University

of Santo Tomas
Faculty of Civil Law

The Law Pertaining

to the State and Its
Relationship with
Its Citizens
PRE-WEEK NOTES 2020/21 BAR EXAMINATIONS

PART II: LABOR LAW & TAXATION LAW


ACADEMICS COMMITTEE

SECRETARY GENERAL: Maria Frances Faye R. Gutierrez
EXECUTIVE COMMITTEE: John Edward F. Fronda, Angel Isah M.
Romero, Kirby Anne C. Renia, Karen Abbie C. Aspiras, Jose Christian
Anthony I. Pinzon

 University of Santo Tomas
Faculty of Civil Law

LABOR LAW
PRE-WEEK NOTES


LABOR LAW COMMITTEE

COMMITTEE HEAD: Kiara Louise T. Baliwag

SUBJECT HEADS: Nicolo Bongolan, Patricia Cabaña, Beatrice Fangon

MEMBERS: Beya Marie Amaro, Jean Almira Bulong, Mary Ann
Crisostomo, John Matthew Cruel, Christian John Dela Cruz, Ivy Mikhaela
Ferriols, Danice Gan, Lovely Mae Macaraeg, Georjhia Czarinah Malaluan,
Riza Flor Mosquera, Dheza Penaranda, Angelica Roscea Quiambao,
Patricia Anne Recto, Monique Rens, Kharina Mar Salvador, Gian Justin
Verona

Atty. Teodoro Lorenzo A. Fernandez
ADVISER




 Labor law

BASIC PRINCIPLES Social justice is “neither communism, nor despotism, nor

atomism, nor anarchy,” but the humanization of laws and
The State affirms labor as a primary social economic force. the equalization of social and economic forces by the
It shall protect the rights of workers and promote their State so that justice in its rational and objectively secular
welfare. (1987 Constitution, Art. II, Sec. 18) conception may at least be approximated. (Calalang v.
Williams, G.R. No. 47800 [1940])
Basic Rights of Workers Guaranteed by the Constitution
CONSTRUCTION IN FAVOR OF LABOR
1. Security of tenure;
2. Living wage; All doubts in the implementation and interpretation of the
3. Share in the fruits of production; provisions of this Code, including its implementing rules
4. Just and humane working conditions; and regulations, shall be resolved in favor of labor. (LC, Art.
5. Self-organization; 4)
6. Collective bargaining;
7. Collective negotiations; In case of doubt, all labor legislation and all labor contracts
8. Engage in peaceful concerted activities, including the shall be construed in favor of the safety and decent living for
right to strike; and the laborer. (NCC, Art. 1702)
9. Participate in policy and decision-making processes.
(1987 Constitution, Art. XIII, Sec. 3) Protection to Labor

Applicability of the Labor Code When the conflicting interests of labor and capital are
weighed on the scales of social justice, the heavier influence
GR: All rights and benefits granted to workers under the LC of the latter must be counter-balanced by the sympathy and
shall apply alike to all workers, whether agricultural or non- compassion the law must accord the underprivileged
agricultural. (LC, Art. 6) worker.

XPNs: This is in line with the express mandate of the Labor Code
1. Government Ees and the principle that those with less in life should have
2. Ees of government-owned and controlled more in law. (Eastern Shipping Lines v. POEA, G.R. No. 76633
corporations (GOCCs) created by special or original [1988])
charter
3. Foreign governments Limitation to Protection of Labor
4. International agencies
5. Corporate officers / intra-corporate disputes which 1. Recognition of management rights. The law also
fall under PD 902-A and now fall under the jurisdiction recognizes that management has rights which are also
of the regular courts pursuant to the Securities entitled to respect and enforcement in the interest of
Regulation Code. fair play. (St. Luke’s Medical Center Ees Ass’n v. NLRC,
6. Local water district except where the NLRC’s G.R. No. 162053 [2007])
jurisdiction is invoked.
7. As may otherwise be provided by the LC. 2. Principle of Non-Oppression. Neither capital nor
labor shall act oppressively against the other, or
Test to Determine the Applicability of the LC to GOCC; impair the interest or convenience of the public. (NCC,
‘Original Charter or Manner of Creation Test’ Art. 1701)

When a GOCC is created by a special charter, it is subject to BURDEN OF PROOF AND QUANTUM OF EVIDENCE
the provisions of the Civil Service Law while those
incorporated under the general Corporation Law is subject Summary of Rules Regarding Burden of Proof
to the provisions of the Labor Code. (PNOC-EDC v. Legardo,
G.R. No. 58494 [1989]) 1. Existence of Er-Ee Relationship: Employee
2. Fact of Dismissal: Employee
Labor Dispute between Government Employees 3. Validity of Dismissal: Employer

It is the Public Sector Labor-Management Council, not the Before the employer must bear the burden of proving that
DOLE, who shall hear the dispute. (EO No. 180, Sec. 15, June the dismissal was legal, the employee must first establish by
1, 1987) substantial evidence the fact of his dismissal from service.
If there is no dismissal, then there can be no question as to
Applicability without Er-Ee Relationship the legality or illegality thereof. (Remoticado v. Typical
Construction Trading Corp., G.R. No. 206529 [2018], as
The LC may apply even if the parties are not employers and penned by J. Leonen)
employees of each other. It is not correct to say that
employment relationship is a pre-condition to the Quantum of Evidence Required
applicability of the Code (e.g., illegal recruitment, misuse of
POEA license). (Azucena, Vol. 1, 2016, p. 33) As a rule, the quantum of proof required in labor
proceedings is substantial evidence, that is, relevant
SOCIAL JUSTICE evidence which a reasonable mind might accept as
adequate to justify or prove the conclusion. However, the
The State shall promote social justice in all phases of onus probandi to prove the validity of dismissal rests upon
national development. (1987 Constitution, Art. II, Sec. 10) the employer to prove that the dismissal of an employee is
for a just cause with clear and convincing evidence. This

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 Labor law
quantum of proof required is to give flesh and blood to the
security of tenure clause of the constitution. (Duty Free 2. Rules that fix the methodology and bind or restrict the
Phils. v. Tria, G.R. No. 174809 [2012]) party hired to the use of such means or methods.
These addresses both the result AND the means
EMPLOYER-EMPLOYEE RELATIONSHIP employed to achieve it and hence, employer-employee
relationship exists. (Insular Life Assurance Co. v. NLRC,
Existence of an Employment Relationship G.R. 84484 [1989])

Employment relationship is determined by law and not by The main determinant therefore is whether the rules set by
contract. (Insular Life Assurance Co. Ltd. v. NLRC, G.R. No. the employer are meant to control not just the results but
119930 [1998]) also the means and methods. (Orozco v. CA, G.R. 155207
[2008])
Er-Ee Relation as a Question of Law (Stipulation that No
Er-Ee Relationship Exists) NOTE: However, in certain cases the control test is not
sufficient to give a complete picture of the relationship
It is axiomatic that the existence of an Er-Ee relationship between the parties, owing to the complexity of such a
cannot be negated by expressly repudiating it in the relationship where several positions have been held by the
management contract and providing therein that the Ee is worker. The better approach is to adopt the two-tiered
an independent contractor when the terms of the test. (Francisco v. NLRC, G.R. No. 170087 [2006])
agreement clearly show otherwise. For, the employment
status of a person is defined and prescribed by law and Economic Dependency Test (Two-Tiered Test)
not by what the parties say it should be. In determining the
status of the management contract, the Four-Fold Test on This two-tiered test would provide us with a framework of
employment has to be applied. (Insular Life Assurance Co. analysis, which would take into consideration the totality of
Ltd. v. NLRC, G.R. No. 119930 [1998]) circumstances surrounding the true nature of the
relationship between the parties. This is especially
Er-Ee Relation as a Question of Fact appropriate in this case where there is no written
agreement or terms of reference to base the relationship on
The existence of an employer-employee relationship and due to the complexity of the relationship based on the
depends upon the facts of each case. (Social Security System various positions and responsibilities given to the worker
v. CA, G.R. No. 100388, Dec. 14, 2000) over the period of the latter’s employment. (ibid.)

TESTS TO DETERMINE EXISTENCE Elements


1. The putative Er’s power to control the Ee with respect
Four-Fold Test (indicia of determination)
to the means and methods by which the work is to be

accomplished (Four-fold test);
1. Selection and engagement of the employee;
2. The underlying economic realities of the activity or
2. Payment of wages;
relationship (economic reality test).
3. Power of dismissal; and

4. Power of control. (Azucena, Vol. 1, 2016 p. 189)
Proper Standard for Economic Dependence


It is the so-called “control test” that is the most important
The proper standard is whether the worker is dependent on
element.
the alleged Er for his continued employment in that line of

business.
Control Test


Mode of Compensation; Not Determinative Of Er-Ee
The control test assumes primacy in the overall
Relationship
consideration. There is an Er-Ee relationship when the

person for whom the services are performed reserves the
Piece-rate, boundary, and pakyaw are merely methods of
right to control not only the end achieved but also the
pay computation and do not prove whether the payee is an
manner and means used to achieve that end. (Television and
employee or not. (Azucena, Vol. 1, 2016, p. 197)
Production Exponents Inc. v. Servana, 542 SCRA 578 [2008])


Boundary-Hulog System
The power of control refers to the existence of power and

not necessarily to the actual exercise thereof. It is not
Under the boundary-hulog scheme, a dual juridical
essential for the employer to actually supervise the
relationship was created: that of employer-employee and
performance of duties of the employee; it is enough that the
vendor-vendee. The boundary system is a scheme by an
employer has the right to wield that power. (Republic v.
owner/operator engaged in transporting passengers as a
Asiapro Cooperative, G.R. No. 172101 [2007])
common carrier to primarily govern the compensation of

the driver, that is, the latter’s daily earnings are remitted to
Kinds of Control Exercised by an Er
the owner/operator less the excess of the boundary which

represents the driver’s compensation. Under this system,
Not every form of control will have the effect of establishing
the owner/operator exercises control and supervision over
an employer-employee relationship. Thus, a line should be
the driver. (Villamaria v. CA and Bustamante, G.R. No.
drawn between:
165881 [2006])


1. Rules that merely serve as guidelines, which aims
NOTE: Taxi or jeepney drivers under the “boundary”
ONLY to promote the result. In such case, no
system are Ees of the taxi or jeepney owners/operators;
employer-employee relationship exists.

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 Labor law
also the passenger bus drivers and conductors. (Jardin v. a. Pre-notice – the notice to apprise the employee
NLRC and Goodman Taxi, G.R. No. 119268 [2000]) of the particular acts or omissions for which
dismissal is sought and is considered as the
TERMINATION OF EMPLOYMENT proper charge;

TERMINATION BY EMPLOYER b. Post-notice – the notice informing the employee
of the employer’s decision to dismiss him which

notice must come only after the employee is
Coverage of Termination of Employment
given a reasonable period from receipt of the

first notice within which to answer the charge,
Applies to all establishments or undertakings whether for
and ample opportunity to be heard and defend
profit or not. (LC, Art. 293)
himself.


Termination is a broader concept that is used to denote
2. Hearing (opportunity to be heard) – the worker
dismissal or lay-off. It may also imply complete severance
may answer the allegations against him in the notice
of employer-employee relationship.
of dismissal within a reasonable period from receipt of

the notice of dismissal with the ample opportunity to
On the other hand, dismissal is a form of ending an
be heard.
employer-employee relationship initiated either by the

employee or employer.
3. Judgement/Decision to Dismiss – it should be in

writing and should clearly state all the reasons for
Lay-off is a termination initiated by the employer without
dismissal.
prejudice to reinstatement or recall of an employee who has

been temporarily separated brought about by adverse
NOTE: The burden of proving that the termination was for
economic conditions.
a valid or authorized cause shall rest on the Er. (LC, Art.

292[b])
Security of Tenure is the right not to be removed from one’s

job without valid cause and valid procedure. It extends to
Just Causes for Termination
regular as well as nonregular employment. (Kiamco v. NLRC,

G.R. No. 129449 [1999])
1. Serious misconduct or willful disobedience by the Ee

of the lawful orders of his Er or representative in
Power to Dismiss Not Absolute
connection with his work;

2. Gross and habitual neglect by the Ee of his duties;
GR: An employer can dismiss or lay-off an employee for just
3. Fraud or willful breach by the Ee of the trust reposed
and authorized causes enumerated under Art. 297 and Art.
in him by his Er or duly organized representative;
298 of the LC.
4. Commission of a crime or offense by the Ee against

the person of his Er or any immediate member of his
XPN: The right of an employer to freely discharge his
family or his duly authorized representative;
employees is subject to regulation by the State, in the
5. Other causes analogous to the foregoing. (LC, Art.
exercise of its paramount police power. (MERALCO v. NLRC,
297)
G.R. No. 78763 [1989])


Serious Misconduct
REQUISITES FOR VALIDITY
It is an improper or wrong conduct; the transgression of
Two-Fold Requirement for Lawful Dismissal some established and definite rule of action, a forbidden act,
a dereliction of duty, willful in character, and implies
1. Substantive – legality or illegality of the act of wrongful intent and not mere error in judgment. To be
dismissal (just and authorized causes) serious within the meaning and intendment of the law, the
2. Procedural – legality or illegality of the manner of misconduct must be of such grave and aggravated character
dismissal (due process; notice and hearing) and not merely trivial or unimportant. (Villamor Golf Club v.
Pehid, G.R. No. 166152 [2005])
SUBSTANTIVE DUE PROCESS
a. JUST CAUSE Elements:
1. It must be serious or of such a grave and aggravated
Basis character;
2. Must relate to the performance of the Ees’ duties;
As a measure of self-protection against acts inimical to its 3. Ee has become unfit to continue working for the Er.
interest, a company has the right to dismiss its erring (Philippine Aeolus Automotive United Corp. v. NLRC,
employees. An employer cannot be compelled to continue G.R. No. 124617 [2000])
employing an employee guilty of acts inimical to the
employer's interest, justifying loss of confidence in him. NOTE: A teacher exclaiming "anak ng puta" after having
(Yabut v. Meralco, G.R. No. 190436 [2012]) encountered a student is an unquestionable act of
misconduct. However, whether it is serious misconduct that
Procedural Requirements of Dismissal for Just Causes: warrants the teacher's dismissal will depend on the context
of the phrase's use.
1. Notice (two-notice rule) – the employer is required
to furnish an employee who is to be dismissed with 2 While uttering an expletive out loud in the spur of the
written notices before such termination: moment is not grave misconduct per se, the refusal to
acknowledge this mistake and the attempt to cause further

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 Labor law
damage and distress to a minor student cannot be mere them. (NBS v. CA, G.R. No. 146741 [2002])
errors of judgment. Petitioner's subsequent acts are willful,
which negate professionalism in his behavior. They b. Habitual neglect implies repeated failure to perform
contradict a professor's responsibility of giving primacy to one’s duties over a period of time, depending upon the
the students' interests and respecting the institution in circumstance. (JGB and Associates v. NLRC, G.R. No.
which he teaches. In the interest of self-preservation, 10939 [1996])
petitioner refused to answer for his own mistake; instead,
he played the victim and sought to find fault in a student XPN: An employee who was grossly negligent in the
who had no ill motive against him. Indeed, had he been performance of his duty, though such negligence committed
modest enough to own up to his first blunder, petitioner's was not habitual, may be dismissed especially if the grossly NOTE
case would have gone an entirely different way. (Adamson negligent act resulted in substantial damage to the
University Faculty and Employees Union, et al. v. Adamson company. (LBC Express v. Mateo, G.R. No. 168215 [2009])
University, G.R. No. 227070 [2020], as penned by J. Leonen)
Requisites of Poor Performance as a Ground for
Willful Disobedience Termination

Requisites: 1. Employer must prove that it has set standards of
performance expected of the employee;
1. The Ees assailed conduct must have been willful or 2. These standards must be reasonable and in
intentional, the willfulness being characterized by a connection with the employee’s work; and
wrongful and perverse attitude; and 3. There must be proof that the employee failed to meet
the standards despite the given reasonable
2. The disobeyed orders, regulations, or instructions of opportunity to meet the same.
the Er must be:
a. Reasonable and lawful Abandonment as a Just Cause for Termination
b. Sufficiently known to the Ee
c. In connection with the duties which the Ee has It means deliberate and unjustified refusal of an employee to
been engaged to discharge. (Cosep v. NLRC, G.R. resume his employment. It is a form of neglect of duty,
No. 124966 [1998]; Realda v. New Age Graphics, hence, a just cause for termination of employment by the
G.R. No. 192190 [2012]) employer.

Disobeying an Order to Transfer For a valid finding of abandonment, two (2) factors must be
present:
The refusal to obey a valid transfer order constitutes willful
disobedience of a lawful order of an employer. Employees 1. The failure to report for work, or absence without
may object to, negotiate, and seek redress against valid or justifiable reason; and
employers for rules or orders that they regard as unjust or 2. A clear intention to sever Er-Ee relationship, with the
illegal. However, until and unless these rules or orders are 2nd element as the more determinative factor, being
declared illegal or improper by competent authority, the manifested by some overt acts. (Sta. Catalina College
employees ignore or disobey them at their peril. But v. NLRC, G.R. No. 144483 [2003])
transfer should not result to demotion of rank, which is
tantamount to constructive dismissal. (Manila Pavilion NOTE: In case of abandonment, the ER is still required
Hotel v. Henry Delada, G.R. No. 189947 [2012]) under the law to notify the employee of his termination.
There is still a need to observe the two-notice rule and
Q. Is refusal to a promotion by an Ee an act of opportunity to be heard requirement. (New Puerto
insubordination or willful disobedience? Commercial v. Lopez, G.R. No. 169999 [2010])

A. NO. There is no law that compels an Ee to accept a Fraud or Willful Breach of Trust
promotion because a promotion is in the nature of a gift or
reward, which a person has the right to refuse. The exercise Fraud
of the Ee of the right to refuse a promotion cannot be
considered in law as insubordination or willful Fraud, in its general sense, is deemed to comprise anything
disobedience. (PT&T Corp. v. CA, G.R. No. 152057 [2003]) calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty,
Gross and Habitual Negligence trust, or confidences justly reposed, resulting in damage to
another, or by which an undue and unconscientious
It implies a want or absence of or failure to exercise advantage is taken of another. Deceit is a species of fraud.
diligence that an ordinary prudent man would use in his (Galvez v. CA, G.R. No. 187919 [2012])
own affairs. However, such neglect must not only be gross
but must also be habitual in character. (DOLE Manual) Willful Breach of Trust

Degree of Negligence as a Just Cause for Termination A breach is willful if it is done intentionally, knowingly, and
purposely without justifiable excuse, as distinguished from
GR: Gross and habitual negligence. an act done carelessly, thoughtlessly, heedlessly and
inadvertently (Austria v. NLRC, G.R. No. 124382, Aug. 6,
a. Gross neglect is the want or absence of or failure to 1999). But loss of trust or confidence can be based on gross
exercise slight care or diligence, or the entire absence negligence. (School of the Holy Spirit of Quezon City v.
of care. It evinces a thoughtless disregard of Taguiam, G.R. No. 165565 [2008])
consequences without exerting any effort to avoid

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 Labor law
Requisites of Fraud or Willful Breach of Trust Requisites

1. There must be an act, omission, or concealment; 1. There must be an act or omission punishable/
2. The act, omission, or concealment involves a breach of prohibited by law; and
legal duty, trust, or confidence justly reposed; 2. The act or omission was committed by the employee
3. It must be committed against the employer or his/her against the person of the employer, any immediate
representative; and member of his/her family, or his/her duly authorized
4. It must be in connection with the employee’s work. representative. (Sec. 5.2 [f], D.O. No. 147-15)

Loss of Confidence NOTE: A criminal case need not be actually filed.
Commission of acts constituting a crime itself is sufficient.
There is loss of confidence when the employer has (National Labor Union, Inc. v. Standard Vacuum Oil Company.
reasonable ground or has basis to believe that the employee G.R. No. L-48170 [1941])
is responsible for the misconduct and the nature of his
participation renders him unworthy of the trust and Conviction not a Condition Sine Qua Non
confidence demanded by his position. Proof beyond
reasonable doubt is not required. (Jerusalem v. Keppel The conviction of an employee in a criminal case is not
Monte Bank, G.R. No. 169564 [2011]) indispensable to warrant his dismissal by his employer.
(Starlite Plastic Industrial Corporation v. NLRC. G.R. No.
Loss of Trust and Confidence as a Just Cause For 78491 [1989])
Termination:
Ratio: The quantum of evidence needed is merely
1. It applies only to cases involving: substantial evidence to terminate an employee under these
grounds.
a. Ees occupying positions of trust and
confidence (confidential and managerial Ees) Analogous Cases
– To this class belong managerial Ees, i.e., those
vested with the powers or prerogatives to lay Requisites
down management policies and/or to hire,
transfer, suspend, lay-off, recall, discharge, assign 1. There must be an act or omission similar to those
or discipline Ees or effectively recommend such specified just causes; and
managerial actions. 2. The act or omission was voluntary and/or willful on
the part of the employees. (Sec. 5.2 [g], D.O. No. 147-15)
Position of trust and confidence is one where a
person is entrusted with confidence on delicate E.g.:
matters, or with the custody, handling, or care and 1. Violation of company rules and regulations
protection of the employer’s property (Pandoy v. 2. Immorality, Drunkenness or Fighting inside the
NLRC, G.R. No. 67664 [1992]) and/or funds. premise
(Gonzales v. NLRC, 355 SCRA 197 [2001]) 3. Gross inefficiency
4. Illegally diverting Er’s products
b. Ees routinely charged with the care and 5. Failure to heed an order not to join an illegal picket
custody of the Er’s money or property – To this 6. Violation of safety rules and code of discipline
class belong cashiers, auditors, property 7. Theft of company property
custodians, etc., or those who, in the normal and
routine exercise of their functions, regularly Guidelines to Determine the Validity Of Termination
handle significant amounts of money or property.
(Mabeza v. NLRC, G.R. No. 118506 [1997]) Validity of termination per se is determined by compliance
with two-notice rule, hearing (opportunity to be heard),
2. The loss of trust and confidence must be based on and the presence of a just or authorized cause.
willful breach.
b. AUTHORIZED CAUSES
3. The act constituting the breach must be “work-related”
such as would show the Ee concerned to be unfit to Authorized causes – initiated by the employer’s exercise of
continue working for the Er. (Gonzales v. NLRC, G.R. No. management prerogative, who shall be liable to pay
131653 [2001]) separation pay as mandated by law. It does not usually
require delinquency or culpability on the part of the
4. It must be substantial and founded on clearly employee.
established facts sufficient to warrant the Ee’s
separation from employment. (Sulpicio Lines Inc. v. Authorized causes of termination by the Er:
Gulde, G.R. No. 149930 [2002])
1. Installation of labor-saving devices
5. Fraud must be committed against the Er or his 2. Redundancy
representatives. E.g.: 3. Retrenchment
a. Falsification of time cards 4. Closing or cessation of operation of the establishment
b. Theft of company property or undertaking
c. Unauthorized use of company vehicle 5. Disease

Commission of a Crime or Offense Installation of Labor-Saving Devices
(Automation)

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 Labor law
Automation is a management prerogative of replacing 3. Seniority (Phil. Tuberculosis Society, Inc. v. National
manpower with machine power in order to effect more Labor Union, G.R. No. 115414 [1998])
economy and greater efficiency in the method of
production. Redundancy vs. Retrenchment

Requisites for a Valid Automation REDUNDANCY RETRENCHMENT
Involves losses, closures or
1. Written notice to the employee and to the DOLE at Does not involve losses or cessation of operations of
least one (1) month before the intended date of the closing or cessation of establishment or
termination; operations of the undertaking due to serious
2. Payment of separation pay of at least one (1) month establishment. business losses or financial
for every year of service; reverses.
3. Good faith in the discharge of employees; and
4. Reasonable criteria to be used in implementing NOTE: In preventive retrenchment, retrenchment may be
automation. undertaken by the employer before losses are actually
sustained.
Redundancy
Closure of Business
It is the superfluity in the performance of a particular work.
It exists where the services of an Ee are in excess of what is Test for the Validity of Closure or Cessation of
reasonably demanded by the actual requirements of the Establishment or Undertaking
enterprise. (Wiltshire File Co., Inc. v. NLRC, G.R. No. 82249
[1991]) To be a valid ground for termination the following must be
present:
Requisites of a Valid Redundancy
1. There must be a decision to close or cease operation of
1. Written notice served on both the Ees and the DOLE at the enterprise by the management;
least 1 month prior to separation from work; 2. The decision was made in good faith; and
2. Payment of separation pay equivalent to at least 1 3. There is no other option available to the employer
month pay or at least 1 month pay for every year of except to close or cease operations. (Sec. 5.4 [d], D.O.
service, whichever is higher; No. 147, s. of 2015)
3. Good faith in abolishing redundant position; and
4. Fair and reasonable criteria in ascertaining what Payment of Separation Pay in Case of Closure
positions are to be declared redundant. (DAP v. CA, G.R.
No. 165811 [2005]) Payment of separation pay is required only where closure
is neither due to serious business losses nor due to an act of
Retrenchment Government. (North Davao Mining Corp v. NLRC, G.R. No.
112546 [1996]; NFL v. NLRC, G.R. No. 127718 [2000])
It is the reduction of personnel usually due to poor financial
returns as to cut down on costs of operations in terms of Basis for Computation: Latest salary rate, unless reduced
salaries and wages to prevent bankruptcy of the company. by the employer to circumvent the law, in which case, it
(Poquiz, Vol. 2, 2018, p. 560) shall be based on the rate before its deduction. (IRR of LC,
Book IV, Rule I, Sec. 10)
Requisites of a Valid Retrenchment
Disease
1. Written notice served on both the Ee and the DOLE at
least 1 month prior to the intended date of It must be incurable within 6 months and the continued
retrenchment; employment is prohibited by law or prejudicial to his health
2. Payment of separation pay equivalent to at least one as well as to the health of his co-Ees with a certification from
month pay or at least 1/2 month pay for every year of the public health officer that the disease is incurable within
service, whichever is higher; 6 months despite due to medication and treatment.
3. Good faith in effecting retrenchment;
4. Proof of expected or actual losses; Entitlement to Reinstatement
5. To show that the employer first instituted cost
reduction measures in other measures in other areas An Ee suffering from a disease is entitled to a reinstatement,
of production before undertaking retrenchment as a provided he presents a certification by a competent public
last resort; and health authority that he is fit to return to work. (Cebu Royal
6. The Er used fair and reasonable criteria in Plant v. Deputy Minister, G.R. No. L-58639 [1987])
ascertaining who would be retained among the Ees.
(FASAP v. PAL, G.R. No. 178083 [2009]) Other Authorized Causes

Criteria in Selecting Employees to be Retrenched 1. Total and permanent disability of Ee
2. Valid application of union security clause
There must be fair and reasonable criteria to be used in 3. Expiration of period in term of employment
selecting Ees to be dismissed such as: 4. Completion of project in project employment
5. Failure in probation
1. Less preferred status; 6. Relocation of business to a distant place
2. Efficiency rating; 7. Defiance of return-to work-order
8. Commission of Illegal acts in strike

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 Labor law
9. Violation of contractual agreement
10. Retirement Purpose of the Two Notices Served to the Ee and the
DOLE 1 month Prior to Termination
PROCEDURAL DUE PROCESS
1. To give the Ees some time to prepare for the eventual
Q: What are the twin-requirements of due process loss of their jobs and their corresponding income, look
which the employer must observe in terminating or for other employment and ease the impact of the loss
dismissing an employee? Explain. (2009 BAR) of their jobs.
2. To give the DOLE the opportunity to ascertain the
A: The twin requirements of due process are notice and veracity of the alleged cause of termination. (PT&T
hearing to be given to the worker. There is likewise a two- Corp. v. NLRC, G.R. No. 147002 [2005])
notice requirement rule, with the first notice pertaining to
specific causes or grounds for termination and a directive to NOTE: Under the Omnibus Rules, reasonable opportunity
submit a written explanation within a reasonable period. means every kind of assistance that management must
The second notice pertains to notice of termination. accord to the Ees to enable them to prepare adequately for
Pursuant to Perez v. PT&T Company (G.R. No. 152048 their defense. This should be construed as a period of at
[2009]), the Court held that a hearing or conference is not least five (5) calendar days from receipt of the notice.
mandatory, as long as the employee is given “ample
opportunity to be heard”, i.e., any meaningful opportunity The essence of due process is simply an opportunity to be
(verbal or written) to answer the charges against him or her heard, or as applied to administrative proceedings, an
and submit evidence in support of the defense, whether in a opportunity to explain one’s side or an opportunity to seek
hearing, conference, or some other fair, just and equitable a reconsideration of the action or ruling complained of.
way. (PLDT v. Bolso, 530 SCRA 550 [2007])

EFFECT OF
POSSIBLE SITUATIONS LIABILITY OF EMPLOYER
TERMINATION
NO Liability
a. With Just or Authorized Cause
VALID
b. With Due Process
Separation Pay if for Authorized Cause
Reinstatement + Full Backwages
a. W/o Just or Authorized Cause
INVALID
b. With Due Process
If Reinstatement not possible — Separation Pay
Reinstatement + Full Backwages
a. W/o Just or Authorized Cause
INVALID
b. W/o Due
If Reinstatement not possible — Separation Pay
Liable for noncompliance with procedural requirements
a. With Just or Authorized Cause
VALID
b. W/o Due Process
Separation Pay if for Authorized Cause

NOTE: The Agabon ruling was modified by JAKA Food 4. Totality of infractions
Processing v. Pacot (G.R. No. 151378 [2005]), where it was 5. Nature of the business
held that: 6. First-offense rule
7. Principle of equity
1. If based on just cause (LC, Art. 297), but the Er failed 8. Principle of compassion and understanding
to comply with the notice requirement, the sanction to
be imposed upon him should be tempered because Separation Pay
the dismissal process was, in effect, initiated by an act
imputable to the Ee; and Separation pay refers to the amount due to the Ee who has
2. If based on authorized causes (LC, Art. 298), but the been terminated from service for causes authorized by law.
Er failed to comply with the notice requirement, the It is intended to provide the Ee with the wherewithal during
sanction should be stiffer because the dismissal the period he is looking for another employment. (Gabuay v.
process was initiated by Er’s exercise of his Oversea Paper Supply, G.R. No. 148837 [2004])
management prerogative.
Instances when Ee is Entitled to Separation Pay
Principle of Commensurate Penalty or Proportionality
Rule 1. When the termination of employment is due to causes
authorized by law (LC, Art. 298)
Employer’s directives must always be fair and reasonable, 2. When the severance of employment is caused by a
and the corresponding penalties, when prescribed must be disease, particularly when the Ee is found to be
commensurate to the offense involved and to the degree of suffering from any disease and whose continued
the infraction. (Moreno v. San Sebastian College-Recoletos, employment is prohibited by law or is prejudicial to
Manila, 550 SCRA 414 [2008]) his health and of his co-Ees (LC, Art. 299)
3. When the termination from service has been declared
Circumstances Affecting Validity of Dismissal illegal, but his reinstatement to his former position is
no longer feasible for some valid reason (Gabuay v.
1. Gravity of the offense Oversea Paper Supply, G.R. No. 148837 [2004])
2. Employment position
3. Length of service

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 Labor law
4. In case of pre-termination of employment contract in To gauge if constructive dismissal exists, the test is whether NOTE
job-contracting arrangement (D.O 18-02, Rules a reasonable person in the employee's standing was
Implementing Art. 106 – 109, LC) impelled to surrender his or her post under the given
5. Where separation pay is awarded as a measure of situation. It is a dismissal in disguise because the doing
social or compassionate justice (PLDT v. NLRC, G.R. No. equates to a "dismissal but made to appear as if it were not."
L-80609 [1988]) Hence, "the law recognizes and resolves this situation in
favor of employees in order to protect their rights and
Liability of Corporate Officers interests from the coercive acts of the employer." (Donna
Jacob v. First Step Manpower Int’l Services, Inc., G.R. No.
GR: Officers of a corporation are not personally liable for 229984 [2020], as penned by J. Leonen)
their official acts unless it is shown that they have exceeded
their authority. Burden of Proof in Constructive Dismissal

XPN: Where the incorporators and directors belong to a In case of a constructive dismissal, the employer has the
single family, the corporation and its members can be burden of proving that the transfer and demotion of an
considered as one in order to avoid its being used as an employee are for valid and legitimate grounds such as
instrument to commit injustice, or to further an end genuine business necessity. Failure of the employer to
subversive of justice. The shield of corporate fiction shall be overcome this burden of proof, the employee's demotion
pierced when it is deliberately and maliciously designed to shall no doubt be tantamount to unlawful constructive
evade financial obligations to employees. (Pabalan v. NLRC, dismissal. (SIMIFRU v. Baya, G.R. No. 188269 [2017])
G.R. No. 898799 [1990]) Officers, then, become personally
liable. Reliefs from Illegal Dismissal

NOTE: In labor cases, particularly, corporate directors and In case where the worker is illegally terminated, his
officers are solidarily liable with the corporation for the remedies are:
termination of employment of corporate employees done
with malice or in bad faith. (Uichico, et al. v. NLRC, et al., G.R. 1. Reinstatement without loss of seniority rights – Actual
No. 121434 [1997]) reinstatement or payroll reinstatement
2. Full backwages – means no deduction
PREVENTIVE SUSPENSION 3. Separation pay in lieu of reinstatement
4. Damages, including Attorney’s fees
It means that during the pendency of the investigation, the 5. 6% legal interest on monetary award
Er may place the Ee under preventive suspension leading to
termination when there is an imminent threat or a Forms of Reinstatement
reasonable possibility of a threat to the lives and properties
of the Er, his family and representatives as well as the 1. Actual or physical – The Ee should be reinstated to
offender’s co-workers by the continued service of the Ee. his position which he occupies prior to his dismissal
(Sec. 8, Rule XXIII, Book V, IRR) under the same terms and conditions prevailing prior
to his dismissal or separation or, if not longer
Duration of Preventive Suspension available, to a substantially equivalent position.

It should not last for more than 30 days. It can be extended 2. Payroll – The Ee although not admitted back to work,
provided the Ee’s wages are paid after the 30-day period. would nevertheless be included in the payroll and
Preventive suspension exceeding 30 days will amount to entitled to receive salary and other benefits as if she
constructive dismissal. were in fact working. (Azucena, 2016)

ILLEGAL DISMISSAL NOTE: Employer is given the option to reinstate either
actually or in payroll.


1. NO JUST OR AUTHORIZED CAUSE
Q: Is an illegally dismissed Ee entitled to reinstatement

as a matter of right?
Under the Labor Code, employers may only terminate

employment for a just or authorized cause and after
A: GR: YES.
complying with procedural due process requirements. In

illegal dismissal cases, the burden of proof that employees
XPNs: Proceeds from an illegal dismissal wherein
were validly dismissed rests on the employers. Failure to reinstatement is ordered but cannot be carried out as in the
discharge this burden means that the dismissal is illegal.
following cases:
(Julita Aldovino et al., v. Gold and Green Manpower et al. G.R.

