FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

Department of Accountancy

DISCLAIMER: Kindly note that no part of this Module may be reproduced in any form or any means without
the permission (e.g., written or oral) from the Instructor.

MODULE NO. 03
TAX ADMINISTRATION

SOURCES OF TAX LAWS

(For CPALE purposes, consider the following examples and/or amplifications)

• The 1987 Philippine Constitution;

o A constitutional provision regarding taxation is primarily intended to limit and regulate the
exercise of taxation power. The State can exercise the power to tax even if the Constitution
is completely silent about taxation.

• Tax Statutes such as National Internal revenue Code (NIRC), the Tariff and Customs Code, the
Value-Added Tax (VAT) Law, the Revised Documentary Stamp Tax (DST) Law, and portions of
the Local Government Code;
o The present tax statutes of the Philippines are embodied in R.A. 8424, which is the
prevailing National Internal Revenue Code (NIRC) effective January 1, 1998, which was
amended per R.A. 9337 (The VAT Reform Law) and R.A. 10963 (TRAIN Law), among
others.

• Executive Orders on Taxation, and Local Tax Ordinances;

o Executive Orders are regulations issued by the President or some administrative authority
under his direction for the purpose of interpreting, implementing, or giving administrative
effect to a provision of the Constitution or of some law or treaty.
o Local Tax Ordinances are issued by the province, city, municipality and barangay subject
to such limitations as provided by the Local Government Code. [Valencia and Roxas]

• Tax Treaties and Conventions with Foreign Countries;

o These refer to the treaties or international agreements with foreign countries regarding tax
enforcement and exemptions. They have the force and effect of law.

• Judicial Decisions;
o These refer to the decisions for application made concerning tax issues by the proper
courts exercising judicial authority of competent jurisdiction. These courts may be the
Supreme Court and the Court of Tax Appeals. Their decisions on tax laws comprise the
greater portion of tax jurisprudence. They form part of the legal system of the Philippines.
o By the nature of its jurisdiction, the decisions of the Court of Tax Appeals are still
appealable to the Supreme Court. The decision of the Supreme Court on any matter is final
and executory.

• Rules and Regulations promulgated by Depart of Finance (DOF), the Bureau of Internal Revenue
(BIR), the Bureau of Customs (BOC) among others; and

REVENUE REGULATIONS BY THE DEPARTMENT OF FINANCE

o Revenue Regulations are rules or orders having force of law issued by executive authority
of the government to ensure uniform application of the tax law.
o In order that administrative regulations may be considered valid, all of the following
requisites must be complied with:
▪ The regulations must be useful, practical and necessary for the enforcement of the
law;
▪ They must be reasonable in their provisions;
▪ They must not be contrary to law; and

INCOME TAXATION | Tax Administration

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

▪ They must be duly published in the Official Gazette. [Interprovincial Auto Bus Co.
v. Collector, G.R. No. L-6741 (1956); Lim Hoa Ting v. Central Bank, G.R. No. L-
10666 (1958)]
o FOCUS NOTE! Ruling of the Secretary of Finance are not binding on the courts because
the duty or power of interpreting laws is primarily a function of the judiciary.
o The Courts generally respect the interpretations made by the executive officer whose duty
is to enforce the law. However, such interpretations are not conclusive and shall be
disregarded if found erroneous by the Court. [Molina v. Rafferty, 37 Phil 545]
o The Secretary of Finance is vested with authority to revoke, repeal or abrogate acts or
previous rulings of his predecessors in office because these are not binding on their
successors. [Hilado v. Collector, G.R. No. L-9408 (1956)]

BIR REVENUE MEMORANDUM CIRCULARS AND BUREAU OF CUSTOMS MEMORANDUM

ORDERS
o These are administrative rulings or opinions which are less general interpretations of tax
laws being issued from time to time by the Commissioner of the Internal Revenue or
Commissioner of the Bureau of Customs, as the case may be. They are primarily intended
to maintain uniform application of tax laws within the department or area of authority.
o Memoranda have the status of advisory or sort of information service. For this reason, they
can be reversed anytime.
o FOCUS NOTE! The Courts generally respect the interpretations made by the executive
officer whose duty is to enforce the law. However, such interpretations are not conclusive
and shall be disregarded if found erroneous by the Court. [Molina v. Rafferty, 37 Phil 545]

BIR RULINGS
o BIR Rulings are expressed official interpretations of the tax laws as applied to specific
transactions. Unlike a Revenue Regulation, it is more limited in application.
o BIR Rulings are not the final interpretations of the tax laws. They are considered the best
opinion or advisory at the moment and are considered sound law until changed by the
court. [CIR v. Ledesma, (1970)]

• Administrative Interpretations and Opinions of Tax Officials particularly those of the Commissioner
of Internal Revenue (CIR).

