Unauthorized users shall be punished by the law of
DOMONDON Pre-Week Bar *** Notes
TAXATION LAW
COLOR CODED: LAST MINUTE
NOTES
Based on the SYLLABUS FOR
THE 2019 BAR EXAMINATION
With selected Supreme Court Decisions up to June, 2019
and BIR Revenue Regulations up to June, 2019
Researched, arranged and answered by
ABELARDO T. DOMONDON
AB, BSC, LLB, MA, LLM, DCL (C.A.U.)
Lawyer-CPA-Customs Broker
These NOTES were prepared for exclusive use of Bar
Reviewees of the Bar Review Institute of the U.P.Law Center
who attended the lectures of the writer on the subjects covered
by these NOTES. The contents of these NOTES are based on
the author’s copyrighted Books. No part of these NOTES may be
reproduced in any form or any means, electronic or mechanical,
including photocopying or xeroxing without written permission
from the author.
karma and they will not pass the BAR examinations they
shall take or be unsuccessful and unhappy in life.
HOW TO USE THE NOTES
It is now the homestretch and you do not have time to read lengthy
materials. The NOTES do not cover the whole subject of Taxation but only the
areas lectured upon by the writer, You should devote only 12 hours reading time
or only one (1) day to read the NOTES which serve as the forecasts of the writer.
Do not expect the actual BAR questions to be worded in the same manner as the
NOTES. It is the concepts contained in the answers that have a high probability of
being repeated.
The NOTES are referred to as “Color Coded” because the subjects included
in the syllabus of the 2019 Bar Examination in Taxation are in red and the detailed
miscellaneous items are in black. The reader should note that questions and
answers are provided only for the subjects he has lectured upon as covered in the
Syllabus. Do not mind the citations, there is no need to remember them. If you
could cite them, then there may be brownie points,
First read the questions marked with *** without looking at the suggested
answers and try to answer them mentally. You should then then compare your
answers with the SUGGESTED ANSWERS. If your answers are fairly accurate
then well and good. If you are not able to answer accurately, after reading the
answer, cover it read the Questions again and try to answer. It should be noted
that it is the concepts that are repeated and not the factual setting of the questions.
Of course, the foregoing comment does not apply to the purely objective questions
(definitions, enumerations and distinctions) which require rote memorization. After
finishing the questions marked *** then proceed to also answer the questions
marked with **. If you still have time some time left browse the areas that are not
marked with stars.
II. NATIONAL TAXATION (National Internal Revenue
Code of 1997, as amended by RA 10963 or the Tax Reform
for Acceleration and Inclusion Law)
C. Transfer taxes
 1) What are transfer taxes ? 2) What is the law that governs the imposition of the estate tax ?
SUGGESTED ANSWER: Taxes imposed upon the privilege of passing SUGGESTED ANSWER: “It is a well-settled rule that the estate taxation is
property ownership gratuitously without consideration. governed by the statute in force at the time of the death of the decedent.” (Rev.
Regs. No. 12-2018, Sec. 3, 1st par., 1st sentence) This is so because estate tax is a tax
2) What is the nature of transfer taxes ? on the privilege to transfer property mortis causa.
SUGGESTED ANSWER: Transfer taxes are
a. excise or privilege taxes imposed on the privilege of passing II. Nature
property ownership
b. and are not taxes on the property transferred. Historical antecedent. The nature of estate and inheritance taxes was the subject of
a BEQ in 1974.
3) What are the kinds of transfer taxes ?
SUGGESTED ANSWER: They are Are estate and inheritance taxes in the nature of taxes on property or
a. Estate taxes. not ? Why ? (1974)
b. Donor’s taxes. SUGGESTED ANSWER: No. Estate and inheritance taxes are not in the
c. Inheritance tax. nature of taxes on property.
Estate taxes are in nature of an excise tax on the privilege to gratuitously pass
4) What is an inheritance tax ? on property ownership mortis causa. Upon the other hand, inheritance taxes are in
SUGGESTED ANSWER: An imposition created by law on the privilege to the nature of a excise tax on the privilege to gratuitously receive property
receive property upon the death of the transferor. (Vera v. Navarro, 79 SCRA 434) ownership mortis causa.
It is not a transfer tax because it is a tax imposed upon the privilege to
receive and not upon the privilege to pass on property ownership. iii. Purpose or object

5) What are the purposes for the imposition of the inheritance tax ? What are the purposes or objects of estate taxation ?
SUGGESTED ANSWER: SUGGESTED ANSWER: The following are the generally accepted purposes
a. To raise revenues; and for imposing the estate tax:
b. to prevent undue accumulation of wealth. 1. To generate additional revenue for the government. An estate
tax produces more revenue than an inheritance tax because it is levied on
1. Estate tax the entire estate as a unit before it is distributed. Where, as frequently
happens, large estates are divided among many close relatives, the total
a. Basic principles, concept, and definition amount of tax in relation to the value of the estate is quite insignificant.
2. To reduce the concentration of wealth.
3. Provide for an equal distribution of wealth. An estate tax is a
i. Definition more effective agent for bringing about a more equitable distribution of
wealth, so far as that is the purpose of the tax, because it applies to the
1) Define estate tax.
entire net estate.
SUGGESTED ANSWER: “An ‘estate tax’ is properly defined as a tax
4. It is the most appropriate and effective method for taxing the
imposed on the ‘privilege’ of a decedent to transmit property at death or to specify
“privilege” which the decedent enjoys of controlling the disposition at death,
to whom it may legally be transmitted. It is levied upon the entire net estate of a
of property accumulated during the lifetime of the decedent.
decedent as a unit, regardless of the number of shares into which it may be divided
5. It is the only method of collecting the share which is properly due
or the relationship of the beneficiaries. (Report of the Tax Commission on National
to the State as a “partner” in the accumulation of property which was made
Internal Revenue Laws, Vol. II, p. 113)
 possible on account of the protection given by the State. (Report of the Tax
Commission on National Internal Revenue Laws, Vol. I, pp. 55-57)
iv. Time and transfer of properties
a. When does the estate tax accrue ? Explain.
SUGGESTED ANSWER: “The estate tax accrues as of the death of the
decedent and the accrual of the tax is distinct from the obligation to pay the same.
Upon the death of the decedent, succession takes place and the right of the State
to tax the privilege to transmit the estate vests instantly upon death. (Rev. Regs. No.
12-2018, Sec. 3, 1st par., 2nd sentence and 2nd par.)
The rationale for the above is that estate tax is a tax imposed on the privilege
to transfer properties mortis causa. As such, the transfer of ownership takes place
at the time of death, not at the time when the certificates of title to real property are
transferred from the decedent to the transferee. The transfer does not also take
place when the transferee takes physical possession of the personal property
transferred by the decedent.
b. What are the implications that flow from the concept that the time
of transfer is the time of death ?
SUGGESTED ANSWER: The following are the implications that affect the
determination of the estate tax that are affected by the time of death.
1. The composition of the gross estate. Only the properties, real or
personal, where the decedent has an interest at the time of death constitutes
the estate that could be transferred mortis causa.
2. The value of the gross estate is also affected because it should
be the value at the time of death.
3. The nationality, residence or location of the property at the time
of death also is considered.
4. The accrual of the estate tax.
v. Estate tax distinguished from inheritance tax
Historical antecedents. The distinctions between estate and inheritance tax was
the subject of BEQs in 1969, and 1971.
**Distinguish estate tax from inheritance tax. (1969, 1971)
SUGGESTED ANSWER: The distinctions between estate tax and
inheritance tax are the following:
1. Basis: Estate tax is a tax on the privilege to transfer property
upon one’s death WHILE inheritance tax is a tax on the privilege to receive
property from the deceased.
Stated in the alternative, an estate tax is a tax on the transmission of
the estate or property by the decedent or on the right to transmit, or on the
interest which ceased by reason of death WHILE an inheritance tax is on the
right of the heir, devisee or legatee to take or receive the property
transmitted. (61 CJS 1966)
2. Who pays the tax: Estate tax is paid by the estate represented
by the administrator or executor while inheritance tax is paid by the recipients
of the properties of the estate.
3. Relationship of the heirs to the decedent. The estate tax makes
no difference in treatment based on the relationship of a decedent to his or
her heirs WHILE the relationship of the heirs to the decedent has a direct
bearing on the determination of the inheritance tax. In general, the more
closely related the parties, the larger the exemption and the lower is the
applicable rates.
4. Governing law: Estate taxes are presently governed and
imposed by the provisions of the NIRC of 1997 WHILE there are presently
no provisions of law that govern and impose inheritance taxes.
Warning: Do not capitalize WHILE when answering Bar questions
b. Classification of decedent
How are decedents and estates of decedents classified for estate
taxation ? What is the basis for the classification ?
SUGGESTED ANSWER: Decedents are classified into:
1) Citizens and resident aliens; and
2) Non-resident aliens.
The kinds of estates of decedents for the purpose of imposing the estate tax
are:
1) Estates of decedent Filipinos, whether residents or not, and
estates of decedent resident aliens.
2) Estates of decedent non-resident aliens.
Decedents and estates are classified in accordance with the benefits
protection theory. In turn, the classification determines what is the composition of
gross estate for purposes of estate taxation. The protection given by the
Philippines to the persons of citizens and resident aliens extends to their properties
wherever situated.
 On the other hand, no protection is given by the Philippines to the person of
non-resident aliens. Only their properties situated in the Philippines are given
protection by the Philippines.
c. Determination of gross and net estate
1) Distinguish gross estate from net estate.
SUGGESTED ANSWER: The main distinction between the gross estate and
the net estate is that the gross estate is the totality of all the properties in which the
decedent had an interest existing at the time of his death while the net estate is
what remains after subtracting from the gross estate the allowable deductions.
The gross estate is not subject to tax while the net estate is the basis for
imposing the estate tax.
2) What is the base and rate of estate tax ?
SUGGESTED ANSWER: There shall be levied, assessed, collected and paid
upon the transfer of the net estate of every decedent, whether resident or
nonresident of the Philippines, a tax at the rate of six percent (6%) based on the
value of such net estate. [NIRC of 1997, Sec. 84, as amended by the TRAIN]
3) What are the steps in the determination of the gross estate, the
net estate, and the estate tax ?
SUGGESTED ANSWER:
a) Determine the nationality and residence of the decedent.
b) Determine the nature and location of the properties of the
decedent.
c) Determine the composition and value of the gross estate.
d) Determine the nature and value of the allowable deductions and
subtract from the gross estate in order to arrive at the net estate.
e) Apply the rates of the estate tax that are applicable to the net
estate.
f) Determine the applicable penalties and surcharges, if any.
i. Determination of gross estate of a citizen (whether
resident or non-resident) or resident alien
Historical antecedents. The composition of the gross estate of a citizen or a
resident alien was the subject of BEQs in 1979, 1987, 1990, 1994, 2000, 2005, 2010, 2012,
2014, and 2018.
***1) What is the composition of the gross estate, for estate
taxation under Philippine law, of a citizen or a resident alien ?
SUGGESTED ANSWER: The value of
a) at the time of his death
b) of all property, real or personal, tangible or intangible,
c) wherever situated [NIRC OF 1997, Sec. 85, 1st par.,
paraphrasing supplied]
d) to the extent of the interest therein of the decedent existing at the
time of his death. [Ibid., Sec. 85 (A)]
Provided, That amounts withdrawn from the deposit accounts of a decedent
subjected to the 6% final withholding tax imposed under the NIRC, shall be
excluded from the gross estate for purposes of computing the estate tax. (Rev.
Regs. No. 12-2018, Sec. 4)
ALTERNATIVE ANSWER: The value of
a) at the time of his death
b) of all property, real or personal, tangible or intangible,
c) wherever situated [NIRC OF 1997, Sec. 85, 1st par.,
paraphrasing supplied]
d) to the extent of the interest therein of the decedent existing at the
time of his death. [Ibid., Sec. 85 (A)]
Provided, That amounts withdrawn from the deposit accounts of a decedent
subjected to the 6% final withholding tax imposed under the NIRC, shall be
excluded from the gross estate for purposes of computing the estate tax. (Rev.
Regs. No. 12-2018, Sec. 4)
The composition of the gross estate for estate tax purposes of a resident
alien is the same as that of Filipinos. All properties wherever situated are included.
This is so, because resident aliens are entitled to the protection of the Philippine
government which protection extends to all properties wherever situated.
The phrase “to the extent of the interest therein of the decedent existing at
the time of his death” includes properties that may not be in the name of the
decedent anymore but still considered as part of the gross estate because he has
an interest existing at the time of his death. These include:
1. Instances where it was the decedent who took out the life
insurance on his own life and the designation of the beneficiary was
revocable at the instance of the decedent.
2. Transfers in contemplation death where the decedent has
retained some attributes of ownership (such as possession or enjoyment of
the fruits during his lifetime) to pass only after his death, revocable transfers,
transfers under general prowers of administration, etc.
 3. The insufficiency of consideration in the instance where a sale of
property is made for less than an adequate and full consideration
*** 2) In determining the gross estate of a decedent, are his
properties abroad to be included, and more particularly, what constitutes
gross estate ? (1979)
SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen or a
resident alien but not if the decedent is a non-resident alien.
The gross estate of a Filipino citizen or a resident alien comprises all his real
property, wherever situated; all his personal property, tangible, intangible or mixed,
wherever situated, to the extent of his interest existing therein at the time of his/her
death, including revocable transfers and transfers for insufficient consideration,
etc., Provided, That amounts withdrawn from the deposit accounts of a decedent
subjected to the 6% final withholding tax shall be excluded from the gross estate
for purposes of computing the estate tax. (Rev. Regs. No. 12-2018, Sec. 4)
The gross estate of a non-resident alien comprises all his real property,
situated in the Philippines; all his personal property, tangible, intangible or mixed,
situated in the Philippines, to the extent of his interest existing therein at the time of
his/her death, provided, that with respect to intangible personal property, its
inclusion is subject to the rule on reciprocity, and provided, further amounts
withdrawn from the deposit accounts of a decedent subjected to the 6% final
withholding tax shall be excluded from the gross estate for purposes of computing
the estate tax. (Ibid., arrangement supplied)
***3) Ralph Donald, an American citizen, was a top executive of a
U.S. company in the Philippines until he retired in 2013. He came to like the
Philippines so much that following his retirement, he decided to spend the rest
of his life in the country. He applied for and was granted a permanent resident
status the following year. In the spring of 2018, while vacationing in Orlando,
Florida, USA, he suffered a heart attack and died. At the time of his death, he
left the following properties: (a) bank deposits with Citibank Makati and
Citibank Orlando, Florida; (b) a resthouse in Orlando, Florida; (c) a
condominium unit in Makati; (d) shares of stock in the Philippine subsidiary of
the U.S. company where he worked; (e) shares of stock in San Miguel Corp.
treasury bonds; and PLDT; (f) shares of stock in Disney World in Florida; (g)
U.S. (g) proceeds from a life insurance policy issued by a U.S. corporation.
Which of the foregoing assets shall be included in the taxable gross estate
in the Philippines ? Explain. (2005, dates supplied)
SUGGESTED ANSWER: Ralph Donald, having been granted a permanent
residency status in the Philipines, is for estate tax purposes considered as a resident
alien in the Philippines.
As a resident Ralph Donald, when he was still alive, was given protection by the
Philippine Government, and that protection extends as well to all his property, real or
personal, tangible or intangible, wherever situated at the time of his death. (Section
85, NIRC of 1997, Sec. 85) Provided, That amounts withdrawn from the bank
deposits with Citibank Makati and Citibank Orlando, Florida, of the deceased Ralph
Donald that were subjected to the 6% final withholding tax imposed the NIRC,
shall be excluded from the gross estate for purposes of computing the estate tax.
(Rev. Regs. No. 12-2018, Sec. 4)
Consequently, all such properties are to be included in gross estate for Philippine
estate tax purposes.
Thus, the following shall be included in his taxable gross estate in the
Philippines:
a. bank deposits with Citibank Makati and Citibank Orlando, Florida
except amounts withdrawn from bank deposits with Citibank Makati and
Citibank Orlando, Florida that were subjected to the 6% final withholding tax
imposed the NIRC, shall be excluded from the gross estate for purposes of
computing the estate tax. (Rev. Regs. No. 12-2018, Sec. 4)
b. a resthouse in Orlando, Florida;
c. a condominium unit in Makati;
d. shares of stock in the Philippine subsidiary of the U.S. company
where he worked;
e. shares in San Miguel Corporation and PLDT;
f. shares of stock in Disney World in Florida; and
g. U.S. treasury bond.
The proceeds from a life insurance policy issued by a U.S. corporation is
included as part of the gross estate of Ralph Donald, if the designation of the
beneficiary is revocable or irrespective of the nature of designation, if the designated
beneficiary is either the estate, the executor or administrator. If the designated
beneficiary is other than the estate, executor or administrator and the designation is
irrevocable, the proceeds shall not form part of his gross estate.
***4) Don Sebastian, single but head of the family, Filipino, and
resident of Pasig City, died intestate on November 15, 2018. He left the
following properties and interests:
House and lot (family home) in Pasig P 800,000
Vacation house and lot in Florida, USA 1,500,000
Agricultural land in Naic, Cavite which Proceeds of life insurance where he
he inherited from his father 2,000,000 named his estate as irrevocable
Car which is being used by his beneficiary 1,000,000
brother in Cavite 500,000 Household furnitures and appliances 1,000,000
Proceeds of life insurance where Claims against a cousin who has assets
he named his estate as irrevocable of P10,000 and liabilities of
beneficiary 1,000,000 P100,000 100,000
Household furnitures and appliances 1,000,000 Shares of stock in ABC Corp.,a domestic
Claims against a cousin who has Corporation 100,000
assets of P10,000 and liabilities
of P100,000 100,000 Also to be included as part of gross estate
Shares of stock in ABC Corp., a are the following which should form part of his
Domestic Corporation 100,000 Cash on hand at the time of his death are:

The expenses and charges on the estate are as follows: Funeral Expenses 250,000
Legal fees for the settlement of the
Funeral Expenses P 250,000 estate 500,000
Legal fees for the settlement of Total gross estate P7,750,000
the estate 500,000 Explanations for the inclusions:
Medical expenses of last The amounts expended for the funeral expenses and the legal fees for the
Illness 600,000 settlement of the estate are included as part of gross estate because of the logical
Claims against the estate 300,000 presumption that there could be no source of such funds other than the assets of the
The compulsory heirs of Don Sebastian approach you and seek your decedent.
assistance in the settlement of his estate for which they have agreed to the The value of the car is included in the gross estate because there is no
above-stated professional fees. Specifically they request you to explain and showing that his brother owns it.
discuss with them the following questions. You oblige.
A. What are the properties and interests that should be included in
the computation of the gross estate of the decedent ? Explain. *** 5) Mr. X, a Filipino residing in Alabama, U.S.A. died on January
xxx xxx xxx 2, 2019 after undergoing a major heart surgery. He left behind to his wife and
(2010, paraphrasing and date supplied) two (2) kids several properties, to wit:
SUGGESTED ANSWER: Don Sebastian is a resident citizen, therefore his (1) Family home in Makati City;
gross estate should include all properties, real or personal, wherever situated to the (2) Condominium unit in Las Pinas City;
extent of his interest existing at the time of his death. (3) Proceeds of health insurance from Take Care, a health
This would include among others the following: maintenance organization in the Philippines; and
House and lot (family home) in Pasig P 800,000 (4) Land in Alabama, U.S.A.
Vacation house and lot in Florida, xxx xxx xxx
USA 1,500,000 (A) What are the items that must be considered as part of the
Agricultural land in Naic, Cavite which gross estate income of Mr. X ?
he inherited from his father 2,000,000 xxx xxx xxx (2014, paraphrasing and rate supplied)
Car which is being used by his ASSUMING THAT THE QUESTION IS ASKING ABOUT “THE GROSS
brother in Cavite 500,000 ESTATE” NOT THE “gross estate income.”
 SUGGESTED ANSWER: All the items of properties enumerated in the
problem, wherever situated, in which Mr. X has an interest existing at the time of Historical antecedents. The composition of the gross estate of a non-resident alien
his death, wherever situated, shall form part of his gross estate. (NIRC of 1997, Sec. was the subject of BEQs in 1979, 1985, and 2011..
85)
This is so, because Mr. X was a Filipino at the time of his death being given
protection by the Philipine government and that protection extends as well to all his **a) What is the composition of the gross estate, for estate taxation
properties wherever situated. Thus, the properties should be included as part of his under Philippine law, of a non-resident alien.
gross estate for the purpose of determining the estate taxes to be paid to the SUGGESTED ANSWER: The value of
Philippine Government. 1. at the time of his death
NOTE NOT PART OF THE ANSWER: It is suggested that if the examinee answered 2. only that part of the entire gross estate consisting of all property,
NONE, the same should be given full credit because there is no gross estate INCOME in (a) real
the problem. Likewise, it is suggested that any answer should be given full credit because (b) or personal,
the question is worded in a confusing manner. 1) tangible or intangible,
3. situated in the Philippines. [NIRC of 1997, Sec. 85, 1st par.,
***6) Karissa is the registered owner of a beachfront property in
paraphrasing and numbering supplied]
4. to the extent of the interest therein of the decedent existing at the
Kawayan, Quezon which she acquired in 2016. Unknown to many, Karissa time of his death. [Ibid., Sec. 85 (A), arrangement and numbering supplied]
was only holding the property in trust for a rich politician who happened to Provided, That amounts withdrawn from the deposit accounts of a decedent
be her lover. It was the politician who paid for the full purchase price of the subjected to the 6% final withholding tax imposed under the NIRC, shall be
Kawayan property. No deed of trust or any other document showing that excluded from the gross estate for purposes of computing the estate tax. (Rev.
Karissa was only holding the property in trust for the politician was executed Regs. No. 12-2018, Sec. 4)
between him and Karissa. ALTERNATIVE ANSWER: The value of
Karissa died single on May 1, 2018 due to a freak surfing accident. 1. at the time of his death
She left behind a number of personal properties as well as real properties, 2. only that part of the entire gross estate consisting of all property,
including the Kawayan property. Karissa's sister, Karen, took charge of (a) real
registering Karissa's estate as a taxpayer and reporting, for income tax and (b) or personal,
VAT purposes, the rental income received by the estate from real properties. 1) tangible or intangible,
However, it was only on October 1, 2018 when Karen managed to file an 3. situated in the Philippines. [NIRC of 1997, Sec. 85, 1st par.,
estate tax return for her sister's estate. xxx xxx xxx paraphrasing and numbering supplied]
(a) Should the beachfront property be included in Karissa's gross 4. to the extent of the interest therein of the decedent existing at the
estate ? (2018, paraphrasing and dates supplied) time of his death. [Ibid., Sec. 85 (A), arrangement and numbering supplied]
SUGGESTED ANSWER: Yes. Presupposing that Karissa was a Filipino Provided, That amounts withdrawn from the deposit accounts of a decedent
citizen at the time of her death her gross estate includes the value at the time of his subjected to the 6% final withholding tax imposed under the NIRC, shall be
death of all property, real or personal, tangible or intangible, wherever situated excluded from the gross estate for purposes of computing the estate tax. (Rev.
[NIRC OF 1997, Sec. 85, 1st par., paraphrasing supplied] to the extent of the Karissa’s Regs. No. 12-2018, Sec. 4)
interest therein existing at the time of her death. [Ibid., Sec. 85 (A)] The composition of the gross estate for estate tax purposes of a non-resident
The beachfront property should be included as part of her gross estate alien includes only properties that are situated in the Philippines. This is so,
because she is the registered owner thereof and there is no deed of trust or any because the persons of non-resident aliens are not given protection by the
other document showing that Karissa was only holding the property in trust for the Philippine government. Only their properties that are situated in the Philippines are
politician. given protection.
The phrase “to the extent of the interest therein of the decedent existing at
ii. Gross estate of a non-resident alien the time of his death” includes properties that may not be in the name of the
decedent anymore but still considered as part of the gross estate because he has
an interest existing at the time of his death. These include:
1. Instances where it was the decedent who took out the life
insurance on his own life and the designation of the beneficiary was
revocable at the instance of the decedent.
2. Transfers in contemplation death where the decedent has
retained some attributes of ownership (such as possession or enjoyment of
the fruits during his lifetime) to pass only after his death, revocable transfers,
transfers under general prowers of administration, etc.
3. The insufficiency of consideration in the instance where a sale of
property is made for less than an adequate and full consideration
**b) Mr. “J,” a British citizen, died in June, 2018, while domiciled
in London. He left the following properties: a. House and lot in London;
b. House and lot in Manila; c. Shares of stock in 1) a British
corporation; 2) a Philippine corporation; d) a Hongkong corporation
operating and managed in Makati, Philippines; e) Accounts receivable from a
Philippine debtor; xxx xxx xxx g. Savings deposit in a Manila bank,
and in a New York bank; h. Lease contract over his London apartment
rented by the Philippine consul.
Explain fully which of the foregoing form part of the gross estate in
the Philippines and which do not. (Disregard the effects of reciprocity
provisions on intangible property) (1979, date and paraphrasing supplied)
SUGGESTED ANSWER: Mr. “J”, is a non-resident alien. Thus, his gross
estate should include only properties which are situated in the Philippines to the
extent of his interest in such properties existing at the time of his death, such as the
following:
a. House and lot in Manila;
b. Shares of stock in (1) a Philippine corporation (2) a Hongkong
corporation operating and managed in Makati, Philippines;
c. Accounts receivable from a Philippine debtor;
d. Proceeds from a revocable life insurance policy issued by a
Philippine insurance company if he secured the life insurance and the
beneficiary is not his estate, executor, or administrator; and
e. Savings deposit in a Manila bank except that amounts withdrawn
from the bank deposits with Citibank Makati and Citibank Orlando, Florida, of
the deceased Ralph Donald that were subjected to the 6% final withholding
tax imposed the NIRC, shall be excluded from the gross estate for
purposes of computing the estate tax. (Rev. Regs. No. 12-2018, Sec. 4)
The shares of stock in a Hongkong corporation operating and managed in
Makati, Metro Manila although physically situated outside of the Philippines is
considered as situated in the Philippines. (1st Par. Sec. 104, NIRC 0f 1997) The fact
that it is operating and managed in the Philippines has given it a business situs in
the Philippines.
All the properties not mentioned in the above which are not situated in the
Philippines do not form part of the gross estate of Mr. “J” in the Philippines becaue
they are not being protected by the Philippine Government.
**c) John Doe, an American domiciled in South Africa, died in 2018.
He left the following properties: a. a rest house in the Bahamas; b. a villa in
Switzerland; c. shares of stock in (1) Hongkong Corporation; (2) San Miguel
Brewery; (3) Taipeh Corporation operating in and with office at Makati; d.
time deposits with PNB; e. Philippine Treasury bills; f. lease contract over his
Manhattan apartment leased to the Philippine consulate.
Explain fully which of the foregoing properties formed part of his
gross estate in the Philippines. (1985, date supplied and reworded)
SUGGESTED ANSWER: John Doe, an American citizen, domiciled in South
Africa, is considered, for Philippine estate tax purposes, a non-resident alien
decedent. As such, all the properties, real or personal, tangible, intangible or
mixed, which are situated in the Philippines to the extent of John Doe’s interest
existing at the time of his death shall form part of his gross estate
The following properties situated in the Philippines form part of the gross
estate of John Doe in the Philippines:
a. Shares of stock in 1) San Miguel Corporation; 2) Taipei
Corporation operating in and with office at Makati;
The shares of stock in San Miguel corporation, a domestic corporation
and the shares of stock in a Taipei corporation operating and managed in
Makati, Metro Manila although physically situated outside of the Philippines,
are considered as situated in the Philippines. (NIRC of 1997, Sec. 104, 1st par.)
The fact that the Taipei Corporation is operating and managed in the
Philippines has given it a business situs in the Philippines.
b. Time deposits with PNB and Philippine Treasury bills except that
amounts withdrawn from the bank deposits with PNB, and Philippine
Treasury bills of the deceased John Doe that were subjected to the 6% final
withholding tax imposed the NIRC, shall be excluded from the gross estate
for purposes of computing the estate tax. (Rev. Regs. No. 12-2018, Sec. 4)
All the other properties being situated outside of the Philippines do not form
part of John Doe’s gross estate.
iii. Transfers in contemplation of death
 Historical antecedents. Transfers in contemplation of death was the subject of of control over the property transferred. In short, the transfer takes place
BEQs in 2001, and 2013. after death.

** a. Explain the concept of transfers in contemplation of death that ** b. What transfers of interest are not considered as in
are includible as part of a decedent’s gross estate. Why are these transfers contemplation of death ?
included as part of the gross estate ? SUGGESTED ANSWER: Not considered as a transfer in contemplation
SUGGESTED ANSWER: To the extent of any interest therein of which: of death is
1. The decedent, a) a bona fide sale
a) has at any time b) for an adequate and full consideration in money or
b) made a transfer, by trust or otherwise, money’s worth. [NIRC of 1997, Sec. 104 (B), numbering and arrangement
c) in contemplation of, or intended to take effect in supplied]
possession or enjoyment
d) at or after his death, or
2. The decedent ** c. A, aged 90 years and suffering from incurable cancer, on August
a) has at any time 1, 2018 wrote a will and, on the same day, made several inter vivos gifts to
b) made a transfer, by trust, or otherwise, his children. Ten days later, he died. In your opinion, are the inter vivos gifts
c) under which he has retained considered transfers in contemplation of death for purposes of determining
1) for his life or properties to be included in his gross estate ? Explain your answer. (2001,
2) for a period not ascertainable without reference to his date supplied)
death or SUGGESTED ANSWER: Yes. The rule is that where a donor donated a
3) for any period which does not in fact end before his property and after a short time executed a will instituting the donee as one of the
death. legatees in his will, the donation was made in contemplation of death. ( Vidal de
(a) The possession or enjoyment of, or the right Roces v. Posadas, 58 Phil. 108)
to the income from the property, or Reasoning a su contrario, it is evident that the exclusion from the will of the
(b) The right either alone or in conjunction with several inter vivos gifts has no other purpose than to escape estate taxation.
any person to designate the person who shall Hence, they are includible as part of his gross estate. However, if the donor’s
(1) possess or taxes have been paid, the children are entitled to the deduction for property
(2) enjoy the property or the income previously taxed.
therefrom. [NIRC of 1997, Sec. 85 (B), numbering and ALTERNATIVE ANSWER: No. It is clear that for inter vivos gifts to be
arrangement supplied] considered as “in contemplation of death” the transfer must be in “contemplation of
The basic rationale for the inclusion in the gross estate of properties or intended to take effect in possession at or after death.” Such is not the case on
“transferred in contemplation of death” is to prevent the taxpayer from the problem because the transfer through gifts took effect immediately and not after
escaping the imposition of estate taxes through the retention of some A’s death.
attribute of ownership. Where the avowed and proven purpose does not It is likewise evident from the problem that A has not “retained for his life or
show any indication to escape estate taxes, then the property is not for any period which does not in fact end before his death (1) the possession or
considered as “transferred in contemplation of death.” If there is no interest enjoyment of, or the right to the income from the property, or (2) the right either
that is retained there is no transfer in contemplation of death. alone or in conjunction with any person, to designate the person which shall
Thus, the concept of a transfer in contemplation of death has a possess or enjoy the property or the income therefrom.”
technical meaning. It does not mean that a person transfers his properties
because he knows he is going to die. It is not the mere transfer that
constitutes a transfer in contemplation of death but the retention of some type
 b. When is the power to alter, amend or revoke considered to exist
**d. Mr. Agustin, 75 years old and suffering from incurable disease on date of decedent’s death ?
decided to sell for valuable and sufficient consideration a house and lot to his SUGGESTED ANSWER: “The power to alter, amend or revoke shall be
son. He died one year later. considered to exist on the date of the decedent’s death
In the settlement of Mr. Agustin’s estate, the BIR argued that the house 1. even though the exercise of the power is subject to a precedent
and lot were transferred in contemplation of death and should therefore form giving of notice or
part of the gross estate for estate tax purposes. 2. even though the alteration, amendment or revocation takes effect
Is the BIR correct ? (2013) only
SUGGESTED ANSWER: The BIR is not correct. The transfer was not in a) on the expiration of a stated period after the exercise of the
contemplation of death because the transfer was for valuable and sufficient power,
consideration. It is also evident from the problem that Mr. Agustin has not retained b) whether or not on or before the date of the decedent’s
for his life or for any period which does not in fact end before his death (1) the death
possession or enjoyment of, or the right to the income from the property, or (2) the 1) notice has been given or
right either alone or in conjunction with any person, to designate the person which 2) the power has been exercised.
shall possess or enjoy the property or the income therefrom. 3. In such cases, proper adjustment shall be made representing the
interests which would have been excluded from the power
iv. Revocable transfers a) if the decedent had lived, and for such purpose
1) if the notice has not been given or the power has not
a. What revocable transfers are includible as part of a decedent’s been exercised on or before the date of his death,
gross estate ? 2) such notice shall be considered to have been given,
SUGGESTED ANSWER: “To the extent of any interest therein of which the or the power exercised,
decedent (a) on the date of his death.” [NIRC of 1997, Sec.
1. has at any time 85 (C) (2), numbering and arrangement supplied]
2. made a transfer,
a) except in case of bona fide sale for an adequate and full c. What revocable transfers not included as part of a decedent’s
consideration in money or money’s worth) gross estate ?
b) by trust, or otherwise, SUGGESTED ANSWER: Where the transfer is
3. where the enjoyment thereof 1. a bona fide sale
4. was subject at the date of his death 2. for an adequate and full consideration in money or money’s
5. to any change through the exercise of a power (in whatever worth. [NIRC of 1997, Sec. 85 (C) (1), numbering and arrangement supplied]
capacity exercisable)
a) by the decedent alone or v. Property passing under power of appointment
b) by the decedent in conjunction with any other person
(without regard to when or from what source the decedent acquired a. Are property passing under general power of appointment
such power), includible as part of a decedent’s gross estate ? If so, what is the rationale
6. to alter, amend, revoke, or terminate or for its inclusion ?
7. when any such power is relinquished in contemplation of the SUGGESTED ANSWER: Yes. “To the extent of any property passing under
decedent’s death.” [NIRC of 1997, Sec. 85 (C) (1), numbering and arrangement a general power of appointment exercised by the decedent:
supplied] 1. by will, or
2. by deed executed
a) in contemplation of, or
 b) intended to take effect
1) in possession or enjoyment
2) at or after his death, or
3. by deed under which he has retained
a) for his life or
b) for any period not ascertainable without reference to his
death or
c) for any period which does not in fact end before his death
1) The possession or enjoyment of, or the right to the
income from, the property, or
2) The right, either alone or in conjunction with any
person,
(a) to designate the persons,
(1) who shall possess,
(2) or enjoy the property
(3) or the income therefrom.” [NIRC of 1997,
Sec. 85 (D), paraphrasing, numbering and arrangement
supplied]
The property is included as part of the gross estate of the decedent because
of the reservation of some attributes of ownership. The recipient could not truly
dispose of the property because of conditions under the general power of
appointment.
b. Define and illustrate “power of appointment.
SUGGESTED ANSWER: A power of appointment consists of the right,
exercisable during life or by will, to designate the recipients of income or corpus
from a fund subject to the power. [Campbell, Regis W., Estate Planning and Drafting,
1984 ed., Commerce Clearing House, Inc., Illinois, USA, p. Sec. 11,051, 1 st par.]
It does not relate to property which the decedent owned but to property with
respect to which some other person had granted to the decedent the power to
designate persons who shall possess or enjoy the property or income therefrom.
[NIRC of 1997, Sec. 85 (D)]
For example, a will created a trust in favor of Angelo and provided that all the
income of the trust be distributed to Angelo during his lifetime and that upon
Angelo’s death, he be given the power to “appoint” the balance remaining in the
trust to beneficiaries of his choice. This power possessed by Angelo would
constitute a power of appointment and depending upon the specific terms of the
power and the scope of Angelo’s authority in appointing the assets held in trust at
the time of his death, might require the inclusion of the assets of the trust in
Angelo’s estate for purposes of estate taxation.
c. What property passing under general power of appointment is
not includible as part of a decedent’s gross estate ?
SUGGESTED ANSWER: Where the transfer is:
1) A bona fide sale
2) for an adequate and full consideration in money or money’s
worth. [NIRC of 1997, Sec. 85 (D), numbering and arrangement supplied]
vi. Proceeds of life insurance
Historical antecedents. The inclusion or exclusion of life insurance proceeds was
the subject of BEQs in 1970, 1977, 1979, 1980, 1984, 2003, 2005, 2007, and 2010.
***1. Are proceeds of a life insurance policy includible in the
gross estate of the decedent ? Explain. (1977)
SUGGESTED ANSWER: Yes. The proceeds of a life insurance policy is
includible in the gross estate of a decedent if:
a. The proceeds are receivable by the estate of the decedent, his
executor or administrator and the insurance was under a policy taken out by
the decedent upon his own life, or
b. The proceeds are from an insurance under a policy taken out by
the decedent upon his own life and are receivable by any beneficiary
designated as a revocable beneficiary in the policy of insurance. [NIRC of
1997, Sec. 85 (E)]
If the above conditions are not met, the life insurance proceeds are not
includible as part of gross estate.
***2. The widow and children of a passenger who died in an
airplane crash were paid P350,000.00 by the airline. This figure was released
after negotiation between the heirs of the deceased and the insurer of the
airlines, the latter having received indubitable evidence that the deceased
had a net income of P35,000.00 at the time of his death and that ten
productive years would have insured financial stability for his family. Should
the heirs declare this amount in the estate tax returns? State your reasons.
(1970, adapted)
SUGGESTED ANSWER: No. The heirs should not declare the P350,000.00
in the estate tax returns.
The P350,000.00 is not part of the gross estate of the passenger decedent
because the proceeds are not from an insurance policy taken by the decedent on
his own life. [NIRC of 1997, Art. 85 (E)] Furthermore, the insurance proceeds are not
part of the passenger’s property at the time of his death. [Ibid., Sec. 85 (A) (1)]
 2. “is made, created, exercised or relinquished
***3. On 30 June 2018, X took out a life insurance policy on his 3.
a)
but is
for a consideration in money or money's worth,

own life in the amount of P 2, 000,000.00. He designated his wife, Y, as a) not a bona fide sale
irrevocable beneficiary to P 1,000,000.00 and his son Z, to the balance of P b) for an adequate and full consideration in money or money's
1,000,000.00 but, in the latter designation, reserving his right to substitute worth,
him for another. On 01 September 2018, X died and his wife and son went 4. there shall be included in the gross estate
to the insurer to collect the proceeds of X’s life insurance policy. a) only the excess of the fair market value,
Are the proceeds of the insurance to form part of the gross estate of X? 1) at the time of death,
Explain. (2003 dates supplied) b) of the property otherwise to be included on account of such
SUGGESTED ANSWER: Only the P 1,000,000.00 proceeds that went to his transaction,
son form part of the gross estate because the designation of the beneficiary is c) over the value of the consideration received therefor by the
revocable. As such X has an interest in the life insurance proceeds existing at the decedent. [NIRC of 1997, Sec.85 (G), paraphrasing, arrangement, and
time of his death hence includible as part of his gross estate. numbering supplied]

viii. Valuation of estate

*** 4. Antonia Santos, 30 years old, gainfully employed, is the
sister of Edgardo Santos. She died in an airplane crash. Edgardo is a lawyer
and he negotiated with the airline company and insurance company and they
were able to agree to a total settlement of P10 Million. This is what Antonia
would have earned as somebody who was gainfully employed. Edgardo was
her only heir.
Is the P10 Million subject to estate tax ? Reason briefly. (2007,
paraphrasing supplied)
SUGGESTED ANSWER: The P10 Million is not subject to estate tax
because the proceeds are not part of Antonia’s gross estate. It is clear that the
payment came from the airline and its insurer. There is no showing that the P10
Million came from an insurance policy taken by the decedent Antonia on her own
life. [NIRC of 1997, Art. 85 (E)] Furthermore, the P10 Million is not part of Antonia’s
property at the time of her death. [Ibid., Sec. 85 (A) (1)]
vii. Transfers for insufficient consideration
What amount should be included in the gross estate where the
transfers were made for insufficient consideration ?
SUGGESTED ANSWER:
1. If any one of the transfers, trusts, interests, rights or powers
enumerated and described as
a) transfers in contemplation of death,
b) revocable transfers and
c) property passing under general power of appointment
Historical antecedents. The valuation of the gross estate was the subject of BEQs
in 1968, 2007,and 2008.
***a. How shall the properties comprising the gross estate be
valued ?
SUGGESTED ANSWER: The properties comprising the gross estate shall
be valued according to their fair market value as of the time of decedent’s death.
If the property is a real property, the appraised value thereof as of the time of
death shall be, whichever is the higher of –
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by
the provincial and city assessors, whichever is higher.
For purposes of prescribing real property values, the Commissioner is
authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers, both from the private and public sectors,
determine the fair market value of real properties located in each zone or area.
In the case of shares of stock, the fair market value shall depend on whether
the shares are listed or unlisted in the stock exchanges. Unlisted common shares
are valued based on their book value while unlisted preferred shares are valued at
par value. In determining the book value of common shares, appraisal surplus shall
not be considered as well as the value assigned to preferred shares, if there are
any.
 For shares which are listed in the stock exchanges, the fair market value
shall be the arithmetic means between the highest and lowest quotation at a date
nearest the date of death, if none is available on the date of death itself.
The market value of units of participation in any association, recreation or
amusement club (such as golf, polo, or similar clubs),shall be the bid price nearest
the date of death published in any newspaper or publication of general circulation.
To determine the value of the right of usufruct, use or habitation, s 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 table, to be approved by the
Secretary of Finance, upon recommendation of the Insurance Commission. (Rev.
Regs.No. 12-2018, Sec. 5)
***b. Jose Cernan, Filipino citizen, married to Maria Cernan, died
in a vehicular accident in NLEX on July 10, 2018. The spouses owned,
among others, a 100-hectare agricultural land in Sta. Rosa, Laguna with
current fair market value of P20 million, which was the subject matter of a
Joint Venture Agreement about to be implemented with Star Land
Corporation (SLC), a well-known real estate development company. He
bought the said real property for P 2 million fifty years ago. On January 5,
2019, the administrator of the estate and SLC jointly announced their big
plans to start conversion and development of the agricultural lands in Sta.
Rosa, Laguna, into first-class residential and commercial centers. As a
result, the prices of real properties in the locality have doubled.
The administrator of the Estate of Jose Cernan filed the estate tax
return on January 9, 2019, by including in the gross estate the real property
at P2 million. After 9 months, the BIR issued deficiency estate tax
assessment, by valuing the real property at P40 million.
a) Is the BIR correct in valuing the real property at P40 million ?
Explain. (2008 dates supplied)
SUGGESTED ANSWER: No. The BIR should have used the date-of-death
valuation rule.
b) If you disagree, what is the correct value to use for estate tax
purposes ? Explain. (2008 dates supplied)
SUGGESTED ANSWER: The correct value to use for estate tax purposes
is P20 million. The estate of Jose Cernan shall be appraised at its fair market
value as of the time of death. [NIRC of 1997, Sec. 88 (B)]
This is so, because estate taxes are taxes imposed on the privilege to
transfer properties mortis causa. The transfer took place at the time of death, so
the value must be the value at the time of death in 2018, not at the time of
payment.
d. Deductions and exclusions from estate
1) What is the relation between deductions and the net estate ?
SUGGESTED ANSWER: For the purpose of the imposition of the estate tax,
the value of the net estate shall be determined by deducting from the value of the
gross estate;
a) the deductions allowed to the estate of a citizen or a resident,
b) the deductions allowed to nonresident estates. [NIRC of 1997,
Sec. 86, as amended by the TRAIN, arrangement and numbering supplied]
2) What is the rhe reason why certain items are deductible from the
gross estate ?
SUGGESTED ANSWER: The deductions reduce the value of the estate that
the decedent could pass on to his/her heirs that is why they are allowed by the law
to be subtracted from the value of the estate. In short, the value of the propertu
that could not be passed on to the heirs.
Public policy may also dictate that some items are deductible in order to
reduce the administrative expenses that may be incurred by the government in
determining their deductibility such as for example the standard deduction, the
value of the Family Home, etc.
i. Deductions allowed from the gross estate of citizens
and resident aliens
Historical antecedents. Deductions from gross estate citizens and resident aliens
was the subject of BEQs in 2010, 2012, 2017, and 2018.
a. Distinguish resident estate from a non-resident estate.
SUGGESTED ANSWER: The distinctions are:
1. As to character. A resident estate is the estate of either a citizen
or a resident alien WHILE a nonresident estate is that of a nonresident alien.
2. As to composition. A resident estate comprises property which
are situated anywhere in the world WHILE a nonresident estate comprises
only property situated in the Philippines or which have obtained a business
situs in the Philippines;
3. Deductions. A resident estate is allowed to deduct the value of
a family home, and the amount received by heirs under R.A. No. 4917
WHILE nonresident estates are not allowed to deduct the preceding items.
WARNING !!! For purposes of answering Bar questions do not capitalize the
word WHILE.

***b. How is the net estate of a decedent who is either a citizen or
resident alien of the Philippines determined ? In the alternative what are the
deductions allowed from the gross estate of a Filipino citizen or resident
alien.
SUGGESTED ANSWER: The value of the net estate of a citizen or resident
alien of the Philippines shall be determined by deducting from the value of the
gross estate the following items of deduction:
1. Standard deduction. A deduction in the amount of Five Million
Pesos (P5,000,000) shall be allowed without need of substantiation. The full
amount of P5,000,000 shall be allowed as deduction for the benefit of the
decedent.
2. Claims against the estate. The word “claims” is generally
construed to mean debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime and could have been
reduced to simple money judgements. Claims against the estate or
indebtedness in respect of property may arise out of: (1) Contract; (2) Tort; or
(3) Operation of Law.
3. Claims of the deceased against insolvent persons as defined under
R.A. 10142 [Financial Rehabilitation and Insolvency Act (FRIA)] and other existing
laws, where the value of the decedent’s interest therein is included in the value of
the gross estate.
4. Unpaid mortgages, taxes and casualty losses.
4.1. Unpaid mortgages upon, or any indebtedness in respect to,
property where the value of the decedent’s interest therein, undiminished by
such mortgage or indebtedness, is included in the value of the gross estate.
The deduction herein allowed in the case of claims against the estate,
unpaid mortgages or any indebtedness shall, when founded upon a promise
or agreement, be limited to the extent that they were contracted bona fide
and for an adequate and full consideration in money or money’s worth.
4.2. Taxes which have accrued as of the death of the decedent which
were unpaid as of the time of death. This deduction will not include income
tax upon income received after death, or property taxes not accrued before
his death, or the estate tax due from the transmission of his estate.
4.3. There shall also be deducted losses 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 insurance or otherwise, and if at the time of the
filing of the return such losses have not been claimed as a deduction for
income tax purposes in an income tax return, and provided that such
losses were incurred not later than the last day for the payment of the
estate tax as prescribed in the National Internal Revenue Code (NIRC) of
1997.
5. Property previously taxed. – An amount equal to the value specified
below of any property forming part of the gross estate situated 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) 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 decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in exchange for
property so received:
a. One hundred percent (100%) of the value if the prior decedent
died within one (1) year prior to the death of the decedent, or if the property
was transferred to him by gift, within the same period prior to his death;
b. Eighty percent (80%) of the value, if the prior decedent died more
than 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
period prior to his death;
c. 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
decedent, or if the property was transferred to him by gift within the same
period prior to his death;
d. 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
decedent, or if the property was transferred to him by gift within the same
period prior to his death; and
e. Twenty percent (20%) of the value, if the prior decedent died
more than four (4) years but not more than five (5) years prior to the death
of the decedent, or if the property was transferred to him by gift within the
same period prior to his death.
These deductions shall be allowed only where a donor's tax, or estate
tax imposed under Title III of the NIRC 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 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 decedent, and
only to the extent that the value of such property is included in the decedent's
gross estate, and only if, in determining the value of the net estate of the prior
decedent, no deduction is allowable under this Item, in respect of the property or
properties given in exchange therefore. Where a deduction was allowed of any
mortgage or other lien in determining the donor's tax, or the estate tax of the prior
decedent, which was paid in whole or in part prior to the decedent's death, then
the deduction allowable under this Item shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the same
ratio to the amounts allowed as deductions under Items 2, 3, 4 and 6 of this
Subsection as the amount otherwise deductible under this Item bears to the value
of the decedent's estate. Where the property referred to consists of two (2) or
more items, the aggregate value of such items shall be used for the purpose of
computing the deduction.
6. Transfers for public use. – The amount of all bequests, legacies,
devises or transfers to or for the use of the Government of the Republic of the
Philippines or any political subdivision thereof, for exclusively public purposes.
7. The Family Home. An amount equivalent to the current fair market
value of the decedent’s family home: Provided, however, that if the said current
fair market value exceeds Ten million pesos (P10,000,000), the excess shall be
subject to estate tax.
8. Amount received by heirs under Republic Act No. 4917. - Any amount
received by the heirs from the decedent’s employer as a consequence of the
death of the decedent-employee in accordance with Republic Act No. 4917 is
allowed as a deduction provided that the amount of the separation benefit is
included as part of the gross estate of the decedent.
9. Net share of the surviving spouse in the conjugal partnership or
community property. - After deducting the allowable deductions appertaining to
the conjugal or community properties included in the gross estate, the share of
the surviving spouse must be removed to ensure that only the decedent’s interest
in the estate is taxed.” (Rev. Regs. No. 12-2018, Sec. 5, paraphrasing, words in
parentheses and bold facing supplied)
Author’s observation. The reader should note that after the effectivity of
TRAIN on January 1, 2018 the following are not anymore allowed as deductions
from the gross estate of a citizen or a resident alien:
1. “For actual funeral expenses or in an amount equal to five percent (5%)
of the gross estate, whichever is lower, but in no case to exceed Two hundred
thousand pesos (P200,000).” [NIRC of 1997, Sec. 86 (1) (a) prior to its
amendment by the TRAIN]
2. “For judicial expenses of the testamentary or intestate proceedings.”
[NIRC of 1997, Sec. 86 (1) (b), Ibid.]
3. “Medical expenses incurred by the decedent within one (1) year prior to
his death which shall be duly substantiated with receipts: Provided, That in no
caaw shall the deductible medical expenses exceed Five hundred thousand pesos
(P500,000).” [NIRC of 1997, Sec. 86 (6), Ibid.]
The reader should note that after the effectivity of TRAIN on January 1, 2018
the amounts of the following deductions from the gross estate of a citizen or a
resident alien were increased:
1. Standard deduction from P1 million to P5 million;
2. Family home from P1 million to P10 million.
***c. Karissa is the registered owner of a beachfront property in
Kawayan, Quezon which she acquired in 2016. Unknown to many, Karissa
was only holding the property in trust for a rich politician who happened to
be her lover. It was the politician who paid for the full purchase price of the
Kawayan property. No deed of trust or any other document showing that
Karissa was only holding the property in trust for the politician was executed
between him and Karissa.
Karissa died single on May 1, 2018 due to a freak surfing accident.
She left behind a number of personal properties as well as real properties,
including the Kawayan property. Karissa's sister, Karen, took charge of
registering Karissa's estate as a taxpayer and reporting, for income tax and
VAT purposes, the rental income received by the estate from real properties.
However, it was only on October 1, 2018 when Karen managed to file an
estate tax return for her sister's estate. The following were claimed as
deductions in the estate tax return:
1. Funeral expenses amounting to PhP250,000;
2. Medical expenses amounting to PhP100,000, incurred
when Karissa was hospitalized for pneumonia a month before her
death; and
3. Loss valued at PhP6 million arising from the destruction
of Karissa's condominium unit due to fire which occurred on
September 15, 2018.
xxx xxx xxx xxx
(b) Are the claimed deductions proper ? (2018, dates supplied)
SUGGESTED ANSWER: No. Two deductions could not anymore be
properly deductible. The last is still properly deductible.
If Karissa is a Filipino citizen, the deductions for funeral expenses and the
medical expenses are not deductible anymore from gross because they were
deleted effective January 1, 2018 by the TRAIN. The deletion of these deductions
is justified because the standard deduction was increased by the TRAIN to P5
million.
However, the loss valued at PhP6 million arising from the destruction of
Karissa's condominium unit due to fire which occurred on September 15, 2018 may
be deductible since the loss was incurred during the settlement of the estate, it
arose from fire, the loss is not shown in the problem to have been compensated for
by insurance or otherwise, there is likewise no showing that at the filing of testate
tax he return such losses have not been claimed as a deduction for income tax
purposes in an income tax return. It also appears that such losses were incurred
not later than May 2, 2019, which is one year from Karissa’s death, the last day for
the payment of the estate tax as prescribed by law. [NIRC of 1997, Sec. 86 (A) (4) as
renumbered by the TRAIN; Ibid., Sec. 91 (A), as amended by the TRAIN]
a) Standard deduction deductible from the
gross estate of citizens and residents
Historical antecedents. The standard deduction was the subject of BEQs in 2000,
and 2008.
3) After the effectivity of the TRAIN on January
1, 2018 medical expenses are not anymore deductible
from the gross estate of citizens or residents
b) Deduction for claims against the estate of a citizen
or resident
Historical antecedent. Claims against the estate as a deduction from gross estate
was the subject of a BEQ in 2015, and 2017.

**Mr. Felix de la Cruz, a bachelor resident citizen, suffered from a **State the conditions or requisites for allowing the following as
deductions from the gross estate of a citizen or resident alien for the purpose
heart attack while on a business trip to the USA. He died intestate on June
imposing estate tax:
15, 2018 in New York City, leaving behind real properties situated in New
a. Claims against the estate. xxx xxx (2015, paraphrasing
York; his family home in Valle Verde, Pasig City; an office condominium in
supplied)
Makati City; shares of stock in San Miguel Corporation; cash in bank; and
SUGGESTED ANSWER: The following are the conditions for deductibility of
personal belongings. The decedent is heavily insured with Insular Life. He
claims against the estate:
had no known debts at the time of his death. xxx xxx What deductions may
1. The liability represents a personal obligation of the deceased
be claimed by the estate xxx xxx ? (2000, paraphrasing and date supplied)
existing at the time of his death.
SUGGESTED ANSWER: Since Mr. de la Cruz is a Filipino citizen, the
2. The liability was contracted in good faith and for adequate and
deductions he could claim are the standard deduction of P5 million [NIRC of 1997,
full consideration in money or money’s worth.
Sec. 86 (A) (1), as amended by the TRAIN] , an amount equivalent to the current fair
3. The claim must be a debt or claim which is valid in law and
market value of Mr. de la Cruz’s family home: Provided, however, That if the said
enforceable in court.
current fair market value exceeds Ten million pesos (P10,000,000), the excess
4. The indebtedness must not have been condoned by the creditor
shall be subject to estate tax, [NIRC of 9917, Sec. 87 (A) (7), as amended by the TRAIN]
or the action to collect from the decedent must not have prescribed . [Rev.
Funeral expenses are not deductible anymore under the TRAIN. Regs. No. 12-2018, Sec. 6.2]
There are no other deductions shown in the problem. 5. If the claim is for indebtedness, at the time the indebtedness was
incurred, the debt instrument was duly notarized.
1) After the effectivity of the TRAIN on January 6. if the loan was contracted within three (3) years before the
1, 2018 funeral expenses are not anymore deductible decedent’s death, the executor or administrator shall submit a statement
from the gross estate of a citizen or resident showing the disposition of the proceeds of the loan . [NIRC of 1997, Sec. 86 (A)
(2) as amended by the TRAIN, arrangement and numbering supplied]
ALTERNATIVE ANSWER: The following are the conditions for deductibility
2) After the effectivity of the TRAIN on January of claims against the estate:
1, 2018 judicial expenses are not anymore deductible 1. The liability represents a personal obligation of the deceased
from the gross estate of a citizen or resident existing at the time of his death.
2. The liability was contracted in good faith and for adequate and
full consideration in money or money’s worth.
3. The claim must be a debt or claim which is valid in law and
enforceable in court.
 4. The indebtedness must not have been condoned by the creditor
or the action to collect from the decedent must not have prescribed . [Rev.
Regs. No. 12-2018, Sec. 6.2]
5. If the claim is for indebtedness, at the time the indebtedness was
incurred, the debt instrument was duly notarized.
6. if the loan was contracted within three (3) years before the
decedent’s death, the executor or administrator shall submit a statement
showing the disposition of the proceeds of the loan . [NIRC of 1997, Sec. 86 (A)
(2) as amended by the TRAIN, arrangement and numbering supplied]
In addition to the above the estate is likewise required to comply with the
following substantiation requirements. All unpaid obligations and liabilities of
the decedent at the time of his death are allowed as deductions from gross estate.
Provided, however, that the following requirements/documents are complied
with/submitted :
1, In case of simple loan (including advances):
a. The debt instrument must be duly notarized at the time the
indebtedness was incurred, such as promissory note or contract of
loan, except for loans granted by financial institutions where
notarization is not part of the business practice/policy of the financial
institution-lender;
b. Duly notarized Certification from the creditor as to the
unpaid balance of the debt, including interest as of the time of
death. If the creditor is a corporation, the sworn certification should
be signed by the President, or Vice- President, or other principal
officer of the corporation. If the creditor is a partnership, the sworn
certification should be signed by any of the general partners. In
case the creditor is a bank or other financial institutions, the
Certification shall be executed by the branch manager of the
bank/financial institution which monitors and manages the loan of the
decedent-debtor. If the creditor is an individual, the sworn certification
should be signed by him. In any of these cases, the one who
should certify must not be a relative of the borrower within the fourth
civil degree, either by consanguinity or affinity, except when the
requirement below is complied with.
When the lender, or the President/Vice president/principal
officer of the creditor-corporation, or the general partner of the creditor-
partnership is a relative of the debtor in the degree mentioned above, a
copy of the promissory note or other evidence of the indebtedness
must be filed with the RDO having jurisdiction over the borrower within
fifteen days from the execution thereof.
c. In accordance with the requirements as prescribed in
existing or prevailing internal revenue issuances, proof of financial
capacity of the creditor to lend the amount at the time the loan was
granted, as well as its latest audited balance sheet with a detailed
schedule of its receivable showing the unpaid balance of the
decedent-debtor. In case the creditor is an individual who is no longer
required to file income tax returns with the Bureau, a duly notarized
Declaration by the creditor of his capacity to lend at the time when
the loan was granted without prejudice to verification that may be
made by the BIR to substantiate such declaration of the creditor. If the
creditor is a non-resident, the executor/administrator or any of the
legal heirs must submit a duly notarized declaration by the creditor
of his capacity to lend at the time when the loan was granted,
authenticated or certified to as such by the tax authority of the country
where the non-resident creditor is a resident;
d. A statement under oath executed by the administrator or
executor of the estate reflecting the disposition of the proceeds of the
loan if said loan was contracted within three (3) years prior to the death
of the decedent;
2. If the unpaid obligation arose from purchase of goods or services:
a. Pertinent documents evidencing the purchase of goods or
service, such as sales invoice/delivery receipt (for sale of goods), or
contract for the services agreed to be rendered (for sale of service), as
duly acknowledged, executed and signed by decedent debtor and
creditor, and statement of account given by the creditor as duly
received by the decedent debtor;
b. Duly notarized Certification from the creditor as to the
unpaid balance of the debt, including interest as of the time of
death. If the creditor is a corporation, the sworn Certification should
be signed by the President, or Vice-President, or other principal
officer of the corporation. If the creditor is a partnership, the sworn
certification should be signed by any of the general partners. If the
creditor is a sole proprietorship, the sworn certification should be
signed by the owner of the business. In any of these cases, the one
who issues the certification must not be a relative of the decedent-
debtor within the fourth civil degree, either by consanguinity or
affinity, except when the requirement below is complied with.
When the lender, or the President/Vice-President/principal officer
of the creditor-corporation, or the general partner of the creditor-
partnership is a relative of the debtor in the degree mentioned above,
a copy of the promissory note or other evidence of the indebtedness
must be filed with the RDO having jurisdiction over the borrower within
 fifteen days from the execution thereof.
c. Certified true copy of the latest audited balance sheet of
the creditor with a detailed schedule of its receivable showing the
unpaid balance of the decedent-debtor. Moreover, a certified true
copy of the updated latest subsidiary ledger/records of the debt of
the debtor-decedent, (certified by the creditor, i.e., the officers
mentioned in the preceding paragraphs) should likewise be
submitted.
3. Where the settlement is made through the Court in a testate
or intestate proceeding, pertinent documents filed with the Court evidencing
the claims against the estate, and the Court Order approving the said
claims, if already issued, in addition to the documents mentioned in the
preceding paragraphs.
**b. Casimira died on June 19, 2018, after three weeks of
confinement due to an unsuccessful liver transplant. For her confinement,
she had incurred substantial medical expenses that she financed through
personal loans secured by mortgages on her real properties. Her heirs are
still in the process of making an inventory of her assets that can be used to
pay the estate taxes, if any, which are due on December 19, 2018.
a. Are the xxx xxx, personal loans xxx xxx incurred by Casimira
deductible from her gross estate? Explain your answer. (2017, date and
paraphrasing supplied)
SUGGESTED ANSWER: Yes, because
1. the liability represents a personal obligation of Casimira existing
at the time of her death.
2. the liability was contracted in good faith and for adequate and full
consideration in money or money’s worth.
3. The claims are personal loans which are debts or claims which
are valid in law and enforceable in court.
4. The indebtedness were not condoned by the creditors or the
action to collect from the decedent must not have prescribed . [Rev. Regs. No.
12-2018, Sec. 6.2]
Furthermore, it is imperative that Casimira’s estate must show that
atthe time the indebtedness were incurred, the debt instruments was duly
notarized since they are claims for indebtedness being personal loans; and
Finally, since the loan was contracted within three (3) years before the
Casimira’s death, the executor or administrator shall submit a statement
showing the disposition of the proceeds of the loan enabled her to pay for
substantial medical expenses. [NIRC of 1997, Sec. 86 (A) (2) as amended by the
TRAIN, arrangement and numbering supplied]
c) Deduction for claims of the deceased against
insolvent persons
1) What kinds of claims of the deceased are deductible from the
gross estate of a Filipino citizen, whether resident of not, or of a resident
alien decedent ?
SUGGESTED ANSWER: Claims of the deceased
a) against insolvent persons
b) where the value of the decedent’s interest is included in the gross
estate. [NIRC of 1997, Sec. 86 (A) (3), as renumbered by the TRAIN]
2) What are the requisites for deducting a claim of the deceased to
be against an insolvent person ?
SUGGESTED ANSWER:
a) There must be an existing unpaid indebtedness due to the
deceased creditor which must be valid and legally demandable.
b) The indebtedness must be connected with the taxpayer’s trade,
business or practice of profession.
c) The debtor and the creditor must not be related parties.
d) The claim of the deceased creditor must be against an insolvent
person as defined under R.A. 10142 [Financial Rehabilitation and Insolvency
Act (FRIA)] and other existing laws. (Rev. Regs. No. 12-2018, Sec. 6, 3)
“Insolvent shall refer to the financial condition of a debtor that is
generally unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his assets.”
["Financial Rehabilitation and Insolvency Act (FRIA) of 2010", Sec. 4 (p)]
e) The value of the decedent’s interest which is the unpaid debt is
included in the value of the gross estate.” . (Rev. Regs. No. 12-2018, Sec. 6,
3)
f) The unpaid debt must be “actually ascertained to be
worthless” and uncollectible at the time of the deceased creditor’s death.
g) The debts are uncollectible despite diligent effort exerted by the
deceased creditor. [applying by analogy NIRC of 1997, Sec. 34 (E) (1); Rev.
Regs. No. 5-99, Sec.3, reiterated in Rev. Regs. No. 25-2002; Philippine Refining
Corporation v. Court of Appeals, et al., 256 SCRA 667]
h) Must have been reported as receivables in the income tax return
of the creditor at the time of his death or prior years . [applying by analogy Rev.
Regs. No. 2, Sec. 103]
 3) What is the meaning of debt “actually ascertained worthless” to
consider the debtor as an insolvent person ?
SUGGESTED ANSWER: In general, a debt is not worthless simply because
it is of doubtful value or difficult to collect. Worthlessness is not determined by an
inflexible formula or slide rule calculation but upon the exercise of sound business
judgment. The determination of worthlessness in a given case must depend upon
the particular facts and the circumstances of the case. A taxpayer may not
postpone a bad debt deduction on the basis of a mere hope of ultimate collection
or because of a continuance of attempts to collect notes which long become
overdue, and where there is no showing that the surrounding circumstances differ
from those relating to other notes which were charged off in a prior year. While a
mere hope probably will not justify, postponement of the deduction, a reasonable
possibility of recovery will permit the account to be carried along notwithstanding
that the probabilities are that the debt may not be collected at all. The creditor may
offer evidence to show some expectation that the debt would have been paid in the
intervening years, and that subsequently the hope was shattered or appeared to
have been unfounded. If, for example, the creditor could show that during the
years he attempted to collect the debt, the debtor had property the title of which
was in dispute but which could enable him to pay his debts when the title was
cleared, the creditor would be entitled to defer the deduction on the ground that
there was no genuine ascertainment of worthlessness.
Thus, accounts receivable, the amount whereof is insignificant and the
collection of which through court action may be more costly to the taxpayer, may
not be deducted even without conclusive evidence that the taxpayer’s receivable
from a debtor has definitely become worthless unless the debtor is shown to be
insolvent.
Good faith does not require the taxpayer to be an ‘incorrigible optimist’ but
on the other hand, he may not be unduly pessimistic. Creditors do not have to wait
until some turn of the wheel of fortune may bring their debtors in affluence. The
taxpayer may strike a middle course between pessimism and optimism and
determine debts to be worthless in the exercise of sound business judgment
based upon as complete information as is reasonably ascertainable. The taxpayer
need not have perfect discernment. [applying by analogy Rev. Regs. No. 5-99, Sec. 2.c]
d) Deduction for unpaid mortgages
Historical antecedent. Unpaid mortgages as a deduction from gross estate was the
subject of a BEQ in 2014, and 2017.
***a. What are the requisites for the deductibility of unpaid
mortgages or for indebtedness in respect to property from the gross estate
of a Filipino decedent, whether resident or not, or of a resident alien
decedent ?
SUGGESTED ANSWER: There is allowed a deduction
1. for unpaid mortgages upon, or any indebtedness
2. in respect to property where
a) the value of the decedent’s interest in the property
undiminished by such mortgage or indebtedness, is included in the
value of the gross estate;
b) the mortgage or indebtedness is founded upon a promise
or agreement
3. when founded upon a promise or agreement, the deduction is
limited to the extent that the mortgage or indebtedness
a) were contracted bona fide and
b) for an adequate consideration in money or money’s worth.
[NIRC of 1997, Sec. 86 (A) (4) as renumbered by the TRAIN, numbering and
arrangement supplied]
In case unpaid mortgage payable is being claimed by the estate,
verification must be made as to who was the beneficiary of the loan
proceeds. If the loan is found to be merely an accommodation loan where
the loan proceeds went to another person, the value of the unpaid loan must
be included as a receivable of the estate. If there is a legal impediment to
recognize the same as receivable of the estate, said unpaid
obligation/mortgage payable shall not be allowed as a deduction from the
gross estate. In all instances, the mortgaged property, to the extent of the
decedent’s interest therein, should always form part of the gross taxable
estate.
***b. During his lifetime, Mr. Sakitin obtained a loan amounting to
ten million pesos from Bangko Uno for the purchase of a parcel of land
located in Makati City, using such property as collateral for the loan. The
loan was evidenced by a duly notarized promissory note. Subsequently, Mr.
Sakitin died. At the time of his death, the unpaid balance of the loan
amounted to P2 million. The heirs of Mr. Sakitin deducted the amount of P2
million from the gross estate, as part of the “Claims against the Estate.”
Such deduction was disallowed by the Bureau of Internal Revenue (BIR)
Examiner, claiming that the mortgaged property was not included in the
computation of the gross estate. Do you agree with the BIR? Explain. (2014)
 SUGGESTED ANSWER: Yes. The BIR is correct because the heirs of Mr.
Sakitin did not include the value of the mortgaged property in the computation of
the gross estate as required under the law. [NIRC of 1997, Sec. 86(A) (4) as
renumbered by the TRAIN]
The law requires this because there is no amount from which the unpaid
mortgage could be deducted if the value of the mortgaged property undiminished
by the unpaid mortgage is not included in the gross estate.
***c. Casimira died on June 19, 2018, after three weeks of
confinement due to an unsuccessful liver transplant. For her confinement,
she had incurred substantial medical expenses that she financed through
personal loans secured by mortgages on her real properties. Her heirs are
still in the process of making an inventory of her assets that can be used to
pay the estate taxes, if any, which are due on December 19, 2018.
a. Are the xxx xxx mortgages incurred by Casimira deductible from
her gross estate? Explain your answer. (2017, date and paraphrasing supplied)
SUGGESTED ANSWER: Yes. There is allowed a deduction
1. for unpaid mortgages upon, or any indebtedness
2. in respect to property where
a) the value of Casimira’s interest in the property
undiminished by such mortgage or indebtedness, is included in the
value of the gross estate;
b) the mortgage or indebtedness is founded upon a promise
or agreement
3. when founded upon a promise or agreement, the deduction is
limited to the extent that the mortgage or indebtedness
a) were contracted bona fide and
b) for an adequate consideration in money or money’s worth.
[NIRC of 1997, Sec. 86 (A) (4) as renumbered by the TRAIN, numbering and
arrangement supplied]
e) Deduction of indebtedness for taxes
What indebtedness for taxes in respect to property are deductible and
not from the gross estate of a Filipino decedent, whether resident or not, or a
resident alien decedent ?
SUGGESTED ANSWER: The following taxes are deductible:
1. Income taxes upon income received before decedent’s death;
2. Property taxes accrued before decedent’s death. [NIRC of 1997,
Sec. 86 (A) (4) as renumbered by the TRAIN]
The following taxes are not deductible:
1. Income taxes upon income received after the death of the
decedent,
2. or property taxes not accrued before his death,
3. or any estate tax. [NIRC of 1997, Sec. 86 (A) (4) as renumbered by
the TRAIN. paraphrasing, numbering and arrangement supplied]
While generally, estate taxes are not allowed as a deduction from gross
estate, the estate taxes imposed on non-resident estates shall be credited
with the amounts of any estate tax imposed by the authority of a foreign
country. [Ibid., Sec. 86 (D) (1), as rembered by the TRAIN]
f) Deduction for losses are still allowed to be
deductible under the TRAIN
What are the requisites in order that losses may be deductible from the
gross estate of a Filipino decedent, whether resident or not, or of a resident
alien decedent ?
SUGGESTED ANSWER:
1. Losses incurred during the settlement of the estate
2. arising from fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement,
3. when such losses are not compensated for by insurance or
otherwise, and
4. if at the filing of the return such losses have not been claimed
as a deduction for income tax purposes in an income tax return, and
5. Provided that such losses were incurred not later than the
last day for the payment of the estate tax as prescribed by law . [NIRC of 1997,
Sec. 86 (A) (4) as renumbered by the TRAIN]
g) Deduction for property previously taxed or
vanishing deduction
Historical antecedents. Property previously taxed or vanishing deduction was the
subject of BEQs in 1994, 2006, 2008, and 2009.
**1. What are vanishing deductions in estate taxation ? (1994)
SUGGESTED ANSWER: The deduction allowed from the gross estates
of deceased persons, whether citizens, resident aliens and nonresident aliens, for
properties which were previously subject to donor’s or estate taxes.
The deduction is called a vanishing deduction because the deduction allowed
diminishes over a period of five (5) years.
 It is also known as a deduction for property previously taxed.
** 2. What is the purpose of the vanishing deduction or deduction for
property previously taxed ?
SUGGESTED ANSWER: A scheme of “vanishing deduction” is provided, in
order to reduce the tax on property received from a prior decedent where the
deceased died within five years (5) years after the death of the prior decedent.
[Report of the Tax Commission on National Internal Revenue Laws, Vol. I, p. 61]
** 3. How much is the value of the property previously taxed that is
allowed as a deduction from the gross estate of a Filipino citizen, whether
resident or not, of a resident alien decedent ?
SUGGESTED ANSWER:
a. An amount equal to the value specified below of
b. any property forming a part of the gross estate situated in the
Philippines
c. of any person who died within five years prior to the death of
the decedent, or transferred to the decedent by gift within five years prior to
his death,
d. where such property can be identified as having been received
by the decedent from the donor by gift, or from such prior decedent by gift,
bequest, devise, or inheritance, or
e. which can be identified as having been acquired in exchange for
property so received:
100% of the value if the prior decedent died within one year prior
to the death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
80% of the value if the prior decedent died more than one year
but not more than two years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to
his death;
60% of the value if the prior decedent died more than two years
but not more than three years prior to the death of the decedent, or if
the property was transferred to him by gift within the same period prior
to his death;
40% of the value if the prior decedent died more than three
years but not more than four years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period
prior to his death; and
20% of the value if the prior decedent died more than four years
but not more than five years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to
his death. [NIRC of 1997, Sec. 86 (A) (5), as renumbered by the TRAIN]
**4. What are the conditions for deductibility of property previously
taxed ?
SUGGESTED ANSWER:
a. The gift tax, or estate tax imposed were finally determined and
paid by or on behalf of such donor, or the estate of such prior decedent, as
the case may be and
b. the deduction is allowed 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 decedent, and
c. only to the extent that the value of such property is included in
the decedent’s gross estate, and
d. only if in determining the value of the estate of the prior
decedent no deduction was allowed for property previously taxed in respect
of the property or properties given in exchange therefor.
e. Where a deduction was allowed of any mortgage or other lien in
determining the gift tax, or the estate tax of the prior decedent, which were
paid in whole or in part prior to the decedent’s death, then the deduction
allowable for property previously taxed shall be reduced by the amount so
paid.
f. Such deduction allowable shall be reduced by an amount which
bears the same ratio to the amounts allowed as deductions for expenses,
losses, indebtedness, taxes, and transfers for public use as the amount
otherwise deductible for property previously taxed bears to the value of the
decedent’s estate.
g. Where the property referred to consists of two or more items the
aggregate value of such items shall be used for the purpose of computing the
deduction. [NIRC of 1997, Sec. 86 (A) (5), and (B) (2) as renumbered by the
TRAIN]
** 5. While driving his car to Baguio last month, Pedro Asuncion,
together with his wife Assunta, and only son, Jaime, met an accident that
caused the instantaneous death of Jaime. The following day, Assunta also
died in the hospital. The spouses and their son had the following assets and
liabilities at the time of death:
 h) Deductions for transfers for public use
Assunta Jaime
Exclusive Conjugal Exclusive What transfers for public use deductible from the gross estate of a
Filipino decedent, whether resident or not, or of a resident alien decedent ?
Cash P10,000,000 P1,2000,000 SUGGESTED ANSWER: “The amount of
Cars P2,000,000 500,000 1. all bequests, legacies, devices, or transfers to or for the use
Land 5,000,000 2,000,000 2. of the Government of the Republic of the Philippines, or any
Residential house 4,000,000 political subdivision thereof,
Mortgage payable 2,500,000 3. for exclusively public purposes. [NIRC of 1997, Sec. 86 (A) (6), as
Funeral expenses 300,000 renumbered by the TRAIN]
Is vanishing deduction applicable to the Estate of Assunta Asuncion ?
Explain. ( 2008) i) Deduction for the Family Home
SUGGESTED ANSWER: No. The reason being that there were no taxes
paid upon the estate of Jaime Asuncion. The net estate is zero after deducting the Historical antecedents. Deduction for the Family Home was the subject of BEQs in
standard deduction of P5,000,000 from the gross estate of P1,200,000. 2000, and 2012.
Vanishing deduction finds application only upon properties previously taxed
in this case if an estate tax has been paid upon the estate of the prior decedent,
Jaime.
**a. What are the conditions for the allowance of family home as
deduction from the gross estate of resident estates (resident citizens or
6. In 2018, Xavier purchased from his friend, Yuri, a painting for resident aliens) ?
P500,000.00. The fair market value (FMV) of the painting at the time of the SUGGESTED ANSWER: The conditions are:
purchase was P1-million. Yuri paid all the corresponding taxes on the 1. The family home must be the actual residential home of the decedent
transaction. In 2019, Xavier died. In his last will and testament, Xavier and his family at the time of his death, as certified by the Barangay Captain of the
bequeathed the painting already worth P1.5 million to his only son, Zandro. locality where the family home is situated;
The will also granted Zandro the power to appoint his wife, Wilma, as 2. The total value of the family home must be included as part of the
successor to the painting in the event of Zandro’s death. Zandro also died in gross estate of the decedent; and
2019, and Wilma succeeded to the property. 3. Allowable deduction must be in an amount equivalent to the current
xxx xxx xxx fair market value of the family home as declared or included in the gross estate, or
[c] May vanishing deduction be allowed in either or both of the the extent of the decedent’s interest (whether conjugal/community or exclusive
estates ? Explain. (2009, paraphrasing and dates supplied) property), whichever is lower, but not exceeding P10,000,000.
SUGGESTED ANSWER: Yes. There is a deductible vanishing deduction The deduction is allowed whether the decedent is single or married.
from the estate of Xavier because there is a showing in the problem of that property
part of his estate that was previously the subject of a donor’s tax within a period of
five (5) years.
**b. Mr. Felix de la Cruz, a bachelor resident citizen, suffered from a
heart attack while on a business trip to the USA. He died intestate on June
There was a sale for less than adequate consideration when the painting with
15, 2019 in New York City, leaving behind real properties situated in New
FMV of P1 million was sold for only P500,000.00 and the seller Yuri paid all the taxes
York; his family home in Valle Verde, Pasig City; an office condominium in
on the transaction, including presumably the donor’s tax.
Makati City; shares of stock in San Miguel Corporation; cash in bank; and
There is deductible vanishing deduction from the estate of Zandro, for the
personal belongings. The decedent is heavily insured with Insular Life. He
reason that he died in 2019 which is within five (5) years after the death of Xavier in
had no known debts at the time of his death. xxx xxx What deductions may
2019.
be claimed by the estate xxx xxx ? (2000, paraphrasing and date supplied)
 SUGGESTED ANSWER: Since Mr. de la Cruz is a Filipino citizen, the
deductions he could claim are the standard deduction of P5 million [NIRC of 1997,
,Sec. 86 (A) (1) as amended by the TRAIN], an amount equivalent to the current fair
market value of Mr. de la Cruz's family home: Provided, however, That if the said
current fair market value exceeds Ten million pesos (P10,000,000), the excess
shall be subject to estate tax [Ibid. , Sec. 86 (A) (7), as amended by the TRAIN.].
There are no other deductions shown in the problem because the deduction
for funeral expenses was deleted by the TRAIN.
j) Deduction of the amount received by the heirs
under Republic Act No. 4917
What is the amount received by heirs under Republic Act No. 4917 that
is deductible from the gross estate of resident estates (citizens or resident
aliens) ?
SUGGESTED ANSWER:
1. Any amount received by the heirs from the decedent’s employer
2. as a consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917 for tax-exempt retirement or
separation pay
3. is allowed as a deduction
4. provided that the amount of the separation benefit is included as
part of the gross estate of the decedent . [NIRC of 1997, Sec. 87 (A) (8) as
renumbered by the TRAIN]
k) Deduction of the share of the surviving spouse in
the conjugal or absolute community property
What is the deduction allowed of the share in the conjugal property or
absolute of the surviving spouse ?
SUGGESTED ANSWER:
1. The net share of the surviving spouse in the conjugal partnership
property
2. as diminished by the obligations properly chargeable to such
property
3. shall, for the purposes of computing the net estate,
4. be deducted from the net estate of the decedent . [NIRC of 1997,
Sec. 86 (C), as reiterated by the TRAIN, numbering and arrangement supplied]
ii. Deductions allowed from the gross estate of non-
resident aliens
a. What are the deductions allowed from the gross estate located in
the Philippines of a non-resident alien decedent ? In the alternative how is
the net estate of a non-resident alien decedent determined for estate tax
purposes ?
SUGGESTED ANSWER: 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. Standard deduction. – A deduction in the amount of Five
Hundred Thousand Pesos (P500,000) shall be allowed without need of
substantiation. The full amount of P500,000 shall be allowed as deduction
for the benefit of the decedent. [NIRC of 1997, Sec. 86 (B) (1), as amended by the
TRAIN].
2. The proportion of the total losses and indebtedness which the
value of such part bears to the value of his entire gross estate wherever
situated. [Ibid., Sec. 86 (B) (2), in relation to Sec. 86 (A) (2), both as amended by
the TRAIN]
Losses and indebtedness shall include the following:
a. Claims against the estate. [Ibid., Sec. 86 (B) (2), in relation to
Sec. 86 (A) (2), both as amended by the TRAIN]
b. Claims of the deceased against insolvent persons where
the value of the interest therein is included in the value of the gross
estate. [Ibid., Sec. 86 (B) (2), in relation to Sec. 86 (A) (3), both as amended
by the TRAIN]
c. Unpaid mortgages, taxes and casualty losses. [Ibid., Sec. 86
(B) (2), in relation to Sec. 86 (A) (4), both as amended by the TRAIN]
3. Property previously taxed. [Ibid., Sec. 86 (B) (3)]
4. Transfers for public use. [Ibid., Sec. 86 (B) (4), as amended by the
TRAIN]
5. Net share of the surviving spouse in the conjugal property or
community property.
The following items not allowed to be deducted from the gross estate of a
nonresident alien under the TRAIN:
1. The Family Home
3. Amount received by heirs under Republic Act No. 4917.
[NIRC of 1997, Sec. 86 (A), in relation to Sec. 86 (B), both as amended by the
TRAIN, arrangement and numbering]
b. What is the requirement to be met before allowing the
deductibility of certain items from the gross estate a non-resident alien ?
What is the purpose for such a requirement ?
 SUGGESTED ANSWER:
1. No deduction shall be allowed in the case of a nonresident, not a
citizen of the Philippines ,
2. unless the executor, administrator, or anyone of the heirs, as the
case may be,
3. includes in the estate tax return required to be filed,
a) the value at the time of his death of that part of the gross
estate of the nonresident
b) situated in the Philippines. [NIRC of 1997, Sec. 90,
arrangement and numbering supplied]
The purpose for the above requirement is to enable the revenue
officers to determine how much of the deduction is allocable to property
situated in the Philippines. [Collector v. Fisher, 1 SCRA 93 (1961)] This is so
because only the properties situated in the Philippines of non-resident aliens
are subject to the protection of the Philippine government hence taxable.
iii. Exclusions from gross estate
What is the concept of exclusions from the gross estate ? Give certain
items that are excluded from the gross estate.
SUGGESTED ANSWER: These are the items that are not included in the
gross estate because the decedent has no interests in such properties at the time of
his/her death.
Technicaly, these are considered as not being subject to estate taxation.
Among the items that are excluded from the gross estate are the following:
1. the “capital” of the surviving spouse (should be taken to mean, “the
separate property” of the surviving spouse). [NIRC of 1997, Sec. 85 (H)]
2. Exempt acquisitions and transmissions.[Ibid., Sec. 87]
3. Reciprocity provision exempting from estate taxation intangible
personal property situated in the Philippines owned by a nonresident alien
decedent. [Ibid., Sec. 104, 1st par.]
4. Amounts withdrawn from the deposit accounts of a decedent
subjected to the 6% final withholding tax imposed under Section 97 of the
NIRC, shall be excluded from the gross estate for purposes of computing the
estate tax. (Rev. Regs. No. 12-2018, Sec. 4)
1) Capital of the surviving spouse as an
exclusion from gross estate
Historical antecedent. The capital of the surviving spouse as an exclusion from the
gross estate was the subject of a BEQ in 2011, infra.
:
**Explain the concept excluding the “capital”of the surviving spouse
of the decedent from the gross estate. What is the rationale for the exclusion
?
SUGGESTED ANSWER: The capital of the surviving spouse of a decedent
shall not, for purposes of the imposition of the estate tax, be deemed a part of the
decedent’s gross estate. [NIRC of 1997, Sec. 85 (H)]
Capital under the above provisions of the Tax Code should be taken to
mean the property of the spouses brought into the marriage.
Strictly speaking, capital under the civil law refers to the property brought by
the husband to the marriage while that brought into the marriage by the wife is
known as paraphernal property.
The strictissimi juris principle on the interpretation of the exclusion being an
exemption should not be applied, otherwise the result would be absurd . Applied
strictly, the exclusion does not include the separate property of the wife
(paraphernal property). Surely it is absurd if only the separate property of the
husband would be excluded. The decedent husband does not have any interest in
the paraphernal property of the surviving wife which should be subject to estate
taxes.
The provisions of the Family Code of the Philippines (E.O. No. 209) which
took effect on August 3, 1988 shall govern the property relations between husband
and wife whose marriage was celebrated on or after such date. For marriages
celebrated prior to the effectivity of the Family Code of the Philippines, the Civil
Code of the Philippines shall govern the property relations between husband and
wife in relation to the pertinent provisions of the Family Code. [Rev. Regs. 2-2003,
Sec. 1]
The share of the surviving spouse in the common properties owned with the
decedent appertains to the surviving spouse. The share, should not form part of
the gross estate because the decedent could not transfer the same. The decedent
does not have an interest in said property existing at the time of death.
2) Tax credit for estate taxes paid in a foreign
country
Historical antecedents. The tax credit for foreign estate taxes was the subject of
BEQs in 1978, and 2016.
a. What are the limitations before estate taxes paid in a foreign
country could be the subject of a tax credit ?
 SUGGESTED ANSWER: The amount of the credit taken for tax credit for
estate taxes paid in a foreign country shall be subject to each of the following
limitations:
1. “The amount of the credit in respect to the tax paid to any country
a) shall not exceed the same proportion of the tax against
which such credit is taken,
b) which the decedent's net estate situated within such
country taxable under Philippine law
1) bears to his entire net estate; and
2. The total amount of the credit
a) shall not exceed the same proportion of the tax against
which such credit is taken,
b) which the decedent's net estate situated outside the
Philippines taxable under Philippine law
1) bears to his entire net estate .” [NIRC of 1997, Sec. 87
(D) (2), as renumbered by the TRAIN, arrangement numbering and
paraphrasing supplied]
***b. Jennifer is the only daughter of Janina who was a resident in
Los Angeles, California, U.S.A. Janina died in the U.S. leaving Jennifer one
million shares of Sun Life (Philippines), Inc., a corporation organized and
existing under the laws of the Republic of the Philippines. Said shares were
held in trust for Janine by the Corporate Secretary of Sun Life and the latter
can vote the shares and receive dividends for Janina. The Internal Revenue
Service (IRS) of the U.S. taxed the shares on the ground that Janina was
domiciled in the U.S. at the time of her death.
Can the CIR of the Philippines also tax the same shares? Explain .
(2016)
SUGGESTED ANSWER: Yes. The shares of stock have obtained a
business situs in the Philippines being those of a corporation organized and
existing by virtue of Philippine Laws (NIRC of 1997, Sec. 104, 1st par.) hence includible in
the gross estate of Janina, irrespective of whether she is a Filipino citizen or alien.
There is no showing that at the time of Janina’s death (if she is a U.S.
citizen), the U.S. did not impose a transfer tax of any character in respect of
intangible personal property of Filipino citizens not residing in the U.S. or allows a
similar exemption from transfer or death taxes of every character or description in
respect of intangible personal property owned by Filipino citizens not residing in the
U.S. (NIRC of 1997, Sec. 104, 1st par.)
e. Exemption of certain acquisitions and transmissions
What are the acquisitions and transmissions that are not included in
gross estate, hence tax exempt ?
SUGGESTED ANSWER: The following shall not be taxed:
1. The merger of usufruct in the owner of the naked title.
2. The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary.
3. The transmission from the first heir, legatee, or donee in favor
of another beneficiary, in accordance with the desire of the predecessor.
4. All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of which inures
to the benefit of any individual: Provided, however, That not more than 30%
of the said bequests, devises, legacies or transfers shall be used by such
institutions for administration purposes. [NIRC of 1997, Sec. 87, arrangement
and numbering supplied]
5. Exempt acquisitions and transmissions of intangible personal
property under the principle of reciprocity. [Ibid., Sec. 104, 1st par.]
i. Merger of usufruct in the owner of the naked title
is exempt from the estate tax
Explain and illustrate the concept of merger of the usufruct in the
owner of the naked title as a transfer exempt from estate taxation.
SUGGESTED ANSWER: The following shall not be taxed: The merger of
usufruct in the owner of the naked title. [NIRC of 1997, Sec. 87, paraphrasing
supplied]
Usufruct gives a right to enjoy the property of another with the obligation of
preserving its form and substance, unless the title constituting it or the law
otherwise provides. (Rep. Act No. 386, Civil Code of the Philippines, Art. 562)
To determine the value of the right of usufruct, use or habitation, as well as
that of annuity,
1. there shall be taken into account the probable life of the beneficiary,
2. in accordance with the latest Basic Standard Mortality Table, to be
approved by the Secretary of Finance, upon recommendation of the Secretary of
Finance. [Ibid., Sec. 88 (A), arrangement and numbering supplied; Rev. Regs. No. 2-
2003, Sec. 5, last par.]
For example, “A” gave to “B” the usufruct of a parcel of land for “B” to gather
the fruits found on the said land for a period of ten (10) years. If “B” dies, within ten
(10) years, and the usufruct reverts to “A,” the value of the usufruct does not form
part of the gross estate of “B”.
 ii. The transmission from the fiduciary to the
fideicommissary heir is exempt from the estate tax
Explain and illustrate the concept of transmission from the fiduciary
to the fideicommissary heir as a non-taxable transfer. What is the rationale
for the exemption ?
SUGGESTED ANSWER: “The transmission or delivery of the inheritance or
legacy by the fiduciary heir to the fideicommissary.” [NIRC of 1997, Sec. 87,
paraphrasing supplied] shall not be taxed.
Inheritance is the totality of all the properties, rights and obligations
constituting the patrimony of the decedent which are not extinguished by his death
and which are available for distribution among his heirs after settlement or
liquidation.
Legacy is a gift of personal property given by virtue of a will. [Rep. Act No.
nd
386, Civil Code of the Philippines, Art. 782, 2 par.]
Fideicommissary is the indirect substitute who is entrusted with the obligation
to preserve and to transmit to a second heir the whole or part of the inheritance.
[Ibid., Art. 863]
Fideicommissary substitution or indirect substitution which takes place when
the fiduciary or first heir instituted is entrusted with the obligation to preserve and to
transmit to a second heir the whole or part of the inheritance, provided such
substitution does not go beyond one degree from the heir originally instituted, and
provided further, that the fiduciary or first heir and the second heir are living at the
time of the death of the testator. [Ibid., Arts. 859, 860, 861 and 863]
The value of the property that is transferred to the fiduciary or first heir is
included as part of the gross estate of the decedent transferor but not included
in the value of the gross estate of the fiduciary or first heir if he should die. He
does not have any interest in the property that he is transferring to the second heir.
It is the decedent transferor who had an interest which was transferred.
The transfer is not subject to tax because the estate tax is a tax imposed
upon the privilege to transfer properties mortis causa. There is only one
transmission of property from the decedent to the final heir through the fiduciary
heir or legatee, the transmission from the fiduciary heir or legatee to the
fideicommissary is not taxed. The fideicommissary heir merely holds the property
for transmission to the ultimate heir.
For example, Alberto wrote a will which provided among others that upon his
death he is leaving his antique 1920 XKE Jaguar sports car (the legacy) to Blesilda
(the fiduciary heir) for her to turn over upon her death to Candelaria (the
fideicommissary) . If Alberto dies and the property goes to Blesilda (the fiduciary
heir) the value of the antique car would form part of the gross estate of Alberto for
estate tax purposes for being a transfer in contemplation of death. However, if
Blesilda (the fiduciary heir) dies and the property goes to Candelaria (the
fideicommissary), the value of the same does not become part of the gross estate
of Blesilda (the fiduciary heir).
iii. Transmission from the first heir to another
beneficiary in accordance with the desire of the predecessor
is exempt from estate taxation
Historical antecedent. The exemption from estate tax of a transmission from the
first heir to another beneficiary in accordance with the desire of the predecessor was the
subject of a BEQ in 2009..
** In 2010, Xavier purchased from his friend, Yuri, a painting for
P500,000.00. The fair market value (FMV) of the painting at the time of the
purchase was P1-million. Yuri paid all the corresponding taxes on the
transaction. In 2012, Xavier died. In his last will and testament, Xavier
bequeathed the painting already worth P1.5 million to his only son, Zandro.
The will also granted Zandro the power to appoint his wife, Wilma, as
successor to the painting in the event of Zandro’s death. Zandro died in
2018, and Wilma succeeded to the property.
[a] Should the painting be included in the gross estate of Xavier in
2012 and thus, be subject to estate tax ? Explain. (2009, dates and paraphrasing
supplied)
SUGGESTED ANSWER: Yes. The painting should be included in the gross
estate of Xavier because the transfer of ownership to his son Zandro was
conditioned by his death. This is evident from the fact that the transfer was
effected through Xavier’s last will and testament.
[b] Should the painting be included in the gross estate of Zandro in
2018 and thus, be subject to estate tax ? Explain . (2009, dates and paraphrasing
supplied)
SUGGESTED ANSWER: Yes. The painting also forms part of the gross
estate of Zandro because he had an interest existing in the painting at the time of
his death. He had full disposition of the said painting.
It is to be noted that there is no indication in the sentence, “The will also
granted Zandro the power to appoint his wife, Wilma, as successor to the painting
in the event of Zandro’s death” of a limitation imposed by Xavier on the disposition
by Zandro of the painting. There is merely grant of a power which Zandro may or
may not exercise.
ALTERNATIVE ANSWER: No. Not taxable is “(t)he transmission from the
first heir, legatee or donee in favor of another beneficiary, in accordance with the
desire of the predecessor.” [NIRC of 1997, Sec. 87 (C), paraphrasing supplied)
 Thus, the painting should not be included as part of the gross estate of Zandro
because the transmission from the legatee (Zandro) in favor of another beneficiary
(Wilma), was in accordance with the desire of the predecessor (Xavier). Hence it
shall not be taxable. (Ibid.)
iv. Transfers to social welfare, cultural, and charitable
institutions are not subject to estate tax
What transfers to social welfare, cultural and charitable institutions are
not subject to estate tax ?
SUGGESTED ANSWER: The following shall not be taxed:
1. “All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions,
2. no part of the net income of which inures to the benefit of any
individual:
3. Provided, however, That not more than thirty percent (30%) of
the said bequests, devises, legacies or transfers
a) shall be used by such institutions for administration
purposes.” [NIRC of 1997, Sec. 87 (D), arrangement and numbering
supplied]
v. Acquisitions and transfers of intangible personal
property that are tax-exempt subject to reciprocity
Explain the concept of reciprocity for exempting from estate taxation
intangible personal property situated in the Philippines owned by a
nonresident alien decedent.
SUGGESTED ANSWER:
1. Nonresident alien decedent,
a) is a citizen and resident
2. of a foreign country
3. which at the time of his death
a) did not impose a transfer tax of any character in
respect of intangible personal property of Filipino citizens not residing
in the foreign country, or
b) allows a similar exemption from transfer or death taxes of
every character or description in respect of intangible personal property
owned by Filipino citizens not residing in that foreign country. (NIRC of
1997, Sec. 104, 1st par., numbering and arrangement supplied)
vi. No more exemption of the net estate not
exceeding P200,000 from January 1, 2018 the effectivity of the
TRAIN
vii. Filing notice of death is not anymore required
from January 1, 2018 the effectivity of the TRAIN
f. Period for filing estate tax returns
i. Requirement for filing estate tax return
What are the instances when the filing of estate tax returns is required ?
SUGGESTED ANSWER: In all cases of transfers subject to the estate tax, or
regardless of the gross value of the estate, where the said estate consists of
registered or registrable property such as real property, motor vehicle, shares of
stock or other similar property for which a clearance from the Bureau of Internal
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 any of the legal
heirs, as the case may be, shall file a return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time of his
death, or in case of a nonresident, not a citizen of the Philippines, of that part
of his gross estate situated in the Philippines;
(2) The deductions allowed from gross estate in determining the
estate; and
(3) Such part of such information as may at the time be
ascertainable and such supplemental data as may be necessary to establish
the correct taxes. Provided, however, That estate tax returns showing a
gross value exceeding Five million pesos (P5,000,000) shall be supported
with a statement duly certified to by a Certified Public Accountant containing
the following:
(a) Itemized assets of the decedent with their corresponding
gross value at the time of his death, or in the case of a nonresident, not
a citizen of the Philippines, of that part of his gross estate situated in
the Philippines;
(b) Itemized deductions from gross estate; and
(c) The amount of tax due whether paid or still due and
outstanding. [NIRC of 1997, Sec. 90 (A), as amended by the TRAIN; Rev.
Regs. No. 12-2018]
ii. Period for filing estate tax returns
 beneficiary 1,000,000
Historical antecedents. The date for filing the estate tax return was the subject of Household furnitures and appliances 1,000,000
BEQs in 2010, 2011, and 2017. Claims against a cousin who has
assets of P10,000 and liabilities
***1. When should an estate tax return be filed ?
of P100,000
Shares of stock in ABC Corp., a
100,000

