Arellano University School of Law

Center for Legal Education and Research

2019 BAR OPERATIONS COMMISSION

LAST MINUTE TIPS
TAXATION LAW

GENERAL PRINCIPLES

1. Distinguish between tax amnesty and tax exemption.

TAX AMNESTY TAX EXEMPTION

An immunity from all criminal, civil and An immunity or privilege, a freedom from a charge
administrative liabilities arising from non- or burden to which others are subjected.
payment of taxes.

It is a general pardon or the intentional

overlooking by the State of its authority to
impose penalties on persons otherwise guilty
of violating a tax law. It partakes of an
absolute waiver by the government of its right
to collect what is due it and to give tax
evaders who wish to relent a chance to start
with a clean slate (Asia International Auctioneers, Inc.
vs. CIR, G.R. No. 179115, September 26, 2012)
Granted to all taxpayers. Granted only to taxpayers covered by the specific
tax exemption statute.
It is retroactive in application. It is generally prospective in application.
There is a revenue loss since there were There is no revenue loss because there were no
actually taxes due but the collection was just actual taxes due as the person or transaction is
waived by the Government. protected by tax exemption.
(People vs. Castaneda, G.R. No. L-46881, September 15, 1988)

2. What are the two kinds of double taxation?

DIRECT DOUBLE TAXATION (Prohibited) INDIRECT DOUBLE TAXATION (Allowed)

a) Same property is taxed twice when it should be
taxed only once;
b) Both taxes are imposed on the same property or
subject matter for the same purpose;
c) By the same taxing authority within the same
jurisdiction or taxing district
d) During the same taxing period and covering the
same kind or character of tax.
Extends to all cases in which there are two or
more pecuniary impositions but one or more
of the requisites of direct double taxation is
missing (Villanueva vs. City of Iloilo, G.R. No. L-
26521, December 28, 1968).

3. Distinguish Tax Avoidance from Tax Evasion.

TAX AVOIDANCE TAX EVASION

The tax saving device within the
means sanctioned by law.
This method should be used by the
taxpayer in good faith and at arm’s
length.
A scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.
Connotes the integration of three factors:
(a) the end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-payment
of tax when it is shown that a tax is due;
(b) an accompanying state of mind which is described as
being "evil," in "bad faith," "willful," or "deliberate and not
accidental"; and
(c) a course of action or failure of action which is unlawful
(CIR vs. Estate of Toda, Jr., G.R. No. 147188, September 14, 2004)

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4. Discuss the following concepts in Taxation.

a. Tax Arbitrage - The practice of profiting from differences that arise from the ways transactions are
treated for tax purposes.

E.g. The benefit from the expense is 30% while the interest income will only be subjected to 20%
final tax. Clearly, there is a tax leak of 10%. The deductible interest expense is subject to a
limitation, the purpose of which is to equalize the tax liability of the taxpayer on his interest
income and the tax benefit on his interest expense. Thus, in order to obtain the objective of the
law to equalize the tax liability of the taxpayer of his interest income and the tax benefit on his
interest expense, the interest expense shall be reduced by 33% to the extent of the interest
income subjected to final tax (Sec.34(B),NIRC).

b. Doctrine of Equitable Recoupment - allows a taxpayer whose claim for refund has prescribed to
offset tax liabilities with his claim of overpayment. The doctrine arose from common law allowing
offsetting of a prescribed claim for refund against a tax liability arising from the same transaction
on which an overpayment is made and underpayment is due. The doctrine finds no application to
cases where the taxes involved are totally unrelated, and although it seems equitable, it is not
allowed in our jurisdiction (CIR vs. University of Santo Tomas, G.R. No. L-11274, November 28, 1958).

c. Doctrine of Willful Blindness - Mere reliance on a representative or agent is not a valid ground
to justify any noncompliance in tax obligations. The taxpayer must inquire, check and validate
whether or not his representative or agent has complied with the taxpayer’s tax responsibilities
(People vs. Kintanar, CTA EB Crim. No. 006, December 3, 2010).

d. Economic Benefit Test - a cash basis taxpayer does not recognize income upon the receipt of
property in the form of a promise to pay in the future. However, a cash basis taxpayer is taxed
when the taxpayer receives an "economic benefit" from a right to receive property in the future.

e. Severance Test – Income is recognized when there is separation of something of exchangeable

value

f. All events test – applied in the realization of income and expense by an accrual basis taxpayer.
This test requires (1) fixing of a right to income or liability to pay; and (2) the availability of the
reasonable accurate determination of such income or liability (CIR vs. Isabela Cultural Corporation, G.R.
No. 172231, February 12, 2007).

5. What are the attributes of a sound taxation system?

a. Fiscal Adequacy. The sources of revenue should be adequate to meet the government
expenditures and their variations (Chavez vs. Ongpin, G.R No. 76778, June 6, 1990).

b. Administrative Feasibility. The tax system should be capable of being effectively administered
and enforced with the least inconvenience to the taxpayer. However, even if the imposition is
burdensome to the taxpayer, the tax imposition is not necessarily invalid unless some aspect of it
is shown to violate any law or the Constitution (Diaz vs. Secretary of Finance, G.R No. 193007, July 19, 2011).

c. Theoretical Justice. The tax system should be fair to the average taxpayer and based upon the
ability to pay. Sec 28(1), Art. VI of the 1987 Constitution mandates that the rule on taxation must
be uniform and equitable and that the State must evolve a progressive system of taxation.

6. Distinguish Tax Assumption from Tax Exemption.

TAX ASSUMPTION TAX EXEMPTION

The obligation or liability remains with the It is the “freedom from a duty, liability or other
statutory taxpayer, although the same is merely requirement"
passed on to a different person.
(Mitsubishi Corp. vs. CIR, G.R. No. 175772, June 5, 2017, J. Perlas-Bernabe)

7. May the Commissioner of Internal Revenue exercise both quasi-judicial and quasi-legislative
power?

Yes. The CIR may exercise quasi-judicial powers to investigate 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, subject to appeal to CTA. The CIR, in exercise of its quasi-legislative
powers, may also promulgate rules and regulations for the effective enforcement of the provisions of
the law, subject to the review of the Secretary of Finance.

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8. What are the non-delegable powers of the CIR?

a. To recommend the promulgation of the rules and regulations by the Secretary of Finance;
b. To issue rulings of the first impression or to reverse, revoke or modify any existing ruling of
Bureau;
c. To compromise or abate, under Sec 204 (A) and (B) of this code, any tax liability; Provided,
however, that assessments issued by the regional offices involving basic deficiency taxes of
P500,000 or less, and minor criminal violations may be compromised by a regional evaluation
board; and
d. To assign or reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept (Sec 7, NIRC).

