LIMITATIONS OF TAXATION
program of the Government
Inherent Limitations are those which restrict the power
although they are not embodied in the Constitution (PNITE)
Public Purpose of Taxes
Public purpose in taxation is important because of all powers
of the government, that of taxation is said to be the strongest
SC defined public purpose. It is an elastic concrete that can be
hammered to ft modern standings jurisprudence states that
"public purpose" should be given a broad interpretation. It
does not only pertain to the purpose which are traditionally
viewed as essential government function such as building road
and delivery of basic services, but also includes those purposes
designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost
housing and urban agrarian reform
Planters Products Phil vs Fertiphil Corporation
Taxes are exacted only for a public purpose. They cannot be
used for purely De purposes or for the exclusive benefit of
private persons. The reason for this is simple. The power to tax
exists for the general welfare, hence, implicit in its power is
the limitation that it should be used only for a public purpose.
It would be a robbery for the State to tax Its citizens and use
the funds generated for private purpose. As an old United
States case bluntly put it “To lay with one hand, the power of
the government on the property of the citizen and with the
other to bestow it upon favored individuals to aid private
enterprise and build up private fortunes, is nonetheless a
robbery because it is done under the forms of law and is called
taxation.
Inherent Limitations or those which restrict the power
although embodied in the Constitution [PNITE)
Non delegability of the taxing Power
Exceptions
1. Delegation to the President
(Art. VI Sec 28/2/1987 Constitution)
The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
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imposts within the framework of the national development
2. Delegation to Local Government
Article X, Section 5, 1987 Constitution
Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.
3. Delegation to Administrative Agencies with respect
to aspects of Taxation not legislative in character
4. Rule on People's Initiative and Referendum
International community
The Sovereign cannot tax another sovereign because states
recognize courtesy to another sovereign (Sovereign Equality)
Ex. Income earned by financial institution of other government
Article II, Section 2, 1987 Constitution
Section 2. The Philippines renounces war as an instrument of
national policy, adopts the generally accepted principles of
international law as part of the law of the land and adheres to
the policy of peace, equality, justice, freedom, cooperation,
and amity with all nations.
Territorial jurisdiction
taxation is limited only within the territory or boundary of the
state. It cannot be imposed on another territory
WE DO NOT HAVE EXTRATERRITORIAL OPERATION OF OUR
TAXES because we follow the PRINCIPLE OF TERRITORIALITY
Exemption of the Government Agencies from Taxes
- Government is immune and not subject of tax.
As a public policy, it cannot tax itself
- This applies only when the government exercises SOVEREIGN
or GOVERNMENTAL functions if it exercises PROPRIETARY
functions, it can be tax.
Due Process of Law
Art. III, Section 1: No person shall be deprived of the liberty or
property without due process of law, nor shall any person be
denied the equal protection of the laws
Example on abortion, there is a ranking property. The
Constitution requires that this taking should conform with due
process
CIR v. Metro Star, GR 185371
Its said that taxes are what we pay For civilized society Without
taxes, the government would be paralyzed for the lock of the
motive power to activate and operate it, Hence, despite the
natural reluctance to surrender part of one's hard-earned
income to taxing authorities, every person who is able to must
contribute his shore in the running of the government The
government for its part is expected to respond in the form of
tangible and intangible benefits intended to improve the west
of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the set of power
But even es we concede the inevitability and indispensability
of taxation, at is a requirement in a democratic regime that it
be exercised reasonably and in accordance with the prescribed
procedure it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped
in his tractor the taxpayer can demonstrate *** that the law
has not been observed Emphasis supplied)
Art. III Sec 1
No person shall be deprived of life, liberty, or property without
due process of law, nor shall any person be denied the equal
protection of the laws.
The other constitutional provision related to this is
Art VI Sec 28(1)
The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation
Uniformity
Means all taxable articles or kids or property of the same class
shall be taxed at the same rate regardless of where they are
found. A tax is uniform when the same farce and effect in
every place where the subject of it is found.
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Non impairment of Contracts
Art III Sec 10
No law impairing the obligation of contracts shall be passed
-A law which changes the terms of the contract by making
mew conditions, or changing those in the contractor dispenses
with those expressed, impairs the obligation.
Tax Exemption of Properties Actually, Directly and
Exclusively used for Religious, Charitable and Educational
Purposes
Art VI, Section 28 (3)
Charitable institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation,
Abra Valley College v. Aquino, 162 SCRA 106
it must be stressed however, that while the Court a s a more
liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes as provided for in
Article VI, Section 22. paragraph of the 1935 Philippine
Constitution, reasonable emphasis always been made that
exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main
purposes Otherwise stated the use of the school building or a
lot for commercial purposes is neither contemplated by law,
nor by jurisprudence. Thus, while the use of the second floor
of the main building in the case at bar for residential purposes
of the Director and his family, may find justification under the
concept of incidental , which complimentary to the main or
primary purpose-educational, the lease of the first floor
thereof ta the Northern Marketing Corporation cannot by any
stretch of the imagination be considered incidental ta the
purpose of education
Roman Catholic Bishop v. Ilocos Norte, GR 27588, 31
December 1927.