No. 200811 [2019], as penned by J. Leonen)
1. Reinstatement cannot be effected in view of the long

passage of time or because of the realities of the
2. CONSTRUCTIVE DISMISSAL
situation;

2. It would be inimical to the Er’s interest;
It occurs when there is cessation of work because continued
3. When reinstatement is no longer feasible;
employment is rendered impossible, unreasonable, or
4. When it will not serve the best interest of the parties
unlikely as when there is a demotion in rank or diminution
involved;
in pay or when a clear discrimination, insensibility, or
5. Company will be prejudiced by reinstatement;
disdain by an Er becomes unbearable to the Ee leaving the
6. When it will not serve a prudent purpose;
latter with no other option but to quit. (The University of
7. When there is resultant strained relation (applies to
Immaculate Conception v. NLRC, G.R. No. 181146 [2011])
both confidential and managerial Ees only);

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 Labor law
8. When the position has been abolished (applies to Entitlement to backwages of the illegally dismissed Ee flows
managerial, supervisory and rank-and-file Ees) from law. Even if he does not ask for it, it may be given. (St.
Michael’s Institute v. Santos, G.R. No. 145280 [2001])
NOTE: In such cases, it would be more prudent to order
payment of separation pay instead of reinstatement. MONEY CLAIMS ARISING FROM ER-EE RELATIONSHIP
(Quijano v. Mercury Drug Corp., G.R. No. 126561 [1998])
Prescriptive Period for Filing Money Claims
Q: Is there any violation of the “No work, No pay” in
payroll reinstatement? Money claims arising from Er-Ee relations accruing during
the effectivity of the Labor Code shall be filed within three
A: Generally, yes. However, since it is the mandate of the (3) years from the time the cause of action accrued;
law, although it is harsh, there is no violation under the otherwise they shall be forever barred. (LC, Art. 306)
dictum of dura lex sed lex. (Poquiz, Vol. 2, 2018, p. 460)
WHEN NOT DEEMED DISMISSED;
Thus, while payroll reinstatement would in fact be EE ON FLOATING STATUS
unacceptable because it sanctions the payment of salaries to

one not rendering service, it may still be the lesser evil
An Employment is Not Deemed Terminated When:
compared to the intolerable presence in the workplace of an

unwanted employee. (Maranao Hotel v. NLRC, G.R. No.
1. There is a bona fide suspension of the operation of a
110027 [1994])
business or undertaking for a period not exceeding six

(6) months; or,
Order of Reinstatement
2. The fulfilment by the employee of a military or civic

duty. (LC, Art. 301)
An order for reinstatement entitles an Ee to receive his

accrued backwages from the moment the reinstatement
Floating Status
order was issued up to the date when the same was

reversed by a higher court without fear of refunding what
The floating status of an employee should last only for a
he had received. (Pfizer v. Velasco, G.R. No. 177467 [2011])
legally prescribed period of time. When that floating status

of an employee lasts for more than six (6) months, he may
Rule on Wages during Reinstatement Pending Appeal
be considered to have been illegally dismissed from the

service. Thus, he is entitled to the corresponding benefits
Dismissed Ee whose case was favorably decided by the LA
for his separation. (Agro Commercial Security Services
is entitled to receive wages pending appeal upon
Agency, Inc. v. NLRC, G.R. Nos. 82823-24 [1989])
reinstatement, which is immediately executory. Unless

there is a restraining order, it is ministerial upon the LA to
implement the order of reinstatement and it is mandatory TERMINATION BY EMPLOYEE
on the Er to comply therewith.
WITH NOTICE TO THE EMPLOYER
Wenphil Doctrine
An employee may terminate without just cause the Er-Ee
In case of payroll reinstatement, the reinstated employee is relationship by serving a written notice on the employer at
not required to return the salary he received during the least one (1) month in advance. The Er upon whom no such
period the lower court or tribunal declared that he was no notice was served may hold the Ee liable for damages.
illegally dismissed, even if the employer's appeal would (LC, Art. 300)
eventually be ruled in its favor. Such non-requirement to
reimburse salary presupposes that salary must in fact be WITHOUT NOTICE TO EMPLOYER
paid to the concerned employee when he or she is ordered
reinstated pending appeal. (Wenphil Corporation v. Abing, et An employee may put an end to the relationship without
al, G.R. No. 207983 [2014]) serving any notice on the employer for any of the following
just causes:
Doctrine of Strained Relations
1. Serious insult by the Er or his representative on the
It is when the Er can no longer trust the Ee and vice versa honor and person of the Ee;
or there were imputations of bad faith to each other; 2. Inhumane and unbearable treatment accorded by the
reinstatement could not effectively serve as a remedy. This Ee by the Er or his representative;
rule applies only to positions which require trust and 3. Commission of a crime or offense by the Er or his
confidence. (Globe Mackay v. NLRC, G.R. No. 82511 [1992]) representative against the person of the Ee or any of
the immediate members of his family; and
Separation Pay in Lieu of Reinstatement When: 4. Other causes analogous to any of the foregoing. (ibid.)

Doctrine of Strained Relations (applies to confidential and The abovementioned just causes could compel an Ee to
managerial Ees only) resign which metamorphoses into a case of constructive
dismissal. (Poquiz, Vol. 2, 2018, p. 571)
In case the position has been abolished (applies to both
managerial and rank and file Ees) DISTINGUISH VOLUNTARY RESIGNATION
AND CONSTRUCTIVE DISMISSAL
Backwages


Q: What is the difference between resignation and
constructive dismissal? (2019 BAR)

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 Labor law
A: First, Resignation is at the instance of the employee, declaring that there is an Er-Ee relationship between the
whereas constructive dismissal is at the instance of the principal and the employees of the supposed contractor,
employer. and the labor-only contractor is considered as a mere agent
of the principal, the real employer. (Allied Banking Corp. v.
Second, Resignation is voluntary, whereas in constructive Reynold Calumpang, G.R. No. 219435 [2018])
dismissal there is vitiated consent.
Confirming Elements
Third, Resignation means no separation pay, whereas
constructive dismissal means payment of separation pay and To have labor-only contracting, the essential element of
damages. supplying workers to another is not enough. To it must be
added either one of two confirming elements:
Fourth, Resignation must be at least with 30 days’ notice on
the part of the employee, whereas in constructive dismissal 1. Lack of substantial capital or investment and NOTE
the employee can leave anytime. performance of activities directly related; or
2. The contractor does not exercise control over the
NOTE: There is no provision in the Labor Code that grants performance of the employees. (Azucena, Vol. I, 2016,
separation pay to voluntarily resigning Ee, except when it p. 369)
is stipulated in the employment contract, a collective
bargaining agreement (CBA), or it is sanctioned by NOTE: If the essential element is absent, there can be no NOTE
established policy or practice. (“J” Marketing Corp. v. Taran, LOC. And even, if the essential element is present, but
G.R. No. 163924 [2009], as cited in Poquiz, Vol. 2, 2018, p. 576) confirming element one or two is absent, there is still no
LOC. (Azucena, Vol. I, 2016, p. 369)
Withdrawal of Resignation
RIGHTS OF EMPLOYEES; MEMBERSHIP IN UNIONS
Resignation is withdrawable even if the employee has called
it irrevocable. (Custodio v. Ministry of Labor and RIGHT TO SELF ORGANIZATION
Employment, G.R. No. 643174 [1990]) But after it is accepted

or approved by the employer, its withdrawal needs the
Refers to the right of workers and employees to form, join
employer’s consent. (Azucena, 2016)
or assist unions, organizations or associations for purposes

of collective bargaining and/or for mutual aid and
Resignation, a “Win-Win” Solution
protection, including the right to engage in peaceful

concerted activities and participate in policy-decision
Where the Ee negotiated for an improvement of the
making processes affecting their rights and benefits.
resignation package and he managed to obtain an

acceptable one, resignation is a “win-win” solution because
Extent of the Right to Self-organization
it was the product of a mutually beneficial arrangement. An

Ee cannot later on claim that he was “tricked or was morally
It includes at least two (2) rights:
or psychologically hoodwinked to draft, sign and tender his
1. The right to form, join or assist labor organizations;
resignation letter.” (Gan v. Galderama Phils., Inc., G.R. No.
and
17767 [2013])
2. The right to engage in lawful concerted activities. (LC,

Art. 257)
“LABOR-ONLY” CONTRACTING


Purpose of Exercise of Right to Self-organization
Labor-only contracting refers to an arrangement where

the contractor, who does not have substantial capital or
1. Collective bargaining; and
investment in the form of tools, equipment, machineries,
2. Mutual aid and protection (LC, Art. 257)
work premises, among others, supplies workers to an

employer and the workers recruited are performing
activities which are directly related to the principal WHO MAY OR MAY NOT EXERCISE THE RIGHT
business of such employer. (LC, Art. 106)
Who May Exercise the Right
It is a prohibited act, an arrangement where the contractor
or subcontractor merely recruits, supplies or places 1. All persons employed in commercial, industrial and
workers to perform a job, work or service for a principal. agricultural enterprises and in religious, charitable,
medical, or educational institutions, whether
Essential Elements of Labor-Only Contracting operating for profit or not (LC, Art. 253);
2. Ambulant, intermittent and itinerant workers, self-
1. The contractor or subcontractor does not have employed people, rural workers and those without
substantial capital or investment to actually perform any definite employers may form labor organizations
the job, work or service under its own account and for their mutual aid and protection (ibid.);
responsibility; and 3. Supervisory Ees;

2. The employees recruited, supplied or placed by such NOTE: Supervisory Ees shall not be eligible for
contractor or subcontractor are performing activities membership in the collective bargaining unit of rank-
which are directly related to the main business of the and-file employee but may join, assist, or form
principal. (Sasan v. NLRC, G.R. No. 176240 [2008]) separate collective bargaining unit and/or labor
organizations of their own. (LC, Art. 255)
NOTE: A finding that a contractor is a labor-only contractor,
as opposed to permissible job contracting, is equivalent to

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 Labor law
4. Security guards (MERALCO v. SOLE, G.R. No. 91902 of management prerogatives”. Considered negotiable are
[1991]); such matters as schedule of vacation, leaves, etc. (Azucena,
5. Employee – non-member of a cooperative (Central Vol. 2, 2016, p. 261)
Negros Electric Cooperative, Inc. v. SOLE, G.R. No.
94045 [1991]); COMMINGLING OR MIXTURE OF MEMBERSHIP
6. Homeworkers (Secs. 3-4, D.O. 5, Feb. 4, 1992);
7. Ees of government corporations established under Categories of Employees (in the Private Sector)
the Corporation Code (LC, Art. 254);
8. Alien Ees with valid working permits; and 1. Managerial
2. Supervisory
NOTE: The alien Ees must have valid working 3. Rank-and-file
permits issued by the DOLE and must be nationals of
a country which grants the same or similar rights to Categories of Employees (in the Government)
Filipino workers, as certified by the DFA, or which
has ratified ILO Conventions No. 87 and 98. (LC, Art. 1. High level or managerial
284) 2. Rank-and-file

9. Confidential Ees who do not give access or is not NOTE: Professors who are not exercising managerial or
allowed access to confidential labor relations highly confidential functions are rank-and-file employees.
information or whose access to confidential labor They may organize themselves into a separate collective
relations information is merely incidental in the bargaining unit, if so minded, considering that mutuality of
performance of their functions. (SMC Supervisors and interest is wanting between the academic and nonacademic
Exempt Employees Union v. Laguesma, 277 SCRA 370 personnel of the university. (UP v. Ferrer-Calleja, G.R. No.
[1997]; Poquiz, Vol. 2, 2018, pp. 191-193) 96189 [1992])

Who CANNOT Form, Join or Assist Labor Organizations Supervisory employees may join the same federation or
national union of rank-and-file employees
1. Managerial Ees;
2. Confidential Ees (in the field of labor relations); The rank-and-file union and the supervisors’ union
3. Ees of international organizations; operating within the same establishment may join the same
4. Employee-members of a cooperative; federation or national union. (LC, Art. 255)
5. Members of AFP, police officers, policemen, firemen,
and jail guards; Effect of Inclusion as Members of Ees Outside the
6. High level government employees. Bargaining Unit

Religious Objectors can Form and Join their Own union The inclusion as union members of employees outside the
bargaining unit shall not be a ground for the cancellation of
Recognition of the tenets of a sect should not infringe on the the registration of the union. Said employees are
basic right to self-organization granted by the Constitution automatically deemed removed from the list of
to workers, regardless of religious affiliation. (Kapatiran sa membership of said union. (LC, Art. 256; as amended by RA
Meat and Canning Division v. Hon. Pura Calleja, G.R. No. L- 9481) Such mixed membership shall not be a ground for
82914 [1988]) cancellation of union registration. (Poquiz, Vol. 2, 2018, p.
209)
NOTE: Religious objectors also have the right to vote in a
certification election. (Reyes v. Trajano, G.R. No. 84433 Registration of a Union
[1992])
A labor organization may be registered or not. If registered,
Government Ees have the Right to Self-organization it is considered “legitimate labor organization” (LLO).
However, a labor organization is not “illegitimate” just
The highest law of the land guarantees to government because it is unregistered. It is still a lawful organization but
employees the right to organize and to negotiate, but not the it has no legal personality to demand collective bargaining
right to strike. (Azucena, Vol. 2, 2016, p. 259) The right to with the employer. (Azucena, Vol. 2, 2016, p. 186-187)
self-organization of government employees pertains to all
branches, subdivision, instrumentalities and agencies of the NOTE: It is the fact of being registered with DOLE that
Government, including GOCCs with original charters. (E.O. makes a labor organization legitimate. Registration under
No. 180) the corporation law before the Securities and Exchange
Commission (SEC) only has the effect of giving it juridical
Government Ees’ Right to Organize is for a Limited personality to represent itself in regular courts but it does
Purpose not grant the rights and privileges of a legitimate labor
organization. (Phil. Land-Sea-Air Labor Union, Inc. v. CIR, 93
Only terms and conditions not fixed by law may be the Phil. 747)
subject of negotiation by the duly recognized employees’
RIGHTS AND CONDITIONS OF MEMBERSHIP
organization of government employees and the appropriate
government authorities. Terms and conditions of
employment that are fixed by law are excluded from Membership in the Union does not necessarily mean
negotiation. (E.O. No. 180) coverage in the CBA

Declared to be “not negotiable” are matters “that require Inclusion or coverage in the CBA depends on the
appropriation of funds” and “those that involve the exercise stipulations in the CBA itself. It is the CBA which defines its

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 Labor law
coverage as agreed by the parties. Qualifying for union Payments used for a special purpose. Especially if required
membership does not necessarily mean inclusion in the only for a limited time. (ibid., p. 237)
coverage of the CBA.
Requisites to Collect Special Assessment
Membership in the CBU does not mean membership in
the union No special assessments, attorney’s fees, negotiation fees or
any other extraordinary fees may be checked off from any
Inclusion or membership in the union depends on the amount due to an employee unless there is:
union’s constitution and by-laws. Inclusion in the collective 1. Authorization by a written resolution of the majority
bargaining unit (CBU) depends on the determination of its of all members at the general membership meeting
appropriateness. duly called for that purpose;
2. Secretary’s record of the minutes of the meeting;
Affiliation/Disaffiliation 3. Individual written authorization for check-off duly
signed by the employee concerned. (ABS-CBN
A local union may affiliate with or disaffiliate from a Supervisors Employees Union Members v. ABS-CBN
federation. This is an exercise of the right of association Corp., G.R. No. 106518 [1999])
recognized by the Constitution.
The authorization should specify the:
Between the chapter and the federation, affiliation or 1. Amount;
disaffiliation is a contractual relation. Hence, even if 2. Purpose; and
disaffiliation is a matter of right, the local must comply with 3. Beneficiary of the deduction.
the obligations under the CBL such as manner and period of
notice. Union dues

Disaffiliation of Local Union from the Federation These are regular monthly contributions paid by the
members to the union in exchange for the benefits given to
GR: A labor union may disaffiliate from the mother union to them by the CBA and to finance the activities of the union in
form an independent union only during the 60-day freedom representing the union.
period immediately preceding the expiration of the CBA.
Union Dues vs. Agency Fees
XPN: Even before the onset of the freedom period,
disaffiliation may still be carried out, but such must be UNION DUES AGENCY FEES
effected by the majority of the union members in the Collected by the union from non-
bargaining unit. Collected from members belonging to the same
union members bargaining unit who receive the
Disaffiliation must be by Majority Decision benefits under the CBA.

There must be an
Disaffiliation has to be decided by the entire membership Can be assessed even without the
individual written
through secret balloting in accordance with Art. 250(d). written authorization of the
authorization by
employee concerned.
individual members.
Substitutionary Doctrine


This doctrine holds that the employees cannot revoke the COLLECTIVE BARGAINING
validly executed collective bargaining contract with their
employer by the simple expedient of changing their DUTY TO BARGAIN COLLECTIVELY
bargaining agent. The new agent must respect the contract.
The employees, thru their new bargaining agent, cannot The duty to bargain collectively means the performance of
renege on the collective bargaining contract, except to a mutual obligation to meet and convene promptly and
negotiate with the management for the shortening thereof. expeditiously in good faith for the purpose of:
(Elisco-Elirol Labor Union, G.R. No. L-41955 [1977])
1. Negotiating an agreement with respect to wages,
Note that the only consideration for the “substitutionary” hours of work and all other terms and conditions of
doctrine is the employer’s interest in the existing employment;
bargaining agreement, the agent’s (union’s) interest never 2. Including proposals for adjusting any grievances or
enters into the picture. (Poquiz, Vol. 2, 2018, p. 259, citing questions arising under such agreement; and
Benguet Consolidated Inc v. BCI Employees and Workers 3. Executing a contract incorporating such agreements if
Union, G.R. L-24711 [1968]) requested by either party but such duty does not
compel any party to agree to a proposal or to make any
RIGHTS OF LABOR ORGANIZATIONS concession. (LC, Art. 263)
4. Negotiation over the terms of a new contract or

proposed modifications, when an existing agreement
CHECK OFF, ASSESSMENT, AGENCY FEES is validly opened for negotiations (Azucena, Vol. 2,
2016, p. 374)
Check-off
Jurisdictional Preconditions of Collective Bargaining:
It is a method of deducting from an Ee’s pay at a prescribed
period, the amounts due the union for fees, fines and 1. Possession of the status of majority representation of
assessments. the employees’ representative;
2. Proof of majority representation; and
Assessments

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 Labor law
3. A demand to bargain.
NOTE: Failure to register the CBA does not make it invalid
NOTE: An employer’s duty to recognize and bargain or unenforceable. Once it is duly entered into and signed by
collectively with a union does not arise until the union the parties, a CBA becomes effective as between the parties
requests the employer to bargain. whether or not it has been certified by the BLR. (Liberty
Flour Mills Employees Association v. Liberty Flour Mills, G.R.
Q: When should bargaining begin and when should it Nos. 58768-70 [1989]) However, its non-registration
end? renders the contract-bar rule inoperative.

A: It begins when the three (3) jurisdictional preconditions Ratification of the CBA
are present, the collective bargaining should begin within
the 12 months following the determination and certification GR: The agreement negotiated by the employees' EBR
of the employees’ exclusive bargaining representative. The should be ratified or approved by the majority of all the
period is known as certification year. workers in the bargaining unit. The proper ratifying group
is not the majority union but the majority of all the workers
The law encourages expeditious and good-faith in the bargaining unit represented by the negotiation.
negotiations but fixes no time limit for completion of the
negotiation. The law dictates no deadline. It depends upon XPN: Ratification of the CBA by the employees is not needed
the will and agreement of the negotiating panels. (Azucena, when the CBA is a product of an arbitral award by a proper
Vol. 2, 2016, p. 382-383) government authority (LC, Art. 278 [g]) or a voluntary
arbitrator. (LC, Art. 275)
Q: Differentiate “surface bargaining” from “blue-sky
bargaining.” (2010 BAR) Effectivity

A: SURFACE BARGAINING is defined as “going through the The effectivity date depends on whether the CBA is the first
motions of negotiating” without any legal intent to reach an CBA or a renegotiated CBA.
agreement. The determination of whether a party has
engaged in unlawful surface bargaining is a question of the 1. First CBA - Effectivity date depends upon the
intent of the party in question, which can only be inferred agreement of the parties.
from the totality of the challenged party’s conduct both at
and away from the bargaining table. It involves the question NOTE: The determining point is the date the parties
of whether an employer’s conduct demonstrates an agreed, not the date they signed.
unwillingness to bargain in good faith or is merely hard
bargaining. (Standard Chartered Bank Employees Union 2. Renegotiated CBA - If within six (6) months from the
(NUBE) v. Confesor, 432 SCRA 308 [2004]) expiry date of the old CBA, then the new CBA starts to
take effect on the date following such expiry date. If
BLUE-SKY BARGAINING is defined as “unrealistic and beyond six (6) months, the retroaction date will have
unreasonable demands in negotiations by either or both to be agreed upon by the parties.
labor and management, where neither concedes anything
and demands the impossible.” (ibid.) NOTE: The date is important particularly in relation to
wage increase because a long retroaction period will mean
Deadlock sizeable back pay to employees.

It is synonymous with impasse or a standstill which Duration of a CBA
presupposes reasonable effort at good faith bargaining but
despite noble intentions does not conclude an agreement 1. Economic and Non-Economic Aspect – may last for a
between the parties. maximum period of 3 years after the execution of the
CBA.
Remedies in Case of Deadlock 2. Representation Aspect – may last for 5 years. It
refers to the identity and majority status of the union
The parties, during renegotiation, may: that negotiated the CBA as the exclusive bargaining
representative.
1. Call upon the NCMB to intervene for the purpose of
conducting conciliation or preventive mediation; 60-Day Freedom Period (Representative Aspect)
2. Refer the matter for voluntary arbitration or
compulsory arbitration; During the 60-day freedom period:
3. Declare a strike or lockout upon compliance with the
legal requirements (this remedy is a remedy of last 1. A labor union may disaffiliate from the mother union
resort). to form a local or independent union only during the
60-day freedom period immediately preceding the
COLLECTIVE BARGAINING AGREEMENT expiration of the five-year term of the CBA.
2. Either party can serve a written notice to terminate or
Refers to a contract executed upon request of either the modify agreement at least 60 days prior to the
employer or the exclusive bargaining representative of the expiration of the five-year term of the CBA.
employees incorporating the agreement reached after 3. A PCE may be filed.
negotiations with respect to wages, hours of work and all
other terms and conditions of employment, including 60–Day Notice Period (Non-representative Aspect)
proposals for adjusting any grievances or questions under
such agreement.

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The freedom period under Art. 265 & 268 is different from XPN: Otherwise limited by law, contract, and principles of
the other 60-day period mentioned in Art. 264. The latter fair play and justice.
speaks of the right of the parties to propose modifications
to the existing CBA, as an exception to the rule that the CBA So long as the company’s prerogatives are exercised in good
cannot be modified during its lifetime, within 60 days prior faith for the advancement of the employer’s interest and not
the expiration of its economic/non-economic aspect. This 60- for the purpose of defeating or circumventing the rights of
day period does not and cannot refer to the representative the employees under special laws or under valid
status of the incumbent union since the acquisition or loss agreements, the SC will uphold them. (San Miguel Brewery
of representative status is to be resolved through CE. Sales v. Ople, G.R. No. 53515 [1989])

Hold-over Principle Limitations on Management Prerogative

It shall be the duty of both parties to keep the status quo and It is circumscribed by limitations found in:
to continue in full force and effect the terms and conditions 1. Law;
of the existing agreement during the 60-day period and/or 2. CBA;
until a new agreement is reached by the parties. Despite the 3. Employment contract;
lapse of the formal effectivity of the CBA the law still 4. Employer policy or practice; or
considers the same as continuing in force and effect until a 5. General principles of fair play and justice.
new CBA shall have been validly executed.
RIGHT TO DISCIPLINE
MANAGEMENT PREROGATIVE
The employer has the prerogative to instill discipline in his
MANAGEMENT RIGHTS employees and to impose reasonable penalties, including
dismissal, on erring employees pursuant to company rules
Fundamental Management Rights (SPIT) and regulations. (San Miguel Corporation v. NLRC, G.R. No.
87277 [1989])
1. Right to Select employees
2. Right to Prescribe rules RIGHT TO TRANSFER OF EMPLOYEES
3. Right to reasonable return on Investments
4. Right to Transfer or discharge employees Transfer is the lateral movement from one position to
another of equivalent rank, level or salary without break of
Right to Hire service.

It is both a right and a prerogative. An ER has the right to Transferring employees, to the extent that it is done fairly
select EEs and decide when to engage them. He has the right and in good faith, is a valid exercise of management
under the law, to full freedom in employing any person free prerogative and will not, in and of itself, sustain a charge of
to accept employment from him, and this, except as constructive dismissal. (Manalo v. Ateneo De Naga
restricted by valid statute and valid contract, at a wage and University, et al., G.R. No. 185058 [2015], as penned by J.
under conditions agreeable to them. Leonen)

Right to Return of Investments Burden of Proving that the Transfer was Reasonable

This includes the right to make profit. The Er must be able to show that the transfer is not
unreasonable, inconvenient or prejudicial to the Ee;
Consistent with the policy of the State to bridge the gap nor does it involve a demotion in rank or a diminution
between the underprivileged workingman and the more of his salaries, privileges and other benefits. Should the
affluent employers, the balance in favor of the workingman Er fail to overcome this burden of proof, the Ee’s transfer
should be titled without being blind to the concomitant shall be tantamount to constructive dismissal. (Blue Dairy
right of the employer to the protection of his property. Corporation v. NLRC, 314 SCRA 401 [1999])
(Gelmart Industries Phils., Inc. v. NLRC, G.R. No. 55668
[1989]) Right to Demote

MANAGEMENT PREROGATIVE An employee may be demoted due to his failure to observe
proper diligence in his work, and also because of his
GR: Management prerogative is the right of the employer indolence, habitual tardiness, and absences. (Petrophil
to regulate all aspects of employment, such as: Corporation v. NLRC, et al., G.R. No. L-64048 [1986])

1. Freedom to prescribe work assignments; PRODUCTIVITY STANDARD
2. Working methods;
3. Processes to be followed; Q: May an Er impose productivity standards for its
4. Regulation regarding transfer of Ees; workers?
5. Supervision of their work, lay-off and discipline; and
6. Dismissal and recall of work. (Goya, Inc. v. Goya, Inc. A: YES. An Er is entitled to impose productivity standards
Ees Union-FFW, G.R. No. 170054 [2013]) for its workers. In fact, non-compliance may be visited with
a penalty even more severe than demotion. The practice of
NOTE: It presupposes the existence of an Er-EE a company in laying off workers because they failed to make
relationship. (ibid.) the work quota has been recognized in this jurisdiction.
Failure to meet the sales quota assigned to each of them

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 Labor law
constitute a just cause of their dismissal, regardless of the when the employee is prevented from setting up a
permanent or probationary status of their employment. competing business.
This management prerogative of requiring standards may
be availed of so long as they are exercised in good faith for Non-solicitation clause
the advancement of the Er’s interest. (Leonardo v. NLRC, G.R.
No. 125303 [2000]) When a duty is imposed on the employee not to approach
his former employer’s customers or prospective
BONUS customers, or when the employee is prevented from taking
customers/clients of his former employer.
It is an amount granted and paid to an Ee for his industry
and loyalty which contributed to the success of the Er’s Non-poaching clause
business and made possible the realization of profits.
When the employee is prevented from enticing his former
Q: Can bonus be demanded? employer’s staff away from the business, the aim is to
prevent the employee from taking key employees with him
A: GR: NO. Bonus is not demandable as a matter of right. It to his new employment or business.
is a management prerogative given in addition to what is
ordinarily received by or strictly due to recipient. MARRIAGE BETWEEN EMPLOYEES OF COMPETITOR-
(Producers Bank of the Phil. v. NLRC, G.R. No. 100701 [2001]) EMPLOYEES

XPNs: Given for a long period of time, provided that: Q: Is the stipulation in the employment contract
a. Consistent and deliberate – Er continued giving prohibiting an Ee from marrying another Ee of a
benefit without any condition imposed for its competitor company a valid exercise of management
payment; prerogative?
b. Er knew he was not required to give benefit;
c. Nature of benefit is not dependent on profit; A: YES. The policy is not aimed at restricting a personal
d. Made part of the wage or compensation agreed and prerogative that belongs only to the individual. However, an
stated in the employment contract; Ee’s personal decision does not detract the Er from
e. It was promised to be given without any conditions exercising management prerogatives to ensure maximum
imposed for its payment in which case it is deemed profit and business success. It does not impose an absolute
part of the wage; prohibition against relationships between its Ees and those
f. It has ripened into practice. (Marcos v. NLRC, G.R. No. of competitor companies. Its Ees are free to cultivate
111744 [1995]) relationships with and marry persons of their own
choosing. What the company merely seeks to avoid is a
CHANGE OF WORK HOURS conflict of interest between the employee and the company
that may arise out of such relationships. It is also not
The working hours may be changed, at the discretion of the violative of the equal protection clause because it is a settled
company, should such change be necessary for its principle that the commands of the equal protection clause
operations, and that employees shall observe such rules as are addressed only to the State or those acting under color
have been laid down by the company. (Interphil of its authority.
Laboratories Union-FFW v. Interphil Laboratories, Inc., G.R.
No. 142824 [2001]) RIGHT TO DISMISS

BONA FIDE OCCUPATIONAL QUALIFICATION It is management prerogative to transfer, demote, discipline
(BFOQ) RULE and even to dismiss an employee to protect its business,
provided it is not tainted with unfair labor practice. (ibid.;

See also the discussion under Termination of Employment).
Where the job itself necessarily requires a particular

question qualification, then the job applicant or worker who
does not possess it may be disqualified on that basis. This RECRUITMENT AND PLACEMENT
will not be unlawful discrimination. (Azucena, Vol. 1, 2016,
p. 479) DEFINITION OF RECRUITMENT AND PLACEMENT

To justify a BFOQ, the Er must prove two factors: 1. Any act of Canvassing, Enlisting, Transporting,
Contracting, Hiring, Utilizing, or Procuring workers
1. That the employment qualification is reasonably (CETCHUP); and
related to the essential operation of the job involved;
and 2. Includes Contact services, Referrals, Advertising or
2. That there is a factual basis for believing that all or Promising for employment, locally or abroad, whether
substantially all persons meeting the qualification for profit or not. (LC, Art. 13[b]) (CRAP)
would be unable to properly perform the duties of the
job. (Star Paper v. Simbol, G.R. No. 164774 [2006]) NOTE: Regardless of the number of persons dealt with,
recruitment and placement are still constituted. The
POST-EMPLOYMENT RESTRICTIONS proviso merely lays down a rule of evidence that where a
fee is collected in consideration of a promise or offer of
Non-compete clause employment to two (2) or more prospective workers, the
individual or entity dealing with them shall be deemed to be
When the employee is prevented from directly competing engaged in the act of recruitment and placement. The words
or working for a competitor of his former employer, or

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 Labor law
"shall be deemed" create that presumption. (People v. Panis, Prescription of action: 20 years (Sec. 12, R.A.
G.R. L-58674-77 [1990]) 8042)

ILLEGAL RECRUITMENT NOTE: The number of offenders is not material in large
scale recruitment. What is important as qualifying element
Illegal recruitment means any recruitment activities, is that there should be at least three (3) victims of such
including the prohibited practices enumerated under Art. illegal recruitment, individually or as a group. (People v.
34 of the Labor Code, to be undertaken by non-licensees or Laurel, G.R. No. 120353 [1998])
non-holders of authority. (LC, Art. 38[a])
Failure to reimburse

ELEMENTS OF ILLEGAL RECRUITMENT
Under Sec. 5(m) of RA 10022, failure to reimburse expenses
incurred by the worker in connection with his
1. The offender is a licensee/non-licensee or documentation and processing for purposes of deployment
holder/non-holder of authority engaged in the in cases where the deployment does not actually take place
recruitment and placement of workers; and without the worker’s fault, amounts to illegal recruitment.

2. The offender undertakes:
ILLEGAL RECRUITMENT AS
a. Any act of canvassing, enlisting, contracting,
DISTINGUISHED FROM ESTAFA
transporting, utilizing, hiring, or procuring
workers and includes referring, contract
services, promising or advertising for Illegal recruitment and estafa cases may be filed
employment abroad, whether for profit or not simultaneously or separately. The filing of charges for NOTE
(LC, Art. 13[b]); or illegal recruitment does not bar the filing of estafa, and vice
b. Any prohibited practices enumerated under Art. versa. (People v. Bilaber, 465 Phil. 726 [2004])
34 of the Labor Code. (LC, Art. 34; RA 8042, Sec. 5,
as amended by RA 10022) ILLEGAL RECRUITMENT ESTAFA
Malum prohibitum Malum in se
“Non-licensee or non-holder of authority” means any It is not required that it be Accused defrauded
person, corporation, or entity which has not been issued a shown that the recruiter another by abuse of
valid license or authority to engage in recruitment and wrongfully represented confidence, or by means of
placement by the SOLE, or whose license or authority has himself as a licensed deceit.
been suspended, revoked, or cancelled by the POEA or the recruiter.
SOLE. (Sec. 1[d], Rules Implementing PD 1920; Poquiz, Vol. 1, It is enough that the It is essential that the false
2018, p. 136) victims were deceived as statement or fraudulent
they relied on representation constitutes
Two Kinds of Illegal Recuiter misrepresentation and the very cause or the only
scheme that caused them motive which induces the
1. May be a licensee – performs any of the prohibited to entrust their money in complainant to part with
practices enumerated under Sec. 5 or RA 10022; exchange of what they the thing of value.
2. May be a non-licensee – any person, corporation or later discovered was a vain
entity: hope of obtaining
a. Which has not been issued a valid license or employment abroad.
authority to engage in recruitment and
placement by the SOLE; or TERMINATION OF CONTRACT OF
b. Whose license or authority has been MIGRANT WORKER
suspended, revoked, or cancelled by the POEA
or the SOLE. Relief of a Worker When Terminated Without Valid
Cause
TYPES OF ILLEGAL RECRUITMENT
1. Full reimbursement of his placement fee with 12%
1. Simple – committed by a licensee or holder of authority interest per annum;
against one or two persons only. 2. Plus salaries for the unexpired portion of his
employment contract. (RA 10022)
Prescription of action: 5 years (Sec. 12, R.A. 8042)
NOTE: The three-month option is declared unconstitutional
2. Illegal Recruitment as Economic Sabotage – it is for violating the equal protection clause and the substantive
economic sabotage when illegal recruitment is: due process rule in the Constitution. (Serrano v. Gallant
Maritime Services Inc., G.R. No. 167614 [2009])
a. Syndicated – committed by a syndicate if carried
out by a group of three (3) or more persons in This shall be given retroactive effect, because an
conspiracy or confederation with one another; unconstitutional clause in the law confers no rights,
imposes no duties and affords no protection. The
b. Large Scale or qualified – committed against unconstitutional provision is inoperative, as if it were not
three (3) or more persons individually or as a passed into law at all. (Skippers United Pacific, Inc. v. Doza,
group (People v. Sadiosa, G.R. No. 107084 [1998]) et. al, G.R. No. 175558 [2012])
despite the lack of necessary license from POEA.
(People v. Alzona, G.R. No. 132029 [2004]) However, Sec. 7 of RA 10022 amended Sec. 10 of the
Migrant Workers Act, and once again reiterated the

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provision as above quoted. Nonetheless, the Court in the en A party desiring to appeal may file with the Supreme Court
banc case of Sameer Overseas Placement Agency, Inc. v. Joy a verified petition for review on certiorari under Rule 45
Cabiles still declared such as unconstitutional despite its within fifteen (15) days from notice of the judgment, final
replication. (G.R. No. 170139 [2014]) order or resolution appealed from. (Sea Power Shipping
Enterprises, Inc. v. CA, G.R. No. 138270 [2001])
REMEDIES
(LABOR STANDARDS VIOLATION) BUREAU OF LABOR RELATIONS (BLR)

Labor Standards Coverage of the BLR’s Jurisdiction and Functions

1. Conditions of employment; The BLR no longer handles all labor management disputes;
a. Hours of work rather its functions and jurisdiction are largely confined
to:
b. Rest periods 1. Union matters;
c. Service charge 2. Collective bargaining registry; and
2. Wages 3. Labor education.
3. Leaves
Kinds of Cases within BLR’s Jurisdiction
4. Sexual harassment in the work environment
5. Working conditions for special groups of The BLR has original and exclusive jurisdiction over:
employees 1. Inter-union disputes;
2. Intra-union disputes;
REMEDIES 3. Other related labor relations disputes

Availability of Judicial Review of the NLRC’s decision Q: Briefly discuss the powers and responsibilities of the
following in the scheme of the Labor Code: x x x (b)
Judicial review of NLRC’s decision is available through a Bureau of Labor Relations (2019 BAR)
petition for certiorari (Rule 65) which should be initially
filed with the CA in strict observance of the doctrine on the A: The BLR has the following administrative functions:
hierarchy of courts as the appropriate forum for the relief a. Registration of labor unions;
desired. The CA is procedurally equipped to resolve unclear b. Keeping of registry of labor unions; and
or ambiguous factual finding, aside from the increased c. Maintenance and custody of CBAs
number of its component divisions. (St. Martin Funeral
Home v. NLRC, G.R. No. 130866 [1998]) Decisions Appealable to the BLR

Injunction or a temporary restraining order (TRO) 1. Decisions of the Labor Relations Divisions in the
Regional Offices of the DOLE denying the registration
The power of the NLRC to enjoin or restrain, any actual or of labor unions are appealable by the applicant union
threatened, commission of, any or all, prohibited or to the BLR within 10 days from receipt of notice
unlawful acts under Art. 225 of LC can only be exercised in thereof. (LC, Art. 243)
labor disputes.
2. Decisions of Med-Arbiters in intra-union disputes.
Persons Authorized to Issue a TRO
However, under Art. 272 of the LC, the decisions of the
1. President (LC, Art. 278[g]) Med-Arbiter in inter-union disputes (certification elections)
2. SOLE (LC, Art. 278[g]) are not appealable to the BLR but to the SOLE. (Poquiz, Vol.
3. NLRC (LC, Art. 225) 2, 2018, p. 97)

COURT OF APPEALS NATIONAL CONCILIATION AND MEDIATION BOARD
(Rules of Court, Rule 65) (NCMB)

GR: Decisions of the DOLE Secretary, NLRC, and BLR in its The NCMB refers to the agency attached to the DOLE
appellate jurisdiction, are NOT appealable to the CA as per principally in-charge of the settlement of labor disputes
the St. Martin Ruling. However, their decisions may be through conciliation, mediation and of the promotion of
elevated to the CA via petition for certiorari under rule voluntary approaches to labor dispute prevention and
65. settlement.