SUGGESTED ANSWER: “For purposes of determining the estate tax, the Domestic Corporation 100,000
estate tax return shall be filed within one (1) year from the decedent’s death.
The Court approving the project of partition shall furnish the Commissioner with a The expenses and charges on the estate are as follows:
certified copy thereof and its order within thirty (30) days after promulgation of such
order.” (Rev. Regs. No. 12-2018, Sec. 9.2) Funeral Expenses P 250,000
Legal fees for the settlement of
the estate 500,000
***2. May there be an extension of time within which to file the Medical expenses of last
estate tax return ? Illness 600,000
SUGGESTED ANSWER: Yes. “The Commissioner shall have authority to Claims against the estate 300,000
grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days The compulsory heirs of Don Sebastian approach you and seek your
for filing the return.” [NIRC of 1997, Sec. 90 (C)] assistance in the settlement of his estate for which they have agreed to the
“The Commissioner or any Revenue Officer authorized by him pursuant to above-stated professional fees. Specifically they request you to explain and
the NIRC shall have authority to grant, in meritorious cases, a reasonable discuss with them the following questions. You oblige.
extension, not exceeding thirty (30) days, for filing the return. The application for xxx xxx xxx
the extension of time to file the estate tax return must be filed with the Revenue C. When is the due date for filing xxx the applicable tax return xxx ?
District Office (RDO) where the estate is required to secure its Taxpayer Are these dates extendible ? If so, under what conditions or requirements ?
Identification Number (TIN) and file the tax returns of the estate, which RDO, xxx xxx xxx
(2010, paraphrasing and date supplied)
likewise, has jurisdiction over the estate tax return required to be filed by any party
SUGGESTED ANSWER: The estate tax return shall be filed within one (1)
as a result of the distribution of the assets and liabilities of the decedent.” (Rev.
year from the decedent's death [NIRC of 1997, Sec. 90 (B), 1st par., as amended by the
Regs. No. 12-2018, Sec. 9.3) TRAIN, paraphrasing supplied; Rev. Regs. No. 2-2003, Sec. 9 (A)]
Since Don Sebastian died on February 15, 2018, the estate tax return
***3. Don Sebastian, single but head of the family, Filipino, and
should be filed on or before February 16, 2019 which is one (1) year after his
death.
resident of Pasig City, died intestate on February 15, 2018. He left the Yes, the Commissioner of Internal Revenue shall have authority to grant, in
following properties and interests: meritorious cases, a reasonable extension not exceeding thirty (30) days for filing
the return. [Ibid., Sec. 90 (C)]
House and lot (family home) in Pasig P 800,000
Vacation house and lot in Florida, USA 1,500,000 iii. Who are required to file the estate tax return under oath
Agricultural land in Naic, Cavite which
he inherited from his father 2,000,000 Who are required to file an estate tax return ?
Car which is being used by his 1. The executor,
brother in Cavite 500,000 2. or the administrator,
Proceeds of life insurance where 3. or any of the legal heirs, as the case may be,
he named his estate as irrevocable
 a) shall file a return under oath in duplicate. [NIRC of 1997,
Sec. 90 (A), arrangement, numbering and paraphrasing supplied]
iv. Place of filing the estate tax return
Historical antecedent. The place where the estate tax return shall be filed was the
subject of a BEQ in 2000.
**1. Where should the estate tax return be filed and the estate tax be
paid ?
SUGGESTED ANSWER: “In case of a 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 or Revenue
Collection Officer having jurisdiction on the place 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 having jurisdiction over the executor or
administrator’s legal residence. Nonetheless, in case the non-resident decedent
does not have an 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 Office of the
Commissioner through RDO No. 39-South Quezon City.
The foregoing provisions notwithstanding, the Commissioner of
Internal Revenue may continue to exercise his power to allow a different
venue/place in the filing of tax returns.” (Rev. Regs. No. 12-2018, Sec. 9.8)
**2. Mr. Felix de la Cruz, a bachelor resident citizen, suffered from a
heart attack while on a business trip to the USA. He died intestate on
January 15, 2018 in New York City, xxx xxx where shall the return be filed
and estate tax be paid ? (2000, date and paraphrasing supplied)
SUGGESTED ANSWER: The estate tax return should be filed in the place
where Mr. de la Cruz had his residence in the Philippines because he is a
resident,
The estate tax should be paid at the time the estate tax return is filed or
within such time as approved by the Commissioner.
v. Collection of estate taxes does not require court
approval
Historical antecedents. That collection of the estate tax does not require court
approval was the subject of BEQs in 1998, 2004, and 2005.
**VCC is the administrator of the estate of his father, NGC. In the
estate proceedings pending before the MM Regional Trial Court. Last year,
he received from the Commissioner of Internal Revenue a deficiency
assessment for the estate in the amount of P1,000,000.00, but he
ignored the notice. Last month, the BIR effected a levy on the real properties
of the estate to pay the delinquent tax. VCC filed a motion with the probate
court to stop the enforcement and collection of the tax on the ground that the
BIR should have secured first the approval of the probate court which had
jurisdiction over the estate, before levying on its real properties. Is VCC’s
contention correct ? (2004)
SUGGESTED ANSWER: No. VCC’s contention is not correct.
a. There is nothing in the Tax Code, and in the pertinent remedial laws
that implies the necessity of the probate or estate settlement court’s approval of the
state’s claim for estate taxes before the same can be enforced or collected.
b. On the contrary, under Section 87 of the NIRC (NIRC of 1997, Sec. 94), it
is the probate or settlement court which is bidden not to authorize the executor or
judicial administrator of the decedent’s estate to deliver any distributive share to
any party interested in the estate, unless it is shown a Certification of the
Commissioner of Internal Revenue that the estate taxes have been paid . (Marcos II
v. Court of Appeals, et al., G.R. No. 120880, June 5, 1997)
vi. Liability for payment of estate taxes
Historical antecedents. The liability for payment of estate taxes was the subject of
BEQs in 1966, 1981, 1989, and 2011.
** Jose, Miguel and Vicente are surviving legitimate children of Mr.
Mario Castro who died leaving a taxable estate worth P12 million. Ana,
surviving spouse of Mr. Castro and mother of Jose, Miguel and Vicente, was
appointed administratrix of the estate. A compromise agreement was made
and the surviving heirs agreed to an equal distribution of the estate among
themselves. The estate tax however, was not paid and an assessment was
issued against the surviving heirs, each in an amount equal to 25% of the tax
assessed. Jose, Miguel and Vicente protested the assessment, alleging that
the tax should be paid by Ana as administratrix. Is the protest of Jose,
Miguel and Vicente tenable ? Explain. (1989)
SUGGESTED ANSWER: Yes. Ana, the administratrix, is primarily liable for
the payment of the estate tax which is discharged only upon written advise of the
Commissioner of Internal Revenue, after Ana has paid the taxes due as notified by
the Commissioner, and files an application for discharge. (NIRC of 1997, Sec. 92)
It should be noted, that Jose, Miguel, and Vicente being beneficiaries of the
estate are subsidiarily liable for the payment of such portion of the estate tax as
their distributive shares bear to the value of the total estate. (Ibid., Sec. 92)
vii. Time for payment of the estate tax
Historical antecedents. The time for payment of the estate tax was the subject of
a BEQ in 2000, and 2017.
*** 1. Mr. Felix de la Cruz, a bachelor resident citizen, suffered a
heart attack while on a business trip to the USA. He died intestate on June
15, 2018 in New York City, xxx xxx when xxx xxx shall the xxx xxx
estate tax be paid ? (2000, date and paraphrasing supplied)
SUGGESTED ANSWER: As a general rule, estate tax imposed under the
NIRC of 1997, as amended by the TRAIN, shall be paid at the time the return is
filed by the executor, administrator or the heirs, which is within one (1) year from
the decedent's death. [NIRC of 1997,Sec. 91 (A), as amended by the TRAIN; Rev.
Regs. No. 12-2018, Sec. 9.4, paraphrasing supplied]
If the estate is suffering from liquidity problems because it does not have
sufficient cash to pay the estate taxes the executor or administrator, upon approval
of the Commissioner of Internal Revenue may opt to do either of the following:
1. Pay the tax in installments; or
2. Apply for an extension of time within which to pay the tax.
ALTERNATIVE ANSWER: As a general rule the estate tax shall be paid at
the time the return is filed by the executor, administrator or the heirs. [NIRC of 1997,
Sec. 91 (A); Rev. Regs. No. 12-2018, Sec. 9.4]
“For purposes of determining the estate tax, the estate tax return shall be
filed within one (1) year from the decedent’s death. The Court approving the
project of partition shall furnish the Commissioner with a certified copy thereof and
its order within thirty (30) days after promulgation of such order.” (Rev. Regs. No. 12-
2018, Sec. 9.2)
“As a general rule, the estate tax imposed under the NIRC shall be paid at
the time the return is filed by the executor, administrator or the heirs.” (Rev. Regs.
No. 12-2018, Sec. 9.4).
The above time for payment follows the “Pay as you go” concept in
taxation which posits that the tax should be paid at the time of the filing of the tax
return.
It may happen that the estate is suffering from liquidity problems because it
does not have sufficient cash to pay the estate taxes. In such a case, the executor
or administrator may opt to do either of the following:
1. Apply for an extension of time within which to pay the tax, or
2. Pay the tax in installments.
*** 2. Casimira died on June 19, 2018, after three weeks of
confinement due to an unsuccessful liver transplant. For her confinement,
she had incurred substantial medical expenses that she financed through
personal loans secured by mortgages on her real properties. Her heirs are
still in the process of making an inventory of her assets that can be used to
pay the estate taxes, if any, which are due on June 20, 2018.
xxx xxx xxx
b. May the heirs of Casimira pay the corresponding estate tax on
installments without civil penalty and interest ? Explain your answer. (2017,
problem reworded and dates supplied)
SUGGESTED ANSWER: Yes. “In case the available cash of the estate is
insufficient to pay the total estate tax due, payment by installment shall be allowed
within two (2) years from the statutory date for its payment without civil penalty and
interest.” [NIRC of 1997, Sec. 91 (C), as added by the TRAIN]
ALTERNATIVE ANSWER: Yes. “In case the available cash of the estate is
insufficient to pay the total estate tax due, payment by installment shall be allowed
within two (2) years from the statutory date for its payment without civil penalty and
interest.” [NIRC of 1997, Sec. 91 (C), as added by the TRAIN]
“In case of insufficiency of cash for the immediate payment of the total estate
tax due, the estate may be allowed to pay the estate tax due through the following
options, including the corresponding terms and conditions:
6.1 Cash installment
i. The cash installments shall be made within two (2) years
from the date of filing of the estate tax return, using the Payment Form
(BIR Form No. 0605), or a payment form dedicated for this transaction,
for succeeding installment payments after the filing/first (1st) payment
through the estate tax return. (as amended by Rev. Regs. No. 8-2019)
ii. The estate tax return shall be filed within one year from the
date of decedent’s death;
 iii. The frequency (i.e., monthly, quarterly, semi-annually or
annually), deadline and amount of each installment shall be
indicated in the estate tax return, subject to the prior approval by the
BIR;
iv. In case of lapse of two years without the payment of the
entire tax due, the remaining balance thereof shall be due and
demandable subject to the applicable penalties and interest
reckoned from the prescribed deadline for filing the return and
payment of the estate tax; and
v. No civil penalties or interest may be imposed on estates
permitted to pay the estate tax due by installment. Nothing in this
subsection, however, prevents the Commissioner from executing
enforcement action against the estate after the due date of the estate
tax provided that all the applicable laws and required procedures are
followed/observed.” (Rev. Regs. No. 12-2018, Sec. 6.1)
*** 3. May there be a partial disposition of the properties of an
estate ? If so, what is the procedure to be followed ?
SUGGESTED ANSWER: Yes. The procedure is as follows:
“i. The disposition, for purposes of this option, shall refer to
the conveyance of property, whether real, personal or intangible
property, with the equivalent cash consideration;
ii. The estate tax return shall be filed within one year from the
date of decedent’s death;
iii. The written request for the partial disposition of estate
shall be approved by the BIR. The said request shall be filed, together
with a notarized undertaking that the proceeds thereof shall be
exclusively used for the payment of the total estate tax due;
iv. The computed estate tax due shall be allocated in
proportion to the value of each property;
v. The estate shall pay to the BIR the proportionate estate tax
due of the property intended to be disposed of;
vi. An electronic Certificate Authorizing Registration (eCAR)
shall be issued upon presentation of the proof of payment of the
proportionate estate tax due of the property intended to be disposed.
Accordingly, eCARs shall be issued as many as there are properties
intended to be disposed to cover the total estate tax due, net of the
proportionate estate tax(es) previously paid under this option; and
vii. In case of failure to pay the total estate tax due out from
the proceeds of the said disposition, the estate tax due shall be
immediately due and demandable subject to the applicable penalties
and interest reckoned from the prescribed deadline for filing the return
and payment of the estate tax, without prejudice of withholding the
issuance of eCAR(s) on the remaining properties until the payment of
the remaining balance of the estate tax due, including the penalties and
interest.” (Rev. Regs. No. 12-2018, Sec. 6.2)
viii. Place of payment of the estate tax
Historical antecedent. The place for payment of the estate tax was the subject of a
BEQ in 2000.
**Mr. Felix de la Cruz, a bachelor resident citizen, suffered a heart
attack while on a business trip to the USA. He died intestate on June 15,
2018 in New York City, xxx xxx where shall the xxx xxx estate tax be paid
? (2000, date and paraphrasing supplied)
SUGGESTED ANSWER: Since Mr. Felix de la Cruz, is a resident decedent,
the administrator or executor shall register the estate of the decedent and secure a
new TIN therefore from the Revenue District Office where the decedent was
domiciled at the time of his death and shall pay the corresponding estate tax with
the
a) Accredited Agent Bank (AAB),
b) Revenue District Officer,
c) Collection Officer or
d) 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. [Rev.
Regs. No. 2-2003, Sec. 9 (C), 1st par., arrangement and numbering supplied]
In any other place where the Commissioner of Internal Revenue permits the
estate tax return to be filed. [NIRC of 1997, Sec. 90 (D)]
The foregoing provisions notwith-standing, the Commissioner of Internal
Revenue may continue to exercise his power to allow a different venue/place in the
filing of tax returns. [Rev. Regs. No. 2-2003, Sec. 9 (C), 3rd par.,]
ix. Extension of time to pay the estate tax
Historical antecedent. Extension of time to pay the estate tax was the subject of
BEQs in 2007, and 2010.

**Remedios, a resident citizen, died on November 10, 2018. She died
leaving three condominium units in Quezon City valued at P5 Million each.
Rodolfo was her only heir. He reported her death in December 5, 2018 and
filed the estate tax return on March 30, 2019. Because he needed to sell one
unit of the condominium to pay for the estate tax, he asked the
Commissioner of Internal Revenue to give him one year to pay the estate tax
due. The Commissioner approved the request for extension of time provided
that the estate tax be computed on the basis of the value of the property at
the time of payment of the tax.
Does the Commissioner of Internal Revenue have the power to extend
the payment of estate tax ? If so, what are the requirements to allow such
extension ? (2007, dates supplied)
SUGGESTED ANSWER: Yes. The Commissioner has the power to extend
the payment of estate tax.
The following are the requirements for such an extension:
a. The Commissioner of Internal Revenue finds that the payment
on due date of the estate tax or of any part thereof would impose undue
hardship upon the estate or any of the heirs. [NIRC of 1997, Sec. 91 (B), 1st par.]
b. There is no negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer. [Ibid., 2nd par.]
c. The extension of the time for payment or any part thereof should
not exceed
1) five (5) years, in case the estate is settled through the
courts, or
2) two (2) years in case the estate is settled extrajudicially.
[NIRC of 1997, Sec. 91 (B), 1st par.]
d. “If an extension is granted, the Commissioner may require the
executor, or administrator, or beneficiary, as the case may be, to furnish a
bond in such amount, not exceeding double the amount of the tax and with
such sureties as the Commissioner deems necessary, conditioned upon the
payment of the said tax in accordance with the terms of the extension.” [Ibid.,
last par.]
x. Effects of payment of the estate tax
What are the effects of payment of the estate tax ?
SUGGESTED ANSWER: The effects of payment of the estate tax are the
following:
1. “If the executor or administrator makes a written application to the
Commissioner for determination of the amount of the estate tax and discharge from
personal liability therefor, the Commissioner, as soon as possible, and in any event
within one (1) year after the making of the application, or if the application is made
before the return is filed, then within one (1) year after the return is filed, but not
after the expiration of the period prescribed for the assessment of the tax, shall
notify the executor or administrator of the amount of the tax.
The executor or administrator, upon payment of the amount of which he is
notified, shall be discharged from personal liability for any deficiency in the tax
there- after found to be due and shall be entitled to a receipt or writing showing
such a discharge.” (NIRC of 1997, Sec. 92)
2. The judge shall authorize the executor or judicial administrator to
deliver a distributive share to any party interested in the estate upon issuance of a
certification from the Commissioner that the estate tax has been paid is shown.
(Ibid., Sec. 94, applied in the reverse)
3. Registers of Deeds shall register in the Registry of Property any
document transferring real property or real rights therein or any chattel mortgage,
by way of gifts mortis causa, legacy or inheritance, upon a certification from the
Commissioner that the estate tax fixed and actually due thereon had been paid is
shown. (Ibid., Sec. 95, applied in the reverse)
4. A debtor of the deceased may pay his debts to the heirs, legatees,
executor or administrator of his creditor, upon the certification of the
Commissioner that the estate tax fixed had been paid as shown . [Ibid., applied in the
reverse]
5. Transfer is allowed to a new owner in the books of any corporation,
sociedad anonima, partnership, business, or industry organized or established in
the Philippines any share, obligation, bond or right by way of gift mortis causa,
legacy or inheritance, if a certification from the Commissioner that estate taxes
fixed and due thereon have been paid is shown. (Ibid., Sec. 97, 1st par., applied in the
reverse)
6. “If a bank has knowledge of the death of a person, who maintained a
bank deposit account alone, or jointly with another, it shall allow any withdrawal
from the said deposit account, subject to a final withholding tax of six percent (6%).
For this purpose, all withdrawal slips shall contain a statement to the effect that all
of the joint depositors are still living at the time of withdrawal by any one of the joint
depositors and such statement shall be under oath by the said depositors.” (Ibid.,
Sec. 97, 2nd par., as amended by the TRAIN, effective January 1, 2018)
7. “If, after the payment of the estate tax, new obligations of the decedent
shall appear, and the persons interested shall have satisfied them by order of the
court, they shall have a right to the restitution of the proportional part of the tax
paid.” (Ibid., Sec. 96)
xi. Effects of failure to pay the estate tax or the tax paid is
deficient

Historical antecedents. The effects of failure to pay the estate tax or the tax paid is
deficient was the subject of BEQs in 1980, 1992, and 2003.
**1. What is the effect of failure to the tax on the transfer of shares,
bonds or rights and withdrawal of bank deposits ?
SUGGESTED ANSWER: “There shall not be transferred to any new owner
in the books of any corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines any share,obligation, bond
or right by way of gift inter vivos or mortis causa, legacy or inheritance, unless an
eCAR is issued by the Commissioner or his duly authorized representative.
If a bank has knowledge of the death of a person, who maintained a
bank deposit account alone, or jointly with another, it shall allow the withdrawal
from the said deposit account, subject to a final withholding tax of six percent (6%)
of the amount to be withdrawn, provided that the withdrawal shall only be made
within one year from the date of death of the decedent. The bank shall issue the
corresponding BIR Form No. 2306 certifying such withholding. In all cases, the final
tax withheld shall not be refunded, or credited on the tax due on the net taxable
estate of the decedent.
The executor, administrator, or any of the legal heirs, withdrawing from the
deposit account shall provide the bank where such withdrawal shall be made, with
the TIN of the estate of the decedent. For this purpose, the bank shall require
prior to such withdrawal, the presentation of BIR Form No. 1904 of the estate,
duly stamped received by the BIR,. Further, all withdrawal slips shall contain the
following terms and conditions: (a) a sworn statement by any one of the joint
depositors to the effect that all of the joint depositors are still living at the time of
withdrawal; and, (b) a statement that the withdrawal is subject to the final
withholding tax of 6%.
In instances where the bank deposit accounts have been duly included in the
gross estate of the decedent and the estate tax due thereon paid, the executor,
administrator, or any of the legal heirs shall present the eCAR issued for the said
estate prior to withdrawing from the bank deposit account. Such withdrawal shall
no longer be subject to the withholding tax imposed under this section.” (Rev.
Regs. No. 12-2018, Sec. 10)
2. Mr & Mrs. de los Santos opened a joint savings account
under “and/or” signatures. When Mr. de los Santos died, the BIR included
the joint deposit as part of his estate. The lawyer of Mrs. De los Santos
objected on the ground that the deposit account is not jointly owned by Mr. &
Mrs. de los Santos and that, in fact, the Bank allowed the withdrawal by Mrs.
de los Santos of the deposits even after its knowledge of Mr. de los Santos’
death.
a) Will the argument of Mrs. De los Santos prosper ? (1980)
SUGGESTED ANSWER: No. The presumption under the law is that the
bank deposits are jointly owned. This is true whether the property relations of Mr.
& Mrs. de los Santos is governed by the system of absolute community (Family Code,
Art. 93) or the conjugal partnership of gains. [Ibid., Art. 116)] The burden is on Mrs. de
los Santos to prove that the deposit is not jointly owned.
b) Did the Bank act correctly in allowing the withdrawal ? (1980)
SUGGESTED ANSWER: No. There is no showing that the Bank subjected
the amount wIthdrawn to a final withholding tax of six percent (6%) . (NIRC of 1997,
Sec. 97, 2nd par., 1st sentence, as amended by the TRAIN)
**3. On September 10, 2019, a Bank Manager of People’s Bank,
Inc. (PBI), upon reading an obituary announcing the death of Mr. Roberto
Diaz refused to allow one of his heirs to withdraw Diaz’ deposit amounting to
P2 million.
A week later, immediately following said denial, the administrator of
the estate sued the Bank/Bank Manager to compel them to release the
money since such act was arbitrary and constituted a denial of property/
constitutional rights.
a) If you are retained as counsel by the Bank/Bank Manager to defend
their stand in refusing to release the P2 million to the heir, what would you
raise as a legal defense? Discuss. (1992, date supplied)
SUGGESTED ANSWER: I would raise as a defense the prohibition in the
National Internal Revenue Code for a bank who has knowledge of the death of a
person who maintained a bank deposit account from allowing any withdrawal from
said deposit account without a certification from the Commissioner of Internal
Revenue that the estate taxes imposed under the National Internal Revenue Code
have been paid. [NIRC of 1997, Sec. 97, 2nd par.]
b) Under the same set of facts, would you as administrator of the
estate, rather file an administrative appeal with the Commissioner of Internal
Revenue or a petition for review with the Court of Tax Appeals ? Explain.
(1992, date supplied)
SUGGESTED ANSWER: I would file an administrative appeal with the
Commissioner of Internal Revenue because of the following three reasons:
1) The Court of Tax Appeals does not have jurisdiction as the matter
is not a disputed assessment, nor a refund of internal revenue taxes.
[Republic Act No. 1125, Sec. 7] Furthermore, there is no decision of the
Commissioner of Internal Revenue that is the subject of a review.
 2) Granting arguendo, that the Court of Tax Appeals has
jurisdiction as the subject refers to other matters arising under the National
Internal Revenue Code [Ibid.] the appeal would not prosper as the
prohibition on banks [NIRC of 1997, Sec. 97, 2nd par.] to allow the withdrawals
is very clear.
3) Resolution of the administrative appeal is more
expeditious than a full blown trial before the Court of Tax Appeals.
c) If the Commissioner of Internal Revenue allows the administrator
of the estate or the heirs of the decedent to withdraw from the deposit
account, what are the conditions under the Tax Code that have to be met first
? (1992, date supplied)
SUGGESTED ANSWER: I would raise as a defense the refusal of the heir
for the Bank to subject the amount being withdrawn to a final withholding tax of six
percent (6%). (Ibid., Sec. 97, 2nd par., 1st sentence)
What condition should a Bank impose in order to allow the surviving
co-depositor of a joint account to make withdrawals from the joint deposit :
SUGGESTED ANSWER: “If a bank has knowledge of the death of a
person, who maintained a bank deposit account alone, or jointly with another, it
shall allow any withdrawal from the said deposit account, subject to a final
withholding tax of six percent (6%).” (Ibid.)
g. Estate tax amnesty, coverage.
**1. What is the coverage of the current estate tax amnesty ?
SUGGESTED ANSWER: “The estate tax amnesty shall cover the estate of
decedent/s who died on or before December 31, 2017, with or without
assessments duly issued therefor, whose estate tax/es have remained unpaid or
have accrued as of December 31, 2017.” (Rev. Regs. No. 6-2019, Sec. 2)
2. What are not covered by the current estate tax amnesty ?
SUGGESTED ANSWER: “The Estate Tax Amnesty shall not extend to the
following:
a. Delinquent estate tax liabilities which have become final and
executory and those covered by Tax Amnesty on Delinquencies; and
b. Properties involved in cases pending in appropriate courts:
1) Falling under the jurisdiction of the Presidential
Cornmission of Good Governmen|
2) involving unexplained or unlawfully acquired wealth under
R.A. No. 3019, otherwise known as the Anti-Graft and Corrupt
Practices Act, or R.A. No. 7080 or an Act Defining and Pebnalizing the
Crime of Plunder;
3) Involving violations of R.A. No. 9160, otherwise known as
the Anti-Money Laundering Act, as amended;
4) Involving tax evasion and other criminal oflenses under
Chapter II of Title X of the National internal Revenue Code, NIRC of
1997, as amended; and
5) Involving feionies of frauds, illegal exactions and
transactions anci malversation of pubiic funds and property under
Chapters III and IV of Title VII of the Revised Penal Code.” (Rev. Regs.
No. 6-2019, Sec. 3)
3. What is the rate of Estate Tax ?
SUGGESTED ANSWER: “An estate tax amnesty rate of six percent (6%)
shall be imposed on each decedent's total net taxable estate at the time of death
without penalties at every stage of transfer of property in cognizance with the rules
of succession under the Civil Code of the Philippines on the transmission of
properties, interests, rights and obligations of the decedent. Provided, that the
minimum estate amnesty tax for the transfer of the estate of each decedent shall
be Five Thousand Pesos (P5,000.00). The provisions of the NIRC of 1997, as
amended, or the applicable estate/inheritance tax laws prevailing at the time of
death of the decedent with respect to valuation, manner of computation, and other
related matters shall apply suppletorily.” (Rev. Regs. No. 6-2019, Sec. 5)
4. What are the immunities and privileges to be enjoyed by estates
availing of the estate tax amnesty ?
SUGGESTED ANSWER: “Estates covered by Estate Tax Amnesty, which
have fully complied with all the conditions set forth hereol including the payment of
estate tax amnesty, shall be immune from the payment of all estate taxes as well
as any increments and additions thereto, arising frorn the failure to pay any and all
estate taxes for taxable year 2017 and prior years, and from all appurtenant ctvil,
criminal and administrative cases, and penalties under the 1997 Tax Code, as
amended.
The availment of the Estate Tax Amnesty herein provided and the issuance
of the corresponding APF do not imply any admission of criminal, civil or
administrative liability on the part of the availing estate.” (Rev. Regs. No. 6-2019, Sec.
16)
2. Donor’s tax
a. Basic principles, concept, and definition
i. Basic principles

Historical antecedents. The basic principles behind donor’s taxation including the
distinctions between donor’s taxes and estate taxes was the subject of BEQs in 1976, and
1994.
1) What is the basis of donor’s tax ?
SUGGESTED ANSWER: The donor’s tax is based on a pure act of liberality
without any or less than adequate consideration and without any legal compulsion
to give.
It applies
a) whether the transfer is in trust or otherwise,
b) whether the gift is direct or indirect, and
c) whether the property is real or personal, tangible or intangible.
[NIRC of 1997, Sec. 98, numbering and arrangement supplied]
2) Distinguish between donor’s tax from estate tax. (1976)
SUGGESTED ANSWER: The distinctions between donor’s tax and estate
tax are the following:
a. Donor’s tax is a tax on the privilege to transfer property during
one’s lifetime (inter vivos) WHILE estate tax is a tax on the privilege to
transfer property upon one’s death (mortis causa).
b. Donor’s tax is computed on the basis of the net gifts given during
a calendar year WHILE estate tax is computed on the basis of the net estate
transferred at the time of death.
WARNING !!! Do not capitalize the word WHILE when answering Bar questions.
ALTERNATIVE ANSWER: “The principal characteristics of a donation mortis
causa, which distinguish it essentially from a donation inter vivos, are that in the
former it is the donor’s death that determines the acquisition of, or the right to, the
property, and that it is revocable at the will of the donor. In the donation in
question, their effect, that is, the acquisition of, or the right to, the property, was
produced while the donor was still alive, for according to their expressed terms they
were to have this effect upon acceptance, and this took place during the donor’s
lifetime. Neither can these donations be considered as an advance on
inheritance or legacy, because they are neither an inheritance nor a legacy. And it
cannot be said that the plaintiffs received such an advance on inheritance or
legacy, since they were not heirs or legatees of their predecessor in interest upon
his death. Neither can it be said that they obtained this inheritance or legacy by
virtue of a document which does not contain the requisites of a will (Sec. 618 of the
Code of Civil Procedure).” [Zapanta, et al., v. Posadas, 52 Phil. 557 cited in Dalupan,
Francisco, National Internal Revenue Code Annotated (With Illustrations) Commonwealth
Act No. 466, Vol. I, 1946 ed., (Manila: M. Colcol & Co.,1946) pp. 454 - 455]
a) In donation inter vivos the act is immediately operative even if the
actual execution may be deferred until the death of the donor WHILE in donation
mortis causa nothing is conveyed to or acquired by the donee until the death of the
donor. [Ganuelas v. Cawed, 401 SCRA 447]
b) Donation inter vivos is subject to donor’s tax WHILE donation mortis
causa is subject to estate tax.
WARNING !!! Do not capitalize the word WHILE when answering Bar questions.
3) What are the characteristics of a donation mortis causa which is
subject to an estate tax because the transfer takes effect after death ?
a) It conveys no title or ownership to the transferee before the death
of the transferor; or what amounts to the same thing, that the transferor
should retain the ownership (full or naked) and control of the property while
alive.
b) That before his death, the transfer should be revocable by the
transferor at will, ad nutum; but revocability may be provided for indirectly by
means of a reserved power in the donor to dispose of the properties
conveyed.
c) That the transfer should be void if the transferor should survive
the transferee. (Ganuelas v. Cawed, 401 SCRA 447)
4) Are donations inter vivos and donations mortis causa subject to
estate taxes ? (1994)
SUGGESTED ANSWER: The general rule is that donations inter vivos are
subject to donor’s taxes while donations mortis causa are subject to estate taxes.
However, if the transferor’s control over the property donated inter vivos
extends up to the death of the donor, such as transfers in contemplation of death,
revocable transfers, then these are subject to estate taxes.
5) What is the rate and basis of donor’s tax ?
SUGGESTED ANSWER: The tax for each calendar year shall be six percent
(6%) computed on the basis of the total gifts in excess of Two hundred fifty
thousand pesos (P250,000) exempt gift made during the calendar year.
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. [NIRC of 1997, Sec. 99, as amended by the TRAIN]
ii. Definition
What is a donor’s tax ?
SUGGESTED ANSWER: A donor’s tax is
1. an excise tax
 2. imposed on the privilege transfer of property
a) by way of gift inter vivos [Lladoc v. Commissioner of Internal
Revenue, 121 Phil. 1074, 14 SCRA 292 (1965)],
3. by any person, resident or non-resident
4. based on a pure act of liberality
a) without any or less than adequate consideration
b) and without any legal compulsion to give. (arrangement and
numbering supplied)
iii. Law that governs donor’s taxation
What is the law that governs the imposition of donor’s tax ?
SUGGESTED ANSWER: “The donor’s tax shall not apply unless and until
there is a completed gift. The transfer of property by gift is perfected from the
moment the donor knows of the 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 at the time of the perfection/completion of the donation
shall govern the imposition of the donor’s tax.” (Rev. Regs. No. 12-2018, Sec. 12, 1 st
par., 2nd to 4th sentences)
The law in force at the time of the completion of the donation shall
govern the imposition of donor’s tax.” (Ibid., 6th par.)
iv. Nature of donor’s tax
What is the nature of donor’s tax ? Explain briefly.
SUGGESTED ANSWER: The nature of donor’s tax comprises the following:
1. “The donor’s tax is not a property tax, but is a tax imposed on the
transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of
Internal Revenue, 14 SCRA 292 (1965); Rev. Regs. No. 12-2018, Sec. 12, 1st par.,
1st sentence]
2. It is levied, assessed, collected and paid upon the transfer by any
person, resident or non-resident, of property by gift inter vivos.
3. It is a tax imposed on the privilege to gratuitously transmit
property while living and is measured by the value of the property.
[Paraphrasing 1955 PH Fed. Tax Course, Par. 3901]
4. It applies
a) whether the transfer is in trust or otherwise,
b) whether the gift is direct or indirect, and
c) whether the property is real or personal, tangible or
intangible. [NIRC of 1997, Sec. 98, arrangement and numbering
supplied]
v. Purpose and object for imposing donor’s tax
What is the purpose and object for imposing donor’s tax ?
SUGGESTED ANSWER: The purpose or object for the imposition of
donor’s tax are:
1. To raise revenues.
2. To tax the wealthy and reduce certain other excise taxes.
3 It will tend to reduce the incentive to make gifts in order that
distribution of future income from the donated property may be to a number
of persons with the result that the taxes imposed by the higher brackets of
the income tax are avoided. [U.S. Congress, House, 72nd Congress, 1st Sess.,
1932, H.R., Report No. 708, reprinted in 1939-1 C.B. (Part 2), pp. 476-477]
vi. Time and transfer of properties
Historical antecedent. Taxabiity of income from the donated property was the
subject of a BEQ in 1981.
**“X” donated a piece of farm land to his son “Y,” 19, and single.
The donor’s tax on the donated property was not paid but “Y” took
possession of the property and operated it himself. A year after the
donation, an assessment on the income derived from the farm was issued
against “Y.”
Is the assessment against “Y” valid ? Reasons. (1981, adapted)
SUGGESTED ANSWER: Yes. It was “Y” who earned the income and not
“X.” While it is true that the property is still owned by “X,” because until the donor’s
taxes have been paid, there would be no transfer effected in the records of the
Register of Deeds in “Y’s” name (NIRC of 1997, Sec. 95), the issue is not ownership
of the land but the taxability of the income derived from the land.
vii. Classification of donors
Historial antecedents. The taxability of donations made by aliens was the subject
of BEQs in 1992, 1996, and 2009.
**1) How are donors classified ? What is the purpose for the
classification ?
SUGGESTED ANSWER: Taxable donors may be classified into
a) Citizens, whether residents or not, donating properties wherever
situated.
 b) Resident aliens; donating properties wherever situated.
c) Non-resident aliens, donating properties situated in the
Philippines.
The classification of donors determines the manner in which they are subject
to donor’s taxes. Donor’s are classified in accordance with the situs of donor’s
taxation.
2) Where is the situs of donor’s taxation ?
SUGGESTED ANSWER: The situs of donor’s taxation is where the transfer
took place. Thus, only transfers that take place within the Philippines are subject to
donor’s taxes unless the donors are Filipino citizens who are residents of a foreign
country. This is so because donor’s taxes are in the nature of taxes imposed upon
the privilege to do something, which in this case is to transfer property.
Consequently, if the donor is a non-resident alien, then the concept of
reciprocity does not find application because the transaction is not taxable. The
concept of reciprocity, may be used to exempt from donor’s taxes only if the
donation took place in the Philippines.
** 3) What is the composition of gross gifts made by a non-
resident alien ?
SUGGESTED ANSWER: The following property of a non-resident alien is
deemed situated in the Philippines for purposes of donor’s taxation:
a) Franchise which must be exercised in the Philippines;
b) shares, obligations or bonds issued by any corporation or
sociedad anonima organized and constituted in the Philippines in accordance
with its laws;
c) shares, obligations or bonds by any foreign corporation eighty-
five percent (85%) of the business which is located in the Philippines;
d) shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the
Philippines;
e) shares or rights in any partnership, business or industry
established in the Philippines. (NIRC of 1997, Sec. 104, 1st par., arrangement
and numbering supplied)
4) What gifts of a non-resident alien, are not subject to donor’s tax ?
SUGGESTED ANSWER: Where the donor was a non-resident alien at the
time of the donation, his real and personal property so transferred but which are
situated outside the Philippines shall not be included as part of his gross gift. [NIRC
of 1997, Sec. 104, 1st par.]
**5) What donations of intangible property are not subject to donor’s
tax (Concept of reciprocity) ?
SUGGESTED ANSWER:
a) If the donor at the time of the donation was a citizen and
resident of a foreign country which at the time of the donation did not
impose a transfer tax of any character, in respect of intangible personal
property of citizens of the Philippines residing in that foreign country, or
b) If the laws of the foreign country of which the donor was a
citizen and resident at the time of the donation allows a similar exemption
from transfer taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines residing in that foreign
country. [NIRC of 1997, Sec. 104, 1st par., numbering and arrangement supplied]
The concept of reciprocity finds application only where the property donated
is “intangible personal property.” Reciprocity is effectively an exemption, hence it
should be interpreted strictly against the taxpayer.
So also, the concept of exemotion through reciprocity finds application only
where the subject or object is taxable. Reciprocity does not apply if the subject or
object is already exempt or ot subject to taxation.
** 6) Miguel, a citizen and resident of Mexico, donated US$1,000.00
worth of stocks in Barack Motors Corporation, a Mexican company, to his
legitimate son, Miguelito, who is residing in the Philippines and about to be
married to a Filipino girlfriend. Mexico does not impose any transfer tax of
whatever nature on all gratuitous transfers of property.
xxx xxx xxx
b. Is Miguel entitled to the rule of reciprocity in order to be exempt
from the Philippine donor’s tax ? Why or why not ? (2009, paraphrasing
supplied)
SUGGESTED ANSWER: No because the reciprocity rule finds application
only where there is a taxable donation. Miguel’s donation is not taxable because it
is made by a non-resident alien, outside of the Philippines of property that is not
located here.
b. Requisites of a valid donation
Historical antecedents. The requisites for a valid donation was the subjects of
BEQs in 1969, 1989, 1991, 1993, 1995, 1996, 2013, and 2018.
 acknowledged that the share is owned by Oriental, Inc. and where he
***a) What transfers of property are considered subject to promised to transfer the same to whoever will succeed him as consultant.
the donor’s tax ? (1969) When X’s contract with Oriental, Inc. expired, he left the Philippines and
SUGGESTED ANSWER: The following are transfers of property subject to assigned for free the share to Y, his successor in office. What tax, if any can
donors tax: be imposed by the BIR on the transaction ? (1993, adapted)
1. Act of liberality on the part of the donor; SUGGESTED ANSWER: The tax to be imposed on the value of the “right to
2 inter vivos in its effect; use the facilities” is the fringe tax to be imposed on the employer.
3. gratuitous disposal of property; or for less than adequate The assignments are not gratuitous, hence not subject to donor’s taxes. The
consideration value of the right to avail of the privileges attendant to the Capital Golf Club, Inc.,
4. in favor of another proprietary share which is due to X’s merits or services as a computer consultant is
5. who accepts it a fringe benefit taxable to the employer. [NIRC of 1997, Sec. 33 (B) (6)]
6. without any legal compulsion to give. (Civil Code of the Philippines, The same holds true with respect to the transfer of the shares to Y.
Art. 725, arrangement and numbering supplied)
The above are also known as the requisites of a valid donation subject to
donor’s tax. ***e) Mr. Osorio, a bank executive, while playing golf with Mr.
b) What are the elements of remuneratory donations subject to Perez, a manufacturing firm executive, mentioned to the latter that his
donor’s tax ? (Osorio) bank had just opened a business relationship with a big foreign
SUGGESTED ANSWER: importer of goods which Perez company manufactures. Perez requested
1. A person gives to another a thing or right. Osorio to introduce him to this foreign importer and put in a good word for
2. on account of the latter’s merits or of services rendered by him to him (Perez), which Osorio did. As a result, Perez was able to make a
the donor. profitable business deal with the foreign importer.
3. The giving does not constitute a demandable debt. (CCP, Art. In gratitude, Perez, in behalf of his manufacturing firm, sent Osorio an
726, arrangement and numbering supplied) expensive car as a gift. Osorio called Perez and told him that there was
really no obligation on the part of Perez or his company to give such an
c) What are the elements of onerous donations subject to donor’s expensive gift. But Perez insisted that Osorio keeps the car. The company
tax ? of Perez deducted the cost of the car as a business expense.
SUGGESTED ANSWER: The Commissioner of Internal Revenue included the fair market value of
1. A person gives to another a thing or right; the car as income of Osorio who protested that the car was a gift and
2. other than real property; therefore excluded from gross income.
3. the transfer is for less than an adequate and full consideration in Who is correct, the Commissioner or Osorio. (1995)
money’s worth; or the gift imposes upon the donee a burden which is less SUGGESTED ANSWER: Osorio is correct because he did not render any
than the value of the thing given. service that is subject to payment. There was no agreement that he shall be
4. The excess of the fair market value of the property over the compensated for the introduction made. Thus, the giving of the car was
actual value of the consideration shall be subject to donor’s tax. (CCP, Art. gratuitously made and should be the subject of donor’s taxes.
726, in relation to the NIRC of 1997, Sec. 100, arrangement and numbering
supplied)
***f) The spouses Jun and Elvira Sandoval purchased a piece of
***d) Oriental, Inc. holds a proprietary share of Capital Golf land for P5,000,000 and included their two (2) minor children as co-
purchasers in the Deed of Absolute Sale. The Commissioner of Internal
Club, Inc. It assigned without any consideration this share to X, one of its
Revenue (CIR) ruled that there was an implied donation and assessed
foreign consultants, to enable him to use its facilities for the duration of his
stay in the Philippines. X signed a Declaration of Trust where he
donor’s taxes against the spouses. Rule on the CIR’s action. (2013, MCQ Historical antecedents. The sale/exchange/transfer of property for insufficient
converted into an essay problem) consideration is considered as a donation subject to donor’s tax was the subject of BEQs in
SUGGESTED ANSWER: The CIR is correct; there was animus donandi 1969, 1995, 1999, 2012, and 2016.
since the children had no financial capacity to be co-purchasers . (Spouses Evono
vs. Department of Finance, et al., CTA EB Case No. 705, June 4, 2012)
The above answer should be distinguished from a sale for insufficient ***a. What is the tax treatment of transfers for insufficient
consideration. There was full consideration paid for the property but it is consideration of property, other than real property subjected to the final
considered a donation to the children because of the complete absence of capital gains tax ?
consideration on the part of the two (2) minor children. This makes the giving a SUGGESTED ANSWER:
pure act of liberality which is a characteristic of a donation. 1. Where property,
a) other than real property
b) that has been subjected to the final capital gains tax,
*** g) Kim, a Filipino national, worked with K-Square, Inc. (KSI), 2. is transferred for less than an adequate and full consideration in
and was seconded to various KSl-affiliated corporations: money or money’s worth,
1. from 2000 to 2005 as Vice President of K-Gold Inc., 3. then the amount
2. from 2005 to 2008 as Vice President of KPB Bank; a) by which the fair market value of the property
3. from 2008 to 2012 as CEO of K-Com Inc.; b) at the time of the execution of the Contract to Sell or
4. from 2012 to 2019 as CEO of K-Water Corporation, where execution of the Deed of Sale
Kim served as CEO for seven years until his retirement last December 1) which is not preceded by a Contract to Sell
12, 2018 upon reaching the compulsory retirement age of 60 years. 4. exceeded the value of the agreed or actual consideration or
All the corporations mentioned are majority-owned in common by the selling price
Koh family and covered by a BIR-qualified multiemployer-employee 5. shall be deemed a gift,
retirement plan (MEE RP), under which the employees may be moved around a) and shall be included in computing the amount of gifts
within the controlled group (i.e., from one KSI subsidiary or affiliate to b) made during the calendar year.” (NIRC of 1997, Sec. 100, as
another) without loss of seniority rights or break in the tenure. Kim was well- amended by the TRAIN; Rev. Regs. No. 12-2018, Sec. 12, 5 th par.,
loved by his employer and colleagues, so upon retirement, and on his last arrangement and numbering supplied)
day in office, KSI gave him a Mercedes Benz car worth PhP 5 million as a
surprise, with a streamer that reads: "You'll be missed. Good luck, Sir Kim."
xxx xxx xxx xxx
*** b. What transfers of property are considered subject to
the donor’s tax ? (1969)
(b) Which internal revenue tax, if any, will apply to the
SUGGESTED ANSWER: Where property, other than real property that has
grant of the car to Kim by the company ? (2018, dates supplied)
been subjected to the final capital gains tax, is transferred for less than an
SUGGESTED ANSWER: The grant is subject to the donor’s tax, if Kim will
adequate and full consideration in money or money’s worth, then the amount by
accept the car. This is so because the giving of the car is a gratuitous disposal of
which the fair market value of the property at the time of the execution of the
property, which is an act of liberality on the part of the donor, KSI, inter vivos in its
Contract to Sell or execution of the Deed of Sale which is not preceded by a
effect, without any legal compulsion to give on the part of KSI, to Kim who accepts
Contract to Sell exceeded the value of the agreed or actual consideration or selling
it. (CCP, Art. 725, arrangement and numbering supplied)
price shall be deemed a gift, and shall be included in computing the amount of
c. Transfers which may be constituted as donation gifts made during the calendar year. [NIRC of 1997, Sec. 100 as amended by the
TRAIN; Rev. Regs. No. 2-2003, Sec. 11, 5th par.]

i. Transfer of property for insufficient consideration


***c. A, an individual, sold to B, his brother-in-law, his lot with a
market value of P1,000,000 for P600,000.00. A’s cost in the lot is P100,000.00.
B is financially capable of buying the lot.
A also owns X Co., which has a fast growing business. A sold some of
his shares of stock in X Co., to his key executives in X Co. These executives
are not related to A. The selling price is P3,000,000, which is the book value
of the shares sold but with a market value of P5,000,000. A’s cost in the
shares sold is P1,000,000. The purpose of A in selling the shares is to enable
his key executives to acquire a proprietary interest in the business and have
a personal stake in the business.
Explain if the above transactions are subject to donor’s tax. (1999)
SUGGESTED ANSWER: Yes. All the transactions are subject to donor’s
tax. The transfers were all made for less than an adequate and full consideration
in money’s worth hence, the excess of the fair market value of the property over
the actual value of the consideration shall be subject to donor’s tax.
d. In 2017, Solar Computer Corporation (Solar) purchased a
proprietary membership share covered by Membership certificate No. 8 from
the Mabuhay Golf Club, Inc. for P500,000.00. On December 27, 2018, it
transferred the same to David, its American consultant, to enable him to avail
of the facilities of the Club. David executed a Deed of Declaration of Trust
and Assignment of Shares wherein he acknowledged the absolute
ownernership of Solar over the share; that the assignment was without any
consideration; and that the share was placed in his name because the Club
required it to be done. In 2019, the value of the share increased to
P800,000.00.
Is the said assignment a “gift” and, therefore, subject to gift tax?
Explain. (2016, dates supplied)
SUGGESTED ANSWER: No. The assignments are not gratuitous, and there
is no intent to transfer ownership hence not subject to gift tax.
The value of the right to avail of the privileges attendant to Mabuhay Golf
Club, Inc. Membership Certificate is due to David’s merits or services as a
computer consultant. It is a fringe benefit taxable to the employer. [NIRC of 1997,
Sec. 33 (B) (6)]
ii. Condonation/remission of debt
Historical antecedent. Condonation/remission of debt as a donation was the
subject of a BEQ in 1978.
a) What is the tax treatment of cancellation or forgiveness of
indebtedness ?
SUGGESTED ANSWER: The cancellation and forgiveness of indebtedness
may amount to payment of income, to a gift, or to a capital transaction depending
upon the circumstances.
1. When cancellation of debt is income. If an individual performs
services for a creditor, who in consideration thereof, cancels the debt, it is
income to the extent of the amount realized by the debtor as compensation
for his services.
2. When the cancellation of debt is a gift. If a creditor merely
desires to benefit a debtor and without any consideration therefore cancels
the amount of the debt, it is a gift from the creditor to the debtor and need not
be included in the latter’s income.
3. When cancellation of debt is a capital transaction. If a
corporation to which a stockholder is indebted forgives the debt, the
transaction has the effect of payment of a dividend. [Rev. Regs. No. 2, Sec.
50]
4. An insolvent debtor does not realize taxable income from the
cancellation or forgiveness. [Commissioner v. Simmons Gin Co., 43 F2d 327
CCA 10th]
5. The insolvent debtor realizes income resulting from the
cancellation or forgiveness of indebtedness when he becomes solvent.
[Lakeland Grocery Co. v. Commissioner, 36 BTA (F) 289]
** b) A, an architect owes Z, a businessman, the sum of P100,000.00.
Z engaged the services of A to remodel his residence at Magallanes Village,
Makati. The value of the services rendered by A is P100,000. Accordingly, Z
cancelled the debt of A.
xxx xxx xxx
Under the same facts, suppose Z paid A P100,000. 00 for the services
rendered and at the same time condoned A’s indebtedness.
Is the amount condoned considered income subject to tax ? Explain
briefly. (1978, paraphrasing and amounts supplied)
SUGGESTED ANSWER: Yes. When Z paid A P100,000.00, then the
same is considered income from the exercise of A’s profession because of the
physical receipt of the money.
The amount of P100,000.00 condoned is considered as a gift because the
cancellation was without consideration. [Rev. Regs. No. 2, Sec. 52]
iii. Bona fide arms-length transfers
 (a) Transfer for less than adequate and full b) shall not be included as part of his xxx "gross gift":
consideration 3. Provided, further,
a) That
For Questions and Answers, please refer to II. NATIONAL TAXATION 1) franchise which must be exercised in the Philippines;
(National Internal Revenue Code of 1997, as amended by RA 10963 or the Tax 2) shares, obligations or bonds
Reform for Acceleration and Inclusion Law) C. Transfer taxes 2. Donor’s tax (a) issued by any corporation or sociedad anonima
c. Transfers which may be constituted as donation i. Transfer of property for (b) organized or constituted in the Philippines in
insufficient consideration, supra. accordance with its laws;
3) shares, obligations or bonds by any foreign
d. Determination of gross gift corporation
(a) eighty-five percent (85%) of the business of
a. How is the donor’s tax determined ? which is located in the Philippines;
SUGGESTED ANSWER: “Donations shall be subject to donor’s tax 4) shares, obligations or bonds
applicable when the donations are made. Hence, for donor’s tax purposes, (a) issued by any foreign corporation
donations made before January 1, 1998 shall be subject to the donor’s tax (b) if such shares, obligations or bonds
computed on the basis of the old rates imposed under Section 92 of the National (c) have acquired a business situs in the
Internal Revenue Code of 1977 (R.A. No. 7499), while donations made on or after Philippines;
January 1, 1998 until December 31, 2017 shall be subject to the donor’s tax 5) shares or rights in any partnership, business or
computed in accordance with the amended schedule of rates prescribed under industry established in the Philippines,
Section 99 of the National Internal Revenue Code of 1997 (R.A. No. 8424), b) shall be considered as situated in the Philippines:
implemented by RR No. 2-2003, as amended. Only donations made on or after 4. Provided, still further, that no tax shall be collected xxx in respect
January 1, 2018 shall be subject to the donor’s tax rate provided under the of intangible personal property:
TRAIN Law as implemented by these Regulations. a) if the decedent at the time of his death or the donor at the
The computation of the donor’s tax is on a cumulative basis over a time of the donation was a citizen and resident of a foreign country
period of one calendar year. Husband and wife are considered as separate and which at the time of his death or donation did not impose a transfer tax
distinct taxpayer’s for purposes of the donor’s tax. However, if what was donated of any character, in respect of intangible personal property of citizens of
is a conjugal or community property and only the husband signed the deed of the Philippines not residing in that foreign country, or
donation, there is only one donor for donor’s tax purposes, without prejudice to the b) if the laws of the foreign country of which the decedent or
right of the wife to question the validity of the donation without her consent donor was a citizen and resident at the time of his death or donation
pursuant to the pertinent provisions of the Civil Code of the Philippines and the allows a similar exemption from transfer or death taxes of every
Family Code of the Philippines.” (Rev. Regs. No. 12-2018, Sec. 14) character or description in respect of intangible personal property
owned by citizens of the Philippines not residing in that foreign
country.” (NIRC of 1997, Sec. 104, 1st sentence, arrangement, paraphrasing
** b. What is the composition of “gross gift” ? and numbering supplied)
SUGGESTED ANSWER: The term "gross gifts"
1. include real and personal property, whether tangible or i. Renunciation of hereditary share
intangible, or mixed, wherever situated:
2. Provided, however, That where the decedent or donor was a Historical antecedents. The effects of a renunciation of the share in an inheritance
nonresident alien at the time of xxx donation, xxx, his real and personal or in the absolute community of property, or conjugal partnership of gains was the subject
of BEQs in 2010, and 2013.
property so transferred but
a) which are situated outside the Philippines
 **1. What is the tax tgreatment of renunciation by a surviving
spouse of the share in conjugal or community partnership ?
SUGGESTED ANSWER: Renunciation by the surviving spouse of his/her
share in the conjugal partnership or absolute community after the dissolution of the
marriage in favor of the heirs of the deceased spouse or any other person/s is
subject to donor’s tax. [Rev. Regs. No. 12-2018, Sec. 12, 4th par., 1sr phrase,
paraphrasing supplied]
**2. What is the tax treatment of a general renunciation of hereditary
rights ?
SUGGESTED ANSWER: A general renunciation by an heir, including the
surviving spouse, of his/her share in the hereditary estate left by the decedent is
not subject to donor’s tax, unless specifically and categorically done in favor of
identified heir/s to the exclusion or disadvantage of the other co-heirs in the
hereditary estate. (Rev. Regs. No. 12-2018, Sec. 12, 4th par., 2nd phrase)
**3. In the settlement of the estate of Mr. Barbera who died intestate,
his wife renounced her inheritance and her share of the conjugal property in
favor of their children. The BIR determined that there was a taxable gift and
thus assessed Mrs. Barbera as a donor.
Was the BIR correct ? (2013)
SUGGESTED ANSWER: No. The BIR is only partially correct.
The renunciation by Mrs. Barbera, the surviving spouse, of her share in the
conjugal partnership after the dissolution of the marriage, resulting from the death
of Mr. Barnera, in favor of her children who are the heirs of the deceased spouse
is subject to donor’s tax. [Rev. Regs. No. 2-2003, Sec. 11, 4th par.]
This is so, because the transfer that resulted from the renunciation of her
share in the conjugal property was without consideration.
The BIR is wrong with regard to Mrs. Barbera’s renunciation of her share in
the inheritance left by the late Mr. Barbera. There was a general renunciation by
Mrs. Barbera, the surviving spouse, of her share in the hereditary estate left by the
decedent which is is not subject to donor’s tax, because it was not specifically and
categorically done in favor of identified heir/s to the exclusion or disadvantage of
the other co-heirs in the hereditary estate. (Ibid.)
ii. Valuation of gifts made in property
Historical antecedent. Valuation of gifts in property was the subject of a BEQ in
2015.
**1. How should the gross estate be valued ?
SUGGESTED ANSWER: “The properties comprising the gross estate shall
be valued according to their fair market value as of the time of decedent’s death.
If the property is a real property, the appraised value thereof as of the time of
death shall be, whichever is the higher of –
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by
the provincial and city assessors, whichever is higher.
For purposes of prescribing real property values, the Commissioner is
authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers, both from the private and public sectors,
determine the fair market value of real properties located in each zone or area.
In the case of shares of stock, the fair market value shall depend on whether
the shares are listed or unlisted in the stock exchanges. Unlisted common shares
are valued based on their book value while unlisted preferred shares are valued at
par value. In determining the book value of common shares, appraisal surplus shall
not be considered as well as the value assigned to preferred shares, if there are
any. .
For shares which are listed in the stock exchanges, the fair market value
shall be the arithmetic means between the highest and lowest quotation at a date
nearest the date of death, if none is available on the date of death itself.
The market value of units of participation in any association, recreation or
amusement club (such as golf, polo, or similar clubs),shall be the bid price nearest
the date of death published in any newspaper or publication of general circulation.
To determine the value of the right of usufruct, use or habitation, s 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 table, to be approved by the
Secretary of Finance, upon recommendation of the Insurance Commission. (Rev.
Regs.No. 12-2018, Sec. 5)
** 2. Mr. L owned several parcels of land and he donated a parcel
each to his two children. Mr. L acquired both parcels of land in 1975 for
P200,000.00. At the time of donation, the fair market value of the two parcels
of land, as determined by the CIR was P2,300,000.00; while the fair market
value of the same properties as shown in the schedule of values prepared by
the City Assessors was P2,500,000.00. What is the proper valuation of Mr.
L’s gifts to his children for the purpose of computing donor’s tax? (2015)
SUGGESTED ANSWER: P2,500,000.00.
 For purposes of computing the donor’s tax, the donated real estate shall be
its appraised value as of the time of donation whichever is the higher of:
a. the P2,300,000.00 the fair market value as determined by the
CIR, or
b. the P2,500,000.00 which fair market value as shown in the
schedule of values prepared by the City Assessors. [NIRC of 1997, Sec. 102, 2nd
sentence in relation to Section 88 (B), arrangement and numbering supplied]
Since the value as shown in the schedule of values prepared by the City
Assessors is higher than the fair market value as determined by the CIR, then
P2,500,000.00 is the proper valuation of Mr. L’s gifts to his children for the purpose
of computing the donor’s tax.
iii. Tax credit for donor’s taxes paid to a foreign country
What are the requisites and limitations for allowing tax credit for
donor’s taxes paid to a foreign country ?
SUGGESTED ANSWER:
1. Donor was a Filipino citizen or resident alien;
2. at time of foreign donation;
3. donor’s taxes of any character and description;
4. are imposed and paid by the authority of a foreign country.
[NIRC of 1997, Sec. 101 (C) (1), arrangement and numbering supplied]
The limitations on tax credit are:
1. The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax against which such
credit is taken, which the decedent’s net gifts situated within such country
taxable under the NIRC bears to his entire net gift; and
2. The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent’s
net gift situated outside the Philippines taxable under the NIRC bears to his
entire net gift. [Ibid., Sec. 101 (C) (2), arrangement and numbering supplied]
iv. No more special rate for strangers after January 1,
2018, the effectivity of the TRAIN.
e. Exemption of gifts from donor’s tax
Historical antecedent. Gifts exempted from donor’s taxes was the subject of a BEQ
in 1970.
***What donations are exempt from the payment of donor’s taxes ?
SUGGESTED ANSWER:
1. Total gifts not in excess of Two hundred fifty thousand pesos
(P250,000) exempt gift made during the calendar year. [NIRC of 1997, Sec. 99
(A), as amended by the TRAIN]
2. 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.” [Ibid., Sec. 99 (B), as amended by the TRAIN]
3. 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, or to any
political subdivision of the said Government. [Ibid., Sec. 101 (A) (1), as amended
by the TRAIN, and Sec. 101 (B) (1)]
4. Gifts in favor of an educational and/or charitable, religious, cultural
or social welfare corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or research institution or
organization: Provided, however, That not more than thirty percent (30%) of
said gifts shall be used by such donee for administration purposes. [Ibid., Sec.
101 (A) (2), as amended by the TRAIN, and Sec. 101 (B) (2), paraphrasing supplied]
5. Donations of intangibles subject to reciprocity.
6. Donations for athlete’s prizes and awards.
7. Donations under special laws.
8. Donations under international agreements.
i. Exempt donations to the government
Historical antecedents. The exemption of donations to the government was the
subject of BEQs in 1992, 1998, 2011, and 2017.
***CMI School, Inc., a non-stock, non-profit corporation, donated its
three parcels of idle land situated in the Municipality of Cuyapo, Nueva Ecija
to SLC University, another non-stock, non-profit corporation, in recognition
of the latter’s contribution to and participation in the spiritual and
educational development of the former.
xxx xxx xxx
c. If SLC University donates the three parcels of idle land in favor of
the Municipality of Cuyapo, Nueva Ecija, will SLC University be liable for
donor’s tax? Explain your answer. (2017)
SUGGESTED ANSWER: No. “Gifts made to or for the use of
1. the National Government
2. or any entity
 a) created by any of its agencies through donation. Since the property was sold for P20 million there was a gain of
b) which is not conducted for profit, P19 million.
3. or to any political subdivisions of the said Government.” [NIRC of d) Suppose, instead of receiving the lot by way of donation Dino
1997, Sec. 101 (A), (1), and (B) (1), as amended by the TRAIN, arrangement and received it by inheritance. What would be his gain on the sale of the lot for
numbering supplied] P20 million? Explain. (1995, dates supplied)
SUGGESTED ANSWER: The gain would be P 5 Million. This is so, because
ii. Exempt total net gifts during the calendar year not the basis would be the fair market value at the time Dino acquired the property at
exceeding P250,000.00 (Gift splitting) the time of Kenneth Yusoph’s death, which is P 15 Million. Thus, P 20 Million less
P15 Million is P 5 Million.
Historical antecedents. The concept of “gift splitting” was the subject of BEQs in The presumed capital gains tax does not find application because the
1994, 1995, 2001, and 2011. property is an ordinary asset being a commercial lot. It is used in trade or
business.
***1. Kenneth Yusoph owns a commercial lot which he bought
many years ago for P1 million. It is now worth P20 million although the zonal
value is only P15 million. He donates one-half pro-indiviso interest in the
***2. Spouses Jose San Pedro and Clara San Pedro, both Filipino
citizens are the owners of a residential house and lot in Quezon City. After
land to his son Dino on 31 December 2018, and the other one-half pro-
the recent wedding in June, 2019 of their son, Mario, to Maria, the spouses
indiviso interest to the same son on January 2, 2019.
donated said real property to them. At the time of donation, the real property
a) How much is the value of the gifts in 2018 and 2019 for purposes
has a fair market value of P2 million.
of computing the gift tax? Explain. (1995, dates supplied)
a. Are Mario and Maria subject to income tax for the value of the real
SUGGESTED ANSWER: The value of the gift in 2018 is one-half of the
property donated to them ? Explain. (2008, date supplied)
zonal valuation of P15 million or P7.5 million. This is so because the basis for
SUGGESTED ANSWER: No. The giving was a pure act of liberality that is
valuation of the donation is the zonal value or the assessed value made by the
considered as a gift and excluded from gross income hence not subject to income
Provincial or City Assessors whichever is higher. It is the zonal valuation that
tax.
prevails because there is an absence of the assessed value made by the Provincial
b. Are Jose and Clara subject to donor’s tax ? If so, how much is the
or City Assessor.
taxable gift of each spouse and what rate shall be applied to the gift ?
The value of the gift in 2019 shall be whichever is the higher between
Explain. (2008)
the zonal value of the remaining one-half (P7.5 million) or the assessed value
SUGGESTED ANSWER: Yes. The taxable gift of each spouse is their total
made by the Provincial or City Assessors at the time of the donation. It is the zonal
gift for the calendar year which exceeds Two hundred Fifty thousand pesos
valuation that prevails because there is an absence of the assessed value made by
(P250,000.00) or Seven hundred fifty thousand pesos (P750,000.00) each.
the Provincial or City Assessor.
The rate to be applied is six percent (6%) of P750,000.00. [NIRC of 1997, Sec.
b) The Revenue District Officer questions the splitting of the 99 (A), as amended by the TRAIN]
donations into 2018 and 2019. He says that since there were only two (2)
days separating the two donations they should be treated as one, having iii. Constitutional exemption from donor’s tax as
been made within one year. Is he correct? Explain. (1995, dates supplied)
implemented by the NIRC
SUGGESTED ANSWER: No. The basis for computing the total gifts is the
calendar year. There are two calendar years in the problem, 2018 and 2019. Historical antecedents. The constitutional exemption from donor’s tax as
c) Dino subsequently sold the land to a buyer for P20 million. How implemented by the NIRC was the subject of BEQs in 1968, 1988, 2000, 2002, 2004, 2007,
much did Dino gain on the sale ? Explain. (1995, dates supplied) 2011, 2017, and 2018.
SUGGESTED ANSWER: P19 million.
Dino’s basis for the property is the value of the property in the hands of the
donor, which was P1 million. This is so, because the property was acquired

