LAST MINUTE TIPS

Taxation Law
Supervised by: Atty. Shirley Tuazon

Lasallian Commission on Bar Operations 2021

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BASIC PRINCIPLES
Inherent Limitations
a. Public Purpose
b. Inherently Legislative
c. Territoriality or Situs of Taxation
d. International Comity
e. Exemption of Government Entities, Agencies and
Instrumentalities
Due process in tax statutes
Due process may be invoked where the taxing statute:
a. Is so arbitrary to amount to the confiscation of
property
b. Is beyond the jurisdiction of the state
c. Is not for a public purpose
d. In the case of a retroactive statute, is so harsh
and unreasonable (Sison v. Ancheta, G.R. No.
59431, July 25, 1984)
Equal protection in tax statutes
The applicable standard to avoid the charge that there is
a denial of constitutional mandate of equal protection is to
demonstrate that the governmental act assailed, far from
being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices
then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue preference
cannot be allowed. (Sison v. Ancheta, G.R. No. 59431,
July 25, 1984)
In our jurisdiction, the standard and analysis of equal
protection challenges in the main have followed the
rational basis test, coupled with a deferential attitude to
legislative classifications and a reluctance to invalidate a
law unless there is a showing of a clear and unequivocal
breach of the Constitution. Under this test, a legislative
classification, to survive an equal protection challenge,
must be shown to rationally further a legitimate state
interest. The classifications must be reasonable and rest
upon some ground of difference having a fair and
substantial relation to the object of the legislation. (British
American Tobacco v. Camacho, G.R. No. 163583, August
20, 2008 and April 15, 2009)
A legislative classification that is reasonable does not
offend the constitutional guaranty of the equal protection
of the laws. The classification is considered valid and
reasonable provided that:
A. It rests on substantial distinctions;
B. It is germane to the purpose of the law;
C. It applies, all things being equal, to both present
and future conditions; and
D. It applies equally to all those belonging to the
same class.
Uniformity in tax statutes
Uniformity is met when the tax operates with the same
force and effect in every place where the subject may be
found. It does not signify an intrinsic but simply a
geographical uniformity. A levy of tax is not
unconstitutional because it is not intrinsically equal and
uniform in its operation. The uniformity rule does not
prohibit classification for purposes of taxation.
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities.
Tax exemptions under the Constitution
Art. VI, Sec. 28, par. 3
Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non- profit
cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively [A-D-E] used for
religious, charitable, or educational purposes shall be
exempt from taxation.
Note: Tax exemption covers property taxes only. The test
of exemption is USE.
Art. XIV, Sec. 4[3]
All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively [A-D-E] for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided
by law.
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such
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exemptions subject to the limitations provided by law