ORGANIZATION AND FUNCTIONS OF THE BUREAU OF INTERNAL REVENUE

THE BUREAU OF INTERNAL REVENUE

• The Bureau of Internal Revenue is tasked with tax administration function of the government and
is under the supervision and control of the Department of Finance.
• Chief Officials of the Bureau (E.O. 366)
o 1 chief officer: The Commissioner of Internal Revenue
o 4 assistant chiefs: LINE Deputy Commissioner
▪ Operations Group
▪ Legal Group
▪ Information Systems Group
▪ Resource Management Group
FOCUS NOTE! The CIR and Line Deputy Commissioners are members of the National
Evaluation Board (NEB) which handles applications for compromise settlement.

POWERS OF THE BUREAU OF INTERNAL REVENUE

1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties, and fines and judgments in all cases decided in its favor
by the courts
3. Giving effects to and administering the supervisory and police powers conferred to it by the NIRC
and or other laws

INCOME TAXATION | Tax Administration

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

RULE-MAKING AUTHORITY OF THE SECRETARY OF FINANCE

• Authority of the Secretary of Finance to Promulgate Rules and Regulations (Sec. 244, NIRC)

o The Secretary of Finance, upon recommendation of the CIR, shall promulgate all needful
rules and regulations for effective enforcement of the provisions of the Code.

• Specific Provisions to be Contained in Rules and Regulations (Sec. 245, NIRC)

o The time and manner in which Revenue Regional Director shall canvass their respective
Revenue Regions for the purpose of discovering persons and property liable to national
internal revenue taxes, and the manner in which their lists and records of taxable persons
and taxable objects shall be made and kept;

o The forms of labels, brands or marks to be required on goods subject to an excise tax, and
the manner in which the labelling, branding or marking shall be effected;

o The conditions under which and the manner in which goods intended for export, which if
not exported would be subject to an excise tax, shall be labelled, branded or marked;
o The conditions to be observed by revenue officers respecting the institutions and conduct
of legal actions and proceedings;

o The conditions under which goods intended for storage in bonded warehouses shall be
conveyed thither, their manner of storage and the method of keeping the entries and
records in connection therewith, also the books to be kept by Revenue Inspectors and the
reports to be made by them in connection with their supervision of such houses;

o The conditions under which denatured alcohol may be removed and dealt in, the character
and quantity of the denaturing material to be used, the manner in which the process of
denaturing shall be effected, so as to render the alcohol suitably denatured and unfit for
oral intake, the bonds to be given, the books and records to be kept, the entries to be made
therein, the reports to be made to the CIR, and the signs to be displayed in the business
or by the person for whom such denaturing is done or by whom, such alcohol is dealt in;

o The manner in which revenue shall be collected and paid, the instrument, document or
object to which revenue stamps shall be affixed, the mode of cancellation of the same, the
manner in which the proper books, records, invoices and other papers shall be kept and
entries therein made by the person subject to the tax, as well as the manner in which
licenses and stamps shall be gathered up and returned after serving their purposes;

o The conditions to be observed by revenue officers respecting the enforcement of Title III
imposing a tax on estate of a decedent, and other transfers mortis causa, as well as on
gifts and such other rules and regulations which the CIR may consider suitable for the
enforcement of the said Title III;

o The manner in which tax returns, information and reports shall be prepared and reported
and the tax collected and paid, as well as the conditions under which evidence of payment
shall be furnished the taxpayer, and the preparation and publication of tax statistics;

o The manner in which internal revenue taxes, such as income tax, including withholding tax,
estate and donor's taxes, value-added tax, other percentage taxes, excise taxes and
documentary stamp taxes shall be paid through the collection officers of the Bureau of
Internal Revenue or through duly authorized agent banks which are hereby deputized to
receive payments of such taxes and the returns, papers and statements that may be filed
by the taxpayers in connection with the payment of the tax:

INCOME TAXATION | Tax Administration

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

Provided, however, that notwithstanding the other provisions of this Code prescribing the
place of filing of returns and payment of taxes, the CIR may, by rules and regulations
require that the tax returns, papers and statements and taxes of large taxpayers be filed
and paid, respectively, through collection officers or through duly authorized agent banks:

Provided, further, That the CIR can exercise this power within six (6) years from the
approval of R.A. 7646 or the completion of its comprehensive computerization program,
whichever comes earlier:

Provided, finally, that separate venues for the Luzon, Visayas and Mindanao areas may be
designated for the filing of tax returns and payment of taxes by said large taxpayers.