XPN: Rule 43 of Rules of Court – Appeals from the Court NCMB is NOT a Quasi-judicial agency
of Tax Appeals and Quasi-Judicial Agencies to the Court of
Appeals. NCMB is not a quasi-judicial agency. Thus, the NCMB’s
ruling cannot be elevated to, and be cognizable by, the
SUPREME COURT Court of Appeals.
(Rules of Court, Rule 45)
Rule 43 of the Rules of Court applies only to awards,
How to Appeal from a Judgment, or Final Order or judgments, final orders or resolutions of or authorized by
Resolution, of the Court of Appeals any quasi-judicial agency in the exercise of its quasi-judicial
functions. Hence, NCMB’s decision, not having been
rendered by a quasi-judicial body, cannot be elevated to the
Court of Appeals under the said rule.

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 Labor law
NOTE: The NCBM’s conciliation and mediation functions carrying messages back reaching their own
are discharged by its Conciliators-Mediators. (Poquiz, Vol. 2, and forth between the mutually acceptable
2018, p. 112) parties, and generally being settlement of the dispute.
a good fellow who tries to
Jurisdiction over Conciliation. Mediation, and keep things calm and
Voluntary Arbitration Cases forward-looking in a tense
situation.
Cases arising from the implementation or interpretation of It is the process where a It is when a 3rd party
CBAs that are the subject of grievance procedure and/or disinterested 3rd party studies each side of the
voluntary arbitration are cognizable by the NCMB. meets with management dispute then makes
and labor, at their request proposals for the
Alternative Modes of Settlement of Labor Dispute or otherwise, during a labor disputants to consider. The
dispute or in CB mediator cannot make an
1. Voluntary Arbitration conferences, and by cooling award nor render a
2. Conciliation tempers, aids in reaching decision.
3. Mediation an agreement.

ALL Labor Disputes are Required to be Submitted to Preventive Mediation
Mandatory Conciliation-Mediation
A preventive mediation case refers to the potential labor
GR: All issues arising from labor and employment shall be dispute which is the subject of a formal or informal request
subject to mandatory conciliation-mediation. The LA or the for conciliation and mediation assistance sought by either
appropriate DOLE agency or office that has jurisdiction over or both parties or upon the initiative of the NCMB to avoid
the dispute shall entertain only endorsed or referred cases the occurrence of an actual labor dispute.
by the duly authorized officer. (LC, as amended by RA
103960, Art. 234[a]) How to Initiate Preventive Mediation

XPNs: Preventive mediation proceeding may be initiated in two
1. Grievance machinery and Voluntary Arbitration, in (2) ways:
which case, their agreement will govern; 1. By filing a notice or request of preventive mediation,
2. When excepted by the SLE. (Ibid.) as distinguished from a notice of strike/lockout, or
2. By conversion of the notice of strike/lockout into a
NOTE: Any or both parties involved in the dispute may pre- preventive mediation case.
terminate the conciliation-mediation proceedings and
request referral or endorsement to the appropriate DOLE DOLE REGIONAL DIRECTOR
agency or office which has jurisdiction over the dispute, or
if both parties so agree, refer the unresolved issues to Jurisdiction of the DOLE Regional Directors
voluntary arbitration. (LC, as amended by RA 103960, Art.
234[a]) The Dole Regional Directors have original and exclusive
jurisdiction over the following cases:
Court Cannot Fix Resort to Voluntary Arbitration
1. Labor standards enforcement cases under Art. 128;
Resort to VA dispute should not be fixed by the court but by 2. Small money claims cases arising from labor
the parties relying on their strengths and resources. standards violations in the amount not exceeding
P5,000.00 and not accompanied with a claim or
Legal Basis of Conciliation and Mediation reinstatement under Art. 129;
3. Occupational safety and health violation;
The State shall promote x x x the preferential use of 4. Registration of unions and cancellation thereof, cases
voluntary modes of settling disputes including filed against unions and other labor relations related
conciliation and shall ensure mutual compliance by the cases;
parties thereof in order to foster industrial peace. (1987 5. Complaints against private recruitment and
Constitution, Art. 13, Sec. 3) placement agencies for local employment; and
6. Cases submitted to them for voluntary arbitration in
NOTE: A similar provision is echoed in the Declaration of their capacity as Ex-Officio Voluntary Arbitrators
Policy under Art. 218(a) of the LC, as amended. under D.O. No. 83-07, Series of 2007.

Conciliation as distinguished from Mediation Recovery and Adjudicatory Power

CONCILIATION MEDIATION The RD or any of his duly authorized hearing officers is
An intervention by a An intervention by a empowered through summary proceeding and after due
neutral third party neutral third party notice, to hear and decide cases involving recovery of wages
and other monetary claims and benefits, including legal
The conciliator relies on his The mediator starts
interests.
persuasive expertise and advising the parties or

takes an active role in offering solutions or
assisting parties by trying alternatives to the DOLE SECRETARY
to keep disputants talking, problems with the end in
facilitating other view of assisting them Jurisdiction of the SOLE
procedural niceties, towards voluntarily

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1. Assumption of jurisdiction over cases where labor 4. Require Ers to keep and maintain such
disputes are likely to cause a strike or lockout in an employment records as may be necessary in
industry indispensable to national interest (D.O. 40-
G03, S 2010) aid to the visitorial and enforcement powers;
2. Visitorial powers to over employers (Art. 128) 5. Conduct hearings within 24 hours to
3. Issue a writ of execution on a judgment (Art. 224) determine whether:
4. Suspend the effects of the termination pending a. An order for stoppage of work or
resolution of the dispute in the event of a prima facie
finding by the appropriate official of the Department suspension of operations shall be lifted
of Labor and Employment before whom such dispute or not; and
is pending that the termination may cause a serious b. Er shall pay the concerned Ees their
labor dispute or is in implementation of a mass lay-off salaries in case the violation is
[Art. 292 (b)]
attributable to his fault. (as amended by
Cases within the Appellate Jurisdiction of the SOLE RA 7730, Guico v. Secretary, G.R. No.
131750 [1998])
1. Appeal from and adverse decision of the POEA. (2003
POEA Rules and Regulations, Rule V, Part VII, Sec. 1; Powers of SOLE regarding Voluntary Arbitration
Eastern Mediterranean Maritime Ltd. and Agemar
Manning Agency Inc., v. Surio et. al., G.R. No. 154213 The SOLE may authorize any official to act as Voluntary
[2012]) Arbitrator upon the written request and agreement of the
parties to a labor dispute. (LC, Art. 219 [n]) He shall also
2. Appeal the order or results of a certification election approve, upon recommendation of the NCMB the guidelines
on the ground that the Rules and Regulations or parts in administering the Voluntary Arbitration Fund. (LC, Art.
thereof established by the SLE for the conduct of 276 [f])
election have been violated. (LC, Art. 259)
Power to Suspend Effects of Termination
3. A review of cancellation proceedings decided by the
BLR in the exercise of its exclusive and original The SOLE may suspend the effects of the termination
jurisdiction. (Abbott Laboratories Philippines, Inc. pending resolution of the dispute in the event of a prima
v. Abbott Laboratories Employees Union, G.R. No. facie finding by the appropriate official of the DOLE before
131374 [2000]) whom such dispute is pending that the termination may
cause serious labor dispute or is in implementation of a
NOTE: The SOLE has no jurisdiction over decisions of the mass layoff. (LC, Art. 292[b])
BLR rendered in the exercise of its appellate power to
review the decision of the RD in a petition to cancel the NOTE: Art. 292(b) of LC is applicable on suspension of the
union's certificate of registration, said decisions being final effects of termination if there is a showing that the
and unappealable. (Ibid.) termination may cause serious labor dispute within the
company while Art. 278(g) of LC on assumption of
Visitorial Power jurisdiction is applicable in cases of strike in establishments
affecting national interest, not just the company.
It constitutes:
1. Access to Er’s records and premises at any time of the Reinstatement Pending Resolution Of The Termination
day or night, whenever work is being undertaken; Dispute
2. To copy from said records;
3. Question any Ee and investigate any fact, condition or Suspension of the effects of termination will necessarily
matter which may be necessary to determine result in the immediate reinstatement of the terminated
violations or which may aid in the enforcement of the employees. An order of reinstatement pending resolution of
LC and of any wage order, or rules and regulation the case may thus be issued by the SOLE pursuant to this
issued pursuant thereto. power.

Enforcement Power Remedies

It is the power of the SOLE to: The remedy of an aggrieved party in a decision or resolution
1. Issue compliance orders; of the SOLE is to timely file a motion for reconsideration
2. Issue writs of execution for the enforcement as a precondition for any further or subsequent remedy,
of their orders, except in cases where the Er and then seasonably file a special civil action for certiorari
under Rule 65 of the 1997 Rules on Civil Procedure.
contests the findings of the labor officer and (Pildtranco Service Enterprises, Inc. v. PHILTRANCO
raise issues supported by documentary proof Worker’s Association, G.R. No. 180962 [2014])
which were not considered in the course of
inspection; See also discussion on Assumption of Jurisdiction under
Peaceful Concerted Activities.
3. Order stoppage of work or suspension of
operation when non-compliance with the law VOLUNTARY ARBITRATOR
or IRR poses grave and imminent danger to
health and safety of workers in the workplace; Cases falling under the Jurisdiction of the Grievance
Machinery

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 Labor law
Any grievance arising from:
1. The interpretation or implementation of the CBA; and NOTE: The propriety of filing a motion for reconsideration
2. The interpretation or enforcement of company was confirmed in Coca-Cola Bottlers Phil., etc. v. Coca-Cola
personnel policies (G.R. No. 155651 [2005]).

Both the Er and the Bargaining Representative of the Appeal
Ees are Required to Go through the Grievance
Machinery GR: Decisions of VA are final and executory after 10
calendar days from receipt of the copy of the award or
It is but logical, just and equitable that whoever is aggrieved decision by the parties. (LC, Art. 276)
should initiate settlement of grievance through the
grievance machinery. To impose compulsory procedure on XPN: Decisions of VA may still be subject to judicial review.
Ers alone would be oppressive of capital.
NOTE: Art. 276 deleted the word “unappealable” from Art.
Jurisdiction of Voluntary Arbitrator 278. It makes the voluntary arbitration award final and
executory after 10 calendar days from receipt of the copy of
Under the Labor Code, the jurisdiction of the Voluntary the award or decision by the parties. Presumably, the
Arbitrator or Panel of Voluntary Arbitrators include decision may still be reconsidered by the VA on the basis of
disputes involving: a motion for reconsideration duly filed during that period.
(Albert Teng v. Alfredo Pahagac, G.R. No. 169704 [2010])
a. Unresolved grievances arising from the
interpretation or implementation of a CBA; Mode of Appeal from VA to CA
b. The interpretation or enforcement of company
personnel policies; and In the case of Samahan ng Manggawa sa HYATT v. Bacungan,
c. All labor disputes, upon agreement of the parties, (G.R. No. 149050 [2009]), the Supreme Court ruled that a
including unfair labor practices and bargaining decision or award of a Voluntary arbitrator is appealable to
deadlock. the CA via petition for review under Rule 43, not Rule 65.

Powers of Voluntary Arbitrators The reason for this rule was explained in the case of Nippon
Paint Union v. CA, which the SC ruled that the mode of appeal
a. Adjudicatory power. (No. 64, NCMB Primer on from VA to CA is a petition for review under Rule 43. It is
Grievance Settlement and Voluntary Arbitration) not Rule 65 because a petition for certiorari, under that Rule
b. Compulsory power. (No. 80, Ibid) lies only where there is “no appeal” and “no plain, speed,
c. Power to conciliate and mediate. (No. 65, Ibid.) and adequate remedy in the ordinary course of law.”
d. Power to encourage the parties to enter into a Certiorari is not a substitute for a lapsed appeal.
stipulation of facts. (Rule V, NCMB Revised Procedural
Guidelines in the Conduct of Voluntary Arbitration XPNs: The Court cited situations when petition for
Proceedings) certiorari, despite availability of appeal, may be
e. Power to issue writ of execution. (Sec. 3, Ibid.) (Poquiz, entertained, such as:
2018, Vol. 2, p. 352)
1. When public welfare and advancement of public policy
Who will Designate the Voluntary Arbitrator / Panel in dictates;
Case the Parties Fail to Select 2. When the broader interest of justice so requires;
3. When the writs issued are null and void; or
It is the NCMB that shall designate the VA panel based on 4. When the questioned order amounts to an oppressive
the selection procedure provided by the CBA. (Manila exercise of judicial authority. (Azucena, Vol. 2, 2016, pp.
Central Line Free Workers Union v. Manila Central Line Corp., 561-562)
G.R. No. 109383 [1998])
NOTE: A VA by the nature of his functions acts in quasi-
Labor Arbiters can be Designated as Voluntary judicial capacity. There is no reason why the VA’s decisions
Arbitrators involving interpretation of law should be beyond the SC’s
review. Administrative officials are presumed to act in
There is nothing in the law that prohibits LAs from also accordance with law, yet the SC will not hesitate to pass
acting as voluntary arbitrators as long as the parties agree upon their work where a question of law is involved or
to have him hear and decide their dispute. (Manila Central where a showing of abuse of authority or discretion in their
Line Free Workers Union v. Manila Central Line Corp., G.R. No. official acts is properly raised in petitions for certiorari.
109383[1998]) (Continental Marble Corporation v. NLRC, G.R. No. L-43825
[1988])
Remedies

Motion for Reconsideration

As a general rule, pursuant to Sec. 7, Rule XIX of D.O. No.
No. 40-03, decision, order, resolution or award of the
voluntary arbitrator shall not be subject of a motion for
reconsideration. However, this rule cannot stand in a
petition for a writ of certiorari because such petition
inherently requires having filed a motion for
reconsideration. (Azucena, Vol. 2, 2016, p. 559)

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 Labor law

PRESCRIPTION OF ACTIONS

SUBJECT PRESCRIPTIVE PERIOD
Criminal Offenses penalized under 3 years from the date of commission or discovery thereof (People v. Duque, 212 SCRA
the LC and its IRR 607 [1992])
ULP 1 year from accrual of such ULP; otherwise forever barred (LC, Art. 305)
Money Claims
GR: 3 years from the time the cause of action accrued; otherwise forever barred (LC,

Art. 306)
[including incremental proceeds arising

from tuition fees under PD451 (MLQU
XPN: Promissory Estoppel
Association v. MLQU, G.R. No. 82312

[1989])
All money claims accruing prior to the Within 1 year from the date of effectivity, in accordance with IRR; otherwise, they
effectivity of the LC shall forever be barred
4 years. It commences to run from the date of formal dismissal. [Mendoza v. NLRC,
Illegal Dismissal
G.R. No. 122481 (1998)]

4 years – Since an award of backwages is merely consequent to a declaration of illegal

Claim for Backwages
dismissal. (Arriola v. Pilipino Star Ngayon, Inc., G.R. No. 175689 [2014])

Workmen’s Compensation claims

Dec. 31, 1974 shall be filed not later than Mar. 31, 1975 before the appropriate
accruing prior to the effectivity of the LC
regional offices of the DOLE. (LC, Art. 306)
and between Nov. 1, 1974-Dec. 31, 1974
Reinstatement 4 years (Callanta v. Carnation, G.R. No. 70615 [1986])
Simple Illegal Recruitment 5 years (RA 8042)
Syndicated or Large-scale
20 years (RA 8042)
Illegal Recruitment
After 3 years from the date of submission of the annual financial report to the DOLE
Union funds or from the date the same should have been submitted as required by law, whichever
comes earlier. (IRR of LC, Book VII, Rule II, Sec. 5)
20 years from the time of delinquency is known or the assessment is made or the
SSS Violations
benefit accrues as the case may be (RA 8282)(Lo v. CA, G.R. No. 128667 [1999])
GR: 10 years from the date of contingency
SSS Benefits
XPN: Life insurance and retirement. (SSS Office Order No. 2015-005)
GR: 4 years
GSIS Benefits
XPN: Life and retirement benefits – Imprescriptible
Employee’s Compensation Claims 3 years from accrual of cause of action

Q: For purposes of prescription, within what periods d. Offenses under the Labor Code
from the time the cause of action accrued should the
following cases be filed: (2019 BAR) A: Offenses penalized under this Code and the rules and
regulations issued pursuant thereto shall prescribe in three
a. Money claims arising from Er-Ee relations (3) years. (ibid.)

A: All money claims arising from employer-employee e. Illegal recruitment
relations accruing during the effectivity of this Code shall be
filed within three (3) years from the time the cause of A: Illegal recruitment cases under this Act shall prescribe in
action accrued; otherwise they shall be forever barred. (LC, five (5) years: Provided, however, that illegal recruitment
Art. 306 [291]) cases involving economic sabotage as defined herein shall
prescribe in twenty (20) years. (Sec. 12, R.A. 8042)
b. Illegal dismissal
Note that R.A. 8042 only applies to Migrant Workers. Illegal
A: The prescriptive period for filing an illegal dismissal recruitment for local employment is subject to the
complaint is four years from the time the cause of action provisions of the Labor Code, in particular, Art. 305, first
accrued. (Teekay Shipping Philippines, Inc., v. Ramier paragraph, to wit: offenses penalized under this Code x x x
Concha, G.R. No. 185463 [2012]; Art. 1146, Civil Code) shall prescribe in three (3) years.

c. Unfair labor practice

A: All unfair labor practices arising from Book V shall be
filed with the appropriate agency within one (1) year from
accrual of such unfair labor practice; otherwise, they shall
be forever barred. (LC, Art. 305)

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 University of Santo Tomas
Faculty of Civil Law

TAXATION LAW
PRE-WEEK NOTES


TAXATION LAW COMMITTEE

COMMITTEE HEAD: Ma. Selyna V. Roño

MEMBERS: Louize Allaine T. Areño, Lesley Ysabel B. Sumagpang, Marfe B.
Gaddi, Airei Kim P. Guanga, Patricia Anne D. Bautista, Mervin Angelo V.
Manalo


Atty. Kenneth Glenn L. Manuel
Atty. Clarice Angeline V. Questin
ADVISERS
 Taxation Law
for non-payment of other kinds of taxes where the law so
BASIC PRINCIPLES OF TAXATION expressly provides. (Dimaampao, 2015)
IN THE CONSTITUTION
UNIFORMITY AND EQUALITY OF TAXATION
Q: What is the lifeblood doctrine?
BASIS: The rule of taxation shall be uniform and equitable.
A: Taxes are the lifeblood of the nation through which the The Congress shall evolve a progressive system of taxation.
government agencies continue to operate and with which (Art. VI, Sec. 28(1))
the State effects its functions for the welfare of its
constituents. (CIR v CTA, G.R. No. 106611, July 21, 1994) Q: Explain the following concepts in taxation:
a. Uniformity;
Taxes should be collected promptly. No court shall have the b. Equitability; and
authority to grant an injunction to restrain the collection of c. Equality.
any internal revenue tax, fee or charge imposed by the NIRC.
(Angeles City v. Angeles Electric Cooperation, 622 SCRA 43, A:
2010) a. Uniformity – It means that all taxable articles or kinds
of property of the same class shall be taxed at the same
Q: What is the Necessity Theory? rate.

A: The theory behind the exercise of the power to tax A tax is considered uniform when it operates with the same
emanates from necessity. Without taxes, the government force and effect in every place where the subject is found.
cannot fulfill its mandate of promoting the general welfare Different articles may be taxed at different amounts
and well-being of the people. (Gerochi v. DOE, G.R. No. provided that the rate is uniform on the same class
159796, July 17, 2007) everywhere, with all people at all times.

Q: Explain the Benefits-Received Theory. b. Equitability – Taxation is said to be equitable when its
burden falls on those better able to pay.
A: Taxes are what we pay for a civilized society. Without
taxes, the government would be paralyzed for lack of c. Equality – It is accomplished when the burden of the
motive power to activate and operate it. Hence, despite the tax falls equally and impartially upon all the persons
natural reluctance to surrender part of one’s earned income and property subject to it.
to the taxing authorities, every person who is able must
contribute his share in the running of the government. The Q: Explain the requirement of uniformity as a limitation
government, for its part, is expected to respond in the form in the imposition and/or collection of taxes. (1998
of tangible and intangible benefits intended to improve the BAR)
lives of the people and enhance their material and moral
values. (CIR v. Algue, G.R. No. L-28896, February 17, 1988) A: Uniformity in the imposition and/or collection of taxes
means that all taxable articles, or kinds of property of the
CONSTITUTIONAL LIMITATIONS ON TAXATION same class shall be taxed at the same rate. The requirement
of uniformity is complied with when the tax operates with

the same force and effect in every place where the subject
Taxation, being inherent in sovereignty, need not be clothed
of it is found (Churchill & Tait v. Concepcion, 34 Phil. 969).
with any constitutional authority for it to be exercised by
Different articles may be taxed at different amounts
the sovereign state. Instead, constitutional provisions are
provided that the rate is uniform on the same class
meant and intended more to regulate and define, rather
everywhere with all people at all times. Accordingly,
than to grant, the power emanating therefrom.
singling out one particular class for taxation purposes does

not infringe the requirement of uniformity.
CONSTITUTIONAL LIMITATIONS:

PROVISIONS DIRECTLY AFFECTING TAXATION
Q: A law was passed exempting doctors and lawyers

from the operation of the value-added tax. Other
PROHIBITION AGAINST IMPRISONMENT FOR NON-
professionals complained and filed a suit questioning
PAYMENT OF POLL TAX
the law for being discriminatory and violative of the

equal protection clause of the Constitution since
BASIS: No person shall be imprisoned for debt or non-
complainants were not given the same exemption. Is
payment of a poll tax. (Art. III, Sec. 20)
the suit meritorious or not? Reason briefly. (2004 BAR)


A poll tax is one levied on persons who are residents within
A: YES, the suit is meritorious. The VAT is designed for
the territory of the taxing authority without regard to their
economic efficiency. Hence, should be neutral to those who
property, business, or occupation. Thus, only the basic
belong to the same class. Professionals are a class of
community tax under the LGC could qualify as a poll tax, and
taxpayers by themselves who, in compliance with the rule
the non-payment of other (additional) taxes imposed, not
of equality of taxation, must be treated alike for tax
being in the nature of poll taxes, may validly be subjected by
purposes. Exempting lawyers and doctors from a burden to
law to imprisonment. (Vitug, 2006)
which other professionals are subjected will make the law

discriminatory and violative of the equal protection clause
In other words, while a person may not be imprisoned for
of the Constitution. While singling out a class for taxation
non-payment of a cedula or poll tax, he may be imprisoned
purposes will not infringe upon this constitutional
limitation (Shell v. Vano, 94 Phil. 389 (1954)), singling out a

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 Taxation Law
taxpayer from a class will no doubt transgress the avoid regressive taxes but only minimize them. (Tolentino
constitutional limitation [Ormoc Sugar Co. Inc., v. Treasurer et.al. v. Secretary of Finance, G.R. No. 115455, Oct. 30, 1995)
of Ormoc City, 22 SCRA 603 (1968)]. Treating doctors and
lawyers as a different class of professionals will not comply GRANT BY CONGRESS OF AUTHORITY TO
with the requirements of reasonable, hence a valid THE PRESIDENT TO IMPOSE TARIFF RATES
classification, because the classification is not based upon
substantial distinction which makes real differences. The BASIS: The Congress may, by law, authorize the President
classification does not comply with the requirement that it to fix within specified limits and subject to such limitations
should be germane to the purpose of the law either. (Pepsi- and restrictions at it may impose, tariff rates, import and
Cola Bottling Co., Inc. v. City of Butuan, 24 SCRA 789 (1968)) export quotas, tonnage and wharfage dues and other duties
or imposts within the framework of the national
NOTE: A levy of tax is not unconstitutional because it is not development program of the Government. (Art. VI, Sec. 28
intrinsically equal and uniform in its operation. The (2))
uniformity rule does not prohibit classification for purposes
of taxation. (British American Tobacco v. Jose Isidro N. Flexible tariff clause
Camacho, G.R. No. 163583, April 15, 2009)
This clause provides the authority given to the President to
Uniformity in taxation, like the kindred concept of equal adjust tariff rates under Sec. 1608 of R.A. 10863, known as
protection, merely requires that all subjects or objects of Customs Modernization and Tariff Act (CMTA) of 2016. This
taxation, similarly situated, are to be treated alike both in authority, however, is subject to limitations and restrictions
privileges and liabilities. Uniformity does not forfend indicated within the law itself.
classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary; (2) the Requisites on the authority of the President in imposing
categorization is germane to achieve the legislative tax
purpose; (3) the law applies, all things being equal, to both
present and future conditions; and (4) the classification 1. Delegated by Congress through a law – The
applies equally well to all those belonging to the same class. authorization granted to the President must be
(Rufino R. Tan v. Ramon R. Del Rosario, Jr., G.R. Nos. 109289, embodied in a law. Hence, the justification cannot
October 3, 1994, 237 SCRA 324) All of the foregoing be supplied simply by inherent executive powers.
requirements of a valid classification having been met and
those which are singled out are a class in themselves, there It is Congress which authorizes the President to impose
is no violation of the “Equal Protection Clause” of the tariff rates, import and export quotas, tonnage and
Constitution. wharfage dues, and other duties or imposts. Thus, the
authority cannot come from the Finance Department, the
Q: Does the 20% Sales Discount for Senior Citizens and National Economic Development Authority, or the World
Persons with Disabilities violates the constitutional Trade Organization, no matter how insistent or persistent
right of equal protection clause? these bodies may be. (Southern Cross Cement Corporation v.
Cement Manufacturers Association of the Phil., G.R. No.
A: NO. The equal protection clause is not infringed by 158540, August 3, 2005)
legislation which applies only to those falling within a
specified class. If the groupings are characterized by 2. Subject to Congressional limits and restrictions –
substantial distinctions that make real differences, one class The authorization to the President can be exercised
may be treated and regulated differently from another. only within the specified limits set in the law and is
(Southern Luzon Drug Corporation v. DSWD, G.R. No. 199669, further subject to limitations and restrictions
April 25, 2017) which Congress may impose. Consequently, if
Congress specifies that the tariff rates should not
Progressive taxation exceed a given amount, the President cannot
impose a tariff rate that exceeds such amount.
Taxation is progressive when tax rate increases as the
income of the taxpayer increases. It is based on the principle Assuming there is a conflict between the specific limitation
that those who are able to pay more should shoulder the in the Constitution and the general executive power of
bigger portion of the tax burden. control and supervision, the former prevails in the specific
instance of safeguard measures such as tariffs and imposts
Q: Does the Constitution prohibit regressive taxes? and would thus serve to qualify the general grant to the
President of the power to exercise control and supervision
A: NO, the Constitution does not really prohibit the over his/her subalterns. (Southern Cross Cement
imposition of regressive taxes. What it simply provides is Corporation v. Cement Manufacturers Association of the Phil.,
that Congress shall evolve a progressive system of taxation. G.R. No. 158540, August 3, 2005)

Meaning of “evolve” as used in the Constitution 3. Within the framework of national development
program.
The constitutional provision has been interpreted to mean
simply that "direct taxes are to be preferred and as much as PROHIBITION AGAINST TAXATION OF RELIGIOUS,
possible, indirect taxes should be minimized.” The mandate CHARITABLE ENTITIES, AND EDUCATIONAL ENTITIES
of Congress is not to prescribe but to evolve a progressive
tax system. This is a mere directive upon Congress, not a BASIS: Charitable institutions, churches and parsonages or
justiciable right or a legally enforceable one. We cannot convents appurtenant thereto, mosques, non-profit

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 Taxation Law
cemeteries, and all lands, buildings, and improvements, The words “dominant use” or “principal use” cannot be
actually, directly, and exclusively used for religious, substituted for the words “used exclusively” without doing
charitable, or educational purposes shall be exempt from violence to the Constitution and the law.
taxation. (Art. IV, Sec. 28 (3))
In sum, the Court ruled that the portions of the land leased
Q: What is the coverage of tax exemption? to private entities as well as those parts of the hospital
leased to private individuals are not exempt from taxes.
A: It covers real property taxes only. Accordingly, a
conveyance of such exempt property can be subject to Rules on taxation of non-stock corporations for
transfer taxes. charitable and religious purposes

Properties exempt under the Constitution from the 1. For purposes of income taxation
payment of property taxes
a. The income of non-stock corporations
1. Charitable institutions; operating exclusively for charitable and
2. Churches and parsonages or convents appurtenant religious purposes, no part of which inures to
thereto; the benefit of any member, organizer, officer,
3. Mosques; or any specific person, shall be exempt from
4. Non-profit cemeteries; and tax.
5. All lands, buildings, and improvements actually,
directly and exclusively used for religious, charitable or However, the income of whatever kind and nature from any
educational purposes shall be exempt from taxation. of their properties, real or personal or from any of their
(Art. VI, Sec. 28(3)) activities for profit regardless of the disposition made of
such income shall be subject to tax. (Sec. 30 (E) and last par.,
Meaning of “charitable” NIRC)

It is not restricted to relief of the poor or sick. The test NOTE: An organization may be considered as non-profit if
whether an enterprise is charitable or not is whether it it does not distribute any part of its income to stockholders
exists to carry out a purpose recognized in law as charitable or members. However, despite its being a tax-exempt
or whether it is maintained for gain, profit, or private institution, any income such institution earns from
advantage. (Lung Center of the Philippines v. Quezon City, G.R. activities conducted for profit is taxable, as expressly
No. 144104, June 29, 2004) provided in the last paragraph of Sec. 30. (CIR v. St. Luke’s
Medical Center, Inc., G.R. No. 195909, September 26, 2012)
Also, an organization must meet the substantive test of
charity. Charity is essentially a gift to an indefinite number Refer to “Income Taxation – Corporations exempt from
of persons which lessens the burden of government. In Income Tax” for further discussion.
other words, charitable institutions provide for free goods
and services to the public which would otherwise fall on the b. Donations received by religious, charitable,
shoulders of government. (CIR v. St. Luke’s Medical Center, and educational institutions are considered as
Inc., G.R. No. 195909 September 26, 2012) income but not taxable income as they are
items of exclusion. (Sec. 32(B)(3), NIRC)
Meaning of “actual, direct and exclusive use of the
property for religious, charitable, and educational On the part of the donor, such donations are deductible
purposes” expense provided that no part of the income of which inures
to the benefit of any private stockholder or individual in an
It is the direct, immediate, and actual application of the amount not exceeding 10% in case of individual, and 5% in
property itself to the purposes for which the charitable case of a corporation, of the taxpayer’s taxable income
institution is organized. It is not the use of the income from derived from trade or business or profession. (Sec. 34 (H),
the real property that is determinative of whether the NIRC)
property is used for tax-exempt purposes.
2. For purposes of estate tax – Donations in favor of
NOTE: In the case of Lung Center of the Philippines v. City charitable institutions are generally not subject to
Assessor of Quezon City (433 SCRA 119), the Court ruled that tax. Provided, however, that not more than 30% of the
under the 1987 Constitution, for “lands, buildings, and said bequests, devises, legacies, or transfers shall be
improvements” of the charitable institution to be used by such institutions for administration purposes.
considered exempt, the same should not only be (Sec. 87(D), NIRC)
“exclusively” used for charitable purposes; it is required
that such property be used “actually” and “directly” for such 3. For purposes of donor’s tax – Donations in favor of
purposes. religious and charitable institutions are generally not
subject to tax provided, however, that not more than
“Exclusive” is defined as possessed and enjoyed to the 30% of the said bequests, devises, legacies, or transfers
exclusion of others; debarred from participation or shall be used by such institutions for administration
enjoyment; and “exclusively” is defined, “in a manner to purposes. (Sec. 101, NIRC)
exclude; as enjoying a privilege exclusively.” If real property
is used for one or more commercial purposes, it is not SUMMARY OF RULES ON EXEMPTION OF PROPERTIES
exclusively used for the exempted purposes but is subject ACTUALLY, DIRECTLY, AND EXCLUSIVELY USED FOR
to taxation.

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 Taxation Law
RELIGIOUS, EDUCATIONAL AND CHARITABLE The last paragraph of Section 30 of the Tax Code is without
PURPOSES force and effect with respect to non-stock, nonprofit
educational institutions. Provided, that the non-stock,
Covers real property tax only. The nonprofit educational institutions prove that its assets and
Coverage of income of whatever kind and nature revenues are used actually, directly, and exclusively for
constitutional from any of their properties, real or educational purposes. Moreover, the tax-exemption
provision personal, or from any of their constitutionally granted to nonstock, nonprofit educational
activities for profit regardless of the institutions, is not subject to limitations imposed by law.
disposition made of such income
shall be subject to tax. The tax exemption granted by the Constitution to non-stock,
Requisite to Property must be “actually, directly, nonprofit educational institutions is conditioned only on
avail of this and exclusively used” by religious, the actual, direct, and exclusive use of their assets,
exemption charitable, and educational revenues, and income for educational purposes. A plain
institutions. reading of the Constitution would show that Article XIV,
Test for the Use of the property for such Section 4(3) does not require that the revenues and income
grant of this purposes, not the ownership thereof. must have also been sourced from educational activities or
exemption activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any
NOTE: Under the 1987 Constitution, the doctrine of reference to the source of revenues.
exemption by incidental purpose is no longer applicable.
Such doctrine is only applicable to cases where the cause of When a non-stock, nonprofit educational institution proves
action arose under the 1935 Constitution. Under the 1987 that it uses its revenues actually, directly, and exclusively
Constitution, it must be proved that the properties are for educational purposes, it shall be exempted from income
ACTUALLY, DIRECTLY, and EXCLUSIVELY used for the tax, value-added tax, and local business tax. On the other
purpose of institution for the exemption to be granted. hand, when it also shows that it uses its assets in the form
(Sababan, 2008) of real property for educational purposes, it shall be
exempted from real property tax. (CIR vs. De La Salle
PROHIBITION AGAINST TAXATION OF NON-STOCK, University, Inc., G.R. No. 196596, November 9, 2016)
NON-PROFIT EDUCATIONAL INSTITUTIONS
Refer to “Income tax – Proprietary educational institutions
BASIS: All revenues and assets of non-stock, non-profit and non-profit hospitals” for further discussion.
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from Q: UP is the registered owner of a parcel of land. UP
taxes and duties. entered into a contract of lease with ALI (Ayala Land
Inc.) over the subject land on 27 October 2006. The
Subject to conditions prescribed by law, all grants, leased property is now known as the UP-Ayala
endowments, donations, or contributions used actually, Technohub. In a Notice of Assessment addressed to ALI
directly, and exclusively for educational purposes shall be dated 23 August 2012, ALI was informed that the
exempt from tax. (Sec 4 (3) and (4), Art XIV) subject property has been "reclassified and assessed
for taxation purposes with an assessed value of
Actually, directly, and exclusively used P499,500,000.00 effective 2009." For the first time and
without a prior Notice of Assessment, a Statement of
The use of the term “actually, directly, and exclusively used” Delinquency dated 27 May 2014 addressed to UP was
referring to religious institutions cannot be applied to non- issued by the City Treasurer demanding the payment of
stock, non-profit educational institutions. The provision of real property tax on the subject property amounting to
Article VI, Section 28(3) applies to religious, charitable, and P106,992,990.00 for the years 2009 to 2013 and the
educational institutions – while Article XIV applies solely to first quarter of 2014. Is UP liable for real property tax
non-stock, non-profit educational institutions. imposed on the subject property leased by ALI?