INCOME TAXATION

9. Discuss the following concepts in Income Taxation

a. Loss Limitation Rule - capital losses are deductible only against capital gains (Sec 39, NIRC as
amended).

b. Tax Benefit Rule - the recovery of bad debts previously allowed as deduction in the preceding
year or years that shall 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 the said deduction. It also pertains to taxes
refunded that were previously claimed as a deduction but when refunded or credited shall be part
of gross income in the year of receipt to the extent of the income tax benefit of said deduction
(Sec. 4, RR No. 05-99) (Sec. 34(C)(1), NIRC as amended).

c. Doctrine of Constructive Receipt of Income - income is received not only when it is actually
handed to a taxpayer but also when it is merely constructively received by him (ING Bank vs. CIR,
G.R. No. 167679, July 22, 2015).

d. Doctrine of Command Control and Ownership/ Claim of Right Doctrine - if a taxpayer

receives money or other property and treats it as his own under the claim of right that the
payments are made absolutely and not contingently, such amounts are included in the taxpayer’s
income, even though the right to the income has not been perfected at that time. It does not
matter that the taxpayer’s title to the property is in dispute and that the property may later be
recovered from the taxpayer (CIR vs. Javier, G.R. No. 78953, July 31, 1991).

e. Doctrine of Involuntary Conversion of Property - refers to an expropriation of a capital asset

by the government where instead of paying the property owner the just compensation under such
involuntary sale, the government will replace the expropriated property with another property. The
transaction is not taxable because the ownership of the new property is deemed a continuation of
the ownership of the old property taken by the government for public use (Herder vs. Helvering, 106
F.2d 153, D.C. Cir. 1939).

10. Distinguish Final Withholding Tax from a Creditable Withholding Tax.

FINAL WITHHOLDING TAX CREDITABLE WITHHOLDING TAX

The amount of income tax withheld by
the withholding agent is constituted as a
full and final payment of the income tax
due from the payee on the said income.
The liability for payment of the tax rests
primarily on the payor as a withholding
agent.
The payee is not required to file an
income tax return for the particular
income (CREBA vs. Romulo, G.R. No. 160756,
March 9, 2010).
Taxes withheld on certain income payments are
intended to equal or at least approximate the tax due of
the payee on said income.
Payee of income is required to report the income and/or
pay the difference between the tax withheld and the tax
due on the income. The payee also has the right to ask
for a refund if the tax withheld is more than the tax due.
The income recipient is still required to file an income
tax return, as prescribed in Sec. 51 & 52 of the NIRC.

11. The CIR denied a claim for refund alleging that an International Tax Affairs Division (ITAD)
ruling must be obtained prior to availing a preferential tax rate prescribed by Revenue
Memorandum Order (RMO) 1-2000. Can the RMO 1-2000 deprive a taxpayer of its right to avail
of preferential tax rates based on tax treaties?

No. The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-
2000. Bearing in mind the rationale of tax treaties, the period of application for the availment of tax
treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it
would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial

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 of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the
administrative issuance would impair the value of the tax treaty (CIR vs. CBK Power Company Ltd., G.R. No.
193383-84, January 14, 2015, J. Perlas-Bernabe).

12. The government of Japan extended a loan to the Philippines for a Power Plant Project. The
National Power Commission contracted Mitsubishi for the construction of said project.
Thereafter, Mitsubishi filed an administrative claim for refund with the CIR, amounting of P52
million, representing erroneously paid taxes. However, the CIR denied said claim, and argues
that pursuant to RMC No. 42-99, Mitsubishi's proper remedy is to recover the subject taxes
from NPC, and not from CIR. Is CIR correct?

No. The law vests upon the CIR the authority to credit or refund taxes which are erroneously collected
by the government. This specific statutory mandate cannot be overridden by adverse interpretations
made through mere administrative issuances, such as RMC No. 42-99 (Mitsubishi Corp. vs. CIR, G.R. No.
175772, June 5, 2017, J. Perlas-Bernabe).

13. What are the requirements for bad debts to be deducted from gross income?

a. There must be an existing indebtedness due to the taxpayer which must be valid and legally
demandable;
b. Connected with the taxpayer’s trade, business or practice of profession;
c. Not entered into with related parties under Sec. 36(B) of NIRC;
d. Actually charged off the books of accounts of the taxpayer as of the end of the taxable year;
and
e. Must be actually ascertained to be worthless and uncollectible as of the end of the taxable
year (RR 05-1999).

14. May the CIR examine returns and determine tax prior to authorization of any government
agency or instrumentality?

No. After a return has been filed as required under the provisions of the Tax Code, the Commissioner
or his duly authorized representative may authorize the examination of any taxpayer and the
assessment of the correct amount of tax, notwithstanding any law requiring the prior authorization of
any government agency or instrumentality: Provided, however, that failure to file a return shall not
prevent the Commissioner from authorizing the examination of any taxpayer (Sec 6(A), NIRC as amended
by TRAIN Law).

15. How will the income of an individual earning purely from self-employment and/or practice of
profession be taxed?

a. Gross sales/receipts do not exceed P3 million shall have the option to be taxed:
i. Graduated rates (Sec. 24(A)(2)(a) of NIRC); OR
ii. An 8% tax on gross sales or receipts (net of returns and cash discounts) and other
non-operating income in excess of two hundred fifty thousand pesos (P250,000) in
lieu of the graduated income tax rates (Sec 24(A), NIRC) and the percentage tax (Sec.
116, NIRC).
b. Exceeds P3M = Graduated Rates plus VAT (Sec 24(A)(2)(a), 105, 108 NIRC)

16. Under the TRAIN Law, how will the income of a mixed-income earner (an individual earning
income both from compensation and from self-employment) be taxed?

a. All Income from Compensation - The graduated income tax rates prescribed under Sec
24(A)(2)(a);
b. All Income from Business or Practice of Profession
i. An 8% tax on gross sales or receipts (net of returns and cash discounts) and other non-
operating income;
ii. If Total GS/GR and Other Non-Operating Income exceeds P3 million – The graduated
income tax rates prescribed under Sec. 24(A)(2)(a), NIRC, based on the taxable income.

17. Are separation benefits considered part of the gross income of affected employees due to
retrenchment, death, sickness or other physical disability subject to income tax?

No, because benefit received for separation for any cause beyond the control of the said official or
employee should not be considered as part of the gross income subject to income tax (Beralde vs.
Lapanday, G.R. No. 205685, June 22, 2015).

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18. Is the cash equivalent of the unused vacation leave of a private employee also subject to
income tax?

No, monetized unused VL up to 10 days for employees of private entities is not subject to income tax,
as a de minimis benefit (RR No. 11-2018).

Note: For government employees, available/unused monetized leave credits is not subject to tax.

19. PPU is a non-stock non-profit educational institution which earns income from tuition fees
and rental income for leasing a portion of its school building to various concessionaires of
foods, books and school supplies. It also constructed a separate building which will serve as
its sports complex wherein it spent 50% of the income derived from its rental income from
concessionaires. Is the income earned by PPU subject to income tax?

No. The income derived by it for being a non-stock non-profit educational institution, regardless of the
source, which were used actually, directly and exclusively for educational purposes shall be exempt
from income tax. However, the income derived by it from unrelated trade, business or activities which
were not used actually, directly and exclusively for educational purposes shall be subject to the
preferential income tax rate of 10% of its taxable income pursuant to Sec. 27(B) NIRC (CIR vs. DLSU,
G.R. No. 196596, November 9, 2016).

20. Distinguish a Non-stock, Non-profit Educational Institution from a Proprietary Educational

Institution.

