CTA Jurisdiction over Tax Rulings and Regulations

ARELLANO BAR REVIEW PROGRAM HANDOUT NO.
Center for Legal Education And Research 2019 07

Updates and Critical Areas in Taxation Law
• GENERAL PRINCIPLES
Tax Treaties:
The obligation to comply with a tax treaty must take precedence over the objective of the BIR’s
requirement of a prior treaty relief application to avail of the lower tax treaty rate. The BIR must not
impose additional requirements that would negate the availment of the reliefs provided for under
international agreements. More so, when the tax treaty does not provide for any pre-requisite for the
availment of the benefits under said agreement. (Deutsche Bank AG Manila Branch vs. CIR, GR No. 188550
dated August 19, 2013; CBK Power Company Limited vs. CIR, GR No. 193383-84 dated January 14, 2015)
Taxes vs. Fees:
An ordinance imposing fees based on project cost whose purpose is to regulate certain construction
activities of the identified special projects, which includes "cell sites" or telecommunications towers, is not
a tax because the fees imposed in the said ordinance are primarily regulatory in nature, and not primarily
revenue-raising. (Smart vs. Municipality of Malvar, Batangas, GR No. 204429 dated February 18, 2014.)
Tax Rulings:
1. Tax rulings are official positions of the Bureau of Internal Revenue on inquiries of taxpayers who
request clarification on certain provisions of the National Internal Revenue Code, other tax laws, or
their implementing regulations. (CIR vs. CTA and Petron, GR No. 207843 dated February 14, 2018)
2.a. The revocation, modification and reversal of a tax ruling shall not be given retroactive effect if the
revocation, modification and reversal will be prejudicial to the taxpayers, except in the following
cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the BIR;
(b) Where the facts subsequently gathered by the BIR are materially different from the facts on
which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Sec. 246 of the NIRC)
2.b. Under Sec. 246 of the NIRC, the revocation, modification and reversal of a ruling cannot be given
retroactive effect, if it will be prejudicial to the taxpayer. The BIR is precluded from adopting a
contrary position to one previously taken where injustice would result to the taxpayer. (CIR vs.
Philippine Healthcare Providers, Inc., GR No. 168129 dated April 24, 2007)
2.c. Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the
time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The reversal is
not given retroactive effect. This, in essence, is the doctrine of operative fact. There must,
however, be a rule or ruling issued by the Commissioner that is relied upon by the taxpayer in good
faith. (CIR vs. San Roque Power Corporation, GR No. 187485 dated October 8, 2013)
2.d. In order for Section 246 to apply, the ruling must be issued to the taxpayer invoking the same. (CIR
vs. Filinvest Development Corporation, GR No. 163653 dated July 19, 2011)
UPDATES AND CRITICAL AREAS IN TAXATION LAW |1

ARELLANO UNIVERSITY SCHOOL OF LAW
But, if the ruling issued is a general interpretative rule, all taxpayers may rely on the ruling and
invoke Sec. 246, if proper. (CIR vs. San Roque Power Corporation, GR No. 187485 dated October 8, 2013)
2.e. Section 246 is not limited to a reversal only by the Commissioner because this Section expressly
states, "Any revocation, modification or reversal" without specifying who made the revocation,
modification or reversal. Hence, a reversal by the Supreme Court is covered under Section 246. (CIR
vs. San Roque, GR No. 187485 dated February 12, 2013)
3. Commissioner’s Ruling:
a. Rulings of first impression; and,

b. Rulings which reverse, revoke or modify any existing ruling of the BIR. (Sec. 7(B) of the NIRC)
How to contest a ruling of the BIR?
1.a. File a request for ruling review with the Secretary of Finance (―SOF‖) within thirty (30) days from
receipt of the CIR’s ruling. (DOF Department Order No. 23-2001 dated October 25, 2001)
Sec. 4 of the NIRC provides that the power to interpret the provisions of the NIRC and other tax
laws is under the exclusive and original jurisdiction of the CIR, subject to review by the SOF.
1.b. Appeal to the SOF is in compliance with the rule on exhaustion of administrative remedies. Thus,
appeal to the SOF may be dispensed with if any of the exceptions to the rule on exhaustion of
administrative remedies is present. The exceptions, among others, are the following:
(1) exhaustion would be futile – The SOF requesting a ruling from the CIR and later on adopting
the ruling as his own;
(2) issue is purely legal – Tax implications of the PEACe Bonds; and,
(3) when there are circumstances indicating the urgency of judicial intervention – impending
maturity of the PEACe Bonds. (BDO vs. Republic, GR No. 198756 dated January 13, 2015)
How to contest a ruling of the CIR?
3. Next Remedy RTC or CTA?
CIR vs. CTA and Petron, GR No. 207843 dated February 14, 2018:
Thus, in conjunction with the Banco De Oro ruling that the CTA has jurisdiction to resolve all tax matters
(which includes the validity of the CIR's interpretation and consequent imposition of excise tax on
alkylate), the Court finds it proper to reconsider its decision.
1. Within the judicial system, the law intends the Court of Tax Appeals to have exclusive jurisdiction to
resolve all tax problems;
2. Hence, the determination of the validity of these issuances clearly falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals under Section 7(a)(1) of Republic Act No. 1125, as amended,
subject to prior review by the Secretary of Finance, as required under Republic Act No. 8424. –
―other matters arising under the NIRC or other laws administered by the BIR.‖
2 | CENTER FOR LEGAL EDUCATION AND RESEARCH

BDO vs. Republic, GR No. 198756 dated August 16, 2016:
1. The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of
a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an
assessment or claiming a refund. It is only in the lawful exercise of its power to pass upon all
matters brought before it, as sanctioned by Section 7 of Republic Act No. 1125, as amended.
This Court, however, declares that the Court of Tax Appeals may likewise take cognizance of cases
directly challenging the constitutionality or validity of a tax law or regulation or administrative
issuance (revenue orders, revenue memorandum circulars, rulings).
2. ection 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes, appeals
from the decisions of quasi-judicial agencies (Commissioner of Internal Revenue, Commissioner of
Customs, Secretary of Finance, Central Board of Assessment Appeals, Secretary of Trade and
Industry) on tax-related problems must be brought exclusively to the Court of Tax Appeals.
In other words, within the judicial system, the law intends the Court of Tax Appeals to have
exclusive jurisdiction to resolve all tax problems. Petitions for writs of certiorari against the
acts and omissions of the said quasi-judicial agencies should, thus, be filed before the Court of Tax
Appeals.
3. Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 129 provides an exception
to the original jurisdiction of the Regional Trial Courts over actions questioning the constitutionality
or validity of tax laws or regulations. Except for local tax cases, actions directly challenging the
constitutionality or validity of a tax law or regulation or administrative issuance may be filed directly
before the Court of Tax Appeals.
• INCOME TAX
TRAIN Law Amendments – 8% Tax:
1.a. Individuals earning income purely from self-employment and/or practice of profession whose
gross sales/receipts and other non-operating income does not exceed P3,000,000.00 shall have
the option to be taxed:
a. The graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended; OR
b. An eight percent (8%) tax on gross sales or receipts (net of returns and cash discounts) and
other non-operating income in excess of two hundred fifty thousand pesos (P250,000.00) in
lieu of the graduated income tax rates under Section 24(A) and the percentage tax under
Section 116 all under the Tax Code, as amended.
1.b. Individuals Earning Income Both from Compensation and from Self-employment (business or
practice of profession):
a. Compensation Income – graduated rates; and,

b. Income from business or practice of profession - gross sales/receipts and other non-operating
income does not exceed P3,000,000.00 shall have the option to be taxed either at the
graduated rates or the 8% tax.