ART. XIV, SEC. ART. VI, SEC. A: NO. The enactment and passage of R.A. 9500 in 2008
4(3) 28(3) superseded Sections 205(d) and 234(a) of the Local
Grantee Non-stock, non- Religious, Government Code. Before the passage of Republic Act No.
profit educational, 9500, there was a need to determine who had beneficial use
educational charitable of UP's property before the property may be subjected to
institution real property tax. After the passage of R.A. 9500, there is a
Tax All taxes and Real Property need to determine whether UP's property is used for
Exemptions duties. Tax educational purposes or support thereof before the
Granted property may be subjected to real property tax.

Hence, in this case, we should apply its literal interpretation Section 22 of R.A. 9500 allows UP to lease and develop its
– “solely” – in consonance with the principle of strictissimi land subject to certain conditions. The Contract of Lease
juris. The word “exclusively” indicates that the provision is between UP and ALI shows that there is an intent to develop
mandatory. (J. Dimaampao, 2015, citing McGee v. Republic, "a prestigious and dynamic science and technology park,
94 Phil. 821) where research and technology-based collaborative
projects between technology and the academe thrive,
thereby becoming a catalyst for the development of the
information technology and information technology-

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 Taxation Law
enabled service". The development of the subject land is PRESIDENT’S VETO POWER ON APPROPRIATION,
clearly for an educational purpose, or at the very least, in REVENUE, TARIFF BILLS (ART BILL)
support of an educational purpose. (University of The
Philippines v. City Treasurer of Quezon City, G.R. 214044, June BASIS: The President shall have the power to veto any
19, 2019) particular item or items in an appropriation, revenue or
tariff bill but the veto shall not affect the item or items
MAJORITY VOTE OF CONGRESS FOR GRANT OF TAX which he does not object. (Art. VI, Sec. 27(2))
EXEMPTION
The item or items vetoed shall be returned to the Lower
BASIS: No law granting any tax exemption shall be passed House of Congress together with the objections of the
without the concurrence of a majority of all the members of President. If after consideration 2/3 of all the members of
Congress. (Section 28 (4), Art. VI) such House shall agree to pass the bill, it shall be sent,
together with the objection, to the other House by which it
The inherent power of the State to impose taxes carries with shall likewise be considered, and if approved by 2/3 of all
it the power to grant tax exemptions. the members of that House, it shall become a law. (J.
Dimaampao, 2015)
Granting of exemptions
NOTE: The President can only veto particular item or items
Exemptions may be created: for ART Bills. The President cannot veto particular item or
items with regard to non-ART Bills; he can only veto them
1. By the Constitution; or as a whole.
2. By statute, subject to limitations as the Constitution
may provide. NON-IMPAIRMENT OF JURISDICTION
OF THE SUPREME COURT
Required vote for grant of tax exemption
BASIS: The Supreme Court shall have the power to review,
In granting tax exemptions, the absolute majority vote of all revise, reverse, modify, or affirm on appeal on certiorari as
the members of Congress is required. It means at least 50% the laws or the Rules of Court may provide, final judgments
plus 1 of all the members voting separately. (Art. VI, Sec. or orders of lower courts in all cases involving the legality
28(4), 1987 Constitution) of any tax, impost, assessment, or toll or any penalty
imposed in relation thereto. (Art. VIII, Sec. 5(2)(b))
Tax amnesties, tax condonations, and tax refunds are in the
nature of tax exemptions. Such being the case, a law NOTE: These jurisdictions are concurrent with the Regional
granting tax amnesties, tax condonations, and tax refunds Trial Court (RTC). Thus, the petition should generally be
requires the vote of an absolute majority of the members of filed with the RTC following the hierarchy of courts.
the Congress. However, questions on tax laws are usually filed directly
with the Supreme Court as these are impressed with
Required vote for withdrawal of such grant of tax paramount public interest. It is also provided under Art. VI,
exemption Sec. 30 of the Constitution that “no law shall be passed
increasing the appellate jurisdiction of the Supreme Court
A relative majority or plurality of votes is sufficient, that is, without its advice and concurrence.”
majority of a quorum.
The courts cannot inquire into the wisdom of a taxing act,
PROHIBITION ON USE OF TAX LEVIED FOR SPECIAL EXCEPT when there is an allegation of violation of
PURPOSE constitutional limitations or restrictions.

BASIS: All money collected on any tax levied for a special GRANT OF POWER TO THE LGUS TO CREATE ITS OWN
purpose shall be treated as a special fund and paid out for SOURCES OF REVENUE
such purpose only. If the purpose for which a special fund
was created has been fulfilled or abandoned, the balance, if BASIS: Each LGU shall have the power to create its own
any, shall be transferred to the general funds of the sources of revenues and to levy taxes, fees and charges
government. (Sec. 29(3), Art. VI) subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local
NOTE: In Gaston v. Republic Planters Bank, 158 SCRA 626, autonomy. Such taxes, fees, and charges shall accrue
the Court ruled that the “stabilization fees” collected by the exclusively to the local governments. (Art. X, Sec. 5)
State for the promotion of the sugar industry were in the
nature of taxes and no implied trust was created for the Justification in the delegation of legislative taxing
benefit of sugar industries. Thus, the revenues derived power to local governments
therefrom are to be treated as a special fund to be
administered for the purpose intended. No part thereof Delegation of legislative taxing power to local governments
may be used for the exclusive benefit of any private person is justified by the necessary implication that the power to
or entity but for the benefit of the entire sugar industry. create political corporations for purposes of local self-
Once the purpose is achieved, the balance, if any remaining, government carries with it the power to confer on such local
is to be transferred to the general funds of the government. government agencies the authority to tax.
(Vitug, 2006)
Exception to non-delegation of legislative powers

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 Taxation Law
The general principle against the delegation of legislative 1. Does R.A. 9337 violate Art. VI, Sec. 24 of the
powers as a consequence of the principle of separation of Constitution on exclusive origination of revenue
powers is subject to one well-established exception: bills?
legislative powers may be delegated to LGUs. Included in 2. Does R.A. 9337 violate Art. VI, Sec. 26(2) of the
this grant of legislative power is the grant of local taxing Constitution on the “No-Amendment Rule”?
power.
A:
Q: May Congress, under the 1987 Constitution, abolish 1. NO. It was H.B. Nos. 3555 and 3705 that initiated the
the power to tax of local governments? (2003 BAR) move for amending provisions of the NIRC dealing
mainly with the VAT. Upon transmittal of said House
A: NO. The Congress cannot abolish the local government’s bills to the Senate, the Senate came out with S.B. No.
power to tax as it cannot abrogate what is expressly granted 1950 proposing amendments not only to NIRC
by the fundamental law. The only authority conferred to provisions on the VAT but also amendments to NIRC
Congress is to provide the guidelines and limitations on the provisions on other kinds of taxes.
local government’s exercise of the power to tax.
Since there is no question that the revenue bill exclusively
The local government’s power to tax is the most originated in the House of Representatives, the Senate was
effective instrument to raise the needed revenues acting within its Constitutional power to introduce
amendments to the House bill when it included provisions
The right of LGUs to collect taxes due must always be upheld in S.B. No. 1950 amending corporate income taxes,
to avoid severe tax erosion. This consideration is consistent percentage, excise and franchise taxes. Verily, Art. VI, Sec.
with the State policy to guarantee the autonomy of the local 24 of the Constitution does not contain any prohibition or
government and the objective of the LGC that they enjoy limitation on the extent of the amendments that may be
genuine and meaningful local autonomy to empower them introduced by the Senate to the House revenue bill. The
to achieve their fullest development as self-reliant Senate can propose amendments and in fact, the
communities and make them effective partners in the amendments made are germane to the purpose of the house
attainment of national goals. (Dimaampao, 2015) bills, which is to raise revenues for the government. The
sections introduced by the Senate are germane to the
ORIGIN OF REVENUE AND TARIFF BILLS subject matter and purposes of the house bills, which is to
supplement our country’s fiscal deficit, among others. Thus,
BASIS: All appropriation, revenue or tariff bills, bills the Senate acted within its power to propose those
authorizing increase of the public debt, bills of local amendments.
application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may propose 2. NO. The “no-amendment rule” refers only to the
or concur with amendments. (Art VI, Sec. 24) procedure to be followed by each house of Congress
with regard to bills initiated in each of said respective
What is required to originate in the House of houses, before said bill is transmitted to the other
Representatives is not the law but the revenue bill which house for its concurrence or amendment. Verily, to
must “originate exclusively” in the lower house. The bill construe said provision in a way as to proscribe any
may undergo such extensive changes that the result may be further changes to a bill after one house has voted on it
a rewriting of the whole. The Senate may not only concur would lead to absurdity as this would mean that the
with amendments but also propose amendments. To deny other house of Congress would be deprived of its
the Senate's power not only to “concur with amendments” Constitutional power to amend or introduce changes to
but also to “propose amendments” would be to violate the said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution
coequality of legislative power of the two houses of cannot be taken to mean that the introduction by the
Congress and in fact make the House superior to the Senate. Bicameral Conference Committee of amendments and
(Tolentino v. Secretary of Finance, G.R. No. 115873, Aug. 25, modifications to disagreeing provisions in bills that
1994) have been acted upon by both houses of Congress is
prohibited. (ABAKADA Guro v. Executive Secretary, G.R.
Q: Why must appropriation, revenue, or tariff bills No. 168056, 168207, 168461, 168463 and 168730,
originate from the Congress? September 1, 2005)

A: On the theory that, elected as they are from the districts, NO APPROPRIATION OR USE OF PUBLIC MONEY FOR
the members of the House of Representatives can be RELIGIOUS PURPOSES
expected to be more sensitive to the local needs and
problems. BASIS: No public money or property shall be appropriated,
applied, paid, or employed directly or indirectly for the use,
Q: R.A. 9337 is a consolidation of three legislative bills benefit, or support of any sect, church, denomination,
namely, H.B. Nos. 3555 and 3705, and S.B. No. 1950. sectarian institution, or system of religion or of any priest,
Because of the conflicting provisions of the proposed preacher, minister, or other religious teacher or dignitary as
bills, the Senate agreed to the request of the House of such, except when such priest, preacher, minister or
Representatives for a committee conference. The dignitary is assigned to the armed forces or to any penal
Conference Committee on the Disagreeing Provisions of institution or government orphanage or leprosarium. (Art.
House Bill recommended the approval of its report, VI, Sec. 29(2))
which the Senate and the House of the Representatives
did. This is in consonance with the inviolable principle of
separation of the Church and State.

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 Taxation Law
CONSTITUTIONAL LIMITATIONS: PROVISIONS imposed. (1 Cooley 824-825; Sison Jr. v. Ancheta, G.R. No.
INDIRECTLY AFFECTING TAXATION 59431, July 25, 1984)

DUE PROCESS The power to select subjects of taxation and apportion the
public burden among them includes the power to make
BASIS: No person shall be deprived of life, liberty, or classifications. The inequalities which result in the singling
property without due process of law x x x. (Art. III, Sec. 1) out of one particular class for taxation or exemption
infringe no Constitutional limitation. (Lutz v. Araneta, G.R.
REQUIREMENTS OF No. L-7859, Dec. 22, 1955)
DUE PROCESS IN TAXATION
Requisites for a valid classification (PEGS)
Substantive Due Process
1. Apply both to present and future conditions
1. Tax must be for public purpose; and 2. Apply equally to all members of the same class
2. It must be imposed within territorial jurisdiction. 3. Must be germane to the purposes of the law
4. Must be based on substantial distinction
Procedural Due Process
Q: Is Revenue Memorandum Circular No. 47-91
No arbitrariness or oppression either in the assessment or classifying copra as an agricultural non-food product
collection. discriminatory and violative of the equal protection
clause?
Q: When is deprivation of life, liberty, and property by
the government done in compliance with due process? A: NO. It is not violative and not discriminatory because
there is a material or substantial difference between
A: If the act is done: coconut farmers and copra producers, on one hand, and
1. Under authority of a law that is valid or the Constitution copra traders and dealers, on the other. The former produce
itself (substantive due process); and and sell copra, the latter merely sells copra. The
2. After compliance with fair and reasonable methods of Constitution does not forbid the differential treatment of
procedure prescribed by law (procedural due process). persons, so long as there is reasonable basis for classifying
them differently. (Misamis Oriental Association of Coco
Q: When may violation of due process be invoked by the Traders Inc. v. Secretary of Finance, G.R. No. 108524,
taxpayer? November 10, 1994)

A: The due process clause may be invoked where a taxing Principle of Equality
statute is so arbitrary that it finds no support in the
Constitution, as where it can be shown to amount to a It admits of classification or distinctions as long as they are
confiscation of property. (Reyes v. Almanzor, G.R. Nos. L- based upon real and substantial differences between the
49839-46 April 26, 1991) persons, property, or privileges and those not taxed must
bear some reasonable relation to the object or purpose of
While it is true that the Philippines as a State is not obliged legislation or to some permissible government policy or
to admit aliens within its territory, once an alien is legitimate end of the government.
admitted, he cannot be deprived of life without due process
of law. This guarantee includes the means of livelihood. The Q: The City Council of Ormoc enacted Ordinance No. 4,
shelter of protection under the due process and equal Series of 1964 taxing the production and exportation of
protection clause is given to all persons, both aliens and only centrifugal sugar. At the time of the enactment,
citizens. (Villegas v. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, plaintiff Ormoc Sugar Co. was the only sugar central in
Nov. 10, 1978) Ormoc. Petitioner alleged that said Ordinance is
unconstitutional for being violative of the equal
Illustrative cases of violations of the due process clause protection clause. Is the Ordinance valid?

1. Tax amounting to confiscation of property A: NO. Equal protection clause applies only to persons or
2. Subject of confiscation is outside the jurisdiction of the things identically situated and does not bar a reasonable
taxing authority classification of the subject of legislation. The classification,
3. Law is imposed for a purpose other than a public to be reasonable, should be in terms applicable to future
purpose conditions as well. The taxing ordinance should not be
4. Law which is applied retroactively imposes unjust and singular and exclusive as to exclude any substantially
oppressive taxes established sugar central, of the same class as Ormoc Sugar
5. The law is in violation of inherent limitations Co., from the coverage of the tax. (Ormoc Sugar Industry v.
City Treasurer of Ormoc City, G.R. No. L-23794, February 17,
EQUAL PROTECTION 1968)

BASIS: No person shall be denied the equal protection of the RELIGIOUS FREEDOM
laws. (Art. III, Sec. 1)
BASIS: No law shall be made respecting an establishment of
It means that all persons subjected to such legislation shall religion or prohibiting the free exercise thereof. The free
be treated alike, under like circumstances and conditions, exercise and enjoyment of religious profession and
both in the privileges conferred and in the liabilities worship, without discrimination or preference, shall

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 Taxation Law
forever be allowed. No religious test shall be required for 1. If the grant of the exemption is merely a
the exercise of civil or political rights. (Art. III, Sec. 5) spontaneous concession by the legislature, such
exemption may be revoked. (Unilaterally granted
Q: Is the real property tax exemption of religious by law)
organizations violative of the non-establishment 2. If it is without payment of any consideration or the
clause? assumption of any new burden by the grantee, it is
a mere gratuity and exemption may be revoked.
A: NO. Neither the purpose nor the effect of the exemption (Franchise)
is the advancement or the inhibition of religion; and it 3. However, if the tax exemption constitutes a binding
constitutes neither personal sponsorship of, nor hostility to contract and for valuable consideration, the
religion. (Walz v. Tax Commission, 397 US 664) government cannot unilaterally revoke the tax
exemption. (Bilaterally agreed upon)
Q: Is the imposition of fixed license fee a prior restraint
on the freedom of the press and religious freedom? In Tolentino v. Secretary of Finance (1994), the Court ruled
that R.A. 7716 (E-VAT Law) does not violate the non-
A: YES. As a license fee is fixed in the amount and unrelated impairment clause. The contention that the imposition of
to the receipts of the taxpayer, the license fee, when applied the VAT on the sales and leases of real estate by virtue of
to a religious sect, is actually being imposed as a condition contracts entered into prior to the effectivity of the law
for the exercise of the sect’s right under the Constitution. would violate the constitutional provision that “No law
(Tolentino v. Secretary of Finance, G.R. No. 115873, August impairing the obligation of contracts shall be passed” is
25, 1994) without legal basis.

Q: Is a municipal license tax on the sale of bibles and The parties to a contract cannot fetter the exercise of the
religious articles by a non-stock, non-profit missionary taxing power of the State. For not only are existing laws
organization at minimal profits valid? read into contracts in order to fix obligations as between
parties, but the reservation of essential attributes of
A: NO. Such imposition of license tax constitutes sovereign power is also read into contracts as a basic
curtailment of religious freedom and worship which is postulate of the legal order.
guaranteed by the Constitution. (American Bible Society v.
City of Manila, 101 Phil. 386) The Contract Clause has never been thought as a limitation
on the exercise of the State’s power of taxation save only
Q: Is VAT registration restrictive of religious and press where a tax exemption has been granted for a valid
freedom? consideration.

A: NO. The VAT registration fee, although fixed in amount, Q: X Corporation was the recipient in 1990 of two tax
is not imposed for the exercise of a privilege but only for exemptions both from Congress, one law exempting the
defraying part of the cost of registration. (Tolentino v. company’s bond issues from taxes and the other
Secretary of Finance, G.R. No. 115873, August 25, 1994) exempting the company from taxes in the operation of
its public utilities. The two laws extending the tax
NON-IMPAIRMENT CLAUSE exemptions were revoked by Congress before their
expiry dates. Were the revocations constitutional?
BASIS: No law impairing the obligation of contracts shall be (1997 BAR)
passed. (Art. III, Sec. 10)
A: YES. The exempting statutes are both granted
Instances when there is impairment of the obligations unilaterally by Congress in the exercise of taxing powers.
of contract Since taxation is the rule and tax exemption, the exception,
any tax exemptions unilaterally granted can be withdrawn
When the law changes the terms of the contract by: at the pleasure of the taxing authority without violating the
1. Making new conditions; Constitution. (Mactan Cebu International Airport Authority
2. Changing conditions in the contract; or v. Marcos, G.R. No. 120082, September 11, 1996)
3. Dispenses with the conditions expressed therein.
FREEDOM OF THE PRESS
Rationale for the non-impairment clause in relation to
contractual tax exemption BASIS: No law shall be passed abridging the freedom of
speech, of expression, or of the press, or the right of the
When the State grants an exemption on the basis of a people peaceably to assemble and petition the government
contract, consideration is presumed to be paid to the State for redress of grievances. (Art. III, Sec. 4)
and the public is supposed to receive the whole equivalent
thereof. NOTE: Even with due recognition of its high estate and its
importance in a democratic society, however the press is
NOTE: This applies only where one party is the government not immune from general regulation by the State. It has
and the other party, a private person. been held that the publisher of a newspaper has no
immunity from the application of general laws. He has no
Rules regarding non-impairment of obligation and special privilege to invade the rights and liberty of others.
contract with respect to the grant of tax exemptions He must answer for libel. He may be punished for contempt
of court. Like others, he must pay equitable and

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 Taxation Law
nondiscriminatory taxes on his business. (Tolentino v. NOTE: The remission or condonation of taxes due and
Secretary of Finance, G.R. No. 115873, August 25, 1994) payable to the exclusion of taxes already collected does not
constitute unfair discrimination. Each set of taxes is a class
Q: Explain the requirement of uniformity as a limitation by itself and the law would be open to attack as class
in the imposition and/or collection of taxes. (1998 legislation only if all taxpayers belonging to one class were
BAR) not treated alike. (Juan Luna Subdivision, Inc., v. Sarmiento,
G.R. L-3538, May 28, 1952)
A: Uniformity in the imposition and/or collection of taxes
means that all taxable articles, or kinds of property of the REQUISITES OF A VALID TAX
same class shall be taxed at the same rate. The requirement
of uniformity is complied with when the tax operates with Q: What are the requisites of a valid tax?
the same force and effect in every place where the subject
of it is found. (Churchill & Tait v. Concepcion, 34 Phil. 969) A:
1. It should be for a public purpose.
Q: Does the 20% Sales Discount for Senior Citizens and 2. It should be uniform;
Persons with Disabilities violates the constitutional 3. The person or property being taxed should be
right of equal protection clause? within the jurisdiction of the taxing authority; and
4. The tax must not impinge on the inherent and
A: NO. The equal protection clause is not infringed by constitutional limitations on the power of taxation.
legislation which applies only to those falling within a
specified class. If the groupings are characterized by GENERAL CONCEPTS IN TAXATION
substantial distinctions that make real differences, one class

may be treated and regulated differently from another.
Q: May tax laws be applied retroactively?
(Southern Luzon Drug Corporation v. DSWD, G.R. No. 199669,

April 25, 2017)
A: NO. Tax laws must only be imposed prospectively.

UNLESS, the law expressly provides for retroactive
Q: What is the basis for the prohibition against taxation
application. Retroactive application of revenue laws may be
of religious, charitable entities, and educational
allowed if it will not amount to denial of due process. There
entities?
is a violation of due process when the tax law imposes harsh

and oppressive tax. (CIR v. Acosta, G.R. No. 154068 August 3,
A: Charitable institutions, churches and parsonages or
2007)
convents appurtenant thereto, mosques, non-profit

cemeteries, and all lands, buildings, and improvements,
Q: Are tax laws imprescriptible?
actually, directly, and exclusively used for religious,

charitable, or educational purposes shall be exempt from
A: YES. Taxes are imprescriptible by reason that they are
taxation. (Art. IV, Sec. 28 (3))
the lifeblood of the government. However, tax laws may

provide for statute of limitations. In particular, the NIRC and
Q: What is the coverage of the tax exemption?
LGC provide for the prescriptive periods for assessment and

collection. Tax laws provide for statute of limitations in the
A: It covers real property taxes only.
collection of taxes for the purpose of safeguarding

taxpayers from any unreasonable examination,
Q: When may violation of due process be invoked by the
investigation or assessment. (CIR v. B.F. Goodrich Phils., G.R.
taxpayer?
No. 104171, February 24, 1999)


A: The due process clause may be invoked where a taxing
Q: What is the difference between tax evasion and tax
statute is so arbitrary that it finds no support in the
avoidance?
Constitution, as where it can be shown to amount to a

confiscation of property. (Reyes v. Almanzor, G.R. Nos. L-
A: Tax avoidance is a scheme where the taxpayer uses
49839- 46 April 26, 1991)
legally permissible alternative method of assessing taxable

property or income, in order to avoid or reduce tax liability.
Q: What is the “rational basis” test? Explain briefly.
On the other hand, tax evasion is It is a scheme used outside
(2010 BAR)
of those lawful means and when availed of. It usually

subjects the taxpayer to further or additional civil or
A: The rational basis test is applied to gauge the
criminal liabilities. (CIR v. The Estate of Benigno Toda Jr.,
constitutionality of an assailed law in the face of an equal
G.R. No. 30554, February 28, 2004)
protection challenge. It has been held that “in areas of social

and economic policy, a statutory classification that neither
Q: What is the rule regarding the compensation and
proceeds along suspect lines nor infringes constitutional
set-off of taxes?
rights must be upheld against equal protection challenge if

there is any reasonably conceivable state of facts that could
A: No set-off is admissible against the demands for taxes
provide a rational basis for the classification.” Under the
levied for general or local governmental purposes. Taxes
rational basis test, it is sufficient that the legislative
cannot be subject to compensation because the government
classification is rationally related to achieving some
and the taxpayer are not creditors and debtors of each
legitimate State interest. (British American Tobacco v.
other. (Philex Mining Corporation v. CIR, 356 Phil. 189,
Camacho and Parayno, GR No. 163583, April 15, 2009)
198;294 SCRA 687, 695 (1998), cited in CIR v. Toledo Power

Company, G.R. No. 196415. December 2, 2015)

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 Taxation Law
Q: Does said rule admit an exception? deductions and exemptions from the gross income, the
taxable income is subjected to one set of graduated tax rate
A: YES. Where both the claims of the government and the for individual or normal corporate income tax rate for
taxpayer against each other have already become due, corporation. (Mamalateo, 2014)
demandable, and fully liquidated, compensation takes place
by operation of law and both obligations are extinguished Q: What are the features of the Philippine Income Tax
to their concurrent amounts. In the case of the taxpayer’s Law?
claim against the government, the government must have
appropriated the amount thereto. (Domingo v. Garlitos, G.R. A:
No. L-18994, June 29, 1963) 1. Direct tax
2. Progressive tax
Offsetting can be allowed if the determination of the 3. Comprehensive
taxpayer’s liability is intertwined with the resolution of the 4. Semi-schedular or semi-global tax system
claim for tax refund of erroneously or illegally collected (Mamalateo, 2014)
taxes under Section 229 of the NIRC. (CIR v. Toledo Power
Company, G.R. No. 196415. December 2, 2015) Q: What are the General Principles of Income Taxation?

Q: What is the concept of tax amnesty? A:
1. A resident citizen (RC) is taxable on all income derived
A: Tax amnesty, being a general pardon or intentional from sources within and without the Philippines.
overlooking by the State of its authority to impose penalties 2. A non-resident citizen (NRC) is taxable only on income
on persons otherwise guilty of evasion or violation of a derived from sources within the Philippines.
revenue or tax law. It partakes of an absolute waiver by the 3. An individual citizen who is working and deriving
government of its right to collect what is due it and to give income from abroad as an overseas contract worker
tax evaders who wish to relent a chance to start with a clean (OCW) is taxable only on income from sources within
slate. (Asia International Auctioneers, Inc. v. CIR, G.R. No. the Philippines.
179115, September 26, 2012) 4. An alien, resident alien (RA), or non-resident alien
(NRA) is taxable only on income within the
Q: Can a taxpayer claim tax amnesty if he is a Philippines.
withholding tax agent? 5. A domestic corporation (DC) is taxable on all income
derived within and without the Philippines.
A: NO. The claim of a taxpayer under a tax amnesty shall be 6. A foreign corporation, (engaged or not in trade or
allowed when the liability involves the deficiency in business in the Philippines), is taxable only on income
payment of income tax. However, it must be disallowed derived from sources within the Philippines.
when the taxpayer is assessed on his capacity as a
withholding tax agent because the person who earned the Q: Who are Resident Citizens?
taxable income was another person other than the
withholding agent. (LG Electronics Philippines, Inc. v. CIR, A: A resident citizen can be (a) engaged in trade or business
G.R. No. 165451, December 3, 2014) or in the exercise of his profession in the Philippines; (b) not
engaged in trade or business or in the exercise of his
INCOME TAX profession; or (c) engaged in trade or business or in the
exercise of his profession and at the same time, he derives
Q: What is the concept of income tax? compensation and/or other income “mixed income.”
(Mamalateo, 2014)
A: Income taxation is in the nature of an excise taxation
system, or taxation on the exercise of privilege, the privilege Q: Who are considered Non-Resident Citizens?
to earn yearly profits from various sources. It is a system
that does not provide for the taxation of property. A:
(Domondon, 2013) 1. A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of his
Q: What are the different types of income tax systems? physical presence abroad with a definite intention to
reside therein.
A: Global – System employed where the tax system views 2. A citizen of the Philippines who leaves the Philippines
indifferently the tax base and generally treats in common all during the taxable year to reside abroad, either as an
categories of taxable income of the individual. (Tan v. Del immigrant or for employment on a permanent basis.
Rosario, Jr., 237 SCRA 324, 331) 3. A citizen of the Philippines who works and derives
income from abroad and whose employment thereat
Schedular – System employed where the income tax requires him to be physically present abroad most of
treatment varies and is made to depend on the kind or the time during the taxable year.
category of taxable income of the taxpayer. (Tan v. Del 4. A citizen who has been previously considered as non-
Rosario, Jr., 237 SCRA 324, 331) resident citizen and who arrives in the Philippines at
any time during the taxable year to reside
Others – All compensation income, business, or permanently in the Philippines shall likewise be
professional income, capital gain, passive income, and other treated as a non-resident citizen for the taxable year in
income not subject to final tax are added together to arrive which he arrives in the Philippines with respect to his
at the gross income. After deducting the allowable income derived from sources abroad until the date of
his arrival in the Philippines.

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 Taxation Law
5. The taxpayer shall submit proof to the Commissioner Q: Distinguish Cash and Accrual Method.
to show his intention of leaving the Philippines to
reside permanently abroad or to return to and reside A: In cash method, income is recognized only upon actual or
in the Philippines as the case may be for purposes of constructive receipt of cash payments or property, but no
this section. (Sec. 22(E), NIRC) deductions are allowed from the cash income unless
actually disbursed through an actual or constructive
CONCEPT OF INCOME payment in cash or property. Stated otherwise, income is
earned when cash is collected, and expense is incurred
Q: What is the concept of income? when cash is disbursed.

A: Income refers to all wealth which flows into the taxpayer Meanwhile, in accrual method, income is recognized in the
other than as mere return of capital. It includes the forms of period it is earned, regardless of whether it has been
income specifically described as gains and profits, including received or not. In the same manner, expenses are
gains derived from the sale or other disposition of. capital accounted for in the period they are incurred and not in the
assets. (Sec. 36, RR No.2) period they are paid. (Domondon, 2013)

Income is a flow of service rendered by capital by payment Q: What are the income derived from sources within the
of money from it or any benefit rendered by a fund of capital Philippines?
in relation to such fund through a period of time. (Madrigal
v. Rafferty, G.R. No. 12287, August 8, 1918) A:
1. Interests derived from sources within the Philippines;
Q: What are the test to determine whether income is 2. Dividends from domestic and foreign corporations, if
earned for tax purposes? more than 50% of its gross income for the three-year
period ending with the close of the taxable year prior
A: to the declaration of dividends was derived from
Realization Test sources within the Philippines;
3. Compensation for services performed within the
There is no taxable income unless income is deemed Philippines;
realized. Revenue is generally recognized when both 4. Rentals and royalties from properties located in the
conditions are met: Philippines or any interest in such property including
1. The earning process is complete or virtually complete; rentals or royalties for the use of or for the privilege of
and using within the Philippines intellectual property
2. An exchange has taken place. (Manila Mandarin Hotels, rights such as trademarks, copyrights, patents, etc.;
Inc. v. CIR, CTA Case No. 5046, March 24, 1997) 5. Gains on sale of real property located in the
Philippines;
Claim of Right Doctrine 6. Gains on sale of personal property other than shares
of stock within the Philippines; and
A taxable gain is conditioned upon the presence of a claim 7. Gains on sale of shares of stock in a domestic
of right to the alleged gain and the absence of a definite corporation.
unconditional obligation to return or repay. (CIR v. Javier,
G.R. No. 78953) Q: What are the income derived from sources without
the Philippines?
Economic benefit test
A:
Taking into consideration the pertinent. provisions of law, 1. Interest and dividends derived from sources other
income realized is taxable only to the extent that the than those within the Philippines;
taxpayer is economically benefited. 2. Compensation for services performed outside the
Philippines; and
Severance test 3. Rentals and royalties from properties located outside
the Philippines or any interest in such property
Income is recognized when there is separation of something including rentals or royalties for the use of or for the
which is of exchangeable value. (Eisner v. Macomber, 252 US privilege of using outside the Philippines intellectual
189) property rights such as trademarks, copyrights,
patents, etc.
Q: Mr. Castillo is a resident Filipino citizen. He
purchased a parcel of land in Makati in 1970 at a Q: What are those income derived partly within and
consideration of ₱1 million. In 2011, the land had a fair partly without?
market value of ₱20 million. Mr. Ayala offered to buy
the same for ₱20 million. Is Mr. Castillo liable to pay for A: Items of gross income, expenses, losses and deductions,
income tax in 2011 based on the offer to buy by Mr. other than those above, shall be allocated or apportioned to
Ayala? (2011 BAR) sources within or without the Philippines, under the rules
and regulations prescribed by the Secretary of Finance,
A: NO. Mr. Castillo is not liable for income tax in 2011 was upon recommendation of the Commissioner.
for income tax attaches only if there is a gain realized
resulting from a closed and completed transaction. GROSS INCOME
(Madrigal v. Rafferty, G.R. No. L12287, August 7, 1918)

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 Taxation Law
Q: What is Gross Income? 4. Taxable under the tax benefit rule. Recovery of bad debts
previously allowed as deduction in the preceding years
A: Except when otherwise provided, gross income means all shall be included as part of the gross income in the year of
income derived from whatever source, including but not recovery to the extent of the income tax benefit of said
limited to the following items: deduction. (NIRC, Sec. 34E(1))

1. Compensation for services in whatever form paid, 5. Taxable. Since the car is used for personal purposes, it is
including, but not limited to fees, salaries, wages, considered as a capital asset hence the gain is considered
commissions and similar items income. (NIRC, Sec. 32(A)(3) and Sec. 39(A)(1))
2. Gross income derived from the conduct of trade or
business or the exercise of a profession Q: What is Compensation Income?
3. Gains derived from dealings in property
4. Interests A: Compensation income includes all remuneration for
5. Rents services rendered by an employee for his employer unless
6. Royalties specifically excluded under the NIRC. (Sec. 2.78.1, RR No. 2-
7. Dividends 1998)
8. Annuities
9. Prizes and winnings Q: What is the concept of Fringe Benefits?
10. Pensions and
11. Partner’s distributive share from the net income of the A: Fringe benefit is any good, service or other benefit
general professional partnership (NIRC, Sec. 32 (A)) furnished or granted by an employer, in cash or in kind, in
addition to basic salaries, to an individual employee, except
Q: Is money received under payment by mistake, a rank-and-file employee, such as but not limited to:
income subject to income tax?
1. Housing
A: Income paid or received through mistake may be 2. Expense account
considered as “income from whatever source derived” 3. Vehicle of any kind
irrespective of the voluntary or involuntary action of the 4. Household personnel such as maid, driver
taxpayer in producing income. Moreover, under the “claim 1. and others
of right doctrine,” the recipient even if he has the obligation 5. Interest on loans at less than market rate to the extent
to return the same has a voidable title to the money of the difference between the market rate and the
received through mistake. (Gutierrez v. CIR, CTA Case No. 65, actual rate granted
August 31, 1955) 6. Membership fees, dues and other expenses athletic
clubs or other similar organizations
Q: Explain briefly whether the following items are 7. Expenses for foreign travel
taxable or non-taxable: (1) Income from jueteng; (2) 8. Holiday and vacation expenses
Gain arising from expropriation of property; (3) Taxes 9. Educational assistance to the employee or his
paid and subsequently refunded, (4) Recovery of bad dependents
debts previously charged off; and (5) Gain on the sale of 10. Life or health insurance and other non-life insurance
a car used for personal purposes. (2005 BAR) premiums or similar amounts in excess of what the
law allows (Sec. 3 3(B), NIRC; Sec. 2.33 (B), RR No. 3-
A: 1998)
1. Taxable. Gross income includes "all income derived from
whatever source" (Sec. 32(A), NIRC), which was interpreted Q: Distinguish ordinary asset and capital asset (2003
as all income not expressly excluded or exempted from the BAR)
class of taxable income, irrespective of the voluntary or
involuntary action of the taxpayer in producing the income. A: Capital assets include property held by the taxpayer
Thus, the income may proceed from a legal or illegal source whether or not connected with his trade or business, but the
such as from jueteng. Unlawful gains, gambling winnings, term does not include any of the following, which are
etc. are subject to income tax. The NIRC stands as an consequently considered “ordinary assets”:
indifferent neutral party on the matter of where the income
comes from. (CIR v. Manning, G.R. No. L-28398, August 6, 1. Stock in trade of the taxpayer or other property of a
1975) kind which would be properly included in the
inventory of the taxpayer if on hand at the close of the
2. Taxable. Sale, exchange or other disposition of property taxable year;
to the government of real property is taxable. It includes 2. Property held by the taxpayer primarily for sale to
taking by the government through condemnation customers in the ordinary course of trade or business;
proceedings. (Gonzales v. CTA, G.R. No. L14532, May 26, 3. Property used in the trade or business of a character
1965) which is subject to the allowance for depreciation
provided in Sec. 34(f) of the NIRC; or
3. Taxable if the taxes were paid and subsequently claimed 4. Real property used in trade or business of the
as deduction and which are subsequently refunded or taxpayer. (Sec. 31(A)(1), NIRC)
credited. It shall be included as part of gross income in the
year of the receipt to the extent of the income tax benefit of
said deduction. (NIRC, Sec. 34(C)(1)) However, it is not
taxable if the taxes refunded were not originally claimed as
deductions.