including restrictions on dividends and provisions for
reinvestment.
o Covers all internal revenue taxes, customs
duties, and other taxes imposed by either or both
national government or local government
o Covers all revenues and assets of non-stock,
non-profit educational institutions actually,
directly, and exclusively used for educational
purposes
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INCOME TAX
Itemized deduction vs. optional standard deduction
Itemized deductions are the allowable deductions under
Section 34 (A) to (J) of the Tax Code and which are
available to all kinds of taxpayers engaged in trade or
business or practice of profession, such as: ordinary and
necessary trade, business, or professional expenses;
interest; taxes; losses; bad debts; depreciation; depletion;
charitable contributions; and contributions to pension
trusts.
Optional standard deduction is provided under Section
34(L), Tax Code and is available only to individual
taxpayers deriving business, professional or other income
and subject to tax under Section 24 (except NRA) and to
corporations subject to tax under Section 27(A) and
28(A)(1). In lieu of the itemized deductions allowed, an
individual subject to income tax, other than on with pure
compensation income and a non-resident alien, may elect
a standard deduction in an amount not exceeding 40% of
his gross sales or receipts, as the case may be.
Domestic corporations and resident foreign corporations
may also elect a standard deduction in an amount not
exceeding 40% of gross income.
All-events Test
For a taxpayer using the accrual method, the
determinative question is, when do the facts present
themselves in such a manner that the taxpayer must
recognize income or expense? The accrual of income and
expense is permitted when the all-events test has been
met.
This test requires:
o Fixing of a right to income or liability to pay; and
o The availability of the reasonable accurate
determination of such income or liability
Claim of right doctrine
If the taxpayer receives earnings under a claim of right
and without restriction as to its disposition, such earnings
are considered income.
A taxable gain is conditioned on the presence of a claim
of right to the alleged gain and the absence of a definite
unconditional obligation to return or repay that which
would otherwise constitute gain. If a taxpayer receives
money or other property and treats it as its 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.
Non-stock Non-profit Educational Institution
In the case of CIR v. St. Luke’s Medical Center Inc., the
Supreme Court differentiated the income tax liability
under Sec. 27(B) and the tax exemption under Sec. 30 (E)
and (G). “Non-profit" does not necessarily mean
"charitable”.
For the charitable institution to be exempt under Sec. 30,
it must have the following:
a. It is organized as a non-stock, non-profit
corporation;
b. It is purposely organized as an educational
institution;
c. It is registered or recognized by the DepEd,
CHED, or TESDA; and
d. It has no net earnings or assets inuring to the
benefit of any member, organizer, officer or any
specific person.
Taxability of Non-stock, Non-profit Educational
Institution
1. Used Actually, Directly and Exclusively for
Educational Purposes
The exemption of non-stock, non-profit
educational institutions refers to internal
revenues taxes imposed by the National
Government on all revenues and assets used
actually, directly and exclusively for educational
purposes.
The revenues derived from assets used in the
operation of cafeterias, canteens and bookstores
are exempt from taxation provided they are
owned and operated by the educational institution
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as ancillary activities and the same are located
within the school premises.
2. Unrelated Income of Non-Stock, Non-Profit
Educational Institutions
Non-stock, non-profit educational institutions
shall be subject to internal revenue taxes on
income from trade, business or other activity, the
conduct of which is not related to the exercise or
performance by such educational institutions of
their educational purposes or functions i.e., rental
income from their building/premises.
Article XIV, Section 4(3) of the 1987 Constitution
provides that the assets of a non-stock, non-profit
educational institution shall be exempt from taxes and
duties only if the same are used actually, directly, and
exclusively for educational purposes. The test of
exemption from taxation is the use of the property for
purposes mentioned in the Constitution. The leased
portion of the building may be subject to real property tax
since such lease is for commercial purposes, thereby, it
removes the asset from the property tax exemption
granted under the Constitution. (CIR v. De La Salle
University, Inc., G.R. Nos. 196596, 198841, 198941,
November 9, 2016)
Prizes and Awards in Sports Competition
Prizes or awards to athletes in national and international
sports competition held in the Philippines or abroad and
governed by recognized sports associations are tax
exempt.
Note: Only the prizes and awards given to athletes
participating in national and local sports competition
sanctioned by the national sports association will be
excluded from gross income
Retirement Benefit Plan
This section contemplates two retirement benefits:
a. Retirement benefits under R.A. No. 7641
b. Retirement benefits under R.A. No. 4917