The exemption in favor of the continent of the land toxic 344
[e] Administrative Code) refers to the home of the parts who
presides over the church and who has to take care of himself
in order to discharge a tutu. In therefore mind the sense,
include not only the land actually occupied by the church, but
also the adjacent ground destined to the ordinary incidental
uses of man. Except in large cities where the density of the Art VIII Sec 5 (2)
population and the development of commerce require the use
Review, Revit, reverse, modify, or affirm on appeal or
of larger tracts of land for buildings, a vegetable garden
certiorari, as the law or the Rules of Court may provide final
belongs to house and in the core of a convent, it use is limited
judgments and orders of lower courts in All cases in which the
to the necessities of the priest, which comes under the
constitutionality or validity of any treaty international
exemption.
preserve agreement, law, presidential decree proclamation,
Lung Center v. Quezon City, GR 144104,29 June 2004 order instruction action question.

Under the 1973 and 1987 Constitution and Rey Act No 7260 in ▪ All cases involving the legality of any tax, impost,
order to be entitled to the exemption, the petitioner is assessment, or toll, or any penalty imposed in
burdened to prove, by clear and unequivocal proof that (a) relation thereto
charitable institution and is real properties are ACTUALLY
▪ All cases which the jurisdiction of any lower court is
DIRECTLY and EXCLUSIVELY used for charitable purposes.
in All matches was the penalty imposed is reclusion
Exclusive" is defined as possessed and enjoyed to the
perpetua or higher
exclusion of other, debarred from participation or enjoyment;
and "exclusively" is defined, "in a manner to exclude as ▪ All cases which only an error or question of law is
enjoying a privilege exclusively real property used for one or involved
more commercial purposes, if not exclusively used for the
Non- infringement of Religious Freedom
tempest purposes but is subject to taxation. The words
"dominant use" or "principal use" cannot be substituted for Article III Section 5
the words used exclusively without doing violence to the
Section 5. No law shall be made respecting an establishment
Constitutions and the South in synonymous with exclusively.
of religion, or prohibiting the free exercise thereof. The free
Mactan-Cebu International Airport Authority v. City of Lapu- exercise and enjoyment of religious profession and worship,
lapu, GR 181756, 15 Jun 2015 without discrimination or preference, shall forever be allowed.
No religious test shall be required for the exercise of civil or
In light of the foregoing, the Authority should be classified as
political rights.
an instrumentality of the national government which is able to
pay taxes only with respect to the portion of the property the Appropriation of Public Money for the benefit of any Church,
beneficial use of which were vested in the entities. When local Sect, or System of Religion
governments in the power to tax on national government
It seems clear, therefore, that Ordinance No. 3000 cannot be
instrumentalities, such power is construed strictly against local
considered unconstitutional, even if applied to plaintiff Society.
governments. The rule is that tax is new presume and there
But as Ordinance No. 2529 of the City of Manila, as amended,
must be clear language in the law imposing the tax. Any doubt
is not applicable to plaintiff-appellant and defendant-appellee
whether a person, article or activity is taxable is resume
is powerless to license or tax the business of plaintiff Society
against taxation This rule applies with greater Force when
involved herein for, as stated before, it would impair plaintiff's
Local governments seek to tax national government
right to the free exercise and enjoyment of its religious
instrumentalities.
profession and worship, as well as its rights of dissemination
Voting Requirements in connection with the Legislative of religious beliefs, We find that Ordinance No. 3000, as
Grant for tax exemption amended is also inapplicable to said business, trade or
occupation of the plaintiff.
Art VI Sec 28 (4)
Art VI Sec 29 (2)
No law granting any tax exemption shall be passed without the
concurrence of a majority of all the members of the Congress. No pure money or property shall be appropriated, apple paid,
or employed, directly or directly for the use, benefit or support
Non impairment of the Supreme Court’s jurisdiction in Tax
of any sort, church, denomination, sectarian institution, or
Cases
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system of religion, or any priest, preacher the religious teacher,
or dignitary as ach, except when the priest, preacher, minister
or dignitary assigned to the armed force, or to any penal
institution, or government orphanage or leprosarium
Exemption of non-stock nonprofit educational institution.
Art XIV Sec 4(3)
All revenues and assets of non-stock, non-profit educational
institutions used actually directly, and exclusively for
educational purposes shall be exempt from taxes and duties.
Upon the dissolution or cessation of the corporate existence
of such institutions, their assets shall be disposed of in the
manner provided by law.
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such
exemptions, subject to the limitations provided by law,
including restrictions on dividends and provisions for
reinvestment
Judicial Review – Taxpayer’s Suit
Anti-Graft League v. San Juan, GR 97787, 1 Aug 1996
Undeniably, as a taxpayer, petitioner would somehow be
adversely affected by an illegal use of public money. When,
however, no such unlawful spending has been shown, as in the
case at bar, petitioner, even as a taxpayer, cannot question the
transaction validly executed by and between the Province and
Ortigas for the simple reason that it is not privy to said
contract. In other words, petitioner has absolutely no cause of
action, and consequently no locus standi, in the instant case.
Landbank v. Cacayuran, GR 191667, 17 April 2013
Second, as a resident-taxpayer of the Municipality, Cacayuran
is directly affected by the conversion of the Agoo Plaza which
was funded by the proceeds of the Subject Loans. It is well-
settled that public plazas are properties for public use and
therefore, belongs to the public dominion. As such, it can be
used by anybody and no one can exercise over it the rights of
a private owner. In this light Cacayuran had a direct interest in
ensuring that the Agoo Plaza would not be exploited for
commercial purposes through the APC's construction.