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 Taxation Law
Q: State with reason the tax treatment of the following consolidation; or
in the preparation of annual income tax returns:
Income realized from sale of: a. Capital assets; and b. b. The acquisition by one corporation, in exchange solely
Ordinary assets. (2005 BAR) for all or a part of its voting stock, or in exchange solely
for all or part of the voting stock of a corporation
A: which is in control of the acquiring corporation, of
a. Generally, what are to be reported in the annual stock of another corporation if, immediately after the
income tax return are the capital gains derived from acquisition, the acquiring corporation has control of
the disposition of capital assets other than real such other corporation whether or not such acquiring
property or shares of stocks in domestic corporations, corporation had control immediately before the
which are not subject to final tax. Capital gains derived acquisition; or
from real properties and shares of stock not traded in
the stock exchange are subject to final tax (capital c. The acquisition by one corporation, in exchange solely
gains tax). for all or a part of its voting stock or in exchange solely
for all or part of the voting stock of a corporation
b. Income realized from sale of ordinary assets is part of which is in control of the acquiring corporation, of
Gross Income, included in the Income Tax Return. substantially all of the properties of another
(Sec.32(A)(3), NIRC) corporation. In determining whether the exchange is
solely for stock, the assumption by the acquiring
Q: Special rules pertaining to income or loss from corporation of a liability of the others shall be
dealings in property classified as capital asset disregarded; or

A: Loss limitation rule, loss carry-over rule, and holding d. No gain or loss shall also be recognized if property is
period rule. transferred to a corporation by a person, alone or
together with others, not exceeding four (4) persons,
Q: What is the Loss Limitation Rule? in exchange for stock or unit of participation in such a
corporation of which as a result of such exchange the
A: Losses from sale or exchanges of capital assets shall be transferor or transferors, collectively, gains or
allowed only up to the extent of the gains from such sales or maintains control of said corporation: Provided, that
exchanges. (Sec. 39(C),NIRC) stocks issued for services shall not be considered as
issued in return for property
Q: What is the Loss Carry-Over Rule?
Q: As to tax implication, distinguish shares of stocks not
A: If any taxpayer, other than a corporation, sustains in any listed and traded through stock exchange from those
taxable year a net capital loss, such loss (in an amount not listed and traded through stock exchange (2008, 2011
in excess of the net income for such year) shall be treated in BAR)
the succeeding taxable year as a loss from the sale or
exchange of a capital asset held for not more than 12 A:
months. (Sec. 39(D), NIRC) NOT LISTED AND LISTED AND
TRADED TRADED
Q: What is the Holding Period Rule? As to Income Business
nature
A: Where the taxpayer held the capital asset sold for more As to kind Capital gains tax Percentage tax
than 12 months, the gain derived therefrom is taxable only of tax
to the extent of 50%. Consequently, if the taxpayer held the As to rate Before TRAIN Before TRAIN Law:
capital asset sold for a year or less, the whole gain shall be Law: ½ of 1%
taxable. The same also applies to capital loss. It is a form of Not over ₱100,000
tax avoidance since the taxpayer can exploit it in order to – 5% Under TRAIN Law:
reduce his tax due. (Sec. 39(B), NIRC) In excess of 6/10 of 1%
₱100,000 – 10%
Q: What is the rule on recognition of gain or loss in
exchange of property? Under TRAIN
Law:
A: Upon the sale or exchange of property, the entire amount 15% final tax, if
of the gain or loss shall be recognized. covered by the
Q: What are tax-free exchanges? TRAIN Law

A: No gain or loss shall be recognized on a corporation or on For RFCs and
its stock or securities if such corporation is a party to a NRFCs under
reorganization and exchanges property in pursuance of a TRAIN Law:
plan of reorganization solely for stock or securities in Not over ₱100,000
another corporation that is a party to the reorganization. A – 5%
reorganization is defined as: In excess of
₱100,000 – 10%
a. A corporation, which is a party to a merger or As to tax Net capital gain Gross selling price
consolidation, exchanges property solely for stock in a base
corporation, which is a party to the merger or

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 Taxation Law
Q: Mr. H decided to sell the house and lot wherein he 2. The historical cost or adjusted basis of the real
and his family have lived for the past 10 years, hoping property sold or disposed will be carried over to the
to buy and move to a new house and lot closer to his new principal residence built or acquired.
children’s school. Concerned about the capital gains tax 3. The Commissioner has been duly notified, through a
that will be due on the sale of their house, Mr. H prescribed return, within 30 days from the date of sale
approaches you as a friend for advice if it is possible for or disposition of the person’s intention to avail of the
the sale of their house to be exempted from capital tax exemption.
gains tax and the conditions they must comply with to 4. Exemption was availed only once every 10 years.
avail themselves of said exemption. How will you
respond? (2015 Bar) Q: What is meant by “income subject to final tax?” (2001
Bar)
A: Mr. H may avail the exemption from capital gains tax on
sale of principal residence by natural persons. Under the A: Income subject to final tax refers to an income wherein
law, the following are the requisites: the tax due is fully collected through the withholding tax
1. Proceeds of the sale of the principal residence have system. Under this procedure, the payor of the income
been fully utilized in acquiring or constructing new withholds the tax and remits it to the government as a final
principal residence within 18 calendar months from settlement of the income tax due on said income. The
the date of sale or disposition. recipient is no longer required to include the item of income
subjected to “final tax” as part of his gross income in his
income tax returns.

Summary rules on the tax treatment of certain passive income as applied to individuals

RC NRC RA NRA-ETB NRA –NETB
Within
Sources of Income and Within Within Within Within
without
NATURE OF INCOME TAX RATE
INTEREST
On interest on currency bank deposits,
yield or other monetary benefits from
deposit substitutes, trust funds and
similar arrangements

XPN: 20% 20% 20% 20% 25%
If the depositor has an employee trust
fund or accredited retirement plan, such
interest income, yield or other
monetary benefit is exempt from final
withholding tax.

Interest income under the Expanded

Foreign Currency Deposit System

NOTE: If the loan is granted by a
foreign government, or an
15% Exempt 15% Exempt Exempt
international or regional financing
institution established by government,
the interest income of the lender shall
not be subject to the final withholding
tax.
Interest Income from long-term
deposit or investment in the form of
Held for:
savings, common or individual trust
5 years or more – exempt
funds, deposit substitutes, investment
4 years to less than 5 years – 5% Exempt
management accounts and other
3 years to less than 4 years – 12%
investments evidenced by certificates
less than 3 years – 20%
in such form prescribed by the BSP (RR
14-2012)
DIVIDEND

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 Taxation Law

Dividend from a DC or from a joint

stock company, insurance or mutual
fund company and regional operating
headquarters of a multinational
company; or on the share of an
individual in the distributable net
income after tax of partnership (except 10% 10% 10% 20% 25%
that of a GPP) of which he is a partner,
or on the share of an individual in the
net income after tax of an association, a
joint account or joint venture or
consortium taxable as a corporation of
which he is a member of co-venturer

ROYALTY INCOME
Royalties on books, literary works and
10% 10% 10% 10% 25%
musical composition
Other royalties (e.g., patents and
20% 20% 20% 20% 25%
franchises)
PRIZES AND WINNINGS
Prizes exceeding ₱10,000 20% 20% 20% 20% 25%
Winnings 20% 20% 20% 20% 25%
Winnings from Philippines Charity
sweepstakes and lotto winnings which Exempt Exempt Exempt Exempt 25%
are 10,000 pesos or less

More than 10,000 pesos 20% 20% 20% Exempt 25%

Summary rules on the tax treatment of certain passive income as applied to corporations (Sec. 27 (D))

Interests from any currency bank deposits, yield, 20% Short-term Shall be considered
or any other monetary benefits from deposit interest: 20% as part of gross
substitutes and from trust fund and similar income subject to
arrangement and Royalties derived from sources Long term interest: 30% NCIT.
within the Philippines 30%

NOTE: Interest income or yield earned by DC from
sources outside the Philippines shall not be
subject to final tax of 20% but included in the
gross income and subject to NCIT.
Interest Income derived under expanded foreign 15% 7.5% Exempt
currency deposit system
Interest derived by depositary bank under the 10% 10% Exempt
expanded foreign currency deposit system from
foreign currency loans granted to residents other
than offshore banking units (OBUs)

NOTE: If granted to non-residents, OBUs, local
commercial banks or branches foreign banks
authorized by BSP to transact business – EXEMPT
Interest received by NRFC on foreign loans (NIRC, – – 20%
Sec. 28 (5a))
Dividends received from Domestic Corporation Exempt Exempt 15% (subject to tax
(Inter-corporate Dividend) credit sparing rule)

Q: What are Tax-exempt interest income? 2. Regional or international financing institutions
established by foreign government (Sec. 25(A)(2),
A: NIRC)
1. From bank deposits. The recipient must be any 3. On loans extended by any of the above-mentioned
following tax-exempt recipients: entities
a. Foreign government 4. On bonds, debentures, and other certificate of
b. Financing institutions owned, controlled, or indebtedness received by any of the above-mentioned
financed by foreign government entities

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 Taxation Law
5. On bank deposit maintained under the expanded 50 - 85% Proportionate
foreign currency deposit (partly within;
6. From long term investment or deposit with a maturity partly without)
period of 5 years or more. More than 85% Entirely within

Q: What are the rules regarding Inter-corporate Summary of tax treatment of dividend received from
dividends? domestic corporation

A: There is inter-corporate dividend when a dividend is RECIPIENT TAXABLE (TAX RATE) / EXEMPT
declared by one corporation and received by another DC / RFC Tax exempt
corporation which is a stockholder to the former. The RC, NRC, RA 10%
following rules shall apply: NRA – ETB 20%
NRA – NETB 25%
1. Dividends received from DC: NRFC 15% subject to credit sparing rule
a. Dividends received by a DC and RFC from a
domestic corporation shall not be subject to tax Q: BBB, Inc., a domestic corporation, enjoyed a
(Sec. 27(D)(4), Sec. 28(A)(7)(d), NIRC); particularly profitable year in 2014. In June 2015, its
b. Dividends received by a NRFC from a DC shall be
Board of Directors approved the distribution of cash
subject to 15% FWT. This is known as the tax
dividends to its stockholders. BBB, Inc. has individual
sparing rule. (Sec. 28(B)(5)(b), NIRC)
and corporate stockholders. What is the tax treatment

of the cash dividends received from BBB, Inc. by the
Tax sparing rule following stockholders?

a. A resident citizen
Under this rule, the dividends received shall be
b. Non-resident alien engaged in trade or business
subject to 15% FWT, provided, that the country in c. Non-resident alien not engaged in trade or
which the corporation is domiciled either (i) allows business
a tax credit of 15% against the taxes due from the d. Domestic corporation
foreign corporation for taxes deemed paid; or (ii) e. Non-resident foreign corporation (2015 Bar)
does not impose income tax on such dividends. (CIR
v. Wander Philippines Inc., G.R. No. L-68375, April 15,
A:
1988); otherwise, the dividend shall be subject to
a. A final withholding tax of 10% shall be imposed upon
30%.
cash dividends actually or constructively received by a

resident citizen from BBB, Inc. (Sec. 24(B)(2))
The phrase “deemed paid” “tax credit” does not
b. A final withholding tax of 20% shall be imposed upon
mean tax credit actually granted by the foreign cash dividends actually or constructively received by a
country. There is no statutory provision or revenue non-resident alien engaged in trade or business from
regulation requiring “actual grant”.
BBB, Inc. (Sec. 24(A)(2), NIRC)
c. A final withholding tax equal to 25% of the entire
The 15% represents the difference between the income received from all sources within the
NCIT of 30% on corporations and the 15% tax on Philippines, including the cash dividends received from
dividends. BBB, Inc. (Sec. 25(B), NIRC)
d. Dividends received by a domestic corporation from
2. Dividends received from a foreign corporation:
another domestic corporation, such as BBB, Inc., shall
a. Dividends received by a DC from a foreign
not be subject to tax. (Sec. 27(D)(4), NIRC)
corporation shall be subject to 30% NCIT;
e. Dividends received by a non-resident foreign
corporation from a domestic corporation are generally
b. Dividends received by RFC and NRFC from a foreign subject to an income tax of 30% to be withheld at
corporation shall be subject to 30% NCIT, IF the
source. (Sec. 28(B)(1), NIRC)
income of the foreign corporation is derived from
sources within the Philippines; IF the said income However, a final withholding tax of 15% is imposed on the
is derived from sources outside the Philippines, the amount of cash dividends received from a domestic
dividends received shall be exempt from tax. corporation like BBB, Inc. if the tax sparing rule applies (Sec.
28(B)(5)(b), NIRC). Pursuant to this rule, the lower rate of
Q: What is the rule in determining whether income is tax would apply if the country in which the non-resident
derived from sources within or without the foreign corporation is domiciled would allow as a tax credit
Philippines? against the tax due from it, taxes deemed paid in the
Philippines of 15% representing the difference between the
A: In determining whether income is derived from sources regular income tax rate and the preferential rate.
within or without the Philippines, the ratio of the foreign
corporation’s Philippine gross income to the world gross
Summary of treatment of royalty income:
income within the 3-year period preceding the declaration

of such dividend should be considered.
SUBJECT TO 10% FINAL TAX

Royalties on books, other literary works and musical
PHILIPPINE GROSS INCOME SOURCE OF
composition from sources within the Philippines.
= % WORLD GROSS INCOME INCOME
SUBJECT TO 20% FINAL TAX
Less than 50% Entirely without

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 Taxation Law

Royalties derived from sources within the Philippines

other than royalties subject to 10% to final tax.
SUBJECT TO 10% FINAL TAX
Royalties on books, other literary works and musical
composition from sources within the Philippines.
Q: What is “Tax Benefit Rule” or Equitable Doctrine of
Q: X purchased a life annuity for P100,000 which will Tax Benefit?
pay him P10,000 a year. The life expectancy of X is 12
years. How much is excluded from the gross income of A: It is a principle that if a taxpayer recovers a loss or
X? expense that was deducted in a previous year, the recovery
must be included in the current year's gross income up to
A: The P100,000 is excluded from the gross income of X the extent that it was previously deducted.
since it represents a return of premiums which is not
income but a return of capital. Two instances where tax benefit rule applies:
1. Recovery of bad debts
Q: What is the tax treatment for prizes and winnings? 2. Receipt of tax refund or credit

A: Generally, prizes exceeding P10,000 and other winnings Q: ABC, a domestic corporation, entered into a software
from sources within the Philippines shall be subject to 20% license agreement with XYZ, a non-resident foreign
final withholding tax, if received by a citizen, resident alien corporation based in the U.S. Under the agreement
or non-resident engaged in trade or business in the which the parties forged in the U.S., XYZ granted ABC
Philippines. If the recipient is a non-resident alien not the right to use a computer system program and to avail
engaged in trade or business in the Philippines, the prizes of technical know-how relative to such program. In
and other winnings shall be subject to 25% final consideration for such rights, ABC agreed to pay 5% of
withholding tax. If the recipient is a corporation (domestic the revenues it receives from customers who will use
or foreign), the prizes and other winnings are added to the and apply the program in the Philippines. Discuss the
corporation’s operating income and the net income is tax implication of the transaction. (2010 Bar)
subject to 30% corporate income tax.
A: The amount payable under the agreement is in the nature
RECIPIENTS TAX RATES of a royalty. The term royalty is broad enough to include
Citizen, resident alien or Subject to 20% compensation for the use of an intellectual property and
non-resident engaged in final supply of technical know-how as a means of enabling the
trade or business in the withholding tax application or enjoyment of any such property or right (Sec
Philippines 42(4) NIRC). The royalties paid to the non-resident US
Non-resident alien not Subject to 25% Corporation, equivalent to 5% of the revenues derived by
engaged in trade or final ABC for the use of the program in the Philippines, is subject
business in the Philippines withholding tax to a 30% final withholding tax, unless a lower tax rate is
Corporation (domestic or Subject to 30% prescribed under an existing tax treaty (Sec 28(B)(1) NIRC).
foreign) corporate
income tax Q: What are exclusions?

Q: What are prizes and winnings subject to income tax? A: Exclusions from gross income refer to the flow of wealth
to the taxpayers which are not considered part of gross
A: income for purposes of computing the taxpayer’s taxable
1. Prizes derived from sources within the Philippines not income due to the following:
exceeding ₱10,000 are included in the gross income
subject to regular income tax. 1. It does not come within the definition of income; or
2. Winnings derived from sources within the Philippines 2. It is exempted by the fundamental law or by statute.
is subject to final tax on passive income
3. PCSO and lotto winnings is subject to final tax on Q: What is the Rationale of Exclusions?
passive income
4. Prizes and winnings from sources outside the A: There are exclusions from the gross income either
Philippines because they:
1. Represent return of capital;
Q: What is the implication of the phrase “income from 2. Are not income, gain or profit;
any source”? 3. Are subject to another kind of internal revenue tax; or
4. Are income, gain or profit that is expressly exempt
A: Income from whatever source derived” implies that all from income tax under the Constitution, Tax treaty,
income not expressly exempted from the class of taxable NIRC, or general or a special law.
income under our laws form part of the taxable income,
irrespective of the voluntary or involuntary action of the Q: Differentiate tax exclusions from tax deductions.
taxpayer in producing the income. The source of the income (2019 Bar)
may be legal or illegal.
A: Tax exclusions pertain to the computation of gross
income while tax deductions pertains to the computation of
net income. Tax exclusions are something received or
earned by the taxpayer which do not form part of gross

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 Taxation Law
income while tax deductions are something spent or paid in Q: What are the rules with respect to deductions?
earning gross income. Lastly, the former is flow of wealth to
the taxpayer which are not treated as part of gross income A:
for purposes of computing the taxpayer’s taxable income 1. Deductions must be paid or incurred in connection
due to the following reasons: with the taxpayer’s trade, business, or profession.
a. It is exempted by the fundamental law;
b. It is exempted by a statute; and Ordinary and necessary expenses must have been
c. It does not fall within the definition of income. paid or incurred during the taxable year for it to be
deductible from gross income. Further, the
On the other hand, tax deductions are the amounts which deduction shall be taken for the taxable year in
the law allows to be subtracted from gross income in order which 'paid or accrued' or 'paid or incurred.'
to arrive at net income. Otherwise, the expenses are barred as deductions in
subsequent years. (CIR v. Isabela Cultural
Q: What are the exclusions under the Constitution? Corporation, G.R. No. 172231, February 12, 2007)

A: 2. Deductions must be supported by adequate receipts
1. Income derived by the Government or its political or invoices.
subdivision is exempt from gross income, if the source 3. The withholding and payment of tax required must
of the income is from any public utility or from the be shown.
exercise of any essential governmental functions.
2. All revenues and assets of non-stock, non-profit Any income payment which is otherwise deductible shall be
educational institutions used actually, directly, and allowed as a deduction from gross income only if it is shown
exclusively for educational purposes shall be exempt that the income tax required to be withheld has been paid
from taxes and duties. (Article XIV, Sec. 4(3), 1987 to the BIR. (Sec. 2.58.5, RR No. 2-98)
Constitution)
Q: Distinguish: itemized deductions and optional
Q: What are the requisites for the exclusion of prizes standard deduction
and awards in sports competition from gross income?
ITEMIZED OPTIONAL
A: DEDUCTIONS STANDARD
1. All Prizes and awards; DEDUCTIONS
2. Granted to Athletes; Definitio Under the itemized In lieu of the itemized
3. In local and international sports Tournaments and n deductions, deductions, regular
competitions; and taxpayers list every or special, including
4. Sanctioned by their national sports associations. (Sec. item of business NOLCO. The
32(B)(7)(d), NIRC) expense they claim deduction is merely
as deductions. presumed as a fixed
Q: Mr. A, a citizen and resident of the Philippines, is a Deductions are percentage of gross
professional boxer. In a professional boxing match held strictly construed income for
in 2013, he won prize money in United States (US) against the corporations and
dollars equivalent to ₱300,000,000. taxpayer. gross sales or gross
receipts for
a. Is the prize money paid to and received by Mr. A in individuals.
the US taxable in the Philippines? Why? Deductio Deductible items Individuals:
b. May Mr. A's prize money qualify as an exclusion n allowed by the law 40% of total sales/
from his gross income? Why? (2015 Bar) revenues/ receipts/
fees
A: Corporations: 40%
a. YES. Under the NIRC, the income within and without of gross income
of a resident citizen is taxable. Since Mr. A is a resident Who may All taxpayers All taxpayers who are
Filipino citizen, his income worldwide is taxable in the avail? except those subject to tax on
Philippines. subject to tax on taxable net income
gross income (RC, NRC, RA, NRA-
b. NO. Under the law, all prizes and awards granted to (NRA-NETB & ETB, DC, RFC) can
athletes in local and international sports competitions NRFC). claim deductions
whether held in the Philippines or abroad and except the
sanctioned by their national sports association are following:
excluded from gross income. However, in this case, 1. NRA-ETB
there is no showing that the boxing match was 2. Taxpayers
sanctioned by the Philippine National Sports mandate to use
Commission. Therefore, the prize money is not itemized
excluded, and it would be considered as the taxpayer’s deductions
taxable and professional income. Substanti It must be It requires no proof of
ation of substantiated by expenses incurred.
DEDUCTIONS claim receipts.
(Banggawan, 2019)

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 Taxation Law
Q: What are the requirements for deductible items performed with relation to the business of the particular
taxpayer; and
A: 4. Must be subjected to withholding tax.
1. There must be specific provision of law allowing the
deductions, since deductions do not exist by Q: How is interest as a deduction from gross income
implication. defined? (1992 Bar)
2. The requirements of deductibility must be met.
3. There must be proof of entitlement to the deductions. A: Interest shall refer to the payment for the use or
The burden of proof to establish the validity of claimed forbearance or detention of money, regardless of the name
deduction is on the taxpayer. This is consistent with it is called or denominated. It includes the amount paid for
the rule that tax exemptions must be strictly construed the borrower’s use of money during the term of the loan, as
against the taxpayer and liberally in favor of the State. well as for his detention of money after the due date for its
4. The deductions must not have been waived. repayment (Sec. 2(a), RR No. 13-2000)
5. The withholding and payment of tax required must be
shown. (Domondon, 2013) Q: What is Optional Standard Deduction?
6. Expenses which are ordinary and necessary for the
conduct of trade or business, or profession. A: It is a fixed percentage deduction which is allowed to
7. It must be a legitimate and legal expenditure. certain taxpayers without regard to an expenditure. This is
8. As a general rule, there is no limitation as to the in lieu of the itemized deduction.
amount of expense, however, it must be reasonable.
The optional standard deduction is an amount not
NOTE: The premium is not deductible because it is not an exceeding:
ordinary business expense. The term "ordinary" is used in 1. 40% of the gross sales or gross receipts of a qualified
the income tax law in its common significance and it has the individual taxpayer; or
connotation of being normal, usual or customary. (Deputy v. 2. 40% of the gross income of a qualified corporation. (Sec.
Du Pont, 308 US 488 (1940)) Paying premiums for the 34(L), NIRC)
insurance of a person not connected to the company is not
normal, usual or customary. Another reason for its non- NOTE: The following persons who may not avail of the OSD:
deductibility is the fact that it can be considered as an illegal 1. Non-resident aliens (NRA), whether or not engaged in
compensation made to a government employee. This is so trade or business in the Philippines; and
because if the insured, his estate or heirs were made as the 2. Non- resident foreign corporations (NRFC)
beneficiary (because of the requirement of insurable
interest), the payment of premium will constitute bribes Q: What are the items not deductible?
which are not allowed as deduction from gross income. (Sec.
34(A)(1)(c), NIRC) A: In computing net income, no deduction shall in any case
be allowed in respect to:
NOTE: Payments made in exchange for the revelation of a
competitor’s trade secrets is considered as an expense 1. Personal, living or family expenses;
which is against law, morals, good customs or public policy, 2. Any amount paid out for new buildings of for permanent
which is not deductible. (3M Philippines, Inc. v. CIR, G.R. No. improvements, or betterments made to increase the
82833, September 26, 1988) value of any property or estate;
3. Any amount expended in restoring property or in
Also, the law will not allow the deduction of bribes, making good the exhaustion thereof for which an
kickbacks and other similar payments. Applying the allowance is or has been made (major repairs);
principle of ejusdem generis, payment made by Freezy 4. Premiums paid on any life insurance policy covering the
Corporation would fall under “other similar payments” life of any officer or employee, or of any person
which are not allowed as deduction from gross income. financially interested in any trade or business carried on
(Section 34(A)(1)(c), NIRC) by the taxpayer, individual, or corporate, when the
taxpayer is directly or indirectly a beneficiary under
Q: What are the requisites for deductibility of bonus? such policy (Sec. 36(A), NIRC);
(2006 Bar) 5. Interest expense, bad debts, and losses from sales of
property between related parties;
A: 6. Bribes, kickbacks, and other similar payments; and
1. The payment of the bonus is made in good faith for 7. Items where the requisites for deductibility are not
additional compensation; met.
2. It must be for personal services actually rendered;
3. The bonus when added to salaries is “reasonable” when
measured by the amount and quality of the services

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 Taxation Law

INCOME TAX ON INDIVIDUALS

General Principles and Applicable Tax Rates

INCOME DERIVED FROM GROSS OR NET RATE
SOURCES
INDIVIDUAL TAXPAYER IS A:
Within the Outside the Gross Income Taxation (GIT)
Philippines Philippines or Net Income Taxation (NIT)
Employee: NIT

Businessman: NIT or GIT, if he
availed of the OSD

Self-employed: NIT or 8% tax on
gross sales or receipts and non-
RC ✓ ✓ operating income in excess of 0-35%
₱250,000

NOTE: Gross sales or gross
receipts and other non-operating
income do not exceed the VAT
Threshold (₱3M)
NRC ✓ X NIT 0-35%
OCW/Seaman ✓ X NIT 0-35%
Employee: GIT
RA ✓ X 0-35%
Businessman: GIT
NIT
NRA-EBT ✓ X 0-35%

GIT
NRA-NEBT ✓ X 25%

Special Alien ✓ X GIT 25%

Estate Under Judicial Settlement ✓ ✓ NIT 0-35%
Irrevocable Trust ✓ ✓ NIT 0-35%
Co-owners ✓ ✓ NIT 0-35%

Q: What is the rule on Taxation on compensation Q: What are the rules regarding taxation of business
income? income/income from practice of profession?

A: Compensation income includes all remuneration for A:
services rendered by an employee for his employer unless Purely Self-Employed and/or Professionals
specifically excluded under the NIRC. (Sec. 2.78.1, RR No. 2- a. Self-employed individuals and/or professionals with
1998) The test is whether such income is received by virtue gross sales/gross receipts and other non-operating
of an employer-employee relationship. income NOT more than ₱3M – shall have the option to
avail of:
Q: What are excluded from compensation income i. Schedular tax rate (Sec. 24(A)(2)(a) of the NIRC);
subject to tax? or
ii. 8% of the gross sales/gross receipts and other
A: non-operating income in excess of ₱250,000
1. Fringe benefit subject to tax (No. 22, RMC No. 50-2018)
2. De minimis benefit b. Self-employed individuals and/or professionals with
3. 13th month pay and other benefits and payments gross sales/gross receipts and other non-operating
specifically excluded from taxable compensation income more than ₱3M – Schedular tax rate (Sec.
income 24(A)(2)(a), NIRC) only

NOTE: Only managerial or supervisory employees are Mixed Income Earners
entitled to a fringe benefit subject to the FBT. (Sec. 3, Sec. 33, a. All income from compensation – schedular tax rate
NIRC) (Sec. 24(A)(2)(a), NIRC)
b. All income from business or practice of profession

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 Taxation Law
i. If gross sales and/or gross receipts and other Q: State the Outline of Taxes imposed on Domestic
non-operating income does not exceed ₱3M – Corporation.
Shall have the option to avail of:
• Schedular tax rate (Sec. 24(A)(2)(a), NIRC); A:
or 1. Normal corporate income tax (NCIT)
• 8% of the gross sales/gross receipts and - 30% of taxable income from all sources within and
other non-operating income NOTE: without the Philippines
₱250,000 shall not be deducted. (No. 22, RMC 2. Minimum corporate income tax (MCIT)
No. 50-2018) - 2% of gross income, if MCIT applies
ii. If gross sales and/or gross receipts and other 3. Gross income tax (Optional corporate income tax)
non-operating income exceeds ₱3M – schedular - 15% of gross income, if qualified
tax rate (Sec. 24(A)(2)(a), NIRC) 4. Improperly Accumulated Earnings Tax
- 10% of improperly accumulated earnings
Q: What is the tax treatment of partners in a general 5. Final tax on passive income
professional partnership?
Q: What is the nature of MCIT?
A: A general professional partnership (GPP) shall not be
subject to the income tax. Persons engaging in business as A: The MCIT is equal to 2% of the gross income of the
partners in a GPP shall be liable for income tax only in their corporation at the end of the taxable quarter, except income
separate and individual capacities. from income tax and income subject to final withholding
tax.
Special Rule on GPPs and the choice of deductions
Being a minimum income tax, a corporation should pay the
In computing a GPP’s distributable taxable income, the GPP MCIT whenever its normal corporate income tax (NCIT) is
may avail of the following deductions: lower than the MCIT, or when the firm reports a net loss in
a. Itemized expenses; or its tax return. Conversely, the NCIT is paid when it is higher
b. 40% optional standard deduction. than the MCIT. (Dimaampao, 2015)

Q: What is the tax treatment of the income derived by Q: What is the purpose of MCIT? (2001 Bar)
non-resident aliens engaged in trade or business?
A: The imposition of the MCIT is designed to forestall the
A: Non-Resident Aliens Engaged in Trade or Business are prevailing practice of corporations of over claiming
taxed on their income derived from all sources within the deductions in order to reduce their income tax payments.
Philippines in the same manner as an individual citizen or a
resident alien individual, subject to the schedule rate of 0- Q: What is the Coverage of the MCIT? (2001 Bar)
35%, subject to the rule of reciprocity.
A: The MCIT covers domestic and resident foreign
Q: What is the tax treatment of the income derived by corporations which are subject to the 30% normal
non-resident aliens not engaged in trade or business ? corporate income tax; hence, corporations which are
subject to special corporate taxes do not fall within the
A: Non-Resident Aliens Not Engaged in Trade or Business coverage of the MCIT.
are taxed on their income received from all sources within
the Philippines as interest, cash, and/or property dividends, Q: When shall the MCIT commence to be imposed on a
rents, salaries, wages, premiums, annuities, compensation, corporation?
remuneration, emoluments, or other fixed or determinable
annual or periodic or casual gains, profits, and income, and A: The MCIT is imposed beginning on the fourth taxable
capital gains, a tax equal to twenty-five percent (25%) of year immediately following the year in which the
such income. corporation commenced its business operations. For
purposes of the MCIT, the taxable year in which business
Q: What is the tax treatment of the income derived by operations commenced shall be the year in which the
Aliens employed by regional headquarters, regional domestic corporation registered with the BIR, regardless of
operating headquarters, offshore banking units, and whether the corporation is using the calendar year or fiscal
petroleum service contractors? year.

A: According to RR No. 8-2010 issued by the BIR, Q: KKK Corp. secured its Certificate of Incorporation
preferential income tax rate under subsection (C), (D) and from the Securities and Exchange Commission on June
(E) of Section 25 of the Tax Code shall no longer be 3, 2013. It commenced business operations on August
applicable to special aliens (like those employed by regional 12, 2013. In April 2014, Ms. J, an employee of KKK Corp.
headquarters, regional operating headquarters, offshore in charge of preparing the annual income tax return of
banking units, and petroleum service contractors), without the corporation for 2013, got confused on whether she
prejudice to preferential tax rates under existing tax should prepare payment for the regular corporate
treaties. As such, these special aliens are now subject to income tax or the minimum corporate income tax.
regular income tax rate. (RR. No. 8-2018)
a. As Ms. J's supervisor, what will be your advice?
b. What are the distinctions between regular
INCOME TAX ON CORPORATIONS
corporate income tax and minimum corporate
income tax? (2015 Bar)

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 Taxation Law
thereof. (Sec.
A: 27(B), NIRC)
a. As Ms. J’s supervisor, I will advise that KKK Corp. should
prepare payment for the regular corporate income tax Q: De La Salle University leases out a portion of its
and not the minimum corporate income tax (MCIT) property to private concessionaires, i.e., commercial
Under the NIRC, MCIT is only applicable beginning the canteens and bookstores. The lease payments were
4th taxable year following the commencement of factually proven to be used for educational purposes.
business operation. (Sec. 27(E)(1), NIRC)
a. Is the land owned by De La Salle University subject
b. The distinctions between regular corporate income tax to real property tax?
and the minimum corporate income tax are the b. Are the lease payments received by De La Salle
following: University subject to income tax?
c. Are the lease payments received by De La Salle
i. As to taxpayer: Regular corporate income tax University subject to VAT? (2016 Bar)
applies to all corporate taxpayers while minimum
corporate income tax applies to domestic A:
corporations and resident foreign corporations. a. YES. The leased portion of the building may be subject
ii. As to tax rate: Regular corporate income tax is to real property tax. The test of exemption from
30% while minimum corporate income tax is 2%. taxation is the use of the property for purposes
iii. As to tax base: Regular corporate income tax is mentioned in the Constitution. The lease of a portion
based on the net taxable income while minimum of a school building for commercial purposes, removes
corporate income tax is based on gross income. such asset from the property tax exemption granted
iv. As to period of applicability: Regular corporate under the Constitution. There is no exemption
income tax is applicable once the corporation because the asset is not used actually, directly and
commenced its business operation, while exclusively for educational purposes. The commercial
minimum corporate income tax is applicable use of the property is also not incidental to and
beginning on the 4th taxable year following the reasonably necessary for the accomplishment of the
commencement of business operations. main purpose of a university, which is to educate its
v. As to imposition: The minimum corporate income students. (Abra Valley College, Inc. v. Aquino, 245 Phil.
tax is imposed whenever it is greater than the 83; 162 SCRA 106 (1988), cited in CIR vs. De La Salle
regular corporate income tax o the corporation. University, Inc., G.R. No. 196596, November 9, 2016)
(Sec. 27 (A) and (E), NIRC; RR No. 998)
b. &c.
Q: What is Improperly accumulated earnings tax? NO. If the university actually, directly and exclusively
uses for educational purposes the revenues earned
A: Domestic corporations as defined under the Tax Code from the lease of its school building, such revenues
and which are classified as closely-held corporations are shall be exempt from taxes and duties. The tax
subject to 10% improperly accumulated earnings tax on exemption no longer hinges on the use of the asset
their improperly accumulated earnings. (Sec. 29(A), NIRC) from which the revenues were earned, but on the
actual, direct and exclusive use of the revenues for
Q: What is the tax treatment on Proprietary Non-Profit educational purposes. To avail of the exemption, the
Educational Institutions and Non-Profit Hospitals? taxpayer must factually prove that it used actually,
directly and exclusively for educational purposes the
30% 10% Exempt revenues or income sought to be exempted.
Private, non- Private, non- Organized and
profit hospitals profit hospitals operated In sum, the crucial point of inquiry then is on the use of the
and proprietary and proprietary exclusively for assets or on the use of the revenues. These are two things
educational educational charitable that must be viewed and treated separately. (CIR vs. De La
institutions institutions purposes, and no Salle University, Inc., G.R. No. 196596, November 9, 2016)
whose gross whose gross part of its net
income from income from income or asset Q: Under Art. XIV, Sec. 4(3) of the 1987 Constitution, all
unrelated trade, unrelated trade, shall belong to or revenues and assets of non-stock, non-profit
business or business or inure to the educational institutions, used actually, directly, and
other activity other activity benefit of any exclusively for educational purposes, are exempt from
exceeds 50% of does not exceed member, taxes and duties. Are incomes derived from
total gross 50% of total organizer, officer dormitories, canteens and bookstores as well as
income from all gross income or any specific interest income on bank deposits and yields from
sources. from all sources. purpose. deposit substitutes automatically exempt from
taxation? (2000 Bar)
Hospitals and
educational A: NO. The interest income on bank deposits and yields
institutions from deposit substitutes are not automatically exempt
claiming to be from taxation. There must be a showing that the incomes
proprietary non- are used actually, directly, and exclusively for educational
profit but do not purposes.
meet the
definition

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 Taxation Law
The income derived from dormitories, canteens, and Q: What is the rule on International carriers?
bookstores are not also automatically exempt from
taxation. There is still a requirement for evidence to show A: An international carrier refers to foreign airline
actual, direct and exclusive use for educational purposes. corporation doing business in the Philippines which has
landing rights in any Philippine port to perform
Q: What is the tax treatment of the income derived by a international air transportation services or flight
proprietary non-profit educational institutions and operations anywhere in the world.
proprietary non-profit hospitals?
They shall be taxed at 2.5% on their Gross Philippine
A: Section 27(b) of the NIRC did not remove the exemption Billings (GPB) unless it is subject to preferential rate or
from income tax of proprietary non-profit hospitals as exempt from tax on the basis of applicable tax
charitable institutions. The provision merely introduced treaty/international agreement to which the Philippines is
the preferential income tax rate of 10% for proprietary non- a signatory or on the basis of reciprocity, such that an
profit educational institutions and proprietary non-profit international carrier, whose home country grants income
hospitals. (CIR v. St. Luke’s Medical Center, G.R. No. 195909, tax exemption to Philippine carries, shall likewise be
September 26, 2012) exempt from income tax imposed under the NIRC.