Retirement Benefit under R.A. No. 7641
Pertains to retirement benefits received by an employee
from a private firm without a retirement plan. To be
excluded, the following requirements must be present:
a. The employee is at least sixty (60) years or but
not more than sixty-five (65) years old; and
b. The employee must have served the company for
at least five (5) years.
Retirement Benefit under R.A. No. 4917
Refers to a retirement benefit received from private firms
with a reasonable private retirement plan.
‘Reasonable private benefit plan’ means a pension,
gratuity, stock bonus or profit-sharing plan maintained by
an employer for the benefit of some or all of his officials or
employees, wherein contributions are made by such
employer for the officials or employees, or both, for the
purpose of distributing to such officials and employees the
earnings and principal of the fund thus accumulated, and
wherein it is provided in said plan that at no time shall any
part of the corpus or income of the fund be used for, or be
diverted to, any purpose other than for the exclusive
benefit of the said officials and employees.
To avail of the exemption, the following requirements
must be present:
a. The plan must be reasonable;
b. The retiring official or employee must have been
in the service of the same employer for at least
ten (10) years;
c. The retiring official or employee is not less than
fifty (5) years of age at the time of retirement; and
d. The retiring official or employee shall not have
previously availed of the privilege under a
retirement benefit plan of the same or another
employer. [Sec. 1, RR No. 1-68]
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DONOR’S TAX
Campaign Contributions - governed by the Omnibus
Election Code
Under the Omnibus Election Code, contributions in cash
or in kind to any candidates, political parties, or party-list
groups are exempt from the imposition of Donor’s Tax.
Only those donations or contributions that have been
utilized/spent during the campaign period as set by the
Comelec are exempt from donor’s tax. Donations
utilized before or after the campaign period are subject to
donor’s tax and not deductible as political contribution on
the part of the donor.
Note: Election period is different from Campaign period
Transfers of property for insufficient consideration
Under Section 100, Tax Code, where property [other than
real property that has been subjected to the capital gains
tax under Section 24(D), Tax Code] is transferred for less
than an adequate and full consideration in money or
money’s worth, then the amount by which the fair market
value of the property exceeded the value of the agreed or
actual consideration or selling price shall be deemed a gift
(an indirect or presumed gift), and shall be included in
computing the amount of gifts made during the calendar
year.
However, a sale, exchange, or other transfer of property
made in the ordinary course of business (a transaction
which is bona fide, at arm’s length, and free from any
donative intent), will be considered as made for an
adequate and full consideration in money or money’s
worth [Added by TRAIN Law]. It is possible that property
may be sold for less than adequate consideration for a
bona fide business purpose as where the owner the
owner was compelled to sell the property even at a price
less than its market value to minimize his losses. In such
event, where from the facts there is no showing of
donative intent, dealings done in the “ordinary course of
business” remain as “arm’s length” transactions not
subject to donor’s tax.
VALUE ADDED TAX
Cross-border doctrine/destination principle
The Philippines’ VAT law adheres to the Cross- Border
Doctrine or the Destination Principle. The onus of taxation
under our VAT system is in the country where the goods,
property or services are destined, used, or consumed. For
this reason, no VAT shall form part of the cost component
of products which are destined for consumption outside of
the territorial border of the Philippines.
Conversely, those destined for use or consumption within
the Philippines shall be subject to the 12% VAT. Goods
and services are taxed only in the country where they are
consumed. Thus, exports are zero-rated, while imports
are taxed.
Zero-rated vs. effectively zero-rated sales
Although both are taxable and similar in effect, zero-rated
transactions differ from effectively zero-rated transactions
as to their source. Zero- rated transactions generally refer
to the export sale of goods and supply of services. The
tax rate is set at zero. When applied to the tax base, such
rate obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no
output tax but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions refer to the sale of
goods or supply of services to persons or entities whose
exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects
such transactions to a zero rate. As applied to the tax
base, such rate does not yield any tax chargeable against
the purchaser. The seller who charges zero output tax on
such transactions can also claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
Summary of Rules on Prescriptive Periods for
Claiming Refund or Credit of Input VAT
Two-year Prescriptive Period
• It is only the administrative claim that must be
filed within the two-year prescriptive period (Aichi)
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• The proper reckoning date for the two-year

