive power; provided
that, for purposes of these Regulations, buses, trucks, cargo (h) TOTAL LANDED VALUE – shall refer to the total of the (i) market
van, jeeps/jeepneys/jeepney substitutes, single cab chassis, and value of the motor vehicles imported as indicated in the motor vehicle
special purpose vehicles as herein defined shall not be considered reference books, such as the Japanese and U.S. Red Book, Karo and
as automobiles. World Car Book on automobile utility vehicles and other motor
vehicles, or the dutiable value as defined in Sec. 201 of the Tariff and
Any motor vehicle, though referred to or otherwise denominated as Customs Code of the Philippines as amended, whichever is higher; (ii)
truck, cargo van, jeep/jeepney/jeepney substitute, bus, single cab customs duties paid on the imported goods; and (iii) all other charges
chassis, or special purpose vehicle, but not falling within the arising from, or incident to, the importation.
purview of the definitions stated in these regulations shall be
(i) MANUFACTURER/ASSEMBLER – shall refer to any person or group

of persons, juridical or otherwise, who produces, assembles, b. On imported automobiles
fabricates, or otherwise manufactures a motor vehicle by combining
body frame/chassis, engine, drive-train, suspension and other The excise tax shall be paid by the owner or importer of the
automotive parts, or one who alters any part of a motor vehicle to automobile or by the dealer/trader, or by any person who is found in
meet the specification of an automobile and render it fit for registration possession of any untaxed automobiles including any person other than
with the Land Transportation Office. It shall also include any person the one legally entitled to exemption from the ad valorem tax in the
which manufactures, assembles, or fabricates motor vehicles from proper case. In cases where automobiles are brought or imported
surplus and/or used parts. tax free into the country by persons, entities, or agencies exempt
from tax and are subsequently sold, transferred, or exchanged in
(j) IMPORTER – shall refer to any person bringing motor vehicles into the the Philippines to non-exempt persons, or entities, including the
country from a foreign country for the purpose of sale, for personal introduction and re introduction into customs territory of automobiles
use or for use in business. It shall also refer to persons/enterprises intended for exclusive use within the freeport zones, the purchaser or
duly registered with legislated freeport zones who purchase motor transferee, owner/possessor of the automobiles shall be considered as the
vehicles from establishments located within the customs territory. This importer, and shall be liable for the excise tax due on such importation.
shall also include owner/possessor/purchaser or transferee of motor
vehicles intended for exclusive used within the freeport zone but are Should a locally manufactured/assembled or imported
introduced or re-introduced into the customs territory. motor vehicle originally classified as truck, jeep/jeepney/jeepney
substitute, single cab chassis and special purpose vehicle as defined
(k) COMPLETELY KNOCKED DOWN (CKD) – shall refer to parts and under Section 2(c), (d), (f) and (g) of these Regulations is converted
components for assembly purposes that are imported in disassembled at anytime from its removal from the place of manufacture/assembly or
condition. The CKD pack, however, may include not only parts and release from customs custody into a type of motor vehicle subject to ad
components but also sub-assemblies and assemblies such as engine, valorem tax, the owner/possessor shall be liable to the ad valorem tax
transmission, axle assembles, chassis and body assemblies. on such converted motor vehicle based on acquisition price plus cost of
conversion and shall be subjected to applicable penalties.
(m) COMPLETELY BUILD UP (CBU) – shall refer to vehicles imported in
completely assembled form and ready for use by the consumers.
SEC. 4. RATES AND BASES OF THE AD
CHAPTER II – COVERAGE, BASES AND RATES OF TAX VALOREM TAX ON AUTOMOBILES. There shall be levied,
assessed and collected an ad valorem tax on automobiles based
SEC. 3. PERSONS LIABLE. – The following persons shall on the manufacturer’s/assembler’s or importer’s selling price, net of
be liable for the payment of ad valorem tax on automobiles: excise and value-added tax, in accordance with the following schedule:
a. On locally manufactured/assembled automobiles Net Manufacturer’s/Importer’s Tax Rate

Selling Price
The excise tax shall be paid by the Up to P 600,000 2%
manufacturer/assembler of automobiles. Should domestically Over P 600,000 to P 1,100,000 P 12,000 plus 20% of the value in
manufactured/assembled automobiles be removed from the place of excess of P 600,000
manufacture/assembly without the payment of the tax, the dealer/trader, Over P 1,100,000 to P 2,100,000 P 112,000 plus 40% of the value
owner, or person having possession thereof shall be liable for the excise in excess of P 1,100,000
tax due thereon. In case of transfer of locally Over P 2,100,000 P 512,000 plus 60% of the value
manufactured/assembled automobiles from a tax-exempt person to a in excess of P2,100,000
non-tax exempt individual or entity, the transferee or possessor thereof
shall be the one liable for the excise tax.
SEC. 5. MANUFACTURER’S OR IMPORTER’S SELLING change in the exchange rate of the Philippine Peso against the United
PRICE. - The net manufacturer’s or importer’s selling price shall refer States (U.S.) dollar is more than ten percent (10%) from the date of
to the price, net of excise and value-added taxes, at which locally effectivity of the Act or from the last revision date in the case of
manufactured/assembled or imported automobiles are offered for sale subsequent adjustment, which shall be referred to as an ordinary
by the manufacturer/assembler or importer to the dealers, or to the public indexation.
directly or through their sales agents, as reflected in the
manufacturer’s/assembler’s or importer’s sworn statement duly filed with Provided, that in case the change in the exchange rate of the
the BIR, or in their sales invoices/official receipts, whichever is higher. Philippine Peso against the U.S. dollar is at least twenty percent (20%)
provided, that in computing the manufacturer’s/assembler’s or for a continuous period of at least ten (10) days at anytime within the
importer’s selling price, it shall always include the value of car said two-year period, an indexation, referred to as extraordinary
airconditioner, radio and mag wheels including the cost of installation indexation, of the manufacturer’s/assembler’s or importer’s selling price,
thereof whether or not the same were actually installed in the net of excise and value-added taxes, shall be effected.
automobile. Provided, further, that in no case shall the
manufacturer’s/assembler’s or importer’s selling price be less than the The determination of the percentage of change in the
amount computed as follows: exchange rate shall cover the period from the date of effectivity of this
Act, for the initial indexation, or from the last indexation, in case of
80% x (Suggested Retail Price – Excise Tax –Value-Added Tax). a subsequent revision, to the intended year of indexation. The
manufacturer’s/assembler’s or importer’s selling price, net of excise and
Provided, furthermore, that the manufacturer/assembler’s or value-added taxes, shall be indexed by the full rate of the peso
importer’s selling price shall in no case be less than the cost of depreciation or appreciation, as the case may be. For purposes of
manufacture/assembly/importation plus the industry profit margin of ten determining the percentage change of exchange rate of Philippine
percent (10%) and other expenses incurred before the automobiles are Peso against the U.S. dollar, the official Bangko Sentral ng
sold to the market, provided, finally that the suggested retail price shall not Pilipinas (BSP) publication of exchange rates shall be used.
be less than the actual selling price of the automobiles when sold to the
market. Ordinary or extraordinary indexation shall be implemented
through an issuance of Revenue Regulations by the Secretary
The value of other factory-installed accessory or optional of Finance upon recommendation of the Commissioner of Internal
equipment such as wheel covers, or any other attachment installed on the Revenue.
unit removed or sold, or previously removed and returned for purposes of
installation thereof, as well as the costs of installation of the accessory, SEC. 7. TAX TREATMENT ON IMPORTATION OF
shall likewise form part of the manufacturer’s/assembler’s or importer’s AUTOMOBILES NOT INTENDED FOR SALE. – In case of automobiles
selling price. in cases where accessories are installed outside the that are imported for personal use and not for sale by the importer, the
production/ assembly plant or after the release from the customs custody excise tax shall be computed based on the total landed value.
but before the actual sale of the imported automobile, as the case may be,
and the costs of such accessories and the cost of the installations shall Importation of more than one automobile unit by the same
form part of the expenses of the manufacturer/assembler or importer, all importer or the sale or transfer of an imported automobile within a twelve
subsequent billings therefor by the manufacturer/assembler or importer to (12)-month period shall not be considered as importation not intended for
the dealer or customer shall form part of the selling price. sale for purposes of the preceding paragraph of this section.
Should there be importations of automobiles made in the name

SEC. 6. INDEXATION OF THE MANUFACTURER’S OR of several buyers but represented by a single person/entity, such
IMPORTER’S SELLING PRICE – The brackets reflecting the importations shall be deemed an importation of automobile for resale;
manufacturer’s/assembler’s or importer’s selling price, net of excise and therefore, subject to ad valorem tax based on importer’s selling price to be
value-added taxes, shall be indexed once every two (2) years if the paid by such person/entity representing the individual buyers.
automobiles shall apply in writing for a written permit from the

SEC. 8. TAX TREATMENT ON SUBSEQUENT SALE, Commissioner of Internal Revenue, stating the brand/model,
TRANSFER OR EXCHANGE OF TAX-EXEMPT AUTOMOBILE BY number of units and value per unit of the automobiles to be
A TAX-EXEMPT PERSON/ ENTITY TO A NON-EXEMPT exported, country of destination, name of the vessel, consignee,
PERSON/ENTITY. – In cases where a tax-exempt person/entity and the place of loading. The discovery of any of such unit in-
acquired an automobile, whether locally purchased or imported, transit or which have actually been exported without the
without payment of the tax by reason of his/their exemption, the issuance of the appropriate permit shall be deemed prima facie
purchase thereof by a non-exempt person/entity shall be subjected to evidence of illegal removal of the same and the ad valorem
the ad valorem tax based on the higher of (i) actual consideration tax shall be due immediately upon demand.
between the tax-exempt person/entity and the non-exempt person/entity;
or (ii) the depreciated value of the automobile at the time of sale, (2) Direct delivery to vessel – Automobiles for export shall be loaded
transfer, or exchange which depreciation rate shall be at ten percent direct from the place of production/assembly to the vessel
(10%) per year, but in no case shall the total amount of depreciation be or means of transportation carrying them outside the Philippines
more than fifty percent (50%) of the original cost or value. and the same shall be under the supervision of authorized
internal revenue officer.
However, in case where the automobile was acquired by the A certification to this effect shall be duly issued by the Bureau of
tax-exempt person or entity prior to but sold after the effectivity of the Customs immediately after loading and departure of the vessel or
Act, the computation of the ad valorem tax shall be governed by the Act. other means of transportation from the Philippine territory.
Where a tax-exempt automobile subsequently sold, transferred or (3) Proof of exportation – Exporters of automobiles are required to
exchanged by a tax-exempt person or entity was determined to be submit proof of exportation satisfactory to the Commissioner
originally acquired by such person or entity primarily for the purpose of of Internal Revenue within thirty (30) days from the date of
avoiding the payment of the excise tax, the ad valorem tax shall be removal from the place of assembly/production. The proofs of
computed based on the original purchase price or value of exportation shall consist of the following documents.
importation of such motor vehicle at the time of its original purchase or
importation by such tax-exempt person or entity without the benefit of any i. Statement from the Bangko Sentral ng Pilipinas (BSP) or any
deduction for depreciation otherwise allowed under existing rules and of its accredited banks that the proceeds of the sale in
regulations. acceptable foreign currency have been inwardly remitted
and accounted for in accordance with the existing banking
SEC. 9. TAX-EXEMPT REMOVALS OF AUTOMOBILES. rules and regulations;
The following removals of locally manufactured/assembled or release
of imported automobiles from the place of production or from customs’ ii. Certified true copy of the bill of lading or airway bill;
custody, respectively, are exempt from the payment of the appropriate
excise taxes subject to certain conditions. iii. Commercial invoice issued by the manufacturer/assembler-
exporter to the foreign consignee; and
a. Removals for Export
iv. An Export Entry and a Certificate of Inspection and Loading
No ad valorem tax shall be collected on locally issued by the Bureau of Customs officer who had
manufactured/assembled automobiles which shall be removed for supervised the actual loading of the automobile units into the
exportation and are actually exported without returning to the Philippines vessel.
subject to the following conditions:
In cases where the proofs of exportation are not submitted within the
(1) Permit to Export – Immediately before removal, exporters of thirty-day period, or where such proofs are submitted within the period
but the same are not satisfactory to the Commissioner of
Internal Revenue, the manufacturer/assembler-exporter shall be foreign embassies for their official use); an authenticated true copy of
required to pay the ad valorem tax including the applicable penalties. the purchase order indicating the description of the automobiles to be
Such payment shall be entered in the Official Register Book stating the purchased; the chassis and engine numbers; and the place or location of
date of payment and validation number of the official receipt covering the the point of delivery of the automobiles.
payment.
The written approval of the Commissioner of Internal Revenue
(4) Exporter’s bond – when deemed necessary, an exporter shall be or his duly authorized representative shall be forwarded by the tax-
required to give a bond for an amount equivalent to the removal exempt customer to the manufacturer/assembler, through the
of the same for export shipment, conditioned upon the exportation dealer and thereafter, the automobile may be removed and delivered,
of the same in good faith. free from excise tax, to the dealer. Such written approval is valid only for
the particular transaction applied for by the tax exempt customer.
b. Delivery to tax-exempt persons or entities
3. Tax credits/refunds by tax-exempt persons or entities.
Manufacturers/assemblers or importers of automobiles are hereby
allowed to sell to tax-exempt persons or entities without the pre- In cases where the tax-exempt persons or entities purchased
payment of ad valorem tax subject to certain conditions. automobiles in which the ad valorem tax due thereon was paid or where
the ad valorem tax had been erroneously or illegally collected, such
1. Tax exempt persons or entities tax-exempt persons or entities may file a claim for tax refund or tax
credit with the Commissioner of Internal Revenue under existing
(a) Embassies of foreign governments subject to the principle of rules and regulations, submitting the following:
reciprocity. a) Authenticated copy of the Certificate of Tax Exemption;
b) Original and duplicate copies of sales invoices; and
(b) Tax-exempt organizations such as the Asian Development c) Certified photocopies of proof of payment of the ad valorem tax.
Bank (ADB) pursuant to special laws and subject to existing
rules and regulations. The claim for tax credit/refund for erroneous payment of ad
valorem tax should be filed within two (2) years from date of
(c) Other tax-exempt entities or agencies covered by tax treaties, payment of the ad valorem tax. Processing of claims for tax
conventions, and international agreements to which the refund/credit shall be done by the BIR but the actual issuance of Tax
Philippines is a signatory subject to reciprocity. Credit Certificate/refund shall come from the agency where the actual
payment was made.
The above persons or entities may also remove imported automobiles
from customs custody without the pre-payment of the ad valorem tax c. Removals for delivery and use exclusively within the freeport
subject to existing rules and regulations. zone. – For purposes of these Regulations, automobiles imported
directly into the legislated freeport zones from abroad or purchased
2. Requirements in the sale of automobiles to tax-exempt entities from establishments located within the customs territory for use
exclusively within the freeport zone shall be exempt from the
No automobiles shall be removed from the assembly plant or imposition of the excise tax. Therefore, in the event that the
place of production or release from customs custody for sale to tax- automobile is, by whatever mode, introduced into the customs territory,
exempt agencies without prior written approval from the Commissioner in case where the automobile was directly imported, or re-
of Internal Revenue. The tax-exempt customer of the introduced into the customs territory in case the automobile was
manufacturers/assembler or importer shall apply in writing for the purchased from establishments located within the customs
approval of such exemption submitting, among others, favorable territory, the same shall be deemed an importation into the
indorsement from concerned government agency (e.g., Department of Philippines subject to customs duties, taxes, and charges, including
Foreign Affairs for tax exempt purchase of automobile by excise and value-added taxes.
(3) Where to file and pay – The excise tax return shall be filed
d. Removal of automobiles for test run – Should an automobile be with, and the ad valorem tax due be paid to a bank duly
removed for test run, prior notice of the test should be given to the accredit by the Commissioner of Internal Revenue under
appropriate BIR Office that may allow the test run; provided, that the the jurisdiction of the BIR Office where the taxpayer is
unit under the test run shall be returned to the plant on the same registered or required to be registered. In places where
day. In the event that the manufacturer/assembler failed to return there are no duly accredited agent bank within the
the said unit to the manufacturing/assembly plant within the municipality or city, the excise tax return shall be filed with
prescribed period, the ad valorem tax otherwise due thereon shall and any amount due paid to the duly authorized collection
be immediately due and demandable. agent under the jurisdiction of the Revenue District
Office where the taxpayer is registered or required to be
CHAPTER III – TIME, PLACE AND MANNER OF FILING OF RETURN registered; or to the duly authorized Treasurer of the City or
AND PAYMENT OF THE AD VALOREM TAX Municipality where the assembly/production plant is located
or the person in possession of untaxed automobiles is
SEC. 10. TIME, PLACE AND MANNER OF FILING registered or required to be registered.
RETURN AND PAYMENT OF AD VALOREM TAX ON b. On imported automobiles
AUTOMOBILES. –
All importation of automobiles whether for sale or not shall not be
a. On locally manufactured/assembled automobiles released from customs custody without payment of ad valorem tax
and presentation to the Collector of Customs of the original copy of the
(1) Time of filing of return and payment of the ad valorem tax – appropriate Authority to Release Imported Goods (ATRIG) duly issued
Any person who is liable to pay the ad valorem tax on by the BIR office having jurisdiction over the importer’s principal place of
locally produced or assembled automobiles shall file in business.
triplicate for each place of production a separate
consolidated excise tax return and pay the ad valorem CHAPTER IV – OTHER COMPLIANCE REQUIREMENTS
tax before removal thereof from the place of
production/assembly. SEC. 11. REGISTRATION OF THE BUSINESS OF
of the business operations, be required to register with the BIR Office
In case of payment of ad valorem tax by any person having jurisdiction over his intended place of business and/or place of
other than the local automobile manufacturer/assembler, assembly/production or warehouse.
the excise tax return shall likewise be accomplished and
filed by such person indicating all the pertinent a. Application for a Permit to Engage in Business as
information therein. Assembler, Manufacturer, Importer or Dealer of Automobiles –
Every applicant shall file a written application for the Permit, together
(2) Advance payment or deposit – Every person liable to the with the following supporting documents:
ad valorem tax imposed herein may, at his option, pay to the
Bureau of Internal Revenue an advance deposit, and be allowed (1) Certificate of Registration issued by the BIR;
to remove automobiles from the place of production/assembly
without prior filing of the prescribed tax returns provided that he (2) Certificate of Registration from the Department of Domestic
has sufficient balance of deposits with the BIR to cover full Trade and Industry (DTI), in case of individuals;
payment of the ad valorem tax due on said removals. The
prescribed excise tax return shall be used in remitting the (3) Certificate of Registration from the Securities and Exchange
advance payment or deposit to the BIR. Commission together with Articles of Incorporation and By-
Super di ko maayos format nito pikon na pikon nako laws, in case of corporation and partnership;
to Operate as an excise taxpayer. This number shall likewise be

(4) Plate (?) and Plan of the production/assembly plant or the stamped in the Official Register Books (ORBs) that will be issued to him
importer’s or dealer’s warehouse; by the Commissioner of Internal Revenue or his duly authorized
representative. No two manufacturers/assemblers, importers or dealers
(5) Location map of the production/assembly plant or the operating under the same plant or storage place shall be given the same
importer’s or dealer’s warehouse; assessment number. For
manufacturers/assemblers, importers or dealers operating more than
(6) Bond prescribed under Section 160 of the National Internal one assembly plant, a separate assessment number shall be
Revenue Code (NIRC); and assigned for each and every place of production/warehouse. When
a manufacturer/assembler, importer or dealer retires from business,
(7) Dealership Agreement between Manufacturer/Assembler or his assessment number shall be dropped from the assessment roll.
Importer and Dealer, in the case of dealer. When there is a change in ownership of the production or assembly plant
by reason of sale, transfer, or otherwise, the Commissioner of Internal
b. Processing of Application for Registration to Engage in Business Revenue shall not allow the new owner or transferee thereof to use
the old assessment number of his vendor or transferor, even if the right
Upon receipt of the application, together with the required to use the said assessment number has been included in the sale or
documents attached thereto, the Commissioner of Internal Revenue or transfer. Such assessment number, when dropped from the roll, shall no
his duly authorized representative shall conduct ocular inspection of longer be allowed to be reissued to another production plant or
the desired place of production/assembly and/or warehouse. establishment. The BIR Office having jurisdiction over the taxpayer’s
place of production/assembly and/or warehouse shall keep, a
The production plant where the automobiles are chronological assessment roll per plant or storage place of the
manufactured/assembled shall be enclosed and shall have only one manufacturers/assemblers, importers and dealers of automobiles in
entry/exit so as to eliminate unlawful removal of their respective territories.
manufactured/assembled automobiles. This entry/exit point shall at all
times be easily accessible to all authorized revenue officers. SEC. 12. REGISTRATION OF BRAND/MODEL AND VARIANTS
THEREOF. – Every manufacturer, assembler or importer of automobiles
If the Commissioner of Internal Revenue is satisfied that the shall, before commencement of actual manufacture, assembly or
intended place where the automobiles are manufactured/assembled importation, file with the BIR office where it is required to be registered
and/or stored as well as the bond posted by the applicant comply with an application for brand registration showing the brand name and the
the requirements of the law, the application to engage in business as specific and technical description thereof. The application shall
such shall be approved. be accompanied by the manufacturer’s/assembler’s or importer’s
sworn statement described in the herein succeeding section.
No person shall engage in business as manufacturer,
assembler, producer or importer or dealer of automobiles unless the Manufacturers or assemblers desiring to phase-out or cease
premises upon which the business is to be conducted shall have been production of an existing registered brand and model shall inform the
approved by the Commissioner or his duly authorized representative. BIR office of such intention by informing the appropriate BIR office
within 30 days prior to the date of phase-out.
c. Assessment numbers of manufacturers/assemblers,
importers and dealers of automobiles SEC. 13. MANUFACTURER’S/ASSEMBLER’S OR
IMPORTER’S SWORN STATEMENT. – Every manufacturer/assembler
Every manufacturer/assembler, importer and dealer of automobiles or importer of automobiles shall file with the Commissioner of Internal
shall, for each and every production plant or storage place, be assigned Revenue or his authorized representative on or before the end of
a permanent and official assessment number, distinct for each plant or months of June and December of every calendar year, or for every
storage place. This assessment number must be indicated in its Permit proposed registration of a new brand of automobiles, including its variants,
a sworn statement showing, among others, the following information: alterations, shall be made without first securing the necessary permit
from the Commissioner of Internal Revenue or his duly authorized
a. Name, address, TIN, and Assessment Number of the representative. In case any changes shall be made, the plat and plan, as
manufacturer/assembler or importer; amended, shall be submitted for approval.
b. The names and variants of the different models
manufactured/assembled or imported; SEC. 15. REQUIREMENTS BEFORE REMOVAL OF
c. Wholesale price of each model and variants to dealers; AUTOMOBILES. – Prior to every actual removal of automobiles, the
d. Suggested retail price of each model and variants; following provisions shall be required to be complied with:
e. Production/assembly/importation costs and all other expenses
incurred or to be incurred until the automobile is finally sold (e.g., a. Preparation of Withdrawal Certificate
materials, labor, overhead, selling and administrative expenses,
etc.) per brand or model; and The BIR Office having jurisdiction over the
f. Value of car airconditioners, radio and mag wheels including the production/assembly plant shall prepare an official Withdrawal Certificate
cost of their installation. for every removal of automobile units form the place of production,
irrespective of destination, and shall indicate therein the establishment’s
The manufacturer/assembler or importer shall file an amended schedule, paragraph and assessment number; the name, address and
sworn statement of the selling price of any brand/model of automobiles TIN of the manufacturer/assembler of automobiles; the name, address
whenever there is a change on the actual selling price thereof. The and TIN of the consignee; the date of removal; the intended place of
amended sworn statement shall be filed before the said brand/s or destination of the shipment; the quantity and description of the type or
model/s of automobiles may be removed from the place of production or model removed; the ad valorem tax paid, where applicable. The
assembly for sale to dealer or the public at the new selling price or manufacturer/assembler or his duly authorized representative shall
before removal thereof from the customs custody. No changes in the attest to the correctness of the entries therein. The Withdrawal
selling price of the automobiles shall be allowed unless the corresponding Certificates shall be issued in the consecutive numbers and the
amended sworn statement shall have been submitted to the corresponding entries in the Official Register Books shall be made
Commissioner of Internal Revenue. immediately after the issuance thereof.
The sworn statement shall be subject to verification by the b. Alteration of Prepared Withdrawal Certificates
Commissioner of Internal Revenue or his duly authorized representative
to determine its correctness and/or accuracy. For this purpose, the In case a change in the prepared Withdrawal Certificate is
Commissioner of Internal Revenue or his duly authorized representative necessary, the manufacturer/assembler shall request for the
may examine and/or require the production of the issuance of a new Withdrawal Certificate in lieu thereof. The old or
manufacturer’s/assembler’s or importer’s books of accounts or such previously issued Withdrawal Certificate shall be surrendered to and
other documents from which the accuracy and correctness of the sworn officially cancelled by the BIR Office or the internal revenue officer
statement may be determined. In case it is determined that the sworn assigned at the establishment immediately after the replacement
statement does not accurately and correctly reflect the prices of certificate has been issued therefore. The said internal revenue officer
automobiles, the taxpayer shall be assessed of the deficiency excise tax, shall render a report to the Commissioner of Internal Revenue on the
inclusive of surcharges and interests. matter and such will form part of his monthly report.
SEC. 14. PROHIBITION AGAINST CHANGES OR c. Withdrawal Certificate to accompany shipment.

ALTERATIONS. – No changes, alterations, or new constructions shall
be made in the establishment as per plat and plan originally approved The Withdrawal Certificate shall at all times accompany the
by the Commissioner of Internal Revenue or his duly authorized shipment of the automobiles which it covers and shall be attached to
representative, nor alterations of new equipment, transferring or putting up the bill of lading if the said units are shipped through a conveyance or
of new warehouse or storage facilities, or any other form of changes or mode of transportation not owned or operated by the
manufacturer/assembler-consignor. automobiles are exempt from excise tax, the assigned internal
revenue officer shall check and verify whether the tax-exempt
Any shipment of automobiles not properly accompanied by the removals are properly covered by the requisite permits.
prescribed Withdrawal Certificates shall be deemed prima facie evidence
of illegal removal thereof. (3) To issue the prescribed Withdrawal Certificates to document
authorized removals of raw materials and finished goods from the
SEC. 16. SUPERVISION AND CONTROL OF THE place of production or storage.
ASSEMBLY PLANT OR PLACE OF PRODUCTION. – For internal
revenue purposes, the place of production or assembly plant and (4) To maintain independent auxiliary books and records of the
storage of automobiles are under the joint custody of the Bureau of movements of raw materials and finished goods within the production
Internal Revenue and the manufacturer/assembler or importer concerned. or storage plant and ensure up-to-date entries thereto. These
records shall always be made available to any other authorized
a. Operations of the Establishment internal revenue officers tasked to conduct surprise audit in the
maintenance thereof.
The manufacturing/assembly plants of automobiles shall
remain closed until the authorized internal revenue officer on duly (5) To check, at the first hour of the business day, the actual
thereat is present and no assembled units or raw materials shall be stocks of raw materials and finished units and determine
removed from their respective premises in the absence of such whether they tally with the balances in the corresponding
internal revenue officer. Unless Official Register Book maintained by the taxpayer and the
otherwise especially allowed by the Commissioner of Internal Revenue, auxiliary books he keeps for the purpose.
automobiles shall be removed from the place of production/assembly
either between 7:00 a.m. to 4:00 or 8:00 a.m. to 5:00 p.m. (6) To receive the prescribed Manufacturer’s Sworn Declaration to be
filed by the manufacturer/assembler concerned; to administer the
b. Assignment of Revenue Officers oath of affiant or signatories thereon; and forward the same to the
concerned BIR Office having jurisdiction over the
The Commissioner of Internal Revenue or his duly manufacturing/assembly plant.
authorized representative may assign internal revenue officer(s) as the
need so requires for an effective supervision of the operations of (7) To render his report to his superior any violation of the laws and
automobile, for excise tax purposes. The duties of revenue officer(s) regulations that he may uncover together with the evidence
assigned thereat shall be, but not limited to, the following functions: necessary to prosecute the case.
(1) To monitor receipts of raw materials, transfers of raw materials to (8) To submit weekly and monthly reports of production and
production, and the actual production of assembled automobiles, removals of automobiles and the collection of ad valorem taxes; and
and check that such transactions are properly recorded in the
Official Register Books. No receipts, transfers or removals of such (9) To perform such other functions as may be required by the
materials and finished goods shall be allowed without the presence Commissioner of Internal Revenue or any of his authorized revenue
of internal revenue officers assigned thereat who shall check and officials.
verify the brand/model, number of units and source of raw
materials/finished goods being received, transferred and/or removed. The manufacturer/assembler shall provide suitable office space and
equipment for the use of the internal revenue officers assigned thereat,
(2) To check whether or not the excise tax due on each and every who shall render eight (8) hours service daily, excluding Saturdays,
removal of automobiles are duly paid by verifying the covering Sundays and holidays. Such office space shall be strategically located in
delivery invoice, the duly validated excise tax return evidencing a place that is adjacent to the production and removal areas. It shall be
payment of the excise tax. In case where the removals of designed in such a manner that the assigned revenue officers can
have a clear and unobstructed view of the taxpayer’s production transferred under bond, filed on a case-to-case basis, by the assembler
and removal activities. Should overtime services be required, an or manufacturer to any processing plant for initial assembly or further
advance notification to that effect should be filed with the assembly into finished units. The bond shall answer for any internal
concerned BIR Office. revenue tax arising out of losses, or in such event that the
manufactured/assembled automobiles are not returned to the original
c. Loading and unloading of automobiles and raw materials transferor within a reasonable time after it is manufactured/assembled.
Such transfer shall only be allowed if the sub-contractor or sub-assembler
No loading and unloading of automobiles or raw materials to and is duly registered as such with the BIR and is a holder of a valid Permit
from the storage premises or warehouses of the to Operate as an excise taxpayer. For this purpose, the sub-
manufacturing/assembly plants shall be made without the presence of contractor or sub-assembler shall likewise be subjected to all
the internal revenue officers assigned at the said plant who shall verify the administrative requirements of these Regulations.
and check the brand/model of units of the automobiles or raw materials
loaded or unloaded. SEC. 18. RE-ASSEMBLY/REPAIR OF “OFF-SPEC”
OR DAMAGED AUTOMOBILES. – No automobiles which are below
d. Physical transfers of raw materials specification or damaged shall be returned from the assembly plant or
place of manufacture/assembly for repair or re-assembly without prior
Transfers of raw materials from one production plant to another written permit from the Commissioner of Internal Revenue or his
production premises shall not allowed unless, in addition to the duly authorized representative. The request for permit shall contain the
requisite permits and other documentations required under existing following:
laws and regulations, these are accompanied by an authorized
internal revenue officer specifically designated for the purpose with the a. Model, number of units, engine and chassis numbers of “off-spec”
following specific duties, among others, to wit: or damaged automobiles;
b. Certified photocopy of the Withdrawal Certificate covering the
(1) To check whether or not the transfer or raw materials from the place removal of the original shipment; and
of source to place of destination is covered by the requisite
permit granted by the appropriate BIR Office. c. Other information the applicant may wish to state in the request.
(2) To check whether the Withdrawal Certificate and other documents The return of the automobiles for re-assembly or repair in the
covering such delivery or transfer indicate the correct number of assembly plant shall be supervised by the internal revenue officer
units authorized to be transferred. who will submit to the BIR Office having jurisdiction over the
manufacturing/assembly plant a certificate duly confirmed as correct by
(3) To accompany shipment of raw materials or finished units from the the authorized representative of the manufacturing/assembly plant
place of origin to intended destination and to have the receipt stating, among others, the number of units, model, engine and chassis
thereof acknowledged by the owner/operator of the said number, and date of return to the plant.
establishment or his duly authorized representative.
The total number of units of returned automobiles for re-
SEC. 17. TRANSFER OR SALE OR DISPOSITION OF RAW assembly or repair received in the manufacturing/assembly plant must be
MATERIALS, SEMI-PROCESSED AND/OR INTERMEDIATE UNITS. - entered in the Official Register Books as “Raw Material Received” in the
No person or entity engaged in the manufacture/assembly of automobiles column provided for. The ad valorem tax for the removal of re-
shall remove, transfer, sell, loan or dispose such raw materials without assembled or repaired automobiles must be paid in the same manner
prior approval from the Commissioner of Internal Revenue. as regularly removed finished products.
Upon prior permit from the Commissioner of internal Revenue, SEC. 19. STORAGE OF TAX-PAID AUTOMOBILES. - When
raw materials, semi-processed and/or intermediate units may be the ad valorem tax has been paid on the automobiles, the same shall
not thereafter be stored or permitted to remain in the automobiles

manufacturing/assembly plant or place of production. All automobiles subjected to ad valorem tax that are stored or allowed to remain in th
The Official Register Books to be kept and maintained
SEC. 20. REGISTRATION OF AUTOMOBILES. - No by the manufacturers/assemblers of automobiles shall basically consist
automobile, whether locally manufactured/assembled or imported, shall of the following:
be accepted for original registration or for registration of subsequently
sold, transferred or exchanged automobile by a tax-exempt person (1) Raw Materials Account
or entity to a non-exempt person or entity with the Land Transportation
Office unless proper tax clearances shall have been secured from the (a) Debit Side – On this side shall be recorded all raw materials
Bureau of Internal Revenue or the Bureau of Customs, as the case such as, but not limited to CKD and other local raw materials
maybe. received and intended to form part of, or to be used in the
manufacture or assembly of automobiles. This Account shall
SEC. 21. BOOKS AND RECORDS TO BE KEPT AND reflect the kind of raw materials received, the date of receipt,
MAINTAINED. – Every person or entity engaged in the the name and address of the supplier, the model of the vehicle
manufacture/assembly or importation or sale as dealers of automobiles for which the raw material is intended. For this purpose, raw
shall keep Official Register Books and such other forms or records that material ledgers of the manufacturer/assembler shall form
may be required by the Commissioner of Internal Revenue, which must part of this Account as subsidiary books.
be kept within the place of production/importer’s warehouse and shall at
all times be made available for inspection by duly authorized internal (b) Credit Side – On this side, shall be recorded the date of
revenue officer(s). requisition, document reference, number of units issued and the
model of the vehicle for which the raw material issued is
a. Installation of Official Register Books intended. Any sale,
There shall be entered in the ply leaf of the initial Official Register transfer or removal of raw materials other than issuances for use
Books at the time of delivery to each manufacturer, assembler, or in the manufacturing shall be separately recorded in the credit
importer of automobiles the following information: column.
(1) The date of delivery of the books, the name, address, TIN, paragraph, (2) In-Process Account
schedule and assessment number of the establishment;
(a) Debit Side – On this side shall be recorded all raw materials
(2) The beginning inventory, whenever applicable; and issued to production and the date of issuance thereto.
(b) Credit Side – On this side shall be recorded the date of
(3) A certificate signed by the internal revenue officer delivering the completion of manufacture/assembly and the quantity of
same and attested to by the owner or manager that all the pertinent manufactured/assembled automobiles
provisions of the law and regulations governing the operations of
establishment, the use of the said Official Register Books, and the (4) Production and Removals Account
manner of handling the units in the factory or warehouse have been
fully explained to such manager and owner and that he fully (a) Debit Side – On this side, for every type or model of
understands the same and knows the penalties imposed for the completely manufactured/assembled automobiles, on which the
disregard thereof. The original copy of this certification shall be same excise tax rate will apply, there shall be maintained a
forwarded to the concerned BIR Office, the duplicate copy shall be separate production and removals account. The beginning
attached permanently and shall form part of the Official Register inventory taken upon installation of the Official Register Books
Books. shall be the initial entry on the production and the date the
vehicle was received or removed from the
b. Records to be kept by the manufacturers/assemblers of manufacturing/assembly premises.
(b) Credit Side – On this side, removal of vehicles from the (2) On the Credit Side – Date of sale, name and address of buyer,
place of production shall be recorded indicating therein the actual selling price and description of automobiles sold and number of
date of removal, the number of units, the model, engine units sold.
displacement, engine number, body/chassis number, name
of collection agent bank and the bank validation number, (3) Resume – Totals of the beginning balances, purchases during the
date paid and amount paid, or if removed free of tax, the date month, sales for the month, and the ending balances of automobiles
of the issuance of Certificate of Exemption or permit granted by per brand/model.
the Commissioner of Internal Revenue.
(c) Resume – Totals of the beginning balances, production during e. Monthly Transcript Sheets to be Rendered
the month, removals for the month, and the ending
balances of automobiles per brand/model. Every manufacturer/assembler, importer or dealer of
automobiles shall prepare in three (3) sets a true and exact transcript of
c. Records to be kept by importers for resale all entries made on both the debit and credit sides of his Official
Register Book during the preceding month, including all entries made
Every person or entity engaged in the importation of by the internal revenue officer, and shall strike a balance in said
automobiles for purposes of resale shall keep an Official Register Book books and on said transcript sheets showing the balance of the stocks
wherein shall be entered the following: on hand, if any. Said balance of stock shall be carried over as the
first entry from the next month of the Official Register Books. The original
(1) On the Debit Side – Date of arrival of importation, or the first set should be transmitted and received by the concerned BIR
subsidiary document reference (e.g. Customs Formal th
Office not later than the 8 day of the succeeding month. The second
Entry Declaration), description of automobiles, number of set shall be submitted to the Chief, LT Field Operations Division, BIR
units actually received, amount of ad valorem taxes paid, National Office, and the third set to remain on file with the
number/validation of the covering payment at BOC, and manufacturer/assembler, importer or dealer.
date of payment. Each manufacturer/assembler, importer or dealer or his duly
(2) On the Credit Side – Date of removal/sale, name and address authorized representative, shall certify at the foot of each page of his
of consignee, description of the automobile removed, number of Official Register Books and copies of transcript sheets that the entire
units and remarks. entries therein are true and correct and are exact copies of the entries
contained in the original records and subsidiary papers of the
(3) Resume - Totals of the beginning balances, importation during establishment.
the month, sale for the month, and the ending balance per
brand/model of automobiles. With the attestation of the manager or his representative
therein, the revenue officer assigned in the establishment shall
d. Records to be kept by automobile dealers submit, together with the transcript sheets, a summary of operations
indicating therein the number of units removed per brand/model and the
Every person or entity engaged in the business as dealer of taxes paid thereon. A comparative statement of excise tax collection
automobiles shall keep and maintain an Official Register Book during the month shall likewise be prepared and submitted by the
containing the following information: concerned revenue officer, analyzed with that of the same month
of the previous year with his remarks and recommendations
(1) On the Debit Side – Date of purchase of automobiles, document annotated therein. These reports shall be distributed in the same
reference (e.g. Sales Invoice/Delivery Receipt), description of manner as the monthly transcript sheets of the Official Register Books.
automobiles and number of units actually received and the name and
address of supplier.
CHAPTER V – CONDUCT OF STOCKTAKING, VERIFICATION AND place where said units are manufactured/assembled, stored or kept and
INSPECTION shall, upon demand, produced said articles for inspection for purposes of
these Regulations.
SEC. 22. STOCKTAKING. – After every six (6) months
reckoned from the date of the initial or last stocktaking, the BIR shall CHAPTER VI – OTHER PROVISIONS
conduct a general or total physical inventory by actual count and/or
volume of the entire stock of raw materials (including in-process or SEC. 24. TRANSITORY PROVISIONS. – In light of
intermediate units) and finished automobiles then existing and on hand, in
the presence of the representative of the manufacturer/ assembler or
the amendment by the Act of Sec 149 of the NIRC, all
importer concerned who shall jointly attest to the fact of witnessing and manufacturer’s/assembler’s or importers are hereby required to
verifying the results thereof by affixing their signatures on the attestation file an updated manufacturer’s/assemblers or importer’s sworn
clause in the inventory certificate. statement for each brands/models of automobiles as of the day
Any overage or shortage found upon the reconciliation of the
immediately before the date of effectivity of these Regulations.
results with the balances reflected in the Official Register Book as of The updated manufacturer’s/assembler’s or importer’s sworn
the date and hour of stocktaking should be debited or credited, as the statement shall be submitted to the Commissioner of Internal
case maybe, on the proper column of the Official Register Book and Revenue, thru the Chief, Large Taxpayer’s Assistance Division
signed by the internal revenue officer. The
corresponding written report and recommendation on the results of II within seven working (7) days from the date of effectivity of
each and every stocktaking conducted shall be submitted to the these Regulations. This sworn statement shall likewise be subjected to
Commissioner of Internal Revenue or his duly authorized representative. verification as required in Section 13 of these Regulations.
Notwithstanding the foregoing routine schedule of stocktaking, All manufacturers/assemblers or importers shall submit a
the Commissioner of Internal Revenue may, at any time, cause a duly notarized list of inventory on-hand of completely built-up
general or total stocktaking to be conducted. Moreover, a limited or (CBU) automobiles, including Completely-Knocked-Down (CKD) and
partial physical inventory of certain manufactured/assembled brands or Semi-Knocked Down (SKD) units, that are located within the
raw materials may be caused to be undertaken at any time it is manufacturing/assembly plant or warehouse or the customs’
deemed necessary. The manufacturer/assembler, importer or dealer premises for which import entries have been filed as of the day
shall extend all the necessary assistance to the duly authorized immediately before the date of effectivity of these Regulations,
revenue officers to facilitate the stocktaking. indicating therein the engine, body and chassis numbers thereof. The
list shall be submitted to the Commissioner of Internal Revenue, thru
SEC. 23. BOOKS AND RECORDS TO OPEN TO INSPECTION. the Chief, Large Taxpayers Assistance Division II within seven working
– All the books and records required by these regulations to be kept by (7) days from the date of effectivity of these Regulations. Failure to
manufacturers/assemblers, importers and dealers of automobiles shall submit the inventory list on the part of the manufacturers/assemblers/
be kept at all times in the place of production or place of business, importers shall be construed that the said manufacturers/assemblers/
whenever applicable, subject to inspection by any authorized importers do not have any inventory on hand of CBUs, CKDs and SKDs
internal revenue officer, and upon demand, shall be immediately as of the day immediately before the date of effectivity of these
produced and submitted to such inspection. All entries in the said books Regulations; and
and records shall be made in ink in a neat and legible manner. The
manufacturer, assembler, importer or dealer shall give the A stocktaking of the aforesaid inventories shall be
necessary explanations regarding the entries contained in the books conducted by the Bureau of Internal Revenue for purposes of
and records inspected, when so required by the internal revenue officer validating the said list, within five (5) days from the date of submission
making the inspection. Said establishments shall also allow any thereof.
authorized internal revenue officer making any inspection to enter any
Likewise, the BIR shall establish the price indices at the time (b) CARBONATED WINE – shall refer to an effervescent wine
of the effectivity of these Regulations to serve as the basis for the initial artificially charge with carbon dioxide and containing more than
adjustment or revision of the brackets of the manufacturer’s/assembler’s 0.392 of carbon dioxide per 100 milliliters of wine;
or importer’s selling price.
(c) CIGARETTES PACKED BY HAND – shall refer to the manner of
SEC. 25. PENAL CLAUSE – Violations of these regulations packaging of cigarette sticks using an individual person‟s hands
shall be subjected to the pertinent penalties under Title X of the
and not through any other means such as a mechanical device,
National Internal Revenue Code of 1997, as amended.
machine or equipment;
SEC 26. REPEALING CLAUSE. – Revenue Regulations No.
(d) COMPOUNDED LIQUORs – shall refer intoxicating beverages
14-97, 14-99 and 4-2003 as amended are hereby revoked. All
existing rulings, orders, issuances, or portions thereof which are whatever concocted by or resulting from mixture of or addition to
inconsistent with the provisions of these Regulations are also distilled spirits, either before or after rectification, of any coloring
hereby revoked or modified accordingly. matter, flavoring extract or essence or other kind of wine, liquor or
other ingredient;
SEC. 27. EFFECTIVITY CLAUSE. - These Regulations
shall take effect after fifteen (15) days following publication in a (e) NET RETAIL PRICE – shall refer to the price at which the
newspaper of general circulation. alcohol and tobacco products are sold on retail in at least five (5)
major supermarkets in Metro Manila, excluding the amount
intended to cover the applicable excise tax and the value-added
EXCISE TAX tax. For alcohol and tobacco products which are marketed
outside Metro Manila, the „net retail price‟ shall mean the price at
which the alcohol and tobacco products are sold in at least five
REVENUE REGULATIONS NO. 17-2012 (5) major supermarkets in the region excluding the amount
(December 21, 2012) intended to cover the applicable excise tax and the value-added
tax;
SECTION 1. SCOPE. – Pursuant to the provisions of Section 244 in
relation to Section 245 of the National Internal Revenue Code (NIRC) of (f) SPARKLING WINE OR CHAMPAGNE– shall refer to an
effervescent wine containing more than 0.392 grams of carbon
1997, as amended, these Regulations are hereby promulgated to
implement the provisions of Republic Act No.10351, “An Act Restructuring dioxide per 100 milliliters of wine resulting solely from the
secondary fermentation of the wine within a closed container;
The Excise Tax On Alcohol And Tobacco Products By Amending Sections
1 41, 142, 143, 144, 145, 8, 131 And 288 of Republic Act No. 8424, (g) STILL WINE – shall refer to wine containing not more than 0.392
Otherwise Known As The National Internal Revenue Code Of 1997, as of carbon dioxide per 100 milliliters of wine; and
amended By Republic Act No. 9334, And For Other Purposes”, as well as
to clarify certain provision of existing revenue regulations on alcohol and (h) SUGGESTED NET RETAIL PRICE – shall refer to the net retail
tobacco products. price at which locally manufactured or imported alcohol or
tobacco product is intended to be sold by the manufacturer or
SEC. 2. DEFINITION OF TERMS. – For purposes of these Regulations,
importer at retail in major supermarkets or retail outlets in the
the following words and phrases shall have the meaning indicated below: prescribed minimum number of Revenue Regions for brands with
(a) ACT – shall refer to Republic Act (R.A.) No. 10351 national or regional markets.
SEC. 3. REVISED RATES AND BASES OF THE SPECIFIC TAX. – with different sizes of container (e.g., one liter, 500 ml., 330 ml., etc.,
There shall be levied, assessed and collected an excise tax on alcohol or for alcohol products)
tobacco products, in accordance with the following schedule: (e) One product is sold in a regular basis while the other product is
introduced in a limited basis such as a special edition, for specific
(There is an detailed table in this section, so as not to distort the format
and due to difficulty of replicating the table, please see end of this RR. occasion and other similar instances
SEC. 5. DOWNWARD RECLASSIFICATION OF FERMENTED
SEC. 4. TAX CLASSIFICATION OF ALCOHOL AND TOBACCO LIQUORS. - Any downward reclassification of any fermented liquor
PRODUCTS. – Any alcohol or tobacco product that is introduced in the product that is duly registered with the BIR at the time of effectivity of the
domestic market on or after the effectivity of this Act shall be initially tax Act which will reduce the tax imposed herein, or the payment thereof, shall
classified according to their suggested net retail prices as declared in the be prohibited. Starting January 1, 2014, the applicable tax rate shall be
prescribed manufacturer’s or importer’s sworn statement, subject to the increase by four percent (4%) annually: Provided, however, it shall not be
initial validation and revalidation requirements prescribed under Revenue lower than the rates prescribed under Section 3 of these Regulations.
Regulations No. 3-2006, as amended by Section 6 of these Regulations. ILLUSTRATION:
In case of an alcohol and or tobacco product that was duly registered with No. 3 FACTS: MAA, Inc., a beer manufacturer, produces the following:-
the BIR before the effectivity of the Act but was not tax classified by the LUV brand, NRP Php21.50 per liter and currently taxed atPhp15.49 under
BIR according to the new tax rates provided under the Act, such product Republic Act (RA) No. 9334
shall be treated as a newly introduced product upon re-introduction -GIV brand, NRP of Php51.50 per liter and currently taxed at Php20.57
thereof in the domestic market after the effectivity of the Act. Accordingly, under RA No. 9334
the tax classification thereof shall be based on the suggested net retail Question: What is the applicable excise tax rate on MAA, Inc.’s LUV and
price declared in the aforesaid sworn statement, subject to the initial GIV brands on January 1, 2013 and January 1, 2014?
validation and revalidation requirements. Answer: Due to the prohibition on downward reclassification on fermented
The proper tax classification of all fermented liquors and tobacco products, liquors, MAA, Inc. should apply the following tax rates:
whether registered before or after the effectivity of the Act, shall be LUV Brand
determined every two (2) years from the date of effectivity of the Act.
For purposes of tax classification, alcohol or tobacco products, whether Jan. 1, 2013: Applicable tax rate is P15.49 per liter instead of the
specific tax rate of Php15.00 per liter (since NRP of Php 21.50 is
imported or domestically manufactured, shall be taxed according to their
less than Php50.60) classified imposed under the Act.
individual brand name (whether or not with prefix or suffix), color and/or
design of label (such as logo, font, picturegram, and the like), manner Jan. 1, 2014: Applicable tax rate is P17.00 per liter instead of the
and/or form of packaging or size of container of the product. Accordingly, specific tax rate of Php1 6.10 (Php15.49 x 104%).
the following instances, but not limited to, shall be taxed differently:
(a) Two products bearing exactly the same root name but with GIV Brand
Jan. 1, 2013: Applicable tax rate is P20.57 per liter instead of the
different suffixes or prefixes
specific tax rate of Php20.00 per liter (since NRP of Php 51.50 is
(b) Two products bearing exactly the same brand name but with more than Php50.60) classified imposed under the Act.
different colors and/or design of labels
(c) Two products bearing exactly the same brand name and label but Jan. 1, 2014: Applicable tax rate is P21.39 (Php20.57x104%) per
with different forms of packaging (e.g., soft packs and hard packs for liter instead of the specific tax rate of Php21.00.
cigarettes, or in bottles, cans or kegs for alcohol products) SEC. 6. REVISED REVALIDATION PERIOD FOR NEWLY
(d) Two products bearing exactly the same brand name and label but INTRODUCED ALCOHOL OR TOBACCO PRODUCTS. – The
revalidation of the suggested net retail price of a newly introduced alcohol which he is the owner or the profits thereof of which he has an interest, the
or tobacco product shall be conducted after the end of nine (9) months selling price in such establishment shall constitute the wholesale price.
from the initial validation. The initial validation and revalidation of the Should such price be less than the said costs and expenses, a
suggested net retail price of all newly introduced alcohol and tobacco proportionate margin of profit of not less than ten percent (10%) thereof
products shall be conducted exclusively by the authorized representatives shall be added to constitute the wholesale price. With respect to imported
of the BIR. alcohol or tobacco products, the cost of importation shall, in no case, be
SEC. 7. SUBMISSION OF SWORN STATEMENT. – Every local less than the value indicated in the reference books or any other reference
manufacturer or importer of alcohol and tobacco products shall a duly materials used by the BOC in determining the proper valuation of the
notarized manufacturer’s or importer’s sworn statement for alcohol or imported products, or the dutiable value as defined under the Tariff and
tobacco product showing, among others, the following information: Customs Code of the Philippines, as amended, whichever, is higher:
(a) Name, address, TIN and assessment number of the manufacturer Provided, finally, That, in case the newly introduced alcohol or tobacco
or importer; product shall be subsequently marketed in another region/other regions
(b) Complete root name of the brand as well as the complete brand before the proper tax classification is finally determined by the BIR, an
name with modifiers, if any; updated sworn statement shall be submitted to the appropriate BIR Office
(c) Complete specifications of the brand detailing the specific before the same shall be removed from the place of production.
measurements, weights, manner of packaging, etc.; The sworn statement prescribed herein shall be subject to verification
(d) Name(s) of the region(s) where the brand is/are to be marketed; by the BIR to validate its contents with respect to its accuracy and
(e) Wholesale price per case, gross and net of VAT and excise tax; completeness. In the event that the contents thereof are found to be
(f) Suggested retail price, gross and net of VAT and excise tax, per inaccurate and/or incomplete, the taxpayer shall be required to submit a
pack or per bottle, as the case may be; revised sworn statement, without prejudice to the imposition of
(g) Detailed production/importation costs and all other expenses corresponding sanctions and penalties.
incurred or to be incurred until the product is finally sold (e.g. SEC. 8. UNDERSTATEMENT OF SUGGESTED NET RETAIL PRICE. –
materials, labor, overhead, selling and administrative expenses) per The understatement of the suggested net retail price by as much as fifteen
case; percent (15%) of the actual net retail price shall render the manufacturer
(h) Applicable rate of excise tax per unit of measure or value, as the or importer liable for additional excise tax equivalent to the tax due and
case may be; and difference between the understated suggested net retail price and the
(i) Corresponding excise and value-added taxes per case. actual net retail price.
The manufacturer’s or importer’s sworn statement shall be submitted ILLUSTRATION:
as a supporting document to the prescribed application for the initial No. 4 – CPI Corp., a cigarette manufacturer, submitted a sworn statement
registration of alcohol or tobacco product and thereafter submit an of a cigarette product, “Mirage”, wherein the tax rate to be imposed is
updated sworn statement on or before the end of the months of June and P12.00 per pack based on the Suggested Net Retail Price (SNRP),
December of the year: Provided, however, That whenever there is a excluding VAT and excise, of P 9.50 per pack. After three months from the
change in the cost to manufacture, produce and sell the brand or change date of submission of the sworn statement, the BIR conducted a price
in the actual selling price of the brand, the updated sworn statement shall survey and found out that the Actual Net Retail Price (ANRP), excluding
be submitted at least five (5) days before the actual removal of the product VAT and excise tax is actually P12.00 subject to the higher excise tax rate
from the place of production or release from the customs‟ custody, as the of P 25.00 per pack. The total volume removed by CPI Corp. on the
case may be: Provided, further, That if the manufacturer or importer sells product is 10,000 packs from the time of its removal up to the time of the
or allows such goods to be sold at wholesale in another establishment of price survey. Compute the total deficiency excise tax and penalties of CPI
Corp., if there are any. ALCOHOL OR TOBACCO PRODUCTS BY DUTY FREE PHILIPPINES,
Step 1. Determine whether or not the understatement of the SNRP is DUTYFREE SHOPS, OR INTO ECONOMIC ZONES AND FREEPORT
equal to or more than 15% of the ANRP ZONES. – The provision of any special or general law to the contrary
notwithstanding, the importation of alcohol or tobacco products, even if
SNRP per Sworn Statement P 9.50
destined for tax and duty-free shops, Duty Free Philippines or into the
ANRP per Validation 12.00
chartered or legislated economic and/or freeport zones shall be subject to
Difference P 2.50
excise tax pursuant to the provisions of the Act. : Provided, however, That,
Percentage of understatement
upon the effectivity of the Act, the importation of any alcohol or tobacco
[(P2.50/ P9.50) x 100%] 26.32%
product bearing suffixes or prefixes to the root name, color and/or design
of the label (such as logo, font, picturegram, and the like), manner and/or
Since the understatement of 26.32% is more than 15%, CPI Corp is,
form of packaging or size of container of the product that is different from
therefore, liable to the additional penalty for understatement of
that already registered and locally being sold in the domestic market shall
suggested net retail price.
be treated as a newly introduced product. Accordingly, the same shall be
initially classified according to its suggested net retail price, subject to the
Step 2. Compute the deficiency excise and interest
validation and revalidation requirements prescribed by these Regulations.
Tax rate per ANRP P 25.00
SEC. 10. ADDITIONAL EXPORT AND IMPORT REQUIREMENTS FOR
Less: Tax Rate paid per SNRP 12.00
TOBACCO PRODUCTS. - No tobacco products manufactured in the
Deficiency Tax 13.00
Philippines and produced for export shall be removed from their place of
Add: Additional Excise Tax
manufacture or exported without posting of an export bond equivalent to
Excise Tax Due on ANRP 25.00
the amount of the excise tax due thereon if sold domestically; provided,
Difference (SNRP-ANRP) 2.50 27.50
however, that tobacco products for export may be transferred from the
Total adjusted tax due per pack 40.50
place of manufacture to a bonded facility, upon posting of a transfer bond,
Multiplied by volume removed 10,000.00
prior to export. Tobacco products imported into the Philippines and
Total Adjusted Deficiency tax due P 405,000.00
destined for foreign countries shall not be allowed entry without posting a
Add: 20% Interest [P405,000x 20% x 3/12] 20,250.00
bond equivalent to the amount of customs duty, excise and value-added
Total adjusted deficiency excise tax and
taxes due thereon if sold domestically.
interest P425,250.00
SEC. 11. REVISED PROVISIONS FOR THE MANNER OF PACKAGING
Step 3. Compute the additional penalty to CPI Corp. as a juridical person
OF CIGARETTES. – All Cigarettes whether packed by hand or packed by
machine shall only be packed in twenties (20s), and through other
Total adjusted deficiency excise tax
and interest P 425,250.00 packaging combinations which shall result to not more than twenty sticks
of cigarettes: Provided, That, in case of cigarettes packed in not more than
Additional penalty as a juridical
entity [P425,250 x 3] P 1,275,750.00 twenty sticks, whether in 5 sticks, 10 sticks and other packaging
combinations below 20 sticks, the net retail price of each individual
package of 5s, 10s, etc. shall be the basis of imposing the tax rate
Step 4. Compute the total amount due from CPI Corp.
prescribed under the Act.
Total adjusted deficiency excise tax
and interest P 425,250.00
SEC. 12. TRANSITORY PROVISIONS. – Upon the effectivity of the Act,
Additional penalty as a juridical entity
the following transitory provisions shall be strictly observed by all
[P425,250 x 3] 1,275.750.00
concerned:
Total Amount Due P 1,701,000.00
(a) All alcohol and tobacco products existing in the market at the time
of the effectivity of this Act shall be initially classified according to
SEC. 9. EXCISE TAX TREATMENT OF ALL IMPORTATIONS OF
the tax rates prescribed by the Act based on the 2010 price
survey of these products conducted by the Bureau of Internal assessed pursuant to the provisions of the Act;
Revenue (BIR), subject to the prohibition against downward
reclassification on fermented liquors: Provided, however, That in (c) Any person liable for any of the acts or omission
case of alcohol and or tobacco products that were introduced prohibited under the Act and implemented by these Regulations
after the 2010 price survey but before the effectivity of the Act, shall be criminally liable and penalized under Section 254 of the
their respective tax classification or rate shall be based on the NIRC of 1997, as amended; and
suggested net retail price declared in latest sworn statement filed
by the local manufacturer or importer, as the case maybe. The (d) If the offender is not a citizen of the Philippines, he shall
Commissioner of Internal Revenue shall issue a Revenue be deported immediately after serving the sentence, without
Memorandum Circular containing the tax classifications/rates further proceedings for deportation.
applicable to all alcohol and tobacco products existing in the
market at the time of the effectivity of the Act. SEC. 14. SEPARABILITY CLAUSE - If any of the provisions of these
Regulations is declared invalid by a competent court, the remainder of
(b) For purposes of determining the actual volume of locally these Regulations or any provision not affected by such declaration of
manufactured alcohol and tobacco products that shall be imposed invalidity shall remain in force and effect.
with the new tax rates upon the removal thereof from the place of
production, an actual stocktaking shall be conducted by the BIR SEC. 15. REPEALING CLAUSE. – All regulations, rulings, orders, or
on all stocks of locally manufactured alcohol and tobacco portions thereof which are inconsistent with the provisions of these
products held in possession by the manufacturer as of the Regulations are hereby revoked, repealed or amended, accordingly.
effectivity of the Act.
SEC. 16. EFFECTIVITY. – These Regulations shall take effect upon its
(c) The specific tax that was paid on the physical inventory of ethyl publication in leading newspapers of general circulation.
alcohol held in possession by manufacturers of compounded
liquors as of the effectivity of the Act subsequently used as raw
materials in the production of compounded liquors shall not be
entitled to tax credit/refund or shall not be deducted from the total
excise tax due on compounded liquors.
SEC. 13. PENALTIES. – Violations of these Regulations shall be subject

to the corresponding penalties under Title X of the NIRC of 1997, as
amended. Further, the following penalty provisions are hereby prescribed
pursuant to the provisions of the Act, as follows:
(a) Any manufacturer or importer who misdeclares or

misrepresents in his or its sworn statement herein required any
pertinent data or information shall, upon discovery, be penalized
by a summary cancellation or withdrawal of his or its permit to
engage in business as a manufacturer or importer of alcohol or
tobacco products;
(b) Any corporation, association or partnership liable for any