Q: UP Los Banos, a government education institution, Q: What is Gross Philippine Billings? (2005 Bar)
requested for a confirmation for its tax exemption
under Section 30(l) of the Tax Code. Is UP Los Banos A: It refers to the amount of gross revenue realized from
exempt from income tax? carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and
A: YES. Pursuant to Section 30(l) of the Tax Code, in uninterrupted flight, irrespective of the place of sale or
relation to Article XIV of the 1987 Philippine Constitution, issue and the place of payment of the ticket or passage
Government education institutions are exempt from tax on document. (Dimampao, 2015)
income used actually, directly and exclusively for
educational purposes. Q: What is the tax treatment of Foreign Currency
Deposit Units?
Q: What is the rule on taxation of Resident Foreign
Corporations? A: Income derived by a depository bank under the
expanded foreign currency deposit system from foreign
A: The general rule is that RFC shall be liable for a 30% currency transactions with local commercial banks,
income tax on their income from within the Philippines, including branches of foreign banks that may be authorized
except for: by the BSP to transact business with foreign currency
depository system units and other depository banks under
1. Resident foreign corporations that are international the expanded foreign currency deposit system, including
carriers which shall be taxed at 2 ½% on their Gross interest income from foreign currency loans granted by
Philippine Billings. (Sec 28(A)(3), NIRC) such depository banks under said expanded foreign
currency deposit system to residents, shall be subject to a
2. Income derived by offshore banking units final income tax at the rate of ten percent (10%) of such
authorized by the BSP, from foreign currency income.
transactions with non-residents, other offshore
banking units, local commercial banks, including Q: What is the rule on taxation of non-resident foreign
branches of foreign banks that may be authorized by corporations (NRFC)?
the BSP to transact business with offshore banking
units shall be exempt from all taxes except net A: A foreign corporation not engaged in trade or business in
income from such transactions as may be specified by the Philippines shall pay a tax equal to 30% of the gross
the Secretary of Finance, upon recommendation of the income during such taxable year from all sources within the
Monetary Board which shall be subject to the regular Philippines except capital gains from sale of shares of stock
income. Provided, however, that any interest income not traded in the stock exchange. (Sec. 28(B)(1), NIRC)
derived from foreign currency loans granted to
residents other than offshore banking units or local Q: A, B, and C, all lawyers, formed a partnership called
commercial banks, including local branches of foreign ABC Law Firm so that they can practice their profession
banks that may be authorized by the BSP to transact as lawyers. For the year 2012, ABC Law Firm received
business with offshore banking units, shall be subject earnings and paid expenses, among which are as
only to a final tax at the rate of ten percent. (10%). follows:
(Sec. 28 (A)(4), NIRC)
Earnings:
3. Regional or area headquarters (Sec. 22(DD), NIRC) Professional/legal fees from various clients;
shall not be subject to income tax. (Sec. 28(A)(6), Cash prize received from a religious society in
NIRC) recognition of the exemplary service of ABC Law Firm;
and
4. Regional operating headquarters as defined in Gains derived from sale of excess computers and
Section 22(EE) shall pay a tax of ten percent (10%) laptops.
of their taxable income. (Sec. 28(A)(6), NIRC)
Payments:
Salaries of office staff;

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 Taxation Law
Rentals for office space; and on his income from sources outside the
Representation expenses incurred in meetings with Philippines.
clients. b. Resident alien on income derived from sources
within the Philippines.
1. What are the items in the above-mentioned c. Resident citizen earning purely compensation
earnings which should be included in the income from two employers within the
computation of ABC Law Firm’s gross income? Philippines, whose income taxes have been
Explain. correctly withheld.
2. What are the items in the above-mentioned d. Resident citizen who falls under the
payments which may be considered as deductions classification of minimum wage earners.
from the gross income of ABC Law Firm? Explain. e. An individual whose sole income has been
3. If ABC Law Firm earns net income in 2012, what, if subjected to final withholding tax. (2015 Bar)
any, is the tax consequence on the part of ABC Law
Firm insofar as the payment of income tax is A:
concerned? What, if any, is the tax consequence on a. Not required. The income of a non-resident Filipino
the part of A, B, and C as individual partners, citizen is taxable only on income sourced within the
insofar as the payment of income tax is concerned? Philippines. Accordingly, his income from sources
(2014 Bar) outside the Philippines is exempt from income tax. (Sec.
51(A)(1)(b), NIRC)
A:
1. The three (3) items of earnings should be included in b. Required. A resident alien is taxable only on income
the computation of ABC Law Firm’s gross income. The derived from sources within the Philippines. (Sec.
professional or legal fees from various clients are 51(A)(1)(c), NIRC)
included as part of gross income being in the nature of
compensation for services. (Section 32(A)(1), NIRC). c. Required. A resident citizen who is earning purely
The cash prize from a religious society in recognition compensation income from two employers should file
of its exemplary services is also included there being income tax return. If the compensation income is
no law providing for its exclusion. This is not a prize in received concurrently from two employers during
recognition of any of the achievements enumerated the taxable year, the employee is not qualified for
under the law hence, should form part of gross income. substituted filing.
(Section 32(B)(7)(c), NIRC) The gains from sale of
excess computers and laptops should also be included d. Not required. Under the law, all minimum wage earners
as part of the firm’s gross income because the term in the private and public sector shall be exempt from
gross income specifically includes gains derived from payment of income tax. (Sec. 51(A)(2)(d), NIRC in
dealings in property. (Section 32(A)(3), NIRC) relation to R.A. No. 9504)

2. The law firm being formed as general professional e. Not required. Under the law, an individual whose sole
partnership is entitled to the same deductions allowed income has been subjected of final withholding tax
to corporation. (Section 26, NIRC) Hence, the three (3) pursuant to Sec. 57(A), NIRC, need not file a return. What
items of deductions mentioned in the problem are all he received is a tax paid income. (Sec. 51(A)(2)(c), NIRC)
deductible, they being in the nature of ordinary and
necessary expenses incurred in the practice of DONOR’S TAX
profession. (Section 34(A), NIRC) However, the amount
deductible for representation expenses incurred by a Q: What is Donor’s Tax?
taxpayer engaged in sale of services, including a law
firm, is subject to a ceiling of 1% of net revenue. (RR A: Donor’s tax is an excise tax imposed on the privilege of
No. 10-2002) transferring property by way of a gift inter vivos based on
pure act of liberality without any or less than adequate
3. The net income having been earned by the law firm consideration and without any legal compulsion to give.
which is formed and qualifies as a general professional
partnership, is not subject to income tax because the Transfers which may be considered as donation
earner is devoid of any income tax personality. Each
partner shall report as gross income his distributive 1. Sale/exchange/transfer of property for insufficient
shares, actuality or constructively received, in the net consideration;
income of the partnership. The partnership is merely
treated for income tax purposes as a pass-through GR: Where a property is transferred for less than adequate
entity so that its net income is not taxable at the level and full consideration in money or money’s worth, the
of the partnership bur said net income should be amount by which the FMV exceeds the consideration shall
attributed to the partners, whether or not distributed be deemed a gift and be included in computing the amount
to them, and they are liable to pay the income tax based of gifts made during the calendar year. It is as if the property
on their respective taxable income as individual was donated but in order to avoid paying donor’s tax, the
taxpayers. (Section 26, NIRC) donor opted to transfer the property for inadequate
consideration.
Q: Indicate whether each of the following individuals is
required or not required to file an income tax return: XPN:
a. Where the sale, exchange, or transfer is made in the
a. Filipino citizen residing outside the Philippines ordinary course of business which is:

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i. Bona fide; The fair market value of the property given at the time of
ii. Made at arm’s length; the gift shall be the value of the gross gift.
iii. Free from any donative intent
b. Where property transferred is real property located in 2. Real property
the Philippines considered as capital asset, the
transfer is not subject to donor’s tax but to a capital The fair market value as determined by the CIR (zonal
gains tax, which is a final income tax of 6% of the fair value) at the time of donation or the value fixed by the
market value or gross selling price, whichever is assessor (assessed value), whichever is higher. (Sec. 102)
higher, and therefore, there can be no instance where
the seller can avoid any tax by selling his capital assets If there is no zonal value, the taxable base is the fair market
below its FMV. value that appears in the latest tax declaration. If there is an
improvement, the value of the improvement is the
2. Condonation/remission of debt; and construction cost per building permit and or occupancy
permit plus 10% per year after year of construction, or the
If the creditor condones the indebtedness of the debtor, the market value per latest tax declaration.
following rules apply:
a. On account of debtor’s services to the creditor the Q: What gifts are exempted from donor’s tax?
same is in taxable income to the debtor; or
b. If no services were rendered but the creditor simply A:
condones the debt, it is taxable gift and not a taxable 1. Donation for political campaign purposes (Sec. 99(C),
income. NIRC)
2. Certain gifts made by residents (Sec. 101(A), NIRC)
3. Renunciation of inheritance; exception 3. Certain gifts made by non-resident aliens (Sec. 101(B),
NIRC)
a. Renunciation by the surviving spouse of his/her share 4. Donation of intangibles subject to reciprocity (Sec. 104,
in the conjugal partnership or absolute community NIRC)
after the dissolution of the marriage in favor of the 5. Donation for athlete’s prizes and awards (R.A. 7549)
heirs of the deceased spouse or any other person/s is 6. Donation under the “Adopt-a-School Program” (R.A.
subject to donor’s tax. 8525)
b. General renunciation by an heir, including the 7. Exemption under other special laws
surviving spouse, of his/her share in the hereditary
estate left by the decedent is not subject to donor’s Tax credit for donor’s taxes paid to a foreign country
tax, unless specifically and categorically done in favor
of identified heir/s to the exclusion or disadvantage of The donor’s tax imposed by the NIRC upon a donor who was
the other co-heirs in the hereditary estate. (RR. No. 12 a citizen or a resident at the time of donation shall be
– 2018) credited with the amount of any donor’s taxes of any
character and description imposed by the authority of a
Determination of gross gift foreign country.

GROSS GIFT NET GIFT Q: Who may avail?
All property, real or The net economic benefit
personal, tangible or from the transfer that A: Only donors who are citizens or residents at the time of
intangible, that was given by accrues to the donee. the donation are entitled to claim tax credit.
the donor to the donee by
way of gift, without the NOTE: Limitations in donor’s tax credit follows the
benefit of any deduction. principles of limitations in estate tax credit.
(Sec. 104, NIRC)
Filing of return and payment
Q: What is the composition of gross gift?
Q: Who are liable to pay donor’s tax?
DONOR GROSS GIFT
RC, NRC, RA, All real properties, tangible and A: Any person making a donation is required to file donor’s
DC intangible personal properties wherever tax return unless the donation is specifically exempted
located under NIRC or other special laws. He is required for every
NRA, FC All real properties, tangible, and donation to accomplish under oath a donor’s tax return in
intangible properties located in the duplicate (Sec. 98, NIRC)
Philippines unless the reciprocity applies
Q: What is the rate of donor’s tax?
NOTE: A corporation, domestic (DC) or foreign (FC), cannot
be made liable to pay estate tax, but may be liable to pay A: R.A. No. 10963, otherwise known as the TRAIN Law has
donor’s tax. simplified the donor’s tax schedule from an eight-bracket
schedule with rates ranging from 2% to 15% to a single
Q: What is the valuation of gifts made in property? fixed rate of 6% of total gifts in excess of P250,000. It
removed the distinction between relatives and strangers in
A: terms of the imposition of donor’s tax, meaning regardless
1. Personal property of whether it is a relative or stranger, it will be subject to the
fixed rate of 6%.

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Q: When is the filing of donor’s tax return? Q: Who are the persons liable to value-added tax?

A: Donor’s tax return is filed within 30 days after the date A:
the donation or gift is made. 1. Sells, barters, or exchanges goods or properties in the
course of trade or business;
VALUE-ADDED TAX 2. Sells services in the course of trade or business; or
3. Imports goods, whether or not in the course of trade
Q: What is Value Added Tax? or business. (Ingles, 2018)

A: Value Added Tax (VAT) is a business tax imposed and GR: The seller is the one statutorily liable for the payment
collected on every (a) sale, barter, or exchange of goods of the tax but the amount of the tax may be shifted or passed
or properties (real or personal), (b) lease of goods or on to the buyer, transferee or lessee of goods, properties or
properties (real or personal) or (c) rendition of services, services.
all in the course of trade or business, and (d) importation
of goods (whether or not in the course of trade or XPN: In case of importation, the importer is the one liable
business). (Sec. 105, NIRC) for VAT. (Sec. 107, NIRC)

Q: Can VAT be passed on to a buyer, transferee or Q: State the rule on imposition of value-added tax on
lessee? sale of goods or properties.

A: YES. VAT is an indirect tax, thus, it can be shifted or A:
passed on to the buyer, transferee or lessee of goods, 1. Those held for sale to customers in the ordinary
properties or services. (Sec. 105, NIRC) course of trade or business;
2. Those held for lease in the ordinary course of trade or
Q: What is the difference between VAT and Withholding business; and
Tax? 3. Those used in the trade or business of the seller (as it
is incidental to the taxpayer’s main business). (RR No.
A: To distinguish, in indirect taxes, the incidence of taxation 4–2007)
falls on one person but the burden thereof can be shifted or
passed on to another person. On the other hand, in Output tax shall be recognized by the seller and input tax
withholding taxes, the incidence and burden of taxation fall shall accrue to the buyer at the time of the execution of the
on the same entity, the statutory taxpayer. The burden of instrument of sale (at the time of consummation of sale)
taxation is not shifted to the withholding agent who merely Payments that are subsequent to “initial payments” shall no
collects, by withholding, the tax due from income payments longer be subject to output VAT. (RR No. 4–2007)
to entities arising from certain transactions and remits the
same to the government (Asia International Auctioneers, Q: What is output VAT?
Inc., v. CIR, G.R. No. 179115, September 26, 2012)
A: It is the value-added tax due on the sale or lease of
Q: Define Destination Principle and Cross-Border taxable goods or properties or services by (1) any person
Principle. registered or (2) required to register under Sec. 236 of the
NIRC. (Sec. 110(A)(3), NIRC)
A: The destination of the goods determines taxation or
exemption from tax. Export sales of goods are subject to Output tax may come from:
zero percent (0%) rate while imports of goods are subject 1. Actual sale
to twelve percent (12%) value added tax. Exports are zero- 2. Transaction deemed sales
rated because the consumption of such goods will be made
outside of the Philippines, while imports of goods are Q: What is input VAT?
subject to 12% value added tax because they are for
consumption within the Philippines. (Mamalateo, 2014) A: It means the value-added tax due on or paid by a VAT-
registered person on importation of goods or local
Q: Is the destination principle absolute? purchase of goods, properties or services, including lease
or use of properties, in the course of his trade or business.
A: NO. The law clearly provides for an exemption to the It shall also include the transitional input tax and the
destination principle; that is, for a zero percent (0%) VAT presumptive input tax determined in accordance with
rate for services that are performed in the Philippines, paid Section 111 of the NIRC. (Sec. 110(A)(3), NIRC)
for in acceptable foreign currency and accounted for in
accordance with the rules of BSP. (Sec. 108(B)(2) as cited in Input VAT or input tax represents the actual payments,
Commissioner of Internal Revenue v. American Express costs, and expenses incurred by a VAT-registered taxpayer
International, Inc., G.R. No. 152609, June 29, 2005) in connection with his purchase of goods and services. On
the other hand, when that person or entity sells his/its
Consistent with the destination principle, the purchases of products or services, the VAT-registered taxpayer generally
goods and services destined for consumption within an becomes liable for 10% (now 12%) of the selling price as
ECOZONE should be free of VAT; hence, no input VAT Output VAT or output tax. (CIR v. Benguet Corporation, G.R.
should then be paid on such purchases. With no input VAT No. 145559, July 14,2006)
paid, there is nothing to be refunded or credited under Sec.
112 of the NIRC. (Coral Bay Nickel Corp. v. CIR, G.R No. Q: Define “In the course of trade or business”.
190506, June 13, 2016)

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 Taxation Law
A: The phrase “in the course of trade or business” means the A: The term “effectively zero-rated sale of goods and
regular conduct or pursuit of a commercial or an economic properties” shall refer to the local sale of goods and
activity, including transactions incidental thereto, by any properties by a VAT-registered person to a person or entity
person, regardless of whether or not the person engaged who was granted indirect tax exemption under special laws
therein is a non-stock, non-profit private organization or international agreement. Since the buyer is exempt from
(irrespective of the disposition of its net income and indirect tax, the seller cannot pass on the VAT and therefore,
whether or not it sells exclusively to members or their the exemption enjoyed by the buyer shall extend to the
guests) or government entity. (Sec. 105(par.3), NIRC) seller, making the sale effectively zero-rated. (R.M.C. 50-
2007)
XPNs to regularity:
1. Non-resident aliens who perform services in the Q: Distinguish Exempt Party and Exempt Transaction
Philippines are deemed to be making sales in the
course of trade or business, even if the performance of EXEMPT PARTY EXEMPT TRANSACTION
services is not regular. (Sec. 4.105-3, RR No. 16 – 2005) A person or entity granted Involves goods or services
2. Importations are subject to VAT whether in the course VAT exemption under the which, by their nature are
of trade or business or not. NIRC, special law or specifically listed in and
international agreement to expressly exempted from
Q: The Solicitor General, counsel for BIR, claims that which RP is a signatory, the VAT under the NIRC,
association dues, membership fees, and other and by virtue of which its without regard to the tax
assessment/charges collected by a condominium taxable transactions status of the parties in the
corporation are subject to VAT since they constitute become exempt from the transactions.
income payments or compensation for the beneficial VAT.
services it provides to its members and tenants. On the Such party is not subject to Transaction is not subject
other hand, the lawyer of the condominium the VAT, but may be to VAT, but the seller is not
corporations argues that such dues and fees are merely allowed a tax refund or allowed any tax refund or
held in trust by the condominium corporations credit of input tax paid, credit for any input taxes
exclusively for their members and used solely for depending on its paid.
administrative expenses in implementing the registration as a VAT or
condominium corporations’ purposes. Accordingly, the non-VAT taxpayer.
condominium corporations, do not actually render
services for a fee subject to VAT. Whose argument is REMEDIES
correct? Decide. (2014 BAR)
JURISDICTION OF COURTS
A: The lawyer of the condominium corporations is correct.

The association dues, membership fees, and other
The CTA has jurisdiction over both civil and criminal
assessment/charges do not constitute income payments
aspects of a tax case. The concentration of tax cases in one
because they were collected for the benefit of the unit
court will enhance the disposition of these cases since it will
owners and the condominium corporation is not created as
take them out of the jurisdiction of regular courts which,
a business entity. The collection is the money of the unit
admittedly, do not have expertise in the field of taxation.
owners pooled together and will be spent exclusively for the
(Dimaampao, 2015)
purpose of maintaining and preserving the building and its

premises which they themselves own and possess. (First e-
Salient features of R.A. 9282 regarding appeals
Bank Tower Condominium Corp., v. BIR, Special Civil Action

No. 121236, RTC Br. 146, Makati City)
The decisions of the CTA are no longer appealable to the CA.

The decision of a division of the CTA may be appealed to the
When an affiliate provides funds to a taxpayer who then
CTA En Banc, which in turn may be appealed directly to the
uses the funds to pay a third party, the transaction is not
SC only on questions of law.
subject to VAT, as there was no sale, barter, or exchange

between the affiliate and the taxpayer. The money was
Q: Does the CTA have jurisdiction over a special civil
simply given as a dole-out. (CIR v. Sony Philippines, Inc., G.R.
action for certiorari assailing an interlocutory order
No. 178697, November 17, 2010)
issued by the RTC in a local tax case?


Q: Define zero-rated sale.
A: YES. Although there is no categorical statement under

R.A. 1125 as well as the amendatory R.A. 9282, which
A: Zero-rated sale by a VAT-registered person is a taxable
provides that the CTA has jurisdiction over petitions for
transaction for VAT purposes but the sale does not result in
certiorari assailing interlocutory orders issued by the RTC
any output tax. However, the input tax on the purchases of
in local tax cases filed before it, the prevailing doctrine is
goods, properties or services related to such zero-rated sale
that a court may issue a writ of certiorari in aid of its
shall be available as tax credit or refund.
appellate jurisdiction if said court has jurisdiction to review,

by appeal or writ of error, the final orders or decisions of
To be subject to zero tax-rate, however, the seller must be a
the lower court. (The City Of Manila v. Hon. Grecia-Cuerdo,
VAT-registered person because if he is not VAT registered,
G.R. No. 175723, February 4, 2014)
the transactions entered into by him are exempt from the

tax.
EXCLUSIVE ORIGINAL AND APPELLATE JURISDICTION

OVER CIVIL CASES
Q: Define Effectively Zero-Rated Transactions.

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 Taxation Law
Cases within the jurisdiction of the Court En banc (Sec. cases originally decided by them within their
2, Rule 4, Revised Rules of CTA (RRCTA)) jurisdiction. (Sec. 3 Rule 4 RRCTA)
However, where the amount is less than P1 million,
The Court en banc shall exercise exclusive appellate it is the RTC or the MTC that has jurisdiction, as the
jurisdiction to review by appeal the following: (ARMoR) case may be, depending on the jurisdictional
amount.
1. Decisions or resolutions on motions for
reconsideration or new trial of the Court in Divisions in NOTE: Undisputed assessments are already final
the exercise of its exclusive appellate jurisdiction over: and collectible. The taxpayer failed to seasonably
(ALT) protest the assessment within a period of 30 days
a. Cases arising from administrative agencies – from receipt of the notice of assessment.
BIR, BOC, DoF, DTI, and DA;
b. Local tax cases decided by the RTC in the b. Refunds of internal revenue taxes, fees or other
exercise of their original jurisdiction; and charges and penalties imposed thereto;
c. Tax collection cases decided by the RTC in the
exercise of their original jurisdiction involving c. Other matters arising under NIRC or other laws
final and executory assessments for taxes, fees, administered by the BIR.
charges and penalties, where the principal
amount of taxes and penalties claimed is less Q: What does “other matters” under the NIRC or
than P1 million pesos; the TCCP mean?

2. Decisions, resolutions or orders of the RTC in cases A: The term “other matters” includes cases which
decided or resolved by them in the exercise of their can be considered within the scope of the function
appellate jurisdiction over: of the BIR and BOC by applying the ejusdem generis
a. Local tax cases; rule (that is, such cases should be of the same
b. Tax collection cases; nature as those that have preceded them).

3. Decisions, resolutions or orders on motions for In CIR v. Hambrecht & Quist Philippines, Inc. (G.R. No.
reconsideration or new trial of the Court in Division in 169225, November 17, 2010), the term “other
the exercise of its exclusive original jurisdiction over matters” is limited only by the qualifying phrase
tax collection cases; and that follows it. The appellate jurisdiction of the CTA
is not limited to cases which involve the decisions
4. Decisions of the Central Board of Assessment Appeals of the CIR on matters relating to assessments or
(CBAA) in the exercise of its appellate jurisdiction over refunds. It covers other cases that arise out of the
cases involving the assessment and taxation of real NIRC or related laws administered by the BIR. The
property originally decided by the provincial or city issue of whether or not the BIR’s right to collect
board of assessment appeals. (Sec. 2, Rule 4, RRCTA) taxes had already prescribed is a subject matter
falling under the NIRC. In connection therewith, the
NIRC also states that the collection of taxes is one
NOTE: Decisions, orders, and resolutions of the RTC in local
of the duties of the BIR. Thus, from the foregoing,
tax cases do not include real property tax which is an ad
the issue of prescription of the BIR’s right to collect
valorem tax. The jurisdiction of the CTA en banc involves
taxes may be considered as covered by the term
only those real property tax cases originally decided by the
“other matters” over which the CTA has appellate
CBAA in the exercise of its appellate jurisdiction under Sec.
jurisdiction.
7(a)(5) of R.A. 9282 and under R.A. 7160. (Habawel v. CTA,

G.R. No. 174759, September 7, 2011)
Q: BDO questions a BIR ruling subjecting

interest income from zero-coupon bonds
Cases within the jurisdiction of the Court in divisions
issued by the government to the 20% final
(Sec. 3, Rule 4, RRCTA)
withholding tax as they are deemed to be

deposit substitutes. BDO filed it to the CTA, not
I. Exclusive Appellate Jurisdiction (DIReCTORS2) (Sec.
with the Secretary of Finance. CIR contends that
3(a), Rule 4, RRCTA)
it violates the principle of exhaustion of

administrative remedies. Is BDO correct?
1. Decisions of the CIR in cases involving: (DRO)


A: YES. The jurisdiction to review the rulings of the
a. Disputed assessments;
CIR pertains to the CTA. The questioned BIR

Rulings were issued in connection with the
Q: Which court has jurisdiction over
implementation of the NIRC. Under Sec. 7 of R.A.
undisputed assessments?
No. 1125 as amended by R.A. No. 9282, the CTA

shall exercise exclusive appellate jurisdiction to
A: Being an action for the collection of sum of
review by appeal on the Decisions of the CIR in
money, the CTA has exclusive original jurisdiction
cases involving disputed assessments, refunds of
over undisputed assessments when the amount
internal revenue taxes, fees or other charges,
involved is P1 million or more; and appellate
penalties in relation thereto or other matters
jurisdiction over appeals from the judgments,
arising under the NIRC or other laws administered
resolutions, or orders of the RTC in tax collection
by the BIR. Section 11 is likewise worded as follows:
Any party adversely affected by a decision, ruling

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 Taxation Law
or inaction of the CIR, the Commissioner of A: NO. The CTA has no power motu proprio to review tax
Customs, the Secretary of Finance, the Secretary of cases. It can resolve cases only if a civil action for collection
Trade and Industry or the Secretary of Agriculture of sum of money is filed before it in the exercise of its
or the Central Board of Assessment Appeals or the exclusive original jurisdiction, or a petition for review is
Regional Trial Courts may file an appeal with the filed in the exercise of its exclusive appellate jurisdiction. An
CTA within 30 days after the receipt of such information may be filed with the CTA directly where the
decision or ruling. (Banco de Oro v. Republic, G.R. principal amount of taxes and fees, exclusive of charges and
No. 198756, January 13, 2015) penalties, is P1 million or more.

2. Inaction by the CIR in cases involving: (DROw) Q: Does the CTA have jurisdiction to rule on validity of
a. Disputed assessments; a Rule or Regulation issued by an administrative
b. Refunds of internal revenue taxes, fees or other agency?
charges and penalties imposed thereto;
c. Other matters arising under NIRC or other laws A: NO. While the law confers on the CTA jurisdiction to
administered by the BIR, where the NIRC provides resolve tax disputes in general, this does not include cases
a specific period for action. where the constitutionality of a law or rule is challenged.
Where what is assailed is the validity or constitutionality of
NOTE: The inaction by the CIR within the 180-day a law, or a rule or regulation issued by the administrative
period under Sec. 228 of the NIRC is deemed a agency in the performance of its quasi-legislative function,
denial. the regular courts have jurisdiction to pass upon the same.
(British American Tobacco v. Camacho, G.R. No. 163583,
3. Decisions, Orders or Resolutions of the RTC in the August 20, 2008)
exercise of their original jurisdiction over local tax
cases and tax collection cases. NOTE: However, in the case of Banco de Oro vs. Republic of
4. Decisions of the Commissioner of Customs (COC) in the Philippines (G.R. No. 198756, August 16, 2016), the
cases involving: (DSFO) Supreme Court ruled that the Court of Tax Appeals has
a. Liability for customs duties, fees or other money undoubted jurisdiction to pass upon the constitutionality or
charges; validity of a tax law or regulation when raised by the
b. Seizure, detention or release of property affected; taxpayer as a defense in disputing or contesting an
c. Fines, forfeitures or other penalties in relation assessment or claiming a refund. It is only in the lawful
thereto; or exercise of its power to pass upon all maters brought before
d. Other matters arising under Customs Law or other it, as sanctioned by Section 7 of Republic Act No. 1125, as
laws administered by the BOC. amended.

5. Decisions of the Secretary of Finance on customs This Court, however, declares that the Court of Tax Appeals
cases elevated for automatic review from decisions may likewise take cognizance of cases directly challenging
of the COC which are adverse to the Government the constitutionality or validity of a tax law or regulation or
under Section 2315 of the TCCP (now Sec. 1128 of the administrative issuance (revenue orders, revenue
CMTA) memorandum circulars, rulings).

NOTE: The purpose and rationale of the automatic In other words, within the judicial system, the law intends
review in customs cases- the provision for automatic the Court of Tax Appeals to have exclusive jurisdiction to
review by the COC and the Secretary of Finance of resolve all tax problems. Petitions for writs of certiorari
unappealed seizure and protest cases was conceived to against the acts and omissions of the said quasi-judicial
protect the government against corrupt and conniving agencies should, thus, be filed before the Court of Tax
customs collectors. (Yaokasin v. COC, G.R. No. 84111, Appeals.
December 22, 1989)
Republic Act No. 9282, a special and later law than Batas
6. Decisions of the Secretary of Trade and Industry, in Pambansa Blg. 129 provides an exception to the original
the case of non-agricultural product, commodity or jurisdiction of the Regional Trial Courts over actions
article, and the Secretary of Agriculture in the case questioning the constitutionality or validity of tax laws or
of agricultural product, commodity or article, regulations. Except for local tax cases, actions directly
involving dumping and countervailing duties under challenging the constitutionality or validity of a tax law or
Sections 301 and 302, respectively of the TCCP, and regulation or administrative issuance may be filed directly
safeguard measures under R.A. 8800, where either before the Court of Tax Appeals.
party may appeal the decision to impose or not to
impose said duties. Furthermore, with respect to administrative issuances
(revenue orders, revenue memorandum circulars, or
NOTE: The SC held that the lower courts can acquire rulings), these are issued by the Commissioner under its
jurisdiction over a claim for collection of deficiency power to make rulings or opinions in connection with the
taxes only after the assessment made by the CIR has implementation of the provisions of internal revenue laws.
become final and appealable, not where there is still a Tax rulings, on the other hand, are official positions of the
pending CTA case. (Yabes v. Flojo, G.R. No. L-46954, July Bureau on inquiries of taxpayers who request clarification
20, 1982) on certain provisions of the National Internal Revenue
Code, other tax laws, or their implementing regulations.
Q: Does the CTA have the power to review tax cases Hence, the determination of the validity of these issuances
motu proprio? (1977 BAR) clearly falls within the exclusive appellate jurisdiction of the

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 Taxation Law
Court of Tax Appeals under Section 7(1) of Republic Act No. 3(c), Rule 4, RRCTA)
1125, as amended, subject to prior review by the Secretary
of Finance, as required under Republic Act No. 8424. (Banco 1. Original jurisdiction in tax collection cases
de Oro vs. Republic of the Philippines, G.R. No. 198756, August involving final and executory assessments for taxes,
16, 2016) fees, charges and penalties, where the principal
amount of taxes and fees, exclusive of charges and
Q: Disputing the assessment, PAGCOR appealed to the penalties, claimed is one million pesos or more.
Secretary of Justice, on the basis of Sections 66 and 67
of the Revised Administrative Code, which provides NOTE: Collection cases where the principal amount of
that “all disputes/claims and controversies, solely taxes and fees, exclusive of charges and penalties
between or among the departments, bureaus, offices, claimed is less than P1 million shall be tried by the
agencies and instrumentalities of the National proper MTC, MeTC, or RTC, depending on their
Government, including government -owned and - respective jurisdiction. The jurisdiction of the CTA in
controlled corporations, such as those arising from the these cases shall be appellate. (Sec. 7(b)(1), R.A. 1125,
interpretation and application of statues, contracts or as amended by RA. No. 9282)
agreements shall be administratively settled or
adjudicated by the Secretary of Justice as Attorney- 2. Appellate jurisdiction over appeals from the
General of the National Government and as ex officio judgments, resolutions or orders of the Regional Trial
legal adviser of all government- owned or -controlled Courts in tax collection cases originally decided by
corporations if involving only questions of law.” them within their respective territorial jurisdiction.

The CIR contends that the CTA has jurisdiction EXCLUSIVE ORIGINAL AND APPELLATE JURISDICTION
pursuant to Section 7(1) of R.A. No. 1125, which grants OVER CRIMINAL CASES
the CTA the exclusive appellate jurisdiction to review,
among others, the decisions of the Commissioner of I. C Exclusive original jurisdiction
Internal Revenue “in cases involving disputed
assessments, refunds of internal revenue taxes, fees or The CTA in Division have exclusive original jurisdiction
other charges, penalties imposed in relation thereto, or over all criminal offenses arising from violations of the
other matters arising under the NIRC or other law or NIRC or TCCP and other laws administered by the BIR or
part of law administered by the Bureau of Internal the BOC, where the principal amount of taxes and fees,
Revenue. exclusive of charges and penalties, claimed is P1 million
or more.
Is PAGCOR correct?
Regular courts shall have jurisdiction in offenses or
A: NO. Following the rule on statutory construction felonies where:
involving a general and a special law, then P.D. No. 242 1. The principal amount of taxes and fees, exclusive of
should not affect R.A. No. 1125. R.A. No. 1125, specifically charges and penalties claimed is less than ₱1
Section 7 thereof on the jurisdiction of the CTA, constitutes million; or
an exception to P.D. No. 242. Disputes, claims and 2. No specified amount is claimed.
controversies, falling under Section 7 of R.A. No. 1125, even
though solely among government offices, agencies, and The jurisdiction of the CTA in these cases shall be
instrumentalities, including GOCCs, remain in the exclusive appellate. (Sec. 7(b)(1), R.A. 1125, as amended)
appellate jurisdiction of the CTA. Such a construction
resolves the alleged inconsistency or conflict between the Inclusion of civil action in criminal action
two statutes. (CIR v. Secretary of Justice, G.R. No. 177387,
November 9, 2016, citing Philippine National Oil Company v. Despite any provision of law or the Rules of Court, the
Court of Appeals, G.R. Nos. 109976 and 112800, April 26, criminal action and the corresponding civil action for
2005) the recovery of the civil liability for taxes and penalties,
shall at all times be simultaneously instituted with, and
In CIR v. Secretary of Justice, to restate, as a general rule, all jointly determined in the proceeding before the CTA.
disputes/claims and controversies, solely between or The filing of the criminal action is deemed to
among the departments, bureaus, offices, agencies and necessarily carry with it the filing of civil action, and no
instrumentalities of the National Government, including right to reserve the filing of such civil action
GOCCs, such as those arising from the interpretation and separately from the criminal action will be
application of statues, contracts or agreements shall be recognized. (Sec. 7, R.A. 1125, as amended)
administratively settled or adjudicated by the Secretary of
Justice or the Solicitor General. (Secs. 66-68, Revised II. Exclusive appellate jurisdiction
Administrative Code)
CTA in Divisions
As an exception, when the disputes/claims and
controversies involve a tax assessment, even when the 1. Appeals from the Judgments, Resolutions or Orders of
parties to the dispute are departments, bureaus, offices, the RTC in their original jurisdiction in criminal
agencies and instrumentalities of the National Government, offenses arising from violations of the NIRC or TCCP
including GOCCs, the exclusive appellate jurisdiction and other laws administered by the BIR or BOC, where
remains with the CTA. (Sec. 7, R.A. 1125) the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than ₱1 million
II. Exclusive jurisdiction over tax collections cases (Sec. or where there is no specified amount claimed; and

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2. Criminal offenses over Petitions for Review of the GR: There must be a PAN issued by the BIR before issuing a
Judgments, Resolutions or Orders of the RTC in the Formal Letter of Demand (FLD)/Final Assessment Notice
exercise of their appellate jurisdiction over tax cases (FAN)
originally decided by the MeTC, MTC and MCTC. (Sec.
7(b)(2)(b), RA. No. 1125 as amended by RA. No. 9282) XPN: PAN is not required in the following instances:
1. When the finding for any deficiency tax is the result of
CTA en banc mathematical error in the computation of the tax
appearing on the face of the tax return filed by the
1. Decisions, Resolutions or Orders on Motions for taxpayer; or
Reconsideration or New Trial of the Court in division 2. When the excise tax due on excisable articles has not
in the exercise of its exclusive original jurisdiction over been paid; or
criminal offenses arising from violations of the NIRC or 3. When a discrepancy has been determined between the
TCCP and other laws administered by the BIR or BOC tax withheld and the amount actually remitted by the
where the principal amount of taxes and fees, exclusive withholding agent; or
of charges and penalties is ₱1 million or more; 4. When an article locally purchased or imported by an
2. Decisions, Resolutions or Orders on Motions for Exempt person, such as, but not limited to, vehicles,
Reconsideration or New Trial of the Court in division capital equipment, machineries and spare parts, has
in the exercise of its exclusive appellate jurisdiction been sold, traded or transferred to non-exempt
over criminal offenses arising from violations of the persons (Sec. 228, NIRC); or
NIRC or TCCP and other laws administered by the BIR 5. When a taxpayer who opted to claim a refund or tax
or BOC; and credit of excess creditable withholding tax for a
3. Decisions, Resolutions or Orders of the RTC decided or taxable period was determined to have carried over
resolved by them in the exercise of their appellate and automatically applied the same amount claimed
jurisdiction over criminal offenses arising from against the estimated tax liabilities for the taxable
violations of the NIRC or TCCP and other laws quarter or quarters of the succeeding taxable year.
administered by the BIR or BOC where the principal (Sec. 3.1.2, RR No. 18-2013)
amount of taxes and fees, exclusive of charges and
penalties claimed is less than ₱1 million. In the above-cited cases, a FLD/FAN shall be issued
outright.
PRESCRIPTION;
REMEDIES AGAINST ASSESSMENT NOTICES Q: What is the period for the taxpayer to respond to PAN
via “Reply”?

