Dr. Lim

PROBLEM EXERCISES in TAXATION
Patterned after tax cases decided by the Supreme Court and Court of Tax
Appeals
Prepared by: Dr. Jeannie P. Lim

Baguio City
On General Principles:
1. State policy on taxation under

RA 8424, NIRC: Answer.
a) To promote sustainable economic growth through rationalization of Philippine

internal revenue tax system and tax administration.
b) To provide as much as possible an equitable relief to a greater number of taxpayers;
c) To create a robust environment for business to enable them to complete better in
regional and global market;
d) To ensure that Government is able to provide the needs of the people within its
territorial jurisdiction.
2. Define The Power of Taxation:

Answer. It is the power by which the sovereign, through its legislature, raises
revenues to defray the necessary expenses of the government. It is merely a way of
apportioning the costs of the government among those who in some measure are
privilege to enjoy its benefits and must bear its burden.
These following concepts apply to the Power of Taxation: (a) Doctrine of

Territoriality, (b) No Injunction Rule,
(c) Doctrine of Judicial Non-Interference and (d) Doctrine of Imprescriptibility.
3. What are the fiscal incentives granted to PEZA registered enterprises under RA 7916?
Answer. The taxpayer has two (2) options with respect to its tax burden – (a) it could
avail of an income tax holiday pursuant to the provisions of EO 226, thus exempt from
income taxes for a number of years but not from other IR taxes such as VAT, or (b) it
could avail of the tax exemptions on all taxes, including VAT under PD 66 and pay
only the preferential tax rate of 5% under RA 7916. (2005 case)
4. Some constitutional limitations on the exercise

of the power of taxation: Answer.
a) Non-imprisonment for non-payment of poll tax, and
b) President’s power to veto tax bills
c) Progressive scheme of taxation
d) Due process of law
e) Equal protection of the laws;
f) Uniformity and Equity;
g) Free Worship Clause
h) Non-impairment Clause
5. The inherent limitations on the power of taxation:

Answer.
a) Doctrine of Territoriality
b) Government is exempt from taxation in the performance of a governmental function
c) Taxation must be for as public purpose
d) Power of Congress to tax is inherent
e) Doctrine of international comity
f) Power of taxation is non-delegable
6. What is meant by “Eclectic Theory” in the determination of tax situs?

Answer. This theory provides for the application of the law to the elements of a transaction
occurring in the place of the forum. It coincides with the “territoriality” of taxation under
which a taxing authority has the right to impose a tax and fix a tax situs, among other things,
at the place where the privilege is exercised.
7. What is the situs of taxation in electronic transactions?

Answer. Sec, 23 of the E-Commerce Act (RA 8792) provides an electronic data message
or electronic document is deemed to be dispatched at the place where the originator
has its place of business and received at the place where the addressee has its place
of business. The tax situs will be at that place.
8. Does due process require judicial proceedings in tax cases?

Answer. Due process of law under the Constitution does not require judicial proceedings in
tax cases – it is of utmost importance that the modes adopted to enforce the collection
of taxes should be summary and interfered with as little as possible. (PB Com. vs.
CIR, 302 SCRA 241)
9. The general principles in taxation prohibit direct duplicate taxation. What do you
understand by this concept? Answer. This direct duplicate taxation means two
taxes are imposed on the same subject matter, for the same purpose, within the same
tax period, by the same taxing authority. It is necessary that the two taxes being
imposed are of the same kind or character. (City of Manila vs. Coca-Cola Bottlers,
Phils., August 5, 2009)
10. When is there indirect double taxation? Is this allowed?

Answer. If the two imposing tax authorities are not the same (national and local), the
double taxation is merely one of indirect duplicate taxation. There is no prohibition to
indirect double taxation.
11. Petitioners are local non-life insurance corporations, which formed a “pool”, in
order to enter into a Reinsurance Treaty with a German company, the BIR
assessed deficiency corporate taxes against the “pool” on the ground that it is
considered a partnership taxable as a corporation. Petitioners insist that the
pool is a mere agent, not acting on its own and therefore, cannot be taxed as a
corporation, there being no risk undertaken by the pool, no common fund and
no control exercised by its board in the management of its fund. Is the “pool”
taxable as a corporation?
Answer. Yes. Pursuant to Sec. 24 of the NIRC, the pool is included within the definition of “Domestic
Corporation” which comprises even unregistered partnerships and associations. In this
case, the ceding companies entered into an association that would handle all
businesses under the Treaty. It has a common fund and an executive board to
manage its affairs. Moreover, even if the pool itself did not issue any policies on its
own, its work was indispensable to the business of the ceding companies and the
Germany Company.
Is there double taxation in the given facts? Answer. None. Double taxation means
taxing the same person or object twice by the same jurisdiction within the same year,
for the same purpose and imposing the same or similar kind of tax. The pool is a
taxable entity distinct from the individual corporate entities of the ceding companies.
The tax on its income is obviously different from the tax on the dividends received by
the said companies.
12. Will the imposition of a business tax by the City government against an entity
already paying a franchise tax result to double taxation considering that both
taxes are based on the gross receipts and sales of taxpayer’s business?
Answer. A franchise tax is a tax on the privilege of transacting business in the state
and exercising corporate franchises granted by the state, and is imposed only on
franchise holders. On the other hand, a “city or business tax” is a percentage tax based on
a given ratio between the gross sales or receipts and the burden imposed upon the
taxpayer. It is imposed on any person engaged in the sale of goods or services. They
are not of the same kind or character. Hence, no double taxation. (Sky Cable Corp.
vs. City Treasurer of Quezon City, CTA case No. 102, February 10, 2014)
13. X Municipality imposes regulatory fees on the “cell sites“ or
telecommunications towers of X Corporation. X protested contending that the
“cell sites” are already subjected to taxes. X argues that there is double taxation
because the same object of taxation is taxed twice for the same purpose. Rule
on the argument.
Answer. An ordinance imposing regulatory fees on project cost whose purpose is to
regulate certain construction activities of the identified special projects, which includes “cell
sites” or telecommunications towers is NOT a tax because the fees imposed in the said ordinance
are primarily regulatory in nature and not primarily revenue-raising in nature. Hence,
there is no double taxation considering that the impositions are not for the same
purpose. (SMART vs. Mun. of Malvar, Batangas, GR No. 204429, February 18, 2014)
14. International juridical double taxation – The imposition of comparable taxes in two
or more states on the same taxpayer in respect of the same subject matter and for
identical periods. There is international double taxation when one of the taxing
authorities is a foreign government.
15. Real Estate dealers are required to withhold taxes on every sale of real property
they make. These dealers argued that they are being singled out because other
businesses are not required to withhold taxes on every sale they make or
conclude during the course of their business operations. The dealers believe
that there is violation of the uniformity and equality clause of the Constitution.
Are the dealers correct?
Answer. The taxing authority has the power to make reasonable classifications for
purposes of taxation. Inequalities resulting from a singling out of one particular class
for taxation or exemption do not infringe any constitutional limitation. The real estate
industry is, by itself, a class and can be validly treated differently from other business
enterprises. The Congress has the power to choose the subject or object of taxation
provided all those similarly situated in that group are treated alike without distinction.
(CREBA, Inc. vs. the Hon. Executive Sec. Alberto Romulo, March 9, 2010)
NOTE: The choice of the legislative body is valid only when the requisites of classification
statutes are met.
16. The real estate dealers/developers argue that the creditable withholding tax they
are required to collect and remit to the BIR every time they sell a real property is
a clear deprivation of property without due process because there are instances
when at the end of the tax period no income is realized but losses. Is the
contention of the real estate dealers/developers tenable?
Answer. The imposition of creditable withholding tax (CWT) does not constitute a
deprivation of property without due process because the seller may claim tax refund if
net income is less than the taxes withheld. Practical problems in claiming tax refund
do not affect the constitutionality and validity of the CWT as a method of collecting
taxes. (CREBA, Inc. vs. the Hon. Executive Sec. Alberto Romulo, March 9, 2010)
17. Importance of tax treaties: (Deutsche Bank Ag Manila Branch vs. CIR, August 19, 2013)
Answer. Tax treaties are entered into between and among nations “to reconcile the national
fiscal legislations of the contracting parties and, in turn, help the taxpayer avoid simultaneous
taxations in two different jurisdictions.” Tax treaties and conventions are drafted with the view
towards the elimination of international juridical double taxation. This is to encourage
the free flow of goods and services and the movement of capital, technology and
persons between countries, conditions deemed vital in creating robust and dynamic
economies. Foreign investments will only thrive in a fairly predictable and reasonable
international investment climate and the protection against double taxation is crucial in
creating such a climate.
18. The BIR issued RMO No. 1-2000 requiring taxpayers who intend to avail of
special treatment under tax treaties/conventions to file their application with the
International Tax Affairs Division (ITAD) of the BIR at least 15 days before the
transaction. X is qualified to avail of preferential tax treatment under a tax treaty
but failed to comply with the 15-day period notice to BIR. Hence, BIR denied X’s
claim for tax refund/credit. Will RMO No. 1-2000 prevail over tax treaties or Tax
conventions? (Deutsche Bank Ag Manila Branch vs., CIR, August 19, 2013)
Answer. RMO No. 1-2000 requires that any availment of the tax treaty relief must be
preceded by an application with the International Tax Affairs Division (ITADS) of the
BIR at least 15 days before the transaction. It was implemented to obviate any
erroneous interpretation and/or application of the treaty provisions. The objective of
the BIR is to forestall assessments against corporations who erroneously availed
themselves of the benefits of the tax treaty but are not legally entitled thereto, as well
as to save such investors from the tedious process of claims for a refund due to an
inaccurate application of the tax treaty provisions. However, there is nothing in RMO
N0. 1-2000 that would indicate deprivation of entitlement to a tax treaty relief for failure
to comply with the 15-day period.
Therefore, RMO No. 1-2000 should not operate to divest entitlement to the relief
provided under a treaty or convention as it would impair the value of the tax treaty, a
denial will constitute a violation of the duty required by good faith in complying with an
international agreement. At most, the application for a tax treaty relief from the BIR
should merely operate to confirm the entitlement of the taxpayer to the relief. The
obligation to comply with a tax treaty must take precedence over the objective of
RMO-1-2000. The BIR must not impose additional requirements that would negate the
availment of the reliefs provided for under an international agreement.
19. As a general rule Revenue Regulations are non-retroactive. The only exception
to this is when the retroactive application will not cause injury to the taxpayer.
Who is not entitled to the benefit of this rule?
Answer. Sec. 246, NIRC maintains that this rule does not apply to (a) a taxpayer who
deliberately misstates or omits material facts from his tax return or in any document
required of him by the BIR, (b) to a taxpayer who acted in bad faith, and (c) where the
facts subsequently gathered by the BIR are materially different from the facts on which
the ruling was based. (Filinvest Dev’t. Corp., July 18, 2011, BPI Family Savings Bank,
Inc. vs. Supreme Transliner, Inc. et. al., February 25, 2011)
20. Sec. 246 of the 1997 NIRC provides: “Any revocation, modification or reversal of
any of the rules and regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the CIR shall NOT be
given retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers, Give the EXCEPTIONS.
Answer. Retroactive application shall be imposed:
a) Where the taxpayer deliberately misstates or omits material facts from his return
or any document required of him by the BIR;
b) Where the facts subsequently gathered by the BIR are materially different from the facts
on which the ruling is based; or
c) Where the taxpayer acted in bad faith.
21. The CIR issued two rulings on the determination of the tax base for the
imposition of ad valorem tax on cigar and cigarettes, BIR Ruling 100-00 dated
Oct. 2, 2000 excluded the VAT from the tax base in computing the 15% excise
tax due. BIR Ruling 120-01 dated Feb. 11, 2001 included back the VAT in
computing the tax base for purposes of the 15% ad valorem tax and expressly
revoked the BIR Ruling 100-00. X, was assessed deficiency ad valorem tax on its
removals of cigarette products during the period Nov. 10, 2000 to Jan. 22, 2001.
The deficiency assessment came about because of the failure of the company to
include in its tax base the VAT. Is the assessment correct?
Answer. No. The retroactive application of BIR Ruling 120-01 would be prejudicial to
X. Since the exceptions above-mentioned are not attendant in the case at bar, then
the rule on the non-retroactivity of rulings would apply. The assessment gave BIR
Ruling 120-01 a retroactive effect. Thus, such assessment is incorrect as it is in
contravention with Sec. 246 of the Tax Code.
22. RMC No. 7-35 states that overpaid income taxes are not covered by the 2-year
prescriptive period under the Tax Code and that taxpayers may claim refund of
tax credits for the excess quarterly income tax with the BIR within 10 years
under Art. 1144 of the Civil Code. X Corporation relying in good faith in the
circular did not immediately file its claims for refunds and tax credit of its 1995-
1996 excess quarterly income payments. Upon filing in 1998, the request for tax
refund was denied.
(a) Is RMC No. 7-35, with respect to the 10-year prescriptive period valid?
(b) If RMC No. 7-35 is not valid, may the government be compelled to allow tax
refunds or credit on the ground of estoppel?
Answer. (a) No. The Tax Code states that the taxpayer may file a claim for refund or
credit with the BIR within 2 years from the date of payment of the tax or penalty. The
two-year prescriptive period is to be computed from the time of filing the final
adjustment return and the tax as finally computed for the taxable period.
RMC No. 7-35 is changing the prescriptive period of 2 years to 10 years, created a
clear inconsistency with the provision of the Tax Code. The CIR rendered an
interpretation which is not in harmony with the statute. Hence, his interpretation could
not be given weight for to do so would in effect, amend the statute.
(b) No. Fundamental is the rule that the State cannot be put in estoppel by the mistake
or errors of its officials or agents. This rule is even more important in matters involving
taxes. Taxes are the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its function for the welfare of its
people. The errors of certain administrative officers should never be allowed to
jeopardize the government’s financial position.
23. A revenue bill was approved by the Lower House of the Congress and
transmitted to the Upper House. After the latter’s review, it came out with its
own version dealing with the same subject matter. This version was approved
by the President and became a revenue bill. Is this bill constitutional? Why?
Answer. This is constitutional and valid because the revenue bill originated from the
Lower House. The version of the Upper House involves the same subject matter
although its version is different from that of the version of the lower house. This is
consonant with the Senate’s power, not only to concur, modify, and revise but also to propose
amendments, even if the result will cause extensive changes resulting in re-writing the
whole. (Abakada vs. Ermita)
24. Tax Laws are prospective in character and therefore they are prospective in
application. When are tax laws given retroactive effects?
Answer. Retroactive application is allowed when – (a) That tax law itself so provides,
(b) when the retroactive application is implied in the language of the law, (c) when the
retroactive application is among the intention of the Congress in the enactment of that
law, and (d) when it involves income taxation.
25. The BIR assessed National Power Corporation (NPC) for deficiency VAT for the
sale of its power plants to private entities. NPC endorsed the BIR’s demand
letter to PSALM,, a GOCC created for the purpose of managing the orderly sale,
disposition and privatization of NPC’s generation assets, real estate and other
disposable properties and assets. In turn, PSALM filed with the Department of
Justice (DOJ) a petition for the adjudication of the dispute with the BIR the
issue of WON the sale of the power plants should be subject to VAT. The BIR
alleged that DOJ had no jurisdiction since the dispute involved laws
administered by the BIR and therefore the jurisdiction is with the CTA. Resolve.
Answer. The DOJ has jurisdiction. The dispute SOLELY is between PSALM and NPC
both government-owned and controlled corporations, and the BIR, a National
Government. PD 242 clearly applies and the Sec. of Justice has jurisdiction over the
case. When the dispute is between private entities and the BIR on tax cases that can
be decided upon by the CIR in the administrative level, the dispute may be appealed
to the CTA. Where the disputing parties are all public entities (government entities),
the case shall be governed by PD 242.
NOTE: Disputes between the BIR and a GOCC involving tax assessment are appealable to
the CTA.
26. Where do you question the validity of (a) Revenue Regulation and (b) BIR Ruling?
Answer. (a) The validity of a revenue regulation should be questioned before the
regular court (RTC), (British American Tobacco vs. Camacho, GR No. 163583,
August 20, 2008) and (b) the validity of a BIR Ruling should be questioned before the
CTA via a petition for review (Asia Auctioneers, Inc. vs. Parayno, Jr., GR No. 163445,
December 18, 2007).
27. T sent a query to the CIR asking WON he is taxable under the new law. The CIR
holds that T is liable. T, however, doubts the unfavorable ruling and would like
to question the same? Where should he contest the CIR’s Ruling?
Answer. T must first file his REQUEST FOR RULING REVIEW before the Secretary
of Finance within 30 days from receipt of the unfavorable ruling in compliance with the
Principle of Exhaustion of Administrative Remedies. If SoF sustains the CIRs Ruling,
T may then proceed to the RTC via a Petition for Review within 30 days from receipt
of the adverse decision of the SoF. (DOF Department Order No. 23-2001, October 25,
2001).
28. When is an appeal (REQUEST FOR RULIUNG REVIEW) before the Sec. of
Finance not necessary? (BDO vs. Republic, GR No. 198756, January 13, 2015)
Answer. The rule on exhaustion of administrative remedies, particularly an appeal to
the SoF, may be dispensed with if, among others: (a) the issue involves purely
question of law, (b) when there are circumstances indicating the urgency of judicial
intervention; and (c) when exhaustion will result in an exercise in futility.
29. What are the two (2) powers of the CIR?

Answer. The CIR exercises (a) Quasi-legislative functions, such as the original and
exclusive power of interpret tax laws, issuing ruling, rules and regulations, and (b)
Quasi-judicial functions such as deciding taxpayers’ disputes on tax assessment and
collections and claims for tax refund or tax credit.
NOTE: (a) If the ruling of the CIR was issued in the exercise of his quasi-
legislative function, and/or rulings of the Sec. of Finance issued in the exercise
of his quasi-legislative function- both should be appealed with the Regional
Trial Court. (b) If the CIR’s ruling was issued in the exercise of his quasi-judicial
functions, and/or the decision of the SoF exercising his quasi-judicial function –
both should be appealed to the CTA. (CIR vs. CTA and Petron, GR No. 207843,
July 15, 2015)
30. T filed a petition before the CTA questioning the legality of and constitutionality
of the CIR’s interpretation of the tax provision of the Tax Code (Quasi-legislative
power). CIR argues that CTA has no jurisdiction over the controversy. Is the CIR
correct? (CIR vs. CTA and Petron, GR No. 207843, July 15, 2015)
Answer. The CIR is correct. CTA has no jurisdiction to take cognizance of the petition
as its resolution would necessarily involve a declaration of the validity or constitutionality
of the CIR’s interpretation of the Tax Code, which is subject to the exclusive review by the
Sec. of Finance and ultimately by the regular courts.
31. T seasonably disputed an assessment before the CIR, among his defenses is a
question on the validity or constitutionality of the tax law adopted by the CIR in
its investigation. Subsequently, the CIR denied T’s dispute and issued its final
decision on the disputed assessment (FDDA). T comes to you for your legal
services. Where will you file your appeal?
Answer. The CTA has undoubted jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the taxpayer as a defense in
disputing or contesting as assessment or even in claiming for a refund. It is only in the
lawful exercise of its power to pass upon all matters brought before it, as sanctioned
by Sec. 7 of RA 1125, as amended.
The Supreme Court held in the case of BDO vs. Republic, GR No. 198756,
August 16, 2016 that the CTA may take cognizance of cases directly challenging the
constitutionality or validity of a tax law or regulation or administrative issuance
(revenue orders, revenue memorandum circulars and rulings) The law intends the
CTA to have exclusive jurisdiction to resolve all tax problems. Petitions for writs of
certiorari against the acts and omissions of the said quasi-judicial agencies should,
thus, be filed before the CTA.
32. X believes that the Revenue Regulation recently issued by the BIR has
expanded the law it seeks to implement. X was seeking reconsideration in the
application of said Revenue Regulation but the CIR denied his motion. X
seasonably filed a petition for review before the CTA arguing that the regulation
is void. Did the CTA acquire jurisdiction on the matter? (British American
Tobacco Inc., vs. Camacho, 562 SCRA 511)
Answer. No. CTA has no jurisdiction to pass upon the validity of revenue regulation; it
is the RTC that exercises jurisdiction over the same. Among the CTA’s jurisdiction is to
determine the validity of a decision or ruling rendered by the CIR on issues involving
(a) disputed assessment, (b) refund of internal revenue taxes, (c) penalties imposed
without authority and (d) other matters found in other laws, part of law, or special law
administered by the BIR.
33. Franchise distinguished from

tax exemption: Answer.
Franch Tax
ise Exemptio
n
Granted by the Government Granted by the government (Congress
(Congress or LGUs) under or LGUs) under
its inherent police power its inherent power of taxation
It is always revocable Generally, it is not revocable within the
period of its
existence
It is not protected by the Non- Protected by the non-impairment
=impairment clause of the clause of the Constitution if it is
Constitution embodied in a valid contract
 Franchise has been broadly construed as referring, not only to

authorizations that Congress directly issues in the form of a special law, but
also to those granted by administrative agencies in which the power to
grant franchises has been delegated by Congress. (Diaz vs. Sec. of
Finance, 654 SCRA 96, 2011)
 Toll way fees are not taxes but regulatory fees, and therefore may be
subjected to VAT.
 VAT on toll way operations cannot be deemed a tax on tax (tax

pyramiding) due to the nature of VAT as an indirect tax. Once shifted, the VAT
ceases to be a tax and simply becomes part of the cost that the buyer must
pay in order to purchase the good, property or service.
34. One of the incentives granted to inventors is tax exemption from income tax
(the exemption does not include other taxes such as VAT). X sold his invention
to R Manufacturing who undertook to produce and distribute the invented
products here and abroad. Can R enjoy X’s privilege?
Answer. The tax exemption granted to inventors does not extend to the entity that
commercially produces and distributes the invented products because tax exemption
is NON-TRANSFERRABLE.
35. Mile Corporation is a foreign corporation operating inside the export processing
zone. It imported a 14-wheeler truck for its own use. Hence, no taxes and duties
were collected by the government under its special tax privileges. When the
vehicle arrived “Mile” realized that the vehicle does not fit its requirement.
“Mile” decided to sell the unit and bring in another one that will be of use to the
corporation. Mr. Randante, a businessman from the customs territory learned
of this sale and immediately took advantage of the cheap price offered by “Mile.
Is there any tax implication should the sale between the seller and buyer
materialized?
Answer. Mr. Randante shall be liable to pay all taxes that were waived by the government
when “Mille” imported the vehicle because the tax exemption privilege granted to “Mile” is
non-transferrable. The export processing zone is considered a foreign territory and the
buyer is deemed to have imported the vehicle himself.
36. Rural Banks are enjoying tax exemption under RA 7353. X, Y and Z are rural
banks. An agreement among them to merge and consolidate was arrived at in
order to expand their business operations. What is the tax implication of their
agreement to merge and consolidate? (One Network Bank, Inc. vs. CIR, CTA case
No. 8640, April 11, 2014)
Answer. Section 15 of RA 7353, which grants tax exemption in favor of rural banks,
does not extend to mergers or consolidations of banks. While Sec. 18 thereof
encourages the consolidation and mergers of rural banks, the law did not go so far as
to give a fresh tax exemption to consolidated rural banks for another five (5) years of
operation. Tax exemption is never presumed. The law granting the exemption must be
clear, unequivocal and stated in clear language to plain to be mistaken. Moreover, tax
exemption is non-transferrable.
37. X Corporation was granted a legislative franchise for 20 years. Today, the
government decides to withdraw X’s tax privilege by cancelling the franchise. X
vehemently protested contending that: (a) it has been enjoying the tax privilege
for the last 10 years and therefore the government is estopped from revoking its
franchise, (b) that to withdraw its tax exemption without its consent will
squarely violate the non-impairment clause of the Constitution. Are the
arguments of X meritorious? Reason.
Answer. X’s arguments are not tenable. The general rule holds that government is not
bound by the Doctrine of Estoppel. Franchise is tax exemption granted unilaterally by
the State and it is always revocable. Franchise is not protected by the Non-
impairment Clause of the Constitution because it is not a contract entered into
between the government and the taxpayer. No “meeting of minds” resulted from a franchise.
Franchise is different from a contractual tax exemption. The latter is a valid contract between the
government and the taxpayer. This is not revocable at will without the consent of the
other party and it is protected by the non-impairment clause of the Constitution.
38. X was encouraged to invest in government bonds because it gives higher

interest rates and the interest income earned therefrom as provided in the bond
contract is tax exempt. The bonds X purchased mature in 61 months. Of late, the
interest rate was lowered and the interest income was even subjected to final
withholding taxes. X questions the changes made on his investment and
invokes the non-impairment clause of the constitution. Is X correct?
Answer. Yes. X is correct because he enjoys a contractual tax exemption when his
purchased the government bonds. That contractual tax exemption, in the real sense of
the term and where the non-impairment clause of the Constitution can rightly be
invoked are those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by them under
enabling laws in which the government, acting in its private capacity, sheds its cloak of
authority and waives its governmental immunity. This contractual tax exemption
should not be confused with tax exemption granted under franchises which is not
protected by the non-impairment clause of the Constitution. (1999 case)
39. PAGCOR contends that RA 9337 that withdrew its tax exemption from corporate
income tax is null and void. That the withdrawal of its franchise violated the
non-impairment clause of the Constitution. Is PAGCOR correct?
Answer. PAGCOR’s argument that the withdrawal of its exemption from corporate income tax under
RA 9337 is null and void and in violation of the non-impairment clause of the Constitution
has no legal basis. A perusal of the legislative records of the Bicameral Committee
dated October 27, 1997 would show that the exemption of PAGCOR from the
payment of corporate income tax was due to the acquiescence of the Committee on
Ways and Means to the request of PAGCOR that it be exempt from such tax and it
was not based on a classification showing substantial distinctions which make for real
differences. House Bill No. 3555 would also show that it is the legislative intent that
PAGCOR be subject to corporate income tax and excludes it from all other taxes. The
exemption enjoyed by PAGCOR is a mere franchise. Sec. 11, Art. XII of the
Constitution provides that no franchise or right shall be granted except under the
condition that it shall be subject to amendment, alteration or repeal by the Congress
when the common good so requires. Franchise partakes the nature of a grant, which
is beyond the purview of the non-impairment clause of the Constitution. Thus, the
franchise enjoyed by PAGCOR is revocable anytime and its revocation did not violate
the “NIC” of the Constitution. (PAGCOR vs. BIR, March 15, 2011)
40. Under RA 9337, the Philippine Amusement and Gaming Corporation (PAGCOR)
is now excluded from among the GOCCs that are exempt from corporate
income tax. When said exemption was withdrawn PAGCOR invoked violation of
its right to equal protection under the Constitution. Is there a violation as
claimed by PAGCOR?
Answer. PAGCOR cannot find support in the equal protection clause of the
Constitution, because legislative records of the Bicameral Conference Meeting dated
Oct. 27, 1997, of the Committee on Ways and Means, would show that its previous
exemption from payment of corporate income tax was allowed merely on PAGCOR’s own
request to be exempted and was not made pursuant to a valid classification statute
based on substantial distinctions and the other requirements of a reasonable
classification by legislative bodies. Hence, the withdrawal did not violation the equal
protection clause because there was no intention at all to grant it tax exemption. Its
exemption was due to the acquiescence of the Committee on Ways and Means to the
request made by it.
PAGCOR enjoys a franchise (tax exemption) that partakes the nature of a grant.
The Constitution provides that no franchise or right shall be granted except under the
condition that it shall be subject to amendment, alteration or repeal by the Congress
when the common good so requires. RA 9337 of the Congress withdrawing the
exemption of PAGCOR from corporate income tax did not violate the Non-impairment
Clause” of the Constitution because franchise is always revocable.
41. PAGCOR has other income realized from other related services. (a) Is the
income subject to corporate income tax? (b) PAGCOR Gives benefits to its
managerial and supervisory employees, is PAGCOR subject to Fringe Benefit
Taxes? (c) Is PAGCOR exempt from the payment of VAT on its purchases of
goods and services? (PAGCOR vs. CIR, GR Nos. 210704 & 210725, November 22,
2017)
Answer. (a) PAGCOR’S income from gaming operations is subject only to 5% franchise tax under
PD 1869, as amended. All other income from other related services is subject to the
normal corporate income tax of 30%. (b) PAGCOR is a mere withholding agent in the
Fringe Benefit Tax. The FBT is imposed on PAGCOR’S managerial and supervisory employees
who received the benefit. PAGCOR’S liability as a withholding agent is NOT covered by the tax
exemption it enjoys under its Charter.
(c) PAGCOR enjoys exemption from indirect taxes (VAT) under its Charter.
42. BIR contends that since PAGCOR is now subject to corporate income tax it
should likewise be subject to the 12% VAT. Is the BIR Correct? (PAGCOR vs.
BIR, March 15, 2011)
Answer. RR No. 16-2005 subjecting PAGCOR to the VAT is invalid for being contrary
to RA No. 9337. Nowhere is it provided under RA 9337 that PAGCOR can be
subjected to VAT. The said law removed the exemption of PAGCOR from corporate
income tax but retained its exemption from other direct and indirect taxes like VAT
which is provided by its charter (PD 1869), a special law that granted it tax exemption.
43. Define a de facto merger: (RMC – 1-02, April 25, 2002)

Answer. It is a procedure similar to a transfer to a controlled corporation under Sec.
40(C)(2) of the Tax Code, except that at least 80% of the transferor’s assets, including cash
are transferred to the transferee, with the element of permanence and not merely a momentary
holding. The requisites of a de facto merger are: (a) there must be a transfer of all or
substantially (at least 80%) all of the properties of the transferor corporation solely for
stocks, and (b) it must be undertaken for e bona fide business purpose and not solely
for the purpose of escaping the burden of taxation.
44. Distinguish a de facto merger and a “transfer to a controlled corporation”: (RMC No. 1-
02, April 25, 2002)
Answer.
De Facto Merger Transfer to a controlled
corporation
he transferor is a corporation The transferor may either be a
corporation or an individual
here is no requirement that the transferor The transferor must gain control (more
gains control of the transferee than 51% of the total voting powers of
corporation as a pre-requisite of tax all classes of shares of the
exemption transferee entitled to vote) for tax
exemption
he transferee acquires all or substantially No such requirement.
all of the properties
of the transferor
45. Cite at least four (4) instances where mergers and consolidations of corporations are
tax-exempt.
Answer. Tax exempt mergers and consolidations: In any of the following instances,
neither the gain nor the loss is recognized, and the transaction is thus referred to at
times as “tax-exempt sales or exchanges”
a) A corporation which exchanges its property solely for stock of another corporation;
b) A shareholder who exchanges stock in a corporation solely for the stock of another
corporation;
c) A security holder who exchanges his securities in a corporation solely for stocks or
securities in another corporation;
d) A corporation which exchanges its property not only for stock but also for money
and/or property of another corporation and distributes such money and/or
property in pursuance of the plan.
46. R Corporation (domestic) entered into a merger with its wholly-owned domestic
subsidiaries S Corporation and U Corporation. S and U transferred all their
assets and liabilities to R. R Corporation is the surviving corporation. R did not
issue any shares of stocks to S and U in consideration of the assets and
liabilities it got from S and U because S and U are wholly-owned by R. Is the
merger between R, S and U tax free?
Answer. This activity is called upstream merger between a parent and its subsidiaries
where the parent company will not be issuing any shares to the subsidiaries in
exchange for the assets transferred to it. In effect, the transfer is in the nature of
donation made by the subsidiaries to the parent, hence subject to donor’s tax. The
intended merger has the effect of dissolving and liquidating the subsidiaries without
payment of the corresponding taxes. (BIR Ruling No. 614-12, November 9, 2012)
47. X is a stockholder of W Corporation. He decided to exchange his real property

to shares of stocks of said corporation without monetary consideration so that
he can gain control of the corporation. What is the tax implication of said
transaction? (Kudao & Sons, Inc. vs. CIR, CTA case No. 8501, January 13, 2014)
Answer. Transfer of real property in exchange for controlling shares of stock is a tax-
free exchange transaction under Sec. 40(C)(2) of the NIRC but is subject to VAT
under Sec. 109 of the Tax Code. Tax base for DST purposes in a sale of shares of
stock is the total par value of the shares sold and NOT the gross purchase price. (CIR
vs. Eco Leisure & Hospitality Holding Co., Inc. CTE EB N0. 1013, January 14, 2014)
48. X Corporation purchased all properties from Y Corporation under a Purchase

and Sale Agreement. The BIR noticed that the seller still has unpaid DST.
Having evidence to prove that X is now in possession of all properties of Y, BIR
enforces the tax liabilities of Y against X. Is the BIR correct? [CIR vs. Bank of
Commerce, GR No. 180529 (2013)] Answer. The purchase and sale of identified
assets between 2 corporations under a Purchase and Sale Agreement does not
constitute a merger as defined under the Tax Code, the seller and purchases are still
considered separate and different entities from one another. Thus, X, the purchaser
cannot be held liable for the payment of the deficiency tax liability of Y.
49. What are the requisites of a

taxpayer’s suit? Answer.
a) Tax money is being extracted and spent in violation of specific constitutional
protections against abuses of legislative power;
b) Public money is being deflected to any improper purpose [Pacual vs. Sec. of Public
Works, 110 Phil. 22 (1960)]
c) The petitioners seek to restrain the respondents from wasting public funds
through enforcement of an invalid or unconstitutional law. (Garcia vs. Enriquez,
Dec. 9, 1993)
However, the SC has discretion as to whether or not to entertain a taxpayer’s suit and could
brush aside the lack of locus standi where the issues are of transcendental importance in
keeping with the court’s duty to determine that public offices have not absurd the
discretion given to them. [Kilosbayan vs. Guingona, 232 SCRA 119 (1994]
A taxpayer has the right to file an action questioning the validity or
constitutionality of a statute or law on the theory that the expenditure of public
funds by an officer of the government for the purpose of administering or
implementing an unconstitutional or invalid law constitutes a misapplication of such
funds. (Gascon vs. Arroyo, G. R. 78389, Oct. 1989)
50. The government entered into a contract with X. The latter will supply foreign rice
in support of the government’s feeding program. T is not a party to the contract
and he files a taxpayer’s suit against the government questioning the validity of
the contract entered into involving the use of public funds in the purchase of
the rice. Will the action prosper? Answer. A taxpayer need not be a party to the contract
to challenge its validity. All that is required in a taxpayer’s suit is that the
party suing as taxpayer must specially prove sufficient interest in preventing illegal
expenditure of money (public funds) raised by taxation. (2005 case)
 The application of Direct Injury Test in a taxpayer’s suit is no longer considered the
sole criteria in said action.
 This class suit is primarily filed to question illegal expenditure or

misappropriation of public funds.
51. X filed a taxpayer’s suit before the RTC questioning a loan contract entered into
by the government because the interest expense therein is deemed to be higher
than the lowest bid. The court dismissed the case for reason that X has no
personality to question the contract as he was not a party to the contract. In
addition X failed to prove that he is directly injured by the contract. Is the
dismissal valid? (Mamba vs., Lara, 608 SCRA 149)
Answer. Under a taxpayer’s suit, the taxpayer need not be a party to the contract to challenge
its validity. As long as taxes are involved, people have a right to question contracts
entered into by the government. The old “direct injury test” in taxpayer’s suit has been
relaxed as it involved procedural technicality. It now uses “transcendental importance”, “paramount
public interest” or “far-reaching implication” where ordinary citizens and taxpayers were allowed
to sue even if they failed to show direct injury to them as long as there is misappropriation
of public funds, the class action of taxpayers’ suit may be availed of to question illegal
disbursement. Hence, the dismissal is not correct.
52. Is there a violation of “public purposeness” in taxation if taxes (money realized

from the use of power of taxation) are used for the benefits of identified private
individuals?
Answer. General Rule – taxes should be spent for the benefit of the greater majority
of the people. However, if the expenditure of public funds (a) will enhance the social
justice program of the government, (b) it is of transcendental importance and (c) it has
a far reaching implication benefiting not only the present but also the future
generation, the use of public funds raised from taxation is not deemed
misappropriation that can be questioned under a taxpayer’s suit.
53. Under RA 7432 (Senior Citizens Law), senior citizens are given 20% discount on
their purchase of medicines from private establishments which may be claimed
by such establishments subsequently as tax credit. In 2005 X Drugstore
sustained an operating loss and therefore was not able to deduct the 20%
discount it gave to senior citizens. X applied for the issuance of a tax credit
certificate indicating the correct amount of discount given. CIR denied the claim
of X contending that is not entitled because there was no income tax due from
its business operation. CIR shows “X” a Rev. Regulation in support of the
denial. Is the tax official correct? Reason.
Answer. The Tax official is NOT correct. A law cannot be amended by a mere
regulation. The administrative agency issuing regulations may not enlarge, alter or
restrict the provisions of the law it administers – it cannot engraft additional
requirements not contemplated by the legislature. RA 7432 maintains that the cost of
the discount may be claimed as a tax credit, which simply means that the amount
given to senior citizens by way of discount may be claimed as a reduction from any tax
liability, considering that X sustained a loss, its application for a tax credit certificate
should be granted so that it can apply the discount later on against his other IR tax
payments. To deny X such, despite the plain mandate of the law is indefensible.
Revenue Regulations cannot amend tax laws. (2005 case)
54. How should the discount (20%) granted to Senior Citizens be treated by
businessmen for purposes of taxation? Answer. It shall be deducted from their
gross income at the end of the tax period. (Sec. 4, RA 9257) The establishment giving
the 20% discounts may claim it as a tax deduction based on the net cost of the
goods sold or services rendered, provided:
a. the cost of the discount shall be allowed for the same taxable year that it was granted,
and
b. the total amount of the claimed tax deductions net of VAT if applicable shall be
included in their gross sales receipts for tax purposes and shall be subject to
proper documentation and to the provisions of the NIRC.
The 20% senior discount may no longer be covered by tax credit but rather, it
can be deducted outright from gross sales or gross receipt.
55. Distinguish tax avoidance and tax evasion:

Answer. Tax avoidance which is also referred to as tax minimization scheme is the
reduction or totally escaping payment of taxes thru legally permissible means that are
not prohibited and therefore are not subject to penalties. Whereas, tax evasion which
is also referred to a tax dodging is resorting to acts and devices that illegally reduce or
totally escape payment of taxes that are due from the taxpayer. They are prohibited
and therefore are subject to civil and/or criminal penalties.
56. What are the elements of tax evasion? (VIR vs. Toda, 2004)
Answer.
a) Payment of an amount of tax less than what is known by the taxpayer to be legally due,
b) An accompanying state of mind which is evil, in bad faith, deliberate, willful or

intentional and not merely incidental; and
c) A cause of action or failure of action which is unlawful
57. E Corporation sold its commercial building to X, (corporate taxpayer to natural

person) who on the same day of purchase sold the very same property to S
Corporation. Is the scheme designed to avoid taxes or evade taxes? Answer.
This is a case of tax evasion. The three (3) elements of tax evasion were present. The
two transfers were tainted with fraud. When E sold the property to X, it paid the 6%
capital gains tax instead to the normal income tax of 5% - 32%. Then X sold the same
property to S paying also the 6% capital gains tax. Had this been a bona fide
transaction of a sale from E to S, the normal income tax would have been paid. ( CIR
vs. Estate of Benigno Toda, Jr., 483 SCRA 293)
58. Can the CIR issue an administrative tax amnesty?