Moreover, Cacayuran need not be privy to the Subject Loans
in order to proffer his objections thereto. In Mamba v. Lara, it
has been held that a taxpayer need not be a party to the
contract to challenge its validity; as long as taxes are involved,
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people have a right to question contracts entered into by the
government.
Therefore, as the above-stated requisites obtain in this case
Cacuyuran has standing to file the
instant suit.
Remulla v. Maliksi, GR 171633, 18 Sept 2013
With respect to the first, jurisprudence dictates that a
taxpayer may be allowed to sue where there is a claim that
public funds are legally disbursed or the public money is being
deflected to any improper purpose, or that public funds are
wasted through the enforcement of an invalid or
unconstitutional or ordinance. In this case, public funds of the
Province of Cavite stand to be expended to enforce the
compromise judgment. As such, Remulla – being a resident-
taxpayer of the Province of Cavite – has the legal standing to
file the petition for annulment of judgment and, therefore, the
same should not have been dismissed on said ground. Notably,
the fact that there lies no proof that public funds have already
been disbursed should not preclude Remulla from assailing
the validity of the compromise judgment. Lest it be
misunderstood, the concept of legal standing is ultimately a
procedural technicality which may be relaxed by the Court if
the circumstances so warrant. As observed in Mamba v. Lara,
the Court did not hesitate to give standing to taxpayers in
cases where serious legal issues were raised or where public
expenditures of millions of pesos were involved. Likewise, it
has also been ruled that a taxpayer need not be a party to the
contract in order to challenge its validity, or to seek the
annulment of the same on the ground of extrinsic fraud.
Indeed, for as long as taxes are involved, the people have a
right to question contracts entered into by the government, as
in this case.
Double Taxation and Tax Exemptions
Double Taxation
General Rule: Our Constitution does not prohibit double
taxation; hence, it may not be invoked as a defense against the
validity of tax laws. Where a tax is imposed by the National
Government and another by the city for the exercise of
occupation or business as the taxes are not imposed by the
same public authority (City of Baguio vs De Leon, Oct. 31,
1968)
Exception: Double Taxation while not forbidden, is something
not favored. Such taxation, it has been held, should, whenever
possible, be avoided and prevented.
Doubts as to whether double taxation has been imposed
should be resolved in favor of the taxpayer. The reason is to
avoid injustice and unfairness.
The taxpayer may seek relief under the Uniformity Rule or the
Equal Protection guarantee.
Two (2) Kinds of Double Taxation
Obnoxious or Direct Duplicate Taxation (Double taxation in its
strict sense) – in the objectionable or prohibited sense means
that the same property is taxed twice when it should be taxed
only once.
Requisites:
▪ Same property is taxed twice
▪ Same purpose
▪ Same taxing authority
▪ Within the same jurisdiction
▪ During the same taxing period
▪ Sane kind or character of tax
Instances of Double Taxation in its Broad Sense
A tax on the mortgage as personal property when the
mortgaged property is also at its full value as real estate;
A tax upon a corporation for its capital stock as a whole and
upon the shareholders for their shares;
A tax upon depositions in the bank for their deposits and tax
upon the bank for their property in which such deposits are
invested;
An excise tax upon certain use of property and a property tax
upon the same property; and
A tax upon the same property imposed by two different states.
Means to Reduce the Harsh Effect of Taxation
Tax Deduction – subtraction from gross income in arriving a
taxable income
Tax Credit – an amount subtracted from an individual’s or
entity's tax liability to arrive at the total tax liability
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Exemptions
▪ Tax Treaties
▪ Principle of Reciprocity
▪
Nursery Care Corporation v. Acevedo, GR 180651, 30 Jul 2014
We note that although Coca-Cola Bottlers Philippines, Inc. and
Swedish Match Philippines, Inc. involved Section 21 vis-vis
Section 14 (Tax On Manufacturers, Assemblers and Other
Processors) of the Revenue Code of Manila, the legal principles
enunciated therein should similarly apply because Section 15
(Tax on Wholesalers Distributors, or Dealers) and Section 17
(Tax on Retailers) of the Revenue Code of Manila imposed the
same nature of tax as that imposed under Section 14, i.e., local
business tax, albeit on a different subject matter or group of
taxpayers
In fine, the imposition of the tax under Section 21 of the
Revenue Code of Manila constituted double taxation, and the
taxes collected pursuant thereto must be refunded.
City of Manila v. Coca-cola, 595 SCRA 299, GR 181845, 4 Aug
2009
Using the aforementioned test, the Court finds that there is
indeed double taxation respondent is subjected to the taxes
under both Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed: (1) on the same subject matter
- the privilege of doing business in the City of Manila; (2) for
the same purpose - to make persons conducting business
within the City of Manila contribute to city revenues; (3) by the
same taxing authority – petitioner City of Manila; (4) within
the same taxing jurisdiction - within the territorial jurisdiction
of the City of Manila; (5) for the same taxing periods - per
calendar year; and (6) of the same kind or character – local
business tax imposed on gross sales or receipts of the
business.
Swedish Match v. City of Manila, GR 181277, 3 Jul 2013
Double taxation As to the substantive issues, petitioner
mountains that the enforcement of Section 21 of the
Manila Revenue Code constitutes double taxation in view of
the taxes collected under Section 14 of the same code.