2. Not Qualified for the 8% tax based on gross sale and/or receipts:
1. Purely compensation income earners;

2. VAT registered taxpayers;
3. Non-VAT taxpayers whose gross receipts/sales exceed P3,000,000.00;
4. Taxpayers subject to other percentage taxes except Sec. 116;
5. artners of General Professional Partnerships;
6. Individuals enjoying income tax exemption such as those registered with Barangay Micro
Business Enterprise since taxpayers are not allowed to avail of double or multiple tax exemptions
under different tax laws unless specifically provided by law.
3. Important Rules:
1. The 8% income tax rate shall be based on the gross sales/receipts and other non-operating
income, net of returns and cash discounts, in excess of P250,000.00.
2. Taxpayer must signify his intention to avail of the 8% income tax rate in the 1st Quarter ITR /
Percentage Tax Return, or on the initial quarter return of the taxable year after the
commencement of a new business/practice of profession. Otherwise, taxpayer is considered to
have availed of the graduated rates.
3. Such election shall be irrevocable and no amendment of option shall be made for the said taxable
year.
4. The option to be taxed at 8% gross income tax rate is not available to a VAT-registered taxpayer,
regardless of the amount of gross sales/receipts, and to a taxpayer who is subject to Other
Percentage Taxes under the Tax Code except Sec. 116.
5. Partners of a General Professional Partnership (―GPP‖) by virtue of their distributive share from
GPP which is already net of cost and expenses cannot avail of the 8% income tax rate option.
6. The Financial Statements is not required to be attached in filing the final income tax return.
However, existing rules and regulations on bookkeeping and invoicing/receipting shall still apply.
7. The P250,000.00 exemption for those subject to the 8% tax is not applicable to mixed income
earners since it is already incorporated in the first tier of the graduated income tax rates
applicable to compensation income. Under the said graduated rates’ the excess of the
P250,000.00 over the actual taxable compensation income is not deductible/creditable against
the taxable income from business/practice of profession under the 8% income tax rate option.
8.a. A taxpayer shall automatically be subject to the graduated rates under Section 24(A)(2)(a) of
the Tax Code, as amended, even if the flat 8% income tax rate option is initially selected, when
taxpayer's gross sales/receipts and other non-operating income exceeded the VAT threshold
during the taxable year. In such case, his income tax shall be computed under the graduated
income tax rates and shall be allowed a tax credit for the previous quarter/s income tax
payment/s under the 8% income tax rate option.
8.b. The taxpayer is required to update his/her registration immediately within the month following
the month s/he exceeded the VAT threshold. S/he shall be liable to VAT prospectively starting
on the first day of the month following the month when the threshold is breached. The taxpayer
shall pay the required percentage tax covering the sales/receipts and other non-operating
income, from the beginning of the taxable year or commencement of business/practice of
profession until the time the taxpayer becomes liable for VAT, without imposition of penalty if
timely paid on the immediately succeeding month/quarter.

1.a. Juan, a non-VAT taxpayer, is a free lance architect. By the end of 2018, he had gross receipts of
P1,000,000.00.
May Juan avail of the 8% income tax rate? How much will be the taxable income subject to the 8%
tax?
1.b. Juan, a non-VAT taxpayer, is a free lance architect. His 1st to 3rd Quarter Income Tax Returns
(―ITRs‖) for the year 2018, showed that he paid income tax based on the graduated rates. By the
end of 2018, he had gross receipts of P1,000,000.00.
a. May Juan opt to pay 8% income tax in his annual ITR for the year 2018?
b. May Juan amend his quarterly ITRs and avail of the 8% income tax?
2. Juan, a VAT taxpayer, is a free lance architect. By the end of 2018, he had gross receipts of
P1,000,000.00.
May Juan avail of the 8% income tax rate?
3.a. Juan, a non-VAT taxpayer, is a free lance architect. He is also employed as a part time professor.
During the year 2018, he had the following gross receipts:
free lance architect – P1,000,000.00;

part time professor - P 500,000.00.
a. How much taxable income will be subject to 8% tax?

b. How much taxable income will be subject to the graduated rates?
3.b. Juan, a non-VAT taxpayer, is a free lance architect. He is also employed as a part time professor.

part time professor - P 100,000.00.

3.c. Juan, a non-VAT taxpayer, is a free lance architect. He is also employed as a part time professor.

part time professor - P5,500,000.00.


4. In 2018, Greg owns a nightclub and videoke bar, with gross sales/receipts of P2,500,000.00. His
cost of sales and operating expenses are P1,000,000.00 and P600,000.00, respectively, and with
non-operating income of P100,000.00.
Is Greg entitled to avail of the 8% income tax rate?
5. Willie owns a farm, with gross sales of P3,500,000.00. His cost of sales and operating expenses
are P1,000,000.00 and P600,000.00, respectively, and with non-operating income of P100,000.00.
Is Willie entitled to avail of the 8% income tax rate?
TRAIN Law Amendments – Exemptions and Deductions:
1. Sec. 34(M) on Deduction for Premium Payment on Health and/or Hospitalization Insurance for
Individuals – Deleted by the TRAIN Law.
2. Sec. 35 on Personal and Additional Exemption – Deleted by the TRAIN Law.
3. 13th Month Pay and Other Benefits – P90,000.00.
TRAIN Law Amendments – Optional Standard Deduction:
1. TRAIN Law Provision:
―xxx. Provided, further, That a general professional partnership and the partners comprising such
partnership may avail of the optional standard deduction only once, either by the general
professional partnership or the partners comprising the partnership: xxx.‖
2. New Rules for General Professional Partnerships (―GPP‖) under RR No. 8-2018:
a. The GPP is not a taxable entity for income tax purposes since it is only acting as a ―pass-through‖
entity wherein its income is ultimately taxed to the partners comprising it. As such, a GPP may
claim either the itemized deductions allowed under Sec. 34 or in lieu thereof, it can opt to avail of
the OSD allowed to corporations.

b. The share in the net income of the partnership, actually or constructively received, shall be
reported as taxable income of each partner. The partners comprising the GPP can no longer claim
further deduction from their distributive net income of the GPP and are not allowed to avail of the
8% income tax option since their distributive share from the GPP is already net of cost and
expenses.
c. If the partner also derives other income from trade, business or practice of profession apart and
distinct from the share in the net income of the GPP, the deduction that can be claimed from the
other income would either be the itemized deductions or OSD.
OSD Exercises:
1. Taxpayer is a prominent independent contractor who offers architectural and engineering services.
Taxpayer‟s total gross receipts amounted to P1,000,000.00 for taxable year 2018. Taxpayer
recorded cost of service and operating expenses were P250,000.00 and P100,000.00, respectively.
Taxpayer opted to avail of the 40% OSD.
a) If Taxpayer is an individual, wow much taxable income should Taxpayer declare in her ITR?
b) Would your answer be the same if Taxpayer was a domestic corporation?
2. Jojo is a partner of AMBS & Co., a general professional partnership, and owns 50% interest. The
gross receipts of AMBS & Co. amounted to P2,000,000.00 for taxable year 2018. The recorded cost
of service and operating expenses of AMBS & Co. were P200,000.00 and P150,000.00, respectively.
Jojo incurred expenses related to his practice of profession of P500,000.00.
a) How much is the taxable income of AMBS & Co. and Jojo?
b) Will your answer be the same if Jojo has additional gross sales from his part time business
amounting to P1,000,000.00 with expenses of P100,000.00.
TRAIN Law Amendments – Final Tax Rates:
1. Capital Gains Tax on Unlisted Shares of Stock of a Domestic Corporation - 15% for all individuals and
DC;
2. Stock Transaction Tax on Listed Shares of a Domestic Corporation – 6/10 of 1%;
3. PCSO and Lotto Winnings of P10,000.00 and below exempt. More than P10,000.00 subject to 20% –
only for RC, NRC and RA.
4. Interest on Foreign Currency Deposit Units – 15% for RC, RA and DC.
5. Fringe Benefits Tax – 35%;
TRAIN Law Amendments – Others:
1. Creditable Withholding Tax Rates: Begining January 1, 2019 not less than 1% not more than 15%;
(Sec. 57(B) of the Tax Code)
2. Substituted Filing - Individual taxpayers receiving purely compensation income, regardless of

amount, from only one employer in the Philippines for the calendar year, the income tax of which
has been withheld correctly by the said employer (tax due equals tax withheld) shall not be required
to file an annual income tax return. The certificate of withholding filed by the respective
employers, duly stamped „received‟ by the BIR, shall be tantamount to the substituted
filing of income tax returns by said employees. (Sec. 51-A of the Tax Code)