of the acts or omissions in violation of the Act and implemented
by these Regulations shall be fined treble the aggregate amount
of deficiency taxes, surcharges and interest which may be
DOCUMENTARY STAMP TAX the benefit of such due-bills, certificates of obligation or stock, or to secure
the future payment of money, or for the future transfer of any due-bill,
(As Amended by RA Nos. 9243, 9648, & 10001) certificate of obligation or stock, there shall be collected a documentary
stamp tax of Seventy five centavos (P0.75) on each Two hundred pesos
SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, (P200) or fractional part thereof, of the par value of such due-bill,
Instruments and Papers. – Upon documents, instruments, loan certificate of obligation or stock; Provided, That only one tax shall be
agreements and papers, and upon acceptances, assignments, sales and collected on each sale or transfer of stock or securities from one person to
transfers of the obligation, right or property incident thereto, there shall be another, regardless of whether or not a certificate of stock or obligation is
levied, collected and paid for, and in respect of the transaction so had or issued, indorsed, or delivered in pursuance of such sale or transfer: and
accomplished, the corresponding documentary stamp taxes prescribed in Provided, further, That in the case of stock without par value the amount
the following Sections of this Title, by the person making, signing, issuing, of documentary stamp tax herein prescribed shall be equivalent to twenty-
accepting, or transferring the same wherever the document is made, five percent (25%) of the documentary stamp tax paid upon the original
signed, issued, accepted or transferred when the obligation or right arises issue of said stock.
from Philippine sources or the property is situated in the Philippines, and
the same time such act is done or transaction had: Provided, That SEC. 176. Stamp Tax on Bonds, Debentures, Certificate of Stock or
whenever one party to the taxable document enjoys exemption from the Indebtedness Issued in Foreign Countries. - On all bonds, debentures,
tax herein imposed, the other party who is not exempt shall be the one certificates of stock, or certificates of indebtedness issued in any foreign
directly liable for the tax. country, there shall be collected from the person selling or transferring the
same in the Philippines, such as tax as is required by law on similar
SEC. 174. Stamp Tax on Original Issue of Shares of Stock. – On every instruments when issued, sold or transferred in the Philippines.
original issue, whether on organization, reorganization or for any lawful
purpose, of shares of stock by any association, company or corporation, SEC. 177. Stamp Tax on Certificates of Profits or Interest in Property
there shall be collected a documentary stamp tax of One peso (P1.00) on or Accumulations. - On all certificates of profits, or any certificate or
each Two hundred pesos (P200), or fractional part thereof, of the par memorandum showing interest in the property or accumulations of any
value, of such shares of stock: Provided, That in the case of the original association, company or corporation, and on all transfers of such
issue of shares of stock without par value the amount of the documentary certificates or memoranda, there shall be collected a documentary stamp
stamp tax herein prescribed shall be based upon the actual consideration tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or
for the issuance of such shares of stock: provided, further, That in the fractional part thereof, of the face value of such certificate or
case of stock dividends, on the actual value represented by each share. memorandum.
SEC. 175. Stamp Tax on Sales, Agreements to Sell, Memoranda of SEC. 178. Stamp Tax on Bank Checks, Drafts, Certificates of Deposit
Sales, Deliveries or Transfer of Due-bills, Certificates of Obligation, not Bearing Interest, and Other Instruments. - On each bank check,
or Shares of Certificates of Stock. - On all sales, or agreements to sell, draft, or certificate of deposit not drawing interest, or order for the payment
or memoranda of sale, or deliveries, or transfer of due-bills, certificates of of any sum of money drawn upon or issued by any bank, trust company,
obligation, or shares of certificates of stock in any association, company, or any person or persons, companies or corporations, at sight or on
or corporation, or transfer of such securities by assignment in blank, or by demand, there shall be collected a documentary stamp tax of One peso
delivery, or by any paper or agreement, or memorandum or other and fifty centavos (P1.50).
evidences of transfer or sale whether entitling the holder in any manner to SEC. 179. Stamp tax on All Debt Instruments. - On every original issue
of debt instruments, there shall be collected documentary stamp tax of SEC. 182. Stamp Tax on Foreign Bills of Exchange and Letters of
One peso (P1.00) on each Two hundred pesos (P200), or fractional part Credit. - On all foreign bills of exchange and letters of credit (including
thereof, of the issue price of any such debt instrument: Provided, That for orders, by telegraph or otherwise, for the payment of money issued by
such debt instruments with terms of less than one year, the documentary express or steamship companies or by any person or persons) drawn in
stamp tax to be collected shall be of proportional amount in accordance but payable out of the Philippines in a set of three (3) or more according to
with the ratio of its terms in number of days to three hundred sixty days the custom of merchants and bankers, there shall be collected a
(365): Provided, further, That only one documentary stamp tax shall be documentary stamp tax of Thirty centavos (P0.30) on each Two hundred
imposed on either loan agreement, or promissory notes issued to secure pesos (P200), or fractional part thereof, of the face value of any such bill
such loan. of exchange or letter of credit, or the Philippine equivalent of such face
value, if expressed in foreign currency.
For purposes of this section, the term 'debt instrument' shall mean
debt instrument representing borrowing and lending transactions including SEC. 183. Stamp Tax on Life Insurance Policies. - On all policies of
but not limited to debentures, certificates of indebtedness, due bills, insurance or other instruments by whatever name the same may be
bonds, loan agreements, including those signed abroad wherein the called, whereby any insurance shall be made or renewed upon any life or
object of contract is located or used in the Philippines, instruments and lives, there shall be collected a one-time documentary stamp tax at the
securities issued by the government or any of its instrumentalities, deposit following rates:
substitute debt instruments, certificates or other evidences of deposits that
are either drawing interest significantly higher than the regular savings If the amount of insurance does not exceed P Exempt
deposit taking into consideration the size of the deposit and the risks 100,000
involved or drawing interest and having a specific maturity date, orders for If the amount of insurance exceeds P100,000 but Php 10.00
payment of any sum of money otherwise than at sight or on demand, does not exceed P300,000
promissory notes, whether negotiable or non-negotiable, except bank If the amount of insurance exceeds P300,000 but Php 25.00
notes issued for circulation. does not exceed P500,000
If the amount of insurance exceeds P150,000 but Php 50.00
SEC. 180 Stamp Tax on All Bills of Exchange or Drafts. - On all bill of does not exceed P750,000
exchange (between points within the Philippines) or drafts, there shall be If the amount of insurance exceeds P750,000 but Php 75.00
collected a documentary stamp tax of thirty centavo (P0.30) on each Two does not exceed P1,000,000
hundred peso (P200), or fractional part thereof, of the face value of any If the amount of insurance exceeds P1,000,000 Php 100.00
such bill of exchange or draft.
SEC. 184. Stamp Tax on Policies of Insurance Upon Property. - On all
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and policies of insurance or other instruments by whatever name the same
Others. - Upon any acceptance or payment of any bill of exchange or may be called, by which insurance shall be made or renewed upon
order for the payment of money purporting to be drawn in a foreign property of any description, including rents or profits, against peril by sea
country but payable in the Philippines, there shall be collected a or on inland waters, or by fire or lightning, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each Two hundred documentary stamp tax of Fifty centavos (P0.50) on each Four pesos
pesos (P200), or fractional part thereof, of the face value of any such bill (P4.00), or fractional part thereof, of the amount of premium charged:
of exchange, or order, or the Philippine equivalent to such value, if Provided, however, That no documentary stamp tax shall be collected on
expressed in foreign currency. reinsurance contracts or on any instrument by which cession or
acceptance of insurance risks under any reinsurance agreement is are otherwise provided for herein, there shall be collected a documentary
effected or recorded. stamp tax of Thirty centavos (P0.30) on each Four pesos (P4.00), or
fractional part thereof, of the premium charged.
SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance Policies.
- On all policies of insurance or bonds or obligations of the nature of SEC. 188. Stamp Tax on Certificates. - On each certificate of damages
indemnity for loss, damage or liability made or renewed by any person, or otherwise, and on every certificate or document issued by any customs
association, company or corporation transacting the business of accident, officer, marine surveyor, or other person acting as such, and on each
fidelity, employer's liability, plate, glass, steam, boiler, burglar, elevator, certificate issued by a notary public, and on each certificate of any
automatic sprinkler, or other branch of insurance (except life, marine, description required by law or by rules or regulations of a public office, or
inland, and fire insurance), and all bonds, undertakings, or recognizances, which is issued for the purpose of giving information, or establishing proof
conditioned for the performance of the duties of any office or position, for of a fact, and not otherwise specified herein, there shall be collected a
the doing or not doing of anything therein specified, and on all obligations documentary stamp tax of Fifteen pesos (P15.00).
guaranteeing the validity or legality of any bond or other obligations issued
by any province, city, municipality, or other public body or organization, SEC. 189. Stamp Tax on Warehouse Receipts. - On each warehouse
and on all obligations guaranteeing the title to any real estate, or receipt for property held in storage in a public or private warehouse or
guaranteeing any mercantile credits, which may be made or renewed by yard for any person other than the proprietor of such warehouse or yard,
any such person, company or corporation, there shall be collected a there shall be collected a documentary stamp tax of Fifteen pesos
documentary stamp tax of Fifty centavos (P0.50) on each Four pesos (P15.00): Provided, That no tax shall be collected on each warehouse
(P4.00), or fractional part thereof, of the premium charged. receipt issued to any one person in any one calendar month covering
property the value of which does not exceed Two hundred pesos (P200).
SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need Plans. -
On all policies of annuities, or other instruments by whatever name the SEC. 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto or Other
same may be called, whereby an annuity may be made, transferred or Authorized Numbers Games. -On each jai-alai, horse race ticket, lotto,
redeemed, there shall be collected a documentary stamp tax of Fifty or other authorized number games, there shall be collected a
centavos (P0.50) on each Two hundred pesos (P200) or fractional part documentary stamp tax of Ten centavos (P0.10): Provided, That if the cost
thereof, of the capital of the annuity, or should this be unknown, then on of the ticket exceeds One peso (P1.00), an additional tax of Ten centavos
each Two hundred (P200) pesos, or fractional part thereof, of the premium (P0.10) on every One peso (P1.00, or fractional part thereof, shall be
or installment payment or contract price collected. On pre-need plans, the collected.
documentary stamp tax shall be Twenty centavos (P0.20) on each Two
hundred pesos (P200), or fractional part thereof, of the premium or SEC. 191. Stamp Tax on Bills of Lading or Receipts. - On each set of
contribution collected. bills of lading or receipts (except charter party) for any goods,
merchandise or effects shipped from one port or place in the Philippines to
SEC. 187. Stamp Tax on Indemnity Bonds. - On all bonds for another port or place in the Philippines (except on ferries across rivers), or
indemnifying any person, firm or corporation who shall become bound or to any foreign port, there shall be collected documentary stamp tax of One
engaged as surety for the payment of any sum of money or for the due peso (P1.00), if the value of such goods exceeds One hundred pesos
execution or performance of the duties of any office or position or to (P100) and does not exceed One Thousand pesos (P1,000); Ten pesos
account for money received by virtue thereof, and on all other bonds of (P10), if the value exceeds One thousand pesos (P1,000): Provided,
any description, except such as may be required in legal proceedings, or however, That freight tickets covering goods, merchandise or effects
carried as accompanied baggage of passengers on land and water (b) On each Five thousand pesos (P5,000), or fractional part
carriers primarily engaged in the transportation of passengers are hereby thereof in excess of Five thousand pesos (P5,000), an additional
exempt. tax of Ten pesos (P10.00).
SEC. 192. Stamp Tax on Proxies. - On each proxy for voting at any On any mortgage, pledge, or deed of trust, where the same shall be
election for officers of any company or association, or for any other made as a security for the payment of a fluctuating account or future
purpose, except proxies issued affecting the affairs of associations or advances without fixed limit, the documentary stamp tax on such
corporations organized for religious, charitable or literary purposes, there mortgage, pledge or deed of trust shall be computed on the amount
shall be collected a documentary stamp tax of Fifteen pesos (P15.00). actually loaned or given at the time of the execution of the mortgage,
pledge or deed of trust, additional documentary stamp tax shall be paid
SEC. 193. Stamp Tax on Powers of Attorney. - On each power of which shall be computed on the basis of the amount advanced or loaned
attorney to perform any act whatsoever, except acts connected with the at the rates specified above: Provided, however, That if the full amount of
collection of claims due from or accruing to the Government of the the loan or credit, granted under the mortgage, pledge or deed of trust
Republic of the Philippines, or the government of any province, city or shall be computed on the amount actually loaned or given at the time of
municipality, there shall be collected a documentary stamp tax of Five the execution of the mortgage, pledge or deed of trust. However, if
pesos (P5.00). subsequent advances are made on such mortgage, pledge or deed of
trust, additional documentary stamp tax shall be paid which shall be
SEC. 194. Stamp tax on Lease and Other Hiring Agreements. - On computed on the basis of the amount advanced or loaned at the rates
each lease, agreement, memorandum, or contract for hire, use or rent of specified above: Provided, however, That if the full amount of the loan or
any lands or tenements, or portions thereof, there shall be collected a credit, granted under the mortgage, pledge or deed of trust is specified in
documentary stamp tax of Three pesos (P3.00) for the first Two thousand such mortgage, pledge or deed of trust, the documentary stamp tax
pesos (P2,000), or fractional part thereof, and an additional One peso prescribed in this Section shall be paid and computed on the full amount
(P1.00) for every One Thousand pesos (P1,000) or fractional part thereof, of the loan or credit granted.
in excess of the first Two thousand pesos (P2,000) for each year of the
term of said contract or agreement. SEC. 196. Stamp tax on Deeds of Sale and Conveyances of Real
Property. - On all conveyances, deeds, instruments, or writings, other
SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. - On than grants, patents or original certificates of adjudication issued by the
every mortgage or pledge of lands, estate, or property, real or personal, Government, whereby any land, tenement, or other realty sold shall be
heritable or movable, whatsoever, where the same shall be made as a granted, assigned, transferred or otherwise conveyed to the purchaser, or
security for the payment of any definite and certain sum of money lent at purchasers, or to any other person or persons designated by such
the time or previously due and owing of forborne to be paid, being payable purchaser or purchasers, there shall be collected a documentary stamp
and on any conveyance of land, estate, or property whatsoever, in trust or tax, at the rates herein below prescribed, based on the consideration
to be sold, or otherwise converted into money which shall be and intended contracted to be paid for such realty or on its fair market value determined
only as security, either by express stipulation or otherwise, there shall be in accordance with Section 6(E) of this Code, whichever is higher:
collected a documentary stamp tax at the following rates: Provided, That when one of the contracting parties is the Government the
tax herein imposed shall be based on the actual consideration.
(a) When the amount secured does not exceed Five thousand
pesos (P5,000), Twenty pesos (P20.00). (a) When the consideration, or value received or contracted to be
paid for such realty after making proper allowance of any hundred pesos (P100) shall be paid.
encumbrance, does not exceed One thousand pesos
(P1,000) fifteen pesos (P15.00). (c) If the registered gross tonnage exceeds ten thousand (10,000)
tons and the duration of the charter or contract does not exceed
(b) For each additional One thousand Pesos (P1,000), or six (6) months, One thousand five hundred pesos (P1,500); and
fractional part thereof in excess of One thousand pesos for each month or fraction of a month in excess of six (6) months,
(P1,000) of such consideration or value, Fifteen pesos an additional tax of One hundred fifty pesos (P150) shall be paid.
(P15.00).
SEC. 198. Stamp Tax on Assignments and Renewals of Certain
When it appears that the amount of the documentary stamp tax Instruments. - Upon each and every assignment or transfer of any
payable hereunder has been reduced by an incorrect statement of the mortgage, lease or policy of insurance, or the renewal or continuance of
consideration in any conveyance, deed, instrument or writing subject to any agreement, contract, charter, or any evidence of obligation or
such tax the Commissioner, provincial or city Treasurer, or other revenue indebtedness by altering or otherwise, there shall be levied, collected and
officer shall, from the assessment rolls or other reliable source of paid a documentary stamp tax, at the same rate as that imposed on the
information, assess the property of its true market value and collect the original instrument.
proper tax thereon.
SEC. 199. Documents and Papers Not Subject to Stamp Tax. - The
SEC. 197. Stamp Tax on Charter Parties and Similar Instruments. - provisions of Section 173 to the contrary notwithstanding, the following
On every charter party, contract or agreement for the charter of any ship, instruments, documents and papers shall be exempt from the
vessel or steamer, or any letter or memorandum or other writing between documentary stamp tax:
the captain, master or owner, or other person acting as agent of any ship,
vessel or steamer, and any other person or persons for or relating to the (a) Policies of insurance or annuities made or granted by a fraternal
charter of any such ship, vessel or steamer, and on any renewal or or beneficiary society, order, association or cooperative company,
transfer of such charter, contract, agreement, letter or memorandum, there operated on the lodge system or local cooperation plan and
shall be collected a documentary stamp tax at the following rates: organized and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit.
(a) If the registered gross tonnage of the ship, vessel or steamer
does not exceed one thousand (1,000) tons, and the duration of (b) Certificates of oaths administered to any government official in his
the charter or contract does not exceed six (6) months, Five official capacity or of acknowledgment by any government official
hundred pesos (P500); and for each month or fraction of a month in the performance of his official duties, written appearance in any
in excess of six (6) months, an additional tax of Fifty pesos court by any government official, in his official capacity;
(P50.00) shall be paid. certificates of the administration of oaths to any person as to the
authenticity of any paper required to be filed in court by any
(b) If the registered gross tonnage exceeds one thousand (1,000) person or party thereto, whether the proceedings be civil or
tons and does not exceed ten thousand (10,000) tons, and the criminal; papers and documents filed in courts by or for the
duration of the charter or contract does not exceed six (6) months, national, provincial, city or municipal governments; affidavits of
One thousand pesos (P1,000); and for each month or fraction of a poor persons for the purpose of proving poverty; statements and
month in excess of six (6) months, an additional tax of One other compulsory information required of persons or corporations
by the rules and regulations of the national, provincial, city or insurance, or the renewal or continuance of any agreement,
municipal governments exclusively for statistical purposes and contract, charter, or any evidence of obligation or indebtedness, if
which are wholly for the use of the bureau or office in which they there is no change in the maturity date or remaining period of
are filed, and not at the instance or for the use or benefit of the coverage from that of the original instrument.
person filing them; certified copies and other certificates placed
upon documents, instruments and papers for the national, (g) Fixed income and other securities traded in the secondary market
provincial, city, or municipal governments, made at the instance or through an exchange.
and for the sole use of some other branch of the national,
provincial, city or municipal governments; and certificates of the (h) Derivatives: Provided, That for purposes of this exemption,
assessed value of lands, not exceeding Two hundred pesos repurchase agreements and reverse repurchase agreements shall
(P200) in value assessed, furnished by the provincial, city or be treated similarly as derivatives.
municipal Treasurer to applicants for registration of title to land.
(i) Interbank or interdepartmental advances within the same legal
entity
(c) Borrowing and lending of securities executed under the Securities
Borrowing and Lending Program of a registered exchange, or in
(j) All forebearances arising from sales or service contracts including
accordance with regulations prescribed by the appropriate
credit card and trade receivables: Provided, That the exemption
regulatory authority: Provided, however, That any borrowing or
be limited to those executed by the seller or service provided.
lending of securities agreement as contemplated hereof shall be
duly covered by a master securities borrowing and lending (k) Bank deposit accounts without a fixed term or maturity.
agreement acceptable to the appropriate regulatory authority and
which agreement is duly registered and approved by the Bureau (l) All contracts, deeds, documents, documents and transactions
of Internal Revenue. (BIR). related to the conduct of business of the Bangko Sentral ng
Pilipinas.
(d) Loan agreements or promissory notes, the aggregate of which
does not exceed Two hundred fifty thousand pesos ( P250,000) (m) Transfer of property pursuant to Section 40 (C) (2) of the National
or any such amount as may be determined by the Secretary of Internal Revenue Code of 1997, as amended.
Finance, executed by an individual for his purchase on installment
for his personal use or that for his family and not for business or (n) Interbank call loans with maturity of not more than seven (7) days
resale, barter or hire of a house, lot, motor vehicle, appliance or to cover deficiency in reverses against deposit liabilities including
furniture: Provided, however, That the amount to be set by the those between or among banks and quasi-banks.
Secretary of Finance shall be in accordance with a relevant price
index but not to exceed ten percent (10%) of the current amount SEC. 200. Payment of Documentary Stamp Tax. –
and shall remain in force at least for three (3) years.
(A) In General. - The provisions of Presidential Decree No. 1045
(e) Sale, barter or exchange of shares of stock listed and traded notwithstanding, any person liable to pay documentary stamp tax
through the local stock exchange. upon any document subject to tax under Title VII of this Code
shall file a tax return and pay the tax in accordance with the rules
(f) Assignment or transfer of any mortgage, lease or policy of and regulations to be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner. cancelled.
(B) Time for Filing and Payment of the Tax. - Except as provided by
rules and regulations promulgated by the Secretary of Finance,
CIR v. FILINVEST DEVELOPMENT CORPORATION (Trias)
upon recommendation of the Commissioner, the tax return
[GR. No. 167689; July 19, 2011]
prescribed in this Section shall be filed within ten (10) days after
“We took this up na in Tax 1 but under transfers of property for shares of
the close of the month when the taxable document was made,
stocks and theoretical interests.”
signed, issued, accepted, or transferred, and the tax thereon shall
be paid at the same time the aforesaid return is filed.
Recit-Ready:
(C) Where to File. - Except in cases where the Commissioner Facts: Filinvest Development Corporation extended advances in favor of
otherwise permits, the aforesaid tax return shall be filed with and its affiliates and supported the same with instructional letters and
the tax due shall be paid through the authorized agent bank cash and journal vouchers. The BIR assessed Filinvest for
within the territorial jurisdiction of the Revenue District Office deficiency income tax by imputing an “arm’s length” interest rate
which has jurisdiction over the residence or principal place of on its advances to affiliates. Filinvest disputed this by saying that
business of the taxpayer. In places where there is no authorized the CIR lacks the authority to impute theoretical interest and that
agent bank, the return shall be filed with the Revenue District the rule is that interests cannot be demanded in the absence of a
Officer, collection agent, or duly authorized Treasurer of the city stipulation to the effect.
or municipality in which the taxpayer has his legal residence or
principal place of business. Issue/s:
1) WON FDC is liable for theoretical interest on said advances extended
(D) Exception. - In lieu of the foregoing provisions of this Section, the by it to its affiliates
tax may be paid either through purchase and actual affixture; or 2) WON deficiency income taxes on the transfer FDC and FAI effected in
by imprinting the stamps through a documentary stamp metering exchange for the shares of stock of FLI can be imposed
3) WON documentary stamp taxes may be imposed (OUR TOPIC)
machine, on the taxable document, in the manner as may be
prescribed by rules and regulations to be promulgated by the
Held:
Secretary of Finance, upon recommendation of the
Commissioner.
1) NO. Despite the seemingly broad power of the CIR to distribute,
apportion and allocate gross income under (now) Section 50 of the
SEC. 201. Effect of Failure to Stamp Taxable Document. - An
Tax Code, the same does not include the power to impute theoretical
instrument, document or paper which is required by law to be stamped
interests even with regard to controlled taxpayers’ transactions. This is
and which has been signed, issued, accepted or transferred without being
true even if the CIR is able to prove that interest expense (on its own
duly stamped, shall not be recorded, nor shall it or any copy thereof or any
loans) was in fact claimed by the lending entity. The term in the
record of transfer of the same be admitted or used in evidence in any
definition of gross income that even those income “from whatever
court until the requisite stamp or stamps are affixed thereto and cancelled.
source derived” is covered still requires that there must be actual or at
No notary public or other office authorized to administer oaths shall add
least probable receipt or realization of the item of gross income sought
this jurat or acknowledgment to any document subject to documentary
to be apportioned, distributed, or allocated. Finally, the rule under the
stamp tax unless the proper documentary stamps are affixed thereto and
Civil Code that “no interest shall be due unless expressly stipulated in  FLI requested a ruling from the BIR to the effect that no gain or loss
writing” was also applied in this case. should be recognized in the aforesaid transfer of real properties. (Our
2) NO. Since the term "control" is clearly defined as "ownership of stocks topic in Tax 1!)
in a corporation possessing at least fifty-one percent of the total voting  BIR issued Ruling No. S-34-046-97 finding that the exchange is among
power of classes of stocks entitled to one vote" under Section 34 (c) those contemplated the NIRC, which provides that “no gain or loss shall
(6) [c] of the 1993 NIRC, the exchange of property for stocks between be recognized if property is transferred to a corporation by a person in
FDC FAI and FLI clearly qualify as a tax-free transaction under exchange for a stock in such corporation of which as a result of such
paragraph 34 (c) (2) of the same provision. Inasmuch as the combined exchange said person, alone or together with others, not exceeding four
ownership of FDC and FAI of FLI's outstanding capital stock adds up (4) persons, gains control of said corporation."
to a total of 70.99%, it stands to reason that neither of said transferors  On various dates during the years 1996 and 1997, in the meantime, FDC
can be held liable for deficiency income taxes the CIR assessed on also extended advances in favor of its affiliates, namely, FAI, FLI, Davao
the supposed gain which resulted from the subject transfer. Sugar Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI)
3) YES. Section 180 of the NIRC when read in conjunction with Section  Duly evidenced by instructional letters as well as cash and journal
173 of the 1993 NIRC, the provision concededly applies to "(a)ll loan vouchers, said cash advances amounted to P2,557,213,942.60 in 1996
agreements, whether made or signed in the Philippines, or abroad and P3,360,889,677.48 in 1997.
when the obligation or right arises from Philippine sources or the  FDC also entered into a Shareholders Agreement with Reco Herrera PTE
property or object of the contract is located or used in the Philippines. Ltd. (RHPL) for the formation of a Singapore-based joint venture
This should also be correlated with Section 3(b) and Section 6 of company called Filinvest Asia Corporation, tasked to develop and
Revenue Regulation No. 9.-94. (Check comprehensive digest for the manage FDCs 50% ownership of its PBCom Office Tower Project.
aforementioned provisions) Applying the aforesaid provisions to the  Having paid its subscription by executing a Deed of Assignment
case at bench, we find that the instructional letters as well as the transferring to FAC a portion of its rights and interest in the Project worth
journal and cash vouchers evidencing the advances FDC extended to P500.7 million, FDC eventually reported a net loss of P190, 695,061.00 in
its affiliates in 1996 and 1997 qualified as loan agreements upon its Annual Income Tax Return for the taxable year 1996.
which documentary stamp taxes may be imposed.  FDC received from the BIR a Formal Notice of Demand to pay deficiency
income and documentary stamp taxes, plus interests and compromise
Facts: penalties. (This is where our topic in Tax 2 starts!)
 The owner of 80% of the outstanding shares of respondent Filinvest  Deficiency taxes were assessed on the taxable gain supposedly realized
Alabang, Inc. (FAI), respondent Filinvest Development Corporation (FDC) by FDC from the Deed of Exchange it executed with FAI and FLI, on the
is a holding company, which also owned 67.42% of the outstanding dilution resulting from the Shareholders Agreement FDC executed with
shares of Filinvest Land, Inc. (FLI). RHPL as well as the arms-length interest rate and documentary stamp
 FDC and FAI entered into a Deed of Exchange with FLI whereby the taxes imposable on the advances FDC extended to its affiliates.
former both transferred in favor of the latter parcels of land appraised at  FAI similarly received from the BIR a Formal Letter of Demand for
P4, 306,777,000.00. deficiency income taxes in the sum of P1, 477,494,638.23 for the year
 In exchange for said parcels, which were intended to facilitate 1997.
development of medium-rise residential and commercial buildings,  Both FDC and FAI filed their respective requests for
463,094,301 shares of stock of FLI were issued to FDC and FAI. reconsideration/protest, on the ground that the deficiency income and
documentary stamp taxes assessed by the BIR were bereft of factual and 180 of the NIRC and Revenue Regulations No. 9-94 which
legal basis provide that loan transactions are subject to said tax
 In view of the failure of petitioner CIR to resolve their request for irrespective of whether or not they are evidenced by a
reconsideration/protest within the aforesaid period, FDC and FAI with the formal agreement or by mere office memo.
CTA pursuant to Section 228 of the 1997 NIRC. o The CIR also argued that FDC realized taxable gain arising
 Petition allege: from the dilution of its shares in FAC as a result of its
o no taxable gain should have been assessed from the Shareholders' Agreement with RHPL.
subject Deed of Exchange since FDC and FAI collectively  CTA decided accordingly:
gained further control of FLI as a consequence of the o the rest of deficiency income and documentary stamp taxes
exchange; assessed against FDC and FAI for the years 1996 and
o that correlative to the CIR's lack of authority to impute 1997 should be cancelled
theoretical interests on the cash advances FDC extended in o CTA also ruled that the increase in the value of FDC's
favor of its affiliates, the rule is settled that interests cannot shares in FAC did not result in economic advantage in the
be demanded in the absence of a stipulation to the effect; absence of actual sale or conversion thereof.
o that not being promissory notes or certificates of o While likewise finding that the documents evidencing the
obligations, the instructional letters as well as the cash and cash advances FDC extended to its affiliates cannot be
journal vouchers evidencing said cash advances were not considered as loan agreements that are subject to
subject to documentary stamp taxes; and, documentary stamp tax, the CTA enunciated, however, that
o that no income tax may be imposed on the prospective gain the CIR was justified in assessing undeclared interests on
from the supposed appreciation of FDC's shareholdings in the same cash advances pursuant to his authority under
FAC. Section 43 of the NIRC in order to forestall tax evasion.
 CIR claim:  For persuasive effect, the CTA referred to the equivalent provision in the
o that the transfer of property in question should not be Internal Revenue Code of the United States (IRC-US), i.e., Sec. 482, as
considered tax free since, with the resultant diminution of its implemented by Section 1.482-2 of 1965-1969 Regulations of the Law of
shares in FLI, FDC did not gain further control of said Federal Income Taxation.
corporation.  FDC filed a petition for review calling attention to the fact that the cash
o Likewise calling attention to the fact that the cash advances advances it extended to its affiliates were interest-free in the absence of
FDC extended to its affiliates were interest free despite the the express stipulation on interest required under Article 1956 of the Civil
interest bearing loans it obtained from banking institutions, Code, FDC questioned the imposition of an arm's-length interest rate.
the CIR invoked Section 43 of the old NIRC which, as  CIR also filed a petition for review arguing that the CTA reversibly erred in
implemented by Revenue Regulations No. 2, Section 179 cancelling the assessment notices: (a) for deficiency income taxes on the
(b) and (c), gave him "the power to allocate, distribute or exchange of property between FDC, FAI and FLI; (b) for deficiency
apportion income or deductions between or among such documentary stamp taxes on the documents evidencing FDC's cash
organizations, trades or business in order to prevent advances to its affiliates; and (c) for deficiency income tax on the gain
evasion of taxes." FDC purportedly realized from the increase of the value of its
o The CIR justified the imposition of documentary stamp shareholdings in FAC.
taxes on the instructional letters as well as cash and journal
vouchers for said cash advances on the strength of Section Issue/s:
1) WON FDC is liable for theoretical interest on said advances has been held in the early case of Fisher vs. Trinidad, that it
extended by it to its affiliates constitutes and can be treated merely as an increase of capital.
— NO o The requisites for the non-recognition of gain or loss under the
2) WON deficiency income taxes on the transfer FDC and FAI effected foregoing provision are as follows: (a) the transferee is a corporation;
in exchange for the shares of stock of FLI can be imposed
(b) the transferee exchanges its shares of stock for property/ies of the
— NO
transferor; (c) the transfer is made by a person, acting alone or
3) WON documentary stamp taxes may be imposed (OUR TOPIC)
together with others, not exceeding four persons; and, (d) as a result
— YES
of the exchange the transferor, alone or together with others, not
exceeding four, gains control of the transferee.
Held/Ratio: Petition GRANTED as to the imposition of DST only.
o Since the term "control" is clearly defined as "ownership of stocks in a
corporation possessing at least fifty-one percent of the total voting
1) NO. Despite the seemingly broad power of the CIR to distribute,
power of classes of stocks entitled to one vote" under Section 34 (c)
apportion and allocate gross income under (now) Section 50 of the
(6) [c] of the 1993 NIRC, the exchange of property for stocks between
Tax Code, the same does not include the power to impute
FDC FAI and FLI clearly qualify as a tax-free transaction under
theoretical interests even with regard to controlled taxpayers’
paragraph 34 (c) (2) of the same provision.
transactions.
o Inasmuch as the combined ownership of FDC and FAI of FLI's
o This is true even if the CIR is able to prove that interest expense (on
outstanding capital stock adds up to a total of 70.99%, it stands to
its own loans) was in fact claimed by the lending entity.
reason that neither of said transferors can be held liable for deficiency
o The term in the definition of gross income that even that income “from
income taxes the CIR assessed on the supposed gain which resulted
whatever source derived” is covered still requires that there must be
from the subject transfer.
actual or at least probable receipt or realization of the item of gross
3) [OUR TOPIC] YES. The instructional letters as well as the journal
income sought to be apportioned, distributed, or allocated.
and cash vouchers evidencing the advances FDC extended to its
o Our circumspect perusal of the record yielded no evidence of actual or
affiliates in 1996 and 1997 qualified as loan agreements upon which
possible showing that the advances FDC extended to its affiliates had
documentary stamp taxes may be imposed.
resulted to the interests subsequently assessed by the CIR.
o Section 180 of the NIRC1 when read in conjunction with Section 173
o CIR had adduced no concrete proof that said funds were, indeed, the
source of the advances the former provided its affiliates of the 1993 NIRC, the provision concededly applies to "(a)ll loan
o More significantly, said witness testified that said advances: (a) were
1
extended to give FLI, FAI, DSCC and FCI financial assistance for their Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange,
drafts, instruments and securities issued by the government or any of its
operational and capital expenditures; and, (b) were all temporarily in instrumentalities, certificates of deposit bearing interest and others not payable on
nature since they were repaid within the duration of one week to three sight or demand. On all loan agreements signed abroad wherein the object of the contract
months and were evidenced by mere journal entries, cash vouchers is located or used in the Philippines; bill of exchange (between points within the
Philippines), drafts, instruments and securities issued by the Government or any of its
and instructional letters. instrumentalities or certificates of deposits drawing interest, or orders for the payment of
2) NO. Bearing in mind the meaning of "gross income" it cannot be any sum of money otherwise than at sight or on demand, or on all promissory notes,
whether negotiable or non-negotiable, except bank notes issued for circulation, and on
gainsaid that a mere increase or appreciation in the value of said
each renewal of any such note, there shall be collected a documentary stamp tax of Thirty
shares cannot be considered income for taxation purposes. Since a centavos (P0.30) on each two hundred pesos, or fractional part thereof, of the face value of
mere advance in the value of the property of a person or corporation any such agreement, bill of exchange, draft, certificate of deposit or note: Provided, That
only one documentary stamp tax shall be imposed on either loan agreement, or promissory
in no sense constitute the income specified in the revenue law, it notes issued to secure such loan, whichever will yield a higher tax: Provided however,
That loan agreements or promissory notes the aggregate of which does not exceed Two
agreements, whether made or signed in the Philippines, or abroad Revenue are materially different from the facts on which the ruling is
when the obligation or right arises from Philippine sources or the based; or (c) where the taxpayer acted in bad faith. Not being the
property or object of the contract is located or used in the Philippines." taxpayer who, in the first instance, sought a ruling from the CIR,
o This should also be correlated with Section 3(b)2 and Section 6 of however, FDC cannot invoke the foregoing principle on non-
Revenue Regulation No. 9.-94.3 retroactivity of BIR rulings.
o In its appeal before the CA, the CIR argued that the foregoing ruling o Applying the aforesaid provisions to the case at bench, we find that
was later modified in BIR Ruling No. 108-99 dated 15 July 1999, the instructional letters as well as the journal and cash vouchers
which opined that inter-office memos evidencing lendings or evidencing the advances FDC extended to its affiliates in 1996 and
borrowings extended by a corporation to its affiliates are akin to 1997 qualified as loan agreements upon which documentary stamp
promissory notes, hence, subject to documentary stamp taxes. taxes may be imposed.
o In brushing aside the foregoing argument, however, the CA applied o In keeping with the caveat attendant to every BIR Ruling to the effect
Section 246 of the 1993 NIRC from which proceeds the settled that it is valid only if the facts claimed by the taxpayer are correct, we
principle that rulings, circulars, rules and regulations promulgated by find that the CA reversibly erred in utilizing BIR Ruling No. 116-
the BIR have no retroactive application if to so apply them would be 98, dated 30 July 1998 which, strictly speaking, could be invoked only
prejudicial to the taxpayers. by ASB Development Corporation, the taxpayer who sought the
o Admittedly, this rule does not apply: (a) where the taxpayer same. In said ruling, the CIR opined that documents like those
deliberately misstates or omits material facts from his return or in any evidencing the advances FDC extended to its affiliates are not subject
document required of him by the Bureau of Internal Revenue; (b) to documentary stamp tax, to wit:
where the facts subsequently gathered by the Bureau of Internal o On the matter of whether or not the inter-office memo
covering the advances granted by an affiliate company
hundred fifty thousand pesos (P250,000.00) executed by an individual for his purchase on is subject to documentary stamp tax, it is informed that
installment for his personal use or that of his family and not for business, resale, barter or nothing in Regulations No. 26 (Documentary Stamp Tax
hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment Regulations) and Revenue Regulations No. 9-94 states
of documentary stamp tax provided under this Section.
2
Section 3(b) - ‘Loan Agreement’ refers to a contract in writing where one of the parties that the same is subject to documentary stamp tax.
delivers to another money or other consumable thing, upon the condition that the same Such being the case, said inter-office memo evidencing
amount of the same kind and quality shall be paid. The term shall include credit facilities,
which may be evidenced by credit memo, advice, or drawings.
the lendings or borrowings which is neither a form of
The terms ‘Loan Agreement’ under Section 180 and ‘Mortgage’ under Section 195, both of promissory note nor a certificate of indebtedness issued
the Tax Code, as amended, generally refer to distinct and separate instruments. A loan by the corporation-affiliate or a certificate of obligation,
agreement shall be taxed under Section 180, while a deed of mortgage shall be taxed
under Section 195. which are, more or less, categorized as 'securities', is
3
Section 6 - Stamp on all Loan Agreements. All loan agreements whether made or signed not subject to documentary stamp tax imposed under
in the Philippines, or abroad when the obligation or right arises from Philippine sources or Section 180, 174 and 175 of the Tax Code of 1997,
the property ot object of the contract is located in the Philippines shall be subject to the
documentary stamp tax of thirty centavos (P0.30) on each two hundred pesos, or fractional respectively. Rather, the inter-office memo is being
part thereof, of the face value of any such agreements, pursuant to Section 180 in relation prepared for accounting purposes only in order to avoid
to Section 173 of the Tax Code. In cases where no formal agreements or promissory notes the co-mingling of funds of the corporate affiliates.
have been executed to cover credit facilities, the documentary stamp tax shall be based on
the amount of drawings or availment of the facilities, which may be evidenced by
credit/debit memo, advice or drawings by any form of check or withdrawal slip, under
Section 180 of the Tax Code.
PHILIPPINE BANKING CORP v. CIR (Tuazon) ranging from 8% or higher but only the normal interest rate on
[G.R. No. 170574 January 30, 2009] regular savings deposit.
“SSDAs are certificates of deposits drawing interest and therefore subject to 2. In order to qualify for an SSDA, the depositor must place a
DST.” substantial amount of money of not less than P50,000. This
amount is even larger than what is needed to open a time deposit
which is P20,000. Aside from the substantial amount of money
Recit-Ready: required, this amount must be maintained within a certain period
Facts: For the taxable years 1996 and 1997, Petitioner Philippine just like a time deposit.
Banking Corporation offered its "Special/Super Savings Deposit 3. On the issue of penalty, in an SSDA, if the depositor withdraws
Account" (SSDA) to its depositors. The SSDA is a form of a the money and the balance falls below the "minimum balance" of
savings deposit evidenced by a passbook and earning a higher P50,000, the interest is reduced. This condition is identical to that
interest rate than a regular savings account. Petitioner believes imposed on a time deposit that is withdrawn before maturity.
that the SSDA is not subject to Documentary Stamp Tax (DST)
under Section 180 of the NIRC. The CIR (respondent) sent Based on these features, it is clear that the SSDA is a certificate of deposit
Petitioner a Final Assessment Notice assessing deficiency DST drawing interest (time deposit) subject to DST even if it is
based on the outstanding balances of its SSDA. Petitioner evidenced by a passbook (since a certificate of deposit requires
maintains that the tax assessments are erroneous because no specific form) and non-negotiable in character (since a
Section 180 of the 1977 NIRC does not include deposits certificate of deposit may be payable to the depositor, to the order
evidenced by a passbook among the enumeration of instruments of the depositor, OR to some other person or his order).
subject to DST.
Facts:
Issue: WON the SSDAs are certificates of deposit drawing interest, and  For the taxable years 1996 and 1997, petitioner Philippine Banking
therefore subject to DST--Yeaboi Corporation offered its SSDA to its depositors. The SSDA is a form
of a savings deposit evidenced by a passbook and earning a higher
Held: Section 180 of the NIRC imposes a DST of P0.30 on each P200 interest rate than a regular savings account.
of the face value of any certificate of deposit drawing interest. As  Petitioner believes that the SSDA is not subject to Documentary
correctly observed by the CTA, a certificate of deposit is a written Stamp Tax (DST) under Section 180 of the 1977 National Internal
acknowledgment by a bank of the receipt of a sum of money on Revenue Code (NIRC), as amended.
deposit which the bank promises to pay to the depositor, to the  On 10 January 2000, the Commissioner of Internal Revenue
order of the depositor, or to some other person or his order, (respondent) sent petitioner a Final Assessment Notice assessing
whereby the relation of debtor or creditor between the bank and deficiency DST based on the outstanding balances of its
the depositor is created. SSDA, including increments, in the total sum of P17,595,488.75 for
1996 and P47,767,756.24 for 1997.
Petitioner's SSDA has the following features:  PETITIONER CLAIMS that the SSDA is in the nature of a regular
1. Although the money placed in the SSDA can be withdrawn savings account since both types of accounts have the following
anytime, the money is subject to a holding period in order to earn common features: (a) They are both evidenced by a passbook; (b)
a higher interest rate. Otherwise, in case of premature The depositors can make deposits or withdrawals anytime which are
withdrawal, the depositor will not earn the preferred interest
not subject to penalty; and (c) Both can have an Automatic Transfer  Petitioner also argues that even on the assumption that a passbook
Agreement (ATA) with the depositors current or checking account. evidencing the SSDA is a certificate of deposit, no DST will be
imposed because only negotiable certificates of deposits are subject
 Petitioner alleges that the only difference between the regular to tax under Section 180 of the 1977 NIRC. Petitioner reasons that a
savings account and the SSDA is that the SSDA is for depositors savings passbook is not a negotiable instrument and it cannot be
who maintain savings deposits with a substantial average daily denied that savings passbooks have never been taxed as
balance, and as an incentive, they are given higher interest rates certificates of deposits.
than regular savings accounts.  Petitioner alleges that prior to the passage of RA 9243, there was no
 Petitioner maintains that the tax assessments are erroneous law subjecting SSDA to DST during the taxable years 1996 and
because Section 180 of the 1977 NIRC does not include deposits 1997. The amendatory provision in RA 9243 now specifically
evidenced by a passbook among the enumeration of instruments includes certificates or other evidences of deposits that are either
subject to DST. Petitioner asserts that the language of the law is drawing interest significantly higher than the regular savings deposit
clear and requires no interpretation. taking into consideration the size of the deposit and the risks
 Petitioner insists that the SSDA, being issued in the form of a involved or drawing interest and having a specific maturity date.
passbook, cannot be construed as a certificate of deposit subject to Petitioner admits that with this new taxing clause, its SSDA is now
DST under Section 180 of the 1977 NIRC. Petitioner explains that subject to DST. However, the fact remains that this provision was
the SSDA is a necessary offshoot of the deregulated interest rate non-existent during the taxable years 1996 and 1997 subject of the
regime in bank deposits. assessments in the present case.
 Petitioner argues that the DST is imposed on the basis of a mere  RESPONDENT CLAIMS that the SSDA is substantially the same
inference or perceived implication of what the SSDA is supposed to and identical to that of a time deposit account because in order to
be and not on the basis of what the law specifically states. Petitioner avail of the SSDA, one has to deposit a minimum of P50,000 and
points out the differences between the SSDA and time deposits: this amount must be maintained for a required period of time to earn
higher interest rates. In a time deposit account, the minimum deposit
TIME DEPOSITS SSDA requirement is P20,000 and this amount must be maintained for the
agreed period to earn the agreed interest rate. If a time deposit is
1. The holding period is fixed 1. The holding period floats at the pre-terminated, a penalty will be imposed resulting in a lower
beforehand. option of the depositor. It can be 30, interest income. In a regular savings account, the interest rate is
60, 90 or 120 days or more and as fixed and there is no penalty imposed for as long as the required
an incentive for maintaining a longer minimum balance is maintained. Thus, respondent asserts that the
holding period, the depositor earns SSDA is a time deposit account, albeit in the guise of a regular
higher interest. savings account evidenced by a passbook.
2. There is pre-termination because 2. No pre-termination and the  Respondent explains that under Section 180 of the 1977 NIRC,
there is no partial withdrawal of a passbook account is simply reverted certificates of deposits deriving interest are subject to the payment
certificate. Pre-termination results in to an ordinary savings status in case of DST. Petitioner’s passbook evidencing its SSDA is considered a
the surrender and cancellation of the of early or partial withdrawal or if the certificate of deposit, and being very similar to a time deposit
certificate of deposit. required holding period is not met. account, it should be subject to the payment of DST.
 Respondent also argues that Section 180 of the 1977 NIRC
categorically states that certificates of deposit deriving interest are
subject to DST without limiting the enumeration to negotiable the higher interest
certificates of deposit. A certificate of deposit may or may not be rate is maintained,
negotiable, since it may be payable only to the depositor. otherwise, the
regular savings
Issue: WON the SSDAs are subject to DST--YES interest rate will
apply.
Held/Ratio:
 A certificate of deposit is a written acknowledgment by a bank or
 Based on the definition and comparison, it is clear that a certificate
banker of the receipt of a sum of money on deposit which the bank
of deposit drawing interest refers to a time deposit account.
or banker promises to pay to the depositor, to the order of the
 The SSDA is for depositors who maintain savings deposits
depositor, or to some other person or his order, whereby the relation
with substantial average daily balance and which earn higher
of debtor and creditor between the bank and the depositor is
interest rates. For maintaining a longer holding period, the depositor
created. A certificate of deposit is also defined as a receipt issued by
earns higher interest rates. There is no pre-termination of accounts
a bank for an interest-bearing time deposit coming due at a specified
in an SSDA because the account is simply reverted to an ordinary
future date.
savings status in case of early or partial withdrawal or if the required
 The deposit operations of a bank consist of the following: (1)
holding period is not met. Based on the foregoing, the SSDA has all
Demand Deposits; (2) Savings Deposits; (3) Negotiable Order of
of the distinct features of a certificate of deposit.
Withdrawal Accounts; and (4) Time Deposits
 As to petitioner’s passbook argument: A document to be deemed a
 Petitioner treats the SSDA as a regular savings deposit account
certificate of deposit requires no specific form as long as there is
since it is evidenced by a passbook and allows withdrawal.
some written memorandum that the bank accepted a deposit of a
Respondent treats the SSDA as a time deposit account because of
sum of money from a depositor.
the higher interest rates and holding period.
 As to petitioner’s argument that prior to the passage of RA 9243,
 Let us differentiate:
there was no law subjecting SSDA to DST: Amendment to include
Savings Account Time Deposit SSDA other evidences of deposits that are drawing interest significantly
Interest rate Regular savings Higher interest Higher interest higher than the regular savings deposit was intended to eliminate
interest rate rate the ambiguity.
 In imposing the DST, the Court considers not only the document but
Period None Fixed Term Fixed Term
also the nature and character of the transaction. Petitioners SSDA
Evidenced by: Passbook Certificate of Passbook has the following features: (1) Although the money placed in the
Time Deposit SSDA can be withdrawn anytime, the money is subject to a holding
period in order to earn a higher interest rate. Otherwise, in case of
Pre-termination None With penalty With penalty
premature withdrawal, the depositor will not earn the preferred
Holding Period None Yes Yes interest ranging from 8% or higher but only the normal interest rate
Withdrawal Allowed Withdrawal Allowed provided on regular savings deposit. (2) In order to qualify for an SSDA, the
amounts to pre- the minimum depositor must place a substantial amount of money of not less
termination amount to earn than P50,000. This amount is even larger than what is needed to
open a time deposit which is P20,000. Aside from the substantial
amount of money required, this amount must be maintained within a person (1) making; (2) signing; (3) issuing; (4) accepting; or (5)
certain period just like a time deposit. (3) On the issue of penalty, in transferring the taxable documents, instruments or papers. Should these
an SSDA, if the depositor withdraws the money and the balance falls parties be exempted from paying tax, the other party who is not exempt
below the minimum balance of P50,000, the interest is reduced. This would then be liable. Since Philacor did not make, sign, issue, accept or
condition is identical to that imposed on a time deposit that is transfer the promissory notes it is not liable for DST.
withdrawn before maturity.
 Based on these features, it is clear that the SSDA is a certificate of 2. NO. Where the law did not specify that such transfer and/or assignment
deposit drawing interest subject to DST even if it is evidenced by a is to be taxed, there would be no basis to recognize an imposition.
passbook and non-negotiable in character.
 Moreover, a certificate of deposit may be payable to the depositor, Facts:
to the order of the depositor, or to some other person or his order.  Philacor is a domestic corporation in the Philippines engaged in the
From the use of the conjunction or, instead of and, the negotiable business of retail financing.
character of a certificate of deposit is immaterial in determining the o Through retail financing, a prospective buyer of a home
imposition of DST. appliance – with neither cash nor any credit card – may
purchase appliances on installment basis from an appliance
dealer.
o After Philacor conducts a credit investigation and approves
PHILACOR CREDIT CORPORATION vs. CIR (Vanslembrouck) the buyer’s application, the buyer executes a unilateral
[GR. No. 169899; February 6, 2013] promissory note in favor of the appliance dealer.
“Kung wala sa enumeration, wag ipilit” o The same promissory note is subsequently assigned by the
appliance dealer to Philacor.
Recit-Ready:  In July 1996, Philacor received Pre-Assessment Notices (PANs) and
Facts: Philacor is engaged in a retail financing business. In this was assessed for deficiency DST in the amount of P3M
business, customers issue a promissory note in favor of an (P3,368,169.45)
appliance dealer and the promissory note is assigned to Philacor.  On September 1998, Philacor protested the PANs and filed for a
Philacor was assessed for deficiency DST. It alleges that it should petition for review before the CTA.
not be made to pay for DST both on the issuance of the o Philacor claims that the accredited appliance dealers who
promissory note (by the customer) and the assignment of the were liable for the DST and not Philacor.
note to Philacor.  The CTA ruled that Philacor is liable for the DST on the issuance of
the promissory notes and their subsequent transfer or assignment
Issue/s: and held Philacor liable for deficiency DST of P670K (P673,633.88).
1. WON Philacor is liable for the DST on the ISSUANCE of the  Both Philacor and the CIR agree that the issuances of promissory
promissory notes? notes are transactions which are taxable under the DST. The only
2. WON Philacor is liable for the DST on the ASSIGNMENT of the point of contention is WHO is liable for the tax.
promissory notes?
Issue/s:
Held: 1. WON Philacor is liable for the DST on the ISSUANCE of the
1. NO. The persons primarily liable for the payment of the DST are the promissory notes?
—NO, Philacor is not. o In a ruling adopted by the BIR as early as 1995, “acceptance” has
2. WON Philacor is liable for the DST on the ASSIGNMENT of the been defined as having reference to incoming foreign bills of
promissory notes? exchange which are accepted in the Philippines by the drawees
—NO, Philacor is not. thereof, and not as referring to the common usage of the word as in
receiving.
Held/Ratio: Petition GRANTED. The decision of the CTA is set aside.  Thus, a party to a taxable transaction who “accepts” any
documents or instruments in the plain and ordinary
1. NO. Philacor is not liable for the DST on the ISSUANCE of the promissory meaning does not become primarily liable for the tax.
notes. o In the same way, Philacor cannot be made primarily liable for the
o Section 1734 of the 1997 NIRC names those who are primarily liable for DST on the issuance of the subject promissory notes, just because
the DST and those who would be secondarily liable it had "accepted" the promissory notes in the plain and ordinary
o The persons primarily liable for the payment of the DST are the person meaning.
o (1) making; o In this regard, Sec. 173 of the 1997 NIRC assumes materiality as it
o (2) signing; determines liability should the parties who are primarily liable turn
o (3) issuing; out to be exempted from paying tax; the other party to the
o (4) accepting; or transaction then becomes liable.
o (5) transferring the taxable documents, instruments or papers. o Although it would seem that Philacor is the person who ultimately
o Should these parties be exempted from paying tax, the other party benefits from the issuance of the notes, these are observations on facts
who is not exempt would then be liable. and implications that are found outside the terms of the documents. This
o Philacor did not make, sign, issue, accept or transfer the would go against the doctrine that the liability for the DST is determined
promissory notes. from the document itself.
o The buyers of the appliances made, signed and issued the o The Court discussed several different amendments of the Tax
documents subject to tax, while the appliance dealer transferred Code as it pertained to the DST but noted that none of the
these documents to Philacor which likewise indisputably received amendments had ever extended the liability to pay DST to persons
or "accepted" them. who have any interest or benefit from the document or instrument
o "Acceptance," however, is an act that is not even applicable to subject to tax
promissory notes, but only to bills of exchange. o Thus, even if Philacor is the person ultimately benefited as in this
 Under the Negotiable Instruments Law, the act of case, as the law does not make the “beneficiary” liable it follows
acceptance refers solely to bills of exchange. that Philacor is not liable for the DST.
4
2. NO, Philacor is not liable for the DST on the ASSIGNMENT of the
Section 173. Stamp taxes upon documents, instruments, and papers. – Upon
documents, instruments, and papers, and upon acceptances, assignments, sales, and promissory notes as this transaction is not taxed under the law.
transfers of the obligation, right, or property incident thereto, there shall be levied,
collected and paid for, and in respect of the transaction so had or accomplished, the o Where the law did not specify that such transfer and/or assignment is to
corresponding documentary stamp taxes prescribed in the following sections of this be taxed, there would be no basis to recognize an imposition.
Title, by the person making, signing, issuing, accepting, or transferring the same, and at
the same time such act is done or transaction had: Provided, that wherever one party to
the taxable document enjoys exemption from the tax herein imposed, the other party
thereto who is not exempt shall be the one directly liable for the tax.
o A good illustrative example is Section 198 5 of the 1986 Tax Code.

o If we look closely at this provision, we would find that an assignment or
transfer becomes taxable only in connection with mortgages, leases and
policies of insurance. REVENUE REGULATIONS NO. 7-2009 (VILLARIN, L.)
 The list does not include the assignment or transfer of [SUMMARY]
evidences of indebtedness; rather, it is the renewal of issued on October 2, 2009
these that is taxable. Implements the Electronic Documentary Stamp Tax (eDST) System to
 The present case does not involve a renewal, but a mere replace the Documentary Stamp Tax Electronic Imprinting Machine (DSEIM).
transfer or assignment of the evidences of indebtedness or
promissory notes. Any taxpayer belonging to the following industries is mandated to use
the web-based eDST system in the payment/remittance of its/his/her
o In BIR Ruling No. 139-97 issued on December 29, 1997, then CIR Documentary Stamp Tax (DST) liabilities and the affixture of the
pronounced that the assignment of a loan that is not for a renewal or a prescribed documentary stamp on taxable documents, except those
continuance does not result in a liability for DST. expressly exempted by the Commissioner of Internal Revenue (CIR), on
o Revenue Regulations No. 13-2004, issued on December 23, 2004, meritorious grounds: [FAPER-C]
states that "[t]he DST on all debt instruments shall be imposed only on
every original issue and the tax shall be based on the issue price a. Bank, quasi-bank or non-bank financial intermediary, finance
thereof. Hence, the sale of a debt instrument in the secondary market company, or insurance, surety, fidelity, or annuity company;
will not be subject to the DST." Included in the enumeration of debt
instruments is a promissory note. b. Shipping and airline companies;
o The BIR Ruling and Revenue Regulation cited are still applicable to this
case, even if they were issued after the transactions in question had c. Pre-need company on sale of pre-need plans, as provided under
already taken place. They apply because the pertinent part of Section Section 186 of the Tax Code;
180 – the part dealing with promissory notes – remained the same; it
imposed the DST on the promissory notes’ issuances and renewals, but d. Educational institution, in respect to the issuance of taxable
not on their assignment or transfer. certificates such as Diploma, Transcript of Records, and other
o Thus, DST on the assignment of promissory notes by Philacor is not documents taxable as certificates under Section 188 of the Tax
subject to DST. Code; and
e. Such other industries as may be required by the CIR to use the

“web-based eDST System” upon written notification therefor.
These Regulations shall also apply to taxpayers who, at their option, choose
to pay their DST liabilities thru the eDST System.
5Section 198. Stamp tax on assignments and renewals of certain instruments. – Upon each and
every assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or
Prior to the enrollment in the eDST System, taxpayers availing thereof,
continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness by whether on the mandatory or optional basis, shall be duly enrolled under the
altering or otherwise, there shall be levied, collected and paid a documentary stamp tax, at the BIR eFPS. In paying the DST under the eDST System, the DST Return (BIR
same rate as that imposed on the original instrument.
Form 2000) shall be filed and the amount due thereon shall be paid thru the the existing DSEIMs prior to enrollment in the eDST System may be
Electronic Filing payment System (eFPS)/Electronic Fund Transfer allowed to be utilized by the taxpayer/user until the same has been
Instruction System (eFTIS) for taxpayers/Authorized Agent Banks (AABs) on fully exhausted, provided that such utilization shall be made until
their own tax liabilities, respectively. However, payments of DST arising December 31, 2009 only. If the taxpayers/users opt to discontinue
from transfer of shares of stocks classified as capital asset or real the use of their existing DSEIMs with loaded balance of DST even
property classified as capital or ordinary assets, shall not be covered prior to December 31, 2009, the said balance may be transferred to
by these Regulations. the eDST System, subject to the conduct of verification by the
concerned BIR Office prior to the transfer of such DST balance to
Taxpayers that are mandated to use and/or voluntarily availing of the eDST the eDST System.
System shall enroll in the said system, in accordance with the provisions of
the applicable regulations, circulars and orders. For juridical entities or c. All unutilized DST in the DSEIMs as of December 31, 2009 may be
persons, however, the enrollment shall be made by authorized natural transferred to the eDST System. However, no transfer of such
persons specified in the company’s board resolution. unutilized balance shall be made until the verification of the
accuracy thereof has been made by the concerned BIR Office.
For taxpayers under the jurisdiction of the Large Taxpayers Service and
taxpayers adopting centralized DST payment scheme, enrollment shall d. All taxpayers/users that were selected for pilot testing should enroll
be made by their respective head offices as the lone Account Owner. On in the eDST System upon effectivity of these Regulations. However,
the other hand, taxpayers with decentralized DST payment scheme may, their existing DSEIMs with loaded DST balance can still be used by
at their option, designate one or more departments/branches as their branches/ departments not yet enrolled in the eDST System
authorized Account Owners. until December 31, 2009 or upon full utilization of DST balance
thereof, whichever comes first. Once added by the Account Owner
Once registered under the eDST System, the Account Owner may authorize as an eDST user, said branch/department can no longer use the old
as many users he/she deems necessary in the company’s business DSEIM. However, the DSEIM previously used by enrolled eDST
operations without the need for prior approval by the BIR. user can still be transferred for use by other branches/ departments
not yet authorized as eDST user. Provided, that such transfer of
Considering that some taxpayers/users may still be using DSEIMs with DSEIM shall be covered by the requisite permit issued by BIR prior
loaded balances as of the effectivity of these Regulations, the foregoing rules to such DSEIM transfer to the transferee branch/department,
on the use of DSEIMs and constructive Stamping of DST shall be observed: pursuant to existing rules and regulations.
a. All DSEIMs currently being used by taxpayers/users and duly e. All authorities to use “Constructive Stamping” or “Receipt System”
covered by permits issued by the BIR can still be used until (CS-RS) allowed under Revenue Memorandum Order No. 14-2008
December 31, 2009. However, the taxpayers/users of these dated March 27, 2008 issued on June 20, 2008 shall automatically
DSEIMS have the option to continue using the said machines until be revoked once the eDST System is fully implemented or beginning
December 31, 2009 or file an application to the web-based eDST January 1, 2010, whichever comes earlier.
System.
REVENUE REGULATIONS NO. 7 - 2009
b. Once enrolled in the eDST System, the taxpayer/user can no longer Implementing the Electronic Documentary Stamp Tax System to
use their DSEIMs. However, the DST that were already loaded in Replace the Documentary Stamp Tax Electronic Imprinting Machine.
July 29, 2009 the payment and utilization of DST for taxpayers belonging to certain
industries specified in Section 4 of these Regulations is envisioned to:
SECTION 1. SCOPE. – Pursuant to Section 244, in relation to Section 245 1. Improve taxpayer service by developing a more convenient,
of the National Internal Revenue Code of 1997, as amended, these efficient and secured system by giving taxpayers access to their
Regulations are hereby promulgated to implement the Electronic own information via internet;
Documentary Stamp Tax (eDST) System as replacement of Documentary
Stamp Tax Electronic Imprinting Machine (DSEIM) thereby amending 2. Monitor strictly the payments and utilizations of DST;
certain provisions of Revenue Regulations No. 9-2000, as amended.
3. Ensure that the correct amount of DST due is imposed and duly
SECTION 2. BACKGROUND. – On November 22, 2000, Revenue stamped on the taxable document; and
Regulations No. 9-2000 dated August 31, 2000 was issued for the
mandatory use of on-line Documentary Stamp Tax Electronic Imprinting 4. Generate comprehensive reports on a timely basis for monitoring
Machine (DSEIM) for identified taxpayers/users based on set threshold. purposes.
The on-line DSEIM refers to a device capable of imprinting the value of
the documentary stamp tax (DST) and other relevant data on the taxable SECTION 4. COVERAGE. – Any taxpayer belonging to the following
document, with remote loading and resetting feature, and/or with built-in industries is mandated to use the web-based eDST System in the
modem which enables users to load/purchase the DST value through an payment/ remittance of its/his/her DST liabilities and the affixture of the
on-line set up or electronic data transmission with the Bureau of Internal prescribed documentary stamp on taxable documents, except those
Revenue (BIR). expressly exempted by the Commissioner of Internal Revenue, on
meritorious grounds:
For both the users/taxpayers and the BIR, however, there were issues and 1. Bank, quasi-bank or non-bank financial intermediary, finance
problems that surfaced during its implementation, such as loading company, or insurance, surety, fidelity, or annuity company;
limitation, error in loading and affixture of stamps, absence of added
security in the system, expensive maintenance cost of machines, etc. In 2. Shipping and airline companies;
addition, the current system is not capable of providing the necessary
documentary stamp details/information that are needed by the BIR top 3. Pre-need company on sale of pre-need plans, as provided under
management and process owners (e.g., details of affixtures/usage per Section 186 of the Tax Code;
machine, generation of required reports, linkage with the BIR-ITS).
4. Educational institution, in respect to the issuance of taxable
Furthermore, the said system only captures the remittance, loading and
certificates such as Diploma, Transcript of Records, and other
the accumulated total usage of DST of each machine.
documents taxable as certificates under Section 188 of the Tax
On account of these limitations, the web-based eDST System that will use Code; and
a separate hardware/machine to imprint a secured stamp on the
5. Such other industries as may be required by the Commissioner to
document has been developed. The said web-based system aims to
use the “web-based eDST System” upon written notification
resolve the issues and problems being encountered by the
therefor.
users/taxpayers and the BIR in the use of the DSEIM.
These Regulations shall also apply to taxpayers who, at their option,
SECTION 3. OBJECTIVES. – The implementation of eDST System for
choose to pay their DST liabilities thru the eDST System. refers to the payment system used by commercial and universal
banks in paying their own tax liabilities.
Prior to the enrollment in the eDST System, taxpayers availing thereof,
whether on the mandatory or optional basis, shall be duly enrolled under 5. Account Owner – It shall refer to a taxpayer who is duly enrolled
the BIR eFPS. In paying the DST under the eDST System, the in the eDST System. For juridical person, an Account Owner may
Documentary Stamp Tax Return (BIR Form 2000) shall be filed and the be represented by any company official who shall be responsible
amount due thereon shall be paid thru the eFPS/eFTIS for in the enrollment in the system, maintenance of DST balance and
taxpayers/Authorized Agent Banks (AABs) on their own tax liabilities, creation of branch/department user.
respectively. However, payments of DST arising from transfer of shares of
stocks classified as capital asset or real property classified as capital or 6. eDST User – It shall refer to any person authorized by the
ordinary assets, shall not be covered by these Regulations. Account Owner to utilize the DST Account balance and affix the
prescribed documentary stamp to any taxable document.
SECTION 5. DEFINITION OF TERMS. - For purposes of these
Regulations, the terms herein provided are defined as follows: SECTION 6. ENROLLMENT FOR SYSTEM USAGE. – Taxpayers that
1. Electronic Documentary Stamp Tax (eDST) System – is a are mandated to use and/or voluntarily availing of the eDST System shall
web-based application created for taxpayers and the BIR that is enroll in the said system, in accordance with the provisions of the
capable of affixing a secured documentary stamp on the taxable applicable regulations, circulars and orders. For juridical entities or
documents as defined under the appropriate provisions under persons, however, the enrollment shall be made by authorized natural
Title VII of the National Internal Revenue Code of 1997, as persons specified in the company’s board resolution.
amended, thru the use of a computer unit, any laser printer with
at least 1200 dpi resolution, and Internet Explorer 7.0 It is also For taxpayers under the jurisdiction of the Large Taxpayers Service (LTS)
capable of providing a 3-layer watermark on stamps for added and taxpayers adopting centralized DST payment scheme, enrollment
security. shall be made by their respective Head Offices as the lone Account
Owner. On the other hand, taxpayers with decentralized DST payment
2. Documentary Stamp Tax Electronic Imprinting Machine scheme may, at their option, designate one or more
(DSEIM) – is a device capable of imprinting the value of the DST departments/branches as authorized Account Owners.
and other data on the taxable document with remote loading and
resetting feature, and with built-in modem which enables the Once registered under the eDST System, the Account Owner may
users to load the DST thru an on-line set-up or electronic data authorize as many users he/she deems necessary in the company’s
transmission with the BIR using the Revenue Collection and business operations without the need for prior approval by the BIR.
Verification System (RCVS).
SECTION 7. TRANSITORY PROVISIONS. – Considering that some
3. Electronic Filing and Payment System (eFPS) – The electronic taxpayers/users may still be using DSEIMs with loaded balances as of the
processing and transmission of tax return information, including effectivity of these Regulations, the foregoing rules on the use of DSEIMs
attachments, if any, and the payment of the corresponding taxes and Constructive Stamping of DST shall be observed:
due the government via the internet thru the BIR website. 1. All DSEIMs currently being used by taxpayers/users and duly
covered by permits issued by the BIR can still be used until
4. Electronic Fund Transfer Instruction System (eFTIS) – It December 31, 2009. However, the taxpayers/users of these
DSEIMS have the option to continue using the said machines (CS-RS) allowed under Revenue Memorandum Order (RMO) No.
until December 31, 2009 or file an application to the web-based 14-2008 dated March 27, 2008 issued on June 20, 2008 shall
eDST System; automatically be revoked once the eDST System is fully
implemented or beginning January 1, 2010, whichever comes
2. Once enrolled in the eDST System, the taxpayer/user can no earlier.
longer use their DSEIMs. However, the DST that were already
loaded in the existing DSEIMs prior to enrollment in the eDST SECTION 8. REPEALING CLAUSE. – All existing rules and regulations or
System may be allowed to be utilized by the taxpayer/user until parts thereof, which are inconsistent with the provisions of these
the same has been fully exhausted, provided that such utilization regulations, are hereby repealed, amended or revoked immediately.
shall be made until December 31, 2009 only.
SECTION 9. EFFECTIVITY CLAUSE. – These Regulations shall take
If the taxpayers/users opt to discontinue the use of their existing effect after fifteen (15) days following publication in a newspaper of
DSEIMs with loaded balance of DST even prior to December 31, general circulation.
2009, the said balance may be transferred to the eDST System,
subject to the conduct of verification by the concerned BIR Office
prior to the transfer of such DST balance to the eDST System;
3. All unutilized DST in the DSEIMs as of December 31, 2009 may
be transferred to the eDST System. However, no transfer of such REVENUE REGULATIONS NO. 13-2004 (VILLARIN, L.)
unutilized balance shall be made until the verification of the [SUMMARY]
accuracy thereof has been made by the concerned BIR Office; issued on December 29, 2004
Implements the provisions of Republic Act (RA) No. 9243, otherwise known
4. All taxpayers/users that were selected for pilot testing should as “An Act Rationalizing the Provisions on the Documentary Stamp Tax
enroll in the eDST System upon effectivity of these Regulations. (DST) of the National Internal Revenue Code (NIRC) of 1997, as Amended,
However, their existing DSEIMs with loaded DST balance can still and for Other Purposes”. As a result of the said amendments introduced by
be used by their branches/departments not yet enrolled in the RA No. 9243, the Sections under Title VII of the NIRC are now accordingly
eDST System until December 31, 2009 or upon full utilization of titled, numbered or renumbered and amended.
DST balance thereof, whichever comes first. Once added by the
Account Owner as an eDST user, said branch/department can no CHANGES
longer use the old DSEIM. However, the DSEIM previously used
by enrolled eDST user can still be transferred for use by other The rate of DST on the ORIGINAL ISSUE OF SHARES OF STOCK was
branches/departments not yet authorized as eDST user. revised from P1.50 on each P200.00 to “P1.00 on each P200.00,” or
Provided, that such transfer of DSEIM shall be covered by the fractional part thereof, of the par value, of such shares of stock. For
requisite Permit issued by BIR prior to such DSEIM transfer to the shares of stock without par value, the basis shall be the actual
transferee branch/department, pursuant to existing rules and consideration for the shares of stock. However, in a case where shares of
regulations; stocks without par value are issued as stock dividends, the basis of the
DST shall be the actual value represented by each share.
5. All authorities to use “Constructive Stamping” or “Receipt System”
The shares are considered issued upon the acquisition of the stockholder of “amount of premium collected.” The said DST shall be assessed only on
the attributes of ownership over the shares, which acquisition of such life insurance policies that were issued on or after March 20, 2004, the day
attributes of ownership shall be manifested by the acceptance by the R.A. 9243 took effect.
Corporation of the stockholder’s subscription to its shares of stock. The
entire shares of stock subscribed are considered issued for purposes The DST on POLICIES OF ANNUITIES has been amended by changing its
of the DST, even if not fully paid. The delivery of the certificates of tax rate and base to be “P0.50 on each P200.00” or fractional part thereof,
stock to stockholders is not essential for the DST to accrue. of the premium or installment payment or contract price collected.” The
DST on PRE-NEED PLANS has also been amended to be “P0.20 on each
The old tax rate of DST applicable on SALES, AGREEMENTS TO SELL, P200.00 of the premium or contribution collected.” The said DST shall be
MEMORANDA OF SALES, DELIVERIES, OR TRANSFER OF SHARES assessed only on annuities and pre-need plans issued on or after March 20,
OR CERTIFICATES OF STOCK is now revised from P1.50 on each P200.00 2004.
to “P0.75 on each P200.00,” or fractional part thereof, of the par value of
such stock. Likewise, the documents described as “due bills” and “certificates EXEMPTIONS
of obligation” have been removed from the coverage of this renumbered and
amended Section. The following instruments, documents and papers shall be exempt from the
DST:
All transfer of shares of stocks of a domestic corporation are subject to the
DST upon execution of the deed transferring ownership or rights thereto, or (a) Policies of insurance or annuities made or granted by a fraternal or
upon delivery, assignment or indorsement of such shares in favor of another. beneficiary society, order, association or cooperative company, operated
No transfer of shares of stock shall be recorded unless DST thereon has on the lodge system or local cooperation plan and organized and
been duly paid for in accordance with Section 201 of the NIRC. conducted solely by the members thereof for the exclusive benefit of
each member and not for profit.
ALL DEBT INSTRUMENTS, WHICH REPRESENT BORROWING AND
LENDING TRANSACTIONS, are now subject to DST of “P1.00 on each (b) Certificates of oaths administered to any government official in his
P200.00,” or fractional part thereof, of the issue price of any such debt official capacity or of acknowledgment by any government official in the
instrument. The DST on all debt instruments shall be imposed only on every performance of his official duties; written appearance in any courts by
original issue and the tax shall be based on the issue price thereof. Hence, any government official, in his official capacity; certificates of the
sale of a debt instrument in the secondary market will not be subject to the administration of oaths to any person as to the authenticity of any
DST. paper required to be filed in court by any person or party thereto,
whether the proceedings be civil or criminal; papers and documents
On ALL BILLS OF EXCHANGE (BETWEEN POINTS WITHIN THE filed in courts by or for the national, provincial, city or municipal
PHILIPPINES) OR DRAFTS, there shall be collected a DST of P0.30 on governments; affidavits of poor persons for the purpose of proving
each P200.00, or fractional part thereof, of the face value of any such poverty; statements and other compulsory information required of
bill of exchange or draft. persons or corporations by the rules and regulations of the national,
provincial, city or municipal governments exclusively for statistical
The DST rate of P0.50 on each P200.00 for LIFE INSURANCE POLICIES purposes and which are wholly for the use of the bureau or office in
has been retained but the tax base has been revised from the previous which they are filed, and not at the instance or for the use or benefit of
base of “amount insured by any such policy” to the new tax base of the person filing them; certified copies and other certificates placed
upon documents, instruments and papers for the national, provincial, city
or municipal governments, made at the instance and for the sole use of (h) Derivatives: Provided, That for purposes of this exemption, repurchase
some other branch of the national, provincial, city or municipal agreements and reverse repurchase agreements shall be treated
governments; and certificates of the assessed value of lands, not similarly as derivatives.
exceeding P200.00 in value assessed, furnished by the provincial, city
or municipal Treasurer to applicants for registration of title to land. (i) Interbranch or interdepartmental advances within the same legal
entity.
(c) Borrowing and lending of securities executed under the Securities
Borrowing and Lending Program of a registered exchange, or in (j) All forebearances arising from sales or service contracts including
accordance with regulations prescribed by the appropriate regulatory credit card and trade receivables: Provided, That the exemption be
authority: Provided, however, That any borrowing or lending of securities limited to those executed by the seller or service provider itself.
agreement as contemplated hereof shall be duly covered by a master
securities borrowing and lending agreement acceptable to the (k) Bank deposit accounts without a fixed term or maturity.
appropriate regulatory authority, and which agreement is duly registered
and approved by the Bureau of Internal Revenue. (l) All contracts, deeds, documents and transactions related to the
conduct of business of the Bangko Sentral ng Pilipinas.
(d) Loan agreements or promissory notes, the aggregate of which does
not exceed P250,000, or any such amount as may be determined by the (m) Transfer of property pursuant to Section 40(C)(2) of the National
Secretary of Finance, executed by an individual for his purchase on Internal Revenue Code of 1997, as amended.
installment for his personal use or that of his family and not for business
or resale, barter or hire of a house, lot, motor vehicle, appliance or (n) Interbank call loans with maturity of not more than seven (7) days
furniture: Provided, however, That the amount to be set by the Secretary to cover deficiency in reserves against deposit liabilities, including those
of Finance shall be in accordance with a relevant price index but not to between or among banks and quasi-banks.
exceed 10% of the current amount and shall remain in force at least for 3
years. The DST rates as imposed under the NIRC, as amended by R.A. 9243, shall
be applicable on all documents not otherwise expressly exempted by the
(e) Sale, barter or exchange of shares of stock listed and traded said law, notwithstanding the fact that they are in electronic form. As
through the local stock exchange for a period of 5 years from the provided for by R.A. 8792, otherwise known as the Electronic Commerce
effectivity of this Act. Act, electronic documents are the functional equivalent of a written document
under existing laws, and the issuance thereof is therefore tantamount to the
(f) Assignment or transfer of any mortgage, lease or policy of insurance, issuance of a written document, and therefore subject to DST.
or the renewal or continuance of any agreement, contract, charter, or
any evidence of obligation or indebtedness, if there is no change in the The Regulations shall apply to all transactions made or to
maturity date or remaining period of coverage from that of the documents/instruments executed or issued as of March 20, 2004, the date
original instrument. when R. A. No. 9243 took effect.
(g) Fixed income and other securities traded in the secondary market REVENUE REGULATIONS NO. 13-2004
or through an exchange. Implementing the Provisions of Republic Act No. 9243, An Act
Rationalizing the Provisions on the Documentary Stamp Tax of the Others.”

National Internal Revenue Code of 1997, as Amended, and for Other “SEC. 182. Stamp Tax on Foreign Bills of Exchange and Letters of
Purposes. Credit.”
December 23, 2004 “SEC. 183. Stamp Tax on Life Insurance Policies.” (Amended)
“SEC. 184. Stamp Tax on Policies of Insurance Upon Property.”
SECTION 1. Scope. – “SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance
Pursuant to the provisions of Section 4 of Republic Act No. 8424 and Policies.”
Section 244 of the National Internal Revenue Code of 1997 (Code), these “SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need
Regulations are hereby promulgated to implement the provisions of Plans.” (Amended)
Republic Act (R.A.) No. 9243, otherwise known as “An Act Rationalizing “SEC. 187. Stamp Tax on Indemnity Bonds.”
the Provisions on the Documentary Stamp Tax of the National Internal “SEC. 188. Stamp Tax on Certificates.”
Revenue Code of 1997, as Amended, and for Other Purposes.” “SEC. 189. Stamp Tax on Warehouse Receipts.”
“SEC. 190. Stamp Tax on Jai-alai, Horse Race Tickets, Lotto or Other
SECTION 2. Renumbering of Sections Under Title VII (Documentary Authorized Numbers Games.”
Stamp Tax) of the Code of 1997. – “SEC. 191. Stamp Tax On Bills of Lading or Receipts.”
As a result of the amendments introduced by R.A. No. 9243, the Sections “SEC. 192. Stamp Tax on Proxies.”
under Title VII of the Code are now accordingly titled, numbered or “SEC. 193. Stamp Tax on Powers of Attorney.”
renumbered and amended, and with affected Sections highlighted as “SEC. 194. Stamp Tax on Leases and Other Hiring Agreements.”
follows: “SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust.”
“SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real
“SEC. 173. Stamp Taxes upon Documents, Loan Agreements, Property.”
Instruments and Papers.” “SEC. 197. Stamp Tax on Charter Parties and Similar Instruments.”
“SEC. 174. Stamp Tax on Original Issue of Shares of Stock.” “SEC. 198. Stamp Tax on Assignments and Renewals of Certain
(Renumbered and amended) Instruments.”
“SEC. 175. Stamp Tax on Sales, Agreements to Sell, Memoranda “SEC. 199. Documents and Papers Not Subject to Stamp Tax.”
of Sales, Deliveries or Transfer of Shares or Certificates of Stock.” (Amended)
(Renumbered and amended)
“SEC. 176. Stamp Tax on Bonds, Debentures, Certificates of SECTION 3. New Rate of DST on Original Issue of Shares of Stocks. –
Stock or Indebtedness Issued in Foreign Countries.” (Renumbered) “SEC. 174. Stamp Tax on Original Issue of Shares of Stock. – On
“SEC. 177. Stamp Tax on Certificates of Profits or Interest in every original issue, whether on organization, reorganization or
Property or Accumulations.” (Renumbered) for any lawful purpose, of shares of stock by any association,
“SEC. 178. Stamp Tax on Bank Checks, Drafts, Certificates of company or corporation, there shall be collected a documentary
Deposit not Bearing Interest, and other Instruments.” (Renumbered) stamp tax of One peso (P1.00) on each Two hundred pesos
“SEC. 179. Stamp Tax on All Debt Instruments.”(Renumbered (P200), or fractional part thereof, of the par value, of such shares
and amended) of stock: Provided, that in case of the original issue of shares of
“SEC. 180. Stamp Tax on All Bills of Exchange or Drafts.” stock without par value, the amount of the documentary stamp
(Amended) tax herein prescribed shall be based upon the actual
“SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and consideration for the issuance of such shares of stock: Provided,
further, That in the case of stock dividends, on the actual value or agreement, or memorandum or other evidences of transfer or
represented by each share.” sale whether entitling the holder in any manner to the benefit of
such stock, or to secure the future payment of money, or for the
Section 174 of the Code used to be Section 175. The rate of DST on the future transfer of any stock, there shall be collected a
original issue of shares of stock was revised from One peso and fifty documentary stamp tax of Seventy-five centavos (P0.75) on each
centavos (P1.50) on each Two hundred Pesos (P200) to “One peso Two hundred pesos (P200), or fractional part thereof, of the par
(P1.00) on each Two hundred pesos (P200),” or fractional part thereof, value of such stock: Provided, That only one tax shall be
of the par value, of such shares of stock. collected on each sale or transfer of stock from one person to
another, regardless of whether or not a certificate of stock is
The DST under this Section is imposed on the privilege of issuing shares issued, indorsed, or delivered in pursuance of such sale or
of stock. The shares are considered issued upon the acquisition of the transfer: and Provided, further, That in case of stock without par
stockholder of the attributes of ownership over the shares (the right to value the amount of the documentary stamp tax herein prescribed
vote, the right to receive dividends, the right to dispose, etc. shall be equivalent to twenty-five percent (25%) of the
notwithstanding that restrictions on the exercise of any of these rights may documentary stamp tax paid upon the original issue of said
be imposed by the Corporation’s articles and/or by-laws, the Securities stock.”
and Exchange Commission, stockholder agreement, court order, etc.),
which acquisition of such attributes of ownership shall be manifested by Section 175 of the Code used to be Section 176 with the old tax rate of
the acceptance by the Corporation of the stockholder’s subscription to its DST applicable on sales, agreements to sell, memoranda of sales,
shares of stock. The entire shares of stock subscribed are considered deliveries, or transfer of shares or certificates of stock is now revised from
issued for purposes of the DST, even if not fully paid. The delivery of the One peso and fifty centavos (P1.50) on each Two hundred Pesos (P200)
certificates of stock to stockholders is not essential for the DST to accrue. to “Seventy-five centavos (P0.75) on each Two hundred pesos
(P200),” or fractional part thereof, of the par value of such stock. Likewise,
In all cases where the issued shares are with par value, the basis of the the documents described as “due bills” and “certificates of obligation”,
DST shall be the par value thereof. For shares of stock without par value, which were previously included in the old section, have been removed
the basis shall be the actual consideration for the shares of stock. from the coverage of this renumbered and amended Section.
However, in a case where shares of stocks without par value are issued
as stock dividends, the basis of the DST shall be the actual value All transfer of shares of stocks of a domestic corporation are subject to the
represented by each share. DST upon execution of the deed transferring ownership or rights thereto,
or upon delivery, assignment or indorsement of such shares in favor of
SECTION 4. New Rate of DST on Sales, Agreements to Sell, another. No transfer of shares of stock shall be recorded unless DST
Memoranda of Sales, and Subsequent Transfer of Shares of Stocks. thereon has been duly paid for in accordance with Section 201 of the
– Code.
“SEC. 175. Stamp tax on Sales, Agreements to Sell, Memoranda
of Sales, Deliveries or Transfer of Shares or Certificates of Stock. For a sale or exchange to be taxable, there must be an actual or
– On all sales, or agreements to sell, or memoranda of sales, or constructive transfer of beneficial ownership of the shares of stock from
deliveries, or transfer of shares or certificates of stock in any one person to another. Such transfer may be manifested by the clear
association, company, or corporation, or transfer of such exercise of attributes of ownership over such stocks by the transferee, or
securities by assignment in blank, or by delivery, or by any paper by an actual entry of a change in the name appearing in the certificate of
stock or in the Stock and Transfer Book of the issuing corporation or by including but not limited to debentures, certificates of
any entry indicating transfer of beneficial ownership in any form of registry indebtedness, due bills, bonds, loan agreements, including those
including those of a duly authorized scripless registry, such as those signed abroad wherein the object of contract is located or used in
maintained for or by the Philippine Stock Exchange. However, if by the the Philippines, instruments and securities issued by the
transfer of certificates of stock from a resigned trustee to a newly government or any of its instrumentalities, deposit substitute debt
appointed trustee such certificate of stock remain in the name of the cestui instrument, certificates or other evidences of deposits that are
que trust or the resigned trustee so that the new trustee is constituted as either drawing interest significantly higher than the regular
mere depository of the stock, such transfer is not taxable. Provided, savings deposit taking into consideration the size of the deposit
however, that transfer of shares to “nominees” to qualify them to sit in the and the risks involved or drawing interest and having a specific
board or to qualify them to perform any act in relation to the corporation maturity date, orders for payment of any sum of money otherwise
shall not be subject to the DST provided herein only upon proof of a duly than at sight or on demand, promissory notes, whether negotiable
executed Nominee Agreement showing the purpose of the transfer; that or non-negotiable, except bank notes issued for circulation.”
the transfer is without consideration other than the undertaking of the
nominee to only represent the beneficial owner of the stock; and the Section 179 used to be Section 180 of the Code, and, as amended, it now
transfer is in trust. covers all instruments representing borrowing and lending transaction
under a single heading, i.e., “All Debt Instruments” and applying a new
Agreements to sell shares of stock are also subject to DST. It is not only unitary tax rate thereon. Consequently, “debentures and certificates of
actual sales or transfers that are taxable but also agreements to sell such indebtedness” found in the former Section 174 of the Code, and likewise
stock or executory contracts for the sale or transfer of shares of stock. “due bills and certificates of obligation” found in the former Section 176 of
However, if the DST has been paid on the agreement to sell or the Code, have been incorporated in this renumbered and amended
memoranda of sale, the actual sale or transfer of the stocks pursuant to Section.
the agreement will no longer be subject to DST.
“Debt Instrument” shall mean instruments representing borrowing and
SECTION 5. New Rate of DST on All Debt Instruments. – lending transaction including but not limited to:
“SEC. 179. Stamp Tax on All Debt Instruments. – On every a. debentures,
original issue of debt instruments, there shall collected a b. certificates of indebtedness,
documentary stamp tax of One pesos (P1.00) on each Two c. due bills,
hundred pesos (P200), or fractional part thereof, of the issue d. bonds,
price of any such debt instrument : Provided, That for such debt e. loan agreements, including those signed abroad wherein the
instruments with terms of less than one (1) year, the documentary object of the contract is located or used in the Philippines,
stamp tax to be collected shall be of a proportional amount in f. instruments and securities issued by the government or any of its
accordance with the ratio of its term in number of days to three instrumentalities,
hundred sixty-five (365) days: Provided, further, That only one g. deposit substitute debt instruments,
documentary stamp tax shall be imposed on either loan h. certificates or other evidences of deposits that are drawing
agreement, or promissory notes issued to secure such loan. instrument significantly higher than the regular savings deposit
taking into consideration the size of the deposit and the risks
“For purposes of this section, the term debt instrument shall mean involved,
instruments representing borrowing and lending transactions i. certificates or other evidences of deposits that are drawing
interest and having a specific maturity date, P 100,000.00/ P200.00 = P500.00 x P1.00 = P 500.00
j. orders for payment of any sum of money otherwise than at sight
or on demand, As is the treatment prevailing before the effectivity of R.A. No. 9243, all
k. promissory notes, whether negotiable or non-negotiable, except certificates or other evidences of deposit in banks drawing interest at such
bank notes issued for circulation. rate depending upon the amount deposited and having a specific maturity
date or where the interest earned varies depending on the duration/term
All such debt instruments are now subject to DST of “One peso (P1.00) (number of days) of the deposit, shall be subject to the DST provided
on each Two hundred pesos (P200),” or fractional part thereof, of the herein, irrespective of the nomenclature and whether covered by a
issue price of any such debt instrument, from the previous varying rates of certificate, passbook or any other evidence of deposit. Bank deposits of
One peso and fifty centavos (P1.50) on each Two hundred Pesos (P200) any kind which provide interest higher than the rate given to a regular
under then Section 174 and Section 176, or Thirty centavos (P0.30) on savings/demand deposit account shall also be subject to the new rate of
each Two hundred pesos (P200) under then Section 180. The term “issue DST imposed herein. The exceptions are ordinary demand and savings
price” as used herein shall refer to the face value of the debt instrument. deposits which are withdrawable upon demand by the depositor and
earning rates of interest based on prevailing market rates for a regular
The DST on all debt instruments shall be imposed only on every original saving/demand deposit account, irrespective of the amount deposited.
issue and the tax shall be based on the issue price thereof. Hence, sale of The DST shall be due and payable upon the date such deposit is made.
a debt instrument in the secondary market will not be subject to the DST.
For purposes of determining whether a certificate or document evidencing
If the debt instrument has a term of less than one (1) year, the DST due deposits is subject to DST imposed on debt instruments, the following
shall be computed taking into consideration the number of days that the rules shall apply:
instrument is outstanding as a fraction of 365 days.
2. Any deposit bearing interest, irrespective of the nomenclature and
Example: A promissory note in the amount of Pesos: One hundred whether covered by a certificate, passbook or any other evidence
thousand (P100,000.00) is issued with a term of 90 days from issue date. of deposit, where the interest is significantly higher than the rate
The DST due is One Hundred Twenty Three Pesos and Twenty Nine given to regular savings deposits, shall be subject to the new rate
Centavos (P123.30) computed as follows: of DST imposed on debt instruments.
3. All type of deposit accounts with a higher interest yield than that
P100,000 / P200 = 500 x P1.00 = P500.00 x 90/365 = P123.29 or given to savings deposit or where the interest rate earned by
P123.30 such deposit is reduced upon pre- termination, are likewise
(rounded off to the nearest centavo) subject to the new rate of DST herein imposed.
4. All interest rate of a particular bank or financial institution shall be
If the debt instrument has a term of one year or longer, the DST due shall considered as “significantly higher” if it is at least fifty percent
be computed based on the issue price of the debt instrument. (50%) higher than the lowest interest rate given by that bank or
financial institution on any of its deposit, whether the same be
Example: A promissory note is issued at a price of Pesos: One Hundred savings/demand deposit. A regular savings/demand deposit are
Thousand (P 100,000.00) with a term of two years. The DST due is those which are withdrawable upon demand by the depositor and
Pesos: Five Hundred (P 500.00) computed as follows: is earning rates of interest at the rate prevailing for a regular
savings/demand deposit, irrespective of the amount deposited.
5. Any deposit bearing interest, irrespective of the nomenclature and such policy” to the new tax base of “amount of premium collected.”
whether covered by a certificate, passbook or any other evidence
of deposit is considered to be a with a maturity date, and subject The DST provided for in this section shall be assessed only on life
to DST as imposed upon debt instruments, if: insurance policies that were issued on or after March 20, 2004, the day
R.A. 9243 took effect. The DST due on life insurance policy shall be due
a. There is a predetermined or defined specific maturity or end and collected every time there is an insurance premium collection on such
date to the deposit as agreed to by the depositor; or policy, including premiums paid/collected beyond the year the policy was
b. Absent a specific maturity date, there is a defined program of taken out. Insurance premium collection as used herein shall include not
enjoyment of higher interest rate or enjoyment of a privilege only those premiums paid or remitted by the insured directly, but shall also
or other benefit (either monetary or in kind) to be extended by include premiums paid for by applying cash surrender value, dividend
the bank or financial institution if the said deposit is to be earned, other modes of payment, whether on the original policy or
maintained by the depositor for a defined period of time. amendments thereto. However, life insurance policies issued before the
enactment of R.A. 9243 and included in the inventory required herein to
SECTION 6. DST on Domestic Bills of Exchange or Drafts.– be submitted shall be covered by the provisions of the old Section 183,
“SEC. 180. Stamp Tax on All Bills of Exchange or Drafts. – On all and DST shall not be collected thereon as imposed in this amended
bills of exchange (between points within the Philippines) or drafts, Section if the DST due thereon as provided in the old Section 183 has
there shall be collected a documentary stamp tax of Thirty already been fully paid. Provided, however, any increase in coverage from
centavos (P0.30) on each Two hundred pesos (P200), or year to year or additional riders attached to existing policy shall be
fractional part thereof, of the face value of any such bill of deemed a new issuance, and premium relating thereto whether paid or
exchange or draft.” remitted by the insured directly, or by applying the cash surrender value or
dividend earned are subject to DST.
This is intended to complement the DST imposed on “all foreign bills of
exchange” which are “drawn in but payable out of the Philippines” under As a consequence of the change in the DST tax base for life insurance
Section 182 of the Code. policies, all insurance companies who are issuing life insurance policies
shall submit in hard and soft copy, an inventory of all issued, outstanding
SECTION 7. New Documentary Stamp Tax Base for Life Insurance and valid life insurance policies as of March 19, 2004, following the herein
Policies. – format.
“SEC. 183. Stamp Tax on Life Insurance Policies. – On all
policies of insurance or other instruments by whatever name the Name of Life Insurance Company
same may be called, whereby any insurance shall be made or Summary of Outstanding and Valid Life Insurance Policies
renewed upon any life or lives, there shall collected a As of March 19, 2004
documentary stamp tax of Fifty centavos (P0.50) on each Two Product Policy Date Name Annual Amount
Hundred pesos (P200), or fractional part thereof, of the amount of Type*Including No. Issued of Premium Insured
premium collected.” Description of Insured Inclusive
Existing of the
Section 183 has been amended retaining the same DST rate of Fifty Riders Existing
centavos (P0.50) on each Two Hundred pesos (P200) as before, but Riders
revising the tax base, from the previous base of “amount insured by any
pesos (P200)” or fractional part thereof, of the premium or installment

payment or contract price collected.”
The above mentioned listing of issued life insurance policies shall be On pre-need plans, the DST is now based on the “premium or
submitted to the Revenue District Office/Large Taxpayers Service/Large contribution collected” in lieu of the previous “value or amount of the
Taxpayers District Office where the taxpayer is registered on or before plan”. Likewise, the rate has been restated, from the previous Fifty
January 31, 2005. The hard copy of the above listing shall be made under centavos (P0.50) on each Five hundred pesos (P500), to the new rate of
oath as to the completeness, truth and accuracy thereof by a duly “Twenty centavos (P0.20) on each Two hundred pesos (P200)” of the
authorized officer or representative of the taxpayer. Failure to do so, or premium or contribution collected.
failure to submit the inventory required herein on the date stated herein,
would make said life insurance policies subject to DST based on The DST provided for in this section shall be assessed only on annuities
insurance premiums collected as imposed under the new law. and pre- need plans issued on or after March 20, 2004, the day R.A. 9243
took effect. The DST due on such annuities and pre-need plans shall be
SECTION 8. New Stamp Tax Base and Rate for Policies of Annuities due and collected every time there is a premium collection on such
and Pre-Need Plans. – annuities and pre-need plans, including those premium paid/collected
“SEC. 186. Stamp tax on Policies of Annuities and Pre-Need beyond the year the annuities and pre-need plans were purchased.
Plans. – On all policies of annuities, or other instruments by However, annuities and pre-need plans issued before the enactment of
whatever name the same may be called whereby an annuity may R.A. 9243 and listed in the inventory required herein to be submitted are
be made, transferred or redeemed, there shall be collected a subject to the rates and base specified under the old Section 186, and no
documentary stamp tax of Fifty centavos (P0.50) on each Two DST shall be due thereon as imposed in this section, if the DST due
hundred pesos (P200), or fractional part thereof, of the premium thereon as provided for in the old Section 186 has already been fully paid.
or installment payment or contract price collected. On pre-need
plans the documentary stamp tax shall be Twenty centavos As a consequence of the change in the DST tax base for annuities and
(P0.20) on each Two hundred pesos (P200), or fractional part pre-need plans, all taxpayers issuing annuities and pre-need plans shall
thereof, of the premium or contribution collected.” submit in hard and soft copy an inventory of all issued, outstanding and
valid life annuities and pre-need plans as of March 19, 2004, following the
Section 186 has been amended changing the tax base and imposing a herein format.
revised DST rate on policies of annuities and pre-need plans. On policies
of annuities, the old tax base of “capital of the annuity” or “annual income” Name of Taxpayer
has been removed and in its place, the tax is now based on the “premium Summary of Outstanding and Valid Annuities and Pre-Need Plans
or installment payment or contract price collected.” As of March 19, 2004
Product Policy Date Name Annual Amount
The DST rate has likewise been reduced and simplified, from the previous Type*Including No. Issued of Premium Insured
“One peso and fifty centavos (P1.50) on each Two hundred Pesos (P200), Description of Insured Inclusive
or fractional part thereof, of the capital of the annuity, or should this be Existing of the
unknown, then on each Two hundred pesos (P200) pesos, or fractional Riders Existing
part thereof, of thirty three and one third (33 1/3) times the annual income” Riders
to the new tax rate of “Fifty centavos (P0.50) on each Two hundred
rules and regulations of the national, provincial, city or

municipal governments exclusively for statistical
The above mentioned listing of issued annuities and pre-need plans shall purposes and which are wholly for the use of the bureau
be submitted to the Revenue District Office/Large Taxpayers or office in which they are filed, and not at the instance or
Service/Large Taxpayers District Office where the taxpayer is registered for the use or benefit of the person filing them; certified
on or before January 31, 2005. The hard copy of the above listing shall be copies and other certificates placed upon documents,
made under oath as to the completeness, truth and accuracy thereof by a instruments and papers for the national, provincial, city or
duly authorized officers or representative of the taxpayer. Failure to do so, municipal governments, made at the instance and for the
or failure to submit the listings required in this section with the time sole use of some other branch of the national, provincial,
required herein would make said annuities and pre-need plans subject to city or municipal governments; and certificates of the
DST based on premium collected as imposed under the new law. assessed value of lands, not exceeding Two hundred
pesos (P200) in value assessed, furnished by the
SECTION 9. Documents and Papers not Subject to DST. – provincial, city or municipal Treasurer to applicants for
“SEC. 199. Documents and Papers Not Subject to Stamp Tax. – registration of title to land.
The provisions of Section 173 to the contrary notwithstanding, the
following instruments, documents and papers shall be exempt c. Borrowing and lending of securities executed under the
from the DST: Securities Borrowing and Lending Program of a
registered exchange, or in accordance with regulations
a. Policies of insurance or annuities made or granted by a prescribed by the appropriate regulatory authority:
fraternal or beneficiary society, order, association or Provided, however, That any borrowing or lending of
cooperative company, operated on the lodge system or securities agreement as contemplated hereof shall be
local cooperation plan and organized and conducted duly covered by a master securities borrowing and
solely by the members thereof for the exclusive benefit of lending agreement acceptable to the appropriate
each member and not for profit. regulatory authority, and which agreement is duly
registered and approved by the Bureau of Internal
b. Certificates of oaths administered to any government Revenue (BIR).
official in his official capacity or of acknowledgment by
any government official in the performance of his official d. Loan agreements or promissory notes, the aggregate of
duties, written appearance in any courts by any which does not exceed Two hundred fifty thousand
government official, in his official capacity; certificates of pesos (P250,000), or any such amount as may be
the administration of oaths to any person as to the determined by the Secretary of Finance, executed by an
authenticity of any paper required to be filed in court by individual for his purchase on installment for his personal
any person or party thereto, whether the proceedings be use or that of his family and not for business or resale,
civil or criminal; papers and documents filed in courts by barter or hire of a house, lot, motor vehicle, appliance or
or for the national, provincial, city or municipal furniture: Provided, however, That the amount to be set
governments; affidavits of poor persons for the purpose by the Secretary of Finance shall be in accordance with a
of proving poverty; statements and other compulsory relevant price index but not to exceed ten percent (10%)
information required of persons or corporations by the of the current amount and shall remain in force at least
for three (3) years. n. Interbank call loans with maturity of not more than seven
(7) days to cover deficiency in reserves against deposit
e. Sale, barter or exchange of shares of stock listed and liabilities, including those between or among banks and
traded through the local stock exchange for a period of quasi-banks.”
five (5) years from the effectivity of this Act.
f. Assignment or transfer of any mortgage, lease or policy Section 199 has been amended to clearly identify what documents and
of insurance, or the renewal or continuance of any instruments are not subject to DST. Items (c) to (n), except item (d) which
agreement, contract, charter, or any evidence of was part of then Section 180 and incorporated in this amended Section,
obligation or indebtedness, if there is no change in the are new.
maturity date or remaining period of coverage from that
of the original instrument. For clarity and to avoid confusion, Section 199(g) of the Code, as
amended, shall refer exclusively to debt instruments.
g. Fixed income and other securities traded in the
secondary market or through an exchange.
Derivatives exempted from DST under Section 199 (h) of the Code, as
amended, shall refer only to those derivatives issued by entities duly
h. Derivatives: Provided, That for purposes of this
licensed by the Bangko Sentral ng Pilipinas (BSP) to issue and trade in
exemption, repurchase agreements and reverse
derivatives, and whose issuance is duly authorized by the Bangko Sentral
repurchase agreements shall be treated similarly as
ng Pilipinas (BSP).
derivatives.
The exemption for bank deposit accounts without a fixed term or maturity
i. Interbranch or interdepartmental advances within the
provided under Section 199 (k) of the Code, as amended, shall apply only
same legal entity.
to deposit account which does not qualify under the provisions of Section
5 of these Regulations.
j. All forebearances arising from sales or service contracts
including credit card and trade receivables: Provided,
The exemption on transfer of property pursuant to Section 40(c)(2) of the
That the exemption be limited to those executed by the
National Internal Revenue Code of 1997, as amended, provided for under
seller or service provider itself.
Section 199(m) refers to the DST due on the deed transferring the
property. However, the shares of stocks issued in exchange for said
k. Bank deposit accounts without a fixed term or maturity.
property is subject to the DST due under Sections 174 if they are original
issues.
l. All contracts, deeds, documents and transactions related
to the conduct of business of the Bangko Sentral ng
For clarity and to avoid confusion, for interbank call loans with maturity of
Pilipinas.
not more than seven (7) days, including those between or among banks
and quasi-banks, the same must have been made strictly to cover
m. Transfer of property pursuant to Section 40(C)(2) of the
deficiency in reserves against deposit liabilities for the same to be
National Internal Revenue Code of 1997, as amended.
exempted from DST as provided for in Section 199(n) of the Code as
amended.
Philippines/domestic corporations/resident foreign corporations