Petitioner points out that Section 21is not itself invalid, but the
enforcement of this provision would constitute double
taxation business tires have already been paid under Section
14 of the same revenue code. Petitioner further argues that
since Ordinance Nos. 7988 and 8011 have already been
declared null and void in Coca Cola Bottlers Philippines, inc vs.
City of Manila, all taxes collected and paid on the basis of these
ordinances should be refunded
Ericsson v. City of Pasig, 538 SCRA 99, GR 176667, 22 Nov
2007
The imposition of local business tax based on petitioner’s gross
revere will inevitably result in the constitutionally proscribed
double taxation - taxing of the same person twice by the same
jurisdiction for the same thing – in as much as petitioners
revenue or income for a taxable year will definitely include its
gross receipts already reported during the previous year and
for which local business tax has already been paid.
Eliminating Double Taxation
Tax Treaties
Forms of Escape from Taxation
▪ Shifting
▪ Capitalization
▪ Transformation
▪ Evasion
▪ Avoidance
▪ Exemption
Capitalization, defined
- the reduction in the price of the taxed object equal to the
capitalized value of future taxes which the purchaser expects
to be called upon to pay
Transformation
The method whereby the manufacturer or producer upon
whom the tax has been imposed, fearing the loss of his market
if he should add the tax to the price, pays the tax and
endeavors to recoup himself by improving his process of
production thereby turning out his units of products at a lower
cost.
Tax Avoidance
is the use by the taxpayer of legally permissible alternative tax
rates or method of assessing taxable property or income in
order to avoid or reduce tax liability.
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Tax Avoidance is not punishable by law, a taxpayer has the
legal right to decrease the amount of what otherwise would
be his taxes or altogether avoid by means which the law
permits.
Tax Evasion
is the use of the taxpayer of illegal or fraudulent means to
defeat or lessen the payment of a tax.
Indicia of Fraud in Taxation
- Failure to declare for taxation purposes true and
actual income derived from business for two
consecutive years, and
- Substantial underdeclaration of income tax returns of
the taxpayer for four consecutive years coupled with
overstatement of deduction.
Evasion of the tax takes place only when there are no
proceeds. Evasion of Taxation is tantamount, fiscally speaking
to the absence of taxation.
Tax Exemptions
Tax Exemption - is a grant of immunity, express or implied, to
particular persons or corporations from the obligations to pay
taxes.
Nature of Tax Exemption
It is merely a personal privilege of the grantee;
It is generally revocable by the government unless the
exemption is founded on a contract which is protected from
impairment, but the contract must contain the other essential
elements of contracts, such as, for example valid cause or
consideration;
It implies a waiver on the part of the government of its right to
collect what otherwise would be due to it, and in this sense is
prejudicial thereto.
it is not necessarily discriminatory so long as the exemption
has a reasonable foundation or rational basis.
Rationale of Tax Exemption
Public interest would be subserved by the exemption allowed
which the law-making body considers sufficient to offset
monetary loss entailed in the grant of the exemption. (CIR vs
Bothelo Shipping Corp., L21633, June 29, 1967; CIR vs PAL,
L20960, Oct. 31, 1968).
Grounds for Tax Exemptions
May be based on a contract in which case, the public
represented by the Government is supposed to receive a full
equivalent therefore;
May be based on some ground of public policy, such as, for
example, to encourage new and necessary industries;
May be created in a treaty on grounds of reciprocity or to
lessen the rigors of international double or multiple taxation
which occur where there are many taxing jurisdictions, as in
the taxation of income and intangible personal property;
Equity, not a ground for Tax ExemptionEquitable
Recoupment
Where the refund of a tax illegally or erroneously collected or
overpaid by a taxpayer is barred by prescription, a tax
presently being assessed against a taxpayer may be recouped
or set-off against the tax already barred by prescription.
This doctrine is pertinent only to taxes arising from the SAME
transaction on which an overpayment is made and
underpayment is due.
Equitable recoupment is allowed ONLY in common law
countries, not in the Philippines
Basco vs PAGCOR
The Charter of the City of Manila is subject to control by
Congress. It should be stressed that “municipal corporations
are mere creatures of Congress” (Unson v. Lacson, G.R. No.
7909, January 18, 1957) which has the power to “create and
abolish municipal corporations” due to its “general legislative
powers” (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v.
Orandia, 5 SCRA 541). Congress, therefore, has the power of
control over local governments (Hebron v. Reyes, G.R. No.
9124, July 2. 1950). And Congress can grant the City of Manila
the power to tax certain matters, it can also provide for
exemptions or even take back the power.
Kinds of Tax Exemptions
As to basis
▪ Constitutional Exemptions - Immunities from
taxation which originate from the Constitution
▪ Statutory Exemptions - Those which emanate from
Legislation
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As to form
Express Exemption - Whenever expressly granted by organic
or statute of law
Implied Exemption - Exist whenever particular persons,
properties or excises are deemed exempt as they fall outside
the scope of the taxing provision itself.
As to extent
Total Exemption - connotes absolute immunity
Partial exemption - One where collection of a part of the tax
dispensed with.
TAX LAWS AND REGULATIONS
Interpretation of Tax Laws
On the interpretation and construction of tax statutes,
legislative intention must be considered.