***1) In order that donations to non-stock, non-profit educational
institutions may be exempt from the donor’s gift tax, what conditions must
be met by the donee? (2002)
SUGGESTED ANSWER: The following are the requisites before donations
to non-stock, non-profit educational institutions may be exempt from the donor’s gift
tax:
a. Not more than thirty per centum of said gifts shall be used by the
donee for administration purposes.
b. The donee is a
1) school, college or university;
2) incorporated or a non-stock entity;
3) paying no dividends;
4) governed by trustees who receive no compensation; and
5) devotes all its income, whether student’s fees, or gifts,
donations, subsidies or other forms of philanthropy to the
accomplishment and promotion of the purposes enumerated in its
articles of incorporation. [NIRC of 1997, Sec. 101 (A) (3), arrangement and
numbering supplied]
NOTE NOT PART OF THE ANSWER: The conditions are the same under the
TRAIN.
FACT BASED PROBLEMS:
1. In a document, Corporation B donated P1,000,000 in cash to Rev
Fr. B as head of a Catholic Parish. As stipulated, the full amount was to be
spent for the construction of a new parish church in the locality. Actually,
25% of the money was expended for the construction of a private school; and
the remainder for the aforesaid new parish church. The Commissioner of
Internal Revenue assessed donor’s tax on the P1,000,000 against the
corporation. The donor lodged a protest and claimed exemption alleging that
the imposition is a violation of the Constitution. Decide the case. Reasons.
(1968, amounts supplied)
SUGGESTED ANSWER: There is no constitutional violation. The
constitution exempts only the land, building and improvements actually, directly or
exclusively used for religious or educational purposes, from real property taxes.
There is no constitutional exemption from donor’s taxes.
***2. The Church of Nazarene is a duly registered religious
non-stock, and non-profit corporation managed by a Board of Trustees.
Apart of its religious activities, it is also engaged in charitable works such as
providing shelter and food to abandoned children. Recently, it acquired a
donation of One Million Pesos from its parent company in the United States
intended to finance its religious and charitable activities. One-half of Five
Hundred Thousand Pesos was spent in one year and with respect to the
balance of Five Hundred Thousand Pesos, the Board of Trustees decided to
place the same in the money market where it earned an interest income of
P10,000.00. The Board of Trustees decided that the interest earned would
also be used exclusively for religious and charitable purposes.
Is the donation, as well as the interest earned, subject to income tax ?
(1988, amounts supplied)
SUGGESTED ANSWER: The donation shall be tax exempt as not more
than 30% was utilized for administration purposes. The interest income is subject
to income tax because it was earned in a profit taking activity. This is so,
irrespective of the purpose for which it shall be devoted.
3. In 2016, Imelda gave xxx xxx a donation of P80,000.00 to her
parish church. She also donated a parcel of land for the construction of a
building to the P.U.P. Alumni Association, a nonstock, nonprofit
organization. Portions of the building shall be leased to generate income for
the association.
xxx xxx xxx
b) How about the donation to the parish church? (1994, paraphrasing and
date supplied)
SUGGESTED ANSWER: Also not subject to tax if Imelda is a resident
because the parish is a religious institution and there is no showing in the problem
that more than thirty percent (30%) of the amount donated was used for
administration purposes. [Ibid., Sec. 101 (A) (3)]
c) How about the donation to the P.U.P. Alumni Association? (1994,
date supplied)
SUGGESTED ANSWER: Subject to tax, because the alumni association is
not among those to whom gifts are not subject to donor’s taxes. It is not an
educational, charitable, or religious institution.
4. On December 6, 2017, LVN Corporation donated a piece of vacant
lot situated in Mandaluyong City to an accredited and duly registered non-
stock, non-profit educational institution to be used by the latter in building a
sports complex for students.
In order that donations to non-stock, non-profit educational institutions
may be exempt from the donor’s tax, what conditions must be met by the
done ? (2002, date supplied and reworded)
SUGGESTED ANSWER: They must be incorporated as a non-stock entity,
paying no dividends, governed by trustees who received no compensation, and
devoting all its income, whether student’s fees or gifts, donations, subsidies or
other forms of philanthropy, actually, directly and exclusively, to the
accomplishment and promotion of the purposes enumerated in its articles of
incorporation.
Furthermore, not more than thirty percent (30%) of said gifts shall be used
by such donee for administration purposes. [NIRC of 1997, Sec. 101 (A),]
5. A. XYZ Colleges is a non-stock, non-profit educational
institution run by the Archdiocese of BP City. It xxx received the following:
xxx xxx xxx xxx
Donation of a lot and building by school alumni.
Which of these abovecited xxx donation would not be exempt from
taxation ? Explain briefly. (2004, rephrasing supplied)
SUGGESTED ANSWER: The donation is exempt provided that the donated
properties are actually, directly and exclusively used for educational purposes
because XYZ Colleges is a non-stock, non-profit educational institution.
B. Suppose that XYZ Colleges is a proprietary educational institution
owned by the Archbishop’s family, rather than the Archdiocese, which of the
above cited xxx donation would be exempt from taxation. Explain briefly.
(2004, rephrasing supplied)
SUGGESTED ANSWER: No. Only donations made to non-stock, non-
profit educational institution that are actually, directly and exclusively used for
educational purposes are exempt. Since XYZ Colleges is a proprietary educational
institution, it is not exempt.
ALTERNATIVE ANSWER: Yes. Republic Act No. 7798, which amended
B.P. Blg. 232 provides that, “Taxes shall not be due on donations to educational
institutions.” It is to be noted that there is no distinction made between proprietary
and non-stock, non-profit educational institutions.
6. The Congregation of the Mary Immaculate donated a land and a
dormitory building located across España St., in favor of the Sisters of the
Holy Cross, a group of nuns operating a free clinic and high school teaching
basic spiritual values. Is the donation subject to donor’s tax ? (2007)
SUGGESTED ANSWER: No, the donation is not subject to tax if the
conditions for exemption are met. To be exempt the donor Congregation of the
Mary Immaculate should show that the donee Sisters of the Holy Cross is a
religious/charitable institution
a. incorporated as a non-stock entity,
b. paying no dividends,
c. governed by trustees who received no compensation, and
d. devoting all its income, whether gifts, donations, subsidies or
other forms of philanthropy, to the accomplishment and promotion of the
purposes enumerated in its articles of incorporation. [NIRC of 1997, Sec. 101 (A)
(3), arrangement and numbering supplied]
e. not more than thirty per centum (30%) of land and dormitory
building donated shall be used by the donee for administration purposes.
(Ibid.)
7. A non-stock, non-profit school always had cash flow problems,
resulting in failure to recruit well-trained administrative personnel to
effectively manage the school. In 2012, Don Leon donated P100 million pesos
to the school, provided the money shall be used solely for paying the
salaries, wages, and benefits of administrative personnel. The donation
represents less than 10% of Don Leon's taxable income for the year. Is he
subject to donor's taxes?
A. No, since the donation is actually, directly, and exclusively used
for educational purposes.
B. Yes, because the donation is to be wholly used for administration
purposes.
C. Yes, since he did not obtain the requisite NGO certification before
he made the donation.
D. No, because the donation does not exceed 10% of his taxable
income for 2012. (2011, dates supplied)
SUGGESTED ANSWER: B
8. CMI School, Inc., a non-stock, non-profit corporation, donated its
three parcels of idle land situated in the Municipality of Cuyapo, Nueva Ecija
to SLC University, another non-stock, non-profit corporation, in recognition
of the latter’s contribution to and participation in the spiritual and
educational development of the former.
a. Is CMI School, Inc., liable for the payment of donor’s tax? Explain
your answer. (2017)
SUGGESTED ANSWER: No. “Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare corporation, institution, accredited
nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided, however, That not more than thirty percent
(30%) of said gifts shall be used by such donee for administration purposes. For the
purpose of this exemption, a ‘non-profit educational and/or charitable corporation,
institution, accredited nongovernment organization, trust or philanthropic
organization and/or research institution or organization’ is a school, college or
university and/or charitable corporation, accredited nongovernment organization,
trust or philanthropic organization and/ or research institution or organization,
incorporated as a non-stock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income, whether students’ fees or gifts,
donation, subsidies or other forms of philanthropy, to the accomplishment and
promotion of the purposes enumerated in its Articles of Incorporation.” [NIRC of 1997,
Sec. 101 (A) (2) as amended by the TRAIN]
xxx xxx xxx. (2017, paraphrasing supplied)
*** 9. Years ago, Krisanto bought a parcel of land in Muntinlupa for
only PhP65,000. He donated the land to his son, Kornelio, in 1980 when the
property had a fair market value of PhP75,000, and paid the corresponding
donor's tax.
Kornelio, in turn, sold the property in 2001 to Katrina for PhP 6.5 million
and paid the capital gains tax, documentary stamp tax, local transfer tax, and
other fees and charges. Katrina, in turn, donated the land to Klaret School
last August 30, 2018 to be used as the site for additional classrooms. No
donor's tax was paid, because Katrina claimed that the donation was exempt
from taxation. At the time of the donation to Klaret School, the land had a fair
market value of PhP 65 million.
(a) Is Katrina liable for donor's tax ? (2018 dates supplied)
SUGGESTED ANSWER: No, provided that Klaret School is a non-profit
educational institution incorporated as a non-stock entity, paying no dividends,
governed by trustees who receive no compensation, and devoting all its income,
whether students’ fees or gifts, donation, subsidies or other forms of philanthropy, to
the accomplishment and promotion of the purposes enumerated in its Articles of
Incorporation, and that not more than thirty percent (30%) of said gifts shall be used
by the done, Klaret School, for administration purposes. [NIRC of 1997, Sec. 101 (A) (3),
as renumbered by the TRAIN]
iv. Exempt donations for political campaign purposes
Historical antecedents. Political campaign contributions exempt from donor’s taxes
was the subjects of BEQs in 1998, 2003, and 2014.
** 1. Are contributions to a candidate in an election subject to donor’s
tax ? On the part of the contributor is it allowed as a deduction from gross
income ? (1998)
SUGGESTED ANSWER: No, because the Election Code specifically
exempts it from donor’s taxes provided they are reported to the Commission on
Elections (COMELEC).
The contributor is not allowed to deduct such contributions from gross
income because they do not help earn the income and are not among those which
are considered as charitable and other contributions, which are allowable
deductions.
***2. X is a friend of Y, the Chairman of Political party Z, who wants
to run for President in the 2016 elections. Knowing that Y needs funds for
posters and streamers, X is thinking of donating to Y P150,000.00 for his
campaign. He asks you whether his intended donation to Y will be subject to
the donor’s tax. What would your answer be ? Will your answer be the same
if he were to donate to Political Party Z instead of to Y directly ? (2003, date
supplied)
SUGGESTED ANSWER: The intended donation is not subject to donor’s tax
because the Election Code specifically exempts from gift taxes any contribution
in cash or in kind to any candidate for campaign purposes, duly reported to the
Commission on Elections.
My answer would be the same even if the donation was made to Political
Party Z because the exemption also applies to contribution in cash or in kind to a
political party or coalition of parties for campaign purposes, duly reported to the
Commission on Elections.
v. No more exempt donations by reason of marriage of
residents (dowry exemption) starting January 1, 2018, the
effectivity of the TRAIN, and onwards
vi. Presumptive legitimes
What is the tax treatment of the distribution of the presumptive
legitime ?
SUGGESTED ANSWER: “Upon dissolution of the absolute community
regime the presumptive legitime of the common children shall be delivered in
accordance with Article 51.” [Family Code, Art. 102 (5)]
“In said partition the value of the presumptive legitimes of all common
children, computed as of the date of the final judgment of the trial court, shall be
delivered in cash, property or sound securities, unless the parties, by mutual
agreement judicially approved, had already provided for such matters. [Ibid., Art. 51,
1st par.]
The transfer is not in consequence of a donation but by operation of law.
Thus, there is no taxable donation. This is true whether the distribution is in
accordance with a deed of partition executed by the spouses as approved by the
court or through a court order.
The transfer is not subject to estate or donor’s tax because it is a compelled
transfer by operation of law, not subject to the will of any of the spouses. (BIR
Ruling No. DA-414-06, July 2006)
vii. Exemption from donor’s tax of certain gifts made by
non-resident aliens
Historical antecedents. The tax treatment of certain gifts made by non-resident
aliens was the subject of BEQs in 1992, 1996, and 2009.
**1. Mr. Bill Morgan, a Canadian citizen and a resident of
Scarborough, Ontario, sends a gift check of $20,000 to his future Filipino
daughter-in-law who is to be married to his only son in the Philippines.
a. Is the donation by Mr. Morgan subject to tax? Explain. (1992)
SUGGESTED ANSWER: No, because the giving of the gift took place
outside of the Philippines. This is evident from the fact that the gift check was sent
to, and not given personally in, the Philippines. It is of no moment that Mr.
Morgan’s donation does not fall within the gifts made by a non-resident exempt
from donor’s tax.
b. What is the tax consequence, if any, to the donee (Filipino
daughter-in-law of Mr. Morgan) ? (1992)
SUGGESTED ANSWER: None. The donee (Filipino daughter-in-law of
Mr. Morgan) is not required to report the $20,000.00 as income because the gifts
are excluded from gross income and exempt from income taxes.
The income from such gift shall, however, be included by the donee in her
gross income. [NIRC of 1997, Sec. 32 (B) (3)]
2. Miguel, a citizen and resident of Mexico, donated US$1,000.00
worth of stocks in Barack Motors Corporation, a Mexican company, to his
legitimate son, Miguelito, who is residing in the Philippines and about to be
married to a Filipino girlfriend. Mexico does not impose any transfer tax of
whatever nature on all gratuitous transfers of property.
a. Is Miguel entitled to claim a dowry exclusion ? (2009)
SUGGESTED ANSWER: No. Miguel is not entitled a dowry exclusion
because:
1. The exemption from donor’s taxes of the so-called “dowry exclusions”
is not available under the TRAIN.
2. Miguel’s donation is not subject to donor’s tax because he is a non-
resident citizen and the property donated is not found in the Philippines. This is so
because no protection is given to donation hence no taxes could be collected.
Consequently, since the donation is not taxable then the concept of “dowry
exclusion” does not find any application.
viii. Exempt donations for athletes’ prizes and awards
Historical antecedents. The exemption of donations from athlete’s prizes and
awards was the subject of BEQs in 1986, and 2011.
***a. What are the conditions for exemption from donor’s tax of
athlete’s prizes and awards ?
SUGGESTED ANSWER:
1. The donation must be prizes and awards
2. given to athletes
a) in local and international sports tournaments and
competitions.
b) held in the Philippines or abroad, and
c) sanctioned by their respective national sports associations.
[Rep. Act No. 7549, Sec. 1]
This exemption may be availed of by corporations and individuals,
whether resident or non-resident. This is evident from the use of the
unqualified word “donors” in Rep. Act No. 7549.
*** b. Onyoc, an amateur boxer, won in a boxing competition
sponsored by the Gold Cup Boxing Council, a sports association duly
accredited by the Philippine Boxing Association. Onyoc received the
amount of P500,000.00 as his prize donated by Ayala Land Corporation. The
BIR tried to collect donor’s tax from Ayala Corporation, which tax Ayala
Land Corporation refuses to pay.
Decide. (1996)
SUGGESTED ANSWER: Ayala is exempt from the payment of donor’s
taxes. It is apparent that the competition was sanctioned by the appropriate
national sports association. [Rep. Act No. 7549, Sec. 1]
ix. Exemptions of gifts from donor’s taxes under special
laws
 Historical antecedent. The exemption from donor’s taxes of certain gifts under connection with its fund-raising projects and its continuing sports
under special laws was the subject of a BEQ in 2018. development programs shall be exempt from the donor's taxes, and shall be
deductible in full in the computation of the taxable net income of the donor.
***a. Give some examples of certain gifts that are exempted from
Donations and contributions to the Philippine Olympic Committee and/or the
various national sports associations certified by the Commission to be
donor’s tax under special laws. pursuant to the development of sports in the country shall likewise be exempt
SUGGESTED ANSSWER: from the payment of the donor's and estate taxes and shall be deductible in
1. Gratuitous donations to Homeowners’ Associations. Gifts, full in computing the taxable net income of the donor.” (Rep. Act No. 6847,
donations, and other contributions received by the Associations are subject Philippine Sports Commission Act, Sec. 20)
to the payment of donor’s tax pursuant to the Tax Code, as amended . [RMC 10. Exemptions of donations made to National Government Agencies
No. 53-2013, II, 1st par., paraphrasing supplied] (NGAs) that are engaged in enhancing the Foster Care Program under
Endowments or gifts received by such associations are not exempt Republic Act No. 10165, the Foster Care Act of 2012.
from donor’s tax considering that gifts to Associations are not qualified for 11. Exemption from donor’s taxes of assistance made under the
exemption under the Tax Code. [Ibid., 2nd par., paraphrasing supplied] “Adopt-A-School” Program. Aid/ help/, contribution/donation provided by an
2. Exemption from donor’s taxes of cooperatives registered with the adopting private entity under the provisions of R. A. No. 8525, otherwise
Cooperatives Development Authority. “Duly registered cooperatives under known as the ”Adopt-a School Act of 1998” to a government school, whether
this Code which do not transact any business with non-members or the elementary, secondary, post-secondary or tertiary are exempt from donor’s
general public shall not be subject to any taxes and fees imposed under the taxes. [Rev. Regs. No. 10-2003, Sec. 3 (b)]
internal revenue laws and other tax laws.” (Rep. Act No. 6938, Cooperative The assistance may be in the form of, but not limited to, infrastructure,
Code of the Philippines, Art. 60, as amended by Rep. Act No. 9520, Sec. 5, teaching and skills development, learning support, computer and science
Philippine Cooperative Code of 2008, paraphrasing supplied)
laboratories, and food and nutrition. [Ibid., Sec. 2 (c)]
12. . Donations made to local water districtsare exempt from the
3. Exemptions of Ford Foundation, Rockefeller Foundation,
payment of donor’s taxes. [NIRC of 1997, Sec. 27 (C), as amended by Rep. Act
Agricultural Development Council, Inc. and Asia Foundation granted under
Nos. 9337, 10026, and the TRAIN]
Republic Act No. 3538, as amended by Pres. Decree (PD) No. 1127 dated
The reason for the grant of tax exemptions is in order to encourage to
22 April 1977.
donations for the performance of some desirable activities that would benefit
4. Exemptions of the International Institute for Rural Reconstruction
society in general. The exemption is premised on the utilization of private sources
(IIRR) granted under Republic Act No. 3538, as amended Pres. Decree (PD)
instead of scarce public financial resources for the performance of the desired
No. 728 dated 05 June 1975, and further amended by Pres. Decree (PD)
activities sought to be promoted. The exemption from taxation does not refer to
No. 1127 dated 22 April 1977.
donations alone but for all other activities by the tax exempt entities.
5. Exemptions of the Catholic Relief Services –NCWC and Tools for
Freedom granted under Republic Act No. 4481.
6. Exemptions of the Southeast Asian Regional Center for Graduate
Study and Research in Agriculture (SEARCA) under Pres. Decree No. 1171
***b. Upon the death of their beloved parents in 2018, Karla, Karla,
and Karlie inherited a huge tract of farm land in Kanlaon City. The siblings
dated 12 July 1977.
had no plans to use the property. Thus, they decided to donate the land, but
7. Exemptions of the Aquaculture Department of the Southeast
were not sure to whom the donation should be made. They consult you, a
Asian Fisheries Development Center in the Philippines (SEAFDEC)
well-known tax law expert, on the tax implications of the possible donations
under Pres. Decree No. 292.
they plan to make, by giving you a list of the possible donees:
8. Exemptions of the Trustees of the Press Foundation of Asia, Inc.
1. The Kanlaon City High School Alumni Association (KCHS
(PFA) under Republic Act No. 5469.
AA), since the siblings are all alumni of the same school and are
9. Exemptions of the Philippine Sports Commission under Republic
active members of the organization. KCHS AA is an organization
Act No. 6847. “All donations and contributions to the Commission in
 intended to promote and strengthen ties between the school and its (Note No. 1971 dated 29 April 1954 and Note No. 3001 dated 18 October
alumni; 1956) covering exemptions granted to the following:
2. The Kanlaon City Water District which intends to use the a) Agreement Between the Government of the Philippines and
land for its offices; or Cooperative for American Relief Everywhere, Inc. (CARE).
3. Their second cousin on the maternal side, Kikay, who serves b) Memorandum of Agreement between Foster Parents Plan
as the caretaker of the property. International, Inc. (FPPI or PLAN) and the Government of the Republic
Advise the siblings which donation would expose them to the least tax of the Philippines dated 01 August 1990.
liability. (2018, date supplied) 7. Convention on the Privileges and Immunities of the United
SUGGESTED ANSWER: I would advise them to donate to the Kanlaon Nations adopted by the United Nations General Assembly on 13 February
City Water District. Donations made to local water districts, such as the Kanlaon 1946.
City Water District, are exempt from the payment of donor’s taxes. [NIRC of 1997, In general, this covers UN specialized agencies whether or not they
Sec. 27 (C), as amended by Rep. Act Nos. 9337, 10026, and the TRAIN] have separate host agreements, charters or articles of agreement with the
Republic of the Philippines, such as the following:
x. Exemption of gifts from donor’s tax under international a) International Labor Organization (ILO).
agreements b) The Food and Agricultural Organization of the United
Nations (FAO).
What gifts are exempted from donor’s tax under international c) The United Nations Educational, Scientific and Cultural
agreements ? Give examples. Organization (UNESCO).
SUGGESTED ANSWER: The exemptions from donor’s taxes may arise out d) The Internal Civil Aviation Organization (ICAO).
of agreements between the Philippines and governments of other sovereign nation e) The International Monetary Fund (IMF).
or agencies and instrumentalities of such foreign governments or with the United f) The International Bank for Reconstruction and
Nations and its specialized agencies. Development (IBRD).
The following are some of the international agreements where the donations g) The Word Health Organization (WHO).
made are exempt from, among others, donor’s taxes: h) The Universal Postal Union (UPU).
1. Vienna Convention on Diplomatic Relations. i) The International Telecommunic-ations Union (ITU).
2. Agreement on Technical Cooperation between the Government j) Any other agency in relationship with the United Nations
of Japan and the Government of the Republic of the Philippines [Japan such as
International Cooperation Agency (JICA)]. 1) United Nations International Children’s Fund
3. Agreement between the Government of the Federal Republic of (UNICEF).
Germany and the Government of the Republic of the Philippines concerning 2) United Nations Development Fund (UNDP).
Technical Co-operation. [Deutsche Gessellschaft fur Internationale 3) United Nations High Commission on Refugees
Zusamemenarbeit (GIZ) (UNHCR).
4. Memorandum of Subsidiary Arrangement between the 4) United Nations Industrial Development Organization
Government of the Republic of the Philippines and the Government of (UNIDO).
Australia Relating to the Philippines-Australia Governance Facility (AUSAID). 5) United Nations Development Fund (UNFPA).
5. Resolution Concurring in the General Agreement on 6) World Food Program (WFP).
Development Cooperation between the Government of the Republic of the 7) International Committee of the Red Cross (ICRC).
Philippines and the Government of Canada [Canadian International Agency 8) United Nations Information Centre (UNIC).
(CIDA)]. 8. The following specialized United Nations agencies have separate
6. Agreement between the Philippines and the United States of host agreements, charters or articles of agreement with the government of
America covered by the Exchange of Notes between the two countries. the Republic of the Philippines:
 a) Exemption granted to the Food and Agricultural
Organization (FAO) granted under the Exchange of Letters dated 02
and 14 November 1977 between the FAO and the Government of the
Republic of the Philippines.
b) Exemption under the Articles of Agreement of the
International Monetary Fund (IMF).
c) Exemption under the Articles of Agreement of the
International Bank for Reconstruction and Development (IBRD).
d) Exemption under the Agreement between the World Health
Organization (WHO) and the Government of the Republic of the
Philippines.
e) Exemption under the Agreement between the United
Nations International Children’s Emergency Fund (UNICEF) and the
Government of the Philippines Concerning the Activities of the UNICEF
in the Philippines.
f) Exemption under the Agreement between the Government
of the Philippines and the United Nations Development Program
(UNDP).
g) Exemption under the Exchange of Letters dated 21 October
1996 between the United Nations Population Fund (UNPA) and the
Government of the Republic of Government the Philippines.
h) Exemption under the Headquarters Agreement Between
the Government of the Republic of Government the Philippines and the
International Committee of the Red Cross (ICRC).
i) Articles of Agreement of the International Finance
Corporation (IFC).
9. Agreement between the Asian Development Bank and the
Government of the Republic of the Philippines regarding the Headquarters of
the Asian Development Bank.
10. Host Country Agreement between the Government of the
Republic of the Philippines and the ASEAN Centre for Biodiversity.
11. Headquarters Agreement between the Government of the
Republic of the Philippines and the International Rice Research Institute
(IRRI).
12. Agreement between the Government of the Republic of the
Philippines and the Southeast Asian Ministers of Education Organization
Regarding the Temporary Operation of the SEAMEC Regional Centre for
Educational Innovation and Technology (INNOTECH).
13. Cooperation Agreement between the Government of the
Republic of the Philippines and the International Organization for Migration
(IOM).
14. Protocol on the Privileges and Immunities of the International
Seabed Authority (ISBA).
15. Agreement between the Government of the Republic of the
Philippines and the Partnerships in Environmental Management for the Seas
of East Asia (PEMSEA) Establishing the PEMSEA Resource Facility Center.
16. Agreement between the Government of the Republic of the
Philippines and the International Development Law Institute Relating to the
IDLI/Asia Regional Training Office.
17. Memorandum of Agreement between Government of the
Republic of the Philippines and the World Organization of Scout Movement
(WOSM).
18. Agreement between the Government of the Republic of the
Philippines and International Center for Living Aquatic Resources (ICLARM)
to establish an office of the Worldfish Center in the Philippines.
19. Memorandum of Agreement between the Government of the
Republic of the Philippines and the Colombo Plan Staff College (CPSC)
Regarding the Operation of the College in the Philippines.
D. Value-Added Tax (VAT)
1. Concept and elements of VATable transactions
a. Concept
Historical antecedents. The concept of the Value Added Tax was the subject of
BEQs in 1983, and 1988.
**Discuss the meaning and scope of value-added tax (VAT). (1988)
SUGGESTED ANSWER: The value-added tax is a uniform tax ranging,
at present, from 0 percent to 12 percent (now under the RVAT) levied on every
importation of goods, whether or not in the course of trade or business, or imposed
on each sale, barter, exchange or lease of goods or properties on each rendition of
services in the course of trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added to such goods,
properties or services by the seller, transferor or lessor. [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), 451 SCRA 132 citing various cases, percentages
supplied]
b. Characteristics/elements of a VAT-able transaction
 Historical antecedent. The characteristics of a VAT was the subject of a BEQ in Tax credit method of imposing the Value-Added Tax (VAT. This method
1996. relies on invoices, an entity can credit against or subtract from the VAT charged on
its sales or outputs the VAT paid on its purchases, inputs and imports. [Abakada
What are the characteristics of the Value-Added Tax ? (1996) Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and
SUGGESTED ANSWER: The characteristics of the Value-Added Tax are companion cases)
the following: If at the end of a taxable period, the output taxes charged by a seller are
a. It is an indirect tax. equal to the input taxes passed on by the suppliers, no payment is required. It is
b. It is a tax on consumption. when the output taxes exceed the input taxes that the excess has to be paid. If
c. It is a percentage tax. however, the input taxes exceed the output taxes, the excess shall be carried over
d. It is a regressive tax. to the succeeding quarter or quarters. Should the input taxes result from zero-
The above characteristics of the Value-Added Tax are sometimes referred to rated or effectively zero-rated transactions or from acquisition of capital goods, any
as the nature of the Value-Added Tax. excess over the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes. [Commissioner of Internal Revenue v. Seagate
c. Tax pyramiding or tax cascading Technology (Philippines), G. R. No. 153866, February 11, 2005]
Cost deduction method, definition. This is a single-stage tax which is
Historical antecedent. Tax pyramiding was the subject of a BEQ in 2006, and payable only by the original sellers. [Abakada Guro Party List (etc.), supra] This was
2012. subsequently modified and a mixture of “cost deduction method” and “tax credit
method” was used to determine the value-added tax payable. (Ibid.)
***What is tax pyramiding or tax cascading ? What is its basis in law ? Method presently used. The “cost deduction method” was subsequently
modified and a mixture of “cost deduction method” and “tax credit method” was
(2006, reworded) used to determine the value-added tax payable. (Ibid.)
SUGGESTED ANSWER: The practice of imposing a tax upon another tax. It Under the Value Added Tax (VAT) method of taxation which is invoice-
is a situation where some or all of the stages of distribution of goods or services based, an entity can subtract from the VAT charged on its sales or outputs the VAT
are taxed, with the accumulation borne by the final consumer. There is tax it paid on its purchases, inputs and imports. [Panasonic Communications Imaging
pyramiding when sales taxes are applied to both inputs and outputs, thus shifting Corporation of the Philippines v. Commissioner of Internal Revenue, 612 SCRA 28 (2010)]
the tax burden to the ultimate consumer. (R. G. Holcombe, Taxing Services, 30 Fla. St.
U.L. Review Rev. 467 [1996]) e. Persons liable
It has no basis in law because It has been rejected, since 1922, by the
Supreme Court, the legislature and our tax authorities. It is prohibited as a taxpayer Historical antecedent. Persons subject to VAT was the subject of a BEQ in 2014.
cannot be compelled to pay a tax on the tax itself. (People of the Philippines v.
Sandiganbayan, etc., et al., G. R. No. 152532, August 16, 2005) Thus, it violates the
principle of uniformity and neutrality in taxation. (R.G. Holcombe, supra) **1) Who are the persons subject to Value-Added Tax (VAT) ?
SUGGESTED ANSWER:
d. Tax credit method a) Any person who, in the course of his trade or business,
(1) sells, barters, exchanges or leases goods or properties, or
What are the different VAT methods and systems ? Explain each (2) renders services, and
briefly. b) any person who imports goods
SUGGESTED ANSWER: The various VAT methods and systems. c) shall be subject to the value-added tax (VAT) imposed in
a. Tax credit method Sections 106 to 108 of this Code.” (Commissioner of Internal Revenue v. Negros
b. Cost deduction method Consolidated Framers Multipurpose Cooperative, G.R. No. 212735, December 05,
2018)
c. Mixture of ‘cost deduction method” and “tax credit method.
 The following are the headings of Sections 106 to 108 of the NIRC of
1997.
Sec. 106. Value-added Tax on Sale of Goods or Properties.
Sec. 107. Value-added Tax on Importation of Goods.
Sec. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties.
**2) Who are the persons required to register for purposes of the
value-added tax (VAT) ? What is the effect if a person who is required to
register does not register ?
SUGGESTED ANSWER:
a) Any person who, in the course of trade or business.sells. barters or
exchanges goods or orperties, lor engages in the sale or exchange of services,
shall be liable to register for value-added tax if:
(1) his gross sales or receipts for the past twelve (12) months,
other than those that are exempt, have exceeded Three million pesos
(P3,000,000); or
(2) there are reasonable grounds to believe that his gross
sales or receipts for the next twelve (12) months, other than those that
are exempt, will exceed Three million pesos (P3,000,000). [NIRC of
1997, Sec. 236 (G), as amended by the TRAIN, paraphrasing supplied]
b) Every person who becomes liable to be registered under shall
register with the Revenue District Office which has jurisdiction over the head
office or branch of that person, and shall pay the annual registration fee
prescribed. If he fails to register he shall be liable to pay the other percentage
tax as if he were a VAT-registered person, but without the benefit of input tax
credits for the period in which he was not properly registered. [Ibid., Sec. 236
(G), paraphrasing supplied]
**3) Is there any instance where a value-added tax (VAT) exempt
person may register for purposes of availing of the benefits of VAT ?
SUGGESTED ANSWER: Yes. There may be optional registration for a
value-added tax exempt person.
a) Any person who is not required to register for value-added tax
may elect to register for value-added tax by registering with the Revenue
District Office that has jurisdiction over the head office of that person, and
paying the annual registration fee.
b) Any person who elects to register shall not be entitled to cancel
his registration for the next three (3) years.
Provided, That any person who elected to pay the eight percent (8%) tax
on gross sales or receipts shall not be allowed to avail of this option.
Any person who has registered value-added tax as a tax type shall be
referred to as a ‘VAT-registered person’ who shall be assigned only one
Taxpayer Identification Number (TIN). [NIRC of 1997, Sec. 236 (G), as amended
by TRAIN, paraphrasing and rewording supplied]
**4) Who are not allowed the optional VAT registration ?
SUGGESTED ANSWER: Purely self-employed individuals and/or
professionals whose gross sales or gross receipts and other non-operating income
who elected to pay the eight percent (8%) tax on gross sales or receipts NOT
allowed optional VAT registration. [NIRC OF 1997, Section 24 (A) (2) (b), as inserted by
the TRAIN]
** 5) The Bureau of Internal Revenue (BIR) issued Revenue
Memorandum Circular (RMC) No. 65-2012 imposing Value-Added Tax (VAT)
on association dues and membership fees collected by condominium
corporations from its member condominium-unit owners. The RMC’s validity
is challenged before the Supreme Court (SC) by the condominium
corporations. The Solicitor General, counsel for BIR, claims that association
dues, membership fees, and other assessment/charges collected by a
condominium corporation are subject to VAT since they constitute income
payments or compensation for the beneficial services it provides to its
members and tenants.
On the other hand, the lawyer of the condominium corporation argues
that such dues and fees are merely held in trust by the condominium
corporations exclusively for their members and used solely for
administrative expenses in implementing the condominium corporations’
purposes. Accordingly, the condominium corporations do not actually
render services for a fee subject to VAT.
Whose argument is correct ? Decide. (2014)
SUGGESTED ANSWERS: The argument of the lawyer of the condominium
corporation is correct.
The provisions of the NIRC are clear in describing the characteristics of a
person who is subject to VAT, as any person who, in the course of his trade or
business, renders services. (NIRC of 1997, Sec. 105, 1st par., paraphrasing supplied)
To be “in the course of trade or business” means ”trade or commercial
activity regularly engaged in as a means of livelihood or with a view to profit.”
(Yamane , etc. v. BA Lepanto Condominium Corporation, G. R. No. 154993, October 25,
2005) By its very nature a condominium corporation is not engaged in business,
and any profit that it derives is merely incidental. (Ibid.)
The money paid by the unit owners are pooled together to be spent
exclusively for the purpose of maintaining and preserving the condominium building
and the common areas which they themselves own and possess.
f. VAT on sale of goods or properties
Historical antecedent. VAT on the sale of goods was the subject of a BEQ in 1998.
1) Define “goods or properties,” the sale, barter or exchange of
which may be subject to VAT.
SUGGESTED ANSWER: The term ’goods or properties’ shall mean all
tangible and intangible objects which are capable of pecuniary estimation and shall
include:
a. Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business.
b. The right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand or
other like property or right.
c. The right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment.
d. The right or privilege to use motion picture films, film tapes and
discs.
e. Radio, television, satellite transmission and cable television time.
[NIRC of 1997, Sec. 106 (A) (1)], 1st par.; Rev. Regs. No. 16-2005, Sec. 4.106-2]
2) What is the rate and base of value-added tax on the sale of goods
or properties ?
SUGGESTED ANSWER: There shall be levied, assessed and collected
a. on every sale, barter or exchange of goods or properties,
b. a value-added tax equivalent to twelve percent (12%)
1) of the gross selling price or gross value in money
2) of the goods or properties sold, bartered or exchanged,
c. such tax to be paid by the seller or transferor. (NIRC of 1997, Sec,
106 (A), reiterated by TRAIN, and implemented by RMC 7-2006, arrangement and
numbering supplied)
1) VATable sale of real properties
Historical antecedents. The VAT imposed on the sale of real property was the
subject of BEQs in 2017, and 2018.
*** (a) What sale of real properties are subject to VAT ?
SUGGESTED ANSWER: Sale of real properties held primarily for sale to
customers or held for lease in the ordinary course of trade or business of the seller
shall be subject to VAT. (Rev. Regs. No. 16-2005, Section 4.106-3, 1st par.)
*** (b) What is the value-added tax (VAT) treatment on foreclosure
sales of real property characterized as ordinary assets ?
SUGGESTED ANSWER: In case of non-redemption of properties sold
during involuntary sales, regardless of the type of proceedings and personality of
mortgagees/selling persons or entities, if the property is an ordinary asset, the
twelve percent (12%) Value-Added Tax (VAT) which shall be based on whichever
is higher of the consideration (bid price of the highest bidder) or the fair market
value or the zonal value as determined by the Bureau of Internal Revenue.
The said tax must be paid to the Bureau by the VAT-registered
owner/mortgagor on or before the 20th day or 25th day, whichever is applicable, of
the month following the month when the right of redemption prescribes.
*** (c) On September 17, 2018, Data Realty, Inc., a real-estate
corporation duly organized and existing under Philippine law, sold to Jenny
Vera a condominium unit at Freedom Residences in Malabon City with an
area of 32.31 square meters for a contract price of P4,213,000. The
condominium unit had a zonal value amounting to P2,877,000 and fair market
value amounting to P550,000.
Is the transaction subject to value-added tax and documentary stamp
tax ? Explain your answer. (2017, date supplied)
SUGGESTED ANSWER: Yes. The sale is subject to both the value-added
tax and documentary stamp tax.
Data Realty, Inc. sold rhe condominium unit which is primarily held for sale
to customers hene subject to VAT. The contract price of P4,213,000.00, which is
the highest value compared with the zonal value, and the fair market value, is the
amount used for internal revenue purposes. Since, it is above the threshold value
of P3 million, then the sale is subject to VAT.
Since, Data Realty, Inc. is the seller, it is liable for the documentary stamp tax
which is a tax on the sales transaction.

** (d) Klaus, Inc., a domestic, VAT-registered corporation engaged
in the land transportation business, owns a house and lot along Katipunan
St., Quezon City. This property is being used by Klaus, lnc.'s president and
single largest shareholder, Atty. Krimson, as his residence. No business
activity transpires there except for the company's Christmas party which is
held there every December. Atty. Krimson recently grew tired of the long
commute from Katipunan to his office in Makati City and caused the
company to sell the house and lot. The sale was recorded in the books of
Klaus, Inc. as investment in real property.
Is the sale of the said property subject to VAT ? (2018)
SUGGESTED ANSWER: No. Klaus, Inc., is engaged in the transportation
business and the house and lot is not part of “Goods or properties” the sale, barter
or exchange of which may be subject to VAT which include real properties held
primarily for sale to customers or held for lease in the ordinary course of trade or
business. [NIRC of 1997, Sec. 106 (A) (1)], 1st par.; Rev. Regs. No. 16-2005, Sec. 4.106-2]
Klaus, Inc., is not holding the house and lot primarily for sale to customers or
held for lease in the ordinary course of trade or business because it is being used
by its President as his residence.
2) VATable sale of personal properties
Historical antecedents. The sale of personal properties subject to VAT was the
subject of BEQs in 1998, and 2014..
** (a) Is the sale of tractors and other agricultural implements by
Bungkal Incorporated to local farmers ? If so at what rate ? (1998, rewording
and VAT rate supplied)
SUGGESTED ANSWER: Yes, it is subject to VAT at 12%.
** (b) Masarap Kumain, Inc. (MKI) is a Value-Added Tax (VAT)-
registered company which has been engaged in the catering business for the
past 10 years. It has invested a substantial portion of its capital on flat
wares, table linens, plates, chairs, catering equipment, and delivery vans.
MKI sold its first delivery van, already 10 years old and idle. to Magpapala
Gravel and Sand Corp. (MGSC), a corporation engaged in the business of
buying and selling gravel and sand. The selling price of the delivery van was
way below its acquisition cost. Is the sale of the delivery van by MKI to
MGSC subject to VAT? (2014)
SUGGESTED ANSWER: Yes. The sale of the delivery van by MKI to MGSC
is subject to VAT.
MKI is a VAT-registered company engaged in ‘in the course of trade or
business’ catering which means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto (NIRC of 1997, Sec. 105, 3rd
par.;(Rev. Regs. No. 16-2005, Sec. 4.105-3, 1st par.) which are subject to VAT.
The delivery van being used in MKI’s trade or business of catering is part of its
assets. The sale of a fully depreciated asset (the delivery van) that has been
used in business is subject to VAT as an incidental transaction, although such sale
may be considered isolated. (Mindanao II Geothermal Partnership vs. CIR, G.R. Nos.
193301, 194637, March 11, 2013)
g. VAT on importation of goods
How are imported goods subject to value-added tax (VAT) ?
SUGGESTED ANSWER: “There shall be levied, assessed and collected on
every importation of goods a value-added tax equivalent to twelve percent (12%)
based on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges, such
tax to be paid by the importer prior to the release of such goods from customs
custody: Provided, That where the customs duties are determined on the basis of the
quantity or volume of the goods, the value-added tax shall be based on the landed
cost plus excise taxes, if any.” [NIRC of 1997, Sec. 107 (A), as amended by the TRAIN]
h. VAT on sale of services
2013.
Historical antecedent. VAT on professional services was the subject of a BEQ in
**1) What is the rate and base of tax for the sale or exchange of
services ?
SUGGESTED ANSWER: There shall be levied, assessed and collected, a
value-added tax equivalent to twelve percent (12%) of gross receipts derived from
the sale or exchange of services. [NIRC of 1997, Sec. 108 (A), 1st par., reiterated by the
TRAIN, paraphrasing supplied]
The term ‘gross receipts’ means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with the services and deposits
and advanced payments actually or constructively received during the taxable
quarter for the services performed or to be performed for another person, excluding
value-added tax.” [Ibid., Sec. 108 (A), 4th par., reiterated by the TRAIN]

*** 2) What is meant by the phrase, “sale or exchange of
services” ?
SUGGESTED ANSWER: The phrase “sale or exchange of services” means
a) the performance of all kinds of services in the Philippines
b) for others
c) for a fee, remuneration or consideration,
d) including those performed or rendered
(1) by construction and service contractors;
(2) stock, real estate, commercial, customs and
immigration brokers;
(3) lessors of property, whether personal or real;
warehousing services;
(4) lessors or distributors of cinematographic films;
(5) persons engaged in milling, processing,
manufacturing or repacking goods for others;
(6) proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts;
(7) proprietors or operators of restaurants, refreshment
parlors, cafes and other eating places, including clubs and
caterers;
(8) dealers in securities;
(9) lending investors;
(10) transportation contractors on their transport of goods
or cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to their
transport of goods or cargoes;
(11) common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines;
(12) sales of electricity by generation companies,
transmission by any entity, and distribution companies, including
electric cooperatives;
(13) services of franchise grantees of electric utilities,
telephone and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section 119 of this
Code and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical
or mental faculties.” [NIRC of 1997, Sec. 108 (A), 2 nd
par.,1st
sentence, reiterated by the TRAIN, arrangement and numbering
supplied]
Also included in the phrase “sale or exchange of services” are:
(1) The lease or the use of or the right or privilege to use
any copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or
right;
(2) The lease or the use of, or the right to use of any
industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or
commercial knowledge or information;
(4) The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right as is
mentioned in subparagraph (2) or any such knowledge or
information as is mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his
employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such nonresident
person;
(6) The supply of technical advice, assistance or services
rendered in connection with technical management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and
discs; and
(8) The lease or the use of or the right to use radio,
television, satellite transmission and cable television time.” [Ibid.,
Sec. 108 (A), 2nd par., reiterated by the TRAIN]
** 3) XYZ Law Offices, a law partnership in the Philippines and a VAT-
registered taxpayer, received a query by e-mail from Gainsburg Corporation,
a corporation organized under the laws of Delaware, but the e-mail came
from California where Gainsburg has an office. Gainsburg has no office in
the Philippines and dos no business in the Philippines.
XYZ Law Offices rendered its opinion on the query and billed
Gainsburg US$1,000 for the opinion. Gainsburg remitted its payment
through Citibank which converted the remitted US$1,000 to pesos and
deposited the converted amount in the XYZ Law Offices account. What are
the tax implications of the payment to XYZ Law Offices in terms of xxx xxx
VAT ? (2013)
SUGGESTED ANSWER: The payment to XYZ Law Offices by Gainsburg
Corporation is subject to VAT in the Philippines.
For VAT purposes, the transaction is a zero-rated sale of services where the
output tax is zero percent and XYZ is entitled to claim as refund or tax credit
certificate the input taxes attributable to the zero-rated sale. The services were
rendered to a nonresident person, engaged in business outside the Philippines,
which services are paid for in foreign currency inwardly remitted through the
banking system, thereby making the sale of services subject to tax at zero-rate.
[NIRC of 1997, Sec. 108 (B)(2)]
did not subject the said lease to VAT believing that it was not a domestic
service contract. Was DDD Corp. correct? Explain. (2015, date supplied)
SUGGESTED ANSWER: No. DDD Corp. is not correct.
The lease of properties shall be subject to VAT irrespective of the place
where the contract of lease was executed if the property is leased or used in the
Philippines. [NIRC of 1997, Sec. 108 (A) 4th par.]
Since, the leased residential house and lot is located and used in the
Philippines it is subject to VAT despite the fact that the lease agreement was
signed in Singapore.
j. No VAT on membership fees, assessment dues, and
the like of recreational clubs

i. VAT on use or lease of properties

Historical antecedent. VAT on the use or lease of properties was the subject of a
*** Are the membership fees, assessment dues, and the like of
recreational clubs subject to value-added tax (VAT) ? Explain briefly.
BEQ in 2015.
SUGGESTED ANSWER: No, because they are not part of the gross receipts
of recreational clubs that are ‘subject to VAT. [Association of NonProfit Clubs, Inc.
1) What is the rate and base of tax for the use or lease of
(ANPC), etc., v. Bureau of Internal Revenue (BIR), etc., G.R. No. 228539, 26 June 2019]
properties ?
“It is a basic principle that before a transaction is imposed VAT, a sale,
SUGGESTED ANSWER: “There shall be levied, assessed and collected, a
barter or exchange of goods or properties, or sale of a service is required.”
value-added tax equivalent to twelve percent (12%) of gross receipts derived from
(Ibid., bold facing and underscoring in the original] “This is true even if such sale is on a
the use or lease of properties. [NIRC of 1997, Sec. 108 (A), 1st par., reiterated by the
cost-reimbursement basis.” (Ibid.)
TRAIN, paraphrasing supplied]
“(M)embership fees, assessment dues, and the like are not subject to VAT
The term ‘gross receipts’ means the total amount of money or its equivalent
because in collecting such fees, the club is not selling its service to the members.
representing the contract price, compensation, service fee, rental or royalty,
Conversely, the members are not buying services from the club when dues are
including the amount charged for materials supplied with the services and deposits
paid; hence, there is no economic or commercial activity to speak of as these dues
and advanced payments actually or constructively received during the taxable
are devoted for the operations/maintenance of the facilities of the organization. As
quarter for the services performed or to be performed for another person, excluding
such, there could be no ‘sale, barter or exchange of goods or properties, or
value-added tax.” [Ibid., Sec. 108 (A), 4th par., reiterated by the TRAIN]
sale of a service" to speak of, which would then be subject to VAT under the
Lease of properties shall be subject to the tax herein imposed irrespective of
1997 NIRC.’ ” (Ibid., bold facing in the original)
the place where the contract of lease or licensing agreement was executed if the
WARNING !!! Do not bold face or underscore when answering Bar Questions.
property is leased or used in the Philippine. [Ibid., Sec. 108 (A) 3RD par., paraphrasing,
arrangement and numbering supplied]
2. Impact and incidence of tax

**2) In June 2019, DDD Corp., a domestic corporation engaged in the Historical antecedents. The impact and incidence of taxation was the subject of
BEQs in 1974, 2004, 2016, and 2018..
business of leasing real properties in the Philippines, entered into a lease
agreement of a residential house and lot with EEE, Inc., a non-resident
foreign corporation. The residential house and lot will be used by officials of
EEE, Inc. during the visit to the Philippines. The lease agreement was signed
*** a. Define impact of a tax and incidence of tax. Why is it
important to know the definitions ?
by representatives from DDD Corp. and EEE, Inc. in Singapore. DDD Corp.
 SUGGESTED ANSWER: The impact of a tax refers to the statutory
taxpayer. The person or entity stated in the law who is liable for the tax.
The incidence of the tax refers to the person or entity to whom the burden of
the indirect tax is shifted. The one who ultimately bears the burden of the tax.
A seller who is directly and legally liable for payment of an indirect tax, such
as the VAT on goods and services is not necessarily the person who ultimately
bears the burden of the same tax. It is the final purchaser or consumer of such
goods or services who although not directly and legally liable for the payment
thereof, ultimately bears the burden of the tax. [Context Corporation v Commissioner
of Internal Revenue, 433 SCRA 376 (2004)]
It is important to know the definitions for refund purposes because the proper
party to question or seek a refund of, an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts
the burden thereof to another. The tax once shifted, is no longer in the nature of a
tax, but part of the purchase price or the cost of the goods or services sold. [Silkair
(Singapore) Pte, Ltd., v. Commissioner of Internal Revenue, G. R. No. 166482, January 25,
2012]
Consequently, a tax exempt entity upon whom the burden of a tax was
shifted could not for a refund of the tax that was shifted.
ALTERNATIVE ANSWER: The impact of a tax refers to the statutory
taxpayer. The person or entity stated in the law who is liable for the tax.
The incidence of the tax refers to the person or entity to whom the burden of
the indirect tax is shifted. The one who ultimately bears the burden of the tax.
A seller who is directly and legally liable for payment of an indirect tax, such
as the VAT on goods and services is not necessarily the person who ultimately
bears the burden of the same tax. It is the final purchaser or consumer of such
goods or services who although not directly and legally liable for the payment
thereof, ultimately bears the burden of the tax. [Context Corporation v Commissioner
of Internal Revenue, 433 SCRA 376 (2004)]
In indirect taxation, there is a need to distinguish between the liability for the
tax (impact of the tax) and the burden (incidence) of the tax.
The amount of tax paid may be shifted or passed on by the seller to the
buyer. What is transferred in such instances is not the liability for the tax, but the
tax burden (incidence). In adding or including the VAT due to the selling price, the
seller remains the person primarily and legally liable for the payment of the tax.
What is shifted only to the purchaser is the burden (incidence) of the tax.
Stated differently, a seller who is directly and legally liable for payment of an
indirect tax, such as the VAT on goods or services, is not necessarily the person
who ultimately bears the burden of the same tax. It is the final purchaser or
consumer of such goods or services who, although not directly and legally liable for
the payment thereof, ultimately bears the burden of the tax. (Ibid.)
b. The National Power Corporation (NPC) bought manufactured
products from GranPhil for which GranPhil passed on the sales tax to NPC.
NPC claims it should not pay the sales tax because it is exempt from the
payment of all taxes under its Charter. How would you decide this case ?
(1974)
SUGGESTED ANSWER: The contention of NPC is without merit. The tax is
due from GranPhil, who is not exempt, because it is a sales tax. NPC’s tax
exemption does not flow to GranPhil who must show a specific provision of law
under which it is exempt.
Furthermore, an exemption from “all taxes” excludes indirect taxes, unless the
exempting statute, like NPC’s charter, is so couched as to include indirect tax from
the exemption. Statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority, and if an
exemption is found to exist, it must not be enlarged by construction. (Silkair
(Singapore) PTE, Ltd., v. Commissioner of Internal Revenue, G.R. No. 173594, February 6,
2008)
ALTERNATIVE ANSWER: NPC is correct in contending that it should not
pay the tax. The Latin maxim, Ubi lex non distinguit nec nos distinguere debemos
(Where the law does not distinguish we should not distinguish) finds application. It
is apparent that NPC’s exemption is from payment “of all taxes.” An exemption
from “all taxes” excludes indirect taxes. Hence, NPC’s exemption covers both direct
and indirect taxes. (Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA
771)
***c. Koko's primary source of income is his employment with the
government. He earns extra from the land he inherited from his parents, and
which land he has been leasing to a private, non-stock, non-profit school
since 2006.
Last January, the school offered to buy the land from Koko for an
amount equivalent to its zonal value plus 15% of such zonal value. Koko
agreed but required the school to pay, in addition to the purchase price, the
12% VAT. The school refused Koko's proposal to pass on the VAT
contending that it was an entity exempt from such tax. Moreover, it said that
Koko was not regularly engaged in the real estate business and, therefore,
was not subject to VAT. Consequently, Koko should not charge any VAT to
the school.
1) Is the contention of the school correct ? (2018, dates supplied and
renumbered)
SUGGESTED ANSWER: The contention of the school is partially correct.
The school’s contention that Koko could not pass on to it the VAT because
it is exempt from VAT is without merit. The school is not exempt from VAT but its
transactions. An exempt transaction differs from a VAT exempt party.
 “The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services.” (NIRC OF 1997, Sec. 105, 2nd par.) Thus, Koko may pass on the VAT to the
school.
Of possible merit is the contention that Koko was not regularly engaged in
the real estate business and thus is not subject to VAT. While continuity of the
lease agreement from 2006 to the present could characterize Koko as a lessor of
property regularly engaged in the real estate business (Ibid., Sec. 108 (A) , 2nd par)
there is no showing that the gross annual rentals received by Koko exceeds P3
million. [Ibid., Sec. 109 (BB)] Finally, Koko does not appear to be a VAT-registered
person. Hence, there is no VAT paid by Koko that could passed on to the school.
1) Will your answer be the same if Koko signed up as VAT-registered
person only in 2018 ? (2018, dates supplied and renumbered)
SUGGESTED ANSWER: Yes because Koko shall be subject to VAT only
after his registration as a such a person. Furthermore, he could still pass on the
VAT he paid to the school.
d. Distinguish exempt transaction from a VAT exempt party.
SUGGESTED ANSWER: An exempt transaction differs from a VAT exempt
party in the following manner:
a. An exempt transaction involves goods or services which, by their
nature, are specifically listed in and expressly exempted from the VAT under
the Tax Code, without regard to the tax status – VAT-exempt or not – of the
party to the transaction WHILE an exempt party, on the other hand, is a
person or entity granted VAT exemption under the Tax Code, a special law or
an international agreement to which the Philippines is a signatory, and by
virtue of which its taxable transactions become exempt from VAT.
[Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc.,
G. R. No. 150154, August 9, 2005]
b. An exempt transaction shall not be the subject of any billing for
output VAT but it shall not also be allowed any input tax credits WHILE an
exempt party being zero-rated is allowed to claim input tax credits.
“The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services.” (NIRC OF 1997, Sec. 105, 2nd par.)
d. Illustrate the concept that zero-rating is not for the benefit of the
person legally liable for the tax but for the benefit of the person to whom the
indirect tax is to be passed on.
SUGGESTED ANSWER: Effective zero-rating is not intended as a benefit to
the person legally liable to pay the tax, such as San Roque Power Corporation, but
to relieve certain exempt entities, such as the NPC, from the burden of indirect tax
so as to encourage the development of particular industries. Before, as well as
after, the adoption of the VAT, certain special laws were enacted for the benefit of
various entities and international agreements were entered into by the Philippines
with foreign governments and institutions exempting sale of goods or supply of
services from indirect taxes at the level of their suppliers.
Effective zero-rating was intended to relieve the exempt entity from being
burdened with the indirect tax which is or which will be shifted to it had there been
no exemption. In this case, San Roque Power Corporation is being exempted from
paying VAT on its purchases to relieve NPC of the burden of additional costs that
petitioner may shift to NPC by adding to the cost of the electricity sold to the latter.
[San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345,
November 25, 2009]
3. Destination Principle; Cross-Border Doctrine
Historical antecedent. The destination principle/cross border doctrine was the
subject of a BEQ in 2017.
**a. What basis is used under the VAT system of taxation to
determine whether VAT is to be imposed ? Is there any exception ?
SUGGESTED ANSWER: As a general rule, the VAT system uses the
destination principle as a basis for the jurisdictional reach of the tax.
Under the destination principle of the VAT system of taxation also known as
the “Cross Border Doctrine”:
1. Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are taxed.
2. According to the Destination Principle, goods and services are
taxed only in the country where these are consumed, and in connection with
the said principle, the Cross Border Doctrine mandates that no VAT shall be
imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Sales to enterprises
operating with the export processing zones are export sales subject to 0%
VAT. [Atlas Consolidated Mining and Development Corporation v. Commissioner of
Internal Revenue, 524 SCRA 73]
The Philippine VAT system adheres to the Cross Border Doctrine,
according to which, no VAT shall be imposed to form part of the cost of
goods destined for consumption outside of the territorial border of the taxing
authority. [Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.), Inc., 466 SCRA 211 (2005)]
 Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT; while, those destined for use or
consumption within the Philippines shall be imposed with VAT. [Ibid.]
Consumption abroad is not a pertinent factor to imbue zero-rating on
services performed in the Philippines.by Value-Added (VAT) registered
persons. [Commissioner of Internal Revenue v. Placer Dome Technical Services
(Phils.), Inc., 524 SCRA 27]
The law clearly provides for an exception to the destination principle (exports
are zero-rated whereas imports are taxed), an exception to this rule is the zero-
rated sales or services by VAT-registered persons. [Commissioner of Internal
Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., 512 SCRA 124
(2007)]
**b. SMZ, Inc., is a VAT-registered enterprise engaged in the general
construction business. HP International contracts the services of SMZ, Inc. to
construct HP International’s factory building located in the Laguna Techno
Park, a special economic zone. HP lnternational is registered with the the
Philippine Economic Zone Authority (PEZA) as an ecozone export enterprise,
and, as such, enjoys income tax holiday pursuant to the Special Economic
Zone Act of 1995.
SMZ, Inc., files an application with the Bureau of lnternal Revenue (BIR)
for the VAT zero-rating of its sale of services to HP International. However,
the BIR denies SMZ, lnc.’s application on the ground that HP lnternational
already enjoys income tax holiday.
Is the BIR correct in denying SMZ, lnc.’s application? Explain your
answer. (2017)
SUGGESTED ANSWER: No. The fact that HP International already enjoys
income tax holiday is not a valid ground for denying SMZ, Inc.’s application for VAT
zero-rating of its sale of services to HP International.
Services rendered to persons or entitities whose exemption under special
laws subjects the supply of such services to zero percent (0%) rate. [NIRC of 1997,
Sec. 108 (B) (3)]
“Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall
manage and operate the ECOZONES as a separate customs territory; thus,
creating the fiction that the ECOZONE is a foreign territory. As a result, sales
made by a supplier in the Customs Territory to a purchaser in the ECOZONE
shall be treated as an exportation from the Customs Territory.” [Coral Bay
Nickel Corporation v. Commissioner of Internal Revenue, G.R. No. 190506, June 13, 2016
bold facing and underlining in the original ]
“. . . all sales of goods, properties, and services made by a VAT-
registered supplier from the Customs Territory to an ECOZONE enterprise
shall be subject to VAT, at zero percent (0%) rate, regardless of the tatter's
type or class of PEZA registration; and, thus, affirming the nature of a PEZA-
registered or an ECOZONE enterprise as a VAT-exempt entity.” (Ibid.,
underscoring and bold facing in the original]
Warning !!!. Do not bold face or underscore you Bar answers.
4. Imposition of VAT on transfer of goods by tax exempt persons
Who should pay the tax where tax-exempt goods are sold by taxable
persons ?
SUGGESTED ANSWER: “In the case of tax-free importation of goods into
the Philippines by persons, entities or agencies exempt from tax where such goods
are subsequently sold, transferred or exchanged in the Philippines to non-exempt
persons or entities, the purchasers, transferees or recipients shall be considered
the importers thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the possessor thereof.”
[NIRC of 1997, Sec. 107 (B)]
5. Transactions deemed sale subject to VAT
Historical antecedent. Transactions deemed sale subject to VAT was the subject
of a BEQ in 2018.
*** a. What transactions are “deemed sales” subject to VAT ?
SUGGESTED ANSWER: “The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in the course of
business.
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-
registered persons; or
(b) Creditors in payment of debt.
(3) Consignment of goods if actual sale is not made within sixty (60)
days following the date such goods were consigned.
(4) Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or cessation.”
[NIRC of 1997, Sec. 106 (B)]
b. What are the other kinds of transactions subject to VAT ? Why
are considered subject to VAT.
SUGGESTED ANSWER: The following transactions are subject to VAT
because they take out the goods and services from the coverage of VAT. This is
so because the goods and services were formerly subject to VAT but because of
the transaction resulting to the change they are not anymore VAT-able. Thus,
there is consumption taxable under the VAT system.
(1) Change of business activity from VAT taxable status to VAT-
exempt status.
(2) Approval of request for cancellation of a registration due to
reversion to exempt status
(3) Approval of request for cancellation of registration due to desire
to revert to exempt status after lapse of 3 consecutive years
*** c. What transactions are not subject to VAT ? Why ?
SUGGESTED ANSWER: The following transactions are not subject to VAT
because they do not take out of coverage of VAT the goods and services they sell.
(1) Change of control of a corporation
(2) Change in the trade or corporate name
(3) Merger or consolidation of corporations
*** d. Karlito, a Filipino businessman, is engaged in the business
of metal fabrication and repair of LPG cylinder tanks. He conducts business
under the name and style of "Karlito's Enterprises," a single proprietorship.
Started only five (5) years ago, the business has grown so enormously that
Karlito decided to incorporate it by transferring all the assets of the
business, particularly the inventory of goods on hand, machineries and
equipment, supplies, parts, raw materials, office furniture and furnishings,
delivery trucks and other vehicles, buildings, and tools to the new
corporation, Karlito's Enterprises, Inc., in exchange for 100% of the capital
stock of the new corporation, the stock subscription to which shall be
deemed fully paid in the form of the assets transferred to the corporation by
Karlito.
As a result, Karlito's Enterprises, the sole proprietorship, ceased to do
business and applied for cancellation of its BIR Certificate of Registration.
The BIR, however, assessed Karlito VAT on account of the cessation of
business based on the current market price of the assets transferred to
Karlito's Enterprises, Inc.
Is the transfer subject to VAT ? (2018)
SUGGESTED ANSWER: No. The transfer of all the assets of the
business, particularly the inventory of goods on hand, machineries and equipment,
supplies, parts, raw materials, office furniture and furnishings, delivery trucks and
other vehicles, buildings, and tools to the new corporation, Karlito's Enterprises,
Inc., in exchange for 100% of the capital stock of the new corporation, following
transactions is not subject to VAT because the exchange does not take out the
goods and services from the coverage of VAT.
There is no taxable consumption when the goods are exchanged for the
shares of stock. This is so because the goods transferred would still be subject to
VAT when Karlito's Enterprises, Inc., disposes of them.
6. Zero-rated and effectively zero-rated sales of goods or properties
a. What is known as the concept of VAT zero-rating ?
SUGGESTED ANSWER: Under a zero-rating scheme, the sale or exchange
of a particular service is completely freed from the VAT, because the seller is
entitled to recover, by way of a refund or as an input tax credit, the tax that is
included in the cost of purchases attributable to the sale or exchange. The tax paid
or withheld is not deducted from the tax base. [Commissioner, of Internal Revenue v.
American Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29, 2005
citing various cases]
1) The tax rate is set at zero. When applied to the tax base, such
rate obviously results in no tax chargeable against the purchaser. The seller
of such transactions charges no output tax, but can claim a refund or a tax
credit certificate for the VAT previously charged by suppliers. [Commissioner
of Internal Revenue v. Seagate Technology (Philippines), 451 SCRA 132 (2005)]
2. Export sales, or sales outside the Philippines, are subject to VAT
at 0% rate if made by a VAT-registered person – the seller of such
transactions charges no output tax, but can claim a refund or tax credit
certificate for the VAT previously charged by suppliers. (Atlas Consolidated
Mining and Development Corporation v. Commissioner of Internal Revenue, 524
SCRA 73)
b. How is a zero-rated sale distinguished from exempt transactions ?
SUGGESTED ANSWER: The following are the distinctions:
1) A zero-rated sale is a taxable transaction but does not result in
an output tax WHILE an exempt transaction is not subject to the output tax.
2) The input tax on the purchases of a VAT registered person who
has zero-rated sales may be allowed as tax credits or refunded WHILE the
seller in an exempt transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or receipt.
3) Persons engaged in transactions which are zero rated being
subject to VAT are required to register WHILE registration is optional for
VAT-exempt persons.
 Warning !!! For purposes of answering Bar examination questions do not capitalize
WHILE.
c. What is the rationale or purpose for zero-rating of exports ?
SUGGESTED ANSWER: The zero-rated seller becomes internationally
competitive by allowing the refund or credit of input taxes that are attributable to
export sales. [Commissioner of Internal Revenue v. Seagate Technology (Philippines),
451 SCRA 132, 143-144 (2005)]
7.
b. Zero percent (0%) rated services performed in the
Philippines
subject of BEQs in 1992, 1998, and 2010.
Historical antecedent. Zero-rated and effectively zero-rated sales of goods or
properties was the subject of a BEQ in 1998.
** What transactions performed in the Philippines are subject to zero
percent (0%) rate ?
SUGGESTED ANSWER: “The following services perfomed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
“1. “Processing, manufacturing or repacking goods for other persons
doing business outside the Philippines which goods are subsequently
exported, where the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).
2. Services other than those mentioned in the preceding paragraph
rendered to a person engaged in business conducted outside the Philippines
or to a non-resident person not engaged in business who is outside of the
Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
3. Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero percent
(0%) rate.
4. Services rendered to vessels engaged exclusively in international
shipping.
5. Services performed by subcontractors and/or contractors in
processing, converting, of manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of total annual production.”
[NIRC of 1997, Sec. 108 (B)]
6. “Transport of passengers and cargo by air or sea vessles from
the Philippines to a foreign country.” (Ibid., added by Rep. Act No. 9337)
7. “Sale of power of fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels .” (Ibid., as added by Rep.
Act No. 9337)
VAT-exempt transactions
Historical antecedents. VAT exemption on agricultural food items was the
a. VAT exempt transactions, in general
**1) What are VAT-Exempt transactions ?
SUGGESTED ANSWER: VAT-Exempt transactions refer to
a) the sale of goods or properties and/or services and the use or
lease of properties that is specifically listed in and expressly exempted from
the VATunder the Tax Code,
(1) without regard to the tax status of the party in the
transaction hence
b) not subject to VAT (output tax) and
c) the seller is not allowed any tax credit on VAT (input tax)
purchases.
The person making the exempt sale of goods, properties or services
shall not bill any output tax to his customers because the said transaction is
not subject to VAT. [Rev. Regs. No. 16-2005, Sec. 4.109-1 (A), arrangement and
numbering supplied; Commissioner of Internal Revenue v. Toshiba Information
Equipment (Phils.), Inc. 466 SCRA 211 (2005)]
An example is the sale of agricultural products in their original state,
including those which underwent simple processes of preparation or
preservation for the market, such as raw cane sugar. [Tax Code, Sec. 109 (2)
as amended by Rep. Act No. 8424; Commissioner of Internal Revenue v. Negros
Consolidated Framers Multipurpose Cooperative, G.R. No. 212735, December 05,
2018]
**2) Is there any tax imposed on persons exempt from VAT ?
SUGGESTED ANSWER: Yes.
a) Any person,
 b) whose sales or receipts are exempt from the payment of value-
added tax
(1) and who is not a VAT-registered person
c) shall pay a tax equivalent to three percent (3%) of his gross
quarterly sales or receipt:
d) Provided, that cooperatives, and beginning January 1, 2019,
self-employed and professionals
(1) with total annual gross sales and/or gross receipts not
exceeding Five hundred thousand pesos (P500,000)
(2) shall be exempt from the three percent (3%) gross receipts
tax herein imposed. (NIRC of 1997, Sec. 116, as amended by the TRAIN,
paraphrasing supplied]
Sale or lease of goods or properties or the performance of services
other than from exempt transactions, the gross annual sales and/or receipts
do not exceed the amount of Three million pesos (P3,000,000) are exempt
from VAT. [NIRC of 1997, Sec. 109 (BB), as amended by the TRAIN]
3) Distinguish VAT-exempt transactions from VAT-exempt entities.
SUGGESTED ANSWER: The distinctions are:
a) An exempt transaction, on the one hand, involves goods or
services which, by their nature, are specifically listed in and expressly
exempted from the VAT under the Tax Code, without regard to the tax status
– VAT-exempt or not – of the party to the transaction WHILE an exempt
party, on the other hand, is a person or entity granted VAT exemption under
the Tax Code, a special law or an international agreement to which the
Philippines is a signatory, and by virtue of which its taxable transactions
become exempt from VAT. [Commissioner of Internal Revenue v. Toshiba
Information Equipment (Phils.), Inc., G. R. No. 150154, August 9, 2005]
b) An exempt transaction shall not be the subject of any billing for
output VAT but it shall not also be allowed any input tax credits WHILE an
exempt party being zero-rated is allowed to claim input tax credits.
WARNING !!! For Bar purposes do not capitalize WHILE.
4) What is the concept of optional registration ?
SUGGESTED ANSWER: A VAT-registered person may elect that the VAT-
exempt transactions not apply to its sale of goods or properties or services;
Provided, That an election made under this Subsection shall be irrevocable for a
period of three (3) years from the quarter the election was made. [NIRC of 1997,
Sec. 109 (2), as amended by Rep. Act No. 9337]
**5) What transactions are exempt from the value-added tax (VAT) ?
SUGGESTED ANSWER: Subject to the provisions on optional VAT
registration, the following transactions shall be exempt from VAT:
“(A) Sale or importation of agricultural and marine food products in their
original state, livestock, poultry of a kind generally used as, or yielding, or
producing foods for human consujmotion; and breeding stock and genetic
materials therefor;
Products classified under this paragraph shall beconsidered in their original
state even if they have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting,, broiling, roasting ,
smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt and copra shall be considered in their original state.
(B) Sale or importation of fertilizers, seeds, seedlings and fingerlings; fish,
prawn, livestock and poultry feeds, including ingredients, whether locally produced
or imported, used in the manufacture of the finished feeds (except specialty feeds
for race horses, fighting cocks, acquarium fish, zoo animals and other animals
generally considered as pets);
(C) Importation of personal and household effects belonging to the
residents of the Philippines returning from abroad and non-resident citizens coming
to resettle in the Phiippines: Provided, That such goods are exempt from customs
duties under the Tariff and Customs Code of the Phiiippines [now the Customs
Modernization and Tariff Act (CMTA)].” [NIRC of 1997, Sec. 109 (A) up to (C), words in
brackets and parenthesis supplied]
“(D) Importation of professional instruments and implements, tools of trade,
occupation or employment, wearing apparel, domestic animals, and personal and
household effects belonging to persons coming to settle in the Philippines or
Filipinos or their families and descendants who are now residents or citizens of
other countries, such parties hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the profession, rank or position of the
persons importing said items, for their own use and not for barter or sale,
accompanying such persons, or arriving within a reasonable time: Provided, That
the Bureau of Customs may, upon the production of satisfactory evidence that such
persons are actually coming to settle in the Philippines and that the goods are
brought from their former place of abode, exempt such goods from payment of
duties and taxes: Provided, further, That vehicles, vessels, aircrafts, machineries
and other similar goods for use in manufacture, shall not fall within this
classification and shall therefore be subject to duties, taxes and other charges;”
[Ibid., Sec. 109 (D) as amended by the TRAIN]
“(E) Services subject to percentage tax under Title V;” [Ibid., Sec. 109 (E) as
reiterated by the TRAIN]
 “(F) Services by agricultural contract growers and milling for others of palay
into rice, corn into grits and sugar cane into raw sugar;” [Ibid., Sec. 109 (F) as
reiterated by the TRAIN]
“(G) Medical, dental, hospital and veterinary services except those rendered
by professionals;” [Ibid., Sec. 109 (G) as reiterated by the TRAIN]
“(H) Educational services rendered by private educational institutions, duly
accredited by the Department of Education (DepEd), the Commission on Higher
Education (CHED), the Technical Education and Skills Development Authority
(TESDA) and those rendered by government educational institutions;” [Ibid., Sec.
109 (H) as reiterated by the TRAIN]
“(I) Services rendered by individuals pursuant to an employer-employee
relationship;” [Ibid.,Sec. 109 (I) as reiterated by the TRAIN]
“(J) Services rendered by regional or area headquarters established in the
Philippines by multinational corporations which act as supervisory, communications
and coordinating centers for their affiliates, subsidiaries or branches in the Asia-
Pacific Region and do not earn or derive income from the Philippines;” [Ibid., Sec.
109 (J) as reiterated by the TRAIN]
“(K) Transactions which are exempt under international agreements to
which the Philippines is a signatory or under special laws, except those under
Presidential Decree No. 529;” [Ibid., Sec. 109 (K) as reiterated by the TRAIN]
“(L) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce, whether
in its original state or processed form, to non-members; their importation of direct
farm inputs, machineries and equipment, including spare parts thereof, to be used
directly and exclusively in the production and/or processing of their produce;” [Ibid.,
Sec. 109 (L) as reiterated by the TRAIN]
“(M) Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered with the Cooperative Development Authority;” [Ibid.,
Sec. 109 (M) as reiterated by the TRAIN]
“(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with the Cooperative Development Authority: Provided, That the share
capital contribution of each member does not exceed Fifteen thousand pesos
(P15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members;” [Ibid., Sec. 109 (N) as reiterated by the TRAIN]
“(O) Export sales by persons who are not VAT-registered;” [Ibid., Sec. 109
(O) as reiterated by the TRAIN]
“(P) 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 utilized for low-
cost and socialized housing as defined by Republic Act No. 7279, otherwise known
as the Urban Development and Housing Act of 1992, and other related laws,
residential lot valued at One million five hundred thousand pesos (P1,500,000) and
below, house and lot, and other residential dwellings valued at Two million five
hundred thousand pesos (P2,500,000) and below: Provided, That beginnning
January 1, 2021, the VAT exemption shall only apply to sale of real properties not
primarily held for sale to customers or held for lease in the ordinary course of trade
or business, sale of real property utilized for socialized housing as defined by
Republic Act No. 7279, sale of house and lot, and other residential dwellings with
selling price of not more than Two million pesos (P2,000,000): Provided, further,
That every three (3) years thereafter, the amount herein stated shall be adjusted to
its present value using the Consumer Price Index, as published by the Philippine
Statistics Authority (PSA);” [Ibid., Sec. 109 (P) as amended by the TRAIN]
“(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen
thousand pesos (P15,000);” [Ibid., Sec. 109 (Q) as amended by the TRAIN]
“(R) Sale, importation, printing or publication of books and any newspaper,
magazine, review or bulletin which appears at regular intervals with fixed prices or
subscription and sale and which is not devoted principally to the publication of paid
advertisements;” [Ibid., Sec. 109 (R) as reiterated by the TRAIN]
“(S) Transport of passengers by international carriers;” [Ibid., Sec. 109 (S) as
reiterated by the TRAIN]
“(T) Sale, importation or lease of passenger or cargo vessels and aircraft,
including engine, equipment and spare parts thereof for domestic or international
transport operations;” [Ibid., Sec. 109 (T) as reiterated by the TRAIN]
“(U) Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations: Provided, That the fuel, goods,
and supplies shall be used for international shipping or air transport operations;”
[Ibid., Sec. 109 (U) as amended by the TRAIN]
“(V) Services of bank, non-bank financial intermediaries performing quasi-
banking functions, and other non-bank financial intermediaries;” [Ibid., Sec. 109 (V)
as reiterated by the TRAIN]
“(W) Sale or lease of goods and services to senior citizens and persons with
disability, as provided under Republic Act Nos. 9994 (Expanded Senior Citizens
Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of Persons
With Disability), respectively;” [Ibid., Sec. 109 (W) as amended by the TRAIN]
“(X) Transfer of property pursuant to Section 40 (C)(2) of the NIRC, as
amended;” [Ibid., Sec. 109 (X) as added by the TRAIN]
“(Y) Association dues, membership fees, and other assessments and
charges collected by homeowners associations and condominium corporations;”
[Ibid., Sec. 109 (Y) as added by the TRAIN]
“(Z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);” [Ibid., Sec. 109
(Z) as added by the TRAIN]
“(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol,
and hypertension beginning January 1, 2019; and” [Ibid., Sec. 109 (AA) as added by
the TRAIN]
 “(BB) Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the amount of Three million pesos
(P3,000,000).” [Ibid., Sec. 109 (BB) as added by the TRAIN]
b. VAT-exempt sales of real property
Historical antecedents. VAT exempt sale of real property was the subject of BEQs
in 1996, 2009, 2012, and 2017.
*** Give at least three (3) real estate transactions which are not
subject to the Value-Added Tax. (1996)
SUGGESTED ANSWER: The following sales of real properties are exempt
from VAT, namely:
1. Sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business,
2. real property utilized for low-cost and socialized housing as
defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws,
3. residential lot valued at One million five hundred thousand pesos
(P 1,500,000) and below,
4. house and lot, and other residential dwellings valued at Two
million five hundred thousand pesos (P2,500,000) and below:
Provided, That beginnning January 1, 2021, the VAT exemption shall
only apply to sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business, sale of real
property utilized for socialized housing as defined by Republic Act No. 7279,
sale of house and lot, and other residential dwellings with selling price of not
more than Two million pesos (P2,000,000): Provided, further, That every
three (3) years thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index, as published by the
Philippine Statistics Authority (PSA);” [NIRC of 1997, Sec. 109 (P) as amended
by the TRAIN, paraphrasing ]
c. VAT-exempt lease of residential units
Historical antecedents. VAT exempt lease of residential units was the subject of
BEQs in 1998, 2008, 2009, and 2012.
*** What lease of residential unit is exempt from VAT ?
SUGGESTED ANSWER: “Lease of a residential unit with a monthly rental
not exceeding Fifteen thousand pesos (P15,000);” [NIRC of 1997, Sec. 109 (Q) as
amended by the TRAIN]
Residential units shall refer to apartments and houses & lots used for
residential purposes, and buildings or parts or units thereof used solely as dwelling
places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms,
hotels and hotel rooms. [Rev. Regs. No. 16-2005, Sec. 4.109-1 (q), 4th par.]
Unit shall mean an apartment unit in the case of apartments, house in the
case of residential houses; per person in the case of dormitories, boarding houses
and bed spaces; and per room in case of rooms for rent . [Rev. Regs. No. 16-2005,
Sec. 4.109-1 (q), 5th par.]
d. VAT exempt services of banks, non-bank financial
intermediaries
Historical antecedent. VAT exemption of services of non-bank financial
intermediaries was the subject of a BEQ in 2012.
**a. What banking and services of non-bank financial intermediaries
are exempt from the Value-Added Tax (VAT) ?
SUGGESTED ANSWER: Services of
1. banks,
2. non-bank financial intermediaries performing quasi-banking
functions, and
3. other non-bank financial intermediaries. [NIRC of 1997, Sec. 109
(U), as amended by Rep. Act No. 9337, and renumbered by the TRAIN as Sec. 109
(V), arrangement and numbering supplied]
**b. What is the tax treatment of services rendered by pawnshops ?
SUGGESTED ANSWER: It appears from the amendatory provisions of Rep.
Act No. 9337, that services rendered by non-bank financial intermediaries, such as
pawnshops, are now expressly exempt from the imposition of the value-added tax
(VAT).
This is so because Rep. Act No. 9238 (passed in 2004) finally classified
pawnshops as “Other Non-Bank Financial Intermediaries” [Tambunting Pawnshop,
Inc. v. Commissioner of Internal Revenue, 610 SCRA 514 (2010)] hence exempt from
VAT. However, they shall be liable to the 5% gross receipts tax imposed on a non-
bank financial intermediary under Title VI (Other Percentage Taxes).
 y. VAT exempt association dues, membership dues, and other
assessments
*** Are membership fees, assessment dues, and the like considered
as part of the “gross receipts of recreational clubs” subject to VAT in
accordance with the BIR's interpretation in RMC No. 35-2012 ?
SUGGESTED ANSWER: No. The Supreme Court has declared as invalid
“the BIR's interpretation in RMC No. 35-2012 that membership fees, assessment
dues, and the like are part of ‘the gross receipts of recreational clubs’ that are
‘subject to VAT.” [Association of NonProfit Clubs, Inc. (ANPC), etc., v. Bureau of Internal
Revenue (BIR), etc., G.R. No. 228539, 26 June 2019]
“It is a basic principle that before a transaction is imposed VAT, a sale, barter
or exchange of goods or properties, or sale of a service is required.” (Ibid.) “This is
true even if such sale is on a cost-reimbursement basis.” (Ibid.)
“As ANPC aptly pointed out, membership fees, assessment dues, and the
like are not subject to VAT because in collecting such fees, the club is not selling
its service to the members. Conversely, the members are not buying services from
the club when dues are paid; hence, there is no economic or commercial activity to
speak of as these dues are devoted for the operations/maintenance of the facilities
of the organization. As such, there could be no ‘sale, barter or exchange of goods
or properties, or sale of a service" to speak of, which would then be subject to VAT
under the 1997 NIRC.’ ” (Ibid.)
z. VAT exempt sales below the threshold amount
Historical antecedents. The threshold amount was the subject of BEQs in 1998,
and 2008.
**What is the tax treatment of sales or receipts other from those
exempt but nevertheless do not exceed P3 million ?
SUGGESTED ANSWER: Sale or lease of goods or properties or the
performance of services other than the exempt transactions, the gross annual
sales and/or receipts do not exceed the amount of Three million pesos
(P3,000,000). [NIRC of 1997, Sec. 109 (BB) as added by the TRAIN]
8. Input and output tax
a. Definitions
1) What is an output tax ?
SUGGESTED ANSWER: The value-added tax due on the sale or lease or
taxable goods, properties or services by any VAT-registered person. [NIRC of 1997,
Sec. 110 (A) (3) (b), 2nd par.]
2) What is an input tax ?
SUGGESTED ANSWER: The value-added tax due from or paid by a VAT-
registered person in the course of his trade or business on importation of goods or
local purchase of goods or services, including lease or use of property, from a
VAT-registered person. It shall include the transitional input VAT . [NIRC of 1997,
Sec. 110 (A) (3) (b), 2nd par.] as well as the presumptive input VAT.
It also includes input taxes which can be directly attributed to transactions
subject to the VAT plus a ratable portion of any input tax which cannot be directly
attributed to either taxable or exempt entity. [Rev. Regs. No. 16-2005, Sec. 4.110-1,
1st and 2nd pars.]
3) What are the two types of input VAT credits ?
SUGGESTED ANSWER:
a) Credit/refund of input VAT attributable to zero-rated sales. The
different kinds of creditable input tax are:
(1) The input tax evidenced by a VAT invoice or official receipt.
(2) Input tax on domestic purchase or importation of goods or
properties.
(3) Input tax of a VAT-registered person who is also engaged
in non-VAT transactions.
b) credit/refund of input VAT on capital goods . (Silicon Philippines Inc.
v. Commissioner of Internal Revenue, 639 SCRA 521) A VAT-registered person
may apply for the issuance of a tax credit certificate or refund of input taxes
paid on capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes. [NIRC of 1997, Sec. 112
(B), 1st sentence]
The application may be made only within two (2) years after the close
of the taxable quarter when the importation or purchase was made. (Ibid., 2nd
sentence)
4) May an invoice or receipt issued by non-VAT registered taxpayer
be utilized for input credit ?
SUGGESTED ANSWER: Yes. The VAT shall be recognized as an input tax
credit to the purchaser where the receipt or invoice issued by the non-VAT
registered taxpayer shows the information required to be contained in the VAT
invoice or VAT Official Receipt. [NIRC of 1997, Sec. 113 (D) (1) (b), in relation to Sec.
113 (B)]
b. Sources of input tax
1) What are the sources of input VAT ?
SUGGESTED ANSWER: The sources are:
a) Purchase or importation of goods Any input tax evidenced by a
VAT invoice or official receipt on the following transactions shall be creditable
against the output tax:
(1) Purchase or importation of goods:
(a) For sale; or
(b) For conversion into or intended to form part of a
finished product for sale including packaging materials; or
(c) For use as supplies in the course of business; or
(d) For use as materials supplied in the sale of service;
or
(e) For use in trade or business for which deduction for
depreciation or amortization is allowed under this Code . [NIRC of
1997, Sec. 110 (A) (1) (a), arrangement and numbering supplied]
b. Purchase of real properties for which VAT has actually been
paid [Rev. Regs. No. 16-2005, Sec. 4.110-1 (b), paraphrasing supplied
c. Purchase of services for which VAT has been actually paid.
[NIRC of 1997, Sec. 110 (A) (1) (b); Rev. Regs. No. 16-2005, Sec. 4.110-1 (c),
paraphrasing supplied]
d. VAT from transactions deemed sale
e. Presumptive input from use of VAT exempt goods
f. Transitional VAT from inventory prior to VAT registration
2) Presumptive input tax
Who could avail of presumptive input tax credits ? In the alternative
what is the concept of preseumptive input tax credits?
SUGGESTED ANSWER: Persons or firms engaged in the processing of
sardines, mackerel, and milk, and in manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, shall be allowed a presumptive input tax,
creditable against the output tax, equivalent to four percent (4%) of the gross value
in money of their purchases of primary agricultural products which are used as
inputs to their production. [Rev. Regs. No. 16-2005, Sec.4.111-1, (b), 1st par.]
The term processing shall mean pasteurization, canning and activities which
through physical or chemical process alter the exterior texture or form or inner
substance of a product in such a manner as to prepare it for special use to which it
could not have been put in its original form or condition. [NIRC of 1997, as amended
by Rep. Act No. 9337,Sec. 111 (B); Rev. Regs. No. 16-2005, Sec.4.111-1, (b), 2 nd par.]
3) Transitional input tax
a. What is the transitional input tax ?
SUGGESTED ANSWER: Any input tax on transactions of a newly VAT-
registered VAT person evidenced by a VAT invoice or official receipt issued by a
VAT-registered person in accordance with invoicing and accounting requirements
for VAT registered persons and the requirement for issuance of receipts or sales or
commercial invoices shall be creditable against the output tax . [Rev. Regs. No. 16-
2005, Sec. 4.110-1 (e), paraphrasing supplied]
The transitional input tax shall be two percent (2%) of the value of the
beginning inventory on hand or actual VAT paid on such goods, materials and
supplies, whichever is higher, which amount shall be creditable against the output
tax of VAT-registered person. The value allowed for income tax purposes on
inventories shall be the basis for the computation of the 2% transitional input tax,
excluding goods that are exempt from VAT under the Tax Code . [Rev. Regs. No.
16-2005, Sec.4.111-1, (a), 2nd par.]
b. What is the purpose of the transitional input tax ?
SUGGESTED ANSWER: It is apparent that the transitional input tax credit
operates to benefit newly VAT-registered persons, whether or not they previously
paid taxes in the acquisition of their beginning inventory of goods, materials and
supplies. During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on the
taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a
significant portion of the income it derived from its sales as output VAT. The
transitional input tax credit mitigates this initial diminution of the taxpayer’s income
by affording the opportunity to offset the losses incurred through the remittance of
the output VAT at a stage when the person is yet unable to credit input VAT
payments. (Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue, et al., G. R. No. 170680, October 2, 2009)
Prior payment of taxes is not necessary before a taxpayer could avail of the
transitional input tax credit. All that is required from the taxpayer is to file a
beginning inventory with the Bureau of Internal Revenue.
A transitional input tax credit is not a tax refund per se. Section 112 of the
Tax Code does not prohibit cash refund or tax credit of transitional input tax. The
grant of a refund or issuance of a tax credit in this case would not contravene the
above provision. The refund or tax credit would not be unconstitutional because it
is precisely pursuant to Section 105 of the old NIRC which allows refund/tax credit .
(Fort Bonifacio Development Corporation v Commissioner of Internal Revenue, et al., G. R.
No. 17425, September 4, 2012, 679 SCRA 566; January 22, 2013)
c. How are transitional input tax credits earned ?
SUGGESTED ANSWER: A person who becomes liable to value-added tax
or any person who elects to be a VAT-registered person shall, subject to the filing
of an inventory according to rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to two percent
(2%) of the value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be creditable
against the output tax. [NIRC of 1997, Sec. 111 (A)]
1. Transitional input tax credits earned on beginning inventories.
Taxpayers who become VAT-registered persons upon exceeding the
minimum turnover of P3 million in any 12-month period, or who voluntarily
register even if their turnover does not exceed P3 million (except franchise
grantees of radio and television broadcasting whose threshold is
P10,000,000.00) shall be entitled to a transitional input tax on the inventory
on hand as of the effectivity of their VAT registration, on the following:
a) goods purchased for resale in their present condition;
b) materials purchased for further processing, but which have
not yet undergone processing;
c) goods which have been manufactured by the taxpayer;
d) goods in process for sale; or
e) goods and supplies for use in the course of the taxpayer’s
trade or business as a VAT-registered person. [Rev. Regs. No. 16-2005,
Sec.4.111-1, (a), 1st par., amounts according to the TRAIN,arrangement and
numbering supplied]
2. Amount of transitional input tax. The transitional input tax shall
be two percent (2%) of the value of the beginning inventory on hand or actual
VAT paid on such goods, materials and supplies, whichever is higher, which
amount shall be creditable against the output tax of VAT-registered person.
The value allowed for income tax purposes on inventories shall be the basis
for the computation of the 2% transitional input tax, excluding goods that are
exempt from VAT under Sec. 109 of the Tax Code . [Rev. Regs. No. 16-2005,
Sec.4.111-1, (a), 2nd par.]
d. Who are the tollway operators who could claim the 2% trsnsitional
input value added tax (VAT) ?
SUGGESTED ANSWER: The right to claim the 2% transitional input value
added tax (VAT) belongs to the tollway operators who have not questioned the
Bureau of Internal Revenue Memorandum Circular (BIR RMC) 63-2010’s validity.
(Diaz v. The Secretary of Finance, 654 SCRA 96)
9. Tax refund or tax credit
a. What are the two kinds of refundable VAT ?
SUGGESTED ANSWER: “The law contemplates two kinds of refundable
amounts:
(1) unutilized input tax paid on capital goods purchased, and
(2) unutilized input tax attributable to zero-rated sales.” (Aichi
Forging Company of Asia, Inc., v. Court of Tax Appeals - En Banc, et al., v.
Commissioner of Internal Revenue, G.R. No. 193625, August 30, 2017, arrangement
supplied)
b. What is the distinction between "excess input tax" and
"excessively collected taxes" ?
SUGGESTED ANSWER: “The input VAT is not "excessively" collected as
understood under Section 229 because at the time the input VAT is collected the
amount paid is correct and proper. The input VAT is a tax liability of, and legally
paid by, a VAT-registered seller of goods, properties or services used as input by
another VAT-registered person in the sale of his own goods, properties, or
services. This tax liability is true even if the seller passes on the input VAT to the
buyer as part of the purchase price. The second VAT-registered person, who is not
legally liable for the input VAT, is the one who applies the input VAT as credit for
his own output VAT. If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person - the
taxpayer who is legally liable and who is deemed to have legally paid for the input
VAT - who can ask for a tax refund or credit under Section 229 as an ordinary
refund or credit outside of the VAT System. In such event, the second VAT-
registered taxpayer will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110 (B)
and Section 112 (A), the input VAT is not "excessively" collected as understood
under Section 229. At the time of payment of the input VAT the amount paid is the
correct and proper amount. Under the VAT System, there is no claim or issue that
the input VAT is "excessively" collected, that is, that the input VAT paid is more
than what is legally due. The person legally liable for the input VAT cannot claim
that he overpaid the input VAT by the mere existence of an "excess" input
VAT. The term "excess" input VAT simply means that the input VAT available as
credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due. Thus, the taxpayer who legally paid the
input VAT cannot claim for refund or credit of the input VAT as "excessively"
collected under Section 229.” (CE Luzon Geothermal Power Company, Inc. v.
Commissioner of Internal Revenue, G.R. No. 197256, and companion cases, July 26, 2017)
Considering that creditable input tax is not an excessively, erroneously, or
illegally collected tax, Section 112(A) and (C) of the National Internal Revenue
Code govern.
“In proper cases, the Commissioner shall grant a refund for creditable input
taxes within ninety (90) days from the date of submission of the official receipts or
invoices and other documents in support of the application filed in accordance with
Subsections (A) and (B) hereof: Provided, That should the Commissioner find that
the grant of refund is not proper, the Commissioner must state in writing the legal
and factual basis for the denial.
In case of full or partial denial of the claim for tax refund, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the
claim, appeal the decision with the Court of Tax Appeals: Provided, however, That
failure on the part of any official, agent, or employee of the BIR to act on the
application within the ninety (90)-day period shall be punishable under Section 269
of this Code.” [NIRC of 1997, Sec. 112 (C), as amended by the TRAIN, bold facing
supplied]
The two possible scenarios under the former Section 112 (C) as interpreted
by the Supreme Court (CE Luzon Geothermal Power Company, Inc., supra) cease to
exist because the TRAIN has removed from Section 112 (C) the phrase, “or tax
credit, or failure on the part of the Commissioner to act on the application within
the period prescribed above.”
ALTERNATIVE ANSWER: The input VAT is not "excessively" collected as
understood under Section 229 because at the time the input VAT is collected
the amount paid is correct and proper. The input VAT is a tax liability of, and
legally paid by, a VAT-registered seller (Commissioner of Internal Revenue v. San
Roque Power Corporation G.R. No. 187485, February 12, 2013 and companion cases
citing Section 105, 1997 Tax Code, bold facing supplied) of goods, properties or
services used as input by another VAT-registered person in the sale of his own
goods, properties, or services. This tax liability is true even if the seller passes on
the input VAT to the buyer as part of the purchase price. The second VAT-
registered person, who is not legally liable for the input VAT, is the one who applies
the input VAT as credit for his own output VAT. (Ibid.) If the input VAT is in fact
"excessively" collected as understood under Section 229, then it is the first VAT-
registered person - the taxpayer who is legally liable and who is deemed to have
legally paid for the input VAT - who can ask for a tax refund or credit under Section
229 as an ordinary refund or credit outside of the VAT System. In such event, the
second VAT-registered taxpayer will have no input VAT to offset against his own
output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B)
and Section 112(A), the input VAT is not "excessively" collected as understood
under Section 229. At the time of payment of the input VAT the amount paid is the
correct and proper amount. Under the VAT System, there is no claim or issue that
the input VAT is "excessively" collected, that is, that the input VAT paid is more
than what is legally due. The person legally liable for the input VAT cannot claim
that he overpaid the input VAT by the mere existence of an "excess" input VAT.
The term "excess" input VAT simply means that the input VAT available as credit
exceeds the output VAT, not that the input VAT is excessively collected because it
is more than what is legally due. Thus, the taxpayer who legally paid the input VAT
cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund
is two years from the date of payment of the tax "erroneously, x x x illegally, x x x
excessively or in any manner wrongfully collected." The prescriptive period is
reckoned from the date the person liable for the tax pays the tax. Thus, if the input
VAT is in fact "excessively" collected, that is, the person liable for the tax actually
pays more than what is legally due, the taxpayer must file a judicial claim for refund
within two years from his date of payment. Only the person legally liable to pay
the tax can file the judicial claim for refund. The person to whom the tax is
passed on as part of the purchase price has no personality to file the judicial
claim under Section 229 (Ibid., bold facing in the original citing Commissioner of
Internal Revenue v. Smart Communications, Inc., G.R. Nos. 179045-06, 25 August 2010,
629 SCRA 342, 353, where the Court held that "the person entitled to claim tax refund is
the taxpayer. However, in case the taxpayer does not file a claim for refund, the withholding
agent may file the claim.")
Under Section 110(B) and Section 112(A), the prescriptive period for filing a
judicial claim for "excess" input VAT is two years from the close of the taxable
quarter when the sale was made by the person legally liable to pay the output
VAT. This prescriptive period has no relation to the date of payment of the
"excess" input VAT. The "excess" input VAT may have been paid for more than
two years but this does not bar the filing of a judicial claim for "excess" VAT under
Section 112(A), which has a different reckoning period from Section 229.
Moreover, the person claiming the refund or credit of the input VAT is not the
person who legally paid the input VAT. Such person seeking the VAT refund or
credit does not claim that the input VAT was "excessively" collected from him, or
that he paid an input VAT that is more than what is legally due. He is not the
taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added
by the taxpayer in the chain of transactions. For simplicity and efficiency in tax
collection, the VAT is imposed not just on the value added by the taxpayer, but on
the entire selling price of his goods, properties or services. However, the taxpayer
is allowed a refund or credit on the VAT previously paid by those who sold him the
inputs for his goods, properties, or services. The net effect is that the taxpayer pays
the VAT only on the value that he adds to the goods, properties, or services that he
actually sells.
Under Section 110 (B), a taxpayer can apply his input VAT only against his
output VAT. The only exception is when the taxpayer is expressly "zero-rated or
effectively zero-rated" under the law, like companies generating power through
renewable sources of energy. Thus, a non zero-rated VAT-registered taxpayer
who has no output VAT because he has no sales cannot claim a tax refund or
credit of his unused input VAT under the VAT System. Even if the taxpayer has
sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or
credit of his "excess" input VAT under the VAT System. He can only carry-over
and apply his "excess" input VAT against his future output VAT. If such
"excess" input VAT is an "excessively" collected tax, the taxpayer should be able to
seek a refund or credit for such "excess" input VAT whether or not he has output
VAT. The VAT System does not allow such refund or credit. Such "excess" input
VAT is not an "excessively" collected tax under Section 229. The "excess" input
VAT is a correctly and properly collected tax. However, such "excess" input VAT
can be applied against the output VAT because the VAT is a tax imposed only on
the value added by the taxpayer. If the input VAT is in fact "excessively" collected
under Section 229, then it is the person legally liable to pay the input VAT, not the
person to whom the tax was passed on as part of the purchase price and claiming
credit for the input VAT under the VAT System, who can file the judicial claim under
Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an
"excessively" collected tax under Section 229 may lead taxpayers to file a claim for
refund or credit for such "excess" input VAT under Section 229 as an ordinary tax
refund or credit outside of the VAT System. Under Section 229, mere payment of a
tax beyond what is legally due can be claimed as a refund or credit. There is no
requirement under Section 229 for an output VAT or subsequent sale of goods,
properties, or services using material0s subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or
credited is a tax that is "erroneously, x x x illegally, x x x excessively or in any
manner wrongfully collected." In short, there must be a wrongful payment
because what is paid, or part of it, is not legally due. As the Court held in Mirant,
Section 229 should "apply only to instances of erroneous payment or illegal
collection of internal revenue taxes." Erroneous or wrongful payment includes
excessive payment because they all refer to payment of taxes not legally due.
Under the VAT System, there is no claim or issue that the "excess" input VAT is
"excessively or in any manner wrongfully collected." In fact, if the "excess" input
VAT is an "excessively" collected tax under Section 229, then the taxpayer
claiming to apply such "excessively" collected input VAT to offset his output VAT
may have no legal basis to make such offsetting. The person legally liable to pay
the input VAT can claim a refund or credit for such "excessively" collected tax, and
thus there will no longer be any "excess" input VAT. This will upend the present
VAT System as we know it. (Ibid.)
“It is unnecessary to construe and harmonize Sections 112(C) and 229 of the
National Internal Revenue Code. Excess input tax or creditable input tax is not an
excessively, erroneously, or illegally collected tax because the taxpayer pays the
proper amount of input tax at the time it is collected.” (CE Luzon Geothermal Power
Company, Inc. v. Commissioner of Internal Revenue, G.R. No. 197256, and companion
cases, July 26, 2017, bold facing in the original) “That a VAT-registered taxpayer incurs
excess input tax does not mean that it was wrongfully or erroneously paid. It simply
means that the input tax is greater than the output tax, entitling the taxpayer to
carry over the excess input tax to the succeeding taxable quarters.” (Ibid.) “If the
excess input tax is derived from zero-rated or effectively zero-rated transactions,
the taxpayer may either seek a refund of the excess or apply the excess against its
other internal revenue tax.” (Ibid.)
WARNING !!! Do not bold face or underscore when answering Bar
questions.
a. Who may claim for refund/ apply for issuance of tax
credit certificates
Who may claim for refund/apply for issuance of tax credit certificate ?
SUGGESTED ANSWER:
1. Any VAT-registered person, whose sales are zero-rated or
effectively zero rated may apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales, except
transitional input tax. [NIRC of 1997, Sec. 112 (A)]
2. A person whose VAT registration has been cancelled due to
retirement from or cessation of business or due to changes in or cessation of
status as VAT-registered apply for the issuance of a tax credit certificate for
any unused input tax which may be used in payment of his other internal
revenue taxes. (Ibid., Sec. 112 (B)]
1. VAT registered person whose sales are zero-rated or
effectively zero-rated may claim refund or tax credit
May a zero-rated seller claim for a tax refund or credit ? Why ? What are
the conditions to be met for he grant of the refund/credit ? Explain.
 SUGGESTED ANSWER: Yes. A zero-rated seller being directly and legally
liable for VAT can claim a refund or tax credit certificate . [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), 451 SCRA 132 (2005)]
The taxpayer claiming the refund must further comply with the invoicing and
accounting requirements mandated by the NIRC, as well as revenue regulations
implementing them. (Western Mindanao Power Corporation v. Commissioner of Internal
Revenue, G. R. No. 181136, June 13, 2012)
When claiming tax refund/credit, the VAT-registered taxpayer must be able to
establish that it does have refundable or creditable input VAT, and the same has
not been applied to output VAT liabilities – information which are supposed to be
reflected in the taxpayer’s VAT returns. Thus, an application for tax refund/credit
must be accompanied by copies of the taxpayer’s VAT returns for the taxable
quarter/s concerned. (Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G. R. No. 159471, January 26, 2011)
It must be VAT-registered entity in order to claim claim input VAT
Credit/Refund. (Contex Corporation v. Commissioner of Internal Revenue, 433 SCRA
376)
2. VAT registered person whose registration was
cancelled may claim refund or tax credit
: 1.
Who may claim for issuance ofa tax credit where VAT registration was
cancelled ?
SUGGESTED ANSWER: A VAT-registered person whose registration has
been cancelled due to retirement from or cessation of business, or due to changes
in or cessation of status may, within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which he
may use in payment of his other internal revenue taxes. Provided, however, that
he shall be entitled to a refund if he has no internal revenue tax liabilities against
which the tax credit certificates may be utilized. [Rev. Regs. No. 16-2005, Sec.4.112-
1, (b, paraphrasing supplied)]
b. Where to file claim for refund/tax credit certificate
Where should claims for refund/tax credit certificate be filed ?
SUGGESTED ANSWER: Claims for refunds/tax credit certificate shall be
filed with the appropriate
1. BIR office (Large Taxpayers Service (LTS)
2. or Revenue District Office (RDO) having jurisdiction over the
principal place of business of the taxpayer;
3. Provided, however, that direct exporters may also file their claim
for tax credit certification with the One Stop Shop Center of the Department
of Finance;
Provided, finally, that the filing of the claim with one office shall
preclude the filing of the same claim with another office. [Rev. Regs. No.
16-2005, Sec.4.112-1, (c)]
c. Period to file claim for refund
1. Procedure for and period within which to file refund or
tax credit of input taxes
Historical antecedents. The procedure and time periods within which to file
claim/apply for issuance of tax credit certificate was the subject of BEQs in 2012, 2014,
2015, 2016, and 2017.
***What is the procedure and period within which to file a
claim/application for the refund or tax credit of input taxes ?
SUGGESTED ANSWER:
Any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax . [NIRC
of 1997, Sec. 112 (A), papraphrasing supplied)
A person whose registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of status may, within two
(2) years from the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in payment of his other
internal revenue taxes. [Ibid., Sec. 112 (B), paraphrasing supplied]
2. “In proper cases, the Commissioner shall grant a refund for creditable
input taxes within ninety (90) days from the date of submission of the official
receipts or invoices and other documents in support of the application filed in
accordance with Subsections (A) and (B) hereof: Provided, That should the
Commissioner find that the grant of refund is not proper, the Commissioner must
state in writing the legal and factual basis for the denial.” [Ibid., Sec. 112 (C), 1st par.)
3. “In case of full or partial denial of the claim for tax refund, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the
claim, appeal the decision with the Court of Tax Appeals.” [Ibid., Sec. 112 (C), 2nd
par., paraphrasing supplied)
 2. The two year period
a. Within what period should an application for refund or credit be
filed?
SUGGESTED ANSWER: No refund or credit of input Value-Added Tax
(VAT) shall be allowed unless the VAT-registered taxpayer filed an application for
refund or credit with the Commissioner of Internal Revenue within the two-year
prescriptive period. (Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, 524 SCRA 73)
1) General rule - Section 112(A) and Mirant. Within 2 years from the
close of the taxable quarter when the sales were made.
2) Exception – Atlas. Within 2 years from the date of payment of
the output VAT, if the administrative claim was filed from June 8, 2007
(promulgation of Atlas) to September 12, 2008 (promulgation of Mirant).
b. How is the prescriptive period determined ?
SUGGESTED ANSWER: The Supreme Court summarized the rule on the
determination of the prescriptive period for filing a tax refund or credit of unutilized
input VAT as provided in Sec. 112 of the 1997 Tax Code, as follows:
1. An administrative claim must be filed with the CIR within two
years after the close of taxable quarter when the zero-rated or effectively
zero-rated sales were made [NIRC of 1997, Sec. 112 (A)] and
2. The CIR has 90 days from the date of the submission of the
complete documents in support of the administrative claim within which to
grant a refund for ceeditable inout taxes. (Ibid, Sec. 112 (C), as amended by the
TRAIN)
It is error to apply Sections 114 (A) and 229 of the NIRC in computing the
two-year prescriptive period for claiming refund/credit of unuti1ized input VAT. “To
be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of
input VAT. Thus, the two-year period should be reckoned from the close of the
taxable quarter when the sales were made.” (Deutsche Knowledge Services Pte Ltd.,
v. Commissioner of Internal Revenue. G.R. No. 197980, December 01, 2016)
Section 112(C) of the NIRC clearly provides, “In proper cases, the
Commissioner shall grant a refund for creditable input taxes within ninety (90) days
from the date of submission of the official receipts or invoices and other documents
in support of the application filed in accordance with Subsections (A) and (B)
hereof: Provided, That should the Commissioner find that the grant of refund is not
proper, the Commissioner must state in writing the legal and factual basis for the
denial.
In case of full or partial denial of the claim for tax refund, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the
claim, appeal the decision with the Court of Tax Appeals. [NIRC of 1997, Sec. 112
(C), as amended by the TRAIN, bold facing supplied]
**c. What is the reckoning point for computing the two year period ?
SUGGESTED ANSWER: Unutilized input Value Added Tax (VAT) payments
not otherwise used for any internal revenue tax due the taxpayer must be claimed
within two years
1) reckoned from the close of the taxable quarter
a) when the relevant sales were made pertaining to the input
Value Added Tax (VAT)
b) regardless of whether said tax was paid or not –
2) the reckoning frame
a) would always be the end of the quarter when the pertinent
sales or transaction was made,
b) regardless when the input VAT was paid. (Commissioner of
Internal Revenue v. Mirant Pagbilao Corporation, 565 SCRA 154)
**d. What is the rationale for the “close of the quarter” requirement ?
SUGGESTED ANSWER: The two year prescript-ive period for filing the
application for refund/credit of input Value-Added Tax (VAT) on zero-rated export
sales shall be determined from the close of the quarter when such sales were
made.
Rationale: Unlike corporate income tax, which is reported and paid on
installment every quarter, but is eventually subjected to a final adjustment at the
end of the taxable year, Value-Added Tax (VAT) is computed and paid on a purely
quarterly basis without need for a final adjustment at the end of the taxable year.
Even in the absence of a final adjustment return, the determination of any
output VAT payable necessarily requires that the VAT-registered taxpayer makes
adjustments in its VAT return every quarter, taking into consideration the input VAT
which are creditable for the present quarter, or had been carried over from the
previous quarters.
It is more practical and reasonable to count the two-year prescriptive period
for filing a claim for refund/credit of input Value-Added Tax (VAT) on zero-rated
sales from the date of filing of the return and payment of the tax due. (Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue,
524 SCRA 73)
Section 112 (A) of the NIRC of 1997 is the applicable provision in
determining the start of the two-year period for claiming a refund/credit of unutilized
input Value Added Tax (VAT), and that Sections 204 (C) and 229 of the NIRC are
inapplicable as “both provisions apply only to instances of erroneous payment or
illegal collection of internal revenue taxes. (Commissioner of Internal Revenue v. Aichi
Forging Company of Asia, Inc. G. R. No. 184823, October 6, 2010, 632 SCRA 422)
e. Give an example where the filing of claim for refund or credit of
input VAT at close of the quarter was not strictly enforced.
SUGGESTED ANSWER: The last requirement for refund or credit of input
VAT determines that the claim should be filed within two years after the close of the
taxable quarter when such sales were made. The sale of electricity to NPC was
reported by San Roque Power Corporation at the fourth quarter of 2002, which
closed on 31 December 2002. San Roque had until 30 December 2004 to file its
claim for refund or credit. For the period January to March 2002, it filed an
amended request for refund or tax credit on 30 May 2003; for the period July 2002
to September 2002, on 27 February 2003; and for the period October 2002 to
December 2002, on 31 July 2003. In these three quarters, San Roque Power
Corporation seasonably filed its requests for refund and tax credit. However, for
the period April 2002 to May 2002, the claim was filed prematurely on 25 October
2002, before the last quarter had closed on 31 December 2002. Despite this lapse
in procedure, the Supreme Court noted that San Roque Power Corporation was
able to positively show that it was able to accumulate excess input taxes on various
importations and local purchases in the amount of P246,131,610.40, which were
attributable to a transfer of electricity in favor of NPC.
The fact that it had filed its claim for refund or credit during the quarter when
the transfer of electricity had taken place, instead of at the close of the said quarter
does not make it any less entitled to its claim. Given the special circumstances of
this case, wherein San Roque Power Corporation was incorporated for the sole
purpose of constructing or operating a power plant that will transfer all the
electricity it generates to NPC, there is no danger that it would try to fraudulently
claim input tax paid on purchases that will be attributed to sale transactions that are
not zero-rated. (San Roque Power Corporation v. Commissioner of Internal Revenue,
G.R. No. 180345, November 25, 2009)
f. Within what period of time should the two-year prescriptive period
for claiming tax credit certificate where VAT registration was cancelled be
filed ?
SUGGESTED ANSWER: A person whose registration has been cancelled
due to retirement from or cessation of business, or due to changes in or cessation
of status may, within two (2) years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes. [NIRC of 1997, Sec. 112 (C)]
g. What is the general procedure for claim for tax refund or credit of
VAT and reckoning of the two year period ?
SUGGESTED ANSWER: “The claim for tax refund or credit is initially filed
before the CIR who is vested with the power and primary with jurisdiction to decide
on refunds of taxes, fees or other charges, and penalties imposed in relation
thereto.” (Aichi Forging Company of Asia, Inc., v. Court of Tax Appeals - En Banc, et al.,
G.R. No. 193625, August 30, 2017) “In every case, the filing of the administrative
claim should be done within two years. However, the reckoning point of counting
such two-year period varies according to the kind of input tax subject matter of the
claim.
For the input tax paid on capital goods, the counting of the two-year period
starts from the close of the taxable quarter when the purchase was made;
whereas, for input tax attributable to zero-rated sale, from the close of the taxable
quarter when such zero-rated sale was made (not when the purchase was made).
(Ibid., paragraphing supplied)
“In proper cases, the Commissioner shall grant a refund for creditable
input taxes within ninety (90) days from the date of submission of the official
receipts or invoices and other documents in support of the application filed in
accordance with Subsections (A) and (B) hereof: Provided, That should the
Commissioner find that the grant of refund is not proper, the Commissioner must
state in writing the legal and factual basis for the denial.
In case of full or partial denial of the claim for tax refund, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the
claim, appeal the decision with the Court of Tax Appeals. [NIRC of 1997, Sec. 112
(C), as amended by the TRAIN]
3. The period within which the BIR has to decide: The 60-
day; 120-day or 90-day period.
***a. Within what period should the BIR Commissioner act on the
application for refund or tax credit of input taxes and within what period
should the appeal be filed with the Court of Tax Appeals ?
SUGGESTED ANSWER:
1. 60 days not 30 days. January 1, 1988 up to Decermber 31,
1997. The waiting period, originally fixed at 60 days only, was part of the
provisions of the first VAT law, Executive Order No. 273, which took effect on
1 January 1988. [CIR v. San Roque Power Corporation, 690 SCRA 336, 380-382
(2013), bold facing supplied]
2. 120 days + 30 days. January 1, 1998 up to December 9, 2003.
The waiting period was extended to 120 days effective 1 January 1998 under
RA 8424 or the Tax Reform Act of 1997. (Ibid., bold facing supplied)
 3. December 10, 2003 up to October 5, 2010. Appeal with the
CTA may be made even before the expiration of the 120-day period when
BIR Ruling No. DA-489-03 was still in force. (Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc., 646 Phil. 710, bold facing supplied)
The judicial claim need not await the expiration of the 120-day period, if
such was filed from December 10, 2003 (issuance of BIR Ruling No. DA-489-
03) to October 6, 2010 (promulgation of Aichi). (Procter & Gamble Asia Pte Ltd.
v. Commissioner of Internal Revenue, G.R. No. 205652, September 06, 2017)
The Supreme Court has held that “all taxpayers may rely upon BIR
Ruling No. DA-489-03, as a general interpretative rule, from the time of its
issuance on December 10, 2003 until its effective reversal by the Court in
Aichi. The Court further held that while RR 16-2005 may have re-established
the necessity of the 120-day period, taxpayers cannot be faulted for still
relying on BIR Ruling No. DA-489-03 even after the issuance of RR 16-2005
because the issue on the mandatory compliance of the 120-day period was
only brought before the Court and resolved with finality in Aichi.” (Ibid., bold
facing supplied)
4. 120 days + 30 days. October 6, 2010 up to December 31,
2017.
5. Starting January 1, 2018. Under the TRAIN, the period is 90
days from the filing of the application for refund or credit.
The successful establishment and implementation of an enhanced VAT
refund system that grants refunds of creditable input tax within ninety (90) days
from the filing of the VAT refund application with the Bureau: Provided, That, to
determine the effectivity of item no. 1, all applications filed from January 1, 2018
shall be processed and must be decided within ninety (90) days from the filing of
the VAT refund application. [NIRC of 1997, Sec. 106 (A) (2) (a); Sec. 108 (A)]
If there is no evidence showing that the taxpayer was required to submit or
actually submitted additional documents after the filing of the administrative claim,
it is presumed that the complete documents accompanied the claim when it was
filed. (Silicon Philippines, Inc., etc. v. Commissioner of Internal Revenue, G.R. No. 182737,
March 02, 2016)
WARNING !!! For Bar purposes, do not bold face any of the entries.
4. The 30-day period within which the taxpayer has to
appeal to the CTA after the 90-day period
**a) What are the requisites for a judicial claim for refund of input
VAT to prosper ?
SUGGESTED ANSWER: For a judicial claim for refund of
input VAT to prosper, the taxpayer:
1) must not only prove
(a) that it is a VAT registered entity and
2) that it filed its claims within the prescriptive period.
3) It must also substantiate the input VAT paid by purchase invoices
or official receipts. (Commissioner of Internal Revenue v. Manila Mining
Corporation, G. R. No. 153294, August 31, 2005, arrangement and numbering
supplied]
ALTERNATIVE ANSWER: Requisites to be entitled to the refund/tax credit of
input VAT:
1) there must be zero-rated or effectively zero-rated sales;
2) that input taxes were incurred or paid;
3) that such input taxes are attributable to zero-rated or effectively
zero-rated sales;
4) that the input taxes were not applied against any output VAT
liability; and
5) the claim for refund/tax credit was filed within the two-year
prescriptive period. (EG & G Omni, Inc. v. CIR, CTA Case No. 5987, March 26,
2004)
In addition there must also be compliance with Sec. 16, Rev. Regs. No. 5-87
(c) which provides that, claims for tax credits/refunds. Application for Tax
Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the
Revenue District Office of the city or municipality where the principal place of the
business of the applicant is located or directly with the Commissioner, Attention:
VAT Division.
A photo copy of the purchase invoice or receipt evidencing the value added
tax paid shall be submitted together with the application. The original copy of the
said invoice/receipt, however, shall be presented for cancellation prior to the
issuance of the Tax Credit Certificate or refund. In addition, the following
documents shall be attached whenever applicable:
1. Export sales
i) Photocopy of export document showing the amount of export,
and the date and destination of the goods exported. With respect to foreign
currency denominated sale, the photo copy of the invoice or receipt
evidencing the sale of the goods, as well as the name of the person to whom
the goods were delivered.
ii) Statement from the Central Bank or any of its accredited agent
banks that the proceeds of the sale in acceptable foreign currency has been
inwardly remitted and accounted for in accordance with applicable banking
regulations.
Failure to comply with the above requirements including the
requirement for a valid sales invoice is fatal to the claim for refund. (EG & G
Omni, Inc. v. CIR, CTA Case No. 5987, March 26, 2004)