prescriptive period is the close of the taxable
quarter when the relevant sales were made
(Mirant, San Roque)
• The only other rule is the Atlas ruling, which
applied only from June 8, 2007 to September 12,
2008
• Atlas states that the two-year prescriptive period
for filing a claim for tax refund or credit of
unutilized input VAT payments should be counted
from the date of filing of the VAT return and
payment of the tax (San Roque)

90+30 Day Period

• The taxpayer can file an appeal in one of two
ways:
o File the judicial claim within 30 days after
the CIR denies the claim within the 90-
day period, or
o File the judicial claim within 30 days from
the expiration of the 90-day period if the
CIR does not act within the 90-day period
• 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 to appeal is
both mandatory and jurisdictional (Aichi and San
Roque)
• An exception to the general rule, premature filing
is allowed only if filed between December 10,
2003 and October 5, 2010, when BIR Ruling No.
DA-489-03 was still in force
• Late filing is absolutely prohibited, even during
the time when BIR Ruling No. DA-489- 03 was in
force (San Roque)
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REMEDIES
Power of the CIR to Interpret Tax Laws and Decide
Tax Cases
The CIR shall have the exclusive and original jurisdiction
to interpret the provisions of the Tax Code and other tax
laws, subject to the review by the Secretary of Finance.
This involves the exercise of quasi-legislative power.
The CIR also has the power to decide disputed
assessments, refunds of internal revenue taxes, fees, or
other charges, penalties imposed in relation thereto, or
other matters arising under the Tax Code or other laws or
portions thereof administered by the BIR, subject to the
exclusive appellate jurisdiction of the CTA. This involves
the exercise of quasi-judicial powers.
Requisites of a valid tax assessment
a. It contains a computation of the tax liabilities,
including interest, surcharge, and other charges
b. The assessment should contain the factual and legal
basis of the deficiency tax assessment
c. It should contain a demand to pay within a stated time
d. It is sent to the taxpayer within the prescribed period
Prescriptive Period – 2 material dates
o When was the return filed
o When was FAN/FLD issued
Period to Assess Internal Revenue Taxes (Sec. 203,
NIRC)
General rule – Internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law
for the filing of the return.
In a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be
counted from the day the return was filed. For purposes
of this Section, a return filed before the last day prescribed
by law for the filing thereof shall be considered as filed on
such last day.
Thus, the three-year period is reckoned from the last day
prescribed by law for the filing of the return, or, the actual
day the return was filed, whichever is later.
Exceptions:
a. Allegations of Fraud wherein the tax may be
assessed, or a proceeding in court for the
collection of such tax may be filed without
assessment, at any time within ten (10) years
after the discovery of the falsity, fraud or
omission.
b. Waiver of the Statute of Limitations (Sec. 222 B,
NIRC)
Requisites of a Valid Waiver
The waiver may be, but not necessarily, in the form
prescribed by RMO No. 20-90 or RDAO No. 05-01, for as
long as the following are complied with:
i. The Waiver of the Statute of Limitations shall be
executed before the expiration of the period to
assess or to collect taxes. The date of execution
shall be specifically indicated in the waiver;
ii. The waiver shall be signed by the taxpayer himself
or his duly authorized representative. In the case of
a corporation, the waiver must be signed by any of
its responsible officials;
iii. The expiry date of the period agreed upon to
assess/collect the tax after the regular three-year
period of prescription should be indicated.
Only these two (2) material dates need to be present
on the waiver:
a. The date of execution of the waiver by the taxpayer or
its authorized representative; and
b. The expiry date of the period the taxpayer waives the
statute of limitations.
Notice of Discrepancy, Preliminary Assessment
Notice, Formal Letter of Demand/Final Assessment
Notice, and Final Decision on Disputed Assessment
Notice of Discrepancy (NOD, formerly, Notice of
Informal Conference) – The NOD is the notice that is
sent to the taxpayer after the BIR has completed the
examination of the books of account of the taxpayer and
the BIR finds the latter liable for tax. The NOD, which
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contains the findings of discrepancies, aims to fully afford
the taxpayer with an opportunity to present and explain
his side on the discrepancies found.
Based on the initial report of investigation, the taxpayer
shall be informed, in writing, of the discrepancy or
discrepancies in the taxpayer's payment of his internal
revenue taxes, for the purpose of the "Discussion of
Discrepancy," which shall in no case extend beyond 30
days from receipt of the NOD.
Preliminary Assessment Notice (PAN) – If after review
and evaluation by the CIR or his duly authorized
representative (DAR), it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency
tax or taxes, it shall issue to the taxpayer a PAN for the
proposed assessment. The PAN shall show in detail the
facts and the law, rules and regulations, or jurisprudence
on which the proposed assessment is based. If the
taxpayer fails to respond within 15 days from date of
receipt of the PAN, he shall be considered in default, in
which case, a Formal Letter of Demand and Final
Assessment Notice shall be issued calling for payment of
the taxpayer’s deficiency tax liability, inclusive of the
applicable penalties.
Formal Letter of Demand and Final Assessment
Notice (FLD/FAN) – If upon review of the taxpayer’s reply
to the PAN, or upon the taxpayer’s failure to file such
reply, the CIR or his duly authorized representative
determines that there exists sufficient basis to assess the
taxpayer for any deficiency tax or taxes, it shall issue to
the taxpayer FLD/FAN which shall show in detail the facts
and the law, rules and regulations, or jurisprudence on
which the proposed assessment is based.
Period to reply to the PAN
The taxpayer, within fifteen (15) days from date of receipt
of the PAN, responds that he/it disagrees with the findings
of deficiency tax or taxes, an FLD/FAN shall be issued
within fifteen (15) days from filing/submission of the
taxpayer's response, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable
penalties.
Effect of failure to respond to the PAN
If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the PAN, he shall be considered in
default, in which case, a Formal Letter of Demand and
Final Assessment Notice (FLD/FAN) shall be issued
calling for payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties.
Note: The 15-day period to reply from the receipt of the
PAN is MANDATORY. However, the filing of the reply
itself is optional. Thus, the BIR cannot issue the FAN/FLD
before the expiration of the 15-day period to reply. A
FAN/FLD issued before the expiration of the 15-day
period would be a void FAN/FLD.
Protest to the FLD/FAN (Sec. 3.1.1, RR No. 13-18)
The taxpayer or its authorized representative or tax agent
may protest administratively against the aforesaid
FLD/FAN within thirty (30) days from date of receipt
thereof. The taxpayer protesting an assessment may file
a written request for reconsideration or reinvestigation
defined as follows:
a. Request for reconsideration – refers to a plea of re-
evaluation of an assessment on the basis of existing
records without need of additional evidence. It may
involve both a question of fact or of law or both.
b. Request for reinvestigation — refers to a plea of re-
evaluation of an assessment on the basis of newly
discovered or additional evidence that a taxpayer
intends to present in the reinvestigation. It may also
involve a question of fact or of law or both.
For requests for reinvestigation, the taxpayer shall
submit all relevant supporting documents in support of his
protest within sixty (60) days from date of filing of his letter
of protest, otherwise, the assessment shall become final.
Final Decision on a Disputed Assessment (FDDA) —
The decision of the CIR or his duly authorized
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representative which shall state the (i) facts, the receipt of a copy of such decision, these options
applicable law, rules and regulations, or jurisprudence on are mutually exclusive and resort to one bars the
which such decision is based, otherwise, the decision application of the other.” (Lascona Land Co., Inc.
shall be void. v. CIR, G.R. No. 171251, March 5, 2012)