For the purpose of this Section, 'large taxpayer' means a taxpayer who satisfies any of the
following criteria:
▪ Value-Added Tax (VAT) – Business establishment with VAT paid or payable of at
least P100,000 for any quarter of the preceding taxable year;
▪ Excise Tax - Business establishment with excise tax paid or payable of at least
P1,000,000 for the preceding taxable year;
▪ Corporate Income Tax – Business establishment with annual income tax paid or
payable of at least P1,000,000 for the preceding taxable year; and
▪ Withholding Tax - Business establishment with withholding tax payment or
remittance of at least P1,000,000 for the preceding taxable year.

Provided, however, That the Secretary of Finance, upon recommendation of the CIR, may
modify or add to the above criteria for determining a large taxpayer after considering such
factors as inflation, volume of business, wage and employment levels, and similar
economic factors.

The penalties prescribed under Section 248 shall be imposed on any violation of the rules and regulations
issued by the Secretary of Finance, upon recommendation of the CIR, prescribing the place of filing of
returns and payments of taxes by large taxpayers.

FOCUS NOTE!
Republic Act No. 7646 - An Act Authorizing the CIR to Prescribe the Place for Payment of Internal Revenue
Taxes by Large Taxpayers

JURISDICTION, POWER AND FUNCTIONS OF THE COMMISSIONER OF INTERNAL REVENUE

• Powers and Duties of the Bureau of Internal Revenue (Sec. 2, NIRC)

1. To assess and collect national internal taxes, fees, and charges;
2. To enforce all forfeitures, penalties and fines connected therewith;
3. To execute judgment in all cases decided in its favor by the CTA and the ordinary courts; and
4. To effect and administer the supervisory and police powers conferred upon it by the Tax Code
or other special laws.

• Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases
o Power to Interpret
o The power to interpret provisions of the NIRC and other tax laws shall be under the
exclusive and original jurisdiction of the CIR, subject to review by the Secretary of
Finance. [Sec. 4, NIRC]
o A ruling by the CIR that interpret provisions of the NIRC and other tax laws shall be
presumed valid unless modified, reversed or superseded by the Secretary of Finance.
A taxpayer who receives an adverse ruling from the CIR may, within thirty (30) days
from the date of receipt of such ruling, seek its review by the Secretary of Finance. The
Secretary of Finance may also review the rulings motu proprio. [DOF Order 7-02]

INCOME TAXATION | Tax Administration

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

o Power to Decide Tax Cases

o The power to decide (1) disputed assessments, (2) refunds of internal revenue taxes,
fees, charges and penalties, or (3) other matters arising under the NIRC or other laws
administered by the BIR is vested in the CIR, subject to the exclusive appellate
jurisdiction of the CTA. [Sec. 4, NIRC]

• Non-retroactivity of rulings (Sec. 246, NIRC)

o General Rule: Any revocation, modification or reversal of (1) rules and regulations
promulgated in accordance with the NIRC, or (2) any rulings or circulars promulgated by
the CIR shall not be given retroactive application if the prejudicial to the taxpayers.

o Exceptions:
▪ Where the taxpayer deliberately misstates or omits material facts from his return
or any
▪ document required of him by the BIR;
▪ Where the facts subsequently gathered by the BIR are materially different from the
facts on which the ruling is based; or
▪ Where the taxpayer acted in bad faith.

o The general rule is that a void law or administrative act cannot be the source of legal rights
or duties. The doctrine of operative fact is an exception to the general rule; it is incorporated
in Sec. 246 of the NIRC. Under Sec. 246, taxpayers may rely upon a rule or ruling issued
by the CIR from the time the rule or ruling is issued up to its reversal by the CIR or this
Court. The reversal is not given retroactive effect.

o There must, however, be a rule or ruling issued by the Commissioner that is relied upon
by the taxpayer in good faith. A mere administrative practice, not formalized into a rule or
ruling, will not suffice because such a mere administrative practice may not be uniformly
and consistently applied. [CIR v. San Roque, G.R. No. L-187485 (2013)].