b) Is approval of zero-rating sufficient for refund ?
SUGGESTED ANSWER: No. “In a claim for tax refund or tax credit, the
applicant must prove not only entitlement to the grant of the claim under
substantive law. It must also show satisfaction of all the documentary and
evidentiary requirements for an administrative claim for a refund or tax credit.
Hence, the mere fact that petitioner's application for zero-rating has been
approved by the CIR does not, by itself, justify the grant of a refund or tax
credit. The taxpayer claiming the refund must further comply with the
invoicing and accounting requirements mandated by the NIRC, as well as by
revenue regulations implementing them.” (Takenaka Corporation-Philippine Branch v.
Commissioner of Internal Revenue, G.R. No. 193321, October 19, 2016, bold facing in the original)
WARNING !!! Do not bold face your answers to the Bar questions.
***c) Explain the administrative and judicial procedures for
claiming refunds or tax credits of input Value Added Tax (VAT) for zero-rated
or effectively zero-rated sales under Sec. 112 of the National Internal
Revenue Code (NIRC) from the filing of an application with the Commissioner
of Internal Revenue (CIR) up to the Supreme Court. (2016, reworded)
SUGGESTED ANSWER:
1. An administrative claim for refund of or issuance of tax credit for
unutilized excess input VAT must be filed with the BIR Commissioner within two (2)
years counted from the last day of the quarter when the relevant zero-rated sale
was made [NIRC of 1997, Sec. 112 (A)] pertaining to the input Value Added Tax
(VAT) regardless of whether said tax was paid or not . (Commissioner of Internal
Revenue v. Mirant Pagbilao Corporation, 565 SCRA 154)
2. The claim for refund must be accompanied with a statement under oath
that all documents to support the claim has been submitted at the time of filing of
the claim for refund. (RMC 54-14)
3. The BIR Commissioner shall within ninety (90) days from the date of
submission of complete documents, to support the application filed VAT-registered
person on his zero-rated or effectively zero rated sale, decide the matter. [Ibid., Sec.
112 (C), 1st par., as amended by the TRAIN, in relation to Sec. 112 (A)]
4. 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 application within the
period prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the ninety (90)
day period, appeal the decision or the unacted claim with the Court of Tax Appeals
division. [Ibid.,, Sec. 112 (C), 2nd par., as amended by the TRAIN]
5. The adverse decision of the Court of Tax Appeals division may be the
subject of a motion for reconsideration or new trial within fifteen (15) days from
receipt of the adverse decision, filed with the same division that rendered the
decision
6. The adverse decision of the Court of Tax Appeals division on the
motion for reconsideration or new trial, shall the the subject of a petition for review
filed within fifteen (15) days from receipt of the decision filed with the Court of Tax
Appeals en banc.
7. The adverse decision of the Court of Tax Appeals en banc shall, within
fifteen (15) days from receipt be the subject of a petition for review on certiorari
filed with the Supreme Court. The period may be extended to thirty (30) days.
***d) What is the purpose of the 30 day period ?
SUGGESTED ANSWER: Additionally, the 30-day appeal period to the CTA
was adopted precisely to do away with the old rule (Harte-Hanks Philippines, Inc, v.
Commissioner of Internal Revenue, G.R. No. 205721, September 14, 2016), so that under
the VAT System the taxpayer will always have 30 days to file the judicial claim
even if the CIR acts only on the 90 th day, or does not act at all during the 90-day
period. [NIRC of 1997, Sec. 112 (C), 1st par., as amended by the TRAIN]
In effect, the taxpayer should wait for the 90th day before the 30-day
prescriptive period to appeal can be availed of. Hence, the non-observance of the
90-day period is fatal to the filing of a judicial claim to the CTA, the non-observance
of which will result in the dismissal of the same due to prematurity .” [Ibid., with the
120-day period adjusted to 90-days by NIRC of 1997, Sec. 112 (C), 1st par., as amended
by the TRAIN]
In claiming a tax refund or tax credit over an excess input VAT, the 30-day
period of appeal to the CTA need not necessarily fall within the two-year
prescriptive period as long as the administrative claim before the Commissioner of
Internal Revenue is filed within the two-year prescriptive period. This is because
Sec. 112 (C) of the 1997 Tax Code, mandates that a taxpayer can file the judicial
claim (1) only within thirty days after the Commissioner partially or fully denies the
claim within the 90-day period, or (2) only within thirty days from the expiration of
the 90-day period if the Commissioner does not act within the 90-day period.
[Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485,
February 12, 2013 and companion cases, with the 120-day period adjusted to 90-days by
NIRC of 1997, Sec. 112 (C), 1st par., as amended by the TRAIN]
Where the taxpayer did not wait for the decision of the Commissioner of
Internal Revenue or the lapse of the 90-day period, it having simultaneously filed
the administrative and judicial claims, the filing of said judicial claim with the Court
of Tax Appeals is premature. (Ibid.)
The second paragraph of Section 112 (C) of the NIRC, envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 90-day
period; and (2) when no decision is made after the 90-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the CTA. As
we see it then, the 90-day period is crucial in filing an appeal with the CTA.
(Deutsche Knowledge Services Pte Ltd., v. Commissioner of Internal Revenue. G.R. No.
197980, December 01, 2016, with the 120-day period adjusted to 90-days by NIRC of
1997, Sec. 112 (C), 1st par., as amended by the TRAIN]
***e) What is the reason why a Court of Tax Appeals (CTA) case
filed before the expiration of the 90-day period for BIR to decide is subject to
being dismissed on the ground of prematurity ?
SUGGESTED ANSWER: A taxpayer's failure to comply with the prescribed
90-day waiting period would render the petition premature and is violative of the
principle on exhaustion of administrative remedies. Accordingly, the CTA does not
acquire jurisdiction over the same. This being so, "[w]hen a taxpayer prematurely
files a judicial claim for tax refund or credit with the CTA without waiting for the
decision of the [CIR], there is no 'decision' of the [CIR] to review and thus the CTA
as a court of special jurisdiction has no jurisdiction over the appeal." [Harte-Hanks
Philippines, Inc, v. Commissioner of Internal Revenue, G.R. No. 205721, September 14,
2016 with the 120-day period adjusted to 90-days by NIRC of 1997, Sec. 112 (C), 1st par.,
as amended by the TRAIN]
“The CTA, being a court of special jurisdiction, has the judicial power to
review the decisions of the CIR. Concomitantly, the CTA also has the power to
decide an appeal because the CIR's inaction within the 90-day waiting period shall
be deemed a denial of the taxpayer's application for refund or tax credit.” (Ibid.)
ALTERNATIVE ANSWER: The failure to observe the 60 days prior to filing of a
judicial claim for refund is not a mere non-exhaustion of administrative remedies but is
jurisdictional in nature, thus: Considering further that the 30-day period to appeal to the CT
A is dependent on the 90-day period, both periods are hereby rendered jurisdictional.
Failure to observe 90 days prior to the filing of a judicial claim is not a mere non-exhaustion
of administrative remedies, but is likewise considered jurisdictional. The period of 90 days is
a prerequisite for the commencement of the 30-day period to appeal to the CTA. In both
instances, whether the CIR renders a decision (which must be made within 90 days) or
there was inaction, the period of 90 days is material. [Marubeni Philippines Corporation v.
Commissioner of Internal Revenue, G.R. No. 198485, June 5, 2017 with the 120-day period
adjusted to 90-days by NIRC of 1997, Sec. 112 (C), 1st par., as amended by the TRAIN]
***f) Gangwam Corporation (GC) filed its quarterly tax returns for
the calendar year 2017 as follows:
First quarter – April 25, 2017
Second quarter – July 23, 2017
Third quarter – October 25, 2017
Fourth quarter – January 27, 2018
On December 22, 2018, GC filed with the Bureau of Internal Revenue
(BIR) an administrative claim for refund of its unutilized input Value-Added
Tax (VAT) for the calendar year 2017. After several months of inaction by the
BIR on its claim for refund, GC decided to elevate its claim directly to the
Court of Tax Appeals (CTA) on April 30, 2019. In due time, the CTA denied
the tax refund relative to the input VAT of GC for the first quarter of 2017,
reasoning that the claim was filed beyond the two-year period prescribed
under Section 112 (A) of the National Internal Revenue Code (NIRC).
(A) Is the CTA correct ? (2014, dates supplied)
SUGGESTED ANSWER: No. While the CTA is not correct in contending that
the claim was filed beyond the two-year prescriptive period under Section 112 (A)
of the NIRC the judicial claim for refund should be dismissed because it was not
filed within thirty (30) days from the expiration of the ninety (90) days period within
which the Commissioner should decide the case.
The phrase “within two (2) years xxx apply for the issuance of a tax credit or
refund” in Section 112 (A) of the NIRC of 1997 refers to applications for
administrative refund/credit filed with the Commissioner of Internal Revenue (CIR)
and not to appeals made to the Court of Tax Appeals (CTA).
Applying the two-year period to judicial claims would render nugatory Section
112 (C) of the NIRC of 1997, as amended by the TRAIN which already provides for
a specific period within which a taxpayer should appeal the decision or inaction of
the CIR. (San Roque Power Corporation v. Commissioner of Internal Revenue, G.R. No. 180345,
November 25, 2009)
When GC decided to elevate its claim to the CTA on April 20, 2019, it was
within two (2) years from after the lapse from the last day of the quarter when the
relevant zero-rated sale was made [NIRC of 1997, Sec. 112 (A)] hence, the appeal
was seasonably filed within the two (2) year reglementary period.
While it is correct to say that the appeal was seasonably filed within the two
(2) year reglementary period the appeal is still considered filed out of time because
the appeal should have been filed within 30 days from the lapse of the 90-day
period. The BIR’s inaction after 90 days is deemed an adverse decision on the
claim, appealable to the CTA within thirty (30) days from the expiration of the ninety
(90) day period within which to decide. . (CIR vs. Aichi Forging Company of Asia, Inc., G.R.
No. 184823, October 6, 2010, with the 120-day period adjusted to 90-days by NIRC of 1997,
Sec. 112 (C), 1st par., as amended by the TRAIN)
The Commissioner should decide the administrative claim filed on December
22, 2018 within ninety (90) days from filing or until March 23, 2019 and the appeal
should have been filed with thirty (30) days from the expiration of the ninety (90)
day period or until April 24, 2019. The appeal filed with the CTA on April 30, 2019
was clearly filed out of time.
(B) Assuming that GC filed its claim before the CTA on February 22,
2019, would your answer be the same ? (2014, dates supplied)
 SUGGESTED ANSWER: No. This time the CTA is correct in denying the
claim for refund.
The claim made before the CTA on February 22, 2019 is premature. The
Commissioner should decide the administrative claim filed on December 22, 2018
within ninety (90) days from filing or until March 23, 2019
On February 22, 2019 there is as yet no decision subject to appeal because
the 90-day period for the Commissioner to act on the claim for refund has not yet
lapsed. (CIR vs. Aichi Forging Company of Asia, Inc., G.R. No. 184823, October 6, 2010; CIR vs.
San Roque, G.R. No. 187485, February 12, 2013, with the 120-day period adjusted to 90-days
by NIRC of 1997, Sec. 112 (C), 1st par., as amended by the TRAIN)
***g) On March 30, 2019, XL Co. filed an administrative claim for
refund of unutilized input VAT for taxable year 2017, together with supporting
documents. XL Co. claimed that its sale of generated power and delivery of
electric capacity was VAT zero-rated. Due to the inaction of the
Commissioner of Internal Revenue (CIR), XL Co. filed with the Court of Tax
Appeals (CTA) the following judicial claims for refund.
Period Covered Date Filed
1st Quarter of 2017 March 31, 2019
2nd Quarter of 2017 June 30, 2010
3rd and 4th quarter of 2017 August 12, 2019
Is XL Co.’s claim for VAT refund timely filed? Explain your answer.
(2017)
SUGGESTED ANSWER: No. XL Co’s claim for refund was not timely filed.
Upon the filing of an administrative claim for refund the BIR Commissioner is
given a period of 90 days within which to decide. An appeal to the CTA before the
expiration of the 90 day period is premature because of failure to exhaust
administrative remedies. There is no decision yet of the Commissioner that may
be the subject of review by the Court of Tax Appeals (CTA).
On the other hand, if the BIR does not decide within the 90 day period the
taxpayer has a period of thirty (30) days from the expiration of the 90 day period
period within which to appeal. If the taxpayer does not appeal within the thirty (30)
day period, he loses his right to appeal.
Since the administrative appeal was filed on March 30, 2019 the taxpayer
should wait for a decision of the Commissioner or the lapse of 90 days from the
administrative filing within which to avail of the judicial claim. The judicial claim
filed on March 31, 2019 is clearly premature because the Commissioner has up to
May 31, 2019 within which to decide the case. The same thing could also be said
of the judicial claim filed on June 30, 2019. The Commissioner has up to August
31, 2019 within which to decide the administrative claim. Judicial claims filed
before May 31, 2019 and August 31, 2019 are clearly premature because there is
no decision yet by the Commissioner that may be the subject of an appeal to the
CTA.
On the other hand, since the administrative claim for refund was filed on
March 30, 2016, the Commissioner has 90 days or until May 31, 2019 within which
to decide. There was inaction on the part of the Commissioner, hence the taxpayer
has 30 days from May 31, 2016 or until August 1, 2019 within which to file the
judicial claim. Thus, the judicial claim made on August 12, 2019 was filed out of
time.
d. Manner of giving refund
1) What is the manner of giving refund ?
SUGGESTED ANSWER:
a. “Refunds shall be made upon warrants drawn
1) by the Commissioner
2) or by his duly authorized representative
b. without the necessity of being countersigned by the Chairman,
Commission on Audit,
1) the provisions of the Administrative Code of 1987 to the
contrary notwithstanding:
2) Provided, That refunds under this paragraph shall be
subject to post audit by the Commission on Audit.” [NIRC of 1997, Sec.
112 (D); Rev. Regs. No. 16-2005, Sec.4.112-1, (e)]
2) When would a refund check be forefeited ? What about a tax
credit ?
SUGGESTED ANSWER: “A refund check or warrant issued in accordance
with the pertinent provisions of this Code, which shall remain unclaimed or
uncashed within five (5) years from the date the said warrant or check was mailed
or delivered, shall be forfeited in favor of the Government and the amount thereof
shall revert to the general fund.” [NIRC of 1997, Sec. 230 (A)]
“A tax credit certificate issued in accordance with the pertinent provisions of
this Code, which shall remain unutilized after five (5) years from the date of issue,
shall, unless revalidated, be considered invalid, and shall not be allowed as
payment for internal revenue tax liabilities of the taxpayer, and the amount covered
by the certificate shall revert to the general fund.” [Ibid., Sec. 230 (B)]
e. Amount to be refunded or credited
 How much is the amount to be refunded or credited to a VAT-registered
person whose sales are zero-rated or effectively zero-rated ?
SUGGESTED ANSWER:
1. the extent to which the input tax has not been applied against
output tax;
2. where the taxpayer is engaged in zero-rated or effectively zero-
rated sale and also in taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales . [NIRC of 1997,
Sec. 112 (A)]
3. That for a person making sales that are zero-rated for transport of
passengers and cargo by air or sea vessels from the Philippines to a foreign
country, the input taxes shall be allocated ratably between his zero-rated and
non-zero-rated sales. [Ibid., in relation to Sec. 108 (B) (6)]
VAT-registered person whose VAT registration was cancelled may be issued
a tax credit certificate for any unused input tax which may be used in payment of
his other internal revenue taxes. [Ibid. , Sec. 112 (B)]
a. San Roque doctrine
Important note: The Bar reviewee should note that the 120 + 30 day period
enunciated under San Roque has been rendered anachronistic by the provisions of
the TRAIN which has amended the 120 day period to only ninety (90) days + thirty
(30) days. Other doctrinal rulings in San Roque were previously discussed..
The following San Roque doctrines have not been amended by the TRAIN.
1. To what does the phrase “within two (2) years xxx apply for the
issuance of a tax credit or refund” in Section 112 (A) of the NIRC of 1997 refer
to ?
SUGGESTED ANSWER: The phrase refers to applications for refund/credit
filed with the Commissioner of Internal Revenue (CIR)
a) and not to appeals made to the Court of Tax Appeals (CTA).
b) Applying the two-year period to judicial claims would render
nugatory Section 112 (C) of the NIRC of 1997, which already provides for a
specific period within which a taxpayer should appeal the decision or inaction
of the CIR. (San Roque Power Corporation v. Commissioner of Internal Revenue,
G.R. No. 180345, November 25, 2009, arrangement and numbering adjusted)
2. What are the requisites for allowing a claim for refund or tax credit
for unutilized input VAT ?
SUGGESTED ANSWER:
a) the taxpayer is VAT-registered;
b) the taxpayer is engaged in zero-rated or effectively zero-rated
sales;
c) the input taxes are due or paid;
d) the input taxes are not transitional input taxes;
e) the input taxes have not been applied against output taxes during
and in the succeeding quarters;
f) the input taxes claimed are attributable to zero-rated or effectively
zero-rated sales;
g) for zero-rated sales, and the acceptable foreign currency
exchange proceeds have been duly accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas;
h) where there are both zero-rated or effectively zero rated sales
and taxable or exempt sales, and the input taxes cannot be directly and
entirely attributable to any of these sales, the input taxes shall be
proportionately allocated on the basis of sales volume; and
i) the claim is filed within two years after the close of the taxable
quarter when such sales were made. [San Roque Power Corporation v.
Commissioner of Internal Revenue, 605 SCRA 536,555 (2009), arrangement and
numbering supplied]
b. Enhanced VAT refund system
**Discuss the enhanced VAT refund system.
SUGGESTED ANSWER: In proper cases, the Commissioner shall grant a
refund for creditable input taxes within ninety (90) days from the date of submission
of the official receipts or invoices and other documents profperly filed in support of
the application: Provided, That should the Commissioner find that the grant of
refund is not proper, the Commissioner must state in writing the legal and factual
basis for the denial.
In case of full or partial denial of the claim for tax refund, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim,
appeal the decision with the Court of Tax Appeals: Provided, however, That failure
on the part of any official, agent, or employee of the BIR to act on the application
within the ninety (90)-day period shall be punishable under the National Internal
Revenue Code (NIRC). [NIRC of 1997, Sec. 112 (C), as amended by the TRAIN]
c. Invoicing Requirements
 1) In general
a) What are the different kinds of invoices ?
SUGGESTED ANSWER:
(1) Non-VAT Sales Invoice.
(2) VAT Sales Invoice.
b) What is a non-VAT sales invoice ?
SUGGESTED ANSWER: For purposes of Percentage Tax pursuant to
Section 116 (Tax on persons exempt from VAT) of the NIRC, as amended, a non-
VAT sales invoice
(1) is a written account
(a) evidencing the sale of goods and/or properties
(b) issued to customers in an ordinary course of business,
(c) whether cash sales or on account (credit)
(2) which shall be the basis of the Percentage Tax liability of the
seller. (Rev. Regs. No. 18-2012, Section 2, 2.3, paraphrasing, arrangement and
numbering supplied)
c) As a general rule, when are receipts or sales or commercial
invoices required to be issued ? Are there any exceptions to the requirement
?
SUGGESTED ANSWER: All persons subject to an internal revenue tax
shall, at the point of each sale and transfer of merchandise or for services rendered
valued at One hundred pesos (P100) or more, issue duly registered receipts or
sale or commercial invoices, showing the date of transaction, quantity, unit cost
and description of merchandise or nature of service. [NIRC of 1997, Sec. 237, 1st
par., as amended by the TRAIN, paraphrasing siupplied]
Where “the receipt is issued to cover payment made as rentals,
commissions, compensations or fees,
(1) receipts or invoices shall be issued which shall show the name,
business style, if any, and address of the purchaser, customer or client.”
(Ibid., Sec. 237, 1st par., first provisio, paraphrasing, arrangement and numbering
supplied)
“The Commissioner may, in meritorious cases, exempt any person subject to
internal revenue tax from compliance with the provisions of this Section.” [Ibid., Sec.
237, last par., as amended by the TRAIN]
c) To whom shall the receipts or invoices be distributed ? For how
long a period should the receipts or invoices be preserved ?
SUGGESTED ANSWER: “The original of each receipt or invoice shall be
issued to the purchaser, customer or client at the time the transaction is effected,
who, if engaged in business or in the exercise of profession, shall keep and
preserve the same in his place of business for a period of three (3) years from the
close of the taxable year in which such invoice or receipt was issued, while the
duplicate shall be kept and preserved by the issuer, also in his place of business,
for a like period: Provided, That in case of electronic receipts or sales or
commercial invoices, the digital records of the same shall be kept by the purchaser,
customer or client and the issuer for the same period above stated.” [NIRC of 1997,
Sec. 237, 3rd par., as amended by the TRAIN]
2) VAT invoices
Historical antecedents. The contents of VAT invoices/receipts was the subject of
BEQs in 2011, and 2015.
a) What are the invoicing requirements for a VAT registered
person ?
SUGGESTED ANSWER: “A VAT- registered person shall issue:
(1) A VAT invoice for every sale, barter or exchange of goods or
properties; and
(2) A VAT official receipt for every lease of goods or properties, and
for every sale, barter or exchange of services.” [NIRC of 1997, Sec. 113 (A)]
b) What is a VAT Invoice ?
SUGGESTED ANSWER: For “purposes of Value Added Tax (VAT)
(1) pursuant to Section 106 (Value-Added Tax on sale of
goods or properties) of the NIRC, as amended, xxx
(2) is a written account evidencing the sale of goods and/or
properties
(a) issued to customers
(b) in an ordinary course of business,
(c) whether cash sales or on account (credit)
(3) which shall be the basis of the output tax liability of the
seller and the input tax claim of the buyer.
Cash Sales Invoices and Charge Sales Invoices fall under this
definition.” [Rev. Regs. No. 18-2012, Section 2, 2.1, words in parentheses,
arrangement and numbering supplied]
"[T]o be considered a 'VAT invoice,' the TIN-VAT must be printed, and
not merely stamped. Consequently, purchases supported by invoices or
official receipts, wherein the TIN-VAT is not printed thereon, shall not give
rise to any input VAT. Likewise, input VAT on purchases supported by
invoices or official receipts which are NON-VAT are disallowed because
these invoices or official receipts are not considered as 'VAT Invoices. (Sitel
 Philippines Corporation, etc. v. Commissioner of Internal Revenue, G.R. No. 201326,
February 8, 2017)
“In the same vein, considering that the subject invoice/official receipts
are not imprinted with the taxpayer's TIN followed by the word VAT, these
would not be considered as VAT invoices/official receipts and would not give
rise to any creditable input VAT in favor of Sitel. At this juncture, it bears to
emphasize that "[t]ax refunds or tax credits - just like tax exemptions - are
strictly construed against taxpayers, the latter having the burden to prove
strict compliance with the conditions for the grant of the tax refund or credit. "
(Ibid.)
***c) What are the contents of VAT invoices/receipts ?
SUGGESTED ANSWER: “The following information shall be indicated in the
VAT invoice or VAT official receipt:
1. A statement that the seller is a VAT- registered person, followed
by his Taxpayer’s Identification Number (TIN).
2. The total amount which the purchaser pays or is obligated to pay
to the seller with the indication that such amount includes the value-added
tax: Provided, that:
a) The amount of the tax shall be shown as a separate item in
the invoice or receipt.
b) If the sale is exempt from value-added tax, the term ‘VAT-
exempt sale’ shall be printed prominently on the invoice or receipt.
c) If the sale is subject to zero percent (0%) value-added tax,
the term ‘zero-rated sale’ shall be printed prominently on the invoice or
receipt.
d) If the sale involves goods, properties or services some of
which are subject to and some of which are VAT zero-rated or VAT-
exempt, the invoice or receipt shall clearly indicate the breakdown of
the sale price between its taxable, exempt and zero-rated components,
and the calculation of the value-added tax on each portion of the sale
shall be shown 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.
3. The date of transaction, quantity, unit cost and description of the
goods or properties or nature of the service.
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-registered
person, the name, business style, if any, address and Taxpayer Identification
Number (TIN) of the purchaser, customer or client.” [NIRC of 1997, Sec. 113
(B), as amended by R.A. No. 9337, arrangement and numbering supplied]
Where “the purchaser is a VAT-registered person,
(1) in addition to the information herein required,
(2) the invoice or receipt shall further show the Taxpayer
Identification Number (TIN) of the purchaser.” [Ibid., Sec. 237, 1st par., furrher
proviso, as amended by the TRAIN, paraphrasing and numbering supplied]
*** d) What is the effect of failure to comply with all the VAT
invoicing requirements ?
SUGGESTED ANSWER: Failure to comply with all the VAT invoicing
requirements shall result to denial of the claim for refund or tax credit. This is a
precondition for filing a claim for input on domestic purchases for goods or services
attributable to zero rated sales. (Microsoft Philippines, Inc. v. Commissioner of Internal
Revenue, 647 SCRA 398)
It is the duty of the claimant to comply with the requirements, including the
imprinting of the words “zero-rated: in its VAT official receipts and invoices in order
for its sales of electricity to NPC to qualify for zero-rating, being a mandatory
requirement. (KEPCO Philippines Corporation v. Commissioner of Internal Revenue, G.
R. No. 180173, April 6, 2011)
R.A. No. 9337 that in 2003 required the printing of the words “zero-rated” on
receipts. The application in this case covers receipts and invoices over sales made
from 1999 to 2000, what applies is the old provision which requires the printing of
the words “zero-rated” only on invoices not on official receipts. (Southern
Philippines Power Corporation v Commissioner of Internal Revenue, G. R. No.
179632, October 19, 2011)
Failure to print the word “zero-rated” on the invoice/receipts is fatal to a claim
for credit/refund of input VAT on zero-rated sales. [Hitachi Global Storage
Technologies Philippines Corp. (formerly Hitachi Computer Products (Asia) Corporation v.
Commissioner of Internal Revenue, G. R. No. 174212, October 20, 2010]
The denial of a claim for refund of input tax as a consequence of failure to
imprint the words “zero-rated” is not a harsh penalty but is reasonable and must be
strictly complied with, as it is the only way to determine the veracity of the claim.
(KEPCO Philippines Corporation v. Com missioner of Internal Revenue, G. R. No. 180173,
April 6, 2011)
If, absent such word, a successful claim for claim for input VAT is made, the
government would be refunding money it did not collect.
e) What are the different receipts ?
SUGGESTED ANSWER:
1) VAT Official Receipt.
2) Non-VAT Official Receipt
 For “purposes of Value Added Tax (VAT) pursuant to Section 108 (Value-
added Tax on sale of services and use or lease of properties) of the NIRC, as
amended, a VAT Official Receipt is
1) a proof of sale of service and/or leasing of properties
2) which shall be the basis of the output tax liability of the seller and
the input tax claim of the buyer.
It is a written admission or acknowledgment of the fact that money has been
paid and received for the payment or settlement between persons rendering
services and its customers.” (Rev. Regs. No. 18-2012, Section 2, 2.2,
paraphrasing and arrangement supplied)
For “purposes of Percentage Tax pursuant to TITLE V of the NIRC, as
amended, a Non-VAT Official Receipt is
1) a proof of sale of service and/or leasing of properties
2) which shall be the basis of the Percentage Tax liability of the
seller.
It is a written admission or acknowledgment of the fact that money has been
paid and received for the payment or settlement between persons rendering
services and its customers. (Ibid., Section 2, 2.4, paraphrasing, arrangement and
numbering supplied)
**f) What are the distinctions between an invoice and a receipt ?
SUGGESTED ANSWER: As evidence of an administrative claim for tax
refund or tax credit, there are distinctions between a receipt and an
invoicenRoblesvirtualLawlibrary
1) “Section 113 of the NIRC of 1997 provides that a VAT invoice is
necessary for every sale, barter or exchange of goods or properties, while a
VAT official receipt properly pertains to every lease of goods or properties; as
well as to every sale, barter or exchange of services.” (Takenaka Corporation-
Philippine Branch v. Commissioner of Internal Revenue, G.R. No. 193321, October
19, 2016)w
2) A "sales or commercial invoice" is a written account of goods sold
or services rendered indicating the prices charged therefor or a list by
whatever name it is known which is used in the ordinary course of business
evidencing sale and transfer or agreement to sell or transfer goods and
services WHILE a "receipt" on the other hand is a written acknowledgment of
the fact of payment in money or other settlement between seller and buyer of
goods, debtor or creditor, or person rendering services and client or
customer. (Ibid.)
3) “A VAT invoice is the seller's best proof of the sale of goods or
services to the buyer, while a VAT receipt is the buyer's best evidence of the
payment of goods or services received from the seller. A VAT invoice and a
VAT receipt should not be confused and made to refer to one and the same
thing. Certainly, neither does the law intend the two to be used alternatively. “
(Ibid.)
g) What are the accounting requirements to be complied with by
persons subject to value-added tax (VAT) ?
SUGGESTED ANSWER:
1) “Notwithstanding the provisions of Section 233 (Subsidiary
Books) ,
2) all persons subject to value-added tax under section 106 (Value-
added Tax on sale of goods or properties) and 108 (Value-added Tax on
sale of services and use or lease or properties)
3) shall, in addition to the regular accounting records required,
maintain
(a) a subsidiary sales journal
(b) and subsidiary purchase journal
(1) on which the daily sales and purchases are recorded.
(2) The subsidiary journals shall contain such information
as may be required by the Secretary of Finance.” [NIRC of 1997,
Sec. 113 (C), arrangement and numbering supplied]
h) Give some grounds for the suspension and temporary closure of
a VAT-registered person.
SUGGESTED ANSWER: The Commissioner or his authorized
representative is hereby empowered to suspend the business operations and
temporarily close the business establishment of any person for any of the following
violations:
(a) In the case of a VAT-registered Person.
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-aded tax return as required ; or
(3) Understatement of taxable sales or receipts by thirty
percent (30%) or more of his correct taxable sales or receipts for the
taxable quarter.” [NIRC of 1997, Sec. 115 (a)]
(4) Failure of any person to register as required. (Ibid., Sec.
115 (b)]
There is mandatory VAT registration under Sec. 236 for
“(1) Any person who, in the course of business, sells, barters or
exchanges goods or properties, or engages in the sale or exchange of
srvices, shall be liable to register for value-added tax if:
 (a) His gross sales or receipts for the past twelve (12)
months, other than those that are exempt under Section 109(A) to
(BB), have exceeded Three million pesos (P3,000,000); or
(b) There are reasonable grounds to believe that his gross
sales or receipts for the next twelve (12) months, other than those
that are exempt under Section 109(A) to (BB), will exceed Three
million pesos (P3,000,000).” [Ibid., Sec. 236 (G) (1) (a) and (b) as
amended by the TRAIN]
(2) Every person who becomes liable to be registered under
paragraph (1) of this Subsection shall register with the Revenue District
Office which has jurisdiction over the head office or branch of that
person, and shall pay the annual registration fee prescribed in
Subsection (B) hereof. If he fails to register, he shall be liable to pay
the percentage tax under Title IV as if he were a VAT-registered
person, but without the benefit of input tax credits for the period in
which he was not properly registered. [Ibid., Sec. 236 (G)]
i) What is the duration of temporary closure of a VAT-
registered establishment ?
SUGGESTED ANSWER: “The temporary closure of the establishment
a) shall be for the duration of not less than five (5) days
b) and shall be lifted only
1) upon compliance
2) with whatever requirements prescribed by the
Commissioner in the closure order. (NIRC of 1997, Sec. 115, last
par.)
***j) MMM, Inc., domestic telecommuncations company, handles
incoming telecommunications services for non-resident foreign companies
by relaying international calls within the Philippines. To broaden the
coverage of its telecommunications services throughout the country, MMM,
Inc. entered into various interconnection agreements with local carriers. The
non-resident foreign corporations pay MMM, Inc in US dollars inwardly
remitted through Philippine banks, in accordance with the rules and
regulations of the Bangko Central ng Pilipinas.
MMM, Inc. filed its quarterly VAT Returns for 2000. Subsequently,
MMM, Inc. timely filed with the BIR an administrative claim for the refund of
the amount of P6,321,486.50, representing excess input VAT attributable to
its effectively zero-rated sales in 2000. The BIR ruled to deny the claim for
refund of MMM, Inc. because the VAT official receipts submitted by MMM,
Inc. to substantiate said claim did not bear the words”zero-rated” as required
under Section 4.108.1 of Revenue Regulations (RR) No. 7-95. On appeal, the
CTA division and the CTA en banc affirmed the BIR ruling.
MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself
did not provide for such a requirement. RR No. 7-95 should not prevail over
a taxpayer’s substantive right to claim tax refund or credit.
A. Rule on the appeal of MMM. Inc. (2015, dates supplied)
SUGGESTED ANSWER: MMM, Inc.’s appeal to the Supreme Court should
be granted.
As of 2000, the NIRC of 1997, and RR No. 7-95 do not contain any provision
requiring the imprinting of the words “zero-rated” on receipts such that issued by
MMM, Inc.
Actually, it is R.A. No. 9337, the amendment to the NIRC of 1997, that in
2003 required the printing of the words “zero-rated” on receipts. The application in
this case covers receipts over services made from in 2000. What applies is the old
provision which requires the printing of the words “zero-rated” only on invoices not
on official receipts. (Southern Philippines Power Corporation v Commissioner of Internal
Revenue, G. R. No. 179632, October 19, 2011)
B. Will your answer in A be any different if MMM, Inc. was claiming
refund of excess input VAT attributable to its effectively zero-rated sales in
2019 ? (2015, dates supplied)
SUGGESTED ANSWER: Yes. My answer would now be different.
Starting 2003, if the sale is subject to zero percent (0%) value-added tax, the
term ‘zero-rated sale’ shall be written or printed prominently on the invoice or
receipt. [NIRC of 1997, Sec. 113 (B), as amended by R.A. No. 9337, paraphrasing supplied]
MMM, Inc.’s failure to comply with the above mandatory requirement is fatal
to its claim for refund.
3) Invoices for deemed sales transactions
What are the invoicing requirements in case of retirement from
business deemed sale for VAT purposes ?
SUGGESTED ANSWER: “An invoice shall be prepared of the entire
inventory, which shall be the basis of the entry in the specific items appearing the
subsidiary sales journal. The invoice need not enumerate the specific items
appearing in the inventory, but it must show the total amount. It is sufficient just to
make a reference to the inventory regarding the 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 invoice. If the business is to be continued by the
new ownera or successors, the entire amount of output tax on the amount deemed
sold shall be allowed as input taxes. If the business is to be liquidated and the
goods in the inventory are sold or disposed of to VAT-registered buyers, an
invoice or instrument of sale or transfer shall be prepared citing the invoice number
wherein the tax was imposed on the deemed sale. At the same time the tax paid
corresponding to the goods sold shall be separately indicated in the instrument of
sale.” (Rev. Regs. 16-2005, Sec. 4.113-2, 3rd par.)
4) Consequences of issuing erroneous VAT invoice or
VAT official receipt
a. What are the consequences if a VAT-registered person issues
erroneous VAT Invoice or VAT Official Receipt ?
SUGGESTED ANSWER: “If a VAT-registered person
1. issues a VAT invoice or VAT official receipt for a VAT-exempt
transaction,
2. but fails to display prominently on the invoice or receipt the term
‘VAT-exempt sale’,
3. the issuer shall be liable to account for the tax imposed under
Section 106 (Value-added Tax on Sale of Goods or Properties) or 108
(Value-added Tax on Sale of Services and Use or Lease of Properties) as if
Section 109 (Exempt Transactions) did not apply.” [NIRC of 1997, Sec. 113 (D)
(2), words in parentheses, arrangement and numbering supplied]
The transaction shall become taxable and the issuer shall be liable to
pay the VAT thereon. The purchaser shall be entitled to claim an input tax
credit on his purchase. [Rev. Regs. No. 16-2005, Sec. 4.113-4 (b)]
b. What are the consequences of a nonVAT-registered person
issuing erroneous VAT Invoice or VAT Official Receipt ?
SUGGESTED ANSWER: If a person who is not a VAT-registered person
issues an invoice or receipt showing his Tax Identification Number (TIN), followed
by the word ‘VAT’:
1. The issuer shall, in addition to any liability to other percentage
taxes, be liable to:
a) The tax imposed under Section 106 (Value-added Tax on
Sale of Goods or Properties) or 108 (Value-added Tax on Sale of
Services and Use or Lease of Properties) without the benefit of any
input tax credit; and
b) A fifty percent (50%) surcharge under Section 248 (B) (Civil
Penalties) of this Code. [NIRC of 1997, Sec. 113 (D) (1) (a), arrangement ,
numbering and words in parentheses supplied]
2. “The VAT shall, if the other requisite information required under
Subsection (B) hereof (Information contained in the VAT Invoice or VAT
Official Receipt) is shown on the invoice, or receipt, be recognized as an
input tax credit to the purchaser under section 110 (Tax Credits) of this
Code.” [Ibid., Sec. 113 (D) (1) (a), arrangement , numbering and words in
parentheses supplied]
VAT shall be recognized as an input tax credit to the purchaser under Sec.
110 of the Tax Code, provided the requisite information required under subsection
4.113(B) of these Regulations is shown on the invoice or receipt . [Rev. Regs. No.
16-2005, Sec. 4.113-4 (A) (2)]
c. What is the liability of corporate officers in case there are
violations of the National Internal Revenue Code (NIRC) ?
SUGGESTED ANSWER: In case of corporations, partnerships or
associations,
1. the penalty shall be imposed
2. on the president, general manager, branch manager, officer-in-
charge and/or employees
3. responsible for the violation. (Rev. Regs. No. 4-2000, Sec. 5,
arrangement and numbering supplied)
10. Filing of returns and payment
a. Filing of return
1) When should the value-added tax (VAT) returns be filed and the
tax paid ?
SUGGESTED ANSWER: Every person liable to pay the value-added tax
shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for
each taxpayer: Provided, however, That VAT-registered persons sall pay the value-
added tax on a monthly basis: Provided, finally, That beginning January 1, 2023,
the filing and payment required under this Subsection shall be done within twenty-
five (25) days following the close of each taxable quarter . [NIRC of 1997, Sec. 114 (A)
1st par., as amended by the TRAIN]
A person whose VAT registration has been cancelled shall pay the due
thereon within twenty-five (25) days from the date of cancellation of registration.
(Ibid., 2nd par.)
VAT on imported goods shall be paid by the importer prior to the release of
such goods from customs custody. [Ibid., Sec. 107 (A)]:
2) Ka Pedring Matibag, a sole proprietor, buys and sells “kumot at
kulambo” both of which are subject to value-added tax. Since he is using the
calendar year as his taxable year, his taxable quarters end on the last day of
March, June, September, and December. When should Ka Pedring file the
VAT quarterly return for his gross sales or receipts for the period of June 1 to
September 30 ? (2011 MCQ converted to essay question)’
SUGGESTED ANSWER: Within 25 days from September 30. This is so
because every person liable to pay the value-added tax shall file a quarterly return
of the amount of his gross sales or receipts within twenty-five (25) days following
the close of each taxable quarter prescribed for each taxpayer: [NIRC of 1997, Sec.
114 (A) 1st par., as amended by the TRAIN]
SUGGESTED ANSWER: The value-added tax withheld under this Section
shall be remitted within ten (10) days following the end of the month the withholding
was made.” [NIRC of 1997, Sec. 114 (C), 2nd par., as amended by Rep. Act No. 9337;
Rev. Regs. No. 16-2005, Sec. 4.114-2(b)]
III. LOCAL TAXATION (Local Government Code of 1991 [RA
7160], as amended)

b. Withholding of the final VAT on sales to the government A. Local government taxation

1) What is the procedure for withholding of value-added tax on sales 1. Fundamental principles
to the government ?
SUGGESTED ANSWER: Historical antecedents. The fundamental principles of local government taxation,
a) “The Government or any of its political subdivisions, also known as the requisites of municipal taxation, was the subject of BEQs in 1971, 1976,
1978, 1979, 1991, and 2012.
instrumentalities or agencies, including government-owned-or controlled
corporations (GOCCs)
b) shall, before making payment on account of each purchase of
goods and services which are subject to the value-added tax imposed under
**Discuss the exercise of the taxing and the revenue-raising powers of
local governments under the Local Government Code from the standpoint of
Sections 106 (Value-added Tax on Sale of Goods or Properties) and 108
the more fundamental guiding principles relative thereto. (1979, reworded)
(Value-added Tax on Sale of Services and Use or Lease of Properties) of this
SUGGESTED ANSWER: The following fundamental principles shall govern
Code,
the exercise of taxing and other revenue-raising powers of local government units:
c) deduct and withheld the value-added tax due at the rate of five
a. Taxation shall be uniform in each local government unit. The
percent (5%) of the gross payment thereof:
uniformity required is only within the territorial jurisdiction of a province, city,
d) Provided, That beginning January 1, 2021, the VAT witholding
municipality, or a barangay.
system under this Subsection shall shift from final to a creditable system:
b. Taxes, fees, charges and other impositions shall:
e) Provided, further, That the payment for lease or use of properties
1) be equitable and based as far as practicable, on the
or property rights to nonresident owners shall be subject to twelve percent
taxpayer’s ability to pay;
(12%) withholding tax at the time of payment: Provided, finally, That
2) be levied and collected only for public purposes;
payments for purchases of goods and services arising from projects funded
3) not be unjust, excessive, oppressive or confiscatory;
by Official Development Assistance (ODA) as defined under Republic Act No.
4) not be contrary to law, public policy, national economic
8182, otherwise known as the ‘Official Development Assistance Act of 1996’,
policy or in restraint of trade.
as amended, shall not be subject to the final withholding tax system as
c. Collection of local taxes, fees charges and other impositions shall
imposed in this Subsection. For purposes of this Section, the payor or person
in no case be let to any private person.
in control of the payment shall be considered as the withholding agent.”
d. The revenue collected shall inure solely to the benefit of, and be
[NIRC of 1997, Sec. 114 (C), 1st par. as amended by the TRAIN, arrangement,
numbering and words in parentheses supplied] subject to the disposition by, the LGU levying the tax, fee, charge or other
imposition unless otherwise specifically provided by this Rule; and
2) When should value-added tax withheld on sales to the e. Each local government unit shall, as far as practicable, evolve a
government be remitted ? progressive system of taxation. (LGC, Sec. 130; RRILGC, Rule XXX, Art. 219,
numbering and paraphrasing supplied)
 a. The fundamental principles, explained
i. Uniformity and equitableness as fundamental
principles of local taxation
Historical antecedents. The concepts of uniformity and equitableness of taxation
was the subject of BEQs in 1966, 1968, 1969, 1973, 1981, 2003, 2004, 2009, and 2013
**1) The Sangguniang Bayan of Taal, Batangas, passed on an
ordinance which reads: “An ordinance imposing upon Asis Candy Company
or any other person or entity operating a candy factory within the
municipality an annual tax of P1,000.00.” At the time the ordinance was
approved, Asis Candy Company was the only candy factory operating in
Taal. Is the ordinance valid ? Reasons. (1968, adapted)
SUGGESTED ANSWER: Yes, because the ordinance does not only apply to
Asis Candy Company but to all other candy companies within the municipality
which are similar to Asis Candy Company. Furthermore, there is valid
classification. Thus, there is no violation of the requirement on equal protection
and uniformity in taxation.
**2) The Constitution provides that the rule of taxation shall be
uniform. Is this rule violated in the following two cases?
a) The City of Manila passed an ordinance imposing a fee on
the price of admission tickets to cinematograph theaters, theatrical
shows and boxing exhibitions. Said ordinance, however, did not tax
many more kinds of amusements such as race tracks, concert halls,
circuses and other places of amusements. Corporations engaged in
motion pictures business attacked the validity of the ordinance on the
ground that it is violative of the principle of uniformity of taxation
enjoined by the Constitution. Decide and briefly explain the reasons for
your decision. (1973, rearranged)
SUGGESTED ANSWER: No. There was valid classification because
there is a substantial distinction between the subject of the tax and those not
subject to the tax.
b) A city ordinance of Davao City provided that any agent and/or
consignee of any dealer engaged in selling soft drinks and carbonated
beverages in the city shall pay a tax of ten (10) centavos per case of
twenty-four (24) bottles, to be based on, and computed from, the cargo
manifest or bill of lading or any other similar documents showing the
number of cases of soft drinks received within a month. A soft drinks
company which bottled its products in Cebu and shipped said products
to its Davao City warehouse for distribution and sale in said city and all
municipalities of Davao assailed the validity of the city ordinance on the
ground that it is violative of the uniformity required by the Constitution.
Decide briefly explaining the reason for your decision. (1973, rearranged)
SUGGESTED ANSWER: The ordinance does not violate the uniformity
rule which is territorial in character. There is no violation of uniformity
because the taxable subjects are imposed the same rate by the taxing
authority within their respective territorial jurisdictions.
** 3) The City of Makati, in order to solve the traffic problem in its
business districts, decided to impose a tax, to be paid by the driver, on all
private cars, entering the city during the peak hours from 8:00 a.m. to 9:00
a.m. from Mondays to Fridays, but exempts those cars carrying more than
two occupants, excluding the driver. Is the ordinance valid ? Explain. (2003)
SUGGESTED ANSWER: Yes. The exercise of the power is a joint exercise
of police power and the power of taxation. To solve the traffic problem is a valid
exercise of police power.
There is no violation of the equal protection or uniformity clause of the
constitution because there is a valid classification. Substantial distinctions exists
between private cars and other kinds of vehicles, so also between cars carrying
more than two occupants excluding the driver, and those carrying less. The
objective is to reduce the number of vehicles moving within the business districts,
and judicial notice should be taken of the number of private cars with less than
two occupants excluding the driver.
**4) RC is a law-abiding citizen who pays his real estate taxes
promptly. Due to a series of typhoons and adverse economic conditions, an
ordinance is passed by MM City granting a 50% discount for payment of
unpaid real estate taxes for the preceding year and the condonation of all
penalties on fines resulting from the late payment.
Arguing that the ordinance rewards delinquent tax payers and
discriminates against prompt ones, RC demands that he be refunded an
amount equivalent to one-half of the real (estate) taxes he paid. The
municipal attorney rendered an opinion that RC cannot be reimbursed
because the ordinance did not provide for such reimbursement. RC files suit
to declare the ordinance void on the ground that it is a class legislation. Will
his suit prosper ? Explain your answer briefly. (2004)
 SUGGESTED ANSWER: No. There is no class legislation because there is
no violation of the equal protection suit. There is a valid classification between
those who already paid their taxes and those who have not. Furthermore, the
taxing authority has the prerogative to select the subjects and objects of taxation,
including granting a 50% discount in the payment of unpaid real estate taxes, and
the condonation of all penalties on fines resulting from late payment.
ii. Ability to pay as a fundamental principle of local
taxation
Explain ability to pay as a fundamental principle of local taxation.
SUGGESTED ANSWER: Taxes, fees, charges and other impositions based
as far as practicable on the taxpayer’s ability to pay. (LGC, Sec. 130, paraphrasing
supplied)
iii. Public purpose as a fundamental principle of local
taxation
Historical antecedent. Public purpose as a fundamental principle of local taxation
was the subject of a BEQ in 1989.
** An ordinance of Quezon City on the operation of its market stalls
and the collection of market fees created a market committee “to
formulate, recommend and adopt, subject to the ratification of the
sanggunian panlungsod and approval by the city mayor, policies and rules
and regulation in the operation of the market stalls.
xxx xxx xxx
b) Does the entrusting of the collection of the market stall fees
to the private corporation destroy the “public purpose” of the
ordinance? (1989, paraphrasing supplied)
SUGGESTED ANSWER: No. It does not destroy the “public purpose” of the
ordinance because the fees are for regulation under the police power. The market
stall fees are for the regulation of the market activities and not for revenue raising.
Exercise of the police power is for a public purpose.
ALTERNATIVE ANSWER: Yes. The entrusting of the collection of the
market stall fees to the private corporation destroys the “public purpose” of the
ordinance because it is going to be paid for such service.
The payment to the private corporation would come from the revenue
collected which is violative of public purpose which posits that all collection should
inure solely to the benefit of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition. [LGC, Sec. 130 (d)]
iv. A fundamental principle of local taxation is that the
local tax should not be unjust, excessive or confiscatory
Explain the concept that the local tax should not be unjust, excessive,
oppressive or confiscatory is a fundamental principle of local taxation.
SUGGESTED ANSWER: Unjust taxes, fees, charges and other impositions
are taxes, fees, charges and other impositions that are deficient in justice or
fairness. [former Local Tax Code, Sec. 3 (n-1)]
Excessive taxes, fees, charges and other impositions are amounts collected
that are more than reasonably necessary to meet the purpose of the imposition.
Taxes, fees, charges and other impositions that are characterized by whatever is
notably greater that what is moderate, reasonable, proper, usual, just and
necessary. [former Local Tax Code, Sec. 3 (m)]
Oppressive taxes, fees, charges and other impositions are taxes, fees,
charges and other impositions that are unreasonably burdensome, unjustly severe,
or harsh. [former Local Tax Code, Sec. 3 (a-1)]
Confiscatory taxes, fees, charges and other impositions are taxes, fees,
charges and other impositions which amount to undue seizure or forfeiture of
private property in favor of the public treasury. [former Local Tax Code, Sec. 3 (j)]
The determination of whether or not a tax is excessive, oppressive or
confiscatory is an issue which essentially involves questions of fact, and thus the
Supreme Court is precluded from reviewing the same. [Gerochi v. Department of
Energy, 527 SCRA 696 (2007)]
v. A fundamental principle of local taxation is that it
should not be contrary to law
That taxes, fees, charges and other impositions shall not be contrary to
law. [LGC, Sec. 130 (b) (4), paraphrasing supplied) is a fundamental principle
of local taxation. What is the law referred to and what is rationale for the
fundamental principle ? Explain.
SUGGESTED ANSWER: “Law” refers to national tax laws. This
fundamental principle is reiterated in the common limitations on the taxing powers
of local government units.
As a general rule, the exercise of the taxing powers of provinces, cities,
municipalities and barangays shall not extend to the levy of taxes already collected
under various tax laws by the national government such as those imposed and
collected under the National Internal Revenue Code of 1997 including income
taxes, documentary stamp taxes, estate and donor’s taxes, excise taxes, value-
added taxes, etc. (LGC, Sec. 133, paraphrasing supplied)
So also, those imposed and collected under the Customs Modernization and
Tariff Act (CMTA), such as customs duties, etc.
The rationale of the requirement that the ordinances should not contravene a
statute is obvious. Municipal governments are only agents of the national
government. Local councils exercise only delegated legislative powers conferred
on them by Congress as the national lawmaking body. The delegate cannot be
superior to the principal or exercise powers higher than those of the latter. It is a
heresy to suggest that the local government units can undo the acts of Congress,
from which they have derived their power in the first place, and negate by mere
ordinance the mandate of the statute . [Ferrer, Jr. v. City Mayor Bautista, et al., G.R. No.
210551, June 30, 2015]
vi. That the imposition should not be contrary to public
policy is a fundamental principle of local taxation
A fundamental principle of local taxation is that taxes, fees, charges
and other impositions shall not be contrary to public policy. [LGC, Sec. 130 (b)
(4), paraphrasing supplied]
SUGGESTED ANSWER: A public policy that should not be violated is the
principle of local autonomy.
vii. A fundamental principle of local taxation is that the
impositions shall not be contrary to declared national policy
A fundamental principle of local taxation is that taxes, fees, charges
and other impositions shall not be contrary to a national policy. [LGC, Sec.
130 (b) (4), paraphrasing supplied] Explain.
SUGGESTED ANSWER: The exercise of the taxing power by provinces,
municipalities shall not extend to the levy of taxes on business enterprises certified
to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and
four (4) years, respectively from the date of registration [LGC, Sec. 133 (g)]; and
taxes, fees or charges on Philippine products actually exported. [Ibid., Sec. 133 (m)]
viii. A fundamental principle of local taxation is that the
impositions shall not be in restraint of trade
A fundamental principle of local taxation is that taxes, fees, charges
and other impositions shall not be contrary to a national policy. (LGC, Sec.
130 (b) (4), paraphrasing supplied) Explain.
SUGGESTED ANSWER: Restraint of trade is conduct which tends to reduce
free competition in the market place, and whose adverse effect is not outweighed
by some permissible justification.
Thus, the exercise of the taxing power by provinces, municipalities shall not
extend to the levy of taxes, fees, charges and other impositions upon goods carried
into or out of, or passing through, the territorial jurisdictions of local government
units in the guise of charges for wharfage, tolls for bridges or otherwise or other
taxes, fees or charges in any form whatsoever upon such goods or merchandise.
[LGC, Sec. 133 (e)]
ix. The let principle is a fundamental principle of local
taxation
Historical antecedent. The let principle was the subject of a BEQ in 1975.
**X municipality decides to hire a private firm (which has a computer)
to take care of the imposition and collection of all fees, licenses and taxes
imposed by the municipality. The mayor believes that in this manner the tax
collection will be fair and efficient because the private firm will be paid a
percentage of the taxes it collects. May the mayor legally enter into such
arrangement? Explain. (1975, adapted)
SUGGESTED ANSWER: No. The Local Government Code vests the
exercise of the taxing and other revenue raising powers solely in local government
units and the collection of local taxes, fees charges and other impositions shall not
be let to any private person.
The hiring of a private firm to take care of the imposition and collection of all
fees, licenses and taxes imposed by municipality X would violate the aforesaid
fundamental principle of local taxation.
x. A fundamental principle of local taxation is that the
revenues collected shall inure solely to the concerned local
government unit
Who shall benefit from the revenues collected from local taxation ?
What is the source of the authority for such principle ?
SUGGESTED ANSWER: A fundamental principle of local taxation is that the
revenue collected shall inure solely to the benefit of the concerned local
government unit. The revenue collected pursuant to the power to impose taxes,
fees, charges and other impositions shall inure solely to the benefit of, and be
subject to the disposition by, the local government unit levying the tax, fee, charge
or other imposition unless otherwise specifically provided for in the Local
Government Code. [LGC, Sec. 130 (d)]
The above principle is premised on the constitutional provision that each
local government unit shall have the power to create its own sources of revenue
and to levy taxes, fees and charges and that such taxes, fees and charges shall
accrue exclusively to the local government. (1987 Phil. Const., Article. X, Sec. 5, 1987,
paraphrasing supplied)
xi. To evolve a progressive system of taxation is a
fundamental principle of local taxation
1) A fundamental principle of local government taxation is that each
local government unit shall, as far as practicable, evolve a progressive
system of taxation. (LGC, Sec. 130) What is its basis ?
SUGGESTED ANSWER: The basis is the constitutional basis that, “The
Congress shall evolve a progressive system of taxation .” [1987 Phil. Const., Article
VI, Sec. 28 (1), 2nd sentence]
2) What is meant by the progressive system of taxation ? What is the
rationale for a progressive system of taxation ?
SUGGESTED ANSWER: Taxation is progressive when its rate goes up
depending on the resources of the person affected. (Abakada Guro Party List
(Formerly AASJS) etc., v. Ermita, et al., G. R. No. 168056, September 1, 2005)
Under this system of taxation, the tax rate increases much faster than the tax
base. The tax liability increases much faster than the income upon which the tax is
computed.
The progressive system of taxation
a) represents a procedurally legitimate outcome of a political
process based on sound democratic principles.
b) It furthers (not guarantees) the end of achieving a modest
redistribution of wealth.
c) It limits the wealth and power of the extremely wealthy.
d) It compensates for regressive national taxes such as the value-
added tax, etc. (Adapted from Dodge, Joseph M. The Logic of Tax, West
Publishing Company, St. Paul, Minn, USA, 1989)
The progressive system of taxation achieves social justice through
redistribution of income. using the progressive system of taxation. It alleviate the
margin between rich and poor. (Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005)
b. Nature of the power of local taxation
Historical antecedents. The nature of local taxation as a delegated power was the
subject of BEQS in 1980, and 2007.
**1) How has the growing importance of local taxation been
underscored by the 1987 Constitution ? (1980, adapted)
SUGGESTED ANSWER: The importance of local taxation has been
underscored by the 1987 Constitution when it delegated to each local government
unit the power to create its own sources of revenue and to levy taxes, fees and
charges so long as the proceeds accrue exclusively to the local government unit
imposing and levying the same.
However, this power of local government units is subject to such guidelines
and limitations as the Congress may provide.
**2) What is the nature of the taxing power of the provinces,
municipalities and cities ? How will the local government units be able to
exercise their taxing powers ? (2007)
SUGGESTED ANSWER: The power is merely a delegated power and not a
direct grant.
LGUs are able to legislate only by virtue of a valid delegation of legislative
power from the national legislature; they are mere agents vested with what is called
the power of subordinate legislation. (Ferrer, Jr. v. City Mayor Bautista, et al., G.R. No.
210551, June 30, 2015)
“Congress enacted the LGC as the implementing law for the delegation to
the various LGUs of the State’s great powers, namely: the police power, the power
of eminent domain, and the power of taxation. The LGC was fashioned to delineate
the specific parameters and limitations to be complied with by each LGU in the
exercise of these delegated powers with the view of making each LGU a fully
functioning subdivision of the State subject to the constitutional and statutory
limitations.” (Ibid.)
Specifically, with regard to the power of taxation, it is indubitably the most
effective instrument to raise needed revenues in financing and supporting myriad
activities of the LGUs for the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace, progress, and prosperity of the
people. (Ibid.)
c. Source of the power of local taxation
Historical antecedents. The constitutional delegation of the power of local taxation
was the subject of BEQs in 1976, 1983, 1984, 1987, 1998, 2001, and 2003.