Answer. Nothing in the tax Code gives the CIR the power to issue tax amnesty. A tax
amnesty, being a general pardon or intentional overlooking by the State of its authority
to impose penalties on persons otherwise guilty of evasion or violation of a revenue or
tax law, partakes of an absolute forgiveness or waiver by the government of its right to
collect what otherwise would be due it. (Republic vs. IAC) The power of taxation is
legislative in character and a legislative prerogative (NPC vs. Albay). The waiver
partakes of the nature of tax exemption. The Constitution requires that law granting
tax exemption must have the concurrence of a majority of all members of Congress.
The power to tax includes the power to exempt thereof. It follows, therefore, that only
the legislatures have the power to grant tax amnesty and not the CIR.
59. Under the Tax Amnesty Law, a taxpayer is not qualified if his tax case has
already been decided with finality by the court. X, applied for tax amnesty,
submitted all records and documents required and paid the tax under the
program. The CIR would like to continue with its tax assessment to which X
objected because among the benefits attached to the tax amnesty program is
that the taxpayer shall be exempt from tax examination. The CIR showed X a
copy of a revenue regulation holding that taxpayer with pending tax
investigation is not qualified under a tax amnesty program. CIR insisted on the
continuance of the assessment. X refused to partake in the investigation and
questioned the government on that score? Is the contention of the CIR tenable?
Answer. The CIR cannot continue with the tax examination because X has availed
itself of the Tax Amnesty Program. All the benefits attached to the program are not
suspensive or conditional in character but they are immediate in application. The
revenue regulation of the BIR holding that a taxpayer with pending tax assessment is
not qualified under a Tax Amnesty Program has expanded the law it seeks to
implement. The Revenue Regulation cannot be given due course because what the
law provides is “taxpayers with tax cases already decided by competent court” cannot avail of
the tax amnesty, X’s case is still pending investigation.
60. X is a corporation operating within the special economic zones. Can it validly
avail of the tax amnesty program of the government? (b) What is Tax Amnesty?
(c) What may a taxpayer enjoy under a tax amnesty program? (Asia International
Auctioneers, Inc. vs. CIR, Sept. 12, 2012)
Answer. X may validly avail of the tax amnesty program of the government because
taxpayers within the special economic zones are not excluded from the coverage of
the program. The Tax Amnesty Law did not specifically exclude them.
(a) Tax amnesty is a general pardon or the intentional overlooking by the State of
its authority to impose penalties on persons otherwise guilty of violation a tax law.
It partakes of an absolute waiver by the government of its right to collect what is
due it and to give the tax evaders who wish to relent a chance to start with a clean
slate.
(b)Amnesty taxpayers after complying with the requisites provided under the
program shall be exempt from tax investigation/assessment of the BIR, among
other benefits provided under the Tax Amnesty Law. .
 Nature of tax amnesty – It is similar to tax exemption which is disfavored and

generally construed strictly against the taxpayer and liberally in favor of the
taxing authority.
 The taxpayer has the liberty to choose which tax amnesty programs it wishes to
avail of as long as it is within the bounds of law.
61. In 2010 X availed of the tax amnesty program of the BIR by submitting all the
requisite documents thereto and payment of the corresponding tax. Within the
same year BIR wanted to conduct an examination of X’s books and business
records. X protested contenting that he is exempt from assessment under the
Tax Amnesty program of the government. The tax officials posit that his
availment of the tax amnesty program is still subject to verification and
validation; meanwhile X is not exempt from tax investigation. Is the government
correct?
Answer. Amnesty taxpayers like X may immediately enjoy the privileges and
immunities under the Tax Amnesty Law (RA 9480) as soon as requisite documents
and papers are filed with the RDO or an authorized agent bank and payment of the
amnesty tax. The benefits provided under the amnesty law are not depended upon the
verification and validation of the BIR. (CS Garment, Inc. vs. CIR, March 12, 2014)
62. PBCom filed its quarterly ITR for the 1 st & 2nd qrts. Of 1985. Later, if suffered
losses and reported a net loss for 1985 & 1986. However, it earned rent for
which taxes were previously withheld by their lessees. In Aug. 1987, if
requested for a tax credit representing tax overpayments in the 1 st & 2nd qrts.
Of 1985. In July 1988, it also claimed refund of the creditable taxes withheld
from 1985 & 1986 rentals. The CIR change the prescriptive period for tax refund
under a RMC. PBCom relied on said circular. Is the claim for refund beyond the
2-year period valid as the same was based on the Revenue Memorandum
Circular?
Answer. The claim for refund is already time barred. Taxes are the lifeblood of the
nation, thus the modes to enforce collection should be summary and rarely interfered
with. From the same perspective, claims for refund/credit should be exercised with the
time fixed by law in order not to unduly delay the BIR in its collection functions. The
RMC issued by the CIR is beyond the provision of the law. An erroneous interpretation
of the law does not vest the taxpayer with a shield against judicial action. Revenue
Regulations and BIR Rulings cannot amend Tax laws.
63. The CIR issued 2 Revenue Memorandum Circulars affecting pawnshops. X, a

pawnshop operator contested the RMC’s and filed a case in the RTC. CIR filed a
Motion to dismiss contending that RTC has no jurisdiction. RTC denied CIR’s
Motion to Dismiss. Was the RTC correct?
Answer. The power to review rulings issued by the CIR is lodged with the CTA and
not with the RTC. The Revenue Memorandum Circulars are ruling or opinions issued
by the CIR implementing the provisions of the Tax Code on the taxability of
pawnshop. Clearly the regular court has no jurisdiction over the issues obtaining.
64. The VAT law provides that the President, upon the recommendation of the Sec.
of Finance, shall raise the VAT rate of 10% to 12% after the given conditions are
met satisfactorily. Was there an invalid delegation of legislative power to tax to
the president?
Answer. There was no undue delegation of legislative power to tax but only the
discretion as to the execution of the law, which is constitutionally permitted. The
Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it and what is the scope of his authority. In the
VAT issue, the Sec. of Finance merely acted as the agent of the legislative
department in determining and declaring when the event of increase should
commence. The President cannot set aside the findings of the Sec. of Finance but she
must act accordingly. (Abakada Guro Party List vs. Ermita, Sept. 1, 2005)
65. Sec. 12, Art, VI of the 1987 Phil. Constitution encourages the use of Filipino
labor, domestic materials and locally produce goods. (Concept of “preferential
use” and “Filipino First policy”). However, our government grants tax and duty-
free importation to businessmen operating inside the export processing zone. Is
this not violative of the “preferential use” of the Constitution?
Answer. The mere fact that the law authorizes the importation and trade of foreign
goods does not suffice to declare the statute granting tax and duty-free exemption
unconstitutional on at ground alone. It is true that the Constitution does not encourage
the unlimited entry of foreign goods, services and investments into the country yet
does not prohibit them either. The current dictates of time and global market is to allow
an exchange on the basis of equality and reciprocity, frowning only foreign
competitions that are discriminatory and unfair. (Coconut Oil Refiners Association, Inc.
vs. Torres, July 29, 2005)
66. A petition was filed questioning the constitutionality & validity of EO No. 97(A)
issued pursuant to RA No. 7227 which, among other things, created the Subic
Special Economic Zone and granted thereto special tax privileges. Petitioners
allege that the EO violated their right to equal protection by limiting the tax and
duty-free privileges to businesses and residents within the fenced-in area of the
Economic Zone. Is the contention correct?
Answer. No. The order is not violative of the equal protection clause and it is not
discriminatory. There are real and substantial differences between those inside and
outside the Zone, thus justifying a valid and reasonable classification. Equal protection
is not an absolute right and is subject to reasonable classification. RA 7227 aims to
accelerate the conversion of military reservation to productive uses. Therefore, the “lands
covered under the Bases Agreement” are its object. The classification does not merely apply to
existing conditions because upon the conversion of the Zone into a self-sustaining
industrial and commercial area, there will indeed be a long-term difference between
the Zone and the areas outside. Also, all residents and businesses within the “secured
area” are treated similarly.
67. SC Johnson was licensed by SC Johnson & Son (USA) to use its trademarks.
The agreement was registered with the Bureau of Patents (Phils.) For this
privilege, SC Johnson pays royalties to the US Corp. which was subject to 25%
withholding tax. In 1993, SC Johnson filed for tax refund of overpaid
withholding tax. It claims that under the Most Favored Nation (MFN) Clause of
the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty, the royalty
payments it made were subject only to 10% tax. Is SC Johnson & Son Correct?
Answer. The 10% tax claimed is not correct. The RP-US Tax Treaty states that the
applicable rate would be the lowest rate of Philippine tax that may be imposed on
royalties of the same kind paid under similar circumstances (Most Favored
Nation Clause) to a resident of a third state. The 10% rate provided in the RP-West
Germany Treaty is not applicable. This is because the RP-US Treaty does not provide
for a matching tax credit of 20% for taxes paid to the Philippines on royalties expressly
allowed in the RP-West Germany Treaty. The entitlement of the 10% rate by US firms
despite the absence of a matching 20% credit would derogate from the design behind the
“MFN” clause to grant equality of international treatment since the tax burden laid upon the
income of the investor is not the same in the two countries. The similarity of payment
of taxes is a condition for the enjoyment of the MFN treatment precisely to underscore
the need for equality of treatment. Royalty is not a tax.
68. Real Estate dealers are required to withhold taxes on every sale of real property
they make. These dealers argued that they are being singled out because other
businesses are not required to withhold taxes on every sale they conclude
during the course of their business operations. The dealers believe that there is
violation of the uniformity and equality clause of the Constitution. Are the
dealers correct?
Answer. The taxing authority has the power to make reasonable classifications for
purposes of taxation. Inequalities resulting from a singling out of one particular class
for taxation or exemption do not infringe any constitutional limitation. The real estate
industry is, by itself, a class and can be validly treated differently from other business
enterprises. The Congress has the power to choose the subject or object of taxation
provided all those similarly situated in that group are treated alike without distinction.
(CREBA, Inc. vs. the Hon. Executive Sec. Alberto Romulo, March 9, 2010)
 The choice of the legislative body is valid only when the requisites of classification statutes
are met.
 Only the legislative body exercises the power to choose the object/subject of
taxation and to classify or reclassify them for tax purposes.
69. May a taxpayer who has pending claims for unutilized input tax under the 0%
VAT transactions credit or set-off said claims against his other tax liabilities?
Reason.
Answer. No. Taxes and claims for refund cannot be set-off (legal compensation) for
the simple reason that the government and the taxpayer are not creditor and debtor of
each other. There is material distinction between a tax and a claim for tax credit and
tax refund. Claims for refunds just like debts are due from the governments in its
corporate capacity, while taxes are due to the government in its sovereign capacity.
Moreover, set-off is available only if both obligations are due, demandable and fully
liquidated, Liquidated debts are those where the exact amounts have already been
determined. In the instant case, the claim of the taxpayer for VAT refund is still
pending and the amount is still to be determined. A fortiori, the liquidated obligation of
the taxpayer to the government cannot therefore, be set-off against the unliquidated
claim which the taxpayer conceived to exist in his favor.
70. May the CIR be held personally liable for damages caused to a taxpayer in the
performance of his official duties? (Chato vs. Fortune Tobacco, June 19, 2007)
Answer. Yes. The rule in this jurisdiction is that a public officer may be validly sued in
his/her private capacity for acts done in the course of the performance of the
functions of the office, where said public officer: (a) acted with malice, bad faith, or
negligence; or (2) where the public officer violated a constitutional right of the plaintiff.
In the cited case, the then CIR issued a Rev. Regulation (RMC 3793) in violation of
Fortune Tobacco’s constitutional right against deprivation of property without due
process of law and the right to equal protection of the laws.
71. Under what circumstances may a special law prevail over a general law? (Chato case)
Answer. The rule is that where there are two acts, one of which is special and
particular (Art. 32 of the Civil Code – A public officer who directly or indirectly violates
the constitutional rights of another, may be sued for damages even if his acts were not
so tainted with malice or bad faith) and the other general (Sec. 38, Book I of the
Administrative Code – “A public officer shall not be civilly liable for acts done in the
performance of his official duties unless there is a clear showing of bad faith, malice or
gross negligence”) which, if standing alone, would include the same matter and thus conflict with the
special act, the special law must prevail since it evinces the legislative intent more clearly
than that of a general statute and must not be taken as intended to affect the more
particular and specific provisions of the earlier act, unless it is absolutely so to
construe it in order to give its words any meaning at all.
The circumstances that the special law is passed BEFORE OR AFTER the general
act does not change the principle above. Where the special law is later, it will be
regarded as an exception to, or a qualification of, the prior general act; and where the
general act is later; the special statute will be construed as remaining an exception to
its terms, unless repealed expressly or by necessary implication.
72. X was suspected to have amassed ill-gotten wealth while in public office. He
maintained various accounts in several and different banks under fictitious
names. Upon investigation, the CIR placed these bank accounts under
constructive distraint. X’s counsel challenged the CIR’s action for want of an
assessment against X. Is the CIR justified in freezing the accounts of X?
Answer. The CIR is justified in placing the accounts of X under constructive distraint.
The act of maintaining fictitious accounts is an act of concealing properties to evade
payment of taxes which warrants the remedy of constructive distraint under Sec.
206 of the Tax Code.
73. Is the BIR authorized to freeze inquiries of a bank deposit of a taxpayer?

Answer. Sec. 206 of RA 8424 provides the legal basis of such authority. To safeguard
the interest of the government, the CIR may place under constructive distraint the
property of a taxpayer who, in his opinion (a) is concealing property for purposes of
tax evasion, (b) intends to leave the country, (c) obstruct the collection of taxes, (d) is
retiring from business and (e) removing property from where they are collected for
purposes of tax evasion.
74. The legal officers of the BIR relying on the provision of Sec. 220 of the NIRC
instituted judicial action on behalf of the government against X. The same
officials filed a Petition for Review on Certiorari before the Supreme Court. The
highest Court dismissed the petition. Basis of dismissal – A Petition for Review
on Certiorari before the CA or the SC, without the participation of the Solicitor General
is defective, being the legal officer of the Republic of the Philippines, he is the rightly
person who should represent the government in tax cases before the CA and the SC,
not the legal officers of the bureau.
75. Distinguish indirect taxes from withholding taxes. (Asia International Auctioneers, Inc. vs.
CIR, Sept. 26, 2012)
Answer. In indirect taxes the incidence of taxation falls on one person but the burden
thereof can be shifted or passed on to another person, such as when the tax is
imposed upon goods before reaching the consumer who ultimately pays for it. In
withholding of taxes, the incidence and burden of taxation fall on the same entity, the
statutory taxpayer. The burden of taxation is not shifted to the withholding agent who
merely collects, by withholding the tax due from income payments of entities arising
from certain transactions and remits the same to the government.
76. The Tax Amnesty Law (RA 9480) expressly disqualifies a withholding agent from
the tax amnesty program because he is not a taxpayer when he withheld taxes
for and in behalf of the government, only erring taxpayers are qualified under
the said law. CIR contends that “X” is disqualified to avail itself of amnesty
because it is “deemed” a withholding agent for deficiency VAT and excise
taxes. Both taxes are indirect taxes where the incidence of taxation falls on one
person but the burden thereof can be shifted or passed on to another person. Is
X disqualified? (Asia International Auctioneers, Inc. vs. CIR, Sept. 26, 2012)
Answer. In this particular case, the CIR did not assess taxpayer as a withholding
agent that failed to withhold or remit the deficiency VAT and excise taxes to the BIR
under the relevant provisions of the NIRC. Indeed, a withholding agent who withheld
taxes but did not remit the correct amount withheld to the government cannot avail of
tax amnesty. Indirect taxes like VAT and excise taxes are different from withholding
taxes. Deficiency VAT and excise taxes cannot be deemed as withholding taxes
merely because they constitute indirect taxes. Hence, X has the proper standing to
avail of the tax amnesty program.
77. Briefly explain why a withholding agent is given the authority to file a refund claim?
Answer. In the case of CIR vs. Smart Communication, Inc., 629 SCRA 342 (2010),
the SC held that a withholding agent has a legal right to file a claim for refund for two
reasons: (a) he is considered a “taxpayer” under the NIRC as he is personally liable for the
withholding tax as well as for deficiency assessment, surcharges, and penalties
should the amount of the tax withheld be finally found to be less than the amount that
should have been withheld under the law. (b) As an agent of the taxpayer, his
authority to file the necessary income tax and to remit the tax withheld to the
government impliedly includes the authority to file a claim for refund and to being an
action for recovery of such acclaim.
78. X, a local domestic bank earned income on its foreign currency loans granted to
its borrowers. X was supposed to pay the onshore (local) tax on interest derived
from such loan thru its payor-borrower acting as the withholding agent and
payment done thru the withholding tax system. The payor-borrower failed to
withhold the onshore tax on its payment made to X. The BIR enforces collection
of the tax against X, the interest income earner. X contends that it is not liable
because the tax was supposed to be the liability of the payor-borrower being
the withholding agent. Is X correct? (RCBC vs. CIR, Sept. 7, 2011)
Answer. The liability of the withholding agent (WA) for its failure or negligence to
withhold taxes is different and independent from the liability of the income earner to
pay the tax on the corresponding income earned. The WA cannot be made liable for
the tax due because it is X who earned the income subject to the withholding tax. The
WA is liable only insofar as he failed to perform his duty to withhold the tax and remit
the same to the government. But the liability for the tax remains with X, the taxpayer,
who had earned the income on the transaction.
79. X paid Y an amount of money representing the income of the latter. X failed to
withhold the corresponding tax therefrom. The BIR assesses Y the unpaid
withholding tax relative thereto. Y refused to pay contending that it is not the
withholding agent in the said transaction and therefore the liability to withhold
taxes should rest on X. The BIR believes otherwise. Is Y correct that the
withholding tax due from the transaction where it earned an income should be
collected from X, the payor-withholding agent?
Answer. The liability of the withholding agent is independent from that of the taxpayer.
X cannot be made liable for the tax due because it is Y who earned the income
subject to withholding tax. The withholding agent is liable only insofar as he failed to
perform his duty to withhold the tax and remit the same to the government. The liability
of the tax remains with the taxpayer because the gain was realized and received by
him. Y cannot evade his liability to pay the tax by shifting the blame on X, the payor-
withholding agent. (RCBC vs. CIR, September 7, 2011)
80. The decision of the SC in the case of CIR vs. Pilipinas Shell Petroleum Corp.,
April 25, 2012 that the excise tax imposed on petroleum products is the direct
liability of the manufacturer, hence, it cannot shift the excise taxes it paid to
international carriers buying its petroleum products because the latter are
exempt from excise taxes. Manufacturers are not entitled to claim tax refund.
The SC recently re-examined said ruling and in the latest case of CIR vs.
Pilipinas Shell Petroleum Corp., February 19, 2014, The SC granted the petroleum
manufacturer’s claim for refund or tax credit of excise taxes on petroleum sold to
international carriers exempt from excise taxes on petroleum products giving primary
consideration to its broad implication on the country’s commitment to international
agreement.
81. Of late, our government appropriated big sum of money for the relocation of the
illegal settlers. A cause oriented group questioned the same for being violative
of the general principle in taxation that taxes are exacted only for a public
purpose which means that taxes cannot be used for purely private purpose or
for the exclusive benefit of private persons, it would be a robbery for the State
to tax its citizens and use the funds generated for a private purpose (benefiting
a group of identified private individuals). Is the contention valid? (Planters
Products, Inc. vs. Fertiphil Corp., 548 SCRA 485)
Answer. The Supreme Court held that public money may now be used for the
relocation of illegal settlers, for lost-cost housing and urban or agrarian reform
because these projects enhance the social justice programs of the government. Public
purpose is an elastic concept that can be hammered to fit modern standards. This is
traditionally viewed as essentially government functions, like the delivery of basic
services to the people, building roads and bridges that benefit the greater majority of
the people.
82. When may the BIR commence the collection of deficiency interest and delinquency
interest?
Answer. Deficiency interest shall be collected from the date prescribes for the
payment of the tax until the full payment thereof. Whereas, the delinquency interest
shall be collected on the due date appearing on the notice and demand of the
Commissioner until fully paid. (Takenaka Corp. (Phil. Br.) vs. CIR, CTA EB case No.
745, September 4, 2012)
83. The Canons of a Sound Tax System has three (3) elements, namely: (a) Fiscal
adequacy, (b) Administrative feasibility and (c) Theoretical justice.
Administrative feasibility means that the system should provide for tax laws
that are simple, concise and readily understood not only for the benefit of the
taxpayers but likewise it must be capable of being
effectively administered and enforced with the least inconvenience to the both
the government and the taxpayer. If these requisites are not met, is the tax
measure invalid on that score? (Diaz, vs. Sec. of Finance, July 19, 2011)
Answer. Non-observance of the canons will not render a tax imposition invalid “except to the extent
that specific constitutionally or statutory limitations are impaired.” Even if the imposition of VAT on toll
way operators may seem burdensome to implement, it is not necessarily invalid unless some
aspect of it is shown to have violated any law or the Constitution.
On Income Taxation:
84. Who is a large taxpayer for income

tax purposes? Answer. As to
payment – Any taxpayer who has
paid:
a) VAT of at least Php 200K per quarter for the preceding year
b) Percentage Tax of at least Php 200K per quarter for the preceding tax
c) Documentary Stamp Tax – with an aggregate amount of at least Php 1.0M paid per year.
d) Withholding Tax – of at least Php 1.0M annual withholding tax payments or
remittances from all types of withholding taxes.
e) Income Tax – of at least Php 1.0M annual income tax paid for the preceding year.
As to financial conditions and/or result of operations:
a) Total Gross sales or receipts of Php 1.0Billion

b) Total net worth of Php 300M at the close of each calendar or fiscal year
c) Total gross purchases of Php 800K for the preceding year
d) Included in the list of top corporations by the SEC.
86. During the lifetime of X he was employed as the general manager of the Wonder
Corporation. His dedication and exemplary performance on the job brought in
huge profit to the corporation. X was allowed to borrow Php 2.0 million for the
renovation of his house in the province at a minimal interest rate of 6% per
annum. Three days after Christmas of 2014 X suffered a cardiac arrest and died.
In recognition of his valuable contribution to the firm, the widow was given Php
1.0 million and the unpaid debt of X was condoned. In the filing of her income
tax return, should the widow declare the money she received as income for the
year 2014? What is the tax implication of X’s debt that was condoned? Answer.
The amount given to the widow of X is treated as an exempt income because any
amount received by the
employee’s heirs as a consequence of separation of the employee on account of sickness
or death is excluded from gross income. The debt condones is a remuneratory donation subject
to taxation because there is no showing that X’s widow is insolvent. It is not a gift given out of
pure generosity or liberality but started out as an obligation.
87. What are the consequences of condonation of debt for purposes of income taxation?
a) If the creditor is an employer and the debtor its employee?
b) If the creditor is a corporation and the debtor is one of its stockholders?
c) If there is no relationship between the creditor and the debtor and the
former condones the obligation of the debtor.
Answer.
a) The amount condoned is compensation income to the employee.

b) The amount condoned is an indirect dividend to the stockholder which shall be subject to
10% final withholding tax.
c) The debtor is subject to income tax except if he is insolvent because the amount
condoned is a remuneratory donation to him, whereas, the creditor is subject to
donor’s tax if the amount condoned is more than Php 100,000.
88. X and Y Corporations entered into a management contract. X made advances of

cash and property in favor of Y. Y suffered huge losses which led to the
withdrawal of X as manager and cessation of their business operation. X and Y
entered into two compromise agreements. This first would involve the
cash advances of X to Y, where Y acknowledges the same as indebtedness. The
second would involve long-term loans guaranteed by X. Can X deduct the cash
and property advances it gave to Y?
Answer. In the case of Philex Mining Corp. vs. CIR, April 16, 2008, the SC held that
Philex cannot deduct the advances as bad debts. The agreement provided for a
distribution of assets of the mine upon termination which is more consistent with a
partnership agreement than a creditor-debtor relationship. X’s advances should be
treated as investments in a partnership and not debts to Y because the latter was
under no unconditional obligation to return the same to X.
89. X Corporation lent money to Y. The agreement contains a proviso that says X
shall be entitled to 20% of the annual profit of Y until the obligation is fully paid.
Y was not able to pay the debt due to losses, notwithstanding, Y still continued
his business operation hoping for recovery. Can X deduct Y’s obligation as bad
debt?
Answer. No. X cannot deduct Y’s obligation as bad debt because Y is still operating and is not
insolvent.
(Fernandez Hermanos, Inc. vs. CIR, September 30, 1969)
90. What is the Equitable Tax Benefit Rule or sometimes called the Recapture Rule?
Answer. It is the recovery of bad debts previously allowed as deduction in the
preceding year or years will be included as part of the taxpayer’s gross income in the
year of such recovery to the extent of the income tax benefit of said deduction.
91. X Bank purchased 53% of the voting stocks of Y, its own subsidiary.
Subsequently, due to economic depression and mismanagement of Y it became
insolvent. May X Bank treat its loss as a bad debt or an ordinary loss which it
can deduct from its gross income? Why? (China Banking Corp. vs. CA, July 19,
2000)
Answer. The equity investment in shares of stocks held by X in its subsidiary Y is not
indebtedness. The shares of stocks in question do not constitute a loan extended by X
to Y or was it a debt subject to obligatory repayment by the latter. The investment of X
is a capital not an ordinary asset. Thus, any loss sustained therefrom is a capital loss
which can only be deducted from a capital gain and not from ordinary income or gain.
92. Mr. Farmer insured his crop against calamities. The crops were totally
destroyed by strong typhoons. Insurance company paid Mr. Farmer the full
coverage of the insurance policy. Is the amount taxable?
Answer. The amount Mr. Farmer received is reimbursement for the lost value of his future
harvest or his “lost profit”, the amount is not in payment of lost of life, health or human
reputation. Hence, it is taxable.
can deduct from its gross income? Why? (China Banking Corp. vs. CA, July 19,
2000)
94. S is engaged in buying and selling pre-owned cars. S purchased a vintage car
for Php 480,000.00. He did some improvement and repair on said car and sold it
for Php 680,000.00 although the current value thereof is Php 950,000.00 Is there
any tax implication under the given facts?
Answer. The current fair market value of the car is Php 950K and S sold it for only
Php 680,000, the difference is of Php 270K is subject to Donor’s Tax. S bought the car for
Php 480K and sold it for Php 680K, the gain of Php 200K less his expenses is subject to
income tax.
95. X earns his living expenses thru embezzlement and swindling activities. Is X
taxable on the proceeds of his illegal income?
Answer. Yes, illegal income is subject to income tax because the money taken is
without an original intention to return on the part of X. The money stolen has
increased the net worth of X.
96. A, B C and D inherited from their parents several income-generating real

properties and businesses. Subject siblings are all financially successful in
their own rights. They agreed to set aside their share in the profits from the
inherited properties and businesses and reinvest them in other income
generating businesses. How do we tax the co-owners? Answer. A, B, C and D
are the co-owners of the inherited properties from their parents. A co-ownership of this
sort is not subject
to corporate income tax because they did not contributed capital to the business. The
co-owners will be taxed separately and individually base on their distributive share in
the profits. However, when the profits realized from the co-owned properties are not
distributed to the siblings but instead they are reinvested in some profit generating
businesses, the siblings have constituted and organized an unregistered partnership
that is taxable as a corporation.
97. Suan Company is an unregistered partnership operating in Baguio City without

business license.
(a) Is it liable for any internal revenue taxes?
(b) After a BIR assessment, it noticed that “Suan” was not paying its income
tax regularly and those that were covered by tax payments were not
commensurate to its business operation. May the BIR impose the 2% MCIT
on “Suan”? Why?
Answer. (a) Licensing and registration of a business entity is immaterial for tax liability under the Tax
Code. “Suan” is liable for all unpaid IR taxes from its initial operation which necessarily
includes surcharges, interests and other penalties for violation of the Tax Code (non-
payment of taxes)
(b) The BIR is correct in imposing the 2% MCIT on “Suan” whose annual corporate tax
payments was less than its 2% gross income. The 2% MCIT is imposable whenever a
corporation is sustaining a loss or that its annual corporate tax payable is less than 2%
MCIT.
98. May the Secretary of Finance suspend the imposition of the Minimum Corporate Income
Tax?
Answer. He may under the following instances: (a) there is a prolonged labor dispute
(more than 6 months), (b) force majeure and (c) legitimate business reverses.
99. What kind of passive income (earned without the active participation or with
very minimal involvement of the taxpayer) in Philippine pesos is subject to the
20% Final Withholding Tax?
Answer. (a) Interest or yield from bank deposits or deposit substitutes, (b) Cash
dividends from domestic Corporations, (c) Dividend income from a Real Estate
Investment and Trust, (d) Share in the net income of a business partnership; (e)
Royalties;
(f) Prizes won in the Philippines exceeding Php 10,000; (g) *Winnings except those
from PCSO and Lotto; (h) Informer’s tax reward; and (i) Interest income on tax-free
corporate covenant bonds. *Sweepstakes and Lotto winnings of more than Php
10,000 is now subject to 20% FWtax under the Train Law)
 Long term bank deposits (time deposits of more than 5 years) are not
subject to the 20% Final Withholding Taxes. This exemption applies only to
individual taxpayers.
 Interest earned by individuals from their savings or time deposits with
cooperatives is NOT subject to Final Withholding Taxes. (Dumaguete Credit
Cooperative vs. CIR, GR No. 182722)
 There is no long-term or short term classification of foreign currency deposits.
(interest earned shall always be taxable)
 Bank deposits of a NRANEBT is subject to 25% F/WTax on interest earned
 Bank deposits of Non-resident Foreign Corporations (NRFC) are subject to
30% F/WTax on its interest earned.
 Interest earned from (a) Deposit substitutes, (b) Government securities, (c)
Money market placements; (d) Trust funds; and other investments evidenced
by certificates of deposits prescribed by the BSP shall also be covered by the
20% F/WTax.
 If the interest earned is in foreign currencies, the F/WTax is *7.5% (NOTE:
Non-resident taxpayers and Non-resident Foreign Corporations are exempt from
this imposition.) *TRAIN Law has increased the interest income earned in
foreign currency to 15% WTax.
 If an OCW maintains a foreign currency deposit jointly with a resident
taxpayer, 50% of the interest shall be exempt while the other 50% shall be
subject to the 7.5% (now 15%FWTax) final withholding tax. (RR No. 10-98)
 Interest income of individual taxpayers (NRA, citizens, or residents of the
Philippines) earned from bonds, mortgages, deeds of trust or other similar
obligations of domestic or resident foreign corporations with tax-free or tax-
reduction provision where the obligor shoulders in whole or in part any tax on the
interest shall be subject to a final w/tax of 30%. There is no similar final tax provision
for corporate recipients of “tax-free” interest; hence, the regular corporate income tax shall
apply.
100. Entities exempt from final withholding tax, capital gains tax and regular income tax:
Answer. (a) Foreign government, (b) Foreign GOCCs, (c) International missions or
organizations with tax immunity; (d) General professional partnerships and (e)
Qualified employee trust fund. (d) and (e) and expressly exempt from income tax
under the Tax Code.
101. General Rule: Final withholding tax on passive income is 20%. NRANEBT and
NRFC are NOT covered by the said 20% F/WTax. Are there other taxes
imposable against them on said income? If there be any. Distinguish the
difference.
NRANEBT NRFC
General Final Tax Rate 25% 30%
Exceptions:
*a) Capital gain on sale of domestic 5% on the first 5% on the first
stocks directly to buyer P100K gain and P100K gain and
10% in excess 10% in excess
thereof thereof
b) Rentals on cinematographic films, 25% on the 25% on the
tapes, disc and similar works rentals rentals
c) Rentals of vessels to Filipinos 25% on the 4.5% on the
rentals rentals
d) Rentals of aircrafts, machineries and 25% on the 7.5% on the
other equipment rentals rentals
**e) Special aliens (managerial 15% of their gross Not
employees) income from applicable
employer
***f) Winnings from PCSO and/or Lotto Exempt Exempt
g)Interest income earned from foreign Exempt Exempt
currency deposits
h) Interest on foreign loans Not 20%
applicable
i) Dividend income 25% 15% if Tax Sparing
Rule is
Applicable
j) Tax on corporate bonds 30% 30%
 NRANEBT and NRFC are exempt from the filing of an income tax return
(ITR). However, if these taxpayerssold domestic shares of stocks directly to
buyers where income is realized therefrom, they must submit an ITR to
report their gain from dealings in domestic stocks
Under the TRAIN Law:
 *15%FWTax is applicable to sale of shares NOT listed/traded in the

exchanges or when listed/traded shares are sold directly to buyers
without using the facilities of the exchanges. (5% % 10% are now
repealed)
 **SPECIAL Aliens working in identified industries are now taxed liked an
ordinary employee at 20% - 25%
 ***Sweepstakes and Lotto winnings of more than Php 10,000- are now subject to
20% FWTax.
102. “C” normally earns money from his lending activities. Are the interests paid to
him subject to the 20% F/WTax? Answer. No. “C” is not a Bank, Quasi-Bank or a
Financial Intermediary. His interest income earned is subject to the normal income
tax. The normal income tax rates (5-32%) apply to interest in investments in bonds,
promissory notes; interest income earned from foreign sources whether from banks or
non-banks and money earned for legal delay and default.
103. Is there tax difference between interest income earned from saving deposits and
from deposit substitutes? (BDO vs. Republic, GR No. 198756, January 13, 2015,
En Banc)
Answer. Interest income earned in Philippine peso from bank deposits (savings
accounts, time deposits and other similar arrangements) is subject to 20% FINAL
WITHHOLDING TAX.
Deposit substitutes mean that “when funds are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public borrowing and the bonds issued by the
borrowing at that point in time are deemed deposit substitutes. The seller of the bonds
is required to withhold the 20% FINAL WITHHOLDING TAX on the imputed interest
income from the bonds.
104. In the case of BDO VS. Republic, GR No. 198756, January 13, 2015, the following rules
are established:
a. The BIR Ruling stating that all government bonds regardless of the
number of lenders/purchasers are DEPOSIT SUBSTITUTES is INVALID
because it disregarded the “20 LENDER RULE.”
b. The BIR Ruling stating that the “20 Lender Rule” is determined only at the
time of origination is INVALID. The phrase “at any one time” for purposes
of determining the 20 lender rule would mean every transaction executed
in the primary or secondary market in connection with the purchase or
sale of securities.
c. If the debt instrument has 20 or more lenders, the interest income or

discount is generally subject to the 20% Final Withholding Tax; whereas,
if the debt instrument has 19 or less lenders, the interest income or
discount forms part of the gross income and is subject to the regular
income tax.
105. S sold his house and lot to B. To facilitate the transfer S paid the CGT and DST
in full in due time notwithstanding a balance of Php 500,000 from the buyer
which will be payable after 6-months from execution of the deed. B defaulted in
payment. S filed a case against B to enforce collection thereof. The court
decided the case in favor of S. Among the awards is interest to be computed
from demand until amount has been fully paid. Is the interest subject to CGT
since it is part of the amount in the sale of S’ house and lot. If not, what kind of
tax is payable?
Answer. The interest is not part of the consideration agreed upon between S and B.
There will be not deficiency CGT payable. However, the interest earned by S is
subject to the ordinary regular income tax.
106. Two (2) kinds of capital gains subject to capital gains tax:
Answer. (a) Capital gains on the sale, exchange or other disposition of domestic
stocks sold directly to buyers (5% on the first Php 100K gain and 10% in excess
thereof – NOTE: now It is 15% under the TRAIN Law) and (b) capital gains on the sale
of real properties NOT used in business or not income generating (6% on the zonal
value or consideration whichever is higher).
 The rules on dealings on capital assets by corporations apply to partnership

including general professional partnership.
 Gains from other capital assets (NOT from any of the 2 above) are subject to
the regular income tax.
 When Corporations issue shares of stocks to its investors this is a financing
transaction and NOT a sale transaction.The excess of fair value received over
the par value of shares issued is an additional capital to the corporation.
 When corporations re-issue its treasury sales higher than its par value, the
excess is an additional capital to the corporation. (NOT subject to capital
gains tax)
 When corporations gratuitously issue shares of stocks to its employees to
assure their loyalty to the corporation, the value of the shares shall form part
of the compensation income of the employees.
 The gratuitous transfer of stocks either by way of donation inter-vivos or
mortis causa is subject to transfer tax and NOT to income tax.
 Gains from redemption of shares in a mutual fund are exempted from income
taxation.
 Stockholders who realized gains on redemption of their redeemable
preferred shares by the corporation shall be subject to the regular income tax.
 The voluntary buy-back of shares by the issuing corporation to be held by it
is considered treasury shares which may later on be re-issued. The gains or
loss realized or sustained by the corporation therefrom is subject to capital
gains taxation.
107. Two (2) modes of disposing domestic shares of stocks and how do they differ in tax?
Answer. (a) Selling of shares of stocks thru the facilities of the Philippine Stock
Exchange – NOT subject to capital gains tax of 5% and 10% but instead to a STOCK
TRANSACTION TAX of ½ of 1% of the GROSS SELLING PRICE (now 6/10 of 1% of
the Gross Selling Price, TRAIN Law) and (b) Direct sale of the shareholder to buyer at
5% and 10%, now 15% under the TRAIN Law.
 When the shareholder paid the stock transaction tax thru the PSE, there
will be no more capital gains tax or regular income tax payable on the gains
realized therefrom
 If the seller of the shares is a dealer in stocks and securities, he shall be

subject to ordinary regular income tax at 5% - 32% (now 20% -35% under the
TRAIN Law) and not to the stock transfer tax of 6/10 of 1% of the GSP or the
capital gains tax of 15%.
108. X, not a security dealer, sold his domestic bonds (not government bonds)
directly to a buyer for Php 850,000. X bought the shares at Php 500,000. Is the
net gain of Php 350K subject to the transfer stock tax of 6/10 of 1% of the gross
selling price (GSP) imposable?
Answer. The sale of domestic bonds is a capital gain subject to the regular income
tax and NOT to the capital gains tax of 6/10 of 1% of the GSP because X did not sell
his domestic bonds thru the facilities of the exchanges.
109. “S”, a NRANEBT, bought some domestic shares for Php 250,000. After several
months, he exchanged these shares to corporate bonds for Php 450,000. What
tax(es) are imposable in this transaction?
Answer. The Php 200,000 capital gain is subject to capital gains tax of 15% since it is
NOT a share-for–share swap pursuant to a plan of merger or consolidation “S’ must
submit a capital gains tax return on the said transaction.
110. S Corporation issued its own shares of stocks valued at Php 2.0M in exchange
for a real property needed by the Corporation. The property has a fair market
value of Php 3.5M. Is the difference of Php 1.5M subject to capital gains tax?
Answer. No. The Php 1.5M is not an income to “S” but a capital investment. Hence, it is not
subject to capital gains tax on income presumed to have been earned from property
dealings.
111. Is the selling of domestic shares of stocks subject to documentary stamps tax?
Answer. Yes. The rate is Php 0.75 for every Php 200.00 of the PAR VALUE of the
stocks sold. (RA 9243) (TRAIN Law – Php 2.00 / Php 200.00)
Illustration: X acquired shares of stocks three years ago for Php 1.0M, with a par
value of Php 700K. He sold the shares at Php 1.2M although the prevailing fair market
value is Php 1.4M. How much DST is payable? Answer. 2.00 / Php 200.00 X Php
700,000 = Php 24,500.00 DST is payable
 Selling real properties NOT use in business or not income generating is

subject to DST at the rate of 1.5% of the zonal value or &consideration
whichever is higher (Under the TRAIN Law, consideration is changed to the
assessed Fair Market Value of the property as determined by the Local
Government).
112. X, a foreign corporation is duly licensed to do business here. It invested by

purchasing shares of stocks of D, a domestic corporation. D declared cash and
stock dividends to X. Is the dividend taxable? Is there any distinction if X is a
non-resident corporation?
Answer. Dividends received by a corporation from a domestic corporation are referred
to as intra-corporate dividends. It is exempt from taxation if the recipient of the
dividend is another domestic corporation or a resident foreign corporation. However, if
the recipient is a non-resident foreign corporation it is taxed at 15% subject to the Tax
Sparing Rule.
113. What kinds of sales or exchanges are exempt from income taxation?
Answer. (a) Exchanges solely in kind in mergers and consolidation, (b) Transfers or
exchanges of property for stock to gain control (51% or more of the total voting
power) by an individual or with others not exceeding four (4).
114. What are disguised dividends? Are they taxable?