3.a. Individual Tax Returns - Maximum of four (4) pages in paper form or electronic form, and shall only
contain the following information:
(A) Personal profile and information;

(B) Total gross sales, receipts or income from compensation for services rendered, conduct of trade
or business or the exercise of a profession, except income subject to final tax as provided under
this Code;
(C) Allowable deductions under this Code;
(D) Taxable income as defined in Section 31 of this Code; and
(E) Income tax due and payable.
3.b. Deadline for Individual ITR:
Annual – April 15
1st Quarter – May 15
2nd Quarter – August 15
3rd Quarter – November 15 (Secs. 74(A) and (B) of the Tax Code)
3.c. Payment by Installment of Income Tax for Individuals:
1. Tax due is more than Two Thousand Pesos (P2,000.00);

2. Two equal installments:
1. 1st installment - at the time the return is filed;

2. 2nd installment – October 15;
if any installment is not paid on or before the date fixed for its payment, the whole amount of the
tax unpaid becomes due and payable together with the delinquency penalties. (Sec. 56(A)(2) of the
Tax Code)
4. Corporate ITR: The ITR shall consist of a maximum of four (4) pages in paper form or electronic
form, be filed by the president, vice president or other principal officer, shall be sworn to by such
officer and by the treasurer or assistant treasurer, and shall only contain the following information:
(1) Corporate profile and information; (2) Gross sales, receipts or income from services rendered, or
conduct of trade or business, except income subject to final tax as provided under this Code; (3)
Allowable deductions under this Code; (4) Taxable income as defined in Section 31 of this Code;
and, (5) Income tax due and payable.
De Minimis Benefits:
a) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during
the year and the monetized value of leave credits paid to government officials and employees;
b) Monetized value of vacation and sick leave credits paid to government officials and employees;
c) Medical cash allowance to dependents of employees not exceeding P1,500.00 per employee per
semester or P250.00 per month;

d) Rice subsidy of P2,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than
P2,000.00;
e) Uniform and clothing allowance not exceeding P6,000.00 per annum;
f) actual yearly medical benefits not exceeding P10,000.00 per annum;
g) Laundry allowance not exceeding P300.00 per month;
h) Employee achievement awards, e.g., for length of service or safety achievement, which must be in
the form of a tangible personal property other than cash or gift certificate, with an annual monetary
value not exceeding P10,000.00 received by the employee under an established written plan which
does not discriminate in favor of highly paid employees;
i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per
employee per annum;
j) Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic
minimum wage; and,
k) Benefits received by an employee by virtue of a collective bargaining agreement (―CBA‖) and
productivity incentive schemes provided that the total annual monetary value received from both
CBA and productivity incentive schemes combined do not exceed ten thousand pesos (P10,000.00)
per employee per taxable year.
Rule on excess De Minimis Benefits:
The benefits given in excess of the maximum amount allowed as "de minimis" benefits shall be included
as part of "other benefits" which is subject to the P90,000.00 ceiling. Any amount in excess of the
P90,000.00 shall be subject to income tax, and consequently, to the withholding tax on compensation.
Example: Anne received annual clothing allowance amounting to P10,000.00 Her 13th month pay is
P80,000.00. No other benefits were received for the entire year. In this case, since the prescribed
maximum amount for clothing allowance is only P6,000.00 the excess of P4,000.00 shall be added to the
13th month pay, thereby the entire benefits received amounted to P84,000.00 In this scenario, the same
shall still be exempt from income tax since the ceiling amount for these other benefits is P90,000.00.
Rule on Minimum Wage Earners:
1. Minimum wage earners as defined in Section 22(HH) of this Code shall be exempt from the payment
of income tax on their taxable income: Provided, further, That the holiday pay, overtime pay, night
shift differential pay and hazard pay received by such minimum wage earners shall likewise be
exempt from income tax. (Sec. 24(A)(1) of the Tax Code)
2. Rule under Secs. 1 and 3 of Revenue Regulations No. 10-2008 dated July 8, 2008:
Provided, however, that an employee who receives/earns additional compensation such as

commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of
₱30,000.00 (now P90,000.00), taxable allowances and other taxable income other than the SMW,
holiday pay, overtime pay, hazard pay and night shift differential pay shall not enjoy the privilege of
being a MWE and, therefore, his/her entire earnings are not exempt from income tax, and
consequently, from withholding tax.

Soriano vs. Secretary of Finance, GR No. 184450 dated January 24, 2017:
Whether Sections 1 and 3 of RR 10-2008 are consistent with the law in declaring that an
MWE who receives other benefits in excess of the statutory limit of ₱30,000.00 (now
₱90,000.00) (and other compensation in addition to the statutory minimum wage) is no
longer entitled to the exemption provided by R.A. 9504, is consistent with the law?
1. Sections 1 and 3 of RR No. 10-2008 add a requirement not found in the law by effectively declaring
that an MWE who receives other benefits in excess of the statutory limit of ₱30,000.00 (now
₱90,000.00) (and other compensation in addition to the statutory minimum wage) is no longer
entitled to the exemption provided by R.A. 9504.
Nowhere in the provisions of R.A. 9504 would one find the qualifications prescribed by the assailed
provisions of RR No. 10-2008. The provisions of the law are clear and precise; they leave no room
for interpretation - they do not provide or require any other qualification as to who are MWEs.
2. The amendment is silent on whether compensation-related benefits exceeding the ₱30,000 (now
₱90,000.00) threshold would make an MWE lose exemption. R.A. 9504 has given definite criteria for
what constitutes an MWE, and R.R. 10-2008 cannot change this. An administrative agency may not
enlarge, alter or restrict a provision of law. It cannot add to the requirements provided by law. To do
so constitutes lawmaking, which is generally reserved for Congress.
New Rules under RR No. 11-2018:
1. Statutory Minimum Wage (―SMW‖), Holiday Pay, Overtime Pay, Night Differential Pay and Hazard
Pay are exempt from income and withholding tax.
2. Additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of P90,000.00, taxable allowances, and other taxable income given to an
MWE by the same employer other than those which are expressly exempt from income tax shall be
subject to income and withholding tax.
3. MWEs receiving other income from other sources in addition to compensation income, such as
income from other concurrent employers, from the conduct of trade, business or practice of
profession, except income subject to final tax, are subject to income tax only to the extent of
income other than SMW, holiday pay, overtime pay, night shift differential pay, and
hazard pay earned during the taxable year.
4. Any reduction or diminution of wages for purposes of exemption from income tax shall constitute
misrepresentation and therefore, shall result to the automatic disallowance of expense, i.e.
compensation and benefits account, on the part of the employer. The offenders may be criminally
prosecuted under existing laws.
Deposit Substitutes – Taxation of bonds:
1.a. Under Sec. 22(Y) of the NIRC, the term ―deposit substitutes‖ shall mean an alternative form of
obtaining funds from the public (the term ―public‖ means borrowing from twenty (20) or more
individual or corporate lenders at any one time) xxx.
1.b. A BIR ruling stating that all government bonds regardless of the number of lenders/purchasers are
deposit substitutes is invalid because it disregards the 20-lender rule.