NON-STOCK, NON-PROFIT, EDUCATIONAL PROPRIETARY EDUCATIONAL

Privilege granted is not subject to limitations
imposed by law since it is constitutionally
granted.
Income is tax exempt provided that the income
it seeks to be exempted from taxation is used
actually, directly and exclusively for educational
purposes
(CIR vs. DLSU, G.R. No. 196596, November 9, 2016).
Tax privilege granted to the latter may be
subject to limitations imposed by law.
10% income tax rate if its gross income from
unrelated trade, business or activity does not
exceed 50% of its total gross income;
otherwise, subject to regular 30% CIT

21. Gawad Tulong, a non-stock, non-profit hospital for charitable purposes, provides medical
services to the poor. However, the hospital also accepts paying patients. None of its income
accrued to any private individual, all were utilized for hospital use, and not more than 30% of
the funds were used for administration purposes. Is the hospital subject to tax on its income?

Yes. The hospital is subject to income tax as to the income derived from paying patients. For a non-
stock non-profit hospital to be completely exempt from income tax, Sec. 30(E) and (G) of the Tax
Code requires that said institution should operate exclusively for charitable or social welfare
purposes. But in case that non-stock non-profit hospital earns income from its for-profit activities, the
subject hospital shall only be subject to income tax insofar as the income derived from its profit
activities, but only at the preferential income tax rate of 10% based on its taxable income, regardless
of the disposition made of such income, pursuant to Sec. 27(B), in relation to the last paragraph of
Sec. 30 of the Tax Code (CIR vs. St. Luke’s Medical Center, G.R. No. 20-3514, February. 13, 2017).

22. What does the term “most of the time” mean for purposes of taxation?

The term “most of the time” means 183 or 184 days in one taxable calendar year as the case may be
(CIR vs. Baier-Nickel, G.R. No. 153793, August 29, 2006).

23. The Republic of the Philippines, as represented by DPWH, filed a complaint before the RTC for
the expropriation of a parcel of land owned by Sps. Salvador. The RTC rendered judgment in
favor of the Republic but directed it to pay Sps. Salvador consequential damages equivalent
to the value of Capital Gains Tax and other taxes necessary for the transfer of the subject
property in the Republic’s name. Is the RTC correct in directing the Republic the payment of
taxes in favor of Sps. Salvador?

No. The transfer of property through expropriation proceedings is a sale or exchange, and profit from
the transaction constitutes capital gain. Since capital gains tax is a tax on passive income, it is the
seller who is liable to shoulder the tax. Thus, as far as the government is concerned, the taxes in
expropriation proceedings remains a liability of the seller, as it is a tax on the seller's gain from the
sale of real property (Republic of the Philippines vs. Spouses Salvador, G.R. No. 205428, June 7, 2017).

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24. What are the tax-free or tax-deferred exchanges?

Tax-free exchanges refer to those instances defined in the NIRC that are not subject to income tax. In
general, there are two (2) kinds:
1) Transfer to a controlled corporation – where no gain/loss is recognized if the property is
transferred to a corporation, if as a result of such exchange said person (alone or together with
others not exceeding 4 persons) gains control of the said corporation; and
2) Merger or consolidation – where no gain/loss is recognized if in pursuance of a plan of merger or
consolidation:
a. A corporation party to a merger/consolidation exchanges property solely for STOCK in a
corporation party to the merger/consolidation (property for stock); or
b. A shareholder exchanges stock in a corporation, which is a party to the merger or
consolidation, solely for the stock of another corporation (stock for stock); or,
c. A security holder of a corporation, which is a party to the merger or consolidation,
exchanges his securities in such corporation, solely for stock or securities in another
corporation, a party to the merger or consolidation (security of stock) (Sec. 40(C)(2) to
40(C)(6), NIRC).

25. A general professional partnership (GPP) is availing the Optional Standard Deductions (OSD)
prior to distributing the net income of its partners. May a partner still avail of the OSD?

No, because the share of the partners in the net income of the GPP, actually or constructively
received by them, shall be reported as the taxable income of each partner and therefore, the partners
comprising the GPP can no longer claim further deductions from their respective distributive share
since the same is already net of cost and expenses. Therefore, the partner is not allowed to claim
either the OSD or the Itemized Deduction for his professional income derived from the GPP (RR 08-
2018).

26. What is Improperly Accumulated Earnings Tax (IAET)?

IAET
As to A penalty to the corporation for the improper accumulation of its earning and as a
Purpose/Rationale form of deterrent to the avoidance of tax upon shareholder who are supposed to
pay dividends tax on the earnings distributed to them by the corporation.
As to Rate and The 10% IAET is imposed in improperly accumulated taxable income earned
Basis starting January 1, 1998 by domestic corporation as defined under the Tax Code
and which are classified as closely-held corporations.
Note: Improperly Accumulated Earnings = these are profits of a corporation that
are accumulated, instead of distributing them to its shareholders, for the purpose
of avoiding the income tax with respect to its shareholders or the shareholders of
another corporation.
As to when it is paid This serves as a penalty upon a corporate taxpayer for accumulating so much net
by the taxpayer income after tax beyond “reasonable needs of the business”
Note: By “immediacy test”, the phrase “reasonable needs of business” = means
the immediate needs of the business, and it was generally held that if the
corporation did not prove an immediate need for the accumulation of the earnings
and profits, the accumulation was not for the reasonable needs of the business,
and the penalty tax would apply.
(Basic Approach to Income Taxation” 6th Edition, Justice Dimaampao)

TRANSFER TAXES

27. Maria’s father died on March 14, 2019 leaving behind a net estate of P3 Million.

a. When should Maria file her father’s estate tax return?

The estate tax return shall be filed within one (1) year from the decedent’s death (Sec. 9.1, RR 12-2018)

b. At what rate should the net estate be taxed?

The estate tax rate shall be at 6% of the net taxable estate (R.A. No. 10963).

c. How much is the estate tax due on her father’s estate?

None. The gross estate of P3 Million will still be reduced by deductions including a standard
deduction of P5 Million as amended by R.A. No. 10963.

d. Should the estate tax return of Maria’s father be supported by a statement duly certified to
by a Certified Public Accountant?
No. Only estate tax returns showing a gross value exceeding P5 million shall be supported with a
statement duly certified to by a Certified Public Accountant (Sec. 9.1, RR 12-2018).

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 e. On March 14, 2020, Maria went to ABC Bank where her father maintained a savings
account. She wanted to withdraw money from the said savings account. Should ABC Bank
allow Maria’s withdrawal transaction?
Yes, provided a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall allow the withdrawal from the said deposit account,
subject to a final withholding tax of six percent (6%) of the amount to be withdrawn (Sec. 97, NIRC).
Note: The withdrawal shall only be made within one year from the date of the decedent’s death. (Sec.
10, RR 12-2018)

f. Maria incurred P1 million as funeral expenses for her father’s wake. How much of this may
be allowed as deduction from her father’s gross estate in the determination of the total estate
tax due?
None. Under the TRAIN Law, the allowable deductions for funeral, judicial, and medical expenses
were removed.