SECTION 10. Applicability of the DST law on Electronic Documents. – derived from contracts by subcontractors from service contractors
The DST rates as imposed under the Code, as amended by R.A. 9243 engaged in "petroleum operations" in the Philippines - 8%;
shall be applicable on all documents not otherwise expressly exempted by 2) gross income from all sources within the Philippines derived by non-
the said law, notwithstanding the fact that they are in electronic form. As resident cinematographic film owners, lessors or distributors - 25%;
provided for by R.A. 8792, otherwise known as the Electronic Commerce and
Act, electronic documents are the functional equivalent of a written 3) gross income received by Filipinos employed and occupying the
document under existing laws, and the issuance thereof is therefore same positions as those aliens employed by multinational
tantamount to the issuance of a written document, and therefore subject to companies, Offshore Banking Units, foreign petroleum service
DST. contractors and subcontractors - 15%. However, Filipinos employed
and occupying the same positions as those aliens employed by
SECTION 11. Repealing Clause. – multinational companies shall have the option to be taxed at either
All existing rules and regulations or parts thereof, which are inconsistent 15% of gross income or at the regular tax rate on their taxable
with the provisions of these regulations, are hereby repealed, amended or income.
modified accordingly.
The revised rates of Creditable Withholding Tax on income payments to the
SECTION 12. Effectivity. – following persons residing in the Philippines are:
These regulations shall apply to all transactions made or to 1) professional entertainers, such as, but not limited to actors and
documents/instruments executed or issued as of March 20, 2004, the date actresses, singers and emcees - 20%;
when R. A. No. 9243 took effect. 2) professional athletes, including basketball players, pelotaris and
jockeys - 20%;
3) all directors involved in movies, stage, radio, television and musical
production - 20%;
4) other recipients of talent fees - 20%;
5) directors who are not employees of the company paying them fees,
whose duties are confined to attendance at and participation in the
BIR WEBSITE DIGEST OF REVENUE REGULATION 6-2001 meetings of the board of directors - 20%;
(VILLARIN, P.) 6) professional fees, talent fees, etc. for services of taxable juridical
RR 6-2001 amends pertinent provisions of RR Nos. 1-98, 2-98 and 7-95 and persons - 10%;
RMC No. 1-98 relative to the inclusion of additional taxpayers to be subject 7) income payments to certain brokers and agents - 10%; and
to the Final Withholding Tax, revision of the Withholding Tax rates on certain 8) income payments to certain contractors - 2%.
income payments subject to Creditable Withholding Tax, time for the filing of
various tax returns and payment of the taxes due thereon and others. Income payments made by credit card companies in the Philippines to any
business entity shall be withheld a 1% creditable income tax based on the
Additional income payments subject to the Final Withholding Tax are the gross amounts paid. A 6% Creditable Withholding Tax shall also be imposed
following: on the sale/transfer of real properties classified as ordinary assets if the
1) income payments to citizens or to resident alien individuals/non- seller/transferor is not habitually engaged in the real estate business.
resident aliens engaged in trade or business in the
July 31, 2001 Act') in the Philippines – Eight percent (8%) of its gross income
REVENUE REGULATIONS NO. 6 – 2001 derived from such contracts in lieu of any and all taxes, national and
local, as imposed under P.D. 1354
SUBJECT : Amending Pertinent Provisions of Revenue Regulations
Nos. 1-98, 2-98, as Amended, and 7-95, as Amended, and Revenue (B) Income Payment to Non-resident Aliens Engaged in
Memorandum Circular No. 1-98 Relative to the Inclusion of Additional Trade or Business in the Philippines. - The following forms of
Taxpayers to be Subject to Final Withholding Tax, Revision of the income derived from sources within the Philippines shall be subject
Withholding Tax Rates on Certain Income Payments Subject to to final withholding tax in the hands of a non-resident alien individual
Creditable Withholding Tax, Time for the Filing of Various Tax Returns engaged in trade or business within the Philippines, based on the
and Payment of the Taxes Due Thereon And Others gross amount thereof and at the rates prescribed therefor:
TO : All Internal Revenue Officers and Others Concerned xxx xxx xxx
(4) Gross income from all sources within the Philippines derived
SECTION 1. Scope. – Pursuant to Section 244 of the Tax Code of 1997, in by non-resident cinematographic film owners, lessors or distributors
relation to Sections 25(C), 25(D), 25(E), 57, 58, 59, 81, 114(A), 128(A)(3) - Twenty Five percent (25%)
and 200(B) of the same Code and Presidential Decree (P.D.) No. 1354,
these Regulations are hereby promulgated, in order to, among others, revise For purposes of these regulations, the term ‘cinematographic
the rates of withholding tax on certain income payments subject to creditable film’ includes motion picture films, films, tapes, discs and other such
withholding tax, and provide for the time for the filing of the various tax similar or related products.
returns, and the payment of the taxes due thereon.
(5) Gross income derived from contracts by subcontractors from
SECTION 2. Income Payments Subject to Final Withholding Tax. Section service contractors engaged in 'petroleum operations' as defined
2.57.1 of Revenue Regulations No. 2-98, as amended, is hereby further under P.D. 87 (also known as the 'Oil Exploration and Development
amended to read as follows: Act') in the Philippines – Eight percent (8%) of its gross income
derived from such contracts in lieu of any and all taxes, national and
“Sec. 2.57.1. Income Payments Subject to Final Withholding local, as imposed under P.D. 1354
Tax. – The following forms of income shall be subject to final
withholding tax at the rates herein specified: xxx xxx xxx
(A) Income payments to a citizen or to a resident alien (D) Income Derived by Alien Individuals Employed by
individual Regional or Area Headquarters and Regional Operating
Headquarters of Multinational Companies and Those Employed
xxx xxx xxx by Offshore Banking Units and Petroleum Service Contractors
and Subcontractors. – A final withholding tax equivalent to fifteen
(7) Gross income derived from contracts by subcontractors from percent (15%) shall be withheld by the withholding agent from the
service contractors engaged in 'petroleum operations' as defined gross income received by every alien individual occupying
under P.D. 87 (also known as the 'Oil Exploration and Development managerial and technical positions in regional or area headquarters
and regional operating headquarters established in the Philippines income of an alien individual who is a permanent resident of a
by multinational companies as salaries, wages, annuities, foreign country but who is employed and assigned in the Philippines
compensation, remuneration, and other emoluments, such as by a foreign service contractor or by a foreign service subcontractor
honoraria and allowances, except income which is subject to the who is engaged in petroleum operations in the Phiippines. His gross
fringe benefits tax, from such regional or area headquarters and income includes salaries, wages, annuities, compensation,
regional operating headquarters. remuneration, and other emoluments, such as honoraria and
allowances received from such contractor or subcontractor.
The same tax treatment is applicable to Filipinos employed and
occupying the same positions as those aliens employed by The same tax treatment is applicable to Filipinos employed and
multinational companies, regardless of whether or not there is an occupying the same positions as those aliens employed by foreign
alien executive occupying the same position, provided, that such petroleum service contractors and subcontractors, regardless of
Filipinos shall have the option to be taxed at either 15% of gross whether or not there is an alien executive occupying the same
income or at the regular tax rate on their taxable income in position.
accordance with the Tax Code of 1997. In case of the latter, the
withholding tax rates under Sections 2.78 and 2.79 of Revenue (G) Income Payment to a Domestic Corporation. - The
Regulations No. 2-98 shall apply. following items of income shall be subject to a final withholding tax in
the hands of a domestic corporation, based on the gross amount
The term “multinational company” means a foreign firm or entity thereof and at the rate of tax prescribed therefor:
engaged in international trade with affiliates or subsidiaries or branch
offices in the Asia Pacific Region and other foreign markets. xxx xxx xxx
(E) Income Derived by Alien Individuals Employed by (6) Gross income derived from contracts by subcontractors from
Offshore Banking Units. – A final withholding tax equivalent to service contractors engaged in 'petroleum operations' as defined
fifteen percent (15%) shall be withheld by the withholding agent from under P.D. 87 (also known as the 'Oil Exploration and Development
the gross income of alien individuals occupying managerial and Act') in the Philippines – Eight percent (8%) of its gross income
technical positions in offshore banking units established in the derived from such contracts in lieu of any and all taxes, national and
Philippines, as salaries, wages, annuities, compensation, local, as imposed under P.D. 1354
remuneration, and other emoluments, such as honoraria and
allowances received from such offshore banking units. (H) Income Payment to a Resident Foreign Corporation. –
The following forms of income shall be subject to a final withholding
The same tax treatment is applicable to Filipinos employed and tax in the hands of a resident foreign corporation, based on the
occupying the same positions as those aliens employed by offshore gross amount thereof and at the rate of tax prescribed therefor:
banking units, regardless of whether or not there is an alien
executive occupying the same position. xxx xxx xxx
(F) Income of Aliens Employed by Foreign Petroleum (6) Gross income derived from contracts by subcontractors from
Service Contractors and Subcontractors. – A final withholding tax service contractors engaged in 'petroleum operations' as defined
equivalent to fifteen percent (15%) shall be withheld from the gross under P.D. 87 (also known as the 'Oil Exploration and Development
Act') in the Philippines – Eight percent (8%) of its gross income

derived from such contracts in lieu of any and all taxes, national and (5) Insurance agents and insurance adjusters – Ten percent
local, as imposed under P.D. 1354 (10%)
xxx xxx xxx” (6) Management and technical consultants – Ten percent (10%)
SECTION 3. Revised Rates of Creditable Withholding Tax. - Section (7) Bookkeeping agents and agencies – Ten percent (10%)
2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further
amended to read as follows: (8) Other recipients of talent fees – Twenty percent (20%)
“Section 2.57.2 - Income payment subject to creditable (9) Fees of directors, who are not employees of the company
withholding tax and rates prescribed thereon - Except as herein paying such fees, whose duties are confined to attendance at and
otherwise provided, there shall be withheld a creditable income tax participation in the meetings of the board of directors – Twenty
at the rates herein specified for each class of payee from the percent (20%)
following items of income payments to persons residing in the
Philippines: The amounts subject to withholding under this paragraph shall
include not only fees, but also per diems, allowances and any other
(A) Professional fees, talent fees, etc. for services rendered form of income payments. In the case of professional entertainers,
by individuals - On the gross professional, promotional and talent athletes, and all recipients of talent fees, the amounts subject to
fees or any other form of remuneration for the services of the withholding tax shall also include amounts paid to them in
following individuals - consideration for the use of their names or pictures in print,
broadcast, or other media or for public appearances, for purposes of
(1) Those individually engaged in the practice of professions or advertisements or sales promotion;
callings; lawyers; certified public accountants; doctors of medicine;
architects; civil, electrical, chemical, mechanical, structural, (B) Professional fees, talent fees, etc. for services of taxable
industrial, mining, sanitary, metallurgical and geodetic engineers; juridical persons- On the gross professional, promotional and
marine surveyors; doctors of veterinary science; dentists; talents fees, or any other form of remuneration enumerated in the
professional appraisers; connoisseurs of tobacco; actuaries; and preceding subparagraph for the services of taxable juridical persons
interior decorators – Ten percent (10%) – Ten percent (10%)
(2) Professional entertainers, such as, but not limited to, actors (C) Rentals - On the gross rental for the continued use or
and actresses, singers and emcees – Twenty percent (20%) possession of real property used in business which the payor or
obligor has not taken or is not taking title, or in which he has no
(3) Professional athletes, including basketball players, pelotaris equity – Five percent (5%)
and jockeys – Twenty percent (20%)
(D) Cinematographic film rentals and other payments - On
(4) All directors involved in movies, stage, radio, television and gross payments to resident individuals and corporate
musical productions – Twenty percent (20%) cinematographic film owners, lessors or distributors – Five percent
(5%) (2) General building contractors - Those whose principal

contracting business is in connection with any structure built, for the
(E) Income payments to certain contractors - On gross support, shelter and enclosure of persons, animals, chattels, or
payments to the following contractors, whether individual or movable property of any kind, requiring in its construction the use of
corporate – Two percent (2%) more than two unrelated building trades or crafts, or to do or
superintend the whole or any part thereto. Such structure includes
(1) General engineering contractors - Those whose principal sewers and sewerage disposal plants and systems, parks,
contracting business in connection with fixed works requiring playgrounds, and other recreational works, refineries, chemical
specialized engineering knowledge and skill, including the following plants and similar industrial plants requiring specialized engineering
divisions or subjects: knowledge and skills, powerhouse, power plants and other utility
plants and installation, mines and metallurgical plants, cement and
(a) Reclamation works; concrete works in connection with the above-mentioned fixed works.
(b) Railroads; (3) Specialty Contractors - Those whose operations pertain to

the performance of construction work requiring special skill and
(c) Highways, streets and roads; whose principal contracting business involves the use of specialized
building trades or crafts.
(d) Tunnels;
(4) Other contractors -
(e) Airports and airways;
a) Filling, demolition and salvage work contractors and
(f) Waste reduction plants; operators of mine drilling apparatus;
(g) Bridges, overpasses, underpasses and other similar works; b) Operators of dockyards;
(h) Pipelines and other systems for the transmission of c) Persons engaged in the installation of water system, and
petroleum and other liquid or gaseous substances; gas or electric light, heat or power;
(i) Land leveling; d) Operators of stevedoring, warehousing or forwarding

establishments;
(j) Excavating;
e) Transportation contractors which include common carriers
(k) Trenching; for the carriage of goods and merchandise of whatever kind
by land, air or water, where the gross payments by the
(l) Paving; and payor to the same payee amounts to at least two thousand
pesos (P2,000) per month, regardless of the number of
(m) Surfacing work. shipments during the month;
f) Printers, bookbinders, lithographers and publishers except under Sec. 60 of the Code, except such income subject to final
those principally engaged in the publication or printing of withholding tax and tax exempt income – Fifteen percent (15%)
any newspaper, magazine, review or bulletin which appears
at regular intervals, with fixed prices for subscription and (G) Income payments to certain brokers and agents - On
sale; gross commissions of customs, insurance, real estate and
commercial brokers and fees of agents of professional entertainers –
g) Messengerial, janitorial, private detective and/or security Ten percent (10%)
agencies, credit and/or collection agencies and other
business agencies; (H) Income payments to partners of general professional
partnerships - Income payments made periodically or at the end of
h) Advertising agencies, exclusive of gross payments to the taxable year by a general professional partnership to the
media; partners, such as drawings, advances, sharings, allowances,
stipends, etc. – Ten percent (10%)
i) Independent producers of television, radio and stage
performances or shows; (I) Professional fees paid to medical practitioners - Any
amount collected for and paid to medical practitioners (includes
j) Independent producers of “jingles” ; doctors of medicine, doctors of veterinary science and dentists) by
hospitals and clinics or paid directly to the medical practitioners by
k) Labor recruiting agencies; patients who were admitted and confined to such hospitals or clinics
– Ten percent (10%)
l) Persons engaged in the installation of elevators, central air
conditioning units, computer machines and other equipment a) It shall be the duty and responsibility of the hospital or clinic
and machineries and the maintenance services thereon; to remit taxes withheld from the following:
m) Persons engaged in the sale of computer services; 1. Professional fees paid directly to hospitals or clinics by
patients.
n) Persons engaged in landscaping services; 2. Professional fees paid by patients directly to medical
practitioners where the 10% expanded withholding tax
o) Persons engaged in the collection and disposal of garbage; shall in turn be given by medical practitioners directly to
the Accounting Office of the hospitals or clinics.
p) TV and radio station operators on sale of TV and radio
airtime; and b) Exception – The withholding tax herein prescribed shall not
apply whenever no professional fee has been charged by
q) TV and radio blocktimers on sale of TV and radio the medical practitioner and paid by his patient.
commercial spots.
c) Hospitals and medical practitioners clinics shall submit the
(F) Income distribution to the beneficiaries - On income names in the following classifications, and every addresses
distributed to the beneficiaries of estates and trust as determined 15th day of after the end of each calendar quarter, to the
Collection Division of the Revenue Region where such 1604).

hospital or clinic is located, using “Annex A” [i.e., as
indicated in Revenue Regulations No. 3-99]: (J) Gross selling price or total amount of consideration or
its equivalent paid to the seller/owner for the sale, exchange or
(i) Medical practitioners whose professional fee was paid transfer of real property classified as ordinary asset – A
by creditable withholding tax based on the gross selling price/total
amount of consideration or the fair market value determined in
(ii) patients directly to the hospital or clinic. accordance with Section 6(E) of the Code, whichever is higher, paid
to the seller/owner for the sale, transfer or exchange of real property,
(iii) Medical practitioners whose professional fee was paid other than capital asset, shall be imposed upon the withholding
to them directly by the patients and the 10% withholding agent,/buyer, in accordance with the following schedule:
tax was given by such practitioners to the Accounting
Office of the hospital or clinic. A. Where the seller/transferor is exempt
from creditable withholding tax in
(iv) Medical practitioners whose professional fee was paid accordance with Sec 2.57.5 of these
to them directly by the patients but the 10% withholding regulations
tax was not given by such practitioners to the Exempt
Accounting Office of the hospital or clinic. B. Upon the following values of real
property, where the seller/transferor is
(v) Medical practitioners who did not charge any habitually engaged in the real estate
professional fee from their patients. business:With a selling price of Five
Hundred Thousand Pesos
d) The rules herein prescribed shall likewise apply to rendering (P500,000.00) or less
of medical services by medical practitioners through a duly 1.5%
registered professional partnership for the practice of the With a selling price of more than Five
medical profession. Hundred Thousand Pesos
(P500,000.00) but not more than Two
e) Hospitals or clinics shall be responsible for the accurate Million Pesos (P2,000,000.00)
computation of professional fees paid directly to hospitals 3.0%
and clinics and timely remittances of the 10% expanded With a selling price of more than Two
withholding taxes. Million Pesos (P2,000,000.00)
5.0%
Likewise, the hospitals or clinics shall issue a Certificate of C. Where the seller/transferor is not
Creditable Tax Withheld at Source (BIR Form No. 2307) to medical habitually engaged in the real estate
practitioners who were subjected to withholding, every 20th day business
following the close of the taxable quarter. The names of medical 6.0%
practitioners shall be included in the Alphabetical List of Income
Recipients attached to the Annual Information Return (BIR Form No. Registration with the HLURB or HUDCC shall be sufficient for a
seller/transferor to be considered as habitually engaged in the real the tax shall be deducted and withheld by the buyer on every
estate business. If the seller/transferor is not registered with HLURB installment.
or HUDCC, he/it may prove that he/it is engaged in the real estate
business by offering other satisfactory evidence (for example, he/it (ii) If, on the other hand, the sale is on a “cash basis” or is a
consummated during the preceding year at least six taxable real “deferred- payment sale not on the installment plan” (that is,
estate transactions, regardless of amount). Notwithstanding the payments in the year of sale exceed 25% of the selling price), the
foregoing, for purposes of these Regulations, banks shall not be buyer shall withhold the tax based on the gross selling price or fair
considered as habitually engaged in the real estate business. market value of the property, whichever is higher, on the first
installment.
Gross selling price shall mean the consideration stated in the
sales document or the fair market value determined in accordance In any case, no Certificate Authorizing Registration (CAR) shall
with Section 6 (E) of the Code, whichever is higher. In an exchange, be issued to the buyer unless the creditable withholding tax due on
the fair market value of the property received in exchange shall be the sale, transfer or exchange of real property other than capital
considered as the consideration. asset has been fully paid.
If the buyer is an individual not engaged in trade or business, (K) Additional income payments to government personnel
the following rules shall apply: from importers, shipping and airline companies, or their agents
- On gross additional payments by importers, shipping and airline
(i) If the sale is a sale of property on the installment plan (that is, companies, or their agents to government personnel for overtime
payments in the year of sale do not exceed 25% of the selling price), services as authorized by law – Fifteen percent (15%)
no withholding of tax is required to be made on the periodic
installment payments. In such a case, the applicable rate of tax For this purpose, the importers, shipping and airline companies
based on the gross selling price or fair market value of the property, or their agents, shall be the withholding agents of the Government.
whichever is higher, shall be withheld on the last installment or
installments to be paid to the seller until the tax is fully paid. (L) Certain income payments made by credit card
companies - On one-half (1/2) of the gross amounts paid by any
(ii) If, on the other hand, the sale is on a “cash basis” or is a credit card company in the Philippines to any business entity,
“deferred- payment sale not on the installment plan” (that is, whether natural or juridical person, representing the sales of
payments in the year of sale exceed 25% of the selling price), the goods/services made by the aforesaid business entity to cardholders
buyer shall withhold the tax based on the gross selling price or fair – One percent (1%)
market value of the property, whichever is higher, on the first
installment. (M) Income payments made by the top five thousand (5,000)
corporations. - Income payments made by any of the top five
However, if the buyer is engaged in trade or business, whether a thousand (5,000) corporations, as determined by the Commissioner,
corporation or otherwise, these rules shall apply: to their local supplier of goods – One percent (1%)
(i) If the sale is a sale of property on the installment plan (that is, (1) The term “goods” pertains to tangible personal property. It
payments in the year of sale do not exceed 25% of the selling price), does not include intangible personal property as well as real
property. AT SOURCE.
(2) The term “local suppliers of goods” pertains to a supplier (A) Monthly return and payment of taxes
from whom any of the top five thousand (5,000) corporations, as
determined by the Commissioner, makes its purchases of goods. xxx xxx xxx
(3) A corporation shall not be considered a withholding agent for (2) WHEN TO FILE -
purposes of this Section, unless such corporation has been
determined and duly notified in writing by the Commissioner that it (a) For both large and non-large taxpayers, the withholding tax
has been selected as one of the top five thousand (5,000) return, whether creditable or final (including final withholding taxes
corporations. on interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and
(4) The withholding agent shall submit on a semestral basis of similar arrangements) shall be filed and payments should be made,
its regular suppliers of goods to the Revenue District Office (RDO) within ten (10) days after the end of each month, except for taxes
having jurisdiction over the withholding agent’s principal place of withheld for the month of December of each year, which shall be
business on or before July 31 and January 31 of each year. filed on or before January 15 of the following year.
(N) Income payments by government. - Income payments, (b) With respect, however, to taxpayers, whether large or non-
except any single purchase which is P10,000 and below, which are large, who availed of the electronic filing and payment (EFPS), the
made by a government office, national or local, including deadline for electronically filing the applicable withholding tax returns
government-owned or controlled corporations, on their purchases of and paying the taxes due thereon via the EFPS shall be five (5) days
goods from local suppliers- One percent (1%) later than the deadlines set above.”
A government-owned or controlled corporation which is listed as “Sec. 2.81. FILING OF RETURN AND PAYMENT OF INCOME
one of the top five thousand (5,000) corporations shall withhold the TAX WITHHELD ON COMPENSATION (FORM NO. 1601). - Every
tax in its capacity as a government-owned or controlled corporation person required to deduct and withhold the tax on compensation,
rather than as one of the top five thousand (5,000) corporations.” including large taxpayers as determined by the Commissioner, shall
make a return and pay such tax on or before the 10th day of the
SECTION 4. Time for Filing of Withholding Tax and Value-Added Tax month following the month in which withholding was made to any
Returns and the Payment of Taxes Due Thereon. - The time for filing of authorized agent bank within the Revenue District Office (RDO) or in
the various tax returns as indicated below and the payment of the taxes due places where there are no agent banks, to the Revenue District
thereon shall be revised in accordance with the appropriate amendments to Officer of the City or Municipality where the withholding
the existing regulations, as presented below. agent/employer’s legal residence or place of business or office is
located; provided, however, that taxes withheld from the last
(1) Sections 2.58(A)(2) and 2.81 of Revenue Regulations No. 2-98, as compensation (December) for the calendar year shall be paid not
amended, are hereby further amended to read as follows: later than January 15 of the succeeding year; Provided, however,
that with respect to taxpayers, whether large or non-large, who
“Sec. 2.58 - RETURNS AND PAYMENT OF TAXES WITHHELD availed of the EFPS, the deadline for electronically filing the
aforesaid withholding tax return and paying the tax due thereon via declaration shall be filed within ten (10) days after the end of the
the EFPS shall be five (5) days later than the deadlines set above. month, and the initial quarterly return shall be filed on or before the
25th day after the end of the calendar quarter. On the other hand, if
xxx xxx xxx” the effective date of registration falls on the third month of the
calendar quarter, the quarterly return shall be filed on or before the
(2) Section 4.110-1(A), (B) and (C) of Revenue Regulations No. 7-95, as 25th day of the month following the end of the calendar quarter, and
amended, is further amended to read as follows: no VAT monthly declaration need be filed.”
“SEC. 4.110-1. Filing of return and payment of VAT. – (3) Section 4(3.3) of Revenue Regulations No. 1-98 is hereby amended to
read as follows:
A) Filing of Return. – Every person liable to pay VAT shall file a
quarterly return of the amount of his gross sales or receipts within “Section 4. Filing of Returns and Payment of Taxes. –
twenty five (25) days following the close of the calendar quarter.
xxx xxx xxx
B) Payment of VAT. – All persons liable to VAT shall pay the
tax monthly based on the taxable sales/receipts for the month, using 3. When to File and Pay
the monthly VAT declaration form within ten (10) days after the end
of each month; provided, however, that with respect to taxpayers 3.3 Value-Added Tax (VAT)
who availed of the electronic filing and payment system (EFPS), the
deadline for electronically filing the monthly VAT declaration and Monthly VAT declarations of Large Taxpayers shall be filed, and
paying the tax due thereon via the EFPS shall be five (5) days later taxes paid, not later than the 10th day following the end of each
than the deadline set above. The declaration shall be accomplished month; provided, however, that with respect to Large Taxpayers who
only for the first two (2) months of each calendar quarter. availed of the electronic filing and payment system (EFPS), the
deadline for electronically filing the monthly VAT declaration and
xxx xxx xxx paying the tax due thereon via the EFPS shall be five (5) days later
than the deadline set above. The quarterly VAT returns of Large
C) Short Period Return. – Any person who retires from Taxpayers following shall be filed, and taxes paid, not later than the
business or whose registration has been cancelled shall file a 25th day following the end of each quarter.”
quarterly return and pay the tax due thereon within twenty five (25)
days from the cessation of business operations or from the date of SECTION 5. Time for Filing of Documentary Stamp Tax Returns and the
cancellation of registration, as the case may be. Payment of Taxes Due Thereon. - The time for filing of the documentary
stamp tax returns and the payment of the taxes due thereon shall be revised
All persons first registered under Section 4.107-1(b)(3) and in accordance with the appropriate amendments to existing regulations, as
4.107-1(c) of these Regulations shall be liable to VAT on the presented below.
effective date of registration stated in their Certificates of
Registration; i.e., the first day of the month following their (1) Paragraph 19 of Revenue Memorandum Circular No. 1-98 is hereby
registration. If the effective date of registration falls on the first or amended to read as follows:
second month of a calendar quarter, the initial VAT monthly
“(19) The documentary stamp tax return shall be filed within five
(5) days after the close of the month when the taxable document b. For large taxpayers, Section 4(3.4) of Revenue Regulations No. 1-98 is
was made, signed, accepted, or transferred, and the tax thereon hereby amended to read as follows:
shall be paid at the same time the aforesaid return is filed.”
“Section 4. Filing of Returns and Payment of Taxes. –
(2) For large taxpayers, Section 4(3.6) of Revenue Regulations No. 1-98 is
hereby amended to read as follows: xxx xxx xxx
“Section 4. Filing of Returns and Payment of Taxes. – 3. When to File and Pay
xxx xxx xxx 3.4 Other Percentage Taxes
3. When to File and Pay Large taxpayers who are presently preparing separate
percentage tax returns shall file a consolidated return, and pay the
3.6 Documentary Stamp Taxes aggregate taxes due, within ten (10) days after the end of each
month, provided, however, that with respect to Large Taxpayers who
Large taxpayers shall pay their documentary stamp taxes within availed of the EFPS, the deadline for electronically filing the
five (5) days after the close of the month when the taxable document percentage tax returns and paying the taxes due thereon shall be
was made, signed, issued, accepted or transferred by the filing of five (5) days later than the deadline set above, provided, further, that
the documentary stamp tax returns, through purchase or actual for percentage tax returns required to be filed under Sections 120,
affixture or by imprinting the documentary stamps through a 126 and 127 of the Tax Code of 1997, they shall be filed within the
documentary stamp tax metering machine.” periods stated in those sections. The Head Office shall prepare a
schedule (Annex C) of all percentage tax returns of the
SECTION 6. Time for Filing of Percentage Tax Returns and the Payment branches/units with the following information:
of Taxes Due Thereon. – The time for filing of the percentage tax returns
and the payment of the taxes due thereon shall be revised in accordance a. Period covered;
with the rules and appropriate amendments to existing regulations, as b. Head office and branch/unit names and addresses; and
presented below. c. Kind and amount of percentage tax payable.”
a. For non-large taxpayers, percentage tax returns shall be filed within ten SECTION 7. Repealing Clause. - The provisions of any revenue
(10) days after the end of each month and the tax thereon shall be paid at regulations, revenue memorandum order, revenue memorandum circular or
the same time the aforesaid return is filed, provided, however, that with any other issuance of the Bureau of Internal Revenue inconsistent with these
respect to non-large taxpayers who availed of the electronic filing and Regulations are hereby repealed, amended, or modified accordingly.
payment system (EFPS), the deadline for electronically filing the percentage
tax return and paying the tax due thereon via the EFPS shall be five (5) days SECTION 8. Effectivity Clause. – These Regulations shall take effect with
later than the deadline set above, provided, further, that for percentage tax respect to income payments that are paid or payable in September 2001 and
returns required to be filed under Sections 120, 126 and 127 of the Tax Code which are required to be remitted to the Bureau of Internal Revenue within
of 1997, they shall be filed within the periods stated in those sections. the month of October 2001.
Annex “A”
Changes in the Creditable Withholding Tax Rates
Annex “B”
Taxes Affected By the Acceleration of the Filing of Returns and
Payment of Taxes dues Thereon
REMEDIES
TAX ADMINISTRATION
ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL

REVENUE
SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The

Bureau of Internal Revenue shall be under the supervision and control of
the Department of Finance and its powers and duties shall comprehend
the assessment and collection of all national internal revenue taxes, fees,
and charges, and the enforcement of all forfeitures, penalties, and fines
connected therewith, including the execution of judgments in all cases
decided in its favor by the Court of Tax Appeals and the ordinary courts.
The Bureau shall give effect to and administer the supervisory and police
powers conferred to it by this Code or other laws.
SEC. 3. Chief Officials of the Bureau of Internal Revenue. - The

Bureau of Internal Revenue shall have a chief to be known as
Commissioner of Internal Revenue, hereinafter referred to as the
Commissioner, and four (4) assistant chiefs to be known as Deputy
Commissioners.
SEC. 9. Internal Revenue Districts. - With the approval of the Secretary

of Finance, the Commissioner shall divide the Philippines into such
number of revenue districts as may from time to time be required for
administrative purposes. Each of these districts shall be under the
supervision of a Revenue District Officer.
SEC. 10. Revenue Regional Director. - Under rules and regulations,

policies and standards formulated by the Commissioner, with the approval
of the Secretary of Finance, the Revenue Regional director shall, within
the region and district offices under his jurisdiction, among others:
a) Implement laws, policies, plans, programs, rules and regulations
of the department or agencies in the regional area;
b) Administer and enforce internal revenue laws, and rules and
regulations, including the assessment and collection of all internal
revenue taxes, charges and fees;

c) Issue Letters of authority for the examination of taxpayers within Any officer or employee of an authorized agent bank assigned to receive
the region; internal revenue tax payments and transmit tax returns or documents to
d) Provide economical, efficient and effective service to the people the Bureau of Internal Revenue shall be subject to the same sanctions
in the area; and penalties prescribed in Sections 269 and 270 of this Code.
e) Coordinate with regional offices or other departments, bureaus
and agencies in the area; SEC. 13. Authority of a Revenue Officer. - Subject to the rules and
f) Coordinate with local government units in the area; regulations to be prescribed by the Secretary of Finance, upon
g) Exercise control and supervision over the officers and employees recommendation of the Commissioner, a Revenue Officer assigned to
within the region; and perform assessment functions in any district may, pursuant to a Letter of
h) Perform such other functions as may be provided by law and as Authority issued by the Revenue Regional Director, examine taxpayers
may be delegated by the Commissioner. within the jurisdiction of the district in order to collect the correct amount of
tax, or to recommend the assessment of any deficiency tax due in the
SEC. 11. Duties of Revenue District Officers and Other Internal same manner that the said acts could have been performed by the
Revenue Officers. - It shall be the duty of every Revenue District Officer Revenue Regional Director himself.
or other internal revenue officers and employees to ensure that all laws,
and rules and regulations affecting national internal revenue are faithfully SEC. 14. Authority of Officers to Administer Oaths and Take
executed and complied with, and to aid in the prevention, detection and Testimony. - The Commissioner, Deputy Commissioners, Service Chiefs,
punishment of frauds of delinquencies in connection therewith. Assistant Service Chiefs, Revenue Regional Directors, Assistant Revenue
It shall be the duty of every Revenue District Officer to examine the Regional Directors, Chiefs and Assistant Chiefs of Divisions, Revenue
efficiency of all officers and employees of the Bureau of Internal Revenue District Officers, special deputies of the Commissioner, internal revenue
under his supervision, and to report in writing to the Commissioner, officers and any other employee of the Bureau thereunto especially
through the Regional Director, any neglect of duty, incompetency, deputized by the Commissioner shall have the power to administer oaths
delinquency, or malfeasance in office of any internal revenue officer of and to take testimony in any official matter or investigation conducted by
which he may obtain knowledge, with a statement of all the facts and any them regarding matters within the jurisdiction of the Bureau.
evidence sustaining each case.
SEC. 15. Authority of Internal Revenue Officers to Make Arrests and
SEC. 12. Agents and Deputies for Collection of National Internal Seizures. - The Commissioner, the Deputy Commissioners, the Revenue
Revenue Taxes. - The following are hereby constituted agents of the Regional Directors, the Revenue District Officers and other internal
Commissioner: revenue officers shall have authority to make arrests and seizures for the
a) The Commissioner of Customs and his subordinates with respect violation of any penal law, rule or regulation administered by the Bureau of
to the collection of national internal revenue taxes on imported Internal Revenue. Any person so arrested shall be forthwith brought
goods; before a court, there to be dealt with according to law.
b) The head of the appropriate government office and his
subordinates with respect to the collection of energy tax; and SEC. 16. Assignment of Internal Revenue Officers Involved in Excise
c) Banks duly accredited by the Commissioner with respect to Tax Functions to Establishments Where Articles subject to Excise
receipt of payments internal revenue taxes authorized to be made Tax are Produced or Kept. - The Commissioner shall employ, assign, or
thru banks. reassign internal revenue officers involved in excise tax functions, as often
as the exigencies of the revenue service may require, to establishments or In case the actual collection exceeds or falls short of target as set in the
places where articles subject to excise tax are produced or kept: Provided, annual national budget by fifteen percent (15%) or more, the
That an internal revenue officer assigned to any such establishment shall Commissioner shall explain the reason for such excess or shortfall.
in no case stay in his assignment for more than two (2) years, subject to
rules and regulations to be prescribed by the Secretary of Finance, upon SEC. 20. Submission of Report and Pertinent Information by the
recommendation of the Commissioner. Commissioner. -
(A) Submission of Pertinent Information to Congress. - The
SEC. 17. Assignment of Internal Revenue Officers and Other provision of Section 270 of this Code to the contrary
Employees to Other Duties. - The Commissioner may, subject to the notwithstanding, the Commissioner shall, upon request of
provisions of Section 16 and the laws on civil service, as well as the rules Congress and in aid of legislation, furnish its appropriate
and regulations to be prescribed by the Secretary of Finance upon the Committee pertinent information including but not limited to:
recommendation of the Commissioner, assign or reassign internal industry audits, collection performance data, status reports in
revenue officers and employees of the Bureau of Internal Revenue, criminal actions initiated against persons and taxpayer's returns:
without change in their official rank and salary, to other or special duties Provided, however, That any return or return information which
connected with the enforcement or administration of the revenue laws as can be associated with, or otherwise identify, directly or indirectly,
the exigencies of the service may require: Provided, That internal revenue a particular taxpayer shall be furnished the appropriate
officers assigned to perform assessment or collection function shall not Committee of Congress only when sitting in Executive Session
remain in the same assignment for more than three (3) years; Provided, Unless such taxpayer otherwise consents in writing to such
further, That assignment of internal revenue officers and employees of the disclosure.
Bureau to special duties shall not exceed one (1) year. (B) Report to Oversight Committee. - The Commissioner shall, with
reference to Section 204 of this Code, submit to the Oversight
SEC. 18. Reports of Violation of Laws. - When an internal revenue Committee referred to in Section 290 hereof, through the
officer discovers evidence of a violation of this Code or of any law, rule or Chairmen of the Committee on Ways and Means of the Senate
regulations administered by the Bureau of Internal Revenue of such and House of Representatives, a report on the exercise of his
character as to warrant the institution of criminal proceedings, he shall powers pursuant to the said section, every six (6) months of each
immediately report the facts to the Commissioner through his immediate calendar year.
superior, giving the name and address of the offender and the names of
the witnesses if possible: Provided, That in urgent cases, the Revenue COMPLIANCE REQUIREMENTS
Regional director or Revenue District Officer, as the case may be, may (As amended by RA Nos. 9337 & 10021)
send the report to the corresponding prosecuting officer in the latter case, CHAPTER I
a copy of his report shall be sent to the Commissioner. KEEPING OF BOOKS OF ACCOUNTS AND RECORDS
SEC. 232. Keeping of Books of Accounts. –

SEC. 19. Contents of Commissioner's Annual Report. - The Annual
Report of the Commissioner shall contain detailed statements of the
(A) Corporations, Companies, Partnerships or Persons Required
collections of the Bureau with specifications of the sources of revenue by
to Keep Books of Accounts. - All corporations, companies,
type of tax, by manner of payment, by revenue region and by industry
partnerships or persons required by law to pay internal revenue
group and its disbursements by classes of expenditures.
taxes shall keep a journal and a ledger or their equivalents:
Provided, however, That those whose quarterly sales, earnings, complete translation of all the entries in suck other books or records into a
receipts, or output do not exceed Fifty thousand pesos (P50,000) native language; English or Spanish, and the said translation must be
shall keep and use simplified set of bookkeeping records duly made by the bookkeeper, or such taxpayer, or in his absence, by his
authorized by the Secretary of Finance where in all transactions manager and must be certified under oath as to its correctness by the said
and results of operations are shown and from which all taxes due bookkeeper or manager, and shall form an integral part of the aforesaid
the Government may readily and accurately be ascertained and books of accounts. The keeping of such books or records in any language
determined any time of the year: Provided, further, That other than a native language, English or Spanish, is hereby prohibited.
corporations, companies, partnerships or persons whose gross
quarterly sales, earnings, receipts or output exceed One hundred SEC. 235. Preservation of Books and Accounts and Other
fifty thousand pesos (P150,000) shall have their books of accounts Accounting Records. - All the books of accounts, including the
audited and examined yearly by independent Certified Public subsidiary books and other accounting records of corporations,
Accountants and their income tax returns accompanied with a duly partnerships, or persons, shall be preserved by them for a period
accomplished Account Information Form (AIF) which shall contain, beginning from the last entry in each book until the last day prescribed by
among others, information lifted from certified balance sheets, profit Section 203 within which the Commissioner is authorized to make an
and loss statements, schedules listing income-producing properties assessment. The said books and records shall be subject to examination
and the corresponding income therefrom and other relevant and inspection by internal revenue officers: Provided, That for income tax
statements. purposes, such examination and inspection shall be made only once in a
(B) Independent Certified Public Accountant Defined. - The term taxable year, except in the following cases:
'Independent Certified Public Accountant', as used in the a) Fraud, irregularity or mistakes, as determined by the
preceding paragraph, means an accountant who possesses the Commissioner;
independence as defined in the rules and regulations of the Board b) The taxpayer requests reinvestigation;
of Accountancy promulgated pursuant to Presidential Decree No. c) Verification of compliance with withholding tax laws and
692, otherwise known as the Revised Accountancy Law. regulations;
d) Verification of capital gains tax liabilities; and
SEC. 233. Subsidiary Books. - All corporations, companies, partnerships e) In the exercise of the Commissioner's power under Section 5(B)
or persons keeping the books of accounts mentioned in the preceding to obtain information from other persons in which case, another or
Section may, at their option, keep subsidiary books as the needs of their separate examination and inspection may be made. Examination
business may require: Provided, That were such subsidiaries are kept, and inspection of books of accounts and other accounting records
they shall form part of the accounting system of the taxpayer and shall be shall be done in the taxpayer's office or place of business or in
subject to the same rules and regulations as to their keeping, translation, the office of the Bureau of Internal Revenue. All corporations,
production and inspection as are applicable to the journal and the ledger. partnerships or persons that retire from business shall, within ten
(10) days from the date of retirement or within such period of time
SEC. 234. Language in which Books are to be Kept; Translation. - All as may be allowed by the Commissioner in special cases, submit
such corporations, companies, partnerships or persons shall keep the their books of accounts, including the subsidiary books and other
books or records mentioned in Section 232 hereof in native language, accounting records to the Commissioner or any of his deputies for
English or Spanish: Provided, however, That if in addition to said books or examination, after which they shall be returned. Corporations and
records the taxpayer keeps other books or records in a language other partnerships contemplating dissolution must notify the
than a native language, English or Spanish, he shall make a true and Commissioner and shall not be dissolved until cleared of any tax
liability. supervision of such houses;

f) The conditions under which denatured alcohol may be removed
Any provision of existing general or special law to the contrary and dealt in, the character and quantity of the denaturing material
notwithstanding, the books of accounts and other pertinent records of tax- to be used, the manner in which the process of denaturing shall
exempt organizations or grantees of tax incentives shall be subject to be effected, so as to render the alcohol suitably denatured and
examination by the Bureau of Internal Revenue for purposes of unfit for oral intake, the bonds to be given, the books and records
ascertaining compliance with the conditions under which they have been to be kept, the entries to be made therein, the reports to be made
granted tax exemptions or tax incentives, and their tax liability, if any. to the Commissioner, and the signs to be displayed in the
business ort by the person for whom such denaturing is done or
RULES AND REGULATIONS by whom, such alcohol is dealt in;
g) The manner in which revenue shall be collected and paid, the
SEC. 244. Authority of Secretary of Finance to Promulgate Rules and instrument, document or object to which revenue stamps shall be
Regulations. - The Secretary of Finance, upon recommendation of the affixed, the mode of cancellation of the same, the manner in
Commissioner, shall promulgate all needful rules and regulations for the which the proper books, records, invoices and other papers shall
effective enforcement of the provisions of this Code. be kept and entries therein made by the person subject to the tax,
as well as the manner in which licenses and stamps shall be
SEC. 245. Specific Provisions to be Contained in Rules and gathered up and returned after serving their purposes;
Regulations. - The rules and regulations of the Bureau of Internal h) The conditions to be observed by revenue officers respecting the
Revenue shall, among other things, contain provisions specifying, enforcement of Title III imposing a tax on estate of a decedent,
prescribing or defining: and other transfers mortis causa, as well as on gifts and such
a) The time and manner in which Revenue Regional Directors shall other rules and regulations which the Commissioner may
canvass their respective Revenue Regions for the purpose of consider suitable for the enforcement of the said Title III;
discovering persons and property liable to national internal i) The manner in which tax returns, information and reports shall be
revenue taxes, and the manner in which their lists and records of prepared and reported and the tax collected and paid, as well as
taxable persons and taxable objects shall be made and kept; the conditions under which evidence of payment shall be
b) The forms of labels, brands or marks to be required on goods furnished the taxpayer, and the preparation and publication of tax
subject to an excise tax, and the manner in which the labelling, statistics;
branding or marking shall be effected; j) The manner in which internal revenue taxes, such as income tax,
c) The conditions under which and the manner in which goods including withholding tax, estate and donor's taxes, value-added
intended for export, which if not exported would be subject to an tax, other percentage taxes, excise taxes and documentary
excise tax, shall be labelled, branded or marked; stamp taxes shall be paid through the collection officers of the
d) The conditions to be observed by revenue officers respecting the Bureau of Internal Revenue or through duly authorized agent
institutions and conduct of legal actions and proceedings; banks which are hereby deputized to receive payments of such
e) The conditions under which goods intended for storage in bonded taxes and the returns, papers and statements that may be filed by
warehouses shall be conveyed thither, their manner of storage the taxpayers in connection with the payment of the tax:
and the method of keeping the entries and records in connection Provided, however, That notwithstanding the other provisions of
therewith, also the books to be kept by Revenue Inspectors and this Code prescribing the place of filing of returns and payment of
the reports to be made by them in connection with their taxes, the Commissioner may, by rules and regulations, require
that the tax returns, papers and statements that may be filed by on any violation of the rules and regulations issued by the Secretary of
the taxpayers in connection with the payment of the tax. Finance, upon recommendation of the Commissioner, prescribing the
Provided, however, That notwithstanding the other provisions of place of filing of returns and payments of taxes by large taxpayers.
this Code prescribing the place of filing of returns and payment of
taxes, the Commissioner may, by rules and regulations require SEC. 246. Non- Retroactivity of Rulings. - Any revocation, modification
that the tax returns, papers and statements and taxes of large or reversal of any of the rules and regulations promulgated in accordance
taxpayers be filed and paid, respectively, through collection with the preceding Sections or any of the rulings or circulars promulgated
officers or through duly authorized agent banks: Provided, further, by the Commissioner shall not be given retroactive application if the
That the Commissioner can exercise this power within six (6) revocation, modification or reversal will be prejudicial to the taxpayers,
years from the approval of Republic Act No. 7646 or the except in the following cases:
completion of its comprehensive computerization program, a) Where the taxpayer deliberately misstates or omits material facts
whichever comes earlier: Provided, finally, That separate venues from his return or any document required of him by the Bureau of
for the Luzon, Visayas and Mindanao areas may be designated Internal Revenue;
for the filing of tax returns and payment of taxes by said large b) Where the facts subsequently gathered by the Bureau of Internal
taxpayers. Revenue are materially different from the facts on which the ruling
is based; or
For the purpose of this Section, 'large taxpayer' means a taxpayer who c) Where the taxpayer acted in bad faith.
satisfies any of the following criteria;
(1) Value-Added Tax (VAT) - Business establishment with VAT paid OVERSIGHT COMMITTEE
or payable of at least One hundred thousand pesos (P100, 000)
for any quarter of the preceding taxable year; SEC. 290. Congressional Oversight Committee. -A Congressional
(2) Excise tax - Business establishment with excise tax paid or Oversight Committee, hereinafter referred to as the Committee, is hereby
payable of at least One million pesos (P1, 000,000) for the constituted in accordance with the provisions of this Code. The Committee
preceding taxable year; shall be composed of the Chairmen of the Committee on Ways and
(3) Corporate Income Tax - Business establishment with annual Means of the Senate and House of Representatives and four (4)
income tax paid or payable of at least One million pesos additional members from each house, to be designated by the Speaker of
(P1,000,000) for the preceding taxable year; and the House of Representatives and the Senate President, respectively.
(4) Withholding tax - Business establishment with withholding tax The Committee shall, among others, in aid of legislation:
payment or remittance of at least One million pesos (P1,000,000) 1) Monitor and ensure the proper implementation of Republic Act
for the preceding taxable year. No. 8240;
2) Determine that the power of the Commissioner to compromise
Provided, however, That the Secretary of Finance, upon recommendation and abate is reasonably exercised;
of the Commissioner, may modify or add to the above criteria for 3) Review the collection performance of the Bureau of Internal
determining a large taxpayer after considering such factors as inflation, Revenue; and
volume of business, wage and employment levels, and similar economic 4) Review the implementation of the programs of the Bureau of
factors. Internal Revenue.
The penalties prescribed under Section 248 of this Code shall be imposed In furtherance of the hereinabove cited objectives, the Committee is
empowered to require of the Bureau of Internal Revenue, submission of The following checks, however, are not acceptable as check payment for
all pertinent information, including but not limited to: industry audits; internal revenue taxes:
collection performance data; status report on criminal actions initiated 1. Accommodation checks
against persons; and submission of taxpayer returns: Provided, however, 2. Second endorsed checks
That any return or return information which can be associated with, or 3. Stale checks
otherwise identify, directly or indirectly, a particular taxpayer shall be 4. Post-dated checks
furnished the Committee only when sitting in Executive Session unless 5. Unsigned checks
such taxpayer otherwise consents in writing to such disclosure. 6. Checks with alterations/erasures
Second indorsement of checks which are payable to the Bureau of Internal
Revenue or Commissioner of Internal Revenue is absolutely prohibited. Each
check should cover one tax type for one return period only.
AABs are mandated to accept tax returns/payment forms partly paid
REVENUE REGULATION 16-2002 through any of the aforementioned modes of payment and partly through Tax
Debit Memos (TDM) duly and validly issued by the BIR. TDMs, however, are
not acceptable as payments for Withholding Taxes, Fringe Benefit Tax, and
REVENUE REGULATION NO. 16-2002 (AGATEP)
taxes, fees and charges collected under special schemes/ procedures/
[SUMMARY]
programs of the government/BIR.
issued on October 14, 2002 amends the provisions relative to the acceptable
modes of and procedures of payment for internal revenue taxes coursed
Taxpayers are not required to enroll with any AAB where they intend to
through Authorized Agent Banks (AABs).
file tax returns/payment forms and/or pay internal revenue taxes. Taxpayers
may confirm their payments with their home Revenue District Office (RDO)/
All internal revenue taxes collected through AABs shall be credited to the
Large Taxpayers District Office (LTDO) or LTDO/RDO where they are
demands deposit accounts opened and maintained by the Bureau of
required to file tax returns/payment form and pay internal revenue taxes.
Treasury (BTr) for BIR in the head offices of AABs.
Any diversion, non-remittance or under-remittance of the taxes collected
In filing a tax declaration and making payment to an AAB, the taxpayer
by AABs through fault or negligence of the bank accepting such payment as
must accomplish and submit a BIR-prescribed deposit slip, which the bank
well as the diversion of any payment for BIR taxes using the facilities of the
teller shall machine validate as evidence that the BIR tax payment has been
bank through fault or negligence of any of the bank’s personnel shall be
received and deposited to the account of the BTr. Before 12:00 noon of the
subject the bank to civil and criminal liabilities.
following banking day, the head offices of the AABs shall provide to BTr and
BIR the daily total amount of BIR taxes they collected. REVENUE REGULATIONS NO. 16-2002
Aside from the electronic payment system currently being used by some Subject : Modes of and Procedure for the Payment of Internal
taxpayers in paying their internal revenue taxes, the rest shall pay their tax Revenue Taxes Through Authorized Agent Banks Amending
liabilities through any of the following modes: 1) over-the-counter cash Revenue Regulations No. 4-97, as amended by Revenue
payments (for each tax payment not exceeding P10,000); 2) bank debit Regulations No. 6-98
system; and 3) check payment system.
SECTION 1. SCOPE – Pursuant to Section 244 of the National Internal
Revenue Code of 1997 (CODE) in relation to Sections 8, 12, 56, 58, 81, 103,
114, 128, 130, 200 and 245, all of the same Code, these Regulations are E) The bank teller shall machine validate the BIR-prescribed deposit slip
hereby promulgated to amend Revenue Regulations No. 4-97, as amended accomplished by the taxpayer as evidence that the BIR tax payment was
by Revenue Regulations No. 6-98, on the provisions relative to acceptable deposited to the account of the BTr. Said deposit slip shall be accomplished
modes of payment of internal revenue taxes coursed through authorized and issued in triplicate copies, distributed as follows: original (taxpayers
agent banks (AABs), the recording of such payments and issuance of copy), duplicate (AAB's copy) and triplicate (to be attached to the tax return.
validated BIR-prescribed deposit slips which likewise serve as Additionally, the AAB receiving the tax return/payment form shall also
acknowledgement receipts for payments of taxes deposited by taxpayers for machine validate and stamp mark the word "Received" on the
BTR-BIR account, and the control mechanisms to deter and detect the return/payment form as proof of filing the retum/payment form and payment
diversion of tax payments. of the tax by the taxpayer. The machine validation on the retum/payment
form shall reflect the date of payment, amount paid and transaction code, the
SEC. 2. RECORDING OF BIR TAX PAYMENTS BY THE AABs – name of the bank, branch code, teller's code and teller's initials.
A) All internal revenue taxes collected through authorized agent banks F) Before 12:00 NN of the following banking day, the head offices of the
(AABs) shall be credited to the demand deposit accounts opened and AABs shall provide to BTR/BIR the daily total amount of BIR taxes they
maintained by the Bureau of Treasury (BTr) for BIR in the head offices of collected.
AABs;
G) After receipt of payment but not later than 24 hours thereafter, the AAB
B) Head offices of AABs shall assign and maintain a separate general ledger branch shall encode into the LBDE System and transmit to the concerned
account for said BTr demand deposit accounts; BIR Data Center, the below data and copy furnish the AAB head office.
C) Using the online tellering system, the bank tellers shall immediately post 1. Date of the transaction;
the BIR tax payments they collect by crediting the BTr demand deposit 2. Name of the taxpayer;
accounts in the head offices of the AABs, instead of recording them as mere 3. Taxpayer Identification Number (TIN) of the taxpayer;
payables to BTr at the end of each banking day in the AABs' backrooms. 4. Tax type which is being paid for;
5. Return period for the tax type being paid for;
6. Amount of tax paid;
D) In filing a tax declaration and making payment to an AAB, a tax payer
7. Name of the drawee bank and check number, for tax payments
must accomplish and submit a BIR-prescribed deposit slip which AAB's must through checks;
design, print and make available in all participating branches. The deposit
slip must in addition to those needed by the bank, provide for the following
information: SEC. 3. MODES OF PAYMENT TO AABs – Aside from the electronic
payment system currently used by some taxpayers in paying their BIR taxes,
the rest shall pay their tax liabilities through any of the following modes: a)
  Transaction Date over-the-counter cash payments; b) bank debit system; or c) check payment
  Name of Taxpayer system.
  TIN
  BTR-BIR Account Number a) "Over-the-counter cash payment" refers to payment of tax liabilities to
  Account Name which must be BTR-BIR authorized agent bank in the currencies (paper bills or coins) that are legal
  Name of Drawee Bank tender in the Philippines. The maximum amount allowed per tax payment
  Check Number shall not exceed ten thousand pesos (P10,000.00)
  Bank Debit Advice Number (for debit system payments)
  Amount b) "Bank debit system" refers to the system whereby a taxpayer, through a
bank debit memo/advice, authorizes withdrawals from his/its existing bank
accounts for payment of tax liabilities.
The bank debit system mode is allowed only if the taxpayer has a bank
account with the AAB branch where he/it intends to file and pay his/its tax
return/form/declaration, provided said AAB branch is within the jurisdiction of
the BIR Revenue District Office (RDO) / Large Taxpayers District Office
(LTDO) where the tax payment is due and payable.
c) "Checks" refers to a bill of exchange or Order Instrument drawn on a bank

payable on demand.
In the issuance and accomplishment of checks for the payment of internal

revenue taxes, as illustrated below, the taxpayer shall indicate in the space
provided for "PAY TO THE ORDER OF" the following data: (1)
presenting/collecting bank or the bank where the payment is to be coursed
and (2) FAO (For the Account Of) Bureau of Internal Revenue as payee; and The following checks are, however, not acceptable as check payments for
under the "ACCOUNT NAME" the taxpayer identification number (TIN). internal revenue taxes:
(Below is a sample of a tax check payment where the drawee bank and 1. Accommodation checks — checks issued or drawn by a party other
presenting bank are different from each other.) than the taxpayer making the payment;
2. Second endorsed checks — checks issued to the taxpayer as payee
who indorses the same as payment for taxes;
3. Stale checks — checks dated more than six (6) months prior to
presentation to the authorized agent bank;
4. Postdated checks — checks dated a day or several days after the
date of presentation to the authorized agent bank;
5. Unsigned checks — checks with no signature of the drawer;
6. Checks with alterations/erasures.
AABs accepting checks for the payment of BIT taxes and other charges must
see to it that the check covers one tax type for one return period only.
Moreover, AABs must strictly comply with the systems and procedures for
the reception, processing, clearing and accounting of the checks to be
prescribed under a separate regulation.
Second indorsement of checks which are payable to the Bureau of Internal

Revenue or Commissioner of Internal Revenue is absolutely prohibited.
(Below is sample of a check tax payment drawn from and presented to the
same bank.)
SEC. 4. TAX RETURNS PARTLY PAID THRU TAX DEBIT MEMOS (TDMs)
– AABs are mandated to accept tax returns/payment forms partly paid thru
any of the modes of payment mentioned in Section 3 hereof and partly thru
TDMs duly and validly issued by the BIR. Before accepting the BIR tax
return/ payment form partly paid thru tax debit memo, the AAB shall insure 275 of the Tax Code, as amended, and other existing laws, rules and
that the number of the TDM is indicated in the BIR tax return/ payment form regulations. AABs shall be liable to the BIR for double the amount of taxes
in the same manner that the check number/drawee bank and bank debit diverted and unremitted, plus the increments and penalties prescribed by the
advice number are indicated in the tax return/payment form paid thru check Tax
or bank debit system, respectively. A photocopy of the tax credit certificate
(TCC), front and back page, which was the source of the TDM, together with Code, as amended, but the total penalties imposed may be reduced on
a copy of the TDM, must be required from the taxpayer and attached to the meritorious grounds subject to the approval of the majority of the members of
BIR tax return/payment form. the Management Committee (MANCOM) of the BIR, composed of the
Commissioner of Internal Revenue and the four (4) Deputy Commissioners,
TDMs are, however, not acceptable as payments for withholding taxes, where the Commissioner of Internal Revenue votes for such reduction.
including Fringe Benefit Tax (clarified and implemented under RR No. 2-98,
as amended, and RR No. 3-98), and for taxes, fees and charges collected (b) The reports of AABs to be submitted to BTr/BIR (under Sec. 2) of all the
under special schemes / procedures / programs of the Government / BIR as tax payments collected shall be in accordance with the forms prescribed by
discussed and elucidated in a separate revenue regulation. AABs shall see BIR.
to it that this restriction is strictly observed in the BIR tax returns/ payment
forms they receive.
(c) The requirements prescribed in these regulations shall be included in the
accreditation criteria to be mentioned in the Memorandum of Agreement to
SEC. 5. ENROLLMENT OF TAXPAYERS WITH AUTHORIZED AGENT be signed by and among the BTR, BIR and the AAB for compliance by all
BANK NOT REQUIRED – Taxpayers are not required to enroll with any AAB AABs.
where they intend to file tax returns/payment forms and/or pay internal
revenue taxes. Taxpayers may file tax returns/payment forms and pay
SEC. 8. REPEALING CLAUSE – All rules and regulations or portions thereof
internal revenue taxes with any AAB of the appropriate BIR office (Revenue
inconsistent with the provisions of these regulations are hereby modified,
District Office (RDO), Large Taxpayers District Office (LTDO), or Large
amended or repealed accordingly.
Taxpayers Service, etc., whichever is applicable) where they are required to
file the particular return/payment form.
SEC. 9. EFFECTIVITY – These regulations shall take effect fifteen days from
date of publication in the Official Gazette or any newspaper of general
SEC. 6. RESPONSIBILITY AND PRIVILEGE OF TAXPAYERS
circulation. However, to provide sufficient time for AABs to make available to
all participating branches the deposit slip required under Section 2-D, the
–Taxpayers shall see to it that their tax returns/payment forms with payment effectivity date of the switch-over from the current acknowledgment slip shall
are filed with and internal revenue taxes paid to legitimate AABs of the BIR. be fifteen days from the effectivity of this Revenue Regulation.
Nonetheless, they may confirm their tax payments with their home RDO /
LTDO or LTDO / RDO where they are required to file tax returns/payment
form and pay internal revenue taxes. REVENUE MEMORANDUM CIRCULAR NO. 22-2012
SEC. 7. ADDITIONAL LIABILITIES/RESPONSIBILITIES OF AUTHO- RIZED This Circular is issued to clarify the implementation and proper interpretation of
AGENT BANKs (AABs). – Revenue Regulations No. 5 – 2012, to wit:
(a) Any diversion, non-remittance or under-remittance of the taxes collected 1. All BIR Rulings issued prior to Jan 1, 1998 are not to be used as
by AABs through fault or negligence of the bank accepting such payment as precedent by any taxpayer as a basis to secure rulings for themselves for
well as the diversion of any payment for BIR taxes using the facilities of the current business transaction/s or in support of their position against any
bank through fault or negligence of any of the bank's personnel shall subject assessment.
the bank to civil and criminal liabilities provided for under Sections 248 and 2. All BIR Rulings issued prior to Jan 1, 1998 are not to be used by any
BIR action lawyer in issuing new rulings for request for rulings
involving current business transaction/s. Held:
3. However, BIR Rulings issued prior to Jan 1, 1998 remains to be valid 4) Yes, the court cites CIR v CTA and RHO Automobiles Phils, the
but only: authority of the Minister of Finance (now the Secretary of
Finance), in conjunction with the Commissioner of Internal
a. to the taxpayer who was issued the ruling; and Revenue, to promulgate all needful rules and regulations for the
b. covering the specific transaction/s which is the subject of the same effective enforcement of internal revenue laws cannot be
ruling controverted. The new BIR Rulings should be followed and should
be paid in the manner stated in DOF circulars. BTr shall withhold the
20% final tax.
4. BIR Rulings issued prior to Jan 1, 1998, shall remain valid as mentioned
5) No, no vested right can accrue from an erroneous gathering of facts by
above, unless expressly notified of its revocation or unless the legal
BIR in 2001 according to Sec 247 of the 1997 Tax Code.
basis in law for such issuance has already been repealed/amended in the
current Tax Code.
Facts:
 Kim Henares, the BIR Commissioner sent a letter response to Hon.
All concerned revenue officials and employees are hereby enjoined to give this Cesar Purisima, the Secretary of Finance regarding the latters
Circular as wide a publicity as possible. inquiry for the proper tax treatment of the discount or interest arising
from the P35 billion worth of 10-year zero coupon treasury bonds
BIR RULING 370-2011 (Alarcon) issued by the Bureau of Treasury (BTr) on October 18, 2001, also
[October 7, 2011] known as “PEACe Bonds” (Poverty Eradication and Alleviation
“Peace bonds are deposit substitutes thus taxable at 20%” Certificates).
1. BTr’s issuance of the peace bonds stemmed from the
Recit-Ready: proposal of Caucus of Development NGO Networks
Facts: Kim Henares responds to the letter request of DOF Secretary (CODE-NGO) in March 2001 for DOF to issue P15 billion
Purisima regarding the tax treatment of peace bonds to be issued worth of 10 year fzero coupon treasury notes. Under the
to RCBC then to be sold to CODE-NGO. The latter will sell the proposal, CODE-NGO will purchase the notes and send
bonds to RCBC Capital as underwriter then sell to its investors. them to investors. Net proceeds from the sale, estimated at
The proceeds of the bonds will be used to finance NGO projects P1.45 Billion will be used by CODE-NGO to finance anti-
worldwide. BIR stated that based on the facts, the borrowing poverty projects of NGOs worldwide.
cannot be held public and thus not considered as “deposit  Original plan of CODE-NGO did not materialize as former Treasurer
substitutes” which are taxable at 20%, since at the time of its Edeza of BTr questioned the direct issuing of bonds directly to
origination, it is not issued to 20 or more individual to be CODE-NGO considering the latter was not a Government Securities
considered public. These BIR Rulings were REVERSED in 2004 Eligible Dealer (GSED). Edeza recommended that the issuance of
where BIR stated that the mere issuing of government bonds or bonds be done through an auction and CODE-NGO should get a
securities shall be considered public and considered as “deposit GSED on its behalf.
substitutes” regardless of the number of borrowers at the time of  On Oct 16, 2001, BTr sold the Peace Bonds via auction to eligible
origination as the term “at any point in time” means the floatation GSEDs. With regard to the taxation of the discounts or interest
of the instrument and that at maturity date, may be more than 20. income realized from the issuance of the peace bonds, BTr specified
BIR states that the peace bonds are to be taxed at 20%. in the Public Offering of Treasuary that “… the issue being limited to
19 lenders and while taxable shall not be subject to 20% final
Issue/s: withholding tax.”
1)WON The peacebonds are to be taxed at 20%- YES
2) Can RCBC/CODE NGO invoke non retroactivity principle?-NO This tax treatment was based from 3 BIR Rulings:
1.“… if the proposed peace bonds are issued to less