In case of doubt, tax statutes are construed strictly against the
government and liberally construed in favor of the taxpayer.
The rule of strict construction against the government is not
applicable where the language of the law is plain and there is
no doubt as to the legislative intent.
The exemptions (or equivalent provisions, such as tax amnesty
and tax condonation are not presumed and when granted are
strictly construed against the grantee.
The exemptions, however, are construed liberally in favor of
the grantee in the following:
• When the law so provides for such liberal
construction
• Exemptions from certain taxes granted under special
circumstances to special classes of persons
The tax laws are presumed valid.
The power to tax is presumed
CIR VS FORTUNE TOBACCO GR Nos 167274-75, 21 July 2008
In the case of Ong Ching Kian Chung v. China National Cereals
Oil and Foodstuffs Import and Export Corporation, the Court
noted two (2)exceptions to the rule that the fallo prevails over
the body of the opinion, viz:
(a) where there is ambiguity or uncertainty, the body of the
opinion may be referred to for purposes of construing the
judgment because the dispositive part of a decision must find
support from the decision’s ratio decidendi;
(b) where extensive and explicit discussion and settlement of
the issue is found in the body of the decision.
Source of Tax Laws
Tax law in the Philippines covers national and local taxes.
National taxes refer to national internal revenue taxes imposed
and collected by the national government through the Bureau
of the Internal Revenue (BIR) and local taxes refer to those
imposed and collected by the local government.
National Tax Law
1987 Constitution- The 1987 Philippine Constitution sets
limitations on the exercise of the power to tax.
Laws- the basic source of Philippines tax law is the National
Internal Revenue Law, which codidies all tax provisions, the
latest of which is embodied in RA No. 8424 ( The Tax Reform
Act of 1997). It amended previous national internal revenue
codes, which was approved on December 11, 1997. A copy of
the Tax Reform of 1997, which took effect o January 1, 1998,
can be found here.
Local taxation is treated separately in this Guide. There are,
however, special laws that separately provide special tax
treatment in certain situations.
Treaties. The Philippines has entered into several tax treaties
for the avoidance of doubts taxation and prevention of fiscal
evasion with respected to income taxes. At present, there are
31 Philippine Tax Treaties in force. Copies are available at the
BIR Library and the International Tax Affairs Division of the BIR,
which is under the Deputy Commissioner for Legal and
Inspection Group.
Administrative Material- The secretary of Finance, upon the
recommendation of the Commissioner, promulgates needful
rules and regulations for the effective enforcement of the
provisions of the Tax Code (Section 244, Tax Code of 1997). The
Commissioner is Internal Revenue, however, has the exclusive
and original power to interpret the provisions of the Tax Code,
but subject to review by the Secretary of Finance.
Administrative Issuances
May be relied upon in interpreting the provisions of the Tax
Code, which are signed by the Secretary of Finance of the
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Commissioner of internal Revenue, or his duly authorize
representative, come in the form of Revenue Regulations,
Revenue Memorandum Orders, Revenue Memorandum
Rulings, Revenue Memorandum Circulars, Revenue
Memorandum Rulings, and BIR Rulings.
Revenue Regulations
Are issuances signed by the Secretary of Finance, upon
recommendation of the Commissioner of Internal Revenue,
the specify, prescribe or define rules and regulations for the
effective enforcement of the provisions of the National
Internal Revenue (NIRC) and related statutes.
Revenue Memorandum Orders
Are the issuances that provides directives or instructions,
prescribe guidelines and outline processes, operations,
activities, workflows, methods and procedures necessary in
the implementation of stated polices, goals, objectives, plans
and programs of the Bureau in all areas of operations, except
auditing.
BIR Rulings
BIR Rulings are the official position of the Bureau to queries
raised by taxpayers and other stakeholders relative to
clarification and interpretation of tax laws.
Case Law
In the Philippines, Supreme Court decision form part of the law
of the land. As such, decisions by the Supreme Court in the
exercise of its power to review, revise, reverse, modify or
affirm on appeal or certiorari, as the law or the Rules of Court
may provide, final judgements and orders of lower courts
cases involving the legality of any tax, impost, assessment, or
toll or nay penalty imposed in relation thereto are adhered to
and recognized as binding interpretations of Philippine tax law.
Court of Appeals and Court of Tax Appeals decisions which
have become final and executory are also recognized
interpretations of Philippine Tax Laws.
Power of the Commissioner to Interpret Tax Laws
The Court of Appeals ruled that under he 1997 NIRC. The
dispute between the parties within the authority of the CTR to
resolve. Section 4 of the 1997 NIRC reads:
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 the Commissioner, subject to review by the
secretary of Finance.
The power to decide disputed assessment, refunds in internal
revenue taxes, Fees or other charges, penalties imposed in
relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals.
Non-retroactivity of Rulings
Section 246 stating that any revocation, modification or
reversal of any of the rules and regulatIons shall not be given
retroactive application, if prejudicial to the tax payers. This rule,
however, is subject to the three exemptions:
1. If the taxpayer deliberately misstates or omits
material facts from his return or omits material facts
from his return or any document required by the BIR;
2. If the facts subsequently gathered by the BIR are
materially different from the facts on which the ruling
is based; or
3. If the taxpayer acted in bad faith.
COMMISSIONER OF INTERNAL REVENUE VS COL FINANCING
GROUP, INC. CTA EB CASE NO 1187, JUNE 30, 2015.