ASSESSMENT OF INTERNAL REVENUE TAXES
A: The taxpayer has 15 days from receipt of PAN to file a
written reply contesting the proposed assessment.
Q: What is Tax Assessment?
If the taxpayer fails to respond to PAN within the said
A: A formal written notice/communication with the period, the taxpayer shall be considered in default, in which
computation of the tax liability sent to the taxpayer and case, a FLD/FAN shall be issued calling for payment of the
demanding for the settlement of a due tax liability within taxpayer's deficiency tax liability, inclusive of the applicable
the indicated period thereof. penalties. (Par. 2, Sec. 3.1.1, RR No. 18-2013) The failure to
file a reply to PAN will not bar the taxpayer from protesting
Q: What is a Letter of Authority? the FAN because PAN is not the final assessment which can
be protested as contemplated under the NIRC.
A: It is an official document that authorizes a revenue officer
to examine and scrutinize a taxpayer’s books of accounts Q: When should there issuance of Formal letter of
and other accounting records, in order to determine the demand (FLD) and final assessment notice (FAN)?
taxpayer’s correct internal revenue tax liabilities. (Sec. 13,
NIRC) It should cover a taxable period not exceeding one A: The CIR or his duly authorized representative may issue
taxable year. The practice of issuing LAs covering audit of FLD or FAN:
“unverified prior years” is therefore prohibited. (CIR v. Sony
Philippines, Inc., G.R. No. 178697, November 17, 2010) 1. If there is no need to issue a PAN, because the
circumstances show that it fall within the exceptions
Q: What is Preliminary Assessment Notice (PAN)? for the issuance of PAN;
2. If the taxpayer is in default for failure to respond to a
A: If after review and evaluation by the Commissioner or his PAN within a period of 15 days from the receipt of
duly authorized representative, it is determined that there PAN; or
exists sufficient basis to assess the taxpayer for any 3. If the CIR or his duly authorized representative does
deficiency tax or taxes, the said Office shall issue to the not agree with the justifications stated by the taxpayer
taxpayer a PAN for the proposed assessment. It shall show in his reply to the PAN. (Domondon, 2014)
in detail the facts and the law, rules, and regulations, or
jurisprudence on which the proposed assessment is based. Q: What is the period to issue FLD or FAN?
(R.R. No. 18-2013)
A: If the taxpayer, within 15 days from date of receipt of the
Q: What are the rules to issuance of PAN? PAN, responds that he/it disagrees with the findings of
deficiency tax or taxes, an FLD/FAN shall be issued within
15 days from filing/submission of the taxpayer’s response,

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calling for payment of the taxpayer's deficiency tax liability, rendered by the CIR. It is tantamount to a denial by inaction
inclusive of the applicable penalties. (RR No. 18-2013) by the CIR, which may still be appealed before the CTA and
the assessment evaluated on the basis of the available
NOTE: An FLD/FAN issued reiterating the immediate evidence and documents. (CIR v. Liquigaz Philippines Corp.,
payment of deficiency taxes and penalties previously made G.R. No. 215534, April 18, 2016)
in the PAN is a denial of the response to the PAN. (RMO 11-
2014) Q: What are the 3 important prescriptive periods?

FLD or FAN issued A:
Beyond 15-day period Valid, provided that, it is 1. Period to assess tax
issued within the period of 2. Period to collect tax
limitation to assess 3. Period to file a criminal action (Mamalateo, 2014)
internal revenue taxes
Less than 15-day period Shall constitute an Q: State the rule on prescriptive periods for making
administrative infraction assessments.
and the revenue officers
who caused the delay shall A: GR: The right to assess must be done within 3 years from
be subject to the date of:
administrative sanctions 1. Actual filing of the return, or
as provided for by law and 2. From the last date prescribed by law for the filing of
pertinent revenue such return, whichever is later.
issuances XPNs:
(RMO No. 11-2014) 1. False or fraudulent return with intent to evade tax:
within 10 years from discovery of falsity or fraud;
Q: What is Final Decision on Disputed Assessment 2. Failure to file any return at all: within 10 years from
(FDDA)? discovery of omission to file a return; and
3. Waiver of statute of limitations in writing, which must
A: It is the final decision of the CIR or a duly authorized be made before the expiration of the period of
representative on the protest to the FAN. Pursuant to the assessment of taxes: period agreed upon.
law and regulations, the FDDA should state the facts, the
applicable law, the rules and regulations, or the NOTE: The period agreed upon may be extended by
jurisprudence on which such decision is based. Otherwise, subsequent written agreements made before the
the decision shall be void for depriving the taxpayer of their period previously agreed upon.
right to due process. Without the facts and the law or
regulations on which such a decision is based, the taxpayer If the taxpayer files an amended return which is
cannot intelligently dispute the assessment. (Balauag, substantially different from the original return, the period
2020) of prescription of the right to issue the deficiency
assessment should be counted from the filing of the
Q: What is the effect of a void FDDA? amended return and not the original return. To hold
otherwise would pave the way for taxpayers to evade
A: FDDA that does not inform the taxpayer in writing of the payment of taxes by simply reporting in their original
facts and law on which it is based renders the decision void. return heavy losses and amending the same after the CIR
The written notice requirement for both the FLD and the has lost his authority to assess the proper tax.
FAN is in observance of due process — to afford the
taxpayer adequate opportunity to file a protest on the NOTE: Amendment is considered substantial when: (1)
assessment and thereafter file an appeal in case of an There is under declaration (exceeding 30% of that
adverse decision. declared) of taxable sales, receipts, or income; or (2) There
is overstatement (exceeding 30% of deductions). (Sec. 248
However, a void FDDA does not ipso facto render the (B), NIRC)
assessment void. The assessment remains valid
notwithstanding the nullity of the FDDA because the If the taxpayer files the wrong return, it is as though the
assessment itself differs from a decision on the disputed taxpayer filed no return at all. This is true even if all the
assessment. An FDDA that does not inform the taxpayer in necessary information was reflected in the erroneous
writing of the facts and law on which it is based renders the return. In situations like this, the 10-year prescriptive
decision void. Therefore, it is as if there was no decision period will apply. (Ingles, 2015, citing several cases)


Date of Filing the Return Prescriptive Period of Assessment Prescriptive Period of Collection
Before due date 3 years from due date 5 years from receipt of FAN by taxpayer;
On due date 3 years from due date
Beyond due date 3 years from actual filing NOTE: If taxpayer files fraudulent return or did
Fraudulent filing 10 years from discovery of bad not file any return, the BIR may collect without
faith/fraud assessment within 10 years of filing of
Non-filing 10 years from discovery of non-filing fraudulent return or discovery of non-filing

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Waiver by taxpayer: Depends on the agreement of the parties provided

that the agreement to extend is executed prior to the expiration of the
original period of assessment
Source: Pre-week notes in Taxation Law by Atty. Rizalina Lumbera, 2016 Bar Examinations

Q: Distinguish: False Returns, Fraudulent Returns, and Non-Filing of Returns.

A:
False Return Fraudulent Returns Failure to File a Return
Contains wrong information due to Intentional and deceitful with the sole Omission to file a return in the date
mistake, carelessness or ignorance. aim of evading the correct tax due. prescribed by law.
(Aznar v. CTA, G.R. No. L-20569, August
23, 1974)
Deviation from the truth, whether Intentional or deceitful entry with Omission can be intentional or not.
intentional or not. intent to evade the taxes due.
Does not make the taxpayer criminally Filing a fraudulent return will make The mere omission is already a
liable the taxpayer liable for the crime of violation regardless of the fraudulent
moral turpitude as it entails willfulness intent or willfulness of the individual.
and fraudulent intent on the part of the (CIR vs. Bank of Commerce, CTA EB Case
individual. (Republic v. Marcos II, G.R. No. 654, March 14, 2011)
Nos. 130371 & 130855, August 4, 2009,
595 SCRA 43)
Not subject to 50% penalty surcharge. Subject to 50% penalty surcharge. Not subject to 50% penalty surcharge.
The tax may be assessed, or a
proceeding in court for the collection
of such tax may be begun without
assessment, at any time within ten
years after the discovery of the falsity,
fraud or omission.

Q: What are the grounds for suspension of the assessment has been done at this point. (Ingles, 2015)
prescriptive period for both the power to assess and the The request must be granted by the CIR. A request for
power to collect? (LOW-PARA) reconsideration alone does not suspend the period to
collect.
A:
1. When taxpayer cannot be Located in the address given 7. When there is an Answer filed by the BIR to the
by him in the return. petition for review in the CTA. (Hermanos v. CIR, GR.
No. L-24972. September 30, 1969) where the court
XPN: He informs the CIR of any change in his address justified this by saying that in the answer filed by the
thru a written notice to the BIR. BIR, it prayed for the collection of taxes.

2. When the taxpayer is out of the Philippines. Q: When Commissioner is prohibited from making the
assessment or collection of taxes in a proceeding in
3. When the warrant of distraint and levy is duly served court?
upon the taxpayer, his authorized representative or a
member of his household with sufficient discretion A: When in the opinion of the CTA, the collection by the BIR
and no property is located. may jeopardize the interest of the Government and/or the
taxpayer, the Court in any stage of the proceeding may
Only period to collect is suspended. suspend the said collection and require the taxpayer either
to deposit the amount claimed or to file a surety bond for
4. Where the CIR is prohibited from making the not more than double the amount with the Court. (Sec. 11,
assessment or beginning distraint or levy or a R.A. No. 1125)
proceeding in court for 60 days thereafter, such as
where there is a Pending petition for review in the CTA TAXPAYER’S REMEDIES
from the decision on the protested assessment.
(Republic v. Ker & Co., GR L-21609; September 29, 1966) Q: What are the requisites of a protest?

5. Where CIR and the taxpayer Agreed in writing for the A:
extension of the assessment, the tax may be assessed 1. Must be in writing;
within the period so agreed upon. 2. Addressed to the CIR or his duly authorized
representative;
6. When the taxpayer Requests for reinvestigation which 3. State the facts, applicable law, rules and regulations or
is granted by the Commissioner. jurisprudence on which the protest is based otherwise
the protest would be void; and
Only the period to collect is suspended because 4. Must contain the following:

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a. Name of the taxpayer and address for the NOTE: No request for reconsideration or reinvestigation
immediate past 3 taxable years; shall be granted on tax assessments that have already
b. Nature of the request, specifying the newly become final, executory and demandable
discovered evidence to be presented;
c. Taxable periods covered by the assessment; Q: What should the taxpayer state in his protest?
d. Amount and kind of tax involved and the
assessment notice number; A:
e. Date of receipt of the assessment notice or letter of 1. The nature of protest whether reconsideration or
demand; reinvestigation, specifying newly discovered or
f. Itemized statement of the finding to which the additional evidence he intends to present if it is a
taxpayer agrees (if any) as basis for the request for reinvestigation,
computation of the tax due, which must be paid 2. Date of the assessment notice, and
upon filing of the protest; 3. The applicable law, rules and regulations, or
g. Itemized schedule of the adjustments to which the jurisprudence on which his protest is based,
taxpayer does not agree; otherwise, his protest shall be considered void and
h. Statements of facts or law in support of the protest; without force and effect.
and
i. Documentary evidence as it may deem necessary Action of the Commissioner on the Protest Filed
and relevant to support its protest to be submitted
60 days from the filing thereof. Q: When is the period to act upon or decide on the
protest filed?
Q: What is the effect of a protest against an assessment?
A:
A: Prescriptive period provided by law to make collection 1. By the duly authorized representative
by distraint or levy or by a proceeding in court is a. Request for investigation – within 180 days from
interrupted once a taxpayer protests the assessment and submission of relevant documents
requests for its cancellation. b. Request for reconsideration - within 180 days from
filing of protest
Q: When is the period to file protest?
2. By CIR
A: The taxpayer or its authorized representative or tax
agent may protest administratively against the FLD/FAN 1. In case of protest – within 180 days from filing of
within thirty (30) days from date of receipt thereof. protest
2. In case of administrative appeal – within 180 days
Q: What are the kinds of protest? from the filing of administrative appeal

A: Administrative appeal – request for reconsideration filed
REQUEST FOR REQUEST FOR with the CIR to elevate the denial made by his duly
RECONSIDERATION REINVESTIGATION authorized representative
A claim for re-evaluation of A claim for re-evaluation of
the assessment based on the assessment based on Q: What are the possible Decisions on the protest filed?
existing records without newly discovered or
need of additional additional evidence. A:
evidence. 1. Direct grant or denial of protest
It may involve a question of It may also involve a
fact or law or both. question of fact or law or The decision of the Commissioner or his duly authorized
both. representative shall state:
It does not toll the statute It tolls the statute of a. The facts, the applicable law, rules and regulations, or
of limitations. limitations. jurisprudence on which such decision is based,
The sixty (60)-day period For requests for otherwise, the decision shall be void, and
for the submission of all reinvestigation, the b. That the same is his final decision.
relevant supporting taxpayer shall submit all
documents shall not apply relevant supporting 2. Indirect denial of protest
to requests for documents in support of
reconsideration. his protest within sixty a. Formal and final letter of demand from the BIR to the
(60) days from date of taxpayer
If the taxpayer fails to file a filing of his letter of b. Civil collection can also be considered as denial of
valid protest against the protest. Otherwise, the protest of assessment. (BIR v. Union Shipping Corp.,
FLD/FAN within thirty assessment shall become G.R. No. 66160, May 21, 1990)
(30) days from date of final, executory and
receipt thereof, the demandable. NOTE: Preliminary collection letter may serve as
assessment shall become assessment notice. (United International Pictures v. CIR, G.R.
final, executory and No. 110318, August 28, 1996)
demandable. c. Filing of criminal action against the taxpayer
d. Issuance of warrant of distraint and levy to enforce
collection of deficiency assessment is outright denial

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of the request for reconsideration. (Hilado v. CIR, CTA prescription in his answer to the amended petition for
case 1256, Feb. 25, 1964) review.

3. Inaction by the CIR or his duly authorized Q: Distinguish the application of the 2-Year prescriptive
representative period under Sec. 112 and Sec. 229.

Q: What is the effect of failure to appeal? A:
1. Under Sec. 112, the 2-year prescriptive period applies
A: The decision or assessment becomes final and executory. only to the administrative claim before the CIR and not
The assessment is considered correct which may be to judicial claim before the CTA because the taxpayer
enforced by summary or judicial remedies. The assessment always has 30 days from the decision of the CIR or
which has become final and executory cannot be from the lapse of the 120-day period even after the
superseded by a new assessment. lapse of 2 years from the taxable quarter where the
sales were made (CIR v. Mindanao Geothermal II
NOTE: In an action for the collection of the tax by the Partnership, 713 SCRA 645, 2014)
government, the taxpayer is barred from re-opening the
question already decided. In a proceeding for collection of Thus, it is only the administrative claim that must be
tax by judicial action, the taxpayer’s defenses are similar to filed within the two-year prescriptive period; the
those of the defendant in a case for the enforcement of a judicial claim need not fall within the two-year
judgment by judicial action. prescriptive period.

Q: What are the remedies of taxpayer after payment? 2. Under Section 229, the decision of the CIR is
appealable to the CTA sitting in division within 30
A: days after the receipt but must be within the 2-year
TAX REFUND TAX CREDIT period from payment or filing of the final adjusted
The taxpayer asks for The taxpayer asks that the return. Thus, if the Commissioner denies the claim for
restitution of the money money paid be applied to refund within the 2-year period, the remedy is to file
paid as tax. There is actual his existing tax liability an appeal with the CTA 30 days from the receipt of
reimbursement except withholding taxes such denial. But, such 30-day period must also be
Actual reimbursement of Government issues Tax within the 2-year period. For example, if there are only
tax Credit Certificate (TCC) 10 days left within such 2-year period, then, the
which may be applied taxpayer has only 10 days within which to appeal his
against any internal claim. However, if there is an inaction on the part of
revenue tax, excluding the Commissioner and the 2-year period is about to
withholding taxes, for lapse, the remedy is to file an appeal also with the CTA
which the taxpayer is
directly liable. (Sec. 204 GOVERNMENT REMEDIES FOR COLLECTION OF
(C), NIRC) DELINQUENT TAXES

All TCCs issued by the BIR Tax Collection
shall not be allowed to be
transferred or assigned to Q: What are the two ways the government can collect?
any person. (Sec. 2, RR No.
14-2011) A:
1. Summary or administrative remedies
Q: Is a deficiency tax assessment a bar to a claim for tax 2. Judicial remedies
refund or tax credit? (2005 BAR)
Q: What are the requisites for collection?
A: Yes, the deficiency tax assessment is a bar to a tax refund
or credit. The taxpayer cannot be entitled to a refund and at A: GR: Collection is only allowed when there is already a
the same time liable for a tax deficiency assessment for the final assessment made for the determination of the tax due.
same year. The deficiency assessment creates a doubt as to
the truth and accuracy of the Tax Return. Said Return XPN: Judicial action to collect the tax liability is permitted
cannot therefore be the basis of the refund. (CIR v. CA, G.R. even without an assessment when the taxpayer:
No. 106611, July 21, 1994) 1. Files a false or fraudulent return with intent to evade
the tax; or
Q: State the rule on waiver of prescription in an action 2. Fails to file a return.
for refund.
In the above cases, collection must be done within 10 years
A: GR: The 2-year period is not jurisdictional. Therefore, if after the discovery of falsity, fraud, or omission. However,
the government failed to plead prescription in a motion to once an assessment is made against the taxpayer, the
dismiss or as a defense in its answer to the petition for government cannot avail of the 10-year period in Section
review, it is deemed waived. 222(A) If the assessment is made, then the period to collect
is five years from the assessment and not 10 years. (Ingles,
XPN: Taxpayer amends his petition for review alleging 2015) In sum, as a rule, the government can only file a
therein a new cause of action and the government pleads

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proceeding in court to collect once the assessment has A: GR: No court shall have the authority to grant an
become final and unappealable. injunction to restrain the collection of any national internal
revenue, tax, fee or charge. (Sec. 219, R.A. 8424)
FALSE, FRAUDULENT, OR
RETURN WAS MADE FAILURE TO FILE A XPNs:
RETURN 1. Filing of Injunction with the CTA as an incident to its
appellate jurisdiction
Collection with prior assessment a. Showing that collection of the tax may jeopardize
the interest of the government and/or the
Collection should be taxpayer
made within 5 years from b. Deposit of the amount claimed or file a surety
the date of assessment, bond
either by: c. Showing by taxpayer that appeal is not frivolous
Same
1. Summary nor dilatory
proceedings; or 2. The SC, on exceptional cases of suits questioning the
2. Judicial proceedings. constitutionality of a tax law. (Tolentino v. Executive
(Sec.222 (c), NIRC) Secretary)
Collection without prior assessment 3. In case of local taxes, RTCs may issue an injunction
upon a suit questioning their validity
Collection is within 10 years
from discovery, of the falsity, NOTE: In the case of the collection of local taxes, there is no
fraud or omission to file a express prohibition in the Local Government Code
return. prohibiting courts from issuing an injunction to restrain
local governments from collecting taxes. Such statutory
Limited to purely judicial lapse or intent, however it may be viewed, may have
remedies (Section 222(A)) allowed preliminary injunction where local taxes are
involved. (Angeles City v. Angeles Electric Corporation, G.R.
Q: What is the No Injunction Rule? No. 166134 (2010))

IV. JUDICIAL REMEDIES

Q: State the Summary of Rule on Modes of Appeal as laid down in Mindanao II Geothermal Partnership case.

A:
Type of claim Inaction Appeal
Disputed assessments Inaction within 180-day period is a Appealable 30 days to CTA from receipt
deemed denial. of denial
Claims for refund of internal revenue Inaction within the 2-year prescriptive Appealable 30 days to CTA from receipt
taxes erroneously paid period (from date of payment). of denial provided it is within 2 years
from date of payment. The 2-year
period is not jurisdictional.
Claims for unutilized input VAT Inaction within 120-day or 90-day Appealable 30 days to CTA from receipt
period (as the case may be) is a deemed of denial or from the lapse of the 120-
denial. The 2-year period refers to day period to decide.
institution of administrative claim, and
it is jurisdictional.

NOTE: 90-day period to decide the claim for refund for VAT under TRAIN.

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Q: State the Summary of Procedures in Q: Can the SC take cognizance of a petition for
Appealing a Decision to the CTA and Beyond. annulment of a decision of the CTA Division or
of the CTA En Banc?
A:
1. Appeal within 30 days from receipt of A: NO. A direct petition for annulment of a
decision or period of inaction of the CIR, judgment of the CTA to the SC, meanwhile, is
COC, Secretary of Finance, or the CBAA or unavailing, for the same reason that there is no
the RTC identical remedy with the High Court to annul a
final and executory judgment of the CA. R.A. No.
GR: Appeal to the CTA Division by a petition for 9282, Section 1 puts the CTA on the same level as
review under Rule 42 within 30 days. the CA, so that if the latter’s final judgments may
not be annulled before the SC, then the CTA’s own
XPN: In case of decisions of the CBAA or RTC in decisions similarly may not be so annulled. And
the exercise of its appellate jurisdiction, appeal more importantly, annulment of judgment is an
to EN BANC by a petition for review under Rule original action, yet, it is not among the cases
43. enumerated in the Constitution’s Article VIII,
Section 5 over which the SC exercises original
In criminal cases, appeal from the decision of jurisdiction. Annulment of judgment also often
the RTC decided in the exercise of its original requires an adjudication of facts, a task that the
jurisdiction is via a notice of appeal filed within Court loathes to perform, as it is not a trier of facts.
15 days from the receipt of decision. (CIR v. Kepco Ilijan Corporation, G.R. No. 199422,
June 21, 2016)
If the RTC acted in the exercise of its appellate
jurisdiction, appeal to the En Banc by a petition Q: What is the effect of the appeal to the CTA?
for review under Rule 43 within 15 days from (2004, 2010 Bar)
the receipt of decision.
A: GR: An appeal to the CTA shall not suspend
2. In case the decision of the Division was payment, levy, distraint and/or sale of any
adverse: File an MR or MNT with the same property of taxpayer for the satisfaction of his tax
division within 15 days from the receipt of the liability.
decision.
XPN: However, when in the opinion of the CTA, the
The MR or the MNT is a condition precedent collection of tax may jeopardize the interest of the
before bringing the case to the CTA En Banc. government and/or the taxpayer, the Court may
(COC vs. Marina Sales, G.R. No. 183868, suspend or restrain collection of tax and require
November 22, 2010) the taxpayer either to:
1. To deposit the amount claimed; or
3. In case the resolution of the Division on the 2. To file a surety bond for not more than
MR is still adverse: File a petition for review double the amount of the tax due (Sec. 11,
with the CTA En Banc under Rule 43 within 15 R.A. 1125)
days from the receipt of the decision. The same
rule applies for criminal cases.

In case the decision of the CTA En Banc is still
adverse: File a review on certiorari with the SC
under Rule 45 within 15 days from receipt of the
decision. (Ingles, 2015)

Q: Can the CTA En Banc entertain a petition for
annulment of a decision of the CTA Division?

A: NO. Annulment of judgment implies power by a
superior court over a subordinate one, as provided
for in Rule 47 of the Rules of Court. The laws
creating the CTA and expanding its jurisdiction
(R.A. Nos. 1125 and 9282) and the court’s own rules
of procedure (the Revised Rules of the CTA) do not
sanction such a procedure.
The CTA sitting En Banc cannot annul a decision of
one of its divisions. The divisions are not
considered separate and distinct courts but are
divisions of one and the same court; there is no
hierarchy of courts within the Court of Tax Appeals,
for they each remain as one court notwithstanding
that they also work in divisions. (CIR v. Kepco Ilijan
Corporation, G.R. No. 199422, June 21, 2016)

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BAR REMINDERS Aichi and San Roque doctrines; BIR Ruling No. DA-489-
03
JURISPRUDENCE
(CASES PENNED BY J. LEONEN) CIR v. Aichi Forging CIR v. San Roque Power
Company of Asia, Inc. Corporation

Observance of the 120-day Categorically recognized
INCOME TAX period is a mandatory an exception to the
and jurisdictional mandatory and
Deposit Substitutes: 20 or more corporate lenders at any requisite to the filing of a jurisdictional nature of the
one time. – The definition of deposit substitutes was judicial claim for refund 120-day period. It ruled
amended under the 1997 National Internal Revenue Code before the CTA. that BIR Ruling No. DA-
(NIRC), particularly Section 22(Y), with the addition of the 489-03 dated December
qualifying phrase for public — borrowing from 20 or more Succinctly put, once the 10, 2003 provided a valid
individual or corporate lenders at any one time. The administrative claim is claim for equitable
Congress specifically defined "public" to mean 20 or more filed within the 2-year estoppel under Section
individual or corporate lenders at any one time. Hence, the prescriptive period, the 246 of the NIRC. In
number of lenders is determinative of whether a debt claimant must wait for the essence, the aforesaid BIR
instrument should be considered a deposit substitute and 120-day period to end and, Ruling stated that
consequently subject to the 20% final withholding tax. thereafter, he is given a 30- "taxpayer-claimant need
Further, from the point of view of the financial market, the day period to file his not wait for the lapse of
phrase "at any one time" for purposes of determining the judicial claim before the the 120-day period
"20 or more lenders," would mean every transaction CTA, even if said 120-day before it could seek judicial
executed in the primary or secondary market in and 30-day periods would relief with the CTA by way
connection with the purchase or sale of securities. (Banco exceed the of Petition for Review."
De Oro v. Republic, G.R. No. 198756, January 13, 2015, En aforementioned 2-year
Banc) prescriptive period.

Section 2.58.3(B) of Revenue Regulation (R.R.) No. 2-98 To reconcile: Taxpayers who have relied on the Bureau of
clearly provides that proof of remittance is the Internal Revenue Ruling DA-489-03, from its issuance on
responsibility of the withholding agent and not of the December 10, 2003 until its reversal on October 6, 2010
taxpayer-refund claimant. Proof of actual remittance by the by this Court in Aichi, are, therefore, shielded from the
respondent is not needed in order to prove withholding and vice of prematurity. (CE Luzon Geothermal Power Co., Inc.
remittance of taxes to petitioner. (Commissioner of Internal v. CIR, G.R. No. 197526, July 26, 2017, Second Division)
Revenue (CIR) v. Philippine National Bank (PNB), G.R. No.
180290, September 29, 2014, Second Division) [NOTE: Under R.A. No. 10963 (TRAIN Law), the CIR is given
a 90-day period to decide.]
VALUE-ADDED TAX
The 30-day period provided in Section 112 of the 1997
Atlas and Mirant doctrines NIRC to appeal the decision of the Commissioner of Internal
Revenue or its inaction is statutorily provided. Failure to
Atlas Consolidated CIR v. Mirant Pagbilao comply is a jurisdictional error. The window of exemption
Mining v. CIR Corporation created in Commissioner of Internal Revenue v. San Roque
June 8, 2007 September 12, 2008 Power Corporation is limited to premature filing of the
It is more practical and Abandoned Atlas doctrine. judicial remedy. It does not cure lack of jurisdiction due to
reasonable to count the late filing. (CE Casecnan Water and Energy Company, Inc. v.
two-year prescriptive The reckoning frame CIR, G.R. No. 203928, July 22, 2015, Second Division)
period for filing a claim would always be the end
for refund/credit of input of the quarter when the TAX REMEDIES UNDER THE NATIONAL INTERNAL
VAT on zero-rated sales pertinent sales or REVENUE CODE (NIRC)
from the date of filing of transaction was made,
the return and payment of regardless when the input Tax assessments issued in violation of the due process
the tax due which, VAT was paid, applying rights of a taxpayer are null and void. The 1997 NIRC and
according to the law then Section 112(A) of the Tax revenue regulations allow a taxpayer to file a reply or
existing, should be made Code and not other otherwise to submit comments or arguments with
within 20 days from the provisions that pertain to supporting documents at each stage in the assessment
end of each quarter. erroneous tax payments. process. Due process requires the BIR to consider the
defenses and evidence submitted by the taxpayer and to
Thus, the 2013 San Roque case clarified the effectivity of the render a decision based on these submissions. Failure to
Atlas and Mirant doctrines on when to reckon the two-year adhere to these requirements constitutes a denial of due
prescriptive period as follows: “The Atlas doctrine, which process and taints the administrative proceedings with
held that claims for refund or credit of input VAT must invalidity. (CIR v. Avon Products Manufacturing, Inc., G.R.
comply with the two-year prescriptive period under Section Nos. 201398-99, October 3, 2018, Third Division)
229, should be effective only from its promulgation on 8
June 2007 until its abandonment on 12 September Compliance with Section 228 of the NIRC is a substantive
2008 in Mirant. The Atlas doctrine was limited to the requirement. It is not a mere formality. Providing the
reckoning of the two-year prescriptive period from the date taxpayer with the factual and legal bases for the
of payment of the output VAT.” (CBK Power Co., Ltd. v. CIR, assessment is crucial before proceeding with tax
G.R. No. 202066/205353, September 30, 2014, En Banc) collection. Tax collection should be premised on a valid
assessment, which would allow the taxpayer to present his

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or her case and produce evidence for substantiation. An course of trade or business." KM Corporation paid the
assessment, in the context of the NIRC, is a “written notice taxes due under Section 21 under protest, claiming that
and demand made by the Bureau of Internal Revenue (BIR) (a) xxx and (b) this would amount to double taxation,
on the taxpayer for the settlement of a due tax liability that since its business was already taxed under Sections 15
is there definitely set and fixed.” (CIR v. Fitness by Design, and 17 of the Code. Does this amount to double
Inc., G.R. No. 215957, November 9, 2016. Second Division) taxation? (2018 BAR)

A Preliminary Assessment Notice (PAN) merely informs the A: Yes. The three taxes are all in the nature of local business
taxpayer of the initial findings of the Bureau of Internal taxes on wholesalers, retailers, and service providers which
Revenue. It does not contain a demand for payment but are imposed by the same taxing authority on the same
usually requires the taxpayer to reply within 15 days from subject matter for the same tax period; hence, the elements
receipt. Otherwise, the Commissioner of Internal Revenue of double taxation are present. (Nursery Care Corporation v.
will finalize an assessment and issue a Final Assessment Anthony Acebedo, G.R. No. 180651, July 30, 2014)
Notice (FAN). On the other hand, a FAN contains not only a
computation of tax liabilities but also a demand for payment TAX AVOIDANCE AND TAX EVASION
within a prescribed period. As soon as it is served, an (1989, 1996, 2000, 2005, 2008, 2014, 2016)
obligation arises on the part of the taxpayer concerned to
pay the amount assessed and demanded. It also signals the Q: Maria Suerte, a Filipino citizen, purchased a lot in
time when penalties and interests begin to accrue against Makati City in 1980 at a price of P1 million. Said
the taxpayer. Failure to file an administrative protest property has been leased to MAS Corporation, a
within 30 days from receipt of the FAN will render the domestic corporation engaged in manufacturing paper
assessment final, executory, and demandable. (CIR v. products, owned 99% by Maria Suerte. In October
Transitions Optical Philippines, Inc. G.R. No. 227544, 2007, EIP Corporation, a real estate developer,
November 22, 2017, Third Division) expressed its desire to buy the Makati property at its
fair market value of P300 million, payable as follows:
COURT OF TAX APPEALS (CTA) (a) P60 million down payment; and (b) balance,
payable equally in twenty-four (24) monthly
In an action for the refund of taxes allegedly erroneously consecutive installments. Upon the advice of a tax
paid, the Court of Tax Appeals may determine whether lawyer, Maria Suerte exchanged her Makati property
there are taxes that should have been paid in lieu of the for shares of stock of MAS Corporation. A BIR ruling,
taxes paid. Determining the proper category of tax that confirming the tax-free exchange of property for shares
should have been paid is not an assessment. It is incidental of stock, was secured from the BIR National Office and a
to determining whether or not there should be a refund. Certificate Authorizing Registration was issued by the
(SMI-ED Phil. Technology, Inc. v. CIR, G.R. No. 175410, Revenue District Officer (RDO) where the property was
November 12, 2014, Second Division) located. Subsequently, she sold her entire
stockholdings in MAS Corporation to EIP Corporation
DOUBLE TAXATION for P300 million. In view of the tax advice, Maria Suerte
(1996, 1997, 2004, 2015, 2017, 2018, 2019) paid only the capital gains tax of P29,895,000
(P100,000 x 5% plus P298,900,000 x 10%), instead of
Q: X, a lessor of a property, pays real estate tax on the the corporate income tax of P104,650,000 (35% on
premises, a real estate dealer’s tax based on rental P299 million gain from sale of real property). After
receipts and income tax on the rentals. X claims that evaluating the capital gains tax payment, the RDO
this is double taxation. (1996 BAR) wrote a letter to Maria Suerte, stating that she
committed tax evasion.
A: There is no double taxation. Double taxation means
taxing for the same tax period the same thing or activity Is the contention of the RDO tenable? Or was it tax
twice, when it should be taxed but once, by the same taxing avoidance that Maria Suerte had resorted to? Explain.
authority for the same purpose and with the same kind or (2008 BAR)
character of tax. The real estate tax is a tax on property; the
real estate dealer’s tax is a tax on the privilege to engage in A: The contention of the RDO is not tenable. Maria Suerte
business; while the income tax is a tax on the privilege to resorted to tax avoidance and not tax evasion. Tax
earn an income. These taxes are imposed by different taxing avoidance is the use of legal means to reduce tax liability
authorities and are essentially of different kind and and it is the legal right of a taxpayer to decrease the amount
character. (Villanueva v. City of Iloilo, 26 SCRA 578) of what otherwise would be his taxes by means which the
law permits. (Heng Tong Textiles Co., Inc. v. Commissioner,
Q: KM Corporation, doing business in the City of G.R. No. L-19737, August 26, 1968) There is nothing illegal
Kalookan, has been a distributor and retailer of about transferring first the property to a corporation in a
clothing and household materials. It has been paying tax-free exchange and later selling the shares obtained in
the City of Kalookan local taxes based on Sections 15 the exchange at a lower tax than what could have been
(Tax on Wholesalers, Distributors or Dealers) and 17 imposed if the property was sold directly.
(Tax on Retailers) of the Revenue Code of Kalookan City
(Code). Subsequently, the Sangguniang Panlungsod Q: Lucky V Corporation (Lucky) owns a 10-storey
enacted an ordinance amending the Code by inserting building on a 2,000 square meter lot in the City of
Section 21 which imposes a tax on "Businesses Subject Makati. It sold the lot and building to Rainier for P80
to Excise, Value-Added, and Percentage Taxes under million. One month after, Rainier sold the lot and
the National Internal Revenue Code (NIRC)," at the rate building to Healthy Smoke Company (HSC) for P200
of 50% of 1 % per annum on the gross sales and million, Lucky filed its annual return and declared its
receipts on persons "who sell goods and services in the gain from the sale of the lot and building in the amount
of P750,000.00.