1.c. A BIR ruling stating that the 20-lender rule is determined only at the time of origination is invalid.
The phrase ―at any one time‖ for purposes of determining the 20-lender rule would mean every
transaction executed in the primary or secondary market in connection with the purchase or sale of
securities.
2.a. In relation to bonds, the bondholder may derive two (2) types of income. Interest income and, gains
from the sale of bonds prior to maturity or redemption of the bonds at maturity.
2.c. If the bonds are considered deposit substitutes following the 20-lender rule, the interest income is
generally subject to a 20% Final Withholding Tax.
Take note that for individuals, in general, the interest income from long-term deposits or placements
made with banks in the form of deposit substitutes (maturity of 5 years or more) is exempt from
income and withholding tax.
2.c. If the bonds are not considered deposit substitutes following the 20 lender rule, the interest income
is subject to the regular income tax rates.
2.d. The gains from the sale of the bonds or redemption at maturity is subject to the regular income tax
rates.
However, if the bonds have a maturity of more than five (5) years, the gains are exempt from
income tax under Sec. 32(B)(7)(g) of the NIRC. (BDO vs. Republic, GR No. 198756 dated January 13,
2015 and resolution on the Motion for Reconsideration dated August 16, 2016)
Capital Gains Tax:
1. Sale of machineries by a corporation is not subject to the 6% capital gains tax. Rather, the gain
forms part of gross income and is subject to the regular corporate income tax. (SMI-ED Philippines
Technology Corporation, Inc. vs. CIR, GR No. 175410 dated November 12, 2014)
2. The transfer of property through expropriation proceedings is a sale or exchange within the meaning
of Sections 24(D) and 56(A)(3) of the NIRC, and profit from the transaction constitutes capital gain.
Since capital gains tax is a tax on passive income, it is the seller, or respondents in this case, who
are liable to shoulder the tax. (Republic vs. Spouses Salvador, GR No. 205428 dated June 7, 2017)
CIR vs. St. Luke‟s Medical Center, Inc., GR No. 203514 dated February 13, 2017:
St. Luke’s is a non-stock non-profit hospital. It accepts paying and non-paying patients. During taxable
year 1998, it had the following data:
Revenues from Paying Patients: P1,730,000,000.00

Net Income From Paying Patients: P334,000,000.00 (100%)
Free Services (Charity Ward): P218,000,000.00 (65%)
Net Income, Net of Free Services: P116,000,000.00 (35%)
Other Income P 17,000,000.00
Total Net Income P133,000,000.00
UPDATES AND CRITICAL AREAS IN TAXATION LAW | 11

1. Is St. Luke’s exempt from income tax on its income from paying patients on this basis of Sec. 30(E)
of the NIRC as a Charitable Institution?
1.a. No. In order to be exempt from income tax as a Charitable Institution under Sec. 30(E) of the NIRC,
the non-stock non-profit hospital must be ―organized and operated exclusively‖ for charitable
purposes.
It cannot be disputed that a hospital which receives approximately P1.73 billion from paying
patients is not an institution "operated exclusively" for charitable purposes. Thus, insofar
as its as its revenues from paying patients are concerned, St. Luke’s is not “operated
exclusively” for charitable purposes.
2. St. Luke’s charity expenditure of P218,000,000.00 is 65.00% of its operating income in 1998, will
this fact entitle it to income tax exemption?
2.b. St. Luke’s claims that its charity expenditure of P218,000,000.00 is 65.00% of its operating income
in 1998. However, if a part of the remaining 35.00% of the operating income is reinvested in
property, equipment or facilities used for services to paying and non-paying patients, then it
cannot be said that the income is “devoted or used altogether to the charitable object which it
is intended to achieve.‖ The income is plowed back to the corporation not entirely for
charitable purposes, but for profit as well.
3. Assuming that St. Luke’s uses and devotes 100% of its income on services, property and facilities
relative to non-paying patients, will its income from paying patients now be exempt from income
tax?
3.a. No. Services to paying patients are activities conducted for profit. They cannot be
considered any other way. There is a ―purpose to make profit over and above the cost‖ of services.
The last paragraph of Sec. 30 of the NIRC provides: ―income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their
activities conducted for profit regardless of the disposition made of such income, shall be
subject to income tax.‖
4. If a charitable Institution has income from activities conducted for profit and income from not-for-
profit activities, will it lose its tax exemption on its income from not-for-profit activities?
4.a. No. A charitable institution under Sec. 30(E) is nevertheless allowed to engage in ―activities
conducted for profit‖ without losing its tax exempt status for its not-for-profit activities. If
it earns income from its for-profit activities, such income from for-profit activities is taxable under
the last paragraph of Sec. 30.
5. Since St. Luke’s is subject to income tax on its income from paying patients, what is the correct
income tax rate applicable?
5.a. 10% imposed on taxable income under Sec. 27(B).
St. Luke’s fails to meet the requirements under Sec. 30(E) to be completely tax exempt from all its
income. However, it remains a proprietary non-profit hospital under Sec. 27(B) as long as it

does not distribute any of its profits to its members and such profits are reinvested pursuant to its
corporate purposes. St. Luke’s, as a proprietary non-profit hospital, is entitled to the preferential
tax rate of 10% on its net income from its for-profit activities.
Income tax of schools:
1.a. A proprietary educational institution is subject to a preferential rate of 10% provided that its income
from unrelated trade, business or activity does not exceed 50% of its income from all sources. (Sec.
27(B) of the Tax Code)
1.b. Proprietary educational institution entitled to the reduced rate of 10% corporate income tax if:
a. The proprietary educational institution is nonprofit; and,

b. Its gross income from unrelated trade, business or activity does not exceed 50% of its total gross
income. (CIR vs. De La Salle University, GR No. 196596 dated November 9, 2016)
2. All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. (Sec. 4(3), Art. XIV of
the Constitution)
3. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-
profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall be exempt from taxation – does not cover
income tax. Covers only property taxes. (Sec. 28 Art. VI of the Constitution)
4. Exempt under the NIRC:
Sec. 30 (H) - A nonstock and nonprofit educational institution;
Sec. 30 (I) - Government educational institution;
―Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from any of
their activities conducted for profit regardless of the disposition made of such income, shall be
subject to tax imposed under this Code.‖ – Last paragraph of Sec. 30.
5. Revenues derived from and assets used in the operations of cafeterias/canteens, dormitories,
bookstores are exempt from taxation provided they are owned and operated by the educational
institution as ancillary activities and the same are located within the school premises. (DOF Order No.
137-87 dated December 15, 1987)
6.a. The last paragraph of Section 30 of the Tax Code is without force and effect with respect to non-
stock, non-profit educational institutions, provided, that the non-stock, non-profit educational
institutions prove that its assets and revenues are used actually, directly and exclusively for
educational purposes.
The tax-exemption constitutionally-granted to non-stock, non-profit educational institutions, is not

subject to limitations imposed by law.