28. How do you determine the value of the shares of stocks listed in the stock exchanges for
estate tax purposes?

Under Par. 5, Sec 5, Rev. Regs. No. 12-2018 dated 25 January 2018, on valuation of gross estate,
for shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean
between the highest and lowest quotation at a date nearest the date of death, if none is available on
the date of death itself.

29. Is the provision for “strangers” in payment of donor’s tax under the old Tax Code still
applicable with the advent of RA 10963?

No, it has been deleted by TRAIN Law. A flat rate of 6% on the excess of P250,000.00 of net gifts
per calendar year shall be applicable (Sec 99, NIRC as amended).

30. What is the rule on political donations or contributions for Donor’s tax purposes?

Any contribution in cash or in kind to any candidate, political party or coalition of parties during the
campaign period are exempt from donor’s tax provided that donations made by Corporations in
violation of Sec 36 of the Corporation Code are subject to Donor’s Tax (RMC 30-2016).

31. X sold an iPhone 11 to Y amounting to PHP 10,000. If X is in the business of trading

cellphones, is the sale to Y subject to donor’s tax?

No. The sale by X to Y was made in the ordinary course of business (a transaction which is bona
fide, at arms’ length, and free from any donative intent), it will be considered as made for an
adequate and full consideration in money or money’s worth (Sec. 100, NIRC as amended by TRAIN Law).

32. Oscar, one of the heirs of Julio, expressly renounced his share to the estate without
identifying any other heir who could take his place in the inheritance. Is the renunciation or
waiver subject to donor’s tax?

No. General renunciation by an heir including the surviving spouse, of his/her share in the hereditary
estate left by the decedent is not subject to donor’s tax, unless specifically and categorically done in
favor of identified heirs to the exclusion or disadvantage of other heirs (Sec 12, RR 2- 2018).

VALUE ADDED TAX

33. Distinguish zero-rated from VAT-exempt transactions.

ZERO-RATED SALES VAT EXEMPT

Sales considered as zero rated are still considered
VATable however at a rate of 0%.
A zero-rated sale is a taxable transaction but does
not result in an output tax.
The input VAT on the purchases of VAT-registered
persons with zero-rated sales may be allowed as
tax credit or refund.
Persons engaged in transactions which are zero-
rated, being subject to VAT, are required to register.
(CIR vs. Cebu Toyo Corporation, G.R. No. 149073, February 16, 2005)
Sales considered as VAT exempt cannot
be subjected to VAT whether 12% or 0%.
Exempted transaction is not subject to
output tax.
Exempt transaction is not entitled to any
output tax on his purchase despite the
issuance of a VAT invoice or receipt.
Registration is optional for VAT-exempt
persons.

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34. What is the source of unutilized input taxes for refund purposes? Who has the right to claim
to refund?

The source of refund for unutilized input taxes are input taxes directly and indirectly attributable to
zero-rated sales. Since the VAT paid by the seller cannot be passed on to its vendee, the right to
claim the refund vest on the seller of zero-rated sales. In addition, excess input VAT upon
cancellation of VAT registration is refundable (Sec. 112, NIRC).

35. Explain briefly the procedure and reglementary periods for claims for refund of unutilized
input taxes attributable to zero-rated transactions?

PROCEDURE DEADLINE PERSON RESPONSIBLE

Filing: Two (2) years from the close of the Taxpayer/Seller of Zero
Administrative Claim taxable quarter where the zero rated sales Rated Sales
were made.
Processing: Commissioner shall grant/deny BIR Commissioner; or
Administrative Claim administrative claim for refund within ninety Authorized Representative
(90) days. Failure on the part of any
official, agent, or employee of the BIR to
act on the application within the 90-day
period shall be punishable under Sec 269
of the Tax Code.
Filing: 30 days after receipt of decision of CIR Taxpayer
Judicial Claim denying the claim.

36. What are the requirements for a VALID claim for VAT Refund attributable to a zero-rated
transaction?

a. The taxpayer is engaged in sales which are zero-rated or effectively zero-rated;

b. The taxpayer is VAT-registered;
c. The claim must be filed within two years after the close of the taxable quarter when such sales
were made;
d. The input taxes are due or paid;
e. The input taxes are not transitional input taxes;
f. The input taxes have not been applied against output taxes during and in the succeeding
quarters;
g. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
h. In certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with BSP rules and regulations;
i. Where there are both zero-rated and effectively zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and entirely attributable to any of these sales, the input
taxes shall be proportionately allocated on the basis of sales volume
(Intel Technology Philippines vs. CIR, G.R. No. 166732, April 27, 2007).

37. Enumerate the additional VAT exempt transactions pursuant to the TRAIN Law.

a. Transfer of property pursuant to Sec 40(C)(2) of the NIRC, as amended;

b. Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations;
c. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning January 1, 2019;
d. Sale of Gold to BSP (Deleted as zero-rated transaction. Now an exempt transaction); and
e. Sale of goods or services, leases which gross annual sales or receipts do not exceed P3 million.

38. When is mandatory VAT registration applicable?

Any person who, in the course of trade or business, sells, barters or exchanges goods or properties,
or engages in the sale or exchange of services, shall be liable to register for VAT if: (a) his gross
sales or receipts for the past twelve (12) months, other than those that are exempt under Sec 109(A)
to (BB), have exceeded P3,000,000); or (b) there are reasonable grounds to believe that his gross
sales or receipts for the next twelve (12) months, other than those that are exempt under Sec 109(A)
to (BB), will exceed 3,000,000 (Sec. 236(G), NIRC as amended by TRAIN Law).

39. What is the VAT rate for the sale of goods, supplies, equipment and fuel to persons engaged
in international shipping or international air transport operations?

The transaction is zero-rated provided that the goods, supplies, equipment and fuel shall be used
exclusively for international shipping or air transport operations (Sec. 106(A)(2)(a)(6) of NIRC as amended by
TRAIN).

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40. When is the deadline for the filing and payment of quarterly VAT returns?

Filing of Quarterly VAT Return is within 25 days following the close of each taxable quarter, however,
payment for VAT-registered persons is on a monthly basis. Beginning January 1, 2023, the filing and
payment shall be done within 25 days after the close of each taxable quarter (Sec. 114(A), NIRC as
amended by TRAIN).

41. John filed an administrative claim for refund for excess input VAT attributable to his export
sale of goods to Japan. The claim for refund was filed on April 10, 2018. On June 10, 2018,
John filed an appeal with the Court of Tax Appeals (CTA) without waiting for the BIR’s
decision on his pending claim for refund. Does the CTA have jurisdiction over John’s appeal?

No. John’s appeal filed with the CTA was premature. Sec. 112(C) of the NIRC, as amended by the
TRAIN Law, provides that the taxpayer has 30 days to appeal to the CTA from receipt of a decision
on his claim for refund. Here, there was no decision yet on his claim for refund. This also cannot be
construed as inaction since the 90-day period, counted from the filing of the administrative claim for
refund, within which to decide has not yet lapsed. This is a violation of Doctrine of Exhaustion of
Administrative Remedies.

42. Is a claimant for unutilized input VAT on zero-rated sales required to present proof that it has
secured an Authority to Print (ATP) from the BIR prior to the printing of its invoices or
receipts?