Answer. These are dividends given to stockholders not as a return on investment but
in payment of services rendered. They are taxable as compensation income or income
derived from exercise of a profession or self-employment. These are issued in order to
avail of a lower rate as that imposed on dividends. This is tantamount to tax evasion.
115. Are liquidating dividends subject to income tax? (BIR Ruling No. 479-11, December 5,
2011)
Answer. Where a corporation distributes all of its property or assets in complete
liquidation or dissolution, the gain realized from the transaction by the stockholder
(called the liquidating dividends), whether individual or corporation, is taxable income
or a deductible loss, as the case may be.
NOTE: BIR Ruling No. 039-02, Nov. 11, 2002 that says liquidating dividends are
not subject to income tax has been reversed already.
116. X Corporation filed before the SEC a petition for voluntary dissolution. After
hearing, the petition was approved. Subsequently, X distributed liquidating
dividends to its stockholders. How do we tax liquidating dividends?
Answer. Under the NIRC, the receipt of liquidating dividends is not viewed as income
but as exchange of properties. If the liquidating dividends exceed the cost of the
investments, the excess is a taxable capital gain subject to the regular income tax.
Any loss is deductible ONLY to the extent of capital gain within the same year.
117. What is an intra-corporate dividend? Is it taxable?

Answer. It is dividend received by a corporation from another corporation. If received
by a domestic corporation from another domestic corporation it is exempt from income
taxation. But if received by a domestic corporation from a foreign corporation it shall
form part of the gross income of the former and are therefore subject to net income
tax.
118. Stock dividends strictly speaking represent capital and do not constitute
income to its recipient; in a loose sense, stock dividends issued by a
corporation are considered unrealized gain and cannot be subjected to income
tax until the gain has been realized. (Ex. Shares with a par value of Php 1.00 is
sold for Php 2.75 per share. The entire Php 2.75 is now a realized gain and is
taxable. If the same share is not yet sold, regardless of the increase in value, the
unrealized profit is not yet taxable). Are stock dividends redeemed by the
issuing corporation taxable?
Answer. Depending on the circumstances, the proceeds of redemption of stock
dividends are essentially distribution of cash dividends, which when paid becomes the
absolute property of the stockholder, who having realized gain from that redemption,
cannot escape income tax. (Ex. Redemption by the corporation of stock dividends with
cash is tantamount to a sale of such stock dividends by the taxpayer to the
corporation, there is a realized gain to him, and thus, he is subject to tax.
NOTE: (a) Treasury shares distributed to the stockholders of a corporation are

TAXABLE. (CIR vs. Manning, 66 SCRA 14) (b) When redeemable shares are
redeemed by the corporation upon its maturity, there is no taxation involved because
the redemption is considered “mere return of capital.”
119. During the initial stage of Y’s organization, X bought from Y Corporation
redeemable shares of stocks with a contract period of ten (10) years. Upon the
arrival of the maturity period Y redeemed the said shares from X. Is there any
tax implication under the given facts?
Answer. The source of shares belonging to X is the original capital subscriptions upon
establishment of the corporation or his initial investment in an existing enterprise, its
redemption to the concurrent value of acquisition does not create any tax implication.
However, if what are redeemed by Y are stock dividends earlier distributed to its
stockholders for purposes of retirement or cancellation, whether in whole or in part,
such is deemed equivalent to the distribution of taxable dividend. (CIR vs. CA, CTA
and ANSCOR, January 20, 1999)
120. R, a resident citizen invested money abroad in some shares of stocks of foreign
corporation “F”. Last year R received Php 120,000.00 cash dividends from
abroad. Is the passive income taxable?
Answer. If F is a non-resident foreign corporation, the entire amount of cash dividend
is subject to income tax here. However, if F is a resident foreign corporation the dividend
shall be split: (the formula use is referred to as “predominance test rule”) If F’s total
Philippine income earned is Php 1.0 Million and its total income abroad is Php 4.0M it
has a worldwide income of Php 5.0Million. Gross income ratio: 1.0M divided by 5.0
Million = 20%
Earned within the Philippine (20% x Php 120,000) = Php 24,000.00
(subject to 10% final withholding tax) Earned without the Philippines
(80% x Php 120,000.) = Php 96,000.00 (subject to the normal income
tax)
121. X Corporation is a domestic entity and it paid dividends to its parent company
abroad, Y Corporation based in Canada. The Canadian Government does not
impose any tax on dividends received by the Canadian parent corporation from
its Philippine company. Is the dividend payment subject to tax at the rate of 15%
instead of the normal corporate tax of 30%?
Answer. Yes. The dividends are subject to a 15% final withholding tax. Under Sec.
28(b)(5)(b) of the Tax Code, dividends paid to a NRFC are subject to a 30% final
withholding tax. However, the rate may be reduced to 15% if the country to which the
NRFC is domiciled allows a deemed-paid tax credit to the said NRFC in an amount
that is equivalent to at least 15%, the difference between 30% and the 15% rates. In
the above-cited case, the SC ruled that since the Canadian Government does not
impose any tax on dividends received by the Canadian parent corporation from its
Philippine company, the condition for the imposition of the lower 15% rate is satisfied.
(Tax Sparing Rule)
The final tax of 15% shall be imposed when a domestic corporation declares
dividend in favor of a NRFC provided the country of the NRFC also reduces its tax on
subject dividends earned by the NRFC in the Philippines. If the country of the NRFC
does not reduce its tax on the dividend by at least 15%, the Philippines shall impose
the 30% final tax.
122. Eight (8) years ago X invested money in both shares of stocks and real property.
Today his investments have appreciated in value. The BIR assessed X of
deficiency income tax for his failure to declare the increases in the values of his
investments. Is the BIR correct? (CIR vs. Filinvest Development Corporation, July
19, 2011)
Answer. No, that is not correct. An increase in X’s shareholdings is a mere paper gain. It is not
an income yet until he sells the share of stocks. A mere advance in the value of the property of a
person or corporation is in no sense constitutes the “income” specified in the revenue law.” The
increase or appreciation in value of his investments can be treated merely as an
increase of capital until the same is actually sold and profit or gain realized therefrom.
Ergo, the BIR has no factual and legal basis in assessing income tax on X’s
shareholdings and property holding until the same is actually sold. Paper gains are not
yet taxable until the said gain is actually or constructively realized.
123. What particular transactions involving disposition of real properties classified

as capital assets will be subject to the 6% capital Gains tax?
Answer. (a) Voluntary sale of real property, (b) involuntary sale (expropriation) (c)
condition sale of real property. (d) pacto de retro, (e) dacion en pago, (f) exchanges of
real properties (even if no consideration is involved), and (g) foreclosure of mortgages
involving real properties.
 Sale of agricultural land by land owners to the CARP of the government is

exempt from capital gains tax of 6% and to income tax in case the land
owners received interest income on the selling price.
 Sale of socialized housing units by the NHA pursuant to the Urban

Development & Housing Act of 1992 is exempt from capital gains tax.
However, sale by NHA of commercial lots is subject to CGT or regular tax
and DST.
124. Spouses HW mortgaged their house and lot with Bank X. HW were not able to
pay their obligation to the Bank in due time. The Bank foreclosed the property
extra judicially. Is there capital gains tax due on foreclosure of the real property
of HW? (Supreme Transliner, Inc., Moises and Paulita Alvarez vs. BPI Family
Savings Bank, Inc., February 25, 2011) Answer. Generally, the Capital gains tax and
Documentary Stamps Tax must be paid before the title to the property can be
consolidated in favor of the Bank. If no right of redemption exists, the certificate of title
of the mortgagor shall be cancelled, and a new certificate issued in the name of the
purchaser. But where the right of redemption exists, the certificate of title of the
mortgagor shall not be cancelled, but the Certificate of Sale and the other document
confirming the sale shall be registered by brief memorandum thereof made by the
Register of Deeds on the Certificate of Title.
It is therefore clear that in foreclosure (judicial or extra judicial) there is no actual

transfer of the mortgaged real property until after the expiration of the 1-year
redemption period as provided in Act No. 3135. In the event that the mortgagor
exercises his right of redemption within the 1-year period there is no capital gains
payable because no sale or transfer of real property was realized. Should the bank
effect the transfer of the title of subject property in its name prior to the expiration of
the redemption period the capital gains tax and documentary stamps tax it paid do not
form part of the redemption price.
125. Does the foreclosure of a mortgage upon real estate give rise to Capital Gains Tax
(CGT) of 6%?
Answer. No. Generally, a foreclosure of mortgage does not give rise to CGT. The
proceeds after the foreclosure and sale in public auction are applied to the loan
deficiency and, technically, there is no transfer of ownership when the mortgage is
foreclosed. However, in case the debtor-mortgagor fails to redeem the property sold
within the one (1) year redemption period, the CGT shall then accrue after the title is
consolidated in the name of the highest bidder.
126. Spouses HW mortgage their house and lot to B Bank. HW defaulted in their
payment. B Bank foreclosed the real estate mortgaged extra judicially. (a) Is
there capital gains tax and documentary stamp tax in foreclosure of properties
by banks? (b) If there be, when are the CGT and DST due and payable? (c) Who
pays the said taxes? (d) In the event that HW exercises their right of redemption,
may the bank include the CGT and DST it paid in the redemption price? (e) If a
real estate dealer/developer mortgaged the real properties it is selling to the
bank and eventually was not able to pay the loan, what kind of taxes are due
and payable in case of foreclosure? (f) Who pays the taxes imposable?
Answer.
a) Capital Gains Tax and Documentary Stamps Tax are both due when the
foreclosed property is eventually sold to the highest bidder. If HW redeems the
property within the 1-year period of redemption there is no CGT and DST
payable.
b) The CGT and DST is payable within 30 days from the expiration of the one (1)
year period of redemption if mortgagor did not exercise the Right of Redemption.
c) It is the buyer or highest bidder of the property that pays both taxes.
d) If the CGT was paid within the one (1) year period to redeem, the tax shall not form part
of the redemption price.
e) If the properties mortgaged are ordinary assets and the mortgagor defaulted in
the payment of his/its loan, CGT, DST, VAT or Creditable Withholding Taxes are
due after the expiration of the period of redemption without the mortgagor
exercising his/its right of redemption.
f) The buyer or highest bidder pays the CGT and the DST while the defaulting
mortgagor pays the VAT or the creditable withholding tax as the case may be.
127. For natural persons in a foreclosure sale the 1-year period for redemption and
payment of the CGT, DST or CWT is reckoned from date of registration of sale in
the Register of Deeds. For juridical persons, the period of payment starts from
the issuance of Certificate of Sale by the Executive Judge of the province where
the property is located. (RMC No 57-11, November 25, 2011).
128. D was not able to pay his loan with Bank X. X foreclosed D’s house and lot. Is
there a tax implication when a capital asset (house and lot) is foreclosed?
Answer. Foreclosure of real estate mortgage in case debtor defaulted in payment of
his loan from banks is subject to the 6% Capital Gains Tax and 1.5% Documentary
Stamps Tax which are payable within 30 days from the expiration of the one (1) year
period to redeem without the debtor exercising his right of redemption.
129. X Bank was the highest bidder in a foreclosure sale of certain mortgaged
properties. Upon approval and issuance of the Certificate of Sale, X Bank duly
filed withholding tax and DST returns and paid the corresponding taxes. Then it
submitted to the BIR an Affidavit of Consolidation of Ownership with proof of
tax payments and other documents in support of its application for a tax
clearance. The BIR charged X Bank penalties for late payment of the DST and
withholding taxes on the ground that the taxes accrued upon the lapse of the
redemption period of the mortgaged properties. The BIR claimed that the
reckoning point for the redemption period and for the accrual of the taxes is the
date of the foreclosure sale. Is the BIR correct?
Answer. The reckoning point for the redemption period and the accrual of
corresponding taxes is the date of the confirmation of the auction sale which is the
date when the Certificate of Sale is issued and not the date of the foreclosure sale.
BIR RMC No. 58-2008, August 15, 2008 supports this reckoning point. Therefore, X
Bank paid the DST and WTax due on the foreclosure
sale within the period prescribed by law; hence, no penalties may be imposed. (CIR
vs. United Coconut Planters Bank, October 23, 2009)
130. Distinguish a Certificate of Repurchase After Sale from a Certificate of Sale:

Answer. The former is given to the delinquent taxpayer or his assign if he exercised
his option to redeem the property sold either to the highest bidder in the public
auction, or to the province if there was no winning bidder, whereas, the latter is given
to the winning bidder at the public auction or to the province if it decided to purchase
the property when there was no other bidder or no satisfactory bid. (2003 case)
131. Is the sale of landowners or real estate developers of properties to the National
Housing Authority (NHA) subject to Capital Gains Tax (CGT) and Documentary
Stamps Tax (DST)?
Answer. Sale by a landowner/real estate developer of properties to NHA for use in a
socialized Housing Project is exempt from payment of CGT and DST. It is also exempt
from income tax and VAT. But, purchases of goods or articles of the landowners/ real
estate developers shall be subject to VAT, even if said purchases are to be used in
the socialized housing projects. The exemption from DST of NHA in connection with
any of its socialized housing project extends to other party (either seller or buyer) that
deals or transacts with NHA.
Landowners who sell their properties for use under the Community Mortgage
Program are exempt from CGT, but not from the DST under the Urban Development
and Housing Act of 1992 (RA 7279)
 CGT of 6% is a final withholding tax on income derived from property dealings.

 Seller pays the CGT within 30 days from sale.
 CGT is paid where the property is located.
 A person exempt from CGT is not exempt from the DST.
 CGT is imposable in every disposition of capital assets whether voluntary
(absolute sale, conditional sale, Dacion en pago, Retro de pacto sale, exchanges
with or without consideration) or involuntary (expropriation).
 If DPWH expropriated a real property for infrastructure projects, it is constituted
as the withholding agent who must withhold the 6% CGT and remit the same to
the BIR.
 Under the Tax Code the tax base of the 6% CGT is the (a) zonal value of the real
property or the (b) consideration agreed upon between/among the seller and
buyer, whichever is higher. (NOTE: Under the TRAIN Law the tax base now is
the higher figure between the (a) zonal value of the real property and the
assessed current fair market value of the real property as determined by the local
government.)
 No CGT is imposable in donation of properties.
 No CGT is imposable when there is partition of co-owned properties among the co-
owners.
 No CGT is imposable when there is an error in the description and conveyance
of properties sold. (Example: X purchased from a realtor Lot 11. The CGT and
DST relative to the transaction were paid. It was subsequently found out that
what was conveyed to him in the Deed of Sale was lot No. 1 instead of Lot No.
11, the correction of the error and delivery to him of Lot No. 11 is no longer
subject to CGT)
132. X owns a five-door apartment and leases it to tenants for residential purposes.
X decided to sell the individual units to the occupants. X inquires from you as to
what kind of tax is due from him. What is your reply?
Answer. X is subject to the regular income tax and not to capital gains tax because
the property sold is not a capital asset. The sale of his property to his tenants cannot
be characterized as other than sales of non-capital assets. (Tuason case)
133. Five (5) brothers and sisters co-owned a parcel of land which they inherited
from their parents. After paying the estate tax, the property was registered
jointly in their name as co-owners. Now, they want to subdivide the property
and have their own independent title to their proportionate share. Is the transfer
of title from the co-owners to each of them individually pursuant to an
agreement to partition subject to a capital gains tax?
Answer. The partition is exempt from the capital gains tax. Dissolution by co-owners
of co-ownership through an agreement to partition is not covered by the imposition of
the said tax because the transfer of title from the co-owners is not barter, exchange or
other disposition of realty that would warrant its imposition. (BIR Ruling 145-98,
October 9, 1998)
134. XYZ Corporation sold its old office building with a tax basis of Php 3,000.000
which was encumbered by a Php 5.0 million mortgage with B Bank. The buyer
assumed the mortgage and in addition gave XYZ cash of Php 500,000. Is the
sale subject to tax? What kind of tax is payable?
Answer. If the amount of the indebtedness assumed by the buyer exceeds the tax
basis of the property sold, any consideration received including the excess of the
mortgage over the basis of the property sold constitutes gain which shall be subject to
the regular income tax of the seller.
Hence, the gain of Php 2.0M (excess of mortgage from tax basis of the property)
and cash of Php 500K are considered ordinary gain of XYZ.
135. General Rule: an individual taxpayer may be exempt from the imposition of CGT
(6%) in selling capital assets. X sold his vacant lot acquired 10 years ago at Php
500,000 for Php 3.0M. He intends to use the proceeds thereof to buy him another
piece of land where he can build his house. Can X avail of the exemption
provided under the law?
Answer. No. X can not avail of the exemption because he did not sell his principal
residence for the acquisition of another principal residence. What he sold was a
vacant lot. The exemption does not apply unless what was sold was the principal
residence of the individual taxpayer.
136. X’s property (vacant lot) was expropriated by the government for public use. Is the
transaction taxable?
Answer. The transfer of capital asset through expropriation proceedings is a sale of
exchange within the meaning of Sec. 24(D) and Sec, 56(A)(3) of the Tax Code. The
profits from the transaction constitute capital gain. Since capital gain is a tax on
passive income, it is the seller (property owner) who is liable to shoulder the tax.
(Republic vs. Spouses Salvador, GR No. 205428, June 7, 2017)
NOTE: If instead of payment to the property owner, the government changes the
property expropriated with another property, the transaction is NOT TAXABLE
because ownership of the new property is a continuation of the ownership of
the property expropriated. This is called Doctrine of Involuntary Conversion of
Property.
137. X owns a five-door apartment and leases it to tenants for residential purposes.
X decided to sell the individual units to the occupants. X inquires from you as to
what kind of tax is due from him. What is your reply?
Answer. X is subject to the regular income tax and not to capital gains tax because
the property sold is not a capital asset. The sale of his property to his tenants cannot
be characterized as other than sales of non-capital assets. (Tuason case)
138. Is income realized from the sale of capital asset and ordinary assets included in
the Income Tax Return of the taxpayer and subject to income tax?
Answer. Income realized from the sale of capital asset is subject to the final
withholding tax at source and therefore is excluded from the Income Tax Return.
Whereas, income realized from sale of ordinary asset is part of gross income, included
in the Income Tax Return.
139. X, a Domestic Corporation bought a condominium unit for Php 8.5M. After three
years X sold the unit to B. is XZ subject to the 6% CGT?
Answer. Yes, all kinds of individual taxpayers and domestic corporations selling
capital assets shall be subject to 6% CGT if property sold is located within the
Philippines. If real property is located outside of the Philippines it is NOT subject to 6%
CGT but to the regular income tax on gain realized.
NOTE: If the seller X, (above) of the condominium is a resident corporation, it is NOT

subject to 6% CGT but to the regular income tax.
140. (a) Can capital assets be converted into ordinary assets? (b) Can ordinary
assets be converted to capital assets? Answer. (a) Yes. If the taxpayer executed acts to
convert capital assets into ordinary assets. Ex. “T” inherited real properties from his parents
(considered capital assets) and introduces improvements on the property to develop
the same into a subdivision
for commercial purposes.
(b) If the taxpayer is engaged in real estate business – the real properties held by
him are ordinary assets. Properties he purchased for future use in his business, even
though his purpose is later thwarted by circumstances beyond his control does not
lose its character as ordinary assets. The discontinuance of his business operation will
not change the character of the properties previously held.
If the taxpayer is a businessman but not engaged in real estate business –

all real properties which are used, being used or have been previously used in his
trade or business shall be considered ordinary assets. Whereas, real properties not so
used, with the proper certification by the Barangay Chairman or head of administration
and validated by the BIR, shall be treated as capital asset. Ordinary assets not in used
in business are automatically converted into capital assets upon showing proof of its
non-use in business for more than two (2) years prior to the consummation of the
taxable transaction involving said properties.
141. In 2016, X Corporation upgraded many of its machineries and equipment. The
BOD of X decided to sell all its old machineries and equipment no longer in
used. Is the sale subject to the 6% Capital Gains Tax since the properties are no
longer used in business?
Answer. Sale of machineries by a corporation is NOT subject to the 6% capital gains
tax. Rather, the gain form part of its gross income and is subject to the regular
corporate income tax. (SMI-ED Philippines Technology Corporation, Inc. vs. CIR, GR
No. 175410, November 12, 2014)
142. (a) Digimate International develops application programs for small business
establishments. These e-programs were individually tailored to meet the
specific requirements of the shop owners which required upgrades, occasional
troubleshooting and adjustments. “Digimate” receives 2% of the sales of the
establishment as royalty. How is royalty income taxed in the Philippines?
Answer. The royalty income of “Digimate” is from application program where it has an
active involvement, the income derived is considered as active income subject to the
regular income tax. Whereas, if the royalties are from passive activities such as
royalties of claim owners or land owners of mining properties, royalties of inventors
from companies that manufacture and sell their inventions, from use of intellectual
properties (trademark or technology) the 20% final withholding tax applies.
143. Cite the differences in taxation between a general professional partnership and a
business partnership?
General Professional Business Partnership

Partnership
Exempt from corporate income tax Subject to corporate income tax
Net shares of partners shall be Net shares of business partnership shall
subject to (10% or 15%) creditable be subject to (10% or 15%) final
withholding taxes withholding taxes
The capital gain or loss from The resultant capital gain or loss from
liquidation of a GPP is subject to liquidation of business partnership is
regular income tax (5% - 32%) subject to capital gains tax. (5% and
10%)
144. Are tax refunds taxable?

Answer. Tax refund for erroneously paid tax which was claimed as a deduction from
gross income that resulted in a lower net taxable income or a higher net operating loss
that was carried over to the succeeding taxable year is TAXABLE. However, taxes
which are not allowable as deductions (income tax, estate tax, donor’s tax and special assessments,
when refunded or credited are NOT TAXABLE for income tax purposes.
145. Theresa is taking care of two (2) dependents. A foster child not in any way
related to her and a first cousin 32 years of age who is physically handicapped.
Can Theresa claim additional exemptions for the two dependents of hers for tax
purposes?
Answer. Yes, if the foster child was placed under planned temporary substitute
parental care (foster care) to Teresa by a person duly licensed by the DSWD to
provide foster care to the child pursuant to the Foster Care Act of 2012 and the foster
child is not more than 21 years of age, unemployed, unmarried, living with Teresa, the
benefactor, and fully dependent upon her for support. Whereas, the cousin, a person
with disability (PWD), is within fourth civil degree of consanguinity to Theresa, Under
RA 10754, disabled person who are within the 4 th civil degree of consanguinity to the
taxpayer, regardless of age, who are not gainfully employed and chiefly dependent
upon the taxpayer are NOW CLAIMABLE AS ADDITIONAL EXEMPTIONS.
 Previously, a benefactor of a PWD is entitled to additional exemption only if

he or she is a parent to the PWD.
 RR No, 4-2006 expressly provided that benefactors of senior
citizens CANNOT claim additional exemption for senior citizen.
 Senior citizens may be claimed only as additional dependents if
they qualify also as persons with disability (PWD).
NOTE: Under the TRAIN Law, Personal Exemption of Php 50,000 per annum and
additional exemption for qualified dependents at Php 25,000 per child
maximum of four *4) are DELETED.
146. (a) Are life insurance proceeds subject to income tax? (b) X Corporation insured
the life of P, its president. X named itself as the sole beneficiary under the
policy; the premiums were paid by X. Upon the death of P, X received the full
insurance proceeds. Is X taxable on the amount it received from the insurance
company? (c) X sued Y for breach of promise to marry. The Court decided the
case in favor of X and awarded X compensation for actual expenses incurred
and for tarnishing his reputation. Is the court’s award taxable to X?
Answer. (a) Insurance proceeds paid to heirs or beneficiaries upon the death of the
insured, whether in single sum or otherwise are exempt from income tax.
(b) The proceeds of a life insurance contract collected by an employer as a
beneficiary thereof shall be exempt from the coverage of income taxation. These
proceeds are viewed as advanced recovery of future loss.
(c) The reimbursement of X’s expenses is not taxable being “mere return of capital”; the
indemnity X received for the impairment of his reputation is deemed also a return of capital
exempt from income tax.
147. “E” a civil engineer by profession was chosen as the 2017 outstanding engineer
of the firm. He was awarded Php 100K cash reward and a 2-year scholarship
program to Japan. (Free tuition, board and loading and living allowances) The
condition under the scholarship scheme is that he has to render a 3-year
service for every year of schooling. “E” accepted the offer. Is there any tax
implication under the given facts?
Answer. The 20% F/WTax shall be imposed on the cash reward of Php 100K.
Whereas, the cost of the scholarship program shall be considered regular income to “E”
subject to the normal income tax. Rewards are exempt provided the recipient is not required to
render substantial future services as a condition in receiving the price or reward.
 Prizes and other winnings are subject to the 20% F/WTax to an individual
winner. But, if the winner is a corporation, the prize is subject to the normal
corporate income tax of 30%
 Prizes won from abroad by an individual shall be subject to the normal

income tax of 20 - 35% and those won by or corporate taxpayer is subject to the
normal corporate income tax of 30%.
148. X was seriously injured in a car accident. He filed a case against the driver and
owner of the vehicle. The court finds for X. In the decision, X was awarded the
following: (a) actually, (b) moral, (c) exemplary and (d) punitive damages, (e)
reimbursement of litigation cost and (f) attorney’s fees. Which of these is/are
not subject to income tax?
Answer. All are exempt from income taxation except punitive damages. Said amount
is taxable because it is not payment or compensation for injuries sustained and/or
mere return of capital. It is an amount awarded to punish the wrongdoer.
149. X, an employee was seriously injured a vehicular accident. Upon recovery he

was contemplating on filing a case against the owner of the motor vehicle, “O”,
because the later does not want to pay for X’s lost salaries. To end the issues
between the two, O, finally agreed to reimburse X of his lost salaries and even
added Php 5,000 so that X will not file a case in court. (a) Is the salary actualized
by X taxable? (b) Is the Php 5,000 additional amount taxable?
Answer. X’s salary actualized is not taxable because it forms part of the compensation paid to him
for injuries sustained and it was not paid for by his employer. The Php 5,000 paid to X so
that he will not file a case in court is taxable.
150. X Manufacturing is engaged in the production of quality electrical appliances

and electronics products. X regularly incurred advertising expenses in
protecting its brand franchise. Is the advertising expense allowed as a
deduction from gross income as business expenses?
Answer. The protection of X’s brand franchise is analogous to the maintenance of goodwill or title to
one’s property which is in the nature of capital expense and not permitted to be deducted
as ordinary business expenses, Hence, it should fall under depreciation allowance of
capital assets. (CIR vs. Procter and Gamble Phil. Mfg. Corp. 1999)
NOTE: If the company was paid compensation for damages it incurred from
destroying its goodwill, such amount is not taxable because it is mere return of capital
unless, the value awarded is more than the value of the goodwill, then the excess will
be taxable.
151. X corporation incurred advertising expenses for the purpose of changing the
image of its existing product line. The said expenses were deducted in full by X
the year it was incurred. The BIR disallowed the same on the ground that the
said expenses benefited the product line and the company for a period
exceeding one year and was therefore not an ordinary expense but a capital
expenditure subject to depreciation over the life of the expense. Who is correct?
What distinguishes an ordinary expense from a capital expenditure?
Answer. The BIR is correct. Generally, ordinary and necessary expenses paid or
incurred during the taxable year in carrying on a trade or business of a taxpayer can
be claimed as an allowable deduction for income tax purposes. In the instant case, it
is shown that the expenses were actually incurred and likewise paid in the tax year
involved, and that the expenses were incurred for business purpose. i. e., changing
the image of a product line. However, the BIR correctly pointed out that the expense
were not ordinary because the benefit derived therefrom will last X for more than a
year. The SC held that to be ordinary, the expense must be both reasonable and does not
partake of a capital outlay, such as: to create “goodwill”. Thus, the SC disallowed the outright
deduction of advertising expense which is found unreasonable in amount and
intended to protect the image of taxpayer’s products.
As a rule, if the advertising expense was incurred to stimulate current sales, it is

deductible in full, if, however, it is incurred to stimulate future sales, it will be treated as
a capital expenditure and the cost thereof will be amortized over the years benefited,
with each year able to claim only the amount amortized in such year. (CIR vs. General
Foods)
152. X Corporation hired the services of Atty. Magaling to represent it in all its legal
matters. Atty. Magaling does not immediately bill the corporation as soon as
legal services were rendered but he sends the corporation a Statement of
Account once payments have accumulated. The last billing statement was for
the years January 2010 – December 2012. May X deduct the payment from its
gross income under the billing statement in compliance with the
“Substantiation Rule” when it files its income tax return?
Answer. The corporation should have estimated the cost of the legal services the
year they were incurred and deduct them accordingly for that year. This is because
expenses are deductible only on the year they were incurred. Hence, the expenses for
the years 2010 and 2011 under the given facts are no longer deductible. Only
expenses for the year 2012 may be claimed under its ITR due on April 15, 2013. When “all
events” have been met such that the expenses could already be estimated, they are allowed
to be deducted even without supporting receipts. These expenses may be adjusted
subsequently when the receipts are available. (“All Events Test Rule”)
153. Differentiate (a) Withholding tax on Compensation, (b) Expanded Withholding

Tax, (c) Final Withholding Tax and (d) Withholding Tax on Government Money
Payments:
Answer.
a. Final Withholding Tax - is a kind of withholding tax which is prescribed only for
certain payers and is not creditable against the income tax due of the payee for
the taxable year. Income Tax withheld constitutes the full and final payment of
the Income Tax due from the payee on the said income.
 The tax return shall be filed and payment made on or before the 10th
day of the month following the month in which the withholding was made.
b. Creditable Withholding Tax – Under the withholding tax system this creditable
tax is a small amount payable intended as an advance payment of income tax
earned for that particular period or transaction. These are not deemed full and
final payment for income tax due made by the payee. These are deductible from
the income tax due and payable at the end of the tax period.
c. Withholding Tax on Compensation - is the tax withheld from individuals

receiving purely compensation income. This is a creditable tax.
d. Expanded Withholding Tax - is a kind of withholding tax which is prescribed

only for certain payers and is creditable against the income tax due of the payee
for the taxable quarter year. (Example – 5% w/tax on rent)
e. Withholding Tax on Government Money Payments - is the withholding tax

withheld by government offices and instrumentalities, including government-
owned or -controlled corporations and local government units, before making any
payments to private individuals, corporations, partnerships and/or associations.
154. X Corporation has more than 10 employees and it regularly gives bonuses and
incentives to its employees. May X deduct from its gross income the salaries
and bonuses paid to its employees as business expenses? (ING Bank N.V., vs.
CIR GR N0, 167679, July 22, 2015)
Answer. Yes. Salaries paid to employees are deductible provided withholding taxes
were deducted from the same and remitted to the BIR. The bonuses are also subject
to withholding taxes and remitted to the BIR in the year of accrual and not during the
year of payment. The obligation of the employer/payor to deduct and withhold the
related withholding taxes on bonuses arises at the time the income was paid or accrued or
recorded as an expense in the employer’s books, whichever comes first.
155. What is tax pyramiding?