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A: No, the cash equivalent value of the housing facilities
An investigation conducted by the BIR revealed that inside the factory granted to the senior engineers are not
two months prior to the sale of the properties to considered as fringe benefits subject to tax. The housing
Rainier, Lucky received P40 million from HSC and not facility is furnished by the employer for his convenience or
from Rainier. Said amount of P40 million was debited advantage because it is furnished to ensure that the senior
by HSC and reflected in its trial balance as “other inv. – engineers are always available to attend to possible
Lucky Bldg.” The BIR concluded that there is tax evasion breakdown of machineries and equipment. Benefits which
since the real buyer of the properties of Lucky is HSC are granted for the convenience or advantage of the
and not Rainier. It issued an assessment for deficiency employer are exempt from the fringe benefits tax. (Sec.
income tax in the amount of P79 million against Lucky. 2.33(A), RR No. 03-98 implementing Sec. 33, NIRC)
Lucky argues that it resorted to tax avoidance or a tax
saving device, which is allowed by the NIRC and BIR Q: In 1990, Mr. Naval bought a lot for P1,000,000.00 in
rules since it paid the correct taxes based on the sale to a subdivision with the intention of building his
Rainier. On the other hand, Rainier and HSC also paid residence on it. In 1994, he abandoned his plan to build
the prescribed taxes arising from the sale by Rainier to his residence on it because the surrounding area
HSC. Is the BIR correct in assessing taxes on Lucky? became a depressed area and land values in the
Explain. (2016 BAR) subdivision went down; instead, he sold it for
P800,000.00. At the time of the sale, the zonal value was
A: YES. The BIR is correct in assessing the taxes on Lucky. P500,000.00.

There was no tax avoidance, instead there was tax evasion (a) Is the land a capital asset or an ordinary asset?
on the part of Lucky because of the simulated sale to Rainier Explain.
which had its apparent purpose to reduce the income tax to
be paid by Lucky on the sale to HSC. The sale to Rainier was A: The land is a capital asset because it is neither for sale in
simulated as evidenced by the fact that two months prior to the ordinary course of business nor a property used in the
the sale of the properties to Rainier, Lucky received trade or business of the taxpayer. (Sec. 33, NIRC)
P40million from HSC and not from Rainier. The
intermediary transaction (the simulated sale to Rainier) (b) Is there any income tax due on the sale? Explain.
was prompted more on the mitigation of tax liabilities than (1994 Bar)
for legitimate business purpose constitutes one of tax
evasion. A: YESÅ. Mr. Naval is liable to the 6% capital gains tax
imposed under the Tax Code based on the gross selling
TAXABLE INCOME FRINGE BENEFITS price of P 800,000.00 which is an amount higher than the
(1991, 1993, 1995, 2001, 2003, 2016, 2019) zonal value.

Q: As a way to augment the income of the employees of INCOME FROM DEALINGS IN PROPERTY
DEF, Inc., a private corporation, the management (1987, 1988, 1989, 1991, 1992, 1993, 1994, 1997,
decided to grant a special stipend of P50,000.00 for the 1998, 2001, 2003, 2005, 2007, 2008, 2009, 2012,
first vacation leave that any employee takes during a 2014, 2015, 2017, 2019)
given calendar year. In addition, the senior engineers
were also given housing inside the factory compound Q: In January 1970, Juan Gonzales bought one hectare
for the purpose of ensuring that there are available of agricultural land in Laguna for P100,000. This
engineers within the premises every time there is a property has a current fair market value of P10 million
breakdown in the factory machineries and equipment. in view of the construction of a concrete road traversing
the property. Juan Gonzales agreed to exchange his
(a) Is the special stipend part of the taxable income of agricultural lot in Laguna for a one-half hectare
the employees receiving the same? If so, what tax is residential property located in Batangas, with a fair
applicable and what is the tax rate? Explain. market value of P 10 million, owned by Alpha
Corporation, a domestic corporation engaged in the
A: The special stipend is a taxable income of an employee. If purchase and sale of real property. Alpha Corporation
the individual is a rank-and-file employee, the same forms acquired the property in 2007 for P 9 million.
part of his compensation income and it is subject to income
tax (or withholding tax on compensation) at a schedular (a) What is the nature of the real properties exchanged
rate. However, if the stipend allowance, if lumped-up with for tax purposes – capital asset or ordinary asset?
13th month pay and other benefits, the aggregate amount Explain.
do not exceed the exclusion threshold of P90,000.00, the
same shall be excluded from gross income and not subject A: The one hectare agricultural land owned by Juan
to income tax. Gonzales is a capital asset because it is not a real property
used in trade or business. The one-half hectare residential
If the employee is not a rank-and-file employee (but a property owned by Alpha Corporation is an ordinary asset
managerial or supervisory), the same is subject to fringe because the owner is engaged in the purchase and sale of
benefits tax or final tax at 35% based on the grossed-up real property. (Sec. 39, NIRC, RR No. 07-03)
monetary value of the special stipend. (Sec. 33, NIRC, as
amended) (b) Is Juan Gonzales subject to income tax on the
exchange of property? If so, what is the tax base and
(b) Is the cash equivalent value of the housing facilities rate? Explain.
received by the senior engineers subject to fringe
benefits tax? Explain. (2019 BAR) A: YES. The tax base in a taxable disposition of a real
property classified as a capital asset is the higher between

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two values: the fair market value of the property received
in exchange and the fair market value of the property PRIZES AND AWARDS
exchanged. Since the fair market value of two properties are (1993, 1996, 2000, 2015, 2019)
the same, the said fair market value should be taken as the
tax base which is P 10 million. The income tax rate is 6%. Q: Mr. D, a Filipino amateur boxer, joined an Olympic
(Sec. 24(D)(1), NIRC) qualifying tournament held in Las Vegas, USA, where he
won the gold medal. Pleased with Mr. D's
(c) Is Alpha Corporation subject to income tax on the accomplishment, the Philippine Government, through
exchange of property? If so, what is the tax base and the Philippine Olympic Committee, awarded him a cash
rate? Explain. (2008 BAR) prize amounting to P1,000,000.00. Upon receipt of the
funds, he went to a casino in Pasay City and won the
A: YES. The gain from the exchange constitutes an item of P30,000,000.00 jackpot in the slot machine. The next
gross income, and being a business income, it must be day, he went to a nearby Lotto outlet and bought a Lotto
reported in the annual income tax return of Alpha ticket which won him a cash prize of P5,000.00. Which
Corporation. From the pertinent items of gross income, of the above sums of money is/are subject to income
deductions allowed by law from gross income can be tax? Explain. (2019 BAR)
claimed to arrive at the net income which is the tax base for
the corporate income tax rate of 35%. (Secs. 27(A) & 31, A: Only the amount of P30,000,000.00, constituting the
NIRC) winnings from casino, is subject to income tax, specifically
to a final tax at the rate of 20%. (Sec. 24(B)(1), NIRC, as
[NOTE: That from January 1, 2009 to June 30, 2020 the tax amended)
rate is 30%. (R.A. No. 9337; R.A. No. 11534 – CREATE Act)
Starting July 1, 2020, the tax rate for Domestic Corporations The cash prize of P1,000,000 is exempt from taxation under
in general is 25%, and the tax rate for Domestic Section 32(B)(7)(d) of the NIRC, as amended, considering
Corporations classified as Micro, Small and Medium that it is in the nature of a prize granted to Mr. D as an
Enterprise, is 20%. (Sec. 27(A), NIRC as amended by R.A. No. athlete after winning an international sports competition,
11534 – CREATE Act) For a corporation to be classified as i.e., an Olympic qualifying tournament, sanctioned by his
Micro, Small and Medium Enterprise, during the taxable national sports association.
year for which the tax is imposed, the net taxable income
does not exceed P5,000,000 and the total assets does not Meanwhile, under Section 24(B)(1) of the NIRC, the
exceed P100,000,000, excluding land on which the winnings amounting to P10,000 or less from Lotto shall be
particular business entity’s office, plant, and equipment are exempt from tax, therefore the Lotto prize of P5,000 is not
situated. (CREATE Act is not covered by 2020 bar syllabus)] subject to income tax. (NIRC, Sec. 24(B)(1), amended by
R.A.10963 – TRAIN Law)
PASSIVE INVESTMENT INCOME
(1994, 1995, 1997, 2000, 2003, 2005, 2015, 2018) TAX-FREE EXCHANGES
Q: Mr. Javier is a non-resident senior citizen. He (2018, 2019)
receives a monthly pension from the GSIS which he
deposits with the PNB-Makati Branch. Is he exempt Q: B transferred his ownership over a 1,000-square
from income tax and therefore not required to file an meter commercial land and three-door apartment to
income tax return? (2000 BAR) ABC Corp., a family corporation of which B is a
stockholder. The transfer was in exchange of 10,000
A: Mr. Javier is exempt from income tax on his monthly GSIS shares of stock of ABC Corp. As a result, B acquired 51%
pension (Sec. 32(B)(6)(f), NIRC) but not on the interest ownership of ABC Corp., with all the shares of stock
income that might accrue on the pensions deposited with having the right to vote. B paid no tax on the exchange,
PNB which are subject to final withholding tax. maintaining that it is a tax avoidance scheme allowed
under the law. The Bureau of Internal Revenue, on the
Consequently, since Mr. Javier’s sole taxable income would other hand, insisted that B's alleged scheme amounted
have been subjected to a final withholding tax, he is not to tax evasion. Should B pay taxes on the exchange?
required anymore to file an income tax return. (Sec. Explain. (2019 BAR)
51(A)(2)(c), NIRC)
A: No, B shall not pay taxes on the exchange. Section
Q: What are disguised dividends in income taxation? 40(C)(2) of the Tax Code provides that no gain or loss shall
Give an example. (1994 BAR) be recognized if property is transferred to a corporation by
a person in exchange for stocks in such corporation wherein
A: Disguised dividends are those income payments made by as a result of such exchange, such person, alone or together
a domestic corporation, which is a subsidiary of a non- with others, not exceeding four, gains control of the
resident foreign corporation, to the latter ostensibly for corporation. When B transferred the properties for shares
services rendered by the latter to the former, but which in ABC Corporation, he acquired control (51% of voting
payments are disproportionately larger than the actual shares) over the corporation, thus, the transaction shall not
value of the services rendered. In such case, the amount be subject to income tax, capital gains tax, and value added
over and above the true value of the service rendered shall tax.
be treated as a dividend and shall be subjected to the
corresponding tax on Philippine sourced gross income, or
such other preferential rate as may be provided under a ORDINARY AND NECESSARY TRADE, BUSINESS OR
corresponding Tax Treaty. PROFESSIONAL EXPENSES
(1988, 1989, 1990, 1993, 2006, 2009, 2016, 2017)
Example: Royalty payments under a corresponding
licensing agreement.

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Q: Calvin Dela Pisa was a Permits and Licensing Officer Q: The Filipinas Hospital for Crippled Children is a
(rank-and-file) of Sta. Portia Realty Corporation charitable organization. X visited the hospital, on his
(SPRC). He invited the Regional Director of the Housing birthday, as was his custom. He gave P100,000.00 to the
and Land Use Regulatory Board (HLURB) to lunch at the hospital and P5,000.00 to a crippled girl whom he
Sulo Hotel in Quezon City to discuss the approval of particularly pitied. A crippled son of X is in the hospital
SPRC's application for a development permit in as one of its patients. X wants to exclude both the
connection with its subdivision development project in P100,000.00 and the P5,000.00 from his gross income.
Pasig City. At breakfast the following day, Calvin met a Discuss. (1993 BAR)
prospective client interested to enter into a joint
venture with SPRC for the construction of a residential A: Under the NIRC, charitable contributions to be
condominium unit in Cainta, Rizal. deductible must be:

Calvin incurred expenses for the lunch and breakfast 1. Actually paid or made to domestic corporations or
meetings he had with the Regional Director of HLURB associations organized and operated exclusively
and the prospective client, respectively. The expenses for religious, charitable, scientific, youth and sports
were duly supported by official receipts issued in his development, cultural or educational purposes or
name. At month's end, he requested the reimbursement for rehabilitation of veterans or to social welfare
of his expenses, and SPRC granted his request. institutions no part of which inures to the benefit
of any private individual;
(a) Can SPRC claim an allowable deduction for the 2. Made within the taxable year;
expenses incurred by Calvin? Explain your answer. 3. Not more than 10% (for individuals) of 5% (for
corporations) of the taxpayer’s taxable income to
A: NO. SPRC cannot claim as a deduction, the amount spent be computed without including the contribution.
for lunch in the meeting with the Regional Director of
HLURB. While the expense is business connected, the same Applying the above provisions of law to the case at bar, it is
is not allowed as deduction because it was incurred as an clear therefore that only the P100,000.00 contribution of X
indirect payment to a government official which, not only to Filipinas Hospital for Crippled Children qualified as a
amounts to a violation of the Anti-Graft and Corrupt deductible contribution.
Practices Act, but also constitutes bribes, kickbacks and
similar payments. (Sec 34(A)(1)(c), NIRC) The NIRC expressly provides that the same must be actually
paid to a charitable organization to be deductible. Note that
With respect, however, to the amount spent for breakfast the law accorded no privilege to similar contributions
with a prospective client, the same is deductible from gross extended to private individuals. Hence, the P5,000.00
income of SPRC. The expense complies with the contribution to the crippled girl cannot be claimed as a
requirements for deductibility, namely: (a) the expense deduction.
must be ordinary and necessary; (b) it must have been paid
or incurred during the taxable year; (c) it must have been BRIBES (1993, 1998, 2014)
paid or incurred in carrying on the trade or business of the
taxpayer, and (d) it must be supported by receipts, records Q: Freezy Corporation, a domestic corporation engaged
or other pertinent papers. (CIR v. General Foods (Phils.), Inc., in the manufacture and sale of ice cream, made
G.R. No. 143672, 2003) Section 34(A)(1)(b) of the NIRC, as payments to an officer of Frosty Corporation, a
amended, does not require that the substantiation be in the competitor in the ice cream business, in exchange for
form of official receipts or invoices issued in the name of the said officer’s revelation of Frosty Corporation’s trade
taxpayer claiming the expense. It must only be proven that secrets.
there is a “direct connection or relation of the expense being
deducted to the development, management, operation May Freezy Corporation claim the payment to the
and/or conduct of the trade, business or profession of the officer as deduction from its gross income? Explain.
taxpayer”. (2014 BAR)

(b) Is the reimbursement received by Calvin from SPRC A: NO. The payments made in exchange for the revelation of
subject to tax? Explain your answer. (2017 BAR) a competitor’s trade secrets is considered as an expense
which is against law, morals, good customs or public policy,
A: NO. Any amount paid as reimbursements for which is not deductible. (3M Philippines, Inc. v. CIR, GR No.
representation incurred by the employee in the 82833, 1988) Also, the law will not allow the deduction of
performance of his duties is not compensation subject to bribes, kickbacks and other similar payments. Applying the
withholding, if the following conditions are satisfied: (i) it is principle of ejusdem generis, payment made by Freezy
for ordinary and necessary representation expense paid or Corporation would fall under “other similar payments”
incurred by the employee in the pursuit of the trade, which are not allowed as deduction from gross income.
business or profession; and (ii) the employee is required to (Sec. 34(A)(1)(c). NIRC)
account/liquidate for the such expense in accordance with
the specific requirements of substantiation pursuant to Sec.
34 of the NIRC, as amended. The amounts are actually spent INCOME TAX ON RESIDENT CITIZENS, NON- RESIDENT
by the employee for the benefit of his employer, so no CITIZENS AND RESIDENT ALIENS
income is considered to have flowed to the employee. (1997, 1999, 2000, 2001, 2002, 2007, 2015, 2016,
2017, 2018, 2019)

CHARITABLE AND OTHER CONTRIBUTIONS
Q: Kronge Konsult, Inc. (KKI) is a Philippine
(1993, 1996, 1998, 2018)
corporation engaged in architectural design,
engineering, and construction work. Its principal office

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 Taxation Law
is located in Makati City, but it has various June 2017 after KKl's project in Kuala Lumpur,
infrastructure projects in the country and abroad. Malaysia was completed. (2018 BAR)
Thus, KKI employs both local and foreign workers. The
company has adopted a policy that the employees' A: Compensation from January 1 up to the time of her return
salaries are paid in the currency of the country where in June 2017 is an income from a source without the
they are assigned or detailed. Philippines which is not taxable if received by a nonresident
citizen. (Secs. 23 & 42, NIRC) Compensation from June 2017
Below are some of the employees of KKI. Determine to December 31, 2017 is an income from a source within the
whether the compensation they received from KKI in Philippines and taxable to Karen, who is taxable on
2017 is taxable under Philippine laws and whether they worldwide income from the time she regained the status of
are required to file tax returns with the Bureau of a resident citizen and accordingly, must file returns to pay
Internal Revenue (BIR). for the tax, unless she is purely compensation income
earner for which the withholding tax on wages was
(a) Kris Konejero, a Filipino accountant in KKl's Tax correctly withheld by KKI. (Sec. 51(A)(2)(b), NIRC)
Department in the Makati office, and married to a
Filipino engineer also working in KKI; ITEMS TO BE INCLUDED AS PART OF GROSS ESTATE
(2001, 2003, 2005, 2007, 2013, 2018, 2019)
A: Taxable. (Sec. 23 & 24(A), NIRC) Kris must file tax returns
with the BIR, unless she qualifies for substituted filing of Q: Karissa is the registered owner of a beachfront
income tax returns because the tax was correctly withheld property in Kawayan, Quezon which she acquired in
by the employer. (Sec. 51(A)(2)(b), NIRC) 2015. Unknown to many, Karissa was only holding the
property in trust for a rich politician who happened to
(b) Klaus Kloner, a German national who heads KKl's be her lover. It was the politician who paid for the full
Design Department in its Makati office; purchase price of the Kawayan property. No deed of
trust or any other document showing that Karissa was
A: Taxable being an income earned by a resident alien from only holding the property in trust for the politician was
Philippine sources. (Sec. 23 & 24(A), NIRC) Klaus is required executed between him and Karissa.
to file a tax return unless the compensation income from
KKJ is his only returnable income and the withholding tax Karissa died single on May 1, 2017 due to a freak
thereon was correctly withheld by his employer. (Sec. surfing accident. She left behind a number of personal
51(A)(2)(b), NIRC) properties as well as real properties, including the
Kawayan property. Karissa's sister, Karen, took charge
(c) Krisanto Konde, a Filipino engineer in KKl's Design of registering Karissa's estate as a taxpayer and
Department who was hired to work at the principal reporting, for income tax and VAT purposes, the rental
office last January 2017. In April 2017, he was assigned income received by the estate from real properties.
and detailed in the company's project in Jakarta, However, it was only on October 1, 2017 when Karen
Indonesia, which project is expected to be completed in managed to file an estate tax return for her sister's
April 2019; estate. xxx xxx

A: His compensation from January 1 up to the time he left Should the beachfront property be included in
the Philippines is taxable and he must file tax returns, Karissa's gross estate? (2018 BAR)
unless the compensation income is his only returnable
income, and the withholding tax thereon was correctly A: YES. The property is registered in the name of the
withheld by KKI. (Sec. 51(A)(2)(b), NIRC) The compensation decedent, so it’s a property owned by her as of the time of
for his services abroad from the date of his actual death which must properly be included as part of her gross
assignment thereat up to the time of the completion of the estate. The extent of her interest in the property, which is
project is not taxable being an income from a source full ownership, must form part of her gross estate. (Sec.
without the Philippines earned by a non-resident citizen. 85(A), NIRC)
(Secs. 23 & 42, NIRC) He is not required to file a return for
this income derived from without, because said income is
not subject to income tax in the Philippines. (Sec. 23, NIRC) FUNERAL EXPENSES
(2018, 2019)
(d) Kamilo Konde, Krisanto's brother, also an engineer
assigned to KKl's project in Taipei, Taiwan. Since KKI Q: A, a resident Filipino citizen, died in December 2018.
provides for housing and other basic needs, Kamila A's only assets consist of a house and lot in Alabang,
requested that all his salaries, paid in Taiwanese where his heirs currently reside, as well as a house in
dollars, be paid to his wife in Manila in its Philippine Los Angeles, California, USA. In computing A's taxable
Peso equivalent; and net estate, his heirs only deducted: 1. ₱ 10,000,000.00
constituting the value of their house in Alabang as their
A: Not taxable and no need to file tax returns. Kamilo is a family home; and 2. ₱ 200,000.00 in funeral expenses
non-resident citizen who is taxable only on income from because no other expenses could be substantiated. Are
sources within the Philippines. Compensation for services both deductions claimed by A's heirs correct? Explain.
rendered outside of the Philippines is an income from a (2019 BAR)
source without the Philippines which is not subject to the
Philippine income tax. (Secs. 23 & 42, NIRC) A: NO. The claim of both deductions by the heirs is
incorrect. Only the claim for the deduction of the family
(e) Karen Karenina, a Filipino architect in KKl's Design home worth P 10,000,000.00 is correct, if the property is
Department who reported back to KKl's Makati office in the decedent’s family home as of the time of his death. (Sec.
86(A)(7), NIRC) As for the funeral expense, upon the

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 Taxation Law
amendment introduced by R.A. No. 10963 – TRAIN Law,
funeral expense was not specified as a separate deductible (a) Is T Corp.'s contention regarding the prescription of
item, hence, not allowed as a deduction from the gross the assessment meritorious? Explain.
estate of the decedent.
A: NO. The three-year prescriptive period for the
EXEMPTION OF GIFTS FROM DONOR’S TAXES assessment of tax shall start to run from the last day
(1992, 1994, 1995, 2000, 2001, 2002, 2007, 2008, prescribed by law for the filing of the return, or the day the
2014, 2017, 2018, 2019) return was filed, whichever comes later. (Sec. 203, NIRC) In
the present case, since T. Corp. filed its annual income tax
Q: Due to rising liquidity problems and pressure from return on April 15, 2013, which is also the last day to file the
its concerned suppliers, P Corp. instituted a flash said return, the last day to assess shall fall on April 15, 2016.
auction sale of its shares of stock. P Corp. was then able By issuing the FAN on April 11, 2016, the right to assess
to sell its treasury shares to Z, Inc., an unrelated deficiency income tax for year 2012 has not yet prescribed.
corporation, for P l,000,000.00, which was only a little
below the valuation of P Corp. 's shares based on its (b) Should the CIR's motion to dismiss be granted?
latest audited financial statements. In connection Explain. (2019 BAR)
therewith, P Corp. sought a Bureau of Internal Revenue
ruling to confirm that, notwithstanding the price A: YES. Since the taxpayer failed to file a protest against the
difference between the selling price of the shares and FAN within 30 days from date of receipt, the assessment
their book value, the said transaction falls under one of had become final, executory, and demandable. (Sec. 228,
the recognized exemptions to donor's tax under the Tax NIRC, RR No. 18-13)
Code. Does the above transaction fall under any of the
exemptions? Explain. (2019 BAR) DECISION/INACTION OF THE COMMISSIONER
ON THE PROTEST FILED
A: YES. The transaction is not subject to donor’s tax. (1987, 1999, 2005, 2009, 2012, 2014)
Generally, the sale of property, other than real property
held as capital assets, for less than its fair market value is Q: In the examination conducted by the revenue
subject to donor’s tax on the amount by which the fair officials against the corporate taxpayer in 2010, the BIR
market value exceeds the consideration received. However, issued a final assessment notice and demand letter
if the sale of property is made in the ordinary course of which states: “It is requested that the above deficiency
business (i.e., (i) a transaction which is bona fide, (ii) at tax be paid immediately upon receipt hereof, inclusive
arm’s length, and (iii) free from any donative intent), the of penalties incident to delinquency. This is our final
sale will be considered made for an adequate and full decision based on investigation. If you disagree, you
consideration in money or money’s worth and will not be may appeal this final decision within 30 days from
subject to donor’s tax. (Sec. 100, NIRC, as amended by R.A. receipt hereof, otherwise said deficiency tax
No. 10963 – TRAIN Law) assessment shall become final, executory, and
demandable.” The assessment was immediately
In this case, the transfer was made in the ordinary course of appealed by the taxpayer to the Court of Tax Appeals,
business since it was done for a valid business purpose, without filing its protest against the assessment and
which is to address liquidity problems and relieve pressure without a denial thereof by the BIR. If you were the
from the Company’s suppliers. judge, would you deny the petition for review filed by
the taxpayer and consider the case as prematurely
PRESCRIPTIVE PERIOD FOR ASSESSMENT filed? Explain you answer. (2012 BAR)
GENERAL RULE
(1989, 1997, 1999, 2000, 2002, 2006, 2017, 2019) A: No, the Petition for Review should not be denied. The
case is an exception to the rule on exhaustion of
Q: After a Bureau of Internal Revenue (BIR) audit, T administrative remedies. The BIR is estopped from claiming
Corp., a domestic corporation engaged in buying and that the filing of the Petition for Review is premature
selling of scrap metals, was found to have deficiency because the taxpayer failed to exhaust all administrative
income tax of ₱25,000,000.00, including interests and remedies. The statement of the BIR in its Final
penalties, for the year 2012. For 2012, T Corp. filed its Assessment Notice and Demand Letter led the taxpayer
income tax return (ITR) on April 15, 2013 because it to conclude that only a final judicial ruling in his favor
used the calendar year for its accounting. The BIR sent would be accepted by the BIR. The taxpayer cannot be
the Preliminary Assessment Notice (PAN) on December blamed for not filing a protest against the Formal Letter of
23, 2015, and eventually, the Final Assessment Notice Demand with Assessment Notices since the language used
(FAN) on April 11, 2016, which were received by T Corp. and the tenor of the demand letter indicate that it is the final
on the same dates that they were sent. Upon receipt of decision of the respondent on the matter. The CIR should
the FAN, T Corp. filed its protest letter on June 25, 2016. indicate, in a clear and unequivocal language, whether his
action on a disputed assessment constitutes his final
Thereafter, and without action from the Commissioner determination thereon in order for the taxpayer concerned
of Internal Revenue (CIR), T Corp. filed a petition for to determine when his or her right to appeal to the tax court
review before the Court of Tax Appeals, alleging that accrues. Although there was no direct reference for the
the assessment has prescribed. taxpayer to bring the matter directly to the CTA, it cannot
be denied that the word “appeal” under prevailing tax laws
For its part, the CIR moved to dismiss the case, pointing refers to the filing of a Petition for Review with the CTA.
out that the assessment had already become final (Allied Bank vs CIR, GR No 175097, February 5, 2010)
because the protest was filed beyond the allowable
period.

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 Taxation Law
RECOVERY OF TAX ERROUNEOUSLY OR Q: On May 15, 2013, CCC, Inc. received the Final Decision
ILLEGALY COLLECTED on Disputed Assessment issued by the Commissioner of
(2002, 2005, 2017) Internal Revenue (CIR) dismissing the protest of CCC,
Inc. and affirming the assessment against said
Q: Wreck Corporation is a domestic corporation corporation. On June 10, 2013, CCC, Inc. filed a Petition
engaged in the business of importing, refining and for Review with the Court of Tax Appeals (CTA) in
selling petroleum products. During the period from division. On July 31, 2015, CCC, Inc. received a copy of
September 1, 2014 to December 31, 2014, Wreck the Decision dated July 22, 2015 of the CTA division
Corporation imported 225 million liters of Jet A-1 dismissing its Petition. CCC, Inc. immediately filed a
aviation fuel and paid the excise taxes thereon. Petition for Review with the CTA en banc on August 6,
Seventy-five percent (75%) of the total volume of 2015. Is the immediate appeal by CCC, Inc. to the CTA en
aviation fuel imported were actually sold to banc of the adverse Decision of the CTA division the
international carriers of Philippine and foreign proper remedy? (2015 BAR)
registries for their use or consumption outside of the
Philippines in the period from November 1, 2014 to A: NO. CCC, Inc. should first file a motion for reconsideration
December 31, 2014. Wreck Corporation did not pass on or motion for new trial with the CTA Division. Before the
to the international carriers the excise taxes it paid on CTA en banc could take cognizance of the petition for review
the importation of petroleum products. concerning a case falling under its exclusive appellate
jurisdiction, the litigant must sufficiently show that it
On June 25, 2015, Wreck Corporation filed an sought prior reconsideration or moved for a new trial with
administrative claim for refund or issuance of tax credit the concerned CTA Division. (Commissioner of Customs v.
certificate amounting to the excise taxes it had paid on Marina Sale, G.R. No. 183868, November 22, 2010, 635 SCRA
the importation of 225 million liters of Jet A-1 aviation 606; Rule 8, Sec. 1 of the Revised Rules of Court of Tax
fuel. Appeals)

If you were the Commissioner of Internal Revenue, will Q: Mr. Abraham Eugenio, a pawnshop operator, after
you grant Wreck Corporation's administrative claim having been required by the Revenue District Officer to
for refund or issuance of tax credit certificate? Explain pay value-added tax pursuant to a Revenue
your answer. (2017 BAR) Memorandum Order (RMO) of the Commissioner of
Internal Revenue, filed with the Regional Trial Court an
A: Yes, but only the excise tax which corresponds to the action questioning the validity of the RMO.
75% of the total volume of aviation fuel imported that were
actually sold to the international carriers. Wreck If you were the judge, will you dismiss the case? (2006
Corporation, as the statutory taxpayer who is directly liable BAR)
to pay the excise tax on its petroleum products, is entitled
to a refund or credit of the excise taxes it paid for petroleum A: YES. An RMO is in reality a ruling, or an opinion issued by
products sold to international carriers, the latter having the Commissioner in implementing the provisions of the
been granted exemption from the payment of said excise tax Tax Code dealing with the taxability of pawnshops. The
under Sec. 135(a) of the NIRC. (CIR v. Pilipinas Shell power to review rulings issued by the Commissioner is
Petroleum Corporation, G.R. No. 188497, 2014) lodged with the Court of Tax Appeals (CTA) and not with the
Regional Trial Court. A ruling falls within the purview of
“other matters arising under the Tax Code,’’ appealable only
OPTION TO CARRY OVER
to the CTA. (CIR v. Leal, 392 SCRA 9, 2002)
EXCESS QUARTERLY INCOME TAX PAID
Q: Globesmart Services, Inc. received a final assessment
(1992, 1994, 1997, 2008, 2012, 2013, 2017)
notice with formal letter of demand from the BIR for
deficiency income tax, value-added tax and withholding
Q: In its final adjustment return for the 2010 taxable tax for the taxable year 2016 amounting to P48 million.
year, ABC Corp. had excess tax credits arising from its Globesmart Services, Inc. filed a protest against the
overwithholding of income payments. It opted to carry assessment, but the Commissioner of Internal Revenue
over the excess tax credits to the following year. denied the protest. Hence, Globesmart Services, Inc.
Subsequently, ABC Corp. changed its mind and applied filed a petition for review in the CTA with an urgent
for a refund of the excess tax credits. Will the claim for motion to suspend the collection of tax.
refund prosper? (2013 BAR)
After hearing, the CTA Division issued a resolution
A: NO. The claim for refund will not prosper. While the law granting the motion to suspend but required
gives the taxpayer an option whether to carry-over or claim Globesmart Services, Inc. to post a surety bond
as refund the excess tax credits shown on its final equivalent to the deficiency assessment within 15 days
adjustment return, once the option to carry over has been from notice of the resolution. Globesmart Services, Inc.
made, such option shall be considered irrevocable for that moved for the partial reconsideration of the resolution
taxable period and no application for cash refund or and for the reduction of the bond to an amount it could
issuance of a tax credit certificate shall be allowed. (Sec. 76, obtain. The CTA Division issued another resolution
NIRC; CIR v. PL Management International Phils, Inc., GR No. reducing the amount of the surety bond to P24 million.
160949, April 4, 2011) The latter amount was still more than the net worth of
Globesmart Services, Inc. as reported in its audited
JURISDICTION OF THE COURT OF TAX APPEALS financial statements.
(1989, 1997, 1998, 2004, 2006, 2014, 2015, 2016,
2017, 2018) (a) May the collection of taxes be suspended? Explain
your answer.

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 Taxation Law
A: YES. As provided by R.A. No. 1125, as amended by R.A. middle part are occupied by the Church and a convent,
No. 9282, that when in the opinion of the Court the the eastern side by a school run by the Church itself, the
collection by the aforementioned government agencies may southeastern side by some commercial establishments,
jeopardize the interest of the Government and/or the while the rest of the property, in particular the
taxpayer, the Court at any stage of the proceeding may northwestern side, is idle or unoccupied. May the
suspend the collection and require the taxpayer either to Church claim tax exemption on the entire land? Decide
deposit the amount claimed or to file a surety bond for not with reasons. (2005 BAR)
more than double the amount with the Court.
A: NO. The portions of the land occupied and used by the
(b) Is the CTA Division justified in requiring Globesmart church, convent and school run by the church are exempt
Services, Inc. to post a surety bond as a condition for the from real property taxes while the portion of the land
suspension of the deficiency tax collection? Explain occupied by commercial establishments and the portion,
your answer. (2017 BAR) which is idle, are subject to real property taxes. The “usage”
of the property and not the “ownership" is the determining
A: NO. The Supreme Court in the Tridharma Case cited the factor whether or not the property is taxable. (Lung Center
case of Pacquiao v. Court of Tax Appeals (G.R. No. 213394, of the Philippines v. Q.C., 433 SCRA 119, 2004)
2016) where it ruled that the CTA should first conduct a
preliminary hearing for the proper determination of the PAYMENT UNDER PROTEST
necessity of a surety bond or the reduction thereof. In the (1988, 1991, 1993, 2014, 2018)
conduct of its preliminary hearing, the CTA must balance
the scale between the inherent power of the State to tax and Q: Madam X owns real property in Caloocan City. On July
its right to prosecute perceived transgressors of the law, on 1, 2014, she received a notice of assessment from the
one side, and the constitutional rights of petitioners to due City Assessor, informing her of a deficiency tax on her
process of law and the equal protection of the laws, on the property. She wants to contest the assessment. May
other. In this case, the CTA failed to consider that the Madam X refuse to pay the deficiency tax assessment
amount of the surety bond that it is asking Globesmart during the pendency of her appeal? (2014 BAR)
Services, Inc. to pay is more than its net worth. It is, thus,
necessary for the CTA to first conduct a preliminary hearing A: NO. The payment of the deficiency tax is a condition
to give the taxpayer an opportunity to prove its inability to before she can protest the deficiency assessment. It is the
come up with such amount. decision on the protest or inaction thereon that gives her
the right to appeal. This means that she cannot refuse to pay
ACTUAL USE PRINCIPLE the deficiency tax assessment during the pendency of the
(1988, 1990, 2000, 2001, 2003, 2005, 2009, 2018) appeal because it is the payment itself which gives rise to
the remedy. The law provides that no protest (which is the
Q: The Roman Catholic Church owns a 2–hectare lot in beginning of the disputation process) shall be entertained
a town in Tarlac province. The southern side and unless the taxpayer first pays the tax. (Sec. 252, LGC)

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