1. BIR Ruling No. 020-2001 dated May 31, 2001- than 20 individuals or corporate lenders, the
“… considering that the peace bonds were proposed to a borrowing shall not be considered as “public
single entity (therefore complying with the “19 lender rule”, Borrowing. Hence, the instrument shall not be
the said bonds were not considered to be a “public classified as “deposit substitutes”.
borrowing” and not considered as “deposit substitutes” as 2. The phrase “at any one time” covers only the
defined under Sec 22 (Y) of the 1997 Tax code origination or original issuance of the bonds
regardless of whether the sale or trading is made in
Sec 22 (Y) of 1997 Tax Code the secondary market.
 After three year from the issuance of the peace bonds, BIR Ruling
(Y) The term 'deposit substitutes' shall mean an No. 007-04 dated July 16, 2004 was issued as a response to the
alternative form of obtaining funds from the public (the term request for confirmation of the BTr on tax consequences of its
'public' means borrowing from twenty (20) or more regular and special issuance of treasury bills and bonds, thereby
individual or corporate lenders at any one time), other than REVERSING the 2001 rulings:
deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower's own o This Office opines and so rules that mere issuance of
account, for the purpose of relending or purchasing of government debt instruments and securities is deemed
receivables and other obligations, or financing their own as falling within the coverage of “deposit substitutes”
needs or the needs of their agent or dealer…” irrespective of the number of lenders at the time of
organization. Accordingly, since government debt
2. BIR Ruling No. 035-2001 dated August 16, 2001- instruments and securities are not exempt from taxes,
interest income derived therefrom shall be subject to
BTr seeking further clarification on BIR Ruling No. 020- the following:
2001, relative to the meaning of the word “public”,
particularly on the interpretation of the phrase “at anyone a) 20% final withholding tax under Sec 24 (B) (1) and Sec
time” in Sec 22 (Y), the Office resolved as follows: 25 (A) (2) in this code if the holder is an individual
citizen or a resident alien;
1. It shall be noted that at the time of issuance or b) 25% tax under Sec 25 (B) in this code if the holder is a
origination of the peace bonds, there is no non-resident alien individual not engaged in trade or
borrowing from the public, since the bonds are business;
being issued only to one entity, that is, RCBC. c) 20% final tax under Sec 27 (D) (1) and Sec 28 (A) (7)
2. In this particular instance, the phrase “at any one (a) in this code for domestic and resident foreign
time” covers only the origination or original corporations respectively;
issuance of bonds regardless whether sale or d) 32% final withholding tax for nonresident foreign
trading is made in the secondary market. corporations under, Sec 28 (B) (1) of the tax code if the
3. As on the flowchart you attached, the bonds are to holder is a non resident foreign corporation
be issued at a single entity, RCBC, to be bought by e) Such other rate that may be imposed under the
CODE-NGO then will be sold to RCBC Capital as appropriate tax treaty which the Philippines is a
an underwriter. It is clear that the bonds are issued signatory.
to a single entity, whether such be RCBC, CODE-
NGO or RCBC Capital …the phrase “at any one time” in relation to public offering
is deemed to refer to the floatation of the debt instrument or
3. BIR Ruling No. [DA-175-01] dated September 29, 2001- security. Since the actual number of bondholders may at
maturity date of the financial instrument be more than 20,
the said direct lenders (origination) and indirect investors The Documentary Stamp on the original issue shall be for
(secondary market) are deemed to be what constitute the account of the issuer.
“public”.  The Court cites CIR v CTA and R.O.H. Auto Products Phils.
 Such ruling above was reiterated in BIR Ruling No. DA-491-04:
“The authority of the Minister of Finance (now the
“…Notwithstanding the fact that there is only one corporate or Secretary of Finance), in conjunction with the Commissioner of
institutional lender the mere issuance of such PN by the Republic Internal Revenue, to promulgate all needful rules and
will classify the borrowing as “deposit substitutes” pursuant to the regulations for the effective enforcement of internal revenue
above cited Sec 2 (h)(iii)(b) of Rev. Regs. No. 17-84. Consequently, laws cannot be controverted. Neither can it be disputed that such
the interest income derived therefrom shall be subject to 10% final rules and regulations, as well as administrative opinions and rulings,
tax imposed under Sec 27 (D) (1) of the tax code.” ordinarily should deserve weight and respect by the courts.
Much more fundamental than either of the above, however, is that
Issue/s: all such issuances must not override, but must remain
WON the interest income arising from the Peace bonds shall be consistent and in harmony with, the law they seek to apply and
subject to the 20% Final tax, or in the alternative, to Ordinary Income implement. Administrative rules and regulations are intended to
tax carry out, neither to supplant nor to modify, the law.”
Held/Ratio: Petition GRANTED. In applying the doctrine of animation, Court  RCBC/CODE-NGO may not invoke the principle of non-retroactivity
rules for the Applicant. under Sec 246 of the 1997 Tax Code to preclude this office from
collecting the final tax on original discount or interest income. Sec
The P24.3 billion discount on the issuance of the Peace Bonds should 246 of the 1997 tax code provides:
be subject to 20% Final Tax on interest income from deposit
substitutes. It is now settled that all treasury bonds, regardless of the Any revocation, modification or reversal of any of the rules and
number of purchasers/lenders at the time of origination/issuance are regulations promulgated in accordance with the preceding Sections
considered deposit substitutes. or any of the rulings or circulars promulgated by the Commissioner
shall not be given retroactive application if the revocation,
 The manner of payment of the final tax is provided under DOF modification or reversal will be prejudicial to the taxpayers, except in
Department Order No. 141-95: the following cases:
Sec 7. Taxation- The income derived from Treasury Bills "(a) Where the taxpayer deliberately misstates or omits material
and Bonds, and instruments with recourse as authorized by facts from his return or any document required of him by the Bureau
BSP shall be subject to the 20% final income tax to be of Internal Revenue;
withheld on discounts valued at the time of issue on every
original sale and included in the remittance of the purchase "(b) Where the facts subsequently gathered by the Bureau
price. of Internal Revenue are materially different from the facts on
In case of Treasury bonds, the 20% final income which the ruling is based; or
tax shall be withheld on discounts valued at present value
on every original sale. Periodic coupon payments on "(c) Where the taxpayer acted in bad faith.
treasury bonds shall be subject to the 20% final income tax
to be withheld at the time the coupon payments are made. As the facts subsequently gathered from the BIR Rulings in 2004 are
materially different from facts gathered in 2001 BIR Ruling are based, BIR
Ruling No. 007-04 is applicable retroactively.
o Hilado v CIR and CTA: “.. An erroneous construction of companies, insurance companies, regional operating headquarters of
the law by the Treasury Department of the collector of multinational companies, joint accounts, associations, joint ventures of
internal revenue does not preclude or estop the consortia and registered partnerships, and their members;
government from collecting a tax which is legally due.”
o Art 2254 of the New Civil code provides that No vested (C) To summon the person liable for tax or required to file a return, or any
or acquired right can arise from acts or omissions which officer or employee of such person, or any person having possession,
are against the law or infringe upon the rights of others. custody, or care of the books of accounts and other accounting records
 BTr shall withhold the Final Tax due on the interest income derived containing entries relating to the business of the person liable for tax, or
from the Peace Bonds prior to its payment on the date of maturity any other person, to appear before the Commissioner or his duly
o Should the facts presented upon investigation be different authorized representative at a time and place specified in the summons
then this ruling shall be considered null and void. and to produce such books, papers, records, or other data, and to give
testimony;
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to
Decide Tax Cases. - The power to interpret the provisions of this Code
(D) To take such testimony of the person concerned, under oath, as may
and other tax laws shall be under the exclusive and original jurisdiction of
be relevant or material to such inquiry; and
the Commissioner, subject to review by the Secretary of Finance.
(E) To cause revenue officers and employees to make a canvass from

The power to decide disputed assessments, refunds of internal revenue
time to time of any revenue district or region and inquire after and
taxes, fees or other charges, penalties imposed in relation thereto, or
concerning all persons therein who may be liable to pay any internal
other matters arising under this Code or other laws or portions thereof
revenue tax, and all persons owning or having the care, management or
administered by the Bureau of Internal Revenue is vested in the
possession of any object with respect to which a tax is imposed.
Commissioner, subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals. [3]
The provisions of the foregoing paragraphs notwithstanding, nothing in
this Section shall be construed as granting the Commissioner the authority
SEC. 5. Power of the Commissioner to Obtain Information, and to
to inquire into bank deposits other than as provided for in Section 6(F) of
Summon, Examine, and Take Testimony of Persons. - In ascertaining
this Code.
the correctness of any return, or in making a return when none has been
made, or in determining the liability of any person for any internal revenue
tax, or in collecting any such liability, or in evaluating tax compliance, the SEC. 6. Power of the Commissioner to Make Assessments and
Commissioner is authorized: Prescribe Additional Requirements for Tax Administration and
Enforcement. -
(A) To examine any book, paper, record, or other data which may be
relevant or material to such inquiry; (A) Examination of Return and Determination of Tax Due. After a
return has been filed as required under the provisions of this Code, the
Commissioner or his duly authorized representative may authorize the
(B) To obtain on a regular basis from any person other than the person
examination of any taxpayer and the assessment of the correct amount of
whose internal revenue tax liability is subject to audit or investigation, or
tax: Provided, however, That failure to file a return shall not prevent the
from any office or officer of the national and local governments,
Commissioner from authorizing the examination of any taxpayer.
government agencies and instrumentalities, including the Bangko Sentral
ng Pilipinas and government-owned or -controlled corporations, any
information such as, but not limited to, costs and volume of production, The tax or any deficiency tax so assessed shall be paid upon notice and
receipts or sales and gross incomes of taxpayers, and the names, demand from the Commissioner or from his duly authorized
addresses, and financial statements of corporations, mutual fund
representative. other taxable base of other persons engaged in similar businesses under
similar situations or circumstances or after considering other relevant
Any return, statement of declaration filed in any office authorized to information may prescribe a minimum amount of such gross receipts,
receive the same shall not be withdrawn: Provided, That within three (3) sales and taxable base, and such amount so prescribed shall be prima
years from the date of such filing, the same may be modified, changed, or facie correct for purposes of determining the internal revenue tax liabilities
amended: Provided, further, That no notice for audit or investigation of of such person.
such return, statement or declaration has in the meantime been actually
served upon the taxpayer. (D) Authority to Terminate Taxable Period. - When it shall come to the
knowledge of the Commissioner that a taxpayer is retiring from business
(B) Failure to Submit Required Returns, Statements, Reports and subject to tax, or is intending to leave the Philippines or to remove his
other Documents. - When a report required by law as a basis for the property therefrom or to hide or conceal his property, or is performing any
assessment of any national internal revenue tax shall not be forthcoming act tending to obstruct the proceedings for the collection of the tax for the
within the time fixed by laws or rules and regulations or when there is past or current quarter or year or to render the same totally or partly
reason to believe that any such report is false, incomplete or erroneous, ineffective unless such proceedings are begun immediately, the
the Commissioner shall assess the proper tax on the best evidence Commissioner shall declare the tax period of such taxpayer terminated at
obtainable. any time and shall send the taxpayer a notice of such decision, together
with a request for the immediate payment of the tax for the period so
declared terminated and the tax for the preceding year or quarter, or such
In case a person fails to file a required return or other document at the
portion thereof as may be unpaid, and said taxes shall be due and
time prescribed by law, or willfully or otherwise files a false or fraudulent payable immediately and shall be subject to all the penalties hereafter
return or other document, the Commissioner shall make or amend the
prescribed, unless paid within the time fixed in the demand made by the
return from his own knowledge and from such information as he can Commissioner.
obtain through testimony or otherwise, which shall be prima facie correct
and sufficient for all legal purposes.
(E) Authority of the Commissioner to Prescribe Real Property
Values. - The Commissioner is hereby authorized to divide the Philippines
(C) Authority to Conduct Inventory-taking, Surveillance and to
into different zones or areas and shall, upon consultation with competent
Prescribe Presumptive Gross Sales and Receipts. - The Commissioner
appraisers both from the private and public sectors, determine the fair
may, at any time during the taxable year, order inventory-taking of goods market value of real properties located in each zone or area. For purposes
of any taxpayer as a basis for determining his internal revenue tax
of computing any internal revenue tax, the value of the property shall be,
liabilities, or may place the business operations of any person, natural or whichever is the higher of:
juridical, under observation or surveillance if there is reason to believe that
such person is not declaring his correct income, sales or receipts for
internal revenue tax purposes. The findings may be used as the basis for (1) The fair market value as determined by the Commissioner; or
assessing the taxes for the other months or quarters of the same or
different taxable years and such assessment shall be deemed prima facie (2) The fair market value as shown in the schedule of values of the
correct. Provincial and City Assessors.
When it is found that a person has failed to issue receipts and invoices in (F) Authority of the Commissioner to Inquire into Bank Deposit
violation of the requirements of Sections 113 and 237 of this Code, or Accounts and Other Related information held by Financial
when there is reason to believe that the books of accounts or other Institutions. [4] - Notwithstanding any contrary provision of Republic Act
records do not correctly reflect the declarations made or to be made in a No. 1405, Republic Act No. 6426, otherwise known as the Foreign
return required to be filed under the provisions of this Code, the Currency Deposit Act of the Philippines, and other general or special laws,
Commissioner, after taking into account the sales, receipts, income or the Commissioner is hereby authorized to inquire into the bank deposits
and other related information held by financial institutions of: information from the Commissioner;
(1) A decedent to determine his gross estate; and (c) The tax purpose for which the information is being sought;
(2) Any taxpayer who has filed an application for compromise of his tax (d) Grounds for believing that the information requested is held in the
liability under Section 204(A)(2) of this Code by reason of financial Philippines or is in the possession or control of a person within the
incapacity to pay his tax liability. jurisdiction of the Philippines;
In case a taxpayer files an application to compromise the payment of his (e) To the extent known, the name and address of any person believed to
tax liabilities on his claim that his financial position demonstrates a clear be in possession of the requested information;
inability to pay the tax assessed, his application shall not be considered
unless and until he waives in writing his privilege under Republic Act No. (f) A statement that the request is in conformity with the law and
1405, Republic Act No. 6426, otherwise known as the Foreign Currency administrative practices of the said foreign tax authority, such that if the
Deposit Act of the Philippines, or under other general or special laws, and requested information was within the jurisdiction of the said foreign tax
such waiver shall constitute the authority of the Commissioner to inquire authority then it would be able to obtain the information under its laws or in
into the bank deposits of the taxpayer. the normal course of administrative practice and that it is in conformity
with a convention or international agreement; and
(3) A specific taxpayer or taxpayers subject of a request for the supply of
tax information from a foreign tax authority pursuant to an international (g) A statement that the requesting foreign tax authority has exhausted all
convention or agreement on tax matters to which the Philippines is a means available in its own territory to obtain the information, except those
signatory or a party of: Provided, That the information obtained from the that would give rise to disproportionate difficulties.
banks and other financial institutions may be used by the Bureau of
Internal Revenue for tax assessment, verification, audit and enforcement
The Commissioner shall forward the information as promptly as possible
purposes.
to the requesting foreign tax authority. To ensure a prompt response, the
Commissioner shall confirm receipt of a request in writing to the
In case of a request from a foreign tax authority for tax information held by requesting tax authority and shall notify the latter of deficiencies in the
banks and financial institutions, the exchange of information shall be done request, if any, within sixty (60) days from receipt of the request.
in a secure manner to ensure confidentiality thereof under such rules and
regulations as may be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner. If the Commissioner is unable to obtain and provide the information within
ninety (90) days from receipt of the request, due to obstacles encountered
in furnishing the information or when the bank or financial institution
The Commissioner shall provide the tax information obtained from banks refuses to furnish the information, he shall immediately inform the
and financial institutions pursuant to a convention or agreement upon requesting tax authority of the same, explaining the nature of the
request of the foreign tax authority when such requesting foreign tax obstacles encountered or the reasons for refusal.
authority has provided the following information to demonstrate the
foreseeable relevance of the information to the request:
The term "foreign tax authority," as used herein, shall refer to the tax
authority or tax administration of the requesting State under the tax treaty
(a) The identity of the person under examination or investigation; or convention to which the Philippines is a signatory or a party of.
(b) A statement of the information being sought, including its nature and (G) Authority to Accredit and Register Tax Agents. - The
the form in which the said foreign tax authority prefers to receive the Commissioner shall accredit and register, based on their professional
competence, integrity and moral fitness, individuals and general the regional offices involving basic deficiency taxes of Five hundred
professional partnerships and their representatives who prepare and file thousand pesos (P500,000) or less, and minor criminal violations, as may
tax returns, statements, reports, protests, and other papers with or who be determined by rules and regulations to be promulgated by the
appear before, the Bureau for taxpayers. Within one hundred twenty (120) Secretary of finance, upon recommendation of the Commissioner,
days from January 1, 1998, the Commissioner shall create national and discovered by regional and district officials, may be compromised by a
regional accreditation boards, the members of which shall serve for three regional evaluation board which shall be composed of the Regional
(3) years, and shall designate from among the senior officials of the Director as Chairman, the Assistant Regional Director, the heads of the
Bureau, one (1) chairman and two (2) members for each board, subject to Legal, Assessment and Collection Divisions and the Revenue District
such rules and regulations as the Secretary of Finance shall promulgate Officer having jurisdiction over the taxpayer, as members; and
upon the recommendation of the Commissioner.
(d) The power to assign or reassign internal revenue officers to
Individuals and general professional partnerships and their establishments where articles subject to excise tax are produced or kept.
representatives who are denied accreditation by the Commissioner and/or
the national and regional accreditation boards may appeal such denial to Section 8. Duty of the Commissioner to Ensure the Provision and
the Secretary of Finance, who shall rule on the appeal within sixty (60) Distribution of Forms, Receipts, Certificates, and Appliances, and the
days from receipt of such appeal. Failure of the Secretary of Finance to Acknowledgment of Payment of Taxes. -
rule on the Appeal within the prescribed period shall be deemed as
approval of the application for accreditation of the appellant.
(A) Provision and Distribution to Proper-Officials. - Any law to the
contrary notwithstanding, it shall be the duty of the Commissioner, among
(H) Authority of the Commissioner to Prescribe Additional other things, to prescribe, provide, and distribute to the proper officials the
Procedural or Documentary Requirements. - The Commissioner may requisite licenses; internal revenue stamps; unique, secure and non-
prescribe the manner of compliance with any documentary or procedural removable identification markings (hereafter called unique identification
requirement in connection with the submission or preparation of financial markings), such as codes or stamps, be affixed to or form part of all unit
statements accompanying the tax returns. packets and packages and any outside packaging of cigarettes and
bottles of distilled spirits; labels and other forms; certificates; bonds;
SEC. 7.Authority of the Commissioner to Delegate Power. - The records; invoices; books; receipts; instruments; appliances and apparatus
Commissioner may delegate the powers vested in him under the pertinent used in administering the laws falling within the jurisdiction of the Bureau.
provisions of this Code to any or such subordinate officials with the rank For this purpose, internal revenue stamps, or other markings and labels
equivalent to a division chief or higher, subject to such limitations and shall be caused by the Commissioner to be printed with adequate security
restrictions as may be imposed under rules and regulations to be features.
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner: Provided, however, That the following powers of the Internal revenue stamps, whether of a bar code or fuson design, or other
Commissioner shall not be delegated: markings shall be firmly and conspicuously affixed or printed on each pack
of cigars and cigarettes and bottles of distilled spirits subject to excise tax
(a) The power to recommend the promulgation of rules and regulations by in the manner and form as prescribed by the Commissioner, upon
the Secretary of Finance; approval of the Secretary of Finance.
(b) The power to issue rulings of first impression or to reverse, revoke or To further improve tax administration, cigarette and alcohol manufacturers
modify any existing ruling of the Bureau; shall be required to install automated volume-counters of packs and
bottles to deter over-removals and misdeclaration of removals.
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this
Code, any tax liability: Provided, however, That assessments issued by (B) Receipts for Payment Mode. - It shall be the duty of the
Commissioner or his duly authorized representative or an authorized Additional Requirements for Tax Administration and Enforcement.  "xxx "(F)
agent bank to whom any payment of any tax is made under the provisions Authority of the Commissioner to Inquire into Bank Deposit Accounts and 
of this Code to acknowledge the payment of such tax, expressing the Other Related Information Held by Financial Institutions. Notwithstanding
amount paid and the particular account for which such payment was made any contrary
in a form and manner prescribed therefor by the Commissioner.
provision of Republic Act No. 1405, Republic Act No. 6426, otherwise known
as the Foreign Currency Deposit Act of the Philippines, and other general
and special laws, the Commissioner is hereby authorized to inquire into the
REPUBLIC ACT NO. 10021 bank deposits and other related information held by financial institutions of:
AN ACT TO ALLOW THE EXCHANGE OF INFORMATION BY THE "(1) A decedent to determine his gross estate.
BUREAU OF INTERNAL REVENUE OF TAX MATTERS PURSUANT TO
INTERNATIONALLYAGREED TAX STANDARDS, AMENDING SECTIONS "(2) Any taxpayer who has filed an application for compromise of his tax
6(F), 71 AND 270 OF THE NATIONAL INTERNAL REVENUE CODE OF liability under Sec. 204 (A)(2) reason of financial incapacity to pay his tax
1997, AS AMENDED, AND FOR OTHER PURPOSES liability.
Section 1. Title. This Act shall be known as the "Exchange of Information "In case a taxpayer files an application to compromise the payment of his tax
on Tax Matters Act of 2009". liabilities on his claim that his financial position demonstrates a clear inability
to pay the tax assessed, his application shall not be considered unless and
Section 2. Declaration of Policy. It is the declared policy of the State to until he waives in writing his privilege under Republic Act No. 1405, Republic
promote and pursue a tax environment that contributes in sustaining a Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the
favorable international investment climate and instills confidence in the Philippines, or under other general or special laws, and such waiver shall
adequacy and capacity of the country's tax administration to comply with its constitute the authority of the Commissioner to inquire into the bank deposits
commitments under existing international conventions or agreements on tax of the taxpayer.
matters.
"(3) A specific taxpayer or taxpayers subject of a request for the supply of tax
Pursuant to this declared policy, the government shall comply with or commit information from a foreign tax authority pursuant to an international
to the internationallyagreed tax standards required for the exchange of tax convention or agreement on tax matters to which the Philippines is a
information with its tax treaty partners to help combat international tax signatory or a party of: Provided, That the information obtained from the
evasion and avoidance and to help address tax concerns that affect banks and other financial institutions may be used by the Bureau of Internal
international trade and investment. The government shall likewise adopt Revenue for tax assessment, verification, audit and enforcement purposes.
measures and procedures to enhance cooperation with other countries in the
efficient collection of taxes, consistent with the international understanding to "In case of request from a foreign tax authority for tax information held by
ensure the payment of taxes due the respective taxing jurisdictions of the banks and financial institutions, the exchange of information shall be done in
treaty partners. a secure manner to ensure confidentiality thereof under such rules and
regulations as may be promulgated by the Secretary of Finance, upon
Section 3. Authority of the Commissioner of Internal Revenue to Inquire into recommendation of the Commissioner.
Bank Deposit Accounts and Related Information Held by Financial
Institutions. Section 6(F) of Republic Act No. 8424, as amended, otherwise "The Commissioner shall provide the tax information obtained from banks
known as the National Revenue Code of 1997, as amended, is hereby and financial institutions pursuant to a convention or agreement upon
further amended to read as follows: request of the foreign tax authority when such requesting foreign tax
"SEC. 6. Power of the Commissioner to Make Assessments and Prescribe  foreseeable relevance of the information to the request:
"(a) The identity of the person under examination or investigation; Section 4. Allowing a Foreign Tax Authority to Income Tax Returns of
Taxpayers in the Philippines. Section 71 of Republic Act No. 8424, as
"(b) A statement of the information being sought including its nature and the amended, otherwise known as the National Internal Revenue Code of 1997,
form in which the said foreign tax authority prefers to receive the information is hereby amended to read as follows:
from the Commissioner;
"SEC. 71. Disposition of Income Tax Returns, Publication of Lists of
"(c) The tax purpose for which the information is being sought; Taxpayers and Filers. After the assessment shall have been made, as
provided in this Title, the returns, together with any corrections thereof which
"(d) Grounds for believing that the information requested is held in the may have been made by the Commissioner, shall be filed in the Office of the
Philippines or is in the possession or control of a person within the Commissioner and shall constitute public records and be open to inspection
jurisdiction of the Philippines; as such upon the order of the President of the Philippines, under rules and
regulations to be presented by the Secretary of Finance, upon
"(e) To the extent known, the name and address of any person believed to recommendation of the Commissioner.
be in possession of the requested information;
"The Commissioner may, in each year, cause to be prepared and published
"(f) A Statement that the request is in conformity with the law and in any newspaper the lists containing the names and addresses of persons
administrative practices of the said foreign tax authority, such that if the who have filed income tax returns.
requested information was within the jurisdiction of the said foreign tax
authority then it would be able to obtain the information under its law or in the "Income tax returns of specific taxpayers subject of a request for exchange of
normal course of administrative practice and that it is conformity with a information by a foreign tax authority pursuant to an international convention
convention or international agreement; and or agreement on tax matters to which the Philippines is a signatory or a party
of, shall be open to inspection upon the order of the President if the
"(g) A statement that the requesting foreign tax authority has exhausted all Philippines under rules and regulations as may be prescribed by the
means available in its own territory to obtain the information, except those Secretary of Finance, upon recommendation of the Commissioner."
that would give rise to disproportionate difficulties.
Section 5. Authority of the Commissioner of Internal Revenue to Supply
"The Commissioner shall forward the information as promptly as possible to Information to a Foreign Tax Authority Which is at his Disposal. Section 270
the requesting foreign tax authority. To ensure a prompt response, the of Republic Act No. 8424, as amended, otherwise known as the National
Commissioner shall confirm receipt of a request in writing to the requesting Internal Revenue of 1997, is hereby amended to read as follows:
tax authority and shall notify the latter of deficiencies in the request, if any,
within sixty (60) days from the receipt of the request. "SEC. 270. Unlawful Divulgence of Information. Except as provided in
Sections 6(F) and 71 of this Code and Section 26 of Republic Act No. 6388,
"If the Commissioner is unable to obtain and provide the information within any officer or employee of the Bureau of Internal Revenue who divulges to
ninety (90) days from the receipt of the request, due to obstacles any person or makes known in any other manner than may be provided by
encountered in furnishing the information or when the bank or financial law information regarding the business, income, or estate of any taxpayer,
institution refuses to furnish the information, he shall immediately inform the the secrets, operation, style or work, or apparatus of any manufacturer or
requesting tax authority of the same, explaining the nature of the obstacles producer, or confidential information regarding the business of any taxpayer,
encountered or the reasons of refusal." knowledge of which was acquired by him in the discharge of his official
duties, shall, upon conviction for each act or omission, be punished by a fine
"The term 'foreign tax authority', as used herein, shall refer to the tax of not less than Fifty thousand pesos (P50,000) but not more than One
authority or tax administration of the requesting State under the tax treaty or hundred thousand pesos (P100,000), or suffer imprisonment of not less than
convention to which the Philippines is a signatory or a party of." two (2) years but not more than five (5) years, or both.
"Any officer or employee of the Bureau of Internal Revenue who divulges or Section 11. Effectivity Clause. This Act shall take effect fifteen (15) days
makes known in any other manner to any person other than the requesting after its publication in the Official Gazette or in at least two (2) newspapers of
foreign tax authority information obtained from banks and financial general circulation.
institutions pursuant to Section 6(F), knowledge or information acquired by
him in the discharge of his official duties, shall, upon conviction, be punished
by a fine of not less than Fifty thousand pesos (P50,000) but not more than
One hundred thousand pesos (P100,000), or suffer imprisonment of not less
than two (2) years but not more than five (5) years, or both."
Section 6. Willful Refusal to Supply Information. Any officer, owner, agent,

manager, director or officerin charge of any bank or financial institution within
the purview of this Act who, being required in writing by the Commissioner,
willfully, refuses to supply the required information shall be punished by a
fine of not less than Fifty thousand pesos (50,000) but not more than One
hundred thousand pesos (P100,000) , or suffer imprisonment of not less than
two (2) years but not more than five (5) years, or both.
Section 7. Obligation to Maintain Confidentiality of Information Received.

Any information received by a foreign tax authority from the Bureau of
Internal Revenue pursuant to an International convention or agreement on
tax matters shall be treated by the authority as absolutely confidential in
nature in the same manner as information obtained by the latter under its
laws and shall be disclosed only to persons or authorities, including courts
and administrative bodies, involves in the assessment or collection of, the
enforcement or prosecution in respect of, or the determination of appeals in
relation to, the taxes covered by such conventions of agreements.
Section 8. Notice to Taxpayers. A taxpayer shall be duly notified in writing

by the Commissioner that a foreign tax authority is requesting for exchange
of information held by financial institutions pursuant to a tax convention or
agreement to which the Philippines is a signatory or a party of, under such
rules and regulations as may be prescribed by the Secretary of Finance upon
recommendations of the Commissioner.
Section 9. Separability Clause. If any provision of this Act is declared invalid

or unconstitutional, other provisions hereof which are not affected thereby
shall continue to be in full force and effect.
Section 10. Repealing Clause. All laws, presidential decrees, executive

orders, rules and regulations, other issuances or parts thereof which are
inconsistent with or contrary to this Act are hereby repealed or modified
accordingly.
POWERS OF THE CIR any other person, to appear before the Commissioner or his duly
authorized representative at a time and place specified in the summons
and to produce such books, papers, records, or other data, and to give
testimony;
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to
Decide Tax Cases. - The power to interpret the provisions of this Code
and other tax laws shall be under the exclusive and original jurisdiction of (D) To take such testimony of the person concerned, under oath, as may
the Commissioner, subject to review by the Secretary of Finance. be relevant or material to such inquiry; and
The power to decide disputed assessments, refunds of internal revenue (E) To cause revenue officers and employees to make a canvass from
taxes, fees or other charges, penalties imposed in relation thereto, or time to time of any revenue district or region and inquire after and
other matters arising under this Code or other laws or portions thereof concerning all persons therein who may be liable to pay any internal
administered by the Bureau of Internal Revenue is vested in the revenue tax, and all persons owning or having the care, management or
Commissioner, subject to the exclusive appellate jurisdiction of the Court possession of any object with respect to which a tax is imposed.
of Tax Appeals. [3]
The provisions of the foregoing paragraphs notwithstanding, nothing in
SEC. 5. Power of the Commissioner to Obtain Information, and to this Section shall be construed as granting the Commissioner the authority
Summon, Examine, and Take Testimony of Persons. - In ascertaining to inquire into bank deposits other than as provided for in Section 6(F) of
the correctness of any return, or in making a return when none has been this Code.
made, or in determining the liability of any person for any internal revenue
tax, or in collecting any such liability, or in evaluating tax compliance, the SEC. 6. Power of the Commissioner to Make Assessments and
Commissioner is authorized: Prescribe Additional Requirements for Tax Administration and
Enforcement. -
(A) To examine any book, paper, record, or other data which may be
relevant or material to such inquiry; (A) Examination of Return and Determination of Tax Due. After a
return has been filed as required under the provisions of this Code, the
(B) To obtain on a regular basis from any person other than the person Commissioner or his duly authorized representative may authorize the
whose internal revenue tax liability is subject to audit or investigation, or examination of any taxpayer and the assessment of the correct amount of
from any office or officer of the national and local governments, tax: Provided, however, That failure to file a return shall not prevent the
government agencies and instrumentalities, including the Bangko Sentral Commissioner from authorizing the examination of any taxpayer.
ng Pilipinas and government-owned or -controlled corporations, any
information such as, but not limited to, costs and volume of production, The tax or any deficiency tax so assessed shall be paid upon notice and
receipts or sales and gross incomes of taxpayers, and the names, demand from the Commissioner or from his duly authorized
addresses, and financial statements of corporations, mutual fund representative.
companies, insurance companies, regional operating headquarters of
multinational companies, joint accounts, associations, joint ventures of Any return, statement of declaration filed in any office authorized to
consortia and registered partnerships, and their members; receive the same shall not be withdrawn: Provided, That within three (3)
years from the date of such filing, the same may be modified, changed, or
(C) To summon the person liable for tax or required to file a return, or any amended: Provided, further, That no notice for audit or investigation of
officer or employee of such person, or any person having possession, such return, statement or declaration has in the meantime been actually
custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable for tax, or
1
served upon the taxpayer. of such person.
(B) Failure to Submit Required Returns, Statements, Reports and (D) Authority to Terminate Taxable Period. - When it shall come to the
other Documents. - When a report required by law as a basis for the knowledge of the Commissioner that a taxpayer is retiring from business
assessment of any national internal revenue tax shall not be forthcoming subject to tax, or is intending to leave the Philippines or to remove his
within the time fixed by laws or rules and regulations or when there is property therefrom or to hide or conceal his property, or is performing any
reason to believe that any such report is false, incomplete or erroneous, act tending to obstruct the proceedings for the collection of the tax for the
the Commissioner shall assess the proper tax on the best evidence past or current quarter or year or to render the same totally or partly
obtainable. ineffective unless such proceedings are begun immediately, the
Commissioner shall declare the tax period of such taxpayer terminated at
In case a person fails to file a required return or other document at the any time and shall send the taxpayer a notice of such decision, together
time prescribed by law, or willfully or otherwise files a false or fraudulent with a request for the immediate payment of the tax for the period so
return or other document, the Commissioner shall make or amend the declared terminated and the tax for the preceding year or quarter, or such
return from his own knowledge and from such information as he can portion thereof as may be unpaid, and said taxes shall be due and
obtain through testimony or otherwise, which shall be prima facie correct payable immediately and shall be subject to all the penalties hereafter
and sufficient for all legal purposes. prescribed, unless paid within the time fixed in the demand made by the
Commissioner.
(C) Authority to Conduct Inventory-taking, Surveillance and to
Prescribe Presumptive Gross Sales and Receipts. - The Commissioner (E) Authority of the Commissioner to Prescribe Real Property
may, at any time during the taxable year, order inventory-taking of goods Values. - The Commissioner is hereby authorized to divide the Philippines
of any taxpayer as a basis for determining his internal revenue tax into different zones or areas and shall, upon consultation with competent
liabilities, or may place the business operations of any person, natural or appraisers both from the private and public sectors, determine the fair
juridical, under observation or surveillance if there is reason to believe that market value of real properties located in each zone or area. For purposes
such person is not declaring his correct income, sales or receipts for of computing any internal revenue tax, the value of the property shall be,
internal revenue tax purposes. The findings may be used as the basis for whichever is the higher of:
assessing the taxes for the other months or quarters of the same or
different taxable years and such assessment shall be deemed prima facie (1) The fair market value as determined by the Commissioner; or
correct.
(2) The fair market value as shown in the schedule of values of the
When it is found that a person has failed to issue receipts and invoices in Provincial and City Assessors.
violation of the requirements of Sections 113 and 237 of this Code, or
when there is reason to believe that the books of accounts or other (F) Authority of the Commissioner to Inquire into Bank Deposit
records do not correctly reflect the declarations made or to be made in a Accounts and Other Related information held by Financial
return required to be filed under the provisions of this Code, the Institutions. [4] - Notwithstanding any contrary provision of Republic Act
Commissioner, after taking into account the sales, receipts, income or No. 1405, Republic Act No. 6426, otherwise known as the Foreign
other taxable base of other persons engaged in similar businesses under Currency Deposit Act of the Philippines, and other general or special laws,
similar situations or circumstances or after considering other relevant the Commissioner is hereby authorized to inquire into the bank deposits
information may prescribe a minimum amount of such gross receipts, and other related information held by financial institutions of:
sales and taxable base, and such amount so prescribed shall be prima
facie correct for purposes of determining the internal revenue tax liabilities
(1) A decedent to determine his gross estate; and
2
(2) Any taxpayer who has filed an application for compromise of his tax (c) The tax purpose for which the information is being sought;
liability under Section 204(A)(2) of this Code by reason of financial
incapacity to pay his tax liability. (d) Grounds for believing that the information requested is held in the
Philippines or is in the possession or control of a person within the
In case a taxpayer files an application to compromise the payment of his jurisdiction of the Philippines;
tax liabilities on his claim that his financial position demonstrates a clear
inability to pay the tax assessed, his application shall not be considered (e) To the extent known, the name and address of any person believed to
unless and until he waives in writing his privilege under Republic Act No. be in possession of the requested information;
1405, Republic Act No. 6426, otherwise known as the Foreign Currency
Deposit Act of the Philippines, or under other general or special laws, and
such waiver shall constitute the authority of the Commissioner to inquire (f) A statement that the request is in conformity with the law and
administrative practices of the said foreign tax authority, such that if the
into the bank deposits of the taxpayer.
requested information was within the jurisdiction of the said foreign tax
authority then it would be able to obtain the information under its laws or in
(3) A specific taxpayer or taxpayers subject of a request for the supply of the normal course of administrative practice and that it is in conformity
tax information from a foreign tax authority pursuant to an international with a convention or international agreement; and
convention or agreement on tax matters to which the Philippines is a
signatory or a party of: Provided, That the information obtained from the
(g) A statement that the requesting foreign tax authority has exhausted all
banks and other financial institutions may be used by the Bureau of
Internal Revenue for tax assessment, verification, audit and enforcement means available in its own territory to obtain the information, except those
that would give rise to disproportionate difficulties.
purposes.
The Commissioner shall forward the information as promptly as possible

In case of a request from a foreign tax authority for tax information held by
to the requesting foreign tax authority. To ensure a prompt response, the
banks and financial institutions, the exchange of information shall be done
Commissioner shall confirm receipt of a request in writing to the
in a secure manner to ensure confidentiality thereof under such rules and
regulations as may be promulgated by the Secretary of Finance, upon requesting tax authority and shall notify the latter of deficiencies in the
request, if any, within sixty (60) days from receipt of the request.
recommendation of the Commissioner.
The Commissioner shall provide the tax information obtained from banks If the Commissioner is unable to obtain and provide the information within
ninety (90) days from receipt of the request, due to obstacles encountered
and financial institutions pursuant to a convention or agreement upon
request of the foreign tax authority when such requesting foreign tax in furnishing the information or when the bank or financial institution
refuses to furnish the information, he shall immediately inform the
requesting tax authority of the same, explaining the nature of the
foreseeable relevance of the information to the request:
obstacles encountered or the reasons for refusal.
(a) The identity of the person under examination or investigation;
The term "foreign tax authority," as used herein, shall refer to the tax
authority or tax administration of the requesting State under the tax treaty
(b) A statement of the information being sought, including its nature and or convention to which the Philippines is a signatory or a party of.
the form in which the said foreign tax authority prefers to receive the
information from the Commissioner;
(G) Authority to Accredit and Register Tax Agents. - The
Commissioner shall accredit and register, based on their professional
competence, integrity and moral fitness, individuals and general
3
professional partnerships and their representatives who prepare and file the regional offices involving basic deficiency taxes of Five hundred
tax returns, statements, reports, protests, and other papers with or who thousand pesos (P500,000) or less, and minor criminal violations, as may
appear before, the Bureau for taxpayers. Within one hundred twenty (120) be determined by rules and regulations to be promulgated by the
days from January 1, 1998, the Commissioner shall create national and Secretary of finance, upon recommendation of the Commissioner,
regional accreditation boards, the members of which shall serve for three discovered by regional and district officials, may be compromised by a
(3) years, and shall designate from among the senior officials of the regional evaluation board which shall be composed of the Regional
Bureau, one (1) chairman and two (2) members for each board, subject to Director as Chairman, the Assistant Regional Director, the heads of the
such rules and regulations as the Secretary of Finance shall promulgate Legal, Assessment and Collection Divisions and the Revenue District
upon the recommendation of the Commissioner. Officer having jurisdiction over the taxpayer, as members; and
Individuals and general professional partnerships and their (d) The power to assign or reassign internal revenue officers to
representatives who are denied accreditation by the Commissioner and/or establishments where articles subject to excise tax are produced or kept.
the national and regional accreditation boards may appeal such denial to
the Secretary of Finance, who shall rule on the appeal within sixty (60) Section 8. Duty of the Commissioner to Ensure the Provision and
days from receipt of such appeal. Failure of the Secretary of Finance to Distribution of Forms, Receipts, Certificates, and Appliances, and the
rule on the Appeal within the prescribed period shall be deemed as Acknowledgment of Payment of Taxes. -
approval of the application for accreditation of the appellant.
(A) Provision and Distribution to Proper-Officials. - Any law to the
(H) Authority of the Commissioner to Prescribe Additional contrary notwithstanding, it shall be the duty of the Commissioner, among
Procedural or Documentary Requirements. - The Commissioner may other things, to prescribe, provide, and distribute to the proper officials the
prescribe the manner of compliance with any documentary or procedural requisite licenses; internal revenue stamps; unique, secure and non-
requirement in connection with the submission or preparation of financial removable identification markings (hereafter called unique identification
statements accompanying the tax returns. markings), such as codes or stamps, be affixed to or form part of all unit
packets and packages and any outside packaging of cigarettes and
SEC. 7.Authority of the Commissioner to Delegate Power. - The bottles of distilled spirits; labels and other forms; certificates; bonds;
Commissioner may delegate the powers vested in him under the pertinent records; invoices; books; receipts; instruments; appliances and apparatus
provisions of this Code to any or such subordinate officials with the rank used in administering the laws falling within the jurisdiction of the Bureau.
equivalent to a division chief or higher, subject to such limitations and For this purpose, internal revenue stamps, or other markings and labels
restrictions as may be imposed under rules and regulations to be shall be caused by the Commissioner to be printed with adequate security
promulgated by the Secretary of Finance, upon recommendation of the features.
Commissioner: Provided, however, That the following powers of the
Commissioner shall not be delegated: Internal revenue stamps, whether of a bar code or fuson design, or other
markings shall be firmly and conspicuously affixed or printed on each pack
(a) The power to recommend the promulgation of rules and regulations by of cigars and cigarettes and bottles of distilled spirits subject to excise tax
the Secretary of Finance; in the manner and form as prescribed by the Commissioner, upon
approval of the Secretary of Finance.
(b) The power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau; To further improve tax administration, cigarette and alcohol manufacturers
shall be required to install automated volume-counters of packs and
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this bottles to deter over-removals and misdeclaration of removals.
Code, any tax liability: Provided, however, That assessments issued by
4
(B) Receipts for Payment Mode. - It shall be the duty of the respective taxing jurisdictions of the treaty partners.
Commissioner or his duly authorized representative or an authorized
agent bank to whom any payment of any tax is made under the provisions Section 3. Authority of the Commissioner of Internal Revenue to Inquire
of this Code to acknowledge the payment of such tax, expressing the into Bank Deposit Accounts and Related Information Held by Financial
amount paid and the particular account for which such payment was made Institutions. - Section 6(F) of Republic Act No. 8424, as amended,
in a form and manner prescribed therefor by the Commissioner. otherwise known as the National Revenue Code of 1997, as amended, is
"SEC. 6. Power of the Commissioner to Make Assessments and

Prescribe  Additional Requirements for Tax Administration and
Enforcement. -  "xxx  "(F) Authority of the Commissioner to Inquire into
Bank Deposit Accounts and  Other Related Information Held by Financial
Institutions. - Notwithstanding any contrary
REPUBLIC ACT NO. 10021 provision of Republic Act No. 1405, Republic Act No. 6426, otherwise
known as the Foreign Currency Deposit Act of the Philippines, and other
general and special laws, the Commissioner is hereby authorized to
AN ACT TO ALLOW THE EXCHANGE OF INFORMATION BY THE
inquire into the bank deposits and other related information held by
BUREAU OF INTERNAL REVENUE OF TAX MATTERS PURSUANT TO
financial institutions of:
INTERNATIONALLY-AGREED TAX STANDARDS, AMENDING
SECTIONS 6(F), 71 AND 270 OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER "(1) A decedent to determine his gross estate.
PURPOSES
"(2) Any taxpayer who has filed an application for compromise of his tax
Section 1. Title. - This Act shall be known as the "Exchange of liability under Sec. 204 (A)(2) reason of financial incapacity to pay his tax
Information on Tax Matters Act of 2009". liability.
Section 2. Declaration of Policy. - It is the declared policy of the State to "In case a taxpayer files an application to compromise the payment of his
promote and pursue a tax environment that contributes in sustaining a tax liabilities on his claim that his financial position demonstrates a clear
favorable international investment climate and instills confidence in the inability to pay the tax assessed, his application shall not be considered
adequacy and capacity of the country's tax administration to comply with unless and until he waives in writing his privilege under Republic Act No.
its commitments under existing international conventions or agreements 1405, Republic Act No. 6426, otherwise known as the Foreign Currency
on tax matters. Deposit Act of the Philippines, or under other general or special laws, and
such waiver shall constitute the authority of the Commissioner to inquire
into the bank deposits of the taxpayer.
Pursuant to this declared policy, the government shall comply with or
commit to the internationally-agreed tax standards required for the
exchange of tax information with its tax treaty partners to help combat "(3) A specific taxpayer or taxpayers subject of a request for the supply of
international tax evasion and avoidance and to help address tax concerns tax information from a foreign tax authority pursuant to an international
that affect international trade and investment. The government shall convention or agreement on tax matters to which the Philippines is a
likewise adopt measures and procedures to enhance cooperation with signatory or a party of: Provided, That the information obtained from the
other countries in the efficient collection of taxes, consistent with the banks and other financial institutions may be used by the Bureau of
international understanding to ensure the payment of taxes due the Internal Revenue for tax assessment, verification, audit and enforcement
5
purposes. Commissioner shall confirm receipt of a request in writing to the

requesting tax authority and shall notify the latter of deficiencies in the
"In case of request from a foreign tax authority for tax information held by request, if any, within sixty (60) days from the receipt of the request.
banks and financial institutions, the exchange of information shall be done
in a secure manner to ensure confidentiality thereof under such rules and "If the Commissioner is unable to obtain and provide the information within
regulations as may be promulgated by the Secretary of Finance, upon ninety (90) days from the receipt of the request, due to obstacles
recommendation of the Commissioner. encountered in furnishing the information or when the bank or financial
institution refuses to furnish the information, he shall immediately inform
"The Commissioner shall provide the tax information obtained from banks the requesting tax authority of the same, explaining the nature of the
and financial institutions pursuant to a convention or agreement upon obstacles encountered or the reasons of refusal."
request of the foreign tax authority when such requesting foreign tax
authority has provided the following information to demonstrate the "The term 'foreign tax authority', as used herein, shall refer to the tax
foreseeable relevance of the information to the request: authority or tax administration of the requesting State under the tax treaty
or convention to which the Philippines is a signatory or a party of."
"(a) The identity of the person under examination or investigation;
Section 4. Allowing a Foreign Tax Authority to Income Tax Returns of
"(b) A statement of the information being sought including its nature and Taxpayers in the Philippines. - Section 71 of Republic Act No. 8424, as
the form in which the said foreign tax authority prefers to receive the amended, otherwise known as the National Internal Revenue Code of
information from the Commissioner; 1997, is hereby amended to read as follows:
"(c) The tax purpose for which the information is being sought; "SEC. 71. Disposition of Income Tax Returns, Publication of Lists of
Taxpayers and Filers. - After the assessment shall have been made, as
"(d) Grounds for believing that the information requested is held in the provided in this Title, the returns, together with any corrections thereof
Philippines or is in the possession or control of a person within the which may have been made by the Commissioner, shall be filed in the
jurisdiction of the Philippines; Office of the Commissioner and shall constitute public records and be
open to inspection as such upon the order of the President of the
"(e) To the extent known, the name and address of any person believed to Philippines, under rules and regulations to be presented by the Secretary
be in possession of the requested information; of Finance, upon recommendation of the Commissioner.
"(f) A Statement that the request is in conformity with the law and "The Commissioner may, in each year, cause to be prepared and
administrative practices of the said foreign tax authority, such that if the published in any newspaper the lists containing the names and addresses
requested information was within the jurisdiction of the said foreign tax of persons who have filed income tax returns.
authority then it would be able to obtain the information under its law or in
the normal course of administrative practice and that it is conformity with a "Income tax returns of specific taxpayers subject of a request for
convention or international agreement; and exchange of information by a foreign tax authority pursuant to an
international convention or agreement on tax matters to which the
"(g) A statement that the requesting foreign tax authority has exhausted all Philippines is a signatory or a party of, shall be open to inspection upon
means available in its own territory to obtain the information, except those the order of the President if the Philippines under rules and regulations as
that would give rise to disproportionate difficulties. may be prescribed by the Secretary of Finance, upon recommendation of
the Commissioner."
"The Commissioner shall forward the information as promptly as possible
to the requesting foreign tax authority. To ensure a prompt response, the Section 5. Authority of the Commissioner of Internal Revenue to Supply
6
Information to a Foreign Tax Authority Which is at his Disposal. - Section laws and shall be disclosed only to persons or authorities, including courts
270 of Republic Act No. 8424, as amended, otherwise known as the and administrative bodies, involves in the assessment or collection of, the
National Internal Revenue of 1997, is hereby amended to read as follows: enforcement or prosecution in respect of, or the determination of appeals
in relation to, the taxes covered by such conventions of agreements.
"SEC. 270. Unlawful Divulgence of Information. - Except as provided in
Sections 6(F) and 71 of this Code and Section 26 of Republic Act No. Section 8. Notice to Taxpayers. - A taxpayer shall be duly notified in
6388, any officer or employee of the Bureau of Internal Revenue who writing by the Commissioner that a foreign tax authority is requesting for
divulges to any person or makes known in any other manner than may be exchange of information held by financial institutions pursuant to a tax
provided by law information regarding the business, income, or estate of convention or agreement to which the Philippines is a signatory or a party
any taxpayer, the secrets, operation, style or work, or apparatus of any of, under such rules and regulations as may be prescribed by the
manufacturer or producer, or confidential information regarding the Secretary of Finance upon recommendations of the Commissioner.
business of any taxpayer, knowledge of which was acquired by him in the
discharge of his official duties, shall, upon conviction for each act or Section 9. Separability Clause. -If any provision of this Act is declared
omission, be punished by a fine of not less than Fifty thousand pesos invalid or unconstitutional, other provisions hereof which are not affected
(P50,000) but not more than One hundred thousand pesos (P100,000), or thereby shall continue to be in full force and effect.
suffer imprisonment of not less than two (2) years but not more than five
(5) years, or both. Section 10. Repealing Clause. - All laws, presidential decrees, executive
orders, rules and regulations, other issuances or parts thereof which are
"Any officer or employee of the Bureau of Internal Revenue who divulges inconsistent with or contrary to this Act are hereby repealed or modified
or makes known in any other manner to any person other than the accordingly.
requesting foreign tax authority information obtained from banks and
financial institutions pursuant to Section 6(F), knowledge or information Section 11. Effectivity Clause. - This Act shall take effect fifteen (15) days
acquired by him in the discharge of his official duties, shall, upon after its publication in the Official Gazette or in at least two (2) newspapers
conviction, be punished by a fine of not less than Fifty thousand pesos of general circulation.
(P50,000) but not more than One hundred thousand pesos (P100,000), or
suffer imprisonment of not less than two (2) years but not more than five
(5) years, or both."
FITNESS BY DESIGN v CIR (Arcaina)
Section 6. Willful Refusal to Supply Information. - Any officer, owner, [GR. No. 177982; October 17, 2008]
agent, manager, director or officer-in -charge of any bank or financial “CIR has broad powers, like the queen in chess, like cheesecake over you,
institution within the purview of this Act who, being required in writing by or your mom.”
the Commissioner, willfully, refuses to supply the required information
shall be punished by a fine of not less than Fifty thousand pesos (50,000)
Recit-Ready:
but not more than One hundred thousand pesos (P100,000) , or suffer
imprisonment of not less than two (2) years but not more than five (5) Facts: In 2004, Fitness by Design, Inc (FBD) was assessed for deficiency
years, or both. tax payments by the CIR for a particular tax year (1995). They
protested this assessment. Before the CTA, it claimed that this
Section 7. Obligation to Maintain Confidentiality of Information Received. - assessment was beyond the 3-year prescriptive period. CIR
Any information received by a foreign tax authority from the Bureau of claimed however, that FBD failed to file its VAT return and that it
Internal Revenue pursuant to an International convention or agreement on fraudulently filed its Income Tax Return (ITR), based from
tax matters shall be treated by the authority as absolutely confidential in
investigation. Hence, the CIR actually had 10 years from the
nature in the same manner as information obtained by the latter under its
7
discovery of such fraudulent act to assess, and not only 3 years.  FBD protested claiming that the assessment was issued beyond the 3-
year prescriptive period; and that since FBD was incorporated only on
FBD claimed that a certain Sablan, a CPA and its former May 30, 1995, there was no basis to assume that it already earned
bookkeeper turned over their books/records etc to BIR without income for the tax year 1995.
its consent. Hence, it moved for issuance of subpoenas for  Feb. 1, 2005: CIR issued a warrant of distraint and/or levy against FBD
Sablan and some other revenue officers. It also sent written so on March 1: FBD filed a Petition for Review (with Motion to Suspend
interrogatories for Sablan. These motions were denied by the Collection of Income Tax, Value Added Tax, Documentary Stamp Tax
CTA. and Surcharges and Interests) before the CTA.
o Before the CTA, CIR asserted that: its right to assess FBD has not
Issue/s: Assuming the documents/books/records were turned over to BIR prescribed because FBD’s 1995 ITR was false and fraudulent for
without FBD’s consent, WON BIR is precluded from assessing the its deliberate failure to declare its true sales, that upon
deficiency taxes of FBD based on the documents – NO. investigation, FBD disclosed that it had sales operations for 1995 in
the total amount of P7,156,336.08 which it failed to report in its
Held: In ruling for the CIR, the Court said that under Section 5 of the 1995 ITR; that FBD failed to file its VAT Return. Hence, for failure to
NIRC, the CIR has the authority to “To examine any book, paper, file the VAT Return + for filing a fraudulent ITR for the year 1995, the
record or other data which may be relevant or material to such corresponding taxes may be assessed at any time w/in 10 years after
query; to obtain on a regular basis from any person other than the the discovery of such omission or fraud (under Section 222a)
person whose internal revenue tax liability is subject to audit or o Additionally, the subject deficiency tax assessments have become
investigation xxx; To summon the person liable for tax or required final, executory and demandable for failure of FBD to file a protest
to file a return, or any officer or employee of such person, or any within the reglementary period provided for by law. The “alleged
person having possession, custody, or care of the books of protest” filed on June 25, 2004 is nowhere to be found in the BIR
accounts and other accounting records containing entries relating Records nor reflected in the Record Book of the Legal Division,
to the business of the person liable for tax, or any other person Revenue Region No. 8 Makati City as normally done by the receiving
xxx” clerk.
In this case, even if FBD did not actually give its consent for the  Mar. 10, 2005: BIR filed a criminal complaint before the DOJ against
turn-over of the company’s books/records to BIR, it couldn’t be officers and accountant of FBD for violation of the NIRC.
presumed that such were illegally obtained since CIR has the  (okay park the DOJ Crim case first, this is before the CTA; preliminary
broad powers abovementioned, “In ascertaining the correctness hearing) FBD’s former bookkeeper attested that a former colleague,
of any return, or in making a return when none has been made, CPA Sablan, illegally took custody of FBD’s books and records and
or in determining the liability of any person for any internal turned them over to the BIR.
revenue tax, or in collecting any such liability, or in evaluating tax o FBD requested a subpoena ad testificandum to be issued to Sablan.
compliance xxx” (Section 5) He failed to appear.
o FBD requested another subpoena ad testificandum to Sablan and
subpoena duces tecum to the chief of the National Investigation
Facts: Division of the BIR for the production of the Affidavit of the Informer
 March 17, 2004: CIR assessed Fitness by Design (FBD), Inc for bearing on the assessment in question. FBD’s requests were
deficiency income taxes for 1995 (P10,647,529.69). granted.
8
o FBD filed a new Motion to Issue Subpoenas when BIR’s counsel companies, insurance companies, regional operating associations, joint
manifested that he was not furnished the first motion for issuance of ventures or consortia and registered partnerships and their members;
subpoenas. FBD also submitted written interrogatories for Sablan (C) To summon the person liable for tax or required to file a return, or
any officer or employee of such person, or any person having
and some of the revenue officers of the BIR.
possession, custody, or care of the books of accounts and other
o Jan. 17, 2007: CTA denied FBD’s Motion for Issuance of
accounting records containing entries relating to the business of the
Subpoenas and disallowed the submission of written person liable for tax, or any other person, to appear before the
interrogatories to Sablan, who is not a party to the case, and the Commissioner or his duly authorized representatives at a time and place
revenue officers, it finding that the testimony, documents and specified in the summons and to produce such books, papers, records, or
admissions sought are not relevant. It also ruled that there was no other data, and to give testimony ;
need to issue a subpoena duces tecum to obtain the Affidavit of the
Informer as the same formed part of the BIR records of the case, the xxx
production of which had been ordered by it.
 The law thus allows the BIR to access to all relevant or material
Issue/s: (Related to the Powers of the CIR) records and data in the person of the taxpayer, and the BIR can
Whether the BIR is precluded from assessing the deficiency taxes of accept documents which cannot be admitted in a judicial
FBD based on the documents, allegedly turned over to the BIR proceeding where the Rules of Court are strictly observed. To
illegally/without FBD’s consent – NO. require the consent of the taxpayer, FBD in this case, would defeat
the intent of the law to help the BIR assess and collect the correct
Held/Ratio: - (SCRA did not provide) amount of taxes.
1) The BIR is not precluded from assessing the deficiency taxes even if NOTE: The Court also found here that the testimonies/docs/admissions
FBD did not actually consent to the turn-over of the documents. sought by FBD from Sablan and the revenue officers are not relevant to the
 Under Section 5 of the Tax Code: issue before the CTA (remember, the issue really was prescription).
When they asked the CTA to issue subpoenas etc, FBD just wanted to
In ascertaining the correctness of any return, or in making a return when establish that the documents which served as basis for its assessment were
none has been made, or in determining the liability of any person for any illegally obtained/submitted to the BIR. By requesting for these subpoenas
internal revenue tax, or in collecting any such liability, or in evaluating tax
etc and through examining the questions in the interrogatories merely
compliance, the Commissioner is authorized:
confirmed that FBD wanted to convince the court that Sablan was the
(A) To examine any book, paper, record or other data which may be
informer. But again, this is irrelevant because anyway, the BIR has the
relevant or material to such query; authority to look into/examine any document/person in ascertaining the
(B) To obtain on a regular basis from any person other than the person correctness of any return/determining liability etc (as quoted above).
whose internal revenue tax liability is subject to audit or investigation,
or from any office or officer of the national and local governments,
government agencies and instrumentalities, including the Bangko Sentral ng REPUBLIC v. AQUAFRESH SEAFOODS (Austria)
Pilipinas and government-owned and -controlled corporations, any [GR. No. 170389; October 20, 2010]
information such as, but not limited to, costs and volume of production,
“ See Zone
receipts or sales and gross incomes of taxpayers, and the names,
addresses, and financial statements of corporations, mutual fund
Recit-Ready:
9
Facts: Respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, determined for the purpose of establishing a more realistic basis
Inc. two parcels of land, including improvements thereon, located for real property valuation. Actual use is not considered for zonal
at Barrio Banica, Roxas City, for the consideration of Three valuation, but the predominant use of other classification of
Million One Hundred Thousand Pesos (Php 3,100,000.00) then properties located in the zone.
filed a Capital Gains Tax Return/Application for Certification
Authorizing Registration and paid the amount of Php186,000.00, Facts:
representing the Capital Gains Tax (CGT) and the amount of
Php46,500.00, representing the Documentary Stamp Tax (DST)  On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to
due from the said sale. Regional Director Leonardo Q. Sacamos Philips Seafoods, Inc. two parcels of land, including improvements
(Director Sacamos) of the Revenue Region Iloilo City sent two thereon, located at Barrio Banica, Roxas City, for the consideration
Assessment Notices apprising respondent of CGT and DST of Three Million One Hundred Thousand Pesos (Php 3,100,000.00).
defencies in the sum of Php1,372,171.46 and Php356,267.62, Said properties were covered under Transfer Certificate of Titles
respectively. Director Sacamos relied on the findings of the SID Nos. T21799 and T21804.
that the subject properties were commercial with a zonal  Respondent then filed a Capital Gains Tax Return/Appli cation for
valuation of Php2,000.00 per square meter. Certification Authorizing Registration and paid the amount of
Php186,000.00, representing the Capital Gains Tax (CGT) and the
Issue/s: amount of Php46,500.00, representing the Documentary Stamp Tax
1) Whether or not the requirement of consultation with competent (DST) due from the said sale.
appraisers both from the private and public sectors in determining  Subsequently, Revenue District Officer Gil G. Tabanda issued
the fair market value of the subject lots is applicable in the case at Certificate Authorizing Registration No. 1071477.
bar  The Bureau of Internal Revenue (BIR), however, received a report
2) Whether or not the court of tax appeals en banc committed grave that the lots sold were undervalued for taxation purposes. This
error in applying the fair market value based on the zonal prompted the Special Investigation Division (SID) of the BIR to
valuation of a residential land as tax base in the computation of conduct an ocular inspection over the properties. After the
capital gains tax and documentary stamp tax deficiencies of investigation, the SID concluded that the subject properties were
respondent commercial with a zonal value of Php2,000.00 per square meter.
 On September 15, 2000, Regional Director Leonardo Q. Sacamos
Held: While the Commissioner of Internal Revenue (CIR) has the (Director Sacamos) of the Revenue Region Iloilo City sent two
authority to prescribe real property values and divide the Assessment Notices apprising respondent of CGT and DST
Philippines into zones, the law is clear that the same has to be defencies in the sum of Php1,372,171.46 and Php356,267.62,
done upon consultation with competent appraisers both from the respectively.
public and private sectors  Director Sacamos relied on the findings of the SID that the subject
properties were commercial with a zonal valuation of Php2,000.00
Zonal valuation was established with the objective of having an per square meter.
efficient tax administration by minimizing the use of discretion in  On October 1, 2000, respondent sent a letter protesting the
the determination of the tax based on the part of the administrator assessments made by Director Sacamos. On December 1, 2000,
on one hand and the taxpayer on the other hand—zonal value is Director Sacamos denied respondent's protest for lack of legal
10
basis. Respondent appealed, but the same was denied with finality  Petitioner then appealed to the CTA En Banc. The CTA En Banc
on February 13, 2002. dismissed petitioner's appeal.
 On March 19, 2002, respondent filed a petition for review3 before  The CTA En Banc ruled that the 1995 Revised Zonal Values of Real
the CTA seeking the reversal of the denial of its protest. The main Properties should prevail. Said court relied on Section 6 (E) of the
thrust of respondent's petition was that the subject properties were National Internal Revenue Code (NIRC) which requires consultation
located in Barrio Banica, Roxas, where the predefined zonal value from appraisers, from both the public and private sectors, in fixing
was Php650.00 per square meter based on the "Revised Zonal the zonal valuation of properties. The CTA En Banc held that
Values of Real Properties in the City of Roxas under Revenue petitioner failed to prove any amendment effected on the 1995
District Office No. 72 - Roxas City" (1995 Revised Zonal Values of Revised Zonal Values of Real Properties at the time of the sale of
Real Properties). Respondent asserted that the subject properties the subject properties.
were classified as "RR" or residential and not commercial.
Respondent argued that since there was already a predefined zonal
value for properties located in Barrio Banica, the BIR officials had no Issue/s:
business re classifying the subject properties to commercial. 1) Whether or not the requirement of consultation with competent
 On December 22, 2004, the CTA promulgated a Decision ruling in appraisers both from the private and public sectors in determining
favor of respondent. Thus respondent's assessments for deficiency the fair market value of the subject lots is applicable in the case at
capital against tax and documentary stamp taxes are hereby bar – YES
CANCELLED and SET ASIDE. CTA opined that that the existing 2) Whether or not the court of tax appeals en banc committed grave
Revised Zonal Values in the City of Roxas should prevail for error in applying the fair market value based on the zonal valuation
purposes of determining respondent's tax liabilities. of a residential land as tax base in the computation of capital gains
 ""While respondent is given the authority to determine the fair tax and documentary stamp tax deficiencies of respondent – NO
market value of the subject properties for the purpose of computing
internal revenue taxes, such authority is not without restriction or
limitation. The first sentence of Section 6(E) sets the limitation or Held/Ratio: Petition DENIED.
condition in the exercise of such power by requiring respondent to
consult with competent appraisers both from private and public 1) YES.
sectors. As there was no reevaluation and no revision of the zonal
values of the subject properties in Roxas City at the time of the sale,  Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%)
respondent cannot unilaterally determine the zonal values of the percent is imposed on the gains presumed to have been realized in
subject properties by invoking his powers of obtaining information the sale, exchange or disposition of lands and/or buildings which are
and making assessments under Sections 5 and 6 of the NIRC. The not actively used in the business of a corporation and which are
existing Revised Zonal Values of Real Properties in the City of treated as capital assets based on the gross selling price or fair
Roxas shall prevail for the purpose of determining the proper tax market value as determined in accordance with Section 6(E) of the
liabilities of petitioner. NIRC, whichever is higher.
 Petitioner Commissioner of Internal Revenue filed a Motion for  On the other hand, under Section 196 of the NIRC, DST is based on
Reconsideration, which was, however, denied. the consideration contracted to be paid or on its fair market value
determined in accordance with Section 6(E) of the NIRC, whichever
11
is higher. Thus, in determining the value of CGT and DST arising (3) Except in cases of correction or adjustment, the TCRPV
from the sale of a property, the power of the CIR to assess is subject finalizes the schedule and submits the same to the Executive
to Section 6(E) of the NIRC. Committee on Real Property Valuation (ECRPV);
 It is undisputed that at the time of the sale of the subject properties (4) Upon approval of the schedule of zonal values by the ECRPV,
found in Barrio Banica, Roxas City, the same were classified as the same is embodied in a Department Order for
"RR," or residential, based on the 1995 Revised Zonal Value of Real implementation and signed by the Secretary of Finance.
Properties. Petitioner, thus, cannot unilaterally change the zonal Thereafter, the schedule takes effect (15) days after its
valuation of such properties to "commercial" without first conducting publication in the Official Gazette or in any newspaper of
a reevaluation of the zonal values as mandated under Section 6(E) general circulation.
of the NIRC.
 Petitioner argues, however, that the requirement of consultation with  Petitioner failed to prove that it had complied with Revenue
competent appraisers is mandatory only when it is prescribing real Memorandum No. 5869 and that a revision of the 1995 Revised
property values—that is when a formulation or change is made in Zonal Values of Real Properties was made prior to the sale of the
the schedule of zonal values. Petitioner also contends that what it subject properties. Thus, notwithstanding petitioner's disagreement
did in the instant case was not to prescribe the zonal value, but to the classification of the subject properties, the same must be
merely classify the same as commercial and apply the followed for purposes of computing the CGT and DST.
corresponding zonal value for such classification based on the  CTA En Banc, that the 1995 Revised Zonal Values of Real
existing schedule of zonal values in Roxas City. Properties was drafted by petitioner, BIR personnel, representatives
 To this Court's mind, petitioner's act of reclassifying the subject from the Department of Finance, National Tax Research Center,
properties from residential to commercial cannot be done without Institute of Philippine Real Estate Appraisers and Philippine
first complying with the procedures prescribed by law. It bears to Association of Realtors Board, which duly satisfied the requirement
stress that ALL the properties in Barrio Banica were classified as of consultation with public and private appraisers.
residential, under the 1995 Revised Zonal Values of Real  Petitioner contends, nevertheless, that its act of classifying the
Properties. Thus, petitioner's act of classifying the subject properties subject properties based on actual use was in accordance with
involves a reclassification and revision of the prescribed zonal guidelines number 1b and 2 as set forth in "Certain Guidelines in the
values. Implementation of Zonal Valuation of Real Properties for RDO 72
 In addition, Revenue Memorandum No. 5869 provides for the Roxas City" (Zonal Valuation Guidelines).
procedures on the establishment of the zonal values of real
properties, viz.: COMMISSIONER OF INTERNAL REVENUE v. HANTEX
TRADING CO., INC., (BAÑADERA)
(1) The submission or review by the Revenue District Offices Sub--
[GR. No. 136975; March 31, 2005]
Technical Committee of the schedule of recommended zonal
“Mag-originals ka wag photocopies”
values to the TCRPV;
(2) The evaluation by TCRPV of the submitted schedule of
Recit-Ready:
recommended zonal values of real properties;
Facts: EIIB received an information that Hantex had under declared its
importation of synthetic resin in 1987. The evidence was based
12
on photocopies of 77 Consumption Entries given by an informer. received confidential information that the respondent had imported
The case was delegated to the IIPO of the EIIB, which issued a synthetic resin amounting to P115,599,018.00 but only
subpoena duces tecum to Hantex. Hantex refused to comply. declared P45,538,694.57.
IIPO tried to find the original documents of the photocopies of o Amoto submitted a report to the EIIB Commissioner
Consumption Entries but failed as there were eaten by termites. A recommending that an inventory audit of the respondent be
case then was filed against Hantex. CTA held Hantex liable for conducted by the Internal Inquiry and Prosecution Office
deficiency taxes. CTA relied on the photocopies of the (IIPO) of the EIIB.
Consumption Entries.  Jose T. Almonte, then Commissioner of the EIIB, issued Mission Order
No. 398-89 dated November 14, 1989 for the audit and investigation of
Issue: the importations of Hantex for 1987.
WON the final assessment of the petitioner against the respondent for  The IIPO issued subpoena duces tecum and ad testificandum for the
deficiency income tax and sales tax for the latter’s 1987 importation of president and general manager of the respondent to appear in a hearing
resins and calcium bicarbonate is based on competent evidence and the and bring the following its books of account, books of import, and record
law; of tax payments for 1987.
 Respondent’s president and general manager refused to comply because
Held: NO. The law allows the BIR access to all relevant or material it claimed that its books of accounts and records had been investigated
records and data in the person of the taxpayer in order to properly assess repeatedly by the Bureau of Internal Revenue (BIR) on prior occasions.
their tax liabilities. However, the best evidence obtainable under Section  Due to the refusal of respondent, IIPO tried to secure the 1987 record of
16 of the 1977 NIRC, as amended, does not include mere photocopies of Consumption Entries of respondent through Bureau of Customs. The
records/documents. Customs replied that the original copies had been eaten by termites.
 IIPO then requested the Chief of the Collection Division, Manila
Facts: International Container Port, and the Acting Chief of the Collection
 Hantex is a corporation engaged in the sale of plastic products, it imports Division, Port of Manila, to authenticate the machine copies of the import
synthetic resin and other chemicals for the manufacture of its products. entries supplied by the informer.
 For this purpose, it is required to file an Import Entry and Internal o The Chief of Collection Division replied that it did not have
Revenue Declaration (Consumption Entry) with the Bureau of Customs the original copies of the entries.
under Section 1301 of the Tariff and Customs Code. o The Acting Chief of Collection Division could not
 In October 1989, the Acting Chief of Counter-Intelligence Division of the authenticate the machine copies of the import entries as
Economic Intelligence and Investigation Bureau (EIIB), received well since the original copies are with the Customs that
confidential information that the respondent had imported synthetic resin were eaten by termites.
amounting to P115,599,018.00 but only declared P45,538,694.57.  Still, the Chief of the Investigation Division conducted an investigation.
o According to the informer, based on photocopies of 77 They relied on
Consumption Entries furnished by another informer, the o The certified copies of the respondents Profit and Loss
1987 importations of the respondent were understated in its Statement for 1987 and 1988 on file with the SEC,
accounting records. o The machine copies of the Consumption Entries, Series of
 In October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence 1987, submitted by the informer.
Division of the Economic Intelligence and Investigation Bureau (EIIB),
13
o Revenue Enforcement Officers Saturnino D. Torres and WON the December 10, 1991 final assessment of the petitioner against
Wilson Filamor’s report on their investigation the respondent for deficiency income tax and sales tax for the latter’s
 The investigation shows that respondent had an income tax liability of 1987 importation of resins and calcium bicarbonate is based on
P41,916,937.78, inclusive of penalty charge and interests. The report competent evidence and the law;
also showed that there is a prima facie case of fraud against respondent. —NO
 Administrative hearings were conducted on the respondents protest to
the assessment. Held/Ratio: IN LIGHT OF ALL THE FOREGOING, the petition is
 During the hearing of August 20, 1993, the IIPO representative presented GRANTED. The Decision of the Court of Appeals is SET ASIDE. The
the photocopies of the Consumption and Import Entries and the records are REMANDED to the Court of Tax Appeals for further proceedings,
Certifications issued by Tomas and Danganan of the Bureau of Customs. conformably with the decision of this Court. No costs. (This is just so the
The IIPO representative testified that the Bureau of Customs failed to Commissioner can adduce more evidence against respondent)
furnish the EIIB with certified copies of the Consumption and Import
Entries; hence, the EIIB relied on the machine copies from their informer. NO. The law allows the BIR access to all relevant or material records
 The BIR Commissioner denied the dismissal filed by respondent. BIR and data in the person of the taxpayer to properly assess their tax
admitted that while the photocopies may be tampered, it is not prevented liabilities. However, the best evidence obtainable under Section 16 of
from relying on other pieces of evidence such as Torres and Filamor’s the 1977 NIRC, as amended, does not include mere photocopies of
Report. records/documents.
 Respondent forthwith filed a petition for review in the CTA.  Petitioner claims that it was proper for her to resort to the best evidence
 In reply, the Commissioner offered in evidence as proof of the contents obtainable such as the photocopies of the import entries in the Bureau of
thereof, the photocopies of the Consumption Entries which the Customs and the respondent’s financial statement filed with the SEC.
respondent objected to for being inadmissible in evidence. Commissioner  Central to the second issue is Section 16 of the NIRC of 1977, as
did not also present any witnesses. amended, which provides that the Commissioner of Internal Revenue has
 CTA rendered a decision asking respondent to pay deficiency taxes. CTA the power to make assessments and prescribe additional requirements
believe that respondent did not prove its burden that the taxes were paid. for tax administration and enforcement. Among such powers are those
 The CA reversed the decision and held that provided in paragraph (b) thereof, which we quote:
o The income and sales tax deficiency assessments issued o (b) Failure to submit required returns, statements, reports
by the petitioner were unlawful and baseless since the and other documents. - When a report required by law as a
copies of the import entries relied upon in computing the basis for the assessment of any national internal revenue tax
deficiency tax of the respondent were not duly shall not be forthcoming within the time fixed by law or regulation
authenticated by the public officer charged with their or when there is reason to believe that any such report is
custody, nor verified under oath by the EIIB and the BIR false, incomplete or erroneous, the Commissioner shall
investigators. assess the proper tax on the best evidence obtainable.
o It noted that the public officer charged with the custody of
the import entries was never presented in court to lend In case a person fails to file a required return or other document
credence to the alleged loss of the originals. at the time prescribed by law, or willfully or otherwise files a
Issue: false or fraudulent return or other document, the
Commissioner shall make or amend the return from his own
14
knowledge and from such information as he can obtain computer tapes of the said records prepared by the taxpayer in the
through testimony or otherwise, which shall be prima facie course of business.
correct and sufficient for all legal purposes.  In this era of developing information-storage technology, there is no
 The above-mentioned provision applies when the Commissioner of valid reason to immunize companies with computer-based, record-
Internal Revenue undertakes to perform keeping capabilities from BIR scrutiny. The standard is not the form
o her administrative duty of assessing the proper tax against of the record but where it might shed light on the accuracy of the
a taxpayer, taxpayers return.
o to make a return in case of a taxpayer’s failure to file one, or o However, the best evidence obtainable under Section 16 of
o to amend a return already filed. the 1977 NIRC, as amended, does not include mere
 The petitioner may avail herself of the best evidence or other information photocopies of records/documents. The petitioner, in
or testimony by exercising her power or authority under paragraphs (1) to making a preliminary and final tax deficiency assessment
(4) of Section 7 of the NIRC: against a taxpayer, cannot anchor the said assessment on
o (1) To examine any book, paper, record or other data mere machine copies of records/documents. Mere
which may be relevant or material to such inquiry; photocopies of the Consumption Entries have no probative
o (2) To obtain information from any office or officer of weight if offered as proof of the contents thereof. The
the national and local governments, government reason for this is that such copies are mere scraps of paper
agencies or its instrumentalities, including the Central Bank and are of no probative value as basis for any deficiency
of the Philippines and government owned or controlled income or business taxes against a taxpayer.
corporations;  The rule assumes more importance in this case since the xerox copies of
o (3) To summon the person liable for tax or required to the Consumption Entries furnished by the informer of the EIIB were
file a return, or any officer or employee of such person, or furnished by yet another informer. While the EIIB tried to secure certified
any person having possession, custody, or care of the copies of the said entries from the Bureau of Customs, it was unable to
books of accounts and other accounting records containing do so because the said entries were allegedly eaten by termites. The
entries relating to the business of the person liable for tax, Court can only surmise why the EIIB or the BIR, for that matter, failed to
or any other person, to appear before the Commissioner or secure certified copies of the said entries from the Tariff and Customs
his duly authorized representative at a time and place Commission or from the National Statistics Office.
specified in the summons and to produce such books, o The regulations require that The Consumption Entry is
papers, records, or other data, and to give testimony; accomplished in sextuplicate copies and quadruplicate copies in
o (4) To take such testimony of the person concerned, other places, with one filed with the BIR.
under oath, as may be relevant or material to such o Inexplicably, the Commissioner and the BIR personnel ignored
inquiry; the copy of the Consumption Entries filed with the BIR and relied
 The law allows the BIR access to all relevant or material records and on the photocopies supplied by the informer of the EIIB who
data in the person of the taxpayer. It places no limit or condition on secured the same from another informer.
the type or form of the medium by which the record subject to the  The original copies of the Consumption Entries were of prime importance
order of the BIR is kept. to the BIR. This is so because such entries are under oath and are
 The purpose of the law is to enable the BIR to get at the taxpayers presumed to be true and correct under penalty of falsification or perjury.
records in whatever form they may be kept. Such records include
15
Admissions in the said entries of the importers documents are admissions other non-bank financial intermediaries including financing companies.
against interest and presumptively correct.
 In fine, then, the petitioner acted arbitrarily and capriciously in relying on (B) Foreign Tax Authority shall refer to the tax authority or tax
and giving weight to the machine copies of the Consumption Entries in administration of the requesting State under the tax treaty or
fixing the tax deficiency assessments against the respondent. convention to which the Philippines is a signatory or a party of.
 All presumptions are in favor of the correctness of a tax assessment. It is
to be presumed, however, the prima facie correctness of a tax (C) Income Tax Returns shall refer to all Income Tax Forms
assessment does not apply upon proof that an assessment is utterly issued/prescribed by the BIR including attachments thereto, written
without foundation, meaning it is arbitrary and capricious. statements or other documents designed to be supplemental to and
part of the said returns.
(D) Inspection shall not only refer to opening to examination of income tax
REVENUE REGULATIONS NO. 10-2010 returns of specific taxpayers subject of a request for exchange of
information by a foreign tax authority but also furnishing the latter
SUBJECT: Exchange of Information Regulations certified copies of such income tax returns, if included in the request.
TO: All Internal Revenue Officers and Others Concerned (E) International Agreements or Agreement on Tax Matters shall only
refer to Tax Information Exchange Agreements (TIEAs) which may be
negotiated between the Philippines and other Contracting States or
jurisdictions.
Pursuant to the provisions of Section 244 in relation to Section 4 of the
National Internal Revenue Code of 1997 (Tax Code of 1997), as
(F) International Convention or Tax Treaty shall only refer to the Double
amended, these Regulations are hereby promulgated to provide the
Taxation Convention (DTCs) or Double Taxation Agreements (DTAs)
necessary guidelines to enable the Bureau of Internal Revenue (BIR)
negotiated between the Philippines and other Contracting States or
to respond to a request for exchange of information pursuant to an
jurisdictions for the avoidance of double taxation and the prevention of
existing international convention or agreement on tax matters and to
fiscal evasion with respect to taxes on income.
implement Republic Act No. 10021 entitled “An Act to Allow the
Exchange of Information by the Bureau of Internal Revenue on Tax
Matters Pursuant to Internationally-Agreed Tax Standards, Amending SECTION 2. Authority of the Commissioner of Internal Revenue to
Sections 6 (F), 71 and 270 of the National Internal Revenue Code of 1997, Obtain Information Including Information on Bank Deposits and Other
Related Information Held by Financial Institutions. — Any general or
as Amended, and for Other Purposes”.
special law notwithstanding, pursuant to Section 3 of Republic Act No.
10021, or to the powers granted to the Commissioner by the Tax Code of
SECTION 1. Definitions. – As used in these Regulations, the following
1997, as amended, and for the purpose of complying with the provisions
terms shall be defined as follows:
on exchange of information contained in international conventions or
agreements on tax matters, the Commissioner is authorized to obtain any
(A) Financial Institutions shall refer to both private and government
information, including but not limited to bank deposits and other related
financial institutions. It shall include but is not limited to banks, non-
bank financial intermediaries performing quasi-banking functions, and information held by financial institutions, as may be required to respond to
16
a request pursuant to an international convention or agreement on tax

matters to which the Philippines is a signatory or a party to. SECTION 7. Contents of the Requests. — In order for the BIR to
promptly act upon a request, the following should be clearly stated in the
SECTION 3. Bureau of Internal Revenue (BIR) Not Precluded from request:
Using the Information Requested by a Foreign Tax Authority. — Once a) The identity of the person under examination or investigation;
information is gathered pursuant to a request for exchange of information b) A statement of the information being sought including its nature
under an international convention or agreement on tax matters, the BIR is and the form in which the said foreign tax authority prefers to
likewise authorized to use, for tax assessment, verification, audit and receive the information from the Commissioner;
enforcement purposes, any such information obtained from financial c) The tax purpose for which the information is being sought;
institutions. d) Grounds for believing that the information requested is held in the
Philippines or is in the possession or control of a person within the
SECTION 4. Authority of the Commissioner of Internal Revenue to jurisdiction of the Philippines;
Supply Information Which is at His Disposal. — For the purpose of e) To the extent known, the name and address of any person
exchanging information pursuant to an international convention or believed to be in possession of the requested information;
agreement on tax matters, the Commissioner of Internal Revenue is f) A statement that the request is in conformity with the law and
hereby designated as the competent authority. Any such exchange of administrative practices of the said foreign tax authority, such that
information shall not constitute an unlawful divulgence of information under if the requested information was within the jurisdiction of the said
the Tax Code of 1997, as amended. foreign tax authority then it would be able to obtain the information
under its laws or in the normal course of administrative practice
SECTION 5. Foreign Tax Authority May be Allowed to Examine and that it is in conformity with an international convention or
Income Tax Returns of Taxpayers in the Philippines. — Income tax agreement on tax matters;
returns of specific taxpayers subject of a request for exchange of g) A statement that the requesting foreign tax authority is also
information by a foreign tax authority pursuant to an international allowed under its domestic laws to exchange or furnish the
convention or agreement on tax matters shall be open to inspection upon information subject of the request; and
the order of the President of the Philippines, under rules and regulations h) A statement that the requesting foreign tax authority has
as may be prescribed by the Secretary of Finance, upon recommendation exhausted all means available in its own territory to obtain the
of the Commissioner. information, except those that would give rise to disproportionate
difficulties.
SECTION 6. Obligation to Maintain Confidentiality. — Any information
received by a foreign tax authority from the BIR pursuant to an SECTION 8. Processing of Requests. — All requests for information
international convention or agreement on tax matters shall be treated by pursuant to an international convention or agreement on tax matters shall
the authority as absolutely confidential in nature in the same manner as be coursed through the International Tax Affairs Division (ITAD) of the BIR.
information obtained by the latter under its laws and regulations, and shall Under no circumstances shall a revenue official or employee communicate
be disclosed only to persons or authorities, including courts and directly to the competent authority or foreign tax authority on matters
administrative bodies, involved in the assessment or collection of, the pertaining to the request without prior approval of the Commissioner.
enforcement or prosecution in respect of, or the determination of appeals
in relation to, the taxes covered by such conventions or agreements. Compliance with all the requirements for a valid request stated in the
17
preceding section shall be verified by ITAD. Should a request be received exchange of information held by financial institutions pursuant to an
by another office, said request shall immediately be forwarded to ITAD for international convention or agreement on tax matters, within sixty (60)
processing. days from receipt of the said request.
After evaluation by the ITAD, the Commissioner shall inform in writing the SECTION 11. Repealing Clause. — All existing rules, regulations and
financial institution concerned of the request for exchange of information. other issuances or portions thereof inconsistent with the provisions hereof
The financial institution has fifteen (15) days from receipt of the are hereby modified, repealed or revoked accordingly.
Commissioner's notice to provide the information specified therein. In the
event that it is unable to provide the information, it should state in writing SECTION 12. Effectivity Clause. — These Regulations shall take effect
the reasons for failure to do so, and should it needs additional time within after fifteen (15) days following complete publication in a newspaper of
which to submit the information, it should request for extension which general circulation.
should not be more than thirty (30) days from receipt of the original notice.
The Commissioner shall respond as promptly as possible to the request.