Answer. A tax imposed upon another tax. This has no basis either in fact or in law.
Since 1922 tax pyramiding has been rejected by the Supreme Court, the legislature
and our tax authorities. (2005 case)
156. Motorists contend that the 12% VAT on toll fees is tax pyramiding. Is this correct?
Answer. NO. Toll fees are not taxes but regulatory imposition. Hence, adding 12% VAT on it is
not tax pyramiding.
157. X Corporation in engaged in insurance business. Part of its activities is lending

money to its policy holders. The CIR imposes additional percentage tax on the
said activity because the former believes “X” is also a lending investor. Is the
tax official correct?
Answer. When a company is taxed on its main business, it is no longer taxable further
for engaging in an activity or work which is merely a part of, incidental to and is
necessary to its main business – to require X to pay additional percentage tax and
fixed taxed again for an activity which is necessarily a part of the same business, the
CIR must prove that that is a law expressly requiring X such additional payment of tax
because unless a statute imposes a tax clearly, expressly and unambiguously, what
applies is the equally well-settled rule that imposition of a tax cannot be presumed.
(2005 case)
158. How shall a taxpayer report the income he realized from long term contracts?
Answer. The income must be reported on the basis of percentage of completion of the project.
159. X (Lessor) and Y (Lessee) entered into a lease contract over a commercial
building for a period of 10 years. Among the agreements entered into was for Y
to shoulder all local and national taxes relative to the said leased, which was
then computed at 15% per annum. The local government under a tax ordinance
increased taxes on lease of commercial
spaces/building. Did this tax measure interfere with the contract of X and Y,
thereby violating the Non-impairment clause of the Constitution?
Answer. As held in the case of Tolentino vs. Sec. of Finance, 235 SCRA 630, a lawful
tax on a new subject, or an increased tax on an old one does not interfere with a
contract or impairs its obligation within the meaning of the Constitution. While taxation
may affect particular contracts, as it may increase the debt of one person and lessen
the security of another, or may impose additional burdens upon one class and release
the burdens of another, still the tax must be paid unless prohibited by the Constitution,
or can it be said that it impairs the obligations of any existing contract.
160. X is a real estate lessor. He leases his real property to L under the following conditions:
a) “L” pays the annual real property tax,
b) “L” pays the insurance premium on the insured leased premises’;
c) “L” advances 3 months of rent to X;
d) “L” lends to X Php 150,000 to be gradually deducted from the monthly rental;
e) “L” is allowed to build a “bodega” (Php 500,000) at the back of the existing
building under a build-operate-and- transfer scheme, and
f) “L” gives a two (2) months’ deposit upon execution of the lease contract.
Are the above taxable incomes to X?
Answer. Yes, all [(a) to (e)] are taxable income to X because they are considered
additional rent income to him, whereas, (f) will depend on whether or not it is
refundable to L at the end of the contract period. If not refundable then it is taxable to
X.
161. Atty. Magaling transferred his Law Office to an old house. Much repair works
were done and he spent Php 200,000 to renovate the leased premises. What are
the basic rules in taxation on repairs and improvements?
Answer. (a) Amount spent for repairs that merely restore the value or functionality of
the property without causing increase in fair value or prolonging the useful life of the
property shall be deducted as outright expense. They are considered ordinary and
necessary business expenses. These can be claimed by the lessee.
(b) Amount spent for repairs that significantly increase the value or prolong the useful
life of properties are capital expenditures. These are capitalized to the adjusted tax
basis of the property and are included in the subsequent annual provision for
depreciation.
(c) If the fair value of the property increases due to repairs, improvements or
additions, the actual cost of the works should be capitalized OT to exceed the
appreciation in fair value.
162. By the end of 2017, X Inc. received in advance the amount Php 200K from Y
Corporation for future maintenance services as embodied in their Maintenance
Service Agreement. Is the amount taxable in the calendar year 2017? (Manila
Mandarin Hotel case)
Answer. No. Under the realization principle, revenue is generally recognized when both of the
following conditions are met:
a) The earning process is complete or virtually complete, and
b) An exchange has taken place.
This principle requires that revenues be earned before it is recorded. Amounts

received in advance are not treated as revenue for the period in which they are
received but as revenue of the future period or periods in which they are earned.
These amounts are carried as unearned revenue or liability to transfer goods or
render services in the future – until the earning process is complete.
163. X, 43 years old, is a regular employee of R (private) Corporation that has a CBA
contract. He started with R Corporation at the age of 21. Having worked for 22
long years he decided to avail of the optional retirement benefits recently being
offered by R. (a) is the optional retirement benefits of X taxable? (b) Are pre-
terminated gratuity plans taxable? Answer. (a) The optional retirement benefit of X
is taxable. For this retirement benefit to be exempted from taxation, he should
be more than 50 years of age and have worked with the same employer for no less
than 10 years. (50-10 Rule) Moreover, this exemption can only be enjoyed once. (b)
The gratuity plan will lose its tax exempt status if the retirement benefits are released
prior to the retirement of the employee at the age of 60. (2004 case)
Optional retirement benefits – Are exempt once only, provided the employee retiring
(a) is more than 50 years old, (b) has rendered more than 10 years of services with
the same employer and (c) the retirement plan of the employer has been approved by
the BIR, or provided under a CBA or (d) that the plan is reasonable.
164. In case the company where X, an employee works has no CBA contract
providing for a retirement benefit plan. What are the requirements to avail of the
benefits of tax exemption on money received upon termination?
Answer. X should have been in the service for at least five (5) years with the
company and he should be between 60 - 65 years of age. (RA 7641)
165. X availed of the optional retirement benefits of his employer.
a) If at the time of retirement X is 48 years of age and rendered 15 years of

service, is the retirement benefit exempt from income taxation?
b) If at the time of retirement X is 52 years of age and rendered 8 years of
service, is the retirement benefit exempt from income taxation?
c) If at the time of retirement X is 54 years old and rendered 20 years of
service, is his optional retirement benefits taxable? Granting that X’s
gratuity benefits were pre-terminated and its cash equivalent released to
him upon availment of the optional retirement benefits is said money
taxable?
Answer.
a. The retirement benefit is taxable because X is below 50 years of age.
b. The retirement benefit is taxable because while X is more than 50 years of age,
he has not rendered more than 10 years of service with the same employer.
c. The retirement benefits of X is tax exempt having met both the age requirement (50) and
the number of years in service
(10) with the same employer which need not be continuous but aggregated
number of years in service. The cash equivalent of the gratuity plan that was
released to X prior to age 60 is TAXABLE.
166. Taxability of
retirement benefits:
Answer.
(a) Those received from the SSS and the GSIS upon reaching the mandatory age of 60 –
exempt from income tax.
(b) Those received under RA 4917 (those received under a reasonable retirement
plan) – exempt only if (a) the retiring employee or official has been in the service
of the same employer for more than 10 years, and (b) he is not less than 50
years of age at the time of retirement, and (c) he avails of the benefit only once,
and (d) the retirement plan is approved by the BIR. (Ex. CBA agreement)
(c) Those received under RA 7641 – (Those received where the employer has no
retirement plan) The retiree receiving benefits from his employer shall be exempt
from income taxation only if – (a) he is at least 60 years of age but not more than
65 years old, and (b) must have serve the employer for at least 5 years.
167. Is the income earned from pension trust of employees taxable? (a) Is an income
from pre-terminated gratuity and annuity insurance policies taxable?
Answer. (a) Income or interest earned from pension trust of employees shall enjoy tax
exemption. Otherwise, taxation of those earnings would result in a diminution of
accumulated income and reduce whatever the trust beneficiaries would receive out of
the trust fund. This would run afoul to the very intendment of the law. (M. Osorio
Foundation, Inc. vs. CA & CIR, June 28, 2010)
(b) Income or gain earned from pre-terminated gratuity or annuity programs are
taxable (subject to withholding taxes), they shall be exempt from tax if the owner
surrendering the same is 60 years old and above. (DBP Case)
168. Atty. X is a government employee and as such he is a member of the GSIS. X

teaches in a private law school and as such is also a member of the SSS. The
school where he teaches has a private retirement plan under a CBA contract.
Upon reaching the age of 60 X opted to retire from both the government and in
teaching. X received money from GSIS, SSS and from the school. Are the 3
retirement benefits all exempt from income taxation?
Answer. All the 3 retirement benefits of Atty. X are exempt from income taxation and
from withholding taxes. It is the optional retirement benefits of an employee that is
EXEMPTED ONLY ONCE.
169. Many members of the SSS, GSIS, PHIC and HDMF voluntarily pay an amount in
excess of the mandated compulsory contribution, so that by the time they retire
they can receive a bigger retirement benefits. Is the additional amount added to
their monthly contribution taxable?
Answer. RMC No. 27-2011, November 10, 2011 holds that the excess payments
representing additional voluntary contribution over and above the mandated
compulsory monthly contribution of employees are subject to tax because that is
investment.
170. X, an educational institution owns several motor vehicles that are used
exclusively for educational purposes. Is X exempt from the paying the motor
vehicle registration fees?
Answer. Motor vehicle registration fees are now considered taxes and are no longer
deemed mere regulatory fees. Consequently, entities enjoying tax exemptions are
also exempt from paying motor vehicle registration fees under the Doctrine of
Incidental Tax Exemption. (PAL vs. EDU, August 15, 1988)
171. X is an NS-NP educational institution. It leases some portions of its properties

to private individuals for commercial purposes. The parking space within the
campus is operated by a private person paying monthly rentals to the school.
The canteens and bookstores are likewise lease to private concessionaires. All
monies earned by X are used for the support of the school. Is the income earned
subject to income tax?
Answer. Sec. 30 of the Tax Code does not apply to an educational institution. As
provided under the Constitution, all assets and properties of an educational institution
shall be exempt from duties and taxes.
172. Are non-stock corporations exempt from internal revenue (IR) taxes?
Answer. (a) They are exempt from income tax but this exemption does not extend to
IR taxes imposed under the Tax Code on its profit or income derived from any of its
properties, real or personal, or any activity conducted for profit regardless of the
disposition thereof, (b) their passive income (peso interest from bank and/or time
deposits and the like) are subject to 20%FWtax,
(c) they are VAT liable on their sale of goods and/or services.
 They are exempt from the payment of donor’s tax in case they donate properties provided
no more than 30% of said gifts shall be used for administrative purposes and the
donee corporation or association is accredited and has a tax exemption
certificate.
 Proof of actual operation for at least 3 years as Non-stock, Non-profit (NS-NP)

corporation organized exclusively for the promotion of social welfare is
NECESSARY for the issuance of Certificate of Tax Exemption.
 Tax exemption ruling shall be valid only for a period of 3 years from date of issue,
unless sooner revoked or cancelled. The tax exemption ruling may be renewed
upon the filing of a subsequent application for Tax Exemption/Revalidation with
the same requirements and procedures provided under RMO 20-2013.
173. (a) X, a non-stock, non-profit organization operating exclusively to promote

social welfare, derives the following items of income during the taxable year:
1. Assessment dues from the members;
2. Rentals from small stalls; and
3. Parking fees.
All monies realized therefrom are used exclusively for the support of the
organization. Is X exempt from paying income taxes on the above items?
Answer. X is exempt from paying tax only on income received by it as a non-stock,
non-profit entity. Hence, its exemption extends only to the assessments dues paid by
its members. With respect to the others, it is liable to pay taxes thereon pursuant to
the last paragraph of Sec. 30 of the Tax Code which provides that Regardless of the
disposition of the income, money realized from other activities not related to their main
objectives or from their properties (real or personal) shall be subject to tax.
174. X, a charitable organization (non-stock, non-profit) was organized for the

purpose of providing shelter to homeless and family-less elders in Baguio City.
It owns a property and devoted it actually, directly and exclusively for charitable
purposes. In July 2003, X acquired a new property in La Trinidad, Benguet for its
operations and leased the Baguio property to Y Corporation. Is X liable for real
property tax on the Baguio property for the taxable year 2003 for the period
corresponding to 6-months use of the property for income purposes?
Answer. No. Sec. 246 of the LTC provides that real property tax for any year shall
accrue on the first day of January and from that date it shall constitute a lien on the
property. If a property is tax-exempt at the beginning of the year because its use at
that time is confined actually, directly and exclusively to charitable purposes, the
exemption covers the entire year even if some time during the year, the use of that
property ceases to be for charitable purposes.
175. X is a non-stock, non-profit hospital. It maintains a wing exclusively for paying

patients, receives payment for medical services from both, in-patient and out-
patient of the hospital, it regularly receives subsidies from the government and
donations from private individuals/entities. X leases the ground floor of the
main building to doctors for their own medical practices. Is there any tax
incident under the facts given? Reason.
Answer. As a general principle, a charitable institution does not lost its character as
such and its exemption from taxes simple because it derives income from patients,
whether out-patient or confined in the hospital, or receives subsidies/donations from
the private sector or government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve, and no money
inures to the private benefit of the persons managing or operating the institution.
However, the income X receives from the rentals of the private clinics of doctors at the
ground floor of the main building is subject to income tax even if all the money is
brought back for the support of the institution because said money was not derived
from the performance of its main objective but come commercial activities. The real
property tax may likewise be collected from X as the property is not actually, directly
and exclusively used for charitable purposes. (2004 case)
176. X Hospital is a GOCC. All its real properties are devoted to medical use. In dire
need of funding to support the escalating medical expenses in its operation, X
converted the ground floor of the hospital to various rooms and leased them to
doctors for their private clinic. The income realized therefrom was used for the
support of the hospital. The tax official assessed X of taxes having found that:
(a) X has an annex building exclusively for pay patients; (b) X should be
disqualified from its tax exemption because it regularly receives donations and
subsidies from local and foreign donors, and (c) it has income from other
sources. On the other hand, X protested contending that: (a) all income earned
was brought back for the support of the hospital, (b) the hospital remains
predominantly used for medical services. Decide.
Answer. The receipt of money from pay patients of the hospital will not affect the tax
exemption privilege of X, because such income is incidental to the medical services
performed by X hospital. (b) The receipt of donations even if they come regularly does
not disqualify the donee from the tax exemption. (c) The income realized from other
sources (not medical services) shall be taxable notwithstanding the fact that it was
brought back for the support of X (See Sec. 30 NIRC). The argument of X that the
hospital remains predominantly used for medical services is not tenable because the
law allows exemption only to a real property owned by the traditional exemptees that
are ACTUALLY, DIRECTLY and EXCLUSIVELY used in line with their main
objectives.
177. How are private hospitals and private schools tax?

Answer. If said entities are proprietary (private) non-profit schools or hospitals they
shall be subject to the preferential income tax rate of 10% on their income earned from
their main activities provided said income is less than 50% of income earned from
their other allied services. If income from allied services is bigger than income earned
from main activities (education or medical) they shall be subject to the normal corporate
income tax of 30%. “Non-profit” means that the entities do not distribute any of its profits to its
members and such profits are reinvested pursuant to its corporate purposes. (St.
Luke’s Medical Center, Inc. vs. CIR, September 26, 2012)
178. Are charitable institutions “organized and operated exclusively” for charitable
purposes allowed to engage in activities conducted for profit without losing its
tax-exempt status for its non-profit activities?
Answer. Yes they are allowed. The only consequence is that the income of whatever
kind and character of a charitable institution from any of its activities conducted for
profit, regardless of the disposition made of such income, shall be subject to tax. St.
Luke’s Hospital is a corporation that is not operated exclusively for charitable or social
welfare purposes insofar as its revenues from paying patients are concerned. Services
to paying patients are activities conducted for profit as there is a purpose to make
profits over and above the cost of the medical services. (St. Luke’s Hospital vs. CIR)
179. Are clubs organized and operated exclusively for pleasure, recreation and other
non-profit purposes subject to income tax and VAT?
Answer. Income of recreational clubs from whatever source, including but not limited
to membership fees, assessment dues, rental income and service fees are subject to
income tax. Gross receipts of recreational clubs, including but not limited to
membership fees, assessment dues, rental income and service fees are subject to
VAT. (RMC No. 35-2112, August 3, 2012)
 NS-NP organization or GOCC is liable to pay VAT on their sale of goods and services.
180. X, is a civic organization promoting the welfare of the elderly, the unwed
mothers, giving shelter to the homeless and regularly teaches productive skills
to housewives and other less fortunate members of our society. The donations
(local and international) it receives are not enough to sustain its operations. The
Board of Trustees of the organization decided to lease a portion of its property
and regularly sells the jam, candies and cookies/cakes produce by its trainees.
On the other hand, its monthly rent income is used for the payment of power
and water consumption and other basic needs of the organization. No part of
the income is distributed by way of dividend or income to any member of the
organization. Is the income realized by X subject to income tax? (CIR vs. CA,
298 SCRA 83)
Answer. Generally, a non-stock, non-profit charitable institution organized exclusively
for charitable purposes, when no part of its income or asset belongs or inures to the
benefit of any of its member is not subject to income tax in respect to income received
by it as such. In the case of X however, its property is used for commercial purposes
and income is generated from the sale of its products cannot be considered as
incidental to its operation as a charitable institution. All money earned by X is taxable
because Sec. 30, NIRC provides that income of whatever kind and character of the
tax exempt organization from any of their properties, real or personal, or from any of
the activities conducted for profit, regardless of the disposition made thereof, shall be
subject to taxation
183.X is a private non-profit hospital. It claims that it is exempt from income tax
being a charitable institution and an organization promoting social welfare. The
BIR believes that X is not tax exempt because of its failure to meet all the
requirements under Sec. 30(E) and (G) of the Tax Code, NIRC, and imposes the
10% preferential tax rate on X based on Sec. 27(B), of the Tax Code. Is the BIR
correct? (St. Luke’s Medical Center, Inc. vs. CIR, September 26, 2012)
Answer. Yes, the BIR is correct. Sec. 27(B), NIRC imposes a 10% preferential tax
rate on the income of (a) proprietary non- profit educational institution and (b) proprietary
non-profit hospital. “Proprietary” means private and “non-profit” means no net income or asset
accrues to the benefit of any member or specific person, with all the net income or
asset devoted to the institution’s purposes and all its activities conducted not for profit. ”Non-
profit does not necessarily mean “charitable”. An organization may be considered as non-
profit if it does not distribute any part of its income to stockholders or members but
such profits are reinvested pursuant to its corporate purposes. Sec. 27(B) was
introduced to subject the income of private non-profit schools and private non-profit
hospitals to income tax at the rate of 10% instead of the normal 30% corporate income
tax.
184. X, is an incumbent director of Trendline Corporation. He religiously attends the

monthly meetings of the corporation. Board fees are paid to all directors
attending meetings. X’s name is not included in the Alpha list of the corporation
as among its employees. Are the monthly board fees paid to X subject to
withholding taxes?
Answer. For taxation purposes, a director is considered an employee of the
corporation whether he performs services for the corporation or merely acts as a
director whose duties are confined to attendance at and participation in the monthly
meetings of the Board of Directors, he is considered an employee thereof. The mere
fact that his name is not included in the payroll list of employees does not ipso facto
create the presumption that he is not an employee of the corporation. The imposition
of withholding tax on compensation hinges upon the nature of work performed by such
individual in the company. His attendance and participation in the board is considered
services rendered and therefore, his board fees shall be covered by the creditable
withholding tax. (First Lepanto Taisho Ins. Corp., vs. CIR, April 10, 2013)
185. (a) X is an international airline corporation with landing rights in our country. It
sells airline tickets here and abroad for passengers leaving the country for
abroad. How do we tax this juridical entity?
(b) Y is an international airline company with no landing rights in our country

but it sells airline tickets here through the travelling agencies. How are the
tickets sold here through its agents taxed? (Air Canada vs. CIR, GR No. 169507,
January 11, 2016)
Answer. (a) The airline tickets sold by X regardless of place of issue or payment shall
be subject to 2.5% Gross Philippine Billings Tax provided the passenger exits from the
Philippines.
(b) Since Y has no landing rights in our country the 2.5 % GPB tax does not apply to
it. Hence, the airline tickets sold through its agents shall be tax at 30% net.
 Tax treaty prevails over administrative issuances.
 RP and Canada Tax Treaty provides that Air Canada shall be taxed at 1.5%
on its airlines tickets for passengers that exit from the Philippines. This
agreement applies if Air Canada does not have a “permanent
establishment”
(agent) in the country. Air Canada HAS an authorized permanent agent in
the country. Hence, the tax treaty does not apply. Air tickets of Air Canada
shall be taxed at 30% net as it is deemed to be a resident corporation doing
business in our country.
186. X is an international airline with landing rights in the Philippines. Many of its air
tickets are booked and sold by its head office abroad and the tickets are sent
here for passengers use going abroad. Is there tax on the value of the tickets
sold outside of the country? (South African Airways vs. CIR, February 16, 2010)
Answer. International airlines or shipping industries with landing rights in our country
are Special Resident Corporations taxed at 2.5% on its gross Philippines billings.
Since these companies maintain flights to and from the Philippines, all their air tickets
or fright charges whether booked, purchased and paid for the carriage of persons,
excess baggage, cargo and mail originating from the Philippines are subject to the
2.5% GPB tax.
If the international airline/ship has no landing rights in the Philippines (referred to as

off-line carrier) but has a resident agent here, it is deemed engaged or doing business
in the Philippines and their income from sales of airline tickets here are income from
within subject to 30% corporate income tax on their gross income.
187. X Corporation sent 4 of its field engineers abroad to work on a project. The
engineers are required to be present abroad for most of the time during the
year. In fact they stay there for almost 7 months (210 days) in a year. Are the
engineers considered non-resident citizens such that their salaries produced
from services rendered abroad are exempt from income taxation?
Answer. While the employment of the employees requires them to be present abroad
most of the time during the year, they are still in the Philippine office’s payroll. They
cannot be qualified as non-resident citizens as defined in the NIRC. The subject
employees are only on temporary assignment abroad. From their employment
contracts, it appears that they do not have intention to reside in the areas where they
are assigned on a permanent basis. Moreover, their salaries are paid by a domestic
corporation in the Philippines whether while in the Philippines or abroad. There
compensation cannot be considered as income derived from abroad since they are
not rendering services for another corporation but for services rendered under an
employer- employee relationship with a domestic corporation. Hence, the 4 field
engineers are to be treated as resident citizens for income tax purposes whose
compensation are subject to creditable withholding tax. (BIR Ruling No. 512-2011,
December 20, 2011)
188. X is a stockholder of W Corporation. He decided to exchange his real property

to shares of stocks of said corporation without monetary consideration so that
he can gain control of the corporation. What is the tax implication of said
transaction?
Answer. Transfer of real property in exchange for controlling shares of stock is a tax-
free exchange transaction under Sec. 40(C)(2) of the NIRC but is subject to VAT
under Sec. 109 of the Tax Code. (Kudao & Sons, Inc. vs. CIR, CTA case No. 8501,
January 13, 2014)
189. X is a businessman engaged in trading of goods. Every now and then he buys
and sells shares of stocks from private corporations and/or thru the exchanges.
Last year, X sustained huge losses because some companies from whom he
bought shares of stocks were dissolved due to bankruptcy. X deducted the
losses from his gross income considering that the money he used to purchased
those shares of stocks were sourced from his business capital. Is he correct?
(China Banking Corporation vs. CA, 336 SCRA 178)
Answer. When shares of stocks held by investors become worthless, the loss
sustained therein is deemed to be a loss from the sale or exchange of capital assets.
There is strictly no sale or exchange but the law deems the loss anyway to be a loss
from the sale or exchange of capital assets. X cannot deduct his capital losses when
the shares become worthless from his ordinary gross income because capital losses
can ONLY be deducted from capital gains.
EXCEPTION: Shares of stock would be ordinary assets only to a dealer in securities

or a person engaged in the purchase and sale of or an active trader in securities. The
loss they sustained in their everyday activities in securities is ordinary loss that is
deductible from ordinary gross income.
can deduct from its gross income? Why?
(China Banking Corp. vs. CA, July 19, 2000)
191. Is the 5% and 10% capital gains tax on the sale of shares of stock NOT listed or
traded in the stock exchange a withholding tax?
Answer. No. While Sec. 57(A) of the Tax Code provides that this CGT should be
withheld by the payor, nevertheless, Sec. 52(D) of the Tax Code requires the seller to
file a CGT return and pay the tax due within 30 days from the date of the sale of
shares of stocks not traded or listed in the exchanges. Moreover, since the CGT is computed on
the basis of the seller’s gain, a determination of the seller’s deductible cost basis and expenses of
sale is necessary. This information is known only to the seller. Therefore, the buyer has no
means of determining the amount of CGT due and is not in a position to withhold the
tax. (BIR Ruling No. 131-99, August 20, 1999) (NOTE: Under the TRAIN Law the tax
rate applicable is 15% on net gain)
192. The Chamber of Real Estate and Builders Association, Inc. argues that the
imposition of the 2% MCIT on corporations sustaining losses is in violation of
the Tax Code. Under Income taxation, income tax is imposed only where there is
income realized and no income tax payment is due when the entity sustained a
loss. Thus, 2% MCIT is a tax on capital because there is no income earned
thereby clearly violating the law on income taxation. Is CREBA correct?
Answer. Although both are income taxes, the MCIT (2%) is different from the basic
corporate income tax (30%), not only in the rates, but also in the bases for their
computation. MCIT is not a tax on capital; it is imposed on gross income which is
arrived at by deducting the capital spent by a corporation in the sale of goods and
other direct expenses from gross sales. While income tax is computed based on net
income after deducting all business expenses. Clearly, the capital of the business is
not being taxed. (CREBA, Inc. vs. the Hon. Executive Sec. Alberto Romulo, March 9,
2010)
193. Is it possible for a corporation that paid the 2% MCIT to benefit from Net
Operating Loss Carry over Principle (NOLCO) during the same tax period?
Answer. No. The 2% MCIT is computed based on the gross income, while the benefit
of NOLCO is possible only if the tax base is the net income. Thus, a corporation
cannot enjoy the benefit of NOLCO for as long as it is subject to MCIT in any taxable
year. Moreover, the running of the 3-year period for the expiry of NOLCO is not
interrupted by the fact that such corporation is subject to 2% MCIT in any taxable year
during such 3-year period. (Rev. Reg. No. 14-2001)
194. The MCIT is imposed on the 4th year immediately following the year in which such
corporation commenced its business operation which is reckoned upon the issuance
of the BIR Certificate of Registration and NOT from registration with the SEC or from
actual business operation. (RR 9-98) Whereas, for a thrift bank, the grace period is
four (4) years) counted from date when the BSP issued the Certificate of Authority to
operate as a thrift bank.
195. X is a newly created business organization. It sought registration with the SEC
on October 1, 2016. Registered itself with the BIR on March 20, 2017 and finally
got its business permit with the local government on June 1, 2017. X begun its
business operation the following year on January 2, 2018. Granting that X has
been sustaining losses in its initial business operations, from what year will be
the reckoning point of the 3-year leeway to which X will be exempt from the
imposition of the MCIT?
Answer. The MCIT is imposed on the 4th year immediately following the year in which
such corporation commenced its business operation which is reckoned upon the
issuance of the BIR Certificate of Registration and NOT from registration with the SEC
or from actual business operation (RR No. 9-98)
196. When is a worthless equity investment classified as a capital loss instead of a bad
debt?
Answer. Equity investment in an insolvent subsidiary or corporation that has become
worthless is a capital loss to an entity that is NOT A DEALER IN SECURITIES.
Hence, the losses resulting therefrom can only be deducted from capital gains derived
in the same taxable year that the securities have become worthless. (China Banking
Corporation vs. CA, G.R. No. 125508)
197. X, a domestic corporation engaged in telecommunication services, shipped out

from our country several units of electronic equipment to Y, a Malaysian
Corporation for repair to be undertaken by the latter registered and doing
business in Malaysia. The agreed contract price is payable in two (2) years. X
issued a promissory note to Y in Malaysia, with 12% interest per annum. In
2012, X paid Y, the entire contract price inclusive the accrued interest. X did not
withhold any tax claiming that the total remittance is an income from without
the Philippines considering that the services were all done in Malaysia. Is X
correct? Explain.
Answer. No. The remittances consisted of compensation with interest for services
rendered. While the amount constituting compensation for services is an income from
without and therefore has no tax situs in the Philippines, the interest portion is an
income from within because it is due on an obligation by a resident. Hence, X is
obliged to withhold the tax due on the interest
paid to the non-resident foreign corporation. The tax situs of interest on debt is the
residence of the debtor. (NDC vs. Commissioner)
198. The 20% discounts extended by private establishment to senior citizens may
now be claimed as tax deductions from gross sales or gross income of the
businessman/enterprise. It is no longer applied as a tax credit. Hence, the “cost
of discount” is the amount of the 20% discount extended by a private
establishment to senior citizens. (Mercury Drug Corporation vs. CIR, July 20, 2011)
199. Distinction between tax credit and tax deduction:
Tax Credit Tax Deduction

subtracted from the tax due or payable subtracted from the gross income before the tax due is
computed
e duces the taxpayer’s liability pesos for peso or dollar educes the taxable income upon which the tax liability is
for dollar, peso for peso calculated
200. Barangay officials are not compensation income earners but instead receive
“HONORARIA” from the local government. Is the Honoraria taxable?
Answer. “Honoraria” no matter how negligible the amount, is wealth that flows into the hands of the
barangay officials. Hence, they are subject to income tax and consequently, to withholding
tax on compensation. (BIR Ruling 422-2011, November 4, 2011)
201. Are the prizes (cash and kinds) won by Sen. Manny Pacquioa subject to Philippine
income tax?
Answer. All the prizes won by Sen. Manny Pacquiao are considered fruit of labor
subject to income tax. The exemption of prizes won by athletes in international and local
sports competition is limited to amateur events sanctions by the athletes’ respective national sports
association. Money realized from professional games is taxable.
 Prizes won by an individual without any active participation (raffle ticket) is

subject to 20% FWTax, provided the prize with won within the Philippine and it is
above Php 10,000.
 Under the Tax Code prizes won from Sweepstakes and Lotto are exempt from
20% FWTax. BUT, under the TRAIN Law, prizes of more than Php 10,000 won
from sweepstakes and Lotto are now subject to 20% FWTax. Prizes
202. Is there a distinction between the imposable interest on bonds or deposit

substitutes and interest on long-term time deposits?
Answer. Interest income earned from bonds or deposit substitutes is subject to 20%
final withholding tax because this is viewed as gains derived from “dealings in property”;
this final tax is also application to sale, exchange or retirement of bonds or other certificates of
indebtedness. Whereas, interests or gains derived from long-term deposits (more than
5 years and 1 day) are exempt from the 20% final withholding tax and ordinary income
tax.
203. What are deposit Substitutes?

Answer. This refers to the alternative form of obtaining funds from the public (the term “public”
means borrowings from 20 or more individuals or corporate lenders at any one time.
Interest incomes from deposit substitutes are subject to 20% Final withholding tax. But
if the debt instrument shows that the borrowings were from less than 20 persons, the
interest income is subject to the regular income tax.
204. Bank X earned interest income from its passive investments. The
corresponding 20% final withholding tax was deducted from said income before
it was sent to X. When X was paying its 5% Gross Receipt Tax (GRT) it deducted
the 20% final tax from its gross income. The BIR disallowed such deduction. Is
the BIR correct?
Answer. Interest earned by banks even if subject to the 20% final tax and excluded
from taxable gross income, forms part of its gross receipt for GRT purposes. Gross
receipts means the entire receipts without any deduction, otherwise the word net
receipts should have been used if deductions were allowed by law. Interest income
earned by banks even if already subjected to the final withholding tax is still part of
their gross receipts. Furthermore, exclusions of the final withholding tax from gross
receipts operate as a tax exemption which the law must expressly grant. In this case,
the law did not specifically grant such exemptions under a clear, unequivocal
statement. Tax exemption is never presumed. (China Banking Corp. vs. CIR,
February 27, 2013)
205. What are the requisites for business
expense to be deductible? Answer.
a) It must be ordinary and necessary
b) It must be paid or incurred within the taxable year
c) It must be paid or incurred in carrying on, or directly attributable to, the
development, management, operation and/or conduct of the trade, business or
exercise of profession; and
d) It must substantially be proven, by evidence or records, the deductions claimed
under the law, otherwise, the same will be disallowed. The mere allegation of the
taxpayer that an item of expense is ordinary and necessary does not justify its
deduction. (Atlas Mining vs. BIR, 102 SCRA 246)
206. X Manufacturing is engaged in the production of quality electrical appliances

and electronics products. X regularly incurred advertising expenses in
protecting its brand franchise. Is the advertising expense allowed as a
deduction from gross income as business expenses?
Answer. The protection of X’s brand franchise is analogous to the maintenance of goodwill or title to
one’s property which is in the nature of capital expense and not permitted to be deducted
as ordinary business expenses, Hence, it should fall under depreciation allowance of
capital assets. (CIR vs. Procter and Gamble Phil. Mfg. Corp. 1999)
NOTE: If the company was paid compensation for damages it incurred from
destroying its goodwill, such amount is not taxable because it is mere return of capital
unless, the value awarded is more than the value of the goodwill, then the excess will
be taxable.
207. The CIR disallowed some of the allowable deductions claimed by X in his tax
return of 2009. Without sending X a notice of assessment the CIR enforces tax
collection in 2013 contending that IR taxes are self-assessing, hence, can be
collected without an assessment. Is the CIR correct?
Answer. The CIR is not correct, because when he disallowed deductions claimed by
X, he should have given X the opportunity to prove the validity and the relationship of
those disallowed deductions to his business operation or professional conduct
otherwise the due process clause of the Constitution is squarely violated. Further, the
right of the CIR to assess is 3 years, for failure to make the assessment within 3
years, the CIR claims against the taxpayer is barred and where there was never any
valid notice of an assessment, it could not have become final, executory and
uncontestable; the CIR cannot collect any deficiency tax under the given facts. (2004
case)
208. X, a domestic corporation is engaged in building construction. X ordered many
pre-fabricated supplies/materials and assembled equipment completely
designed and engineered from Thailand where cost is cheaper. Thereafter, X
imported these items here to be locally used and installed in their construction
projects and work, thereby saving on time and labor cost. What is the tax
implication of such an arrangement between X and the Thai Company?
Answer. The situs of taxation of a contract for a project which included the
construction and installation of equipment designed, fabricated and manufactured in
Thailand but to be used in our country is the Philippines because it is here where such
materials, supplies and equipment are to be installed. Whereas, taxation for the cost
of supplies and labor which were completely designed and engineered in Thailand is
in that country. (CIR vs. Marubeni Corp. Dec. 18, 2001)
NOTE:
a)Compensation income – is considered as having been earned in the place where
the service was rendered and not considered as sourced from the place where the
money originated.
b) Payment for services – other than compensation income, is considered as

having been earned at the place where the money originated and not at the place
where the activity or service as performed.
209. X paid Y an amount of money representing the income of the latter. X failed to
withhold the corresponding tax therefrom. The BIR assesses Y the unpaid
withholding tax relative thereto. Y refused to pay contending that it is not the
withholding agent in the said transaction and therefore the liability to withhold
taxes should rest on X. The BIR believes otherwise. Is Y correct that the tax due
from the transaction where it earned an income should be collected from X, the
payor-withholding agent?
Answer. The liability of the withholding agent is independent from that of the taxpayer.
X cannot be made liable for the tax due because it is Y who earned the income
subject to withholding tax. The withholding agent is liable only insofar as he failed to
perform his duty to withhold the tax and remit the same to the government. The liability
of the tax remains with the taxpayer because the gain was realized and received by
him. Y cannot evade his liability to pay the tax by shifting the blame on X, the payor-
withholding agent. (RCBC vs. CIR, September 7, 2011)
210. Tax base for DST purposes in a sale of shares of stock is the total par value of
the shares sold and NOT the gross purchase price. (CIR vs. Eco Leisure &
Hospitality Holding Co., Inc. CTE EB N0. 1013, January 14, 2014)
211. X Bank was the highest bidder in a foreclosure sale of certain mortgaged
properties. Upon approval and issuance of the Certificate of Sale, X Bank duly
filed withholding tax and DST returns and paid the corresponding taxes. Then it
submitted to the BIR an Affidavit of Consolidation of Ownership with proof of
tax payments and other documents in support of its application for a tax
clearance. The BIR charged X Bank penalties for later payment of the DST and
withholding taxes on the ground that the taxes accrued upon the lapse of the
redemption period of the mortgaged properties. The BIR claimed that the
reckoning point for the redemption period and for the accrual of the taxes is the
date of the foreclosure sale. Is the BIR correct?
Answer. The reckoning point for the redemption period and the accrual of
corresponding taxes is the date of the confirmation of the auction sale which is the
date when the certificate of sale is issued and not the date of the foreclosure sale. BIR
RMC No. 58-2008, August 15, 2008 supports this reckoning point. Therefore, X Bank
paid the DST and WTax due on the foreclosure sale within the period prescribed by
law; hence, no penalties may be imposed. (CIR vs. United Coconut Planters Bank,
October 23, 2009)
212. Who are liable for the payment of documentary stamps tax? (b) Granting that
the person primarily liable is tax exempt from payment of the DST, is the
document still taxable?
Answer. Persons primarily liable for the payment of DST are the persons (a) making,
(b) accepting (c) signing, (d) transferring or (e) issuing the taxable document. If the
person primarily liable is tax exempt the document remains taxable and the party who
is not exempt shall be the one liable. (Philacor Credit Corp. vs. CIR, February 6, 2013)
213. (a) Who are liable for the payment of documentary stamps tax? (b) Granting that
the person primarily liable is tax exempt from payment of the DST, is the
document still taxable? (Philacor Credit Corp. vs. CIR, February 6, 2013) Answer.
Persons primarily liable for the payment of DST are the persons (a) making, (b)
accepting (c) signing, (d) transferring
or (e) issuing the taxable document. If the person primarily liable is tax exempt the
document remains taxable and the party who is not exempt shall be the one liable.
214. X, a BOI-registered enterprise is exempt from all taxes, except income tax. X
applies for a loan with Bank “Y”. Bank Y charges X with DST under the contract
of loan? Is Y correct?
Answer. No. Bank Y cannot collect from X because X is exempt from tax. The Tax Code
provides that “whenever one party to the taxable document enjoys exemption from the tax
imposed, the other party thereto who is not exempt shall be the one directly liable for
the tax. Accordingly, Y not being an exempt person (entity) is the party directly liable.
Y cannot invoke the tax exemption privilege of X because tax exemption is non-
transferable.
215. Promissory notes are non-negotiable instruments. They can be assigned or