**1) There is no provision in the 1987 Constitution expressly vesting
in the lawmaking body the power to impose taxes, although there is a
provision therein expressly authorizing each local government unit “to levy
taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide.” Does this imply that the lawmaking body cannot
enact local tax laws? Explain your answer. (1976, reworded)
SUGGESTED ANSWER: Yes. The constitutional provisions expressly
delegated the power to local government units to enact local tax laws.
The only power of Congress is to provide guidelines and limitations for the
effective exercise by the LGUs of the power of local taxation.
**2) The Congress of the Philippines passes an act denying to local
governments the power to impose taxes on the business of manufacturing or
producing goods primarily for export. Discuss whether or not this is a valid
legislation in the light of the constitutional provision that local government
units “shall have the power to create (their) own sources of revenue…”
(1998)
SUGGESTED ANSWER: This is a valid legislation. Congress has the
power to impose guidelines and limitations on the Local Government units’ power
to tax.
**3) Congress, after much public hearing and consultations with
various sectors of society came to the conclusion that it will be good for the
country to have only one system of taxation by centralizing the imposition
and collection of all taxes in the national government. Accordingly, it is
thinking of passing a law that would abolish the taxing power of all local
government units. In your opinion, would such a law be valid under the
present Constitution ? Explain your answer. (2001)
SUGGESTED ANSWER: No, because legislation could not withdraw a power
delegated by the constitution. To deprive, through legislation, the local
governments of their taxing power would violate the constitution.
The only power granted to Congress is to provide guidelines and limitations.
d. Grant of local taxing power under the Local Government
Code (LGC)
1) What is the statutory basis of local government units’ power to tax
or what is the law governing local government taxation ?
SUGGESTED ANSWER: The law governing the exercise by the provinces,
cities, municipalities, and barangays of their taxing and other revenue raising
powers is found in Title I, Book II of Republic Act No. 7160, otherwise known as
the Local Government Code of 1991. (LGC, Sec. 128)
It spans from Sec. 128 – 196 and is arranged under the following chapters:
a) General Provisions
b) Specific Provisions on the Taxing and other Revenue Raising
Powers of Local Government Units
c) Collection of Taxes
d) Civil Remedies for Collection of Revenue
e) Miscellaneous Provisions
f) Taxpayer’s Remedies
Sec. 534 (c) of the Local Government Code of 1991 expressly repealed
Presidential Degree No. 231, The Local Tax Code. It is however important to take
note that some of the provisions of the Local Tax Code were replicated in toto by
the Local Government Code of 1991.
2) What is the legal basis for the provisions of the Local
Government Code on local taxation ?
SUGGESTED ANSWER: Book II, Local Taxation and Fiscal Matters of the
Local Government Code which contains provisions on Local Government Taxation
and Real Property Taxation was enacted into law pursuant to the provisions of
Article X of the 1987 Philippine Constitution:
a. Sec. 3 - enjoining the enactment of a Local Government Code
which shall, among others, allocate to the different local government units
their powers and resources; and
b. Sec. 5 - declaring that each local government unit shall have the
power to create its own sources of revenue and to levy taxes subject to such
limitations as may be provided by law.
3) What are the objectives of the tax provisions of the Local
Government Code ?
SUGGESTED ANSWER: The tax provisions of the Local Government Code
were enacted into law in order to comply with the provisions of Section 3, Article X
of the Constitution enjoining the enactment of a Local Government Code which
shall, among others, allocate among the different local government units their
powers and resources and Section 5 of the Same Article of the Constitution
declaring that “each local government unit shall have the power to create its own
sources of revenue and to levy taxes, subject to such limitations as may be
provided by law.”
 While the Constitution under Section 5 of Article X ensures the viability and
self-sufficiency of local government units by the grant to them of general taxing
powers, yet the same Constitution also sees fit under Sections 3 and 5 of Article X
to have such taxing powers allocated and limited by law.
This is to ensure that, while the local government is being strengthened and
made more autonomous, the taxpayers will not be overburdened or saddled with
multiple and unreasonable impositions; that each local government unit will have
its fair share of available resources; that the resources of the national
government will not be unduly disturbed; and that local taxation will be fair, uniform
and just.
Thus, the Local Government Code embodies the limitations called for by the
Constitution with respect to the exercise of the local taxing powers and allocates
the local taxes, fees and other impositions that may be levied among the different
local government units.
i. Authority to prescribe penalties for tax violations
Do the respective sangguniangs of the different local government units
(LGUs) have the authority to prescribe penalties ? If so, to what extent ?
SUGGESTED ANSWER: Yes. The sanggunian of a local government unit is
authorized to prescribe fines or other penalties for violation of tax ordinances.
(LGC, Sec. 516, 1st sentence)
The fines or other penalties that may be imposed by the sangguniangs shall
not be less than One thousand pesos (P1,000.00) nor more than Five thousand
pesos (P5,000.00) nor shall imprisonment be less than one (1) month nor more
than six (6) months. Such fine or other penalty, or both, shall be imposed at the
discretion of the court.
The fine that a sangguniang barangay may prescribe should be not less than
One hundred pesos (P100.00) nor more than One thousand pesos (P1,000.00).
(Ibid., Sec. 516)
ii. Authority to grant local tax exemptions
What is the extent of the authority of local government units to grant
tax exemptions, incentives or reliefs ?
SUGGESTED ANSWER: “Local government units may, through ordinances
duly approved, grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.” (LGC, Sec. 192)
The grant may be made upon enactment of an ordinance by majority vote of
all the members of the sangguniang panlalawigan [RRI LGC, Rule XXX, Part Eleven,
Art. 98 (2) (ii), paraphrasing supplied]; the sangguniang panlungsod [Ibid., Art. 99 (2)
(ii), paraphrasing supplied] or the sangguniang bayan enact ordinances xxx
granting tax exemptions, incentives or reliefs.” [Ibid., Art. 100 (2) (ii), paraphrasing
supplied]
The sangguniang barangay does not seem to have the power to grant tax
exemptions because the sangguniang barangay, as the legislative body of the
barangay, shall have the power to merely “Enact tax and revenue ordinances,
subject to the limitations imposed in the Code; xxx xxx.” [Ibid., Art. 101 (a) (2),
paraphrasing supplied] No mention is made of its authority to grant tax exemptions,
incentives or reliefs.
iii. Withdrawal of exemptions
Historical antecedent. Withdrawal of tax exemptions was the subject of a BEQ in
2011.
**Prior to the enactment of the Local Government Code, consumer's
cooperatives registered under the Cooperative Development Act enjoyed
exemption from all taxes imposed by a local government. With the Local
Government Code’s withdrawal of exemptions, could these cooperatives
continue to enjoy such exemption ? (2011 MCQ converted into an essay question)
SUGGESTED ANSWER: Yes, their exemption is specifically mentioned
among those not withdrawn by the Local Government Code.
iv. Authority to adjust local tax rates
What is the extent of the authority of Local Government Units to adjust
tax rates ? What is the rationale for this authority ?
SUGGESTED ANSWER: “Local government units shall have the authority
to adjust the tax rates as prescribed herein not oftener than once every five (5)
years, but in no case shall such adjustment exceed ten percent (10%) of the rates
fixed under this Code.” (LGC, Sec. 192)
It is submitted that the above 10% limitation of every five (5) years does not
find application to cities. This is is so if we consider that, “The rates of taxes that a
city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes.” (Ibid., Sec. 151, 2nd par.)
The rationale for the authority to adjust local tax rates. One of the
characteristic of a sound tax system is fiscal adequacy. This means that the tax
system must be able to provide sufficient revenues in order to meet the legitimate
objects of government.
xxx
 Stated otherwise, the taxes collected must be able to finance government Eleven, Art. 98 (2) (ii), paraphrasing, supplied] or the sangguniang bayan [Ibid., Art. 100
expenditures and their variations. (Abakada Guro Party List (Formerly AASJS), etc., v, (2) (ii), paraphrasing, supplied] The sangguniang barangay, as the legislative body of
Ermita, et al., G. R. No.168056, September 1, 2005) the barangay, shall enact tax and revenue ordinances, subject to the limitations
Without the authority to adjust local tax rates local governments may find it imposed in the Local Government Code. [Ibid., Art. 101 (a) (2), paraphrasing supplied]
difficult to meet the ever increasing demands for more public services. This in turn
would result not only to a violation of the fiscal adequacy concept but may likewise
impinge upon the lifeblood theory of taxation. **2) In order to raise revenue for the repair and maintenance of the
newly constructed City Hall of Makati, the City Mayor ordered the collection
v. Residual taxing power of local governments of P1.00, called “elevator tax”, every time a person rides any of the high-tech
elevators in the city hall during the hours of 8:00 a.m. to 10:00 a.m. and 4:00
Explain the meaning of the residual taxing powers of local governments p.m. to 6:00 p.m. Is the “elevator tax” a valid imposition ? Explain. (2003)
including its limitations. SUGGESTED ANSWER: No. The mayor does not have the power to impose
SUGGESTED ANSWER: The scope of the residual taxing power of local taxes, the same being lodged solely with the local sanggunian.
government units includes the power to levy other taxes, fees or charges.
1) On any base or subject e. Scope of taxing power
2) Not specifically enumerated under the Local Government Code
or taxed under the provisions of the National Internal Revenue Code. 1) What are the kinds of local tax ordinances, their nature and
The limitations are that such other taxes, fees or charges so levied requisites ? Explain briefly.
under the residual taxing power shall not be: SUGGESTED ANSWER: The different kinds of local tax ordinances and
a) unjust their nature are:
b) excessive a) Those imposing a fee or tax specially authorized by the Local
c) oppressive Government Code for the local government units to impose. (LGC, Sec. 186)
d) confiscatory The rate should be:
e) contrary to declared national policy (1) within the range of rates provided by the Code;
f) made without prior public hearing. (LGC, Sec. 186, (2) uniform throughout the political subdivision; and
arrangement and numbering supplied) (3) fair and reasonable to the taxpayers. (Ibid., paraphrasing,
arrangement and numbering supplied)
vi. Authority to issue local tax ordinances or the local b) Those imposing a fee or tax not specifically enumerated under
taxing authority the Local Government Code or taxed under the provisions of the National
Internal Revenue Code or other applicable laws. (LGC, Sec. 186)
Historical antecedents. The local taxing authority was the subject of BEQs in 2003, Requisites for the imposition of a fee or tax not specifically enumerated
and 2012. by the Local Government Code:
(1) It is not against any of the fundamental principles of local
**1) Which body has the authority to enact ordinances levying taxes,
taxation.
(2) It is not one of the prohibited impositions under the common
fess and charges ? limitations on the taxing powers of local government units.
SUGGESTED ANSWER: In general, the power to enact ordinances levying (3) It is not one of the taxes, fees or charges denied the local
taxes, fees and charges is lodged with the local legislative bodies of the local government units by the Code; and
government units. (4) The taxes shall not be:
Specifically local ordinances levying taxes, fees and charges and prescribing (a) unjust
the rates thereof for general and specific purposes may be enacted upon majority (b) excessive
vote of all the members of the sangguniang panlalawigan [RRI LGC, Rule XXX, Part
 (c) oppressive
(d) confiscatory
(e) contrary to declared national policy. (Ibid., numbering
and arrangement supplied)
2) What are the two kinds of taxing and revenue raising powers of
local government units ?
SUGGESTED ANSWER: The two kinds of powers are:
a) The common revenue raising powers which are enjoyed by all
local government units.
b) The specific taxing and revenue raising powers which find
application only to each local government unit such as the province, the city,
the municipality or the barangay.
The enumeration of the two kinds of powers does not ipso facto allow the
local government units to collect the taxes, fees and charges. There must be a tax
ordinance that authorizes the collection.
2. Specific taxing powers of Local Government Units (exclude rates)
What are the specific taxing and revenue raising powers ?
SUGGESTED ANSWER: These are the powers that are authorized for
specific local government units only. Such powers are not allowed to be exercised
by other local government units. For example, the powers of a province could not
be exercised by a municipality and vice-versa.
The exception is cities which may exercise the powers of both the province
and the municipality.
7. Annual fixed tax for every delivery truck or van of manufacturer or
producers, wholesalers of, dealers, or retailers in, certain products. (Ibid., Sec.
141)
i Tax on transfer of real property ownership
Historical antecedents. The power of a province or city to levy a tax on transfer of
real property ownership was the subject of BEQs in 1979, 1980, 1991, 2007, and 2016.
***1) A municipality passed an ordinance imposing a tax of 1% on
the consideration of all sales or other transfers of title of real property
located within its boundaries.
As property owner affected by the tax, comment on its legality or
illegality, and if you disagree with it, what are your remedies, administrative
and judicial ? (1980)
SUGGESTED ANSWER: The tax is illegal because only provinces and cities
may impose a tax on transfer of real property ownership.
My first administrative remedy would be to question the legality of the
ordinance within thirty (30) days from effectivity by appealing to the Secretary of
Justice. If the Secretary rejects my appeal, I have thirty (30) days from receipt of
the denial within which to file appropriate proceedings before a competent court. If
the Secretary of Justice does not act within 60 days, I would have a thirty (30) day
period from the lapsed of the sixty (60) day period for the Secretary of Justice to
decide, within which to file the suit with the appropriate court.

a. Taxing powers of provinces (Exclude: Rates) ***2) The City of Maharlika passed an ordinance imposing a tax on
any sale or transfer of real property located within the city at a rate of fifty
What is the scope of the taxing powers of a province which may also be percent (50%) of one percent (1%) of the total consideration of the
exercised by a city ? transaction. Jose sold a parcel of land in the city, which he inherited from
SUGGESTED ANSWER: Except as otherwise provided in the Local his deceased parents, and refused to pay the aforesaid tax. He instead filed
Government Code, the province may levy only the taxes, fees, and charges as a case asking that the ordinance be declared null and void since the tax it
follows: (LGC, Sec. 134) imposed can only be collected by the national government, as in fact he has
1. Tax on transfer of real property ownership. (Ibid., Sec. 135) paid the Bureau of Internal Revenue (BIR) the required capital gains tax. If
2. Tax on business of printing and publication. (Ibid., Sec. 136) you were the City Legal Officer of Maharlika, what defenses would you raise
3. Franchise tax. (Ibid., Sec. 137) to sustain the validity of the ordinance? (2016)
4. Tax on Sand, Gravel and other quarry resources. (Ibid., Sec. 138) SUGGESTED ANSWER: The defenses I would raise are the following:
5. Professional tax. (Ibid., Sec. 139) a. Cities like the City of Maharlika have the power to pass an ordinance
6. Amusement tax. (Ibid., Sec. 140) imposing a tax on the sale, donation, barter, or on any other mode of transferring
ownership of title to real property located within its territorial boundaries. (LGC, Sec.
135, in relation to Secs. 142 and 151)
 b. The required capital gains tax collected by the national
government is different from the tax that is imposable by the local
government units such as the City of Maharlika.
c. The transfer tax imposed and collected by cities are not among
those included in the common limitations on the power of taxation which are
reserved solely for the exercise by the national government.
d. There is no direct duplicate taxation because there are two
different taxing authorities, the national government and a local government
unit.
ii. Tax on the business of printing and publication
1) What is the tax imposed on the business of printing and
publication ?
SUGGESTED ANSWER:
a) The province may impose a tax
b) on the business of persons
1) engaged in the printing and/or publication
2) of books, cards, posters, leaflets, handbills, certificates,
receipts, pamphlets, and others of similar nature,
c) at a rate not exceeding fifty percent (50%) of one percent (1%) of
the gross annual receipts for the preceding calendar year.
1) In the case of a newly started business, the tax shall not
exceed one-twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on the gross
receipts for the preceding calendar year, or any fraction thereof, as
provided herein. (LGC, Sec. 136, first three sentences, arrangement and
numbering supplied)
2) What local government unit is authorized to impose the tax ?
SUGGESTED ANSWER: The tax on the business of printing and publication
may be imposed by a province or city but not by a municipality or barangay. (LGC,
Sec. 136, in relation to Secs. 142 and 151)
3) Who are exempted from the tax on the business of printing and
publication ?
SUGGESTED ANSWER:
a) The receipts from the printing and/or publishing of books or other
reading materials
b) prescribed by the Department of Education, Culture and Sports,
c) as school texts or references
d) shall be exempt from the tax herein imposed. (LGC, Sec. 136, last
setntence, arrangement and numbering supplied)
The words “Department of Education, Culture and Sports” should be
replaced with Department of Education (DepEd), Commission on Higher Education
(CHED) and Technical Education Services Development Authority (TESDA).
iii. Franchise tax
Historical antecedent. The francise tax was the subject of a BEQ in 2007.
**The Local Government Code took effect on January 1, 1992.
PLDT’s legislative franchise was granted sometime before 1992. Its
franchise provides that PLDT will only pay 3% franchise tax in lieu of all
taxes.
The legislative franchises of Smart and Globe Telecoms were granted in
1998. Their legislative franchises state that they will pay only 5% franchise
tax in lieu of all taxes.
The Province of Zamboanga del Norte passed an ordinance in 2012 that
imposes a local franchise tax on all telecommunications companies
operating within the province. The tax is 50% of 1% of the gross annual
receipts of the preceding calendar year based on the incoming receipts of
the preceding calendar year based on the incoming receipts, or receipts
realized, within its territorial jurisdiction.
Is the ordinance valid ? Are PLDT, Smart and Globe liable to pay
franchise taxes ? Reason briefly. (2007, dates supplied)
SUGGESTED ANSWER: All of them are liable to pay franchise taxes. PLDT
should pay the franchise tax because its tax exemption was withdrawn by the Local
Government Code.
Globe and Smart are liable to pay franchise taxes. Congress did not
expressly exempt Smart from local taxes. Congress used the "in lieu of all taxes"
clause only in reference to national internal revenue taxes. The only interpretation,
under the rule on strict construction of tax exemptions, is that the "in lieu of all
taxes" clause in Smart's and Globe’s franchise refer only to national and not to
local taxes.
If Congress intended the "in lieu of all taxes" clause in Smart's and Globe’s
franchise to also apply to local taxes, Congress would have expressly mentioned
the exemption from municipal and provincial taxes. Exemptions are strictly
construed against taxpayers. [Smart Communications, Inc. v. The City of Davao, etc., et
al., G. R. No. 155491, September 16, 2008]
iv. Tax on sand, gravel, and other quarry resources
 1) What tax is imposed on sand, gravel and other quarry resources ?
What is its nature ?
SUGGESTED ANSWER:
a) The province may levy and collect
b) not more than ten percent (10%) of fair market value in the
locality per cubic meter of ordinary stones, sand, gravel, earth, and other
quarry resources, as defined under the National Internal Revenue Code, as
amended, extracted from public lands or from the beds of seas, lakes, rivers,
streams, creeks, and other public waters within its territorial jurisdiction . (LGC,
Sec. 138, 1st sentence, arrangement and numbering supplied)
The tax is an excise tax imposed on the privilege of extracting sand
and gravel. It is settled that provincial governments can levy excise taxes on
quarry resources independently from the national government. [Lepanto
Consolidated Mining Company v. Ambanloc, 622 SCRA 229 (2010)]
2) What local government unit is authorized to impose the tax ?
SUGGESTED ANSWER: A tax on sand, gravel, and other quarry resources
may be imposed by a province or city but not by a municipality or barangay . (LGC,
Sec. 138, in relation to Secs. 142 and 151)
The authority to impose taxes and fees for extraction of sand and gravel
belongs to the province, not to the municipality where they are found. (Municipality
of San Fernando, La Union v. Sta. Romana, 149 SCRA 23)
v. Professional tax
Historical antecedents. Professional tax was the subject of BEQs in 1969, 1970,
1975, 1977, 1978, 1979, 1982, 1991, 2005, and 2018.
***1) In 2018, the Provincial Government of Ilocos Sur imposed a
fixed tax of P300.00 per annum on persons engaged in certain professions,
among which is the practice of law. A, a lawyer, appeared in court only in two
isolated cases and in behalf of relatives. On the other hand, B devoted his
time in handling legal cases for indigent parties for which he never received
any compensation. Both A and B claim exemption from the payment of the
professional tax for the reason that A cannot be considered engaged in the
practice of law while B never received compensation. Decide. Explain your
answer. (1978, reworded and date supplied)
SUGGESTED ANSWER: A is exempted because he is not engaged in
the practice of his profession. Exercise or practice of a profession requires
regularity or habitually which is absent in the case of A.
B is not exempted. Reason. The above provision does not require that the
practice must be for gain or profit. The tax is due so long as the individual
practices his profession or calling as in the case of B, who is habitually and
regularly engaged in the practice of law.
***2) By May 2020, you will be a lawyer, ready to practice your
profession:
a) What tax you will have to pay before you can practice law ?
(1982, date supplied)
SUGGESTED ANSWER: The professional tax.
b) Where will you pay said tax ? (1982, date supplied)
SUGGESTED ANSWER: To the province or city where I shall
practice my profession or where I shall maintain my principal office, in case I
practice my profession in several places.
c) If you have already paid the tax due you as a lawyer to a
proper province or city, can another city or province demand that you
pay the same tax on the ground that you also practice your profession
in said city or province ? Reason. (1982, date supplied)
SUGGESTED ANSWER: No more. Payment in a proper place allows
me to practice throughout the Philippines.
***3) Kathang Isip, Inc. (KII) is a domestic corporation engaged in
the business of manufacturing, importing, exporting, and distributing toys
both locally and abroad. Its principal office is located in Kalookan City,
Philippines. It has 50 branches in different cities and municipalities in the
country. When KII applied for renewal of its mayor's permit and licenses in its
principal office in January this year, Kalookan City demanded payment of the
local business tax on the basis of the gross sales reported by the
corporation in its audited financial statements for the preceding year. KII
protested, contending that Kalookan City may tax only the sales
consummated by its principal office but not the sales consummated by its
branch offices located outside Kalookan City.
When Kalookan City denied the protest, KIl engaged the services of
Atty. Kristeta Kabuyao to file the necessary judicial proceedings to appeal
the decision of Kalookan City. Atty. Kabuyao is a legal expert, but resides in
Kalibo, Aklan where her husband operates a resort. She, however, practices
in Metro Manila, including Kalookan City. The counsel representing the city,
in the case filed in Kalookan City by KII, questioned the use of Atty.
Kabuyao's Professional Tax Receipt (PTR) issued in Aklan for a case filed in d) Which local government unit is authorized to impose the
Kalookan City. amusement tax ?
xxx xxx xxx xxx SUGGESTED ANSWER: The amusement tax may be imposed by a
(b) Is the Kalookan City counsel correct in saying that Atty. province or city but not by a municipality or barangay. (LGC, Sec. 140, in relation to
Kabuyao's PTR issued in Aklan cannot be used in Kalookan ? (2018) Secs. 142 and 151)
SUGGESTED ANSWER: No. A person, like Atty. Kabuyao, who has paid
the corresponding professional tax shall be entitled to practice her profession in
any part of the Philippines without being subjected to any other national or local **e) May resorts, swimming pools, bath houses, hot springs and
tax, license, or fee for the practice of such profession. [LGC, Sec. 139 (b), provided tourist spots be considered “other places of amusement” that may be
phrase] subject to amusement taxes ?
The payment of, and the issuance of a PTR, in Aklan, is authority to practice SUGGESTED ANSWER: No, “ 'other places of amusement' must be
the profession throughout the Philippines. interpreted in light of the typifying characteristic of being venues "where one seeks
admission to entertain oneself by seeing or viewing the show or performances" or
vi. Amusement tax being venues primarily used to stage spectacles or hold public shows, exhibitions,
performances, and other events meant to be viewed by an audience.
a) What is amusement ? As defined in The New Oxford American Dictionary, 'show' means "a
SUGGESTED ANSWER: A pleasurable diversion and entertainment. it is spectacle or display of something, typically an impressive one"; while 'performance'
synonymous to relaxation, avocation, pastime, or fun. [LGC, Sec. 131 (b)] means "an act of staging or presenting a play, a conceit, or other form of
entertainment." As such, the ordinary definitions of the words 'show' and
b) What tax is imposed upon amusement ? 'performance' denote not only visual engagement (i.e., the seeing or viewing of
SUGGESTED ANSWER: things) but also active doing (e.g., displaying, staging or presenting) such that
1. The province may levy actions are manifested to, and (correspondingly) perceived by an audience.
2. an amusement tax Considering these, it is clear that resorts, swimming pools, bath houses, hot
3. to be collected from the proprietors, lessees, or operators of springs and tourist spots cannot be considered venues primarily "where one seeks
theaters, cinemas, concert halls, circuses, boxing stadia, and other places of admission to entertain oneself by seeing or viewing the show or performances".
amusement While it is true that they may be venues where people are visually engaged, they
4. at a rate of not more than thirty percent (30%) of the gross are not primarily venues for their proprietors or operators to actively display, stage
receipts from admission fees. [LGC, Sec. 140 (a)] or present shows and/or performances.
Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do
c) What is an amusement place ? not belong to the same category or class as theaters, cinemas, concert halls,
SUGGESTED ANSWER: This includes circuses, and boxing stadia. It follows that they cannot be considered as among the
1) theaters, 'other places of amusement' contemplated by Section 140 of the LGC and which
2) cinemas, may properly be subject to amusement taxes.” [Pelizloy Realty Corporation v. The
3) concert halls, Province of Benguet, G.R. No. 183137, April 10, 2013, 695 SCRA 491, 505-508 (2013)]
4) circuses
5) and other places of amusement
where one seeks admission **f) May a golf course be considered a place of amusement subject
1) to entertain oneself to amusement taxes.
2) by seeing or viewing the show or performance. [LGC, Sec. 131 (c), SUGGESTED ANSWER: No. People do not enter a golf course to see or
arrangement and numbering supplied] view a show or performance. Petitioner also, as proprietor or operator of the golf
course, does not actively display, stage, or present a show or performance. People
go to a golf course to engage themselves in a physical sport activity, i.e., to play SUGGESTED ANSWSER: Provinces or cities may not collect amusement
golf; the same reason why people go to a gym or court to play badminton or tennis taxes from the proprietor, lessee or operator of
or to a shooting range for target practice, yet there is no showing herein that such 1) cockpits,
gym, court, or shooting range is similarly considered an amusement place subject 2) cabarets,
to amusement tax. There is no basis for singling out golf courses for amusement 3) night or day clubs,
tax purposes from other places where people go to play sports. This is in 4) boxing exhibitions,
contravention of one of the fundamental principles of local taxation: that the 5) professional basketball games,
"[taxation shall be uniform in each local government unit." Uniformity of taxation, 6) Jai-Alai, and
like the kindred concept of equal protection, requires that all subjects or objects of ` 7) racetracks. (NIRC of 1997, Sec. 125, numbering and arrangement supplied)
taxation, similarly situated, are to be treated alike both in privileges and liabilities.”
(Alta Vista Golf and Country Club v. The City of Cebu, etc., et al., G.R. No. 180235, j. May local government units tax admission tickets to professional
January 20, 2016) basketball games and income from cession of streamers and advertising
spaces ? Why ?
** g. May Cebu City claim that Section 42 of the Revised Omnibus Tax
SUGGESTED ANSWER: The legislative intent was to place professional
basketball games within the ambit of national taxation, as it is presently being taxed
Ordinance, as amended, imposing amusement tax on golf courses, was under the provisions of the NIRC.
enacted pursuant to the residual power to tax ? Thus, LGUs cannot collect amusement taxes on admission tickets to the
SUGGESTED ANSWER: Under the 1987 Constitution, "where there is Philippine Basketball Association (PBA) games.
neither a grant nor a prohibition by statute, the tax power [of local government Furthermore, the income from cession of streamers and advertising spaces is
units] must be deemed to exist although Congress may provide statutory limitations subject to amusement taxes because the NIRC definition of gross receipts is broad
and guidelines." (Alta Vista Golf and Country Club v. The City of Cebu, etc., et al., G.R. enough to embrace the cession of advertising and streamer spaces as the same
No. 180235, January 20, 2016) Section 186 of the Local Government Code also includes all the receipts of the proprietor, lessee or operator of the amusement
expressly grants local government units their residual power to tax place. (Philippine Basketball Association v. Court of Appeals, et al., G.R. No. 119122,
“A local government unit may exercise its residual power to tax when there is August 8, 2000)
neither a grant nor a prohibition by statute; or when such taxes, fees, or charges
are not otherwise specifically enumerated in the Local Government Code, National vii. Tax on delivery truck/van
Internal Revenue Code, as amended, or other applicable laws. In the present case,
Section 140, in relation to Section 131(c), of the Local Government Code already What local government units are authorized to impose the tax on
explicitly and clearly cover amusement tax and respondent Cebu City must delivery truck/van ?
exercise its authority to impose amusement tax within the limitations and guidelines SUGGESTED ANSWER: An annual fixed tax for every delivery truck or van
as set forth in said statutory provisions.” (Ibid.) of manufacturers or producers, wholesalers, dealers or retailers may be imposed
by a province or city but not by a municipality or barangay. (LGC, Sec. 141, in
h. What amusements are exempt and not exempt from amusement relation to Secs. 142 and 151)
tax ? The manufacturers, producers, wholesalers, dealers, and retailers referred to
SUGGESTED ANSWER: The holding of operas, concerts, dramas, recitals, in the immediately foregoing paragraph shall be exempt from the tax on peddlers
painting and art exhibitions, flower shows, musical programs, literary and oratorical prescribed elsewhere in the Local Government Code. (Ibid., Sec. 141)
presentations, except pop, rock, or similar concerts shall be exempt from the
payment of the tax herein imposed. [LGC, Sec. 140 (c)] b. Taxing powers of cities (Exclude Rates)

i. What are the places upon which provinces or cities cannot Historical antecedent. The taxing powers of the city was the subject of a BEQ in
impose amusement taxes under the common limitations because the NIRC 1975.
already imposes amusement taxes ?
 1. What is the extent or scope of the taxing powers of a city ?
SUGGESTED ANSWER: The city may exercise the taxing powers of a
province and of a municipality.
**2. Quezon City passed an ordinance raising market stall fees in
city markets. It was assailed in court on the ground that the city charter only
authorizes the collection of “fees” and the increase in the market stalls. Can
the City justify its power under a statute granting it authority to impose
municipal license fees or taxes upon persons engaged in any occupation or
business within its jurisdiction. Why? (1975)
SUGGESTED ANSWER: Yes. The Local Government Code specifically
authorizes cities and municipalities to impose taxes on any business. [LGC, Sec.
151 in relation to Sec. 143 (h)]
Persons selling in city markets are engaged in business (in the sense of
engaging in a trade or commercial activity as a means of livelihood or with a view
for profit). Thus, the city can impose such taxes for the regulation or inspection of
a business or activity. After all, the power of taxation could be exercised jointly with
the police power.
c. Taxing powers of municipalities (Exclude Rates)
a. What are the taxing powers of a municipality ?
SUGGESTED ANSWER: Except as otherwise provided for in the Local
Government Code, municipalities may levy taxes, fees and charges not
otherwise levied by provinces. (LGC, Sec. 143)
It should be noted that the power of taxation of a municipality is residual in
character. It could only exercise those taxing powers that are not granted to
provinces.
Except as otherwise provided in the Local Government Code refers to the
enumeration of the extent of scope of the taxing powers of a municipality.
b. What is the extent (also scope) of the taxing powers of a
municipality that may also be exercised by a city ?
SUGGESTED ANSWER:
1. The municipality may impose taxes on certain businesses. (LGC,
Sec. 143)
2. The municipality may impose and collect such reasonable fees
and charges on business and occupation and, except as reserved for the
province to collect professional tax, on the practice of any profession or
calling. (Ibid., Sec. 147)
3. The municipality may levy fees for the sealing and licensing of
weights and measures. [Ibid., Sec. 148 (a), 1st par., 1st phrase]
4. Municipalities shall have the exclusive authority to grant fishery
privileges in the municipal waters and impose rentals, fees or charges. [Ibid]
i. Tax on various types of business
Historical antecedents. The power of a city to impose business taxes was the
subject of BEQs in 1972, 1975, 2013, and 2018.
***1. An ordinance of the City of Manila imposes taxes on persons
selling goods at wholesale and retail. A sugar central sells at its plant and
factory the sugar it manufactures, at wholesale and retail. Is said company
subject to tax for selling goods under such ordinance? Explain. (1972)
SUGGESTED ANSWER: Yes, because the central is engaged in the
activity that is being taxed which is the sales at wholesale and retail.
***2. KM Corporation, doing business in the City of Kalookan, has
been a distributor and retailer of clothing and household materials. It has
been paying the City of Kalookan local taxes based on Sections 15 (Tax on
Wholesalers, Distributors or Dealers) and 17 (Tax on Retailers) of the
Revenue Code of Kalookan City (Code). Subsequently, the Sangguniang
Panlungsod enacted an ordinance amending the Code by inserting Section
21 which imposes a tax on "Businesses Subject to Excise, Value-Added and
Percentage Taxes under the National Internal Revenue Code (NIRC)," at the
rate of 50% of 1 % per annum on the gross sales and receipts on persons
"who sell goods and services in the course of trade or business." KM
Corporation paid the taxes due under Section 21 under protest, claiming that
(a) local government units could not impose a tax on businesses already
taxed under the NIRC and (b) this would amount to double taxation, since its
business was already taxed under Sections 15 and 17 of the Code.
(a) May local government units impose a tax on businesses already
subjected to tax under the NIRC ? (2018)
SUGGESTED ANSWER: Yes. Only local government units such as a
municipality or city, but not a province or barangay, may impose a tax on any
business that are “not otherwise specified in the preceding paragraphs” of Sec. 143
(h) of the Local Government Code but already subject to tax under the NIRC such
as excise, value-added tax or percentage provided the rate of tax does not exceed
two percent (2%) of gross sales or receipts of the preceding calendar year. [LGC,
Sec. 133 (h); Nursery Care Corporation, et al., v. Acevedo, etc., et al, G.R. No. 180651,
July 30, 2014)]
ii. Rate limitation on the imposition of taxes on any
business not otherwise specified
Historical antecedent. The rate limitation on the imposition of taxes on any
business not otherwise specified was the subject of a BEQ in 2013.
Pheleco is a power generation and distribution company operating
mainly from the City of Taguig. It owns electric poles which it also rents out
to other companies that use poles such as telephone and cable companies.
Taguig passed an ordinance imposing a fee equivalent to 1% of the annual
rental for these poles. Pheleco questioned the legality of the ordinance on
the ground that it imposes an income tax which local government units
(LGUs) are prohibited from imposing.
Rule on the legality of the ordinance. (2013 MCQ converted to an essay
question)
SUGGESTED ANSWER: The ordinance is valid as a legitimate exercise of
police power to regulate the use of electric poles.
iii. Tax on retirement of business
What is the tax on retirement of business ?
SUGGESTED ANSWER: A business subject to tax pursuant to the
provisions of the Local Government Code shall, upon termination thereof, submit a
sworn statement of its gross sales or receipts for the current year. If the tax paid
during the year be less than the tax due on said gross sales or receipts of the
current year, the difference shall be paid before the business is considered officially
retired. (LGC, Sec. 145, arrangement and numbering supplied)
iv. Rules on payment of business taxes
a. Who pays the business tax ?
SUGGESTED ANSWER: The tax on a business must be paid by the person
conducting the same. [LGC, Sec. 146 (a), last sentence]
b. What is the criteria for determination of amount of business tax to
be paid ? Explain and illustrate.
SUGGESTED ANSWER:
1. There are separate establishments located in different places engaged
in the same line of business. The taxes imposed under Section 143 shall be
payable for every separate or distinct establishment or place where the business is
subject to the tax. [LGC, Sec. 146 (a)]
To illustrate: A poultry feeds and supplies dealer in San Jose, Batangas has
three branches located in different barangays: Taysan, Bigain 1st and Balagtasin.
Separate business taxes must be paid for each of the establishments located in
the three barangays.
2. There are two (2) lines of business: payment for one does not result to
exemption of the other. One line of business does not become exempt by being
conducted with some other business for which such tax has been paid. (Ibid.)
3. There are two (2) or more lines of business subject to the same rate. In
cases where a person conducts or operates two (2) or more of the businesses
mentioned in Section 143 of this Code which are subject to the same rate of tax,
the tax shall be computed on the combined total gross sales or receipts of the said
two (2) or more related businesses. [LGC, Sec. 146 (b)]
To illustrate: Leny Perez, is a dealer in agricultural products such as
fertilizers. She is also a dealer in poultry feed and other animal feeds. Since the
tax rate for the two lines of business are the same under the LGC, Sec. 143 (c) (5)
(6), her business tax shall be computed by combining the total sales from fertilizers
and poultry feed and other animal feeds.
4. There are two (2) or more lines of business subject to different rates.
In cases where a person conducts or operates two or more businesses mentioned
in Section 143 of this Code which are subject to different rates of tax, the gross
sales or receipts of each business shall be separately reported for the purpose of
computing the tax due from each business. [Ibid., Sec. 146 (c)]
To illustrate: Ka Pedring Matibag has a construction supplies store where he
sells cement. He is also a building contractor. For his sales of cement, he is taxed
under Sec. 143 (c), while as a contractor, he is subject to tax under Sec. 143 (e),
both of which prescribes different rates. In such a case, his cement sales shall be
taxed in accordance with Sec. 143 (c) while on his construction business, he shall
be taxed under Sec. 143 (e).
v. Fees and charges for regulation & licensing
1) Exercise of police power of local government
units
2) Fees and charges on business and
occupation
 a) What fees and charges that may be collected by a city or
municipality ?
SUGGESTED ANSWER: The city or municipality may impose and collect
such
1. reasonable fees and charges on business and occupation
2. on the practice of any profession or calling
3. commensurate with the cost of regulation, inspection and
licensing (the cost of issuing of the license or permit and the expenses
incurred in the conduct of the necessary inspection or surveillance)
4. before any person may engage in such business or occupation, or
practice such profession or calling. (LGC, Sec. 147, in relation to Sec. 151;
Rules and Regulations Implementing the Local Government Code of 1991, Art. 233,
arrangement and numbering supplied)
No such fee or charge shall be based on capital investment or gross
sales or receipts of the person or business liable therefor. (Ibid.)
An cccupation is an activity habitually engaged as a source of livelihood
which does not require the passing of a government licensure examination
administered by the Professional Regulation Commission or the Supreme Court.
b) What are the distinctions between a profession and an occupation
? determined by it,
SUGGESTED ANSWER:
1) A profession requires the passing of a licensure examination
WHILE an occupation does not require one.
2) A profession requires years of academic preparation WHILE an
occupation does not.
3) A profession is normally bound by ethical standards WHILE an
occupation is not.
WARNING !!! Do not capitalize the word WHILE when answering Bar questions.
c) What profession or calling may not be subject to fees and charges
by a municipality ?
SUGGESTED ANSWER: A municipality may not impose fees and charges
upon professionals who have passed the bar examinations, or any board or other
examinations conducted by the Professional Regulation Commission (PRC) [ LGC,
Sec. 147 in relation to Sec. 139; Rules and regulations Implementing the Local Government
Code, Art. 233 in relation to Art. 228 (f)] or in the case of lawyers, the Supreme Court.
But a city may levy a professional tax and an occupation tax.
3) Fees for sealing and licensing of werights and
measures
May a city or municipality charge fees for sealing and licensing weights
and measures ?
SUGGESTED ANSWWER: Yes. A city or municipality may levy fees for the
sealing and licensing of weights and measures at such reasonable rates as shall
be prescribed by the sangguniang bayan or panlungsod. [LGC, Sec. 148 (a) in
relation to Sec. 151]
4) Fishery rentals, fees and charges
a. What is the scope of the authority of cities or municipalities to grant
privileges, and impose fishery rentals, fees and charges in the municipal
waters ?
SUGGESTED ANSWER: Cities and municipalities shall have the sole
authority to
1. Grant fishery privileges. The sangguniang bayan or panlungsod
may
a) grant fishery privileges to
b) erect fish corrals, oyster, mussels or other acquatic beds or
bangus fry areas,
c) within a definite zone of the municipal or city waters
d) Provided, however, That duly registered organizations and
cooperatives of marginal fishermen shall have the preferential right to
such fishery privileges,
e) Provided, further, That the sanggunian may require a public
bidding in conformity with and pursuant to an ordinance for the grant of
such privileges,
f) Provided, finally, That in the absence of such organizations and
cooperatives or their failure to exercise their preferential right, other
parties may participate in the public bidding in conformity with the
above cited procedure. [LGC, Sec. 149 (b) (1) in relation to Sec. 151,
arrangement and numbering supplied]
2. Grant privileges to gather, take or catch fry, etc. The sanggunian
` may grant the privilege to gather, take or catch bangus fry, prawn fry or
kawag- kawag or fry of other species and fish from municipal waters by nets,
traps or other fishing gears to marginal fishermen free of any rental, fee,
charge or any other imposition whatsoever. [LGC, Sec. 149 (b) (2), in relation to
Sec. 151]
3. Issue license for operation of fishing vessels. The sanggunian
may issue licenses for the operation of fishing vessels of three (3) tons or less
for which purpose the sanggunian shall promulgate rules and regulations
regarding the issuance of such licenses to qualified applicants under
 existing laws. [LGC, Sec. 149 (b) (3) in relation to Sec. 151]
b) What are municipal waters ?
SUGGESTED ANSWER: These include not only streams, lakes, and tidal
waters within the municipality or city, not being the subject of private ownership and
not comprised within the national parks, public forest, timber lands, forest reserves
or fishery reserves, but also marine waters included between two lines drawn
perpendicularly to the general coastline from points where the boundary lines of the
municipality or city touch the sea at low tide and a third line parallel with the
general coastline and fifteen (15) kilometers from it. Where two (2) municipalities
are so situated on the opposite shores that there is less than fifteen (15) kilometers
of marine waters between them, the third line shall be equally distant from opposite
shores of their respective municipalities. [LGC, Sec. 131 (r) in relation to Sec. 151]
c) Who is a marginal fisherman ?
SUGGESTED ANSWER: An individual engaged in subsistence fishing
which shall be limited to the sale, barter or exchange of marine products produced
by himself and his immediate family. [LGC, Sec. 131 (p)]
d) May a city or municipality penalize illegal fishing ?
SUGGESTED ANSWER: The sanggunian concerned shall, by
appropriate ordinance, penalize the use of explosives, noxious or poisonous
substances, electricity ,muro-ami, and other deleterious methods of fishing and
prescribe a criminal penalty therefor in accordance with the provisions of the Local
Government Code, provided, That the sanggunian concerned shall have the
authority to prosecute any violation of the provisions of applicable fishery laws.
[LGC, Sec. 149 (b) (3) in relation to Sec. 151]
5) Community tax
Historical antecedents. The community tax was the subject of BEQs in 1969,
1970, and 1976.
** 1. What are the kinds of community taxes imposed under the Local
Government Code ? (1969, rephrased and reworded)
SUGGESTED ANSWER: The community tax on individuals and the
community tax on juridical persons.
** 2. Who are exempt from the payment of the individual community
tax ? (1969, reworded)
SUGGESTED ANSWER: “The following are exempt from the community tax:
a. Diplomatic and consular representatives; and
b. Transient visitors when their stay in the Philippines does not
exceed three (3) months.” (LGC, Sec. 159, arrangement and numbering supplied)
**3. State at least four (4) instances where the presentation of the
community tax certificate is required. (1970, reworded)
SUGGESTED ANSWER: The following are four (4) instances where the
presentation of the community tax certificate is required:
a. Acknowledgement of any document before a notary public.
b. Taking an oath of office upon election appointment to any
position in the government service.
c. Receiving any license, certificate or permit from any public
authority.
d. Paying any tax or fee.
vii. Situs of tax collected
Historical antecedents. The situs of local business taxes was the subject of BEQs
in 1974, 1977, 1988, 2008, 2009, and 2018.
***1. “Y” Corporation owns and operates a factory with sales
office at Pasig, Metro Manila. Its main office is in Manila. Sales of the
factory’s finished products are made by both the factory and the Manila
office. Both factory and the main office have proper mayor’s permits and
have also separate sales invoices and duly registered books of accounts.
For local tax purposes, where should the tax on “Y” Corporation sales be
paid ? (1977)
SUGGESTED ANSWER: In both, but subject to the division of 30% for
Manila which is the main office, and 70% for Pasig where the factory is located.
***2. A special law authorizes cities and municipalities to levy a
tax of ½ of 1% on sales of gasoline, diesel and lubricants made inside their
territorial jurisdiction. The Municipality of Bauan, Batangas, decided to
impose it. Based on said provision, it demanded from Triple X Oil Co., an oil
refinery located in Bauan, payment of the tax for selling one million liters of
diesel to CEMAF Co., a cement manufacturer located at Taysan, Batangas.
Delivery was made to the purchaser by means of: (a) lorries owned by the
seller, and (b) by use of the public transports carriers. The transport
charges were initially paid by the seller who subsequently collected from the sale in the branch or sales outlet making the sale or transaction, and the tax
buyer. These conditions are part of the contract executed and perfected in thereon shall accrue and shall be paid to the city or municipality where such branch
Bauan. Triple X Oil Co. contested the tax as inapplicable because the sales or sales outlet is located. (LGC, Sec. 150)
were made outside the territorial place of Bauan.
a. Decide the case. Explain. d. Taxing powers of barangays (Exclude: Rates)
SUGGESTED ANSWER: Triple X Oil Co. is correct. The place of delivery of
the subject of the contract, and not the place where the contract was perfected Historical antecedents. The taxing power of barangays was the subject of BEQs in
determines the situs of taxation. (Shell Co., Inc. v. Municipality of Sipocot, Camarines 1970, 1977, and 1981.
Sur, 105 Phil. 1263) This is the place where the sale was consummated through
delivery.
b. Assume that the facts are the same, except that the tax is imposed
** Upon which may a barangay levy taxes or fees? (1977, adapted)
and is being collected by the municipality of Taysan, will your answer be the SUGGESTED ANSWER: The barangays may levy taxes, fees, and charges
same? Explain. (1988) which shall exclusively accrue to them. Specifically, they may levy the following
SUGGESTED ANSWER: No. The tax would be valid because the taxes, fees and charges:
municipality of Taysan is the place where the delivery was made. (a) Taxes. On stores or retailers with fixed business establishments
with gross sales or receipts of the preceding calendar year of Fifty thousand
pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos
***3. Kathang Isip, Inc. (KII) is a domestic corporation engaged in (P30,000.00) or less, in the case of municipalities, at a rate not exceeding
one percent (1%) on such gross sales or receipts.
the business of manufacturing, importing, exporting, and distributing toys
(b) Service Fees or Charges. Barangays may collect reasonable
both locally and abroad. Its principal office is located in Kalookan City,
fees or charges for services rendered in connection with the regulation or the
Philippines. It has 50 branches in different cities and municipalities in the
use of barangay-owned properties or service facilities such as palay, copra,
country. When KII applied for renewal of its mayor's permit and licenses in its
or tobacco dryers.
principal office in January this year, Kalookan City demanded payment of the
(c) Barangay Clearance. No city or municipality may issue any
local business tax on the basis of the gross sales reported by the
license or permit for any business or activity unless a clearance is first
corporation in its audited financial statements for the preceding year. KII
obtained from the barangay where such business or activity is located or
protested, contending that Kalookan City may tax only the sales
conducted. For such clearance, the sangguniang barangay may impose a
consummated by its principal office but not the sales consummated by its
reasonable fee. The application for clearance shall be acted upon within
branch offices located outside Kalookan City.
seven (7) working days from the filing thereof. In the event that the clearance
When Kalookan City denied the protest, KIl engaged the services of
is not issued within the said period, the city or municipality may issue the said
Atty. Kristeta Kabuyao to file the necessary judicial proceedings to appeal
license or permit.
the decision of Kalookan City. Atty. Kabuyao is a legal expert, but resides in
(d) Other Fees and Charges. The barangay may levy reasonable
Kalibo, Aklan where her husband operates a resort. She, however, practices
fees and charges:
in Metro Manila, including Kalookan City. The counsel representing the city,
(1) On commercial breeding of fighting cocks, cockfights and
in the case filed in Kalookan City by KII, questioned the use of Atty.
cockpits;
Kabuyao's Professional Tax Receipt (PTR) issued in Aklan for a case filed in
(2) On places of recreation which charge admission fees; and
Kalookan City.
(3) On billboards, signboards, neon signs, and outdoor
(a) Is Kll's contention that Kalookan City can only collect local
advertisements.” (LGC, Sec. 152, arrangement and numbering supplied)
business taxes based on sales consummated in the principal office
meritorious ? (2018)
SUGGESTED ANSWER: Yes. Since KII is maintaining or operating branch 3. The scope of the taxing power of a provinces under the Local
or sales outlet outside of its principal office, Kalookan City, it should record the Government Code:
 “Except as otherwise provided in this Code, the province may levy To what extent may local government units impose and collect public
only the taxes, fees and charges in this Article.” And that of the barangay utility charges ?
reads: SUGGESTED ANSWER: “Local government units may fix the rates for the
“The barangays may levy taxes, fees and charges, as provided in this operation of public utilities owned, operated and maintained by them within their
Article xxx” jurisdiction.” (LGC, Sec. 154)
Is the scope of the taxing power of the province and barangay the Local government units may collect charges for services rendered by them in
same? Explain. (1981, adapted) connection with the operation of public utilities
SUGGESTED ANSWER: No. They are different because the Articles 1. owned, operated and maintained
referred to relate to different powers. 2. within their jurisdiction (Ibid.),
3. at rates to be fixed by the sanggunian concerned. [RRI LGC, Art.
e. Common revenue raising powers 244 (b), numbering and arrangement supplied]

Historical antecedent. The common revenue raising powers of LGUs was the iii. Toll fees or charges
subject of a BEQ in 1966.
a. May local government units impose and collect toll fees or
**What are the common revenue raising powers of local
charges ?
SUGGESTED ANSWER: Yes. Local government units
governments ? (1966) 1. may prescribe the terms and conditions,
SUGGESTED ANSWER: The common revenue raising powers of all local 2. through an appropriate ordinance enacted by their sanggunians,
government units include the imposition of: 3. for the use of any
a. Service fees and charges (LGC, Sec. 153) a) public road,
b. Public utility charges (Ibid., Sec. 154) b) pier or wharf,
c. Toll fees or charges (Ibid., Sec. 155) c) waterway bridge,
These are powers that are available to all local government units. d) ferry or
e) telecommunication system
i. Service fees and charges 1) funded and constructed by the local government.
[LGC, Sec. 155; RRI LGC, Art. 244 (c),, arrangement and numbering
a. What is the basis for all local government units to collect service supplied]
fees and charges ?
SUGGESTED ANSWER: “Local government units may impose and collect b. Who are exempted from the payment of tolls, fees or other
such reasonable fees and charges for services rendered.” (LGC, Sec. 153) charges ?
Local government units may impose and collect fees and service or user SUGGESTED ANSWER: The following are exempted:
charges 1. Officers and enlisted men of the Armed Forces of the Philippines
1. for any service rendered by LGUs in and members of Philippine National Police on mission;
2. an amount reasonably commensurate to such service [Ibid.; RRI 2. Post office personnel delivering mail; and
LGC,, Art. 244 (a), arrangement and numbering supplied] 3. Physically handicapped and disabled citizens, 65 years or older.
3. provided that no service charge shall be based (LGC, Sec 155, numbering and arrangement supplied)
a) on capital investments or gross sales
b) or receipts of the person or business liable therefore. [Ibid, 3. Common limitations on the taxing powers of LGUs
arrangement and numbering supplied]
Historical antecedent. The common limitations, in general, was the subject of a
ii. Public utility charges BEQ in 1969.

***1. Give five (5) examples of taxes which a
municipality cannot impose under existing laws. (1969)
SUGGESTED ANSWER: Any five (5) of the following could be the answera:
“Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on
wharves, tonnage dues, and all other kinds of customs fees, charges and
dues except wharfage on wharves constructed and maintained by the local
government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods
carried into or out of, or passing through, the territorial jurisdictions of local
government units in the guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees or charges in any form whatsoever upon such
goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when
sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6) and four (4)
years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except as otherwise
provided herein;
(j) Taxes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and
for the issuance of all kinds of licenses or permits for the driving thereof,
except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually
exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperatives Code of the Philippines" respectively;
and
(o) Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities, and local government units.” (LGC, Sec.
133)
a. LGUs could not levy income taxes
Historical antecedents. The prohibition for LGUs to levy income taxes was the
subject of BEQs in 2008, and 2012.
**The City of Manila enacted an ordinance, imposing a 5% tax on
gross receipts on rentals of space in privately-owned public markets. BAT
Corporation questioned the validity of the ordinance stating that the tax is an
income tax, which cannot be imposed by the city government. Do you agree
with the position of BAT Corporation ? Explain. (2008)
SUGGESTED ANSWER: No. The tax imposed is not an income tax but a
license tax or fee for the regulation of the business in which the taxpayers are
engaged, that is the leasing of spaces in privately-owned public markets.
(Progressive Development Corporation v. Quezon City, 172 SCRA 629[1989[).
The income tax imposed under the National Internal Revenue Code which
preempts the imposition by the city is one which is imposed on the privilege
enjoyed by a taxpayer in earning income and not a tax on business.
b. LGU s cannot levy documentary stamp taxes
1) What are documentary stamp taxes ?
SUGGESTED ANSWER: Documentary stamp taxes are an excise upon the
privilege, opportunity or facility offered at exchanges for transaction of the
business. It is an excise upon the facilities used in the transaction of a business.
(Commissioner of Internal Revenue v. Heald Lumber Co., 10 SCRA 372)
2) May local government units impose documentary stamp taxes ?
Why ?
SUGGESTED ANSWER: No. The exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
documentary stamp taxes. [LGC, Sec. 133 (b), paraphrasing supplied)
 This is to prevent the taxpayer from being burdened with multiple pecuniary
impositions on the same subject or object because documentary stamp taxes are
already collected by the national government under the provisions of the National
Internal Revenue Code of 1997.
c. LGUs cannot levy taxes on estates, inheritance, gifts,
legacies and other acquisitions mortis causa
May local government units levy taxes on estates, inheritance, gifts,
legacies and other acquisitions mortis causa ? Why ?
SUGGESTED ANSWER: No. The exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of taxes on
estates, inheritance, gifts, legacies and other acquisitions mortis causa. [LGC, Sec.
133 (c), paraphrasing, supplied)
This is to prevent the taxpayer from being burdened with multiple pecuniary
impositions on the same subject or object because the provisions of the National
Internal Revenue Code of 1997 already imposes estate taxes on acquisitions
mortis causa and donor’s taxes on acquisitions inter vivos.
d. LGUs cannot levy customs duties, registration fees, etc.
Historical antecedents. The prohibition for local governments to impose customs
duties, registration fees of vessels, wharfage on wharves, tonnage dues, and all other kinds
of customs fees, charges and dues was the subject of BEQs in 1972, and 2015.
**In 2019, M City approved an ordinance levying customs duties and
fees on goods coming into the territorial jurisdiction of the city. Said city
ordinance was duly published on February 15, 2019 with effectivity date on
March 1, 2019.
Is there a ground for opposing the ordinance ? (2015, dates and
paraphrasing supplied)
SUGGESTED ANSWER: Yes. The ordinance violated that common
limitation imposed upon local government units that they cannot levy customs
duties, registration fees of vessel and wharfage on wharves, tonnage dues and
other kinds of customs fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned. [LGC, Sec. 133
(d), paraphrasing, and emphasis supplied]
This is to prevent the taxpayer from being burdened with multiple pecuniary
impositions on the same subject or object because national laws such as the
Customs Modernization and Tariff Act (CMTA), the Maritime Industry Authority
Law, etc., already impose these taxes, fees and charges.
e. LGUs cannot levy upon goods carried into, leaving or
passing through its territory
Historical antecedents. The prohibition for LGUs to levy upon goods carried into,
leaving or passing through its territory was the subject of BEQs in 1971, 1976, 1984, and
1987.
**1. The municipality of “X” passed an ordinance imposing a tax of ten
centavos (P0.10) on every pair of shoes taken out of the municipality. Is the
tax valid? Reason. (1976)
SUGGESED ANSWER: No. Municipality of “X” being a local government
unit is prohibited from imposing taxes, fees and charges upon goods being carried
into or out of, or passing through the territorial jurisdiction of said local government
unit.
The prohibition is in order to comply with the fundamental principle that the
imposition of local taxes shall not result to restraint of trade. To impose these kinds
of taxes would surely restrain trade.
**2. A province in Central Luzon passed an ordinance requiring a
payment of an inspection fee of P5.00 per hog and P0.50 per chicken
transported out of the province for sale. Is the ordinance valid? Explain.
(1984)
SUGGESTED ANSWER: Yes, because it is a police measure intended to
protect the health safety of the populace through the inspection which results in
seeing to it that that only healthy hogs and chickens are transported out of the
province for sale.
The common limitations find application only to the exercise by local
government units of their power of taxation and revenue raising. They do not apply
to the exercise of police power such as in the above problem.
**3. Assume that a Santa Barbara Ordinance imposes a tax on the
business of buying and/or selling animals, like cattle, horses, pigs and goats,
based on the market value of the animals purchased or sold. The Mayor and
the Treasurer, in implementing the ordinance, required the payment of the
tax on all animals passing through the town limits destined for the animal
markets of its neighboring towns.
a) As a businessman affected by the ordinance, on what grounds
can you challenge the collection of the tax? Explain. (1987)
 SUGGESTED ANSWER: I shall challenge the ordinance on the ground that
it violates the common limitation that local government units cannot impose taxes,
fees and charges, and other imposition upon goods passing through the territorial
jurisdiction of the local government units in the guise of charges for wharfage, tolls
for bridges or otherwise, or other fees or charges in any form whatsoever upon
such goods or merchandise. [LGC, Sec. 133 (e)]
b) As the Municipal Attorney, explain how you will meet the
challenge. (1987)
SUGGESTED ANSWER: I would explain that the ordinance was in the
exercise of police power. Local Government units are prohibited from imposing
fees upon goods that pass through its territorial boundaries if the same was an
exercise of the power of taxation and other revenue raising powers. Since the
ordinance is an exercise of police power the prohibition does not apply.
c) As the presiding judge who is hearing the case how would you
rule on the issue ? (Hypothetical)
SUGGESTED ANSWER: I would declare the ordinance invalid because it
violates the common limitation on the power of local government units to impose
taxes, fees and charges upon goods passing through the territorial jurisdiction of
said local government unit. This is so because there is no showing in the problem
of existence of facts that would justify the imposition of police power such as to
prevent the spread of animal diseases, etc.
The prohibition is in order to comply with the fundamental principle that the
imposition of local taxes shall not result to restraint of trade. To impose these kinds
of taxes would surely restrain trade.
f. LGUs cannot levy upon agricultural and acquatic products
when sold by marginal farmers or fishermen
Hisitorical antecedents. The prohibition for LGUs to levy upon agricultural and
acquatic products was the subject of BEQs in 1971, and 1979.
**On December 29, 2018, the Sangguniang Panlungsod of Olongapo
City approved Ordinance No. 25 series of 2018, which imposes a tax of one
fifth (P0.20) centavo for every board foot of logs which are sold locally by the
concessionaires. Miguel Aguirre, a forest concessionaire and sawmill owner,
filed an action before the Regional Trial Court of Zambales and Olongapo
City to annul Ordinance No. 25. Will the action prosper ? Explain briefly
your answer. (1979, date supplied and reworded)
SUGGESTED ANSWER: No.
The prohibition for impositions that may be levied by a city under the common
limitations of the Local Government Code finds application only to the sale of an
agricultural or an acquatic product by a marginal farmer of fisherman.
Logs are forest products and not an agricultural or an acquatic product.
Furthermore, Miguel Aguirre being a forest concessionaire and a sawmill owner is
not a marginal farmer or fisherman.
ALTERNATIVE ANSWER: No, the action should be dismissed because of
procedural and substantive infirmities.
Miguel Aguirre has no locus standi because he is not prejudiced or affected by
the imposition. Only a marginal farmer or fisherman is a party interest to be
prejudiced or benefited by the avails of the suit.
Olongapo City has the authority to enact the ordinance imposing the tax
because the prohibition imposed upon a city under the common limitations of the
Local Government Code is the imposition of a levy upon the sale of agricultural or
acquatic products when sold by marginal farmers or fishermen,
Logs are forest products and not an agricultural or an acquatic product.
Furthermore, Miguel Aguirre being a forest concessionaire and a sawmill owner is
not a marginal farmer or fisherman.
g. LGUs cannot levy upon pioneer or non-pioneer business
enterprises within four (4) and six (6) years respectively from date of
registration
What is the extent of the authority of local government units to impose
taxes on pioneer and non-pioneer business enterprises ? Why ?
SUGGESTED ANSWER: The exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of taxes on
business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of
registration. [LGC, Sec. 133 (g), paraphrasing supplied]
This is so because it is a fundamental principle of local taxation that local
taxes may not be imposed if it violates a nationally declared economic policy which
includes the establishment of pioneer or non-pioneer enterprises that would
promote economic development and employment opportunities,
h. LGUs cannot levy upon articles subject to excise taxes
under the NIRC or upon petroleum products
Historical antecedent. The prohibition for LGUs to levy upon articles subjected to
excise taxes under the NIRC of 1997 was the subject of a BEQ in 1982.
 **An ordinance imposes a tax for the “selling and disposition of
refined and manufactured oils, based on the monthly allocation actually
delivered and distributed for sale and intended for sale.” Is the ordinance
valid? Reasons. (1982)
SUGGESTED ANSWER: No. Local government units are prohibited from
imposing a tax on articles subject to excise taxes under the NIRC [LGC, Sec. 133
(h)] such as manufactured oils. (NIRC of 1997, Sec. 148)
Thus, it is ultra vires for a local government unit to pass an ordinance
imposing a tax on manufactured oils because it violates the common limitations
on the power of local government units to exercise their taxing powers.
i. Prohibition for LGUs to impose percentage or value added
tax on goods and services
Historical antecedents. The prohibition for LGUs to impose percentage or value
added taxes on goods and services was the subject of BEQs in 1968, 1975, 1976, 1982,
1985, and 2017.
***1. May a municipality impose percentage taxes? Why? (1968)
SUGGESTED ANSWER: No. A municipality may not impose percentage or
value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services [LGC, Sec. 133 (l)], as the same is among the common limitations
on the taxing power of the local government unit.
An exception to this common limitation is where the Local Government Code
itself allows the municipality to impose a percentage tax, as in the case of some
percentage taxes on business allowed under Sec. 143 of the Local Government
Code. For example, a municipality is authorized to impose a tax on banks and
other financial institution, at a rate not exceeding fifty (50%) percent of one (1%)
percent on gross receipts. [Ibid., Sec. 143 (f)]
2. After a public hearing, the Sangguniang Bayan of Teresa, Rizal,
enacted an ordinance imposing a tax of P0.01 per liter of softdrinks
manufactured and sold within the municipality. Is the ordinance valid?
Why? (1983)
SUGGESTED ANSWER: Yes. There is no direct relation between the tax
and the sale, hence, the tax is not a percentage tax on sale which is prohibited to
be imposed by a municipality.
There is no percentage tax on sale if the tax is imposed on a quantity or unit
of measure.
***3. BATAS Law is a general professional partnership operating
in the City of Valenzuela. It regularly pays value-added tax on its services. All
its lawyers have individually paid the required professional tax for the year
2017. However, as a condition for the renewal of its business permit for the
year 2017, the City Treasurer of Valenzuela assessed BATAS Law for the
payment of percentage business tax on its gross receipts for the year 2016 in
accordance with the Revenue Tax Code of Valenzuela.
Is BATAS Law liable to pay the assessed percentage business tax?
Explain your answer. (2017)
SUGGESTED ANSWER: No. The tax is a percentage tax on services
which local government units, like the City of Valenzuela, are prohibited to impose
under the common limitations.
j. LGUs cannot levy upon premiums on reinsurance or
retrocession
1) What is reinsurance ?
SUGGESTED ANSWER: “(I)nsurance or indemnification by a second
insurer of all or part of a risk assumed by another insurer as contracted for by the
first insurer.” (Merriam-Webster’s DICTIONARY OF LAW, 2016 ed.)
1) Define retrocession ?
SUGGESTED ANSWER: “(T)he process by which all or part of the risks
assumed in an insurance contract are reassigned or ceded by a reinsurer to
another insurance company.” (Merriam-Webster’s DICTIONARY OF LAW, 2016 ed.)
k. LGUs could not tax the national government, its agencies
and other LGUs
1) What is the common limitation on the power of local government
authorities ? Illustrate.
SUGGESTED ANSWER: Unless otherwise provided therein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local government
units.” [LGC, Sec. 133 (o), paraphrasing supplied)
“National Government refers to the entire machinery of the central
government, as distinguished from the different forms of local governments.”
[Administrative Code of 1987, Introductory Provisions, Sec. 2 (2)]
 “Agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality, or
government-owned or controlled corporation, or a local government or a distinct
unit therein.” [Ibid., Introductory Provisions, Sec. 2 (4)]
“Government-owned or controlled corporation refers to any agency organized
as a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51) per cent of its
capital stock: Provided, That government-owned or controlled corporations may be
further categorized by the Department of Budget, the Civil Service Commission,
and the Commission on Audit for purposes of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such
corporations.” [Ibid., Introductory Provisions, Sec. 2 (13)]
The fact that a government “instrumentality” and “government-owned or
controlled” corporation have separate definitions means that while a government
“instrumentality” may include a “government-owned or controlled corporation,”
there may be a government “instrumentality” that will not qualify as a “government-
owned or controlled corporation.” [Manila International Airport Authority v. City of
Pasay, et al., 583 SCRA 234 (2009)]
“Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter. This
term includes regulatory agencies, chartered institutions and government-owned or
controlled corporations. [Ibid., Introductory Provisions, Sec. 2 (10)]
A local government unit could not impose taxes on the national government.
POEA purchased a lot and building from Delta Motors Corporation (DMC) and
occupied the same. POEA was considered not subject ot tax, although it was the
buyer, because an LGU could not impose taxes of any kind on the National
Government. (DOF 1st Indorsement dated May 3, 1993 to the Treasurer, Mandaluyong)
A local government unit could not impose a tax on PAGCOR because it is an
instrumentality of the government tasked to regulate gambling. (Basco v. Philippine
Amusement and Gaming Corporation, 197 SCRA 52)
2) When may an agency or instrumentality be subject to tax by a
local government unit ?
SUGGESTED ANSWER: If the agency, and instrumentality of the National
Government, is a business entity, it could be subject to tax by the local government
unit because of the withdrawal of all tax exemptions under the provisions of the
Local Government Code. (National Power Corporation v. City of Cabanatuan, G. R. No.
149110, April 9, 2003)
4. Procedure for approval and effectivity of tax ordinances
a. General procedure for the approval and effecitivity of tax or
revenue ordinances
1) What is the general procedure for the approval and effectivity of
tax or revenue ordinances ?
SUGGESTED ANSWER:
a) Initiating the proposed tax or revenue ordinance
b) Conduct of mandatory public hearings. The public hearing must be
conducted before the enactment and not after
c) Reading of the proposals
d) Approval of the tax or revenue ordinance
Veto of local ordinances
e) Review by higher sangguniangs
f) Publication of the tax or revenue ordinance
ALTERNATIVE ANSWER:
a) Initiating the proposed tax or revenue ordinance
1. Filing of proposal. The proposed tax or revenue ordinance is
prepared. The sponsor explains the rationale for the enactment of the
proposed ordinance.
2. Publication or posting. Within ten (10) days from filing the same
it shall be published for three (3) consecutive days in a newspaper of local
circulation or shall be posted simultaneously in at least four (4) conspicuous
places within the territorial jurisdiction of the LGU.
3. Notification. In addition to publication or posting, the sanggunian
shall cause the sending of written notices of the proposed ordinance
enclosing a copy to interested or affected parties operating or doing business
within the territorial jurisdiction of the LGU. The notice(s) shall specify the
date or dates and venue of the public hearing(s).
b) Mandatory Public Hearings. Public hearing shall be conducted before
the passage of a tax ordinance or revenue measure be held no less than ten (10)
days from the time the notices were sent out, posted or published. [RRI LGC, Article
277 (b) (3); Ongsuco v. Malones, 604 SCRA 499 (2009)]
(1) The public hearing must be conducted before the enactment and
not after. Public hearings are mandatory prior to approval of tax ordinance,
but this still requires the taxpayer to adduce evidence to show that no public
 hearings ever took place. (Reyes, et al., v. Court of Appeals, et al., G.R. No.
118233, December 10, 1999)
The defect in the enactment of a revenue measure is not cured when
another public hearing was held after the Questioned ordinance was
passed. The Local Government Code prescribes that the public hearing be
held prior to the enactment by a local government unit of an ordinance
levying taxes, fees, and charges. [Ongsuco v. Malones, 604 SCRA 499
(2009)]
c) Reading of the proposals. “No ordinance or resolution shall be
considered on second reading in any regular meeting unless it has been reported
out by the proper committee to which it was referred or certified as urgent by the
local chief executive.” [RRI LGC, Rule XXX, Part Eleven, Art. 107 (d), paraphrasing
supplied]
“Any legislative matter duly certified by the local chief executive as urgent,
whether or not it is included in the calendar of business, may be presented and
considered by the body at the same meeting without need of suspending the rules.”
[Ibid., Art. 107 (e), paraphrasing supplied]
Resolutions need not go through a third reading for its final consideration
unless decided otherwise by a majority of all the sanggunian members. [Ibid., Art.
107 (c), paraphrasing supplied]
d) Approval of the tax or revenue ordinance
1. Quorum and majority required for approval. “No ordinance or
resolution passed by the sanggunian in a regular or special session duly
called for the purpose shall be valid unless approved by a majority of the
members present, there being a quorum. Any ordinance or resolution
authorizing or directing the payment of money or creating liability, shall
require the affirmative vote of a majority of all the sanggunian members for its
passage.” [RRI LGC, Rule XXX, Part Eleven, Art. 107 (g)]
2. Recording of ayes and nays. “Upon the passage of all
ordinances and resolutions directing the payment of money or creating
liability, and at the request of any member, of any resolution or motion, the
sanggunian shall record the ayes and nays. Each approved ordinance or
resolution shall be stamped with the seal of the sanggunian and recorded in
a book kept for the purpose.” [Ibid., Art. 107 (h)]
3. Approval of ordinances by the local chief executives.
“Every ordinance enacted by the sangguniang panlalawigan, sangguniang
panlungsod, or sangguniang bayan shall be presented to the provincial
governor or city or municipal mayor, as the case may be. If the local chief
executive concerned approves the same, he shall affix his signature on each
and every page thereof xxx xxx.” [LGC, Sec. 54 (a), paraphrasing supplied]
“xxx xxx ordinances enacted by the sangguniang barangay
shall, upon approval by the majority of all its members, be signed by
the punong barangay.” (Ibid., Sec. 54 (c), paraphrasing supplied]
Veto of local ordinances.
1. The veto power of local government executives. “The local
chief executive, except the punong barangay, shall have the power to veto
xxx xxx.” [LGC, Sec. 55 (b), paraphrasing supplied]
“The local chief executive may veto any ordinance of the sangguniang
panlalawigan, sangguniang panlungsod, or sangguniang bayan xxx xxx
stating his reasons therefor in writing.” [LGC, Sec. 55 (a), paraphrasing
supplied]
If the local chief executive does not approve the proposed ordinance,
“he shall veto it and return the same with his objections to the
sanggunian, which may proceed to reconsider the same. xxx xxx.”
[LGC, Sec. 54 (a), paraphrasing supplied]
a) Ordinances that may be the subject of the local chief
executive’s partial veto. The local chief executive may veto “xxx
xxx any particular item or items of an appropriations ordinance, an
ordinance or resolution adopting a local development plan and public
investment program, or an ordinance directing the payment of money
or creating liability.” [LGC, Sec. 55 (b), paraphrasing supplied]
2. Grounds for veto by the local chief executive. The proposed
ordinance may be vetoed “xxx xxx on the ground that it is ultra vires or
prejudicial to the public welfare xxx xxx.” [LGC, Sec. 55 (a), paraphrasing
supplied]
3. Effect of veto by the local chief executive. The veto by the
local chief executive “xxx shall not affect the item or items which are not
objected to. The vetoed item or items shall not take effect unless the
sanggunian overrides the veto in the manner herein provided; otherwise, the
item or items in the appropriations ordinance of the previous year
corresponding to those vetoed, if any, shall be deemed reenacted.” [LGC,
Sec. 55 (b), paraphrasing supplied]
4. Communication of the veto to the local sanggunian. “The
veto shall be communicated by the local chief executive concerned to the
sanggunian within fifteen (15) days in the case of a province, and ten (10) days
in the case of a city or a municipality xxx xxx.” [LGC, Sec. 55 (b),
paraphrasing supplied]
a) Effect of failure of the local chief executive to
communicate to the sangguniang the notice of veto. If the local chief
executive does not communicate within the time frame “xxx xxx the
 ordinance shall be deemed approved as if he had signed it.” [LGC, Sec.
55 (b)]
5. Limitations on the veto power of the local chief executive
and overriding the veto.
a) “The local chief executive may veto an ordinance or
resolution only once.” [LGC, Sec. 55 (c), 1st sentence]
6. Override of the veto. “The sanggunian may override the veto of
the local chief executive concerned by two-thirds (2/3) vote of all its
members, thereby making the ordinance effective even without the
approval of the local chief executive concerned.” [Ibid., Sec. 55 (c), 2nd
sentence]
“The sanggunian concerned may override the veto of the local chief
executive by two-thirds (2/3) vote of all its members, thereby making the
ordinance or resolution effective for all legal intents and purposes.” [LGC,
Sec. 54 (a), paraphrasing supplied]
e) Review by higher sangguniangs.
1. Review of Component City and Municipal Ordinances or
Resolutions by the Sanggunnang Panlalawigan.
(a) Within three (3) days after approval, the secretary to the
sanggunian panlungsod or sangguniang bayan shall forward to the
sangguniang panlalawigan for review, copies of approved ordinances
and the resolutions approving the local development plans and public
investment programs formulated by the local development councils.
(1) Within thirty (30) days after receipt of copies of such
ordinances and resolutions, the sangguniang panlalawigan shall
examine the documents or transmit them to the provincial
attorney, or if there be none, to the provincial prosecutor for
prompt examination. The provincial attorney or provincial
prosecutor shall, within a period of ten (10) days from receipt of
the documents, inform the sangguniang panlalawigan in writing of
his comments or recommendations, which may be considered by
the sangguniang panlalawigan in making its decision.
(2) If the sangguniang panlalawigan finds that such an
ordinance or resolution is beyond the power conferred upon the
sangguniang panlungsod or sangguniang bayan concerned, it
shall declare such ordinance or resolution invalid in whole or in
part. The sangguniang panlalawigan shall enter its action in the
minutes and shall advise the corresponding city or municipal
authorities of the action it has taken.
(3) If no action has been taken by the sangguniang
panlalawigan within thirty (30) days after submission of such an
ordinance or resolution, the same shall be presumed consistent
with law and therefore valid.” (LGC, Sec. 56)
2. Review of Component City and Municipal Ordinances or
Resolutions by the Sangguniang Panlalawigan.
(a) Within three (3) days after approval, the secretary to the
sanggunian panlungsod or sangguniang bayan shall forward to the
sangguniang panlalawigan for review, copies of approved ordinances
and the resolutions approving the local development plans and public
investment programs formulated by the local development councils.
(1) Within thirty (30) days after receipt of copies of such
ordinances and resolutions, the sangguniang panlalawigan shall
examine the documents or transmit them to the provincial
attorney, or if there be none, to the provincial prosecutor for
prompt examination. The provincial attorney or provincial
prosecutor shall, within a period of ten (10) days from receipt of
the documents, inform the sangguniang panlalawigan in writing of
his comments or recommendations, which may be considered by
the sangguniang panlalawigan in making its decision.
(2) If the sangguniang panlalawigan finds that such an
ordinance or resolution is beyond the power conferred upon the
sangguniang panlungsod or sangguniang bayan concerned, it
shall declare such ordinance or resolution invalid in whole or in
part. The sangguniang panlalawigan shall enter its action in the
minutes and shall advise the corresponding city or municipal
authorities of the action it has taken.
(3) If no action has been taken by the sangguniang
panlalawigan within thirty (30) days after submission of such an
ordinance or resolution, the same shall be presumed consistent
with law and therefore valid.” (LGC, Sec. 56)
3. Review of Barangay Ordinances by the sangguniang
panlungsod or sangguniang bayan.
“(1) Within ten (10) days after its enactment, the
sangguniang barangay shall furnish copies of all barangay
ordinances to the sangguniang panlungsod or sangguniang
bayan concerned for review as to whether the ordinance is
consistent with law and city or municipal ordinances.
(2) If the sangguniang panlungsod or sangguniang
bayan, as the case may be, fails to take action on barangay
ordinances within thirty (30) days from receipt thereof, the same
shall be deemed approved.
 (3) If the sangguniang panlungsod or sangguniang
bayan, as the case may be, finds the barangay ordinances
inconsistent with law or city or municipal ordinances, the
sanggunian concerned shall, within thirty (30) days from receipt
thereof, return the same with its comments and
recommendations to the sangguniang barangay concerned for
adjustment, amendment, or modification; in which case, the
effectivity of the barangay ordinance is suspended until such time
as the revision called for is effected.” (LGC, Sec. 57)
4. Attempt to enforce void or suspended tax ordinances
and revenue measures. “The enforcement of any tax ordinance or
revenue measure after due notice of the disapproval or suspension
thereof shall be sufficient ground for administrative disciplinary action
against the local officials and employees responsible therefor. ” (LGC,
Sec. 190)
WARNING !!! Do not bold face your answers to Bar questions.
f) Publication of the approved tax or revenue ordinance. The Local
Government Code also requires that within ten (10) days after their approval,
certified true copies of all provincial, city and municipal tax ordinances or revenue
measures shall be published in full for three (3) consecutive days in a newspaper
of local circulation: Provided, however, That in provinces, cities and municipalities
where there are no newspapers of local circulation, the same may be posted in at
least two (2) conspicuous and publicly accessible places.” (LGC, Sec. 188)
b. Enactment of local tax measures through local initiative
1) Are there any other modes of enacting local tax or revenue
measures aside from enactment of local tax or revenue measures by the
local legislative bodies ? Describe each briefly.
SUGGESTED ANSWER: Yes, through local initiative or local referendum.
“Local initiative is the legal process whereby the registered voters of a local
government unit may directly propose, enact, or amend any ordinance.” (LGC, Sec.
120)
“Local referendum is the legal process whereby the registered voters of the
local government units may approve, amend or reject any ordinance enacted by
the sanggunian. The local referendum shall be held under the control and direction
of the Comelec within sixty (60) days in case of provinces and cities, forty-five (45)
days in case of municipalities and thirty (30) days in case of barangays. The
Comelec shall certify and proclaim the results of the said referendum.” (Ibid., Sec.
126)
“The power of local initiative and referendum may be exercised by all
registered voters of the provinces, cities, municipalities, and barangays.” (Ibid., Sec.
121)
2) What is the procedure for the conduct of local initiative ?
a) The general procedure for the conduct of local intitiative
(1) Not less than one thousand (1,000) registered voters in
case of provinces and cities, one hundred (100) in case of
municipalities, and fifty (50) in case of barangays, may file a petition
with the sanggunian concerned proposing the adoption, enactment,
repeal, or amendment of an ordinance.
(2) If no favorable action thereon is taken by the sanggunian
concerned within thirty (30) days from its presentation, the proponents,
through their duly authorized and registered representatives, may
invoke their power of initiative, giving notice thereof to the sanggunian
concerned.
(3) The proposition shall be numbered serially starting from
Roman numeral I. The Comelec or its designated representative shall
extend assistance in the formulation of the proposition.
(4) Two (2) or more propositions may be submitted in an
initiative.
(5) Proponents shall have ninety (90) days in case of provinces
and cities, sixty (60) days in case of municipalities, and thirty (30) days
in case of barangays, from notice mentioned in subsection (b) hereof to
collect the required number of signatures.
(6) The petition shall be signed before the election registrar, or
his designated representatives, in the presence of a representative
of the proponent, and a representative of the sanggunian concerned
in a public place in the local government unit, as the case may be.
Stations for collecting signatures may be established in as many places
as may be warranted.
(7) Upon the lapse of the period herein provided, the Comelec,
through its office in the local government unit concerned, shall certify
as to whether or not the required number of signatures has been
obtained. Failure to obtain the required number defeats the proposition.
(8) If the required number of signatures is obtained, the
Comelec shall then set a date for the initiative during which the
proposition shall be submitted to the registered voters in the local
government unit concerned for their approval within sixty (60) days
from the date of certification by the Comelec, as provided in subsection
(g) hereof, in case of provinces and cities, forty-five (45) days in case of
 municipalities, and thirty (30) days in case of barangays. The initiative
shall then be held on the date set, after which the results thereof shall
be certified and proclaimed by the Comelec. (LGC, Sec. 122,
renumbered)
b) Effectivity of Local Propositions. If the proposition is approved
by a majority of the votes cast, it shall take effect fifteen (15) days after
certification by the Comelec as if affirmative action thereon had been made
by the sanggunian and local chief executive concerned. If it fails to obtain
said number of votes, the proposition is considered defeated. (Ibid., Sec.
123)
3) What are are the limitations imposed upon the conduct of local
initiatives ?
SUGGESTED ANSWER: The limitations are:
a) The power of local initiative shall not be exercised more than
once a year.
b) Initiative shall extend only to subjects or matters which are within
the legal powers of the sanggunians to enact.
c) If at any time before the initiative is held, the sanggunian
concerned adopts in toto the proposition presented and the local chief
executive approves the same, the initiative shall be canceled. However,
those against such action may, if they so desire, apply for initiative in the
manner herein provided. (LGC, Sec. 124, renumbered)
4) What are the limitations upon Sanggunians with regard to
appropriate propositions ?
SUGGESTED ANSWER: Any proposition or ordinance approved through
the system of initiative and referendum as herein provided shall not be repealed,
modified or amended by the sanggunian concerned within six (6) months from the
date of the approval thereof, and may be amended, modified or repealed by the
sanggunian within three (3) years thereafter by a vote of three-fourths (3/4) of all its
members: Provided, That in case of barangays, the period shall be eighteen (18)
months after the approval thereof. (LGC, Sec. 125)
5) What is the authority of courts with regard to approved
propositions ?
SUGGESTED ANSWER: Nothing in the provisions on local initiatove shall
prevent or preclude the proper courts from declaring null and void any proposition
for violation of the Constitution or want of capacity of the sanggunian concerned to
enact the said measure. (LGC, Sec. 127)
i. Publication, posting and notification requirements
Historical antecedent. The publication requirement was the subject of a BEQ in
1976.
The Sangguniang Panlungsod of Manila enacted an ordinance
imposing taxes, fees or other charges. The ordinance was approved by the
City Mayor on June 15, 2018. On February 17, 2019, the Federation of Market
Vendors commenced an action in court seeking the nullification of the
ordinance on the ground that it was not published before its enactment and
after it was approved by the Sangguniang Panlungsod as required by the
revised Charter of the City of Manila. The Mayor and the City Market
Administrator on the other hand, contend that under Section 188 of the Local
Government Code, the publication of a tax ordinance is required only after its
approval. Is the tax ordinance valid? Reasons. (1976, rewording and dates
supplied)
SUGGESTED ANSWER: No. The ordinance is not valid because of its
failue to comply with the publication requirements provided for both in the Revised
Charter of the City of Manila and the provisions of the Local Government Code.
Both the laws require publication at the time of filing the tax ordinance with
the local sanggunian and after its approval.
ALTERNATIVE ANSWER: No. As it now stands, both the revised Charter of
the City of Manila and the Local Government Code require publication before and
after effectivity. The failure to comply with the publication requirements results to
the invalidity of the tax ordinance.
The Local Government Code requires that within ten (10) days from filing the
same, it shall be published for three (3) consecutive days in a newspaper of local
circulation or shall be posted simultaneously in at least four (4) conspicuous places
within the territorial jurisdiction of the LGU.
The Code also requires that within ten (10) days after their approval, certified
true copies of all provincial, city and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper of local
circulation: Provided, however, That in provinces, cities and municipalities where
there are no newspapers of local circulation, the same may be posted in at least
two (2) conspicuous and publicly accessible places.” (LGC, Sec. 188)
Since there was a failure to comply with the formal test of compliance with
proper procedures for the enactment of an ordinance, then the tax ordinance is not
valid.
ii. Effectivity of local ordinances
Historical antecedent. The effectivity of local tax ordinances was the subject of a
BEQ in 1978.
 When does a local tax ordinance take effect ? (1976)
SUGGESTED ANSWER: A local tax ordinance shll take effect only after
compliance with the publication requirement. (LGC, Sec. 188)
iii. Review by the Secretary of Justice
Historical antecedents. Appeal to the Secretary of Justice was the subject of BEQs
in 1983, 1991, 2003, 2014, and 2015.
1. On what grounds may a local tax ordinance be challenged before
the Secretary of Justice ? (1983)
SUGGESTED ANSWER: The validity of a local tax ordinance may be
challenged on the basis of constitutionality or legality.
***2. The Municipality of Argao, Province of Cebu passed a tax
ordinance requiring all professionals practicing in the municipality to pay a
tax equivalent to two (2%) percent of their gross income. A certified true
copy of the ordinance was sent to the Secretary of Justice for review on 1
March 2017 and was received by him on the same day. On 15 August
2018, even as the tax ordinance remained unacted upon by the Secretary of
Justice, the municipality started collecting the tax in question. The members
of the Philippine Bar in the municipality questioned the legality of the
ordinance and sought the suspension of the collection of the tax but the
municipality argued that since the Secretary has not taken any action on the
ordinance for more than sixty (60) days after his receipt thereof, the legality
of the ordinance can no longer be questioned and insisted on the collection
of the tax.
a) Will the inaction of the Secretary of Justice bar the professionals
in the municipality from questioning the legality of the ordinance ? (1991,
adapted, reworded and dates supplied)
SUGGESTED ANSWER: Yes, considering that the professionals did not
raise the validity of the ordinance in the appropriate court within thirty (30) days
from the expiration of the sixty (60) day period for the Secretary of Justice to
decide.
b) What remedies are available to the taxpayer to enable him to
question the legality of that ordinance? (1991, adapted and reworded)
SUGGESTED ANSWER: The taxpayer may question the legality of the
tax ordinance on appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice. (LGC, Sec. 187, paraphrasing supplied)
***3. In 2018, M City approved an ordinance levying customs
duties and fees on goods coming into the territorial jurisdiction of the city.
Said city ordinance was duly published on February 15, 2019 with effectivity
date on March 1, 2019.
xxx xxx xxx
b. What is the proper procedural remedy and applicable time periods
for challenging the ordinance ? (2015, dates supplied)
SUGGESTED ANSWER: Within thirty (30) from the effectivity of the
ordinance on March 1, 2019, or until March 31, 2019, the constitutionality or
legality of tax ordinances may be raised on appeal to the Secretary of Justice.
The Secretary of Justice shall render a decision within 60 days from the date
of receipt of the appeal. Thereafter, within 30 days after receipt of the decision or
the lapse of the sixty-day period without the Secretary of Justice acting upon the
appeal, the aggrieved party may file the appropriate proceedings with the Regional
Trial Court. (LGC, Sec. 187)
5. Periods of assessment and collection of local taxes, fees, or
charges
a. Periods of assessment of local taxes, fees or charges
Historical antecedent. The period for assessing local taxes was the subject of a
BEQ in 2012.
**1) Wihin what period may local taxes be assessed ?
SUGGESTED ANSWER: “Local taxes, fees or charges shall be assessed
within five (5) years from the date they became due.” [LGC, Sec. 194 (a), 1st
sentence]
“In case of fraud or intent to evade the payment of taxes, fees, or charges,
the same may be assessed within ten (10) years from discovery of the fraud or
intent to evade payment.” (Ibid., Sec. 194 (b)]
** 2) What are the events that suspend the running of the prescriptive
periods for assessment or collection of local taxes ?
SUGGESTED ANSWER: The running of the periods of prescription for the
assessment or collection of local taxes shall be suspended for the time during
which:
 a) The treasurer is legally prevented from making the assessment of SUGGESTED ANSWER: Yes. Local government taxes are to be assessed
collection; based on the calendar year basis.
b) The taxpayer requests for a reinvestigation and executes a
waiver in writing before expiration of the period within which to assess or ` ii. Accrual of tax
collect; and a. Define accrual. When do local taxes accrue ?
c) The taxpayer is out of the country SUGGESTED ANSWER: Accrual is when the amount of the tax starts to be
d) The taxpayer cannot otherwise cannot be located. [LGC, Sec. 194 determined.
(d)] Unless otherwise provided in the Local Government Code,
1. all local taxes, fees, and charges
b. Collection of local taxes 2. shall accrue on the first (1st) day of January of each year.
3. However,
i Tax period and manner of payment a) new taxes, fees or charges, or changes in the rates thereof,
b) shall accrue
Historical antecedent. The tax period for municipal taxation was the subject of a 1) on the first (1st) day of the quarter
BEQ in 2008. 2) next following the effectivity of the ordinance
imposing such new levies or rates.” (LGC, Sec. 166, arrangement and
**a. What is the prescriptive period for the collection of local taxes ?
numbering supplied)