To ensure a prompt response, the Commissioner shall confirm receipt of a
request in writing to the requesting foreign tax authority and shall notify the SUMMARY: RR 10-2010 (Banta)
latter of deficiencies in the request, if any, within sixty (60) days from [October 6, 2010]
receipt of the request. “Guidelines for exchange of information”
If the Commissioner is unable to obtain and provide the information within These regulations primarily aim to guide the BIR on how to respond to a
ninety (90) days from receipt of the request, including if he encounters request for exchange of information pursuant to:
obstacles in furnishing the information or if he refuses to furnish the 1. Existing international conventions or agreements on tax matters;
information, he shall immediately inform the requesting foreign tax and
authority of the same, explaining the nature of the obstacles encountered 2. RA No. 10021 (“An Act to Allow the Exchange of Information by the
or the reasons for his refusal. Bureau of Internal Revenue on Tax Matters Pursuant to
Internationally-Agreed Tax Standards, Amending Sections 6 (F), 71
SECTION 9. Willful Refusal to Supply Information. — Any officer, and 270 of the National Internal Revenue Code of 1997, as
owner, agent, manager, director or officer-in-charge of a financial Amended, and for Other Purposes”).
institution within the purview of these Regulations who, being required in
writing by the Commissioner, willfully refuses to supply the required DEFINITIONS
information shall be punished by a fine of not less than Fifty Thousand
Pesos (P50,000) but not more than One Hundred Thousand Pesos Both private and government
(P100,000), or suffer imprisonment of not less than two (2) years but not financial institutions. It shall include
more than five (5) years, or both. but is not limited to banks, non-bank
Financial Institutions
financial intermediaries performing
SECTION 10. Notice to Taxpayers. — A taxpayer shall be duly notified in quasi-banking functions, and other
writing by the Commissioner that a foreign tax authority is requesting for non-bank financial intermediaries
18
including financing companies The Commissioner is authorized to obtain any information, including but not
The tax authority or tax limited to bank deposits and other related information held by financial
administration of the requesting institutions, as may be required to respond to a request pursuant to an
Foreign Tax Authority State under the tax treaty or international convention or agreement on tax matters to which the Philippines
convention to which the Philippines is a signatory or a party to.
is a signatory or a party of
All Income Tax Forms Is the BIR precluded from using the information requested by a Foreign
issued/prescribed by the BIR Tax Authority?
including attachments thereto, No. Once information is gathered pursuant to a request for exchange of
Income Tax Returns written statements or other information under an international convention or agreement on tax matters,
documents designed to be the BIR is likewise authorized to use, for tax assessment, verification, audit
supplemental to and part of the said and enforcement purposes, any such information obtained from financial
returns institutions.
Shall not only refer to opening to
examination of income tax returns of Is the CIR authorized to supply information which is at his disposal?
specific taxpayers subject of a Yes. For the purpose of exchanging information pursuant to an international
request for exchange of information convention or agreement on tax matters, the Commissioner of Internal
Inspection Revenue is hereby designated as the competent authority. Any such
by a foreign tax authority but also
furnishing the latter certified copies exchange of information shall not constitute an unlawful divulgence of
of such income tax returns, if information under the Tax Code of 1997, as amended.
included in the request.
Tax Information Exchange Is the Foreign Tax Authority allowed to examine income tax returns of
Agreements (TIEAs) which may be taxpayers in the Philippines?
International Agreements or Yes. Income tax returns of specific taxpayers subject of a request for
negotiated between the Philippines
Agreement on Tax Matters exchange of information by a foreign tax authority pursuant to an
and other Contracting States or
jurisdictions international convention or agreement on tax matters shall be open to
The Double Taxation Convention inspection, subject to the following conditions:
(DTCs) or Double Taxation 1. Upon the order of the President of the Philippines;
Agreements (DTAs) negotiated 2. Under rules and regulations as may be prescribed by the Secretary
International Convention or Tax between the Philippines and other of Finance;
Treaty Contracting States or jurisdictions for 3. Upon recommendation of the Commissioner.
the avoidance of double taxation and
the prevention of fiscal evasion with OBLIGATION TO MAINTAIN CONFIDENTIALITY
respect to taxes on income
Any information received by a foreign tax authority from the BIR pursuant to
AUTHORITY OF THE COMMISSIONER an international convention or agreement on tax matters shall be treated by
the authority as absolutely confidential in nature in the same manner as
19
information obtained by the latter under its laws and regulations, and shall be
disclosed only to persons or authorities, including courts and administrative Can a revenue official or employee communicate directly to the
bodies, involved in the assessment or collection of, the enforcement or competent authority or foreign tax authority regarding the request?
prosecution in respect of, or the determination of appeals in relation to, the No. Under no circumstance can a revenue official or employee comuunicate
taxes covered by such conventions or agreements. directly without prior approval of the Commissioner.
CONTENTS OF THE REQUESTS Who shall verify compliance with the requirements set forth in Section
In order for the BIR to promptly act on the request, the following should be 7?
clearly stated therein: (Section 7) The ITAD has the duty to verify such compliance. Should a request be
1. The identity of the person under examination or investigation; received by another office, said request shall immediately be forwarded to
2. A statement of the information being sought including its nature and ITAD for processing.
the form in which the said foreign tax authority prefers to receive the
information from the Commissioner; What happens after ITAD’s evaluation?
3. The tax purpose for which the information is being sought; 1. The CIR shall inform in writing the financial institution concerned of
4. Grounds for believing that the information requested is held in the the request for exchange of information.
Philippines or is in the possession or control of a person within the 2. The financial institution then has FIFTEEN (15) DAYS from receipt
jurisdiction of the Philippines; of the CIR’s notice to provide the information specified therein.
5. To the extent known, the name and address of any person believed o What if the financial institution is unable to provide
to be in possession of the requested information; information?
6. A statement that the request is in conformity with the law and It should state in writing the reasons for failure to do so, and
administrative practices of the said foreign tax authority, such that if should it needs additional time within which to submit the
the requested information was within the jurisdiction of the said information, it should request for extension which should
foreign tax authority then it would be able to obtain the information NOT BE MORE THAN (30) DAYS from receipt of the
under its laws or in the normal course of administrative practice and original notice.
that it is in conformity with an international convention or agreement 3. The CIR shall respond as promptly as possible to the request.
on tax matters; o CIR must confirm receipt of a request in writing to the
7. A statement that the requesting foreign tax authority is also allowed requesting foreign authority; and
under its domestic laws to exchange or furnish the information o NOTIFICATION OF DEFICIENCIES: CIR shall notify the
subject of the request; and latter of deficiencies in the request, if any, within SIXTY (60)
8. A statement that the requesting foreign tax authority has exhausted DAYS from receipt of the request.
all means available in its own territory to obtain the information, 4. INABILITY OF CIR TO PROVIDE INFORMATION
except those that would give rise to disproportionate difficulties. If the CIR is unable to obtain and provide the information within
NINETY (90) DAYS from receipt of the request, he shall immediately
PROCESSING OF REQUESTS inform the requesting foreign tax authority of the same, explaining
the nature of the obstacles encountered or the reasons for his
All requests shall be coursed through the International Tax Affairs Division refusal.
(ITAD) of the BIR.
20
PENALTIES FOR WILLFUL REFUSAL TO PROVIDE INFORMATION

TO: All Internal Revenue Officers and Others Concerned
Applies to any:
1. Officer;
2. Owner; Pursuant to Section 244 of the Tax Code of 1997, as last amended by
3. Agent; Republic Act No. 9337, these Regulations are hereby promulgated to
4. Manager; implement the provisions of Section 6(G) of the same Tax Code
5. Director; or authorizing the Commissioner of Internal Revenue to accredit and register
6. Officer-in-charge of a financial institution within the purview of these tax agents with respect to their tax practice and representation before the
Regulations BIR and to further prescribe the following:
Punishable act: A. The creation of the Revenue National Accreditation Board in the
After having been required in writing by the CIR, willfully refuses to supply National Office and the Revenue Regional Accreditation Board in
the required information each Revenue Region and to define the functions and
composition of said Boards;
Penalties: B. The guidelines and procedures to be observed in the accreditation
1. Fine of not less than Fifty Thousand Pesos (P50,000) but not more and suspension of tax practitioners recognized to practice before
than One Hundred Thousand Pesos (P100,000); or the Bureau of Internal Revenue; and
2. Imprisonment of not less than two (2) years but not more than five C. The duties, restrictions and norms of conduct relating to such
(5) years; or practice.
3. Both.
SECTION 1. Objective. — To prescribe administrative mechanisms in the
NOTICE TO TAXPAYERS accreditation and registration of tax agents and practitioners, thereby
bestowing them official recognition relative to their tax
A taxpayer shall be duly notified in writing by the Commissioner that a foreign practice/representation before the BIR, and setting the minimum standards
tax authority is requesting for exchange of information held by financial therefor.
institutions pursuant to an international convention or agreement on tax
matters, within SIXTY(60) DAYS from receipt of the said request. (Section
10) SECTION 2. Definition of Terms. —
a. BOA — shall refer to the Board of Accountancy under the
Professional Regulations Commission (PRC).
b. SEC — shall refer to the Securities and Exchange Commission.
SUBJECT: Consolidated Regulations on the Accreditation of Tax
Practitioners/Agents As A Prerequisite to Their Practice c. Revenue National Accreditation Board (RNAB) — As first
or Representation Before the Bureau of Internal Revenue constituted under Revenue Regulations (RR) No. 15-99, RNAB
and Further Simplifying and Superseding Revenue refers to the body in the BIR National Office constituted to accredit
Regulations No. 15-99 tax practitioners/agents who are regularly engaged in making
21
representation for or on behalf of a client/s before any BIR Offices. settlement and/or abatement of tax liabilities and other official
It is composed of an Assistant Commissioner from either the papers and correspondence with the Bureau of Internal Revenue,
Operations Group, Legal & Inspection Group or Large Taxpayers and other similar or related activities; or those who regularly
Service chosen by the Commissioner of Internal Revenue as appear in meetings, conferences, and hearings before any office
Chairman, one (1) representative from the private sector to be of the Bureau of Internal Revenue officially on behalf of a taxpayer
chosen by the Commissioner of Internal Revenue from the or client in all matters relating to a client's rights, privileges, or
nominees submitted by the Philippine Chamber of Commerce and liabilities under laws or regulations administered by the Bureau of
Industry (PCCI), or by the Philippine Institute of Certified Public Internal Revenue, shall be deemed to be engaged in tax practice
Accountants (PICPA), or by the Tax Management Association of and are required to apply for accreditation.
the Philippines (TMAP); and three (3) senior internal revenue
officials in the National Office with the rank of at least Division SECTION 3. The Accreditation Boards. —
Chief, coming from the aforementioned Group/service, to be A. Powers and Functions — It shall be the duty of the Accreditation
designated by the Commissioner. This Board reviews and Boards to act upon all applications to practice before the Bureau
approves/disapproves the recommendation of the RRAB of every of Internal Revenue, to institute and provide for the conduct of
BIR Regional Office. accreditation, suspension or dis-accreditation proceedings and to
perform such other duties as are necessary or appropriate to carry
d. Revenue Regional Accreditation Board (RRAB) — Also out their functions as prescribed by the Secretary of Finance.
constituted under RR 15-99, the RRAB is the body in the BIR Provided, however, that any action or decision of the Revenue
Regional Office constituted to accredit tax practitioners/agents Regional Accreditation Board (RRAB) shall only become final
who are regularly engaged in making representation for or on upon affirmation by the Revenue National Accreditation Board
behalf of a client/s before any BIR Office. It is composed of the (RNAB) and/or by the Commissioner.
BIR Assistant Regional Director as Chairman, one (1)
representative from the private sector to be chosen by the B. Jurisdiction — The RRAB and RNAB shall have jurisdiction over
Commissioner of Internal Revenue from the nominees of the local and shall require accreditation with the BIR of the following
PICPA chapter; and three (3) senior internal revenue officials in persons:
the Regional Office with the rank of Assistant Division Chief or a) Individual tax practitioner engaged in private practice who
higher to be designated by the Commissioner. In the absence of are Certified Public Accountants (CPAs); CPA-Lawyers
the Assistant Regional Director, the Regional Director shall act as who issues/sign auditor's certificates or otherwise perform
the Chairman. This Board submits its recommendation to the functions exclusively pertaining to a CPA; and individuals
RNAB of the BIR National Office. other than CPAs who meet the qualifications prescribed
in these Regulations.
e. Tax Practitioners/Agents — Those who are engaged in the
regular preparation, certification, audit and filing of tax returns, b) Partners of a General Professional Partnership (GPP)
information returns or other statements or reports required by the engage in the practice of taxation, accountancy, and/or
Code or Regulations; those who are engaged in the regular auditing; their duly authorized officers or representatives
preparation of requests for ruling, petitions for reinvestigation, who regularly appear or otherwise engage in tax practice
protests, requests for refund or tax credit certificates, compromise before the BIR.
22
representation of a trust, receivership,

c) General professional Partnership engaged in the practice guardianship or estate;
of taxation, accountancy and auditing who regularly v. An officer or a regular employee of a government
appears or otherwise engaged in tax practice before the unit, agency, or instrumentality representing said
BIR. unit, agency or instrumentality in the course of
his or her official duties.
d) Officers or duly authorized representatives of
incorporated business entities engaged in accounting, C. Term of Office of the Chairmen and Members of the RNAB
auditing or tax consultancy services. and RRAB — The Chairmen and members of either Board shall
serve for a maximum term of three (3) years from the date of their
Individual applicants, GPPs and partners of GPPs who were nomination. Thereafter, the Commissioner of Internal Revenue
already accredited with the BOA and SEC shall no longer be shall reconstitute the same through a Revenue Special Order for
required to undergo the various processes for accreditation under that purpose with the end view that no chairman or member of
these Regulations but shall automatically be accredited and either Board shall serve therein for a term in excess of three
issued a BIR Certificate of Accreditation upon payment of the consecutive years. Provided, however, that any vacancy occurring
processing fee. prior to the end of said term shall be filled up by any qualified
senior officer as may be assigned by the Commissioner.
B.1 Exceptions. — The following individuals are allowed to
appear and practice before the BIR without undergoing SECTION 4. Minimum Qualifications of Applicants. — In general, the
accreditation proceedings: grant of accreditation shall be based on the applicant's professional
a) Individual-taxpayers acting on their own behalf, provided competence, integrity and moral fitness. Along these lines, the following
they present satisfactory identification; minimum qualifications are hereby prescribed:
b) Members of the Philippine Bar not suffering from
suspension/disbarment. However, they may at their A. For Individual Tax Agents (other than a member of the
option, apply for accreditation; Philippine Bar):
c) Other individuals presenting satisfactory proof of 1. He must be a Certified Public Accountant (CPA) with
identification or authority in any one of the following current professional license from the Professional
circumstances of limited practice or special appearances: Regulations Commission (PRC);
i. An individual representing a member of his or her 2. If he is not a Certified Public Accountant, he must have
immediate family; obtained at least a degree in Law, Juris Doctor (JD) or its
ii. A regular full-time employee representing an equivalent, or a Bachelor's degree in Arts, Commerce, or
individual employer; Business Administration with at least eighteen (18) units
iii. A bona fide officer or a regular full-time employee in accounting and/or taxation in a college or university
in representation of his employer-corporation, recognized by the Department of Education, Culture and
association or organized group; Sports (DECS)/Department of Education
iv. A trustee, receiver, guardian, administrator, (DepEd)/Commission on Higher Education (CHED) or in
executor or regular full-time employee in a foreign school of known repute or one duly recognized
23
by its government. In addition, he must be able to partnerships:

demonstrate or present convincing proof of special 1. The firm must be registered with the Securities &
competence in tax matters or tax practice, e.g., previously Exchange Commission; and
acquired experience; at least eighteen (18) credit hours of 2. The applicant-officers or duly authorized representatives
special training, seminars, short- term courses, etc., in thereof must meet all the qualifications of an individual as
taxation obtained not more than one (1) year prior to the prescribed under Section 4(A) hereof.
application for accreditation, subject to evaluation and
approval by the Board; SECTION 5. Accreditation Procedures. —
3. He must be of good moral character as certified to under A. Where to File — All applicants shall accomplish their application
oath by at least two (2) disinterested persons who are for accreditation in the form to be prescribed by the Commissioner
either members of the Philippine Bar or Certified Public of Internal Revenue. The duly-accomplished application form shall
Accountants in good standing; be submitted, together with all documentary requirements
4. He must not have been charged with and convicted by prescribed in Item (B)(1) or (2) of this Section, whichever is
final judgment of a crime involving moral turpitude, or applicable with the RRAB of the place where the individual
found guilty of any act or omission penalized under the applicant or general professional partnership has his/its residence
Tax Code, or found guilty of aiding or abetting or causing or principal place of business.
the commission of any such offense by another; and
5. He must be a citizen of the Philippines. Individual applicants and GPPs who are duly accredited by the
BOA and SEC, however, shall submit their duly accomplished
B. For General Professional Partnerships — In cases of GPPs application form together with the documentary requirements
engaged in the exercise of professional accountancy, auditing or prescribed in item (B)(3) of this Section with the RNAB.
tax consultancy services (other than general professional
partnerships engaged in the practice of law), the application for B. Documentary Requirements — Applicants shall submit, together
accreditation �led by the partners and/or the duly authorized with their duly accomplished application forms, the following
officers and representatives thereof shall conform with the documents:
following: 1. For Individual Applicants:
1. The partners and duly authorized officers or a. Certificate of registration and current license with
representatives thereof must meet all the qualifications of the Professional Regulations Commission, if a
an individual tax agent as prescribed in Section 4(A) CPA;
hereof. In lieu of the submission of documents or proof b. Certificate of membership with PICPA or
thereof, said qualifications may be certified to under oath ACCPA, if a CPA;
by the managing partner of the firm; and c. Certificate of Good Moral Character issued by
2. The partnership is one registered with the Securities and two (2) disinterested persons, who are either
Exchange Commission. member of the Bar or Certified Public Accountant
in good standing; and
C. In the case of incorporated entities engaged in accounting d. If non-CPA, certified copy of transcript of records
and tax consultancy other than general professional from the university or college showing
24
compliance with the required units in accounting Accreditation and BOA Certificates of
or taxation as prescribed in Section 4(A) (2) Registration of all the partners, officers and
hereof; or in lieu thereof, proof of special representatives of the Professional Partnership
competence in tax matters or tax practice, e.g., of CPAs.
previously acquired experience; at least eighteen d. List of all current partners, directors, officers,
(18) credit hours of special training, seminars, associates or representatives duly authorized by
short courses, etc., in taxation, obtained not the GPP to act on its behalf in representing its
more than one (1) year prior to the application for client before the BIR.
accreditation, for the appreciation and approval
by the concerned Board. 3. For Individuals and GPPs accredited by BOA and SEC:
a. Certified true copy of BOA Certificate of
2. For Partners, Directors, Officers or duly authorized Registration.
representatives of General Professional Partnerships and b. Certified true copy of SEC Certificate of
incorporated entities engaged in accounting and tax Accreditation.
consultancy:
a. Certificate of good moral character issued by two C. Processing Fee — Each applicant shall pay a non-refundable
(2) disinterested persons who may either be processing fee of Five hundred pesos (P500.00) upon �ling of his
member of the Bar or Certified Public Accountant application for accreditation. If the applicant is a general
in good standing; professional partnership, the fee shall be paid by each partner and
b. Other applicable requirements for an individual authorized representative thereof. In the case of incorporated
applicant, or in lieu thereof, certification under entities engaged in accounting and tax consultancy services, the
oath by the managing partner(s) that the fee shall be paid by each of the applicant officers or designated
applicant acting for the firm possesses all the representatives thereof.
qualifications prescribed under Section 4(A) of
these Regulations. D. Additional Requirements — Accredited tax agents shall likewise
c. For those Partners, Directors, Officers or duly be required to submit the following documents as an attachment
authorized representatives of General to the initial �ling of reports, protests, request for ruling, of�cial
Professional Partnerships duly registered with correspondence and other statements, papers or documents �led
the SEC, in addition to the above documentary on behalf of a particular taxpayer as proof of their authority to
requirements, a certification from the BOA if the represent the concerned taxpayer:
said Partner, Director, Officer or duly authorized 1. Copy of current Engagement Letter with clients.
representative is a CPA. Provided, however, that 2. b. Special Power of Attorney executed by the client
the requirements under letters a, b, and c of authorizing the practitioner to represent him before the
Section 5(B)(1) hereof need not be submitted if BIR.
the Professional Partnership can submit a
certified true copy of its SEC Certificate of SECTION 6. Processing of Application or Accreditation. —
Accreditation as well as the SEC Certificates of A. The RRAB shall act upon all applications for accreditation by
25
verifying the qualifications of an applicant, and the completeness the Secretary of Finance, who shall rule on the appeal within sixty
of the required documentation. (60) days from receipt of such appeal. Failure of the Secretary of
Finance to rule on the appeal within the prescribed period shall be
B. If an application is determined to be complete, that is, all deemed as approval of the application for accreditation of the
necessary supporting documentations have been submitted, and appellant.
the applicant's qualifications found to be in conformity with the
provisions of Section 4 of these Regulations, the application shall G. The resignation, retirement, death or incapacity of any partner of a
be stamped "RECEIVED" bearing the date the completed general professional partnership who has been accredited by the
application was received by the RRAB. Thereafter, the RRAB RNAB shall not result in the cancellation of the partnership's
shall, within thirty (30) days from receipt thereof, evaluate the accreditation but only that of the concerned partner's
application and forward its recommendation thereon to the RNAB. accreditation. The partnership, however, must notify the RNAB,
and the RRAB having jurisdiction over the partnership's principal
C. The RNAB shall act upon all applications for accreditation place of business, of such occurrence and shall surrender to the
recommended to it by the RRAB. In all cases, the RNAB shall RNAB the concerned partner's Certificate of Registration or
have the exclusive authority to approve/disapprove applications Identification Card for cancellation.
for accreditation which shall be acted upon within thirty (30) days
from receipt of the recommendation of the RRAB. SECTION 7. Acceptable Norms of Conduct of a Tax Practitioner. —
The following norms of conduct are hereby defined as a guide for the
D. Application for accreditation of practitioners who are duly observance of tax practitioners. Willful or reckless violation of any of them
accredited by the BOA and SEC, as evidenced by a copy of the may be subject of disciplinary action before the Boards:
BOA Certificate of Registration and SEC Certificate of A. No tax practitioner shall represent conflicting interests in his
Accreditation shall, upon payment of the processing fee, be practice before the Bureau of Internal Revenue, except by
automatically issued a BIR Certificate of Accreditation by the express consent of all directly interested parties after full
RNAB. disclosure has been made.
E. Applicants whose applications for accreditation have been B. The practitioner must make inquiry as to all relevant facts of the
approved by the RNAB shall be issued a Certificate of tax case, be satisfied that the material facts are accurately and
Accreditation signed by its Chairman. Such Certificate shall be completely described, and assure that any representation
valid for a period of three (3) years from the date of issue, unless contains no falsehood.
sooner revoked for cause. For purposes of easy identification, the
Commissioner of Internal Revenue shall issue an identification C. The practitioner must relate the law to the actual facts and, when
card to each accredited tax agent or practitioner. addressing issues based on future assumptions, must clearly
identify what facts are assumed.
F. Application for accreditation which has been disapproved by the
RRAB shall be appealable to the RNAB. Any application D. The practitioner must ascertain that all material tax issues have
disapproved by the RNAB may be appealed to the Commissioner. been fairly addressed and fully considered.
An adverse decision by the Commissioner may be appealed to
26
E. Where possible, the practitioner must provide an opinion obtain special consideration or action from the Bureau of
consonant with existing laws and regulations. He shall not present Internal Revenue or officer or employee thereof by
as true those matters or issues which he knows to have been improper or unlawful means;
voided, superseded or otherwise invalidated. 4. Willfully failing to make a tax return in violation of the
NIRC, or evading, attempting to evade or participating in
F. The practitioner advising a client on matters of tax liability must any way in evading or attempting to evade any national
inform the client of the penalties which may likely apply to him in internal revenue tax or payment thereof;
case of failure or omission to pay the tax in relation to the position 5. Knowingly counseling or suggesting to a client or
advised, prepared or reported. prospective client of an illegal plan to evade taxes or
payment thereof, or concealing assets to evade taxes or
G. The practitioner advising a client on tax matters must make payment thereof;
reasonable inquiries if the information as furnished appears to be 6. Misappropriating or failing to remit, funds received from a
incorrect, inconsistent or incomplete and to the extent possible, client for the purpose of payment of taxes;
examine the proof or relevant documents in support of his client's 7. Directly or indirectly attempting to influence, or offering or
representations. agreeing to attempt to influence the official action of any
officer or employee of the BIR by the use of threats, false
SECTION 8. Suspension or cancellation of Certificate of accusations, duress or coercion, or by offering any
Accreditation. — special inducement or promise of advantage or by
A. Causes for Suspension, Cancellation or Revocation — The bestowing any gift, favor or thing of substantial value;
accreditation certificate may be suspended, cancelled or revoked 8. Disbarment or suspension from the practice as an
as the case may be, upon petition by a taxpayer or by the PICPA attorney or as a certified public accountant;
or by the TMAP and other similar professional organization, or 9. Contemptuous conduct in connection with practice before
upon petition by any internal revenue officer, or upon motu propio the BIR, including use of abusive language, making false
action by the RRAB or RNAB, after due notice and hearing set for accusations and statements, knowing them to be false, or
the purpose, based on any of the following grounds: circulating or publishing malicious or libelous matter;
1. Conviction of any criminal offense under the National 10. Giving a false opinion, knowingly, recklessly or through
Internal Revenue Code, or of any offense involving gross incompetence, including an opinion which is
dishonesty, or breach of trust; intentionally or recklessly misleading, or a pattern of
2. Giving false or misleading information, or participating in providing incompetent opinions on questions arising
any way in the giving of false or misleading information to under the Tax Code. False opinion includes those which
the Bureau of Internal Revenue or to any officer or reflect or result from a known misstatement of fact or law
employee thereof, in connection with any matter pending from an assertion of a position known to be unwarranted
before them, knowing such information to be false or under existing laws or regulations; from advising or
misleading; assisting in conduct known to be illegal or fraudulent;
3. The use of false of misleading representations with intent from concealment of matters required by law or
to deceive a client or prospective client in order to regulations to be revealed. For purposes of this
procure employment, or representing that he can ably paragraph, "reckless conduct" is a highly unreasonable
27
omission or misrepresentation involving an extreme h. Willfully using fake or falsified Revenue Official
departure from the standards of ordinary care that a Receipts (RORs), Letters of Authority (LAs),
practitioner should observe under the circumstances. A Certificates Authorizing Registration (CARs), Tax
pattern of conduct is a factor that will be taken into Credit Certificates (TCCs), Tax Debit
account in determining whether a practitioner acted Memoranda (TDMs) and other accountable
knowingly, recklessly, or through gross incompetence; forms of the Bureau of Internal Revenue;
11. Upon administrative finding by the concerned Board that i. Corrupting/Bribing or attempting to corrupt/bribe
the holder of an accreditation certificate has committed any internal revenue official or employee through
any of the following offenses penalized under the Tax any of the modes of corruption as defined by the
Code of 1997: Anti-Graft and Corrupt Practices Act;
a. Willfully falsifying any report or statement bearing j. Such other acts or omissions similar to the
on any examination or audit, or rendering a foregoing, including all other offenses punishable
report, including exhibits, statements, schedules under the Tax Code or other laws.
or other forms of accountancy work which have
not been verified by him personally or under his B. Filing of Petitions for Disaccreditation/Suspension —
supervision or by a member of his firm or by a 1. A Petition for Disaccreditation/Suspension of an
member of his staff in accordance with generally Accredited Tax Agent may be filed with the RRAB having
accepted accounting and auditing practices; jurisdiction over the residence or principal place of
b. Certifying financial statements containing business of the accredited tax agent against whom the
essential misstatements of facts or omission of Petition is being filed.
which he has personal knowledge with respect to 2. All Petitions must be filed together with appropriate
the transactions, taxable income, deduction and documents to support the premises upon which the
exemption of his client; Petition is anchored.
c. Signing and certifying financial statements 3. Petitions filed by PICPA, TMAP or any other similar
without conducting an actual audit; professional or nongovernmental organization must be
d. Assisting/Aiding any taxpayer in the use of signed by the incumbent President of the organization
accounting/bookkeeping records for internal concerned.
revenue purposes not in conformity with the 4. Petitions found to have been filed by fictitious persons or
requirements prescribed in the Tax Code or rules organizations, upon verification by the RRAB concerned,
and regulations promulgated thereunder; shall be dismissed for lack of factual or legal bases.
e. Knowingly making any false entry or entering any
false or fictitious name in the books of accounts C. Administrative Proceedings —
or records of a taxpayer; 1. No Accredited Tax Agent shall be suspended or
f. Aiding or keeping in behalf of a taxpayer two or disaccredited without a prior hearing set for the purpose.
more sets of such records or books of accounts; 2. The RRAB with whom a Petition for
g. Willfully attempting in any manner to evade or Disaccreditation/Suspension was filed shall conduct
defeat any tax imposed under the Tax Code; hearing(s) on such Petition, to allow both the Petitioner
28
and the Accredited Tax Agent concerned to present their of receipt of such decision.
side of the case. 4. The Secretary of Finance shall act on a Petition for
3. In the conduct of hearings, a quorum is sufficient to Reconsideration within sixty (60) days from the date of
convene the RRAB. All such proceedings shall be filing of such Petition. In the event that the Secretary of
presided over by the Assistant Regional Director, in his Finance should be unable to act on such Petition within
capacity as Chairman, or in his absence, by the the specified period, the decision of the Commissioner
designated Vice-Chairman of the RRAB. shall be deemed sustained.
4. Upon termination of the hearing, the RRAB shall submit
the entire docket of the proceedings for a Petition for SECTION 9. Effects of Accreditation. — Only those Tax
Disaccreditation/Suspension, together with its Agents/Practitioners, Partners or Officers of General Professional
recommendation thereon, to the RNAB, for final action. Partnerships, or Officers or Directors of corporate entities engaged in tax
5. The disaccreditation or suspension of an Accredited Tax practice who have been issued Certificate of Accreditation or ID card shall
Agent must be reached by a majority vote of the be allowed to represent a taxpayer or transact business with the Bureau of
members of the RNAB present and voting. Internal Revenue in representation of a taxpayer for the purpose(s) defined
6. In cases of disaccreditation or suspension, the RNAB in these Regulations. The BIR can refuse to transact official business with
shall issue to the Tax Agent concerned a Notice of tax practitioners who are not accredited before it and shall require that
Disaccreditation/Suspension signed by its Chairman. A certain official statements such as returns, financial statements, reports,
copy of such Notice shall be sent to the Petitioner. protests, requests for ruling, official correspondence and other statements,
7. In the event that a Petition for papers or documents �led on behalf of a taxpayer be signed or certified to
Disaccreditation/Suspension is not upheld, the RNAB by accredited persons which shall bear the following information below the
shall inform both parts of such decision, in an official signature of the latter:
communication signed by its Chain A. For Individuals (CPA's, Members of GPPs, and others):
1. Taxpayer Identification Number (TIN); and
D. Appeal — 2. Certificate of Accreditation Number, Date of Issuance,
1. In the event that accreditation previously granted to a Tax and Date of Expiry.
Agent is cancelled, suspended or revoked, the applicant
or Tax Agent concerned may appeal such B. For members of the Philippine Bar:
disaccreditation/suspension to the Commissioner of 1. Taxpayer Identification Number (TIN); and
Internal Revenue within fifteen (15) days from the date of 2. Attorney's Roll number or Accreditation Number, if any.
receipt of the official notice of denial or Notice of
Disaccreditation/Suspension. None of the provisions of these Regulations shall be construed to
2. The decision of the Commissioner of Internal Revenue authorize non-CPAs who are granted 'accredited tax agent' status by virtue
shall be immediately executor. of these Regulations to sign the financial statements' Auditor's Certificate
3. The decision of the Commissioner of Internal Revenue even if the same were for BIR purposes only.
may, in turn, be appealed by the applicant/Tax Agent All accredited Tax Agents/Practitioners shall be included in a Master List of
concerned to the Secretary of Finance, through a Petition Accredited Tax Agents/Practitioners which shall be kept up-to-date by the
for Reconsideration, within fifteen (15) days from the date RNAB.
29
Offices
SECTION 10. Effectivity. — These Regulations which supersede
Revenue Regulations No. 15-99 shall take effect after fifteen (15) days Composition:
following publication in a newspaper of general circulation. 1. Assistant Commissioner
from either the Operations
Group, Legal & Inspection
Group, or Large Taxpayers
Service (chosen by the
CIR);
SUMMARY: RR 11-2006 (Banta) 2. CIR as chairman;
[June 15, 2006]
3. One (1) representative from
“Guidelines for accreditation of tax practitioners”
the private sector to be
chosen by the CIR from the
These Regulations were promulgated to implement the provisions of
nominees submitted by:
SECTION 6(G) of the Tax Code authorizing the Commissioner of Internal
a. The Philippine
Revenue to accredit and register tax agents with respect to their tax practice
Chamber of
and representation before the BIR.
Commerce and
Industry (PCCI); or
What is RR 11-2006’s objective?
b. The Philippine
To prescribe administrative mechanisms in the accreditation and registration
Institute of
of tax agents and practitioners, thereby bestowing them official recognition Certified Public
relative to their tax practice/representation before the BIR, and setting the Accountants
minimum standards therefor. (Section 1)
(PICPA); or
c. The Tax
DEFINITIONS Management
Association of the
Board of Accountancy (under the Philippines
BOA Professional Regulations (TMAP)
Commission or PRC) 4. Three (3) senior internal
Securities and Exchange revenue officials in the
SEC
Commission National Office with the
Refers to the body in the BIR rank of at least Division
National Office constituted to Chief, to be designate by
Revenue National Accreditation accredit tax practitioners/agents the Commissioner
Board (RNAB) who are regularly engaged in
making representation for or on Function of the RNAB:
behalf of a client/s before any BIR This Board reviews and
30
approves/disapproves the by the Code or Regulations;

recommendation of the RRAB of 2. Are engaged in the regular
every BIR Regional Office. preparation of requests for
The body in the BIR Regional ruling, petitions for
Office constituted to accredit tax reinvestigation, protests,
practitioners/agents who are requests for refund or tax credit
regularly engaged in making certificates, compromise
representation for or on behalf of a settlement and/or abatement of
client/s before any BIR Office. tax liabilities and other official
papers and correspondence
Composition: with the Bureau of Internal
1. BIR Assistant Regional Director Revenue, and other similar or
as Chairman; related activities; or
2. One (1) representative from the 3. Regularly appear in meetings,
private sector to be chosen by conferences, and hearings
the Commissioner of Internal before any office of the Bureau
Revenue Regional Accreditation Revenue from the nominees of of Internal Revenue officially on
Board (RRAB) the local PICPA chapter; and behalf of a taxpayer or client in
3. Three (3) senior internal all matters relating to a client's
revenue officials in the Regional rights, privileges, or liabilities
Office with the rank of Assistant under laws or regulations
Division Chief or higher to be administered by the Bureau of
designated by the Internal Revenue.
Commissioner
THE ACCREDITATION BOARDS
In the absence of the Assistant
Regional Director, the Regional Powers and Functions
Director shall act as the Chairman. 1. To act upon all applications to practice before the Bureau of Internal
This Board submits its Revenue;
recommendation to the RNAB of the 2. To institute and provide for the conduct of accreditation, suspension
BIR National Office. or dis-accreditation proceedings; and
Those who: 3. To perform such other duties as are necessary or appropriate to
1. Are engaged in the regular carry out their functions as prescribed by the Secretary of Finance.
preparation, certification, audit Provided, however, that any action or decision of the Revenue Regional
Tax Practitioners/Agents
and filing of tax returns, Accreditation Board (RRAB) shall only become final upon affirmation by the
information returns or other Revenue National Accreditation Board (RNAB) and/or by the Commissioner.
statements or reports required
31
Jurisdiction c. A bona fide officer or a regular full-time employee in

The RRAB and RNAB shall have jurisdiction over the following persons: representation of his employer-corporation, association or
1. Individual tax practitioner engaged in private practice who are organized group;
Certified Public Accountants (CPAs); CPA-Lawyers who issues/sign d. A trustee, receiver, guardian, administrator, executor or
auditor's certificates or otherwise perform functions exclusively regular full-time employee in representation of a trust,
pertaining to a CPA; and individuals other than CPAs who meet the receivership, guardianship or estate;
qualifications prescribed in these Regulations; e. An officer or a regular employee of a government unit,
2. Partners of a General Professional Partnership (GPP) engage in the agency, or instrumentality representing said unit, agency or
practice of taxation, accountancy, and/or auditing; their duly instrumentality in the course of his or her official duties.
authorized officers or representatives who regularly appear or
otherwise engage in tax practice before the BIR; Term of Office of the Chairman and Members of the RNAB and RRAB
3. General Professional Partnership engaged in the practice of  Maximum term of THREE (3) YEARS from the date of their
taxation, accountancy and auditing who regularly appears or nomination
otherwise engaged in tax practice before the BIR; and  CIR shall thereafter reconstitute the same through a Revenue
4. Officers or duly authorized representatives of incorporated business Special Order
entities engaged in accounting, auditing or tax consultancy services. o End view: no chairman or member of either Board shall
serve therein for a term in excess of three consecutive
Note: Individual applicants, GPPs and partners of GPPs who were already years
accredited with the BOA and SEC shall no longer be required to undergo  Any vacancy occurring prior to the end of said term shall be filled up
the various processes for accreditation under these Regulations but shall by any qualified senior officer as may be assigned by the
automatically be accredited and issued a BIR Certificate of Accreditation Commissioner
upon payment of the processing fee.
MINIMUM QUALIFICATIONS OF APPLICANTS
Who can appear and practice before the BIR without undergoing
accreditation proceedings? (EXCEPTIONS under Section 3, B.1) 1. Must be a Certified Public
1. Individual-taxpayers acting on their own behalf, provided they Accountant (CPA) with current
present satisfactory identification; professional license from the
2. Members of the Philippine Bar not suffering from Professional Regulations
suspension/disbarment. However, they may at their option, apply for Commission (PRC);
accreditation; For Individual Tax Agents
3. Other individuals presenting satisfactory proof of identification or (other than a member of the 2. If he is not a Certified Public
authority in any one of the following circumstances of limited Philippine Bar) Accountant, he must have
practice or special appearances: obtained at least a degree in
a. An individual representing a member of his or her Law, Juris Doctor (JD) or its
immediate family; equivalent, or a Bachelor's
b. A regular full-time employee representing an individual degree in Arts, Commerce, or
employer; Business Administration with at
32
least eighteen (18) units in act or omission penalized under

accounting and/or taxation in a the Tax Code, or found guilty of
college or university recognized aiding or abetting or causing the
by the Department of Education, commission of any such offense
Culture and Sports by another; and
(DECS)/Department of
Education (DepEd)/Commission 5. Must be a citizen of the
on Higher Education (CHED) or Philippines.
in a foreign school of known 1. The partners and duly authorized
repute or one duly recognized by officers or representatives
its government. In addition, he thereof must meet all the
must be able to demonstrate or qualifications of an individual tax
present convincing proof of agent as prescribed in Section
special competence in tax 4(A) hereof.
matters or tax practice, e.g., o In lieu of the submission
previously acquired experience; For General Professional of documents or proof
at least eighteen (18) credit Partnerships thereof, said
hours of special training, qualifications may be
seminars, short- term courses, certified to under oath
etc., in taxation obtained not by the managing partner
more than one (1) year prior to of the firm; and
the application for accreditation, 2. The partnership is one registered
subject to evaluation and with the Securities and
approval by the Board; Exchange Commission.
1. The firm must be registered with
3. Must be of good moral character the Securities & Exchange
as certified to under oath by at Commission; and
Incorporated Entities engaged in
least two (2) disinterested 2. The applicant-officers or duly
accounting and tax consultancy
persons who are either members authorized representatives
other than general professional
of the Philippine Bar or Certified thereof must meet all the
partnerships
Public Accountants in good qualifications of an individual as
standing; prescribed under Section 4(A)
hereof.
4. Must not have been charged with
and convicted by final judgment ACCREDITATION PROCEDURES
of a crime involving moral
turpitude, or found guilty of any Where should applicants file for accreditation? [Section 5(A)]
33
The duly-accomplished application form shall be submitted, together with all 1. Certificate of registration and
documentary requirements prescribed in Item (B)(1) or (2) of this Section, current license with the
whichever is applicable with the RRAB of the place where the individual Professional Regulations
applicant or general professional partnership has his/its residence or Commission, if a CPA;
principal place of business. 2. Certificate of membership with
PICPA or ACCPA, if a CPA;
EXCEPTION: Individual applicants and GPPs who are duly accredited by 3. Certificate of Good Moral
the BOA and SEC, however, shall submit their duly Character issued by two (2)
accomplished application form together with the disinterested persons, who are
documentary requirements prescribed in item (B)(3) of this either member of the Bar or
Section with the RNAB. Certified Public Accountant in
good standing; and
4. If non-CPA, certified copy of
transcript of records from the
university or college showing
For Individual Applicants
compliance with the required
units in accounting or taxation as
prescribed in Section 4(A) (2)
hereof; or in lieu thereof, proof of
special competence in tax
matters or tax practice, e.g.,
previously acquired experience;
at least eighteen (18) credit
hours of special training,
seminars, short courses, etc., in
taxation, obtained not more than
one (1) year prior to the
application for accreditation, for
the appreciation and approval by
DOCUMENTARY REQUIREMENTS the concerned Board.
1. Certificate of good moral
For Partners, Directors, Officers
character issued by two (2)
or duly authorized representatives
disinterested persons who may
of General Professional
either be member of the Bar or
Partnerships and incorporated
Certified Public Accountant in
entities engaged in accounting
good standing;
and tax consultancy
2. Other applicable requirements
34
for an individual applicant, or in BIR.

lieu thereof, certification under 1. Certified true copy of BOA
oath by the managing partner(s) Individuals and GPPs accredited Certificate of Registration
that the applicant acting for the by BOA and SEC 2. Certified true copy of SEC
firm possesses all the Certificate of Accreditation
qualifications prescribed under
Section 4(A) of these Processing Fee and Additional Requirements [Section 5 (C) and (D)]
Regulations.  Non-refundable processing fee of FIVE HUNDRED PESOS
3. For those Partners, Directors, (P500.00)
Officers or duly authorized o If applicant is a GPP, the fee shall be paid by each partner
representatives of General and authorized representative thereof
Professional Partnerships duly o For incorporated entities engaged in accounting and tax
registered with the SEC, in consultancy services, the fee shall be paid by each of the
addition to the above applicant officers or designated representatives thereof
documentary requirements, a  The following shall likewise be required as attachments:
certification from the BOA if the a. Copy of current Engagement Letter with clients
said Partner, Director, Officer or b. Special Power of Attorney executed by the client
duly authorized representative is authorizing the practitioner to represent him before the BIR
a CPA. Provided, however, that
the requirements under letters a, PROCESSING OF APPLICATION
b, and c of Section 5(B)(1) Receipt and Evaluation by the RRAB
hereof need not be submitted if 1. The RRAB shall act upon all applications for accreditation by
the Professional Partnership can verifying the qualifications of an applicant, and the completeness of
submit a certified true copy of its the required documentation.
SEC Certificate of Accreditation 2. If an application is determined to be complete, that is, all necessary
as well as the SEC Certificates supporting documentations have been submitted, and the
of Accreditation and BOA applicant's qualifications found to be in conformity with the
Certificates of Registration of all provisions of Section 4 of these Regulations, the application shall be
the partners, officers and stamped "RECEIVED" bearing the date the completed application
representatives of the was received by the RRAB.
Professional Partnership of o Thereafter, the RRAB shall, WITHIN THIRTY (30) DAYS
CPAs. from receipt thereof, evaluate the application and forward its
4. List of all current partners, recommendation thereon to the RNAB.
directors, officers, associates or
representatives duly authorized Actions by the RNAB
by the GPP to act on its behalf in 3. The RNAB shall act upon all applications for accreditation
representing its client before the recommended to it by the RRAB. In all cases, the RNAB shall have
35
the exclusive authority to approve/disapprove applications for

accreditation which shall be acted upon WITHIN THIRTY (30) DAYS ACCEPTABLE NORMS OF CONDUCT OF A TAX PRACTITIONER
from receipt of the recommendation of the RRAB. Willful or reckless violation of any of the following norms may be subject of a
4. Application for accreditation of practitioners who are duly disciplinary action before the Boards: (Section 7)
accredited by the BOA and SEC, as evidenced by a copy of the 1. No tax practitioner shall represent conflicting interests in his practice
BOA Certificate of Registration and SEC Certificate of Accreditation before the Bureau of Internal Revenue, except by express consent
shall, upon payment of the processing fee, be automatically issued a of all directly interested parties after full disclosure has been made.
BIR Certificate of Accreditation by the RNAB. 2. The practitioner must make inquiry as to all relevant facts of the tax
5. Applicants whose applications for accreditation have been approved case, be satisfied that the material facts are accurately and
by the RNAB shall be issued a Certificate of Accreditation signed by completely described, and assure that any representation contains
its Chairman. Such Certificate shall be valid for a period of THREE no falsehood.
(3) YEARS from the date of issue, unless sooner revoked for cause. 3. The practitioner must relate the law to the actual facts and, when
For purposes of easy identification, the Commissioner of Internal addressing issues based on future assumptions, must clearly
Revenue shall issue an identification card to each accredited tax identify what facts are assumed.
agent or practitioner. 4. The practitioner must ascertain that all material tax issues have
been fairly addressed and fully considered.
Disapproved Applications / Appeals 5. Where possible, the practitioner must provide an opinion consonant
6. Application for accreditation which has been disapproved by the with existing laws and regulations. He shall not present as true those
RRAB shall be appealable to the RNAB. Any application matters or issues which he knows to have been voided, superseded
disapproved by the RNAB may be appealed to the Commissioner. or otherwise invalidated.
An adverse decision by the Commissioner may be appealed to the 6. The practitioner advising a client on matters of tax liability must
Secretary of Finance, who shall rule on the appeal WITHIN SIXTY inform the client of the penalties which may likely apply to him in
(60) DAYS from receipt of such appeal. case of failure or omission to pay the tax in relation to the position
o Failure of the Secretary of Finance to rule on the appeal advised, prepared or reported.
within the prescribed period shall be deemed as approval of 7. The practitioner advising a client on tax matters must make
the application for accreditation of the appellant. reasonable inquiries if the information as furnished appears to be
Effect of resignation, retirement, death, or incapacity of any partner of incorrect, inconsistent or incomplete and to the extent possible,
an accredited GPP examine the proof or relevant documents in support of his client's
7. The resignation, retirement, death or incapacity of any partner of a representations.
general professional partnership who has been accredited by the
RNAB shall not result in the cancellation of the partnership's SUSPENSION OR CANCELLATION OF CERTIFICATE OF
accreditation but only that of the concerned partner's accreditation. ACCREDITATION
The partnership, however, must notify the RNAB, and the RRAB The accreditation certificate may be suspended, cancelled or revoked as the
having jurisdiction over the partnership's principal place of business, case may be:
of such occurrence and shall surrender to the RNAB the concerned 1. Upon petition by a taxpayer or by the PICPA or by the TMAP and
partner's Certificate of Registration or Identification Card for other similar professional organization; or
cancellation. 2. Upon petition by any internal revenue officer; or
36
3. Upon motu propio action by the RRAB or RNAB, after due notice statements, knowing them to be false, or circulating or publishing
and hearing set for the purpose malicious or libelous matter;
10. Giving a false opinion, knowingly, recklessly or through gross
Grounds: incompetence, including an opinion which is intentionally or
1. Conviction of any criminal offense under the National Internal recklessly misleading, or a pattern of providing incompetent opinions
Revenue Code, or of any offense involving dishonesty, or breach of on questions arising under the Tax Code. False opinion includes
trust; those which reflect or result from a known misstatement of fact or
2. Giving false or misleading information, or participating in any way in law from an assertion of a position known to be unwarranted under
the giving of false or misleading information to the Bureau of Internal existing laws or regulations; from advising or assisting in conduct
Revenue or to any officer or employee thereof, in connection with known to be illegal or fraudulent; from concealment of matters
any matter pending before them, knowing such information to be required by law or regulations to be revealed. For purposes of this
false or misleading; paragraph, "reckless conduct" is a highly unreasonable omission or
3. The use of false of misleading representations with intent to deceive misrepresentation involving an extreme departure from the
a client or prospective client in order to procure employment, or standards of ordinary care that a practitioner should observe under
representing that he can ably obtain special consideration or action the circumstances. A pattern of conduct is a factor that will be taken
from the Bureau of Internal Revenue or officer or employee thereof into account in determining whether a practitioner acted knowingly,
by improper or unlawful means; recklessly, or through gross incompetence;
4. Willfully failing to make a tax return in violation of the NIRC, or 11. Upon administrative finding by the concerned Board that the holder
evading, attempting to evade or participating in any way in evading of an accreditation certificate has committed any of the following
or attempting to evade any national internal revenue tax or payment offenses penalized under the Tax Code of 1997:
thereof; a. Willfully falsifying any report or statement bearing on any
5. Knowingly counseling or suggesting to a client or prospective client examination or audit, or rendering a report, including
of an illegal plan to evade taxes or payment thereof, or concealing exhibits, statements, schedules or other forms of
assets to evade taxes or payment thereof, accountancy work which have not been verified by him
6. Misappropriating or failing to remit, funds received from a client for personally or under his supervision or by a member of his
the purpose of payment of taxes; firm or by a member of his staff in accordance with
7. Directly or indirectly attempting to influence, or offering or agreeing generally accepted accounting and auditing practices;
to attempt to influence the official action of any officer or employee b. Certifying financial statements containing essential
of the BIR by the use of threats, false accusations, duress or misstatements of facts or omission of which he has
coercion, or by offering any special inducement or promise of personal knowledge with respect to the transactions,
advantage or by bestowing any gift, favor or thing of substantial taxable income, deduction and exemption of his client;
value; c. Signing and certifying financial statements without
8. Disbarment or suspension from the practice as an attorney or as a conducting an actual audit;
certified public accountant; d. Assisting/Aiding any taxpayer in the use of
9. Contemptuous conduct in connection with practice before the BIR, accounting/bookkeeping records for internal revenue
including use of abusive language, making false accusations and purposes not in conformity with the requirements prescribed
37
in the Tax Code or rules and regulations promulgated 1. No Accredited Tax Agent shall be suspended or disaccredited
thereunder; without a prior hearing set for the purpose.
e. Knowingly making any false entry or entering any false or 2. The RRAB with whom a Petition for Disaccreditation/Suspension
fictitious name in the books of accounts or records of a was filed shall conduct hearing(s) on such Petition, to allow both the
taxpayer; Petitioner and the Accredited Tax Agent concerned to present their
f. Aiding or keeping in behalf of a taxpayer two or more sets side of the case.
of such records or books of accounts; 3. In the conduct of hearings, a quorum is sufficient to convene the
g. Willfully attempting in any manner to evade or defeat any RRAB. All such proceedings shall be presided over by the Assistant
tax imposed under the Tax Code; Regional Director, in his capacity as Chairman, or in his absence, by
h. Willfully using fake or falsified Revenue Official Receipts the designated Vice-Chairman of the RRAB.
(RORs), Letters of Authority (LAs), Certificates Authorizing 4. Upon termination of the hearing, the RRAB shall submit the entire
Registration (CARs), Tax Credit Certificates (TCCs), Tax docket of the proceedings for a Petition for
Debit Memoranda (TDMs) and other accountable forms of Disaccreditation/Suspension, together with its recommendation
the Bureau of Internal Revenue; thereon, to the RNAB, for final action.
i. Corrupting/Bribing or attempting to corrupt/bribe any 5. The disaccreditation or suspension of an Accredited Tax Agent must
internal revenue official or employee through any of the be reached by a majority vote of the members of the RNAB present
modes of corruption as defined by the Anti-Graft and and voting.
Corrupt Practices Act; 6. In cases of disaccreditation or suspension, the RNAB shall issue to
j. Such other acts or omissions similar to the foregoing, the Tax Agent concerned a Notice of Disaccreditation/Suspension
including all other offenses punishable under the Tax Code signed by its Chairman. A copy of such Notice shall be sent to the
or other laws. Petitioner.
7. In the event that a Petition for Disaccreditation/Suspension is not
Filing of Petitions for Disaccreditation/Suspension upheld, the RNAB shall inform both parts of such decision, in an
1. A Petition for Disaccreditation/Suspension of an Accredited Tax official communication signed by its Chairman.
Agent may be filed with the RRAB having jurisdiction over the
residence or principal place of business of the accredited tax agent Appeal
against whom the Petition is being filed. 1. In the event that accreditation previously granted to a Tax Agent is
2. All Petitions must be filed together with appropriate documents to cancelled, suspended or revoked, the applicant or Tax Agent
support the premises upon which the Petition is anchored. concerned may appeal such disaccreditation/suspension to the
3. Petitions filed by PICPA, TMAP or any other similar professional or Commissioner of Internal Revenue WITHIN FIFTEEN (15) DAYS
nongovernmental organization must be signed by the incumbent from the date of receipt of the official notice of denial or Notice of
President of the organization concerned. Disaccreditation/Suspension.
4. Petitions found to have been filed by fictitious persons or 2. The decision of the Commissioner of Internal Revenue shall be
organizations, upon verification by the RRAB concerned, shall be immediately executory.
dismissed for lack of factual or legal bases. 3. The decision of the Commissioner of Internal Revenue may, in turn,
be appealed by the applicant/Tax Agent concerned to the Secretary
Administrative Proceedings
38
of Finance, through a Petition for Reconsideration, WITHIN engaged in tax practice who have been issued Certificate of Accreditation
FIFTEEN (15) DAYS from the date of receipt of such decision. or ID card shall be allowed to represent a taxpayer or transact business
4. The Secretary of Finance shall act on a Petition for with the BIR in representation of a taxpayer for the purpose(s) defined in
Reconsideration WITHIN SIXTY (60) DAYS from the date of filing of the regulations.
such Petition. In the event that the Secretary of Finance should be
The Commissioner or his authorized representative shall only consider as
unable to act on such Petition within the specified period, the valid document/attachments to tax returns, information returns or other
decision of the Commissioner shall be deemed sustained. statements or reports required by the Code or Regulations, the financial
statements prepared, signed and certified by duly accredited tax
EFFECTS OF ACCREDITATION practitioners.
 Only those who have been issued Certificate of Accreditation or ID
The BIR can refuse to transact official business with tax practitioners who
card shall be allowed to represent a taxpayer or transact business
are not accredited before it and shall require that certain official statements
with the Bureau of Internal Revenue in representation of a taxpayer such as returns, financial statements, reports, protests, requests for ruling,
for the purpose(s) defined in these Regulations official correspondence and other statements, paper or documents filed on
 The accredited persons shall bear the following information below behalf of a taxpayer be signed or certified to by accredited persons which
their respective signatures: shall bear the following information below the signature of the latter:
a. For Individuals (CPAs, Members of GPPs, and others):
For individuals (CPAs, members of GPPs, and others) a.1 Tax
i. Taxpayer Identification Number (TIN); and
Identification Number (TIN); and
ii. Certificate of Accreditation Number, Date of
Issuance, and Date of Expiry. 1. BIR Accreditation Number, Date of Issue, and Date of Expiry
b. For members of the Philippine bar:
i. Taxpayer Identification Number (TIN); and For members of the Philippine Bar (Lawyers)
ii. Attorney's Roll number or Accreditation Number, if 1. TIN;
any 2. Attorney's Roll Number;
3. Mandatory Continuing Legal Education (MCLE) Compliance
 None of the provisions of these Regulations shall be construed to Number;
authorize non-CPAs who are granted 'accredited tax agent' status 4. BIR Accreditation Number, Date of Issue and Date of Expiry
by virtue of these Regulations to sign the financial statements'
Auditor's Certificate even if the same were for BIR purposes only It shall be the duty of the Revenue National Accreditation Board (RNAB)
 All accredited Tax Agents/Practitioners shall be included in a Master and Revenue Regional Accreditation Board (RRAB) to act upon all
List of Accredited Tax Agents/Practitioners which shall be kept up- applications to practice before the BIR, to institute and provide for the
conduct of accreditation, suspension or dis-accreditation proceedings and
to-date by the RNAB
to perform such other duties as are necessary or appropriate to carry out
their functions as prescribed by the Secretary of Finance.
SUMMARY RR 14-2010 (BELLO) Provided, that any action or decision of the RNAB and RRAB shall be
appealable to the Commissioner. Any adverse decision by the
Commissioner may be appealed to the Secretary of Finance, who shall
RR 14-2010
rule on the appeal within 60 days from receipt of such appeal. Failure of
Only those tax agents/practitioners, partners or officers of General
the Secretary of Finance to rule on the appeal within the prescribed period
Professional Partnerships, or Officers or Directors of Corporate entities
shall be deemed an affirmation of the decision of the Commissioner
39
denying the accreditation. 5. A written undertaking under oath to preserve working papers
within the period prescribed under Section 235 of the National
In relation to the minimum qualification of applicants for individual tax Internal Revenue Code of 1997, as amended, and making them
agents (other than a member of the Philippine Bar), he/she must have available to the Bureau's authorized representative/s when
completed at least 6 hours per year or a total of 18 hours for the 3 years of required or directed to do so.
Continuing Professional Education (CPE) in taxation from
trainings/seminars conducted by the BIR or from private institutions where Within 60 days prior to the expiration of the accreditation, tax
the number of training hours earned are printed on the certificates and agents/practitioners may apply for renewal of their accreditation. In
obtained not more than a year prior to the application/renewal for addition to the requirements provided under Section 4 of the Regulations,
accreditation. certified true copies of the following documents shall be submitted for the
renewal of accreditation:
Individual applicants shall submit, together with their duly accomplished
application forms, the following documents: 1. PRC ID for CPAs/Integrated bar of the Philippines (IBP) ID for
lawyers;
1. Certificate of Registration with the Board of Accountancy (BOA)
and current license with the Professional Regulations 2. Current Certificate of Registration with the Board of Accountancy
Commission, if a CPA, or Attorney's Roll Number and MCLE (BOA)/IBP;
Compliance Number, if a Lawyer;
3. Current Professional Tax Receipt (PTR) for individuals or
2. Certificate of Membership in Good Standing with his/her/its PICPA Business Permit/Municipal License for non-individuals issued by
Chapter or ACCPA (for CPAs) or Integrated Bar of the Philippines the local government where registered;
(for lawyers);
4. Certificate of Membership in Good Standing with his/her/its PICPA
3. Certificate of Good Moral Character issued by two (2) Chapter or ACCPA (for CPAs) or IBP (for lawyers);
disinterested persons, who are either member of the BAR or CPA
in good standing; 5. Certificate of Training at least 6 hours per year or a total of 18
hours for the 3 years of CPE in taxation from trainings/seminars
4. If not a Certified Public Accountant: conducted by the BIR or from private institutions where the
number of training hours earned are printed on the certificates and
a. Certified copy of transcript of records from the university obtained not more than a year prior to the renewal for
or college showing compliance with at least eighteen (18) accreditation;
units in accounting or taxation as prescribed in Section
4(A)(2). 6. Expired Certificate of Accreditation issued by the BIR;
b. Written certification of CPE units of at least six (6) hours
per year or a total of eighteen (18) hours for the three 7. Annual Registration Fee of P 500 per year (current year and past
years in taxation conducted by the BIR (e.g. Revenue three years);
Regions, Revenue District Offices, etc.) or from private
institutions (e.g. tax/auditing firms, educational or training 8. Alphalist of Taxpayers Audited for the past 3 years showing the
institutions, professional organizations, etc.), where the Registered Name, TIN, engagement period, Letter of Authority
number of training hours earned are printed on the (LOA)/Tax Verification Number (TVN), if any;
certificates and obtained not more than a year prior to the
application/renewal for accreditation. 9. Sworn Statement that the individual/partnership/firm has observed
the conditions and provisions prescribed on accreditation with
40
affixed documentary stamp tax; taxation;

on accreditation procedures; and,
10. Income Tax Return (ITR) of the previous 2 years. on the procedures and documentary requirements for renewal of
accreditation.
The RNAB/RRAB shall make a random review of the financial statements
audited by the accredited external auditor and their compliance with the The BIR is the tax authority primarily tasked to fully inform the public on
above. Non-compliance with any of the provisions on accreditation shall be the latest and current issuances by conducting tax updates, briefings and
a ground for the revocation/cancellation of his/her/its accreditation. seminars nationwide. The private sector likewise assists in providing the
opportunity for the continuing education of tax practitioners and agents,
An external auditor whose accreditation has been cancelled may re-apply subject to the appreciation of the Accreditation Board.
for accreditation after two years. Provided, that no further re-accreditation
shall be granted after two (2) cancellations. In the re-application, the SECTION 2. Definitions of Terms. — Paragraphs c and d of Section
procedures and requirements for renewal shall be observed. 2 of RR No. 11-2006, as amended by RR No. 4-2010 is hereby amended
to read as follows:
"SECTION 2. Definition of Terms. —
ORIGINAL: RR 14-2010 xxx xxx xxx
(c) Revenue National Accreditation Board (RNAB) — As first
constituted under Revenue Regulations (RR) No. 15-99, RNAB refers to
November 25, 2010 the body in the BIR National Office constituted to accredit tax
REVENUE REGULATIONS NO. 014-10 practitioners/agents who are regularly engaged in making
SUBJECT : Amending Pertinent Provisions of Revenue representation for or on behalf of a client/s before any BIR Office.
Regulations Nos. 11-2006 and 4-2010 on the Accreditation of Tax
Practitioners/Agents as a Prerequisite to Their Practice and It is composed of a
Representation Before the Bureau of Internal Revenue 1. Deputy Commissioner from either the Operations Group or Legal
and Inspection Group chosen by the Commissioner of
TO : All Internal Revenue Officers and Others Concerned Internal Revenue (CIR) as Chairman,
2. one (1) representative from the private sector to be chosen by the
Pursuant to the provisions of Sections 244 and 275 of the National CIR from the nominees submitted by the Philippine Chamber
Internal Revenue Code of 1997 (NIRC), as amended, these Regulations of Commerce and Industry (PCCI), or by the Philippine
are hereby promulgated to implement the provisions of Section 6 (G) of Institute of Certified Public Accountants (PICPA), or by the
the NIRC authorizing the Commissioner of Internal Revenue to accredit Tax Management Association of the Philippines (TMAP);
and register tax agents with respect to their tax practice and 3. and three (3) senior internal revenue officials in the National
representations before the BIR and to further amend portions of Office with a rank of at least Assistant Commissioner, coming
Revenue Regulations Nos. 11-2006 and 4-2010. from the aforementioned Group, to be designated by the
Commissioner.
SECTION 1. Objectives. — These Regulations are hereby issued to xxx xxx xxx
amend policies on the composition of the (d) Revenue Regional Accreditation Board (RRAB) — Also
• Revenue National Accreditation Board (RNAB) and the constituted under RR No. 15-99, the RRAB is the body in the BIR
• Revenue Regional Accreditation Board (RRAB); Regional Office constituted to accredit tax practitioners/agents who are
regularly engaged in making representation for or on behalf of a
on the approval process from the action or decision of the RRAB or client/s before any BIR Office.
RNAB;
on the requirements of continuing professional education (CPE) in It is composed of the
41
1. BIR Assistant Regional Director as Chairman, A. For Individual Tax Agents (other than a member of the Philippine
2. one (1) representative from the private sector to be chosen by the Bar)
CIR from the nominees of the local PICPA chapter,
3. and three (3) senior internal revenue officials in the Regional He must be a
Office with a rank of Division Chief to be designated by the  Certified Public Accountant (CPA) of good standing
Commissioner. In absence of the Assistant Regional Director,  with current professional license from the Professional
the Regional Director shall act as chairman. Regulations Commission (PRC)
xxx xxx xxx" xxx xxx xxx
SECTION 3. The Accreditation Boards. — Section 3 of RR No. 11- 6. He must have

2006, as amended by RR No. 4-2010 is hereby amended to read as  completed at least six (6) hours per year or a total of eighteen
follows: (18) hours for the three years of continuing professional
education (CPE) in taxation from trainings/seminars conducted by
"Section 3. The Accreditation Boards. — the BIR (e.g., Revenue Regions, Revenue District Offices, etc.) or
A. Powers and Functions. — It shall be the duty of the Accreditation  from private institutions (e.g., tax/auditing firms, educational or
Boards to training institutions, professional organizations, etc.) where the
 act upon all applications to practice before the Bureau of Internal number of training hours earned are printed on the certificates
Revenue, and obtained not more than a year prior to the
 to institute and provide for the conduct of accreditation, application/renewal for accreditation."
suspension or dis-accreditation proceedings and
 to perform such other duties as are necessary or appropriate to SECTION 5. Accreditation Procedures. — Section 5 of RR No. 11-
carry out their functions as prescribed by the Secretary of 2006, as amended by RR No. 4-2010 is hereby amended to read as
Finance. follows:
Provided, that any action or decision of the RRAB and RNAB shall be "Section 5. Accreditation Procedures. —
appealable to the Commissioner.
A. Where to File. — . . .
 Any adverse decision by the Commissioner may be appealed to B. Documentary Requirements — Applicants shall submit, together
the Secretary of Finance, who shall rule on the appeal within sixty with their duly accomplished application forms, the following
(60) days from receipt of such appeal. documents:
 Failure of the Secretary of Finance to rule on the appeal within
the prescribed period shall be deemed an affirmation of the For Individual Applicants:
decision of the Commissioner denying the accreditation. A. Certificate of Registration with the Board of Accountancy (BOA)
B. Jurisdiction — . . . and current license with the Professional Regulations
C. Term of Office of the Chairmen and Members of the RNAB and Commission, if a CPA, or Attorney's Roll Number and
RRAB — . . ." Mandatory Continuing Legal Education (MCLE) Compliance
Number, if a Lawyer;
SECTION 4. Minimum Qualification of Applicants. — Section 4 of B. Certificate of Membership in Good Standing with his/her/its
RR 11-2006, as amended by RR No. 4-2010 is hereby amended to read PICPA Chapter or ACCPA (for CPAs) or Integrated Bar of the
as follows: Philippines (for lawyers);
C. Certificate of Good Moral Character issued by two (2)
"Section 4. Minimum Qualifications of Applicants — . . . disinterested persons, who are either member of the BAR or
42
CPA in good standing; representation of a taxpayer for the purpose(s) defined in these
D. If not a Certified Public Accountant: regulations.
a. Certified copy of transcript of records from the university
or college showing compliance with at least eighteen (18) The Commissioner or his authorized representative shall only consider
units in accounting or taxation as prescribed in Section as valid document/attachments to tax returns, information returns or
4(A)(2). other statements or reports required by the Code or Regulations, the
b. Written certification of continuing professional education financial statements prepared, signed and certified by duly accredited tax
(CPE) units of at least six (6) hours per year or a total of practitioners.
eighteen (18) hours for the three years in taxation
conducted the BIR (e.g., Revenue Regions, Revenue The BIR can refuse to transact official business with tax practitioners
District Offices, etc.) or from private institutions (e.g., who are not accredited before it and shall require that
tax/auditing firms, educational or training institutions,  certain official statements such as returns, financial statements,
professional organizations, etc.), where the number of reports, protests, requests for ruling, official correspondence and
training hours earned are printed on the certificates and other statements, papers or documents
obtained not more than a year prior to the  filed on behalf of a taxpayer be signed or certified to by
application/renewal for accreditation. accredited persons which shall bear the following information
E. A written undertaking under oath to preserve working papers below the signature of the latter.
within the period prescribed under Section 235 of the NIRC of
1997, as amended, and making them available to the A. For individual's (CPA's, members of GPPs, and others)
Bureau's authorized representative/s when required or a.1. Tax Identification Number (TIN); and
directed to do so. a.2. BIR Accreditation Number, Date of Issue, and Date of Expiry.
C. Processing Fee — . . . B. For members of the Philippine Bar (Lawyers)

D. Additional Requirements — . . . b.1. Tax Identification Number (TIN);
E. Submission of Annual Information — . . . b.2. Attorney's Roll Number; HITAEC
xxx xxx xxx" b.3. Mandatory Continuing Legal Education (MCLE) Compliance
Number; and
SECTION 6. Effects of Accreditation. — Section 9 of RR No. 11- b.4. BIR Accreditation Number, Date of Issue, and Date of Expiry.
2006 is hereby amended to read as follows: xxx xxx xxx"
"Section 9. Effects of Accreditation. — SECTION 7. Renewal of Accreditation. — Section 10 of RR No. 10-