6.b. The tax exemption granted by the Constitution to non-stock, non-profit educational institutions is
conditioned only on the actual, direct and exclusive use of their assets, revenues and income for
educational purposes.
6.c. A plain reading of the Constitution would show that Article XIV, Section 4(3) does not require that
the revenues and income must have also been sourced from educational activities or activities
related to the purposes of an educational institution. The phrase all revenues is unqualified by any
reference to the source of revenues. Thus, so long as the revenues and income are used actually,
directly and exclusively for educational purposes, then said revenues and income shall be exempt
from taxes and duties.
6.d. To avail of the exemption, the taxpayer must factually prove that it used actually, directly and
exclusively for educational purposes the revenues or income sought to be exempted. (CIR vs. De La
Salle University, GR No. 196596 dated November 9, 2016)
Perlas School of Law had the following incomes during the year:
Tuition Fees: P1,000,000.00
Interest Income – BPI Dollar Account: P2,000,000.00
Rental Income: P 500,000.00
Total: P3,500,000.00
International Carriers:
1. An international air carrier without landing rights in the Philippines is not subject to the 2.5% Gross
Philippine Billings Tax (―GPBT‖) under Section 28(A)(3) of the Tax Code. The 2.5% GPBT attaches
only when the carriage of persons, excess baggage, cargo, and mail originated from the Philippines
in a continuous and uninterrupted flight, regardless of where the passage documents were sold.
2. If the international air carrier does not have landing rights in the Philippines but it sells tickets in the
Philippines, it is nonetheless liable for 30% Regular Corporate Income Tax since it is considered a
Resident Foreign Corporation. We follow the activity test.
3. If there is an applicable tax treaty, the same must be taken into consideration to determine the
proper tax rate. Under the RP-Canada Tax Treaty, an international air carrier could only be taxed at
a maximum of 1½% of gross revenues. (Air Canada vs. CIR, GR No. 169507 dated January 11, 2016)
Withholding Tax:
1. In this case, the CIR insists that EBCC was liable to pay the final withholding tax on interest from the
date of the execution of the contract on January 5, 2000, not from the date of the first payment on
June 1, 2002.
Under RR No. 2-98, the obligation of EBCC to deduct or withhold tax arises at the time an income is
paid or payable, whichever comes first, and considering further that under the said RR, the term
"payable" refers to the date the obligation becomes due, demandable or legally enforceable. Thus,

EBCC had no obligation to withhold any taxes on the interest payment for the year 2000 as the
obligation to withhold only commenced on June 1, 2002. (Edison (Bataan) Cogeneration Corp. vs. CIR,
GR No. 201665 & 201668 dated August 30, 2017)
2. If the taxpayer claims bonuses as a deduction in its income tax return, the withholding tax on the
said bonuses should be withheld and remitted to the BIR in the year of accrual and not during the
year of payment. The obligation of the payor/employer to deduct and withhold the related
withholding tax on bonuses arises at the time the income was paid or accrued or recorded as an
expense in the payor’s/employer’s books, whichever comes first. (ING Bank N.V. vs. CIR, GR No.
167679 dated July 22, 2015)
Fringe Benefits Tax:
1.a. The Fringe Benefits Tax (―FBT‖) is treated as a final income tax on the employee that shall be
withheld and paid by the employer on a calendar quarterly basis. As such, PAGCOR is a mere
withholding agent inasmuch as the FBT is imposed on PAGCOR's employees who receive the fringe
benefit. PAGCOR's liability as a withholding agent is not covered by the tax exemptions under its
Charter.
1.b. The car plan extended by PAGCOR to its qualified officers is evidently considered a fringe benefit as
defined under Section 33 of the NIRC. To avoid the imposition of the FBT on the benefit received by
the employee, and, consequently, to avoid the withholding of the payment thereof by the employer,
PAGCOR must sufficiently establish that the fringe benefit is required by the nature of, or is
necessary to the trade, business or profession of the employer, or when the fringe
benefit is for the convenience or advantage of the employer.
1.c. PAGCOR asserted that the car plan was granted "not only because it was necessary to the nature of
the trade of PAGCOR but it was also granted for its convenience." The records are lacking in proof as
to whether such benefit granted to PAGCOR's officers were, in fact, necessary for PAGCOR's
business or for its convenience and advantage. Accordingly, PAGCOR should have withheld the FBT
from the officers who have availed themselves of the benefits of the car plan and remitted the same
to the BIR.
2.a. The payment of membership dues and fees is not considered a fringe benefit that is subject to FBT:
PAGCOR derives business from its customers who play at the casinos. In furtherance of its business,
PAGCOR usually attends its VIP customers, amenities such as playing rights to golf clubs. The
membership of PAGCOR to these golf clubs and other organizations are intended to benefit
respondent's customers and not its employees. Aside from this, the membership is under the name
of PAGCOR, and as such, cannot be considered as fringe benefits because it is the customers and
not the employees of PAGCOR who benefit from such memberships.
2.b. Considering that the payments of membership dues and fees are not borne by PAGCOR for its
employees, they cannot be considered as fringe benefits which are subject to FBT under Section 33
of the NIRC. Hence, PAGCOR is not liable to withhold FBT from its employees. (CIR vs. Secretary of
Justice and PAGCOR, GR No. 177387 dated November 9, 2016; PAGCOR vs. CIR, GR Nos. 210689-
90 dated November 22, 2017)

Dividends:
Goodyear Tire and Rubber Company (―GTRC‖), a US Company owns 100% of the preferred shares of
Goodyear Philippines, Inc. (―GPI‖). Subsequently, the preferred shares were redeemed by GPI above its
par value which resulted in a ―net capital gain‖ on the part of GTRC.
Is the ―net capital gain‖ from the redemption of the preferred shares considered dividends subject to
Final Withholding Tax?
1. Section 73 (A) of the Tax Code which provides that "[t)he term 'dividends' xxx means any
distribution made by a corporation to its shareholders out of its earnings or profits and
payable to its shareholders, whether in money or in other property."
In light of the foregoing, the Court therefore holds that the redemption price representing the amount
of P97,732,314.00 received by GTRC could not be treated as accumulated dividends in arrears that
could be subjected to 15% FWT. Verily, respondent's AFS covering the years 2003 to 2009 show that
it did not have unrestricted retained earnings, and in fact, operated from a position of deficit. Thus,
absent the availability of unrestricted retained earnings, the board of directors of
respondent had no power to issue dividends.
2. It is also worth mentioning that one of the primary features of an ordinary dividend is that the
distribution should be in the nature of a recurring return on stock which, however, does not obtain in
this case. As aptly pointed out by the CTA En Banc, the amount of P97,732,314.00 received by GTRC
did not represent a periodic distribution of dividend, but rather a payment by respondent for the
redemption of GTRC's 3,729,216 preferred shares. (CIR vs. Goodyear Philippines, Inc., GR No. 216130
dated August 3, 2016)
REMEDIES
TRAIN Law Amendment:
Sec. 249. Interest:
1. Interest rate is double the legal interest rate for loans or forbearance of any money in the absence of
an express stipulation as set by the Bangko Sentral ng Pilipinas.
2. No simultaneous imposition of deficiency and the delinquency interest.
3. Deficiency interest shall start to run from deadline date per law or regulation until deadline date per
Final Assessment Notice.
Audit Process/Letter of Authority:
1. Letter of Authority (―LOA‖) - is the authority given to the appropriate revenue officer assigned to
perform assessment functions. It empowers or enables said revenue officer to examine the books of
account and other accounting records of a taxpayer for the purpose of collecting the correct amount
of tax. (CIR vs. Sony Philippines, Inc., GR No. 178697 dated November 17, 2010)
2. The Letter of Authority commences the audit process and informs the taxpayer that it is under audit
for possible deficiency tax assessment. (CIR vs. De La Salle University, Inc., GR No. 196596 dated
November 9, 2016)
3. SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement. –