SUGGESTED ANSWER: Local taxes, fees, or charges may be collected b. Distinguish accrual of the tax from time of payment of the tax,
within five (5) years from the date of assessment by administrative or judicial illustrate.
action. No action shall be instituted after the expiration of said period. [LGC, Sec. SUGGESTED ANSWER:
194 (c), paraphrasing supplied] 1. In accrual, the time for the start of computing the tax or in short
when the amount of tax to be paid is determined WHILE time of payment
means the period of payment without any surcharges, penalties or interests.
**b. MNO Corporation was organized on July 1, 2016, to engage in 2. The tax may have accrued but it is not required to be paid yet
trading of school supplies, with principal place of business in Cubao, Quezon WHILE in time of payment when the tax has to be paid.
City. Its books of accounts and income statement showing gross sales as 3. In accrual, there is no need to pay the penalties yet hence the
follows: imposition, surcharges, penalties and interest do not start to run WHILE in
time of payment; the imposition surcharges, penalties or interest does start
July 1, 2018 to December 31, 2018 P 5,000,000. to run.
January 1, 2019 to June 30, 2019 P10,000,000. Illustration: The Community Tax shall accrue on the first (1st) day of
July 1, 2019 to December 31, 2019 P15,000,000. January of each year, but the time of payment is not later than the first day of
February of each year. [LGC, Sec. 161 (a)]
Since MNO Corporation adopted fiscal year ending June 30 as its taxable WARNING !!! Do not capitalize the word WHILE when answering Bar questions.
year for income tax purposes, it paid its 2% business tax for fiscal year ending
June 30, 2018 based on gross sales of P15 million. However, the Quezon City iii. Time of payment
Treasurer assessed the corporation for deficiency business tax for 2018 based
on gross sales of P15 million alleging that local business taxes shall be When is the time and manner of payment of local taxes ?
computed based on calendar year. SUGGESTED ANSWER: Unless otherwise provided in the Local
Is the position of the city treasurer tenable ? Explain. (2008, dates supplied) Government Code,
1. all local taxes, fees, and charges
 2. shall be paid within the first twenty (20) days of January or of a) per month from the date it is due
each subsequent quarter, as the case may be. b) until it is paid,
3. The sanggunian concerned 1) but in no case shall the total interest on the unpaid
a) may, for a justifiable reason or cause, amount or a portion thereof
b) extend the time for payment of such taxes, fees, or charges (a) exceed thirty-six (36) months.” (LGC, Sec. 169,
1) without surcharges or penalties, arrangement and numbering supplied)
c) but only for a period not exceeding six (6) months. (LGC,
Sec. 167, arrangement and numbering supplied) v. Authority of treasurer in collection and inspection of
Such taxes, fees and charges may be paid in quarterly installments . (Ibid., books
Sec. 165, 2nd sentence, paraphrasing supplied)
a. What comprises the authority of the treasurer in the collection of
iv. Surcharges, penalties and interests on unpaid taxes, local taxes ?
fees or charges SUGGESTED ANSWER: All local taxes, fees and charges
1. shall be collected
a. What are the surcharges, penalties and interests due upon unpaid 2. by the appropriate local government unit treasurers,
local taxes, fees, or charges ? a) or their duly authorized deputies. (LGC, Sec. 170, 1st sentence,
SUGGESTED ANSWER: “The sanggunian may impose arrangement and numbering supplied)
1. a surcharge 3. The provincial, city or municipal treasurer
a) not exceeding twenty-five percent (25%) a) may designate the barangay treasurer
b) of the amount of taxes, fees or charges not paid on time 1) as his deputy to collect local taxes, fees, or charges.
2. and an interest at the rate (Ibid., Sec. 170, 2nd sentence, arrangement and numbering supplied)
a) not exceeding two percent (2%) per month In case a bond is required for the purpose,
b) of the unpaid taxes, fees or charges including surcharges, a) the provincial, city or municipal government
1) until such amount is fully paid b) shall pay the premiums thereon
2) but in no case shall the total interest on the unpaid 1) in addition to the premiums of bond that may be
amount or portion thereof required under the Local Government Code. (Ibid., Sec. 170, 3rd
3) exceed thirty-six (36) months.” (LGC, Sec. 168, sentence, parapjhrasing, arrangement and numbering supplied)
arrangement and numbering supplied)
b. Who conducts the examination of the books of accounts and
b. What are the interests due on other unpaid revenues ? pertinent records of businessmen ?
SUGGESTED ANSWER: SUGGESTED ANSWER: The provincial, city, municipal or barangay
1. “Where the amount of any other revenue due a local government treasurer may, by himself or through any of his deputies duly authorized in writing,
unit, conduct the examination of the Books of Accounts and pertinent records of
a) except voluntary contributions or donations, businessmen. (LGC, Sec. 171, 1st sentence, paraphrasing, arrangement and numbering
2. is not paid on the date supplied)
a) fixed in the ordinance, “Such examination shall be made during regular business hours, only once
b) or in the contract, expressed or implied, for every tax period, and shall be certified to by the examining official. Such
c) or upon the occurrence of the event which has given rise to certificate shall be made of record in the books of accounts of the taxpayer
its collection, examined.” (Ibid., Sec. 171, 2nd and 3rd sentences, arrangement and numbering supplied)
3. there shall be collected as part of that amount an interest thereon “In case the examination herein authorized is made by a duly authorized
4. at the rate not exceeding two percent (2%) deputy of the local treasurer, the written authority of the deputy concerned shall
specifically state the name, address, and business of the taxpayer whose books,
accounts, and pertinent records are to be examined, the date and place of such
examination, and the procedure to be followed in conducting the same.” (Ibid., Sec.
171, 4th sentence, arrangement and numbering supplied)
The records to be examined are the books, accounts, and other pertinent
records of any person, partnership, corporation, or association subject to local
taxes, fees and charges in order to ascertain, assess, and collect the correct
amount of the tax, fee, or charge. (Ibid., Sec. 171, 1st sentence, arrangement and
numbering supplied)
“For this purpose, the records of the revenue district office of the Bureau of
Internal Revenue shall be made available to the local treasurer, his deputy or duly
authorized representative.” (LGC, Sec. 171, 5th sentence, arrangement and numbering
supplied)
vi. No suspension of collection of local taxes
Historical antecedents. The general rule on no suspension of collection of local
taxes was the subject of a BEQ in 1969, and 1977.
**1. When and under what conditions may the effectivity of the tax
ordinance be suspended? (1969)
SUGGESTED ANSWER: As a general rule, the effectivity of a tax ordinance
may not be suspended. This is so because even pending resolution of the
issues relating to the validity of the tax ordinances, the effectivity of the ordinance
and the accrual payment of the tax, fee or charge levied is not suspended. (LGC,
Sec. 187)
However, if the matter is elevated to the Court of Tax Appeals, said court
may issue an order suspending the collection of the tax. In such a case, the
conditions for the Court of Tax Appeals to enjoin collection of taxes are the
following:
a. If in its opinion the collection of the tax may jeopardize the
interest of the government and/or the taxpayer.
b. In this instance, the court may require the taxpayer either to
deposit the amount claimed or file a surety bond for not more than double the
amount with the court. (R. A. No. 1125, Sec. 11, 4th par., as amended by R. A. No.
9282)
2. On what grounds may the Secretary of Justice suspend the
effectivity of a tax ordinance ? (1977, reworded)
SUGGESTED ANSWER: The Secretary of Justice has no authority to suspend
the effectivity of a tax ordinance.
The appeal to the Secretary of Justice shall not have the effect of suspending
the effectivity of the ordinance and the accrual and payment of the tax, fee, or
charge levied therein. (LGC, Sec. 187, paraphrasing supplied)
6. Taxpayer’s remedies
**a. What are the remedies available for a taxpayer from whom were
taxes collected by local government units except real property taxes.
SUGGESTED ANSWER: The remedies are:
1. Protest of assessment under the LGC, Sec, 195 (b); and
2. Claim for refund or tax credit for erroneously or illegally collected
tax, fee or charge] of the Local Government Code govern the remedies of a
taxpayer for taxes collected by local government units, except for real
property taxes. (Ibid., Sec. 196 (c); International Container Terminal Services, Inc.
v. The City of Manila, et al., G.R. No. 185622, October 17, 2018)
**b. What are the distinctions between the protest of assessment
under Sec. 195 (b) and claim for refund or tax credit under Sec. 196 (c), the
two remedies available for a taxpayer to question the collection by a local
government of a tax other than a real property tax ?
SUGGESTED ANSWER:
1. Procedure. Sec. 195 (b) provides the procedure for contesting
an assessment issued by the local treasurer; WHILE Sec. 195 (c) provides
the procedure for the recovery of an erroneously paid or illegally collected
tax, fee or charge. Both Sections 195 and 196 mention an administrative
remedy that the taxpayer should first exhaust before bringing the appropriate
action in court.
2. Administrative remedy. In Sec. 195 (b), it is the written protest
with the local treasurer that constitutes the administrative remedy; WHILE in
Sec. 196 (c), it is the written claim for refund or credit with the same office.
3. The application of Sec. 195 (b) is triggered by an assessment
made by the local treasurer or his duly authorized representative for
nonpayment of the correct taxes, fees or charges. Should the taxpayer find
the assessment to be erroneous or excessive, he may contest it by filing a
written protest before the local treasurer within the reglementary period of
sixty (60) days from receipt of the notice; otherwise, the assessment shall
become conclusive. The local treasurer has sixty (60) days to decide said
protest. In case of denial of the protest or inaction by the local treasurer, the
taxpayer may appeal with the court of competent jurisdiction; otherwise, the
assessment becomes conclusive and unappealable.
On the other hand, Sec. 196 (c) may be invoked by a taxpayer who
claims to have erroneously paid a tax, fee or charge, or that such tax, fee or
charge had been illegally collected from him. The provision requires the
taxpayer to first file a written claim for refund before bringing a suit in court
which must be initiated within two years from the date of payment. By
necessary implication, the administrative remedy of claim for refund with the
local treasurer must be initiated also within such two-year prescriptive period
but before the judicial action.
4. Unlike Sec. 195 (b), however, Sec. 196 (c) does not expressly
provide a specific period within which the local treasurer must decide the
written claim for refund or credit. It is, therefore, possible for a taxpayer to
submit an administrative claim for refund very early in the two-year period
and initiate the judicial claim already near the end of such two-year period
due to an extended inaction by the local treasurer. In this instance, the
taxpayer cannot be required to await the decision of the local treasurer any
longer, otherwise, his judicial action shall be barred by prescription.
5. Sec. 196 (c) does not expressly mention an assessment made by
the local treasurer. This simply means that its applicability does not depend
upon the existence of an assessment notice. By consequence, a taxpayer
may proceed to the remedy of refund of taxes even without a prior protest
against an assessment that was not issued in the first place. This is not to
say that an application for refund can never be precipitated by a previously
issued assessment, for it is entirely possible that the taxpayer, who had
received a notice of assessment, paid the assessed tax, fee or charge
believing it to be erroneous or illegal. Thus, under such circumstance, the
taxpayer may subsequently direct his claim pursuant to Sec. 196 (c) of the
LGC. (International Container Terminal Services, Inc. v. The City of Manila, et al.,
G.R. No. 185622, October 17, 2018, paraphrasing, arrangement and numbering
supplied)
**c. Give some scenarios for application of Sec. 195 (b) and 196 (c)
SUGGESTED ANSWER:
1. If the taxpayer receives an assessment and does not pay the tax,
its remedy is strictly confined to Sec. 195 (b) of the Local Government Code.
(International Container Terminal Services, Inc. v. The City of Manila, et al., G.R. No.
185622, October 17, 2018]
Thus, it must file a written protest with the local treasurer within 60 days
from the receipt of the assessment. If the protest is denied, or if the local
treasurer fails to act on it, then the taxpayer must appeal the assessment
before a court of competent jurisdiction within 30 days from receipt of the
denial, or the lapse of the 60-day period within which the local treasurer must
act on the protest. (Ibid.) As no tax was paid, there is no claim for refund in
the appeal.
2. If the taxpayer opts to pay the assessed tax, fee, or charge, it
must still file the written protest within the 60-day period, and then bring the
case to court within 30 days from either the decision or inaction of the local
treasurer. In its court action, the taxpayer may, at the same time, question
the validity and correctness of the assessment and seek a refund of the taxes
it paid. (International Container Terminal Services, Inc. v. The City of Manila, et al.,
G.R. No. 185622, October 17, 2018) "Once the assessment is set aside by the
court, it follows as a matter of course that all taxes paid under the erroneous
or invalid assessment are refunded to the taxpayer." (Ibid)
3. If no assessment notice is issued by the local treasurer, and the
taxpayer claims that it erroneously paid a tax, fee, or charge, or that the tax,
fee, or charge has been illegally collected from him, then Sec. 196 (c)
applies. (International Container Terminal Services, Inc. v. The City of Manila, et al.,
G.R. No. 185622, October 17, 2018)
**d. Define assessment as used in local taxation, explain its nature
and what should it contain ?
SUGGESTED ANSWER: A notice issued by the local treasurer that the
amount stated therein is due as a local tax and demand made for the payment
thereof.
The notice of assessment, stands as the first instance the taxpayer is
officially made aware of the pending tax liability. It should be sufficiently
informative to apprise the taxpayer of the legal basis of the tax. (International
Container Terminal Services, Inc. v. The City of Manila, et al., G.R. No. 185622, October
17, 2018)
While the Local Government Code does not expressly require that the notice
of assessment specifically cite the provision of the ordinance involved, it does
require that it states the nature of the tax, fee or charge, the amount of deficiency,
surcharges, interests and penalties.
Reference to the local tax ordinance is vital, for the power of the local
government units to impose local taxes is exercised through the appropriate
ordinance enacted by the sanggunian, and not by the Local Government Code
alone. What determines tax liability is the tax ordinance, the Local Government
Code being the enabling law for the local legislative body. (Ibid.)
Verily, there could be no tax collected if there is no tax ordinance that
authorizes its imposition and collection.
 i) Taxpayer appeals to the competent court
within 30 days after receipt of denial.
**e. What is the ground for the issuance of a notice of assessment ? (b) Treasurer does not act within 60 days from
SUGGESTED ANSWER: receipt of appeal.
1. “When the local treasurer or his duly authorized representative i) Taxpayer has 30 days from lapse of 60
a) finds that correct taxes, fees, or charges days period to appeal to competent court. (LGC, Sec.
b) have not been paid, 195, paraphrasing, numbering and arrangement supplied]
2. he shall issue a notice of assessment
a) stating the nature of the tax, fee or charge, the amount of b. Claim for refund of tax credit for erroneously or illegally
deficiency, the surcharges, interests and penalties.” (LGC, Sec. 195, 1st collected taxes, fees, or charges
sentence, arrangement and numbering supplied)

a. Protest of assessment **1) What is the procedure for refund of local government taxes, fees,
or charges ?
SUGGESTED ANSWER:
**1) When should an assessment for local taxes be protested ? a) A written claim for refund or credit is filed with the local treasurer.
SUGGESTED ANSWER: This is a mandatory requirement without which a court will not entertain any
a) “Within sixty (60) days from the receipt of the notice of case or proceeding for the recovery of any tax, fee or charge, claimed to be
assessment, erroneously or illegally collected. There is no requirement for the payment to
b) the taxpayer may file a written protest with the local be protested.
treasurer contesting the assessment; b) A claim or proceeding is then filed with the court of competent
c) otherwise, the assessment shall become final and jurisdiction (depending upon the jurisdictional amount) within two (2) years
executory.” (LGC, Sec. 195, 2nd sentence, arrangement and numbering from the date of the payment of such tax, fee, or charge, or from the date the
supplied) taxpayer is entitled to a refund or credit. (LGC, Sec. 196; International Container
Terminal Services, Inc. v. The City of Manila, et al., G.R. No. 185622, October 17,
2018)
**2) Within what period should the local treasurer decide a A claim for refund is a claim for the return of the tax money.
protest ? A claim for tax credit is an application to utilize the tax paid in payment of
SUGGESTED ANSWER: future tax liabilities.
a) The local treasurer shall decide the protest within sixty (60)
days from the time of its filing.
b) If the local treasurer
**2) What are the grounds for refund or credit of local government
(1) finds the protest to be wholly meritorious, taxes, fees, or charge ?
(2) he shall issue a notice canceling wholly, and the case SUGGESTED ANSWER: The grounds are that the tax is
is closed a) erroneously collected (solutio indebiti). A tax collected or paid on
c) However, if the local treasurer the mistaken belief that a tax is due.
(1) finds the assessment to be wholly or partly correct, b) illegally collected. (LGC, Sec. 196, numbering and arrangement
(2) he shall deny the protest wholly or partly with notice supplied) A tax collected without any factual or legal basis.
to the taxpayer c) Excessively collected. A tax more than allowed by law was
(a) Treasurer denies protest. collected.
 i. Judicial remedies for tax refund or credit of local
government taxes
a. What are local tax cases ?
SUGGESTED ANSWER: Local tax cases include those involving Real
Property Taxation (RPT), which is governed by Book II, Title II of R.A No. 7160, or
Local Government Code (LGC) of 1991. (Herarc Realty Corporation v. The Provincial
Treasurer of Batangas, et al., G.R. No. 210736, September 5, 2018)
“Among the possible issues are the legality or validity of the RPT
assessment; protests of assessments; disputed assessments, surcharges, or
penalties; legality or validity of a tax ordinance; claims for tax refund/credit; claims
for tax exemption; actions to collect the tax due; and even prescription of
assessments.” (Ibid.)
b. What determines the nature of an action ?
SUGGESTED ANSWER: The nature of an action is determined by the
allegations in the complaint and the character of the relief sought. (International
Container Terminal Services, Inc. v. The City of Manila, et al., G.R. No. 185622, October
17, 2018)
  Refund is available under both Sections 195 and 196 of the Local
Government Code: for Section 196, because it is the express remedy sought, and
for Section 195, as a consequence of the declaration that the assessment was
erroneous or invalid. Whether the remedy availed of was under Section 195 or
Section 196 is not determined by the taxpayer paying the tax and then claiming a
refund. (Ibid.)
What determines the appropriate remedy is the local government's basis for
the collection of the tax. It is explicitly stated in Section 195 that it is a remedy
against a notice of assessment issued by the local treasurer, upon a finding that
the correct taxes, fees, or charges have not been paid. The notice of assessment
must state "the nature of the tax, fee, or charge, the amount of deficiency, the
surcharges, interests and penalties.  (Ibid.)
***c. What are the judicial remedies that are available for the
refund or credit of local government taxes ?
SUGGESTED ANSWER: The judicial remedies are determined by the
amounts of the tax involved.
1) Exclusive original jurisdiction vests upon the first level courts
such as the Metropolitan Ttrial courts, Municipal Trial Courts and the
Municipal Circuit Trial Courts where the amount of the demand
a) does not exceed Three Hundred Thousand pesos
(P300,000.00), or
b) in Metro Manila where such personal property, estate, or
amount of the demand does not exceed Four Hundred Thousand
pesos (P400,000.00), exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses and costs, the amount of which
must be specifically alleged,
Provided, that interest, damages of whatever kind, attorney's
fees, litigation expenses, and costs shall be included in the
determination of the filing fees. [B.P. Blg. 129, Sec. 33 (1), as amended by
Rep. Act No. 7691, paraphrasing arrangement and numbering supplied)
(1) The competent courts referred to are the first level
courts which act in the exercise of their original jurisdiction.
(2) An adverse decision of the first level court may be
appealed to the Regional Trial Court (RTC) within fifteen (15)
days from receipt of the RTC decision through a notice of appeal.
(3) An adverse decision of the RTC rendered in aid of its
appellate jurisdiction may be appealed to the Court of Tax
Appeals (en banc) within thirty (30) days from receipt of the RTC
decision through a petition for review.
(4) The adverse decision of the Court of Tax Appeals (en
banc) may be the subject of a petition for review on certiorari
directed to the Supreme Court within fifteen (15) days from
receipt of the adverse decision of the CTA extendible for thirty
(30) days.
2) Exclusive original jurisdiction vests upon the Regional Trial
Courts where the demand, exclusive of interest, damages of whatever kind,
attorney’s fees, litigation expenses, and costs or the value of the property in
controversy
a) exceeds Three hundred thousand pesos (P300,000.00) or,
b) in such other cases in Metro Manila, where the demand
exclusive of the above mentioned items exceeds Four hundred
thousand pesos (P400,000.00). (B.P. Blg. 129., Sec. 19, as amended
by Sec. 5, R.A. No. 7691)
The original jurisdiction of the Court of Tax Appeals involving
cases the amounts of which are P1 million and above refers only to tax
collection and does not apply to refund cases. (R.A. No. 1125, Sec.
7.c.1, as amended by R.A. No. 9282)
(1) The competent court referred to is the Regional Trial
Court which acts in the exercise of its exclusive original
jurisdiction.
 (2) An adverse decision of the RTC may be appealed to
the Court of Tax Appeals (Division) within thirty (30) days from
receipt of the RTC decision through a petition for review.
(3) The adverse decision of the Court of Tax Appeals
(Division) may be the subject of a motion for reconsideration or a
motion for new trial directed to the Court of Tax Appeals (en
banc) within fifteen (15) days from receipt of the adverse
decision.
(4) The adverse decision of the Court of Tax Appeals (en
banc) may be the subject of a petition for review on certiorari
directed to the Supreme Court within fifteen (15) days from
receipt of the adverse decision of the CTA extendible for thirty
(30) days.
7. Remedies of the LGUs for collection of revenues
What are the civil remedies for the collection of local taxes ?
SUGGESTED ANSWER: The civil remedies for the collection of local taxes, fees, or
charges, and related surcharges and interest resulting from delinquency shall be
(a) By administrative action; and
(b) Judicial action.
Either of these remedies or all may be pursued concurrently or simultaneously at the
discretion of the local government unit concerned. (LGC, Sec. 174, paraphrasing supplied)
a. Administrative action
1) What is the manner by which government revenues arising from
local taxation are protected before their collection ?
SUGGESTED ANSWER: Government revenues are protected through a
lien which is defined as a charge or encumbrance, created by law, upon property
giving the taxing authority a security interest in the property for the satisfaction of
unpaid taxes.
“Local taxes, fees, charges and other revenues constitutes a lien superior to
all liens, charges or encumbrances in favor of any person.” (LGC, Sec. 173, 1st
sentence, paraphrasing supplied)
The lien is “enforceable by appropriate administrative or judicial action
a) not only property or rights subject to the lien
b) but also upon property used in business, occupation, practice of
profession or calling, or exercise of privilege with respect to which lien is
imposed.” (Ibid., arrangement, paraphrasing, and numbering supplied)
“The lien may only be extinguished upon full payment of the delinquent local
taxes, fees and charges, including related surcharges and interest.” (Ibid., Sec. 173,
last sentence, paraphrasing supplied)
2) How may local taxes be collected through administrative action ?
Explain your answer.
SUGGESTED ANSWER: Local taxes may be collected
a) by administrative action through distraint of goods, chattels, or
effects,
(1) and other personal property of whatever character,
(2) including
(a) stocks and other securities,
(b) debts,
(c) credits,
(d) bank accounts, and
(e) interest in and rights to personal property, and
b) by levy upon real property and interest in or rights to real
property. [LGC, Sec. 174 (a), paraphrasing, arrangement and numbering supplied]
3) How is the distraint of personal property as an administrative
remedy for the collection of taxes effected ?
SUGGESTED ANSWER:
a) “Upon failure of the person owing any local tax, fee, or charge to
pay the same at the time required,
b) the local treasurer or his deputy
c) may, upon written notice,
d) seize or confiscate any personal property belonging to that
person or any personal property
e) subject to the lien in sufficient quantity to satisfy the tax, fee, or
charge in question, together with any increment thereto incident to
delinquency and the expenses of seizure.” [LGC, Sec. 175 (a), 1st sentence,
arrangement and numbering supplied]
“In such case, the local treasurer or his deputy shall issue a duly
authenticated certificate based upon the records of his office showing the fact of
delinquency and the amounts of the tax, fee, or charge and penalty due.
a) Such certificate shall serve as sufficient warrant for the distraint
of personal property aforementioned, subject to the taxpayer's right to claim
exemption under the provisions of existing laws.” [Ibid., Sec. 175 (a), 2nd and 3rd
sentences, arrangement and numbering supplied]
“Distrained personal property shall be sold at public auction in the manner
herein provided for” [Ibid., Sec. 175 (a), last sentence, arrangement and numbering
supplied] and the proceeds are applied to the payment of the tax delinquency.
 “Where the proceeds of the sale are insufficient to satisfy the claim, other for sale or auction the property or a usable portion thereof as may
property may, in like manner, be distrained until the full amount due, including all be necessary to satisfy the claim and cost of sale; and such
expenses, is collected.” [Ibid., Sec. 175 (f), last sentence, arrangement and numbering advertisement shall cover a period of at least thirty (30) days.”
supplied] (LGC, Sec. 178. 1st sentence)
2) Stay of proceedings. “At any time before the date
4) What are the stages for levy of real property to answer for local fixed for the sale, the taxpayer may stay the proceedings by
tax delinquencies ? paying the taxes, fees, charges, penalties and interests.” (LGC,
SUGGESTED ANSWER: Sec. 178, 4th sentence)
a) Time for levy, in general. “After the expiration of the time 3) Procedure for sale. “If he fails to do so, the sale
required to pay the delinquent tax, fee, or charge, real property may be levied shall proceed and shall be held either at the main entrance of the
on, before, simultaneously, or after the distraint of personal property provincial, city or municipal building, or on the property to be sold,
belonging to the delinquent taxpayer.” (LGC, Sec. 176, 1st sentence) or at any other place as determined by the local treasurer
(1) Time for levy, if levy not made prior or simultaneous to conducting the sale and specified in the notice of sale .” (LGC,
distraint, “In case the levy on real property is not issued before or Sec. 178, 5th sentence)
simultaneously with the warrant of distraint on personal property, and (a) Redemption of real property sold.
the personal property of the taxpayer is not sufficient to satisfy his (1) Period for redemption.
delinquency, the provincial, city or municipal treasurer, as the case i. “Within one (1) year from the date
may be, shall within thirty (30) days after execution of the distraint, of sale,
proceed with the levy on the taxpayer's real property.” (Ibid., Sec. 176, ii. the delinquent taxpayer or his
6th sentence) representative shall have the right to redeem
b) Preparation of certificate of delinquency. The “provincial, city the property,” (LGC, Sec. 179, 1st sentence,
or municipal treasurer, as the case may be, shall prepare a duly paraphrasing, arrangement and numbering
authenticated certificate showing the name of the taxpayer and the amount of supplied)
the tax, fee, or charge, and penalty due from him.” ( Ibid., Sec. 176, 2nd (b) Manner of redemption.
sentence) i. Upon “payment to the local
c) Actual levy. “Said certificate shall operate with the force of a treasurer
legal execution throughout the Philippines. Levy shall be effected by writing ii. of the total amount of taxes, fees,
upon said certificate the description of the property upon which levy is made. or charges, and related surcharges, interests or
At the same time, written notice of the levy shall be mailed to or served upon penalties
the assessor and the Registrar of Deeds of the province or city where the iii. from the date of delinquency to the
property is located who shall annotate the levy on the tax declaration and date of sale,
certificate of title of the property, respectively, and the delinquent taxpayer or, iv. plus interest of not more than two
if he be absent from the Philippines, to his agent or the manager of the percent (2%) per month on the purchase price
business in respect to which the liability arose, or if there be none, to the v. from the date of purchase to the
occupant of the property in question.” (Ibid., Sec. 176, 3rd, 4th and 5th sentences) date of redemption.” (Ibid., Sec. 179, 1st sentence,
d) Report on levy. “A report on any levy shall, within ten (10) days paraphrasing, arrangement and numbering
after receipt of the warrant, be submitted by the levying officer to the supplied)
sanggunian concerned.” (LGC, Sec. 176, last sentence) (c) Effect of payment. “Such payment shall
e) Advertisement and sale. invalidate the certificate of sale issued to the purchaser and
1) Time for advertisement, “Within thirty (30) days the owner shall be entitled to a certificate of redemption
after levy, the local treasurer shall proceed to publicly advertise from the provincial, city or municipal treasurer or his
deputy. The provincial, city or municipal treasurer or his
 deputy, upon surrender by the purchaser of the certificate
of sale previously issued to him, shall forthwith return to
the latter the entire purchase price paid by him plus the
interest of not more than two percent (2%) per month
herein provided for, the portion of the cost of sale and other
legitimate expenses incurred by him, and said property
thereafter shall be free from the lien of such taxes, fees, or
charges, related surcharges, interests, and penalties. The
owner shall not, however, be deprived of the possession of
said property and shall be entitled to the rentals and other
income thereof until the expiration of the time allowed for its
redemption.” (LGC, Sec. 179, 2nd, 3rd and 4th sentences)
(d) Final deed to purchaser upon failure to
redeem. “In case the taxpayer fails to redeem the property
as provided herein, the local treasurer shall execute a deed
conveying to the purchaser so much of the property as has
been sold, free from liens of any taxes, fees, charges,
related surcharges, interests, and penalties. The deed shall
succinctly recite all the proceedings upon which the validity
of the sale depends.” (LGC, Sec. 180, emphasis supplied)
f) Purchase of property by the Local Government Units for
Want of Bidder.
1) Purchase of property by the government. “In case there
is no bidder for the real property advertised for sale as provided herein,
or if the highest bid is for an amount insufficient to pay the taxes, fees,
or charges, related surcharges, interests, penalties and costs, the local
treasurer conducting the sale shall purchase the property in behalf of
the local government unit concerned to satisfy the claim and within two
(2) days thereafter shall make a report of his proceedings which shall
be reflected upon the records of his office.” (LGC, Sec. 181. 1st sentence)
2) Period of redemption. “Within one (1) year from the date
of such forfeiture, the taxpayer or any of his representative, may
redeem the property by paying to the local treasurer the full amount of
the taxes, fees, charges, and related surcharges, interests, or
penalties, and the costs of sale.” (Ibid., Sec. 181, 3rd sentence)
3) Effect of failure to redeem. “If the property is not
redeemed as provided herein, the ownership thereof shall be fully
vested on the local government unit concerned.” (Ibid., Sec. 181, last
sentnece)
(a) Resale of real estate taken for taxes, fees, or
charges. “The sanggunian concerned may, by ordinance duly
approved, and upon notice of not less than twenty (20) days, sell
and dispose of the real property acquired under the preceding
section at public auction. The proceeds of the sale shall accrue to
the general fund of the local government unit concerned.” (LGC,
Sec. 182)
g) Further Distraint or Levy. “The remedies by distraint and
levy may be repeated if necessary until the full amount due, including
all expenses, is collected.” (LGC, Sec. 184)
5) What is the penalty imposed on a local treasurer who fails to
issue and execute a warrant of distraint and levy.
SUGGESTED ANSWER: “Without prejudice to criminal prosecution
under the Revised Penal Code and other applicable laws, any local treasurer
who fails to issue or execute the warrant of distraint or levy after the
expiration of the time prescribed, or who is found guilty of abusing the
exercise thereof by competent authority shall be automatically dismissed
from the service after due notice and hearing.” (LGC, Sec. 177)
6) Does a city of municipal treasurer have the authorize to
authority to compromise local government taxes ?
SUGGESTED ANSWER: Yes. The sanggunian concerned may
authorize the city or municipal treasurer “to settle an offense not involving the
commission of fraud before a case therefor is filed in court, upon the payment
of a compromise penalty of not less than Two hundred pesos.” [LGC, Sec.
148 (b) in relation to Sec. 151, arrangement and numbering supplied]
It appears from the above that the only subject of the compromise are
the fees for sealing and licensing of weights and measures because that is
the title of Sec. 148.
Furthermore, the compromise penalty should be subject to indexation
because over a long period of time, the amount of P200.00 is going to be
ridiculous.
WARNING !!! Do bold face any of your answers to Bar questions.
b. Judicial action
1) What are the judicial remedies of a local government unit for the
collection of local taxes ? What is the effect of trhe failure to avai of the
remedies ?
SUGGESTED ANSWER: “The local government unit concerned
a) may enforce the collection of delinquent taxes, fees, charges or
other revenues
 b) by civil action in any court of competent jurisdiction.
c) The civil action shall be filed by the local treasurer
(1) within the period prescribed in the Local Government Code
(LGC, Sec. 183, 2nd sentence, paraphrasing, arrangement and numbering
supplied) which is
(2) within five (5) years from the date of assessment. [Ibid., Sec.
194, (c), paraphtrasing, arrangement and numbering supplied]
“No action for the collection of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted after the expiration of such
period. [Ibid., Sec. 194 (a), 2nd sentence, paraphrasing supplied]
Failure of the local fgovernment unit to avail of the administrative
and/or judicial remedies within the prescriptive period would render the
collection as prescribed and could not be collected anymore.
2) What are the judicial remedies that are available for the collection
of local government taxes ?
SUGGESTED ANSWER: The judicial remedies are determined by the
amounts of the tax involved.
a) Exclusive original jurisdiction vests upon the first level
courts such as the Metropolitan Ttrial Courts, Municipal Trial Courts
and the Municipal Circuit Trial Courts where the amount of the demand
(1) does not exceed Three Hundred Thousand pesos
(P300,000.00), or
(2) in Metro Manila where such personal property, estate, or
amount of the demand does not exceed Four Hundred Thousand
pesos (P400,000.00), exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses and costs, the amount of which
must be specifically alleged,
Provided, that interest, damages of whatever kind, attorney's
fees, litigation expenses, and costs shall be included in the
determination of the filing fees. [B.P. Blg. 129, Sec. 33 (1), as amended by
Rep. Act No. 7691, paraphrasing arrangement and numbering supplied)
(a) The competent courts referred to are the first level
courts which act in the exercise of their original jurisdiction.
(b) An adverse decision of the first level court may be
appealed to the Regional Trial Court (RTC) within fifteen (15)
days from receipt of the RTC decision through a notice of appeal.
(c) An adverse decision of the RTC rendered in aid of its
appellate jurisdiction may be appealed to the Court of Tax
Appeals (en banc) within thirty (30) days from receipt of the RTC
decision through a petition for review.
Following by analogy Section 1, Rule 42 of the Revised
Rules of Civil Procedure, the 30-day original period for filing a
Petition for Review with the CTA under Section 11 of Republic
Act No. 9282, as implemented by Section 3(a), Rule 8 of the
Revised Rules of the CTA, may be extended for a period of 15
days. No further extension shall be allowed thereafter, except
only for the most compelling reasons, in which case the extended
period shall not exceed 15 days. (The City of Manila, et al., v. Coca-
Cola Bottlers Philippines, Inc., G. R. No. 181845, August 4, 2009)
(d) The adverse decision of the Court of Tax Appeals (en
banc) may be the subject of a petition for review on certiorari
directed to the Supreme Court within fifteen (15) days from
receipt of the adverse decision of the CTA extendible for thirty
(30) days.
b) Exclusive original jurisdiction vests upon the Regional Trial
Courts (RTC) where the demand, exclusive of interest, damages of whatever
kind, attorney’s fees, litigation expenses, and costs or the value of the
property in controversy
(1) exceeds Three hundred thousand pesos (P300,000.00) or,
(2) in such other cases in Metro Manila, where the demand
exclusive of the above mentioned items exceeds Four hundred
thousand pesos (P400,000.00). (B.P. Blg. 129., Sec. 19, as amended by
Sec. 5, R.A. No. 7691) but does reach up to P1 million. (R.A. No. 1125,
Sec. 7.c.1, as amended by R.A. No. 9282)
(a) The competent court referred to is the Regional Trial
Court which acts in the exercise of its exclusive original
jurisdiction.
(b) To appeal an adverse decision or ruling of the RTC to
the CTA (Division), the taxpayer must file a Petition for Review
with the CTA (Division) within 30 days from receipt of said
adverse decision or ruling of the RTC.
Following by analogy Section 1, Rule 42 of the Revised
Rules of Civil Procedure, the 30-day original period for filing a
Petition for Review with the CTA under Section 11 of Republic
Act No. 9282, as implemented by Section 3(a), Rule 8 of the
Revised Rules of the CTA, may be extended for a period of 15
days. No further extension shall be allowed thereafter, except
only for the most compelling reasons, in which case the extended
period shall not exceed 15 days. (The City of Manila, et al., v. Coca-
Cola Bottlers Philippines, Inc., G. R. No. 181845, August 4, 2009)
 (c) The adverse decision of the Court of Tax Appeals
(Division) may be the subject of a motion for reconsideration or a
motion for new trial directed to the same Court of Tax Appeals
(Division) which rendered the adverse decision, ruling or order.
(d) The adverse decision of the Court of Tax Appeals
(Division) on the motion for new trial or reconsideration may be
the subject of a petition for review filed with the Court of Tax
Apepals (en banc)
(e) The adverse decision of the Court of Tax Appeals (en
banc) may be the subject of a petition for review on certiorari
directed to the Supreme Court within fifteen (15) days from
receipt of the adverse decision of the CTA extendible for thirty
(30) days.
c) Exclusive original jurisdiction vests upon the Court of Tax
Appeals division where the basic tax amounts toP1 million and above
refers only to tax collection and does not apply to refund cases. (R.A. No.
1125, Sec. 7.c.1, as amended by R.A. No. 9282)
(1) The competent court referred to is the Court of Tax Appeals
(Division) which acts in the exercise of its exclusive original jurisdiction.
(2) The adverse decision of the Court of Tax Appeals (Division)
may be the subject of a motion for reconsideration or a motion for new
trial directed to the same Court of Tax Appeals (Division) which
rendered the adverse decision, ruling or order.
(3) The adverse decision of the Court of Tax Appeals
(Division) on the motion for new trial or reconsideration may be the
subject of a petition for review filed with the Court of Taxx Apepals (en
banc)
(4) The adverse decision of the Court of Tax Appeals (en
banc) may be the subject of a petition for review on certiorari directed
to the Supreme Court within fifteen (15) days from receipt of the
adverse decision of the CTA extendible for thirty (30) days.
3) What is the effect of an appeal to the Court of Tax Appeals (CTA)
on the collection of any local tax, fee or charge ?
SUGGESTED ANSWER:
a. No appeal taken to the CTA from the decision of the Regional
Trial Court, provincial, city or municipal treasurer, as the case may be
b. shall suspend the payment, levy, distraint, and/or sale of any
property of the taxpayer
(1) for the satisfaction of his tax liability as provided by existing
law. (R. A. No. 1125, Sec. 11, 4 th par., as amended by R. A. No. 9282,
arrangement and numbering supplied)
4) What is the effect of the taxpayer’s failure to appeal on time on the
local government’s right to collect the taxes ? Why ?
SUGGESTED ANSWER: If the taxpayer fails to appeal in due course, the
right of the local government to collect the taxes due with respect to the property
becomes absolute upon the expiration of the period to appeal.” (Herarc Realty
Corporation v. The Provincial Treasurer of Batangas, et al., G.R. No. 210736, September
5, 2018) “The assessment becomes final, executory and demandable, precluding
the taxpayer from assailing the legality/validity (or reasonableness/correctness) of
the assessment.” (Ibid.)
“Time and again, the Court stresses that perfection of an appeal in the
manner and within the period permitted by law is mandatory and jurisdictional such
that failure to do so renders the judgment of the court final and executory.” (Ibid.)
“The right to appeal is a statutory right, not a natural nor a constitutional right. The
party who intends to appeal must comply with the procedures and rules governing
appeals; otherwise, the right of appeal may be lost or squandered.” (Ibid.)
i. Writ of execution
Historical antecedent. The issuance of a writ of execution to implement a favorable
judgment involving a local government tax was the subject of a BEQ in 2014.
**Dona Evelina, a rich widow, engaged in the business of currency
exchange, was assessed a considerable amount of local business taxes by
the City Government of Bagnet by virtue of Tax Ordinance No. 24. Despite
her objections thereto, Dona Evelina paid the taxes. Nevertheless,
unsatisfied with said Tax Ordinance, Dona Evelina, through her counsel,
Atty. ELP, filed a written claim for recovery of said local business taxes and
contested the assessment. Her claim was denied, and so Atty. ELP elevated
her case to the Regional Trial Court (RTC).
The RTC declared Tax Ordinance No. 24 null and void and without legal
effect for having been enacted in violation of the publication requirement of
tax ordinances and revenue measures under the Local Government Code
(LGC) and on the ground of double taxation. On appeal, the Court of Tax
Appeals (CTA) affirmed the decision of the RTC. No motion for
reconsideration was filed and the decision became final and executory.
(A) If you are Atty. ELP, what advice will you give Dona Evelina so
that she can recover the subject local business taxes?
 xxx xxx (2014, paraphrasing supplied)
SUGGESTED ANSWER: I would advise Dona Evelina to reiterate the
demand to the Treasurer for the payment of the refund considering the CTA
decision.
Should the Treasurer refuse to comply with the demand I would advise her to
file a motion with the CTA for the issuance of a writ of execution because the CTA
decision had already become final and executory.
B. Real property taxation
1. What is the nature of a real property tax ?
SUGGESTED ANSWER: The following constitutes the nature of a real
property tax:
a. A direct tax whose burden could not be shifted by the one who
pays to other persons.
b. An ad valorem tax based on the assessed value of the property.
c. A local taxes, not a national tax.
d. It is imposed on use and not ownership, hence, exemptions are
also premised upon use and not ownership.
e. It is progressive in character depending to a certain extent on the
use and value of the property.
a. Imposition of real property tax
Historical antecedent. The different kinds of real property taxes was the subject of
a BEQ in 2002.
**Aside from the basic real estate tax, give three (3) other taxes which
may be imposed by provincial and city governments as well as by
municipalities in the Metro Manila area. (2002)
SUGGESTED ANSWER: The three (3) other taxes are the special education
fund, the ad valorem tax on idle lands, and the special levy.
Technically, there are only two real property taxes, that could be imposed,
by provincial and city governments as well as by municipalities in the Metro Manila
area. aside from the basic real property tax.
The special levy, also known as a special assessment, is not a tax but an
imposition to recover at least sixty percent of the public works expenditures of a
local government unit.
b. Real property for purposes of real property taxation
Historical antecedents. Real property for purposes of real property taxation was
the subject of BEQs in 1975, 1982, 1986, 2001, 2003, and 2009..
***1. What kinds of property are considered as real property
subject to the payment of real property taxes ?
SUGGESTED ANSWER: As a general rule all property that are considered
as real property under the civil law are considered as real property subject to the
real property tax.
However, personal property under the civil law may be considered as real
property for purposes of taxes where the property is an essential and principal
element to the conduct of the business.
For example, gasoline station equipment such as underground tanks which
were not placed by owner of the tenement, are essential to the conduct of the
business of a gasoline station without which it would not be operational. (Caltex
Phils., Inc. v. Central Board of Assessment Appeals, et al., 114 SCRA 296)
***2. Ilocos Bus Co., a transportation company with a garage for
its buses, maintains in said garage built on a land owned by it, a repair shop,
blacksmith and carpentry shop and machineries and equipment sitting on
cement or wooden platforms, which can be moved around and about in the
repair shop. Are the machineries and equipment assessable for real property
tax purposes ? Why ? (1975)
SUGGESTED ANSWER: Yes. The repair shop, blacksmith and carpentry
shop, machineries and equipment are considered as real property for tax purposes
because they have been placed there by Ilocos Bus Co, (the owner of the land) for
the transportation business it is conducting and which tend directly to meet the
needs of the transportation business.
ALTERNATIVE ANSWER: Yes. The repair shop, blacksmith and carpentry
shop, machineries and equipment are considered as real property for tax purposes
because they have been placed there by Ilocos Bus Co, (the owner of the land) for
the transportation business it is conducting and which tend directly to meet the
needs of the transportation business.
If the land is merely rented, then the machineries and equipment are not
immobilized because they are not “essential and principal elements” of the
transportation business. The transport business could be carried out even without
the repair shop, blacksmith and carpentry shop and machineries and equipment.
(Mindanao Bus Co. v. City Assessor, et al., L-17870, September 27, 1962)
If the machineries and equipment were placed by the owner of the
tenement, the concept of being “essential and principal elements” does not find
application. Instead, the requirement is that the machineries and equipment are real property tax. Examine the above assets one by one and state when the
”intended by the owner of the tenement for an industry or works that may be City Assessor is correct and when he is wrong giving reasons. (1986)
carried on in a building or on a piece of land, and which tend directly to meet the SUGGESTED ANSWER: The Manila City Assessor is correct with respect to
needs of the said industry or works.” the leasehold improvements, car hoists, various repair tools, welding machine,
paint spray compressor and metal stamping/cutting equipment. This is so,
because the items are essential and principal elements of a repair shop without
*** 3. “C,” a gasoline company, installed gasoline stations which it could not operate.
located at leased land. The stations consisted of machines and equipment, On the other hand, the tow truck, water tank, tower, heavy duty rubber
attached or affixed to said station. hose, and gasoline storage tanks are merely incidental to the conduct of the
Under the lease contracts, the lessors of the land do not become the business of a repair shop. They are acquired and used only for expediency to
owners of machines and equipment. The City Assessor of Pasay City facilitate or improve the services.
considered the equipment and machines taxable realty and imposes realty
taxes on the assessed value thereof. Is the City Assessor correct in
declaring the machines and equipment taxable realty? Reasons. (1982) *** 4. Under Article 415 of the Civil Code, in order for machinery and
SUGGESTED ANSWER: Yes, the machines and equipment are taxable equipment to be considered real property, the pieces must be placed by the
realty. They are essential and principal elements to the conduct of the business of owner of the land and, in addition, must tend to directly meet the needs of
a gasoline station. (Caltex Phils., v. Central Board of Assessment Appeals, 114 SCRA 296) the industry or works carried on by the owner. Oil companies install
underground tanks in the gasoline stations located on land leased by the oil
companies from the owners of the land where the gasoline stations [are]
***3. Mekaniko Corporation operates a car repair shop in the located. Are those underground tanks, which were not placed there by the
City of Manila. The repair shop is located on a piece of leased land. The owner of the land but which were instead placed there by the lessee of the
assets owned by Mekaniko Corporation are: land, considered real property for purposes of real property taxation under
a. Tow truck the Local Government Code ? Explain. (2003)
b. Leasehold improvements consisting of a firewall, a repair SUGGESTED ANSWER: Yes. Personal property under the civil law may be
shed , and an administrative office considered as real property for purposes of taxes where the property is an
c. Office furniture and equipment essential and principal element to the conduct of the business. Underground tanks
d. Car hoists are essential to the conduct of the business of a gasoline station without which it
e. Water tank and tower located above ground The tower is would not be operational. (Caltex Phils., Inc. v. Central Board of Assessment Appeals, et al.,
bolted to the ground but it can be removed 114 SCRA 296)
f. Heavy duty rubber hose which can be connected to the
water tank for cleaning cars and trucks c. Power to levy real property tax
g. Gasoline storage tank located underground
Historical antecedents. The power to levy real property tax was the subject of
h. Various repair tools such as pliers, wrenches, screw
BEQs in 2002, and 2012.
drivers, and the like
i. Welding machine and paint spray compressor which are
on rollers
j. Metal stamping/cutting equipment bolted to a concrete base
** a. What is the extent of the power of local government units to
levy real property taxes ?
which is in turn attached to the land. SUGGESTED ANSWER: “A province or city or a municipality within the
It is the position of the Manila City Assessor that since all of the Metropolitan Manila Area may levy an annual ad valorem tax on real property such
above properties are actually, directly and essentially being used by the as land, building, machinery, and other improvement not hereinafter specifically
taxpayer to meet the needs of its business, then they are all subject to the
exempted.’’ (Metropolitan Waterworks Sewerage System v. The Local Government of SUGGESTED ANSWER: No, the protest is without merit. No public hearing
Quezon City, et al. G.R. No. 194388, November 7, 2018 citing LGC, Sec. 232) shall be required before the enactment of a local tax ordinance levying the basic
Municipalities outside of the Metro Manila area do nothave the power to levy real property tax. (IRR, LGC, Sec. 324, last sentence)
the real property tax. ALTERNATIVE ANSWER: Yes. Public hearings are required to be
conducted prior to the enactment of an ordinance imposing real property taxes.
b. What are the limitations on the power of local government units to (Figuerres v. Court of Appeals, et al., G.R. No. 119172, March 25, 1999)
levy real property taxes ?
SUGGESTED ANSWER: The Local Government Code provides two (2) ii. Special education fund
specific limitations on local government units' power of taxation.
The first limitation provides a general rule, that is, that local government a. Additional levy on real property for the Special Education Fund
units cannot levy any taxes, fees, or charges of any kind on the national SUGGESTED ANSWER:
government or its agencies and instrumentalities. The provision, however, also 1. “A province or city, or a municipality within the Metropolitan
provides for an exception: "[ u ]nless otherwise provided herein." The implication, Manila Area,
therefore, is that while a government agency or instrumentality is generally tax- 2. may levy and collect an annual tax
exempt, the Local Government Code may provide for instances when it could be a) of one percent (1%) on the assessed value of real property
taxable. (LGC, Sec. 133) 3. which shall be in addition to the basic real property tax.
The second limitation is provided for under Section 234 of the Local 4. The proceeds thereof shall exclusively accrue to the Special
Government Code, which enumerates the properties that are specifically exempted Education Fund (SEF).” (LGC, Sec. 235, 1st sentence, arrangement and
from the payment of real property taxes. (Metropolitan Waterworks Sewerage System numbering supplied)
v. The Local Government of Quezon City, et al. G.R. No. 194388, November 7, 2018)
b. How are the proceeds of the additional one percent (1%) levy
c. May local governments impose an annual realty tax in addition to disposed of ?
the basic real property tax on idle or vacant lots located in a residential SUGGESTED ANSWER: “The proceeds thereof shall exclusively accrue to
subdivision within their respective territorial jurisdictions ? (2000) the Special Education Fund (SEF).” (LGC, Sec. 235, 2nd sentence)
SUGGESTED ANSWER: Yes, provided that they are provinces, cities or 1. “The proceeds from the additional one percent (1%) tax on real
municipalities within the Metropolitan Manila Area. property accruing to the Special Education Fund (SEF)
2. shall be automatically released to the local school boards:
d. Kinds of real property taxes 3. Provided, That, in case of provinces, the proceeds shall be
divided equally between the provincial and municipal school boards:
i. Basic real property tax 4. Provided, however, That the proceeds shall be allocated for the
a) operation and maintenance of public schools,
Historical antedent. The need for public hearing before imposing real property b) construction and repair of school buildings, facilities and
taxes was the subject of a BEQ in 2002. equipment, educational research,
c) purchase of books and periodicals,
**An ordinance was passed by the Provincial Board of a Province in d) and sports development as determined and approved by
the Local School Board.” (LGC, Sec. 272 arrangement and numbering
the North, increasing the rate of basic real property tax from 0.006% to 1% of
supplied)
the assessed value of the real property effective January 1, 2018. Residents
5. Release of proceeds to school boards
of the municipalities of the said province protested the Ordinance on the
“(a) The proceeds of the additional one percent (1%) real
ground that no public hearing was conducted and, therefore, any increase in
property tax accruing to special education fund shall be automatically
the rate of real property tax is void.
released to the local school boards.
Is there merit in the protest ? Explain your answer. (2002, date supplied)
 (b) In case of provinces, the proceeds of the special education
fund shall be divided equally between the provincial and municipal
school boards.
(c) Said proceeds shall be allocated as determined and
approved by the local school board concerned only for the following
purposes:
(1) operation and maintenance of public schools;
(2) construction and repair of school buildings, facilities
and equipment;
(3) educational research;
(4) purchase of books and periodicals; and
(5) sports development.” (RRI LGC, Rule XXXI, Art. 363,
arrangement and numbering supplied)
iii. Ad valorem tax on idle land
Historical antecedents. The imposition of ad valorem tax on idle land was the
subject of BEQs in 1981, and 2005.
**1. Discuss the validity of the imposition of additional realty tax on
idle lands. (1981)
SUGGESTED ANSWER: The imposition is valid because it is for a public
purpose. It is imposed in order to penalize property owners who do not use their
property productively, and to encourage utilization of land resources in order to
contribute to national development.
**2. A city outside of Metro Manila plans to enact an ordinance that
will impose a special levy on idle lands located in residential subdivisions
within its territorial jurisdiction in addition to the basic real property tax. If
the lot owners of a subdivision located in the said city seek your legal advice
on the matter, what would your advice be ? (2005)
SUGGESTED ANSWER: I would advise them that the city has the authority
to impose a special levy on idle residential lots in subdivisions regardless of area.
I would further advise them either to pay the tax, sell their lots or to
construct or place improvements on their idle residential lots so as not to be subject
to the tax.
iv. Special levy which is not a tax
Historical antecedents. The special levy was the subject of BEQs in 2011, and
2012.
1. What comprises the authority of the local government units to
impose a special levy ?
SUGGESTED ANSWER: Under Rep. Act No. 7160, the ”Local Government
Code of 1991,” local government units may impose a special levy for lands that
have been benefited by a public works expenditure. Thus, “A province, city or
municipality may impose a special levy on the lands comprised within its territorial
jurisdiction, specially benefited by public works projects or improvements funded
by the local government unit concerned.” [Rep. Act No. 7160, the “Local Government
Code of 1991”, Sec. 240]
The amount collected should not exceed sixty percent (60%) of the total
project cost.
**2. After the province has constructed a barangay road, the
Sangguniang Panglalawigan may impose a special levy upon the lands
specifically benefitted by the road up to an amount not to exceed
a. 60% of the actual cost of the road without giving any portion
to the barangay.
b. 100% of the actual project cost without giving any portion to
the barangay.
c. 100% of the actual project cost, keeping 60% for the
province and giving 40% to the barangay.
d. 60% of the actual cost, dividing the same between the
province and the barangay. (2011)
SUGGESTED ANSWER: a
1. Fundamental principles
Historical antecedents. The fundamental principles of real property taxation was
the subjet of BEQs in 1984, 2000, and 2012.
***1. State at least three (3) basic principles that should be
followed in the appraisal and assessment of real properties for taxation
purpose. (1984)
SUGGESTED ANSWER: Any three (3) of the following may serve as the
answer.
“The appraisal, assessment, levy and collection of real property tax shall be
guided by the following fundamental principles:
 (a) Real property shall be appraised at its current and fair market
value;
(b) Real property shall be classified for assessment purposes on the
basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform
classification within each local government unit;
(d) The appraisal, assessment, levy and collection of real property
tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be
equitable.” (LGC, Sec. 198)
a. Appraisal and assessment of real property tax
Summarize the procedure for the declaration, appraisal, and
assessment or real property for tax purposes.
SUGGESTED ANSWER:
1. General Revision of Assessments and preparation of the Fair
Market Value Schedules.
2. Assistance rendered by various persons and officials in the
listing, appraisal and assessment of real property taxes.
3. Filing by the taxpayer of a tax declaration showing the
description, classification and value of his property.
4. Appraisal of the real property.
5. Assessment of the real property for tax purposes.
b. Rule on appraisal of real property tax at fair market value
SUGGESTED ANSWER:
1. “The act or process of
2. determining the value of property
3. as of a specific date
4. for a specific purpose.” [LGC, Sec. 199 (e), arrangement and
numbering supplied]
c. What is fair market value ?
SUGGESTED ANSWER:
1. The price at which a property
2. may be sold by a seller
3. who is not compelled to sell and
4. bought by a buyer who is not compelled to buy. [LGC, Sec 199 (l),
arrangement and numbering supplied]
The highest price estimated in terms of money which the property
will buy if exposed for sale in the open market allowing a reasonable time to
find a purchaser who buys with knowledge of all the uses to which it is
adopted and for which is capable for being used.
The amount of money which a purchaser willing but not obliged to buy
the property would pay to an owner willing but not obliged to sell it, taking into
consideration all uses to which the property is adopted and might in reason
be applied. The criterion established by the statute contemplates a
hypothetical sale. Hence, the buyers need not be actual and existing
purchasers. (Allied Banking Corporation, etc., v. Quezon City Government, et al.,
G. R. No. 154126, October 11, 2005)

Historical antecedents. Fair market value was the subject of BEQs in 1975, and
**d. What are the pproaches used in estimating the fair market value
1977. of real property for real property tax purposes ?
SUGGESTED ANSWER:
a. What is the rule on appraisal of real property at fair market value ? 1. Sales Analysis Approach. The sales price paid in actual market
SUGGESTED ANSWER: transactions is considered by taking into account valid sales data
1. “All real property, accumulated from among the Registrar of Deeds, notaries public, appraisers,
2. whether taxable or exempt, brokers, dealers, bank officials, and various sources stated under the Local
3. shall be appraised at Government Code.
a) the current and 2. Income Capitalization Approach. The value of an income-
b) fair market value producing property is no more than the return derived from it. An analysis of
1) prevailing in the locality the income produced is necessary in order to estimate the sum which might
2) where the property is situated.” (LGC, Sec. 201, 1st be invested in the purchase of the property.
sentence, arrangement and numbering supplied) 3. Reproduction cost approach is a formal approach used
exclusively in appraising man-made improvements such as buildings and
b. Define appraisal.
 other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the data
gathered to arrive at the estimated fair market value to be included in the
ordinance containing the schedule of fair market values. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126, October 11,
2005 citing Local Assessment Regulations No. 1-92)
e. Illustrate an instance where the “consideration approach”was
considered as invalid.
SUGGESTED ANSWER: A proviso in an ordinance whereby the “parcels of
land sold, ceded, transferred and conveyed for remuneratory consideration after
the effectivity of this revision shall be subject to real estate tax based on the actual
amount reflected in the deed of conveyance or the current approved zonal
valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession,
transfer and conveyance, whichever is higher, as evidenced by the certificate of
payment of the capital gains tax issued therefore,” is invalid for determining the
value of real property for tax purposes. The proviso is not valid for being contrary to
public policy and for restraining trade for the following reasons:
a) It mandates an exclusive rule in determining the fair market value and
departs from the established procedures such as the sales analysis approach, the
income capitalization approach and the reproduction approach provided under the
rules implementing the statute. It unduly interferes with the duties statutorily placed
upon the local assessor by completely dispensing with his analysis and discretion
which the Local Government Code and the regulations require to be exercised. An
ordinance that contravenes any statute is ultra vires and void.
b) The “consideration approach” in the ordinance is illegal since “the
appraisal, assessment, levy and collection of real property tax shall not be let to
any private person”, it will also completely destroy the fundamental principle in real
property taxation – that real property shall be classified, valued and assessed on
the basis of its actual use regardless of where located, whoever owns it, and
whoever uses it. Allowing the parties to a private sale to dictate the fair market
value of the property will dispense with the distinctions of actual use stated in the
Local Government Code and in the regulations.
c) The invalidity is not cured by the phrase “whichever is higher” because
an integral part of that system still permits valuing real property in disregard of its
“actual use.”
d) The ordinance would result to real property assessments more than
once every three (3) years and that is not the congressional intent as shown in the
provisions of the Local Government Code and the regulations. Consequently, the
real property tax burden should not be interpreted to include those beyond what
the Code or the regulations expressly clearly state.
e) The proviso would provide a chilling effect on real property owners or
administrators to enter freely into contracts reflecting the increasing value of real
properties in accordance with prevailing market conditions.
While the Local Government Code provides that the assessment of real
property shall not be increased once every three (3) years, the questioned proviso
subjects the property to a higher assessment every time a sales transaction is
made. Real property owners would therefore postpone sales until after the lapse of
the three (3) year period, or if they do so within the said period they shall be
compelled to dispose of the property at a price not exceeding the last prior
conveyance in order to avoid a higher tax assessment.
In the above two scenarios real property owners are effectively prevented
from obtaining the best price possible for their properties and unduly hampers the
equitable distribution of wealth. (Allied Banking Corporation, etc., v. Quezon City
Government, et al., G. R. No. 154126, October 11, 2005)
f. Distinguish “fair market value” from “assessed value” for
purposes of realty tax. (1977)
SUGGESTED ANSWER: The distinctions between “fair market value” and
“assessed value” are the following:
1. Determination. Fair market value is declared by the owner
subject to final determination by the assessor WHILE assessed value is
determined by the application of the assessment level to the fair market
value.
2. Basis. Fair market value is supposed to be the actual value of
the real property in the open market WHILE assessed value is merely a
percentage of the fair market value depending on the assessment level of the
property in question.
g. On December 29, 2008, the City of Manila sold to the Army and
Navy Club a certain portion of the reclaimed land now known as New Luneta
at P400.00 per square meter under the condition that the property shall be
exempt from taxation for a period of ten years from the date of the certificate
of the City Engineer that the place is ready for building purposes, and that
after 50 years, the City may repurchase the premises for a public purpose at
the same price for which the same was sold. In 2018, after the expiration of
the period of exemption, the city assessor assessed the property at
P55,000.00 per square meter and collected the taxes which the Army and
Navy Club paid under protest. Action was instituted to recover the amount
paid under protest, claiming that the property should be assessed only at the
amount for which the property should be resold to the City. Is the contention
meritorious? Why ? (1975, dates supplied and reworded)
SUGGESTED ANSWER: No. The basis for real property taxation is the fair
market value or “cash value” which is the amount of money a purchaser willing,
but not obliged to buy the property, would pay to an owner willing but not obliged to
sell it, taking into consideration all uses to which the property is adopted and might
in reason be applied. (Army and Navy Club, etc., v. Trinidad, etc., No. L-1927, January 26, 1923)
c. Declaration of real property
Historical antecedents. Declaration of real property was the subject of BEQs in
1979, and 2002.
a. What is a tax declaration. What does it contain and what is its
purpose ?
SUGGESTED ANSWER: A tax declaration is a sworn declaration required to
be filed by law showing the description, the current and fair market value of the
property or imporvements to enable the assessor to make the proper assessment.
“Such declaration shall contain
1)
b)
a description of the property
sufficient in detail
c) to enable the assessor or his deputy
1) to identify the same for assessment purposes.” (LGC,
Sec. 202, 2nd sentence, arrangement and numbering supplied)
The tax declaration filed by the owner or administrator or real
property in the form of a sworn statement must declare
a) “the true value of their property,
b) whether previously declared or undeclared,
c) taxable or exempt,
d) which shall be the current and fair market value of the
property,
1) as determined by the declarant.” (Ibid., Sec. 202, 1st
sentence, paraphrasing, arrangement and numbering supplied)
The tax declaration filed by the buyer or improver of real property in
the form of a sworn statement must declare “the true value of subject
property.” (Ibid., Sec. 203, paraphrasing supplied)
The purpose of a tax declaration is to determine the assessment levels and
does not bind the assessor. A tax declaration only enables the assessor to identify
the property for purposes of determining the assessment levels.
It does not bind the assessor when he makes his assessment because, “Real
property shall be classified, valued and assessed on the basis of its actual use
regardless of where located, whoever owns it, and whoever uses it.” (Ibi., Sec. 271)
Furthermore, “Real property shall be classified for assessment purposes on the
basis of its actual use.” [Ibid., Sec. 198 (b)]
**b. A lot in Caloocan is leased to a “Hospicio” to be used exclusively
for purely charitable purposes and is so used. The owner, an individual, did
not declare the lot for real property tax purposes on the belief that it is
exempt, being exclusively devoted to purely charitable purposes. The
assessor believed otherwise and issued a tax declaration and assessment
notice on the individual owner on the theory that the owner is not himself
exempt for he is not a charitable institution.
How would you decide the matter ? (1979)
SUGGESTED ANSWER: I would decide in favor of the assessor with
respect to the issuance of a tax declaration.
It is required that all property, taxable or exempt, should be covered by a tax
declaration (LGC, Sec. 202), and in case of failure of refusal by the person required to
make the declaration, the assessor is duty bound to make such declaration. (Ibid.,
Sec. 204)
**3. The real property of Mr. and Mrs. Angeles, situated in a
commercial area in front of the public market, was declared in their Tax
Declaration as residential because it had been used by them as their family
residence from the time of its construction in 2006. However, in January
2016, when the spouses left for the United States to stay there permanently
with their children, the property has been rented to a single proprietor
engaged in the sale of appliances and agri-products. The Provincial
Assessor reclassified the property as commercial for tax purposes starting
January 2019. Mr. and Mrs. Angeles appealed to the Local Board of
Assessment Appeals, contending that the Tax Declaration previously
classifying their property as residential is binding.
How should the appeal be decided ? (2002, dates supplied)
SUGGESTED ANSWER: The appeal should be decided in favor of the
Provincial Assessor.
The purpose of a tax declaration is to determine the assessment levels and
does not bind the assessor. A tax declaration only enables the assessor to identify
the property for purposes of determining the assessment levels. It does not bind
the assessor when he makes his assessment because, “Real property shall be
classified, valued and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it.” (LGC, Sec. 271) Furthermore, “Real
property shall be classified for assessment purposes on the basis of its actual use.”
[Ibid., Sec. 198 (b)]
 d. Listing of real property in assessment rolls SUGGESTED ANSWER: The schedule of fair market values should be
prepared by the provincial, city and the municipal assessors of the municipalities
1) Define assessment roll. within the Metropolitan Manila Area
SUGGESTED ANSWER: 1. “for the different classes of real property
a) A listing prepared and maintained 2. situated in their respective local government units.” (LGC, Sec.
b) by the provincial, city and municipal assessor within the 212, 1ST sentence, paraphrasing supplied)
Metropolitan Manila Area
c) “of all real property whether taxable or exempt d. What is the publication requirement for the schedules of fair
d) located within the territorial jurisdiction of the local market values ?
government unit concerned.” [LGC, Sec. 205 (a), 1st sentence, SUGGESTED ANSWER: “The schedule of fair market values shall be
paraphrasing, arrangement and numbering supplied] published in a newspaper of general circulation in the province, city or municipality
concerned, or in the absence thereof, shall be posted in the provincial capitol, city
b) What is the requirement for listing in the assessment roll ? or municipal hall and in two other conspicuous public places therein.” (LGC, Sec.
SUGGESTED ANSWER: 212, 2nd sentence, arrangement and numbering supplied)
1. “In every province and city, including the municipalities within the
Metropolitan Manila Area, e. In connection with the real property tax on a house and lot, who
2. there shall be prepared and maintained in brief and general terms, determines:
3. by the provincial, city or municipal assessor an assessment roll.” Its reasonable market value ? (1985, paraphrasing supplied)
[LGC, Sec. 205 (a), 1st sentence, paraphrasing, arrangement and numbering SUGGESTED ANSWER: The reasonable market value is determined by the
supplied] assessor of the province, city or municipality in the form of schedule of fair market
values.
e. Preparation of schedules of fair market value The schedule is then enacted by the local Sangguniang into an ordinance.
(LGC, Sec. 212)
Historical antecedent. The determination of the reasonable market value was the
subject of a BEQ in 1985. i. Authority of assessor to take evidence
a. When should schedules of fair market values be prepared ? What What is the authority of the assessor to take evidence. ?
is the purpose for the schedules of fair market values ? SUGGESTED ANSWER:
SUGGESTED ANSWER: “Before any general revision of property 1. “For the purpose of obtaining information
assessment is made.” (LGC, Sec. 212, 1ST sentence, paraphrasing supplied) 2. on which to base the market value of any real property,
The schedules of fair market values is used as the basis for enactment by 3. the assessor of the province, city or municipality or his deputy
ordinance of the sanggunian concerned (LGC, Sec. 212, 1ST sentence, paraphrasing a) may summon the owners of the properties to be affected or
supplied) of an ordinance for the purpose of determining the values to be utilized in persons having legal interest therein and witnesses,
the determination of real property taxes. b) administer oaths,
c) and take deposition concerning
b. Who prepares schedules of fair market values ?
1) the property,
SUGGESTED ANSWER: The “provincial, city and the municipal assessors
2) its ownership,
of the municipalities within the Metropolitan Manila Area.” (LGC, Sec. 212, 1ST
3) amount,
sentence, paraphrasing supplied)
4) nature,
c. What is the subject matter of schedules of fair market values ? 5) and value.” (LGC, Sec. 213, arrangement and numbering
supplied)
 ii. Amendment of schedule of fair market values SUGGESTED ANSWER: The basis for real property taxation is actual use
and not ownership. “Real property shall be
What is the manner of effecting amendments to the schedule of fair a) classified, valued and assessed
market values ? b) on the basis of its actual use
SUGGESTED ANSWER: c) regardless of
1. “The provincial, city or municipal assessor 1) where located,
2. may recommend to the sanggunian concerned amendments 2) whoever owns it,
a) to correct errors in valuation in the schedule of fair market 3) and whoever uses it.” (LGC, Sec. 217, arrangement
values. and numbeing supplied)
3. The sanggunian concerned shall, by ordinance, Real properties shall be appraised at the current and fair market value
a) act upon the recommendation prevailing in the locality where the property is situated and classified for
b) within ninety (90) days from receipt thereof.” (LGC, Sec. 214, assessment purposes on the basis of its actual use. (Allied Banking Corporation,
arrangement and numbering supplied) etc., v. Quezon City Government, et al., G. R. No. 154126, October 11, 2005)
Actual use is
f. Classes of real property a) the purpose for which
b) the property is principally or predominantly utilized
Historical antecedent. The classification of real property for real property taxation c) by the person in possession thereof. [LGC, Sec. 199 (b),
was the subject of a BEQ in 2016. arrangement and numbering suppled]

How shall real property be classified for purposes of assessment ?