Only those 206 * is hereby amended to read as follows:
1. Tax Agents/Practitioners, "Section 10. Renewal of Accreditation. — Within sixty (60) days
2. Partners or prior to the expiration of the accreditation, Tax Agents/Practitioners as
3. Officers of General Professional Partnerships, or defined under Section 2(e) hereof may apply for renewal of their
4. Officers or accreditation.
5. Directors of Corporate entities
engaged in tax practice who have been issued Certificate of In addition to the requirements provided under Section 4, submit the
Accreditation or ID card shall be allowed certified true copies of the following documents:
 to represent a taxpayer or 1. PRC ID for CPAs/Integrated Bar of the Philippines (IBP) ID for
 transact business with the Bureau of Internal Revenue in lawyers;
43
2. Current Certificate of Registration with the Board of Accountancy hereby amended or repealed accordingly. The Accreditation of CPE
(BOA)/IBP; providers and events are no longer required as embodied under RMO No.
3. Current Professional Tax Receipt (PTR) for individuals or 39-2010, including the cost of processing for the Confirmation Certificate
Business Permit/Municipal License for non-individuals issued by of CPE Units Earned. Only the curriculum of taxation events/seminars to
the local government where registered; be conducted will be submitted to the RNAB.
4. Certificate of Membership in Good Standing with his/her/its
PICPA Chapter or ACCPA (for CPAs) or Integrated Bar of the SECTION 9. Effectivity. — The Regulations shall take effect fifteen
Philippines (for lawyers); (15) days after publication in the official gazette or in a newspaper of
5. Certificate of Training at least six (6) hours per year or a total of general circulation.
eighteen (18) hours for the three (3) years of continuing
professional education (CPE) in taxation from trainings/seminars
conducted by the BIR (e.g., Revenue Regions, RDOs, etc.) or SUMMARY RMO 2-2013 (BELLO)
from private institutions (e.g., tax/auditing firms, educational or REVENUE MEMORANDUM ORDER NO. 2-2013 issued on February 18,
training institutions, professional organizations, etc.) where the 2013 prescribes the policies, guidelines and procedures in processing
number of training hours earned are printed on the certificates specific requests for information pursuant to the exchange of information
and obtained not more than a year prior to the renewal for provision of Philippine Tax Treaties, in relation to Republic Act (RA) No.
accreditation; 10021, as implemented by Revenue Regulations (RR) No. 10-2010.
6. Expired Certificate of Accreditation issued by the BIR;
7. Annual Registration Fee of P500 per year (current year and past Exchange of information can only take place between competent
three years); authorities or their authorized representatives. Bypassing the competent
8. Alphalist of Taxpayers Audited for the past three (3) years authorities constitutes a breach of tax confidentiality which is expressly
showing the Registered Name, TIN, engagement period, Letter of prohibited by Section 270 of the National Internal Revenue Code (NIRC)
Authority (LOA)/Tax Verification Number (TVN), if any; and by the terms of the BIR’s Double Taxation Agreements (DTAs) and
9. Sworn Statement that the individual/partnership/firm has Tax Information Exchange Agreements (TIEAs). Section 4 of RR No.10-
observed the conditions and provisions prescribed on 2010 expressly designates the Commissioner of Internal Revenue
accreditation with affixed documentary stamp tax; (Commissioner) as the Philippine competent authority for Exchange of
10. Income Tax Return (ITR) of the previous two (2) years. Information (EOI) purposes.
The RNAB/RRAB shall make a random review of the financial Exchange of information covers any information that is necessary or
statements audited by the accredited external auditor and their foreseeably relevant to the administration or enforcement of the domestic
compliance with the above. laws of the contracting parties concerning Income Taxes and other taxes
covered by the terms of the BIR’s EOI arrangements. It includes
Non-compliance with any of the provisions on accreditation shall be information for cases that involve tax evasion and other criminal tax
a ground for the revocation/cancellation of his/her/its accreditation. offenses but is not limited to such cases.
An external auditor whose accreditation has been cancelled may re-apply A request for information can include any or all of the following items but
for accreditation after two years. Provided, that no further re- not limited to:
accreditation shall be granted after two (2) cancellations. In the re-
application, the procedures and requirements for renewal shall be 1. The fiscal residence of an individual or a company;
observed." 2. The tax status of a legal entity;
3. The nature of income in the source country;
SECTION 8. Repealing Clause. — All rules and regulations or any 4. The income and expenses shown on a tax return;
part thereof inconsistent with the provisions of these Regulations are
44
5. Business records (for instance to determine the amount of The obligation to exchange information is mandatory and is not
commissions paid to a company of another State); limited to information contained in the tax files held by the BIR. When
6. Formation documents of an entity and documents about a request is received from a treaty partner, the BIR will have to take action
subsequent changes of shareholders/partners; to obtain the information requested, if it is not available on its files.
7. Name and address of the entity at the time of formation and all
subsequent name and address changes; However, the BIR is not bound to go beyond its own internal laws and
8. Number of entities residing at the same address as the requested administrative practice in putting information at the disposal of the
entity; requesting state. Thus, the Commissioner can order the obtention of
9. Names and addresses of the directors, managers, and other information, and even summon, examine and take the testimony of a
employees of a company for the relevant years, evidence person to acquire the information requested.
(contracts and bank statements) of their remuneration, social
security-payments and information about their occupation with In addition, the Commissioner can inquire into bank deposit accounts
regard to any other entities; pursuant to Section 6(F) of the NIRC, as amended by RA No. 10021.
10. Banking records; Moreover, the Income Tax Return/s of specific taxpayer/s subject of a
11. Accounting records and financial statements; request of a treaty partner may be open for inspection upon the order of
12. Copies of invoices, commercial contracts, etc.; and the President.
13. The price paid for goods in a transaction between independent
companies inboth States There are instances, however, where the obligation to exchange
information is lifted and a request for information can be declined, viz:
It must be stressed, however, that the scope of exchange of information is
not limited to 1. Information that the requesting party would not be able to obtain
 taxpayer-specific information but also includes information related under similar circumstances under its own laws or administrative
to practice;
 tax administration and compliance improvement, 2. Information relating to years not covered by DTAs or taxes not
o such as statistics, covered;
o information about a particular industry, 3. Disclosure of information requested would be contrary to public
o tax evasion trends, policy;
o administrative interpretations and practices, 4. Information relating to the administration or enforcement of a
o laws, provision of the tax laws which discriminates against a national of
o court decisions, the requested party (i.e., Philippines) as compared with a national
o official publications and of the applicant party in the same circumstances; and
o other subjects. 5. Information subject to legal privilege; that is confidential
communications between attorneys or other admitted legal
Time periods during which tax situations may be examined vary from representatives in their role as such
country to country, and the beginning of the tax year does not always 6. and their clients to the extent that the communications are
coincide with the calendar year. Where there is a significant time lag protected from disclosure under domestic law.
between the time the information is supplied
and the year to which the information relates, a statute of limitations issue The international standard for processing requests for information is
may arise. The question of whether use of the information is time 90 days from receipt of a request by the tax authority.
barred has to be determined by reference to the statute of limitations
rules of the country where the information is to be used. However, this period may be extended where difficulties in obtaining and
providing information are encountered. The procedures in responding to
requests for information from tax treaty partners and making a request for
45
information to tax treaty partners are specified in the Order. February 18, 2013
REVENUE MEMORANDUM ORDER NO. 002-13
All taxpayer information obtained pursuant to this Order are SUBJECT : Prescribing the Policies, Guidelines and
confidential and may only be disclosed in accordance with Philippine law Procedures in Processing Specific Requests for Information Pursuant to
(e.g., Section 270 of the NIRC). Confidentiality obligations are also the Exchange of Information Provision of Philippine Tax Treaties, in
imposed under the BIR’s EOI arrangements, which generally follow the Relation to Republic Act No. 10021, as Implemented by Revenue
rules of the OECD Model Tax Convention or Model TIEA. Moreover, the Regulations No. 10-2010
provisions cover not only information received in response to a request, TO : All Internal Revenue Officers and Others Concerned
but also information contained in competent authority letters, including the
letter requesting information. I. Background
In the last decade, the world has witnessed a growth in volume and
Generally, the Exchange of Information article in the BIR’s DTAs provides complexity of cross-border commercial and financial transactions. With the
that any information received shall be treated by the Bureau as secret in liberalization and globalization of economies, however, innovative tax
the same manner as information obtained under the domestic laws of the practices by taxpayers that have access to international markets have also
Philippines and shall be disclosed only to persons or authorities (including emerged alongside an increase in international tax evasion. The harmful
courts and administrative bodies) concerned with the assessment or effects of some of these practices, e.g., abusive transfer pricing and
collection of, the enforcement or prosecution in respect of, or the capital flight, have resulted in significant losses of tax revenues for
determination of appeals in relation to taxes on income. governments. To confront the challenges presented by globalization,
many jurisdictions have emphasized the need for more effective exchange
Such persons or authorities shall use the information only for such of tax information between national tax authorities.
purposes, but they may disclose the information in public court
proceedings or in judicial decisions. However, some of the Philippines’ In response to this changing fiscal environment, the Philippine
DTAs, e.g., those with Canada and Singapore, have even more restrictive Government enacted, on March 5, 2010, Republic Act (RA) No. 10021
confidentiality provisions. Accordingly, any disclosure of taxpayer otherwise known as the "Exchange of Information Act of 2010" which
information received under an EOI arrangement, outside of the BIR, must ensures that information held by our banks and financial institutions can
be in accordance with the terms of the relevant EOI arrangement and shall be made available to foreign tax authorities, upon request, in accordance
only be allowed after sign-off by the Commissioner or his/her duly with the terms of our Double Taxation Agreements (DTAs) and Tax
authorized representative for this purpose. Information Exchange Agreements (TIEAs) 1 hereafter referred to as
Exchange of Information or EOI arrangements. This development
The gathering of information by the BIR for a foreign tax authority pursuant solidifies the Philippines' commitment to comply with internationally-
to the latter’s request does not constitute an actual investigation of the BIR agreed standards on tax transparency and effective exchange of tax
on the subject taxpayer or taxpayers nor authorizes the BIR to issue information. At the same time, it impacts the manner in which the Bureau
corresponding Letters of Authority on the request, unless warranted. handles requests for information exchange pursuant to the relevant treaty
However, information supplied by a bank or a financial institution to the provisions.
BIR may be used by it in its own assessment, verification, audit, and
enforcement of the taxpayer whose account and his or its transactions are To ensure that the exchange of information mechanism with our 37 tax
now made known to the Bureau. Likewise, the BIR shall not be precluded treaty partners remains effective in this new environment, the procedures
from carrying out subsequent investigations on taxpayers whose on specific exchange of information (or exchange of information on
transactions with foreign taxpayers were subject of examination by foreign request), 2 which were last amended in 1997, are being updated — to
tax authorities. reflect the foregoing changes in the global economy and the Philippine
legal system.
ORIGINAL RMO 2-2013
II. Policy
46
It is the policy of the Bureau of Internal Revenue to cooperate with foreign Arab Emirates provide that the competent authority is "the Secretary of
tax authorities in combating international tax evasion and other criminal Finance or the Commissioner of Internal Revenue". The DTA with the
tax offenses and to address tax concerns that affect international trade United States indicates that the competent authority is "the Secretary of
and investment by fully utilizing the mechanism of exchange of Finance or his delegate."
information. To this end, the Bureau shall adopt procedures on specific
exchange of information that: 1) Allow for effective information exchange Section 4 of Revenue Regulations 10-2010 expressly designates the
with other jurisdictions with which we have EOI arrangements; 2) Ensure Commissioner of Internal Revenue (Commissioner) as the Philippine
the confidentiality of information received under such arrangements; and competent authority for EOI purposes.
3) Safeguard the rights of taxpayers and third parties.
V. Scope and Coverage of Exchange of Information
III. Objectives Exchange of information covers any information that is necessary or
In order to carry-out this stated policy, this Order: foreseeably relevant to the administration or enforcement of the domestic
1. Identifies the scope of exchange of information on request, the laws of the contracting parties concerning income taxes and other taxes
subjects covered and the limitations to exchange information; covered by the terms of our EOI arrangements. It includes information for
2. Prescribes the standard procedures to be followed in handling a cases that involve tax evasion and other criminal tax offenses but is not
request for information made to, or received from, a foreign tax limited to such cases.
authority pursuant to an EOI arrangement; and
3. Prescribes the forms to be used in requesting information from A request for information can include any or all of the following items but
foreign tax authorities, banks and financial institutions and other not limited to:
holders of taxpayer information, and the forms to be used in 1. The fiscal residence of an individual or a company;
responding to requests for information from foreign tax authorities 2. The tax status of a legal entity;
pursuant to an EOI arrangement. 3. The nature of income in the source country;
4. The income and expenses shown on a tax return;
IV. Competent Authority 5. Business records (for instance to determine the amount of
The competent authority acts as a contact point for the competent commissions paid to a company of another State);
authorities of treaty partners for EOI purposes. 6. Formation documents of an entity and documents about
subsequent changes of shareholders/partners;
Exchange of information can only take place between competent 7. Name and address of the entity at the time of formation and all
authorities or their authorized representatives. This ensures that the subsequent name and address changes;
rules applicable to exchange of information (and in particular the 8. Number of entities residing at the same address as the requested
confidentiality of information exchanged) are respected and consistently entity;
applied. 9. Names and addresses of the directors, managers, and other
employees of a company for the relevant years, evidence
Bypassing the competent authorities constitutes a breach of tax (contracts and bank statements) of their remuneration, social
confidentiality which is expressly prohibited by Section 270 of the security-payments and information about their occupation with
National Internal Revenue Code (NIRC) and by the terms of our DTAs regard to any other entities;
and TIEAs. 10. Banking records;
11. Accounting records and financial statements;
Our DTAs generally provide that "the Secretary of Finance or his 12. Copies of invoices, commercial contracts, etc.; and
authorized representative(s)" are the competent authorities for the 13. The price paid for goods in a transaction between independent
Philippines. companies in both States. 3
The DTAs with Bahrain, Bangladesh, Czech Republic, Sweden and United It must be stressed, however, that the scope of exchange of information is
47
not limited to taxpayer-specific information but also includes country, for instance where information requested relates to a
information related to tax administration and compliance improvement, state secret, the disclosure of which would be contrary to the vital
such as statistics, information about a particular industry, tax evasion interests of the requested State. A case of "public policy" might
trends, administrative interpretations and practices, 4 laws, court also arise, for example, where a tax investigation in another
decisions, official publications and other subjects. country was motivated by racial or political persecution.
4. Information relating to the administration or enforcement of a
Time periods during which tax situations may be examined vary from provision of the tax laws which discriminates against a national of
country to country, and the beginning of the tax year does not always the requested party (i.e., Philippines) as compared with a national
coincide with the calendar year. Where there is a significant time lag of the applicant party in the same circumstances; and
between the time the information is supplied and the year to which the 5. Information subject to legal privilege; that is confidential
information relates, a statute of limitations issue may arise. The question communications between attorneys or other admitted legal
of whether use of the information is time barred has to be determined by representatives in their role as such and their clients to the extent
reference to the statute of limitations rules of the country where the that the communications are protected from disclosure under
information is to be used. 5 domestic law.
VI. Limitations to Exchange of Information VII. Procedures

The obligation to exchange information is mandatory and is not limited to A. Responding to a Request for Information
information contained in the tax files held by the Bureau. When a request The international standard for processing requests for information is
is received from a treaty partner, the Bureau will have to take action to ninety (90) days from receipt for a request by the tax authority.
obtain the information requested, if it is not available on its files. It cannot However, this period may be extended where difficulties in obtaining and
rely solely on the information in its possession. However, the Bureau is not providing information are encountered. In order to respond promptly to
bound to go beyond its own internal laws and administrative practice in requests from tax treaty partners, the following procedures are hereby
putting information at the disposal of the requesting state. adopted:
Thus, the Commissioner can order the obtention of information, and even Receipt, Evaluation and Acknowledgment of Requests
summon, examine and take the testimony of a person to acquire the 1. All requests for information from foreign tax authorities received
information requested since these acts are authorized under Section 5 of shall be coursed through and processed by the International Tax
the National Internal Revenue Code (NIRC). In addition, the Affairs Division (ITAD). Should a request for information be
Commissioner can inquire into bank deposit accounts pursuant to Section received by another office, it should immediately be transmitted to
6 (F) of the NIRC, as amended by RA 10021. Moreover, the income tax the Chief, ITAD.
return/s of specific taxpayer/s subject of a request of a treaty partner may 2. Upon receipt, ITAD shall assign a reference number to the
be open to inspection upon the order of the President. request for identification of cases and refer it to the Exchange of
Information (EOI) Section.
There are instances, however, where the obligation to exchange 3. The EOI Section shall evaluate and verify the sufficiency of the
information is lifted and a request for information can be declined, viz.: request. Requests for bank information shall be verified against
the checklist of requirements attached to this RMO as Template
1. Information that the requesting party would not be able to obtain "1".
under similar circumstances under its own laws or administrative 4. ITAD shall prepare the acknowledgment letter to the requesting
practice; tax authority to be signed by the Commissioner or his/her duly
2. Information relating to years not covered by DTAs or taxes not authorized representative within seven (7) days from receipt of
covered; the request. The standard format attached to this RMO as
3. Disclosure of information requested would be contrary to public Templates "2" and "3" may be used for acknowledging receipt of
policy. "Public policy" generally refers to the vital interests of a requests.
48
a. If a request is found to be sufficient, and the information directly to the requesting foreign tax authority (or a representative thereof)
cannot readily be provided by ITAD, the Commissioner on matters pertaining to the latter's request for information without prior
or his/her duly authorized representative will send letters approval of the Commissioner. Issuance of Subpoena Duces Tecum to
to the appropriate information holders (e.g., government Officers of Banks and Financial Institutions
or BIR offices, banks, or financial institutions) requesting
the relevant information. (Refer to Templates "4", "5" and 9. If a bank or financial institution is requested to provide information
"6"). but does not reply to a request for that information within the
b. If a request is considered to be insufficient, the period specified in the request, or provides incomplete
requesting tax authority will be asked in the information, the Commissioner or his/her duly authorized
acknowledgment letter to clarify the request or to furnish representative, upon request of ITAD, shall issue a subpoena
additional documents or information as required to allow duces tecum (SDT) against the said bank or financial institution
a response to be made. pursuant to existing revenue issuances, copy furnished the
c. Where there is ground to refuse or decline a request, the Bangko Sentral ng Pilipinas.
requesting tax authority will be informed in the
acknowledgment letter of the grounds for such refusal. Should the officer, owner, agent, manager, director or officer-in-charge of
such bank or financial institution fail to comply with the subpoena duces
Gathering of Information by BIR Offices tecum (SDT), ITAD shall refer the case to the Prosecution Division for the
filing of appropriate criminal actions against such person (i.e., for violation
5. If a request for taxpayer information is forwarded to another office of Section 6 and Section 266 of the NIRC and RA 10021).
within the Bureau that office should act on the request within sixty
(60) days from the date of the request. The information request Sending of Information to the Requesting Tax Treaty Partner
may already be at the disposal of the requested BIR office or it 10. Upon receipt of information from the appropriate offices, banks, or
may require information gathering measures. financial institutions, ITAD shall prepare a transmittal of the
information to the requesting foreign tax authority to be signed by
6. If access to a taxpayer's records is required to obtain the the Commissioner or his/her duly authorized representative.
information requested by the foreign tax authority, the concerned (Template "9") Documents transmitted shall be stamped with a
Revenue District Officer/Chief of the Division shall issue an note that the information contained therein is solely for the use of
Access to Records/Request for Information (for Exchange of the requesting foreign tax authority pursuant to an existing
Information Purposes — Template "7") to the taxpayer or entity income tax treaty or agreement on tax matters.
concerned and serve the same within seven (7) days from date of
issuance. Revenue officers should, as much as possible, secure 11. If the information requested cannot be obtained or exchanged
records requested within thirty (30) days from date of service to within 90 days, the Commissioner or his/her duly authorized
the taxpayers. representative shall inform the requesting foreign tax authority of
the obstacles encountered in obtaining the information and the
7. Once obtained, the information requested should immediately be reasons for the failure to provide the information. (Refer to
forwarded to the Chief, ITAD (Attention: EOI Section) using the Template "10")
Feedback Sheet attached as Template "8" to this RMO.
Notice to Taxpayer
8. The Feedback Sheet shall also be used if the action/information 12. With respect to request for information held by a bank or a
requested cannot be provided by the Revenue District financial institution and requested by a foreign tax authority, the
Officer/Chief of the Division at the end of the 60-day period. Commissioner or his/her duly authorized representative shall,
within sixty (60) days from receipt of all requested information,
A revenue official or employee shall under no circumstances communicate send a notice to the taxpayer concerned (Template "11") that he/it
49
is or was subject of a request for information by the foreign tax the Bureau confirming receipt of request for information.
authority.
Sending of Request to Tax Treaty Partners
This Bureau shall not be at default of this provision should it fail to inform 5. If the request meets all the requirements, ITAD shall prepare the
the taxpayer by reason that his or its address is not known to or is not request letter to be signed by the Commissioner or his/her duly
supplied to the Bureau, when he or it cannot be located in the address authorized representative addressed to the competent authority
registered/given by him to the Bureau, or that the notice was not sent to of the requested foreign tax authority. (Template "13" with
the current address of the taxpayer but to that only known or supplied to attachments).
the Bureau.
Receipt and Transmittal of Information
B. Making a Request for Information to a Tax Treaty Partner 6. Upon receipt of information from the requested foreign tax
The following shall be observed when making a request for information to authority, ITAD shall prepare and send a letter to the said tax
our tax treaty partners: authority to be signed by the Commissioner or his/her duly
authorized representative to acknowledge the information given.
1. All requests for information by different offices of this Bureau (Template "14")
(e.g., Regional Offices, Revenue District Offices [RDOs], Large
Taxpayers Service, Large Taxpayers District Offices [LTDOs], 7. The Chief, ITAD shall also cause the transmittal of the information
National Investigation Division) shall be coordinated with ITAD. to the requesting BIR office signed by the Commissioner or
his/her duly authorized representative. (Template "15")
A revenue official or employee shall, under no circumstances,
communicate directly to the requested foreign tax authority (or a VIII. Confidentiality
representative thereof) on matters pertaining to this Bureau's request for All taxpayer information obtained pursuant to this Order are confidential
information without prior approval of the Commissioner. and may only be disclosed in accordance with Philippine law (e.g., Section
Form of Request 270 of the NIRC). Confidentiality obligations are also imposed under our
EOI arrangements which generally follow the rules of the OECD Model
2. A request shall be contained in a Memorandum (Template "12") Tax Convention or Model TIEA. Moreover, the provisions cover not only
together with all necessary documents. The request should be information received in response to a request, but also information
drafted in a simple and clear manner. contained in competent authority letters, including the letter requesting
information.
Any additional information that may facilitate the request (e.g., taxpayer's
date of birth, middle or maiden name, foreign address), the type and Generally, the Exchange of Information article in our DTAs provides that
required form of document (e.g., if authentication is required) and timeline any information received shall be treated by the Bureau as secret in the
for the request should be indicated. same manner as information obtained under the domestic laws of the
Philippines and shall be disclosed only to persons or authorities (including
3. The requesting office shall secure the approval of the supervising courts and administrative bodies) concerned with the assessment or
Regional Director or Assistant Commissioner on the collection of, the enforcement or prosecution in respect of, or the
Memorandum. determination of appeals in relation to taxes on income. Such persons or
authorities shall use the information only for such purposes, but they may
4. The request, together with necessary documents, shall be disclose the information in public court proceedings or in judicial decisions.
forwarded to the Assistant Commissioner (Legal Service), who However, some of the Philippines' DTAs, e.g., those with Canada and
will forward the same to Chief, ITAD for evaluation. Singapore, have even more restrictive confidentiality provisions.
Accordingly, any disclosure of taxpayer information received under an EOI
ITAD shall prepare the acknowledgement letters to the concerned office of arrangement, outside of the Bureau, must be in accordance with the terms
50
of the relevant EOI arrangement and shall only be allowed after sign-off by I. Background
the Commissioner or his/her duly authorized representative for this Section 5 of the National Internal Revenue Code of 1997 (NIRC), as
purpose. amended, vests the Commissioner of Internal Revenue with authority to
obtain information, summon and examine, as well as take testimony of
IX. Final Provisions
The gathering of information by this Bureau for a foreign tax authority persons in ascertaining the correctness of any return or in determining the
pursuant to the latter's request does not constitute an actual investigation liability of any person for any internal revenue tax, or in collecting any such
of this Bureau on the subject taxpayer or taxpayers nor authorizes the liability, or simply in evaluating tax compliance.
Bureau to issue corresponding Letters of Authority on the request, unless This Order is issued to further delineate and update the procedure for the
warranted. issuance and enforcement of Subpoenas Duces Tecum (SDTs) to ensure
full implementation of Sections 5, 14, 266 and related provisions of the
However, information supplied by a bank or a financial institution to the
NIRC, as amended.
Bureau may be used by it in its own assessment, verification, audit, and
enforcement of the taxpayer whose account and his or its transactions are
now made known to the Bureau. Likewise, the Bureau shall not be II. Form
precluded from carrying out subsequent investigations on taxpayers BIR Form No. 0713 shall be used in the SDTs to be issued. Every SDT to
whose transactions with foreign taxpayers were subject of examination by be issued shall have a serial number in accordance with paragraph
foreign tax authorities. "III.3.9" hereof. A sample copy of BIR Form No. 0713 is hereto attached
as Annex "A".
X. Repealing Clause
All issuances or portions thereof not consistent with the provisions of this
Order are hereby repealed or amended accordingly. III. Guidelines and Procedures
3.1 This Order shall cover the following persons/entities enumerated
XI. Effectivity under Section 5 of the NIRC, as amended, to wit:
This Order takes effect immediately.
a. Person liable for tax or required to file a return or any officer or
employee of such person, or any person having possession, custody,
or care of the books of accounts and other accounting records
April 17, 2013 containing entries relating to the business of the person liable for tax;
REVENUE MEMORANDUM ORDER NO. 010-13 b. Any person other than the person whose internal revenue tax liability
is subject to audit or investigation, or from any office or officer of the
SUBJECT: Revised Guidelines and Procedures in the Issuance and national and local governments, government agencies and
Enforcement of Subpoenas Duces Tecum and the Prosecution of instrumentalities, including the Bangko Sentral ng Pilipinas and
Cases for Non-Compliance Therewith government-owned or controlled corporations (GOCCs);
3.2 The Head of the Revenue District Office/Large Taxpayers Audit

TO : All Internal Revenue Officers and Others Concerned Division/Large Taxpayers District Office/National Investigation
Division/Special Investigation Division concerned or any other officer duly
delegated by the Commissioner (e.g., Head of the Letter Notice Task
51
Force) shall make a written notice to any of the persons enumerated a. Return the case to its origin for further documentation or action;
above to provide information or the pertinent books of accounts,
accounting records and particular or specific documents. b. Prepare the corresponding SDT in three copies for signature of the
Assistant Commissioner, Enforcement and Advocacy Service; Assistant
The duplicate copy of this written notice, duly acknowledged/received by Commissioner, Large Taxpayers Service; Revenue Regional Director; or
the persons being served or their authorized representatives shall form any other officer duly delegated by the Commissioner, as the case may
part of the docket of the case. be, the distribution of which shall be as follows:
3.3 In case the information or records requested are not furnished within Original — to be served to the taxpayer
the period prescribed in the written notice, or when the information or
records submitted are incomplete, the concerned revenue officer Duplicate — attached to the docket of the case
conducting a verification or investigation (covered by a Memorandum
Order, Mission Order, Letter of Authority, Tax Verification Notice or Letter Triplicate — action lawyer file
Notice) shall request for the issuance of SDT through a Memorandum
Report, stating therein the relevant facts, specifying the particular 3.6 In case the request for issuance of SDT is found to be meritorious, the
documents or records not made available to him and the taxpayer liable or SDT shall be issued to the person liable for tax or required to file a return,
the third party/office concerned. or should the information or records be in the possession of a third party
or office, then in that party's name, requiring the concerned person to
3.4 The issuance of SDT shall be requested from the following: appear and submit before the signatory of the SDT the mandated
a. Assistant Commissioner, Enforcement and Advocacy Service, through information/documents at an appointed time, date and place.
the Prosecution Division — for the National Office; The time to be indicated in the SDT shall be during regular business hours
or from eight o'clock in the morning and five o'clock in the afternoon during
b. Assistant Commissioner, Large Taxpayers Service, through the the work week, excluding holidays. The venue shall be in the BIR office of
Prosecution Division — for taxpayers under the jurisdiction of the Large the signatory of the SDT.
Taxpayers Service, including LTDOs;
a. In case of corporations, partnerships or associations, the SDT shall be
c. Revenue Regional Directors, through the Legal Divisions — for the issued to the partner, president, general manager, branch manager,
Regional Offices; treasurer, registered officer-in-charge, employee/s or other persons
responsible for the custody of the books of accounts and other accounting
d. Any other officer duly delegated by the Commissioner. records mandated to be submitted or information mandated to be
provided.
The records of the case shall be attached to the Memorandum Report.
3.5 The Prosecution Division at the National Office, the Legal Divisions at To ascertain the names of the incumbent of the aforesaid positions, the
the Regional Offices, or any other officer duly delegated by the concerned revenue officers may access, among others, the latest General
Commissioner, as the case may be, shall evaluate the request within two Information Sheet filed by the corporation with the Securities and
(2) working days from receipt, and on the basis thereof, undertake either Exchange Commission.
of the following courses of action:
52
b. If the concerned party is the national and local government, government

agencies and instrumentalities, including the Bangko Sentral ng Pilipinas 3.13 The SDT shall be served through personal service by delivering
and government-owned or controlled corporations (GOCCs), the SDT personally a copy of the SDT to the party at his registered or known
shall be issued to the head of such office, agency, instrumentality, political address or wherever he may be found. A known address shall mean a
subdivision or GOCC. If the head shall comply through a representative, place other than the registered address where business activities of the
the latter shall present the SDT, written authorization letter from the head, party are conducted or his place of residence.
and sufficient proof of identification.
a. In case personal service is not practicable, the SDT shall be served by
3.7 The date of issuance of the SDT shall be the date when it was officially substituted service or by mail.
signed.
b. Substituted service can be resorted to when the party is not present at
3.8 The compliance date for the submission of books of accounts and the registered or known address under the following circumstances:
other accounting records shall be set on the fourteenth (14th) day from
date of issuance of the SDT. i. The SDT may be left at the party's registered address, with his
clerk or with a person having charge thereof.
3.9 The Prosecution Division at the National Office, the Legal Divisions at
the Regional Offices, or any other officer duly delegated by the ii. If the known address is a place where business activities of the
Commissioner, as the case may be, shall provide a corresponding serial party are conducted, the SDT may be left with his clerk or with a
number for each SDT issued, to be placed on the upper right portion of person having charge thereof.
the SDT. The following format shall be used:
(Office Code — Year of Issuance — Series Number, which shall begin iii. If the known address is the place of residence, substituted
from 01 for the first SDT, to be followed by the corresponding digit in service can be made by leaving the copy with a person of legal
numerical order for subsequent SDTs issued.) age residing therein.
The Office Codes prescribed under existing issuances shall be followed. iv. If no person is found in the party's registered or known
3.10 The service of the SDT shall be effected by the revenue officers address, the revenue officers concerned shall bring a barangay
assigned to investigate the case. However, such service may be made by official and two (2) disinterested witnesses to the address so that
any other internal revenue officer authorized for the purpose. they may personally observe and attest to such absence. The
SDT shall then be given to said barangay official. Such facts shall
3.11 The Assistant Commissioner, Enforcement and Advocacy Service; be contained in the bottom portion of the SDT, as well as the
Assistant Commissioner, Large Taxpayers Service; Revenue Regional names, official position and signatures of the witnesses.
Director; or any other office duly delegated by the Commissioner, as the
case may be, shall transmit the signed SDT to the requesting office which v. Should the party be found at his registered or known address
shall effect its service in accordance with the Rules provided hereunder. or any other place but refuse to receive the SDT, the revenue
officers concerned shall bring a barangay official and two (2)
3.12 The duly issued SDT shall be served within three (3) working days disinterested witnesses in the presence of the party so that they
from receipt by the concerned revenue officers. may personally observe and attest to such act of refusal. The
53
SDT shall then be given to said barangay official. Such facts shall 4.2 Upon verification by the concerned revenue officers that the records
be contained in the bottom portion of the SDT, as well as the presented are substantially complete, the documents presented shall be
names, official position and signatures of the witnesses. consolidated with the records of the case and shall be referred back to the
appropriate office for continuation of the investigation. The concerned
vi. "Disinterested witnesses" refers to persons of legal age other revenue officer shall submit a written report to the issuing office that the
than employees of the Bureau of Internal Revenue. documents/records indicated in the SDT have been submitted or that
there was either no submission or that the documents presented were so
c. Service by mail is done by sending a copy of the SDT by registered mail incomplete.
to the registered or known address of the party with instruction to the
Postmaster to return the mail to the sender after ten (10) days, if 4.3 In case there is no submission or incomplete presentation of the
undelivered. A copy of the SDT may also be sent through reputable required books of accounts and other accounting records, the action
professional courier service. If no registry or reputable professional courier lawyer assigned to the case shall request the concerned revenue officers
service is available in the locality of the addressee, service may be done for a conference. This shall be scheduled on the fifth (5th) working day
by ordinary mail. from the date set for compliance with the SDT. The revenue officers shall
work jointly with the action lawyer in documenting/gathering evidence/s for
3.14 The server shall accomplish the bottom portion of the SDT. He shall the criminal prosecution of the individual who disobeyed the SDT.
also make a written report under oath before a Notary Public or any
person authorized to administer oath under Section 14 of the NIRC, as 4.4 Payment of the administrative penalty shall not excuse the
amended, setting forth the manner, place and date of service, the name of taxpayer/person summoned from complying with the SDT.
the person/barangay official/professional courier service company who
received the same and such other relevant information. The registry V. Institution of Criminal Action for Failure to Obey SDT
receipt issued by the post office or the official receipt issued by the 5.1 Within seven (7) working days from conference mentioned in
professional courier company containing sufficiently identifiable details of Paragraph "IV.4.3" above, the action lawyer shall prepare a Letter-
the transaction shall constitute sufficient proof of mailing and shall be Complaint addressed to the Office of the Prosecutor, recommending the
attached to the case docket. criminal prosecution of the individual taxpayer or third party; or the
responsible officer/s or partner/s (in case the taxpayer or third party is a
3.15 The Head of the Office which issued the SDT shall maintain a record corporation, partnership, association, or office); who disobeyed the SDT
of the date of personal service or service by mail, identifying therein in for violation of Section 266 ("Failure to Obey Summons") of the NIRC, as
adequate detail, the mode of service of the summons. amended, together with the Complaint-Affidavit and its supporting
evidentiary documents, properly marked. If the taxpayer concerned is a
IV. Enforcement of the SDT corporation, an association or a general co-partnership, the sanctions
4.1 The concerned revenue officers are required to be present during the mandated under Section 256 ("Penal Liabilities of Corporations") of the
appointed time, date and place set for the presentation of the books of NIRC, as amended, shall likewise be imposed and invoked in the filing of
accounts and other accounting records in order to check if the records a criminal case. The Letter-Complaint, together with the Complaint-
presented are the complete records being required as stated in the SDT. Affidavit and its attachments, shall then be routed to the appropriate
Non-compliance therewith shall subject violators to administrative liability. office/s for review and signature of the concerned revenue official/s.
54
5.2 In the preparation of the Complaint-Affidavit, the revenue officers, as The Order shall cover the following persons/entities enumerated under
the persons who have personal knowledge of the non-compliance with the Section 5 of the National Internal Revenue Code (NIRC), as amended, to wit:
SDT shall be the complainants. a. Person liable for tax or required to file a return or any officer or employee
of such person, or any person having possession, custody, or care of the
5.3 In the preparation of the Letter-Complaint to the Office of the books of accounts and other accounting records containing entries relating to
Prosecutor, the Regional Director for SDTs issued by the Revenue the business of the person liable for tax; and
Regions and the Deputy Commissioner for Legal and Inspection Group for b. Any person other than the person whose internal revenue tax liability is
SDTs issued by the Enforcement and Advocacy Service and the Large subject to audit or investigation, or from any office or officer of the national
Taxpayers Service, shall be the signatories in consonance with Revenue and local governments, government agencies and instrumentalities, including
Delegated Authority Order No. 2-2007. the Bangko Sentral ng Pilipinas and Government-Owned or Controlled
Corporations (GOCCs).
5.4 Upon return of the duly signed Letter-Complaint, together with the
Complaint-Affidavit and its attachments to the originating office, it shall The Head of the Revenue District Office/Large Taxpayers Audit
then be immediately filed with the Office of the Prosecutor that has Division/Large Taxpayers District Office/National Investigation
jurisdiction over the case. Division/Special Investigation Division concerned or any other officer duly
delegated by the Commissioner (e.g., Head of the Letter Notice Task Force)
VI. Non-Withdrawal of Cases shall make a written notice to any of the persons enumerated above to
The person summoned shall be accorded full notice and opportunity to provide information or the pertinent books of accounts, accounting records
comply with the SDT as detailed herein. Once the Complaint-Affidavit has and particular or specific documents.
been filed for violation of Section 266 ("Failure to Obey Summons") of the
NIRC, as amended, no prosecuting officer of the Bureau shall cause the In case the information or records requested are not furnished within the
withdrawal or dismissal of the case, notwithstanding the subsequent period prescribed in the written notice, or when the information or records
submission of documents indicated in the SDT. submitted are incomplete, the concerned Revenue Officer conducting a
verification or investigation (covered by a Memorandum Order, Mission
VII. Repealing Clause Order, Letter of Authority, Tax Verification Notice or Letter Notice) shall
All issuances and/or portions thereof inconsistent with this Order are request for the issuance of SDT from the following through a Memorandum
hereby revoked, modified or amended accordingly. Report, stating therein the relevant facts, specifying the particular documents
or records not made available to him and the taxpayer liable or the third
VIII. Effectivity party/office concerned:
This Order shall take effect immediately. a. Assistant Commissioner, Enforcement and Advocacy Service, through the
Prosecution Division – for the National Office;
SUMMARY from BIR Website: (BUGAY)
REVENUE MEMORANDUM ORDER NO. 10-2013 issued on April 22, b. Assistant Commissioner, Large Taxpayers Service, through the
2013 prescribes the revised guidelines and procedures in the issuance Prosecution Division – for taxpayers under the jurisdiction of the Large
and enforcement of Subpoenas Duces Tecum (SDT) and the Taxpayers Service, including Large Taxpayers District Offices;
prosecution of cases for non-compliance therewith.
55
c. Revenue Regional Directors, through the Legal Divisions – for the In case personal service is not practicable, the SDT shall be served by
Regional Offices; or substituted service or by mail. Substituted service can be resorted to when
the party is not present at the registered or known address under the
d. Any other officer duly delegated by the Commissioner. following circumstances:
a. The SDT may be left at the party’s registered address, with his clerk or
In case the request for issuance of SDT is found to be meritorious, the SDT with a person having charge thereof.
shall be issued to the person liable for tax or required to file a return, or
should the information or records be in the possession of a third party or b. If the known address is a place where business activities of the party are
office, then in that party’s name, requiring the concerned person to appear conducted, the SDT may be left with his clerk or with a person having charge
and submit before the signatory of the SDT the mandated thereof.
information/documents at an appointed time, date and place. c. If the known address is the place of residence, substituted service can be
In case of corporations, partnerships or associations, the SDT shall be made by leaving the copy with a person of legal age residing therein.
issued to the partner, president, general manager, branch manager,
treasurer, registered officer-in-charge, employee/s or other persons d. If no person is found in the party’s registered or known address, the
responsible for the custody of the books of accounts and other accounting revenue officers concerned shall bring a barangay official and two (2)
records mandated to be submitted or information mandated to be provided. disinterested witnesses to the address so that they may personally observe
and attest to such absence. The SDT shall then be given to said barangay
To ascertain the names of the incumbent of the aforesaid positions, the official. Such facts shall be contained in the bottom portion of the SDT, as
concerned Revenue Officers may access, among others, the latest General well as the names, official position and signatures of the witnesses.
Information Sheet filed by the corporation with the Securities and Exchange
Commission. e. Should the party be found at his registered or known address or any other
place but refuse to receive the SDT, the Revenue Officers concerned shall
If the concerned party is the national and local government, government bring a barangay official and two (2) disinterested witnesses in the presence
agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and of the party so that they may personally observe and attest to such act of
GOCCs, the SDT shall be issued to the head of such office, agency, refusal. The SDT shall then be given to said barangay official. Such facts
instrumentality, political subdivision or GOCC. If the head shall comply shall be contained in the bottom portion of the SDT, as well as the names,
through a representative, the latter shall present the SDT, written official position and signatures of the witnesses.
authorization letter from the head, and sufficient proof of identification.
Service by mail is done by sending a copy of the SDT by registered mail to
The compliance date for the submission of books of accounts and other the registered or known address of the party with instruction to the
accounting records shall be set on the 14th day from date of issuance of the Postmaster to return the mail to the sender after ten (10) days, if undelivered.
SDT, which shall be the date when it was officially signed. A copy of the SDT may also be sent through reputable professional courier
service. If no registry or reputable professional courier service is available in
The SDT shall be served by the concerned Revenue Officers within three (3) the locality of the addressee, service may be done by ordinary mail.
days from receipt thereof by delivering personally a copy of the SDT to the
party at his registered or known address or wherever he may be found. The server shall accomplish the bottom portion of the SDT. He shall also
make a written report under oath before a Notary Public or any person
56
authorized to administer oath under Section 14 of the NIRC, as amended, amended, together with the Complaint-Affidavit and its supporting evidentiary
setting forth the manner, place and date of service, the name of the documents, properly marked. If the taxpayer concerned is a corporation, an
person/barangay official/professional courier service company who received association or a general co-partnership, the sanctions mandated under
the same and such other relevant information. The registry receipt issued by Section 256 (“Penal Liabilities of Corporations”) of the NIRC, as amended,
the post office or the official receipt issued by the professional courier shall likewise be imposed and invoked in the filing of a criminal case.
company containing sufficiently identifiable details of the transaction shall
constitute sufficient proof of mailing and shall be attached to the The Letter-Complaint, together with the Complaint-Affidavit and its
case docket. attachments, shall then be routed to the appropriate office/s for review and
signature of the concerned revenue official/s.
The concerned Revenue Officers are required to be present during the
appointed time, date and place set for the presentation of the books of Once the Complaint-Affidavit has been filed for violation of Section 266
accounts and other accounting records in order to check if the records (“Failure to Obey Summons”) of the NIRC, as amended, no prosecuting
presented are the complete records being required as stated in the SDT. officer of the BIR shall cause the withdrawal or dismissal of the case,
Non-compliance therewith shall subject violators to administrative liability. notwithstanding the subsequent submission of documents indicated in the
SDT.
Upon verification by the concerned Revenue Officers that the records
presented are substantially complete, the documents presented shall be In the preparation of the Complaint-Affidavit, the Revenue Officers, as the
consolidated with the records of the case and shall be referred back to the persons who have personal knowledge of the non-compliance with the SDT
appropriate office for continuation of the investigation. The concerned shall be the complainants. In the preparation of the Letter-Complaint to the
Revenue Officer shall submit a written report to the issuing office that the Office of the Prosecutor, the Regional Director for SDTs issued by the
documents/records indicated in the SDT have been submitted or that there Revenue Regions and the Deputy Commissioner for Legal and Inspection
was either no submission or that the documents presented were so Group for SDTs issued by the Enforcement and Advocacy Service and the
incomplete. Large Taxpayers Service, shall be the signatories. Upon return of the duly
signed Letter-Complaint, together with the Complaint- Affidavit and its
In case there is no submission or incomplete presentation of the required attachments to the originating office, it shall then be immediately filed with
books of accounts and other accounting records, the action lawyer assigned the Office of the Prosecutor that has jurisdiction over the case.
to the case shall request the concerned Revenue Officers for a conference
on the 5th working day from the date set for compliance with the SDT. The
Revenue Officers shall work jointly with the action lawyer in
documenting/gathering evidence/s for the criminal prosecution of the
individual who disobeyed the SDT.
Within seven (7) working days from the said conference, the action lawyer
shall prepare a Letter-Complaint addressed to the Office of the Prosecutor,
recommending the criminal prosecution of the individual taxpayer or third
party; or the responsible officer/s or partner/s, who disobeyed the SDT for
violation of Section 266 (“Failure to Obey Summons”) of the NIRC, as
57
3. POWER / REMEDY OF ASSESEMENT for such exemption.
SEC. 56. Payment and Assessment of Income Tax for Individuals and In case the taxpayer elects and is qualified to report the gain by
Corporations. - installments under Section 49 of this Code, the tax due from each
installment payment shall be paid within (30) days from the receipt of
(A) Payment of Tax. - such payments.
(1) In General. - The total amount of tax imposed by this Title shall be No registration of any document transferring real property shall be
paid by the person subject thereto at the time the return is filed. In the effected by the Register of Deeds unless the Commissioner or his duly
case of tramp vessels, the shipping agents and/or the husbanding authorized representative has certified that such transfer has been
agents, and in their absence, the captains thereof are required to file reported, and the tax herein imposed, if any, has been paid.
the return herein provided and pay the tax due thereon before their
departure. Upon failure of the said agents or captains to file the return (B) Assessment and Payment of Deficiency Tax. - After the return is
and pay the tax, the Bureau of Customs is hereby authorized to hold filed, the Commissioner shall examine it and assess the correct amount of
the vessel and prevent its departure until proof of payment of the tax is the tax. The tax or deficiency income tax so discovered shall be paid upon
presented or a sufficient bond is filed to answer for the tax due. notice and demand from the Commissioner.
(2) Installment of Payment. - When the tax due is in excess of Two As used in this Chapter, in respect of a tax imposed by this Title, the term
thousand pesos (P2,000), the taxpayer other than a corporation may 'deficiency' means:
elect to pay the tax in two (2) equal installments in which case, the first
installment shall be paid at the time the return is filed and the second (1) The amount by which the tax imposed by this Title exceeds the amount
installment, on or before July 15 following the close of the calendar shown as the tax by the taxpayer upon his return; but the amount so
year. If any installment is not paid on or before the date fixed for its shown on the return shall be increased by the amounts previously
payment, the whole amount of the tax unpaid becomes due and assessed (or collected without assessment) as a deficiency, and
payable, together with the delinquency penalties. decreased by the amount previously abated, credited, returned or
otherwise repaid in respect of such tax; or
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and
prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and (2) If no amount is shown as the tax by the taxpayer upon this return, or if
28(B)(5)(c) shall be paid on the date the return prescribed therefor is no return is made by the taxpayer, then the amount by which the tax
filed by the person liable thereto: Provided, That if the seller submits exceeds the amounts previously assessed (or collected without
proof of his intention to avail himself of the benefit of exemption of assessment) as a deficiency; but such amounts previously assessed or
capital gains under existing special laws, no such payments shall be collected without assessment shall first be decreased by the amounts
required: Provided, further, That in case of failure to qualify for previously abated, credited returned or otherwise repaid in respect of
exemption under such special laws and implementing rules and such tax.
regulations, the tax due on the gains realized from the original
transaction shall immediately become due and payable, subject to the
penalties prescribed under applicable provisions of this Code:
SEC. 71. Disposition of Income Tax Returns, Publication of Lists of
Provided, finally, That if the seller, having paid the tax, submits such
Taxpayers and Filers. - After the assessment shall have been made, as
proof of intent within six (6) months from the registration of the provided in this Title, the returns, together with any corrections thereof
document transferring the real property, he shall be entitled to a refund which may have been made by the Commissioner, shall be filed in the
of such tax upon verification of his compliance with the requirements Office of the Commissioner and shall constitute public records and be
open to inspection as such upon the order of the President of the
Philippines, under rules and regulations to be prescribed by the Secretary

of Finance, upon recommendation of the Commissioner. Held: YES. The CIR has the power to make assessments. In the case
at hand, the “best evidence obtainable” rule applied which
The Commissioner may, in each year, cause to be prepared and provides that the CIR can make assessments based on
published in any newspaper the lists containing the names and addresses
information it can obtain through testimony or otherwise, and
of persons who have filed income tax returns.
such assessments shall be deemed prima facie correct unless
Income tax returns of specific taxpayers subject of a request for exchange sufficiently proven otherwise. Petitioner failed to prove otherwise,
of information by a foreign tax authority pursuant to an international so the Court upheld the validity of the assessments based on the
convention or agreement on tax matters to which the Philippines is a seized alcohol products and testimonies of two former employees
signatory or a party of, shall be open to inspection upon the order of the of Silver Cup.
President of the Philippines, under rules and regulations as may be
prescribed by the Secretary of Finance, upon recommendation of the
Facts:
Commissioner.
 Petitioner Bonifacia Sy Po is the widow of the late Mr. Po Bien Sing who
died on September 7, 1980.
 It was found that in the taxable years 1964 to 1972, Mr. Po Bien Sing was
BONIFACIA SY PO v. CTA (Caraan)
the sole proprietor of Silver Cup Wine Factory (“Silver Cup”) located in
[GR. No. L-81446; August 18, 1988]
Talisay, Cebu.
“Best evidence obtainable rule = CIR can make tax assessments based on
 On the basis of a denunciation against Silver Cup allegedly “for tax
information obtained through testimony or otherwise when the taxpayer fails
evasion amounting to millions of pesos”, the then Secretary of Finance
to file a return / files a fraudulent return”
issued a memorandum to conduct an investigation on Silver Cup.
 Silver Cup thereafter received a letter and a subpoena duces tecum
Recit-Ready:
requesting production of the accounting records and other related
Facts: Petitioner is the widow of the late Mr. Po Bien Sing, who was then
documents for the examination of the investigation team; but Mr. Po Bien
the sole proprietor of Silver Cup Wine Factory (“Silver Cup”). Due
Sing did not produce such documents.
to a denunciation that Silver Cup had allegedly tax evaded
amounting to millions of pesos, the Secretary of Finance ordered  When Mr. Po Bien Sing did not produce the books of accounts, the
investigation team had no choice but to enter the factory bodega of Silver
for an investigation to be conducted. The investigation team
Cup. They seized different brands, consisting of 1,555 cases of alcohol
issued a letter and a subpoena duces tecum on Silver Cup to
products.
produce it books of accounts, but Mr. Po Bien Sing did not do so.
When Mr. Po Bien Sing did not produce the necessary books, the  On the basis of the team’s report, respondent CIR assessed Mr. Po Bien
investigation team had no choice but to enter Silver Cup’s factory Sing deficiency income tax for 1966 to 1970 in the amount of
and seize the alcohol there. The CIR then assessed Silver Cup P7,154,685.16 and for deficiency specific tax for January 2, 1964 to
for deficiency income and specific taxes on the basis of what was January 19, 1972 in the amount of P5,595,003.68.
seized from the factory. Petitioner argued that the assessments  Petitioner protested the deficiency assessments through letters, which
were wrong. protests were referred for reinvestigation. The corresponding report
recommended for the reiteration of assessments in view of the taxpayer’s
Issue/s: failure to present the books of accounts for examination, which compelled
WON the assessments have valid and legal bases respondent to issue warrants of distraint and levy.
 Petitioner now assails that the assessments conducted were wrong.
 The existence of fraud as found by the respondents cannot

Issue/s: be lightly set aside absent substantial evidence presented by
WON the assessments have valid and legal bases the petitioner to counteract such finding.
—YES
CIR v. BENIPAYO (Coloquio)
Held/Ratio: WHEREFORE, the Petition is DENIED. [GR. No. L-13656; January 31, 1962]
“Si CIR nag-assume na naman”
YES. The Court upheld the CIR’s power to make assessments.
o The Tax Code provides that the CIR has the power to make Recit-Ready:
assessments, which, stated in part: “xxx In case a person fails to file a Facts: Benipayo, the owner of Lucena Theater was demanded to pay
required return or other document at the time prescribed by law, or deficient amusement taxes for years 1952 to 1953. The
willfully or otherwise, files a false or fraudulent return or other investigators of the CIR found that during the earlier years of the
documents, the Commissioner shall make or amend the return from theater, the average ratio for Benipayo’s customers, adults to
his own knowledge and from such information as he can obtain children, is 3:1. In 1952-1953, the ratio reversed. He was accused
through testimony or otherwise, which shall be prima facie correct and of defrauding the government by issuing two 20-centavo-children
sufficient for all legal purposes.” tickets to every adult that comes in, instead of the regular 40-
o The rule on the “best evidence obtainable” applies when a tax centavo ticket for adults, to avoid the payment of amusement
report required by law for the purpose of assessment is not available taxes.
or when the tax report is incomplete or fraudulent.
o In the instant case, the persistent failure of the late Po Bien Sing and Issue/s: WON there is sufficient evidence to show that Benipayo cheated
the herein petitioner to present their books of accounts for and defrauded the government to avoid the payment of taxes.
examination left the CIR no other legal option except to resort to the
power conferred upon him under the Tax Code. Held: In ruling for Benipayo, the Court stated that just because the ratio
o The Court further ruled that the tax figures arrived at by the CIR are by of adults to children in the earlier years was 3:1, it cannot be
no means arbitrary as the tax assessed were based on the quantity of presumed that such ratio would be maintained up to the years
bottles of wines seized during the raid and the sworn statements of 1952 to 1953. An assessment fixes the tax liability of a taxpayer,
former employees, Messrs. Nelson S. Po and Alfonso Po. thus it cannot be based on mere presumptions. Fraud as a
o Further, tax assessments by tax examiners are presumed correct and serious charge must be proven by clear and convincing evidence,
made in good faith. The taxpayer has the duty to prove otherwise. which the CIR failed to present in this case.
 In the absence of proof of any irregularities in the
performance of duties, an assessment duly made by a BIR
Facts:
examiner and approved by his superior officers will not be
 Respondent Alberto D. Benipayo is the owner and operator of Lucena
disturbed. All presumptions are in favor of the correctness of
Theater, in Quezon.
tax assessments.
 On October 3, 1953, an internal revenue agent (de Guia) investigated
 In the case at hand, petitioner failed to prove that there were
Benipayo’s amusement tax liability in connection with the operation of the
any irregularities with the assessments.
theater from August 1952 to September 1953.
o It was found by the investigator that from 1949 to 1951, the where adults and children came in groups and were all charged 20-
average ratio of adults and children entering the theater centavo tickets. This was however discontinued after being informed
was 3:1. From 1952-1953, this proportion was reversed. by the BIR that it was not in accordance with law.
o The investigator concluded that Benipayo must have sold  Assuming that the ratio of adults and children from 1949-1951 was
two tax-free 20-centavo tickets to an adult (supposedly 3:1, it does not give rise to the inference that the same ratio should
tickets priced for a child) to avoid the payment of have existed in 1952-1953.
amusement tax.  The presumption of the correctness of assessment cannot be made
 A deficiency amusement tax assessment was issued against Benipayo to rest on another presumption.
for P12,093.45 inclusive of the surcharge and penalty.  The conclusion that Benipayo cheated and defrauded the
 Benipayo protested the assessment stating that it was based only on the government is a serious charge, and must be supported by clear
meager reports of the investigators, which are mere presumptions and and convincing proof which the CIR failed to present.
conclusions, devoid of findings of fact of the allege fraudulent practices.
 It was reinvestigated by a Provincial Revenue Officer, who concluded that
Benipayo indeed manipulated the issuance of tickets, due to the soaring
of the sale of children’s tickets when the film being shown is not even a
children’s show.
o The officer noted though that the findings are not a direct
proof of what transpired during the period investigated.
 The CTA ruled in favor of Benipayo, thus this petition brought by the
CIR.
Issue/s:
WON there is sufficient evidence to show that Benipayo, during the
period under review, sold to his adult customers two tax-free 20
centavo children’s tickets instead of one 40-centavo ticket for each
adult customer, to cheat or defraud the government.
—NO
Held/Ratio: The appealed judgment is hereby affirmed, with costs.
NO. A charge of fraud must be supported by clear and convincing

evidence.
 The Court quoted the CTA, and stated that an assessment fixes and
determines the tax liability of a taxpayer. It cannot be based on mere
presumptions, no matter how reasonable or logical they may be.
 CIR argued that Benipayo already admitted having committed the
anomalous practice, but this was rejected by the Court stating that
what Benipayo admitted was a rebate system he implemented
MERALCO v. SAVELLANO (Cualoping) (corporate income) tax under this Chapter . . . .only twenty-five per
[GR. No. L-36181, October 23, 1982] centum thereof shall be returnable for the purposes of the tax
“Cannot mandamus CIR; tax assessment is discretionary, not ministerial” imposed under this section."
 In a letter dated April 5, 1968, the Commissioner informed Maniago
Recit-Ready: of his findings and denied Maniago's claim for informer's reward on
a non-existent deficiency.
Facts: Maniago Submitted to the CIR a confidential denunciation of
 On August 28, 1970, Maniago filed a petition for mandamus, and
Meralco Securites Corporation for tax evasion, which paid tax on
subsequently an amended petition for mandamus, in the Court of
only 25% of the dividends it had received from Manila Electric Co. First Instance of Manila to compel the Commissioner to impose the
for the years 1962 to 1966. (this was done so he could collect on alleged deficiency tax assessment award the corresponding
an informers award). The CIR investigated the matter, but found informer's reward under the provisions of R.A. 2338.
no deficiency. Maniago then filed a mandamus to compel the CIR  CIR arguments:
to impose the deficiency tax assessment and the corresponding o he is clothed under the NIRC and existing rules and
informers award. regulations with discretionary power in evaluating the facts
of a case and since mandamus win not lie to compel the
performance of a discretionary power, he cannot be
Issue/s: compelled to impose the alleged assessment
WON the CIR can be compelled via mandamus to impose an o mandamus may not lie against him for that would be
assessment? NO. tantamount to a usurpation of executive powers, since the
Office of the Commissioner of Internal Revenue is
Held: undeniably under the control of the executive department.
Mandamus can only be used to compel an official to perform a ministerial  On January 10, 1973, the respondent judge rendered a decision
granting the writ prayed for and ordering the CIR to assess and
duty. In this case, the CIR exercised discretionary power and did not act
collect from the Meralco Securities Corporation the sum of
arbitrarily or with grave abuse. His decision and ruling was based on a P51,840,612.00 as deficiency corporate income tax for the period
thorough investigation and was a valid exercise of discretion in the 1962 to 1969 plus interests and surcharges due thereon and to pay
performance of official duty. It cannot be controlled much less reversed by 25% thereof to Maniago as informer's reward.
mandamus.
Issue/s:
Facts: WON the CIR can be compelled via mandamus to impose an
 The late Juan G. Maniago (substituted in these proceedings by his wife assessment? NO
and children) submitted to the CIR a confidential denunciation against the
Meralco Securities Corporation for tax evasion. Held/Ratio: Petition GRANTED.
o Paid income tax only on 25 % of the dividends it received
from the Manila Electric Co. for the years 1962-1966, NO.
o It is a well-recognized rule that mandamus only lies to enforce the
thereby allegedly shortchanging the government of income
tax due from 75% of the said dividends. performance of a ministerial act or duty and not to control the
 CIR caused the investigation of the denunciation after which he performance of a discretionary power. Purely administrative and
found and held that no deficiency corporate income tax was due discretionary functions may not be interfered with by the courts.
o Since the office of the CIR is charged with the administration of revenue
since under the law then prevailing "in the case of dividends
received by a domestic or foreign resident corporation liable to laws, which is the primary responsibility of the executive branch of the
government, mandamus may not he against the Commissioner to REPUBLIC v. HIZON (De Luis)
compel him to impose a tax assessment not found by him to be due or [GR. No. 130430; December 13, 1999]
proper for that would be tantamount to a usurpation of executive “power to approve the filing of tax collection cases is delegable”
functions.
o "Discretion," when applied to public functionaries, means a power or Recit-Ready:
right conferred upon them by law of acting officially, under certain Facts: On July 18, 1986, the BIR issued a deficiency income tax
circumstances, uncontrolled by the judgment or consciences of others. assessment to Salud Hizon, which the latter did not contest. On
o A purely ministerial act or duty in contradiction to a discretional act is one Jan. 12, 1989, the BIR served warrants of distraint and levy to
which an officer or tribunal performs in a given state of facts, in a collect the tax deficiency. However, the BIR did not proceed to
prescribed manner, in obedience to the mandate of a legal authority, disposes of the attached properties. More than three years later,
without regard to or the exercise of his own judgment upon the propriety Hizon requested for reconsideration of her tax deficiency
or impropriety of the act done. assessment but it was denied. On Jan. 1, 1997, the BIR filed a
o If the law imposes a duty upon a public officer and gives him the right to tax collection case with the RTC. The complaint was only signed
decide how or when the duty shall be performed, such duty is by the Chief of the Legal Division and verified by the Regional
discretionary and not ministerial. The duty is ministerial only when the Director. The same was not signed by the CIR. Hizon moved to
discharge of the same requires neither the exercise of official discretion dismiss the case on the ground that it was not filed upon the
or judgment." authority of the Commissioner and that the action is already
o Thus, after the Commissioner who is specifically charged by law with the barred by prescription.
task of enforcing and implementing the tax laws and the collection of
taxes had after a mature and thorough study rendered his decision or Issue/s:
ruling that no tax is due or collectible, and his decision is sustained by 1) WON the institution of the civil case for collection of taxes was in
the Secretary, now Minister of Finance (whose act is that of the violation of Section 221 of the Tax Code for “lacking” the approval of
President unless reprobated), such decision or ruling is a valid exercise the Commissioner
of discretion in the performance of official duty and cannot be controlled —NO
much less reversed by mandamus. 2) WON the action for collection of taxes had already prescribed
—YES, but without prejudice to the disposition of the properties
covered by the warrants of distraint and levy which the BIR served on
Hizon, as such would be a mere continuation of the summary remedy it
had timely begun.
Held:
1) NO. The Court ruled that the power to approve the filing of tax
collection cases is a delegable power of the Commissioner, as
provided in Section 221 of the NIRC, Revenue Administrative Order 5-
83, and Revenue Administrative Order 10-95. As the complaint filed
was signed by the BIR’s Chief of Legal Division for Region 4 and
verified by the Regional Director, there was compliance with the law.
2) YES but without prejudice to the disposition of the properties covered
by the warrants of distraint and levy which the BIR served on Hizon, as 1) WON the institution of the civil case for collection of taxes was in
such would be a mere continuation of the summary remedy it had violation of Section 221 of the Tax Code for “lacking” the approval
timely begun. The Court ruled that the action is barred by the three- of the Commissioner
year prescriptive period provided by law, as the assessment was —NO
made in 1986 and the and the case was filed only in 1997. The 2) WON the action for collection of taxes had already prescribed
prescriptive period was not suspended by the Hizon’s request for —YES, but without prejudice to the disposition of the properties covered
reconsideration in 1992, as the law provides that a request for by the warrants of distraint and levy which the BIR served on Hizon, as
reconsideration may only be made within 30 days from the taxpayer’s such would be a mere continuation of the summary remedy it had timely
receipt of the tax deficiency assessment. The warrants of t distraint begun.
and levy did not suspend the running of the prescriptive period to file a
collection case. It only suspended the period to collect the tax Held/Ratio: Petition DENIED. The Court ruled for respondent Salud when it
deficiency through other means, in a sense that the disposition of the held that the action for collection already prescribed. Nonetheless, the Court
attached properties may take some time to accomplish. also ruled that the CIR can delegate the power to approve the filing of tax
collection cases.
Facts:
 On July 18, 1986, the BIR issued a deficiency income tax assessment of 1) NO. The Court ruled that the power to approve the filing of tax
P1,113,359.68 for years 1981-1982 to respondent Salud V. Hizon. Hizon collection cases is a delegable power of the Commissioner, as
did not contest the assessment, hence on January 12, 1989, the BIR provided in Section 221 of the NIRC, Revenue Administrative Order
served warrants of distraint and levy to collect the tax deficiency. 5-83, and Revenue Administrative Order 10-95. As the complaint
However, for reasons not known, it did not proceed to dispose of the filed was signed by the BIR’s Chief of Legal Division for Region 4
attached properties. and verified by the Regional Director, there was compliance with the
 More than three years later (Nov. 3, 1992), Hizon wrote the BIR law.
requesting a reconsideration of her tax deficiency assessment. The BIR o Section 221 of the NIRC provides:
denied the request and on Jan. 1, 1997, the BIR filed a case with the Form and mode of proceeding in actions arising under this Code.
RTC of San Fernando Pampanga to collect the tax deficiency. The —Civil and criminal actions and proceedings instituted in behalf of
complaint was signed by Norberto Salud, the Chief of the Legal the Government under the authority of this Code or other law
Division, BIR Region 4, and verified by Amancio Saga, the BIR enforced by the Bureau of Internal Revenue shall be brought in
Regional Director in Pampanga. The complaint was not signed by the name of the Government of the Philippines and shall be
Commissioner Liwayway Chato. conducted by the provincial or city fiscal, or the Solicitor General,
 Hizon moved to dismiss the case on two grounds: or by the legal officers of the Bureau of Internal Revenue
o That the complaint was not filed upon the authority of the BIR deputized by the Secretary of Justice, but no civil and criminal
Commissioner as required by Section 221 of the NIRC actions for the recovery of taxes or the enforcement of any fine,
o That the action had already prescribed pursuant to Section penalty or forfeiture under this Code shall be begun without the
223(c) of the NIRC approval of the Commissioner.
 The trial court granted the motion and dismissed the complaint. o To implement Section 221 of the NIRC, the BIR issued Revenue
Administrative Order No. 5-83, which provides that complaints for
Issue/s: collection are to be handled by Special Attorneys and Special
Counsels assigned in the Legal Branches of the Revenue
Regions. It also provided that the cases mentioned in the None of the exceptions relates to the Commissioner’s power
Revenue Admin. Order, the Regional Director is authorized to to approve the filing of tax collection cases.
sign all pleadings filed in connection therewith which, otherwise,
requires the signature of the Commissioner.
o Revenue Administrative Order No. 10-95 specifically authorizes the However, the lower court refused to recognize RAO No. 10-95 and RAO No.
Litigation and Prosecution Section of the Legal Division of 5-83 because they were mere orders emanating from bureaus, and as such
regional district offices to institute the necessary civil and criminal they are mere guidelines for the internal functioning of the office. They are
actions for tax collection. not law, which the courts can take judicial notice of. They have no binding
o As amended by R.A. No. 8424, the NIRC is now even more effect upon the courts. The Supreme Court ruled that this is erroneous. The
categorical. Section 7 of the present Code authorizes tha BIR rule is that as long as administrative issuances relate solely to carrying into
Commissioner to delegate the powers vested in him under the effect the provisions of the law, they are valid and have the force of law.
pertinent provisions of the Code to any subordinate official with
the rank equivalent to a division chief or higher, except the 2) YES but without prejudice to the disposition of the properties
following: covered by the warrants of distraint and levy which the BIR served
on Hizon, as such would be a mere continuation of the summary
(a) The power to recommend the promulgation of rules and remedy it had timely begun. The Court ruled that the action is barred
regulations by the Secretary of Finance; by the three-year prescriptive period provided by law, as the
assessment was made in 1986 and the and the case was filed only in
(b) The power to issue rulings of first impression or to reverse, 1997. The prescriptive period was not suspended by the Hizon’s
revoke or modify any existing ruling of the Bureau; request for reconsideration in 1992, as the law provides that a
request for reconsideration may only be made within 30 days from
(c) The power to compromise or abate under §204(A) and (B) of the taxpayer’s receipt of the tax deficiency assessment. The
this Code, any tax deficiency: Provided, however, that warrants of t distraint and levy did not suspend the running of the
assessments issued by the Regional Offices involving basic prescriptive period to file a collection case. It only suspended the
deficiency taxes of five hundred thousand pesos (P500,000.00) or
period to collect the tax deficiency through other means, in a sense
less, and minor criminal violations as may be determined by rules
and regulations to be promulgated by the Secretary of Finance, that the disposition of the attached properties may take some time
upon the recommendation of the Commissioner, discovered by to accomplish.
regional and district officials, may be compromised by a regional o Section 223 of the NIRC provides:
evaluation board which shall be composed of the Regional Any internal revenue tax which has been assessed within the period
Director as Chairman, the Assistant Regional Director, heads of of limitation above prescribed may be collected by distraint or levy or
the Legal, Assessment and Collection Divisions and the Revenue by a proceeding in court within three years following the assessment
District Officer having jurisdiction over the taxpayer, as members;
of the tax.
and
The running of the three-year prescriptive period is suspended—for

(d) The power to assign or reassign internal revenue officers to
establishments where articles subject to excise tax are produced the period during which the Commissioner is prohibited from making
or kept. the assessment or beginning distraint or levy or a proceeding in court
and for sixty days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the return BIR served on Hizon, as such would be a mere continuation of the
filed upon which the tax is being assessed or collected; provided, that, summary remedy it had timely begun.
if the taxpayer informs the Commissioner of any change in address, o Although considerable time has passed since then, as held in
the running of the statute of limitations will not be suspended; when Advertising Associates, Inc. v. Court of Appeals and Palanca v.
the warrant of distraint or levy is duly served upon the taxpayer, his Commissioner of Internal Revenue, the enforcement of tax collection
authorized representative or a member of his household with sufficient through summary proceedings may be carried out beyond the
discretion, and no property could be located; and when the taxpayer is statutory period considering that such remedy was seasonably availed
out of the Philippines. of.
o The BIR argues that, in accordance with Section 223, Hizon’s request
for reinvestigation on Nov. 3, 1992 effectively suspended the running
of the period of prescription such that the government could still filed a
case for tax collection. This has no merit as Section 229 of the Code
mandates that a request for reconsideration must be made within 30
days from the taxpayer’s receipt of the tax deficiency assessment,
otherwise the assessment becomes final, unappealable and
demandable.
o The notice of assessment for Hizon’s tax deficiency was issued on
July 18, 1986. Hizon made her request for reconsideration only on
Nov. 3, 1992, without stating when she received the notice of tax
assessment. Hence, her request for reconsideration did not
suspend the running of the prescriptive period provided under
Section 223(c).
o The BIR also contends that the running of the prescriptive period
under §223(c) was suspended when the BIR timely served the
warrants of distraint and levy on respondent on January 12, 1989.
Because of the suspension, it is argued that the BIR could still avail of
the other remedy under §223(c) of filing a case in court for collection
of the tax deficiency, as the BIR in fact did on January 1, 1997. This is
grounded on various cases decided by the Supreme Court.
o However, the timely service of a warrant of distraint or levy suspends
the running of the period to collect the tax deficiency in the sense that
the disposition of the attached properties might well take time to
accomplish, extending even after the lapse of the statutory period for
collection. In those cases, the BIR did not file any collection case but
merely relied on the summary remedy of distraint and levy to collect
the tax deficiency.
o The Court’s ruling, however, is without prejudice to the disposition of
the properties covered by the warrants of distraint and levy which the
CIR v. GONZALES (Diploma) the preliminary investigation after the BIR has referred the matter
[G.R. No. 177279; October 13, 2010] for prosecution under Sections 254 and 255 of the NIRC.
“May remedy ka naman, ‘di mo lang ginamit - An assessment may be
protested by filing a request for reconsideration or reinvestigation within 30 Facts:
days from receipt of the assessment by the taxpayer”
 Pursuant to Letter of Authority (LA) No. 9361 dated August 25, 2000
Recit-Ready: issued by CIR, Revenue Officers conducted a fraud investigation for all
 Facts: LMCEC was found to have underdeclared income for internal revenue taxes to determine the tax liabilities of LM Camus
1997-1999, as provided by an information through an “informant.” The Engineering Corp. (LMCEC) for the taxable years 1997, 1998, 1999.
CIR’s assessment was referred to the Justice Secretary which had  An “”informer provided information that LMCEC had substantial
become final and executor since LMCEC failed to fail a protest within underdeclared income for the said period.
the 30-day reglementary period. LMCEC argues that it had already  LMCEC failed to comply with the subpoena duces tecum issued so a
undergone routine examinations on 1997, 1998 and 1999; under the criminal complaint was instituted by the BIR against them
NIRC only one examination is allowed per year.  Based on data obtained from the informer and various clients of LMCEC,
it was discovered that LMCEC filed fraudulent tax returns with
substantial underdeclarations. CIR then assessed them for total
deficiency taxes of P430,958,005.90
Issue: WON the assessment by the CIR was final and executory for
o Income tax – P318M, VAT – P112M
failure to file a petition for review with the CTA within the statutory  LMCEC alleged underdeclared income amounted to: 1997 – P186.7M,
period 1998 - P150M, 1999 – P163M
 CIR referred to the Justice Secretary its complaint against LMCEC,
Camus as President, Mendoza as Comptroller, for failure to pay
Held: YES. A taxpayer’s failure to file a petition for review with the CTA deficiency income taxes amounting to P630M (inclusive of increments)
within the statutory period rendered the disputed assessment which had become final and executory since LMCEC failed to fail a
protest within the 30-day reglementary period.
final, executory and demandable, thereby precluding it from
 Camus and Mendoza’s Arguments:
interposing the defenses of legality or validity of the assessment o Since it is a simple civil action for collection and not a tax
and prescription of the Government’s right to assess. evasion case, the DOJ is not the proper forum.
 The PAN were invalid because they bear no serial numbers and no
Private respondents did not file a motion for reconsideration of the showing that they were executed and sworn to by the ROs who served
said assessment notice and formal demand; neither did they them.
appeal to the Court of Tax Appeals. Section 228 of the NIRC61  LMCEC had already undergone routine examinations on 1997, 1998 and
provides the remedy to dispute a tax assessment within a certain 1999; under the NIRC only one examination is allowed per year.
period of time. It states that an assessment may be protested by  LMCEC availed of the BIR’s Tax Amnesty Programs; Economic
Assistance Recovery Program (ERAP) and Voluntary Assistance
filing a request for reconsideration or reinvestigation within 30 Program (VAP) for the year’s 1998 and 1999.
days from receipt of the assessment by the taxpayer. No such o For 1997, they claimed that all their liability was already
administrative protest was filed by private respondents seeking terminated via letter of termination issued by CIR and signed by
reconsideration of the August 7, 2002 assessment notice and Chief of the Assessment Division. Hence, CIR should be
formal letter of demand. Private respondents cannot belatedly estopped from further taking any action.
assail the said assessment, which they allowed to lapse into  In relation to the payments made in ERAP and VAP, LMCEC posits that
finality, by raising issues as to its validity and correctness during the element of fraud is negated by BIRs acceptance of the payments.
 The ROs act of finding justification in Section 6 (B) (Best Evidence assessment final, executory and demandable, thereby precluding it
Obtainable) is misplaced and unavailing because they were unable to from interposing the defenses of legality or validity of the
open the books for the 2nd time assessment and prescription of the Government’s right to assess.
 This is another case of harassment stating that there was already a case  Any objection against the assessment should have been pursued
that was filed by the CIR against Camus for his failure to obey a
following the avenue paved in Section 229 (now Section 228) of the
subpoena; which was dismissed for lack of probable cause.
 That LMCEC filed a protest on the PAN issued on April 20, 2001 which NIRC on protests on assessments of internal revenue taxes.
is still unresolved. o Records show that the assessment notice and Formal Letter of
 The “informer” who supplied the “confidential information” is fictitious. Demand dated August 7, 2002 were duly served on LMCEC on
October 1, 2002.
o Private respondents did not file a motion for
Issue: WON the assessment by the CIR was final and executory for reconsideration of the said assessment notice and formal
failure to file a petition for review with the CTA within the statutory demand; neither did they appeal to the Court of Tax
period Appeals. Section 228 of the NIRC61 provides the remedy to
—YES dispute a tax assessment within a certain period of time.
 It states that an assessment may be protested by
Held/Ratio: Petition GRANTED. filing a request for reconsideration or
reinvestigation within 30 days from receipt of the
 The alleged violation of the general rule in Section 235 of the NIRC assessment by the taxpayer. No such administrative
allowing the examination and inspection of taxpayer’s books of accounts protest was filed by private respondents seeking
and other accounting records only once in a taxable year is untenable. reconsideration of the August 7, 2002 assessment
 The discovery of substantial underdeclarations of income by LMCEC for notice and formal letter of demand. Private respondents
taxable years 1997, 1998 and 1999 upon verified information provided cannot belatedly assail the said assessment, which
by an “informer” under Section 282 of the NIRC, as well as the necessity they allowed to lapse into finality, by raising issues as
of obtaining information from third parties to ascertain the correctness of to its validity and correctness during the preliminary
the return filed or evaluation of tax compliance in collecting taxes (as a investigation after the BIR has referred the matter for
result of the disobedience to the summons issued by the Bureau against prosecution under Sections 254 and 255 of the NIRC.
the private respondents), are circumstances warranting exception
from the general rule in Section 235.
 The substantial underdeclared income in the returns filed by LMCEC for
1997, 1998 and 1999 in amounts equivalent to more than 30% (the
computation in the final assessment notice showed underdeclarations of
almost 200%) constitutes prima facie evidence of fraudulent return under
Section 248(B) of the NIRC.
 Tax assessments by tax examiners are presumed correct and made in
good faith, and all presumptions are in favor of the correctness of a tax
assessment unless proven otherwise.
 We have held that a taxpayer’s failure to file a petition for review
with the CTA within the statutory period rendered the disputed
CIR v. SONY PHILIPPINES (FajardoRK) protested.