Informer’s Reward
A void FDDA does not ipso facto render the assessment
Any person who voluntarily gives definite and sworn
void. The assessment remains valid notwithstanding the
information, not yet in the possession of the BIR, leading
nullity of the FDDA because the assessment itself differs
to the discovery of fraud upon the internal revenue laws
from a decision on the disputed assessment. An FDDA
or violations of any of the provisions therefor, thereby
that does not inform the taxpayer in writing of the facts
resulting in the recovery of revenues, surcharges, and
and law on which it is based renders the decision void.
fees and/or the conviction of the guilty party and/or the
Therefore, it is as if there was no decision rendered by the
imposition of any fine or penalty shall be rewarded with
CIR. It is tantamount to a denial by inaction by the CIR,
10% of the revenues, surcharges, or fees recovered
which may still be appealed before the CTA and the
and/or fine or penalty imposed and collected or P1 Million
assessment evaluated on the basis of the available
per case, whichever is lower.
evidence and documents.
Anti-injunction rule
Options available to a protesting taxpayer
No court shall have the authority to grant an injunction to
1. If the protest is wholly or partially denied by the
restrain the collection of any national internal revenue tax,
CIR or his authorized representative, then the
taxpayer may appeal to the CTA within 30 days fee or charge imposed by the Tax Code.
from receipt of the whole or partial denial of the
protest. No appeal taken to the CTA from the decision of the CIR
shall suspend the payment, levy, distraint, and/or sale of
2. If the protest is wholly or partially denied by the any property of the taxpayer for the satisfaction of his tax
CIR's authorized representative, then the liability.
taxpayer may appeal to the CIR within 30 days
from receipt of the whole or partial denial of the
protest. Exception: When in the opinion of the Court the collection
may jeopardize the interest of the Government and/or the
3. If the CIR or his authorized representative failed taxpayer, the Court may suspend the collection either to
to act upon the protest within 180 days from deposit the amount claimed or to file a surety bond for not
submission of the required supporting more than double the amount with the Court
documents, then the taxpayer may appeal to the
CTA within 30 days from the lapse of the 180-day
period.

Inaction of the CIR on the protested assessment:

Remedies of the Taxpayer
The taxpayer has two options, either:
a. File a petition for review with the CTA within 30
days after the expiration of the 180-day period; or
b. Await the final decision of the Commissioner on
the disputed assessment and appeal such final
decision to the CTA within 30 days after the
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REFUND

Recovery of erroneously or Claim for refunds or tax credits of input tax

illegally collected taxes

Governing law Sec. 229, NIRC Sec. 112, NIRC

Object of claim/refund Erroneously or illegally Unutilized input taxes in connection with sales that are
collected tax zero-rated or effectively zero-rated

Proper party to claim for 1. The taxpayer himself; VAT-registered taxpayer who engages in zero-rated or
refund or credit 2. Statutory taxpayer; or effectively zero-rated sales
3. Withholding agent

Period to file 2 years from the date of Within 2 years after the close of the taxable quarter
administrative payment of the tax or penalty when the sales were made
claim/refund

Remedy of taxpayer in Appeal to the CTA within 30 Appeal to the CTA within 30 days from receipt of denial
case of denial days from receipt of denial

What must be filed within Both the administrative and Only the administrative claim has to be filed within the
the period to file claims judicial claims two-year prescriptive period

Before filing a judicial claim, the taxpayer still has to wait

for the lapse of the 90-day period for the Commissioner
to act on his claim, even if the lapse of such period will
fall outside of the 2-year period.