Yes. Under Sec 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or
effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales
must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way
to verify whether the invoices or receipts are duly registered is by requiring the claimant to present
its ATP from the BIR. Without this proof, the invoices or receipts would have no probative value for
the purpose of refund (Silicon Philippines vs. CIR, G.R. No. 172378, January 17, 2011).

43. On March 29, 2005, CBK Power filed before the Bureau of Internal Revenue (BIR) an
administrative claim for the issuance of a tax credit certificate, representing unutilized input
VAT on its purchase of capital goods, as well as unutilized input VAT on its local purchase of
goods and services other than capital goods, all for the calendar year 2003. Thereafter, on
April 18, 2005, CBK Power filed its judicial claim for tax refund/credit before the CTA. Should
the CTA dismiss the claim for CBK’s failure to observe the mandatory and jurisdictional 120-
day period provided under Sec 112(C) of the NIRC?

No. Reconciling the pronouncements in the Aichi and San Roque cases, the rule must be that during
the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010
(when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period
before it could file a judicial claim for refund of excess input VAT before the CTA. Before and after
the aforementioned period, the observance of the 120-day period is mandatory and jurisdictional to
the filing of such claim. In this case, CBK Power filed its administrative and judicial claims for
issuance of tax credits on March 29, 2005 and April 18, 2005, respectively or during the period when
BIR Ruling No. DA-489-03 was in place, from December 10, 2003 to October 6, 2010. As such, it
need not wait for the expiration of the 120-day period before filing its judicial claim before the CTA,
which was timely filed (CBK Power Company Limited vs. CIR, G.R. No. 198928, December 3, 2014, J. Perlas-Bernabe).

44. On March 29, 2005, CBK Power filed before the Bureau of Internal Revenue (BIR) an
administrative claim for the issuance of a tax credit certificate, representing unutilized input
VAT on its purchase of capital goods, as well as unutilized input VAT on its local purchase of
goods and services other than capital goods, all for the calendar year 2003. Thereafter, on
April 18, 2005, CBK Power filed its judicial claim for tax refund/credit before the CTA. Should
the CTA dismiss the claim for CBK’s failure to observe the mandatory and jurisdictional 120-
day period provided under Sec 112(C) of the NIRC?

No. Reconciling the pronouncements in the Aichi and San Roque cases, the rule must be that during
the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010
(when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period
before it could file a judicial claim for refund of excess input VAT before the CTA. Before and after
the aforementioned period, the observance of the 120-day period is mandatory and jurisdictional to
the filing of such claim. In this case, CBK Power filed its administrative and judicial claims for
issuance of tax credits on March 29, 2005 and April 18, 2005, respectively or during the period when
BIR Ruling No. DA-489-03 was in place, from December 10, 2003 to October 6, 2010. As such, it
need not wait for the expiration of the 120-day period before filing its judicial claim before the CTA,
which was timely filed (CBK Power Company Limited vs. CIR, G.R. No. 198928, December 3, 2014, J. Perlas-
Bernabe).

arellano C|L|E|A|R 9
45. What is Transitional Input Tax?

A person who becomes liable to VAT or any person who elects to be a VAT-registered person
shall, subject to the filing of an inventory, be allowed input tax on his 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 (Sec 111(A), NIRC).

Note: Prior payment of taxes is not necessary before a taxpayer could avail of the transitional
input tax credit, all that is required from the taxpayer is to file a beginning inventory with the BIR.

TAX REMEDIES

46. When is the “Irrevocability Rule” applicable?

No. The irrevocability rule is limited only to the option of carry-over such that a taxpayer is still free to
change its choice after electing a refund of its excess tax credit. However, in case the taxpayer
decides to shift its option to carryover, it may no longer revert to its original choice due to the
irrevocability rule. As Sec. 76 provides, once the option to carry over has been made, it shall be
irrevocable (University Physicians Services, Inc. vs. CIR, G.R. No. 205955, March 7, 2018).

47. May the BIR still collect deficiency taxes from a corporation under rehabilitation where a
suspension order has been issued by the rehabilitation court?

No. Upon the issuance of the Commencement Order, all actions or proceedings, court or otherwise,
for the enforcement of claims against the distressed company shall be suspended. The word “claim”
shall refer to all claims or demands of whatever nature and character against the debtor or its
property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, including but not limited to: (a) all claims of the government,
whether national or local, including taxes, tariffs and customs duties (BIR vs. Lepanto Ceramics, Inc., G.R.
No. 224764, April 24, 2017, J. Perlas-Bernabe).

48. Explain briefly the procedures and time periods applicable in the case of claiming refund of
erroneously or illegally paid taxes or penalties under the Tax Code.

a. Administrative Claim
i. File with the CIR an administrative claim for refund/TCC within two (2) years from the date of
payment of the tax or penalty;
ii. However, the CIR may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid.

b. Judicial Claim
i. After filing an administrative claim, file a judicial claim for refund with the CTA WITHIN the same
2-year period from the date of payment of the tax or penalty regardless of any supervening cause
that may arise after payment. It is only important that the administrative claim should be prior
filed;
ii. But if the administrative claim is denied during the 2-year period, the judicial claim should be filed
within 30 days from the receipt of the CIR’s denial but within the 2-year period from the date of
payment (Section 229, NIRC, CIR vs. Goodyear Philippines, Inc, G.R. No. 216130, August 3, 2016, J. Perlas-Bernabe).

49. What is the difference between Section 112 and Section 229 of the Tax Code, as amended,
which both set for two-year prescriptive period in claiming for refund?

Section 112 A Section 229

Reckoning Reckoned from the close of the taxable quarter when the Reckoned from the date of
Period relevant zero-rated sales or transactions were. payment of the tax or
penalty.
Object Refund of excess creditable input tax. Refund of erroneous
payment or illegal collection
of internal revenue taxes.
Claim Refers only to administrative claim. Includes the judicial claim.
Elevation The claimant can go to the CTA within 30 days from the 30 days after receipt of denial
to the CTA receipt of denial within the 90-day period. or in case of inaction, in both
cases, it must be filed before
the expiration of the 2-year
period from payment.

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50. What is the difference between a Letter of Authority and Letter Notice?

LETTER NOTICE LETTER OF AUTHORITY

Only for the purpose of notifying
the taxpayer that discrepancy is
found based on the BIR's relief.
No such limitation as to validity.
Does not have a period of
examination.
(Medicard vs CIR, G.R. No. 222743, April 5, 2017)
Addressed to a revenue officer is specifically required under
the NIRC before an examination of a taxpayer may be had.
LOA is valid only until the period being audited is prescribed
(3 years if Ordinary Assessment or 10 years if Fraud
Assessment) and have to be issued within 30 days to the
TP to be valid.
LOA gives the revenue officer only a period of 120 days
(Non LT)/ 240 days (LT) from receipt of LOA to conduct his
examination of the taxpayer.