Commissioner of Internal Revenue (CIR) vs. COL Financing
Group, Inc., CTA EB Case No. 1187, June 30, 2015.
In this case, the taxpayer COL Financing Group, Inc filed its
income tax return for the first three quarters of the taxable
year 2009 using the itemized method of deduction for claiming
its expenses At the time of its filing RR No. 16 2008 allows the
taxpayer to use either the Itemized or Optional Standard
Deduction (OSD) method the option to choose the method of
deduction shall be determined in its annual IT
However, on Feb. 24 and 26, 2010, the BIR issued RR No. 02-
2010 and RMC 16-10, respectively, which now provides the
method of deduction shall be determined in the taxpayer's
first quarterly ITR instead of the annual ITR, and that this rule
shall be applicable for taxable year 2009.
Despite this new regulation, COL filed its annual ITR on April
12, 2010 using the OSO. It however, paid under protest, an
additional income tax under that would have been due had it
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used the itemized deduction. The filed an application for
refund with the BIR on the excess income tax paid.
In arriving at a decision to allow a refund to COL, the CTA in an
en banc decision applied the principle of non-retroactivity of
laws. This principle of law prohibits the application of a
retrospective law, which in the legal sense is one which takes
away or impairs vested rights acquired under existing laws, or
creates a new obligation and imposes a new duty, or attaches
a new disability, in respect of transactions or considerations
already past. The court explained that when COL filed its first
3 quarterly ITRs for 2009, it was with the belief that it can still
change its method of deduction for its annual ITR with the
issuance of RR 02-2010, it had lost this option. It then rued that
the issuance of RR No. 02-2010 should not be given retroactive
application for being prejudicial to the rights of the taxpayers.
Imprescribility of Taxes
General Rule: Taxes are imprescriptible
Exception: When provided otherwise by the tax law itself.
Example: NIRC provides for statues of limitation in the
assessment and collection of taxes therein imposed
Important point to consider: The law on prescription, being a
remedial measure, should be liberally construed to afford
protection as corollary, the exceptions to the law on
prescription be strictly construed. (CIR vs CA G.R No 104171,
Feb. 24, 1999)
GULF AIR COMPANY VS CIR, GR 182045, 19 SEPTEMBER 2012
The legislature is presumed to have full knowledge of the
existing revenue regulations interpreting the aforequoted
provision of law and, with its subsequent substantial re-
enactment, there is a presumption that the lawmakers have
approved and confirmed the rules in question as carrying out
the legislative purpose.[25] Hence, it can be concluded that
with the continued duplication of the NIRC provision on
common carrier's tax, the law-making body was aware of the
existence of Revenue Regulations No. 6- 66 and impliedly
endorsed its interpretation of the NIRC and its definition of
gross receipts.
SAN PABLO VS CIR, GR 147749, 22 JUNE 2006
The language of the exempting clause of Section 168 of the
1987 Tax Code was clear. The tax exemption applied only to the
exportation of rope, coconut oil, palm oil, copra by-products
and dessicated coconuts, whether in their original state or as
an ingredient or part of any manufactured article or products,
by the proprietor or operator of the factory or by the miller
himself.
The language of the exemption proviso did not warrant the
interpretation advanced by SPMC. Nowhere did it provide that
the exportation made by the purchaser of the materials
enumerated in the exempting clause or the manufacturer of
products utilizing the said materials was covered by the
exemption. Since SPMC’s situation was not within the ambit of
the exemption, it was subject to the 3% miller’s tax imposed
under Section 168 of the 1987 Tax Code.
PELIZLOY REALTY CORPORATION VS PROVINCE OF BENGUET,
GR 183137, 10 APRIL 2013
In this case, the definition of' amusement places' in Section
131 (c) of the LGC is a clear basis for determining what
constitutes the 'other places of amusement' which may
properly be subject to amusement tax impositions by
provinces. There is no reason for going beyond such basis. To
do otherwise would be to countenance an arbitrary
interpretation/application of a tax law and to inflict an injustice
on unassuming taxpayers.
The previous pronouncements notwithstanding, it will be
noted that it is only the second paragraph of Section 59, Article
X of the Tax Ordinance which imposes amusement taxes on
"resorts, swimming pools, bath houses, hot springs, and
tourist spots". The first paragraph of Section 59, Article X of the
Tax Ordinance refers to "theaters, cinemas, concert halls,
circuses, cockpits, dancing halls, dancing schools, night or day
clubs, and other places of amusement".1âwphi1 In any case,
the issues raised by Pelizloy are pertinent only with respect to
the second paragraph of Section 59, Article X of the Tax
Ordinance. Thus, there is no reason to invalidate the first
paragraph of Section 59, Article X of the Tax Ordinance. Any
declaration as to the Province of Benguet's lack of authority to
levy amusement taxes must be limited to admission fees to
resorts, swimming pools, bath houses, hot springs and tourist
spots.
ALTA VISTA GOLF VS THE CITY OF CEBU, GR 180235, 20
JANUARY 2016
As defined in The New Oxford American Dictionary, 'show'
means "a spectacle or display of something, typically an
impressive one"; while 'performance' means "an act of staging
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or presenting a play, a conceit, or other form of
entertainment." As such, the ordinary definitions of the words
'show' and 'performance' denote not only visual engagement
(i.e., the seeing or viewing of things) but also active doing (e.g.,
displaying, staging or presenting) such that actions are
manifested to, and (correspondingly) perceived by an
audience.