transferred from one person to the other. X is a transferee of a promissory note.
Is X liable of DST when the instrument was transferred to him?
Answer. The assignee or transferee of a promissory note is NOT liable for the
payment of the DST as the transaction (transfer or assignment) of promissory note is
not taxed under the law. [Philacor Credit Corp. vs. CIR, GR No. 169899 (2013)]
216. Is the sale of foreign currency to the Bangko Sentral ng Pilipinas (BSP) via
telegraphic Transfer subject to DST? If it is taxable, who pays the subject tax?
(China Banking Corporation vs. CIR, February 4, 2015)
Answer. Yes it is. The buyer (BSP) bears the burden of taxation.
217. Petitioners are domestic corporations engaged in the insurance business. They
are claiming for the refund on the DST they paid for insurance policies earlier
issued. They maintain that since the premiums on the policies were not paid,
they are considered, as never to have taken effect pursuant to the Insurance
Code and therefore, no DST were due thereon. Are the petitioners correct?
Answer. No. The petitioners are wrong. DST is levied on the exercise of the privilege
executing specific instruments and must be paid upon the issuance of the instruments;
without regard to whether the contracts which gave rise to them is recissible, void,
voidable or unenforceable.
Life and non-life insurance policies are subject to DST by their mere issuances,
and the fact that the policies have not become effective for non-payment of the
corresponding premiums cannot affect the insurance company’s liability for the DST.
218. Lincoln is a domestic corporation engaged in life insurance business. In 1984, it
issued 50,000 shares as dividends, with par value of Php 100 or for a total of
Php 5M. Lincoln paid DST on each certificate based on its par value. What is the
proper basis of the DST, par value or book value of the shares?
Answer. There is no basis to treat stock dividends as a distinct class from ordinary
shares of stock since Sec. 224 of the NIRC merely distinguishes certificate of stocks
and not the shares themselves as one with par value and one without. There is
therefore no reason to determine the actual/book value of such dividends for purposes
of DST if the certificates indicate a par value. The tax is not levied upon the specific
transactions which give rise to the original issuance but on the privilege of issuing
certificates of stock. Hence, based on par value.
219. X is an entity that is exempt from paying the DST. If X buys a property, the seller
shall be liable for the payment thereof, even if it is stipulated in the deed of sale
that all expenses and taxes connected with the execution and registration of the
instrument shall be for the account of X. The stipulation will not exempt the
seller from the liability of paying the DST. Why?
Answer. (a) The burden of taxation cannot be shifted by private agreement. (b) The
Law on DST provides that if the primary taxpayer in a transaction is exempt from that,
the liability thereof should be shouldered by the other party who is not tax exempt.
220. Are the health insurance policies of health maintenance organizations subject
to DST? (Philippine Health Care Providers vs. CIR, 554 SCRA 411)
Answer. Health protection coverage with HMOs is not subject to DST. While it is not
the purpose of the government to throttle with private business, the government ought
to encourage private enterprise. HMSs, just like any concern organized for a lawful
economic activity have a right to maintain legitimate business. Hence, it should not be
arbitrarily and unjustly included in the DST coverage.
221. X Corporation purchased all properties from Y Corporation under a Purchase

and Sale Agreement. The BIR noticed that the seller still has unpaid DST.
Having evidence to prove that X is now in possession of all properties of Y, BIR
enforces the tax liabilities of Y against X. Is the BIR correct? [CIR vs. Bank of
Commerce, GR No. 180529 (2013)] Answer. The purchase and sale of identified
assets between 2 corporations under a Purchase and Sale Agreement does not
constitute a merger as defined under the Tax Code, the seller and purchaser are still
considered separate and different entities from one another. Thus, X, the purchaser
cannot be held liable for the payment of the deficiency tax liability of Y.
222. X sold his house and lot to Y on installment. Half of the consideration payable
upon execution of the Deed of Sale and the balance payable upon release of the
loan being applied for by Y from the bank. To facilitate the loan X agreed to
transfer the Certificate of Title to Y. X paid the capital gains tax and the
documentary stamps tax. Unfortunately, the loan was not approved because Y
has not earning capacity. As a consequence the sale did not materialize. X now
applies for the refund of the CGT and the DST. BIR approves only the refund of
the CGT but not the DST paid. Is the tax official correct?
Answer. Yes. The BIR is correct. The DST is non-refundable. It is payable upon
execution of the taxable document and the payment thereof is not depended on the
outcome of the transaction. (Lincoln Life Insurance, 2002 and Home Assurance
Corporation,1999)
223. X mortgaged his house and lot to Y. X failed to pay his obligation. Thereafter, Y
filed a civil case against X. Among the evidences submitted by Y is the
mortgage contract. X objected to the inclusion of the subject document
contending that no DST was paid in the document and therefore it is
inadmissible as evidence in court. Is X correct?
Answer. In the case of Filipinas Textile Mills, 2003 it was ruled by the highest court
that a party who is among those obliged to pay the DST is estopped from claiming that
the documents are inadmissible in evidence for non-payment thereof. X is the party
primarily liable and he did not pay the DST as required.
On Transfer Taxes:
NOTE: The TRAIN Law which took effect January 1, 2018 has practically
amended ESTATE TAX and DONOR’S TAX as to their tax rates, time of payment,
allowable deductions and other administrative matters.
224. During the lifetime of X, he executed a will. Among the conditions he stated in
the will is that “all my real properties shall not be transferred by any means
whatsoever within 15 years from my death”. Under this conditional transfer,
when does the estate tax accrue? What value shall be considered for purposes
of computing the estate tax?
Answer. The estate tax accrues at the time of death. Death is the generating source
from which the power of the State to impose estate tax commences, hence, the death
tax should be measured by the value of the properties at the time of death regardless
of (a) postponement of actual possession, or (b) subsequent appreciation or
depreciation of the property. (Lorenzo vs. Posadas)
225. X, the administrator of Y’s estate. Prepared and paid the estate tax in due time.
In the estate tax return X deducted all unpaid obligations of Y that were left
unpaid by the decedent. 6 months thereafter the BIR sent the administrator a
deficiency assessment notice contending that some of the debts deducted in
the estate tax return are disallowed for reason that they were condoned by Y’s
creditors. Hence, non-deductible. X argues that the debts were existing and
unpaid at the time of death and he has no knowledge of the alleged condonation
of the debts. The BIR did not agree. Are the debts deductible from the gross
estate of Y? Reason. (Dizon vs. CTA, GR No. 340944, April 30, 2008)
Answer. In determining the deductible items and claims against the estate, the Date
of Death Valuation Rule applies. Which means that post developments are not
considered. What eventually occurs after the estate tax has been paid should not
affect the payment already made.
226. X and his family are wrapping-up all their affairs in the country because in a
month’s time or so they are migrating to Italy. X sold his three-door apartment
to his cousin for only Php 5.0 million. The property at the time of sale has a fair
market value of Php 9.5 million. What is the tax implication if subject property is
sold for insufficient consideration? [Sec. 100 in relation to Sec. 24(D), NIRC]
Answer. When ordinary assets are transferred for less than adequate and full consideration in
money or money’s worth, the amount by which the FMV of the property exceeded the value of the
consideration shall be deemed a gift and subject to Donor’s Tax. (FMV – Consideration =
Deemed gift subject to Donor’s Tax)
227. X sold his shares of stocks to a friend for a price less than the fair market value
then prevailing. BIR imposes donor’s tax on the transaction. X refuses and
argues that there was no donative intent in the transfer of the shares of stocks
as it was in fact a sale and not a donation. Is X correct? (Philamlife vs. SOF, GR
No. 210987, November 24, 2014)
Answer. X is not correct. Absence of donative intent, if that be the case, does not exempt
the sale of stocks from donor’s tax since Sec. 100 of the Tax Code categorically states
that the amount by which the FMV of the property exceeded the value of the
consideration shall be deemed a gift. Donative intent is not a factor in determining whether or not
donor’s tax is imposable in the disposition of ordinary assets.
228. Are political campaign expenses deductible?

Answer. As to the candidate, political party or contributor, the political campaign
expenses are not deductible. If the amounts contributed are fully utilized, they are exempt
from tax and thus there’s no need for any deduction at all. However, any excess in the
campaign fund (unused) shall be taxable and subject to income tax to the candidate
and the political party.
To the supplier of goods or services, he may avail of a deduction. RR No. 8-2009

provides that a 5% creditable withholdings tax shall be paid for their purchases of
goods and services intended to be given as campaign contributions to political parties
or candidates. This 5% CWTax shall be credited or deducted against the total income
tax liability of the supplier of goods or services.
229. Are donations/contributions to international NGOs deductible from gross income?
Answer. The NS-NP Corporation or organization must be created or organized under
Philippine laws and that an NGO must be a non-profit domestic corporation. A foreign
corporation whether resident or non-resident cannot be accredited as a donee
institution, hence, the contribution to it is non-deductible from gross income. (BIR
Ruling No. 19-01, May 10, 2001)
230. X left a will which is now before the probate court. During the pendency of the
estate proceeding of the deceased, the BIR filed a collection case against the
estate. The heirs insist that the collection is premature. The CIR believes
otherwise? Is the CIR correct? (Marcos II vs. CA, June 5, 1997)
Answer. The pendency of the estate proceeding of a deceased person does not
prevent the BIR from filing collection of unpaid taxes. The BIR is not required to
secure the approval of the probate court to enforce the judicial collection of unpaid
taxes.
231. During the lifetime of X, he executed a will. Among the conditions he stated in
the will is that “all my real properties shall not be transferred by any means
whatsoever within 15 years from my death”. Under this conditional transfer,
when does the estate tax accrue? What value shall be considered for purposes
of computing the estate tax? (Lorenzo vs. Posadas)
Answer. The estate tax accrues at the time of death. Death is the generating source
from which the power of the State to impose estate tax commences, hence, the death
tax should be measured by the value of the properties at the time of death regardless
of (a) postponement of actual possession, or (b) subsequent appreciation or
depreciation of the property.
On VAT:
Under the TRAIN LAW, the new threshold for VAT purposes is a gross sales
or gross receipt of Php 3.0 million from Php 1,919,500.00. For Lease of
residential units is Php 15,000 from Php 12,800.00 per month.
232. X is PEZA-Registered. Sometimes it engages in activities which are not

registered with PEZA. Is income derived from unregistered activities of X
taxable?
Answer. The income tax exemption of a PEZA-Registered Enterprise applies only to
income derived from its registered activities. When X engages in activities which are
not registered with PEZA, the income or receipts derived from all its unregistered
activities shall be subject to regular internal revenue tax, such as VAT. In such case, X
is obliged to register as a VAT taxpayer and issue a VAT official receipt or invoice for
every sale or transaction which is subject to VAT, Should X use its VAT official receipt
or invoice to evidence its VAT exempt sale, the words “VAT Exempt Sale” must be prominently
printed on the VAT official receipts/invoice as failure to do so make it liable to account for
the VAT as if the sale is not VAT exempt. (Sutherland Global Services, Phil. Inc. vs.
CIR, CTA case No. 8180, January 13, 2014, CIR vs. First Sumiden Realty, Inc. CTA
EB No. 975, January 7, 2014)
Sale of fixed assets used in PEZA-Registered activities is subject to ordinary

income tax. (BIR Ruling 291-2012, April 25, 2012)
Enterprises registered with PEZA, BOI and BOI-ARMM is NOW subject to

ordinary tax investigation following the revocation of MOA with PEZA, BOI and BOI-
ARMM. (RR No. 14-2012, April 2, 2012)
233. X Medical Services, Inc. is a medical/health services provider. X sells medicards

to its clients at a package price which includes discounts on doctors’ fees,
laboratory and examination fees, medicines, and other hospital bills in case of
need and use. The buyers can use the medicards for medical services at a
discounted rate. Are the amounts received by X Corporation which is earmarked
for payment to doctors, hospitals and clinics subject to 12% VAT?
Answer. Amounts earmarked and eventually paid to X by X’s clients do not form part of X’s
gross receipts for VAT purposes. X’s gross receipts shall be the total amount of money or its
equivalent representing the service fee actually and constructively received during the
taxable period for the services performed or to be performed for another persons
(doctors), excluding the VAT.
234. X corporation cease operation due to very poor business activities. It has
excess income tax payments and decided to claim refund thereof. Where is the
reckoning point of the 2-year prescriptive period to validly claim the same?
Answer. In case of DISSOLUTION, the 2-YEAR prescriptive period to file claim for
refund of taxes begins 30 DAYS AFTER
APPROVAL BY SEC of dissolution. (Mindanao Geothermal Partnership vs. CIR, CTA case
No. 8250, November 9, 2012)
235. X Corporation (an exporter of native products) filed its claim for tax credit of its
unutilized input taxes. It submitted to the BIR all its documents in support of
said claim. The BIR denied the claim for reason that the BIR’s permit to print its
sales invoices (ATP) was not properly indicated in the sales invoices used by X.
Is the denial valid?
Answer. In the case of Philex Mining Corp. vs. CIR, CTA case No. 8371, April 15,
2014, the court held that there is no law or regulation requiring it, failure to print the
ATP on invoices or receipts should not result in outright denial of a claim or the
invalidation of invoices or receipts for purposes of claiming a refund. The BIR can just
require the taxpayer to produce its permit to print sales invoices or receipts to check
whether the authority exists.
The absence or non-printing of the word ‘ZERO-RATED” sale in the sales

invoices of the VAT businessman is FATAL to a claim for refund and/or credit of
unutilized input tax attributable to zero-rated sales per requirement under a vale
revenue regulation.
236. X filed its claim for unutilized input taxes. The BIR denied the claim for failure of
X to submit complete documents in support of said administrative claim. X filed
a judicial claim before the CTA within 30 days from receipt of the denial. Will his
appeal prosper?
Answer. Failure to submit complete documents in support of taxpayer’s administrative
claim for refund of unutilized input tax is NOT FATAL to judicial claim. Judicial claims
before the CTA are litigated DE NOVO and decided based on what has been
presented and formally offered by parties during the trial. When a taxpayer’s claim reaches
the judicial level or when claim is
elevated to CTA, the Rules of Court and the Revised CTA Rules govern the matter of
proving the claim. (Ayala Corp. vs. CIR, CTA case No. 8262, March 21, 2014)
237. X ceased business operations effective December 31, 2012. On July 1, 2013, it
filed an Application for Registration Update with the BIR. On July 7, 2013, it filed
an administrative claim for issuance of a Tax Credit Certificate (TCC) of its
unutilized input VAT with the BIR. The BIR denied the claim for being premature.
Is the denial correct?
Answer. The administrative claim for issuance of TCC is prematurely filed since the effectivity date of
X’s formal cessation of business is reckoned from the first day of the following month, or
on August 1, 2013, where the application for Registration Update was filed on July 1,
2013. (Associated Swedish Steels Phils., Inc. vs. CIR, CTA EB case No. 854, August
23, 2012)
238. The decision of the SC in the case of CIR vs. Pilipinas Shell Petroleum Corp.,
April 25, 2012 that the excise tax imposed on petroleum products is the direct
liability of the manufacturer, hence, it cannot shift the excise taxes it paid to
international carriers buying its petroleum products because the latter are
exempt from excise taxes. Manufacturers are not entitled to claim tax refund.
The SC recently re-examined said ruling and in the latest case of CIR vs.
Pilipinas Shell Petroleum Corp., February 19, 2014, The SC granted the petroleum
manufacturer’s claim for refund or tax credit of excise taxes on petroleum sold to
international carriers exempt from excise taxes on petroleum products giving primary
consideration to its broad implication on the country’s commitment to international
agreement.
239. X Corporation (an exporter of native products) filed its claim for tax credit of its
unutilized input taxes. It submitted to the BIR all its documents in support of
said claim. The BIR denied the claim for reason that the BIR’s permit to print its
sales invoices (ATP) was not properly indicated in the sales invoices used by X.
Is the denial valid?
Answer. In the case of Philex Mining Corp. vs. CIR, CTA case No. 8371, April 15,
2014, the court held that there is no law or regulation requiring it, failure to print the
ATP on invoices or receipts should not result in outright denial of a claim or the
invalidation of invoices or receipts for purposes of claiming a refund. The BIR can just
require the taxpayer to produce its permit to print sales invoices or receipts to check
whether the authority exists. (Silicon Phils., Inc. vs. CIR, GR No. 172378, January 17,
2011, Intel Technology Phils., Inc. vs. CIR)
240. The absence or non-printing of the word ‘ZERO-RATED” sale in the sales invoices of
the VAT businessman is FATAL to a claim for refund and/or credit of unutilized input
tax attributable to zero-rated sales per requirement under a valid revenue regulation.
(Panasonic Communications Imaging Corp. of the Phils., vs. CIR; JRA Philippines,
Inc. vs. CIR, GR No. 177127, October 11, 2010)
241. X, is a VAT-registered businessman engage in export activities. X filed a claim
for tax credit of his unutilized input taxes within the reglamentary period. X has
submitted all documents in support of said claim. CIR denied his claim for
reason that the word “Zero-Rated Sales” is not duly imprinted in X’s sales
invoices and receipts but was merely rubber stamped ion violation of the
invoicing requiring under the VAT law. Is the denial valid?
Answer. The words “Zero-Rated Sales” although merely stamped and not pre-printed in
the sales invoices and receipts constitutes sufficient compliance with law. Since the imprinting of
the words “ZRS” was required merely to distinguish sales subject to 12% VAT from those that
are subject to 0% VAT and exempt sales, to enable the BIR to properly implement and
enforce the other VAT provisions of the Tax Code. The CIR should not literally
interpret the provisions of the Tax Code to the extent of denial of taxpayer’s right when the
later has proven compliance to all requisites of law. (Toledo Power, Inc. vs. CIR, January 20,
2014)
242. The VAT law provides that the President, upon the recommendation of the Sec.
of Finance, shall raise the VAT rate of 10% to 12% after the given conditions are
met satisfactorily. Was there an invalid delegation of legislative power to tax to
the president?
Answer. There was no undue delegation of legislative power to tax but only the
discretion as to the execution of the law, which is constitutionally permitted. The
Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it and what is the scope of his authority. In the
VAT issue, the Sec. of Finance merely acted as the agent of the legislative
department in determining and declaring when the event of increase should
commence. The President cannot set aside the findings of the Sec. of Finance but she
must act accordingly. (Abakada Guro Party List vs. Ermita, Sept. 1, 2005)
243. What is “Destination Rule” for purposes of the Value Added Tax? (GR 153205, Jan 22,
2007)
Answer.
a. This principle is followed in our VAT law who means that exports are exempt,
whereas imports are taxable and subject to VAT.
b. Goods and services are taxed only in the country where they are consumed.
Hence, selling of goods and services by businessmen here to end-consumers
abroad is non-VATable.
244. What is the Cross Border

Doctrine in taxation? Answer.
a. This Doctrine finds application in the Philippine VAT system which means that no
VAT shall be imposed to form part of the cost of goods destined for consumption
outside the territorial border of the taxing authority.
b. Sales of goods, properties and services by a VAT-registered supplier from

Customs Territory to an ecozone enterprise shall be treated as export sales,
while sales to an ecozone enterprise made by a Non-VAT or unregistered
supplier would only be exempt from VAT and the supplier shall not be able to
credit credit/refund of its input VAT. (2005 case)
245. X is PEZA-Registered. Sometimes it engages in activities which are not

registered with PEZA. Is income derived from unregistered activities of X
taxable?
Answer. The income tax exemption of a PEZA-Registered Enterprise applies only to
income derived from its registered activities. When X engages in activities which are
not registered with PEZA, the income or receipts derived from all its unregistered
activities shall be subject to regular internal revenue tax, such as VAT. In such case, X
is obliged to register as a VAT taxpayer and issue a VAT official receipt or invoice for
every sale or transaction which is subject to VAT, Should X use its VAT official receipt
or invoice to evidence its VAT exempt sale, the words “VAT Exempt Sale” must be prominently
printed on the VAT official receipts/invoice as failure to do so make it liable to account for
the VAT as if the sale is not VAT exempt. (Sutherland Global Services, Phil. Inc. vs.
CIR, CTA case No. 8180, January 13, 2014, CIR vs. First Sumiden Realty, Inc. CTA
EB No. 975, January 7, 2014)
Sale of fixed assets used in PEZA-Registered activities is subject to ordinary

income tax. (BIR Ruling 291-2012, April 25, 2012)
Enterprises registered with PEZA, BOI and BOI-ARMM is NOW subject to

ordinary tax investigation following the revocation of MOA with PEZA, BOI and BOI-
ARMM. (RR No. 14-2012, April 2, 2012)
246. Distinguish transitional input tax from creditable input (unutilized) tax: (Fort
Bonifacio Development Corporation vs. CIR, etc., January 22, 2013)
Answer. Transitional input tax credits are input taxes on a taxpayer’s beginning inventory of
goods, materials and supplies equivalent to 2% of the value of such inventory or the
actual VAT paid on such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax. It may only be availed of once by first-time
VAT taxpayers. On the other hand, creditable input taxes are input taxes of VAT
taxpayers in the course of their trade or business, which should be applied within 2
years after the close of the taxable quarter when the sales were made.
The 2% transitional input tax credit should not be limited to the value of the
improvements on the real properties but should include the value of the real properties
as well.
247. What the requisites for a valid claim of

unutilized input tax credit? Answer.
a) The taxpayer-claimant must be a vat registered taxpayer
b) He is engaged in sales which are zero-rated or effectively zero-rated;
c) The claim is filed within 2 years after the close of the taxable quarter when such sales
were made, and
d) The creditable input VAT due or paid must be attributable to such sales, except
the transitional input VAT, to the extent that such input tax has not been applied
against the output VAT.
An application for tax refund or credit must be accompanied by copies of the taxpayer’s
VAT return(s) for taxable quarter(s) concerned showing that the claimant is entitled to
the refund or credit of input VAT and the same has not been applied against its output
VAT-liabilities. (Atlas Consolidated Mining and Development Corp., vs. CIR, January
26, 2011)
248. X is a VAT registered enterprise engaged in export activities. In January 2010 it

bought plenty of raw materials. The purchase invoices reflected the value of
input taxes X absorbed from all its purchases. Today, it seeks for the refund of
its unutilized input taxes. If X comes to you to effect the claim can you still do it
in its behalf knowing that the claim must be done within 2 years from payment?
Academicus Review Center
Inc.
Success Driven . Value for Money . Customer Focus
Answer. The prescriptive period of 2 years to claim from payment of an IR tax does
not apply to export activities. Rather, it applies to invalid payments such as
overpayment, illegal or erroneous payment and for penalties imposed in relation
thereto. The prescriptive period to claim unutilized input taxes for export activities is 2
years and the reckoning point is not from payment but from the end of the quarter of
actual export.
249. In case of VAT Cancellation (retiring from business or change of VAT status to
non-VAT) – the two (2) year period to claim excess Input Tax is reckoned from
cancellation of the taxpayer’s VAT Registration.
250. WHAT ARE THE RULES ON DETERMINING THE PRESCRIPTIVE PERIOD FOR
CLAIMING A REFUND OR CREDIT OF UNUTILIZED INPUT TAX?
Answer.
a) The administrative claim (before the CIR) must be filed within the two-year period
prescriptive period (Aichi Doctrine)
b) The proper reckoning date for the 2-year prescriptive period is the close of the
taxable quarter when the relevant sales were made (San Roque Doctrine)
The taxpayer can file a judicial claim (before the CTA) in two ways: (a) file within
30 days after CIR denies the administrative claim within the 120 days resolution time
or (b) file a judicial claim within 30 days from the expiration of the 120- day period if
CIR does not act within the 120-day period. [Nippon Express (Phils.) Corp. vs. CIR,
March 12, 2013]
Taxpayer MUST wait for a resolution of his administrative claim within 120 days
from submission of complete documents in support of his claim before he can appeal
before the CTA or in case of CIR’s inaction, taxpayer can appeal within 30 days from lapsed of
the 120-day without a resolution on his claim. A judicial claim with the CTA without a
decision of the CIR filed before the lapse of the 120-day period is premature whereas,
a judicial claim filed after the lapsed of the 30-day with the CTA when there is inaction
is a claim filed out of time. (CIR vs. Silicon Phils., Inc. March 12, 2014)
 The 30-day period always applies whether there is a denial or inaction on the
part of the CIR. As a general rule, the 30- day period of appeal is both mandatory
and jurisdictional. (Aichi and San Roque)
 Doctrine of the Twin Prescriptive period does not apply to a claim for unutilized
input taxes but to a claim for tax refund or credit under an invalid payment. (Sec.
229, NIRC)
NOTE: The Doctrine of the Twin Prescriptive Period for invalid payments under
RA 1125, DOES NOT APPLY TO AN APPEAL BEFORE THE CTA INVOLVING
CLAIMS FOR UNUTILIZED INPUT TAXES.
The above rules do not apply to EPZA-REGISTERED ENTITIES because they

are exempt from the enforcement of Customs Laws and other Rules and Regulations,
such as the prescriptive periods and/or procedural requirements of the Tariff and
Inc.
Customs Code of the Philippines to a refund claim. (Phil. Associated Smelting &
Refining (PASAR) Corp. vs. Comm. Of Customs and Bureau of Customs, CTA case
No. 8404, February 20, 2014)
Reiterations: The 120—day period given to the CIR to resolve

taxpayer’s claim his now reduced to 90 DAYS ONLY under the Train
Law.
1. Atlas Consolidated Mining & Development Corp., vs. CIR, GR

Nos. 141104 & 128763, June 8, 2007 – The SC held that the 2-
year prescriptive period for filing a claim for unutilized input
taxes is reckoned from the date of the filing of the quarterly
VAT return and payment of the tax due. If the said period is
about to expire and the CIR has not yet acted on the taxpayer’s
written claim, the taxpayer MAY interpose a petition for review
with the CTA within the two- year period.
2. CIR vs. Mirant Pagbilao Corp, GR No. 172129, September 12,

2008 - This case, OVERTURNED the ATLAS case above. The
SC held that the 2-year prescriptive period to file a refund of
unutilized input taxes arising from a zero-rated sale should be
48 | reckoned from the CLOSE OF THE TAXABLE QUARTER when
P aI the sales were made.
L L
E G 3. In the case of CIR vs. Aichi Forging Asia, GR No. 184823,
INF October 6, 2010 – The 120 + 30-day Rule on appeal to the CTA
RI was established. This holds that the taxpayer has 30 days to
file
Inc.
an appeal to the CTA if the CIR denies his claim within the 120-
day period or if there is inaction within the said period, the
taxpayer has 30 days to appeal to the CTA which period is
reckoned immediately from the expiration of the 120-day
period. The 30-day period to appeal to the CTA is both
mandatory and jurisdictional.
4. In the case of CIR vs. San Roque Power Corporation, GR No.

187485, February 12, 2013 – The SC ruled that the 2-year
period to file a claim for tax refund or credit of unutilized input
tax applies to taxpayer’s administrative claim before the CIR. It
does not apply to a judicial claim before the CTA, i.e., an
appeal to the CTA can be pursued even outside of the 2-year
period).
5. In the case of Aichi Forging Company of Asia, Inc., vs. CTA,

GR. 193625. August 30, 2917 – The SC reiterates the proper
interpretation of the 2-year period under Sec. 112 (VAT). There
are 2 instances when an appeal to the CTA is considered
fatally defective even when the appeal was initiated WITHIN the
2-year period: (a) when there is no decision and the appeal is
take PRIOR to the lapse of the 120—day mandatory waiting
period, except only when the appeal was make within the
window period of December 10, 2002 to October 6, 2010; (b)
when the appeal to the CTA is taken BEYOND 30 days from
either decision or inaction (deemed a denial) of the CIR.
An appeal OUTSIDE the 2-year period is NOT legally infirm

for as long as it is taken WITHIN 30 days from decision or
inaction on the administrative claim that must have been
initiated within the 2-year prescriptive period of claim.
251. X, a VAT-registered businessman is engaged in export activities. He has

unutilized input VAT payments not otherwise used for any internal revenue tax.
What is the prescriptive period within which he must claim the input tax credit?
[CIR vs. Mirant Pagbilao Corp., 565 SCRA 154 (2008)]
Answer. The unutilized input VAT payments not otherwise used for any internal
revenue tax due the taxpayer must be claimed within two (2) years reckoned from the
close of the taxable quarter when the relevant sales were made pertaining to the input
VAT regardless of whether said tax was paid or not. Hence, the reckoning frame
would always be the end of the quarter when the pertinent sales or transactions was
Inc.
made, regardless of when the input VAT was paid.
NOTE: The “2-year from payment” under Secs. 204(C) and 229 of the NIRC applies only
to instances of invalid payments – overpayment, illegal payment, erroneous payment or
penalties imposed without authority.
252. The CIR is given 120 days to resolve a claim for unutilized input taxes. Where is
the reckoning point of the 120-day period? (CIR vs. CE Casecnan Water and
Energy Co., CTA En Banc case No. 971, January 7, 2014)
Answer. The 120 day-day period is reckoned from the submission of the “complete documents”
necessary to support the application for tax credit as determined by the taxpayer. Should
the taxpayer decide to submit only certain documents, or should the taxpayer fail, or
opted not to submit any document at all, in support of its application for refund or tax
credit certificate under Sec. 112, NIRC, it is reasonable to conclude that the reckoning
date of the 120-day period thereunder, should be reckoned from the filing of the said
application. Hence, the completeness of documents to support a claim is determined
by the taxpayer.
253. X is a VAT-registered businessman engaged in export activities. He exported his

products on April 20, 2015. At the end of April 2015 he has Php 1.0 million
unutilized input taxes. (a) When may he file a claim for the refund or credit of his
unutilized input taxes? (b) What is the possible remedy of X if there is inaction
of the CIR on his claim?
Answer.
a) The 2-year period to claim for the refund or credit of unutilized input taxes is
reckoned from the end of the quarter of date of export (June 30, 2015) and not
from payment of the input taxes.
b) The CIR is mandated to resolve the claim for refund or credit of unutilized input
taxes within 120 days from submission of complete documents by the claimant
thereof. The inaction of the CIR within the 120 days is an implied denial of X’s claim.
Thereafter, X may file a petition for review with the CTA. Within 30 days from the
expiration of the 120—day period
.
NOTE: Partial filing is allowed provided the completion is done within the 2-year period
of administrative claim.
254. X exported his goods on September 22, 2010. On January 24, 2012 it filed an
administrative claim for unutilized input taxes and on March 16, 2012 X
submitted complete documents to the BIR in support of the claim. Where is the
reckoning period of the 120-day for the CIR to act on the claim? (CE Cebu
Geothermal Power Co., Inc. vs. CIR, CTA case No. 7740, September 2, 2011)
Answer. The administrative claim was filed on September 22, 2010 and the complete
documents in support of such claim were filed only on March 16, 2012. The Court held
that the CIR had 120-days from the latter date, or until July 14, 2012 within which to
decide the claim.
255. Under the VAT law, the CTA does not acquire jurisdiction over a judicial claim
for unutilized input taxes in zero-rated sales that is filed before the expiration of
the 120-day period because the 120+30 day periods are mandatory and
jurisdictional. What are the exceptions to this rule? (CIR vs. San Roque Power
Corp/ Taganito Mining Corp vs. CIR/ Philex Mining Corp. vs. CIR, February 12, 2013)
Answer. Under the doctrine of equitable promissory estoppel, such as (a) if the CIR,
through specific ruling, misleads a particular taxpayer to prematurely file a judicial
claim with the CTA. Such specific ruling is applicable only to such particular taxpayer
and
(b) where the CIR, through a general interpretative rule issued under Sec. 4 of the
NIRC, misleads the taxpayer into filing prematurely judicial claims with the CTA. In these
cases, the CIR cannot be allowed to later on question the CTA’s assumption of jurisdiction over
such claim since equitable estoppel has set in as expressly authorized under Sec. 246
of the NIRC. Taxpayers should not be prejudiced by an erroneous interpretation by the
CIR, particularly on a difficult question of law. BIR Ruling No. DA- 489-03 is a general
interpretative rule because it was a response to a query made, NOT by a particular
taxpayer, but by a government agency tasked with processing tax refunds and credits.
256. X is a VAT registered taxpayer. It is engaged in export activities. The goods it

produced were actually exported abroad on August 24, 2012. All receipts and
documents relative to the export are intact and available. Thereafter, X applied
for the refund of its unutilized creditable input taxes. The BIR disallowed the
claim for reason that the sales receipts of X did not indicate that the transaction
was a “Zero-rated Sales.” X contends that such requirement is not provided
under the Tax Code. Is the BIR’s disallowance valid? (Eastern Telecommunication
Phils., Inc. vs. CIR, August 12, 2012, Microsoft Phils., Inc., vs. CIR, April 67, 2011)
Answer. Sec. 244 of the Tax Code explicitly grants the Sec. of Finance the authority
to promulgate the necessary rules and regulations for the effective enforcement of the
provisions of the Tax Code. The invoicing requirements he set under RR No. 7- 95
was integrated with Sec. 113 of the NIRC when RA 9337 was adopted. Thus, the
need for taxpayers engaged in export activities to indicate in their receipts and invoices that
fact that the sale is “zero-rated” is mandatory. Failure to comply will warrant the disallowance for
any claim for credit of unutilized input taxes. Hence, BIR is correct.
The SC ruled that the printing of the word “zero-rated” is required to be placed on VAT invoices
covering the zero-rated sales in order to be entitles to claim for tax credit or refund. This
requirement prevents buyers from falsely claiming input VAT from their purchases
when no VAT is actually paid. Absent of such word, the government may be refunding
taxes it did not collect. (Microsoft Phils., Inc., vs. CIR, April 6, 2011, Panasonic vs.
CIR)
257. X ceased business operations effective December 31, 2012. On July 1, 2013, it
filed an Application for Registration Update with the BIR. On July 7, 2013, it filed
an administrative claim for issuance of a Tax Credit Certificate (TCC) of its
unutilized input VAT with the BIR. The BIR denied the claim for being premature.
Is the denial correct?
Answer. The administrative claim for issuance of TCC is prematurely filed since the effectivity date of
X’s formal cessation of business is reckoned from the first day of the following month, or
on August 1, 2013, where the Application for Registration Update (notice of
dissolution) was filed on July 1, 2013. (Associated Swedish Steels Phils., Inc. vs. CIR,
CTA EB case No. 854, August 23, 2012)
258. Who are the customers or recipient of services under a “Zero-Rated Sales” for
VAT purposes? (Accenture, Inc. vs. CIR, July 11, 2011)
Answer. It is not enough that the recipient of the services be proven to be a foreign
corporation doing business outside of the Philippines; it must be specifically proven
that the recipient of services must a non-resident foreign corporation as well.
259. X is a domestic corporation operating a “call center.” The recipients of its

services are entities doing business outside of the Philippines. If X is VAT
registered taxpayer its transactions with the non-resident foreign corporations
abroad the payment of which is in foreign currency inwardly to X. Is the sale a
zero-rated transaction? Can X claim for tax credit on its unutilized input taxes?
(Accenture, Inc. vs. CIR, July 11, 2012)
Answer. Yes, the sale is zero-rated sales. It is allowed to claim input tax credit.
260. X is a service provider to entities doing businesses in the Philippines. Some of
its customers are branches of foreign corporations. The payment of X’s
services to these foreign branches operating in the Philippines are course thru
inward remittances in foreign currency by their head offices. Are the services of
X under the given facts subject to 12% VAT? (Accenture, Inc. vs. CIR, July 11,
2012)
Answer. If the provider and recipient of services are both doing business in the
Philippines, the payment of foreign currency in irrelevant. The transaction is subject to
the regular 12% VAT.
261. X is a VAT registered corporation it is engaged in export activities. It seeks from

the BIR the refund of its unutilized input taxes. All necessary documents in
support of its claim were attached to the application for tax credit. Upon
verification and investigation, the BIR denied the claim for reason that X’s sales
invoices failed to reflect the authority of print (ATP) said receipt. X contends
that there is no such requirement provided under the Tax Code. Is the denial of
the BIR on that basis valid? (Silicon Phils., Inc. vs. CIR, January 17, 2011)
Answer. The denial has no legal basis. X is correct – there is no law or regulation
requiring it to reflect the ATP in its sales invoices. In the absence of such law or
regulation or failure to print the ATP on the invoices or receipts should not result in the
outright denial of a claim or the invalidation of the invoices or receipts for purposes of
claiming a refund. What is required under the Tax Code is the printing of the words “Zero-
Rated Sale” in the sales invoices if such is the case and failure thereof is fatal to its claim. The
BIR can simply verify whether the invoices or receipts are duly registered by requiring
the claimant to present the ATP from the BIR.
262. X is covered by the Zero (0%) Rated VAT. As of the last day of the third quarter
of 2010 it has unutilized input taxes. In September 1, 2012 it filed a claim for tax
credit. Together with the application X has submitted all documents and proof
of its entitlement thereto. Within 30 days from the expiration of the 2-year
prescriptive period to claim X filed a judicial claim before the CTA contending
that the inaction/silence of the CIR is an implied denial of its claim. BIR argues
that the judicial claim is time barred having been filed beyond the 2-year period
to claim and moved for the dismissal of the petition for review. Is the tax official
correct? (CIR vs. Mindanao II Geothermal Partnership, January 15, 2014)
Answer. In a claim for refund for unutilized input VAT, only the administrative claim
(before the CIR) must be filed within the 2- year prescriptive period, which begins to
run from the close of the taxable quarter when relevant sales were made. However,
the claim for unutilized input taxes is different from the claim for refund/credit of an
invalid payment. In the former, after an administrative claim of the taxpayer, the CIR is
given a 120-day period to resolve the validity of the claim. If CIR denies the claim
within said period the taxpayer can file a judicial claim before the CTA within 30 days
from receipt of the denial or in case there is inaction and the 120-day period has
expired without resolution on the claim, the taxpayer may within 30 days from
expiration of the 120-day period to resolve, file a judicial claim with the CTA. The 120-
plus 30 days periods are mandatory.
263. X filed its claim for unutilized input taxes. The BIR denied the claim for failure of
X to submit complete documents in support of said administrative claim. X filed
a judicial claim before the CTA within 30 days from receipt of the denial. Will his
appeal prosper?
Answer. Failure to submit complete documents in support of taxpayer’s administrative claim for
refund of unutilized input tax is NOT FATAL to judicial claim. Judicial claims before the
CTA are litigated DE NOVO and decided based on what has been presented and formally
offered by parties during the trial. When a taxpayer’s claim reaches the judicial level or when claim is
elevated to CTA, the Rules of Court and the Revised CTA Rules govern the matter of
proving the claim. (Ayala Corp. vs. CIR, CTA case No. 8262, March 21, 2014)
264. CIR failed to raise the issue of T’s failure to comply with the “120 + 30 days
Rule” at the first instance when T filed a Petition for Review before the CTA.
What is the effect of the CIR’s failure to raise premature filing of T’s judicial
claim during the proceedings before the CTA? Team Sual Corporation vs. CIR,
GR No. 201225-16, 2018)
Answer. Even if the CIR failed to raise the issue of T’s non-compliance with the 120 +
30 days Rule at the first instance, such failure would not operate to vest the CTA with
jurisdiction over T’s judicial claim for refund. The SC has already settled the rule that a judicial
claim for refund which does not comply with the 120-day mandatory waiting period
renders the same VOID. As such, no right can be claimed or acquired from it,
notwithstanding the failure of the CIR to raise it as a ground for dismissal.
265. T filed a claim for unutilized input taxes before the CIR for its payments on local
purchase of goods and services and supporting its claim with documents other
than VAT invoices and receipts, respectively. The CIR denied the claim. Is the
denial meritorious? (Team Energy Corporation vs. CIR, GR Nos. 197663 & 197770,
March 14, 2018)
Answer. The denial is valid. The SC had already passed upon the issue on the
validity of a claim in relation to the supporting documents required for such claim The
Court has stated that to claim refund of unutilized or excess input VAT, purchase of
goods or properties must be supported by VAT INVOICES, while purchase of services
must be supported by VAT OFFICIAL RECEIPTS. Invoices and Receipt are not the
same.
266. X is a VAT registered taxpayer. Its business is to convert the steam supplied to
it by PNOC-EDC into electricity and to deliver the electricity to NAPOCOR. In the
course of X’s business, it bought and eventually sold a Nissan Patrol to
NAPOCOR. The BIR assessed VAT on the sale of the motor vehicle. X contends
that the sale is an isolated transaction and not a transaction done “in the course
of trade or business” hence it is not VATable. Is X correct? (Mindanao II
Geothermal Partnership vs. CIR, March 11, 2013)
Answer. While the sale of the vehicle is an isolated transaction, it does not follow that
an isolated transaction cannot be an incidental transaction for purposes of the VAT liability of
the seller. Sec. 105, NIRC would show that a transaction “in the course of trade or business” includes
“transactions incidental thereto.” Prior to the sale, the Nissan Patrol was part of X’s property, plant
and equipment. Therefore, the sale is an incidental transaction made in the course of
X’s business which should be liable for VAT.
This Mindanao II case should be contra-distinguished from the case of Power