(A)Examination of Returns and Determination of tax Due. – After a return has been filed as required
under the provisions of this Code, the Commissioner or his duly authorized representative may
authorize the examination of any taxpayer and the assessment of the correct amount of
tax: Provided, however, That failure to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer. x x x [Emphases supplied]
4. Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the pertinent
portion of which reads:
―A Letter of Authority should cover a taxable period not exceeding one taxable year. The
practice of issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a
taxpayer shall include more than one taxable period, the other periods or years shall be specifically
indicated in the L/A.‖
CIR vs. Sony Philippines, Inc., GR No. 178697 dated November 17, 2010:
a. The period covered by the Letter of Authority provides: "the period 1997 and unverified prior
years."
b. Assessment issued was for deficiency VAT and was based on records from January to March 1998.
Is the assessment valid?
1. The VAT assessment is not valid because the revenue officers went beyond the scope of their
authority.
Clearly, there must be a grant of authority before any revenue officer can conduct an examination
or assessment. Equally important is that the revenue officer so authorized must not go beyond the
authority given. In the absence of such an authority, the assessment or examination is a nullity.
2. The coverage of LOA 19734, particularly the phrase "and unverified prior years," violated Section C
of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the pertinent portion of
which reads:
―A Letter of Authority should cover a taxable period not exceeding one taxable year. xxx.‖
a. The period covered by the Letter of Authority provides: “Fiscal Year Ending 2003 and Unverified
Prior Years."
b. Assessments were issued for Income Tax and VAT for taxable years 2001, 2002 and 2003.
Is the LOA valid? Are the assessments valid?
1.a. The LOA does not strictly comply with RMO No. 43-90 but it is not entirely void. What RMO No.
43-90 clearly prohibits is the practice of issuing LOAs covering audit of unverified prior years but
it does not say that an LOA which contains unverified prior years is void.
1.b. RMO No. 43-90 requires that if the audit includes more than one taxable period, the other periods
or years must be specified. The provision read as a whole requires that if a taxpayer is audited

for more than one taxable year, the BIR must specify each taxable year or taxable period on
separate LOAs. This is to inform the taxpayer of the extent of the audit and scope of the revenue
officer’s authority.
Without this rule, a revenue officer can unduly burden the taxpayer by demanding random
accounting records from random unverified years, which may include documents from as far back
as 10 years in cases of a fraud audit.
2. The assessment for taxable year 2003 is valid because this taxable period was specified in the
LOA. DLSU was fully apprised that it was being audited for taxable year 2003.
On the other hand, the assessments for taxble years 2001 and 2002 are void for having been
unspecified on separate LOAs as required under RMO No. 43-90.
Medicard Philippines, Inc. vs. CIR, GR No. 222743 dated April 5, 2017:
Is an assessment based on a Letter Notice without prior issuance of a Letter of Authority valid?
1. Sec. 6(A) is clear that unless authorized by the CIR himself or by his duly authorized representative,
through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. The circumstances
contemplated under Section 6 where the taxpayer may be assessed through best-evidence
obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA. These
are simply methods of examining the taxpayer in order to arrive at the correct amount of taxes.
Hence, unless undertaken by the CIR himself or his duly authorized representatives,
other tax agents may not validly any of these kinds of examinations without prior
authority.
2.a LOA vs. Letter Notice (―LN‖):
First, an LOA addressed to a revenue officer is specifically required under the NIRC before an
examination of a taxpayer may be had while an LN is not found in the NIRC and is only for the
purpose of notifying the taxpayer that a discrepancy is found based on the BIR's RELIEF System.
Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation.
2.b. LOA vs. Letter Notice (―LN‖):
Third, an LOA gives the revenue officer only a period of 180 days (now 120 days) from receipt of
LOA to conduct his examination of the taxpayer whereas an LN does not contain such a limitation.
Simply put, an LN is entirely different and serves a different purpose than an LOA. Due process
demands, as recognized under RMO No. 32-2005, that after an LN has serve its purpose, the
revenue officer should have properly secured an LOA before proceeding with the further examination
and assessment of the petitioner. Unfortunately, this was not done in this case.
3. Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none of
the financial books or records being physically kept by MEDICARD was examined. To begin with,
Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives
before an examination "of a taxpayer" may be made. The requirement of authorization is therefore

not dependent on whether the taxpayer may be required to physically open his books and financial
records but only on whether a taxpayer is being subject to examination.
4. Not having authority to examine MEDICARD in the first place, the assessment issued by the CIR is
inescapably void.
CIR vs. Lancaster Philippines, Inc., GR No. 183408 dated July 12, 2017:
In 1999, the Bureau of Internal Revenue (BIR) issued Letter of Authority (LOA) No. 00012289 authorizing
its revenue officers to examine Lancaster's books of accounts and other accounting records for all internal
revenue taxes due from taxable year 1998 to an unspecified date. The LOA reads:
―The bearer(s) hereof xxx is/are authorized to examine your books of accounts and other accounting
records for all internal revenue taxes for the period from taxable year, 1998 to __, 19_.”
1. The audit process normally commences with the issuance by the CIR of a Letter of Authority. The
LOA gives notice to the taxpayer that it is under investigation for possible deficiency tax assessment;
at the same time it authorizes or empowers a designated revenue officer to examine, verify, and
scrutinize a taxpayer's books and records, in relation to internal revenue tax liabilities for a particular
period.
2.a. Even though the date after the words "taxable year 1998 to" is unstated, it is not at all
difficult to discern that the period of examination is the whole taxable year 1998. This means
that the examination of Lancaster must cover the FY period from 1 April 1997 to 31 March 1998. It
could not have contemplated a longer period. The examination for the full taxable year 1998 only is
consistent with the guideline in Revenue Memorandum Order (RMO) No. 43-90, dated 20 September
1990, that the LOA shall cover a taxable period not exceeding one taxable year . In other
words, absent any other valid cause, the LOA issued in this case is valid in all respects.
2.b. Nonetheless, a valid LOA does not necessarily clothe validity to an assessment issued on it, as when
the revenue officers designated in the LOA act in excess or outside of the authority granted them
under said LOA.
3. The present case is no different from Sony in that the subject LOA specified that the examination
should be for the taxable year 1998 only but the subsequent assessment issued against Lancaster
involved disallowed expenses covering the next fiscal year, or the period ending 31 March 1999.
The taxable year covered by the assessment being outside of the period specified in the LOA in this
case, the assessment issued against Lancaster is, therefore, void.
Assessment:
1. An assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. It also signals the time when penalties and protests begin to accrue
against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process
requires that it must be served on and received by the taxpayer. (CIR vs. Pascor Realty, GR No. 128315
dated June 29, 1999)