51. Discuss the assessment process and the corresponding reglementary periods from beginning
to end.

a. Issuance of a LOA – issued by the CIR or his duly authorized representative and served to the TP
within 30 days from its issuance;
b. Notice of Informal Conference – TP has 30 days from receipt of the NIC to explain his side;
c. PAN – issued by the BIR after the Informal Conference showing in detail the facts and the law,
rules and regulations, and/or jurisprudence on which the assessment is based;
d. Reply – TP has 15 days to reply, but it is not mandatory;
e. FLD/FAN – issued to a TP stating the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the FAN/FLD shall be void;
f. Protest to the FLD/FAN within 30 days from date of receipt of the FLD/FAN either through a
Request for Reconsideration or a Request for Reinvestigation;
g. Submission of supporting documents - For request for reinvestigation, TP has 60 days from date
of filing the protest to submit his supporting evidence;
h. 180-day waiting period for the CIR to act on the protest;
i. FFDA – shall state facts, the law, rules, and regulations, or jurisprudence on which such decision
is based, otherwise, the decision shall be void, and that the same is his final decision;
j. Appeal to the CTA in Division - should be done within 30 days from receipt of the FDDA;
k. Motion for Reconsideration with the same CTA Division in case of denial – within 15 days from the
receipt of the decision;
l. Appeal to the CTA en banc within 15 days from the receipt of the decision on the MR;
m. Appeal to the SC thru a Petition for Review on Certiorari within 15 days from the receipt of the
decision.

52. What is the effect of a void FDDA on FAN?

The FAN will remain valid even if the FDDA was declared void (e.g. does not state the factual and
legal basis of the decision). A decision of the CIR on a disputed assessment differs from the
assessment itself, hence the invalidity of one does not necessarily resort to the invalidity of the
other, unless the law or regulations otherwise provide. The void FDDA will be tantamount to a
denial or inaction by the CIR, which may still be appealed to the CTA (CIR vs. Liquigaz Philippines
Corporation, G.R. No. 215534, April 18, 2016).

53. What are the period of limitation upon assessment and collection?

PRESCRIPTIVE PERIOD
ASSESSMENT COLLECTION
3 years from filing of return or last day prescribed for 5 years from assessment. (FAN) (Section
filing, whichever comes later. (Section 203 of the NIRC) 222(C) of NIRC)
Tax may be assessed at any time within 10 years Proceeding in court for the collection of
from discovery of falsity, fraud or omission. such tax may be filed without assessment at
any time within 10 years from discovery of
falsity, fraud or omission (Section 222 (A) of
NIRC).

54. Differentiate Tax Deficiency from Tax Delinquency.

TAX DEFICIENCY TAX DELINQUENCY

When the amount imposed by law exceeds When (a) the self-assessed tax is not paid at all or
the amount shown as tax upon taxpayer’s was only partially paid on the prescribed date, or
return. (b) when deficiency tax assessed by the BIR has
become final and executory

arellano C|L|E|A|R 11
 Has to go through the assessment process.
The filing of civil action during the pendency
of protest is a ground for motion to dismiss.
Generally not subject to 25% surcharge,
although subject to interest and compromise
penalty.
Can be immediately collected.
The filing of civil action for collection of taxes is the
proper remedy.
Subject to surcharges and administrative penalties.
(Sec. 248(A)(3), NIRC)

55. What are the significant changes brought about by the revised policies on the execution of
waiver pursuant to RMO No. 14-2016 dated April 4, 2016?

a. It repealed the very strict formal requirements prescribed before; (RMO 20-90 or RDAO 05-01)
b. It is enough that the following conditions are complied with:
i. The waiver is executed before the expiration of the period to assess or to collect taxes;
ii. The waiver is signed by the taxpayer himself, his duly authorized representative, or by any of
the responsible officials for corporations; and
iii. The expiry date of the period agreed upon to assess/collect the tax is indicated.
c. Notarization of the waiver is now optional;
d. To be valid, there are only two dates that need to be present on the waiver, namely:
(1) the date of execution, and
(2) the expiry date of the period the taxpayer waives the statute of limitations.

56. AJP Corp is engaged in the business of importing and exporting all kinds of beverages and
liquors. It purchased from its supplier, RMV Corp., raw alcohol for the manufacture of its
beverages and liquor products. Thus, RMV Corp. imported the raw alcohol, paid excise taxes
and eventually sold the same to AJP Corp. Considering AJP Corp filed with the BIR
applications for tax refund corresponding to excise taxes which RMV Corp. paid but passed to
it as part of the purchase price of the raw alcohol. Does AJP Corp. have legal personality to
institute the claim for refund?

No. The right to claim a refund or be credited with the excise taxes belong to the supplier. The phrase
“any excise tax paid thereon shall be credited or refunded” under Sec. 130 of the Tax Code requires
that the claimant be the same person who paid the excise tax (Diageo Philippines vs. CIR, G.R. No. 183553,
November 12, 2012, Perlas-Bernabe).

57. Who has legal standing to question or seek refund of an indirect tax, and its exception?

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person
on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to
another. This rule does not apply to instances where the law clearly grants the party to which the
economic burden of the tax is shifted an exemption from both direct and indirect taxes. In which case,
the latter must be allowed to claim a tax refund even if it is not considered as the statutory taxpayer
under the law (Philippines Airlines, Inc. vs. CIR, G.R. No. 198759, July 1, 2013, J. Perlas-Bernabe).

58. Distinguish False Return from Fraudulent Return.

False Return implies deviation from the truth, whether intentional or not, while Fraudulent Return
implies intentional or deceitful entry with intent to evade the taxes due (CIR vs. Philippine Daily Inquirer, Inc.,
GR. No. 213943, March 22, 2017).

59. Is injunction available to restrain collection of National Taxes?

No. Injunction is not available to restrain collection of tax. No court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by the
NIRC. As an exception, the CTA can issue an injunction when the following conditions concur:

a. There is an appeal to the CTA;

b. In the opinion of the court, the collection by the government agencies may jeopardize the interest
of the Government and/or the taxpayer; and
c. Taxpayer is willing either to deposit the amount claimed or to file a surety bond for not more than
the double the amount with the Court. (Sec. 218, NIRC and Sec. 11 of R.A. 1125, as amended by R.A. 9282)

60. When can the CIR place the property of the taxpayer under Constructive Distraint?

a. Retiring from any business subject to tax;

b. Intending to leave the Philippines;
c. Intending to remove his property therefrom;
d. Intending to hide or conceal his property; or
e. Intending to perform any act tending to obstruct the proceedings for collecting the tax due or which
may be due from him (Sec. 206, NIRC)

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61. What are the grounds for the compromise of payment of internal revenue taxes?

a. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax
(Sec. 204(A), NIRC)

62. Can estoppel against the taxpayer validate a defective waiver?

No. Estoppel will not validate a defective waiver. However, when the application of estoppel would
promote the administration of the law, prevent injustice and avert the accomplishment of a wrong and
undue advantage, it can validate a defective waiver. (CIR vs. Next Mobile, Inc., G.R. No. 212825, December 7,
2015);

LOCAL AND REAL PROPERTY TAXATION

63. What are the requisites to be entitled to a refund/credit of local taxes?

(a) the taxpayer concerned must file a written claim for refund/credit with the local treasurer; and
(b) the case or proceeding for refund has to be filed within two (2) years from the date of the payment
of the tax, fee, or charge or from the date the taxpayer is entitled to a refund or credit (Metro Manila
Shopping Mecca Corp. vs. Toledo G.R. No. 190818, June 5, 2013, J. Perlas-Bernabe).