Agencies involved in Tax Administration
Bureau of Internal Revenues and the Bureau of Customs for
internal revenue and customs law enforcement. It is
noteworthy to note that the BIR is largely decentralized in that
a great extent of tax enforcement duties are delegated to the
Regional Directors and Revenue District Officers. Provincial,
City and Municipal assessors and treasures for local and real
property taxes.
Bureau of Internal Revenue (BIR)
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.
Note: The deputy commissioners are Assisted by assistant
commissioner.
Powers and Duties of the BIR
▪ Exclusive and original power to interpret provisions of
the NIRC and other tax laws subject to review by the
Secretary of Finance
▪ Assessment and Collection of all national internal
revenue taxes, fees and charges
▪ Enforcement of all forfeitures, penalties and fines
 connected therewith
▪ Execution of judgement in all cases decided in its
favor by the court of tax appeals and the ordinary
courts
▪ Effecting and administering the supervisory and
Classifications
police powers conferred to it by the Tax code or other
law
▪ Obtaining information, summoning, examining and
taking testimony of persons for purposes of
ascertaining the correctness of any return or in
determining the liability of any person for any internal
revenue tax, or in collecting any such liability.
Rule of “NO ESTOPPEL AGAINST THE GOVERNMENT”
It is a settled rule of law that in the performance of its
governmental functions, the state cannot be estopped by the
neglected of its agents and officers. Nowhere is it more true
than in the field of taxation (CIR vs Abad, et. Al, L19627, June
27, 1968). Estoppel does not apply to preclude the subsequent
findings on taxability.
The principle of tax law enforcement is: The Government is not
estopped by the mistakes or errors of its agents; erroneous
application and enforcement of law by public officers do not
block subsequent correct application of statues.
Similarly, estopped does not apply to deprive the government
PRINCIPLE GOVERNING TAX ASSESSMENT
of its right to raise defenses even if those defenses are being
raised only for the first time on appeal (CIR vs Procter &
Gamble Phil G.R No. 66838, 15 April 1988)
Estoppel Against the Taxpayer
While the principle of estoppel may not be invoked against the
government this is not necessarily true in case of the taxpayer.
In CIR vs. Suyac, 104 Phil 819, the taxpayer made several
requests for the reinvestigation of its tax liabilities such that
the government, acceding to the taxpayer’s request,
postponed the collection of its liability. The taxpayer cannot
later on be permitted to raise the defense of prescription
inasmuch as his previous requests for reinvestigation have the
effect of placing him in estoppel.
Principle Governing Tax Assessments
▪ Nature and Kinds of Assessments
▪ An assessment is the official action of an
administrative officer determining the amount of tax
due from a taxpayer, or it may be the notice to the
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effect that the amount therein stated is due from the
taxpayer that the payment of the tax or deficiency
stated therein. (Bisaya Land Transportation Co. CIR,
105 Phil 1338)
▪ Self-Assessment Tax is assessed by the taxpayer
himself. The amount is reflected in the tax return that
is filed by him and the tax is paid at the time he files
his return. (Sec. 56 (A) (1), 1997 NIRC)
▪ Deficiency Assessment. This is an assessment made
by the tax assessor whereby the correct amount of
the tax is determined after an examination or
investigation is conducted. The liability is determined
and is; therefore, assessed for the following reasons:
The amount ascertained exceeds that which is shown
as tax by the taxpayer in his return; No amount is
shown in the return or; The taxpayer did not file any
return at all. (Sec. 56 (B) 1J1] and (21 1997 NIRC)
▪ Illegal and Void Assessments This is an assessment
wherein the tax assessor has no power to act at all
(Victorias Milling vs. CTA, L24213, 13 Mar 1968)
▪ Erroneous Assessment - This is an assessment
wherein the assessor has the power to assess but errs
in the exercise of that power (ibid.)
▪ Assessments are prima facie presumed correct and
made in good faith.
▪ The taxpayer has the duty of proving otherwise
(Interprovincial Autobus vs. CIR, 98 Phil 290)
▪ In the absence of any proof of any irregularities in the
performance of duties, of assessment will be d es (Sy
Po. Vs. CTA, G.R. No 81446, 8 Aug 1988)
▪ All presumptions are in favor of tax assessments
(Dayrit v. Cruz, 139910, 26 Sept. 1988)
▪ Failure to present proof of error in the assessment
will justify judicial affirmation of said assessments
(OR vs CC G.R. No. 104151 and 105563, 10 Mar 1995)
▪ A party challenging an appro fondo value is required
to prove not that the appraised value is erroneous
but also the proper values (Caltex CC CRN 104781, 10
July 1988)
▪ Assessments should not be based on presumptions
no matter how logical the presumption might be. In
 order to stand the test of judicial scrutiny it must be
based on actual facts.