2. The term "assessment" refers to the determination of amounts due from a person obligated to make
payments. In the context of national internal revenue collection, it refers to the determination of the
taxes due from a taxpayer under the National Internal Revenue Code of 1997 . (SMI-ED Technology
Corporation, Inc. vs. CIR, GR No. 175410 dated November 12, 2014)
CIR vs. Fitness By Design, GR No. 215957 dated November 9, 2016:
Part of the assessment reads as follows:
―The complete details covering the aforementioned discrepancies established during the investigation of
this case are shown in the accompanying Annex 1 of this Notice. The 50% surcharge and 20% interest
have been imposed pursuant to Sections 248 and 249(B) of the [National Internal Revenue Code], as
amended. Please note, however, that the interest and the total amount due will have to be
adjusted if paid prior or beyond April 15, 2004.”
The assessment is not valid. It lacks the definite amount of tax liability for which respondent is
accountable. It does not purport to be a demand for payment of tax due, which a final assessment notice
should supposedly be. Although the disputed notice provides for the computations of respondent's tax
liability, the amount remains indefinite. It only provides that the tax due is still subject to modification,
depending on the date of payment.
Part of the Assessment reads as follows:
―In view thereof, you are requested to pay your aforesaid deficiency internal revenue tax liabilities
through the duly authorized agent bank in which you are enrolled within the time shown in the enclosed
assessment notice.‖
Assessment is not valid. There are no due dates in the Final Assessment Notice. This negates petitioner's
demand for payment. Petitioner's contention that April 15, 2004 should be regarded as the actual due
date cannot be accepted. The last paragraph of the Final Assessment Notice states that the due dates for
payment were supposedly reflected in the attached assessment. However, based on the findings of the
Court of Tax Appeals First Division, the enclosed assessment pertained to remained unaccomplished.
Other Assessment and Collection Doctrines:
1. In case there is failure to notify the BIR in writing relative to a taxpayer’s change in address, in order
for the prescriptive period under Sec. 223 to be suspended, the BIR must be unaware of the
whereabouts of the taxpayer. (CIR vs. BASF Coating + Inks Phils., GR No. 198677 dated November 26, 2014)
2. Failure to submit relevant supporting documents during the 60-day period does not render the
assessment final and executory. The BIR cannot demand what type of supporting documents should
be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the
production of documents that a taxpayer cannot submit. (CIR vs. First Express Pawnshop, GR Nos.
172045-46 dated June 16, 2009)

The 60-day period to submit documents only applies to a request for reinvestigation. (Revenue
Regulations No. 18-2013 dated November 28, 2013)
3. Prior issuance of a Preliminary Assessment Notice is mandatory (except if Sec. 228 applies),
otherwise the Final Assessment Notice becomes null and void. (CIR vs. Metro Star Superama, Inc., GR
No. 185371 dated December 8, 2010)
4. If the BIR does not render a decision within the 180-day period, the taxpayer has two options, either:
a) File a petition for review with the CTA within 30 days after the expiration of the 180-day period;
or
b) Await the final decision of the Commissioner on the disputed assessment and appeal such final
decision to the CTA within 30 days after the receipt of a copy of such decision, these options
are mutually exclusive and resort to one bars the application of the other. (Lascona Land
vs. CIR, GR No. 171251 dated March 5, 2012; RCBC vs. CIR, GR No. 168498 dated April 24, 2007)
5. Administrative appeal with the Commissioner is allowed if the Final Decision on the Disputed
Assessment (―FDDA‖) is signed by the CIR’s duly authorized representative. It is in the form of a
request for reconsideration only. (Revenue Regulations No. 18-2013 dated November 28, 2013)
6. An FDDA must state the facts and law on which it is based to provide the taxpayer the opportunity to
file an intelligent appeal. An FDDA which contains a taxpayer’s supposed tax liabilities, without
providing any details on the specific transactions which gave rise to its supposed tax deficiencies is
void. The FDDA differs from the Final Assessment Notice (―FAN‖). The nullity of the FDDA does not
extend to the FAN. (CIR vs. Liquigaz Phils. Corporation, GR No. 215534 dated April 18, 2016)
PAGCOR vs. BIR, GR No. 208731 dated January 27, 2016:
Factual Circumstances:
1. The BIR Regional Director issued a FAN against PAGCOR.
2. PAGCOR filed a protest with the Regional Director against the FAN.
3. Without any decision on the part of the Regional Director, PAGCOR elevated its protest with the CIR.
Was the remedy availed by PAGCOR the correct remedy?
Following the verba legis doctrine, the law must be applied exactly as worded since it is clear, plain, and
unequivocal. A textual reading of Section 3.1.5 of RR No. 12-99 (―Section 3.1.5‖) gives a protesting
taxpayer like PAGCOR only three options:
1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the
taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the
protest.
2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer
may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest.

3. If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30
days from the lapse of the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR's authorized representative
may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the
CTA. The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA.
There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized
representative.
10 year prescriptive period under Sec. 222(a):
1. A false return simply involves a "deviation from the truth, whether intentional or not" while a
fraudulent return "implies intentional or deceitful entry with intent to evade the taxes due.‖ (Aznar vs.
CTA, GR No. L-20569 August 23, 1974)
2. Fraud is a question of fact that should be alleged and duly proven. ―xxx the fraudulent intent to evade
the payment of taxes, considering that the same is accompanied by legal consequences, cannot be
presumed." Fraud entails corresponding sanctions under the tax law. Therefore, it is indispensable for
the CIR to include the basis for its allegations of fraud in the assessment notice . (CIR vs. Fitness By
Design, GR No. 215957 dated November 9, 2016)
3. While the filing of a fraudulent return necessarily implies that the act of the taxpayer was intentional
and done with intent to evade the taxes due, the filing of a false return can be intentional or due to
honest mistake. (CIR vs. Philippine Daily Inquirer, GR No. 213943 dated March 22, 2017)
4.a. Under Section 248(B) of the NIRC, failure to report sales, receipts or income in an amount
exceeding thirty percent (30%) of that declared per return, and a claim of deduction in an amount
exceeding thirty (30%) of actual deductions, shall constitute prima facie evidence of false or
fraudulent return.
4.b. A prima facie evidence is one which that will establish a fact or sustain a judgment unless
contradictory evidence is produced. In other words, when there is a showing that a taxpayer has
substantially underdeclared its sales, receipt or income, there is a presumption that it has filed a false
return. As such, the CIR need not immediately present evidence to support the falsity of the return,
unless the taxpayer fails to (has) overcome the presumption against it. Failure of the taxpayer to
refute the presumption warrants the application of the ten (10)-year prescriptive period for
assessment under Section 222 of the NIRC. (CIR vs. Asalus Corporation, GR No. 221590 dated February 22,
2017)
Factual Circumstances:
Taxpayer understated its sales by more than 30%. FAN and FDDA did not state that the extraordinary
prescriptive period of 10 years applies. However, the PAN stated that the extraordinary period of 10 years
applies.

Issue: Does the 10 year prescriptive period apply?
1. Yes, the FAN and FDDA made reference to the PAN which categorically stated that "[t]he running of
the three-year statute of limitation as provided under Section 203 of the 1997 NIRC is not applicable
xxx but rather to the ten (10) year prescriptive period pursuant to Section 222(A) of the Tax Code
xxx.―
2. In Samar-I Electric Cooperative vs. CIR, the Supreme Court held that it is sufficient that the taxpayer
was substantially informed of the legal and factual bases of the assessment enabling him to file an
effective protest.
3. Thus, substantial compliance with the requirement as laid down under Section 228 of the NIRC
suffices, for what is important is that the taxpayer has been sufficiently informed of the factual and
legal bases of the assessment so that it may file an effective protest against the assessment. In the
case at bench, Asalus was sufficiently informed that with respect to its tax liability, the extraordinary
period laid down in Section 222 of the NIRC would apply. This was categorically stated in the PAN
and all subsequent communications from the CIR made reference to the PAN. Asalus was eventually
able to file a protest addressing the issue on prescription, although it was done only in its
supplemental protest to the FAN. (CIR vs. Asalus Corporation, GR No. 221590 dated February 22, 2017)
Requisites of a valid waiver:
1. The waiver must be in the proper form prescribed by RMO No. 20-90. The phrase "but not after
______ 19 ___", which indicates the expiry date of the period agreed upon to assess/collect the tax
after the regular three-year period of prescription, should be filled up; - Not necessarily in the
form prescribed by RMO 20-90 as amended by RDAO 05-01. Expiry date still necessary.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case
of a corporation, the waiver must be signed by any of its responsible officials. In case the authority
is delegated by the taxpayer to a representative, such delegation should be in writing and duly
notarized; - Authority in writing requirement deleted. The taxpayer has the burden to
ensure that the waiver is validly executed by its authorized representative. The waiver
cannot thereafter be invalidated on the ground that the taxpayer‟s representative who
participated in the conduct of the audit is not authorized to sign the waiver.
3. The waiver should be duly notarized; - Notarization is optional.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has
accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated.
However, before signing the waiver, the CIR or the revenue official authorized by him must make
sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his
duly authorized representative; - Group supervisor in the LOA may now sign the waiver.
Date of Acceptance need not be indicated.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before
the expiration of the period of prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed; and,
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the
case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The
fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that
the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. – No
longer a requirement. Now, the taxpayer shall have the duty to retain a copy of the