SUGGESTED ANSWER: “Real property shall be classified as *** 2) The Philippine-British Association, Inc. (Association) is a
1. residential, non-stock, non-profit organization which owns the St. Michael’s Hospital
2. agricultural, (Hospital). Sec. 216 in relation to Sec. 215 of the LGC classifies all lands,
3. commercial, buildings and other improvements thereon actually, directly, and exclusively
4. industrial, used for hospitals as “special.” A special classification prescribes a lower
5. mineral, assessment than a commercial classification.
6. timberland Within the premises of the Hospital, the Association constructed the St.
7. or special.” (LGC, Sec. 215, 1st sentence, arrangement and numbering Michael’s Medical Arts Center (Center) which will house medical practiioners
supplied) who will lease the spaces therein for their clinics at prescribed rental rates.
Actual use is the basis for classification of property which consists of The doctors who treat the patients confined in the Hospital are accredited by
a) the purpose for which the Association.
b) the property is principally or predominantly utilized The City Assessor classified the Center as “commercial” instead of
c) by the person in possession thereof. [LGC, Sec. 199 (b), “special” on the ground that the Hospital owner gets income from the lease
arrangement and numbering suppled] of its spaces to doctors who also entertain out-patients. Is the City Assessor
correct in classifying the Center as “commercial” ? Explain. (2016)
g. Actual use of property as basis of assessment SUGGESTED ANSWER: No. The City Assessor is not correct in classifying
the Center as “commercial” which is land devoted principally for the object of profit
Historical antecedents. The actual use of real property as the basis for real
property taxation was the subject of BEQs in 2018. and is not classified as agricultural industrial, mineral, timber or residential land.
[LGC, Sec. 199 (i )]
The fact alone that the separate St. Michael’s Medical Arts Center will house
***1. What is the basis for real property taxation ? medical practitioners who shall treat the patients confined in the Hospital and are
accredited by the Association takes away the said Medical Arts Center from being
categorized as “commercial” since a tertiary hospital is required by law to have a
pool of physicians who comprise the required medical departments in various
medical fields. [City Assessor of Cebu City v Association of Benevola de Cebu, Inc., 524 SCRA
128 (2007)]
So also the mere charging of rentals for the leased spaces, does not make
the non-profit institution established for profit or gain. It has to meet expenses for
operation, and maintenance in order to carry out its lofty purposes to serve
humanity. (UST Hospital Employees v. Santo Tomas Hospital, G.R. No. L-6988, October
29, 1955; Collector of Internal Revenue v. St. Paul Hospital in Iloilo, L-12127, May 25,
1958)
The Center which is comprisive of land, buildings, and other improvements
thereon actually, directly and exclusively used for a hospital is classified as special.
(LGC, Sec. 216, arrangement and numbering supplied)
***3. In 2015, Kerwin bought a three-story house and lot in
Kidapawan, North Cotabato. The property has a floor area of 600 sq.m. and is
located inside a gated subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
In 2016, Kerwin started using the property in his business of
manufacturing garments for export. The entire ground floor is now occupied
by state-of-the-art sewing machines and other equipment, while the second
floor is used as offices. The third floor is retained by Kerwin as his family's
residence. Kerwin's neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the Kidapawan City Hall.
Upon inspection, the local government discovered that the property was
being utilized for commercial use. Immediately, the Kidapawan Assessor
reclassified the property as commercial with an assessment level of 50%
effective January 2017, and assessed Kerwin back taxes and interest. Kerwin
claims that only 2/3 of the building was used for commercial purposes since
the third floor remained as family residence. He argues that the property
should have been classified as partly commercial and partly residential.
xx xxx xxx xxx
(b) Is Kerwin correct that only 2/3 of the property should be
considered commercial ? (2018)
SUGGESTED ANSWER: No. Kerwin is not correct in advancing that only
2/3 of the property should be considered commercial.
The property should not be classified as partly commercial and partly
residential because actual use is the purpose for which the property is principally or
predominantly utilized by the person in possession thereof. [LGC, Sec. 199 (b)]
Since 2/3 of the property is being used for commercial purposes it is
principally or predominantly used as such, the whole property should be classified
as commercial.
***
4. In an action for ejectment filed by Kurt, the lessor-owner,
against Kaka, the lessee, the trial court ruled in favor of Kurt. However, the
trial court first required Kurt to pay the realty taxes due on the property for
2018 before he may recover possession thereof.
Kurt objected, arguing that the delinquent realty taxes were never
raised as an issue in the ejectment case. At any rate, Kurt claimed that it
should be Kaka who should be made liable for the realty taxes since it was
Kaka who possessed the property throughout 2018.
Is Kurt correct in resisting the trial court's requirement to pay the
taxes first ? (2018, dates supplied)
SUGGESTED ANSWER: Yes. The only issue to be resolved in the
ejectment case is possession which the court ruled in favor Kurt. Payment of real
property taxes is not a condition precedent for possession of property. Rather the
payment is a consequence of possession and use of the property.
The basis for real property taxation is use and not ownership, hence it
should be Kaka, who was in possession and had used the property in 2018, who
should pay for the delinquent realty. taxes. Finally, it is the local government which
is the proper authority to demand payment of the realty taxes. The court has no
jurisdiction to make the demand.
h. Assessment of property
Historical antecedents. Assessment of property was the subject of BEQs in 1985,
and 2012.
a) Define assessment ?
SUGGESTED ANSWER: It is
1. the act or process of
2. determining the value of property,
3. or portion thereof subject to tax,
4. including the discovery, listing, classification, and appraisal of
properties. [LGC, Sec. 199 (f), arrangement and numbering supplied]
b) What is the effect of assessment ?
SUGGESTED ANSWER: An assessment fixes and determines the tax
liability of a taxpayer. It is a notice to the effect that the amount therein stated is
due as tax and a demand for payment thereof. The assessor is mandated under
Section 27 (now Sec. 223 of the Local Government Code) to give written notice within SUGGESTED ANSWER: The assessment level is fixed by ordinances
thirty days of such assessment to the person in whose name the property is of the appropriate Sangguniangs. (LGC, Sec. 218)
declared. As soon as the notice is duly served, an obligation arises on the part of c. The tax rate ? (1985, paraphrasing supplied)
the taxpayer to pay the amount assessed and demanded. SUGGESTED ANSWER: The tax rate is also fixed by ordinances of
If the taxpayer fails to appeal in due course, the right of the local government the appropriate Sangguniangs. (LGC, Sec. 232)
to collect the taxes due become absolute upon the expiration of the period to
appeal, with respect to the taxpayer’s property. The failure to appeal renders the i. Appraisal and assessment of machinery
assessment of the local assessor final, executory, and demandable, thus
precluding the taxpayer from disputing the correctness of the assessment or from a. How are machinery appraised and assessed ?
invoking any defense that would reopen the question of its liability on the merits . SUGGESTED ANSWER:
(Manila Electric Company, v. Barlis, etc., G. R. No. 114231, June 29, 2004 decision on the 1. Locally purchased brand-new machinery.
second motion for reconsideration) a) “The fair market value of a brand-new machinery
b) shall be the acquisition cost.” [LGC, Sec. 224 (a), 1st
c) Define assessed value or taxable value. sentence, arrangement and numbering supplied]
SUGGESTED ANSWER: “Assessed Value is the fair market value of the Acquisition cost for a newly-acquired machinery not yet
real property multiplied by the assessment level. It is synonymous to taxable depreciated and appraised within the year of its purchase refers to
value.” [LGC, Sec. 199 (h)] 1) the actual cost of the machinery to its present
owner,
d) What is meant by assessment level ? 2) plus the
SUGGESTED ANSWER: “Assessment level is the percentage applied to (a) cost of transportation,
the fair market value to determine the taxable value of the property.” [LGC, Sec. (b) handling
199 (g)] (c) and installation at the present site.” [Ibid., Sec.
199 (a), arrangement and numbering supplied]
**e) Who sets the assessment levels ?
2. “If the machinery is imported,
a) the acquisition cost
SUGGESTED ANSWER: 1) includes
1. “The assessment levels to be applied to the fair market value of (a) freight,
real property (b) insurance,
2. to determine its assessed value (c) bank and other charges,
3. shall be fixed by ordinances of the (d) brokerage,
a) sangguniang panlalawigan, (e) arrastre and handling,
b) sangguniang panlungsod (f) duties and taxes,
c) or sangguniang bayan of a municipality within the 2) plus cost of
Metropolitan Manila Area.” (LGC, Sec. 218, paraphrasing, arrangement and (a) inland transportation,
numbering supplied supplied)
(b) handling,
(c) and installation charges at the present site.
** f) In connection with the real property tax on a house and lot, who b) The cost in foreign currency of imported machinery
1) shall be converted to peso cost
in brief and general terms, determines:
2) on the basis of foreign currency exchange rates
xxx xxx xxx
3) as fixed by the Central Bank (Bangko Sentral ng
b. The assessment level, xxx xxx.” (1985, paraphrasing supplied
Pilipinas).” [Ibid., Sec. 224 (b), arrangement, numbering and words in
parentheses supplied]
 3. Used or second-hand machinery. 2) the cost of reproducing a new replica of the property
a) “In all other cases, the fair market value a) on the basis of the current prices
b) shall be determined by b) with the same or closely similar material.” [LGC, Sec. 199
1) dividing the remaining economic life of the machinery (t), arrangement and numbering supplied]
(a) by its estimated economic life
2) and multiplied by the replacement or reproduction j. General revisions of assessments and property
cost.” [Ibid., Sec. 224 (a), 1st sentence, arrangement and numbering classifications
supplied]
b. What is the depreciation allowance for machinery ? a. Define reassessment.
SUGGESTED ANSWER: SUGGESTED ANSWER: Reassessment’ is
1. “For purposes of assessment, 1. the assigning of new assessed values to property, particularly
2. a depreciation allowance real estate,
3. shall be made for machinery 2. as the result of general, partial or individual reappraisal of
a) at a rate not exceeding five percent (5%) of property.” [LGC, Sec. 199 (q), arrangement and numbering supplied]
1) its original cost
2) or its replacement b. When is reassessment made ? In the alternative, when are the
3) or reproduction cost, as the case may be, instances where the provincial, city or municipal assessor or his duly
b) for each year of use: authorized deputy shall make a classification, appraisal and assessment of
4. Provided, however, the real property listed and described in the declaration irrespective of any
a) That the remaining value for all kinds of machinery previous assessment or taxpayer's valuation thereon.
b) shall be fixed at not less than twenty percent (20%) SUGGESTED ANSWER: “In cases where
(1) of such original, replacement, 1. real property is declared and listed for taxation purposes for the
(2) or reproduction cost first time;
c) for so long as the machinery is useful and in operation.” 2. there is an ongoing general revision of property classification and
(LGC, Sec. 225, arrangement and numbering supplied) assessment; or
3. a request is made by the person in whose name the property is
c. What is meant by the remaining economic life of machinery ? declared.” (LGC, Sec. 220, paraphrasing, arrangement and numbering supplied)
SUGGESTED ANSWER: “Remaining Economic Life’ is the period of time
expressed in years from the date of appraisal to the date when the machineries c. What is the limitation on increases in the assessment of real
becomes useless.” [LGC, Sec. 199 (r)] property ?
SUGGESTED ANSWER: “(T)he assessment of real property
d. How do you define the remaining value of machinery ? 1. shall not be increased oftener than once every three (3) years
SUGGESTED ANSWER: “Remaining Value’ is the value corresponding to 2. except in case of new improvements substantially increasing the
the remaining useful life of the machinery.” [LGC, Sec. 199 (s)] value of said property
3. or of any change in its actual use.” (LGC, Sec. 220, arrangement
e. What is your understanding of replacement or reproduction cost and numbering supplied)
of machinery ?
SUGGESTED ANSWER: “Replacement or Reproduction Cost’ is d. Within what period should general revision of assessments be
1) the cost undertaken ?
a) that would be incurred on the basis of current prices, 1. “The provincial, city or municipal assessor
b) in acquiring in an equally desirable substitute property, or 2. shall undertake a general revision of real property assessments
 3. within two (2) years after the effectivity of this Code
a) and every three (3) years thereafter.” (LGC, Sec. 219, **Mr. Jose Castillo is a resident Filipino citizen. He purchased a parcel
arrangement and numbering supplied) of land in Makati City in 1977 at a consideration of P1 Million. In 2018, the
The Local Government Code (LGC) took effect on January 1, 1992, land, which remained undeveloped and idle, had a fair market value of P20
hence the general revision should have been made within two (2) years from Million. Mr. Antonio Ayala, another Filipino citizen, is very much interested in
such effectivity. the property and he offered to buy the same for P20 Million. The Assessor of
Makati City re-assessed in 2018 the property at P10 Million.
e. Are there exceptions or instances when reassessment may be When is Mr. Castillo liable for real property tax on the land; beginning
made earlier than the three (3) year period ? 2018 or beginning 2019 ? Explain your answer. (2012, dates supplied)
SUGGESTED ANSWER: “That the reassessment of real property SUGGESTED ANSWER: Mr. Castillo should be liable for real property tax
1. due to its partial or total destruction, on the land beginning January 1, 2019.
2. or to a major change in its actual use, This is so, because, “All assessments or reassessments made after the first
3. or to any great and sudden inflation or deflation of real property (1st) day of January of any year shall take effect on the first (1st) day of January of
values, the succeeding year.” (LGC, Sec. 221, paraphrasing supplied)
4. or to the gross illegality of the assessment when made Since the re-assessment was made in 2018, after the first day of January
5. or to any other abnormal cause, then it shall take effect on the first day of January of the succeeding year, which is
a) shall be made within ninety (90) days 2019.
b) from the date any such cause or causes occurred.”
(LGC, l. Assessment of property subject to back taxes
Sec. 221, paraphrasing, arrangement and numbering supplied)
Historical antecedent. The assessment of real property subject to back taxes was
f. What are the steps to be followed for the mandatory general the subject of a BEQ in 2018.
revision of real property assessments ?
SUGGESTED ANSWER: The following steps are to be followed: a. What is the prescriptive period for assessment of property subject
1. preparation of the Schedule of Fair Market Values. to back taxes ?
2. enactment of ordinances: SUGGESTED ANSWER:
a) levying an annual ad valorem tax on real property and an 1. “Real property declared for the first time
additional tax or the Special Education Fund; 2. shall be assessed for taxes
b) fixing the assessment levels to be applied to the current 3. for the period during which it would have been liable
and fair market values; 4. but in no case for more than ten (10) years prior to the date of
c) providing necessary appropriation to defray expenses initial assessment.” (LGC, Sec. 222, 1st sentence, paraphrasing, arrangement and
incident to the general revision of real property assessments; and numbering supplied)
d) adopting the Schedule of Fair Market Values prepared by “Real property declared for the first time" should not be understood
the assessors. (Lopez v. City of Manila, et al., G.R. No. 127139, February to apply only to real estate that has never been declared. (Sesbreno v. Central
19, 1999) Board of Assessment Appeals, et al., 270 SCRA 360, 373)

k. Date of effectivity of assessment or reassessment b. What is the basis for computation of back taxes ?
SUGGESTED ANSWER: ”(S)uch taxes shall be computed
Historical antecedent. The date of effectivity of assessment or reassessment was 1. on the basis of the applicable schedule of values
the subject of a BEQ in 2012. 2. in force during the corresponding period.” (LGC, Sec. 222, 1st
sentence, paraphrasing, arrangement and numbering supplied)
 c. When may back taxes be paid without and with interest ?
SUGGESTED ANSWER:
1. “If such taxes are
a) paid on or before the end of the quarter
b) following the date the notice of assessment was received
by the owner or his representative,
c) no interest for delinquency shall be imposed thereon;
2. otherwise, such taxes
a) shall be subject to an interest
b) at the rate of two percent (2%) per month or a fraction
thereof
c) from the date of the receipt of the assessment until such
taxes are fully paid.” (LGC, Sec. 222, 2nd sentence, arrangement and numbering
supplied)
d. May a former owner may be held liable for back real property
taxes ?
SUGGESTED ANSWER: The rule is that unpaid realty taxes attach to the
property and is chargeable against the person who had actual or beneficial use and
possession of it regardless of whether or not he is the owner. (Testate Estate of
Concordia T. Lim v. City of Manila, et al., G. R. No. 90639, February 21, 1990)
The Supreme Court declared that to impose the real property tax on the
subsequent owner which was neither the owner not the beneficial user of the
property during the designated periods would not only be contrary to law but also
unjust. (Ibid.)
Consequently, MERALCO the former owner/user of the property was required
to pay the tax instead of the new owner NAPOCOR. The Supreme Court also
allowed the garnishment of MERALCO’s bank deposits because they are not
exempt from execution. (Manila Electric Company v. Barlis, G.R. No. 114231, February
1, 2002, the decision on the motion for reconsideration)
.
e. Is the imposition of back taxes by the LBAA and CBAA violative of
the rule on the prohibition on ex post facto law ?
SUGGESTED ANSWER: No. Imposition of back taxes does not violate the
constitutional prohibition that no ex post facto law or bill of attainder shall be
enacted.
Section 25 of P.D. No. 1464 (now Sec. 222 of the Local Government Code), is
not penal in character, hence, it may not be considered as an ex post facto law.
(Sesbreno v. Central Board of Assessment Appeals, et al., 270 SCRA 360, 378 citing various cases)
***f. In 2015, Kerwin bought a three-story house and lot in
Kidapawan, North Cotabato. The property has a floor area of 600 sq.m. and is
located inside a gated subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
In 2016, Kerwin started using the property in his business of
manufacturing garments for export. The entire ground floor is now occupied
by state-of-the-art sewing machines and other equipment, while the second
floor is used as offices. The third floor is retained by Kerwin as his family's
residence. Kerwin's neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the Kidapawan City Hall.
Upon inspection, the local government discovered that the property was
being utilized for commercial use. Immediately, the Kidapawan Assessor
reclassified the property as commercial with an assessment level of 50%
effective January 2017, and assessed Kerwin back taxes and interest. Kerwin
claims that only 2/3 of the building was used for commercial purposes since
the third floor remained as family residence. He argues that the property
should have been classified as partly commercial and partly residential.
(a) Is the Kidapawan assessor correct in assessing back taxes
and interest ? (2018)
SUGGESTED ANSWER: Yes. The assessor is correct in assessing back
taxes and interest.
The failure to Kerwin to properly declare his property as commercial
authorizes the Kidapawan Assessor to consider the real property being considered
as declared for the first time and to be assessed for taxes for the period during
which it would have been liable. (LGC, Sec. 222, 1st sentence)
Since there is no showing in the problem that the back taxes due effective
January 2017 were paid, on or before the end of the quarter following the date the
notice of assessment was received by Kerwin, the back taxes shall be subject to
an interest at the rate of two percent (2%) per month or a fraction thereof from the
date of the receipt of the assessment until such taxes are fully paid. (Ibid., 2nd
sentence)
m. Notification of new or revised assessment
a. When should the person in whose name the property is declared be
notified of the new or revised assessment ?
SUGGESTED ANSWER:
1. “When real property is assessed for the first time or when an existing
assessment is increased or decreased,
2. the provincial, city or municipal assessor
3. shall within thirty (30) days
 4. give written notice of such new or revised assessment
5. to the person in whose name the property is declared.” (LGC, Sec. 223,
1st sentence, arrangement and numbering supplied)
b. How should the notification of the new or revised assessment be
delivered to the person in whose name the property ?
SUGGESTED ANSWER: “The notice may be delivered
1. personally
2. or by registered mail
3. or through the assistance of the punong barangay
a) to the last known address
b) of the person to be served.” (LGC, Sec. 223, 2nd sentence,
arrangement and numbering supplied)
c. Is the notice of assessment mandatory to authorize the collection
of the tax ?
SUGGESTED ANSWER: A Notice of assessment is mandatory without
which the LGU cannot collect the tax. “An assessment fixes and determines the tax
liability of a taxpayer. It is a notice to the effect that the amount therein stated is
due as tax and a demand for payment thereof. The assessor is mandated under
Section 27 of the law (now LGC, Sec. 223) to give written notice within thirty days of
such assessment, to the person in whose name the property is declared.”
(Pucyutan, etc., v. Manila Electric Company, Inc., G.R. No. 197136, April 18, 2016, words in
parentheses supplied)
“For purposes of giving effect to such assessment, it is deemed made when
the notice is released, mailed or sent to the taxpayer. As soon as the notice is duly
served, an obligation arises on the part of the taxpayer to pay the amount
assessed and demanded.” (Ibid.)
Since the taxpayer had not been furnished with such notice, then its
obligation to pay the taxes assessed against it has not, as yet, accrued. (Ibid.)
2. Exemption from real property taxes
a. Real property exempted from real property taxation
Historical antecedent. The real property tax exemptions, in general, was the
subject of BEQs in 2006.
***What properties are exempt from the real property tax ? (2006)
SUGGESTED ANSWER: “The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, nonprofit or religious cemeteries and all
lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or -controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection. Except as provided herein, any exemption from
payment of real property tax previously granted to, or presently enjoyed by,
all persons, whether natural or juridical, including all government-owned or
-controlled corporations are hereby withdrawn upon the effectivity of this
Code.” (LGC, Sec. 234)
(f) Real property owned by the National Government, its agencies
and instrumentalities and local government units. The exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend to
the levy of, “Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities, and local government units.” [LGC, Sec.
133 (o)]
(g) Real property exempt from real property tax under the provisions
of special laws, such as those exempted by virtue of the provisions of Section
9 of RA 9511 which provided for NGCP's tax liabilities and exemptions.
Section 9 of RA 9511 states that NGCP's payment of franchise tax is in
lieu of payment of "income tax and any and all taxes, duties, fees and
charges of any kind, nature or description levied, established or collected by
any authority whatsoever, local or national, on its franchise, rights, privileges,
receipts, revenues and profits, and on properties used in connection with 'its
franchise." Thus, in contrast to Smart's franchise as quoted above, Section 9
of RA 9511 clearly stated that the 's "in lieu of all taxes" clause includes taxes
imposed by the local government on properties used in connection with
NGCP's franchise.”
(h) Real property in the Philippines owned by other sovereign
nations are exempt by virtue of the principle of comity in international law.
This is the respect accorded by taxing authorities to real property in the
Philippines owned by other sovereign nations. Since the power of taxation is
 an act of sovereignty, it is not imposed upon equal sovereign nations. As the
Latin maxim goes, In par parem, non habet imperium. As between equals,
there is no sovereign. Thus, the lands and buildings used as embassies of
foreign countries are not subject to the payment of real property taxes.
(i) Local tax exemption ordinances. “A province or city or a
municipality within the Metropolitan Manila Area may exempt idle lands from
the additional levy by reason of force majeure, civil disturbance, natural
calamity or any cause or circumstances which physically or legally prevents
the owner of the property or person having legal interest therein from
improving, utilizing or cultivating the same.” (LGC, Sec. 239)
Author’s observation. The reader should note that the above enumeration includes not only
those exempted under the provisions of the Local Government Code, but the constitutional
exemptions [LGC, Sec. 234 (b)], and other real property tax exemptions as well.
b. Constitutional exemptions from real property tax, in general
Historical antecedents. The constitutional tax exemptions, in general, was the
subject of BEQs in 1971, 2000, and 2006.
*** 1. What is the determinative factor for exemption from real
property taxes ?
SUGGESTED ANSWER: “(T)he sole determinative factor for exemption from
realty taxes is the 'use' to which the property is devoted. And where the 'use' is the
test, the ownership is immaterial.” (Martin on the Rev. Adm. Code, 1961, Vol. II, p. 487)
***2. Enumerate the properties exempt from taxation under our
Constitution. (1971)
SUGGESTED ANSWER: Property exempt under the Constitution from the
payment of real property taxes.
a. Charitable institutions,
b. churches, parsonages, convents appur-
tenant thereto, mosques,
c. non-profit cemeteries,
d. all lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes. [1987
Philippine Constitution, Article VI, Sec. 28 (3), arrangement and numbering supplied]
***3. Article VI, Section 28 (3) of the 1987 Philippine Constitution
provides that charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries and all lands, buildings
and improvements actually, directly and exclusive used for religious,
charitable or educational purposes shall be exempt from taxation. To what
kind of tax does this exemption apply ? (2000, adapted)
SUGGESTED ANSWER: The constitutional tax exemption applies only to
real property taxes. This is so, because of the referral to “lands, buildings and
improvements.”
***4. Is proof of actual use necessary for tax exemption purposes
under the Constitution ? (2000)
SUGGESTED ANSWER: Yes. The basis for exemption is actual, direct and
exclusive use for religious, charitable or educational purposes. It follows therefore
that there must be proof of actual use to be entitled to the constitutional tax
exemption.
i. Exemption from real property taxes of churches,
parsonages, and convents appurtenant thereto
Historical antecedents. Exemption from real property taxes of churches,
parsonages, and convents appurtenant thereto was the subject of BEQs in 1975, 1978,
1987, 1988, 2005, and 2010.
***1. The Roman Catholic Church is the owner and possessor
of a parcel of land the eastern side of which is occupied by the Church
itself, the priest’s house, and a vegetable garden on the western side, a
dormitory building used by visitors of the parish priest and people who
participate in religious activities during fiestas. Is the entire land subject to
real property tax ? Why ? (1975)
SUGGESTED ANSWER: No. The eastern side of which is occupied by the
Church itself, and the priest’s house are not subject to real property tax. They are
actually, directly, and exclusively used for religious purposes.
The portions on the western side on which a vegetable garden is situated,
and that where dormitory is located are subject to real property tax because they
are not actually, directly and exclusively used for religious purposes.
There is no showing in the problem how the portion of land, where the
vegetable garden was located, is being actually, directly and exclusively used for
religious purposes. That portion should therefore be subject to real property tax.
There is indirect use for religious purposes for that portion of the land where the
dormitory building is located, hence it is not tax exempt. This is so becase it is for
the personal use of the parish priest for entertaining his visitors.
 ALTERNATIVE ANSWER: No. The eastern side of which is occupied by the
Church itself, the priest’s house, and the dormitory building used by visitors of the
parish priest and people who participate in religious activities during fiestas are not
subject to real property tax. They are actually, directly, and exclusively used for
religious purposes.
The portion on the western side on which a vegetable garden is situated is
subject to real property tax because it is not actually, directly and exclusively used
for religious purposes.
There is no showing in the problem how the portion of land, where the
vegetable garden was located is being actually, directly and exclusively used for
religious purposes. That portion should therefore be subject to real property tax.
***2. The Municipality of Calasiao, Pangasinan enacted an ordinance
levying a special assessment for paving Domagas Street fronting all the lots
along it. Among these lots is one on which the Roman Catholic Church and
the Shrine of Senor Tesoro, an object of religious adoration and worship are
located.
a. The Priest and parish legal counsel seek your advice on whether
or not the ordinance violates the constitutional exemption from taxation of all
churches or convents appurtenant thereto. Discuss. (1987, adapted)
SUGGESTED ANSWER: There is no violation of the constitutional
exemption because the imposition is not a tax but a levy for the purpose of
recovering the public works expenditure of the local government unit concerned.
However, the levy of the special assessment violates the Local Government Code,
because lands that are exempt from the basic real property tax, such as the land
where the church and the Shrine are located, are also exempt from the special
assessment.
b. Suppose that instead of special assessment, the Municipal
Ordinance fixed the rate of real property tax under its power to do so granted
by the Local Government Code. Will your advice be the same? Explain.
(1987, adapted)
SUGGESTED ANSWER: No. There would be a violation of the provisions of
both the Constitution and the Local Government Code on exemptions from real
property taxation of properties that are actually, directly and exclusively used for
religious purposes. The lot on which the church and the Shrine are located is
actually, directly and exclusively used for religious purposes.
***3. The Roman Catholic Church owns a 2-hectare lot, in a town in
Tarlac province. The southern side and middle part are occupied by the
Church and a convent, the eastern side by a school run by the Church itself,
the southeastern side by some commercial establishments, while the rest of
the property, in particular, the northwestern side, is idle or unoccupied.
May the church claim tax exemption on the entire land ? Decide with
reasons. (2005)
SUGGESTED ANSWER: No. The church cannot claim tax exemption on the
entire land.
The southern side and middle part occupied by the Church and a convent are
exempt from the real property tax because there is actual, direct and exclusive use
for religious purposes. So also the eastern side which is occupied by a school
because it is actually, directly and exclusively used for educational purposes.
The church may not claim tax exemption on the southeastern side used by
some commercial establishments because it is not actual, directly and exclusively
used for charitable, religious or education purposes. “Exclusively” means “solely”,
hence it is not exempted but subject to tax, the commercial establishments being
liable for the same. Real property taxation is based on use and not ownership.
The northwestern side being idle or unoccupied is not exempt from tax
because it is apparent that there is no actual, direct and exclusive use for
charitable, religious or educational purposes.
***4. A inherited a two-storey building in Makati from his father, a
real estate broker in the 60s. A group of Tibetan monks approached A and
offered to lease the building in order to use it as a venue for their Buddhist
rituals and ceremonies. A accepted the rental of P1 million for the whole
year. The following year, the City Assessor issued an assessment against A
for non-payment of real property taxes.
Is the assessor justified in assessing A deficiency real property taxes ?
Explain. (2010)
SUGGESTED ANSWER: No. The basis for real property taxation is use and
not ownership. The use to which the property is devoted is actually, directly and
exclusively for religious purposes.
While this may be so, the Assessor may be considered correct because the
problem does not show that A in fact has shown proof of actual, direct and
exclusive use for religious purposes by the Tibetan monks.
ii. Exemption of mosques from real property taxes
What is the constitutional exemption from real property taxes of
mosques ?
 SUGGESTED ANSWER: Mosques, or the place where the Muslims perform
their prayers, and all lands, buildings and improvements actually, directly and
exclusively used for religious purposes shall be exempt from taxation. [1987
Philippine Constitution, Article VI, Sec. 28 (3), paraphrasing supplied]
iii. Exemption of non-profit cemeteries from real property
taxation
Historical antecedent. Exemption from real property tax of non-profit cemeteries was
the subject of a BEQ in 1981.
** “X & Company” a non-stock corporation which owns and
operates a memorial park, contests the real estate assessment made by
Municipality “Y”. Sued by the Municipality, “X & Company” contends that
burial grounds are exempt from the real estate tax. It appears that two years
before the assessment issued by Municipality “Y”, “X & Company”, had
declared dividends to its stockholders.
Is the “X & Company” justified in disputing the assessment? (1981)
SUGGESTED ANSWER: No. The requirement for exemption is that the
cemetery must be non-profit. When XYZ declared dividends, it was a showing that
it was a profit cemetery which is not entitled to the exemption.
iv. Exemption from real property taxes of real property
used for charitable purposes
Historical antecedents. The exemption of charitable institutions from real property
tax was subject of BEQs in 1996, and 2016.
***1. The Constitution exempts from taxation charitable
institutions, churches, parsonages or convents appurtenant thereto,
mosques and non-profit cemeteries and lands, buildings and improvements
actually, directly and exclusively used for religious, charitable and
educational purposes. Mercy Hospital is a 100 bed hospital organized for
charity patients. Can said hospital claim exemption from taxation under the
above-quoted constitutional provision? Explain. (1996)
SUGGESTED ANSWER: Yes. Mercy Hospital can claim exemption from real
property taxes under the constitution if it could present proof that the 100 bed
hospital is actually, directly and exclusively used for charitable purposes.
***2. The Philippine-British Association, Inc. (Association) is a
non-stock, non-profit organization which owns the St. Michael’s Hospital
(Hospital). Sec. 216 in relation to Sec. 215 of the LGC classifies all lands,
buildings and other improvements thereon actually, directly, and exclusively
used for hospitals as “special.” A special classification prescribes a lower
assessment than a commercial classification.
Within the premises of the Hospital, the Association constructed the St.
Michael’s Medical Arts Center (Center) which will house medical practitioners
who will lease the spaces therein for their clinics at prescribed rental rates.
The doctors who treat the patients confined in the Hospital are accredited by
the Association.
The City Assessor classified the Center as “commercial” instead of
“special” on the ground that the Hospital owner gets income from the lease
of its spaces to doctors who also entertain out-patients. Is the City Assessor
correct in classifying the Center as “commercial?” Explain. (2016)
SUGGESTED ANSWER: No. The Medical Arts Center is an integral part of
the Hospital and should be classified for assessment purposes as “special.” The
fact alone that the doctors holding clinics in the Center are those duly accredited by
the Association who owns the Hospital, and these doctors are the ones who can
treat the Hospital’s patients confined in it, takes away the said Medical Arts Center
from being categorized as “commercial” since a tertiary hospital is required by law
to have a pool of physicians who comprise the required medical departments in
various medical fields. (City Assessor of Cebu City v. Association of Benevola de Cebu,
Inc., 2007, 524 SCRA 128 [2007])
v. Exemption from real property taxes of lands, buildings
and improvements used for educational purposes
Historical antecedents. The exemption from real property taxes of lands, buildings,
and improvements used for educational purposes was the subject of BEQs in 1969, 1974,
1978, 1990, 2017. and 2018.
1. X, a private individual leased his piece of land to a school, which
is being operated for profit. A building was caused to be constructed by the
school on the leased property to be used as its library. Is the school subject
to the real property tax ? State your reasons. (1969)
SUGGESTED ANSWER: No. The school is not subject to real property
because the land is actually, directly and exclusively used for educational
purposes. This is so because the construction on the leased land is a building to
be used as the school library.
The basis for real property taxation is use not ownership.

2. Under the New Constitution, may the government tax xxx xxx real
estate property of non-profit educational institution operated by religious
orders? What policy considerations are to be taken into account ? (1974,
paraphrasing supplied)
SUGGESTED ANSWER: No. The real property of non-stock, non-profit
educational institutions which is actually, directly and exclusively used for
educational purposes, irrespective of whether or not they are operated by religious
orders under the 1987 Constitution are exempt from taxation.
The policy consideration is to encourage the establishment of educational
institutions which are not profit motivated. In this manner, the State need not
devote large sums of money for education.
The tax exemption would translate to lower tuition fees providing access to
education for all.
***3. San Antonio Colleges Foundation, Inc. (SACFI) is a non-
stock, non-profit educational institution. SACFI owns a 5-hectare lot one half
of which is used as SACFI’s school campus while the other one-half is
vacant. To cope with the increasing operating costs to upgrade its facilities,
SACFI plans to, effective 1 January 2018, rent out to Supermarkets, Inc. the
vacant proportion of the lot for P1.0 million a year. Is SACFI subject to real
estate tax on its 5 hectare lot for calendar years 2017 and 2018 ? Explain.
(1990, dates supplied)
SUGGESTED ANSWER: SACFI is subject to real estate tax for the calendar
year 2017 only on the one-half portion which is vacant because the same is not
actually, directly and exclusively used for educational purposes.
It is not also subject to real estate tax on the vacant lot, for the calendar year
2018, which was subsequently rented out to Supermarkets, Inc. The reason being
that the basis for real property taxation is use. It is Supermarkets, Inc. who should
pay.
It is not subject to real estate tax on the one-half portion that is used for the
school campus, both for calendar years 2017 and 2018, because the same is
actually, directly and exclusively used for educational purposes.
***4. San Juan University is a non-stock, non-profit educational
institution. It owns a piece of land in Caloocan City on which its three 2-
storey school buildings stood. Two of the buildings are devoted to
classrooms, laboratories, a canteen, a bookstore, and administrative offices.
The third building is reserved as dormitory for student athletes who are
granted scholarships for a given academic year.
In 2018, San Juan University earned income from tuition fees and from
leasing a portion of its premises to various concessionaires of food, books,
and school supplies.
a. Can the City Treasurer of Caloocan City collect real property taxes
on the land and building of San Juan University? Explain your answer. (2017.
Adapted and date supplied)
SUGGESTED ANSWER: Yes. Real property taxes could be collected only
on the leased portion of the premises of San Juan University. This is so because
to be exempted the real property must be actually, directly and exclusively used for
educational purposes which is not so if the real property is leased. It is the lessee
who is using it and therefore not exempt. (Commissioner of Internal Revenue v. De La
Salle University, G.R. Nos. 196596, and companion cases, November 9, 2016)
***5. Kilusang Krus, Inc. (KKI) is a non-stock, non-profit religious
organization which owns a vast tract of land in Kalinga.
KKI has devoted 1/2 of the land for various uses: a church with a
cemetery exclusive for deceased priests and nuns, a school providing K to
12 education, and a hospital which admits both paying and charity patients.
The remaining 1/2 portion has remained idle.
The KKI Board of Trustees decided to lease the remaining 1/2 portion to
a real estate developer which constructed a community mall over the
property.
xxx xxx xxx xxx
a) Is KKI liable for real property taxes on the land ? (2018, paraphrasing
supplied)
SUGGESTED ANSWER: KKI is not liable for real property taxes on 1/2 of
the land devoted for various uses: a church with a cemetery exclusive for deceased
priests and nuns, a school providing K to 12 education, and a hospital which admits
both paying and charity patients. This so because there is showing that the ½ is
actually, directly and exclusively used for religious, educational and charitable
purposes. While this may be so only that portion devoted for the use of charitable
patients would fall within the ambit of the exemption.
On the other hand, the KKI is subject to payment of real property taxes on ½
of the land that is idle because there is no actual, direct and exclusive use of the
property for religious, educational or charitable purposes. Once the ½ portion is
leased for the use of the real property developer KKI would cease to be liable for
real property taxes. It would be the real property developer that sould pay the real
property taxes because the absis for real property taxation is use and not
ownership. It would the real estate developer that would be using the ½ portion of
the land.
c. Real property tax exemptions under the Local Government
Code, in general
Historical antecedents. Real property exempted from real property taxes under the
Local Government Code was the subject of BEQs in 2002, and 2006.
***1. Under the Local Government Code, what properties are
exempt from real property taxes ? (2002)
SUGGESTED ANSWER: “The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries and all
lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or -controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection. Except as provided herein, any exemption from
payment of real property tax previously granted to, or presently enjoyed by,
all persons, whether natural or juridical, including all government-owned or
-controlled corporations are hereby withdrawn upon the effectivity of this
Code.” (LGC, Sec. 234)
(f) Real property owned by the National Government, its agencies
and instrumentalities and local government units. The exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend to
the levy of, “Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities, and local government units.” [LGC, Sec.
133 (o)]
i. Real property owned by the Republic are generally
exempt
a. Are real property owned by the Republic exempt from real
property taxes ?
SUGGESTED ANSWER: “Real property owned by the Republic of the
Philippines or any of its political subdivisions.” [LGC, Sec. 234 (a), paraphrasing,
arrangement and numbering supplied]
Tax exemptions of government property refer to the national government not
to agencies with separate personalities. (National Development Company v. Cebu
City, 215 SCRA 382, 391-392, 394)
However, if the beneficial use of the real property owned by the Republic of
the Philippines is given to a taxable entity then real property taxes are due from the
beneficial user.
***b. May properties of the public dominion be the subject of
execution to answer for delinquent real property taxes ?
SUGGESTED ANSWER: No. Properties of the public dominion are
properties "devoted to public use and to be made available to the public in general.
They are outside the commerce of man and cannot be disposed of or even leased
(Metropolitan Waterworks Sewerage System v. The Local Government of Quezon City, et
al. G.R. No. 194388, November 7, 2018) by the government agency to private parties.
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy
on execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. (Ibid.)
ii. Instrumentalities of the government are not subject to
real property taxes
Historical antecedents. The common limitation for LGUS not to tax the National
Government, its agencies and instrumentalities, and other LGUs was the subject of BEQs
in 1972, 2012, 2015, and 2016.
*** a. Define instrumentality ?
SUGGESTED ANSWER: “Instrumentality refers to any agency of the
National Government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered institutions
and government-owned or controlled corporations. [Administrative Code of 1987,
Introductory Provisions, Sec. 2 (10)]
The fact that a government “instrumentality” and “government-owned or
controlled” corporation have separate definitions means that while a government
“instrumentality” may include a “government-owned or controlled corporation,”
there may be a government “instrumentality” that will not qualify as a “government-
owned or controlled corporation.” [Manila International Airport Authority v. City of Pasay,
et al., G. R. No. 163072, April 2, 2009, 583 SCRA 234 (2009)]
*** b. What are the reasons why government instrumentalities are
exempt from any kind of local government taxation ? Explain briefly.
SUGGESTED ANSWER: There is no point in national and local
governments taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.
(Metropolitan Waterworks Sewerage System v. The Local Government of Quezon City, et
al. G.R. No. 194388, November 7, 2018)
*** c. What is the instance where a agency or instrumentality may
be subject to tax ?
SUGGESTED ANSWER: If the agency, and instrumentality of the National
Government, is a business entity, it could be subject to tax by the local government
unit because of the withdrawal of all tax exemptions under the provisions of the
Local Government Code. (National Power Corporation v. City of Cabanatuan, G. R. No.
149110, April 9, 2003)
*** d. Give examples of instrumentalities of the government that
are not subject to real property tax ?
SUGGESTED ANSWER:
1. PAGCOR. A local government unit could not impose a tax on
PAGCOR because it is an instrumentality of the government tasked to
regulate gambling. (Basco v. Philippine Amusement and Gaming Corporation, 197
SCRA 52)
2. Philippine Fisheries Development Authority (PFDA). It is a
government instrumentality not subject to real property tax, [Philippine Fisheries
Development Authority v, Court of Appeals, 528 SCRA 706 (2007)] except those portions
which have been leased to private entities. The real property assessments
issued by the City of Iloilo should be upheld only with respect to those
portions leased to private parties. (Ibid.)
The exercise of the taxing power of local government units is subject to
the limitations enumerated in Section 133 of the Local Government Code.
Under Section 133 (o) local government units have no power to tax
instrumentalities of the national government.
The Lucena Fishing Port Complex is a property of public dominion
intended for public use, and is therefore exempt from real property tax under
Sec. 324 (a) of the Local Government Code. Properties of public dominion
are owned by the State or Republic of the Philippines . [Philippine Fisheries
Development Authority (PFDA) v. Central Board of Assessment Appeals, 638 SCRA
644 (2010)]
3. The Manila International Airport Authority (MIAA) is not
subject to real property taxes by the municipality of Paranaque on its airport
lands, the runways, the airport tower, and other airport buildings and other
real properties located at the Ninoy Aquino International Airport (NAIA)
Complex in Pasay City and Paranaque City despite the withdrawal by the
Local Government Code of exemptions previously enjoyed by government-
owned and controlled corporations. Reasons:
a) MIAA is not a government owned or controlled corporation
but an instrumentality of the government that is exempt from taxation.
It is not a stock corporation because its capital is not divided into
shares, neither is it a non-stock corporation because there are no
members. It is instead an instrumentality of the government upon
which the local governments are not allowed to levy taxes, fees or
other charges.
An instrumentality “refers to any agency of the National
Government, not integrated within the department framework vested
with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes
regulatory agencies chartered institutions and government-owned or
controlled corporations.” [Administrative Code of 1987, Introductory
Provisions, Sec. 2 (10)] It is an instrumentality exercising not only
governmental but also corporate powers. It exercises governmental
 powers of eminent domain, police power authority, and levying of fees
and charges.
b) Finally, the airport lands and buildings are property owned
by the government that are devoted to public use and are
properties of the public domain. [Manila International Airport Authority v.
City of Pasay, 583 SCRA 234 (2009)]
The airport lands and buildings of Manila International Airport
Authority (MIAA) are properties of public dominion intended for public
use, and as such are exempt from real property tax under Section 234
(a) of the Local Government Code (LGC). Only those portions of the
Ninoy Aquino International Airport (NAIA) located in Pasay which are
leased to taxable persons like private parties are subject to real
property tax by the City of Pasay. (Ibid.)
4. Mactan Cebu International Airport Authority (MCIAA). The
petitioner MCIAA “is an instrumentality of the government; thus, its properties
actually, solely and exclusively used for public purposes, consisting of the
airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, are not subject to real property tax and respondent City is not
justified in collecting taxes from petitioner over said properties.” [Mactan-Cebu
International Airport Authority (MCIAA) v. City of Lapu-Lapu, et al., 757 SCRA 323
(2015)]
5. Philippine Railway Co. exempted from “municipal and
provincial taxes.” “PLDT cites Philippine Railway Co. v. Nolting [34 Phil.
401 (1916)] to support its claim that the "in lieu of all taxes" clause includes
exemption from local taxes. However, in Philippine Railway the franchise of
the railway company expressly exempted it from municipal and provincial
taxes, as follows:
‘Such annual payments, when promptly and fully made 'by the grantee,
shall be in lieu of all taxes of every name 'and nature - municipal, provincial
or central - upon its capital stock, franchises, right of way, earnings, and all
other property owned or operated by the grantee, under this concession or
franchise.’
If anything, Philippine Railway shows the need to avoid ambiguity by
specifying this taxing authority - municipal, provincial or national - from whose
jurisdiction the taxing power is withheld to create the tax exemption .”
[National Grid Corporation of the Philippines v. Oliva, etc., G.R. No. 213157, and its
companion case, August 10, 2016, underscoring in the original]
e. Aside from the Metropolitan Waterworks Sewerage System
what are the other government-owned and controlled corporations
categorized as Government Instrumentalities with Corporate
Powers/Government Corporate Entity entitled to tax exemptions ?
SUGGESTED ANSWER: These include but not limited to the
following:
1. the Manila International Airport Authority (MIAA),
2. the Philippine Ports Authority (PPA),
3. the Philippine Deposit Insurance Corporation (PDIC),
4. the Metropolitan Waterworks and Sewerage System
(MWSS),
5. the Laguna Lake Development Authority (LLDA),
6. the Philippine Fisheries Development Authority (PFDA),
7. the Bases Conversion and Development Authority (BCDA),
8. the Cebu Port Authority (CPA),
9. the Cagayan de Oro Port Authority,
10. the San Fernando Port Authority,
11. the Local Water Utilities Administration (LWUA) and
12. the Asian Productivity Organization (APO). [Executive Order
No. 596, Defining and Including "Government Instrumentality Vested With
Corporate Powers" or "Government Corporate Entities" Under the Jurisdiction
of the Office of the Government Corporate Counsel (OGCC) as Principal Law
Office of Government-Owned or Controlled Corporations (Goccs) and for
Other Purposes (2006); Rep. Act No. 10149 (2011), Sec. 3 (n). both cited in
Metropolitan Waterworks Sewerage System v. The Local Government of
Quezon City, et al. G.R. No. 194388, November 7, 2018]
*** f. LLL is a government instrumentality created by Executive
Order to be primarily responsible for integrating and directing all reclamation
projects for the National Government. It was not organized as a stock
corporation, nor was it intended to operate commercially and compete in the
private market.
By virtue of its mandate, LLL in 2011 reclaimed several portions of the
foreshore and offshore areas of the Manila Bay, some of which were within
the territorial jurisdiction of Q City. Certificates of titles to the reclaimed
properties in Q City were issued in the name of LLL in 2011. In 2019, Q City
issued warrants of Levy on said reclaimed properties of LLL based on the
assessment for delinquent property taxes for the years 2015 to 2018.
(A) Are the reclaimed properties registered in the name of LLL subject
to real property tax ? (2015, dates supplied)
SUGGESTED ANSWER: No. The reclaimed properties are not subject to
real property tax because LLL is a government instrumentality.
Local government units like Q City are prohibited from imposing any tax upon
instrumentalities of the government. When the title of the real property is
transferred to LLL, a government instrumentality, the Republic remains the owner
of the real property. Thus, such arrangement does not result in the loss of the tax
exemption. (City of Lapu-Lapu v. PEZA, G.R. No. 184203, November 26, 2014]
*** g. Philippine National Railways (PNR) operates the rail transport
of passengers and goods by providing train stations and freight customer
facilities from Tutuban, Manila to the Bicol Province. As the operator of the
railroad transit, PNR administers the land, improvements and equipment
within its main station in Tutuban, Manila.
Invoking Section 193 of the Local Government Code (LGC) expressly
withdrawing the tax exemption privileges of government-owned and
controlled corporations upon the effectivity of the Code in 1992, the City
Government of Manila issued Final Notices of Real Estate Tax Deficiency in
the amount of P624,000,000.00 for the taxable years 2006 to 2010. On the
other hand, PNR, seeking refuge under the principle that government cannot
tax itself, insisted that the PNR lands and buildings are owned by the
Republic.
Is the PNR exempt from real property tax? Explain your answer. (2016)
SUGGESTED ANSWER: Yes. The Philippine National Railways (PNR) was
created as a corporation to serve as an instrumentality of the Government of the
Philippines (Rep. Act No. 10638, amending Sec. 1 of Rep. Act No. 4156) upon which the
local governments are not allowed to levy taxes, fees or other charges including
real property taxes. [Manila International Airport Authority v. City of Pasay, G. R. No.
163072, April 2, 2009, 583 SCRA 234 (2009)]
PNR is not a government and controlled corporation but an instrumentality of
the government, hence it is not included in the withdrawal of exemptions. Finally,
under the common limitations on local government units’ power of taxation, shall
not extend the levy of “taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local government
units.” [LGC, Sec. 133 (o), paraphrasing supplied)
The railroad tracks, train stations, freight customer facilties, land
improvements,and equipment within its main station in Tutuban, Manila are
properties of public dominion intended for public use, and as such are exempt from
real property tax under Section 234 (a) of the Local Government Code (LGC).
(Manila International Airport Authority v. City of Pasay, supra)
1) The “in lieu of” exemption proviso in legislative
franchises
**Explain the meaning of and give illustrations of the various
interpretations of the phrase “in lieu of all taxes.”
SUGGESTED ANSWER: The phrase “in lieu of all taxes” refers to the
payment of a franchise tax which is considered resulting to exemption from the
payment of the taxes mentioned in the franchise. In the interpretation of this
phrase particular attention should be given to the wording of the tax exemption
privilege in order to determine the specific taxes from which the franchise holder is
xempt after pay ment of the franchise tax.
The following are examples of the payment of franchise taxes “in lieu of all
taxes.”
a. National Grid Corporation of the Philippines (NGCP)’s “in lieu of
all taxes” in its franchise exempts it from all taxes, national or local. “NGCP's
tax provisions in RA 9511 contained an "in lieu of all taxes" clause. We reproduce
Section 9 of RA 9511, the tax provisions of NGCP's franchise,
below:ChanRoblesVirtualawlibrary
Section 9. Tax Provisions. - In consideration of the franchise and rights
hereby granted, the Grantee [NGCP], its successors or assigns, shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts derived by the
Grantee [NGCP] from its operation under this franchise. Said tax shall be in lieu of
income tax and any and all taxes, duties, fees and charges of any kind,
nature or description levied, established or collected by any authority
whatsoever, local or national, on its franchise, rights, privileges, receipts,
revenues and profits, and on properties used in connection with its franchise, from
which taxes, duties and charges, the Grantee is hereby expressly exempted:
Provided, That the Grantee, its successors or assigns, shall be liable to pay the
same taxes on their real estate, buildings and personal property, exclusive of this
franchise, as other corporations are now or hereby may be required by law to pay:
Provided, further, That payment by Grantee of the concession fees due to PSALM
under the concession agreement shall not be subject to income tax and value
added tax (VAT).” (bold facing supplied)
“The "in lieu of all taxes" clause is strictly limited to the kind of taxes, taxing
authority, and object of taxes specified in the law.
Section 9 of RA 9511 states that NGCP's payment of franchise tax is in lieu
of payment of "income tax and any and all taxes, duties, fees and charges of any
kind, nature or description levied, established or collected by any authority
whatsoever, local or national, on its franchise, rights, privileges, receipts,
revenues and profits, and on properties used in connection with 'its franchise."
Thus, xxx xxx, Section 9 of RA 9511 clearly stated that the NGCP's "in lieu of all
taxes" clause includes taxes imposed by the local government on properties used
in connection with NGCP's franchise.” (National Grid Corporation of the Philippines v.
Oliva, etc., G.R. No. 213157, and its companion case, August 10, 2016, bold facing
supplied)
It is clear that NGCP's payment of franchise tax exempts it from payment of
real property taxes on properties used in connection with its franchise. However,
NGCP's tax exempt status on real property due to the "in lieu of all taxes" clause is
qualified: NGCP shall be liable to pay the same tax as other corporations on real
estate, buildings and personal property exclusive of their franchise. The phrase
"exclusive of this franchise" means that real estate, buildings, and personal
property used in the exercise of the franchise are not subject to the same tax as
other corporations.” (Ibid.)
“If the subject properties are used in connection with NGCP's franchise, then
NGCP is exempt from paying real property taxes on the subject properties. If the
subject properties are not used in connection with NGCP's franchise, then the
assessment level should be based on actual use, in accordance with Section
218(a-c) of the Local Government Code.” (Ibid.)
b. Smart’s “in lieu of all taxes” in its franchise does not exempt it
from local and income taxes. “Smart's tax provisions in Section 9 of Republic Act
No. 7294 read as follows:C
Tax provisions. - The grantee, its successors or assigns shall be liable to
pay, the same taxes on their real estate, buildings and personal property,
exclusive of this franchise, as other persons or corporations which are now or
hereafter may be required by law to pay. In addition thereto, the grantee, its
successors or assigns shall pay a franchise tax equivalent to three percent (3%) of
all gross receipts of the business transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu of all taxes on this
franchise or earnings thereof: Provided, that the grantee, its successors or assigns
shall continue to be liable for income taxes payable under Title II of the National
Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the
latter enactment is amended or repealed, in which case the amendment or repeal
shall be applicable thereto.
The grantee shall file the return with and pay the tax due thereon to the
Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code and the return shall be
subject to audit by the Bureau of Internal Revenue.”
“xxx [T]he "in lieu of all taxes" clause in Smart's franchise refers only to
taxes', other than income tax, imposed under the National Internal Revenue Code.
The "in lieu of all taxes" clause does not apply to local taxes. The proviso in the first
paragraph of Section 9 of Smart's franchise states that the grantee shall "continue
to be liable for income taxes payable under Title II of the National Internal Revenue
Code." Also, the second paragraph ofi Section 9 speaks of tax returns filed and
taxes paid to the "Commissioner of Internal Revenue or his duly authorized
representative in accordance with the National Internal Revenue Code." Moreover,
the same paragraph declares that the tax returns "shall be subject to audit by the
Bureau of Internal Revenue." Nothing is mentioned in Section 9 about local taxes.
The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under
the National Internal Revenue Code and not to local taxes. Even with respect to
national internal revenue taxes, the "in lieu of all taxes" clause does not apply to
income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to
also apply to local taxes. Congress would have expressly mentioned the exemption
from municipal and provincial taxes. Congress could have used the language in
Section 9 (b) of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or description levied,
established or collected by any authority whatsoever, municipal, provincial or
national, from which the grantee is hereby expressly exempted, x x x.
However, Congress did not expressly exempt Smart from local taxes.
Congress used the "in lieu of all taxes" clause only in reference to national internal
revenue taxes. The only interpretation, under the rule on strict construction of tax
exemptions, is that the "in lieu of all taxes" clause in Smart's franchise refers only
to national and not to local taxes.” [National Grid Corporation of the Philippines v. Oliva,
etc., G.R. No. 213157, and its companion case, August 10, 2016, bold facing and
underscoring in the original]
c. Bayan Telecommunications, Inc., (Bayantel), and Digitel
Telecommunications Philippines, Inc. (Digitel) is not exempt from real
property taxes. The previous ruling that “all realties which are actually, directly
and exclusively used in the operation of its franchise are ‘exempted’ from any
property tax” effectively exempting Bayantel and Digitel from the prayment of real
property taxes have been reversed.
This is so because the interpretation of the phrase “exclusive of this
franchise” in the Bayantel and Digitel cases goes against the basic principle in
construing tax exemptions. In PLDT v. City of Davao, G.R. No. 143867, 25 March
2003, 399 SCRA 442, 453. the Court held that “tax exemptions should be granted
only by clear and unequivocal provision of law on the basis of language too plain to
be mistaken. They cannot be extended by mere implication or inference.”
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax
exemption must point to a specific provision of law conferring on the taxpayer, in
clear and plain terms, exemption from a common burden. Any doubt whether a tax
exemption exists is resolved against the taxpayer. (Digital Telecommunications
[Philippines, Inc. v. City Government of Batangas, etc., et al., G. R. No. 156040, December
11, 2008)
 2) Government lands and properties leased to
taxable persons are not exempt from real property taxes
Historical antecedents. Government lands and properties leased to taxable
persons was the subject of BEQs in 1968, 1971, 1982, 1984, 1985, 2002, 2006, 2011,
2013 and 2015.
***a. Explain the meaning of the beneficial use concept.
SUGGESTED ANSWER: Government property is not exempt “when the
beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.” [LGC, Sec. 234 (a), paraphrasing, arrangement and numbering
supplied]
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real
property is transferred to an agency or instrumentality even as the Republic
remains the owner of the real property. Such arrangement does not result in the
loss of the tax exemption. Real property owned by the Republic loses its tax
exemption only if the "beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person." [LGC, Sec. 234 (a)]
b. Give Illustrations of real property of the national government that
are exempted from real property taxation.
SUGGESTED ANSWER:
***1. Bislig Bay Lumber Company, Inc. (Bislig Bay) was a timber
concessionaire of a portion of public forest in the provinces of Agusan and
Surigao. To aid in developing its concession, Bislig Bay built a road at its
expense from a barrio leading towards its area. The Provincial Assessor of
Surigao assessed Bislig Bay with real property tax on the constructed road,
which was paid by the company under protest. Bislig Bay asserted that the
road should be exempted from real property tax because it belonged to the
national government by right of accession. Moreover, the road constructed
already became an inseparable part of the land. The records also showed
that the road was not only built for the benefit of Bislig Bay, but also of the
public.
How did the Supreme Court rule on the matter ?
HELD: The Court ruled for Bislig Bay. The road is not subject ot real
property tax for the following reasons:
1. That the ownership of the road that was constructed by
Bislig Bay belongs to the government by right of accession not only
because it is inherently incorporated or attached to the timber land
leased to Bislig Bay but also because upon the expiration of the
concession, said road would ultimately pass to the national
government.
2. While the road was constructed by Bislig Bay primarily for
its use and benefit, the privilege is not exclusive, for, under the lease
contract entered into by Bislig Bay and the government and by public in
general. Thus, under said lease contract, Bislig Bay cannot prevent the
use of portions, of the concession for homesteading purposes. ... It is
also in duty bound to allow the free use of forest products within the
concession for the personal use of individuals residing in or within the
vicinity of the land. ... In other words, the government has practically
reserved the rights to use the road to promote its varied activities.
Since, as above shown, the road in question cannot be considered as
an improvement which belongs to appellee, although in part is for its
benefit, it is clear that the same cannot be the subject of assessment.”
[Bislig Bay Lumber Company, Inc. v. Provincial Government of Surigao, 100
Phil. 303, 306-307 (1956)]
***2. Samar Mining Company, Inc. (Samar Mining) was a
domestic corporation engaged in the mining industry. Since Samar Mining's
mining site and mill were in an inland location entailing long distance from its
area to the loading point, Samar Mining was constrained to construct a road
for its convenience.
“There is no question that the road constructed by Samar Mining on the
public lands leased to it by the government is an improvement.
As emphasized in the Bislig case is that the improvement is exempt
from taxation because it is an integral part of the public land on which it is
constructed and the improvement is the property of the government by right
of accession. All properties owned by the government, without any
distinction, are exempt from taxation. [Board of Assessment Appeals of
Zamboanga del Sur v. Samar Mining Company, Inc. 147 Phil. 699 (1971)]
c. Give illustrations of the beneficial user concept where there were no
tax exemptions.
SUGGESTED ANSWER:
***1. MIAA, as a government instrumentality, is not a taxable
person under Section 133(0) of the Local Government Code. Thus, even if
we assume that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.
 However, portions of the Airport Lands and Buildings that MIAA leases
to private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is subject
to real estate tax. In such a case, MIAA has granted the beneficial use of
such land area for a consideration to a taxable person and therefore such
land area is subject to real estate tax. [Manila International Airport Authority v.
Court of Appeals, 528 Phil. 181, 224-225 (2006)]
***2. The portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from
such taxes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes. [Lung Center of the
Philippines v. Quezon City, 433 SCRA 119, 138 (2004)]
***3. An installment purchaser of land and building within
a housing project of the GSIS is liable to pay real estate taxes from the time
possession of said property was transferred to her, although pending full
payment of the purchase price of the buyer, the GSIS retains ownership and
title over the property.
Exemption of the GSIS from the payment of taxes does not cover its
property, the beneficial use of which is granted to a taxable person. (City of
Baguio v. Busuego, 100 SCRA 116)
4. The “beneficial use doctrine” does not apply to GSIS, the
beneficial user Manila Hotel Corporation (MHC) should pay the tax. GSIS,
as a government instrumentality, is not a taxable juridical person under Sec.
133(o) of the LGC. GSIS, however, lost in a sense that status with respect to
the Katigbak property when it contracted its beneficial use to Manila Hotel
Corporation, doubtless a taxable person. Thus, the real estate tax
assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject
Katigbak property is valid insofar as said tax delinquency is concerned as
assessed over said property.
Known is the doctrine that “the unpaid tax attaches to the property and
is chargeable against the taxable person who had actual or beneficial use
and possession of it regardless of whether or not he is the owner.”
(Government Service Insurance System v. City Treasurer, et al.., etc., G. R. No.
186242, December 23, 2009) Actual use refers to the purpose for which the
property is principally or predominantly utilized by the person in possession
thereof. [LOCAL GOVERNMENT CODE, Sec. 199(b)]
Being in possession and having actual use of the Katigbak property
since November 1991, Manila Hotel Corporation (MHC) is liable for the realty
taxes assessed over the Katigbak property from 1992 to 2002. Furthermore,
MHC has obligated itself by contractual agreement to pay the real property
taxes. (Government Service Insurance System, supra)
` *** 5. A mining company which is a lessee of mineral land, is
liable for real property tax, although the mineral lands form part of the public
domain. (Province of Nueva Ecija & Imperial Mining Co. 118 SCRA 632)
REASON: The beneficial use is granted to a taxable entity.
d. Are taxes debts ?
SUGGESTED ANSWER: No. Taxes are not debts and one who paid for the
taxes of another should be reimbursed by the real taxpayer. “All parties are in
agreement that NGCP paid real property taxes on the subject properties for the
years 2001 to 2009. From 2001 to 2008, the subject properties were under the
control and supervision of NPC/TRANSCO It was only in 2009 that NGCP took
control of the subject properties.”
“Taxes are not debts; but NGCP's payment of NPC/TRANSCO's tax liabilities
made NPC/TRANSCO indebted to NGCP. Article 1236 of the Civil Code is
applicable in the present situation: NGCP has an interest in the payment of
NPC/TRANSCO's real property taxes from 2001 to 2008. NGCP will not be able to
exercise its franchise should the local government auction the subject properties.
The City Treasurer of Cebu City, on the other hand, is bound to accept NGCP's
payment of the taxes due from NPC/TRANSCO. NGCP's remedy then, is to
demand, not from the City Treasurer of Cebu City, but from NPC/TRANSCO the
amount of taxes which redounded ito its benefit. Article 1236 provides in
part:ChanRoblesVirtualawlibrary
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor.” (National
Grid Corporation of the Philippines v. Oliva, etc., G.R. No. 213157, and its companion case,
August 10, 2016)
***e. The NPC, a government-owned corporation is, under its Charter
exempt from all taxes, national and local. Seeing no immediate need for its
vacant land with an area of about 30 hectares, it leased the same to the Aqua-
Culture, Inc., an enterprise engaged in extensive prawn culture for export.
The Assessor declared the property for real estate tax purpose, to
which NPC objected because of its exemption.
a. How will you decide the matter? Explain.
b. What will your answer be under the same facts, except
that the lessee is the Boys’ Town, Inc., a registered and government
 recognized charitable organization? Said lessee will use the lands in
its prawn culture and export business (1) to provide useful
compensated employment for the inmates as part of their character
building and rehabilitation, and (2) to raise revenue for the exclusive
use of Boys’ Town, Inc. (1987)
SUGGESTED ANSWERS: In both instances, the property shall be subject to
tax. In a) the user Aqua-Culture, Inc, is subject to tax because the basis of real
property taxation is use and not ownership. In b) the property is not actually,
directly and exclusively used for charitable purposes and the land is used for
commercial purposes, and the benefit to the inmates is merely incidental in
character.
***f. LLL is a government instrumentality created by Executive
Order to be primarily responsible for integrating and directing all reclamation
projects for the National Government. It was not organized as a stock
corporation, nor was it intended to operate commercially and compete in the
private market.
By virtue of its mandate, LLL in 2011 reclaimed several portions of the
foreshore and offshore areas of the Manila Bay, some of which were within
the territorial jurisdiction of Q City. Certificates of titles to the reclaimed
properties in Q City were issued in the name of LLL in 2011. In 2019, Q City
issued warrants of Levy on said reclaimed properties of LLL based on the
assessment for delinquent property taxes for the years 2015 to 2018.
(A) Are the reclaimed properties registered in the name of LLL subject
to real property tax ? (2015, dates supplied)
SUGGESTED ANSWER: No. The reclaimed properties are not subject to
real property tax because LLL is a government instrumentality.
Local government units like Q City are prohibited from imposing any tax upon
instrumentalities of the government. When the title of the real property is
transferred to LLL, a government instrumentality, the Republic remains the owner
of the real property. Thus, such arrangement does not result in the loss of the tax
exemption. [City of Lapu-Lapu v. PEZA, G.R. No. 184203, November 26, 2014]
(B) Will your answer be the same in (A) if from 2015 to the present
time, LLL is leasing portions of the reclaimed properties for the
establishment and use of popular fastfood restaurants J Burgers, G Pizza,
and K Chicken ? (2015, date supplied)
SUGGESTED ANSWER: No. A Government-owned exempt real property
loses its exemption when its beneficial use has been granted, for consideration or
otherwise, to a taxable person.
When LLL leased out portions of the reclaimed properties to taxable popular
fast food restaurants J Burgers, G Pizza, and K Chicken, the reclaimed properties
are subject to real property tax. (GSIS v. City Assessor of the City of Manila, G.R. No.
186242, December 23, 2009)
a) Withdrawal of exemptions from real property
taxes of the National Power corporation (NPC)
Historical antecedent. The taxability of a government-owned and controlled
corporation was the subject of a BEQ in 2009.
**a. Has National Power Corporation (NPC) personality to impugn
the validity of the impoisition of real property tax upon a facility subject of a
Build Operate and Transfer scheme prior to its transfer to NPC ?
SUGGESTED ANSWER: No. NPC is not the owner of the facility under the
BOT arrangement hence it has no personality to impugn the validity of the
imposition of the real property tax on the property before its turnover to NPC. The
tax exemptions and privileges claimed by NPC cannot be recognized since it is
not the actual, direct, and exclusive user of the facilities, machinery and
equipment.
“Taxation is the rule and exemption is the exception.” (National Power
Corporation v. Province of Pangasinan, et al., G.R. No. 210191, March 4, 2019)
1) “Thus, until the transfer of the project to NPC, it does not have
anything to do with the use and operation of the power plant. The direct,
actual, exclusive, and beneficial owner and user of the power station,
machineries, and equipment certainly pertains to Mirant. NPC, therefore,
has no legal personality to question on the assessment or claim for
exemption and privileges with regard to the tax liability attached to the
subject properties.” (Ibid.)
2) “That NPC assumed the tax liabilities in the agreement is of no
moment. Such undertaking does not justify the exemption or entitlement to
privileges. The privilege granted to NPC cannot be extended to Mirant. To
rule otherwise would be to allow the circumvention of our law on
exemptions and grant of privileges.” (Ibid.)
3) The provisions invoked by NPC for entitlement to exemption and
privilege are clear and unambiguous. To successfully claim exemption
under Section 234(c) of R.A. No. 7160, the claimant must prove that (a)
the machinery and equipment are actually, directly and exclusively used by
local water districts and government-owned and controlled corporations;
and (b) the local water districts and government-owned and controlled
corporations claiming exemption must be engaged in the supply and
 distribution of water and/or the generation and transmission of electric
power.
Likewise, to successfully claim for differential treatment or a lower
assessment level under Section 216, in relation to Section 218 of the same
Act, the claimant must prove that the subject lands, buildings, and other
improvements are (a) actually, directly, and exclusively used for hospitals,
cultural, or scientific purposes; or (b) owned and used by local water
districts and government-owned and controlled corporations rendering
essential public services in the supply and distribution of water and/or
generation and transmission of electric power.
It is important to emphasize that the government-owned and
controlled corporation claiming exemption and entitlement to the privilege
must be the entity actually, directly, and exclusively using the real properties,
and the use must be devoted to the generation and transmission of electric
power. As can be gleaned from the above disquisition, NPC miserably
failed to satisfy said requirements. Although the subject machinery and
equipment are devoted to generation of electricity, the ownership, use,
operation, and maintenance thereof pertain to Mirant.” (Ibid.)
4) “Neither will NPC find justification in its claim that it is NPC, not
Mirant, which utilizes the generated electricity for transmission or
distribution to the customers. The clear wordings of the above-cited
provisions state that it is the machinery and equipment which are exempted
from the payment of real property tax, not the water or electricity that such
facilities generate for distribution.” (Id.)
5) “For the same reason that NPC has no legal personality to
question the assessment and claim for exemptions and privileges, there is
likewise no basis for NPC to claim and be granted the depreciation
allowance under Section 225 of R.A. No. 7160.” (Id.)
6) “Similarly, having no such legal personality, NPC cannot claim
the exemption under Section 234(e) of the same Act. While it may be true
that ownership of the machinery and equipment used for pollution control
and environmental protection, is not relevant to the determination of
entitlement to exemption, NPC still has no basis to assert such privilege.
(Ibid.)
** b. Republic Power Corporation (RPC) is a government-owned and
controlled corporation engaged in the supply, generation and transmission
of electric power. In 2016, in order to provide electricity to Southern Tagalog
provinces, RPC entered into an agreement with Jethro Energy Corporation
(JEC), for the lease of JEC’s power barges which shall be berthed at the port
of Batangas City. The contract provides that JEC shall own the power
barges and the fixtures, fittings, machinery, and equipment therein, all of the
which JEC shall supply at its own cost, and that JEC shall operate, manage
and maintain the power barges for the purpose of converting the fuel of RPC
into electricity. The contract also stipulates that the real estate taxes and
assessments, rates and other charges, in respect of the power barges, shall
be for the account of RPC.
In 2018, JEC received an assessment of real property taxes in the
power barges from the Assessor of Batangas City. JEC sought
reconsideration of the assessment on the ground that the power barges are
exempt from real estate taxes under Section 234 (c) of R.A. 7160 as they are
actually, directly and exclusively used by RPC, a government-owned and
controlled corporation. Furthermore, even assuming that the power barges
are subject to real property tax, RPC should be held liable therefor, in
accordance with the terms of the lease agreement. Is the contention of JEC
correct ? Explain your answer. (2009 dates supplied)
SUGGESTED ANSWER: No. Real property taxes are to be paid by the
user of the property, which in this case is JEC and not RPC. In using the power
barges to convert the fuel to electricity, it is evident that the one using the power
barges is JEC. Furthermore, it is clear from the problem that RPC does not enjoy
an exemption because it is not an instrumentality of the Philippine Government.
Government owned and controlled corporations are not exempt from the payment
of real property taxes.
The contract between RPC and JEC does not bind the local government of
Batangas City not being a party to the contract. Finally, who should pay taxes is
determined by law and not the contractual relation between parties . [FELS Energy,
Inc., v. The Province of Batangas, 516 SCRA 186 (2007)]
b) Light Rail Transit Authority (LRTA) is not
exempt from real property taxes
Are Light Rail Transit Authority’s (LRTA) buildings, carriageways and
passenger terminals stations are taxable realty ? Why ?
SUGGESTED ANSWER: Yes, because of the following reasons:
1. The structures do not form part of the public roads since the former
are constructed over the latter in such a way that the flow of vehicular traffic
would not be impaired. The carriageways and terminals serve a function
different from the public roads. Furthermore, they are not open to use by the
general public.
2. Beneficial use determines taxability. Unlike public roads which are
open for use by everyone, the LRT is accessible only to those who pay the
 required fare. Thus, LRTA does not operate solely for public service.
Although it is a public utility, it is nonetheless profit-earning. It actually uses
those carriageways and terminal stations in its public utility business and
earns money therefrom.
Even granting that the national government owns the carriageways
and terminal stations, the property is not exempt because their beneficial use
has been granted to LRTA, a taxable entity. (Light Rail Transit Authority v.
Central Board of Assessment Appeals, et al., G. R. No. 127316, October 12, 2000)
c) Warehouses, facilities and appurtenances
owned by the Philippine Ports Authority (PPA) are
taxable
Are warehouses, facilities and appurtenances owned by the Philippine
Ports Authority (PPA) are subject to real property taxes ?
SUGGESTED ANSWER: Yes. Ports constructed by the State are properties
of the public dominion under Art. 420 of the Civil Code which enumerates these as
properties intended for public use.
Be that as it may, a warehouse, which, although located within the port is
distinct from the port itself. Thus, it is subject to tax. The warehouse, in the case
at bar, may not be held as part of the port, considering its separable nature as an
improvement upon the port, and the fact that it is not open for use by everyone and
freely accessible to the public.
In the same way that the Supreme Court once ruled, that the exemption of
public property from taxation does not extend to improvements made thereon by
homesteaders or occupants at their own expense, it likewise upheld the
taxability of the warehouse, in the case at bar, it being a mere improvement built on
an alleged property of public domain . (Philippine Ports Authority v. City of Iloilo, G. R.
No. 109791, July 14, 2003)
The fact that the port and its facilities and appurtenances, owned by the
Philippine Ports Authority (PPA), are accessible to the general public does not
exempt it from the payment of real property taxes. These are patrimonial properties
of PPA, not for public use, and that the operation of the port and its facilities and
the administration of its buildings are in the nature of ordinary business. PPA is a
profit earning corporation, hence its patrimonial properties are subject to tax .
(Philippine Ports Authority v. City of Iloilo, et al., G. R. No. 143214, November 11, 2004)
d) The Government Service Insurance
System (GSIS) is exempt from the payment of real
property taxes
Historical antecedent. The exemption from real property taxes of GSIS was the
subject of a BEQ in 1990.
**a. Is the Government Service Insurance Sysem (GSIS)
exempt from the payment of real property taxes ? Why ?
SUGGESTED ANSWER: Yes. Government Service Insurance
System (GSIS) is a government instrumentality whose properties are exempt
real property taxes. The Supreme Court likewise applied Manila International
Airport Authority and held that GSIS was a government instrumentality whose
properties, being owned by the Republic, cannot be assessed for real
property taxes:
While perhaps not of governing sway in all fours inasmuch as what
were involved in Manila International Airport Authority, e.g., airfields and
runways, are properties of the public dominion and, hence, outside the
commerce of man, the rationale underpinning the disposition in that case is
squarely applicable to GSIS, both MIAA and GSIS being similarly situated.
First, while created under CA 186 as a non-stock corporation, a status
that has remained unchanged even when it operated under PD 1146 and RA
8291, GSIS is not, in the context of the afore quoted Sec. 193 of the LGC, a
GOCC following the teaching of Manila International Airport Authority, for, like
MIAA, GSIS' capital is not divided into unit shares. Also, GSIS has no
members to speak of. And by members, the reference is to those who, under
Sec. 87 of the Corporation Code, make up the nonstock corporation, and not
to the compulsory members of the system who are government employees.
Its management is entrusted to a Board of Trustees whose members are
appointed by the President.
Second, the subject properties under GSIS's name are likewise
owned by the Republic. The GSIS is but a mere trustee of the subject
properties which have either been ceded to it by the Government or acquired
for the enhancement of the system. This particular property arrangement is
clearly shown by the fact that the disposal or conveyance of said subject
properties are either done by or through the authority of the President of the
Philippines. Specifically, in the case of the Concepcion Arroceros it was
transferred, conveyed, and ceded to this Court on April 27, 2005 through a
presidential proclamation, Proclamation No. 835. Pertinently, the text of the
proclamation announces that the Concepcion-Arroceros property was earlier
ceded to the GSIS on October 13, 1954 pursuant to Proclamation No. 78 for
office purposes and had since been titled to GSIS which constructed an
office building thereon. Thus, the transfer on April 27, 2005 of the
Concepcion-Arroceros property to this Court by the President through
 Proclamation No. 835. This illustrates the nature of the government
ownership of the subject GSIS properties, as indubitably shown in the last
clause of Presidential Proclamation No. 835:
WHEREAS, by virtue of the Public Land Act (Commonwealth Act No.
141, as amended), Presidential Decree No. 1455, and the Administrative
Code of 1987, the President is authorized to transfer any government
property that is no longer needed by the agency to which it belongs to other
branches or agencies of the government. [Government Service Insurance
System v. City Treasurer of Manila, 623 Phil. 964 (2009)]
Third, GSIS manages the funds for the life insurance, retirement,
survivorship, and disability benefits of all government employees and their
beneficiaries. This undertaking, to be sure, constitutes an essential and vital
function which the government, through one of its agencies or instrumentalities,
ought to perform if social security services to civil service employees are to be
delivered with reasonable dispatch. It is no wonder, therefore, that the Republic
guarantees the fulfillment of the obligations of the GSIS to its members
(government employees and their beneficiaries) when and as they become due.
This guarantee was first formalized under Sec. 24 of CA 186, then Sec. 8 of PD
1146, and finally in Sec. 8 of RA 8291. (Ibid.)
To require the payment of real property taxes on the properties of GSIS
would reduce the fund that is available toserve the needs of its members.
**b. The Government Service Insurance System (GSIS), a
government agency, owns a 25 hectare lot in San Pedro, Laguna which GSIS
subdivided into small lots for sale to government employees. MS, a school
teacher, purchased a 150 sq. meter lot from the GSIS under a Contract to Sell
with the following terms (1) MS shall pay the purchase price in 25 years in 50
semi- annual equal installments, with interest at 12% per annum on the
outstanding balance; (2) title of the lot shall be transferred to MS only upon
full payment of the purchase price; (3) MS may take immediate possession of
the lot and construct thereon his house. After the signing of the Contract to
Sell, MS built a house on the lot.
a. Is the GSIS subject to real estate tax on the 150-square meter
lot prior to the signing of the said Contract to Sell with MS? Explain. (1990,
paraphrasing supplied)
SUGGESTED ANSWERS: GSIS is not subject to real estate taxes. The
exemption of GSIS was removed from the Local Government Code but restored by
the Government Insurance System Act of 1997 which provides in its Sec. 39, that
“xxx notwithstanding any laws to the contrary, the GSIS, its assets, revenues
including the accruals thereto, and benefits paid, shall be exempt from all taxes.”
(City of Davao, et al., v. Regional Trial Court, Branch XII, Davao City, et al., G.R. No.
127383, August 18, 2005)
e) The National Development Corporation (NDC)
is taxable
Is the National Development Corporation exempt from real property
taxation ?
SUGGESTED ANSWER: No. The National Development Corporation is
neither the Government of the Republic nor a branch or subdivision thereof, hence
it is not exempt from the real property tax . (National Development Corporation v. Prov.
of Nueva Ecija, 125 SCRA 752)
f) Exemption of machineries and equipment (not
real property in general) from real property taxes
What machineries and equipment are exempt from real property taxes ?
SUGGESTED ANSWER:
1. “All machineries and equipment
2. that are actually, directly and exclusively used by local water
districts and government-owned or -controlled corporations engaged
a) in the supply and distribution of water
b) and/or generation and transmission of electric power; xxx
xxx” are exempt from real property taxes. [LGC, Sec. 254 (c),
arrangement and numbering supplied]
g) Exemption of cooperatives from real property
taxation
***Illustrate an exemption from real property taxes of cooperatives on
leased land.
SUGGESTED ANSWER: The exemption from real property taxes given to
cooperatives applies regardless of whether or not the land owned is leased. This
exemption benefits the cooperative's lessee.
Filipinas Palm Oil Plantation Inc. (Filipinas) is a private organization engaged
in palm oil plantation with a total land area of more than 7,000 hectares of National
Development Company (NDC) lands in Agusan del Sur. Harvested fruits from oil
palm trees are converted into oil through Filipinas' milling plant in the middle of the
plantation area. Within the plantation, there are also three (3) plantation roads and
a number of residential homes constructed by Filipinas for its employees.
 After the Comprehensive Agrarian Reform Law was passed, NDC lands were
transferred to Comprehensive Agrarian Reform Law beneficiaries who formed
themselves as the merged NDC-Guthrie Plantations, Inc. - NDC-Guthrie Estates,
Inc. (NGPI-NGEI) Cooperatives. Filipinas entered into a lease contract agreement
with NGPI-NGEI.chanrobleslaw
HELD: Filipinas is not subject to real property taxes. “Under Section 133(n)
of the Local Government Code, the taxing power of local government units shall
not extend to the levy of taxes, fees, or charges on duly registered cooperatives
under the Cooperative Code. Section 234(d) of the Local Government Code
specifically provides for real property tax exemption to cooperatives.”
“NGPI-NGEI, as the owner of the land being leased by respondent, falls
within the purview of the law. Section 234 of the Local Government Code exempts
all real property owned by cooperatives without distinction. Nothing in the law
suggests that the real property tax exemption only applies when the property is
used by the cooperative itself. Similarly, the instance that the real property is
leased to either an individual or corporation is not a ground for withdrawal of tax
exemption.”
“Despite the land being leased by respondent when the roads were
constructed, the ownership of the improvement still belongs to NGPI-NGEI. As
provided under Article 440 and 445 of the Civil Code, the land is owned by the
cooperatives at the time respondent built the roads. Hence, whatever is
incorporated in the land, either naturally or artificially, belongs to the NGPI-NGEI as
the landowner.
Although the roads were primarily built for respondent's benefit, the roads
were also being used by the members of NGPI and the public. Furthermore, the
roads inured to the benefit of NGPI-NGEI as owners of the land not only by right of
accession but through the express provision in the lease agreement.” (Provincial
Assessor of Agusan del Sur v. Filipinas Palm Oil Plantation, Inc., G.R. No. 183416, October
05, 2016)
h) Exempt franchise holders are generally not
exempt from real property taxes
Is the grantee of a legislative franchise exemption exempt from the
payment of real property taxes ? Why ? Illustrate.
SUGGESTED ANSWER: No. The uniform tax provision in legislative
franchises not only expressly states that the franchisee shall be exempt from
payment of all taxes, except specific tax, under the National Internal Revenue
Code, and also all taxes under “other applicable laws,” one of which is the Local
Government Code which imposes the realty tax.
This provision exists so as not to deprive the local government units of a rich
source of revenue they could use for their operations and development.
To illustrate, The phrase “exclusive of this franchise” found in Digital’s
franchise does not exempt from real property tax. It is also the same provision that
appears in the legislative franchises of other telecommunications companies like
Philippine Long Distance Telephone Company, Smart Information Technologies,
Inc., and Globe Telecom. In a case decided by the Supreme Court, it was held
that RCPI’s radio relay station tower, radio station building, and machinery shed
are real properties that are subject to real property tax.
The intent to grant realty tax exemption cannot be discerned from its
legislative franchise and neither from the legislative franchises of other
telecommunications companies. Tax exemptions granted to one or more, but not to
all, telecommunications companies similarly situated will violate the constitutional
rule on uniformity of taxation. [Digital Telecommunications Philippines, Inc. v. City
Government of Batangas, etc., et al., G. R. No. 156040, December 11, 2008]
ALTERNATIVE ANSWER: No. The congressional intent after VAT law is to
exempt telecommunications companies only from specific tax, not from real
property taxes. After the imposition of VAT on telecommunications companies,
Congress refused to grant any tax exemption to telecommunications companies
that sought new franchises from Congress, except the exemption from specific tax .
[Digital Telecommunications Philippines, Inc. v. City Government of Batangas, etc., et al.,
G. R. No. 156040, December 11, 2008]
More importantly, the uniform tax provision in franchises expressly states that
the franchisee shall pay not only all taxes, except specific tax, under the National
Internal Revenue Code, but also all taxes under “other applicable laws,” one of
which is the Local Government Code which imposes the realty tax. (Ibid., bold facing
in the original)
The phrase “exclusive of this franchise” found in Digital’s franchise, which is
a phrase found in almost all legislative franchises dating from 1905 imposes taxes
does not exempt from real property tax. It is also the same provision that appears
in the legislative franchises of other telecommunications companies like Philippine
Long Distance Telephone Company, Smart Information Technologies, Inc., and
Globe Telecom. Since 1905, no telecommunications company has claimed
exemption from realty tax based on the phrase “exclusive of this franchise,” the
present case was filed on 3 July 1999.
To exempt one and not the others will make it stick out like a sore thumb,
being the only telecommunications company exempt from the real estate tax, in
mockery of the spirit of equality of treatment not to mention the violation of the
constitutional rule on uniformity of taxation.
Thus, it was held that RCPI’s radio relay station tower, radio station building,
and machinery shed are real properties and are subject to real property tax.
 The intent to grant realty tax exemption cannot be discerned from its
legislative franchise and neither from the legislative franchises of other
telecommunications companies. Tax exemptions granted to one or more, but not
to all, telecommunications companies similarly situated will violate the
constitutional rule on uniformity of taxation. (Ibid.)
i) Exemption of diplomatic premises from local
and real property taxes
What is the extent of the tax exemption from local and real property
taxes enjoyed by foreign diplomatic premises ? Explain briefly.
SUGGESTED ANSWER: The following is the extent of the tax exemption
from local and real property taxes enjoyed by foreign diplomatic premises:
1. The sending State and the head of the mission shall be exempt from all
national, regional or municipal dues and taxes in respect of the premises of the
mission, whether owned or leased, other than such as represent payment for
specific services rendered.
2. The exemption from taxation referred to in this Article shall not apply to
such dues and taxes payable under the law of the receiving State by persons
contracting with the sending State or the head of the mission. (1961 Vienna
Convention on Diplomatic Relations, Article 23)
j) Exemption from real property taxes of the
University of the Philippines.
***The University of the Philippines (U.P.) leased protions of its land
for the use of a private entity. Is U.P. subject to payment real property taxes
on the land leased ? Are the revenues derived by U.P. from the lease of its
properties subject to income tax ? Explain all your answers briefly and
concisely.
SUGGESTED ANSWER: U.P. is exempt from the payment of real property
taxes because it is a government instrumentality. “One source of UP's exemption
from tax comes from its character as a government instrumentality. Section 133(o)
of the Local Government Code states that, unless otherwise provided by the Code,
the exercise of taxing powers of the local government units shall not extend to levy
of taxes, fees or charges of any kind on government instrumentalities.” (University of
the Philippines v. City Treasurer of Quezon City, G.R. No. 214044, June 19, 2019)
ALTERNATIVE ANSWER: U.P. is exempt from the payment of real property
taxes because it is a government instrumentality. Unless otherwise provided by
the Local Government Code, the exercise of taxing powers of the local government
units shall not extend to levy of taxes, fees or charges of any kind on government
instrumentalities.” (University of the Philippines v. City Treasurer of Quezon City, G.R. No.
214044, June 19, 2019 citing Section 133 (o) of the LGC)
Despite its establishment as a body corporate, U.P. remains to be a “chartered
institution” performing a legitimate government function. It is an institution of higher learning,
not a corporation established for profit and declaring any dividends. In enacting The
University of the Philippines Charter of 2008, Congress has declared U.P. as the national
university “dedicated to the search for truth and knowledge as well as the development
of future leaders.”
“Irrefragably, the UP is a government instrumentality, performing the State's
constitutional mandate of promoting quality and accessible education.” (Ibid.)
U.P. is exempted from payment of taxes on its income derived from the lease
of its properties. More specifically, Republic Act No. 9500 (The University of the
Philippines Charter of 2008), provided that all of UP's “revenues and assets used for
educational purposes or in support thereof shall be exempt from all taxes and
duties. “ (Ibid.)
3. Collection of real property tax
State briefly the criteria to be applied in order to determine tax liability
under the law.
SUGGESTED ANSWER: The tax liability must be a liability that arises from
law, which the local government unit can rightfully and successfully enforce, not the
contractual liability that is enforceable only between the parties to a contract.
[National Power Corporation v. Province of Quezon and Municipality of Pagbilao, 611
SCRA 71 (2010)]
The phrase “person having legal interest in the property” in Section 226 of
the Local Government Code (LGC) can include an entity that assumes another
person’s tax liability by contract. (Ibid.)
a. Date of accrual of real property taxes and special levies
1) What is meant by accrual of real property taxes and special
levies ?
SUGGESTED ANSWER: Accrual of real property taxes and special levies
means the date when the real property taxes and special levies starts to be
computed.
 Accrual of taxes should not be confused with the concept of when the taxes What comprises the duty of the Assessor to furnish the local Treasurer
are due to be paid which means the date when taxes should be paid after which with the assessment roll ?
interests, penalties and surcharges shall be imposed. SUGGESTED ANSWER:
1. “The provincial, city or municipal assessor
2) When is the date for the accrual of real property taxes ? 2. shall prepare and submit to the treasurer of the local government
SUGGESTED ANSWER: “The real property tax for any year shall accrue on unit,
the first day of January xxx xxx.” (LGC, Sec. 246, paraphrasing supplied) 3. on or before the thirty-first (31st) day of December each year,
4. an assessment roll containing
2) When is the date for the accrual of the special levy ? Illustrate. a) a list of all persons whose real properties
SUGGESTED ANSWER: “The special levy shall accrue on the first day of b) have been newly assessed or re-assessed
the quarter next following the effectivity of the ordinance imposing such levy.” (LGC, c) and the values of such properties.” (LGC, Sec. 248,
Sec. 245) arrangement and numbering supplied)
For example, the ordinance imposing the special levy took effect on
February 15. The special levy would accrue on the quarter next following the iii. Notice of time for collection of taxes
effectivity. In the example, the special levy would accrue on April 1.
a. When should the notice of collection of tax be posted ?
b. Collection of taxes SUGGESTED ANSWER:
1. “The city or municipal treasurer
i. Collecting authority a) shall, on or before the thirty-first (31st) day of January each
year, in the case of
Who collects real property taxes ? 1) the basic real property tax
SUGGESTED ANSWER: 2) and the additional tax for the Special Education Fund
1. The collection of the real property tax with interest thereon and (SEF)
related expenses, b) or on any other date to be prescribed by the sanggunian
a) and the enforcement of the remedies provided for under concerned
the Local Government Code or any applicable laws, 1) in the case of any other tax levied” (LGC, Sec. 249, 1st
2. shall be the responsibility of the city or municipal treasurer sentence, paraphrasing, arrangement and numbering supplied) such as the
concerned.” (LGC, Sec. 247, 1st sentence, words in italics, arrangement and ad valorem tax on idle land.
numbering supplied)
“The city or municipal treasurer b. What should be posted and where should the posting be made ?
1. may deputize the barangay treasurer to collect all taxes on real SUGGESTED ANSWER: To be posted is
property located in the barangay: 1. the “notice of the dates when the tax may be paid without interest
2. Provided, That the barangay treasurer is properly bonded for the 2. at a conspicuous and publicly accessible place at the city or
purpose: municipal hall.” (LGC, Sec. 249, 1st sentence, paraphrasing, arrangement and
3. Provided, further, That the premium on the bond shall be paid by numbering supplied)
the city or municipal government concerned.” (LGC, Sec. 247, 2nd sentence,
arrangement and numbering supplied)
c. Aside from posting is there a publication requirement ?
ii. Duty of assessor to furnish local treasurer with SUGGESTED ANSWER: Yes. “Said notice
assessment rolls 1. shall likewise be published
2. in a newspaper of general circulation in the locality
 3. once a week for two (2) consecutive weeks.” (LGC, Sec. 249, a) is out of the country
2nd sentence, arrangement and numbering supplied) b) or otherwise cannot be located.” (LGC, Sec. 270, 4th
sentence, arrangement and numbering supplied)
c. Periods within which to collect real property taxes
d. Ka Tato owns a parcel of land in San Jose, Batangas declared for
Historical antecedent. The prescriptive period for the collection of real property tax real property taxation, as agricultural. In 1998, he used the land for a poultry
was the subject of a BEQ in 2011. feed processing plant but continued to declare the property as agricultural.
In March 2019, the local tax assessor discovered Ka Tato’s change of use of
** a. What is the general rule on the prescriptive period for the his land and informed the local treasurer who demanded payment of
collection of tax ? deficiency real property taxes from 1998 to 2019. Has the action prescribed ?
SUGGESTED ANSWER: (2011 MCQ converted into an essay question)
1. The basic real property tax and any other tax levied such as the SUGGESTED ANSWER: No. The deficiency taxes for the period 1998 up to
special education fund and the ad valorem tax 2019 may still be collected within 10 years from March 2019.
a) shall be collected within five (5) years This is so because there was fraudulent intent on the part of Ka Tato to
b) from the date they become due. evade payment of the tax. This is evident from the fact that he continued to
2. No action for the collection of the tax, declare the land as agricultural although he was already using the land for
a) whether administrative or judicial, industrial purposes.
b) shall be instituted after the expiration of such period. (LGC,
Sec. 270, 1st and 2nd sentences, arrangement and numbering supplied) d. Special rules on payment