LISTING OF POWERS OF THE COMMISSIONER OF INTERNAL REVENUE

1. To interpret the provisions of the NIRC (subject to review by the Secretary of Finance)
2. To decide tax cases (subject to the exclusive appellate jurisdiction of the Court of Tax Appeals)
3. To obtain information and to summon, examine and take testimony of persons to effect tax
collection
o Summon:
o Sub poena duces tecum (SDT) – compels the taxpayer to produce the documents
o Sub poena ad testificandum – compel the taxpayer to produce documents and
testify why there is a failure to comply with the request to produce
o Examination (when the BIR makes the audit, it issues notice of audit):
o Electronic Letter of Authority (e-LOA) – formal document authorizing Revenue
Officers (Assessment) to examine taxpayer records.
o Tax Verfication Notice (TVN) – BIR authority to audit taxpayer records but is lower
than eLOA
o Letter Notice (LN) – third party information. Result of computerized matching of
income and expense. Not equivalent to eLOA or TVN but has the effect of barring
taxpayer to amend return. If issued, the LN if protested must be converted to eLOA
FOCUS NOTE! If taxpayer is served with notice of audit, taxpayer is barred from amending
returns
4. To make assessment and prescribe additional requirement for tax administration and enforcement.
(Note: The BIR can issue assessment GR: 3 years from date of filing or deadline whichever is later,
Exception: 10 years if there is fraud reckoned from date of discovery). If already elapsed, the right
of the BIR to collect has prescribed)
5. To make or amend a return for and in behalf of a taxpayer; or to disregard one filed by the taxpayer
6. To change tax accounting period
INCOME TAXATION | Tax Administration
Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

7. To enter into a compromise of tax liabilities of taxpayers

o Doubtful validity – 40% of basic tax (the rate may be lower but with prior approval by the CIR)
o Financial incapacity – 10% of basic tax (with required documentary requirements)
8. To conduct inventory-stock taking or surveillance (BIR to issue Mission Order (MO)
o Covert surveillance – secret/posing as taxpayer/not known initially by taxpayer
o Overt surveillance – known to the taxpayer
FOCUS NOTE! The BIR also issues MO during tax mapping operations or Tax Compliance
Verification Drive (TCVD)
9. To prescribe presumptive gross sales or receipts (Benchmarking)
10. To prescribe real estate values (zonal valuation)
o The CIR is authorized to divide the Philippines into zones or areas and determine the fair
market value of the real properties located in each zones or area.
o UPDATES ON TRAIN LAW: In exercising this authority, the following shall be observed:
o Mandatory consultation with both private and public competent appraisers before
division of the Philippines into zones.
o Prior notice to affected taxpayers before the determination of fair market values of the
real properties.
o Publication or posting of adjustments in zonal value in a newspaper of general
circulation in the province, city or municipality concerned.
o The basis of valuation and records of consultation shall be public records open to the
inquiry of any taxpayer.
o Zonal valuations shall be automatically adjusted once every three years.
11. To accredit tax agents
o Individuals or general professional partnerships who have been denied their accreditation may
appeal to the Secretary of Finance who shall act on the appeal within 60 days from the receipt
of such appeal. Failure by him to rule on the appeal within the prescribed period shall be
deemed approval of the application for accreditation.
12. To inquire into bank deposits under certain cases:
o Estate tax purposes to determine gross estate
o Application of compromise settlement based on financial incapacity
13. To prescribe additional procedures or documentary requirements
14. To delegate his powers to any subordinate officer with rank equivalent to a division chief of an office
15. To refund or credit internal revenue taxes
16. To abate or cancel tax liabilities in certain cases
o Unjustly or excessively assessed (arbitrary, capricious and whimsical)
o Cost of collection is higher than the amount to be collected (cost-benefit principle)
17. To examine tax returns and determine tax due thereon (must have an eLOA)
18. To cause revenue officers and employees to make a canvass from time to time of any revenue
district or region concerning taxpayers.
19. Assignment of internal revenue officers and other employees to other duties

POWERS OF THE CIR THAT CANNOT BE DELEGATED

1. The power to recommend the promulgation of rules and regulations to the Secretary of Finance.
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing rulings of
the Bureau.
3. The power to compromise or abate any tax liability
o Exceptions: Compromise by Regional Evaluation Boards under the following requisites:
o Assessments are issued by the regional offices involving basic deficiency tax of
P500,000.00, and
o Involves minor criminal violations as may be determined by rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the CIR,
discovered by regional and district officials
4. The power to assign and reassign internal revenue officers to establishment where articles subject
to excise tax are produced or kept. Revenue officers assigned to any such establishments shall in
no case stay in his assignment for more than 2 years.

INCOME TAXATION | Tax Administration

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

RULES IN ASSIGNMENTS TO OTHER DUTIES

Revenue officers assigned to perform assessment and collection function shall not remain in the same
assignment for more than 3 years. Assignment of internal revenue officers and employees of the Bureau
to special duties shall not exceed 1 year.

AGENTS AND DEPUTIES FOR COLLECTION OF NATIONAL INTERNAL REVENUE TAXES

1. The Commissioner of Customs and his subordinates with respect to collection of national internal
revenue taxes on imported goods.
2. The head of appropriate government offices and his subordinates with respect to the collection of
energy tax.
3. Banks duly accredited by the Commissioner with respect to receipts of payments of internal
revenue taxes authorized to the made thru banks.

-NOTHING FOLLOWS-

INCOME TAXATION | Tax Administration

Mr. Kireina Otoko M. Manas, CPA