64. What are the fundamental principles that govern the exercise of the taxing and other revenue-
raising powers of local government units?

a. Taxation shall be uniform in each LGU;

b. Taxes, fees, charges and other impositions shall:
i. be equitable and based as far as practicable on the taxpayer’s ability to pay;
ii. be levied and collected only for public purposes;
iii. not be unjust, excessive, oppressive, or confiscatory;
iv. not contrary to law, public policy, national economic policy, or in the restraint of trade;
c. The collection of local taxes, fees, charges, and other impositions shall in no case be let to any
private person;
d. The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of,
and be subject to the disposition by, the local government unit levying the tax, fee, charge or other
imposition unless otherwise specifically provided herein; and
e. Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
(Sec. 130 of the LGC)

65. What are the Taxing Powers of Local Government Units?

Provinces Cities Municipalities Barangays

Local Transfer  
Business Tax on Printing and  
Publication
Franchise Tax  
Tax on Sand, Gravel and Other  
Quarry Resources
Professional Tax  
Amusement Tax  
Annual Fixed Tax on Delivery  
Trucks
Business Tax 
Fees and Charges 
Fees for Sealing and Licensing 
of Weights
Fees for Fishery Rentals, Fees 
and Charges
Business Tax on retailers 
Service Fees or Charges 
Barangay Clearance 
Other Fees and Charges 
Common Revenue Raising    
Powers
Community Tax 
Other Fees, Taxes and Charges    

arellano C|L|E|A|R 13
66. Elektra is an electric cooperative engaged in the business of electric power distribution to
various consumers within Iriga City and Municipalities in Rinconada area. The City of Iriga
assessed Elektra on franchise taxes. Elektra claims that it is exempt from payment because of
its nature as a non-profit cooperative. It also contends that, assuming it is liable for franchise
tax, its liability should be limited to gross receipts from supply of electricity within the City of
Iriga and not those from Rinconada area.

a. What is a franchise tax?

A franchise tax is a tax on the privilege of transacting business in the state and exercising corporate
franchises granted by the state. It is not levied on the corporation simply for existing as a corporation,
upon its property or its income, but on its exercise of the rights or privileges granted to it by the
government. Thus, to be liable for local franchise tax, the following requisites should concur: (1) that
one has a “franchise” in the sense of a secondary or special franchise; and (2) that it is exercising its
rights or privileges under this franchise within the territory of the pertinent local government unit.

b. Should it be limited to gross receipts within Iriga City?

No. As Sec. 137 of the LGC provides, franchise tax shall be based on gross receipts precisely
because it is a tax on business, rather than on persons or property. Since it partakes of the nature of
an excise tax, the situs of taxation is the place where the privilege is exercised, in this case in the City
of Iriga, where Elektra has its principal office from where it operates, regardless of the place where its
services or products are delivered. Hence, franchise tax covers all gross receipts from Iriga City and
the Rinconada area (City of Iriga vs. Casureco III, G.R. No. 192945, September 5, 2012, J. Perlas-Bernabe).

67. What are the fundamental principles in relation to the appraisal, assessment, levy and
collection of Real Property Taxes?

a. Real property shall be appraised at its current and fair market value;
b. Real property shall be classified for assessment purposes on the basis of its actual use;
c. Real property shall be assessed on the basis of a uniform classification within each local
government unit;
d. The appraisal, assessment, levy and collection of real property tax shall not be let to any
private person; and
e. The appraisal and assessment of real property shall be equitable (Sec. 198 of the LGC).

68. A University, a non-stock non-profit educational institution, leases a portion of its school
building to a bookstore or cafeteria but it caters only to university students, faculty and staff.
May the leased portion of the building be subject to real property tax?

Yes. The lease of a portion of a school building for commercial purposes, removes such asset from
the property tax exemption granted under the Constitution. There is no exemption because the asset
is not used actually, directly and exclusively for educational purposes. The commercial use of the
property is also not incidental to and reasonably necessary for the accomplishment of the main
purpose of a university, which is to educate its students (CIR vs. De La Salle University, G.R. No. 196596,
November 9, 2016).

69. A non-stock, non-profit hospital was organized for charitable purposes which provide medical
services to the poor. However, the hospital also accepted paying patients although none of its
income accrued to any private individual and all income plowed back to the hospital use and
not more than 30% of the funds were used for administration purposes. Is it subject to the real
property tax?

No. For real property taxes purposes, the incidental generation of income is permissible because the
test of exemption is the use of property. Art. VI, Sec. 28(3) of the Constitution provides that 'charitable
institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from taxation.' The test requires that the
institution use the property in a certain way, i.e., in this case, for a charitable purpose
(CIR vs. St. Luke’s Medical Center, G.R. No. 20-3514, February 13, 2017).

70. Lung Center of the Philippines, a non-stock and non-profit entity, is the registered owner of a
parcel of land, located in Quezon City, where its hospital is located. A portion of its land is
being leased for commercial purposes to a private enterprise. Is Lung Center totally exempt
from Real Property Tax?

No. In order to be entitled to the exemption, it must prove that: (a) it is a charitable institution; and (b)
its real properties are actually, directly and exclusively used for charitable purposes. If real property is
used for one or more commercial purposes, it is not exclusively used for the exempted purposes but

arellano C|L|E|A|R 14
 is subject to taxation. Hence, portions of the land leased for commercial purposes is subject to real
property taxation, while the portions of the land occupied by the hospital and portions of the hospital
used for its patients, whether paying or non-paying, are exempt from real property taxes
(Lung Center of the Philippines vs. Quezon City, G.R. NO. 144104, June 29, 2004).

71. Explain the Situs Rule on Local Business Taxation.

A. Sales made by branches or sales outlets

a. Sales shall be recorded in the branch or sales outlet making the sale.
b. Taxes accrue and shall be paid in the city or municipality where the said branch or sales
outlet is located.

B. Sales made by head or principal office

a. 30% - city or municipality where the principal office is located

b. 70% - city or municipality where the factory, project office, plant or plantation is located.

In case of a plantation located at a place other than the place where the factory is located, the
70% shall be divided as follows:

a. 60% - city or municipality where the factory is located (if there are two or more factories, 60%
is divided pro-rata based on volume of production)
b. 40% - city or municipality where the plantation is located (if there are two or more plantations,
40% is divided pro-rata based on volume of production) (Sec. 150, LG Code)

72. Differentiate between the taxpayer’s remedies for the assessment of local business tax and
real property tax.

Local Business Tax Real Property Tax

Within 60 days from assessment protest with local
treasurer (has 60 days to act on protest)
Within 30 days from receipt of denial of protest or
60 days inaction, appeal to regular courts
File petition for review within 30 days to CTA
Within 30 days from payment under protest, filed
protest the local treasurer (has 60 days to decide
the protest).
Within 30 days from receipt of decision or 60 days’
inaction, appeal to LBAA (has 120 days to decide
on the appeal)

Within 30 days, appeal to CBAA upon LBAA denial

Appeal to CTA en banc within 30 days upon CBAA

denial.