b. Are there exceptions or instances when collection may be made i. Payment of real property taxes in installments
beyond five (5) years ?
SUGGESTED ANSWER: a. How may the basic real property tax, the special education fund,
1. “In case of fraud or intent to evade payment of the tax, the special levy be paid and the ad valorem taxon idle land ?
2. such action may be instituted for the collection of the same within SUGGESTED ANSWER:
ten (10) years 1. “The owner of the real property or the person having legal
3. from the discovery of such fraud or intent to evade payment.” interest therein
(LGC, Sec. 270, 3rd sentence, arrangement and numbering supplied) 2. may pay the basic real property tax and the additional tax for
Special Education Fund (SEF) due thereon
c. What are the events that suspend the prescriptive period within 3. without interest in four (4) equal installments;
which to collect ? a) the first installment to be due and payable on or before
SUGGESTED ANSWER: “The period of prescription within which to collect March Thirty-first (31st);
shall be suspended for the time during which: b) the second installment, on or before June Thirty (30);
1. The local treasurer is legally prevented from collecting the tax; c) the third installment, on or before September Thirty (30);
2. The owner of the property or the person having legal interest d) and the last installment on or before December Thirty-first
therein (31st).” (LGC, Art. 250, 1st sentence, paraphrasing, arrangement and
a) requests for reinvestigation numbering supplied)
b) and executes a waiver in writing 4. There is no installment payment for the special levy
c) before the expiration of the period within which to collect; a) the payment of which shall be governed by ordinance of the
and sanggunian concerned. (Ibid.)
3. The owner of the property or the person having legal interest
therein
 5. The date for the payment of the ad valorem tax on idle land c. Is there any limitation on interest collectred for unpaid real
without interest property taxes ?
a) shall be prescribed by the sanggunian concerned.” (Ibid., SUGGESTED ANSWER: Yes.
Art. 250, 2nd sentence, arrangement and numbering supplied) 1. In “no case shall the total interest on the unpaid tax or portion
thereof
b. To what should payments of real property taxes be applied ? 2. exceed thirty-six (36) months.” (LGC, Sec. 255, paraphrasing,
SUGGESTED ANSWER: “Payments of real property taxes arrangement and numbering supplied)
1. shall first be applied to prior years delinquencies, interests, and
penalties, if any, iii. Condonation of real property taxes
2. and only after said delinquencies are settled
a) may tax payments be credited for the current period. ” a. Where is the authority to condone real property tax lodged ?
(LGC, Art. 250, 3rd sentence, arrangement and numbering supplied) SUGGESTED ANSWER: The authority to condone or reduce real property
taxes and interest prior to payment is lodged with:
c. When is there a tax discount for advanced prompt payment ? 1. The local Sanggunian; or
SUGGESTED ANSWER: 2. the President of the Philippines.
1. If the basic real property tax and the tax accruing to the Special
Education Fund (SEF) b. What is the procedure and grounds for the condonation or
2. are paid in advance before the periods, provided by law reduction of real property tax and interest by the local Sanggunian ?
3. the sanggunian concerned may grant a discount SUGGESTED ANSWER: The “sanggunian concerned,
a) not exceeding twenty percent (20%) of the annual tax due.” 1. by ordinance passed
(LGC, Sec. 251, arrangement and numbering supplied) a) prior to the first (1st) day of January of any year
b) and upon recommendation of the Local Disaster
ii. Interests on unpaid real property taxes Coordinating Council,
2. may condone or reduce, wholly or partially,
a. When is the interest due on unpaid real property taxes ? a) the taxes and interest thereon
SUGGESTED ANSWER: b) for the succeeding year or years in the city or municipality
1. In case of failure to pay the basic real property tax or any other affected by the calamity.” (LGC, Sec. 276, paraphrasing, arrangement and
tax levied such as the special education fund or the ad valorem tax on idle numbering supplied)
land The real property tax and interest may be condoned or reduced by
2. upon the expiration of the periods for payment of the tax in the local Sanggunian, in “case of
installments, or when due, as the case may be, a) a general failure of crops
3. shall subject the taxpayer to the payment of interest..” (LGC, Sec. b) or substantial decrease in the price of agricultural or
255, paraphrasing, arrangement and numbering supplied) agribased products,
c) or calamity in any province, city, or municipality.” (Ibid., Sec.
b. What is the rate of interest for unpaid real property taxes ? 276, paraphrasing, arrangement and numbering supplied)
SUGGESTED ANSWER: The interest is
1. “at the rate of two percent (2%) per month on the unpaid amount c. On what grounds may the President of the Philippines condone or
or a fraction thereof, reduce of real property taxes and interest ? Give an instance when the
2. until the delinquent tax shall have been fully paid:” (LGC, Sec. President exercised his power to condone or reduce real property taxes and
255, paraphrasing, arrangement and numbering supplied) interests.
SUGGESTED ANSWER: “The President of the Philippines may,
1. when public interest so requires,
 2. condone or reduce the real property tax and interest for any year
3. in any province or city or a municipality within the Metropolitan
Manila Area.” (LGC, Sec. 277, arrangement and numbering supplied) ***1) When is protest required under R.A. No. 7160, the Local
The President of the Philippines condoned and reduced the real Government Code ? Illustrate.
property taxes liabilities of Independent Power Producers (IPPs). SUGGESTED ANSWER: The protest contemplated under Republic Act
a) All liabilities No. 7160 is required where there is a question of reasonableness of the amount
1) for real property tax assessed, not when the question raised is on the very authority and power of the
2) on property, machinery and equipment (including any assessor to impose the assessment and of the treasurer to collect the tax. (Ty v.
special levies accruing to the Special Education Fund) Trampe, 250 SCRA 500)
3) actually and directly used by IPPs for the production A claim for exemption from the payment of real property taxes does not
of electricity actually question the assessor's authority to assess and collect such taxes, but
(a) under Build-Operate-Transfer contracts pertains to the reasonableness or correctness of the assessment by the local
(whether denominated Power Purchase Agreements, assessor, a question of fact which should be resolved, at the very first instance, by
Energy Conversion Agreements the LBAA. (National Power Corporation v. The Provincial Treasurer of Benguet, et al., G.R.
(b) or other contractual agreements) with GOCCs, No. 209303, November 14, 2016)
b) assessed by LGUs and other entities authorized to impose “Section 206 of the LGC categorically provides that every person by or for
real property tax, for all years up to 2014, whom real property is declared, who shall claim exemption from payment of real
c) are hereby reduced property taxes imposed against said property, shall file with the provincial, city or
1) to an amount equivalent to the tax due municipal assessor sufficient documentary evidence in support of such claim. The
2) if computed based burden of proving exemption from local taxation is upon whom the subject real
(a) on an assessment level of fifteen percent (15%) property is declared. By providing that real property not declared and proved as
of the fair market value of said property, machinery and tax-exempt shall be included in the assessment roll, the above quoted provision
equipment implies that the local assessor has the authority to assess the property for realty
(b) depreciated at the rate of two percent (2%) per taxes, and any subsequent claim for exemption shall be allowed only when
annum, sufficient proof has been adduced supporting the claim. Thus, if the property
3) less any amounts already paid by the IPPs. being taxed has not been dropped from the assessment roll, taxes must be
d) All fines, penalties and interests on such deficiency real paid under protest if the exemption from taxation is insisted upon.” (Ibid., bold
property tax liabilities facing in the original)
WARNING !!! Do not bold face any phrases when answering Bar questions.
1) are also hereby condoned
2) and the concerned IPPs are relieved from payment
thereof. (Exec. Order No. 173-s.2014, October 31, 2014, Sec. 1,
arrangement and numbering supplied)
***2) What is the procedure for questioning the excessiveness or
reasonableness of the assessment of real property ?
SUGGESTED ANSWER: Settled is the rule that should the taxpayer/real
4. Taxpayer’s remedies property owner question the excessiveness or reasonableness of the assessment,
the taxpayer should first pay the tax due before his protest can be entertained,
a. Contesting an assessment thus, ““No protest shall be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under protest". The
i. Payment under protest protest in writing must be filed within thirty (30) days from payment of the tax
to the provincial, city treasurer, or municipal treasurer, in the case of a municipality
Historical antecedents. Payment under protest was the subject of BEQs in 1991, within Metropolitan Area, who shall decide the protest within sixty (60) days from
2014 and 2018.
receipt.” [National Power Corporation v. The Provincial Treasurer of Benguet, et al., G.R.
No. 209303, November 14, 2016, bold facinfg in the original, citing LGC, Sec. 252 (a)
In the event that the protest is finally decided in favor of the taxpayer, the
amount or portion of the tax protested shall be refunded to the protestant, or
applied as tax credits against his existing or future tax liability. [Ibid., Sec. 252 (c)] In
the alternative, there may subsequent adjustment (Ibid., Sec. 231) of the taxes paid
under protest.
In the event that the protest is denied or upon the lapse of the sixty-day
period prescribed in subparagraph (a), the taxpayer may avail of the remedies” of
appealing to the Local Board of Assessment Appeals (LBAA) thence to the Central
Board of Assessment Appeals. [Ibid., Sec. 252 (d)]
The adverse decision of the Local Board of Assessment Appeals (LBAA)
may be appealed to the Central Board of Assessment Appeals (CBAA) within thirty
(30) days from receipt of such denial.
The adverse decision of the Central Board of Assessment Appeals
(CBAA) may be appealed to the Court of Tax Appeals (en banc) within thirty (30)
days from receipt of said adverse decision. (R.A. No. 1125, Sec. 7.a.5 as amended by
R.A. No. 9282)
The decision of the Court of Tax Appeals (en banc) may be the subject of a
verified petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure on pure questions of law directed to the Supreme Court within fifteen
(15) days from receipt of the adverse decision of the Court of Tax Appeals (en
banc). This period is extendible by thirty (30) days. (Ibid., Sec. 19, as amended by
R.A. No. 9282)
***3) What is the rationale for payment under protest ?
SUGGESTED ANSWER: The “restriction upon the power of courts to
impeach tax assessment without a prior payment, under protest, of the taxes
assessed is consistent with the doctrine that taxes are the lifeblood of the nation
and as such their collection cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government unit, shall be crippled in
dispensing the needed services to the people, and its machinery gravely disabled.”
(Manila Electric Company v. Barlis, etc., et al., G. R. No. 114231, May 18, 2001) “The right
of local government units to collect taxes due must always be upheld to avoid
severe erosion. This consideration is consistent with the State policy to guarantee
the autonomy of local governments and the objective of RA No. 7160 or the LGC of
1991 that they enjoy genuine and meaningful local autonomy to empower them to
achieve their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals.” (National Power Corporation v.
The Provincial Treasurer of Benguet, et al., G.R. No. 209303, November 14, 2016)
.
***4) When is payment under protest not required in order to
apply for a refund ?
SUGGESTED ANSWER: The protest under the Local Government Code,
Sec. 252 is not a requirement in order that a taxpayer who paid under the mistaken
belief that is required by law, may claim for refund. A taxpayer should not be held
to suffer lost by his good intention to comply with what he believes is his legal
obligation where such obligation does not really exist.
The fact that a taxpayer paid the tax thru error or mistake and the
government accepted the payment gave rise to the application of the principle of
solutio indebiti. This is a quasi-contract where the claim for refund must be
commenced with six (6) years from date of payment . (National Development
Company v. Cebu City, 215 SCRA 382, 395-39)
***5) In view of the street widening and cementing of roads and
the improvement of drainage and sewers in the district of Ermita, the City
Council of the City of Manila passed an ordinance imposing and collecting a
special levy on lands in the district. Jose Reyes, a landowner and resident of
Ermita, submitted a protest against the special levy fifteen (15) days after the
last publication of the ordinance alleging that the maximum rate of sixty
percent (60%) of actual cost of the project allowed under Sec. 240 of the
Local Government Code was exceeded.
Assuming that Jose Reyes is able to prove that the rate of special levy is
more than the aforesaid percentage limitation, will his protest prosper ?
(1991, reworded)
SUGGESTED ANSWER: No. The protest will not prosper. “No protest shall
be entertained unless the taxpayer first pays the tax.” [LGC, Sec. 252 (a), 1st sentence]
The requirement is consistent with the doctrine that taxes are the lifeblood
of the nation, and as such their collection cannot be curtailed by injunction or any
like action; otherwise, the state or, in this case, the local government unit, shall be
crippled in dispensing the needed services to the people, and its machinery gravely
disabled. (Manila Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
***6) In 2015, Kerwin bought a three-story house and lot in
Kidapawan, North Cotabato. The property has a floor area of 600 sq.m. and is
located inside a gated subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
In 2016, Kerwin started using the property in his business of
manufacturing garments for export. The entire ground floor is now occupied
by state-of-the-art sewing machines and other equipment, while the second
floor is used as offices. The third floor is retained by Kerwin as his family's
residence. Kerwin's neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the Kidapawan City Hall.
Upon inspection, the local government discovered that the property was
being utilized for commercial use. Immediately, the Kidapawan Assessor
reclassified the property as commercial with an assessment level of 50%
effective January 2017, and assessed Kerwin back taxes and interest. Kerwin
claims that only 2/3 of the building was used for commercial purposes since
the third floor remained as family residence. He argues that the property
should have been classified as partly commercial and partly residential.
xxx xxx xxx xxx
(c) If Kerwin wants to file an administrative protest against the
assessment, is he required to pay the assessment taxes first ? xxx
xxx xxx (2018)
SUGGESTED ANSWER: Yes. Kerwin’s protest shall not be entertained
unless he first pays the tax.” [LGC, Sec. 252 (a), 1st sentence]
The requirement is consistent with the doctrine that taxes are the lifeblood
of the nation, and as such their collection cannot be curtailed by injunction or any
like action; otherwise, the state or, in this case, the local government unit, shall be
crippled in dispensing the needed services to the people, and its machinery gravely
disabled. (Manila Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
ii. File protest with treasurer
Historical antecedent. To whom the protest should be filed payment was the
subject of a BEQ in 2018..
***In 2015, Kerwin bought a three-story house and lot in Kidapawan,
North Cotabato. The property has a floor area of 600 sq.m. and is located
inside a gated subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
In 2016, Kerwin started using the property in his business of
manufacturing garments for export. The entire ground floor is now occupied
by state-of-the-art sewing machines and other equipment, while the second
floor is used as offices. The third floor is retained by Kerwin as his family's
residence. Kerwin's neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the Kidapawan City Hall.
Upon inspection, the local government discovered that the property was
being utilized for commercial use. Immediately, the Kidapawan Assessor
reclassified the property as commercial with an assessment level of 50%
effective January 2017, and assessed Kerwin back taxes and interest. Kerwin
claims that only 2/3 of the building was used for commercial purposes since
the third floor remained as family residence. He argues that the property
should have been classified as partly commercial and partly residential.
xxx xxx xxx xxx
(c) xxx xxx With whom shall the protest be
filed and within what period ? (2018)
SUGGESTED ANSWER: The protest in writing must be filed within thirty
(30) days from payment of the tax to the provincial, city treasurer, or municipal
treasurer, in the case of a municipality within Metropolitan Area, who shall decide
the protest within sixty (60) days from receipt . [LGC, Sec. 252 cited in National Power
Corporation v. The Provincial Treasurer of Benguet, et al., G.R. No. 209303, November 14, 2016,
iii. Refunds or credits of real property taxes
Historical antecedent. No actual repayment of excessive collections was the
subject of a BEQ in 2011.
As a result of an erroneous or illegal assessment by the provincial or
city assessor. What should be done in such instance to avoid an injustice ?
(2011 MCQ converted into an essay question)
SUGGESTED ANSWER: The taxpayer has the option of either filing for a
refund or appeal the assessment administratively and if the administrative appeal
fails, the judicial remedies. If the court agrees with the taxpayer there may either
be a refund (LGC, Sec. 253) or a “subsequent adjustment depending upon the final
outcome of the appeal.” (Ibid., Sec. 231)
iv. Solutio indebiti
Historical antecedents. Solutio indebIti was the subject of BEQs in 1975, 1980,
and 1985.
**a. What is the procedure for a claim for the refund of real property
taxes based on solutio indebiti and NOT upon the invalidity of the tax
measure or excesive collection ? Illustrate.
SUGGESTED ANSWER:
1. The claim for refund must be directed to the local treasurer,
within six (6) years from the date the taxpayer is entitled to a reduction or
adjustment, who must decide within sixty (60) days from receipt. Payment
 under protest is not required. The reckoning date for the six (6) year period
is from the time of the discovery of the mistaken payment or solutio indebiti.
(National Development Company v. Cebu City, 215 SCRA 382, 395-39 citing
Ramie Textiles, Inc. v. Mathay, Sr. 89 SCRA 586)
2. The review of the denial by the local treasurer of the claim would
fall within the Regional Trial Court’s original jurisdiction, the review being the
initial judicial cognizance of the matter.
3. The decision of the Regional Trial Court should be appealed by
means of a petition for review directed to the Court of Tax Appeals (Division)
within thirty (30) days from receipt of the RTC’s adverse decision.
4. The decision of the Court of Tax Appeals (Division) may be the
subject of a review by the Court of Tax Appeals (en banc).
5. The decision of the Court of Tax Appeals (en banc) may be the
subject of a petition for review on certiorari on pure questions of law directed
to the Supreme Court within fifteen (15) days from receipt of the adverse
decision of the Court of Tax Appeals (en banc). This period is extendible by
thirty (30) days.
Cainta must return the taxes erroneously paid by Uniwide. “Cainta, on the
other hand, is obligated to return the taxes erroneously paid to it by Uniwide
pursuant to the principle against unjust enrichment.” (Municipality of Cainta v. City of
Pasig, et al., G.R. No. 176703, and companion cases June 28, 2017)
“The principle of unjust enrichment has two conditions. First, a person must
have been benefited without a real or valid basis or justification. Second, the
benefit was derived at another person's expense or damage.” (Ibid.)
“As previously discussed, prior to final adjudication by the RTC Antipolo on
the boundary dispute case and necessary amendment to theTCTs, Cainta has no
apparent right to collect the taxes on the subject properties. Thus, when Uniwide
paid taxes to it, Cainta was benefited without real or valid basis, which benefit was
derived at the expense of both Uniwide and Pasig.” (Ibid.)
** b. A taxpayer who overpaid a real property taxes to the City of
Manila sought by legal action the recovery of the excess payment on the
theory that the payment and receipt of money under a mutual mistake of fact
gave use to an obligation to return the mistaken payment under the doctrine
of quasi-contracts. Is such an argument sound and sustainable ? Why ?
(1975)
SUGGESTED ANSWER: Yes. The argument is sound and sustainable
because the government should not unjustly enrich itself at the expense of the
taxpayer.
**c. During the first five years of its operation, or up to 2018, a
domestic manufacturing corporation paid voluntary real estate taxes on its
plant machinery and equipment. Realizing later that it did not have to do so
since machineries are exempt from realty taxes, it being registered under the
Board of Investments, the company filed a claim for refund in 2019. The
claim was denied by the Provincial Treasurer on the ground that payment of
the real estate taxes was made voluntarily without protest.
1) Under the facts, is protest a condition precedent for the company
to file a claim for refund ? (1980, dates and renumbering supplied)
SUGGESTED ANSWER: No, since the payment was made through mistake
under solutio indebIti.
2) Under what principle of law may taxes paid through error be
recovered ? (1980, dates and renumbering supplied)
SUGGESTED ANSWERS: Through the principle of solutio indebiti, that no
one should unjustly enrich himself at the expense of another.
d. AB, by mistake, overpaid the real estate taxes he has to pay Baguio
City. He would now like to recover the excess payment and receipt of the
excess tax due to mutual mistake giving rise to an obligation to return under
the doctrine of quasi-contract. Conferring with the city authorities of Baguio,
he was assured that no opposition would be filed to his suit to recover. On
the basis of the foregoing facts, will AB’s recovery suit prosper? Discuss.
(1985)
SUGGESTED ANSWER: No. He has failed to exhaust his administrative
remedies by applying for a refund or credit with the Local Treasurer.
b. Contesting a valuation of real property
i. Appeal to the Local Board of Assessment Appeals
(LBAA)
Historical antecedents. Appeal to the Local Board of Assessment Appeals was the
subject of BEQs in 1966, 1974, 1978, 1979, 1982, 1988, 1993, 2012, and 2014.
*** a. State briefly the procedure to be followed in appealing a real
property assessment. (1982)
SUGGESTED ANSWER: The procedure for appealing or contesting an
assessment of real property.
 1) Within thirty (30) days from revision of the assessment, the
assessor furnishes the declarant a copy of the new or revised assessment.
(LGC, Sec. 223)
2) Within sixty (60) days from receipt of the new or revised
assessment the dissatisfied owner appeals to the Local Board of
Assessment Appeals (LBAA)
a) under oath with
b) copies of tax declaration and evidence (Ibid., Sec. 226).
3) Within thirty (30) days from receipt of the LBAA’s adverse
decision, the dissatisfied property owner appeals to the Central Board of
Assessment Appeals (CBAA) whose decision are final and executory. (Ibid.,
Sec. 229)
4) Within thirty (30) days from receipt of the CBAA's adverse
decision, the dissatisfied property owner may appeal to the Court of Tax
Appeals (en banc), by filing a verified petition for review. (Rep. Act No. 1125,
Sec. 11, as amended by Rep. Act No. 9282)
5) An adverse decision of the Court of Tax Appeals (en banc) may
be the subject of a motion for reconsideration within fifteen (15) days from
receipt of the judgment. If the motion for reconsideration filed with the Court of
Tax Appeals (en banc) is unavailing, the demial is appealed to the Supreme
Court within fifteen (15) days from the receipt of the denial of the motion for
reconsideration through a verified petition for review on certiorari raising only
questions of law. (Rep. Act No. 9282, Sec. 19)
On motion duly filed and served, and the full payment of the docket and
other lawful fees before the reglementary period, the Supreme Court may for
justifiable reasons grant an extension of thirty (30) days only within which to file
the petition. (ROC, Rule 45, Sec. 2)
*** b. What is the jurisdiction of the Local Board of Assessment
Appeals (LBAA) ?
SUGGESTED ANSWER: The Local Board of Assessment Appeals
(LBAA) has jurisdiction to
1. hear appeals of owners or persons
2. having legal interest in a property
3. who are not satisfied with the action of the assessor on an
assessment. (LGC, Sec. 227)
***c. To whon should the initial appeal of an adverse action of the
assessor on the assessment of property be filed ?
SUGGESTED ANSWER: The appeal should be filed wiht the Local Board of
Assessment Appeals (LBAA). “Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal
assessor in the assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the Board of
Assessment Appeals of the province or city by filing a petition under oath in the
form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.” (LGC, Sec. 226,
arrangement and numbering supplied)
A notice of assessment issued by a local assessor is not the subject of a
motion for reconsideration before it may be appealed to the LBAA. The last action
of the local assessor on a particular assessment shall be the notice of assessment.
It is this last action which gives the owner of the property the right to appeal to the
LBAA. The procedure does not permit the property owner the remedy of filing a
motion for reconsideration before the local assessor. (FELS Energy, Inc., v. Province of
Batangas, and companion case, G. R. No. 168557, February 16, 2007)
Rationale: To allow a motion for reconsideration would open the gates to
graft and corruption. Nothing prevents the assessor from making a high
assessment and after an illegal consideration is given would reduce the same.
(Ibid.)
***
d. What is the criteria to determine whether the review of the
denial of the local treasurer of the protest should be brought to the Local
Board of Assessment Appeals (LBAA) for review or direct to the court of
competent jurisdiction ? Illustrate,
SUGGESTED ANSWER:
1) Where the matter is one of the recognized exceptions to the rule
on exhaustion such as if the issue is purely legal in character which is so in
this case. (The City Government of Quezon City, et al., v. Bayan
Telecommunications, Inc., G. R. No. 162015, March 6, 2006)
2) Where there is no need to exhaust administrative remedies as
the appeal to the LBAA is not a speedy and adequate remedy within the law
because the properties are already scheduled for auction sale. (Ibid.)
3) If there is no dispute with respect to the amount assessed, but
the issue is whether the tax is to be imposed, then the applicant for refund
should file a suit for refund before the proper court. There is no need for a
recourse to the Local Board of Assessment Appeals, and the Central Board
of Assessment Appeals. (Testate Estate of Concordia T. Lim v. City of Manila, et
al., G. R. No. 90639, February 21, 1990)
4) Where an assessment is illegal and void, the remedy of a
taxpayer, who has already paid the realty tax under protest, is to sue for
 refund in the competent court of first instance (now regional trial court).
(Victorias Milling Co., Inc., v .Court of Tax Appeals, 22 SCRA 1008)
“In disputes involving real property taxation, the general rule is to
require the taxpayer to first avail of administrative remedies and pay the tax
under protest before allowing any resort to a judicial action, except when the
assessment itself is alleged to be illegal or is made without legal authority.”
(Capitol Wireless, Inc. v. The Provincial Treasurer of Batangas, et al., G.R. No.
180110, May 30, 2016)
“
For example, prior resort to administrative action is required when
among the issues raised is an allegedly erroneous assessment, like when the
reasonableness of the amount is challenged, while direct court action is
permitted when only the legality, power, validity or authority of the
assessment itself is in question.” (Ibid.)
“Stated differently, the general rule of a prerequisite recourse to
administrative remedies applies when questions of fact are raised, but the
exception of direct court action is allowed when purely questions of law are
involved.” (Ibid.)
5) On the other hand, where the assessment is merely erroneous,
the taxpayer’s recourse is to file an appeal in the Provincial Board of
Assessment Appeals within 60 days from receipt of the assessment.”
(Victorias Milling Co., Inc., supra)
A telecommunications company was granted by Congress on July 20, 1992,
after the effectivity of the Local Government Code on January 1, 1992, a legislative
franchise with tax exemption privileges which partly reads, “The grantee, its
successors or assigns shall be liable to pay the same taxes on their real estate,
buildings and personal property, exclusive of this franchise, as other persons or
corporations are now or hereafter may be required by law to pay.” This provision
existed in the company’s franchise prior to the effectivity of the Local Government
Code. A City then enacted an ordinance in 1993 imposing a real property on all
real properties located within the city limits, and withdrawing all tax exemptions
previously granted. Among properties covered are those owned by the company
from which the City is now collecting P43 million. The properties of the company
were then scheduled by the City for sale at public auction.
The company then filed a petition for the issuance of a writ of prohibition
claiming exemption under its legislative franchise. The City defended its position
raising the following:
1) There was no exhaustion of administrative remedies because the
matter should have first been filed before the Local Board of Assessment
Appeals.
2) The company’s properties are not exempt from tax under its
franchise.
HELD:
1) There is no need to exhaust administrative remedies as the
appeal to the LBAA is not a speedy and adequate remedy within the law.
This is so because the properties are already scheduled for auction sale.
Furthermore, one of the recognized exceptions to the rule on
exhaustion is that if the issue is purely legal in character which is so in this
case.
2) The grant of taxing powers to local governments under the
Constitution and the Local Government Code does not affect the power of
Congress to grant tax exemptions. (The City Government of Quezon City, et
al., v. Bayan Telecommunications, Inc., G. R. No. 162015, March 6, 2006)
e. Who may appeal the assessment made by the provincial, city or
municipal assessor ?
SUGGESTED ANSWER: The two entities vested with the personality to
contest an assessment are:
1) The owner of real property who is
a) the registrant shown on the Original (OCT) or Transfer
Certificate of Title (TCT), the Condominium Certificate of Title (CCT), or
other evidence of ownership;
b) The declared owner shown on the face of theTax
Declaration. (National Power Corporation v. Province of Quezon, et al., G. R.
No. 171586, July 15, 2009)
Exception or instance where the owner may not be held liable for
the real property tax hence the owner may not appeal. “However,
personal liability for realty taxes may also expressly rest on the entity
with the beneficial use of the real property, such as the tax on property
owned by the government but leased to private persons or entities, or
when the tax assessment is made on the basis of the actual use of the
property.” (Ibid.)
“In either case, the unpaid realty tax attaches to the property but
is directly chargeable against the taxable person who has actual and
beneficial use and possession of the property regardless of whether or
not that person is the owner.” (Ibid.)
2) and the person with legal interest in the property. A person
legally burdened with the obligation to pay for the tax imposed on a property
has legal interest in the property and the personality to protest a tax
assessment on the property. (Ibid.)
f. What is the mode of appeal to the local Board of Assessment
Appeals (LBAA) ?
SUGGESTED ANSWER:
1) A petition under oath in the form prescribed for the purpose,
 2) together with
a) copies of the tax declarations
b) and such affidavits or documents submitted in support of
the appeal. (LGC, Sec. 226, paraphrasing, arrangement and numbering
supplied)
g. When is the period within which to appeal to the Local Board of
Assessment Appeals (LBAA) ?
SUGGESTED ANSWER: Within sixty (60) days from the date of receipt of
the written notice of assessment made by the provincial, city or municipal assessor.
(LGC, Sec. 226, paraphrasing supplied)
h. To whom the appeal should be directed.
SUGGESTED ANSWER: The appeal should be made to the Board of
Assessment Appeals of the province or city (the Local Board of Assessment
Appeals). (LGC, Sec. 226, paraphrasing supplied)
i. What is the effect of failure to appeal the assessor’s decision to
the Local Board of Assessment Appeals (LBAA) ?
SUGGESTED ANSWER: A taxpayer's failure to question the assessment
before the LBAA renders the assessment of the local assessor final, executory,
and demandable, thus precluding the taxpayer from questioning the correctness of
the assessment, or from invoking any defense that would reopen the question of its
liability on the merits. (National Power Corporation v. Province of Quezon, et al., G. R. No.
171586, July 15, 2009 citing FELS Energy, Inc. v. Province of Batangas, G.R. No. 168557, February
16, 2007, 516 SCRA 186)
j. What is the effect of appeal on the collection of taxes ?
SUGGESTED ANSWER: “An appeal shall not suspend the collection of the
corresponding realty taxes on the real property subject of the appeal as assessed
by the Provincial, City or Municipal Assessor, without prejudice to the subsequent
adjustment depending upon the outcome of the appeal. An appeal may be
entertained but the hearing thereof shall be deferred until the corresponding
taxes due on the real property subject of the appeal shall have been paid
under protest or the petitioner shall have given a surety bond, subject to the
following conditions:
c (1) the amount of the bond must not be less than the total realty
taxes and penalties due as assessed by the assessor nor more than double
said amount;
(2) the bond must be accompanied by a certification from the
Insurance Commissioner (a) that the surety is duly authorized to issue such
bond; (a) that the surety bond is approved by and registered with said
Commission; and (c) that the amount covered by the surety bond is within the
writing capacity of the surety company; and cralawlawlibrary
(3) the amount of the bond in excess of the surety company's writing
capacity, if any, must be covered by Reinsurance Binder, in which case, a
certification to this effect must likewise accompany the surety bond.” (Rule V
of the Rules of  Procedure of the LBAA, Rule V. Sec. 7, emphasis supplied)
k. What is the action to be taken by the Local Board of Assessment
Appeals (LBAA) on the appeal ?
“(a) The Board shall decide the appeal within one hundred twenty
(120) days from the date of receipt of such appeal. The Board, after hearing,
shall render its decision based on substantial evidence or such relevant
evidence on record as a reasonable mind might accept as adequate to
support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have
the power to summon witnesses, administer oaths, conduct ocular
inspection, take depositions, and issue subpoena and subpoena duces
tecum. The proceedings of the Board shall be conducted solely for the
purpose of ascertaining the facts without necessarily adhering to technical
rules applicable in judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property
or the person having legal interest therein and the provincial or city assessor
with a copy of the decision of the Board. In case the provincial or city
assessor concurs in the revision or the assessment, it shall be his duty to
notify the owner of the property or the person having legal interest therein of
such fact using the form prescribed for the purpose. The owner of the
property or the person having legal interest therein or the assessor who is not
satisfied with the decision of the Board, may, within thirty (30) days after
receipt of the decision of said Board, appeal to the Central Board of
Assessment appeals, as herein provided. The decision of the Central Board
shall be final and executory.” (LGC, Sec. 229, arrangement and numbering
supplied)
It is evident in jurisprudence that the filing of motion for reconsideration
before the LBAA is allowed. (National Power Corporation v. The Provincial Treasurer of
Benguet, et al., G.R. No. 209303, November 14, 2016)
***l. A made a sworn declaration of his real property to have a value
of P100.00 per square meter. The City assessed the same property at P50.00
per square meter. What is the remedy of A if he would like to maintain his
declared value ? (1978, adapted and rearranged)
SUGGESTED ANSWER:
 1. Within sixty (60) days from receipt of the new or revised
assessment, A, the dissatisfied owner, appeals to the Local Board of
Assessment Appeals (LBAA)
1) under oath with
2) copies of tax declaration and evidence (LGC, Sec. 226).
2. Within thirty (30) days from receipt of the LBAA’s adverse
decision, A appeals to the Central Board of Assessment Appeals (CBAA)
whose decision are final and executory. (Ibid., Sec. 229)
3. Within thirty (30) days from receipt of the CBAA's adverse
decision, A may appeal to the Court of Tax Appeals (en banc), by filing a
verified petition for review. (R. A. No. 1125, Sec. 11, as amended by R.A. No.
9282)
4. An adverse decision of the Court of Tax Appeals (en banc) may
be the subject of a motion for reconsideration filed by A within fifteen (15)
days from receipt of the judgment. If the motion for reconsideration filed with
the Court of Tax Appeals (en banc) is unavailing, the denial is appealed to
the Supreme Court within fifteen (15) days from the receipt of the denial of
the motion for reconsideration through a verified petition for review on
certiorari raising only questions of law. (R. A. No. 9282, Sec. 19)
On motion duly filed and served, and the full payment of the docket and
other lawful fees before the reglementary period, the Supreme Court may for
justifiable reasons grant an extension of thirty (30) days only within which to
file the petition. (ROC, Rule 45, Sec. 2)
*** m. The PHILCORP, as part of its expansion program, erected two
office buildings, two factories, and three warehouses, all located in
Paranaque, Metro Manila, which were all finished and fully occupied on
January 3, 2019. On January 31, 2019, PHILCORP, received a notice from the
Municipal Treasurer of Paranaque, dated Jan. 20, 2019 demanding payment
of the 2019 real property tax on the mentioned structures, according to the
revised tax declaration prepared by the Office of the Municipal Assessor of
Paranaque. As counsel of PHILCORP, what would you advise your client ?
Explain. (1988, dates supplied)
SUGGESTED ANSWER: I would advise PHILCORP to file a case before the
Regional Trial Court of Paranaque questioning the validity of the assessment on a
pure question of law to determine whether the 2019 real property tax is due on
January 20, 2019.
Direct court action is allowed when purely questions of law are involved .
[Capitol Wireless, Inc. v. The Provincial Treasurer of Batangas, et al., G.R. No. 180110,
May 30, 2016)
***n. On February 13, 2000, X obtained a loan of P800,000.00 from
the GSIS secured by the mortgage of a parcel of land including its
improvements. X failed to pay the loan. The lot was foreclosed and sold at
public auction to the GSIS as the highest bidder. X failed to redeem the lot
and the GSIS consolidated its title to the lot in 2016. In 2018, however, the
GSIS allowed X to repurchase the lot.
After assessment by the City Assessor, the City Treasurer of Manila
required X to pay the real estate taxes due on the lot for the years 2016 and
2017. On September 5, 2018, X sent a demand letter to the City Treasurer for
refund. The demand was refused.
X then filed with the Regional Trial Court a complaint against the City of
Manila for a “sum of money and/or recovery of real estate taxes paid under
protest.” The City questioned the jurisdiction of the Court. Decide. (1993,
dates supplied)
SUGGESTED ANSWER: The City is wrong. The Regional Trial Court has
jurisdiction because the issue of whether X, and not GSIS, should pay for the years
2016 and 2017 involves a pure question of law.
“(P)rior resort to administrative action is required when among the issues
raised is an allegedly erroneous assessment, like when the reasonableness of the
amount is challenged, while direct court action is permitted when only the legality,
power, validity or authority of the assessment itself is in question.” (Capitol Wireless,
Inc. v. The Provincial Treasurer of Batangas, et al., G.R. No. 180110, May 30, 2016)
“Stated differently, the general rule of a prerequisite recourse to
administrative remedies applies when questions of fact are raised, but the
exception of direct court action is allowed when purely questions of law are
involved.” [Ibid., citing National Power Corporation v. Municipal Government of Navotas, G.R. No.
192300, November 24, 2014, quoting Ty v. Hon. Trampe, 321 Phil. 81, 88 (1995)]
***o. Madam X owns real property in Caloocan City. On July 1,
2016, she received a notice of assessment from the City Assessor, informing
her of a deficiency tax on her property. She wants to contest the
assessment.
(A) What are the administrative remedies available to Madam X
in order to contest the assessment and their respective prescriptive
periods ? (2014, date and paraphrasing supplied)
SUGGESTED ANSWER: The administrative remedies available to Madam X
in order to contest the assessment, because of an allegedly erroneous
assessment, like when the reasonableness of the amount is challenged, and their
respective prescriptive periods are:
 a. She should pay the deficiency tax being collected. [LGC, Sec. 252
(a), 1st sentence]
b. She should protest the payment by havng annotated on the tax
receipts the words "paid under protest". [Ibid., 2nd sentence]
If Madam X did not made a protest at the time of payment she must
protest in writing which must be filed, within thirty (30) days from payment of
the tax, to the Caloocan City Treasurer who shall decide the protest within
sixty (60) days from receipt. [Ibid., 3rd sentence, paraphrasing supplied]
c. “In the event that the protest is denied or upon the lapse of the
sixty day period within which the Caloocan City Treasurer should decide,
without any decision [LGC, Sec. 252 (d), words in parentheses, arrangement and
numbering supplied) Madam X may appeal by filing a petition under oath
directed to the Caloocan City Board of Assessment Appeals. (Ibid., in relation to
Sec.226)
The Caloocan City Board of Assessment Appeals has 210 days from
receipt of Madam X’s appeal within which to decide the same. (Ibid., Sec. 229,
st
1 sentence)
d. Within thirty (30) days from receipt of the Caloocan City Board of
Assessment Appeals’ adverse decision, Madam X appeals to the Central
Board of Assessment Appeals (CBAA) whose decision are final and
executory. [Ibid., Sec. 229 (c)]
e. Within thirty (30) days from receipt of the CBAA's adverse
decision, Madam X may appeal to the Court of Tax Appeals (en banc), by
filing a verified petition for review. (R. A. No. 1125, Sec. 11, as amended by R.A. No.
9282)
f. An adverse decision of the Court of Tax Appeals (en banc) may
be the subject of a motion for reconsideration within fifteen (15) days from
receipt of the judgment. If the motion for reconsideration filed with the Court
of Tax Appeals (en banc) is unavailing, the denial is appealed to the
Supreme Court within fifteen (15) days from the receipt of the denial of the
motion for reconsideration through a verified petition for review on certiorari
raising only questions of law. (R. A. No. 9282, Sec. 19)
On motion duly filed and served, and the full payment of the docket and
other lawful fees before the reglementary period, the Supreme Court may for
justifiable reasons grant an extension of thirty (30) days only within which to
file the petition. (ROC, Rule 45, Sec. 2)
ii. Appeal to the Central Board of Assessment Appeals
(CBAA)
Historical antecedents. Appeal of the Local Board of Assessment Appeals
(LBAA’s) decision to the Central Board of Assessment Appeals (CBAA) was the subject of
BEQs in 1982, and 1999.
**a. What is the remedy of one not satisfied with a decision of the
Local Board of Assessment Appeals (LBAA) ?
SUGGESTED ANSWER: Within thirty (30) days after receipt of the decision
of said Board, appeal to the Central Board of Assessment Appeals (CBAA). [LGC,
Sec. 229 (c), 3rd sentence, paraphrasing supplied]
The ‘fresh period rule’ in the case of Neypes, applies only to judicial appeals
and not to administrative appeals such as appeals to the CBAA. (National Power
Corporation v. The Provincial Treasurer of Benguet, et al., G.R. No. 209303, November 14,
2016)]
b. Who may appeal to the Central Board of Assessment Appeals
(CBAA) ?
SUGGESTED ANSWER:
1. The owner of the property
2. or the person having legal interest therein
3. or the assessor who is not satisfied with the decision of the Local
Board of Assessment Appeals (LBAA). [LGC, Sec. 229 (c), 3rd sentence,
paraphrasing, arrangement and numbering supplied]
c. Does the Central Board of Assessment Appeals (CBAA) have
authority to hear purely legal issues ?
SUGGESTED ANSWER: No. The Central Board of Assessment Appeals
(CBAA) has no authority to hear purely legal issues. Such authority is lodged with
the regular courts. Thus, the issue of whether R. A. No. 7160 repealed P.D. No.
921, is an issue which does not find referral to the CBAA before resort is made to
the courts. (Ty, et al., v. Trampe, 250 SCRA 500)
d. is the Central Board of Assessment Appeals (CBAA) limired to
resolving only the issues raised before Local Board of Assessment Apeals
(LBAA) ?
SUGGESTED ANSWER: No. Applied by analogy is the concept that an
appellate court has inherent authority to review unassigned errors
1. which are closely related to an error properly raised, or
2. upon which the determination of the error properly assigned
is dependent, or
3. where the Court finds that the consideration of them is
necessary in arriving at a just decision of the case.
 The Supreme Court held that while the foregoing specifically refer to "appellate
courts," there appears no reason why they should not apply to appellate
administrative agencies, like the CBAA, where rules of procedure are liberally
construed. (Sesbreno v. Central Board of Assessment Appeals, et al., 270 SCRA 360,
370 -371)
e. To whom should an appeal of decisions of the Central Board of
Assessment Appeals (CBAA) tbe directed ?
SUGGESTED ANSWER: To the Court of Tax Appeals, en banc. The
Court en banc shall exercise exclusive appellate jurisdiction to review by appeal
decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of
its appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment appeals..”
[RRCTA, Rule 4, Sec. 2 (e), paraphrasing supplied; R.A. No. 1125, Sec. 7.a.5 as amended
by R.A. No. 9282]
f. The Local Government Code does not provide for the review
by the Supreme Court of the decision of the Central Board of Assessment
Appeals. What then is the remedy available to the taxpayer adversely
affected by the decision of said board? (1982, adapted)
SUGGESTED ANSWER: Appeal to the Court of Tax Appeals en banc within
a period of thirty (30) days from receipt of the adverse decision of the Central
Board of Assessment Appeals.
**g. A Co., a Philippine corporation, is the owner of machinery,
equipment and fixtures located at its plant in Muntinlupa City. The City
Assessor characterized all these properties as real properties subject to the
real property tax. A Co., appealed the matter to the Muntinlupa Board of
Assessment Appeals. The Board ruled in favor of the City. In accordance
with R. A. 1125 (An Act creating the Court of Tax Appeals), A Co., brought a
petition for review before the CTA to appeal the decision of the City Board of
Assessment Appeals.
Is the petition for review proper ? (1999)
SUGGESTED ANSWER: No. The petition is not proper.
It is the Central Board of Assessment Appeals that has jurisdiction to review
cases originally decided by the City Board of Assessment Appeals, such as the
Muntinlupa Board of Assessment Appeals.
The CTA has exclusive appellate jurisdiction to review by appeal decisions of
the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction.
iii. Effect of payment of tax
What is the effect of payment on the sale of the delinquent taxpayer’s
properties ?
SUGGESTED ANSWER:
1. “At any time before the date fixed for the sale,
2. the owner of the real property or person having legal interest
therein
3. may stay the proceedings
4. by paying the delinquent tax, the interest due thereon and the
expenses of sale.” (LGC, Sec. 260, 1st par., 4th sentence, arrangement and
numbering supplied)
5. Remedies of LGUs for collection of real property taxes
a. Remedies in general
What are the remedies available under the provisions of the Local
Government Code for the collection of the real property tax ?
SUGGESTED ANSWER:
1. For the collection of the basic real property tax and any other tax,
2. the local government unit concerned may avail of the remedies
a) by administrative action thru levy on real property
b) or by judicial action. (LGC, Sec. 256, arrangement and
numbering supplied)
The Local Government Code does not provide for a hierarchy of remedies on
what should be first exercised, the administrative or the judicial remedies.
While this may be so, it must be remembered that one of the preconditions
for availing of judicial remedies is the so-called “exhaustion of administrative
remedies.” It is suggested that one first resort to the administrative remedy of levy
before filing a case in court for the collection of the tax. Failure to do so may result
to dismissal of the court suit on the ground of prematurity or failure to comply with a
condition precedent.
b. Issuance of notice of delinquency for real property tax
payment
a. What is a notice of delinquency ?
SUGGESTED ANSWER: It is a notice issued by the provincial, city or
municipal treasurer that real property or other taxes have not been paid on time.
 b. What should be contained in a notice of delinquency ? a) in each barangay of the local government unit concerned.”
SUGGESTED ANSWER: Such notice shall [LGC, Sec. 254 (a), 1st sentence, paraphrasing, arrangement and numbering
1. specify the date upon which the tax became delinquent supplied]
2. and shall state that personal property may be distrained to effect
payment. d. Is there a requirement for publication of the notice of delinquency
3. It shall likewise state that in addition to the posting ?
a) at any time before the distraint of personal property, SUGGESTED ANSWER: Yes. “The notice of delinquency
1) payment of the tax with surcharges, personal 1. shall also be published
property, payment of the tax with surcharges, interests and 2. once a week for two (2) consecutive weeks,
penalties 3. in a newspaper of general circulation in the province, city, or
2) may be made in accordance with the next following municipality.” [LGC, Sec. 254 (a), 2nd sentence,, arrangement and numbering
Section, supplied]
b) and unless the tax, surcharges and penalties
1) are paid before the expiration of the year for which b. Local government’s lien
the tax is due
2) except when the notice of assessment or special levy 1) What is is the local government lien in real property taxation ?
is contested administratively or judicially, SUGGESTED ANSWER: It is the local government’s legal claim on the
c) the delinquent real property property subject of the real property tax as security for the payment of the tax
1) will be sold at public auction, obligation.
2) and the title to the property will be vested in the
purchaser, 2) What constitutes the local government’s lien in real property
3) subject, however, to the right taxation ?
(a) of the delinquent owner of the property or any SUGGESED ANSWER:
person having legal interest therein 1. The basic real property tax and any other tax levied such as the
(b) to redeem the property within one (1) year from special educaton fund and ad valorem tax on idle lands constitute a lien on
the date of sale. [LGC, Sec. 254 (b), paraphrasing, the property subject to tax. (LGC, Sec. 257, paraphrasing, arrangement and
arrangement and numbering supplied] numbering supplied)
2. “The real property tax for any year
c. What is the requirement for posting of notice of delinquency ? a) shall accrue on the first day of January
Where should it be posted ? b) and from that date it shall constitute a lien on the property.
(Ibid., Sec. 246, arrangement and numbering supplied)
SUGGESTED ANSWER:
The lien is upon the real property subject of the tax. It does not include other
1. “When the real property tax or any other tax imposed under this
properties, real or personal, of the taxpayer.
Title becomes delinquent,
2. the provincial, city or municipal treasurer 3) What is the nature of the lien ?
3. shall immediately cause a notice of the delinquency to be posted SUGGESTED ANSWER: The lien is “superior to all liens, charges or
xxx ” [LGC, Sec. 254 (a), 1st sentence, paraphrasing, arrangement and encumbrances in favor of any person, irrespective of the owner or possessor
numbering supplied] thereof, enforceable by administrative or judicial action,.” (LGC, Sec. 257,
The notice shall be posted paraphrasing, arrangement and numbering supplied)
1. “at the main entrance of the provincial capitol, or city or municipal
hall 4) How is the lien extinguished ?
2. and in a publicly accessible and conspicuous place
 SUGGESTED ANSWER: The lien “may only be extinguished upon payment
of the tax and the related interests and expenses.” (LGC, Sec. 257, paraphrasing,
supplied)
i. Administrative remedy of levy
Historical antecedents. The mandatory requirement for notice of levy was the
subject of BEQs in 1992, and 2006.
a. Is there any relation of due process in the levy and sale of land
for tax delinquency ?
SUGGESTED ANSWER: Yes. The premise is that no presumption of
regularity exists in any administrative action which results in depriving a taxpayer of
his property; due process of law must be followed in tax proceedings, because a
sale of land for tax delinquency is in derogation of private property and the
registered owner's constitutional rights.
The public auction of land to satisfy delinquency in the payment of real
estate tax derogates or impinges on property rights and due process. Thus, the
steps prescribed by law are mandatory and must be strictly followed; if not, the sale
of the real property is invalid and does not make its purchaser the new owner.
Strict adherence to the statutes governing tax sales is imperative not only for the
protection of the taxpayers, but also to allay any possible suspicion of collusion
between the buyer and the public officials called upon to enforce the laws . (Cruz, et
al. v. City of Makati, et al., G.R. No. 210894, September 12, 2018)
The power of local government units, to levy and sell properties for tax
delinquencies, is prone to great abuse, in that owners of valuable real property are
liable to lose them on account of irregularities committed by these local
government units or officials, done intentionally with the collusion of third parties
and with the deliberate unscrupulous intent to appropriate these valuable
properties for themselves and profit therefrom.
These unscrupulous parties can commit a simple, seemingly irrelevant
technicality such as deliberately sending billing statements, notices of delinquency
and levy to wrong addresses under the guise of typographical lapses, and then
proceed with the levy and auction sale of these valuable properties without the
knowledge and consent of the owners. Before the owners realize it, their precious
properties have already been confiscated and sold by the local government units or
officials to so-called "innocent third parties" who are in fact their cohorts in the
unscrupulous scheme. This is barefaced robbery that the Supreme Court cannot
sanction. (Ibid.)
b. What is the rationale behind the requirement that the delinquent
property owner must be notified of the auction sale ?
SUGGESTED ANSWER: Absence of Notice to the delinquent registered
owner shall vitiate the sale since notice is a prerequisite to a valid tax sale. (Cabrera
v. Prov. Treasurer, 75, Phil. 780)
Tax sales are administrative proceedings and being in personam, it is
essential that there be actual notice to the delinquent taxpayer; otherwise the sale
is null and void although proceeded by proper advertisement or publication. (Cruz,
et al. v. City of Makati, et al., G.R. No. 210894, September 12, 2018) As the tax sale was
null and void, the title of the buyer therein was also null and void. (Ibid.)
Without the mandatory notices, the registered owner will never be given the
opportunity to redeem the property, despite the lapse of one year from the date the
sale is registered. (Tan v. Bantegui, etc., et al., G. R. No. 154027, October 24, 2005)
b. Who is liable for real property taxes, the beneficial user or the
owner ?
SUGGESTED ANSWER: The beneficial user, not the owner, is subject to
real property tax liability. The personal liability for the tax delinquency, is generally
on whoever is the owner of the real property at the time the tax accrues.
Where, however, the tax liability is imposed on the beneficial use of the real
property such as those owned but leased to private persons or entities by the
government, or when the assessment is made on the basis of the actual use
thereof, the personal liability is on any person who has such beneficial or actual
use at the time of the accrual of the tax.
Thus, the government cannot avail of the administrative remedy through levy,
it can only enforce the collection of real property tax through civil action. (Republic
of the Philippines, etc., et al., v. City of Kidapawan, et al., G.R. No. 166651, December 9,
2005)
**c. Ms. Edna Dinoso is a registered owner of a residential lot with a
two-storey house situated in Naga City. The lot with an area of 328 sq.
meters is described and covered by TCT# 4739 of the Registry of Deeds of
Naga City.
On September 12, 2009, a 115 sq. meter portion of Edna’s property was
expropriated by the Republic of the Philippines for the sum of P6,700.00
representing the assessed value of the aforesaid portion. This amount was
deposited by the Government in Edna’s account.
For almost ten (10) years, Edna failed to pay her real estate taxes on the
same property. Thus, on November 5, 2018, her property was sold at public
auction by the City Treasurer of Naga City to satisfy her real estate tax
delinquencies amounting P5,800.00. The highest bidder for the property was
Angel Chua.
 Edna was not present at the public auction although she later admitted
having received the notice of hearing for the petition for entry of a new
certificate of title by Angel Chua. (Both the auction sale and final bill of sale
were annotated at the back of TCT# 4739 by the Register of Deeds.)
On March 15, 2019, Edna filed a complaint to annul the auction sale
which was denied by the RTC Judge of Naga City. In fact, the RTC Judge
ordered that TCT# 4739 of Edna be cancelled and that a new title be issued to
Angel Chua.
On appeal, the Court of Appeals affirmed the RTC decision in toto.
Edna then elevated the case to the Supreme Court citing several grave
errors of law, among which are:
xxx xxx xxx
c. That the public auction made on her property is void. Discuss the
merits of the appeal. (1992, paraphrasing and dates supplied)
SUGGESTED ANSWER: The appeal would prosper because the auction is
void. There is no showing in the problem that Edna was furnished a copy of the
warrant of levy. The Local Government Code mandates the registered owner
should be furnished a copy of the notice of delinquency and the warrant of levy.
**d. Quezon City published on January 30, 2018 a list of delinquent
real property owners in 2 newspapers of general circulation and posted this
in the main lobby of the City Hall. The notice requires all owners of real
properties in the list to pay the real property tax due within 30 days from the
date of publication, otherwise the properties listed shall be sold at public
auction.
Joachin is one of those named in the list. He purchased a real property
in 1998 but failed to register the document of sale with the Register of Deeds
and secure a new real property tax declaration in his name. He alleged that
the auction sale of his property is void for lack of due process considering
that the City treasurer did not send him personal notice. For his part, the
City Treasurer maintains that the publication and posting of notice are
sufficient compliance with the requirements of the law.
1) If you were the judge, how will your resolve this issue ? (2006,
dates and renumbering supplied)
SUGGESTED ANSWER: I would resolve the issue in the Joachin’s favor
and declare the auction sale as invalid. There was a violation of Secc. 258 of the
Local Government Code because a warrant of sale was not served upon Joachin.
True there was notice made to Joachin but that is a notice to pay.
2) Assuming Joachin is a registered owner, will your answer be the
same ? (2006, dates and renumbering supplied)
SUGGESTED ANSWER: Yes. There was failure by the Treasurer to comply
with Sec. 258 of the Local Government Code of 1991 which provides that, “the
warrant shall be mailed to or served upon the delinquent owner of the real property
or person having legal interest therein, or in case he is out of the country or cannot
be located, to the administrator or occupant of the property.
Joachin was deprived of due process because the proceedings for the taking
of his real property being in personam requires that he be personally informed of
such taking through a warrant of levy.
1) Advertisement and sale
a. What are the requirements for a valid sale on delinquency ?
SUGGESTED ANSWER: Under Section 254 of the Local Government
Code ( LGC), it is required that the notice of delinquency must be posted at the
main hall and in a publicly accessible and conspicuous place in each barangay of
the local government unit concerned. It shall also be published once a week for two
(2) consecutive weeks, in a newspaper of general circulation in the province, city,
or municipality.
Section 258 of the LGC further requires that should the treasurer issue a
warrant of levy, the same shall be mailed to or served upon the delinquent owner of
the real property or person having legal interest therein, or in case he is out of the
country or cannot be located, the administrator or occupant of the property. At the
same time, the written notice of the levy with the attached warrant shall be mailed
to or served upon the assessor and the Registrar of Deeds of the province, city or
municipality within the Metropolitan Manila Area where the property is located, who
shall annotate the levy on the tax declaration and certificate of title of the property,
respectively.
Section 260 of the LGC also mandates that within thirty (30) days after
service of the warrant of levy, the local treasurer shall proceed to publicly advertise
for sale or auction the property or a usable portion thereof as may be necessary to
satisfy the tax delinquency and expenses of sale. Such advertisement shall be
effected by posting a notice at the main entrance of the provincial, city or municipal
building, and in a publicly accessible and conspicuous place in the barangay where
the real property is located, and by publication once a week for two (2) weeks in a
newspaper of general circulation in the province, city or municipality where the
property is located. (Cruz, et al. v. City of Makati, et al., G.R. No. 210894, September 12,
2018)
The requirements for a tax delinquency sale under the LGC are mandatory.
Strict adherence to the statutes governing tax sales is imperative not only for the
protection of the taxpayers, but also to allay any possible suspicion of collusion
between the buyer and the public officials called upon to enforce the laws.
Particularly, the notice of sale to the delinquent land owners and to the public in
general is an essential and indispensable requirement of law, the non-fulfilment of
which vitiates the sale. Thus, the holding of a tax sale despite the absence of the
requisite notice, as in this case, is tantamount to a violation of the delinquent
taxpayer's substantial right to due process. (Ibid.)
2) Action assailing validity of a tax sale
a. What is the requisite for an action assailing validity of tax sale ?
SUGGESTED ANSWER:
1. “No court shall entertain any action
a) assailing the validity of any sale at public auction of real
property or rights therein under this Title
2. until the taxpayer shall have deposited with the court
a) the amount for which the real property was sold,
b) together with interest of two percent (2%) per month
1) from the date of sale to the time of the institution of
the action.” (LGC, Sec. 267, 1st sentence, arrangement and numbering
supplied)
The deposit required under Section 267 of the Local Government Code
is a jurisdictional requirement. The non-payment of the deposit warrants the
dismissal of the action. ( Wong , et al., v. City of Iloilo, et al., G. R. No. 161748,
July 3, 2009) Because petitioners in this case did not make such deposit, the
RTC never acquired jurisdiction over the complaints. (Ibid.)
c. What is the additional ground for declaration of nullity of sale by reason
of irregularities or informalities ?
SUGGESTED ANSWER:
1. “Neither shall any court declare a sale at public auction invalid
2. by reason of irregularities or informalities in the proceedings
3. unless the substantive rights of the delinquent owner of the real
property or the person having legal interest therein have been impaired.” (LGC, Sec.
267, 1st sentence, arrangement and numbering supplied)
d. What is the burden of proof required upon a purchaser in an
auction sale to satisfy a tax delinquency ?
SUGGESTED ANSWER: The purchaser at an auction sale to satisfy a tax
delinquency has the burden of proof to show that there was compliance with all the
prescribed requisites for a tax sale. (Francia v. Intermediate Appellate Court, 162
SCRA 753, 760)
There is no presumption of the regularity of any administrative action which
results in depriving a taxpayer of his property through a tax sale. (Ibid.)
This is actually an exception to the rule that administrative proceedings are
presumed to be regular. (Ibid.)
3) Inadequacy of sales price does not invalidate a tax
sale
Historical antecedent. Inadequacy of sales price does not invalidate a tax sale was
the subject of a BEQ in 1992.
**a. What is the effect of the inadequacy of the sales price on the
validity of a tax sale ? Why ?
SUGGESTED ANSWER: Inadequacy of sales price does not invalidate a tax
sale. In ordinary sales for reasons of equity a transaction may be invalidated on the
ground of inadequacy of price, or when such inadequacy shocks one’s conscience
as to justify the courts to interfere.
Such does not follow when the law gives the owner the right to redeem, as
when a sale is made at public auction, upon the theory that the lesser the price, the
easier it is for the owner to effect redemption. (Tan v. Bantegui, etc., et al., G. R. No.
154027, October 24, 2005)
** b. Ms. Edna Dinoso is a registered owner of a residential lot with
a two-storey house situated in Naga City. The lot with an area of 328 sq.
meters is described and covered by TCT# 4739 of the Registry of Deeds of
Naga City.
On September 12, 2009, a 115 sq. meter portion of Edna’s property was
expropriated by the Republic of the Philippines for the sum of P6,700.00
representing the assessed value of the aforesaid portion. This amount was
deposited by the Government in Edna’s account.
For almost ten (10) years, Edna failed to pay her real estate taxes on the
same property. Thus, on November 5, 2018, her property was sold at public
auction by the City Treasurer of Naga City to satisfy her real estate tax
delinquencies amounting P5,800.00. The highest bidder for the property was
Angel Chua.
Edna was not present at the public auction although she later admitted
having received the notice of hearing for the petition for entry of a new
certificate of title by Angel Chua. (Both the auction sale and final bill of sale
were annotated at the back of TCT# 4739 by the Register of Deeds.)
On March 15, 2019, Edna filed a complaint to annul the auction sale
which was denied by the RTC Judge of Naga City. In Fact, the RTC Judge
ordered that TCT# 4739 of Edna be cancelled and that a new title be issued to 3. plus interest of not more than two percent (2%) per month on the
Angel Chua. purchase price
On appeal, the Court of Appeals affirmed the RTC decision in toto. a) from the date of sale to the date of redemption.” (LGC, Sec.
Edna then elevated the case to the Supreme Court citing several grave 261, 1st par., 1st sentence, paraphrasing, arrangement and numbering
errors of law, among which are: supplied)
a. That her tax delinquencies (involving P5,800.00) for non-payment of
real estate taxes were offset by the sum of P6,700.00 which the Government c. What is the effect of redemption of real property sold at a tax
of Philippines owed her. She claims that her tax delinquencies have been sale ?
extinguished by legal compensation. (1992, dates and abbreviations supplied) SUGGESTED ANSWER:
SUGGESTED ANSWER: There is no legal compensation because there is no 1. The redemption through payment
mutuality of debtor creditor relationship. In one instance, Edna is the creditor and a) “shall invalidate the certificate of sale issued to the
the debtor is the national government. In the second instance, Edna is the debtor purchaser
but the creditor is not the national government, but a local government unit. b) and the owner of the delinquent real property or person
b. That the price of P5,800.00 paid by Angel Chua was grossly having legal interest therein
inadequate and that because of its inadequacy, the same is tantamount to 1) shall be entitled to a certificate of redemption
deprivation of property without due process of law. (1992, dates supplied) 2) which shall be issued by the local treasurer or his
SUGGESTED ANSWER: Gross inadequacy of the sale does not amount to deputy.” (LGC, Sec. 261, 1st par., 2nd sentence, paraphrasing,
deprivation of property without due process in the instance where there is arrangement and numbering supplied)
redemption because it would be easier to redeem the property. In this case, Edna 2. “The local treasurer or his deputy, upon receipt from the
could easily redeem the property because of the low price. purchaser of the certificate of sale,
a) shall forthwith return to the latter the entire amount paid by
4) Right of redemption of property sold at tax sale him plus interest of not more than two percent (2%) per month.
: 3. Thereafter, the property shall be free from the lien of such
a. What is the period for the redemption of real property sold at tax delinquent tax, interest due thereon and expenses of sale.” (LGC, Sec. 261, 3rd
sale ? par., arrangement and numbering supplied)
SUGGESTED ANSWER:
1. “Within one (1) year from the date of sale, d. What is effect of the failure to redeem real property subject of a
2. the owner of the delinquent real property tax sale ?
a) or person having legal interest therein, SUGGESTED ANSWER:
b) or his representative, 1. In case the owner or person having legal interest therein
3. shall have the right to redeem the property.” (LGC, Sec. 261, 1st 2. fails to redeem the delinquent property
par., 1st sentence, paraphrasing, arrangement and numbering supplied) 3. the local treasurer shall execute a deed
a) conveying to the purchaser said property,
b. Explain the manner of making redemption of real property subject 1) free from lien of the delinquent tax, interest due
of a tax sale. thereon and expenses of sale.
SUGGESTED ANSWER: Redemption is made by “payment to the local b) The deed shall briefly state the proceedings upon which the
treasurer validity of the sale rests. (LGC, Sec. 262, arrangement and numbering
1. of the amount of the delinquent tax, including the interest due supplied)
thereon,
2. and the expenses of sale from the date of delinquency to the date 5) Resale of real estate taken for taxes, fees or
of sale, charges
 a) When could the local government unit purchase of the advertised 4. The proceeds of the sale shall accrue to the general fund of the
property ? local government unit concerned.” (LGC, Sec. 264, arrangement and numbering
SUGGESTED ANSWER: “In case supplied)
1. there is no bidder for the real property advertised for sale as
provided herein, ii. Remedy of garnishment may be exercised
2. or if the highest bid is for an amount insufficient to pay the real
property tax and the related interest and costs of sale .” (LGC, Sec. 263, 1st Historical antecedents. The remedy of garnishment to enforce the collection of real
st
par., 1 sentence, paraphrasing, arrangement and numbering supplied) property taxes was the subject of BEQs in 1983, and 1985,.

b) What is the manner of purchase by the local government of the

advertised property ? **a. How may the remedy of garnishment be exercised ?
SUGGESTED ANSWER: The “local treasurer conducting the sale SUGGESTED ANSWER: The remedy of distraint and levy of personal
1. shall purchase the property in behalf of the local government unit property allows the taxing authority to subject any personal property of the taxpayer
concerned to satisfy the claim to execution, save those exempt from execution. Thus the issuance of warrants of
2. and within two (2) days thereafter garnishment over bank deposits is proper and regular. (Manila Electric Company v.
(a) shall make a report of his proceedings Barlis, etc., et al., G.R. No. 114231, May 18, 2001)
(b) which shall be reflected upon the records of his office.”
(LGC, Sec. 263, 1st par., 1st sentence, paraphrasing, arrangement and numbering **b. After causing the publication of a notice of delinquency for real
supplied) property taxes covering a period of five years on Mr. Jose Santos’ house in
Lagro, Novaliches Quezon City, the City Treasurer of Quezon City checked
c) When and how may the right of redemption be exercised ? with the Land Transportation Office and found that a 2002 Mercedez Benz
SUGGESTED ANSWER: Model 600 was registered in the name of Mr. Santos. The City Treasurer
1. “Within one (1) year from the date of such forfeiture, immediately issued a duly authenticated certificate showing the fact of
(a) the taxpayer or any of his representative, delinquency and the amount of tax and penalty due, and forthwith seized and
(b) may redeem the property placed under distraint Mr. Santos’ Mercedez Benz and advertised the same
(c) by paying to the local treasurer the full amount of the real for sale at public auction. Mr. Santos charged the City Treasurer with grave
property tax and the related interest and the costs of sale. abuse of discretion, claiming that the real property tax was a lien on the
2. If the property is not redeemed as provided herein, property subject to tax and enforceable against the said property, whether in
(a) the ownership thereof the possession of the delinquent taxpayer or any subsequent owner or
(b) shall be fully vested on the local government unit possessor thereof. Such being the case, Mr. Santos argued that the City
concerned.” (LGC, Sec. 263, 2nd par., arrangement and numbering supplied) Treasurer should have proceeded against the real property itself. He also
contended that he was denied due process because no formal demand had
d) What is the disposition of real estate taken for taxes, fees or been made on him for the payment of the realty tax and the penalty due.
charges ? How valid is the position of Mr. Santos? Explain. (1983, adapted)
SUGGESTED ANSWER: SUGGESTED ANSWER: The position of Mr. Santos is not valid.
1. “The sanggunian concerned The remedy of distraint of personal properties belonging to the taxpayer is
2. may, by ordinance duly approved, and upon notice of not less one of the remedies for the enforcement of collection of real property taxes . [LGC,
than twenty (20) days, Sec. 254 (b)]
3. sell and dispose of the real property acquired under the There is no need for a formal demand for the payment of realty tax because
preceding section at public auction. the requirement is posting of the notice when the tax may be paid without interest
at a conspicuous and publicly accessible place at the city or municipal hall. Said
notice shall likewise be published in a newspaper of general circulation in the
locality once a week for two (2) consecutive weeks.” (LGC, Sec. 249)
2. XYZ owns a 986 square meter lot bordering the sea. He has not
paid the real property taxes due thereon for three years before the said
parcel was entirely eaten by the sea. Discuss his liability for the unpaid
delinquency taxes. (1985)
SUGGESTED ANSWER: XYZ is liable for the unpaid delinquency taxes
which could be collected from him by the government through distraint of personal
property or through judicial action. The loss extinguished the tax lien but not the
liability.
iii. Further levy until full payment of amount due
What should be done if the proceeds of the levy are not sufficient to
pay for the tax delinquency ?
SUGGESTED ANSWER:
1. “Levy may be repeated if necessary
2. until the full amount due, including all expenses, is collected.”
(LGC, Sec. 265, arrangement and numbering supplied)
iv. Judicial remedies for collection of the tax
a. How may the real property tax be collected through the courts
? cases in which the demand, exclusive of interest, damages of whatever kind,
SUGGESTED ANSWER:
1. The local government unit concerned
2. may enforce the collection of the basic real property tax or any
other tax such as rhe special education fund or the ad valorem tax on idle
land
3. by civil action in any court of competent jurisdiction.
4. The civil action shall be filed by the local treasurer within five (5)
years from the date they become due . (LGC, Sec. 266, in relation to Sec. 270.
arrangement and numbering supplied)
b. What is the jurisdiction of courts in collection cases ?
SUGGESTED ANSWER:
1. Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts shall have exclusive original jurisdiction over
civil actions including grant of provisional remedies in proper cases, where
the amount of the demand
a) Does not exceed Three Hundred Thousand pesos
(P300,000.00), or
b) In Metro Manila where such personal property, estate, or
amount of the demand does not exceed Four Hundred Thousand
pesos (P400,000.00), exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses and costs, the amount of which
must be specifically alleged,
Provided, that interest, damages of whatever kind, attorney's
fees, litigation expenses, and costs shall be included in the
determination of the filing fees. [B.P. Blg. 129, Sec. 33 (1), as amended by
Rep. Act No. 7691, paraphrasing arrangement and numbering supplied]
Regional Trial Courts shall exercise appellate jurisdiction over all cases
decided by Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in their respective territorial jurisdiction. (B. P. Blg. 129,
Sec. 22)
Appellate jurisdiction of the Court of Tax Appeals (CTA) en banc over
petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax collection
cases originally decided by the Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts, in their respective jurisdiction . (R.
A. No. 1125, Sec. 7, as amended by R. A. No. 9282)
Appellate jurisdication of the Supreme Court over decisions of the CTA
en banc. (ROC, Rule 45)
2. Regional Trial Courts shall exercise exclusive original jurisdiction in all
attorney’s fees, litigation expenses, and costs or the value of the property in
controversy exceeds Three hundred thousand pesos (P300,000.00) or, in such
other cases in Metro Manila, where the demand exclusive of the above mentioned
items exceeds Four hundred thousand pesos (P400,000.00) (B.P. Blg. 129., Sec. 19,
as amended by Sec. 5, R.A. No. 7691) but does not reach up to P1 million. (R. A. No.
1125, Sec. 7, as amended by R. A. No. 9282)
Appellate jurisdiction of the Court of Tax Appeals (CTA) in division over local
tax cases originally decided or resolved by the RTC in the exercise of their original
jurisdiction. (R. A. No. 1125, Sec. 7, as amended by R. A. No. 9282)
Appellate jurisdiction of the CTA en banc over decisions of the CTA in
division.
Appellate jurisdication of the Supreme Court over decisions of the CTA en
banc. (ROC, Rule 45)
3. Court of Tax Appeals (CTA) in division shall exercise exclusive original
jurisdiction if the basic tax sought to be collected is P1 million or more. (R. A. No.
1125, Sec. 7, as amended by R. A. No. 9282)
 Appellate jurisdiction of the CTA en banc over decisions of the CTA in SUGGESTED ANSWER: The “no injunction rule” does not apply to the
division. Supreme Court under its general power of administration over lower courts.But it
Appellate jurisdication of the Supreme Court over decisions of the CTA en must comply with the requirements under the law for the issuance of an injunctive
banc. (ROC, Rule 45) writ. It does not also apply to the Court of Tax Appeals (CTA). When “in the
4. Exclusive appellate jurisdiction of the Court of Tax Appeals (en banc) to opinion of the Court of Tax Appeals
review by appeal decisions of Central Board of Assessment Appeals: 1 the collection by the aforementioned government agencies may
a) In the exercise of its appellate jurisdiction jeopardize the interest of the government and/or the taxpayer,
b) over cases involving the assessment and taxation of real property 2 the Court at any stage of the proceeding may suspend the said
c) originally decided by the provincial or city board of assessment collection
appeals. (R.A. No. 1125, Sec. 7, as amended by R.A. No. 9282, arrangement and 3 and require the taxpayer either
numbering supplied) a) to deposit the amount claimed
b) or to file a surety bond for not more than double the amount
v. No injunction rule in the collection of the real with the Court.” (R. A. No. 1125, Sec. 11, 4th par., as amended by R. A. No.
property tax 9282, paraphrasing, arrangement and numbering supplied)
The provisions of R.A. 1125 which authorize the Court of Tax
a. What is the “no injunction rule”as applied to real property taxation Appeals, to order the suspension of the collection of the tax assessed is
? What is the reason behind the rule ? considered as an exception to the no injunction rule.
SUGGESTED ANSWER: No court shall have authority to enjoin or restrain While this may be so, there may be questions raised on the validity of
the collection of any local tax, fee or charge. the requirement that the collection may jeopardize the interest of the
1. “No appeal taken to the CTA from the decision of government. and justify the issuance by the Court of Tax Appeals of an order
a) the Commissioner of Internal Revenue suspending the collection of taxes. After all the need for collecting taxes is of
b) or the Commissioner of Customs an urgent character under the lifeblood theory.
c) or the Regional Trial Court,
d) provincial, city or municipal treasurer c. May the appeal to the Local Board of Assessment Appeals (LBAA)
e) or the Secretary of Finance, or to the Central Board of Assessment Appeals (CBAA) suspend the
f) the Secretary of Trade collection of the real property tax ?
g) and Industry, and Secretary of Agriculture, as the case may SUGGESTED ANSWER: No. The collection of the real property is not
be suspended on appeal to LBAA or to CBAA.
2. shall suspend 1. “Appeal on assessments of real property made under the
a) the payment, levy, distraint, and/or sale of any property of provisions of the Local Government Code
the taxpayer 2. shall, in no case, suspend the collection of the corresponding
b) for the satisfaction of his tax liability as provided by existing realty taxes on the property involved as assessed by the provincial or city
law. (R. A. No. 1125, Sec. 11, 4 th par., as amended by R. A. No. 9282, assessor,
arrangement and numbering supplied) 3. without prejudice to subsequent adjustment depending upon the
The reason behind the rule is to ensure the unimpeded lfow of tax revenues final outcome of the appeal.” (LGC, Sec. 231, words in italics, numbering and
into the cofers of the local government units to enable them to performthe functions arrangement supplied)
for which theyu were created. In short, the lifeblood doctrine.
vi. Judicial remedy for refund or credit of real property tax
b. Are there any exceptions to the “’no injunction rule “ ? If there
what are the conditions to be met ? Historical antecedent. The judicial remedy for the refund or credit of real property
tax was the subject of a BEQ in 2018.
 ***1. Illustrate the mandatory need for filing clam for refund with The best of luck for everybody and see all in court !!!
the local treasurer.
SUGGESTED ANSWER: A City Ordinance adopting a method of assessment END OF THE NOTES
was nullified by the Supreme Court. A taxpayer who has paid its real property taxes
on the basis of the nullified ordinance now posits that the return of the real property
tax erroneously collected and paid is a necessary consequence of the Supreme
Court’s nullification of the ordinance and there is no need to claim for a refund. Is
this correct ?
HELD: No. The entitlement to a tax refund does not necessarily call for the
automatic payment of the sum claimed. The amount of the claim being a factual
matter, it must still be proven in the normal course and in accordance with the
administrative procedure for obtaining a refund of real property taxes, as provided
under the Local Government Code. (Allied Banking Corporation, etc., v. Quezon City
Government, et al., G. R. No. 154126, September 15, 2006)

*** 2. The City of Kabankalan issued a notice of assessment

against KKK, Inc. for deficiency real property taxes for the taxable years 2014
to 2018 in the amount of PhP 20 million. KKK paid the taxes under protest
and instituted a complaint entitled "Recovery of Illegally and/or Erroneously-
Collected Local Business Tax, Prohibition with Prayer to Issue TRO and Writ
of Preliminary Injunction" with the RTC of Negros Occidental.
The RTC denied the application for TRO. Its motion for
reconsideration having been denied as well, KKK filed a petition
for certiorari with the Court of Appeals (CA) assailing the denial of the TRO.
Will the petition prosper ? (2018, dates supplied)
SUGGESTED ANSWER: No. The petition filed with the Court of Appeals
(CA) will not prosper because of lack of jurisdiction. It is the Court of Tax Appeals
that is vested with jurisdiction to review tax cases decided by the RTC.
In the problem there is no dispute with respect to the amount assessed, but
the issue is whether the tax is to be imposed, thus KKK, Inc., the applicant for
refund should file a suit for refund before the proper court. There is no need for a
recourse to the Local Board of Assessment Appeals, and the Central Board of
Assessment Appeals (Testate Estate of Concordia T. Lim v. City of Manila, et al., G. R. No.
90639, February 21, 1990)
“It is settled in our jurisdiction that where an assessment is illegal and
void, the remedy of a taxpayer, who has already paid the realty tax under protest,
is to sue for refund in the competent regional trial court.” (Victorias Milling Co., Inc., v
.Court of Tax Appeals, 22 SCRA 1008)
The Regional Trial Court’s adverse decision should then be appealed to a
Court of Tax Appeals Division.