Sector Asset and Liabilities Management Corp. (PSALM) vs. CIR case (2017). Here,
the BIR assessed the NPC of VAT on the sale of its generation assets and other
properties. NPC gave the assessment notice to PSALM, the entity created by
government to manage the privatization of NPC. PSALM appealed to the DOJ as it
involves 2 government institutions contending the CTA has no jurisdiction. BIR insists
that this is a tax dispute and therefore CTA has jurisdiction. PSALM is correct. PD 242
applies. Hence, DOJ has jurisdiction and not the CTA. In addition, the power plants were
not previously used by PSALM’s business. The sale of the power plants cannot be considered
an incidental transaction made in the course of NPC’s or PSALM’s business. Hence, the sale of the
power plants should NOT be subject to VAT. .
267. X is engaged in lease subsequently decided to sell the property leased. Is the
sale VATable? (CIR vs. Magsaysay Lines, July 26. 2006)
Answer. The regular conduct or pursuit of a commercial or economic activity including
transactions incident thereto, by any person regardless of whether or not the person
engage therein is non-stock, non-profit private organization (regardless of the
disposition of the income) and whether or not it sells exclusively to members or their
guests or government entity is VATable.
The 2006 case of Magsaysay Lines – The SC rules that the sale of the
vessels of the National Development Corporation to Magsaysay Lines, Inc. is
NOT subject to VAT because it was not in the course of trade or business, as it
was involuntary and made pursuant to the government’s privatization program.
This is also true in the case of National Power Corp. (NPC) selling assets to
private entities; it is NOT subject to VAT. The sale was not in the course of trade
or business as it was not in pursuit of a commercial or economic activity but a
governmental function mandated by law to privatize the NPC generation assets.
NOTE: If the sale conducted is in the pursuit of a commercial activity resulted to a loss, the
sale is still VATable.
268. X, a non-profit, non-stock affiliate of Y Insurance Company organized by the
latter to perform collection, consultative and other technical services, including
functioning as an internal auditor of Y and its other affiliates. The BIR assessed
X for deficiency VAT. X contends that the services it rendered to Y were on a
“non-profit, reimbursement-of-cost-only” basis, that it was not engaged in the
business of providing services to Y and its affiliates. X was established to
ensure operational orderliness and administrative efficiency of Y and its
affiliates, and not in the sale of services. Thus, since it was not engaged in
business, it was not VATable. Is X’s contention valid? (CIR vs. CA &
Commonwealth Management & Services Corp. March 30, 2000)
Answer. The services of X to Y and its affiliates for a fee or consideration are subject
to VAT. VAT is a tax on the value added by the performance of the service. It is
immaterial whether profit is derived from rendering the service or not. The Tax Code
provides that even a non-stock, non-profit organization or government entity, is liable
to pay VAT on the sale of goods or services even in the absence of profit attributable
thereto, provided the sale or performance of the services were made in the course of
trade or business which requires that the regular conduct or pursuit of a commercial or
an economic activity regardless of whether or not the entity is profit-oriented.
269. The local branch of American Express is facilitating the collection of

receivables from credit card members situated in the Philippines and payment
to service establishments in the Philippines in behalf of its Hong Kong based
clients. Are the services of the local branch of American Express subject to VAT
and other business taxes? (CIR vs. Am. Express, Int’l. Inc. (Phil. Branch) June 29,
2005)
Answer. Yes, for the following reasons:
a) It regularly renders in the Philippines the service of facilitating the collection and
payment of receivables belonging to a foreign company that is clearly a separate
and distinct entity;
b) Such service is commercial in nature
c) For such service, American Express is clearly paid consideration in foreign currency;
d) It is not an entity exempt under any of our laws or international agreements.
270. Are the PEZA-registered businesses exempt from VAT? (Toshiba Information
Equipment (Phils.), Inc. vs. CIR, March 9, 2010)
Answer. Prior to the issuance by the BIR of RR No. 74-99, whether a PEZA-
registered enterprise was exempt from VAT or subject to VAT depended on the type
of fiscal incentive availed of by said enterprise. If the enterprise availed itself of 5%
gross income taxation under RA 7916, it was exempt from VAT. If it availed itself of
income tax holiday under the Omnibus Investments Code, it was subject to VAT.
Today, upon issuance of RMC 74-99, the rule clearly established that following the
CROSS- BORDER DOCTRINE, based on the fiction that ecozone are foreign territory,
a sale by a supplier in the customs territory to a PEZA-registered enterprise is
considered an export sale and therefore subject to zero-rated VAT. Such sale is
referred to as “technical export”.
271. What is the prescriptive period to claim for a refund of taxes of an enterprise duly
registered under the EPZA Law?
(Commissioner of Customs vs. Phil. Phosphate Fertilizer Corp., September 1, 2004).
Answer. The EPZA Law itself is silent on the matter, and the prescriptive periods
under the TCC and other revenue laws are inapplicable by specific mandate of Sec
17(1) of the EPZA Law. This does not mean however, that the prescriptive period will
not lie. The provisions on solutio indebitii of the Civil Code may find application.
Solutio indebitii is a quasi-contract, thus the claim for refund must be commenced
within six (6) years from date of payment pursuant to Art. 1145(2) of the New Civil
Code. (This is an isolated exemption to the 2-year prescriptive period for refund
under the Tax Code)
272. X is a business man registered as a non-VAT taxpayer. He sells his products to

businesses inside the export- processing zone in Cavite. At the end of the 4 th
quarter of 2011, X has unutilized input taxes in the amount of Php 350,000.00.
May he avail of the privilege of tax refund of the same?
Answer. No. X is not qualified to claim any unutilized input taxes on his inward
exports to businesses inside the ecozone because his is not a VAT registered
taxpayer. Only VAT-registered businessmen or corporations may avail of the tax
refund/credit of unutilized input taxes on their export activities.
273. An excise tax is an indirect tax like the VAT. The burden of taxation is allowed to
be shifted to another person. Excise taxes are taxes on certain goods whether
(a) locally manufactured or produced in the Philippines for domestic
consumption or for any other disposition and (b) to things imported. X bought
excisable goods from the manufacturers and importers. The excise taxes were
passed on to it by the sellers. Thereafter it sought the refund of the taxes shifted
to it contending that it should not be liable because it is not the manufacturer or
the importer of the goods. The BIR denied the claim. Is the denial valid? (Diageo
Phils., Inc. vs. CIR, November 12, 2012)
Answer. Yes, the denial is legal. When indirect taxes are passed on to the buyer it is
no longer in the nature or considered a tax but the same forms part of the purchase
price of the goods sold or services rendered. X cannot claim the excise taxes because
this is different from the unutilized creditable input taxes that businessmen claims
under the VAT law particularly in cases of zero-rated or effectively zero-rated sales.
NOTE: In the event that there is an invalid payment of an indirect tax, the claimant is
the payor even if the burden of taxation has been shifted to another person.
274. X Corporation enjoys blanket tax exemption under PD 1869 (the Charter creating
PAGCOR). X rents a building from Y where it operates its casino activities. Y
passes to X the VAT on lease as required by law. X refused to pay invoking its
blanket tax exemption. Y paid the subject taxes for fear of the legal
consequences of non-payment of the tax to the BIR. Thereafter, albeit belatedly
Y realized it should not have paid because the transactions it had with X is
subject to “zero rate” VAT. Immediately, Y filed an administrative claim for tax
refund with the CIR, but the latter failed to resolve in favor of Y. Is the refusal of
the CIR on Y’s claim for refund valid? Reason. [CIR vs. Acecite (Phils.) Hotel
Corporation, February 16, 2007]
Answer. The blanket tax exemption of X under PD 1869 applies to both direct and
indirect taxes which extend to entities and individuals dealing with it in its casino
operations. Considering that Y paid the tax under a mistake of fact and was not aware
at the time of payment that the transactions it has with X is “zero-rated”, the invalid payment
can be recovered or refunded. The principle of solution indebeti” applies to the
Government as well, the basis thereto is grounded upon the right of recovery of
money paid through misapprehensions of facts belongs in equity and in good
conscience to the person who paid it and the government cannot enrich itself at the
expense of another
275. X, a domestic corporation is engaged in the manufacture of raw materials for

the production of medicines. X sells to many PEZA-registered enterprises
operating within the export processing zone. (a) What is the nature of the sale of
X to the businesses inside the ecozone? (b) Is X entitled to any tax privilege?
Answer. While an ecozone is geographically within the Philippines, it is deemed a
separate customs territory and is regarded in law as foreign soil. Sales by suppliers
from outside the borders to the ecozone to this separate customs territory are deemed
as exports and treated as export sales. X is entitled to input tax credit if X is a
registered VAT-businessman. (2006 case)
276. X Corporation is registered with the PEZA engage in the manufacture of

garments for sale abroad. X joins local trade fairs to show case its products and
made sales in those occasions. Is X VATable on its sales during those
occasions?
(b) If X sells its used vehicle to its manager, is the sale VATable? (c) Is X
VATable on its sales of garments to its employees? (CS Garments, Inc. vs. CIR,
March 12, 2014)
Answer.
a) Sales in local trade fairs are considered ordinary sales and therefore are
VATable. These sales are not included in the exemptions from VAT of a Zero-
rate Sales of exporters.
b) Sale of ordinary assets used in business is an incidental sale that is VATable.
c) Sale of goods to one’s own employees is an ordinary sale covered by VAT.
277. X is a VAT registered exporter. He seasonably filed an administrative claim for

unutilized input tax. Before the CIR resolves his case can he claim the unutilized
input tax attributable to his zero-rated sales as an expense for income tax
purposes?
Answer. No. The unutilized creditable input tax related to his zero-rated sale can only
be recovered through the application of refund or tax credit. Nowhere in the Tax Code
is it provided for another mode for recovering the same may be used. Therefore, the
unapplied input taxes cannot be treated outright as deductible expense for income tax
purposes. (RMC No. 57-2013, August 23, 2013)
On Tax Assessment and Remedies (NIRC):
278. What is the requirement of a valid assessment? (CIR vs. Metro Star Superama, December
8, 2010)
Answer. The sending of a preliminary assessment notice (PAN) to the taxpayer to
inform him of the assessment is part of the “due process requirement in the issuance of a
deficiency tax assessment.” The absence of which render nugatory any assessment made by
the tax authorities. Hence, failure to send a “PAN” stating the facts and the law, Rules and
Regulations on which the assessment was made as required under Sec. 228, NIRC, the
assessment made the CIR is VOID. Thereby, any collection under a void assessment
has no leg to stand on.
279. Requirements for validity of taxpayer’s protest: (Sec. 3.1.5, Rev. Reg. 12-99)
Answer. The taxpayer shall state the facts, the applicable law, rules and regulations,
or jurisprudence on which the protest is based, otherwise, his protest shall be
considered void and without force and effect. If there are several issues involved in the
disputed assessment and the taxpayer fails to state the facts, the applicable law, rules
and regulations, or jurisprudence in support of his protest against some of the several
issues on which the assessment is based, the same shall be considered undisputed
issue(s), in which case the taxpayer shall be required to pay the corresponding
deficiency tax(es) attributable thereto.
280. X, a businessman is under tax investigation. He was required to produce all his
business records, sales invoices, purchase receipt, proof of tax payments and
other papers used in his business operations. X was not able to comply
contending that his business establishment inclusive of all his business
records, documents, tax returns and papers were totally submerged and
destroyed in flood water during the super typhoon that hit the country. (a) Is X
exempt from tax investigation under his allegations? (b) How will the BIR
pursue the tax audit if taxpayer does not cooperate with the production of his
records?
Answer. (a) No. the absence of taxpayer’s business records and other documents used relative to
his business operations and proof of tax payments will not exempt him from tax
examination by the tax officials. (b) The investigating revenue officers may resort to the
“Best Evidence Obtainable” Rule as provided in Sec. 5(B) of the NIRC in their audit. (CIR vs.
Hon. Gonzalez, LM Camus Engineering Corporation, October 13, 2010)
281. The tax examiners under the authority of the CIR sent X a Letter of Authority in
support of a tax investigation. The LA (authority to investigate) states that X is
being investigated on his business activities covering the year 2012 and all
“unverified prior years”. Is the LA valid? (CIR vs. Sony Phils., Inc. November 17,
2010)
Answer. The practice of the BIR of issuing Letters of Authority covering an audit of “unverified
prior years” is prohibited. If the audit of a taxpayer shall include more than one (1) taxable
period the other periods or years it shall be specifically indicated in the LA.
282. Is the issuance of a Letter of Authority (LA) mandatory prior to a tax audit/examination
of a taxpayer?
Answer. There is no need for the issuance of a LA if the alleged erroneous payment
of tax is already manifested on the face of the taxpayer’s Monthly Remittances of Final
Income Taxes Withheld. There is no need for the CIR to examine and scrutinize the
books of accounts and other accounting records of the taxpayer to determine its
correct tax liabilities. (Masin-AES Pte. Ltd. (Phil. Br.) vs. CIR, CTA case No. 8543,
April 10, 2014)
In ascertaining the correctness of any tax return, or (b) in making a return when
none has been made filed, or (c) in determining the tax liability of any person, or (d) in
collecting any such liability, or (e) in evaluating tax compliance, the CIR is authorized
to examine any book, paper or other data which may be relevant or material in such
inquiry.
283. BIR issued an LOA to X for assessment of taxes for taxable year 2015 and prior
years. The tax official conducted an assessment and disallowed expenses
covering the next fiscal year 2016. Is the assessment valid? (CIR vs. Lancater
Phils., Inc. GR No. 183408, July 12, 2017)
Answer. The LOA specified the assessment for the taxable year 2015, the other “prior or
subsequent years” not specifically covered by the assessment notice is VOID. Therefore,
the disallowance of expenses for the year 2016 is unauthorized and invalid. A valid
LOA does not necessarily clothe validity to an assessment issued pursuant thereto, as
tax official designated in the LOA acted in excess or outside of the authority granted
under the said LOA.
284. Who are the “duly authorized representatives” of the CIR who can issue PAN,
FAN, Formal demand letter for tax payments (FLD) and final decision on
disputed assessment (FDDA)?
Answer. The “duly authorized representatives” refers to (1) Revenue Regional Directors, (2)
Assistant Commissioner - Large Taxpayers Service, and (3) Assistant Commissioner –
Enforcement and Advocacy Service. Taxpayers shall submit/file their responses and
protests with the duly authorized representative of the CIR who signed the PAN, FLD
or FAN.
If protest is denied by the Commissioner’s duly authorized representative, the same is
not considered final, executory and demandable and may still be appealed to the CIR
within 30 days from receipt thereof. NOTE: An MR to the CIR will not toll the 30-day
period to appeal to the CTA. (Belle Corp. vs. CIR, CTA case No. 8175, September 18,
2012)
285. What is the Doctrine of Operative Fact?

Answer. This principle has been incorporated in Sec. 226 of the NIRC (The non-
retroactivity of rulings). This rule provides that 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 by the Court. Any reversal is not given retroactive effect.
Application: X applied for tax credit of its unutilized input taxes in April 28, 2005. The
claim was well within the 2-year period. At the time of X’s application it relied upon BIR Ruling
DA 489-03 which maintains that the taxpayer’s claim need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of petition for review.
Many taxpayers relied on this BIR issuance and it was allowed because of the
Doctrine of Equitable Estoppel. In the case of CIR vs. Aichi Forging Company of Asia,
Inc., GR No. 184823, October 10, 2010, 632 SCRA 422, the Supreme Court ruled that
BIR Ruling DA 489- 03 is erroneous and rectified the same reiterating the jurisdictional
and mandatory 120 + 30 day period should apply in a claim for unutilized input taxes
under the Tax Code.
In view of this development, the SC maintained that the only exception to the 120
+ 30 period are those claims validly filed between December 10, 2003 to October 6,
2010 when the ruling was issued until its overturned in the Aichi case.
NOTE: Administrative practices, not formalized into a rule or ruling are not covered by
this doctrine because a mere administrative practice may not be uniformly and
consistently applied. They are usually not known to the general public and can be
availed of only by those with informal contacts with the government agency.
286. “M” Resources, Inc. filed its corporate income tax return before the due date.
Subsequently it amended its tax return within the reglamentary period. “M” is
now under audit, it challenges the validity of the assessment on the ground that
the same is based on its mere first “tentative return” and not on the amended
return it filed. It is the position of “M” that the BIR should have confined its
assessment to the “final (amended) return. Is “M” correct? (Magnetic Resonance
Imaging Services, Inc. vs., CIR, CTA case No. 6608, October 20, 2009)
Answer. Sec. 5(A) and 6(A) of the Tax Code provide that once tax return has been
filed, CIR or his duly authorized representative is authorized to examine correctness of
return filed. The Court held that in ascertaining the correctness of “M’s” final return, the CIR
is not prevented from looking into a taxpayer’s tentative return nor in determining taxpayer’s tax
liability, CIR may examine any book, paper, record or any material relevant to such
inquiry, including any return, statement or declaration filed by the taxpayer.
A tax return is a self-serving document of the taxpayer. The government is not bound by
a tax return.
287. X validly disputed an assessment. While his protest has not yet been resolved
by the CIR, X submitted a compromise proposal to the BIR. Upon receipt of the
proposal CIR dismissed the protest of X contending that there is now an
abandonment of X’s protest of the assessment. Is the tax official correct?
Answer. The mere act of applying for a compromise does not equate to abandonment
of any claim/protest against the validity of an assessment and/or a waiver. It is the act
of immediately paying the tax assessment covered by the waivers of the statute of
limitations that renders the taxpayer estopped from questioning the validity of said
waivers. (Dole Phils., Inc. vs., CIR, CTA case No. 8155, March 21, 2014)
288. Does the CTA acquired jurisdiction of a taxpayer’s appeal contesting a final assessment
of the CIR?
Answer. No. The jurisdiction of the CTA is to review by appeal decisions of the CIR on
disputed assessment and NOT those
that are uncontested or those that have become final already. (CIR vs. Villa, 22 SCRA 3)
289. Does CTA acquire jurisdiction on question related on the authority of the
revenue officer to examine the books and records of any person? (CIR vs.
Lancaster Phils., Inc. GR No. 183408, July 12, 2017)
Answer. Yes. It may be considered covered by the terms “other matters” under Sec. 7, RA 1125
or its amendment under RA 9282. The authority to make an examination or assessment
being a matter provided for by the NIRC is well within the exclusive
and appellate jurisdiction of the CTA.
290. X validly disputed an assessment within the prescriptive period. Within 180
days the CIR sent him a Final Decision on the disputed Assessment. X
seasonably appealed before the CTA Division. CTA Division rendered a decision
sustaining CIR’s denial. X moved for reconsideration. CTA Division amended its
decision. The CIR failed to move for a reconsideration of the Amended Decision
of CTA Division within 15 days from receipt thereof. Thereafter XZ filed a Motion
to execute the final decision of the CTA Division.
When the CIR received a copy of the Order of execution of judgment, he

immediately filed a Petition for Review before the CTA En Banc and moved for
the revocation of the CTA’s decision. Is the action of the CIR proper?
(Asia Trust Development Bank, Inc. vs. CIR, GR Nos. 201530/201680-81, April 19, 2017)
Answer. The failure of the CIR to move for a timely reconsideration of the CTA Division’s
Amended Decision is a ground for the dismissal of his Petition for Review before the CTA
En Banc. Sec. 1, Rule 8 of the Revised Rules of CTA provides that failure to file timely
motion for reconsideration or new trial with the CTA Division is a ground for the
dismissal of the appeal before the CTA En Banc.
291. X received a final assessment notice from the BIR. Notwithstanding, X did not
attend to the BIR’s concern. Two (2) years thereafter the BIR issued a warrant of
levy. X filed a complaint before the RTC for a declaration of nullity of notice of
seizure of real property, declaration of forfeiture of real property, deed of sale
and for specific performance for reconveyance of his real property. The CIR
moved for the dismissal of his complaint contending that the regular court has
no jurisdiction. Is the CIR correct? (Alcantara vs. Republic, GR No. 192536, March
n15, 2017)
Answer. X failed to avail of his administrative remedies resulting to the assessment’s finality. The BIR
can pursue collection in such instance by issuing a warrant of levy to seize X’s properties. Despite
assailing the supposedly illegal confiscation of his property in satisfaction of his tax liabilities,
X was really challenging the assessment and collection of taxes made against him for
being in violation of his right to due process. The complaint concerned the validity of
the assessment and eventual collection of the taxes by the BIR, which does not fall
within the jurisdiction of the CTA. Ergo, CIR is correct.
292. X received a valid assessment from RDO. X failed to dispute the same
seasonably within the 30-day period from receipt thereof. Thereafter, BIR
enforces tax collection. X appealed to the CTA disputing the validity of the
assessment which was used as the basis of the BIR’s collection. Did the CTA
acquire jurisdiction on X’s appeal? (Castalloy Technology et.al., vs. RDO of Cebu
City (Region 13) for and in behalf of CIR, CTA case No. 8244, January 30, 2014)
Answer. When X received the assessment from the BIR, he has an administrative
remedy. He should have initiated the prescribed administrative procedure to obtain
relief and to pursue it to its appropriate conclusion before seeking judicial intervention
in order to give the administrative agency an opportunity to decide the matter correctly
and prevent unnecessary and premature resort to court. Before a taxpayer is allowed
to seek judicial remedy, he must prove that the principles of administrative remedies
were exhausted. Therefore, “no dispute no appeal” to the CTA.
293. X, a domestic corporation, received an income tax deficiency assessment from

the BIR on May 17, 2010. On June 15, 2010, “X” filed its protest with the BIR. On
August 13, 2010, it submitted to the BIR all relevant documents in support of its
protest. The CIR did not formally rule on the protest but on February 10, 2012
the Bureau filed a collection case against X. On March 5, 2012 X was served a
summons and a copy of the complaint for collection of deficiency tax filed by
the BIR with the RTC. On the following day, X brought a petition for review
before the CTA. The BIR contended that the petition is premature since there
was no formal denial of the protest of X and should therefore be dismissed. (a)
Has the CTA acquired jurisdiction over the case? (b) Does the RTC have
jurisdiction over the collection case filed by the BIR? Explain.
Answer. Yes, the CTA has acquired jurisdiction over the case because this qualifies as an
appeal from the CIR’s decision on the disputed assessment. When the CIR decided to
collect the tax assessed against X without first deciding on the taxpayer’s protest, that is
an implied denial of X’s protest, in which event the taxpayer may file an appeal with the CTA.
(Republic vs. Lim Tian Teng & Sons, Inc., Dayrit vs. Cruz)
The RTC has no jurisdiction over the collection case filed by the BIR. The filing of
an appeal with the CTA has the effect of divesting the RTC of jurisdiction over the CIR’s filing
of the collection case with the RTC which was considered as an implied decision of denial, it gives
a justifiable basis for the taxpayer to move for dismissal in the RTC of the Government’s
action to collect the tax liability under dispute. (Yabes vs. Flojo, San Juan vs.
Vasquez). There is no final, executory and demandable assessment that can be
enforced by the BIR, once a timely appeal is filed before the CTA.
294. What will happen to an assessment if the final decision on the disputed
assessment (FDDA) is found to be void for failure to state facts and law as
bases of its issuance? (CIR Vs Liquigaz Phils. Corp., GR No. 215557, April 18,
2016)
Answer. The assessment remains valid notwithstanding the nullity of the FDDA
because the assessment itself differs from a decision on the disputed assessment.
295. T filed a claim for its unutilized input VAT on capital goods purchased. CIR did
not act on T’s claim. Within the reglamentary period T filed a judicial claim
before the CTA. In CIR’s answer to T’s petition for review the former holds that T
is not entitled to a refund for reason that T failed to submit some documents
required of it in support of its claim. CTA ordered both parties to file their
Memorandum. T complied but CIR did not despite notice. Thereafter, CTA-in-
Division rendered a decision in favor of T and ordered the CIR to issue a
Certificate of Tax Credit to T. CIR did not file an MR to said decision. Hence, said
decision became final and executory. CIR filed his MR before the CTA En Banc
praying for the annulment of the CTA Division’s decision on the order of tax
credit in favor of T. May CTA En Banc annul the decision of the Division? Briefly
explain. (CIR vs. KEPCO IIijan Corp., GR No. 1994322, June 21, 2016) Answer. CTA
En Banc cannot annul decisions of the CTA Division that has become final and
executory already. That decision
of the CTA Division is the decision of the CTA En Banc in the given case, because of CIR’s
failure to file his Memorandum as ordered by the CTA Division.
296. The Regional Director sent X a preliminary assessment notice with a deficiency
tax of Php 1.7 million on income tax, Vat and withholding taxes. X was not able
to dispute the same in due time. The RD then sent X a final assessment notice.
This time, X seasonably disputed the notice and he submitted all his
documentary evidences in support of his dispute. The RD denied X’s protest.
Within 15 days from receipt of said denial X files a Motion for Reconsideration
before the office of the CIR. Within 180 days the CIR sent X a resolution likewise
denying X’s Motion. Within 30 days from receipt thereof, X filed an appeal before
the CTA. The CTA dismissed the petition for review contending that it has no
jurisdiction because the appeal is time barred. Is the dismissal correct? Reason.
(PAGCOR vs. BIR, GR No. 208731, January 27, 2016)
Answer. Yes, the appeal is time barred; it was filed beyond the 30—day period of
appeal to the CTA. It must be noted that Sec. 228 and Sec.3.1.5 of RR No. 12-99 will
readily show that neither of these provisions of law provides for the remedy of an
appeal to the CIR in case the RD’s renders an adverse decision or failure to act. The law
provides that the remedy of the taxpayer in case of an adverse decision of the CIR or his
inaction or that of his authorized representative is to appeal to the CTA within 30 days
after the lapse of 180 days from submission of required supporting documents or
inaction. In addition, the RD is the alter ego of the CIR, the former’s decision is the
decision of the CIR. An appeal to the CIR from the RD will not toll the period of appeal
to the CTA.
297. “T” lost his right to dispute a formal assessment because he forgot about it.
May he be given a relief through the filing of a claim for refund after paying the
tax assessed?
Answer. The relief sought by “T” is not justified. He was trying to circumvent the law. Once the
assessment has become final and executory and therefore binding upon the taxpayer,
the procedure for refund is not available to revive the right to contest the validity of the
assessment. After the lapse of the 30-day period to assess, the assessment becomes
final and therefore, any payment committed in relation thereto shall be deemed a valid
payment not covered by a tax refund. (It is not any of these – “OIEP”) (CIR vs. Jose
Concepcion, 22 SCRA 1058, 1998)
298. The CIR issued a letter stating that alkylate is subject to excise taxes.
Thereafter, the Bureau of Customs issued CMC No. 164-2012 to implement the
letter. X taxpayer, being affected by the letter and its implementation questioned
the validity of the letter before the CTA. Did the CTA acquire jurisdiction on the
matter? (Petron Corp. vs. CIR et.al., CTA case No. 8544, November 15, 2012)
Answer. The jurisdiction of the CTA to resolve tax disputes EXCLUDES power to rule
on constitutionality or validity of a law, rule or regulation. This authority is vested
before the regular courts. The available recourse of X is to question the said ruling
with the Sec. of Finance and eventually, before the regular courts and not with the
CTA
299. X received a valid assessment. Disputed the same seasonably and have
complied with the reportorial requirements within the prescribed 60 days from
dispute. The CIR failed to act on his protest within the 180-day period. X did not
file an appeal to the CTA within 30-days from the expiration of the 180-day
period. Did X lose his right to appeal to the CTA?
Answer. The general rule is that when there is inaction by the CIR and the period has
already expired this is deemed an implied denial of the taxpayer’s protest for which he
may already perfect his appeal within 30 days therefrom to the CTA.
NOTE: In the case of Lacsona Land Co., vs. CIR, a CTA case NO. 5777, January 4,
2000, The CTA held that in cases of inaction, Sec. 228 gives the taxpayer an option.
First, he may appeal to the CTA within 30 days from the lapse of the 180-day period
provided under the said section. Second, he may wait until the CIR decides on his
protest before he elevates the case to the CTA. The taxpayer is given the option to
decide whether he will seek immediate relief instead of waiting for the CIR decision, if
however, he chooses to wait for positive action on the part of the CIR; the same could
not result in the assessment becoming final, executory and demandable. (see also
RCBC case 2009)
300. X, a domestic corporation, received an income tax deficiency assessment from

the BIR on May 17, 2010. On June 15, 2000, “X” filed its protest with the BIR. On
August 13, 2010, it submitted to the BIR all relevant supporting documents in
support of its protest. The CIR did not formally rule on the protest but on
February 10, 2012 the Bureau filed a collection case against X. On March 5, 2012
X was served a summons and a copy of the complaint for collection of tax
deficiency tax filed by the BIR with the RTC. On the following day, X brought a
petition for review before the CTA. The BIR contended that the petition is
premature since there was no formal denial of the protest of X and should
therefore be dismissed. Has the CTA acquired jurisdiction over the case? Does
the RTC have jurisdiction over the collection case filed by the BIR? Explain.
(Republic vs. Lim Tian Teng & Sons, Inc., Dayrit vs. Cruz)
Answer. Yes, the CTA has acquired jurisdiction over the case because this qualifies as an
appeal from the CIR’s decision on the disputed assessment. When the CIR decided to collect the
tax assessed against X without first deciding on the taxpayer’s protest, that is an implied denial
of X’s protest, in which event the taxpayer may file an appeal with the CTA.
The RTC has no jurisdiction over the collection case filed by the BIR. The filing of
an appeal with the CTA has the effect of divesting the RTC of jurisdiction over the CIR’s
filing of the collection case with the RTC which was considered as an implied decision of denial,
it gives a justifiable basis for the taxpayer to move for dismissal in the RTC of the Government’s
action to collect the tax liability under dispute. (Yabes vs. Flojo, San Juan vs.
Vasquez). There is no final, executory and demandable assessment that can be
enforced by the BIR, once a timely appeal is filed before the CTA.
301. When may the BIR commence the collection of deficiency interest and
delinquency interest? (Takenaka Corp. (Phil. Br.) vs. CIR, CTA EB case No. 745,
September 4, 2012)
Answer. Deficiency interest shall be collected from the date prescribes for the
payment of the tax until the full payment thereof. Whereas, the delinquency interest
shall be collected on the due date appearing on the notice and demand of the
Commissioner until fully paid.
302. X, a businessman is under tax investigation. He was required to produce all his
business records, sales invoices, purchase receipt, proof of tax payments and
other papers used in his business operations. X was not able to comply
contending that his business establishment inclusive of all his business
records, documents, tax returns and papers were totally submerged and
destroyed in flood water during the super typhoon that hit the country. (a) Is X
exempt from tax investigation under his allegations? (b) How will the BIR
pursue the tax audit if taxpayer does not cooperate with the production of his
records?
Answer. No. the absence of taxpayer’s business records and other documents used relative to
his business operations and proof of tax payments will not exempt him from tax
examination by the tax officials. (b) The investigating revenue officers may resort to the
“Best Evidence Obtainable” Rule as provided in Sec. 5(B) of the NIRC in their audit. (CIR vs.
Hon. Gonzalez, LM Camus Engineering Corporation, October 13, 2010)
303. X Engineering Firm was assessed of deficiency income tax. Payment was made
accordingly, thereafter, and within the same year X was again subjected to
another assessment on deficiency withholding tax then to VAT and other taxes.
Is the repeated assessment within the year allowed under the Tax Code? (CIR
vs. Hon. Raul Gonzales & L. M. Camus Engineering Corp., October 13, 2010)
Answer. If it involves income tax, only one examination of the books of accounts of
taxpayer is allowed per taxable year. Whereas, if it involves withholding taxes, VAT
and other business taxes examination may be pursued oftener than once a year. In
addition, in case of fraud, irregularities or mistakes as determined by the CIR, the
examination can also be done more than once per taxable period.
304. X seasonably disputed an assessment. The CIR issued a Final Decision on the
Disputed Assessment (FDDA) categorically denying the X’s dispute. Can X avail
of tax amnesty under the given facts? (CIR vs. Phil. Aluminum Wheels, Inc., GR
No. 216161, August 9, 2017)
Answer. The FDDA issued by the BIR is NOT a tax case “subject to a final and executory judgment by
the courts” as
contemplated by Sec. 8(f) of RA 9480. The taxpayer has 30 days from receipt of the
FDDA to question its validity before the CTA.
305. What are the requisites in a claim for tax refund in case there is an overpayment
of income tax? (United Int’l. Pictures AB vs. CIR, October 11, 2012, CIR vs. Mirant
(Phils.) Operations Corp. June 15, 2011)
Answer. The claim for refund should be filed within 2 years as prescribed under Sec.
229, NIRC, (b) the income upon which the taxes were withheld were included in the
return of the recipient, and (c) the fact of withholding is established by a copy of a
statement duly issued by the payor (withholding agent) to the payee showing the
amount paid and the tax withheld therefrom.
306. X corporation cease operation due to very poor business activities. It has
excess income tax payments and decided to claim refund thereof. Where is the
reckoning point of the 2-year prescriptive period to validly claim the same?
Answer. In case of DISSOLUTION, the 2-YEAR prescriptive period to file claim for
refund of IR taxes begins 30 DAYS AFTER
APPROVAL BY SEC of dissolution. (Mindanao Geothermal Partnership vs. CIR, CTA case
No. 8250, November 9, 2012)
307. In 2010 X Corporation has excess withholding taxes. During said year X
amended its income tax return. If X would like to claim for tax credit certificate
from the BIR. Where is the reckoning point of the two year period to apply for
the claim? (Mausell Phils. Inc., vs. CIR, CTA case No. 7860, October 21, 2011)
Answer. The two year period is reckoned from the date when the first (original) tax
return was filed and not from the date when amended return was filed. In claiming for
issuance of tax credit certificate for excess withholding taxes, the original, not just the
amended tax return must be presented in evidence so that the court can ascertain if
the claim was filed on time.
308. Where is the reckoning point of the 2-year period to claim refund for excess
creditable withholding taxes (CWT)? Answer. To an individual taxpayer, the 2-year
period for claiming a refund of excess creditable withholding tax is reckoned from the
time of payment of tax pursuant to Sec. 204(C), in relation to Sec. 229 of the NIRC. To
a corporate taxpayer, the reckoning point is the date of filing of its annual ITR.
(Jardine Lloyd Ins. vs. CIR. 9/23/2-11) But the excess CWT NOT reflected in the
annual ITR of a taxpayer exempt from income tax, the reckoning point is the date of
the monthly remittance of the claimed CWT. (Locators’ Association Inc., vs. CIR, CTA
case No. 7906, September 22, 2011)
309. X Corporation committed an error in the payment of its third quarter corporate
income tax. The overpayment was noticed much later after it had already filed
its Final Adjustment Return on April 15, 2006. Can X still claim for tax refund
when it failed to signify its intention to avail of refund in its last return?
Answer. The prescriptive period for tax refund or tax credit is two (2) years from
payment but to a corporate taxpayer, this period is reckoned from the filing of its Final
Adjustment Return (“FAR”). Failure to signify one’s intention in the “FAR” to avail of the
overpayment does not mean outright barring of a valid request for a refund for as long
as the claim is made within the 2-year prescriptive period. (2005 case)
310. On April 18, 2014, X overpaid its final withholding tax on the first quarter of
2014. Its Final Adjustment Return was filed on April 11, 2015. On April 9, 2017
well within 2 year period from the filing of its “FAR”, X files a claim for tax
credit. The CIR denied the claim contending that the claim is time barred. Is the
CIR correct? (Metropolitan Bank & Trust Company vs. CIR, GR No. 182582, April 17,
2017)
Answer. The tax involved in the given problem is final withholding tax, not annual
corporate income tax. Final withholding taxes are considered as full and final payment
of the income tax due, and thus, are not subject to any adjustments. The 2-year
prescriptive period commences to run from the time the refund is ascertained, or the
date such tax was paid, and NOT upon the discovery by the taxpayer of the erroneous
or excessive payment of taxes. Since X remitted its final withholding tax on April 18,
2014, it only had until April 18, 2016 to file its administrative and judicial claims for
refund. Its claim was filed only on April 9, 2017 which was clearly beyond the 2-year
period from payment. Hence, the denial of the CIR is correct. NOTE: the reckoning
period of 2-year from the submission of the “FAR” applies to tax refund/credit of
Corporate Income Tax.
311. X made an error in the payment of his taxes. The notice the overpayment three
days before the expiration of the 2 year period to claim for refund. X hurriedly
prepared for the written claim and filed it on the last day of the prescriptive
period. On the same last day he filed an appeal before the CTA because RA
1125 provides that an appeal to the CTA relative to tax refund/credit should be
filed within the prescriptive period of two years of claim. The BIR opposed the
appeal. Is X correct? (CIR vs. McGeorge Food Industries, Inc. October 20, 2010)
Answer. The simultaneous claim for tax refund and Petition for Appeal to the CTA is
valid in view of the Doctrine of Twin Prescriptive Period of RA 1125.
312. Phil. Government and Japan entered into an Agreement (Exchange of Notes)
whereby the Philippines, by itself or through its executing agency, undertook to
assume all taxes imposed by the Phils. on Japanese contractors engaged in
power plant projects. Thereafter, the BIR issued a Rev. Memorandum Circular
(RMC) that the remedy for a Japanese
contractor engaged in power plant project that previously paid taxes directly to
the BIR is to recover or obtain a refund from the government executing agency.
313. X, Japanese Corporation was contracted by National Power Corporation (NPC),