73. Are condominium corporations liable to pay business taxes?

No. They are exempt from local business taxation under the LGC, regardless of any local
ordinance that seeks declare otherwise because none of its stated corporate purposes are
geared towards maintaining a livelihood (Yamane vs. BA Lepanto Condominium, G.R. No. 154993, October 25,
2005).

74. When is the only time that payment is required before protest?

Only in the instance of real property tax (Sec. 252, Local Government Code).

75. Is there any exception on the requirement of payment under protest for real property tax?

In case of an illegal assessment, the taxpayer may directly resort to judicial action without paying
under protest the assessed tax and filing an appeal with the LBAA and CBAA. (City Of Lapu-Lapu, v.
PEZA, GR. No. 184203, J. Leonen Nov. 26, 2014)

arellano C|L|E|A|R 15
 COURT OF TAX APPEALS

76. State cases falling under the original jurisdiction of the Court of Tax Appeals in Divisions in
Civil Cases.

a) Decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters arising under the NIRC or
other laws administered by the BIR;
b) Inaction by the CIR in cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relations thereto, or other matters arising under the NIRC or
other laws administered by the BIR, where the NIRC provides a specific period of action, in which
case the inaction shall be deemed a denial;
c) Decisions, orders or resolutions of the RTCs in local tax cases originally decided or resolved by
them in the exercise of their original or appellate jurisdiction;
d) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or
other money charges, seizure, detention or release of property affected, fines, forfeitures or other
penalties in relation thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
e) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals;
f) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review
from decisions of the Commissioner of Customs which are adverse to the Government under
Section 2315 of the Tariff and Customs Code;
g) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No.
8800, where either party may appeal the decision to impose or not to impose said duties; and
h) Exclusive original jurisdiction in tax collection cases involving final and executory assessments for
taxes, fees, charges and penalties: Provided, however, that collection cases where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million
pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court
and Regional Trial Court. (Republic Act No. 9282)

77. State the cases falling under the Original Jurisdiction of the CTA Divisions in Criminal Cases.

The CTA has exclusive original jurisdiction over all criminal offenses arising from violations of the
NIRC or Tariff and Customs Code and other laws administered by the BIR or the Bureau of
Customs. However, where the principal amount of taxes and fees, exclusive of charges and
penalties claimed is less than One million pesos (P1,000,000.00) or where there is no specified
amount claimed, the case shall be tried by the regular courts and the jurisdiction of the CTA shall be
appellate. (Republic Act No. 9282)

78. The Bureau of Customs filed a complaint with the RTC against Mitsubishi Motors Corp.
alleging that the latter used tax credit certificates with fake commercial and bank documents
to comply with its various customs duties and taxes. The RTC dismissed the case because
BOC had not shown any proof or substantial evidence of fraud or conspiracy on the part of
Mitsubishi. BOC appealed before the Court of Appeals (CA). While the CA admitted that it had
no jurisdiction to take cognizance of the appeal, it referred the records of the collection case
to the CTA for its proper disposition. Is the action of the CA proper?

No. The CA has no jurisdiction over the appeal made by BOC, hence it cannot perform any action on
the same except to order its dismissal. When a court has no jurisdiction over the subject matter, the
only power it has is to dismiss the action (Mitsubishi Motors Philippines Corp. vs. Bureau of Customs, G.R. No.
209830, June 17, 2015, J. Perlas-Bernabe)

79. Petshell imports alkylate as a raw material for the manufacture of motor gasoline. The CIR
issued a letter interpreting Sec. 148(e) of NIRC and opining that “alkylate”, a product of
distillation similar to naphtha, is subject to tax. In the implementation thereof, the
Commissioner of Customs (COC) issued CMC No. 164-2012 wherein alkylate was subjected to
excise tax. Thereafter, the Collector of Customs assessed excise tax on Petshell’s importation
of alkylate. Petshell filed a Petition for Review before the CTA, contesting the allegedly
erroneous classification of alkylate and the resultant imposition of excise tax arising from the
CIR's interpretation of Sec. 148(e) of the NIRC. Was the case properly brought to the CTA?

Yes. Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes, appeals
from the decisions of quasi-judicial agencies (Commissioner of Internal Revenue, Commissioner of

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 Customs, Secretary of Finance, Central Board of Assessment Appeals, Secretary of Trade and
Industry) on tax-related problems must be brought exclusively to the CTA. The determination of the
validity of the issuances of the BIR clearly falls within the exclusive appellate jurisdiction of the CTA
under Section 7(l) of R.A. No. 1125, as amended, subject to prior review by the Secretary of
Finance, as required under R.A. No. 8424 (CIR vs. CTA and Petron Corporation, G.R. No. 207843, February 14,
2018, J. Perlas-Bernabe).

80. Romina filed before the RTC a Complaint for Annulment of Warrant of Levy and Public Auction
Sale against the Office of the City Treasurer of Quezon City. She alleged that her lot was sold
by the City Officers of Quezon City at a public auction without prior notice to her of the levy
and auction sale proceedings. The RTC dismissed the complaint. Romina appealed to the
Court of Appeals. Should the case be instead appealed to the Court of Tax Appeals?

No. The CTA’s appellate jurisdiction over decisions, orders, or resolutions of the RTCs becomes
operative only when the RTC has ruled on a local tax case. In this case however, the action is not
anchored on a tax issue, but on due process considerations. The Annulment Complaint’s allegations
do not contest the tax assessment on the property, as Romina only bewails the alleged lack of due
process which deprived her of the opportunity to participate in the delinquency sale proceedings. As
such, the RTC’s ruling thereon could not be characterized as a local tax case over which the CTA
could have properly assumed jurisdiction on appeal (Ignacio vs. Office of the City Treasurer of Quezon City, G.R.
No. 221620, September 11, 2017, J. Perlas-Bernabe).

81. Can the CTA require the posting of surety bond as a condition for the suspension of the
deficiency tax collection without conducting a hearing?

No. The posting of a surety bond as a condition for the suspension of the deficiency tax is a matter
which is evidentiary in nature, the resolution of which can only be made after a full blown trial. It
behooved upon the CTA to properly determine, at least preliminarily, whether the CIR, in its
assessment of the tax liability of the taxpayer and its effort of collecting the same, complied with the
law and the pertinent issuances of the BIR itself. The CTA should have conducted a preliminary
hearing and received evidence so it could have properly determined whether the requirement of
providing the required security under Section 11, R.A. No. 1125 could be reduced or dispensed with
pendente lite (Tridharma Marketing Corp. vs. CTA, G.R. No. 215950, June 20, 2016).

82. Which tribunal has jurisdiction over a disputed assessment made by the BIR upon another
government entity?

Under PD 242, all disputes and claims solely between government entities and offices, including
GOCCs shall be administratively settled or adjudicated by the Secretary of Justice, the Solicitor
General or the Government Corporate Counsel depending on the issues and government agencies
involved (PSALM vs. CIR, G.R No. 198146, August 8, 2017).

HAIL TO THE CHIEFS!!!

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