[GR. No. 178697; November 7, 2010]  Sony sought re-evaluation of the assessment by filing a protest on
“Power of assessment only extends to the year stated in the LOA. It cannot Feb 2, 2000.
go beyond.”  Subsequently Sony filed a case to the CTA 1st Division.
Recit-Ready:  CTA 1st Division disallowed the deficiency VAT assessment
Facts: CIR issued an LOA authorizing revenue officers to examine because the subsidized advertising expense paid by Sony, which
Sony’s accounting records regarding revenue taxes for the period was duly covered by a VAT invoice, resulted in an input VAT credits.
of 1997 and unverified prior years. The officers found deficiency o However, it maintained the deficiency EWT (Expanded
taxes and penalties and issued them to Sony. Sony filed a case VAT) assessment on Sonys motor vehicles and on
to the CTA to re-evaluate the assessments made. The CTA professional fees paid to general professional partnerships.
disallowed the deficiency VAT assessment since they were o It also assessed the amounts paid to sales agents as
subsidized as advertising expense and are duly covered by a commission with 5% EWT pursuant to Section 1(g) of RR
VAT invoice. No. 6-85.
o It upheld the penalties for the late payment of VAT on
Issue/s: royalties, late remittance of FWT and late remittance of
Whether or not Sony is liable for deficiency VAT—NO, it is not liable EWT.
Held:  Basically, it only granted Sony’s petition as to the canceling of the
Pursuant to Section 6 of the Tax Code prescribes the power of the deficiency VAT assessment. CIR is now contenting that the CTA
commissioner to make assessments and prescribe additional erred in ruling that respondents is not liable for deficiency VAT in the
requirements for tax administration. Under the law the Commissioner may amount of 11,141,014.41 PHP.
authorize the examination of any taxpayer and the assessment of the
correct tax amount. In this case, the LOA issued covered the period 1997 ISSUE:
and unverified prior years. Thus, the CIR acting through its revenue Whether or not Sony is liable for deficiency VAT—NO, it is not liable
officers went beyond the scope of their authority because the
deficiency VAT assessment they arrived at was based on records HELD:
from January to March 1998 or using the fiscal year which ended in Pursuant to Section 13 of the Tax Code, a Letter of Authority or LOA is
March 31, 1998. CIR should have included the year 1998 if it intended to given to the appropriate revenue officer assigned to perform
do so and under Revenue Memo Order 43-90, a LOA should cover a assessment functions.
taxable period not exceeding one taxable year. The CIR’s remedy is to  It empowers or enables said revenue officer to examine the books of
issue another LOA, stating the year 1998 as point of assessment. account and other accounting records of taxpayer for the purpose of
collecting the correct amount of tax.
FACTS: The very provision that the CIR relies on—insisting that LOA 19374
 The CIR issued Letter of Authority No. 19734 (LOA) authorizing should be understood to mean the fiscal year ending March 31, 1998—
certain revenue officers to examine Sony’s books of accounts and also states the unequivocal power of the CIR to grant authority to
other accounting records regarding revenue taxes for the period examine and assess a taxpayer.
1997 and unverified prior years.  Section 6 states that the power of the commission to make
 On December 6, 1999, a preliminary assessment for 1997 assessments and prescribe additional requirement for tax
deficiency taxes and penalties was issued by CIR which Sony administration and enforcement.
SUBJECT: Implementing the Provisions of the National Internal Revenue

“SEC. 6. Power of the Commissioner to Make Assessments and Code of 1997 Governing the Rules on Assessment of National Internal
Prescribe Additional Requirements for Tax Administration and Revenue Taxes, Civil Penalties and Interest and the Extra-judicial Settlement
Enforcement.
(A)Examination of Returns and Determination of tax Due. After a return
of a Taxpayer's Criminal Violation of the Code Through Payment of a
has been filed as required under the provisions of this Code, the Suggested Compromise Penalty
Commissioner or his duly authorized representative may authorize the TO: All Internal Revenue Officers and Others Concerned
examination of any taxpayer and the assessment of the correct
amount of tax: Provided, however, That failure to file a return shall not SECTION 1. Scope. Pursuant to the provisions of Section 244, in relation to
prevent the Commissioner from authorizing the examination of any
Section 245 of the National Internal Revenue Code of 1997, these
taxpayer. x x x [Emphases supplied]”
Regulations are hereby promulgated to implement the provisions of Sections
6, 7, 204, 228, 247, 248 and 249 on assessment of national internal
 After a return has been filed, the Commission may authorize the
revenue taxes, fees and charges and to provide the rules governing the
examination of any taxpayer and the assessment of the correct
extra-judicial settlement of a taxpayer's criminal violation of the said
amount of tax authorizing the examination of any taxpayer.
Code or any of its implementing Regulations through payment of a
 Clearly, there must be a grant of authority before any revenue officer
suggested compromise penalty.
can conduct an examination or assessment.
 Equally important is that the revenue officer is authorized must not
SECTION 2. General Principles.
go beyond the authority given.
2.1 The surcharge and/or interest herein prescribed shall apply to all taxes,
o In the absence of such an authority, the assessment or
fees and charges imposed under the Code which shall be collected at the
examination is a nullity.
same time, in the same manner, and as part of the tax.
LOA 19374 covered the period 1997 and unverified prior years. For said
2.2 In case the tax due from the taxpayer is paid on a partial or installment
reason, the CIR acting through its revenue officers went beyond the
basis, the interest on the deficiency tax or on the delinquency tax liability of
scope of their authority because the deficiency VAT assessment they
the taxpayer shall be imposed from due date of the tax until full payment
arrived at was based on records from January to March 1998 or using
thereof. The interest shall be computed based on the diminishing
the fiscal year which ended in March 31, 1998.
balance of the tax, inclusive of interests.
 As pointed out by the CTA, the CIR knew which period should be
covered by the investigation.
SECTION 3. Due Process Requirement in the Issuance of a Deficiency
 Thus, if CIR wanted or intended the investigation to include the year Tax Assessment.
1998, it should have done so by including it in the LOA or issuing 3.1 Mode of procedures in the issuance of a deficiency tax assessment:
another LOA. 3.1.1 Notice for informal conference. The Revenue Officer who
o Under Revenue Memo Order No. 43-90, A letter of authority audited the taxpayer's records shall, among others, state in his report
should cover a taxable period not exceeding one taxable whether or not the taxpayer agrees with his findings that the taxpayer
year. is liable for deficiency tax or taxes. If the taxpayer is not amenable,
DENIED based on the said Officer's submitted report of investigation, the
taxpayer shall be informed, in writing, by the Revenue District Office
or by the Special Investigation Division, as the case may be (in the
REVENUE REGULATION 12-99 (GO) case Revenue Regional Offices) or by the Chief of Division concerned
(in the case of the BIR National Office) of the discrepancy or withheld and the amount actually remitted by the withholding
discrepancies in the taxpayer's payment of his internal revenue taxes, agent; or
for the purpose of "Informal Conference," in order to afford the (iii) When a taxpayer who opted to claim a refund or tax credit of
taxpayer with an opportunity to present his side of the case. If the excess creditable withholding tax for a taxable period was determined
taxpayer fails to respond within fifteen (15) days from date of receipt to have carried over and automatically applied the same amount
of the notice for informal conference, he shall be considered in claimed against the estimated tax liabilities for the taxable quarter or
default, in which case, the Revenue District Officer or the Chief of the quarters of the succeeding taxable year; or
Special Investigation Division of the Revenue Regional Office, or the (iv) When the excise tax due on excisable articles has not been
Chief of Division in the National Office, as the case may be, shall paid; or
endorse the case with the least possible delay to the Assessment (v) When an article locally purchased or imported by an exempt
Division of the Revenue Regional Office or to the Commissioner or his person, such as, but not limited to, vehicles, capital equipment,
duly authorized representative, as the case may be, for appropriate machineries and spare parts, has been sold, traded or transferred to
review and issuance of a deficiency tax assessment, if warranted. non-exempt persons.
3.1.2 Preliminary Assessment Notice (PAN). If after review and 3.1.4 Formal Letter of Demand and Assessment Notice. The
evaluation by the Assessment Division or by the Commissioner or his formal letter of demand and assessment notice shall be issued by the
duly authorized representative, as the case may be, it is determined Commissioner or his duly authorized representative. The letter of
that there exists sufficient basis to assess the taxpayer for any demand calling for payment of the taxpayer's deficiency tax or taxes
deficiency tax or taxes, the said Office shall issue to the taxpayer, at shall state the facts, the law, rules and regulations, or jurisprudence
least by registered mail, a Preliminary Assessment Notice (PAN) on which the assessment is based, otherwise, the formal letter of
for the proposed assessment, showing in detail, the facts and the law, demand and assessment notice shall be void. The same shall be
rules and regulations, or jurisprudence on which the proposed sent to the taxpayer only by registered mail or by personal delivery. If
assessment is based. If the taxpayer fails to respond within fifteen sent by personal delivery, the taxpayer or his duly authorized
(15) days from date of receipt of the PAN, he shall be considered in representative shall acknowledge receipt thereof in the duplicate copy
default, in which case, a formal letter of demand and assessment of the letter of demand, showing the following: (a) His name; (b)
notice shall be caused to be issued by the said Office, calling for signature; (c) designation and authority to act for and in behalf of the
payment of the taxpayer's deficiency tax liability, inclusive of the taxpayer, if acknowledged received by a person other than the
applicable penalties. taxpayer himself; and (d) date of receipt thereof.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice 3.1.5 Disputed Assessment. The taxpayer or his duly authorized
for informal conference and the preliminary assessment notice shall representative may protest administratively against the aforesaid
not be required in any of the following cases, in which case, issuance formal letter of demand and assessment notice within thirty (30) days
of the formal assessment notice for the payment of the taxpayer's from date of receipt thereof. If there are several issues involved in the
deficiency tax liability shall be sufficient: formal letter of demand and assessment notice but the taxpayer only
(i) When the finding for any deficiency tax is the result of disputes or protests against the validity of some of the issues raised,
mathematical error in the computation of the tax appearing on the the taxpayer shall be required to pay the deficiency tax or taxes
face of the tax return filed by the taxpayer; or attributable to the undisputed issues, in which case, a collection letter
(ii) When a discrepancy has been determined between the tax shall be issued to the taxpayer calling for payment of the said
deficiency tax, inclusive of the applicable surcharge and/or interest. appeal to the Court of Tax Appeals within thirty (30) days from date of
No action shall be taken on the taxpayer's disputed issues until receipt of the said decision, otherwise, the assessment shall become
the taxpayer has paid the deficiency tax or taxes attributable to final, executory and demandable: Provided, however, that if the
the said undisputed issues. The prescriptive period for assessment taxpayer elevates his protest to the Commissioner within thirty (30)
or collection of the tax or taxes attributable to the disputed issues days from date of receipt of the final decision of the Commissioner's
shall be suspended. duly authorized representative, the latter's decision shall not be
considered final, executory and demandable, in which case, the
The taxpayer shall state the facts, the applicable law, rules and protest shall be decided by the Commissioner.
regulations, or jurisprudence on which his protest is based, otherwise,
his protest shall be considered void and without force and effect. If If the Commissioner or his duly authorized representative fails to act
there are several issues involved in the disputed assessment and the on the taxpayer's protest within one hundred eighty (180) days from
taxpayer fails to state the facts, the applicable law, rules and date of submission, by the taxpayer, of the required documents in
regulations, or jurisprudence in support of his protest against some of support of his protest, the taxpayer may appeal to the Court of Tax
the several issues on which the assessment is based, the same shall Appeals within thirty (30) days from the lapse of the said 180-day
be considered undisputed issue or issues, in which case, the taxpayer period, otherwise, the assessment shall become final, executory and
shall be required to pay the corresponding deficiency tax or taxes demandable.
attributable thereto.
3.1.6 Administrative Decision on a Disputed Assessment. The
The taxpayer shall submit the required documents in support of his decision of the Commissioner or his duly authorized representative
protest within sixty (60) days from date of filing of his letter of protest, shall (a) state the facts, the applicable law, rules and regulations, or
otherwise, the assessment shall become final, executory and jurisprudence on which such decision is based, otherwise, the
demandable. The phrase "submit the required documents" includes decision shall be void, in which case, the same shall not be
submission or presentation of the pertinent documents for scrutiny considered a decision on a disputed assessment; and (b) that the
and evaluation by the Revenue Officer conducting the audit. The said same is his final decision.
Revenue Officer shall state this fact in his report of investigation.
3.1.7 Constructive Service. If the notice to the taxpayer herein
If the taxpayer fails to file a valid protest against the formal letter of required is served by registered mail, and no response is received
demand and assessment notice within thirty (30) days from date of from the taxpayer within the prescribed period from date of the
receipt thereof, the assessment shall become final, executory and posting thereof in the mail, the same shall be considered actually or
demandable. constructively received by the taxpayer. If the same is personally
served on the taxpayer or his duly authorized representative who,
If the protest is denied, in whole or in part, by the Commissioner, the however, refused to acknowledge receipt thereof, the same shall be
taxpayer may appeal to the Court of Tax Appeals within thirty (30) constructively served on the taxpayer. Constructive service thereof
days from date of receipt of the said decision, otherwise, the shall be considered effected by leaving the same in the premises of
assessment shall become final, executory and demandable. the taxpayer and this fact of constructive service is attested to,
witnessed and signed by at least two (2) revenue officers other than
In general, if the protest is denied, in whole or in part, by the the revenue officer who constructively served the same. The revenue
Commissioner or his duly authorized representative, the taxpayer may officer who constructively served the same shall make a written report
of this matter which shall form part of the docket of this case. 25% surcharge shall be imposed for late filing and late payment of the
tax in lieu of the above 50% surcharge. Conversely, the 50%
SECTION 4. Civil Penalties. surcharge shall be imposed in case the taxpayer files the return only
4.1 Twenty-Five Percent (25%) Surcharge. There shall be imposed, in after prior notice in writing from the Commissioner or his duly
addition to the basic tax required to be paid, a penalty equivalent to twenty- authorized representative.
five percent (25%) thereof, in any the following cases: 4.2.2 Section 6 (A) of the Code provides that any tax return filed by a
4.1.1 Failure to file any return and pay the tax due thereon as taxpayer "may be modified, changed or amended" by the taxpayer
required under the provisions of this Code or rules and regulations on "within three (3) years from date of such filing" provided, however,
the date prescribed; or that "no notice for audit or investigation of such return, statement or
4.1.2 Unless otherwise authorized by the Commissioner, filing a declaration has, in the meantime, been actually served upon the
return with an internal revenue officer other than those with whom the taxpayer. "Thus, if upon investigation, it is determined that the
return is required to be filed; or taxpayer's originally filed tax return is false or fraudulent, such
4.1.3 Failure to pay the deficiency tax within the time prescribed for taxpayer shall remain liable to the 50% civil penalty regardless that
its payment in the notice of assessment; or the taxpayer has filed his amended tax return, if the said amended tax
4.1.4 Failure to pay the full or part of the amount of tax shown on any return, however, has been filed only after issuance of the Letter of
return required to be filed under the provisions of this Code or rules Authority for the investigation of the taxpayer's tax return or such
and regulations, or the full amount of tax due for which no return is amendment has been made in the course of the said investigation.
required to be filed, on or before the date prescribed for its payment.
4.2 Fifty Percent (50%) Surcharge: SECTION 5. Mode of Procedures in Computing for the Tax and/or
4.2.1 In case of willful neglect to file the return within the period Applicable Surcharge. Shown hereunder are illustrative cases for the
prescribed by the Code, or in case a false or fraudulent return is computation and assessment of the tax, inclusive of surcharge (if applicable)
willfully made, the penalty to be imposed shall be fifty percent (50%) and interest:
of the tax or of the deficiency tax, in case any payment has been 5.1 Late filing and late payment of the tax. Illustration: Income tax return
made on the basis of such return before the discovery of the falsity or for the calendar year 1998 was due for filing on April 15, 1999 but the
fraud: Provided, That a substantial under declaration of taxable taxpayer voluntarily filed his tax return, without notice from the BIR, only on
sales, receipts or income, or a substantial overstatement of June 30, 1999. The tax due per return amounts to P100,000. In this case, the
deductions, as determined by the Commissioner or his duly taxpayer shall be liable for delinquency penalties consisting of 25%
authorized representative, shall constitute prima facie evidence of a surcharge, plus 20% interest per annum, computed from due date of the tax
false or fraudulent return: Provided, further, That failure to report until date of payment, computed as follows:
sales, receipts or income in an amount exceeding thirty percent (30%)
of that declared per return, and a claim of deductions in an amount
exceeding thirty percent (30%) of actual deductions, shall render the
taxpayer liable for substantial under declaration of sales, receipts or
income or for overstatement of deductions, as mentioned herein:
Provided, further, that the term "willful neglect to file the return within
the period prescribed by the Code" shall not apply in case the
taxpayer, without notice from the Commissioner or his authorized
representative, voluntarily files the said return, in which case, only
5.3 Late filing and late payment due to taxpayer's willful neglect.
Illustration: The taxpayer did not file his income tax return for the calendar
year 1997 which was due for filing on April 15, 1998. He was notified by the
BIR of his failure to file the tax return, for which reason, he filed his tax return
and paid the tax, only after the said notice, on June 30, 1999. The tax due
per return is P100,000.00.
Only one 25% surcharge shall be imposed for late filing of the return and late
payment of the tax.
5.2 The tax return is filed on time but filed through an internal revenue
officer other than with whom the return is required to be filed.
Illustration: The taxpayer's 1998 income tax return is required to be filed
through the authorized agent bank under the jurisdiction of RDO East Makati.
But, without prior authorization from the BIR, the taxpayer filed his tax return
and paid the tax through the authorized agent bank under the jurisdiction of 5.4 Penalty or penalties for deficiency tax. As a rule, no surcharge is
RDO Davao City. Tax due and paid per return is P100,000.00. imposed on deficiency tax and on the basic tax. However, if the amount due
inclusive of penalties is not paid on or before the due date stated on the
demand letter, the corresponding surcharge shall be imposed.
Illustration No. 1: Taxpayer filed on time his income tax return for calendar
year 1997 and paid P100,000.00 on April 15, 1998. Upon pre-audit of his
return, it was disclosed that he erroneously computed the tax due. The
correct amount of tax due is P120,000.00. The taxpayer is assessed for
deficiency income tax in a letter of demand and assessment notice issued on
June 30, 1999.
calendar year 1997 with a net taxable income of P500,000.00. At the

applicable income tax rate of 35%for the year 1997, its income tax amounted
to P175,000.00. However, upon investigation, it was disclosed that its
income tax return was false or fraudulent because it did not report a taxable
income amounting to another P500,000.00. On its net income of
P1,000,000.00, per investigation, the income tax due is P350,000.00.
Deducting its payment per return filed, the deficiency, excluding penalties,
amounted to P175,000.00. It was duly informed of this finding through a
Preliminary Assessment Notice. Failing to protest on time against the
preliminary assessment notice, a formal letter of demand and assessment
notice was issued on May 31, 1999 calling for payment of the deficiency
income tax on or before June 30, 1999.
In this case, said corporation is liable for the civil penalties of 50% surcharge
Illustration No. 2: ABC CORPORATION filed its income tax return for for having filed a false or fraudulent return, plus 20% interest per annum on
calendar year 1997 and paid on time its income tax shown thereunder, the deficiency, computed as follows:
amounting to P100,000. Said taxpayer was investigated. Upon verification of
its accounting records, it was disclosed that its deduction, from gross
income, of representation expenses in the amount of P200,000.00 did not
meet all the statutory requisites for deductibility. The corporation was duly
notified of the said discrepancy through a Preliminary Assessment Notice.
Based on the 35% income tax rate on corporations applicable in the year
1997, the income tax due after investigation amounts to P170,000.00. After
deduction of income tax paid per return filed, the basic deficiency income tax
amounts to P70,000, excluding penalties. Failing to protest on time against
the preliminary assessment notice, a formal letter of demand and
assessment notice was issued on May 31, 1999, requiring payment of the
assessment not later than June 30, 1999.
5.5 Late payment of a deficiency tax assessed. In general, the deficiency

tax assessed shall be paid by the taxpayer within the time prescribed in the
notice and demand, otherwise, such taxpayer shall be liable for the civil
penalties incident to late payment.
Illustration No. 3: XYZ CORPORATION filed its income tax return for
Illustration: Based on the above Illustration No. 3, Scenario 4, assuming that provisions of Section 249 (D) of the Code.
the calendar year 1997 deficiency income tax assessment against XYZ
CORPORATION, in the amount of P304,771.67, is not paid by June 30, No 25% surcharge on extended payment shall be imposed provided,
1999, the deadline for payment of the assessment, and assuming further that however, that the taxpayer's request for extension of the period within which
this assessment has already become final and collectible. In this case, such to pay is made on or before the deadline prescribed for payment of the tax
corporation shall be considered late in payment of the said assessment. due. Conversely, if such request is made after the deadline prescribed for
Assuming, further, that the corporation pays its tax assessment only by July payment, the taxpayer shall already be treated late in payment, in which
31, 1999, the civil penalties for late payment shall be computed as follows: case, the 25% surcharge shall be imposed, even if payment of the
delinquency be allowed in partial amortization.
Example:
5.6 Computation of 20% interest per annum in case of partial or

installment payment of a tax liability.
Illustration No. 1: In case extended payment of the tax is duly authorized.
DEF CORPORATION, due to financial incapacity, requested that it be
allowed to pay its income tax liability per return for calendar year 1998, in the
amount of P1,000,000.00, in four (4) monthly installments, starting April 15,
1999. Its request has been duly approved pursuant to Sec. 53 of the Tax
Code.
In this case, no 25% surcharge shall be imposed for late payment of the tax
since its deadline for payment has been duly extended. However, 20%
interest per annum for the extended payment shall be imposed, computed
based on the diminishing balance of the "unpaid amount", pursuant to the
however, due to its adverse financial condition at the moment, it will be

unable to pay the entire amount, inclusive of the delinquency penalties.
Hence, on May 15, 1999, it made a partial payment of P400,000.00.
Assuming that the BIR demanded payment of the unpaid balance of its tax
obligation payable by June 15, 1999, the unpaid balance of the corporation's
delinquent income tax shall be computed as follows:
If the said taxpayer fails to pay the amount of P811,111.17 by June 15, 1999,
no further 25% surcharge for late payment of the tax shall be imposed.
Illustration No. 2: Computation of tax delinquency in case of partial payment Instead, only the 20% interest per annum shall be imposed against the
of the tax due without prior BIR authorization for extended payment. taxpayer against the taxpayer, computed from due date thereof (i.e., June
Example: GHI CORPORATION did not file its final adjustment income tax 15, 1999) until paid. If said taxpayer pays the same on partial payment basis,
return for the calendar year 1998 which was due on April 15, 1999. The BIR the 20% interest per annum shall be computed on the diminishing balance
informed the corporation of its failure to file its said tax return and required thereof, pursuant to the procedures in the preceding Illustration No. 1,
that it file the same, inclusive of the 25% surcharge and 20% interest per Section 6.6 hereof.
annum penalties incident to the said omission. On May 15, 1999 it advised
that its income tax due for the said year amounts to P1,000,000.00 but, SECTION 6. Suggested Compromise Penalty in Extra-judicial
Settlement of a Taxpayer's Criminal Violation. Section 204 of the Tax This RR provides for the rules on assessment of national internal
Code of 1997 provides that "All criminal violations may be compromised revenue taxes, fees and charges, as well as the guidelines on the extra-
except: (a) those already filed in court, or (b) those involving fraud." judicial settlement of a taxpayer’s criminal violation of the Tax Code.
This means that, in general, the taxpayer's criminal liability arising from his  The surcharge shall apply to all taxes  collected at the same time,
violation of the pertinent provision of the Code may be settled extra-judicially in the same manner, and as part of the tax.
instead of the BIR instituting against the taxpayer a criminal action in Court.  If the tax due is paid on an installment basis  the interest on the
A compromise in extra-judicial settlement of the taxpayer's criminal liability deficiency/delinquency tax shall be imposed from the due date until
for his violation is consensual in character, hence, may not be imposed on full payment.
the taxpayer without his consent. Hence, the BIR may only suggest o The interest shall be computed based on the diminishing
settlement of the taxpayer's liability through a compromise. balance of the tax, inclusive of interests.
The extra-judicial settlement of the taxpayer's criminal liability and the MODE OF PROCEDURES IN THE ISSUANCE OF A DEFICIENCY TAX
amount of the suggested compromise penalty shall conform with the ASSESSMENT:
schedule of compromise penalties provided under Revenue Memorandum  Notice of informal conference
Order No. 1-90 or as hereafter revised. o The Revenue Officer (RO) shall state in his report whether
or not the taxpayer agrees that he is liable for deficiency tax
SECTION 7. Repealing Clause. Any revenue issuance which is o If the taxpayer does not agree, he shall be informed in
inconsistent herewith shall be considered repealed, amended, or modified writing of the discrepancy, for the purpose of an Informal
accordingly. Conference, so that the taxpayer has the opportunity to
defend his side
SECTION 8. Effectivity. o Failure to respond within 15 days  default
8.1 General Rule. In general, the provisions of these Regulations shall be  The RO shall endorse the case for appropriate
effective beginning January 1, 1998 pursuant to the provisions of Section 8 review and issuance of a deficiency tax
of R.A. No. 8424, otherwise known as the National Internal Revenue Code of assessment
1997.  Preliminary Assessment Notice (PAN)
8.2 Computation of Surcharge and Interest on Deficiency Tax Assessment. o If after evaluation, there is sufficient basis to assess the
Any deficiency tax assessment issued beginning January 1, 1998 shall be taxpayer for deficiency taxes, a PAN will be issued
governed by the rules prescribed in these Regulations. o Failure to respond within 15 days  default
8.3 Other Provisions. Any provision of these Regulations not otherwise  A formal letter of demand and assessment notice
specifically provided in the National Internal Revenue Code of 1997 shall shall be issued
take effect fifteen (15) days after publication in any newspaper of general o Exceptions to PAN:
circulation.  When the finding for deficiency tax is the result of
mathematical
SUMMARY OF RR 12-99  When a discrepancy has been determined
(Check the illustrations in the original for better understanding) between the tax withheld and the amount
actually remitted by the withholding agent;
 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 o Failure to pay the deficiency tax within the time prescribed
and automatically applied the same amount for its payment in the notice of assessment
claimed against the estimated tax liabilities for the o Failure to pay the full or part of the amount of tax shown on
taxable quarter or quarters of the succeeding any return required to be filed, or the full amount of tax due
taxable year for which no return is required to be filed, on or before the
 When the excise tax due on excisable articles date prescribed for its payment
has not been paid  50% surcharge shall be imposed on the following:
 When an article locally purchased or imported by o In case of willful neglect to file the return, or in case a false
an exempt person or fraudulent return is willfully made, the penalty to be
 Formal Letter of Demand and Assessment Notice imposed shall be fifty percent (50%) of the tax or of the
o Issued by the CIR or his duly authorized representative deficiency tax, in case any payment has been made on the
o The letter of demand calling for payment of the taxpayer's basis of such return before the discovery of the falsity or
deficiency tax shall state the facts, the law, rules and fraud
regulations, or jurisprudence on which the assessment is  Provided, that a substantial under declaration of
based  if not, the assessment is void taxable sales, receipts or income, or a substantial
 Disputed Assessment overstatement of deductions, as determined by the
o The tax payer may protest the demand and notice within 30 CIR, shall constitute prima facie evidence of a false
days  failure to file within 30 days shall make the or fraudulent return
assessment final, executory, and demandable  Provided, further, that failure to report sales,
o The taxpayer shall submit the required documents in receipts or income in an amount exceeding 30% of
support of his protest within 60 days from date of filing of his that declared per return, and a claim of deductions
letter of protest  failure to submit the documents within 60 in an amount exceeding 30% of actual deductions,
days shall make the assessment final and executory shall render the taxpayer liable for substantial
o If the protest is denied  the taxpayer may appeal to the under declaration of sales, receipts or income or
CTA within 30 days, otherwise the assessment shall for overstatement of deductions
become final, executory and demandable  Provided, further, that the term "willful neglect to
 Provided, however, that if the taxpayer elevates his file the return” shall not apply in case the taxpayer,
protest to the CIR within 30 days, the CIR’s without notice from the CIR, voluntarily files the
decision shall not be considered final, executory said return, in which case, only 25% surcharge
and demandable, in which case, the protest shall shall be imposed for late filing and late payment of
be decided by the CIR. the tax in lieu of the above 50% surcharge.
 Conversely, the 50% surcharge shall be imposed
CIVIL PENALITIES in case the taxpayer files the return only after prior
 25% surcharge shall be imposed on the following: notice in writing from the CIR
o Failure to file any return and pay the tax due o Section 6 (A) of the Code provides that any tax return filed
o Unless otherwise authorized by the CIR, filing a return with by a taxpayer "may be modified, changed or amended" by
an internal revenue officer other than those with whom the the taxpayer "within 3 years from date of such filing"
return is required to be filed provided, however, that "no notice for audit or investigation
of such return, statement or declaration has, been actually of Internal Revenue (CIR) in accordance with the provisions of Sec. 6 of the
served upon the taxpayer. "Thus, if upon investigation, it is Tax Code, to wit:
determined that the taxpayer's originally filed tax return is
false or fraudulent, such taxpayer shall remain liable to the Sec. 6. Power of the Commissioner to Make Assessments and
50% civil penalty regardless that the taxpayer has filed his Prescribe Additional Requirements for Tax Administration and
amended tax return, if the said amended tax return, Enforcement. –
however, has been filed only after issuance of the Letter of (A) Examination of Returns and Determination of Tax Due. – After a
Authority for the investigation of the taxpayer's tax return or return has been filed as required under the provisions of this Code, the
such amendment has been made in the course of the said Commissioner or his authorized representative may authorize the
investigation. examination of any tax payer and the assessment of the correct amount
of tax: Provided, however, That failure to file a return shall not prevent the
SUGGESTED COMPROMISE PENALTY IN EXTRA-JUDICIAL Commissioner from authorizing the examination of any tax payer.
SETTLEMENT OF A TAX PAYER’S CRIMINAL VIOLATION
 All criminal violations may be compromised except: While the CIR is allowed to delegate such power to his authorized
o Those already filed in court, or representative, such delegation has, in certain instances, given rise to the
o Those involving fraud issuance of duplicate or multiple Letters of Authority (Las) by more than one
 The taxpayer's criminal liability arising from his violation of the Investigating Office of the BIR to the same tax payer, for the same taxable
pertinent provision of the Code may be settled extra-judicially period.
instead of the BIR instituting against the taxpayer a criminal action in
Court Such occurrences have therefore resulted in the unwarranted confusion on
 A compromise in extra-judicial settlement of the taxpayer's criminal the part of taxpayers, and the unproductive utilization of much-needed
liability for his violation is consensual in character, hence, may not resources on the part of the BIR. In this regard, and in order to forestall the
be imposed on the taxpayer without his consent undue increase of the tax payer’s burden of compliance in the course of tax
 The extra-judicial settlement of the taxpayer's criminal liability and investigation, as well as enhance the effectiveness of the BIR’s audit and
the amount of the suggested compromise penalty shall conform with investigation efforts, it is imperative that the issuance of multiple Las be
the schedule of compromise penalties provided under RMO No. 1- avoided, and that conflicts of jurisdiction between Investigating Offices be
90 resolved in as expeditious a manner as possible.
REVENUE MEMORANDUM ORDER 5-2009 (GO) This Order is being issued, therefore, to prescribe the policies and guidelines
to be observed in determining the Investigating Office that shall have
SUBJECT: Prescribing the Policies and Guidelines in the Issuance of Letters jurisdiction over the audit/examination of tax payers, and in the resolution of
of Authority by the Various Investigating Offices of the BIR conflicts of jurisdiction in on-going tax investigations.
TO: All Internal Revenue Officers and Other Concerned.
II. POLICIES AND GUIDELINES
I. BACKGROUND
A. General Rules
The power to authorize the examination of any tax payer, and the 1. It shall be the general rule that the Investigating Office –
assessment of the correct amount of tax due, is vested in the Commissioner a. Where the tax payer is registered; or
b. Which has specific jurisdiction over a taxpayer, shall exercise to the Deputy Commissioner (DCIR) of the Legal and Inspection Group
primary jurisdiction over the conduct of an audit/investigation in (LIG), for evaluation.
to the tax liabilities of the taxpayer for a given taxable period. 1.1 Upon promulgation of this Order, the National Office Tax Fraud
Committee reconstituted under Revenue Special Order No. 5-2008
2. For purposes of this Order, the following Investigating Offices shall (dated Jan. 8, 2008) shall be considered as dissolved, and the
exercise primary jurisdiction in the conduct of audits/investigations, determination of prima facie evidence of fraud shall henceforth be
relative to Item A(1) of this Section: undertaken by the DCIR-LIG.
For the Regional Offices: 2. If, upon careful evaluation of the merits of a case, the DCIR-LIG should
 The Revenue District Offices – for tax payers registered in the determine that prima facie evidence of fraud exists, he shall submit the
various Revenue Districts report of the NID/SID, bearing his signature recommending approval of
the same, to the Commissioner, for final evaluation.
For the Large Tax payers Service (LTS): 2.1. Each report must contain the following segment, where the
 The Large Tax payers (LT) Audit and Investigation Division I Commissioner may indicate his decision:
(LTAID-I) – for regular large tax payers
 The LT Audit and Investigation Division II – for excise tax payers
 The LT District Office – Makati
 The LT District Office – Cebu
B. Exceptions to the General Rule on Primary Jurisdiction

1. The exception to the general rule on primary jurisdiction shall pertain 3. In the event that the Commissioner should approve the conduct of an
directly to: audit/investigation of a tax payer by the NID/SID, the report bearing the
a. Cases where there is prima facie evidence of tax fraud; Commissioner’s signature of approval, together with its supporting
b. Cases falling under the Run After Tax Evaders (RATE) Program. documents, shall be returned by the Office of the Commissioner to the
Office of the DCIR-LIG, for transmittal to the Enforcement Service, for
2. In either instance, jurisdiction to conduct the appropriate audit or preparation of the appropriate LA and notification of the concerned
investigation shall rest with: Investigating Office which has primary jurisdiction over the tax payer.
 The National Investigation Division (NID); or 3.1. Upon receipt of the report that has been duly approved by the
 The Regional Special Investigation Divisions (SIDs). Commissioner, the ACIR-ES shall inform the Regional Office having
jurisdiction over the Investigating Office concerned/ACIR – Large
C. Determination of Prima Facie Evidence of Tax Fraud Tax payers Service, using the pro forma notification, that:
1. In the event that, following the conduct of prescribed preliminary  The case shall be considered as a tax fraud case to be
investigation procedures, the NID/SID believes that prima facie evidence investigated by the NID/SID; and
of tax fraud exists, it shall submit the case, together with a memorandum  Any LA issued by the Investigating Office to the concerned
stating the justifications for the conduct of an audit/investigation for tax taxpayer for the same taxable period shall be deemed
fraud (and the documentary evidence to support the allegation of fraud), automatically cancelled.
through the Assistant Commissioner (ACIR), Enforcement Service (ES), A copy of the report approved by the Commissioner shall be
attached to such notification. 1. All issues concerning duplicate or multiple Las issued to a single tax
payer for a particular taxable period prior to the promulgation of this Order
3.2. In the event that the Investigating Office should determine that shall be immediately elevated by the Offices that issued the LAs to the
an LA has been issued to the tax payer for the same taxable period, Office of the Commissioner, for review and evaluation.
the same shall be considered automatically cancelled and invalid, 1.1. Each case must be supported by a memorandum report
and the Head of the Investigating Office shall, upon receipt of the prepared by the concerned Investigating Office and by the NID/SID,
notification from the ACIR-ES, immediately direct the Revenue stating the justifications for the retention of Jurisdiction thereat.
Officers concerned to cease all activities on the case.
3.2.1. In the event that no LA has yet been issued to the tax 2. Each memorandum report must contain the following segment, where
payer for the aforesaid taxable period, the Revenue District the Commissioner may indicate his decision in the case:
Office (RDO) is hereby advised that it is precluded from
issuing an LA for the tax payer covering the said taxable
period.
3.3. Within five days from its receipt of the notification from the
ACIR-ES, the Investigating Office shall also:
 Inform the taxpayer of the change of jurisdiction in the
audit/investigation of the case, through the issuance of a 3. The decision of the Commissioner in a particular case shall be
“Notice of Change of Jurisdiction”; conveyed to the concerned Office by the Office of the Commissioner,
 Transmit the entire docket of the case to the NID/SID; through the pro forma notification, and the Head of the Office that shall
 Furnish the Enforcement Service with a copy of the “Notice give up jurisdiction of a particular audit/examination shall immediately
of Change of Jurisdiction” that has been duly received by direct the Revenue Officers concerned to cease all activities on the case,
the concerned taxpayer. and shall, within five days from its receipt of the notification of the
decision of the Commissioner:
3.4. Upon receipt of the copy of the “Notice of Change of  Inform the tax payer of the change of jurisdiction in the
Jurisdiction” that was received by the tax payer, the ACIR-ES shall audit/investigation, through the issuance of a Notice of Transfer
prepare the appropriate LA mandating the audit/ investigation of the of Jurisdiction
tax payer by the NID/SID, for the signature of the DCIR-LIG.  Transmit the entire docket of the case to the Office that shall
assume jurisdiction of the audit/investigation, for integration with
4. In the event that the Commissioner should not approve the conduct of their records of the case.
a tax fraud investigation by the NID/SID against a particular tax payer, the
report, together with all supporting documents, shall be returned to the 4. In all instances, the decision of the Commissioner shall be final and
Office of the DCIR-LIG, for transmittal of the documentary evidence executory.
gathered by the NID/SID to the appropriate Investigating Office, in
accordance with the general rule on primary jurisdiction stated in Item E. Crediting of Internal Revenue Collections from Audits/Investigations
A(1) of this Section. 1. All internal revenue collections generated from tax fraud/RATE
investigations conducted by the NID/SIDs shall be credited to the
D. Resolution of Existing Conflicts of Jurisdiction Revenue District Office/LT Division of District Office having primary
jurisdiction over the taxpayers concerned.  In either instance, jurisdiction to conduct the appropriate audit or
investigation shall rest with:
III. REPEALING CLAUSE o The National Investigation Division (NID); or
Any provision of any Order and/or pertinent revenue issuance(s)that is o The Regional Special Investigation Divisions (SIDs).
inconsistent with this Order is hereby revoked, modified, or amended
accordingly. Determination of Prima Facie Evidence of Tax Fraud
 In the event that the NID/DIF believes that prima facie evidence of
IV. EFFECTIVITY tax fraud exists, it shall submit the case, together with a
This Order shall take effect immediately. memorandum stating the justifications for the conduct of an audit for
tax fraud, as well as documentary evidence to support the allegation
SUMMARY OF RMO 5-2009 of fraud through the ACIR, ES, DCIR of the Legal and Inspection
RMO 5-2009 prescribes the policies and guidelines in the issuances of Group for evaluation
Letters of Authority (LA) by the various investigating offices of the BIR.  If, upon careful evaluation of the merits of a case, the DCIR-LIG
should determine that prima facie evidence of fraud exists, he shall
GENERAL RULE: The investigating office where the taxpayer is registered submit the report of the NID/SID
or which has specific jurisdiction over a taxpayer shall exercise primary  In the event that the CIR should approve the conduct of an audit, the
jurisdiction over the conduct of an audit/investigation into the tax liabilities of report bearing the CIR’s signature for approval, together with its
the taxpayer. supporting documents, shall be returned to the Office of the DCIR-
LIG, for transmittal to the ES
INVESTIGATING OFFICES WITH PRIMARY JURISDICTION:  The ES shall prepare the appropriate LA and notify the concerned
For Regional Offices: Investigating Office which has primary jurisdiction that:
The Revenue District Offices – for taxpayers registered in the various o The case shall be considered a tax fraud case to be
Revenue Districts investigated
o Any LA issued by the Investigating Office to the concerned
For the Large Tax payers Service (LTS): taxpayer for the same taxable period shall be automatically
 The Large Tax payers (LT) Audit and Investigation Division I cancelled.
(LTAID-I) – for regular large taxpayers  In the event that the CIR should not approve the conduct of a tax
 The LT Audit and Investigation Division II – for excise tax payers fraud investigation by the NID/SID against a particular taxpayer, the
 The LT District Office – Makati report, together with all supporting documents, shall be returned to
 The LT District Office – Cebu the Office of the DCIR-LIG, for transmittal of the documentary
evidence gathered by the NID/SID to the appropriate Investigating
Exceptions to the General Rule on Primary Jurisdiction Office, in accordance with the general rule on primary jurisdiction
 The exception to the general rule on primary jurisdiction shall pertain  All internal revenue collections generated from tax fraud/RATE
directly to: investigations conducted by the NID/SIDs shall be credited to the
o Cases where there is prima facie evidence of tax fraud; Revenue District Office/LT Division of District Office having primary
o Cases falling under the Run After Tax Evaders (RATE) jurisdiction over the taxpayers concerned
Program.
3. To provide guidelines on the issuance of TVNs and MOA, as well as the

reporting requirements for ONETT cases.
RMO 69-2010 (GUZMAN)
Revenue Memorandum Order 69-2010 - Guidelines on the Issuance of III. Policies and Guidelines
Electronic Letters of Authority, Tax Verification Notices, and Memoranda of
Assignment 1. BIR Form No. 1966, which will be used in printing the eLA under
the LAMS, shall be requisitioned from the Accountable Forms
August 11, 2010
Division (AFD) by the following approving revenue officials:
I. Background
Investigating Office Approving Official
Under RMO No. 62-2010, the manual issuance of Letters of

Revenue District Office Regional Director
Authority (LAs) for all investigating offices under the Regional Offices, the
LTS Audit Divisions Assistant Commissioner-LTS
Large Taxpayer Service (LTS), the Enforcement Service (ES), and the
various Task Forces and Special Teams authorized by the Commissioner
National Investigation
of Internal Revenue has been discontinued. This Order paved the way for Division
the issuance of electronic LAs (eLAs) through the Letter of Authority and Special Investigation
Monitoring System (LAMS). In the said RMO, the issuance of Tax Division Commissioner
Verification Notices (TVNs) has likewise been stopped, and instead, eLAs
were supposed to be issued for cases to be covered by TVNs under the
2010 Audit Program. 2. Only the Commissioner has system access to override eLAs
issued for purposes of replacing regular eLAs into National
Investigation Division (NID) or Special Investigation Division (SID)
Revenue Memorandum Circular (RMC) No. 61-2010 has been eLAs for Run After Tax Evaders (RATE) purposes. The Deputy
issued suspending temporarily the issuance of eLAs. Only the Commissioner for Legal and Inspection Group shall be given
Commissioner was allowed to manually issue and sign LAs. Likewise, the query access to the LAMS for purposes of determining if a regular
issuance of manual TVNs for One-Time Transaction (ONETT) cases eLA has already been issued to a taxpayer intended to be
subject to estate tax, donor’s tax, and transfers of properties subject to covered by the RATE program.
capital gains tax (CGT)/creditable withholding tax (CWT) and
documentary stamp tax (DST) related thereto was prescribed. RMC No.
56-2010, which disseminated the most recent policies on the audit of all
internal revenue for liabilities for the year 2009, was revoked under RMC 3. The Account Forms Division (AFD) shall not issue BIR Form No.
No. 61-2010. Further, RMO No. 64-2010 was issued to address security 1966 to the authorized revenue official unless all unused manual
features of the eLA forms. LAs (BIR Form No. 1965) issued to his office, including
offices/divisions under his jurisdiction, are surrendered and
II. Objectives accounted for as mandated under RMO No. 62-2010, as
1. To supersede RMC No. 61-2010 and amend certain provisions of amended, and RMC No. 61-2010.
RMO No. 62-2010, as amended by RMO No. 64-2010, specifically, on the
issuance of eLAs, TVNs, and Memoranda of Assignment (MOA); 4. Starting August 16, 2010, only eLAs printed on BIR Form No.
2. To replace manual LAs (BIR Form No. 1965) and prescribe the use of 1966 shall be issued by the Bureau for the audit/investigation of
eLAs (BIR Form No. 1966) for audit/investigation purposes, including tax liabilities, except estate tax cases.
verification of claims for tax credit/refund, taxpayers retiring from business
and taxpayers undergoing corporate reorganization, as prescribed under
RMO No. 62-2010, as amended; and
5. TVNs shall be issued for estate tax cases, irrespective of the proceedings conducted under the authority of the previously issued
amount of gross estate, until December 31, 2010. document.
6. All LAs, whether manual or electronic, issued from March 1, 2010 10. The time frame to submit the report of the case shall likewise be from
covering cases for 2009 and other taxable years, as well as LAs the date of the previously issued authorizing document, if applicable.
issued by the Commissioner pursuant to RMC No. 61-2010, shall Report of investigation/verification of cases pursuant to this order shall
be retrieved and replaced with the new eLA form (BIR Form No. be submitted by the Revenue Officer within the following prescribed
1966). numbers of calendar days:
7. All revenue officers ordered to conduct investigation/audit through Cases covered by eLAs
manually issued LAs prior to July 1, 2010 should continue the
other than VAT claims
conduct of audit/investigation, subject to the retrieval and
replacement of LAs as mandated under Item No. III 6 of this For refund/credit - 180 days
Order. Estate tax cases covered by
TVNs - 60 days
8. Manual serially-numbered MOA shall be issued for the following Cases covered by eLAs on
cases: VAT claims - 60 days from
8.1 Reassignment for the continuation of the audit/investigation of submission of
a case to another RO due to resignation/retirement/transfer of complete
the original RO; documents
8.2 Assignment to the original RO of returned cases by the
reviewing office and reassignment to another RO of returned MOA on ONETT cases - 5 days from
cases in case of resignation/retirement/transfer of the original submission of
RO;
8.3 Reassignment to another RO due to referral of the case to complete
another investigating office (e.g., cases referred to SID by the documents
RDO);
8.4 ONETT cases (Capital gains tax/creditable withholding tax MOA on protested cases/ - 60 days from
and documentary stamp tax involving transfers of real
property or shares of stock and donor’s tax); and cases for reinvestigation submission of
8.5 Protested cases/cases for reinvestigation. complete
documents
9. TVNs/MOA/Referral Memos issued for the period March 1, 2010 up to in cases of request
the present should all be retrieved and converted to the appropriate for
documents to be issued under this Order (e.g. LAs issued for estate reinvestigation;
should be converted to TVN, TVN issued for Donation or other
ONETT transactions should be converted to MOA). The replacement 60 days from date of
eLA/TVNs/MOA should bear the current date but should refer to the MOA in case of
investigation authority that preceded it, and have such cancelled request for
document as an attachment. Though currently dated, the replacement reconsiderationn
eLA/TVN/MOA will thus be deemed as issued at the same date with 11. Taxpayers should not entertain audit/investigation using TVNs or
the preceding document and will not nullify the investigation or
MOAs for taxable year 2009 unless for the specified cases in the
preceding paragraphs. SUMMARY OF RMO 69-2010
RMO 69-2010 issued on August 11. 2010 provides for the guidelines on the
12. The following policies and procedures in the verification, review of issuance of electronic Letters of Authority (eLAs), Tax Verification Notices
tax returns and issuance of Certificate Authorizing Registration (TVNs) and Memoranda of Assignment (MOA).
(CAR) prescribed under RMO No. 15-2003 shall be observed for
ONETT cases covered by TVNs and MOA. A Letter of Authority (LA) is an official document that empowers a Revenue
Officer to examine and scrutinize a Taxpayer’s books of accounts and other
accounting records, in order to determine the Taxpayer’s correct internal
12.1 The Checklist of Documentary Requirements and ONETT revenue tax liabilities. Under RMO 69-2010, the issuance of manual LAs is
Computation Sheet prescribed in Annexes A to A 8 and now replaced by electronic Letters of Authority (eLAs) through the Letter of
Annexes B to B4, respectively, under RMO No. 15-2003 shall Authority Monitoring System (LAMS) for audit/investigation purposes,
be accomplished by the Revenue Officer (RO), instead of the including verification of claims for tax credit or refund, taxpayers retiring from
Revenue Officer’s Audit Report (BIR Form No. 0500 Series), business and taxpayers undergoing corporate reorganization.
However, the RO shall follow reporting requirements under  Only the Commissioner of Internal Revenue has system access to
existing issuances for the audit of other tax liabilities of the override eLAs issued for purposes of replacing regular eLAs into
decedent. National Investigation Division (NID) or Special Investigation Division
(SID) eLAs for Run After Tax Evaders (RATE) purposes.
12.2 The CARs for ONETT, including estate tax cases, shall
 The Accountable Forms Division shall not issue the new eLA form
be issued by the Revenue District Officer after verification of
(BIR Form No. 1966) to the authorized revenue official unless all
the tax liabilities, prior to review by the Assessment Division,
unused manual LAs issued to his office, including offices/divisions
notwithstanding the pending investigation of the other internal
under his jurisdiction, are surrendered and accounted for.
revenue tax liabilities of the estate, if any. Nonetheless, audit
of other tax liabilities shall be pursued relentlessly by the  Starting August 16, 2010, only eLAs printed on BIR Form No. 1966
shall be issued by the BIR for the audit/investigation of tax liabilities,
concerned investigating office. In addition, the CAR may be
issued on the deed of sale of property belonging to an estate except Estate Tax cases. TVNs shall be issued for Estate Tax cases
irrespective of the amount of gross estate until December 31, 2010.
where the correct amounts of both the estate tax and the
taxes on the sale (CGT/CWT and DST) have been paid, and  All LAs, whether manual or electronic, issued from March 1, 2010
a CAR has already been issued for the transfer of the covering cases for 2009 and other taxable years, as well as LAs
property of the estate, even if no title has been issued yet to issued by the Commissioner pursuant to RMC No. 61-2010, shall be
the heirs of the decedent. retrieved and replaced with the new eLA form (BIR Form No. 1966).
All revenue officers ordered to conduct investigation/audit through
12.3 The review of ONETT cases shall be conducted by the manually issued LAs prior to July 1, 2010 should continue the conduct
Assessment Division in accordance with the policies set forth of audit/investigation, subject to the retrieval and replacement of LAs.
in Item Nos. II.26 and 27 of RMO No. 15-2003. 
Tax Verification Notice shall be issued for estate tax, irrespective of the
IV. Repealing Clause amount of gross estate, until Dec. 31, 2010.
All revenue issuances or portions thereof, which are Manual serially-numbered MOA shall be issued for the following cases:
inconsistent herewith, are hereby repealed accordingly. b. Reassignment for the continuation of the audit/investigation of a
case to another Revenue Officer (RO) due to
V. Effectivity resignation/retirement/transfer of the original RO;
This Order shall take effect immediately.
c. Assignment to the original RO of returned cases by the required in certain situations, as prescribed in the existing Revenue
reviewing office and reassignment to another RO of returned Memorandum Orders (RMOs) on the Letter Notice System.
cases in case of resignation/retirement/transfer of the original
RO;
d. Reassignment to another RO due to referral of the case to Revenue Memorandum Circular No. 40-2003 (July 3, 2003)
another investigating office (e.g., cases referred to SID by the
RDO); Subject: Effect of the Issuance and Receipt of Letter Notice to the
e. One-time transaction (ONETT) cases; and Taxpayer’s Right to Amend its Taxpayer’s Right to Amend its Tax
f. Protested cases/cases for reinvestigation. Returns as Provided under Section 6 of the National Internal
Revenue Code
Taxpayers should not entertain audit/investigation using TVNs or MOAs for
taxable year 2009 unless for cases specified in the Order.
QUERY: Whether or not the Letter Notice (LN) being served by the
Bureau upon taxpayers who were found to have under-declared their
RMO 55-2010 sales or purchases through the Third Party Information Program can be
RMO 55-2010 – Revision in the Procedures on the Issuance of Letters of considered a notice of audit or investigation which would in effect
disqualify the taxpayers concerned from amending any return which is the
Authority
subject of such audit or investigation. – YES.
June 15, 2010
The Deputy Commissioner for Legal and Inspection Group opines and I
In observance of the decision of the Court of Tax Appeals in CTA (then Commissioner Parayno) quote:
Case No. 7093 (dated 22 February 2006), which upheld the provisions of
Revenue Memorandum Circular No. 40-2003 relative to the treatment of the HELD: “LN being served by the Bureau upon taxpayers who were found
Letter Notice (LN) as a “notice of audit or investigation in the absence of to have underdeclared their sales or purchases through the Third Party
evident error or clear abuse of discretion”, and in order to expedite the Information Program can be considered a notice of audit or investigation
processing of LN cases, the issuance of Notices of Informal Conference which would in effect disqualify the taxpayers concerned from amending
may immediately commence, even without the prior issuance of Letters of any return which is the subject of such audit or investigation.”
Authority (LA), as required in certain situations, as prescribed in the existing
Revenue Memorandum Orders (RMOs) on the LN System.
(Original Signed)
This Order amends the pertinent provisions of RMO No. 7-2010, all GUILLERMO L. PARAYNO, JR.
previous RMOs concerning the Tax Reconciliation System (RMO No. 28-
2007, as amended by RMO No. 4-2008); the RELIEF / SLSP System (RMO Commissioner
No. 30-2003, as amended by RMO Nos. 42-2003, 24-2004, 32-2005, 32-
2007 and 36-2008); and the Third-Party Matching – BOC Data Program
(RMO No. 34-2004, as amended by RMO Nos. 46-2004, 32-2005 and 32-
2007), and all other relevant issuances.
This Order shall take effect immediately.
The issuance of notices of Informal Conference may now immediately

commence, even without the prior issuance of Letters of Authority (LA), as
REMEDIES agreed upon as provided in paragraph (b) hereinabove, 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 five (5) -year period. The period so
SECTION 203. Period of Limitation Upon Assessment and Collection. agreed upon may be extended by subsequent written agreements made
– Except as provided in Section 222, internal revenue taxes shall be before the expiration of the period previously agreed upon.
assessed within three years after the last day prescribed by law for the
filing of the return, and no proceeding in court without assessment for the (e) Provided, however, That nothing in the immediately preceding and
collection of such taxes shall be begun after the expiration of such period; paragraph (a) hereof shall be construed to authorize the examination and
Provided, That in a case where a return is filed beyond the period investigation or inquiry into any tax return filed in accordance with the
prescribed by law, the three (3)-year period shall be counted from the day provisions of any tax amnesty law or decree.
the return was filed. For purposes of this Section, a return filed before the
last day prescribed by law for the filing thereof shall be considered as filed
on such last day. SECTION 223. Suspension of Running of Statute of Limitations. –
The running of the Statute of Limitations provided in Sections 203 and 222 on
SECTION 222. Exceptions as to Period of Limitation of Assessment the making of assessment and the beginning of distraint or levy a proceeding in
and Collection of Taxes. – court for collection, in respect of any deficiency, shall be suspended for the
period during which the Commissioner is prohibited from making the
(a) In the case of a false or fraudulent return with intent to evade tax or of assessment or beginning distraint or levy or a proceeding in court and for sixty
(60) days thereafter; when the taxpayer requests for a reinvestigation which is
failure to file a return, the tax may be assessed, or a proceeding in court for
granted by the Commissioner; when the taxpayer cannot be located in the
the collection of such tax may be filed without assessment, at any time
address given by him in the return filed upon which a tax is being assessed or
within ten (10) years after the discovery of the falsity, fraud or omission:
collected: Provided, that, if the taxpayer informs the Commissioner of any
Provided, That in a fraud assessment which has become final and executory,
change in address, the running of the Statute of Limitations will not be
the fact of fraud shall be judicially taken cognizance of in the civil or criminal suspended; when the warrant of distraint or levy is duly served upon the
action for the collection thereof. taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the taxpayer is
(b) If before the expiration of the time prescribed in Section 203 for the out of the Philippines.
assessment of the tax, both the Commissioner and the taxpayer 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.
(c) Any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by distraint
or levy or by a proceeding in court within five (5) years following the COMMISSIONER OF INTERNAL REVENUE v. BF GOODRICH
assessment of the tax. PHILS., INC. (Lim, J.)
[G.R. No. 104171; February 24, 1999]
(d) Any internal revenue tax, which has been assessed within the period “Lagpas 5 years na, mag-move on ka na”
o In compliance with this requirement, Goodrich purchased from

Recit-Ready: the government lands in Basilan (under the Parity Amendment in
Facts: BF Goodrich Phils., Inc. was an American-owned and controlled 1935 Constitution) and developed a rubber plantation.
corporation. As a condition for approving the manufacturing  More than a decade later, the justice secretary gave an opinion stating
business, the Central Bank of the Philippines required that it that, upon the expiration of the Parity Amendment, the ownership rights
should develop a rubber plantation. In compliance with this of Americans over public agricultural lands would be lost.
requirement, Goodrich purchased from the government lands in o Because of this, Goodrich sold to Siltown Realty Philippines, Inc.
Basilan under Parity Amendment. More than a decade later, the its land for P500,000 in 1974 and filed a return and paid.
justice secretary gave an opinion that, upon the expiration of the o In accord with the terms of the sale, Siltown leased the land to
Parity Amendment, the ownership rights of Americans over public Goodrich for a period of 25 years, with an extension of another
agricultural lands would be lost. Because of this, Goodrich sold to 25 years at the latter’s option.
Siltown its land in 1974 and filed a return and paid. Goodrich was  Based on the BIR’s LOA No. 10115, Goodrich was examined for the
examined and assessed for tax deficiency in 1975, which it paid. purpose of determining its tax liability for 1974.
Subsequently, BIR examined Siltown issued against Goodrich an o The examination resulted in the assessment of deficiency income
assessment in 1980 for deficiency in donor’s tax because it tax in the amount of P6,005.35, which it duly paid (1st
deemed the difference between the fair market value and the Assessment).
actual purchase price a taxable donation. Goodrich received  Subsequently the BIR also issued 2 additional LOAs for the purpose of
another assessment in 1981. Goodrich appealed the last two examining Siltown.
assessments to the CTA contending it has prescribed. CTA o BIR issued Goodrich an assessment for deficiency in donor’s tax
ordered Goodrich to pay the amount. Goodrich appealed to CA, in the amount of P1,020,850, in relation to the previously
which reversed the CTA. Hence, this petition. mentioned sale of its Basilan landholdings to Siltown (2nd
Assessment).
Issue/s: o Apparently, the BIR deemed the consideration for the sale
WON the right to assess already prescribed? YES. insufficient, and the difference between the fair market value and
the actual purchase price a taxable donation.
Held: In ruling for Goodrich, the court said that it has already  Goodrich contested this assessment. However, it received another
prescribed. Sec. 331 of NIRC gives 5 years from the filing of assessment which increased to P1,092,949 (3rd Assessment).
return to be assessed. In this case, since the return was filed on  Goodrich appealed the correctness and the legality of these last two
1974, thus the 2nd and 3rd assessment is invalid for having assessments to the CTA.
already prescribed. The alleged falsity by Goodrich was not o CTA ordered Goodrich to pay the amount plus interest and
proven by BIR and, if proven, is not one of the exceptions to surcharge.
prescription of such right in Sec. 332 of NIRC.  Goodrich elevated the matter to the CA, which reversed the CTA.
Facts: o It held that what is involved here is not a first assessment; nor is
 BF Goodrich Phils., Inc. was an American-owned and controlled it one within the 5-year period stated in Section 331.
corporation. o It was the 2nd and 3rd assessment that has prescribed.
 As a condition for approving the manufacturing of tires and other rubber  Hence, this Petition for Review under Rule 45 of the Rules of Court.
products, the Central Bank of the Philippines required that it should
develop a rubber plantation. Issue/s:
WON the right to assess already prescribed? o It is possible that real property may be sold for less than
—YES adequate consideration for a bona fide business purpose; in
such event, the sale remains an arm’s length transaction.
o In the present case, the private respondent was compelled to
Held/Ratio: Petition DENIED.
sell the property even at a price less than its market value,
YES. It has already prescribed since the return was filed in 1974 and the because it would have lost all ownership rights over it upon the
assessment was given on 1980 and 1981. expiration of the parity amendment.
 Applying Sec. 331 of NIRC1 to the facts at hand, it is clear that the 2nd and o In other words, private respondent was attempting to minimize
3rd Assessments were issued by the BIR beyond the five-year statute of its losses.
limitations. o At the same time, it was able to lease the property for 25
years, renewable for another 25. This can be regarded as
 For the purpose of safeguarding taxpayers from any unreasonable
another consideration on the price.
examination, investigation or assessment, our tax law provides a statute
 Furthermore, the fact that private respondent sold its real property for a
of limitations in the collection of taxes. price less than its declared fair market value did not by itself justify a
o Thus, the law on prescription, being a remedial measure, should finding of false return.
be liberally construed in order to afford such protection. o Indeed, Goodrich declared the sale in its 1974 return.
o As a corollary, the exceptions to the law on prescription should o Within the five-year prescriptive period, the BIR could have
be strictly construed. issued the questioned assessment, because the declared fair
 The petitioner claims that there was falsity in the filing of the return, hence market value of said property was of public record.
it is an exception to the prescriptive period. o However, it was not done during those five years.
 This was denied by the Court and said that it is an exclusive list.  BIR failed to show that Goodrich's 1974 return was filed fraudulently with
o Section 332 of the NIRC 2 enumerates the exceptions to the intent to evade the payment of the correct amount of tax.
period of prescription.  Moreover, the fact that the sale transaction may have partly resulted in a
o Petitioner insists that Goodrich committed falsity when it sold donation does not change the fact that private respondent already
the property for a price lesser than its declared fair market reported its income for 1974 by filing an income tax return.
value.  Since the BIR failed to demonstrate clearly that private respondent had
o This fact alone did not constitute a false return which contains filed a fraudulent return with the intent to evade tax, or that it had failed to
wrong information due to mistake, carelessness or ignorance. file a return at all, the period for assessments has obviously prescribed.
 Such instances of negligence or oversight on the part of the BIR cannot
prejudice taxpayers, considering that the prescriptive period was
precisely intended to give them peace of mind.
1 SEC. 331. Period of limitation upon assessment and collection. Except as provided in
the succeeding section, internal-revenue taxes shall be assessed within five years after
BASILAN ESTATES, INC. v. CIR (Lim, Q.)
the return was filed, and no proceeding in court without assessment for the collection [GR. No. L-22492; September 5, 1967]
of such taxes shall be begun after expiration of such period. For the purposes of this “Hindi kailangan makuha mo within the five-year prescriptive period, basta
section, a return filed before the last day prescribed by law for the filing thereof shall be mapadala sayo yung notice within the five year period.”
considered as filed on such last day: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code. Recit-Ready:
2 SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. -
Facts: Basilan Estate was assessed for deficiency of its income tax
- (a) In the case of a false or fraudulent return with intent to evade a tax or of a failure
to file a return, the tax may be assessed, or a proceeding in court for the collection of returns for 1953 but Basilan claims that the period for assessment
such tax may be begun without assessment, at any time within ten years after the and collection has already prescribed.
discovery of the falsity, fraud, or omission: xxx.
o BUT the petitioner claims that it never received notice of such

Issue/s: assessment or if it did, it received the notice beyond the five-year
WON the Commissioner’s right to collect deficiency income tax prescriptive period.
prescribed? –NO.  The petitioner to support its claim of prescription claims that the
annotation on the notice: “No accompanying letter 11/25/” is advanced as
Held: indicative of the fact that receipt of the notice was after March 24, 1959,
The notice of assessment shows that the assessment was made the last date of the five-year period within which to assess deficiency tax,
on February 26, 1959, well within the five-year period. On the right since the original returns were filed on March 24, 1954.
side of the notice is also stamped “Feb. 26, 1959”—denoting the
date of release of the notice, according to Bureau of Internal Issue/s:
Revenue practice. Besides, even granting that notice had been WON the Commissioner’s right to collect deficiency income tax
received by the petitioner late, as alleged, under Section 331 of the prescribed?
Tax Code requiring five years within which to assess deficiency —NO
taxes, the assessment is deemed made when notice to this (*There were other issues but the other issues are not related to our topic
effect is released, mailed or sent by the Collector to the anymore.)
taxpayer and it is not required that the notice be received by
the taxpayer within the aforementioned five-year period. Held/Ratio: Petition is affirmed insofar as the petitioner is liable for
P2,100.67 as deficiency income tax for 1953.
Facts:
 A Philippine corporation engaged in the coconut industry, Basilan NO. Assessment is deemed made when notice to this effect is released,
Estates, Inc. filed on March 24, 1954 its income tax returns for 1953 and mailed or sent by the Collector to the taxpayer and it is not required
paid an income tax of P8,028. that the notice be received by the taxpayer within the aforementioned
 On February 26, 1959, the Commissioner of Internal Revenue, per five-year period.
examiners’ report of February 19, 1959, assessed Basilan Estates, Inc., a o The notice of assessment shows that the assessment was made on
deficiency income tax of P3,912 for 1953 and P86,876.85 as 25% February 26, 1959, well within the five-year period.
surtax on unreasonably accumulated profits as of 1953 pursuant to o On the right side of the notice is also stamped “Feb. 26, 1959”—
Section 25 of the Tax Code. denoting the date of release of the notice, according to Bureau of
Internal Revenue practice.
 On December 20, 1960, Basilan Estates, Inc. filed before the Court of
o The Commissioner himself in his letter answering petitioner’s request
Tax Appeals a petition for review of the Commissioner’s assessment, to lift the warrant of distraint and levy, asserts that notice had been
alleging prescription of the period for assessment and collection; sent to petitioner.
error in disallowing claimed depreciations, travelling and miscellaneous o In the letter of the Regional Director forwarding the case to the Chief
expenses; and error in finding the existence of unreasonably of the Investigation Division which the latter received on March 10,
accumulated profits and the imposition of 25% surtax. 1959, notice of assessment was said to have been sent to petitioner.
 The Court of Tax Appeals found that there was no prescription and o Subsequently, the Chief of the Investigation Division indorsed on
affirmed the deficiency assessment in toto. March 18, 1959 the case to the Chief of the Law Division, There it was
 There is no dispute that the assessment of the deficiency tax was alleged that notice was already sent to petitioner on February 26,
made on February 26, 1959; 1959.
o These circumstances pointing to official performance of duty must the return or from the date the return is filed, whichever comes
necessarily prevail over petitioner’s contrary interpretation. later. Since the tax return was filed in April 1980, the assessment
o Besides, even granting that notice had been received by the petitioner made on July 16, 1984 was beyond the 3-year prescriptive
late, as alleged, under Section 331 of the Tax Code requiring five period.
years within which to assess deficiency taxes, the assessment is
deemed made when notice to this effect is released, mailed or Issue/s:
sent by the Collector to the taxpayer and it is not required that WON government’s right to assess has prescribed. -- NO
the notice be received by the taxpayer within the aforementioned
five-year period. Held: The shortened period of 3 years prescribed under BP700 is not
applicable to petitioner. BP700, effective April 5, 1984,
Prescription Of Government’s Right To Assess specifically states that the shortened period of 3 years shall apply
to assessments and collections of internal revenue taxes
Tupaz vs. Ulep (Luna) beginning taxable year 1984. Assessments made on or after April
[GR. No. 127777; October 1, 1999] 5, 1984 are governed by the 5-year period if the taxes assessed
“Internal revenue taxes are self-assessing and no further assessment by the cover taxable years prior to January 1, 1984. The deficiency
government is required to create the tax liability.” income tax under consideration is for taxable year 1979. Thus,
the period of assessment is still 5 years, under the old law. The
*being a case on prescription, take note of timeline! income tax return was filed in April 1980. Hence, the July 16,
Recit-Ready: 1984 tax assessment was issued within the prescribed period of
Facts: June 8, 1990, an information against accused Petronila C. Tupaz 5 years, from the last day of filing the return, or from the date the
and her late husband Jose J. Tupaz, Jr., as corporate officers of return is filed, whichever comes later.
El Oro Engravers Corp., was filed for non-payment of deficiency
corporate in come tax for the year 1979 in violation of Sec. 51(b) Internal revenue taxes are self-assessing and no further
in relation to Sec. 73 of the 1977 Tax Code. The information was assessment by the government is required to create the tax
dismissed for the lack of jurisdiction by the MeTC Q.C. liability. An assessment, however, is not altogether
January 10, 1991, 2 informations were filed before the RTC of inconsequential; it is relevant in the proper pursuit of judicial and
Q.C. against spouses for the same alleged non-payment of extrajudicial remedies to enforce taxpayer liabilities and certain
deficiency corporate income tax for the year 1979. matters that relate to it, such as the imposition of surcharges and
Prior to this, petitioner was charged with nonpayment of interest, and in the application of statute of limitations and in the
deficiency corporate income tax for the year 1979, which tax establishment with tax liens.
return was filed in April 1980. On July 16, 1984, the BIR issued a
notice of assessment. Petitioner contends that the July 16, 1984 Facts:
assessment was made out of time.  State Prosecutor Molon filed w/ the MTC an information against Petronilla
Petitioner avers that while Sec. 318 and 319 of the 1977 NIRC Tupaz and her late husband Jose Tupaz as corporate officers of El Oro
provide a 5-year period of limitation for the assessment and Engravers Corp, for non-payment of deficiency corporate income taxes
collection of internal revenue taxes, BP 700, enacted on February for year 1979. MTC dismissed the case for lack of jurisdiction.
22, 1984, amended the 2 sections and reduced the period to 3  7 months later, Monlon filed w/ the RTC 2 informations against the
years to assess the tax liability, counted from the last day of filing accused and her late husband for the same alleged nonpayment of
deficiency corp income. Case 1 was raffled to Judge Ulep (Branch 105) shortened period of three years shall apply to assessments and
while Case 2 was raffled to Judge Solano (Branch 86). collections of internal revenue taxes beginning taxable year
 Accused filed w/ RTC Branch 86 (Case 2) a motion to dismiss /quash the 1984. Assessments made after April 5, 1984 are governed by the 5-
information since it was exactly the same as the information against the year period if the taxes assessed cover taxable years prior to Jan. 1,
accused pending before RTC Branch 105. This was denied. 1984.
 In the meantime, Jose Tupaz died.  The deficiency income tax under consideration is for taxable year
 Petronilla Tupaz filed w/ the RTC Branch 105 a Petition For 1979 so the period of assessment is still 5 years, under the old
Reinvestigation, which Judge Ulep granted. RTC subsequently arraigned law.
Petronilla.  Art 22 of the RPC does NOT apply because provisions on the
 2 years later, Judge Ulep issued an order directing the prosecution to period of assessment are NOT penal in nature.
withdraw the information in Case 2, after discovering that said information o Also, the offense has not prescribed.
was identical to the one filed with his branch.  Petitioner was charged with failure to pay deficiency income tax
 Thus, State Prosecutor Agcaoili filed a motion to withdraw information in after repeated demands by the taxing authority. By its nature,
Case 1. Judge Ulep granted the motion for withdrawal of the information the violation could only be committed AFTER service of notice
and dismissed the case. and demand for payment of the deficiency taxes upon the
 Prosecutor Agcaoili filed with Branch 105 a motion to reinstate taxpayer.
information, stating that the motion to withdraw information was made  Hence, it cannot be said that the offense has been committed as
through palpable mistake, and was the result of excusable neglect. early as 1980, upon filing of the income tax return. This is so
Reinstatement was granted. because prior to the finality of the assessment, the taxpayer has
 Tupaz filed a motion for reconsideration, w/c was denied. Tupaz contends NOT committed any violation for nonpayment of the tax.
that:  The offense was committed only after the finality of the
o the period of assessment has prescribed, applying the 3 year assessment coupled with taxpayer’s willful refusal to pay the
prescriptive period taxes within the allotted period.
o offense has prescribed since the complaint for preliminary  In this case, when the notice of assessment was issued on July
investigation was filed w/ the DOJ only on June 1989 and the 16, 1984, the taxpayer still had 30 days from receipt thereof to
offense was committed in April 1980 when she filed the income tax protest or question the assessment. Otherwise, the assessment
return for the year 1989 would become final and unappealable.
 As he did not protest, the assessment became final and
Issue/s: unappealable on Aug 16, 1984.
WON the period of assessment had prescribed and w/n the offense had  Consequently, when the complaint for preliminary investigation
prescribed. was filed with the DOJ on June 8, 1989, the criminal action was
—NO instituted within the 5 year prescriptive period.
o Note: The 5-yr period to collect begins to toll from the finality of
Held/Ratio: Petition DENIED. assessment, not from the filing of the ITR.
o On double jeopardy The reinstatement of the information would
NO. expose her to double jeopardy. An accused is placed in double jeopardy
o The shortened period of 3 years to prescribe under B.P. Blg. 700 is if he is again tried for an offense for which he has been convicted,
not applicable to petitioner. The said law specifically states that the acquitted or in another manner in which the indictment against him was
dismissed without his consent. In the instant case, there was a valid proved. In this case, CIR utterly failed to prove by substantial
complaint filed against petitioner to which she pleaded not guilty. The evidence that the assessment notice dated March 30, 1955, and
court dismissed the case at the instance of the prosecution, without the other supposed written demand letters, were in fact issued or
asking for accused-petitioner’s consent. This consent cannot be implied sent to taxpayer Nava.
or presumed. Such consent must be expressed as to have no doubt as
to the accused’s conformity. As petitioner’s consent was not expressly
given, the dismissal of the case must be regarded as final and with
prejudice to the re-filing of the case. Consequently, the trial court
committed grave abuse of discretion in reinstating the information
against petitioner in violation of her constitutionally protected right Facts:
against double jeopardy.  On May 25, 1951, Nava filed his income tax return for the year 1950, and
NAVA v. CIR (Pascual) on the same date, he was assessed by respondent CIR the sum of
[GR. No. L-19470; January 30, 1965] P4,952 based solely on said return.
“Nava, nava, nava, got to send the letter. #TeamTaylor”  On March 30, 1955, after investigation of petitioner’s 1950 tax return,
respondent CIR claimed to have issued a deficiency income tax
Recit-Ready: assessment notice.
Facts: Nava filed an income tax return for the year 1950 on May 25, o Nava, however, claimed that he had learned of it for the first
1951 and received its corresponding assessment from time only on December 19, 1956, more than 5 years since
respondent CIR. Later, CIR allegedly issued a deficiency income the original tax return was filed.
tax return on March 30, 1955—which would have been within the o The CIR insisted on the demand, however, and so Nava
prescriptive period—but petitioner claimed to have learned of it asked for reconsideration, contending that the enforcement
for the first time on December 19, 1956, which was more than 5 of the tax assessment had prescribed.
years since the original tax return was filed. In court, respondent  Nava was then informed that reinvestigation would
presented witnesses to testify as to the fact of the issuance of the be granted provided that he waive the statute of
deficiency assessment but said witnesses admitted having no limitations, a condition which he rejected, and so
personal knowledge of such. Nava admitted to having received a the CIR denied his request for reassessment.
“second final notice” of the assessment on December 19, 1956.  On appeal, the CTA ruled that the action had not prescribed, finding that
The CTA ruled that Nava’s admission of receiving the second petitioner’s claim of only receiving notice of the assessment on or about
final notice served as an indication that he had received the December 19, 1956, could not be given much credence.
previous notices. o They found that as petitioner had admitted receipt of the
“second final notice” without protest, it was an indication
Issue/s: WON the enforcement of the tax assessment had that he had received the previous notices.
prescribed?—YES o Thus, the case before the SC.
 Note: Magulo yung supposed timeline of events so I’ll break it down here
Held: YES. While it has been held that an assessment is made when na lang.
sent within the prescribed period, even if received by the taxpayer o May 15, 1951—Filing of Nava’s Income Tax Return
after its expiration, it is all the more imperative that the release, (Undisputed)
mailing, or sending of the notice be clearly and satisfactorily
o March 30, 1955—Alleged issuance of deficiency income tax o The presumption that a letter duly directed and mailed was
assessment notice. (Unproven) received in the regular course of mail cannot be applied to
 CIR presented witnesses to attempt to establish the case at bar.
that the original copy of the notice was actually  Requirements to Raise the Presumption:
sent on said date but the witnesses admitted  That the letter was propely addressed with
having no personal knowledge of its issuance. postage prepaid;
o April 10, 1956—Alleged sending of the first of several “call  That it was mailed.
up letters.” (Unproven) o In this case, the fact that Nava acknowledged receipt of the
 Here, the CIR was not even able to present any second final notice personally delivered to him is no proof
witnesses to establish that the letters were actually that he received the first notice by mail.
sent nor was there proof that a copy of such letters  As it was undisputed that an original assessment of
even existed in the BIR’s files. Nava’s 1950 income tax return was made on May
o December 19, 1956—Nava certified to the petitioner that he 15, 1951, and no valid and effective notice of the
had received the “second final notice” of the assessment reassessment had been made against the
and that his reply would be sent the following month. petitioner after that date, it is evident that the
 Thus, this was the first confirmed instance that the period under the Tax Code within which to make a
notice to Nava was actually sent but it was beyond re-assessment expired on May 15, 1956.
the 5-year prescriptive period.  Since the notice of said deficiency income tax was
o January 10, 1957—Nava called attention to the fact that the effectively made on December 19, 1956, at the
assessment was beyond the prescriptive period. earliest, the judicial action to collect any deficiency
(Undisputed) tax had already prescribed.
Issue/s:
REPUBLIC OF THE PHILIPPINES v. CA (Ocampo)
WON the enforcement of the tax assessment had prescribed?—YES [G.R. No. L-38540; April 30, 1987]
“Properly served follow-up letter reiterating previous assessment can be
Held/Ratio: WHEREFORE, the decision of the Court of Tax Appeals is considered as a letter of assessment in case there is failure to serve the
REVERSED. original letter of assessment.”
YES. While it has been held that an assessment is made when sent within Recit-Ready:
the prescribed period, even if received by the taxpayer after its expiration, it Facts: Petitioner sent a demand letter to private respondent assessing
is all the more imperative that the release, mailing, or sending of the notice the latter for deficiency taxes. Petitioner sent follow-up letters to
be clearly and satisfactorily proved. reiterate its demand for such deficiency taxes. Private respondent
o In this case, respondent CIR utterly failed to prove by substantial failed to contest said demand letter to the CTA. Thus, petitioner
evidence that the assessment notice dated March 30, 1955, and the filed a complaint for collection of said deficiency tax. The CA
other supposed written demand letters, were in fact issued or sent to dismissed the complaint on the ground that the first demand letter
taxpayer Nava. was not properly served upon the private respondent.
Issue/s:
1) WON the CA erred in not holding that the letter of assessment dated  On November 26, 1963, petitioner filed another complaint for the
July 16, 1955 was received by private respondent collection of the tax. The CFI of Manila order private respondent to pay
2) WON the CA erred in not holding that the letter dated September 19, the Government of the Philippines the amount of P11,496.00.
1956 is itself an assessment which was duly received by the private  However, said decision was reversed by the CA on the ground that there
respondent was no proper service of the letter of assessment dated July 16, 1955
(Note that this ground of reversal was only inferred from the case as the
Held: body of the decision did not state it directly in its narration of facts.)
 Petitioner contends that if service is made by ordinary mail, unless the
1) NO. The Court held that petitioner’s contention that the letter was actual date of receipt is shown, service is deemed completed and
deemed received by private respondent since the letter did not return effective upon expiration of 5 days after mailing as provided in the Rules
to the petitioner as a mere rebuttable presumption only. Records show of Court. Petitioner claims that the demand letter showed an imprint
that private respondent did not admit that it received said letter from indicating that the original thereof was released and mailed on August 4,
petitioner. Thus, the burden of proof to show that the letter was 1955 by the Chief, Records Section of the BIR, and that the original letter
received by private respondent shifts again to petitioner. However, was not returned to the BIR. Thus, said letter must be considered to have
petitioner failed to show any proof to such effect. Hence, the CA did been received by private respondent.
not err in holding that private respondent did not receive the letter
dated July 16, 1955. Issues:
2) YES. The Court held that the follow-up letter is considered a notice of 1) WON the CA erred in not holding that the letter of assessment dated
assessment in itself, which was duly received by private respondent in July 16, 1955 was received by private respondent
accordance with its own admission. —NO
2) WON the CA erred in not holding that the letter dated September 19,
Facts: 1956 is itself an assessment which was duly received by private
 On July 16, 1955 the Commissioner of Internal Revenue wrote a demand respondent
letter against private respondent, Nielson & Company, Inc. assessing the —YES
latter deficiency taxes for the years 1949 to 1952 amounting to
P14,449.00. Its breakdown is as follows: Held/Ratio: Accordingly, the appealed decision is hereby reversed. The
o Ad valorem tax – P7,320.00 decision of the Court a quo is hereby reinstated. No costs.
o Surcharge for late payment – P1,830.00
o Occupation fees – P4,920.00 1) No. Petitioner’s contention is merely a rebuttable presumption and a
o Additional residence tax – P303.20 direct denial of the receipt thereof shifts the burden upon petitioner
o Surcharge for late payment – P75.00 to prove that the mailed letter was indeed received by the
 Petitioner reiterated its demand upon private respondent through letters addressee.
dated April 24, 1956, September 19, 1956, and February 9, 1960. o The Court cited the decision of CA in which petitioner argued that
 Private respondent did not contest this assessment in the CTA. On the private respondent admitted the fact of release of letter. Hence, such
theory that the assessment has become final and executory, petitioner admission is proof that the latter received the mailed notice of
filed a complaint for the collection of said amount against private assessment. However, the CA held that private respondent did not
respondent with the CFI of Manila. However, for failure to serve summons make such admission in its answer or in any of its other pleadings
upon private respondent, the complaint was dismissed without prejudice. filed in the trial court.
o Since petitioner has not adduced proof that that private respondent Held: YES. The assessment had long become final and executor
had in fact received the demand letter dated July 16, 1955, the Court and the CTA no longer had jurisdiction. Without going into the
held that it cannot be assumed that the private respondent received merits of the decision absolving the respondent corporation of tax
said letter. liability, we find that the assessment made by the Commissioner
should be maintained, for the simple reason that when the
2) YES. The follow-up letter dated September 19, 1956 is considered a petition for review was brought to the CTA by the respondent
notice of assessment itself. corporation, the said Court no longer had jurisdiction to entertain
o The Court held that the records show that petitioner wrote private the same. The assessment had long become final. A petition for
respondent a follow-up letter dated September 19, 1956 reiterating its review should be presented, within the reglementary period,
demand for payment of taxes originally demanded in the former’s as provided for in Section 11, Republic Act No. 1125, which
letter dated July 16, 1955. is "thirty (30) days from receipt of the assessment." The thirty
o The Court held that the follow-up letter is considered a notice of (30) day period is jurisdictional. It will be noted that the
assessment in itself, which was duly received by private respondent in assessment was received by the respondent corporation on
accordance with its own admission. March 2, 1959. It was only on June 29, 1959, when said
o The Court further held that the assessment is appealable to the CTA corporation formally assailed the assessment.
within 30 days from receipt of letter. Private respondent’s failure to
appeal in due time makes the assessment in question final, executory
and demandable. Facts: DATES MATTER HERE
 March 2, 1959 – Western Pacific Corporation (WPC) was assessed for
CIR v. WESTERN PACIFIC CORPORATION (Ong) P3,731 as deficiency income tax for the year 1953. This was brought
[GR. No. L-18804; May 27, 1965] about by the disallowance of P8,265.82 listed as expense items and
“type buzzwords here for easy-recall of the case, e.g. Chinese Golden Cat” P10,387.50 written off bad debts.
 The assessment was received by WPC on the same date.
Recit-Ready:  March 5, 1959 – the Commission of Internal Revenue wrote WPC a letter
Facts: On March 2, 1959, Western Pacific Corporation (WPC) was of demand for the payment of the amount including a breakdown of the
assessed for deficiency income tax for the year 1953. On June assessment.
29, 1959, WPC wrote the CIR requesting for non-assessment,  June 29, 1959 – WPC thru an auditing firm requested for non-
claiming that there has been prescription in making the assessment, claiming that there has been prescription in making the
assessment. The CIR denied the request. On December 18, assessment and the items were allowable deductions. This was
1959, WPC filed with the CTA which ruled in its favor but stated accompanied by a resolution of the corporation resolving to write off the
that there was no prescription as the last day of the 5-year debts.
reglementary period fell on a Saturday and CIR had until the next  July 30, 1959 – the CIR replied denying the request and demanding the
succeeding business day to assess WPC according to the admin payment within 30 days.
code and the rules of court.  September 19, 1959 – WPC requested that it be permitted until
September 25, 1959 to submit formal objections to the assessment.
Issue/s:  Septmber 22, 1959 – submitted formal objections identical to July 29
WON the assessment should be upheld. communication.
 October 8, 1959 – CIR requested payment within 10 days.
 December 18, 1959 – WPC filed with CTA. o It will be noted that the assessment was received by the
 CTA – absolved WPC but ruled out prescription, stating that March 2, respondent corporation on March 2, 1959. It was only on
1959 was the last day of the 5 year period within which to make the June 29, 1959, when said corporation formally assailed
assessment: the assessment, on the grounds of prescription in
o On February 28, 1959 and March 1, 1959, which were making the assessment and the impropriety of the
Saturday and Sunday, respectively, the office of respondent disallowance of the listed deductions. From March 3 to
was officially closed. And where the last day for doing an June 29, 1959, manifestly more than thirty (30) days had
act required by law falls on a holiday, the act may be done lapsed and the assessment became final, executory and
on the next succeeding business day. (Section 31, Revised demandable
Administrative Code.) Similarly, in computing any period of o IN VIEW OF THE FOREGOING, the decision of the CTA is hereby set
time prescribed by statute, the day of the act after which the aside for having been rendered without jurisdiction, the assessment in
designated period of time begins to run is not included. But question having been already final, executory and demandable before
the last day of the period so computed is to be included, the petition for review was presented; and another entered, ordering
unless it is a Sunday or a legal holiday, in which event the respondent Western Pacific Corporation to pay the assessment made
time shall run until the end of the next day which is neither a by the Collector of Internal Revenue, and the further amount of 5%
Sunday or a holiday (Section 1, Rule 28, Rules of Court). surcharge and 1% monthly interest on the amount assessed, from
Consequently, since February 28, 1959 was a Saturday April 1, 1959 until date of full payment.
and the next day, March 1, 1959, a Sunday, respondent
had until the next succeeding business day, March 2, CIR v. PRIMETOWN PROPERTY GROUP, INC. (Reyes)
1959, Monday, within which to issue the deficiency [G.R. No. 162155; August 28, 2007]
assessment. “The two-year reglementary period under Section 229 of the Tax Code
Issue/s: means 12 calendar months.”
WON the assessment should be upheld.
—YES Recit-Ready:
Facts: Gabriel Yap, as Vice Chair of Primetown applied for a tax refund
Held/Ratio: The assessment had long become final and executor and the for the year 1997. Yap explained that economic factors caused
CTA no longer had jurisdiction. that real estate industry to slow down. Primetown filed its claim
only on April 14, 2000. The CTA ruled that such claim was filed
YES. beyond the two-year reglementary period provided by Section
o Without going into the merits of the decision absolving the respondent 229 of the Tax Code.
corporation of tax liability, we find that the assessment made by the
Commissioner should be maintained, for the simple reason that when Issue/s:
the petition for review was brought to the CTA by the respondent WON Primetown filed its claim beyond the reglementary period
corporation, the said Court no longer had jurisdiction to entertain the -NO
same. The assessment had long become final. A petition for review
should be presented, within the reglementary period, as provided for
in Section 11, Republic Act No. 1125, which is "thirty (30) days from Held: In ruling for Primetown, the Court applied the doctrine of Lex
receipt of the assessment." The thirty (30) day period is jurisdictional. posteriori derogat priori. More recent law prevails over an
inconsistent earlier law. Two laws were analyzed by the Court in In any case, no such suit or proceeding shall be filed after the
this case: Article 13 of the Civil Code, and Section 31 of the expiration of two (2) years from the date of payment of the tax or
Administrative Code. Section 31 provides that a “year should be penalty regardless of any supervening cause that may arise after
understood to be twelve calendar months”. The Court held that payment: Provided, however, That the Commissioner may, even without
the Administrative Code, being the more recent law, governs the a claim therefor, refund or credit any tax, where on the face of the return
computation of legal periods. Applying Section 31 to this case, upon which payment was made, such payment appears clearly to have
the two-year prescriptive period (reckoned from April 14, 1998) been erroneously paid.
consisted of 24 calendar months, from April 15, 1998 up to April  The CTA found that Primetown filed its final adjusted return on April 14,
14, 2000. Thus, Primetown’s petition was filed on the last day of 1998. Primetown’s right to claim for refund commenced on such date.
the 24th calendar month, or on April 14, 2000. Hence, it was filed  The CTA then applied Article 13 of the Civil Code which provides that
within the reglementary period. years are of 365 days each.
 Thus, according to the CTA, the two-year prescriptive period under
Section 229 was equivalent to 730 days.
Facts:  The CTA found that Primetown filed its claim beyond the reglementary
 On March 11, 1999, Gilbert Yap, vice chair of Primetown Property Group, period because it was filed only on April 14, 2000, or 731 days after April
Inc., applied for the refund or credit of income tax respondent paid in 14, 1998.
1997.
 In his letter to the revenue district officer, Yap explained that the increase Issue/s:
in the cost of labor and materials and difficulty in obtaining financing for WON Primetown filed its claim beyond the reglementary period
projects and collecting receivables caused the real estate industry to slow —NO
down.
 As a consequence, Primetown suffered losses amounting to Php Held/Ratio: Petition DENIED. In applying the doctrine of statutory
71,879,228 in the year 1997. construction, Court ruled against CIR and in favor of Primetown.
 Yap alleges that because Primetown suffered losses, it was not liable for
income taxes. Nevertheless, Primetown paid its quarterly corporate
income tax and remitted creditable withholding tax in the total amount of
P26,318,398.32. NO. Primetown filed within the reglementary period.
 The revenue district officer required Primetown to submit additional  Take note that the Court already ruled in National Marketing Corp. v.
documents to support its claim. Primetown complied but its claim was not Tecson that a year is equivalent to 365 days regardless of whether it is a
acted upon, thus on April 14, 2000, it filed a case before the CTA. regular year or a leap year.
 The CTA dismissed the petition as it was filed beyond the two-year  How should the two-year prescriptive period under Section 229 be
prescriptive period for filing a judicial claim for tax refund/credit. The CTA computed?
invoked Section 229 of the Tax Code:  The provisions of two different laws were analyzed in this case: Section
Sec. 229. Recovery of Taxes Erroneously or Illegally Collected. -- 31 of the Administrative Code, and Article 13 of the Civil Code.
 Section 31 of the Administrative Code provides that a “year should be
XXX understood to be twelve calendar months”.
 The Court explained one calendar month in this way:
o A calendar month is a month designated in the calendar without