an executing agency, to implement the project. X, sought from the CIR a refund
of taxes it erroneously paid on such project. The CIR denied the claim because
the RMC clearly specifies the proper remedy of X contractor to recover taxes it
paid from the executing agency and not from the CIR. Is the CIR correct in
relaying his denial on the RMC? (Mitsubishi Corporation – Manila Branch vs. CIR,
GR No. 175772, June 5, 2017)
Answer. No. The CIR’s denial is not valid. The NIRC vests unto the CIR the authority to
credit or refund taxes erroneously paid by a taxpayer and not to any person or agency.
The administrative issuance (RMC) that directs the claimant to file the refund from NPC,
or the government’s executing agency is invalid for being inconsistent with the NIRC’s provision on
claims for refund of erroneously collected taxes. When there is a conflict between
administrative issuance or Revenue Regulations and the Tax Code, the Tax Code
shall p0revail.
314. The BIR filed a collection case against X before the regular court. X believes
that the right of the BIR to collect has prescribed. The regular court decided the
case against X. Where will X file his appeal questioning the validity of the
collection? Is it before the CA or the CTA? (CIR vs. Hambrecht & Quist Phils., Inc.,
November 17, 2010)
Answer. His appeal (petition for review) must be filed with the CTA within 30 days
from receipt of the adverse decision of the regular court and not with the CA. In the
case at bar, the issue at hand is whether or not the BIR’s right to collect the taxes had
already prescribed. The validity of the assessment itself is a separate and distinct
issue from the issue of whether to the right of the CIR to collect the validly assessed
tax has prescribed. This issue of prescription, being a matter provided under the
NIRC, is well within the jurisdiction of the CTA to decide.
315. What is the prescriptive period for tax assessment under the Tax Code (RA
8424) and provide the exceptions thereto? (2005 case)
Answer. The right of the government to assess is three (3) years after the last day
prescribed by law for the filing of the return or from actual payment of the tax
whichever is later. A tax return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on the last day. (Sec. 203)
Exceptions:
a) If during the 3-year period to assess, there is a valid written agreement entered
into between the taxpayer and the government to suspend the period of
assessment. (Sec. 222)
b) Where there is a discovery that the taxpayer failed a fraudulent return or failed to
file a tax return when one is required, the period to assess is 10 years from
discovery of the fraud or the omission to file a return; (sec. 222)
c) In case of waiver by the taxpayer.
d) When there is injunction duly issued by the CTA; (Sec. 223)
e) When the taxpayer requests for a reinvestigation which is granted by the CIR; (Sec. 223)
f) When the taxpayer cannot be located in the address given by him in the tax return upon
which a tax is
g) being assessed or collected; (Sec. 223)
h) When the taxpayer is out of the country. (Sec. 223)
i) When a warrant of distraint or levy is duly served upon the taxpayer, his
authorized representative or a member of his household with sufficient discretion,
and NO property could be located. (Sec. 223)
316. In 2009 X Corporation was assessed deficiency withholding tax payments under
its tax return filed for the year 2007. X paid the penalties as imposed. In the
same year (2009) the tax officials discovered that X had income undeclared in
2007. Can the BIR enforced collection of said income now (June 2014)?
(Platinum Plans, Phil. Inc. vs. CIR, CTA case No. 7878, September 7, 2011)
Answer. Late remittances of withholding taxes can be subjected to penalties only
within the prescriptive period of 3 years from the time of filing of the tax return.
Deficiency assessment comprising of deficiencies in amount paid with respect to
income payments declared in the return is subject to 3 years prescriptive period of
assessment. On the other hand, deficiency assessments of income payments NOT
subjected to withholding tax and NOT declared in the tax return is subject to the 10-
year prescriptive period of assessment. Certainty, the BIR can still collect the
undeclared income of 2007 today. (2014)
317. When will of a criminal action for tax liabilities prescribed? (CIR vs. BPI, 411 SCRA 456
[2003])
Answer.
a) The period for filing a criminal case for violation of the Tax Code is five (5) years
from commission or discovery of violation whichever is later. (Sec. 281)
b) Where there was a failure to effect a timely valid assessment, the period for filing
a criminal case for tax liabilities prescribed.
318. X Corporation received an adverse decision of its appeal before the CTA that
was heard by a division. Within the reglamentary period it filed a petition for
certiorari before e the SC. The SC dismissed the appeal. Is the dismissal valid?
(CIR vs. CTA & Ayala Land, Inc. September 13, 2012)
Answer. The SC ruled that the dismissal of the appeal before it is warranted in view of X’s
failure to file before the CTA en banc a motion for reconsideration of the assailed
resolution. The settled rule is that a MR is a condition sine qua non for the filing of a
petition for certiorari. Its purpose is to give an opportunity for the court to correct any
actual or perceived error attributed to it by the re-examination of the legal and factual
circumstances of the case. The rationale of the rule rests upon the presumption that
the court or administrative bodies which issued the assailed order or resolution may
amend the same, if given the chance to correct its mistakes or error. The “plain, speedy
and adequate remedy” referred to in Sec.1, Rule 65, RC is a motion for reconsideration of
the questioned order or resolution.
319. X received a decision of the RTC, sustaining the collection case filed by the
Mun. Treasurer of Taguig. X believes there is abuse. It went directly to the
Supreme Court on Rule 45 (petition for review on certiorari) The SC dismissed
the appeal. Did X commit an error in going to the SC? (Team Pacific Corporation
vs. Daza vs. Mun. Treasurer of Taguig, July 11, 2012)
Answer. By going directly to the SC on Rule 45, X lost sight of the fact that CTA has
the exclusive appellate jurisdiction over, among others, appeals from judgment,
resolutions or orders of the RTC in tax collection cases originally decided by them in
the respective territorial jurisdictions. Appeals to the CTA must be perfected within 30
days from receipt of the decision and shall be made by filing a petition for review
under a procedure analogous to that provided for under Rule 42, RC. The perfection
of an appeal in the manner and within the period fixed by law is not only mandatory
but jurisdictional and non-compliance with these legal requirements is fatal to X’s
cause.
320. X validly disputed an assessment sent to him by the CIR. Within 60 days from
dispute X submitted all documents in support of his dispute. The CIR failed to
resolve his dispute within the 180-day period. One year thereafter, the tax
officials enforce collection X argues that the collection is premature because
there is no resolution to his valid dispute. The BIR contends that there is failure
on X’s part to seasonably appeal the assessment to the CTA when there was
that inaction. Hence, there is finality of the assessment repining to a collection
case. Is the BIR correct? (Lascona Land, Inc., vs. CIR, March 5, 2012)
Answer. When there is inaction of the CIR regarding a valid dispute, the taxpayer has
2 alternative options: (a) to appeal to the CTA within 30 days from the expiry of the
180-day period to resolve or (2) to await the final decision of the CIR on the disputed
assessment and appeal such final decision to the CTA within 30 days upon receipt of
a copy of the adverse decision. The word “decision” in Par. 1, Sec. 7 of RA 1125, has been
interpreted to mean the decision of the CIR on the protest of the taxpayer against the
assessment. Taxpayers cannot be left in quandary by the CIR’s inaction on the protested
assessments. The taxpayer must be informed of its action in order that the taxpayer would
be able to take recourse to the CTA at the opportune time. To adopt the interpretation
of the CIR will not only sanction inefficiency but will likewise condone the BIR’s inaction.
321. X received a valid assessment from the CIR. “X” disputed the same seasonably
within 30 days. Instead of resolving X’s Motion for Reconsideration, the CIR
sends him a final demand letter for payment of delinquent taxes within the 180-
day period. Is the demand for collection valid? Why?
Answer. A final demand letter for payment of delinquent taxes may be considered a
decision on a disputed or protested assessment, provided the letter of demand indicates to X in
a clear and unequivocal language that it constitutes the CIR’s final determination of the disputed
assessment. Within 30 days from receipt of that demand letter X should file before the
CTA a petition for review otherwise the tax becomes unappealable and therefore
demandable. (2005 case)
322. What are the requirements set by law for the refund of excess creditable
withholding tax? (United International Pictures, AB vs. CIR, October 11, 2011)
Answer.
a) The claim for refund was made within 2 years as prescribed by law, (Sec. 229, NIRC)
b) It must be shown on the return that the income received was declared as part of the
gross income, (Sec. 10, RR 6-85),
c) The fact of withholding is established by a copy of a statement duly issued by the
payor-withholding agent to the payee showing the amount paid and the amount
of tax withheld therefrom.
323. NOTE: THE IRREVOCABLE RULE of Sec. 76, NIRC applies exclusive to the
carry-over option! This means that once a TAX CREDIT (carry-over option) is
chosen in claims of excess payments the taxpayer can no longer decide to use
instead the remedy of TAX REFUND thereafter. (University Physicians Services
Inc., vs. CIR, GR No. 205955, March 7, 2018)
Illustration:
T initially chose tax refund to recover its overpaid taxes. In its tax return covering the
subsequent taxable year, T applied the option of carry-over of the same amount it
previously opted to be refunded. The CTA denied the refund claim based on Sec. 76,
NIRC contending that the T is bound by its first choice which is irrevocable. HELD.
The Supreme Court ruled that the Irrevocable Rule does not apply in case the
taxpayer’s first choice was tax refund but subsequently changed its mind and opted to
avail of tax credit instead. The IRREVOCABLE RULE applies only in case where the
first choice was TAX CREDIT and subsequently taxpayer changes its mind to avail to
TAX REFUND.
324. X, a corporation overpaid its quarterly income tax in 2010. In its final adjustment
return it indicated that would carry- over (tax credit) that excess payment in the
following year. Subsequently, in 2011, X changed its mind and opted to apply
for tax refund or for the issuance of a tax credit certificate for the amount
representing such overpayment. X claim was denied by the CIR. C argued that
the resulted to the unjust enrichment of the government at its expense. Is the
denial warranted? (United International Pictures, AB vs. CIR, October 11, 2011,
Mirant (Phils.) Operations, Corporation vs. CIR, June 15, 2011)
Answer. The BIR is correct. In cases of invalid payments of taxes (overpayment,
illegal payment, erroneous payment or there are penalties imposed without authority in
a tax computation) the taxpayer has the following remedies: (a) claim for tax refund,
(b) apply for tax credit or (c) ask for the issuance of a tax credit certificate
corresponding to the amount of the invalid payment. These remedies are alternative
remedies. The availment of one will abandon the other two remedies. Once a choice
of the remedies is made that decision is irrevocable.
325. X overpaid his income tax in 2010. He applied for tax credit so that the excess
payment will be deducted from his tax liabilities the following year. However, in
the succeeding two years, he sustained losses in his business operation.
Having realized no income, he had nowhere to apply the excess payment.
Instead, X applied from tax refund. Is X correct? (Belle Corporation vs. CIR,
January 10, 2011, CIR vs. PI Management International Phils., Inc. April 4, 2011)
Answer. No. X cannot alter his choice of tax credit. Such option shall be considered
irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed. (Sec.
76, NIRC) The carry-over of the excess income tax payments in not limited only to the
following taxable year but is carried over to the succeeding taxable year(s) until it is
fully utilized.
In view of its irrevocable choice, a taxpayer remained entitled to utilize that

amount of excess tax in succeeding taxable years. There is no prescriptive period for
the unutilized excess income tax payments as a tax credit and it can be applied in
subsequent taxable years until it is fully utilized.
326. X overpaid his income tax in the year 2009. He decided to avail of tax credit for
the succeeding year. However, in the next following 2 years he sustained losses
in his business operation as a result of which he could not deduct his 2009
overpayment. X moved for the refund of the money overpaid to the government
but the CIR denied his claim under the IRREVOCABLE RULE of Sec. 76, NIRC. Is
the tax official correct?
Answer. Yes, the CIR is correct. Once the taxpayer has chosen an option to either
seek refund or to credit his invalid payments against his future tax liabilities, he could
no longer make another choice. His crediting of that overpayment shall continue until
the whole amount of the excess payment has been fully applied, no matter how many
tax cycles it takes. His right thereto will not prescribe. (United Int’l. Pictures AB vs.
CIR, October 11, 2012, CIR vs. Mirant (Phils.) Operations Corp. June 15, 2011; Belle
Corp. vs. CIR, January 10, 2011; CIR vs. BPI, July 7, 2009; CIR vs. McGeorge Food
Industries, October 20, 2010; CIR vs. Phil-Am Life & Gen. Insurance Company,
September 29, 2010; AsiaWorld Properties Phil. Corp. vs. CIR, July 29, 2010))
Sec. 76, NIRC states that the “option shall be considered irrevocable for that
taxable period” – referring to the period comprising the succeeding taxable period until
the excess payment is fully utilized.
It further states that “no application for cash refund or issuance of a tax credit certificate
shall be allowed therefore.”
327. X, a businessman, has an excess payment of his income tax in 2007. He

indicated in his return of his desire to avail of tax credit on that excess payment
in the subsequent taxable years. Thereafter, without availment of that tax credit
X left to work abroad. X came back in 2013 and engages in a new business
venture. At the end of 2013, X deducted his excess payment in 2007 from his tax
payment for 2013. If you are the tax official, will you allow X such tax credit?
Reason. (CIR vs. PL Management Int’l. Phils., Inc. April 4, 2011)
Answer. If I am the tax official, I will allow X to avail of his tax credit in view of the
Irrevocability Rule, X is entitled to utilize that amount of excess payment as tax credit
in succeeding taxable years until fully exhausted provided he can prove compliance
with the requisites of a valid claim. In this regard, prescription did not bar him from
applying the amount as tax credit considering that there is no prescription period for
the carrying-over of the amount as tax credit in subsequent taxable years. He may
consume the same until wholly utilized.
328. X filed a claim for tax refund. The CIR did not act on the claim. Did the inaction
create a presumption in favor of the correctness of the tax return that entitled
the taxpayer to a claim for tax refund? (CIR vs. Far East Bank & Trust Company,
etc. March 15, 2015)
Answer. The burden of establishing the factual basis of a claim for a refund rests on
the taxpayer. There is no presumption of correctness of a tax return in case of inaction
of the CIR; the taxpayer must still present substantial evidence to prove his claim for
refund. There is no automatic grant of tax refund.
329. X received a valid assessment from the CIR. “X” disputed the same seasonably
within 30 days. Instead of resolving X’s Motion for Reconsideration, the CIR
sends him a demand letter for payment of delinquent taxes. Is the demand for
collection valid? Why?
Answer. A demand letter for payment of delinquent taxes may be considered a
decision on a disputed or protested assessment, provided the letter of demand indicates to X
in a clear and unequivocal language that it constitutes the CIR’s final determination of the disputed
assessment. Within 30 days from receipt of that demand letter X should file before the
CTA a petition for review otherwise the tax becomes unappealable and therefore
demandable. (2005 case)
330. Can a Motion for Reconsideration and Motion for Reinvestigation be

interchanged as a mode of dispute? (BPI vs. CIR, 473 SCRA 205 (2005)
Answer. Request for reconsideration and request for reinvestigation can no longer be
used interchangeably and their differences so lightly brushed aside. Sec. 223 of the
Tax Code provides that the running of the prescriptive period for collection of taxes
can only be suspended by a request for reinvestigation NOT request for
reconsideration for the reason that a reinvestigation which entails the reception and
evaluation of additional evidence, will take more time than a reconsideration of a tax
assessment, which will be limited to the evidence already at hand; this justifies why
the former can suspend the running of the statute of limitations on collection of the
assessed tax, while the latter cannot.
331. X Corporation filed its Corporate Annual Income Tax for taxable year ending
Sept. 30, 1981. Subsequently, X’s Senior Vice President signed three separate
waivers of the Statute of Limitations. The waivers were not signed by the CIR or
any of his agents. On July 29, 1987, the BIR assessed and claimed deficiency
income tax from X. The latter disputed the assessment as having been issued
beyond the 3-year prescriptive period. Is the concurrence of the CIR required in
a waiver of the Statute of Limitations executed by the taxpayer to make the
same valid and binding? [Carnation (Phils.) case]
Answer. Yes. For a waiver to have a binding effect and thus work to toll the running
of the prescriptive period of assessment, it must be accepted by the CIR. This is so
because the law speaks of an “agreement in writing” by and between the CIR and the
taxpayer, as among the exceptions as to the period of limitation of assessment and
collection of taxes.
332. It is the FAN, not the PAN, which will toll the prescriptive period for assessment.
(CIR vs. Transitions Optical Philippines, Inc. GR No. 227544, November 22, 2017)
333. Requisites of a
valid waiver:
Answer.
a) It must not be an indefinite waiver. There should be an agreed date between the
BIR and the taxpayer within which the former may assess and/or credit revenue
taxes.
b) It must be signed by the taxpayer and accepted by the CIR before the expiration
of the original period to assess or to collect, and
c) The waiver must be duly notarized, and
d) A copy of the accepted waiver must be duly served upon the taxpayer. (Phil. Journalists,
Inc. vs. CIR, 2004)
Taxpayer is estopped from questioning the validity of a WAIVER of the

defense of prescription in case: (a) he impliedly admitted the validity of the
Waiver. He never raised the invalidity at the earliest opportunity, or (b) the
taxpayer benefitted from the Waivers. Because of the Waivers, he was given
more time to comply with the audit requirements of the BIR. (Transitions Optical
case, 2017.)
334. CBT Corporation filed its Corporate Annual Income Tax Return for taxable year
ending September 30, 2001. Subsequently, CBT Corporation’s SVP signed three
separate waivers of the Statute of Limitations. The waivers were not signed by
the CIR or any of his agents. On July 29, 2008, the BIR assessed and claimed
deficiency income tax from “CBT”. The latter disputed the assessment as
having been issued beyond the prescriptive period. Is the concurrence of the
CIR required in a waiver of the Statute of Limitations executed by the taxpayer
to make the same valid and binding?
Answer. Yes. For a waiver to have a binding effect and thus work to toll the running of
the prescriptive period of assessment, it must be accepted by the CIR. This is because the
law speaks of an “agreement in writing” by and between the CIR and the taxpayer, as among
the exceptions as to the period of limitation of assessment and collection of taxes.
(CIR vs. CA, GR. No. 115712, February 25, 2000)
When the waiver is VOID, an assessment enforced beyond the prescriptive period
to assess under the defective waiver is VOID. (CIR vs. System Technology Institute,
Inc., GR No. 220835, July 26, 2017)
335. X seasonably perfected an appeal before the Tax Court. While his appeal is
pending before the CTA, the BIR discovered certain documents showing that X
is liable for additional charges. Accordingly, the BIR amended its assessment to
include the newly discovered additional charges. Should the amendment be
allowed?
Answer. The Supreme Court held that amendment pending appeal should not be
allowed. The CTA, being a court with purely appellate jurisdiction, has no jurisdiction
over additional charges considering that the same were not originally on issue when
the case was elevated to the tax court. To allow amendment would violate the due
process clause of the Constitution because X was not given an opportunity to dispute
the additional charges assessed. CIR vs. Guerrero, 19 SCRA 205. (Exception – when
the amendment applies only to the surcharge and interest it should be allowed but
NOT to the main tax involved. (BF Goodrich Rubber case)
However, in the case of Batangas Land Transportation vs. Collector, 102 Phil.
822, the S.C. allowed the amendment pending appeal in order to avoid multiplicity of
suits. NOTE: Guerrero case is of recent vintage.
336. X’s properties (real and personal) were subjected to a warrant of distraint and
levy pursuant to a final assessment. Subsequently, the Labor Arbiter of the
NLRC issued a writ of execution against several properties of X to satisfy a
judgment for unpaid wages of his employees. Said employees alleged that their
labor claims are preferred and creates a lien on the properties under Art.110 of
the Labor Code. Are the employees’ contentions correct? Reason.
Answer. The employees’ claims are without merit. It is settled that the claim of the government
predicated on a tax lien is superior to the claim of a private litigant predicated on a
judgment. The tax lien attaches not only from the service of the warrant of distraint on
personal property but from the time the tax became due and demandable. Moreover,
the distraint was made prior to the writ of execution. It must be noted that Art. 110 of
the Labor Code applies only in the case of bankruptcy or judicial liquidation of the
employer which is not the case involved in the given facts. (CIR vs. NLRC, 238 SCRA
43)
337. Six of the barges of Maritime Company were subject to warrant of distraint by
the CIR to answer for the internal revenue tax liability of the taxpayer. However,
four of the barges were also placed under constructive distraint to answer a
judgment lien in favor of the employees of the company for unpaid wages. Who
has a preferential lien over the barges, the company employees or the BIR?
Answer. The Government has a preferential lien pursuant to Art. 2247 and 2241 of
the Civil Code. The preferential lien of the employees for the unpaid wages under Art.
110 of the Labor Code applies only to bankruptcy cases where the employer is under
liquidation due to bankruptcy. The preferential lien of the government for taxes is not
only limited to taxes accruing on the property subject of the distraint, but it applies to
all kinds of internal revenue taxes. (CIR vs. NLRC, 238 SCRA 43)
NOTE: Wages prevails over taxes in case of bankruptcy!

338. The BIR forwarded a criminal case to the DOJ for prosecution against T for
smuggling. In the said case, the Judge rendered a decision in favor of the
government. Can the criminal action be used as a vehicle for tax collection?
Answer. The criminal action as a collection vehicle is authorized under Sec. 205(b) of
the Tax Code. The aforesaid section in
pertinent part provides that the “judgment in a criminal case shall not only impose the
penalty but also order the payment of the taxes subject of the criminal case as finally
decided by the Commissioner.”
339. Briefly explain how judicial collection of tax liability is pursued in court.
Answer. Civil action is a remedy resorted to (a) when a tax liability becomes
collectible or (b) when the tax assessment has become final. A civil action shall
commence only upon the approval of the CIR except when expressly delegated by the
CIR to the Regional Directors or to the chief of the legal apartment of the BIR. The civil
action for the collection of tax liability shall be filled in the regular courts. In such case,
the taxpayer is precluded from raising the following defenses: (1) The BIR has no
authority to collect the tax within the prescriptive period and (2) the legality or validity
of the assessment.
Once the assessment has become final, the civil case for collection of such tax
liability becomes akin to an action to enforce a judgment such that no inquiry can be
made thereon as the merits of the original case or the justness of the final judgment
relied upon. (Mambulao Lumber Co. vs. Republic)
340. Do the provisions of the Civil Code on suspension of the prescriptive period by
extra judicial demand suspend the running of the period of prescription of
actions in tax collection cases?
Answer. The provision of the Civil Code on suspension of prescriptive periods, such
as by extra-judicial demands, will NOT suspend the running of the prescriptive period
of actions in tax collection cases. In cases where the tax law provides for a statute of
limitation, the latter exclusively governs. Where the tax law is silent on any such
statute of limitation, the enforcement of the tax liability becomes imprescriptible. In no
instance, therefore, will tax liabilities and collection under the Civil Code provisions on
prescription of actions apply.
NOTE: A right of refund however, by the taxpayer may be governed in the absence of
a provision to the contrary in the tax law, by the Civil Code provision. Such as,
payment by mistake can be claimed within six (6) years from payment per provision of
the Civil Code.
341. When is the prescriptive period for filing a criminal action for tax evasion?
Answer. In criminal cases involving tax fraud, as when the taxpayer files a false or
fraudulent return with intent to evade taxes, the five-year prescriptive period within
which to file a criminal case for tax evasion is counted NEITHER from the commission
of the fraud NOR the discovery thereof by the BIR, BUT FROM THE ENDORSEMENT
OR REFERRAL OF THE CASE TO THE GOVERNMENT FOR CRIMINAL
PROSECUTION. (Lim, Sr. vs. CA, 190 SCRA 616, Oct. 18, 1990)
Compromise validly entered into between the CIR and the T prior to the
institution of the corresponding criminal action arising out of a violation of the
provisions of the Tax Code is a bar to such criminal action. (People vs. Magdaluyo,
GR No. 16235, April 20, 1961)
342. What is a compromise penalty?

Answer. A taxpayer’s criminal liability from his violation of the pertinent provisions of the Tax Code
may be settled extra-judicially instead of the BIR instituting a criminal action in court
against the taxpayer. It is now a well settled doctrine that compromise penalty cannot
be imposed or collected without the agreement and conformity of the taxpayer. (CIR
vs. UST, November 28, 1958, Wander Mechanical Engineering Corp. vs. CTA, et. al.,
64 SCRA 555). If an offer of compromise by the BIR is rejected by the taxpayer, the
CIR should file a criminal action if it believes that the taxpayer is criminally liable for
violation of the tax law as the only way to enforce a penalty. Thus, compromise
penalty is in lieu of a criminal prosecution. As penalty, it can be imposed only on a
finding of criminal liability. (CIR vs. Abad, 23 SCRA 1132)
343. LAST REMINDER ON TAXPAYER’S JUDICIAL REMEDIES:

a) Civil/Criminal cases involving Php 1 million and above – CTA Division. (Rule 42,
RRC)
b) Civil/Criminal tax cases involving less than Php 1 million – RTC, MTC, MCTC, MeTC
(Rule 42, RRC)
c) Decisions of CIR, CC, SF, STI – Petition for Review to CTA Division (Rule 42, RRC)
d) Decisions of the CBAA on real property from LBAA – Petition for Review to CTA
EN BANC (Rule 43, RRC)
e) Decision of RTC in the exercise of its original jurisdiction – Petition for Review to
CTA Division (Rule 42, RRC)
f) Decision of RTC in the exercise of its appellate jurisdiction – Petition for Review to
CTA EN BANC (Rule 43, RRC)
On Local and Real Property Taxation:
344. What are the taxes imposable by (a) Provinces, (b) Municipalities, (c) Cities and (b)
Barangays:
Provinces Municipaliti Citi Barangay

es es
1. On store and
1. Real property tax retailers of not more
2. Business of Tax on all kinds of All kinds of taxes than P50K (in cities)
Printing and businesses imposable by and P30K (in
Publication operating within its provinces and Municipalities) of
3. Franchise tax territorial municipalities capital
4. Sand, gravel jurisdiction except 2. Service fees or
and other printing press charges
quarry 3. Barangay
resources clearance
5. Professional tax 4. Other fees
6. Tax on and charges –
vehicles used breeding of
for delivery of fighting cocks,
goods cockfights and
cockpits,
recreation,
billboards,
signboards,
outdoor ads
5. Public utility
charges – toll fees
on roads, bridges,
wharves,
piers.
345. X municipality imposed a franchise tax on Y Corporation operating within its

territorial jurisdiction. Y Corporation opposed the imposition contending that X
has no authority to do so. Is Y correct?
Answer. Under the Local Government Code, a municipality is bereft of authority to
levy and impose franchise tax on franchise holders operating within its territorial
jurisdiction. That authority belongs to the Province or City only. The nullity is not cured
by the subsequent conversion of the municipality into a city.
346. Where should the local business tax be based, on gross receipts or gross
revenues? (Ericson Telecom, Inc. vs. City of Pasig, November 22, 2007)
Answer. As provided under Sec. 143 of the Local Government Code, the local
business tax should be computed based on gross sales/receipts. “Gross sales/ receipts”
include money or its equivalent actually or constructively received in consideration of services
rendered or articles sold, exchanged or leased, whether actual or constructive.
Computing the local business tax on the basis of gross revenue will inevitably result in double
taxation, inasmuch as the taxpayer’s revenue or income for a taxable year will definitely include
its gross receipts already reported during the previous year and for which the local
business tax has already been paid.
347. What are the limitations as to imposable rates in local taxation? (Cagayan
Electric Power & Light Co., Inc. vs. City of Cagayan De Oro, November 14, 2012)
Answer. A city may exceed by not more than 50% the tax rates allowed to provinces
and municipalities. A municipality may impose a business tax at a rate not exceeding
2% of gross sales or receipts of any business subject to VAT under the Tax Code. A
city may impose a business tax of up to 3% of a business’ gross or receipts of the
preceding calendar year. In the case of “CDO”, the 10% tax rates imposed by the Ordinance in
question clearly violates Sec. 143 (h) of the LGC. In view of the lack of separability clause in the
Ordinance, the SC declared void the entirety of the Ordinance without prejudice to the
enactment of the City of Cagayan de Oro of a tax ordinance that complies with the
limits set by the Local Government Code.
348. Can the local government avail of the remedy of distraint and levy of personal
property such as the issuance of warrants of garnishment over bank deposits of
erring taxpayers?
Answer. Yes. (Meralco vs. Barlis, May 18, 2001)
349. Does the local (city or province) government have the power to impose a
franchise tax on a business enjoying a legislative franchise?
Answer.
a) Yes. The local government may impose a local franchise pursuant to the
authority granted by the LGC which provides that, notwithstanding any exemption
granted by law, the province/city may impose a franchise tax on all businesses
enjoying a franchise. There was thus an implied repeal by the LGC of PD 551
insofar as the latter imposes a 2% tax “in lieu of all taxes and assessments of
whatever nature.”
Inc.
b) The LGC did not violate the non-impairment clause of the Constitution, as the
former was enacted in pursuance of the constitutional policy to ensure autonomy
to local government. Likewise, local legislative bodies are granted direct authority
by the Constitution to levy taxes. The Constitution also reserves to Congress the
right to amend, alter or repeal all franchises when the public interest so requires.
But even without such reservation clause, franchise are subject to alterations
through a reasonable exercise of police power and the power to tax, both of
which cannot be contracted away. (1999 case)
350. Government agencies (PNB, Land Bank, DBP) performing proprietary functions
are taxable including GOCCs and they are subject to tax audit by the BIR like an
ordinary taxpayer.
351. X questions the validity of an ordinance which has appropriated money for the
construction of a public market, including the validity of contracts entered into
by the local government for the occupancy of stalls in the said public market, X
argues that there was no publication of the ordinance such that it operated
unfairly against those who were interested to lease a space but were not given
the opportunity to make deposits for the market stalls. X’s locus standi to bring
the suit was questioned because he is not a party to the contract. Will the suit of
X prosper?
Answer.
a) In a taxpayer’s suit, the petitioner need not be a party to the contract between the
government and a private party to challenge its validity. But, he must clearly
establish that such ordinance operated unfairly against those who were not
notified. X’s unsubstantiated allegation that the public was not notified does not suffice to
overcome the presumption of regularity in the performance of official functions.
b) The general rule for a taxpayer’s suit is that: “Any taxpayer may impugn the validity of
a tax measure or the expenditure of public funds if he has locus standi or standing
in court (a personal and substantial interest in the case, such that the party has
sustained or will sustain direct injury as a result of the challenged act”)
NOTE: In the recent case of Coconut Oil Refiners Association, Inc. vs. Torres,
July 29, 2005, a taxpayer’s suit may be allowed to prosper even where there is
no direct injury to the party claiming the right of judicial review where serious
constitutional questions are involved.
Inc.
352. Are provinces prohibited from imposing amusement tax in the form of
percentage tax? (Pelizloy Realty Corp. vs. The Province of Benguet, April 10, 2013)
Answer. No. They are not. Amusement taxes are fixed at a certain percentage of the
gross value in money of goods sold, bartered or imported; or of the gross receipts or
earnings derived by any person engaged in the sale of services. Provinces are
categorically allowed to impose amusement taxes on the proprietor, lessees or
operators of theaters, cinemas, concert halls, circuses; boxing stadia and other places
of amusement. These are places where performances, events, shows, exhibitions,
spectacles, performances and other events meant to be viewed by an audience are
held. Operators of swimming pools, resorts, bath houses, hot springs and tourist spots
do not belong to the same category or class as theaters, etc. it follows that they
cannot as among the other places of amusement contemplated by Sec. 140 of the
LGC to be covered by amusement taxes of the province.
353. The general rule provides that taxes already enumerated under the NIRC are
now beyond the taxing authority of the local government. Can the provincial
government validly collect excise taxes on quarry resources independent of the
national government? (Lepanto Consolidated Mining Company vs. Hon. Mauricio B.
Ambanloc, June 29, 2010)
Answer. Yes, provincial government is specifically given the authority to tax quarry
resources (sand, stones and the like) extracted within and from their territorial
boundaries independent of the national government. What the Tax Code taxes are the
goods/products themselves whereas what the local government taxes is the privilege
of extracting the products from the riverbeds.
354. X, dissatisfied with the local treasurer’s denial of or inaction on his protest over
an assessment filed within 30 days a petition for certiorari under Rule 65. Did he
avail of the correct remedy in questioning the local treasurer’s decision? (Team
Pacific Corp. vs. Daza as Mun. Treasurer of Taguig, July 11, 2012)
Answer. X erroneously availed of the wrong remedy in filing a petition for certiorari under Rule
65 to question the treasurer’s decision or inaction on his protest. The local treasurer
cannot be said to be performing a judicial or quasi-judicial function in
assessing X of business taxes and/or effectively denying X’s protest. For this reason, the treasurer’s actions
are not the proper
subject of Rule 65 on petition for certiorari. Certiorari is an extraordinary remedy
designed for the correction of errors of jurisdiction and NOT errors of judgment. It is
likewise considered mutually exclusive with an ordinary appeal. Furthermore, question
of facts is not allowed in a petition for certiorari, prohibition and mandamus.
As a special civil action, certiorari is available only if the following requisites

concur: (a) it must be directed against a tribunal, board, or other officer exercising
judicial or quasi-judicial functions; (b) the tribunal, board or officer must have acted
without or in excess of jurisdiction or with grave abuse of discretion amounting to lack
or excess of jurisdiction, and (c) there is no appeal nor any plain, speedy and
adequate remedy in the ordinary course of law. Judicial function entails the power to
determine what the law is and what the legal rights of the parties are and then
undertakes to determine these questions and adjudicate upon the rights of the parties.
Quasi-judicial functions, on the other hand, refers to the action and discretion of public
administrative officers or bodies, which are required to investigate facts or ascertain
the existence of facts, hold hearings and draw conclusions from them as a basis for
their official action and to exercise discretion of a judicial nature.
X should have brought on appeal the treasurer’s denial or inaction of his protest as the
case may be to the RTC. Judgments, resolutions or orders of the RTC in tax collection
cases originally decided by them in their respective territorial jurisdiction must be filed
with the CTA within 30 days from receipt of said adverse decision of the regular court.
Note as well that CTA has no jurisdiction over decisions or inaction of a local
treasurer.
355. X seasonably protested to the assessment of the local government of his

alleged deficiency tax liabilities. The local treasurer denied his protest.
Thereafter, X filed an appeal before the RTC labeling said review as an appeal. Is
X correct? (The Mun. of Magallanes, Agusan Del Norte, CTA AC No. 68, January 5,
2012)
Answer. The review taken by the RTC over the denial of the protest by the local treasurer
would fall within the court’s original jurisdiction. The review is the initial judicial cognizance
of the matter because the decision of the local treasurer is not a decision of a court
but an administrative officer. Hence, labeling said review as an exercise of appellate
jurisdiction is inappropriate, the denial of the protest is not a judgment or order of a
lower court, but a local government official.
356. Remedies of taxpayers aggrieved by a tax ordinance:

Answer. There are three (3) administrative remedies available to an aggrieved
taxpayer: A tax ordinance may either be (a) reviewed or suspended by the Provincial
Treasurer or the Secretary of Finance, (b) the subject of a formal protest with the
Secretary of Finance, or (c) question the tax ordinance as to its legality and refer for
the opinion of the Provincial fiscal.
357. X believes that the tax ordinance passed by the City government is
unconstitutional, where should he file his appeal questioning the same? Is it
before the SF, DOJ, CTA or the Regular Courts?
Answer. Before filing an appeal X may secure the opinion of the City prosecutor about
the legality of the tax ordinance, thereafter, X may file an appeal before the Secretary
of Justice. Any question on the constitutionality or legality of a tax ordinance may be
raised on appeal with the Secretary of Justice within 30 days from the effectivity
thereof. (Sec. 187, LDC; Hagonoy Vendor Association vs. Mun. of Hagonoy, 2002)
358. Procedure for assailing the validity of a tax ordinance: (Cagayan Electric Power &
Light Co., Inc. vs. City of Cagayan De Oro, November 14, 2012)
Answer. The LGC requires a dissatisfied taxpayer who questions the validity or
legality of a tax ordinance to file his appeal to the Secretary of Justice within 30 days
from the effectivity thereof. In case the Secretary of Justice decides the appeal, the
aggrieved taxpayer has 30 days to go to court. If there is inaction thereon within 60
days, the subject taxpayer could proceed to seek relief in court. These three separate
periods are clearly given for compliance as a prerequisite before seeking redress in a
competent court. Such statutory periods are set to prevent delays as well as enhance
the orderly and speedy discharge of judicial functions. These provisions of statutes are
mandatory
.
359. RA 6055 granted educational institutions that converted themselves to non-
stock, non-profit educational foundations exemptions from payment of all taxes,
import duties, assessments and other charges imposed by the Government on
all income derived from property, real or personal, used exclusively for the
educational activities of the Foundation. X, now a foundation believes that it is
exempted from building permit fees as the same is covered by its exemption
under “other charges” Is X correct? (Angeles University Foundation vs. City of
Angeles, et. al., June 27, 2012)
Answer. X is not correct. Building permit fees are not impositions on property but on
the activity subject for government regulations. Under the National Building Code, only
public buildings and traditional indigenous family dwellings are exempted from the
payment of building permit fees. Charges and fees are not the same. A “fee” is an imposition fixed by
law or ordinance for the regulation or inspection of a business or activity while “Charges” refer to
pecuniary liability, as rents or fees against
persons or property or an amount of money paid for services rendered. An exemption
from tax does not include exemption from regulatory fees and/or charges.
360. The local government of X province learned that several business companies
within the locality use pipelines to transport petroleum products to their
dealers. May the local government impose taxes on the gross receipts on
petroleum companies that use said pipelines to transport petroleum to other
localities and dealers?
Answer. In the case of First Phil. Industrial Corporation vs. CA, December 29, 1998,
The Supreme Court held that pipeline operators are in the truest sense of the word
common carriers and are therefore exempt from the gross receipt tax imposed by the
local government. There are two reasons why the imposition of local taxes on
pipelines by the local government should be considered null and void. (a) Under the
NIRC, the right to impose tax on the gross receipts of a common carrier belongs to the
national government, and (b) The petroleum companies that use pipelines are
common carriers transporting their goods by land as defined under Sec. 133 of the
Local Government Code.
361. Three (3) big oil companies jointly financed the installation of pipelines from the
shore to their respective oil/gas depot to facilitate the transfer of such products
to their facilities. The local government imposes business taxes against the
pipelines contending that such are common carriers. May the local government
impose business taxes on the pipelines?
Answer. Local government cannot impose “common carriers taxes” because such tax is already
imposed under the NIRC to prevent a duplication of the same tax. [First Phil. Industrial
Corp. (1998)]
362. X, a domestic condominium corporation is engaged in selling of real property
within the city proper; it received an assessment from the City Government of
its unpaid local business taxes. X contends that it is not liable because the
business of selling real property is exempt from local taxation. Is X correct?
Answer. X is correct. While the power of the LGUs to impose taxes within their
territorial jurisdiction is derived from the Constitution itself, which recognizes the power of
these units “to create their own resources of revenue and to levy taxes, fees and charges”, such
authority is subject to the guidelines and limitations as the Congress may provide, consistent with the
basic policy of local authority. Among the limitations set by the Congress in the Local
Government Code, is that proviso which generally exempt condominium corporations
from local business taxation, Irrespective of any local ordinance that seeks to declare
otherwise. (2005 case)
363. May the regular courts enjoin the collection of local taxes?
Answer. Unlike the NIRC, the LTC does not contain any specific provision prohibiting
courts from enjoining the collection of local taxes. Such statutory lapse or intent may
have allowed preliminary injunction where local taxes are involved. But it cannot
negate the procedural rules and requirements under Rule 58 of the Rules of Courts.
(Valley Trading Co vs. CFI of Isabela, March 31, 1989) Hence, the regular courts may
enjoin the collection of local taxes subject to Rule 58 (Preliminary Injunction).
364. What are the remedies of a taxpayer under

the Local tax Code? Answer.
A. Administrative
Before payment –
a. Appeal – any question on constitutionality or legality of tax ordinance
within 30 days from effectivity thereof to the Sec. of Justice (Sec. 187,
LGC)
b. Declaratory relief whenever applicable
After payment -
a) Protest – within 60 days from receipt of assessment (Sec. 195,
LGC).Payment under protest is not necessary.
b) Payment and subsequent refund or tax credit – within 2 years from
payment of tax to the local treasurer (Sec. 196, LGC)
c) Right to redemption – 1 year from the date of forfeiture (Sec. 181,
LGC)
B. Judicial.
1. Court action – within 30 days after receipt of decision or lapse of 60 days of
Secretary of Justice’s inaction (Sec. 187, LGC)
a) Within 30 days from receipt when protest of assessment is denied.
b) If no action is taken by the treasurer in refund cases and the 2 year
period is about to lapse (Sec. 95)
c) If remedies available do not provide plain, speedy and adequate remedy.
1. Action for declaratory relief
2. Injunction – if irreparable damage would be caused to the taxpayer and no adequate

remedy is available.
On Real Property Tax:
365. Are properties owned by GOCCs subject to real property taxes?

Answer. Yes. In the case of Mactan-Cebu Int’l. Airport Authority, the Supreme Court held that
properties owned by GOCCs are subject to real property taxes “unless otherwise provided.” The
exemption from real property taxes under Sec. 234 of the RPTC specifically states that only real
properties owned by the Republic of the Philippines or any of its political subdivisions
(local governments) are exempted.
When a GOCC is using a land owned by the government there is no real

property on the land payable by the said GOCC, but when it introduces improvements
on the land, such improvement is subject to real properties taxes. (Phil. Ports
Authority case) payable by the GOCC.
366. Government instrumentalities of the national government are not subject to real
property taxes except those portions that are leased to private persons or
entities. Such as: Philippine Fisheries Development Authority, Lucena Fishing
Port Complex; Mactan International Airport Authority; Philippine Reclamation
Authority among others.
367. The local treasurer of City X sent PEZA (a government instrumentality) a notice
of assessment for reason that she came to know that some real properties of
PEZA are leased to private entities for commercial purposes. PEZA invokes its
tax exemption privilege. Is PEZA subject to real property taxes?
Answer. PEZA being an instrumentality of the national government, it cannot be taxes
by local government units. EPZA the predecessor of PEZA was declared non-profit in
character with all its revenues devoted for its development, improvement and
maintenance. It has been explicitly declared exempt from real property taxes
under its charter. Even if EPZA’s lands and buildings whose beneficial use have
been granted to other persons it is still exempt from taxes. The exemption of EPZA
(now PEZA) extends to PEZA-registered enterprises or entities operating within the
economic zones. (City of Lapu-lapu vs. PEZA, G. R. 184203, November 26, 2014)
368. Sec. 252 of the LGC provides that a taxpayer must first pay the real property tax
assessed before he is allowed to protest the assessment. Is a taxpayer required
to pay the real property tax if he is questioning the authority of the local
assessor to assess real property taxes? Or is he required to pay the real
property taxes if he claims that the real property is exempt from real property
taxes?
Answer. The SC held that by claiming exemption from realty taxation, the taxpayer is
simply raising a question of the reasonableness or correctness of the amount
assessed, as such; the real property tax must be paid prior to the making of a protest.
On the other hand, if the taxpayer is questioning the authority of the local assessor to
assess real property taxes and of the treasurer to collect, it is not necessary to pay the
real property taxes prior to the protest. A claim for tax exemption, whether full or
partial does not question the authority of local assessor to assess real property taxes.
369. Properties of public dominion are not subject to execution or foreclosure sale.
(RP represented by the Phil. Reclamation Authority vs. City of Paranaque, July 18,
2012)
370. Where is the reckoning of the prescriptive period for collection of real property taxes?
Answer. The local government unit concerned has five (5) years counting from the
end of each quarter rather than on a yearly basis to initiate either an administrative or
judicial action to collect the deficiency tax for said period. (Tacloban City Government
vs. Leyte Park Hotel, Inc. CTA OC No. 012, November 15. 2011)
371. What are the remedies of taxpayer under the

Real Property Tax Code? Answer.
A.Administrative –
a) Protest – payment under protest is required. (*“PAY FIRST BEFORE
PROTEST”) Filed within 30 days from date of payment to provincial, city or
municipal treasurer.
b) Refund or tax credit – within 2 years from the date the taxpayer is entitled thereto
(Sec. 253, LGC)
c) Redemption of real property within 1 year from date of sale (Sec. 261, LGC)
d) Appeal – within 60 days from assessment of provincial, city or municipal
assessor to LBAA, Within 30 days from receipt of decision of LBAA to
CBAA, within 30 days from CBAA to the CTA and within 15 days from
CTA to the SC.
B.Judicial –
a) Court action – appeal of CBAA’s decision within 30 days to CTA
b) Suit assailing validity of tax; recovery of refund of taxes paid (Sec. 64, PD 464)
c) Suit to declare invalidity of tax due to irregularity in assessment and collection
(Sec. 64, PD 464)
d) Suit assailing the validity of tax sale.
*In the case of Meralco vs. City Assessor, GR No. 166102, August 5, 2015, The
SC rules that posting a surety bond before filing an appeal of the assessment
with the LBAA constitutes substantial compliance with the requirement of Pay
First Before Protest in Sec. 252 of the Local Government Code. t
372. What are the administrative remedies available to a real property owner to
contest the assessment for real property tax?
Answer. A real property owner who is not satisfied with the assessment or
reasonableness of the real property tax sought to be collected by the city or province
where the property is located, he should:
a) Pay the realty tax under protest – The protest in writing shall be filed within 30
days from payment of the tax assessed. The Treasurer has a period of 60 days
to act on the protest.
b) In the event of a denial or inaction, the appellate procedure is to file a verified
petition with the LBAA within 60 days from denial of protest or receipt of the
notice of assessment.
c) In the event of a denial, an appeal may be taken to the CBAA by filing a notice of
appeal within 30 days from receipt thereof.
d) From the CBAA, the dispute may be taken to the CTA En Banc by filing a verified
petition for review under Rule 43 of the Rules of Court.
The foregoing procedure is indispensable if what is being questioned by the

taxpayer is the correctness of the assessment. This involves a question of fact which
could not be subject to a petition for certiorari, prohibition and mandamus.
373. The City Assessor’s Office of “X” City issued Tax Declaration with increased
values for certain properties within the City. The owners were not amenable to
the values assigned and sought reconsideration from the same office.
Thereafter, the Assessor reduced the assessed values of the properties. Is the
Assessor justified in doing so? Answer. No. Once the local Assessor sends notice
to the owner or lawful possessor of real property of its assessed value, the
former is automatically divested of any jurisdiction to entertain any request for a
review or readjustment. The proper remedy of the property owners is to appeal the
valuation made by the Assessor to the Local Board of Assessment Appeals within 60
days from receipt of the assessment. (Callanta vs. City of Cebu, January 30, 1996)
374. The City Assessor’s Office of “X” City issued Tax Declaration with increased
values for certain properties within the City. The owners were not amenable to
the values assigned and sought reconsideration from the same office.
Thereafter, the Assessor reduced the assessed values of the properties. Is the
Assessor justified in doing so? Answer. No. Once the local Assessor sends notice
to the owner or lawful possessor of real property of its assessed value, the
former is automatically divested of any jurisdiction to entertain any request for a review
or readjustment. The proper remedy of the property owners is to appeal the valuation
made by the Assessor to the Local Board of Assessment Appeals within 60 days from
receipt of the assessment. (Callanta vs. City of Cebu, January 30, 1996)
375. X, received a copy of the latest Tax Declaration on his real property from the
Office of the Assessor, X believes that there should be no increase in the
assessed market value on his realty because for the last 10 years he has not
introduced any additional improvement thereon, the house constructed within
the property that he and his family presently occupy is the same house he
inherited from this deceased mother. What remedies are available to X if the
local government enforces real property tax collection based on the latest tax
declaration. Reason.
Answer. X is still required to pay real property tax under the latest assessed market
value of his property as stated in the tax declaration he received. Whenever the local
assessor sends a notice to the owner or lawful possessor of real property of its revised
assessed value, the property owner who does not agree thereto must dispute such
assessment within 60 days from
receipt of notice/Tax Declaration. Thereafter, upon receipt of an adverse decision he
may file an appeal before the Local Board of Assessment Appeals questioning the
taxability and/or increase of the market value of real property. Failure on his part to
question such assessment within the reglamentary period provided by law, the local government’s
right to collect becomes absolute upon the expiration of such period with respect to that
property. (1998 case)
376. The taxpayer (LRT) resisted the assessment on the carriageways and terminal
stations for realty taxes upon the theory that such real properties are for public
use similar in nature to public roads. Is the contention valid? (LRT Case)
Answer. The court held that it was not for public use since only those who are riding
the LRT use them and that there is no grant of real property tax exemption in the
Charter of the LRT was provided.
Unlike public roads which are open for use by everyone, the LRT is accessible
only to those who pay the required fare. It is thus apparent that petitioner does not
exist only solely for public service, and that the LRT carriageways and terminal
stations are not exclusively for public use. Moreover, the charter of petitioner does not
provide for any real estate tax exemption in its favor. Even granting that the national
government indeed owns the carriageways and terminal stations, the exemption would
not apply because their beneficial use has been granted to petitioner (LTR), a taxable
entity.
377. Are power plant barges and its accessory equipment mounted on the barges
subject to real property taxation? (Province of Batangas et. al., vs. Napocor, Feb.
16, 2007)
Answer. Yes. These are intended by their nature and object to be immovable
properties by destination, being in the nature of machinery and other implements
intended by the owner for an industry or work which may be carried on in a building or
a piece of land and which tend directly to meet the needs of said industry or work.
Further, subject accessories are mounted on the barges and attached to gas turbine
power plants designated to generate electric power installed at a specific location with
a character of permanency.
378. X owns a big track of land beside a river where sand, gravel, earth and other
quarry resources are extracted. The Province where said property is located
imposes taxes on the goods. X objected to the imposition thereof. Can the
province validly tax X on the products extracted from his private properties?
Answer. A province has no authority to impose taxes on stones, sand, gravel, earth
and other quarry resources extracted from private lands. It may not also levy excise
taxes on such articles as they are already taxed by the NIRC. A province may not
invoke the Regalian Doctrine to extend that coverage of its ordinance to quarry
resources extracted from private land, because taxes, being burdens are not to be
presumed beyond what the applicable statute expressly and clearly declares, tax
statutes being construed strictissimi juris against the government. [Province of
Bulacan (1998)]
379. “Giant Electric” is a domestic corporation engaged in the supply and

distribution of electricity in the region. It was assessed real property taxes on its
steel towers, electric posts, barges, transformer and transmission lines that it
installed for its operations. “Giant” contends that the said properties are
personal properties and therefore not subject to real property tax. Is “Giant’s”
contention tenable?
Answer. The CTA en banc held that the steel towers, electric posts, barges,
transformers and transmission lines are now included in the term machinery provided
under Sec. 199 (o) of the LGC. Under the said provision, facilities which are
permanently attached to real properties which are actually, directly and exclusively
used to meet the needs of the particular industry, business or activity are considered
as machineries subject to real property tax.(Cotabato Electric Cooperative vs.
CBASA, CTA EB Case No. 377, October 2, 2009)
380. Does CTA have jurisdiction to enjoin the levy and the auction of taxpayer’s real
property in relation to his tax liabilities on real property taxes? (Philippine Ports
Authority vs. City of Davao, GR No. 190324, June 6, 2018)
Answer. The CTA has jurisdiction over taxpayer’s (T) appeal to resolve the question of WON it
was liable for real property tax. The real property tax was the very reason for the acts
which T wanted to have enjoined. It is therefore the CTA and not the CA, that has the
power to preserve the subject of the appeal, to give effect to its final determination,
and, when necessary to control auxiliary and incidental matters and to prohibit or
retrain acts which might interfere with its exercise of jurisdiction over the taxpayer’s
appeal. The acts of the City government of Davao carried out pursuant to the
imposition of the real property tax also within the jurisdiction of the CTA.
 Under the LGC, Local Government is NOT empowered to impose business taxes
on persons or entities engaged in the business of manufacturing and
distribution of petroleum products. Batangas vs. Pilipinas Shell Petroleum Corp.,
GR No. 187631, July 8, 2015)
 As between the Civil Code and the Local Government Code, the latter shall
prevail in determining whether machinery is real property subject to real
property tax. (Meralco vs. City Assessor case).
On Tariff and Customs Code:
381. Define the following basic terms in customs laws:
a) Customs duties – These are taxes on the importation and exportation of commodities.
b) Specific duty – This is a duty (tax) on imports that is proportional to the number
of items or units. It is computed based on weight, volume gauge or other
measure of quantity without regard to the value of the goods or commodities.
c) Ad Valorem duty – This is a duty which is equal to a certain percentage of the value of
the imported goods or commodity.
d) Anti-dumping duty – This is a special duty imposed on importation of a product
into the country at less than its normal value which may possibly cause material
injury to a domestic industry producing the like product.
 The decision WON to impose a definite anti-dumping duty remains the
prerogative of the Tariff Commission.
e) Countervailing duty – This is imposed on imported goods in addition to other
ordinary duties, taxes and charges whenever the imported goods is granted
directly or indirectly by the government in the country of origin any kind or form of
subsidy upon the production, manufacture or exportation of such goods to bring
down its costs. The importation of such goods into our country might be injurious
to domestic industries producing the same products because of its cheaper
prices.
f) Marking duty – This is an additional duty on ad valorem basis imposed for
improperly marked articles including the deceptive practice of passing imported
articles as coming from a particular country other than its actual country of origin.
g) Discriminatory or retaliatory duty – This is a duty imposed on imported goods
whenever it is found that its country of origin discriminates against commerce of
the Philippines.
h) Safeguard duty – This is a general safeguard measure upon a positive
determination of the Tariff Commission (TC) that a product is being imported into
our country in increased quantities, which will cause a serious injury or threat to
our domestic industry. (Ex. Importation of cement)
 The imposition is recommended by the TC to the DTI if it involves non-
agricultural products and to the DA in case of agricultural products. In case of
non-agricultural products the Dec. of Trade & Industry shall first establish
that the application of safeguard measures will be in the interest of the
general public. (RA 8800 – The Safeguard Measures Act)
 The Sec. of the DTI cannot impose general safeguard measures
without the final determination by the Tariff Commission.
382. When may the power of the President to tax under the “Flexibility Clause be exercised?
Answer. His power shall be exercised upon the recommendation of NEDA and in the
interest of the general welfare and national Security. In addition, he shall exercise the
said power only when Congress is NOT in session.
383. Are the Orders of the President pursuant to his power of taxation immediately
executory?
Answer. His Orders shall take effect 30 days after promulgation, except in the
imposition of additional duty not exceeding 10% ad valorem which shall take effect at
the discretion of the President.
384. What goods are subject to customs duties under the TCC?
Answer. All articles or goods when imported from any foreign country into the
Philippines shall be subject to duties upon each importation even though previously
exported from the Philippines, except as otherwise specifically provided for in the
TCC. (Sec. 104, CMTA)
385. What are the tax exemption privileges of OFWs/ OCW?

Answer. They can bring in tax and duty free home appliances and other durables
limited to one (1) of every kind once every calendar year accompanying them on their
return or arrival within a period of not exceeding 60 days after return with a value of
not exceeding Php 150,000.
386. When are “balikbayan boxes” exempt from customs duties?

Answer. When the boxes (max. 3 in each calendar year) contain personal and
household effects only and shall neither be in commercial quantities nor intended for
sale, barter or for hire and that the total FCA value shall not exceed Php150,000 for all
balikbayan boxes per sender in any calendar year.
 De minimis importation of Php 10,000 and below shall not be included in the
counting of max 3 boxes.
 Balikbayan boxes brought in by qualified OCW from abroad accompanied
by the passenger or unaccompanied baggage shall be included in the counting
of the maximum 3 boxes allowed.
387. Are imported relief goods for calamity victims from abroad subject to duties?
Answer. Relief consignment imported goods (food, medicines, equipment and
materials for shelter, donated or leased to government institutions and accredited
private entities for free distribution to or use of victims of calamities shall be exempt
from duties and taxes. (Sec. 120-21, CMTA)
388. What are the remedies of the taxpayer under the
Tariff and Customs Code: Answer.
1. Administrative:
a) Protest - Any importer or interested party if dissatisfied with the published

value of duties on imported goods may within 15 days from date of publication
or within 5 days from the date the importer is entitled to refund if payment is
rendered erroneous or illegal by events occurring after the payment.
Taxpayer – within 15 days from assessment. Payment under protest is necessary

(Sec. 2308, 2210, TCC)
b)Refund - A written claim for refund may be submitted by the importer in

abatement cases on missing packages, deficiencies in the contents of
packages or shortages before arrival of the goods in the Philippines, articles
lost or destroyed after such arrival, dead or injured animals, and for manifest
clerical errors, and
c)Drawback cases where the goods are – re-exported. (Secs. 1701-1708, TCC)
a. Settlement of any seizure by payment of fine or redemption. But, this shall

not be allowed in any case (1) where importation is absolutely prohibited,
or (2) the release would be contrary to law, or (3) when there is an actual
and intentional fraud. (Sec. 2307, TCC)
b. Appeal – within 15 days to Commr. of Customs after notification by collector of his

decision (Sec. 2313, TCC)
2. Judicial
a) Appeal to the CTA division within 30 days from receipt of the decision of
the Commissioner of Customs or Secretary of Finance (Sec 2403, TCC,
Sec. 7, RA 1125)
b) Action to question the legality of seizure before the Bureau
c) Abandonment (Sec. 1801)
389. X’s goods were kept in the customs warehouse while waiting for the release
papers. For unknown reasons all the goods disappeared while in customs
custody. X filed a damage suit and demanded payment in dollars. (a) The
customs officials invoke the state immunity doctrine. (b) Granting that it is
liable, is the payment in dollar as demanded valid?
(c) What conversion rate should apply – the rate prevailing at the time the
goods arrived or the rate at the time of payment? (Commr. of Customs vs. AGHFA
Incorporated, March 28, 2011)
Answer. The CC cannot escape liability for the lost shipment of goods and hide
behind the state immunity doctrine. The BoC cannot escape ineptitude and gross negligence
in the safekeeping of importer’s goods. The doctrine must be fairly observed and the State should
not avail itself of this prerogative to take undue advantage of parties that may have
legitimate claims against it.
Under RA 529, as amended by RA 4100, stipulations on the satisfaction of obligations

in foreign currency are void. Thus, the payments of monetary obligations, subject to
certain exceptions, must be discharges in the currency which is the legal tender in the
Philippines.
The rate of exchange for the conversion in the peso equivalent should be the prevailing rate at
the time of payment.
390. When is smuggling committed?

Answer. It is committed when a person (a) fraudulently imports or brings into the
Philippines or assists in transporting or bringing into the Philippines any article
contrary to law, or (b) receives, conceals, buys, sells or in any manner facilitates the
transportation, concealment or sale of such articles after importation knowing the
same to have been imported contrary to law. (Rodriguez vs. CA, Oct. 10, 1995)
391. Can the government forfeit vehicles used in smuggling? (El Greco Ship Manning
& Mgmt. Corp. vs. Commr. of Customs, December 4, 2008)
Answer. Vessel, vehicles or aircraft used in smuggling may be forfeited by the
government if it is privately owned. If the transport vehicle is a common carrier for hire,
chartered or leased and the agent in charged thereof at the time of use has no
knowledge of the unlawful use thereof, it cannot be forfeited.
392. The customs officials seized allegedly untaxed vehicles and parts of
businessman Jao, prompting the latter to file a petition for certiorari, prohibition
and mandamus with prayer for a temporary restraining order with the RTC. The
RTC granted the injunction and prohibited the respondent from seizing,
detaining, transporting and selling at public auction the disputed article.
Contending that the RTC had no jurisdiction over the subject matter, the tax
officials filed a petition for review with the Court of Appeals. Decide.
Answer. The petition of the tax officials is impressed with merits. The RTC is devoid
of any competence to pass upon the validity or regularity of the seizure and forfeiture
proceedings conducted by the Bureau of Customs or to enjoin or otherwise interferes
with these proceedings. The Collector of Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear and determine all questions touching
upon seizure and forfeiture of dutiable goods. The RTC is precluded from assuming
cognizance over said matters even through petitions of certiorari, prohibition &
mandamus. (Jao vs. CA, October 6, 1995)
Mison vs. Natividad. Even the illegality of the warrant of seizure and detention cannot justify
the trial court’s interference with the collector’s jurisdiction between the existence of the
collector’s power to the issue and the regularity of the proceedings taken under such power.
Even if there be irregularity in the exercise of such power, the RTC does not have the
competence to review, modify, or reverse whatever conclusions may result therefrom.
(Taxpayer’s remedies – appeal to the CTA)
393. X’s imported goods were seized by tax officials from the Bureau of Customs on
reports and verification that subject articles were smuggled. X filed an
injunction before the regular court. Did the regular court acquire jurisdiction
over the case?
Answer. The RTC is devoid of any competence to pass upon the validity or regularity
of seizure and forfeiture proceedings conducted by the BC and to enjoin or otherwise
interfere with these proceedings. It is the customs authorities that has exclusive
jurisdiction over such proceedings (seizure and forfeiture) and regular courts cannot
interfere with the exercise thereof or stifle or put it to naught. The RTC is precluded
from assuming cognizance over such matters even through petitions for certiorari,
prohibition or mandamus.
The question of whether probable cause exists for the seizure of certain articles
is not for the RTC to determine. [Ogario, (2000), Rallos vs. Gako, Jr, (2000)]
Even the illegality of the warrant of seizure and detention cannot justify the trial
court’s interference with the collector’s jurisdiction between the existence of the collector’s power
to the issue and the regularity of the proceedings taken under such power. In the latter, even if
there be such an irregularity in the proceedings, the RTC does not have the
competence to review, modify or reverse whatever conclusions may result therefrom.
(Mison vs. Natividad) Remedy of the aggrieved taxpayer – appeal to the CTA.
Under the Doctrine of primary jurisdiction, the Bureau of Customs has
exclusive administrative jurisdiction to conduct searches, seizure and forfeiture of
contraband without interference from the courts. It could conduct searches and
seizure without need of a judicial warrant except if the search is to be conducted in a
dwelling place.
NOTE: Goods in the custody of the BC are not subject to attachment. Regular courts
have no jurisdiction on goods held by the BC because importation has not yet ended.
It is deemed terminated only upon payment of the duties imposed on the goods
imported and the legal permit for its release or withdrawal shall have been granted.
394. The Bureau of Customs raided and seized goods in the warehouse of X
Corporation on the belief that they were unlawfully released from the customs
custody. X filed a case before the regular court questioning the validity and
regularity of the seizure and forfeiture proceeding. Will the action prosper?
Answer. The regular courts (RTC) are devoid of any competence to pass upon the
validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of
Customs and to enjoin or otherwise interfere with these proceedings. The Collector
sitting in the seizure and forfeiture proceedings has exclusive jurisdiction to hear and
determine all questions touching on the seizure and forfeiture of dutiable goods and
the regular courts cannot interfere with nor deprive him of such jurisdiction. (2005
case)
395. X is an importer-assembler of car and auto parts. After the car is assembled
here he registers them with the LTO and sells them to local buyers. The BIR and
the Bureau of Customs assessed X of unpaid IR taxes and duties. X contends
that he is not liable because (a) the released of the parts from customs means
that all duties were settled and cleared otherwise there is no way that the goods
could have left the Customs custody, and (b) the buyer shall be liable for the
whatever taxes are due on the sale. Decide.
Answer. As between the importer-assembler/manufacturer and the buyer of the car,
the former has the obligation to pay to the BIR and the BOC, Imposing the tax burden
on the buyer would only encourage the proliferation of smugglers who can evade
taxes by passing on their obligation to their unsuspecting buyers. Moreover, the fact
that the importer-assembler was able to
secure the release of the parts from customs and to register the assembled car with
the LTO does not necessarily mean that all taxes and duties were legally paid and
settled. [Harrison Motors, (2000)]
396. When may the Customs officials subject articles to forfeiture proceedings?
Answer. The TCC provides that any article which is removed from customs custody
without tax payment and clearance shall be forfeited. The forfeiture of the subject
goods is not dependent on whether or not the importation was terminated rather it is
premised on the illegal withdrawal of the goods from customs custody. Thus,
regardless of the termination of importation, customs authorities may validly seize
goods which, for all intents and purposes, still belong to the government if said goods
were released contrary to law from any public or private warehouse under customs
supervision and control.
During the forfeiture proceedings the person or entity from whom such articles
were seized shall be given an opportunity to prove or show the source of such articles
and the payment of duties and taxes thereon. [Carrara Marble Phils. (19990]
397. When is the redemption of forfeited good imported not allowed?

Answer. (a) When there is fraud committed by the importer, (b) where the importation
is absolutely prohibited or (c) where the release of the property would be contrary to
law. [Transglobe Int’l. (1999)]
398. What is the prescriptive period to claim for a refund of taxes of an enterprise
duly registered under the EPZA Law? Answer. The EPZA Law itself is silent on the
matter, and the prescriptive periods under the TCC and other revenue laws are
inapplicable by specific mandate of Sec 17(1) of the EPZA Law. This does not mean
however, that the prescriptive period will
not lie. The provisions on solutio indebiti of the Civil Code may find application. Solutio
indebiti is a quasi-contract, thus the claim for refund must be commenced within six (6)
years from date of payment pursuant to Art. 1145(2) of the New Civil Code. (This is
an isolated exemption to the 2-year prescriptive period for refund under the Tax
Code) (Commissioner of Customs vs. Phil. Phosphate Fertilizer Corp., September 1,
2004).
399. X lost his baggage on board an aircraft on his return flight to the Philippines
from the United States. X filed a claim in an amount more than that which is
specified in the tariff. Is the air carrier liable on the amount demanded by X?
Answer. An air carrier is not liable for the loss of baggage in an amount in excess of
the limits specified in the tariff which was
filed with the proper authorities, such tariff being binding on the passenger regardless of the
passenger’s lack of knowledge thereof or assents thereto. [British Airways (1998)]
400. Taxes are generally imprescriptible: statutes, however, may provide otherwise.
State the rules that have been adopted on this score by –
a) Tariff and Customs Code (TCC)
b) Local Government Code (LGC)
Answer. (a) TCC does not express any general statute of limitation. It provided, however, that “when
articles have entered and passed free of duty or final adjustment of duties made, with
subsequent delivery, such entry and passage free of duty or settlement of duties will,
after the expiration of one (1) year from the date of the final payment of duties, in the
absence of fraud or protest, be final and conclusive upon all parties, unless the
liquidation of import entry was merely tentative. (Sec. 1603, TCC)
(b) LGC – Local taxes, fees and charges shall be assessed within five (5) years
from the date they become due. In case of fraud or intent to evade the payment of
taxes, fees and charges, the same may be assessed within ten (10) years from
discovery of the fraud or intent to evade payment. They shall be collected either by
administrative or judicial action within five
(5) years from date of assessment. (Sec. 194, LGC)
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GOOD LUCK and GOD BLESS!
JPL / 2018. ALL RIGHTS RESERVED.

Dr. Lim

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PROBLEM EXERCISES in TAXATION

Prepared by: Dr. Jeannie P. Lim

1. State policy on taxation under

a) To promote sustainable economic growth through rationalization of Philippine

2. Define The Power of Taxation:

These following concepts apply to the Power of Taxation: (a) Doctrine of

4. Some constitutional limitations on the exercise

5. The inherent limitations on the power of taxation:

6. What is meant by “Eclectic Theory” in the determination of tax situs?

7. What is the situs of taxation in electronic transactions?

8. Does due process require judicial proceedings in tax cases?

10. When is there indirect double taxation? Is this allowed?

29. What are the two (2) powers of the CIR?

33. Franchise distinguished from

 Franchise has been broadly construed as referring, not only to

 VAT on toll way operations cannot be deemed a tax on tax (tax

38. X was encouraged to invest in government bonds because it gives higher

43. Define a de facto merger: (RMC – 1-02, April 25, 2002)

47. X is a stockholder of W Corporation. He decided to exchange his real property

48. X Corporation purchased all properties from Y Corporation under a Purchase

49. What are the requisites of a

 This class suit is primarily filed to question illegal expenditure or

52. Is there a violation of “public purposeness” in taxation if taxes (money realized

55. Distinguish tax avoidance and tax evasion:

b) An accompanying state of mind which is evil, in bad faith, deliberate, willful or

c) A cause of action or failure of action which is unlawful

57. E Corporation sold its commercial building to X, (corporate taxpayer to natural

58. Can the CIR issue an administrative tax amnesty?

 Nature of tax amnesty – It is similar to tax exemption which is disfavored and

63. The CIR issued 2 Revenue Memorandum Circulars affecting pawnshops. X, a

73. Is the BIR authorized to freeze inquiries of a bank deposit of a taxpayer?

84. Who is a large taxpayer for income

As to financial conditions and/or result of operations:

a) Total Gross sales or receipts of Php 1.0Billion

a) The amount condoned is compensation income to the employee.

88. X and Y Corporations entered into a management contract. X made advances of

96. A, B C and D inherited from their parents several income-generating real

97. Suan Company is an unregistered partnership operating in Baguio City without

Under the TRAIN Law:

 *15%FWTax is applicable to sale of shares NOT listed/traded in the

c. If the debt instrument has 20 or more lenders, the interest income or

 The rules on dealings on capital assets by corporations apply to partnership

 If the seller of the shares is a dealer in stocks and securities, he shall be

 Selling real properties NOT use in business or not income generating is

112. X, a foreign corporation is duly licensed to do business here. It invested by

114. What are disguised dividends? Are they taxable?

117. What is an intra-corporate dividend? Is it taxable?

NOTE: (a) Treasury shares distributed to the stockholders of a corporation are

123. What particular transactions involving disposition of real properties classified

 Sale of agricultural land by land owners to the CARP of the government is

 Sale of socialized housing units by the NHA pursuant to the Urban

It is therefore clear that in foreclosure (judicial or extra judicial) there is no actual

130. Distinguish a Certificate of Repurchase After Sale from a Certificate of Sale:

 CGT of 6% is a final withholding tax on income derived from property dealings.

NOTE: If the seller X, (above) of the condominium is a resident corporation, it is NOT

If the taxpayer is a businessman but not engaged in real estate business –

General Professional Business Partnership

144. Are tax refunds taxable?

 Previously, a benefactor of a PWD is entitled to additional exemption only if

 Prizes won from abroad by an individual shall be subject to the normal

149. X, an employee was seriously injured a vehicular accident. Upon recovery he

150. X Manufacturing is engaged in the production of quality electrical appliances

As a rule, if the advertising expense was incurred to stimulate current sales, it is