▪ Assessment is discretionary on the part of the
Commissioner. Mandamus will not be to compel him
to assess a tax after investigation if he finds no
ground to assess Mandamus to compel the
Commissioner to assess will result in
encroachment on executive functions (Merako
Securities Corp. vs. Savellana, L36181 and 574 23 Oct
1992)
Investigative Powers of the CIR
Section 5. Power of the Commissioner to Obtain Information,
and to Summon, Examine, and Take Testimony of Persons. - In
ascertaining 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 Commissioner is authorized:
A. To examine any book, paper, record, or other data
which may be relevant or material to such inquiry;
B. To Obtain on a regular basis from 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 national and local governments,
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, receipts or sales and gross
incomes of taxpayers, and the names, addresses, and
financial statements of corporations, mutual fund
companies, insurance companies, regional operating
headquarters of multinational companies, joint
accounts, associations, joint ventures of consortia
and registered partnerships, and their members;
Means Employed in the Assessment of Taxes
▪ Examination of Returns: Confidentiality Rule
The Tax Code requires that after the return is filed, the
Commissioner or his duly authorized representative shall
examine the same and assess the correct amount of tax. The
tax or the deficiency of the tax so assessed shall be paid upon
notice and demand from the Commissioner or from his duly
authorized representative. Any return, statement or
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declaration filed in any office authorized to receive the same
shall not be withdrawn. However, within three (3) days from
the date of such filing, the same may be modified, changed or
amended, provided that no notice for audit or investigation of
such return, statement or declaration has in the meantime
been actually served upon the taxpayer. (Sec 6[A], 1997 NIRC)
the
Although Sec 71 of the 1997 NIRC provides that tax returns
shall constitute public records, it is necessary to know that
these are confidential in nature and may not be inquired into
in unauthorized cases under pain of penalty of law provided
for in Sec 270 of the 1997 NIRC
The aforesaid rule, however, is subject to certain exceptions.
In the following cases, inquiry Into the income tax returns of
taxpayers may be authorized
When the inspection of the return is authorized upon the
written order of the President of the Philippines
When inspection is authorized under the Finance Regulation
No. 33 of the Secretary of Finance,
When the production of the tax return is material evidence in
a criminal case wherein the Government is interested in the
result. (Cu Unjieng, et. al. vs. Posadas, etc, 58 Phil 360)
When the production or inspection thereof is authorized by
the taxpayer himself (Vera vs Cus L33115, 29 June 1979).
Assessment Based on the Best Evidence Obtainable
▪ The law authorizes the Commissioner to assess taxes
on the basis of the best evidence obtainable in the
following cases:
▪ if a person fails to file a return or other document at
the time prescribed by law; or
▪ he willfully or otherwise files a false or fraudulent
return or other document
▪ When the method is used, the Commissioner makes
or amends the return from his knowledge and from
such information as he can obtain through testimony
or otherwise.
▪ Assessments made as such are deemed prima facie
correct and sufficient for all legal purposes. (Sec. 6 [B],
1997 NIRC)
Best Evidence Obtainable
Best Evidence Obtainable refers to any data, record, papers,
documents, or any evidence gathered by internal revenue
officers from government offices or agencies, corporations, ▪ Deficiency interest
employers, clients or patients, tenants, lessees, vendees and ▪ Any deficiency in the tax due, as the term is defined
from all other sources, with whom the taxpayer had previous in this code, shall be subject to the interest of 20%
transactions or from whom he received any income, after per annum, or such higher rate as may be prescribed
ascertaining that a report required by law as basis for the by rules and regulations, which shall be assessed and
assessment of any internal revenue tax has not been filed or collected from the date prescribed for its payment
when there is reason to believe that any such report is false, until the full payment thereof (Sec. 24961997 NIRC)
incomplete or erroneous. ▪ Delinquency Interest
▪ This kind of interest is imposed in case of failure to
Inquiry into Bank Deposits
pay: The amount of the tax due for which no return is
Examination of bank deposits enables the Commissioner to required, or A deficiency tax, or any surcharge or
assess the correct tax liabilities of taxpayers. However, bank interest thereon on the due date appearing in the
deposits are confidential under R.A. 1405. Notwithstanding notice and demand of the Commissioner
any contrary provisions of R.A. 1405 and other general or
Administrative Offenses
special laws, the Commissioner is authorized to inquire into
the bank deposits of; ▪ Failure to File Certain Information Returns
▪ Failure of a Withholding Agent to Collect and Remit
▪ a decedent to determine his gross estate; and
▪ Failure of a Withholding Agent to Refund Excess
▪ any taxpayer who has filed application for
Withholding Tax
compromise of his tax liability under Sec 204 (A) (@)
of the Tax Code by reason of his financial incapacity
to pay his tax liability. In this case, the application for
compromise shall not be considered unless and until
he waives in writing his privilege under RA 1405, or
under other general or special laws, and such waiver
shall constitute the authority of the Commissioner to
inquire into bank deposits of the taxpayer (Sec. 6[F],
1997 NIRC).

Enforcement of Forfeitures and Penalties

Statutory Offenses and Penalties

Additions to the Tax. Additions to the tax are increments to

the basic tax incident due to the taxpayer's non-compliance
with certain legal requirements, like the taxpayer's refusal or
failure to pay taxes and/or other violations of taxing provisions.

Interest

This is an increment on any unpaid amount of tax, assessed at

the rate of twenty percent (20%) per annum, or such higher
rate as may be prescribed y rules and regulations, from the
date prescribed for payment until the amount is fully paid.
( 249 (A], 1997 NIRC)

Interest Classified Into:

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