regard to the number of days it may contain. It is the period of Recit-Ready:
time running from the beginning of a certain numbered day up to,
but not including, the corresponding numbered day of the next Facts: Marsman was a timber licensee with concessions in the
month, and if there is not a sufficient number of days in the next Municipality of Basud and Mondazo, Camarines Norte. Three
month, then up to and including the last day of that month. assessments were received by Marsman (for defiency sales
o To illustrate, one calendar month from December 31, 2007 will taxes, forest charges, surcharges and other penalties on October
be from January 1, 2008 to January 31, 2008; one calendar 1953, September 1954 and November 1954). BIR insists on
month from January 31, 2008 will be from February 1, 2008 until collecting the amount, but Marsman and its counsel, Atty. Moya,
February 29, 2008. repeatedly refused and did not comply with the requirements set
 The Court then used statutory construction to determine what law should for it to properly counter the said assessments. BIR finally
prevail in counting the year in terms of legal periods. warned them that should it still fail to comply, the assessments
o Both Article 13 of the Civil Code and Section 31, Chapter VIII, will become final and executory. “Final tax notices” were sent to
Book I of the Administrative Code of 1987 deal with the same Marsman on April 27, 1956.
subject matter the computation of legal periods. Under the Civil
Code, a year is equivalent to 365 days whether it be a regular Issue/s:
year or a leap year. Under the Administrative Code of 1987, 3) WON the notices of the CIR dated April 27, 1956 were the
however, a year is composed of 12 calendar months. Needless “assessments” that became final and executory.
to state, under the Administrative Code of 1987, the number of 4) WON the Government’s right to assess and collect the taxes for the
days is irrelevant. years 1947 to September 23, 1949 has prescribed already.
o There obviously exists a manifest incompatibility in the manner of 5) WON the Government’s right to collect sum of P45,541.66 has
computing legal periods under the Civil Code and the prescribed already.
Administrative Code. For this reason, the Court holds that 6) WON the suit against F.H. Burgess in his capacity as liquidator of
Marsman Development Company has prescribed and WON the sums
Section 31 of the Administrative Code of 1987, being the more
assessed should be paid.
recent law, governs the computation of legal periods. Lex
posteriori derogat priori. More recent law prevails over an Held:
inconsistent earlier law. 3) YES. The assessments already became final and executory.
 Applying Section 31 to this case, the two-year prescriptive period Marsman repeatedly refused to comply with the requirements for
(reckoned from April 14, 1998) consisted of 24 calendar months, from it to be able to properly contest the assessment. It substantially did
April 15, 1998 up to April 14, 2000. nothing despite repeated demands from BIR and despite being
 Thus, Primetown’s petition was filed on the last day of the 24th calendar warned that failure to comply with the requirements within the period
month, or on April 14, 2000. Hence, it was filed within the reglementary prescribed will make the assessment final and executory. Therefore,
period. the assessment already became final and executory.
REPUBLIC OF THE PHILIPPINES v. MARSMAN 4) NO. The Government’s right to assess and collect the taxes for the
DEVELOPMENT COMPANY (Rocillo) years 1947 to September 23, 1949 has not yet prescribed.
[GR. No. L-18956; April 27, 1972] Marsman said that the right to for the period from 1947 to
“’Wag ka nang magrefuse, wala ka rin namang choice kundi magbayad”
September 23, 1949 had already prescribed based on the its assets. (Refer to Corporation Code provision and our previous
provision of Section 231 of the Revenue Code which requires the discussions on dissolution )
CIR to assess within 5 years.
Section 231 is not applicable since Marsman did not file
returns for the taxes in question. The applicable provision is Facts:
Section 332 (a) which provides that "in case of a false or  Marsman was a timber licensee, holding Timber Licensee Agreement
fraudulent return or of a failure to file a return, the tax may be No. 37-A, with concessions in the Municipality of Basud and Mondazo,
assessed ... at any time within ten years after the discovery Camarines Norte.
of the falsity, fraud or omission." The assessments made on  Sometime before October 15, 1953, an investigation was conducted on
October 15, 1953, September 13, 1954, and November 3, 1954 its activities and operations, and it was discovered that certain taxes
were all within the aforecited 10-year period. were due from Marsman in relation to the logs produced from its
concession.
5) NO. The Government’s right to collect sum of P45,541.66 has not yet
 A total of three assessments were sent to Marsman:
prescribed.
1. On October 15, 1953, assessment of P13,136.00 representing
Marsman’s argument was that the judicial action for the
forest charges due from May 18, 1950 to September 30, 1953
recovery of the bigger amount of P45,541.66 was not filed within
plus 25% surcharge
five (5) years from September 13, 1954, the date of the earliest
2. On September 13, 1954, assessment amounting P45,541.66
assessment.
representing deficiency sales tax, forest charges, surcharges
The amended complaint in which the said amount was first
and penalties.
alleged and demanded was filed on August 26, 1959 but it was
3. On November 8, 1954, assessment for the payment of P456.12
formally admitted by the court only on September 23, 1959.
as 25% surcharge for discharging lumber without permit.
While in the procedural sense, an amended complaint is
 Various demands for payment were sent to the Marsman and initially, its
deemed filed only as of the date of its admission, for the
counsel, Atty. Moya, acknowledged receipt of the assessment
purposes of such a substantive matter as prescription, an
(specifically the 2nd assessment dated September 13, 1954).
amended complaint must be considered as filed, on the date
 Atty. Moya requested that Marsman be furnished with an itemized
it is actually filed with the court, regardless of when it is
statement of the said taxes and intended to question the validity and the
ultimately formally admitted by the court.
legality of the assessments and to appear before the Conference Staff of
the Bureau of Internal Revenue in connection with the said tax.
6) NO. The suit against F.H. Burgess in his capacity as liquidator as
 The BIR replied that before the case may be acted upon by the
Marsman Development Company has not yet prescribed and
Conference Staff, it was necessary that Marsman comply within 10 days
therefore, the amount must be paid.
from date of said letter, with the provisions of Dept. Order No. 213 which
The assessments against Marsman for deficiency taxes due for
required, that requests for reinvestigation or reexamination of tax
its operations since 1947 were made by the BIR on October 15, 1953,
assessments shall be made in writing under oath of the taxpayer
September 13, 1954 and November 8, 1954, such that the first was
concerned, specifying the ground or grounds relied upon for the revision
done before its dissolution and the last two, not later than six months
of the assessment and accompanied by such documents and other
after such dissolution. Hence, in applying the provisions of the
documents relied upon in support of the request; and that, as a general
Corporation Code, the Government became the creditor of the
rule, the revision will be granted only upon payment of one-half of the
corporation before the completion of its dissolution by the liquidation of
total assessments and upon filing of a bond to guarantee the payment of sums assessed should be paid. – NO, therefore amounts should be
the balance of the tax. paid
 Atty. Moya acknowledged the said reply and he requested exemption
from the aforementioned requirements. Held/Ratio:
 The Collector of Internal Revenue wrote Atty. Moya on May 3, 1955,
informing him that his request to exempt his client from the requirements 1) YES. The assessments already became final and executory.
cannot be favorably considered and that for the Conference Staff to be Marsman repeatedly refused to comply with the
directed to hear the case on the merits, the said requirements must be requirements for them to be able to properly contest the
complied with within five days from receipt of said letter; otherwise, the assessment. It even ignored the BIR in the course of its
"assessment will be considered final". communication in relation to the said assessment.
 Even after repeated follow ups and warnings made by the BIR, Marsman The Court emphasized that a taxpayer cannot delay the
and Atty. Moya consistently ignored the BIR. Thus, “final tax notices” collection of taxes by the simple expedient of barely asking for
were sent to Marsman on April 27, 1956. clarification or reconsideration, very often unnecessary and
 On a letter dated May 10, 1956, Marsman again protested the unwarranted, without doing anything to comply with the statutory
assessment of P45,541.66 and reiterated its request for specification of and reglementary requirements for the reconsideration of the
the items disputing the assessment in question. It further requests for a assessment made against him.
period of 30 days from the receipt of the specifications within which to Marsman did nothing from December 1954 when it
consider its tax liability, further reserving its right to contest the legality or acknowledged receipt of the assessment despite repeated demands
validity of the assessment or any particular items thereof within the said from BIR and despite being warned that failure to comply with the
period of 30 days. requirements within the period prescribed will make the assessment
 Finding no merit in the protests of the defendant corporation, a warrant final and executory. Therefore, the assessment already became final
of distraint and levy was issued against it by the BIR on July 3, 1956. and executory.
 Marsman still insisted on being given a specification of the different
items of the assessment and also said that it needed more time to go 2) NO. The Government’s right to assess and collect the taxes for
over the records and vouchers, and requested for an extension of 10 the years 1947 to September 23, 1949 has not yet prescribed.
days. Marsman’s contention that the right to assess the
 BIR denied Marsman’s request and insisted that Marsman pay the percentage and forest charges for the period from 1947 to
assessed amount. September 23, 1949 had already prescribed is based on the
provision of Section 231 of the Revenue Code which requires the
Issue/s: CIR to assess the tax within the period of 5 years.
1) WON the notices of the CIR dated April 27, 1956 were the Section 231 is not applicable in this case since Marsman
“assessments” that became final and executory. - YES did not file returns for the taxes in question. The pertinent provision
2) WON the Government’s right to assess and collect the taxes for the applicable herein is Section 332 (a) which provides that "in case of
years 1947 to September 23, 1949 has prescribed already. - NO a false or fraudulent return or of a failure to file a return, the tax
3) WON the Government’s right to collect sum of P45,541.66 has may be assessed ... at any time within ten years after the
prescribed already. - NO discovery of the falsity, fraud or omission." The assessments
4) WON the suit against F.H. Burgess in his capacity as liquidator as made on October 15, 1953, September 13, 1954, and November 3,
Marsman Development Company has prescribed and WON the
1954 were all within the aforecited 10-year period for the CIR v. PHOENIX ASSURANCE CO., LTD., (Trias)
assessment of the tax. [GR. No. L-19727; May 20, 1965]
“Prescription of CIR’s right to assess should be counted from the time the
3) NO. The Government’s right to collect sum of P45,541.66 not taxpayer files his/her AMENDED (not original) return because hello, you’re
yet prescribed. madaya.”
Marsman’s argument was that the judicial action for the
recovery of the bigger amount of P45,541.66 was not filed within five Recit-Ready:
(5) years from September 13, 1954, the date of the earliest Facts: Phoenix Assurance Co., Ltd., a foreign insurance corporation
assessment. organized under the laws of Great Britain, is licensed to do
The amended complaint in which the said amount was first business in the Philippines with head office in London. Through
alleged and demanded was filed on August 26, 1959 but it was its head office, it entered in London into worldwide reinsurance
formally admitted by the court only on September 23, 1959. treaties with various foreign insurance companies. It agree to
While in the procedural sense, an amended complaint is cede a portion of premiums received on original insurances
deemed filed only as of the date of its admission, for the purposes underwritten by its head office, subsidiaries, and branch offices
of such a substantive matter as prescription, an amended throughout the world, in consideration for assumption by the
complaint must be considered as filed, on the date it is actually foreign insurance companies of an equivalent portion of the
filed with the court, regardless of when it is ultimately formally liability from such original insurances. It filed a lot of returns,
admitted by the court. claimed a lot of deductions and filed reassessments while the CIR
disallowed some deductions and adjusted the taxes due. The
4) NO. The suit against F.H. Burgess in his capacity as liquidator important fact is that Phoenix Assurance Co., Ltd. filed its income
as Marsman Development Company has not yet prescribed and tax return for 1952 on April 1, 1953 showing a loss of
therefore, the amount must be paid. P199,583.93. It amended said return on August 30, 1955
Marsman contends that the present action is already barred reporting a tax liability of P2,502.00. On July 24, 1958, after
under Section 77 of the Corporation Law, Act No. 1459, as examination of the amended return, the Commissioner of Internal
amended, which allows the corporate existence of a corporation to Revenue assessed deficiency income tax in the sum of
continue only for three years after its dissolution, for the purpose of P5,667.00. Phoenix allege that the right of CIR has already
presenting or defending suits by or against it, and to settle and close prescribed since the former filed the return in 1952 and the
its affairs. (Remember Corpo with love  ) assessment by the latter was only made in 1958 (which is beyond
The assessments against Marsman for deficiency taxes due the 5-year prescriptive period of the CIR’s right to asses). The
for its operations since 1947 were made by the Bureau of Internal CTA ruled in favor of Phoenix in stating that the CIR’s right to
Revenue on October 15, 1953, September 13, 1954 and November assess has already prescribed. Hence, this petition.
8, 1954, such that the first was before its dissolution and the last two
not later than six months after such dissolution. Thus, the Issue/s:
Government became the creditor of the corporation before the 1) WON reinsurance premiums ceded to foreign reinsurers not doing
completion of its dissolution by the liquidation of its assets. business in the Philippines pursuant to reinsurance contracts
executed abroad are subject to withholding tax
RESIDENT CITIZENS AND RESIDENT ALIENS 2) WON the CIR’s right to assess deficiency income tax for the year 1952
against Phoenix Assurance Co., Ltd., has prescribed (OUR TOPIC)
3) WON the deduction of claimed by the Phoenix Assurance Co., Ltd.as the deficiency assessment was based on the amended return which,
net addition to reserve for the year 1950 is excessive; as aforestated, is substantially different from the original return, the
4) WON the deductions claimed by Phoenix Assurance Co., Ltd. for head period of limitation of the right to issue the same should be counted
office expenses allocable to Philippine business for the years 1952, 1953 from the filing of the amended income tax return. From August 30,
and 1954 are excessive. 1955, when the amended return was filed, to July 24, 1958, when the
deficiency assessment was issued, less than five years elapsed. The
Held: right of the Commissioner to assess the deficiency tax on such
1) YES. Reinsurance premiums ceded to foreign reinsurers not doing amended return has not prescribed. Additionally, the Court ruled that
business in the Philippines pursuant to contracts executed abroad are to hold otherwise, the SC would be paving the way for taxpayers to
income from sources within the Philippines subject to withholding tax evade the payment of taxes by simply reporting in their original return
under Sections 53 and 54 of the Tax Code as ruled in British Traders' heavy losses and amending the same more than five years later when
Insurance Co., Ltd.v. Commisioner of Internal Revenue. the Commissioner of Internal Revenue has lost his authority to assess
2) NO. Section 331 of the Tax Code limits the right of the Commissioner the proper tax thereunder. The object of the Tax Code is to impose
of Internal Revenue to assess income tax within five years from the taxes for the needs of the Government, not to enhance tax avoidance
Filipino of the income tax return. The more important question to be to its prejudice.
answered is: Should the running of the prescriptive period commence 3) YES. Phoenix Assurance Co., Ltd.'s claim for deduction of P37,147.04
from the filing of the original or amended return? CTA ruled the that being less than the amount required in Section 186 of the Insurance
original return was a complete return containing "information on Law, the same cannot be and is not excessive, and should therefore
various items of income and deduction from which respondent may be fully allowed.
intelligently compute and determine the tax liability of petitioner, 4) NO. The record shows that the gross income of Phoenix Assurance
hence, the prescriptive period should be counted from the filing of said Co., Ltd. consists of income from its Philippine business as well as
original return. The CIR argues that the deficiency income tax in reinsurance premiums received for its head office in London and
question could not possibly be determined, or assessed, on the basis reinsurance premiums ceded to foreign reinsurance. Since the items
of the original return filed on April 1, 1953, for considering that the of income not belonging to its Philippine business are not taxable to its
declared loss amounted to P199,583.93, the mere disallowance of part Philippine branch, they should be excluded in determining the head
of the head office expenses could not probably result in said loss office expenses allowable to said Philippine branch. This conclusion
being completely wiped out and Phoenix being liable to deficiency tax. finds support in paragraph 2, subsection (a), Section 30 of the Tax
Not until the amended return was filed on August 30, 1955 could the Code. Consequently, the deficiency assessments for 1952, 1953 and
Commissioner assess the deficiency income tax in question. The SC 1954, resulting from partial disallowance of deduction representing
sustained in favor of CIR. The changes and alterations embodied in head office expenses, are sustained.
the amended income tax return consisted of various items which
substantially modified the original return. Furthermore, although the Facts:
deduction for head office expenses allocable to Philippine business,  Phoenix Assurance Co., Ltd., a foreign insurance corporation organized
whose disallowance gave rise to the deficiency tax, was claimed also under the laws of Great Britain, is licensed to do business in the
in the original return, the Commissioner could not have possibly Philippines with head office in London.
determined a deficiency tax thereunder because Phoenix Assurance  Through its head office, it entered in London into worldwide reinsurance
Co., Ltd. declared a loss of P199,583.93 therein which would have treaties with various foreign insurance companies. It agree to cede a
more than offset such disallowance of P15,826.35. Considering that portion of premiums received on original insurances underwritten by its
head office, subsidiaries, and branch offices throughout the world, in  Phoenix Assurance Co., Ltd. protested against the aforesaid
consideration for assumption by the foreign insurance companies of an assessments for withholding tax and deficiency income tax. However, the
equivalent portion of the liability from such original insurances. CIR denied such protest.
 On April 1, 1951, Phoenix Assurance Co., Ltd. filed its Philippine income  Subsequently, Phoenix Assurance Co., Ltd. appealed to the CTA. In a
tax return for 1950, claiming a deduction of P37,147.04 as net addition to decision dated February 14, 1962, the CTA allowed in full the decision
marine insurance reserve equivalent to 40% of the gross marine claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to
insurance premiums received during the year. marine insurance reserve; determined the allowable head office
 On April 1, 1953, Phoenix Assurance Co., Ltd. filed its Philippine income expenses allocable to Philippine business to be 5% of the net income in
tax return for 1952, declaring therein a deduction from gross income of the Philippines; declared the right of the CIR to assess deficiency income
P35,912.25 as part of the head office expenses incurred for its Philippine tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd.
business, computed at 5% on its gross Philippine income. from payment of the statutory penalties for non-filing of withholding tax
 On August 30, 1955 it amended its income tax return for 1952 by return.
excluding from its gross income the amount of P316,526.75 representing
reinsurance premiums ceded to foreign reinsurers and further eliminating Issue/s:
deductions corresponding to the coded premiums. The amended return 1) WON reinsurance premiums ceded to foreign reinsurers not doing
showed an income tax due in the amount of P2,502.00. The CIR business in the Philippines pursuant to reinsurance contracts
Revenue disallowed P15,826.35 of the claimed deduction for head office executed abroad are subject to withholding tax;
expenses and assessed a deficiency tax of P5,667.00 on July 24, 1958. —YES
 On April 30, 1954, Phoenix Assurance Co., Ltd. filed its Philippine income 2) [OUR TOPIC] WON the right of the Commissioner of Internal
tax return for 1953 and claimed therein a deduction from gross income of Revenue to assess deficiency income tax for the year 1952 against
P33,070.88 as head office expenses allocable to its Philippine business, Phoenix Assurance Co., Ltd., has prescribed;
equivalent to 5%, of its gross Philippine income. —NO
 On August 30, 1955 it amended its 1953 income tax return to exclude 3) WON the deduction of claimed by the Phoenix Assurance Co.,
from its gross income the amount of P246,082.04 representing Ltd.as net addition to reserve for the year 1950 is excessive;
reinsurance premiums ceded to foreign reinsurers. At the same time, it —YES
requested the refund of P23,409.00 as overpaid income tax for 1953. 4) WON the deductions claimed by Phoenix Assurance Co., Ltd. for
 On April 29, 1955, Phoenix Assurance Co., Ltd. filed its Philippine income head office expenses allocable to Philippine business for the years
tax return for 1954 claiming therein, among others, a deduction from 1952, 1953 and 1954 are excessive.
gross income of P99,624.75 as head office expenses allocable to its —NO
Philippine business, computed at 5% of its gross Philippine income. It
also excluded from its gross income the amount of P203,384.69 Held/Ratio:
representing reinsurance premiums ceded to foreign reinsurers not doing 1) YES.
business in the Philippines. o Reinsurance premiums ceded to foreign reinsurers not doing business
 Basically, it filed a lot of things but on August 1, 1958 the BIR released in the Philippines pursuant to contracts executed abroad are income
the following assessment for deficiency income tax for the years 1952 from sources within the Philippines subject to withholding tax under
and 1954 against Phoenix Assurance Co., Ltd. Sections 53 and 54 of the Tax Code as ruled in British Traders'
Insurance Co., Ltd.v. Commisioner of Internal Revenue.
2) NO. Considering that the deficiency assessment was based on the deficiency tax, was claimed also in the original return, the
amended return which, as aforestated, is substantially different from Commissioner could not have possibly determined a deficiency tax
the original return, the period of limitation of the right to issue the thereunder because Phoenix Assurance Co., Ltd. declared a loss of
same should be counted from the filing of the amended income tax P199,583.93 therein which would have more than offset such
return. From August 30, 1955, when the amended return was filed, to disallowance of P15,826.35.
July 24, 1958, when the deficiency assessment was issued, less o Considering that the deficiency assessment was based on the
than five years elapsed. amended return which, as aforestated, is substantially different from
o Section 3313 of the Tax Code limits the right of the Commissioner of the original return, the period of limitation of the right to issue the
Internal Revenue to assess income tax within five years from the same should be counted from the filing of the amended income tax
Filipino of the income tax return. return.
o The more important question to be answered is: Should the running of o From August 30, 1955, when the amended return was filed, to July 24,
the prescriptive period commence from the filing of the original or 1958, when the deficiency assessment was issued, less than five
amended return? years elapsed. The right of the Commissioner to assess the deficiency
o CTA ruled the that original return was a complete return containing tax on such amended return has not prescribed.
"information on various items of income and deduction from which o Additionally, the Court ruled that to hold otherwise, the SC would be
respondent may intelligently compute and determine the tax liability of paving the way for taxpayers to evade the payment of taxes by simply
petitioner, hence, the prescriptive period should be counted from the reporting in their original return heavy losses and amending the same
filing of said original return. more than five years later when the Commissioner of Internal
o The CIR argues that the deficiency income tax in question could not Revenue has lost his authority to assess the proper tax thereunder.
possibly be determined, or assessed, on the basis of the original The object of the Tax Code is to impose taxes for the needs of the
return filed on April 1, 1953, for considering that the declared loss Government, not to enhance tax avoidance to its prejudice.
amounted to P199,583.93, the mere disallowance of part of the head 3) YES.
office expenses could not probably result in said loss being completely o Phoenix Assurance Co., Ltd.'s claim for deduction of P37,147.04 for
wiped out and Phoenix being liable to deficiency tax. Not until the 1950 representing net addition to reserve computed at 40% of the
amended return was filed on August 30, 1955 could the marine insurance premiums received during the year.
Commissioner assess the deficiency income tax in question. o Treating said deduction to be excessive, the Commissioner of Internal
o The SC sustained in favor of CIR. The changes and alterations Revenue reduced the same to P25,374.47 which is equivalent to
embodied in the amended income tax return consisted of various 100% of all marine insurance premiums received during the last
items which substantially modified the original return. months of the year.
o Furthermore, although the deduction for head office expenses o The reserve required for marine insurance is determined on two
allocable to Philippine business, whose disallowance gave rise to the bases: 50% of premiums under policies on yearly risks and 100% of
premiums under policies of marine risks not terminated during the
3 SEC. 331. Period of limitation upon assessment and collection. — Except as provided year.
in the succeeding section internal revenue taxes shall be assessed within five years after o Section 32 (a) of the Tax Code allows the full amount of such reserve
the return was filed, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period. For the purposes of this
to be deducted from gross income.
section, a return filed before the last day prescribed by law for the filing thereof shall be o The reserve called for in Section 186 is a safeguard to the general
considered as filed on such last day: Provided, That this limitation shall not apply to cases public and should be strictly followed not only because it is an express
already investigated prior to the approval of this Code.
provision but also as a matter of public policy. However, for income
tax purposes a taxpayer is free to deduct from its gross income a PHILIPPINE BANKING CORP v. CIR (Tuazon)
lesser amount, or not to claim any deduction at all. What is prohibited [G.R. No. L-20601; February 28, 1966)]
by the income tax law is to claim a deduction beyond the amount “10 year prescription for failure to file return for disputed sales”
authorized therein.
o Phoenix Assurance Co., Ltd.'s claim for deduction of P37,147.04
being less than the amount required in Section 186 of the Insurance Recit-Ready:
Law, the same cannot be and is not excessive, and should therefore Facts: During the period from 31 January 1951 to 8 June 1953, Butuan
be fully allowed. * Sawmill sold logs to Japanese firms at prices FOB Vessel,
4) NO. The record shows that the gross income of Phoenix Assurance Agusan. Upon investigation by the Bureau of Internal Revenue
Co., Ltd. consists of income from its Philippine business as well as (BIR), it was ascertained that no sales tax return was filed by
reinsurance premiums received for its head office in London and Butuan Sawmill and neither did it pay the corresponding tax on
reinsurance premiums ceded to foreign reinsurance. Since the items the sales. On the basis of agent Antonio Mole’s report dated 17
of income not belonging to its Philippine business are not taxable to September 1957, the Commissioner of Internal Revenue on 27
its Philippine branch, they should be excluded in determining the August 1958, assessed Butuan Sawmill the sum of P40,004.01
head office expenses allowable to said Philippine branch. This representing sales tax, surcharge and compromise penalty of its
conclusion finds support in paragraph 2, subsection (a), Section 304 sales of logs from January 1951 to June 1953. Butuan Sawmill
of the Tax Code. claimed that its filed its income tax returns for the years 1951,
o The taxpayer's claim for deduction on head office expenses incurred 1952 and 1953, and the assessment was made in 1957 only, it
during 1952, 1953, and 1954 allocable to its Philippine business further contends that the assessment of the sales tax
computed at 5% of its gross income in the Philippines. corresponding to the years 1951 and 1952 has already
o The Commissioner of Internal Revenue redetermined such deduction prescribed for having been made outside the five-year period
at 5% on Phoenix Assurance Co., Ltd's net income thereby partially prescribed in Section 331 of the Tax Code and should, therefore,
disallowing the latter's claim. be deducted from the assessment of the deficiency sales tax
o The parties are agreed as to the percentage — 5% — but differ as to made by CIR.
the basis of computation.
o It should be computed using gross income as correctly made by Issue: WON the assessment thereof was made within the prescriptive
Phoenix. Consequently, the deficiency assessments for 1952, 1953 period--YES
and 1954, resulting from partial disallowance of deduction
representing head office expenses, are sustained. Held: A taxpayer must file a return for the particular tax required by law in
order to avail himself of the benefits of Section 331 of the Tax
Code; otherwise, if he does not file a return, an assessment may
be made within the time stated in Section 332(a)
It being undisputed that petitioner failed to file a return for the disputed
4 (2) Expenses allowable to non-resident alien individuals and foreign corporations. In the sales corresponding to the years 1951, 1952 and 1953, and this
case of a non-resident alien individual or a foreign corporation, the expenses deductible are omission was discovered only on September 17, 1957, and that
the, necessary expenses paid or incurred in carrying on any business or trade
conducted within the Philippines exclusively.
under Section 332(a) of the Tax Code assessment thereof may
be made within ten (10) years from and after the discovery of the
omission to file the return, it is evident that the lower court  A motion to reconsider said decision having been denied, Butuan
correctly held that the assessment and collection of the sales tax Sawmill interposed an appeal before the Supreme Court.
in question has not yet prescribed.
Issue:
1) (Aint really that important, sales na ‘to) WON petitioner is liable to
Facts: pay the 5% sales tax as then prescribed by Section 186 of the Tax
 During the period from 31 January 1951 to 8 June 1953, the Butuan Code on its sales of logs to the Japanese buyers--YES
Sawmill Inc. sold logs to Japanese firms at prices FOB Vessel 2) (Our topic) WON assessment was made within the prescriptive
Magallanes, Agusan (in some cases FOB Vessel, Nasipit also in period provided by law therefor—YES
Agusan).
 The FOB prices included costs of loading wharfage stevedoring and Held/Ratio:
other costs in the Philippines. The quality, quantity and  (FIRST ISSUE) This case is similar to Taligaman Lumber Co. vs.
measurement specifications of the logs were certified by the Bureau Collector of Internal Revenue where “it was admitted that the agreed
of Forestry. That the freight was paid by the Japanese buyers, and price was ‘F.O.B. Agusan’, thus indicating, although prima facie, that
the payments of the logs were effected by means of irrevocable the parties intended the title to pass to the buyer upon delivery of the
letters of credit in favor of Butuan Sawmill and payable through the log in Agusan, on board the vessels that took the goods to Japan.
Philippine National Bank (PNB) or any other bank named by it. Moreover, said prima facie proof was bolstered up by the following
 Upon investigation by the Bureau of Internal Revenue (BIR), it was circumstances, namely: (1) Irrevocable letters of credit were opened
ascertained that no sales tax return was filed by Butuan Sawmill and by the Japanese buyers in favor of the petitioners. (2) Payment of
neither did it pay the corresponding tax on the sales. On the basis of freight charges of every shipment by the Japanese buyers. (3) The
agent Antonio Mole’s report dated 17 September 1957, the Japanese buyers chartered the ships that carried the logs they
Commissioner of Internal Revenue on 27 August 1958, determined purchased from the Philippines to Japan. (4) The Japanese buyers
against Butuan Sawmill the sum of P40,004.01 representing sales insured the shipment of logs and collected the insurance coverage
tax, surcharge and compromise penalty of its sales [tax, surcharge in case of loss in transit. (5) The petitioner collected the purchase
and compromise penalty of its sales] of logs from January 1951 to price of every shipment of logs by surrendering the covering letter of
June 1953 pursuant to section 183, 186 and 209 of the National credit, bill of lading, which was indorsed in blank, tally sheet, invoice
Internal Revenue Code (NIRC). In consequence of a reinvestigation, and export entry, to the corresponding bank in Manila of the
the Commissioner, on 6 November 1958, amended the amount of Japanese agent bank with whom the Japanese buyers opened
the previous assessment to P38,917.74. letters of credit. (6) In case of natural defects in logs shipped to the
 Subsequent requests for reconsideration of the amended buyers discovered in Japan instead of returning such defective logs,
assessment having been denied, Butuan Sawmill filed a petition for accepted them, but were granted a corresponding credit based on
review on 7 November 1960. the contract price. (7) The logs purchased by the Japanese buyers
 The Court of Tax Appeals upheld the upheld the legality and were measured by a representative of the Director of Forestry and
correctness of the amended assessment of the sales tax and such measurement was final, thereby making the Government of the
surcharge. The imposition of the compromise penalty was, however, Philippines a sort of agent of the Japanese buyers. It is clear that
eliminated therefrom for want of agreement between the taxpayer said export sales had been consummated in the Philippines and
and the Collector (now Commissioner) of Internal Revenue. were accordingly, subject to sales tax therein.
 That the specification in the bill of lading to the effect that the goods Commissioner’s decision and held that the assessment made
are deliverable to the order of the seller or his agent does not against Ayala was beyond the 5-yr prescriptive period as
necessarily negate the passing of title to the goods upon delivery to provided in Sec. 331 of the NIRC. The CIR now files a motion for
the carrier is clear from the second part of paragraph 2 of article reconsideration of this decision. Ayala invokes the defense of
1503 of the Civil Code of the Philippines. Said provision provides prescription against the right of the Commissioner to assess the
that “Where goods are shipped, and by the bill of lading the goods surtax.
are deliverable to the seller or his agent, or to the order of the seller
or of his agent the seller thereby reserves the ownership in the Issue/s: WON the applicable provision of law to this case is Sec. 331
goods. But, if except for the form of the bill of lading, the ownership which provides for a 5-year period of prescription or Sec. 332(a) on a 10
would have passed to the buyer on shipment of the goods, the year period?
sellers’ property in the goods shall be deemed to be only for the
purpose of securing performance by the buyer of his obligation Held: In ruling for Ayala, the Court noted that there was no evidence
under the contract.” presented by the CIR to any fraud or falsity on the return (for the
 (SECOND ISSUE) A tax return cannot be considered as a return for 10 year period of prescription to kick in). Rather, the Court here
compensating tax for purposes of computing the period of ruled that it was Sec. 331 of the then NIRC that would apply.
prescription under Section 331 of the Tax Code, and that the Thus, internal revenue taxes shall be assessed within 5 years
taxpayer must file a return for the particular tax required by law in after the return is filed. Failure to do so, would bar the collection
order to avail himself of the benefits of Section 331 of the Tax Code; of such taxes.
otherwise, if he does not file a return, an assessment may be made
within the time stated in Section 332(a) of the same Code. Facts:
 As Butuan Sawmill failed to file a return for the disputed sales  Ayala Securities Corporation is a domestic corporation in the
corresponding to the year 1951, 1952 and 1953, and this omission Philippines.
was discovered only on September 17, 1957, and that under Section  It filed a tax return for the fiscal year which ended Sep. 1995 on
332(a) of the Tax Code assessment thereof may be made within ten November 29, 1955.
(10) years from and after the discovery of the omission to file the o Attached to its income tax return were financial statements
return, the assessment and collection of the sales tax in question showing a surplus of P2M.
has not yet prescribed.  On February 21, 1961, the CIR advised Ayala of the assessment of
P750K on its P2M accumulated surplus. It imposed a 25% surtax on
COMMISSIONER OF INTERNAL REVENUE VS. AYALA the accumulated surplus.
SECURITIES CORPORATION (Vanslembrouck) o Ayala received such assessment on March 1961.
[GR. No. L-29485; March 31, 1976]  Ayala protested the assessment saying that:
“Wag mong ipatagal nang 5 years” o The accumulation was for a bonafide business purpose
o The assessment was made beyond the 5-year prescriptive
Recit-Ready: period.
Facts: Ayala filed income tax return on 1955 but failed to file returns on  The CIR contends that applicable provision of law is Sec. 332(a) of
their accumulated surplus of P2M. Consequently, Ayala was the NIRC which provides for a 10-year prescriptive period of
charged with 25% surtax by the CIR. The CTA reversed the assessment and not Sec. 331 thereof which provides a period of
limitation of assessment for 5 years only.
o Thus, since Ayala filed its return in November 1955 and the shall be assessed within five years after the return was filed, and no
assessment was issued on February 1961 it was still made proceeding in court without assessment for the collection of such taxes
in the 10-year period allowed by law. shall be begun after the expiration of such period. For the purposes of
 The CTA reversed the Commissioner’s decision and held that the this section, a return filed before the last day prescribed by law for
assessment made against Ayala was beyond the 5-yr prescriptive the filing thereof shall be considered as filed on such last day:
period as provided in Sec. 331 of the NIRC. The CIR now files a Provided, That this limitation shall not apply to cases already
motion for reconsideration of this decision. Ayala invokes the investigated prior to the approval of this Code.
defense of prescription against the right of the Commissioner to
assess the surtax. o Under Section 46(d) of the National Internal Revenue Code, the Ayala
Securities Corporation designated September 30, 1955, as the last day
Issue/s: of the closing of its fiscal year, and under Section 46(b) the income tax
WON the applicable provision of law to this case is Sec. 331 which returns for the said corporation shall be filed on or before the fifteenth
provides for a 5-year period of prescription or Sec. 332(a) on a 10 year (15th) day of the fourth (4th) month following the close of its fiscal year.
period? o The Ayala Securities Corporation could, therefore, file its income tax
—5-year period, thus it prescribed. returns on or before January 15, 1956. The assessment by the
Commissioner of Internal Revenue shall be made within five (5) years
Held/Ratio: Petition GRANTED. The applicable provision is Sec. 331 which from January 15, 1956, or not later than January 15, 1961, in
provides for a 5-year period for prescription period. Thus, the right to collect accordance with Section 331 of the National Internal Revenue Code
has prescribed. herein above-quoted.
o As the assessment issued on February 21, 1961, which was received by
o There is no iota of evidence presented by the CIR as to any fraud or the Ayala Securities Corporation on March 22, 1961, was made beyond
falsity on the return with intent to evade payment of tax (for the 10 year the five-year period prescribed under Section 331 of said Code, the
provision to kick in) same was made after the prescriptive period had expired and, therefore,
 Not in the income tax assessment, nor in a letter-decision, was no longer binding on the Ayala Securities Corporation.
nor in his answer to the petition for review.
 The CIR merely relies on the provisions of Sec 25 of the
National Internal Revenue Code, violation of which,
according to Petitioner, presupposes the existence of PHILIPPINE JOURNALISTS, INC. vs. CIR (Villarin, L.)
fraud. [GR. No. 162852; December 16, 2004]
 Fraud is never lightly to be presumed because it is serious “Exceptions to the law on prescription should be strictly construed”
charge. Fraud is a question of fact and the circumstances
constituting fraud must be alleged and proved in the court Recit-Ready:
below. Facts: Petitioner was assessed by the CIR for internal revenue taxes for
o The applicable provision of law in this case is Section 331 of the the year 1994. It was found that it had deficiency taxes. When
National Internal Revenue Code, to wit: given the opportunity to present evidence to disprove the
assessment, the petitioner’s Comptroller signed a Waiver of the
SEC. 331. Period of limitation upon assessment and collection. — Stature of Limitations as provided in Secs. 223 and 224. The final
Except as provided in the succeeding section, internal revenue taxes Assessment/Demand was issued in December 1998 and the
Warrant of Distraint in support of the Assessment/Demand was o It was found that there were deficiency taxes, inclusive of
issued in March 28, 2000. Both of which were file outside the 3- surcharges, interest and compromise penalty as follows: Value
year reglementary period. Hence, the petitioner questioned the Added Tax of P229,527.90, Income Tax of P125,002,892.95, and
validity of the Assessment/Demand and the Warrant of Distraint. Withholding Tax of P2,748,012.35, with a total of
P127,980,433.20.
Issue/s:  Revenue District Officer Jaime Concepcion invited petitioner to send a
1) WON Waiver of the Statute of Limitations is valid. representative to an informal conference on September 15, 1997 for an
2) WON the Assessment/Demand (and consequently the Warrant of opportunity to object and present documentary evidence relative to the
Distraint) is valid. proposed assessment.
3) WON the CTA had jurisdiction to rule on the validity.  On September 22, 1997, petitioners Comptroller, Lorenza Tolentino,
executed a Waiver of the Statute of Limitation Under the National
Held: Internal Revenue Code (NIRC). The document waived the running of the
1) NO. The Waiver did not follow the requisites of RMO 20-90. The prescriptive period provided by Sections 223 and 224 and other relevant
following specific requisites were not followed: provisions of the NIRC and consented to the assessment and collection
a. Expiry date was not filled up. of taxes which may be found due after the examination at any time after
b. The RDO instead of the Commissioner signed the Waiver (it the lapse of the period of limitations fixed by said Sections 223 and 224
should have been the Commissioner because the assessment and other relevant provisions of the NIRC, until the completion of the
was more than P1 million). investigation.
c. The acceptance date was not indicated.  On July 2, 1998, Revenue Officer De Vera submitted his audit report
d. The petitioner was provided the 2nd copy of the complete and recommending the issuance of an assessment and finding that petitioner
official waiver. had deficiency taxes in the total amount of P136,952,408.97. On October
2) NO. Since the waiver is void, the reglementary period was not tolled 5, 1998, the Assessment Division of the BIR issued Pre-Assessment
and the Assessment/Demand and the Warrant of Distraint is also void. Notices which informed petitioner of the results of the investigation.
3) YES. Section 7(1) of R.A. 1125 gives CTA jurisdiction on other matters  Thus, BIR Revenue Region No. 6, Assessment Division/Billing Section,
arising under the National Internal Revenue Code or other laws or part issued Assessment/Demand No. 33-1-000757-94 on December 9,
of law administered by the Bureau of Internal Revenue. This includes 1998 stating the following deficiency taxes, inclusive of interest and
ruling on the validity of the Assessent/Demand. compromise penalty: Income Tax of P108,743,694.88, Value Added Tax
P184,299.20, and Expanded Withholding Tax P2,363,220.38, with a total
Facts: of P111,291,214.46.
 The Annual Income Tax Return filed by petitioner for the calendar year  Petitioner received a copy of the final notice on November 24, 1999. By
ended December 31, 1994 presented a net income of P30,877,387.00 letters, petitioner asked to be clarified how the tax liability of
and the tax due of P10,807,086.00. After deducting tax credits for the P111,291,214.46 was reached and requested an extension of thirty (30)
year, petitioner paid the amount of P10,247,384.00. days from receipt of the clarification within which to reply. In a follow-up
 On August 10, 1995, Revenue District Office (RDO) No. 33 of the letter, petitioner asserted that its (PJI) records do not show receipt of Tax
Bureau of Internal Revenue (BIR) issued Letter of Authority No. 87120 for Assessment/Demand No. 33-1-000757-94 and contested that the
to examine petitioner’s books of account and other accounting records for assessment had no factual and legal basis.
internal revenue taxes for the period January 1, 1994 to December 31,
1994.
 On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-046 Consequently, the Warrant of Distraint and/or Levy issued
signed by Deputy Commissioner Romeo Panganiban for the BIR was pursuant thereto is considered null and void..
received by the petitioner.  After the motion for reconsideration of the Commissioner of Internal
Note: I elaborated on the CTA and CA arguments in case needed for class Revenue was denied by the CTA in a Resolution dated August 2, 2002,
discussion. an appeal was filed with the CA on August 12, 2002.
 Petitioner filed a Petition for Review with the CTA (CTA).  In its decision, the CA disagreed with the ruling of the CTA, to wit:
 On the claim that PJI did not receive an Assessment or Demand, the CIR o The petition for review filed on 26 April 2000 with CTA was
was able to present a certification issued by the Post Master of the neither timely filed nor the proper remedy. Only decisions of the
Central Post Office that the Registered Letter No. 76134 was duly BIR, denying the request for reconsideration or reinvestigation
delivered to and received by an Authorized Representative of PJI on may be appealed to the CTA. Mere assessment notices which
January 8, 1999. As to the other claims, however, the CTA ruled in favor have become final after the lapse of the thirty (30)-day
of PJI. The following are the bases for the decision: reglementary period are not appealable. Thus, the CTA should
o Since the subject assessments were issued beyond the three- not have entertained the petition at all.
year prescriptive period, it becomes imperative for the CTA to o The CTA found the waiver executed by Phil. Journalists to be
rule first on the validity of the waiver allegedly executed on invalid on grounds merely formal in nature.
September 22, 1997, for if this court finds the same to be  The date of acceptance by the BIR does not categorically
ineffective, then the assessments must necessarily fail. appear in the document but it states at the bottom page that
o After carefully examining the questioned Waiver of the Statute of the BIR accepted and agreed to, followed by the signature
Limitations, this Court considers the same to be without any of the BIRs authorized representative. Although the date of
binding effect on the petitioner for the following reasons: acceptance was not stated, the document was dated 22
 The waiver is an unlimited waiver. It does not contain a September 1997 and this could reasonably be understood
definite expiration date. Under RMO No. 20-90, the phrase as the same date of acceptance by the BIR since a different
indicating the expiry date of the period agreed upon to date was not otherwise indicated.
assess/collect the tax after the regular three-year period of  As to the allegation that Phil. Journalists was not furnished
prescription should be filled up. a copy of the waiver, this requirement appears ridiculous.
 Secondly, the waiver failed to state the date of acceptance Phil. Journalists, through its comptroller, Lorenza Tolentino,
by the Bureau which under the RMO should likewise be signed the waiver. It would not need a copy of the
indicated. document it knowingly executed when the reason why
 Finally, petitioner was not furnished a copy of the waiver. It copies are furnished to a party is to notify it of the existence
is to be noted that under the same RMO, the waiver must of a document, event or proceeding.
be executed in three (3) copies, the second copy of which is  As regards the need for a definite expiration date, the
for the taxpayer. It is likewise required that the fact of period of prescription for the assessment of taxes may be
receipt by the taxpayer of his/her file copy be indicated in extended provided that the extension be made in writing
the original copy. Again, respondent failed to comply. and that it be made prior to the expiration of the period of
o Thus, finding the waiver executed by the petitioner on September prescription. These are the requirements for a valid
22, 1997 to be suffering from legal infirmities, rendering the same extension of the prescriptive period. To these requirements
invalid and ineffective, the Court finds Assessment/Demand No. provided by law, the memorandum order adds that the
33-1-000757-94 issued on December 5, 1998 to be time-barred. length of the extension be specified by indicating its
expiration date. This requirement could be reasonably  The expiry date of the period agreed upon to
construed from the rule on extension of the prescriptive assess/collect the tax after the regular three-year period
period. But this requirement does not apply in the instant of prescription should be filled up.
case because what we have here is not an extension of the  The date of such acceptance by the Bureau should be
prescriptive period but a waiver thereof. These are two (2) indicated.
very different things. What Phil. Journalists executed was a  The Commissioner is the authorized signatory for tax
renunciation of its right to invoke the defense of cases involving more than P1 million.
prescription. This is a valid waiver. When one waives the  The foregoing procedures shall be strictly followed. Any
prescriptive period, it is no longer necessary to indicate the revenue official found not to have complied with this
length of the extension of the prescriptive period since the Order resulting in prescription of the right to
person waiving may no longer use this defense. assess/collect shall be administratively dealt with.
o A waiver of the statute of limitations under the NIRC, to a certain
Issue/s: extent, is a derogation of the taxpayer’s right to security against
1) WON the Waiver of the Statute of Limitations allegedly executed on prolonged and unscrupulous investigations. It is not a waiver of the
September 22, 1997 is valid. right to invoke the defense of prescription as erroneously held by the
—NO CA. It is an agreement between the taxpayer and the BIR that the
2) WON the Assessment (and consequently the Warrant of Distraint) is period to issue an assessment and collect the taxes due is
valid. extended to a date certain. Thus, the law on prescription, being a
—NO remedial measure, should be liberally construed in order to
3) WON the CTA had jurisdiction to take the original case. afford such protection. As a corollary, the exceptions to the law
—YES on prescription should perforce be strictly construed. RMO No.
20-90 explains the rationale of a waiver:
Held/Ratio: Petition GRANTED.  The period agreed upon (from acceptance to expiry) shall
constitute the time within which to effect the
1) NO. assessment/collection of the tax in addition to the
o The NIRC, under Sections 203 and 222, provides for a statute of ordinary prescriptive period. (Emphasis supplied)
limitations on the assessment and collection of internal revenue taxes o The Waiver of Statute of Limitations, signed by petitioners comptroller
in order to safeguard the interest of the taxpayer against on September 22, 1997 is not valid and binding because it does not
unreasonable investigation. Unreasonable investigation contemplates conform with the provisions of RMO No. 20-90. It did not specify a
cases where the period for assessment extends indefinitely because definite agreed date between the BIR and petitioner, within which the
this deprives the taxpayer of the assurance that it will no longer be former may assess and collect revenue taxes. Thus, petitioner’s
subjected to further investigation for taxes after the expiration of a waiver became unlimited in time, violating Section 222(b) of the NIRC.
reasonable period of time. o The waiver is also defective from the government side because it was
o RMO No. 20-90 implements these provisions of the NIRC relating signed only by a Revenue District Officer, not the Commissioner, as
to the period of prescription for the assessment and collection of mandated by the NIRC and RMO No. 20-90. The waiver is not a
taxes. The Order provides that in the execution of said waiver, unilateral act by the taxpayer or the BIR, but is a bilateral agreement
the following procedures should be followed: between two parties to extend the period to a date certain. The
conformity of the BIR must be made by either the Commissioner or
the Revenue District Officer. This case involves taxes amounting to Distraint and/or Levy No. 33-06-046 which petitioner received on
more than P1 million and executed almost seven months before the March 28, 2000 is also null and void for having been issued pursuant
expiration of the three-year prescription period. For this, RMO No. 20- to an invalid assessment.
90 requires the Commissioner to sign for the BIR.
o The other defect noted in this case is the date of acceptance which 3) YES. The appellate jurisdiction of the CTA is not limited to cases
makes it difficult to fix with certainty if the waiver was actually agreed which involve decisions of the Commissioner of Internal Revenue
before the expiration of the three-year prescriptive period. The CA on matters relating to assessments or refunds.
held that the date of the execution of the waiver on September 22, o Section 7(1) of Republic Act No. 1125, the Act Creating the CTA,
1997 could reasonably be understood as the same date of provides for the jurisdiction of that special court:
acceptance by the BIR. Petitioner points out however that Revenue  SEC. 7. Jurisdiction. The CTA shall exercise exclusive
District Officer Sarmiento could not have accepted the waiver yet appellate jurisdiction to review by appeal, as herein provided
because she was not the Revenue District Officer of RDO No. 33 on (1) Decisions of the Commissioner of Internal Revenue in
such date. It is unlikely that Ms. Sarmiento made the acceptance of cases involving disputed assessments, refunds of internal
the waiver on January 16, 1998, the date of her assignment, because revenue taxes, fees or other charges, penalties imposed in
Revenue Officials normally have to conduct first an inventory of their relation thereto, or other matters arising under the
pending papers and property responsibilities. National Internal Revenue Code or other laws or part of
o Finally, the records show that petitioner was not furnished a copy of law administered by the Bureau of Internal Revenue;
the waiver. Under RMO No. 20-90, the waiver must be executed in (Emphasis supplied).
three copies with the second copy for the taxpayer. The CA did not o The second part of the provision covers other cases that arise out of
think this was important because the petitioner need not have a copy the NIRC or related laws administered by the Bureau of Internal
of the document it knowingly executed. Revenue. The wording of the provision is clear and simple. It gives
 The flaw in the appellate court’s reasoning stems from its the CTA the jurisdiction to determine if the warrant of distraint and levy
assumption that the waiver is a unilateral act of the taxpayer. issued by the BIR is valid and to rule if the Waiver of Statute of
When the petitioner’s comptroller signed the waiver on Limitations was validly effected.
September 22, 1997, it was not yet complete and final o This is not the first case where the CTA validly ruled on issues that did
because the BIR had not assented. There is compliance with not relate directly to a disputed assessment or a claim for refund. In
the RMO only after the taxpayer received a copy of the Pantoja v. David, we upheld the jurisdiction of the CTA to act on a
waiver accepted by the BIR. The requirement to furnish the petition to invalidate and annul the distraint orders of the
taxpayer with a copy of the waiver is not only to give notice of Commissioner of Internal Revenue. Also, in Commissioner of Internal
the existence of the document but of the acceptance by the Revenue v. CA, the decision of the CTA declaring several waivers
BIR and the perfection of the agreement. executed by the taxpayer as null and void, thus invalidating the
assessments issued by the BIR, was upheld by this Court.
2) NO.
o The waiver document is incomplete and defective and thus the three- CIR v. KUDOS METAL CORPORATION (Villarin, P.)
year prescriptive period was not tolled or extended and continued to [GR. No. 178087; May 5, 2010]
run until April 17, 1998. Consequently, the Assessment/Demand No. “waivers not following the correct execution procedure will not extend the
33-1-000757-94 issued on December 9, 1998 was invalid because it period to assess”
was issued beyond the three (3) year period. Also, the Warrant of
Recit-Ready: before the expiration of the three-year period. (Section 222 (b) of the
Facts: Kudos Metal Corporation (Kudos) filed its Annual ITR for the NIRC)
taxable year 1998 on April 15, 1999.
However, the first waiver executed were with infirmities:
BIR issued a Subpeona Duces Tecum because Kudos failed to  The waivers were executed without the notarized written
comply with the three Notice of Presentation of Records it issued. authority of Pasco to sign the waiver in behalf of Kudos.
 The waivers failed to indicate the date of acceptance.
Nelia Pasco, Kudos’ accountant, executed two Waivers of the  The fact of receipt by the Kudos of its file copy was not
Defense of Prescription on December 10, 2001 and February 18, indicated in the original copies of the waivers.
2003.
Thus, the period to assess taxes was NOT extended because waivers
On August 25, 2003, the BIR issued a Preliminary Assessment executed by Kudos’ accountant were incomplete and defective. This
Notice against Kudos. means that the assessments issued by the BIR beyond the three-year
period and are void.
On December 3, 2003, Kudos challenged the assessments but
the BIR rendered a decision ordering him to pay taxes totaling Facts:
P25,624,048.76. Kudos filed a Petition for Review with the CTA  On April 15, 1999, Kudos Metal Corporation (Kudos) filed its Annual ITR
contending that the government’s right to assess taxes had for the taxable year 1998.
prescribed. CTA second Division and En Banc ruled in favor of  On September 21, 2006, BIR issued a Subpeona Duces Tecum because
Kudos. Both Courts found that the first waiver executed by Kudos’ Kudos failed to comply with the three Notice of Presentation of Records it
accountant, Pasco, was incomplete and defective. It did not toll or issued. The receipt of of the Subpoena was acknowledged by Kudos’
extend the prescribed period. President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.
 A review and audit of Kudos’ records then ensued.
Issue/s:
 On December 10, 2001, Nelia Pasco, Kudos’ accountant, executed a
WON the government’s right to assess unpaid taxes of Kudos prescribed.
Waiver of the Defense of Prescription (First Waiver).
o It was notarized on January 22, 2002.
Held: Yes. Government’s right to assess Kudos’ unpaid taxes has o Received by the BIR Enforcement Service on January 31, 2002
prescribed.
o Received by the BIR Tax Fraud Division on February 4, 2002,
o Accepted by the Assistant Commissioner of the Enforcement
GR: Government must assess internal revenue taxes within three years
Service, Percival T. Salazar.
from the last day prescribed by law for the filing of the tax return OR the
 This was followed by a second Waiver of Defense of Prescription
actual date of filing of such return, whichever comes later. Hence, an
(Second Waiver) executed by Pasco on February 18, 2003.
assessment notice issued after the three-year prescriptive period is no
o Notarized on February 19, 2003
longer valid and effective.
o Received by the BIR Tax Fraud Division on February 28, 2003
 On August 25, 2003, the BIR issued a Preliminary Assessment Notice
Exception: Period to assess and collect taxes may only be extended upon
against Kudos for the taxable year 1998.
a written agreement between the CIR AND the taxpayer and executed
 Then followed by a Formal Letter of Demand with Assessment Notices for Held/Ratio: Petition DENIED.
taxable year 1998, dated September 26, 2003 which was received by
Kudos on November 12, 2003. YES. The Governement’s right to assess unpaid taxes of Kudos had
 Kudos challenged the assessments by filing its Protest on Various Tax prescribed.
Assessments on December 3, 2003.  Section 203 of the NIRC mandates the government to assess internal
 On June 22, 2004, the BIR rendered a final Decision requesting the revenue taxes within three years from the last day prescribed by law for
immediate payment of Income Tax, VAT, EWT, Withholding tax- the filing of the tax return OR the actual date of filing of such return,
compensation, and penalties totaling P25,624,048.76. whichever comes later. Hence, an assessment notice issued after the
 On August 27, 2004, Kudos filed a Petition for Review with the CTA three-year prescriptive period is no longer valid and effective.
contending that the government’s right to assess taxes had prescribed.  The waivers executed by Kudos’ accountant did NOT extend the period
Petitioner in turn filed his Answer. within which the assessment can be made. Section 222 (b) of the NIRC
 CTA Second Division ruled that since the First Waiver was incomplete provides that the period to assess and collect taxes may only be
and defective, it did not toll or extend the prescriptive period to assess. extended upon
Hence, assessment notices issued against Kudos were issued beyond o A written agreement between the CIR and the taxpayer
the prescriptive period and must be cancelled. o Executed before the expiration of the three-year period.
 First waiver was incomplete and defective because it failed to comply with  RMO 20-90 and RDAO 05-01 – Proper Procedure for Execution of the
the provisions of RMO No. 20-90: Waiver:
1. Assistant Commissioner is not the revenue official authorized to 1. The waiver must be in the proper form prescribed by RMO 20-90.
sign the waiver, as the tax case involves more than The expiry date of the period agreed upon to assess/collect the
P1,000,000.00. tax after the regular three-year period of prescription should be
2. The waiver failed to indicate the date of acceptance which is filled up.
necessary to determine whether the acceptance was made 2. The waiver must be signed by the taxpayer himself or his duly
within the prescriptive period. authorized representative. In case of a corporation, it must be
3. The fact of receipt by the taxpayer of his copy was not indicated signed by any of its responsible officials. In case the authority is
on the original copy – this requirement is not only to give notice delegated by the taxpayer to a representative, such delegation
of the existence of the document but also of the acceptance by should be in writing and duly notarized.
the BIR and the perfection of the agreement. 3. The waiver should be duly notarized.
 CTA En Banc affirmed the cancellation of the assessment notices. 4. The CIR or the revenue official authorized by him must sign the
Although it ruled that the Assistant Commissioner was authorized to sign waiver indicating that the BIR has accepted and agreed to the
the waiver pursuant to RDAO No. 05-01, it still found the first waiver waiver. The date of acceptance by the BIR should be indicated.
invalid based on the second and third grounds stated by the CTA Second However, before signing the waiver, the CIR or the revenue
Division. official authorized must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or
Issue/s: his duly authorized representative.
WON the government’s right to assess unpaid taxes of Kudos 5. Both the date of execution by the taxpayer and date of
prescribed. acceptance by the BIR should be before the expiration of the
—YES period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to

be attached to the docket of the case, the second copy for the
taxpayer and the third copy for the Office accepting the waiver.
The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was
RIZAL COMMERCIAL BANKING CORPORATION VS.
notified of the acceptance of the BIR and the perfection of the COMMISSIONER OF INTERNAL REVENUE (Villarivera)
agreement. [GR. No. 170257; September 7, 2011]
 The waivers executed by Kudos’ accountant reveals the following “Partial payment of the assessment issued within the extended period
infirmities: to assess as provided for in the Waiver of Defense of Prescription is an
o The waivers were executed without the notarized written implied admission of the validity of the waiver.”
authority of Pasco to sign the waiver in behalf of Kudos. [see #2]
o The waivers failed to indicate the date of acceptance. [see #4] Recit-Ready:
o The fact of receipt by the Kudos of its file copy was not indicated Facts:
in the original copies of the waivers. [see #6] The Bank executed two Waivers of the Defense of Prescription under the
 Due to the defects in the waivers, the period to assess or collect taxes Statute of Limitations of the National Internal Revenue Code covering the
was not extended. Consequently, assessments issued by the BIR beyond internal revenue taxes due for the years 1994 and 1995, effectively
the three-year period and are void. extending the period of the Bureau of Internal Revenue (BIR) to assess up
 The doctrine of estoppel cannot be applied in this case as an exception to to December 31, 2000.
the statute of limitations on the assessment of taxes considering that
there is a detailed procedure for the proper execution of the waiver, which A Formal Letter of Demand with Assessment Notices (FLD) was issued by
the BIR must strictly follow. the BIR which was duly protested by the Bank.
o The doctrine of estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy. It should be Thereafter, another FLD was received by the bank with a reduced
resorted to solely as a means of preventing injustice and should assessment which was paid on the said day except for deficiency onshore
not be permitted to defeat the administration of the law, or to tax and documentary stamp tax which remained to be the subjects of its
accomplish a wrong or secure an undue advantage, or to extend petition for review.
beyond them requirements of the transactions in which they
originate. The Bank argued that the waivers of the Statute of Limitations which it
 Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its executed on January 23, 1997 were not valid because the same were not
failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself signed or conformed to by the Commissioner of Internal Revenue as
issued. The BIR failed to verify whether a notarized written authority was required under Section 222(b) of the Tax Code.
given by the Kudos to its accountant, and to indicate the date of
acceptance and the receipt by the Kudos of the waivers. Having caused Issue:
the defects in the waivers, the BIR must bear the consequence. It cannot W/N the waivers are valid? – YES, waivers are valid.
shift the blame to the taxpayer. To stress, a waiver of the statute of
limitations, being a derogation of the taxpayers right to security against Held:
prolonged and unscrupulous investigations, must be carefully and strictly The Supreme Court ruled that the Bank, through its partial payment of the
construed. revised assessments issued within the extended period as provided for in
the questioned waivers, impliedly admitted the validity of those waivers. amount of deficiency taxes to P303.16 Million. On the same day, RCBC
Had the Bank truly believed that the waivers were invalid and that the paid about P15 Million and left the deficiency on-shore tax and DST
assessments were issued beyond the prescriptive period, then it should unpaid, which are the subject of RCBC’s petition.
not have paid the reduced amount of taxes in the revised assessment. Its

subsequent action effectively belies its insistence that the waivers are RCBC argued that the waivers of the Statute of Limitations which it
invalid. The records show that on December 6, 2000, upon receipt of the executed on January 23, 1997 were not valid because the same were
revised assessment, the Bank immediately made payment on the not signed or conformed to by the respondent CIR as required under
uncontested taxes. Thus, it is estopped from questioning the validity of the Section 222(b) of the Tax Code.
waivers. To hold otherwise and allow a party to gainsay its own act or
deny rights which it had previously recognized would run counter to the  CTA –En Banc denied the petition. It ruled that by receiving, accepting
principle of equity. and paying portions of the reduced assessment, RCBC bound itself to
the new assessment, implying that it recognized the validity of the
waivers.
Facts:
 On August 15, 1996, RCBC received Letter of Authority No. 133959 Issue/s:
issued by then Commissioner of Internal Revenue (CIR) Liwayway WON petitioner, by paying the other tax assessment covered by the waivers
Vinzons-Chato, authorizing a special audit team to examine the books of of the statute of limitations, is rendered estopped from questioning the
accounts and other accounting records for all internal revenue taxes validity of the said waivers with respect to the assessment of deficiency
from January 1, 1994 to December 31, 1995. onshore tax.
 On January 23, 1997, RCBC executed two Waivers of the Defense of Held: Petitioner is estopped from questioning the validity of the waivers.
Prescription Under the Statute of Limitations of the National Internal
Revenue Code covering the internal revenue taxes due for the years 1. RCBC assails the validity of the waivers of the statute of
1994 and 1995, effectively extending the period of the Bureau of Internal limitations on the ground that the said waivers were merely
Revenue (BIR) to assess up to December 31, 2000. attested to by Sixto Esquivias, then Coordinator for the CIR, and
that he failed to indicate acceptance or agreement of the CIR,
 Subsequently, on January 27, 2000, RCBC received a Formal Letter of as required under Section 223 (b) of the 1977 Tax Code.
Demand together with Assessment Notices from the BIR for various tax
deficiencies amounting to P4.17 Billion. 2. RCBC further argues that the principle of estoppel cannot be
applied against it because its payment of the other tax
 RCBC filed a protest on February 24, 2000 and later submitted the assessments does not signify a clear intention on its part to give
relevant documentary evidence to support it. Much later on November up its right to question the validity of the waivers.
20, 2000, it filed a petition for review before the CTA, pursuant to Section
228 of the 1997 Tax Code. 3. “Under Article 1431 of the Civil Code, the doctrine of estoppel is
anchored on the rule that an admission or representation is
rendered conclusive upon the person making it, and cannot be
 On December 6, 2000, RCBC received another Formal Letter of
Demand with Assessment Notices dated October 20, 2000, following the denied or disproved as against the person relying thereon. A
reinvestigation it requested, which drastically reduced the original party is precluded from denying his own acts, admissions or
representations to the prejudice of the other party in order to

prevent fraud and falsehood.
4. Estoppel is clearly applicable to the case at bench. RCBC,

through its partial payment of the revised assessments issued
within the extended period as provided for in the questioned
waivers, impliedly admitted the validity of those waivers. Had
petitioner truly believed that the waivers were invalid and that
the assessments were issued beyond the prescriptive period,
then it should not have paid the reduced amount of taxes in the
revised assessment. RCBCs subsequent action effectively
belies its insistence that the waivers are invalid. The records
show that on December 6, 2000, upon receipt of the revised
assessment, RCBC immediately made payment on the
uncontested taxes. Thus, RCBC is estopped from questioning
the validity of the waivers. To hold otherwise and allow a party
to gainsay its own act or deny rights which it had previously
recognized would run counter to the principle of equity which
this institution holds dear.”

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MONTERO // 3A TAX DIGESTS

GENERAL PRINCIPLES AND DETERMINATION OF ESTATE TAX LORENZO v. POSADAS (Arcaina)

table, to be approved by the Secretary of Finance, upon recommendation

transmission of his estate. it is actually occupied as a family residence and is

SECTION 7. Computation Of The Net Estate Of A Decedent Who Is A

(1) Expenses, losses, indebtedness, and taxes — That proportion of the

Note: * Medical expenses are not included in the deductions referred

SECTION 8. Proper Presentation Of Funeral Expenses, Family Home,

resident decedent, the administrator or executor shall register the

In case of a non-resident decedent, whether non-resident citizen

4. Substantiation Requirements iv. Claims against insolvent persons (par.4) – Requisites:

a. Family Home (subsection D) – Requisites for deductibility

and whether the power should be

Total Gross Assets P130,792.85

 On May 1951, ancillary administration proceedings were instituted in the

o They requested a refund of the amount of P15,259.83, —NO

o The judgment appealed from ordered the defendant to

Facts: Section 1540 then provides:

Held/Ratio: Petition DENIED. With the petitioners failing to amend their

 In the administration and settlement of an estate, US Courts have Held: Partially.

1958, the CIR issued and assessment. Palay P6,444.00

GIBBS v. COLLECTOR OF INTERNAL REVENUE (Ong) Issue/s:

forwarded to said Board. Dec. 22,400 P17,430 P19,264 Donor: Donor:

o CFI Rizal: Denied

assessment made against them. On the basis of the above-

be equivalent to 150 percent of the value of such donation. Valuation

the Twenty-five thousand pesos (PhP 25,000.00) additional exemption

Except in cases where the Commissioner otherwise permits, the

(A) Schedular rates of donor’s tax imposable on donation made to a

(C) Contribution for election campaign. - Any contribution in cash or in

be taxable to him in the year in which so distributed to the extent

TAX CODE (C) Computation and Payment. –

No taxable income is realized from the passage of property to the

Where, however, prior to the settlement of the estate, the executor or

SECTION 212.Liability for tax on estate or trusts. — Liability for

the 1997 Tax

o Subsection A – application in Sec 112(A) is the

Quarterly VAT Return are substantially the same, thus, there is no

DIRECTED TO PAY respondent basic deficiency VAT in the amount of —NO

VAT ON IMPORTATIONS VAT-TAXABLE TRANSACTIONS

to pay to the seller in consideration of the sale, barter or

—YES transferred to the local government.

processing, manufacturing or repacking goods for others; proprietors,

lessees or operators of cabarets, day and night clubs, Jai-Alai

and shall in turn be deductible as expense by the Client/Customer Cash

II. Pro-Forma Entries

Upon receipt of the deposit/advances, the same shall be treated and

Accounting entries in the Books of the Taxpayer other than GPP

the production of such works;

whose sale of goods or properties or services which are otherwise not

“(7) on the utilization of services in hotels and similar lodging

citizen of the Republic and is at least sixty (60) years of age as

or agency refusing to comply with the privileges under this Act

Persons required to register for VAT: Facts:

Recit-Ready: B. Petitioner properly withheld and remitted to the respondent the

members and their accredited and recognized

leased for not more than P12,800.00) exceeds

the CA. o And, somewhat importantly, it a VAT-registered entity as

(5) Those considered export sales under Articles 23 and 77 of Executive

 (c) Sales to persons or entities whose exemption under special laws,

 Since the transaction is deemed a zero-rated sale, petitioners

rendered abroad. It is a settled rule of legal hermeneutics that the

(3) A VAT-registered person who is also engaged in transactions not

4. Spirits requiring rectification upon filing of a bond  