accepted waiver. (CIR vs. Stanley Works (Phils.) Incorporated, GR No. 187859 dated December 3, 2014)
With updates under RMO No. 14-2016 dated April 4, 2016.
(New) Requisites of a valid waiver per RMO No. 14-2016 dated April 4, 2016:
1. Must be executed and accepted before the expiration of the period to assess or collect taxes (or
before the lapse of the period agreed upon in case a subsequent agreement is executed);
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case
of a corporation, the waiver must be signed by any of its responsible officials;
3. The expiry date of the period agreed upon to assess/collect the tax after the regular three-year
period of prescription should be indicated;
4. Waiver of prescriptive period to collect must indicate the particular taxes assessed. Waiver of
prescriptive period to assess may simply state ―all internal revenue taxes;‖
5. Two material dates must appear on the waiver:
a) The date of execution; and,

b) The expiry date of the period the taxpayer waives the statute of limitations.
Waiver Cases:
1.a. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of
prescription. It is an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain. (Philippine Journalists, Inc. vs. CIR,
GR No. 162852 dated December 16, 2004)
1.b. Similar to the case of Standard Chartered Bank, the waivers in this case did not specify the kind
of tax and the amount of tax due. It is established that a waiver of the statute of limitations is a
bilateral agreement between the taxpayer and the BIR to extend the period to assess or collect
deficiency taxes on a certain date. Logically, there can be no agreement if the kind and
amount of the taxes to be assessed or collected were not indicated. Hence, specific
information in the waiver is necessary for its validity. (CIR vs. Systems Technology Institute, Inc.,
GR No. 220835 dated July 26, 2017)
2.a. Doctrine of Estoppel not applicable, as a rule, to validate a defective waiver. Failure to strictly comply
with the requirements of a valid waiver invalidates the waiver and does not extend the prescriptive
period to assess or collect.
2.b. CIR’s argument: ―Taxpayer is now estopped from claiming prescription since by executing the
waivers, it was the one which asked for additional time to submit the required documents.‖
SC: The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO No.
20-90 and RDAO No. 05-01, which the BIR itself issued. Having caused the defects in the waivers,
the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of

the statute of limitations, being a derogation of the taxpayer’s right to security against prolonged
and unscrupulous investigations, must be carefully and strictly construed. (CIR vs. Kudos Metal, GR No.
178087 dated May 5, 2010; CIR vs. Systems Technology Institute, Inc., GR No. 220835 dated July 26, 2017)
Waiver Cases – Estoppel Applied – RCBC Case:
2.c. Partial payment of an assessment which is covered by a defective waiver. RCBC, through its
partial payment of the assessment impliedly admitted the validity of those waivers. Had RCBC truly
believed that the waivers were invalid and that the assessments were issued beyond the
prescriptive period, then it should not have paid the reduced amount of taxes in the revised
assessment. RCBC’s subsequent action effectively belies its insistence that the waivers are invalid.
(RCBC vs. CIR, GR No. 170257 dated September 7, 2011)
Waiver Cases – Estoppel Applied – Next Mobile Case:
2.d.1 Factual Considerations:
1. Next Mobile executed five (5) waivers without presenting the notarized written authority of the
signatory of the waivers;
2. In fact, in its Letter Protest to the BIR, respondent did not even question the validity of
the Waivers or call attention to their alleged defects.
3. After enjoying benefits of the Waiver, Next Mobile challenged the validity of the Waivers
when the consequences thereof were not in its favor. In other words, Next Mobile's act of
impugning these Waivers after benefiting therefrom and allowing petitioner to rely on the same
is an act of bad faith.
2.d.2. When the application of estoppel would promote the administration of the law, prevent injustice
and avert the accomplishment of a wrong and undue advantage. In this case, the taxpayer
executed five Waivers and delivered them to the BIR, one after the other. It allowed the BIR to
rely on them and did not raise any objection against their validity until the BIR assessed taxes and
penalties against it. Moreover, the application of estoppel is necessary to prevent the undue injury
that the government would suffer because of the cancellation of petitioner's assessment of
respondent's tax liabilities. (CIR vs. Next Mobile, Inc., GR No. 212825 dated December 7, 2015)
Waiver Cases – Estoppel Applied – Transitions Optical Case:
2.e.1. Transitions Optical never raised the invalidity of the Waivers at the earliest opportunity,
either in its Protest to the PAN, Protest to the FAN, or Supplemental Protest to the FAN. It thereby
impliedly recognized these Waivers' validity and its representatives' authority to execute them.
Respondent only raised the issue of these Waivers' validity in its Petition for Review
filed with the CTA. In fact, respondent's Protest to the FAN clearly recognized the validity
of the Waivers.
2.e.2. Transitions Optical did not dispute the BIR’s assertion that it repeatedly failed to comply with
petitioner's notices, directing it to submit its books of accounts and related records for examination
by the BIR. Respondent also ignored the BIR's request for an Informal Conference to discuss other
"discrepancies" found in the partial documents submitted. The Waivers were necessary to give
respondent time to fully comply with the BIR notices for audit examination and to respond to

its Informal Conference request to discuss the discrepancies. Thus, having benefitted from the
Waivers executed at its instance, respondent is estopped from claiming that they were invalid and
that prescription had set in. (CIR vs. Transitions Optical Phils., GR No. 227544 dated November 22, 2017)
Refunds in General:
1. The taxpayer must file a written claim for refund with the CIR prior to filing a judicial claim for refund
with the CTA. (Sec. 204(C) of the Tax Code)
The primary purpose of filing an administrative claim is to serve as a notice of warning to the CIR
that court action would follow unless the tax or penalty alleged to have been collected erroneously
or illegally is refunded. (Metrobank vs. CIR, GR No. 182582 dated April 17, 2017)
2.a. Both the administrative claim for refund with the CIR and the judicial claim for refund with the CTA
must be filed within 2 years from the date of payment. (Secs. 204(C) and 229 of the Tax Code)
Notably, both the administrative and judicial claims for refund should be filed within the two (2)-year
prescriptive period indicated therein, and that the claimant is allowed to file the latter even without
waiting for the resolution of the former in order to prevent the forfeiture of its claim through
prescription. (Metrobank vs. CIR, GR No. 182582 dated April 17, 2017)
2.b. In P.J. Kiener Co., Ltd. v. David (―Kiener‖), it was held that in no wise does the law, i.e., Section 306
of the old Tax Code (now, Section 229 of the NIRC), imply that the Collector of Internal Revenue
(now Commissioner) first act upon the taxpayer's claim, and that the taxpayer shall not go to court
before he is notified of the Collector's action. In Kiener, the Court went on to say that the claim with
the Collector of Internal Revenue was intended primarily as a notice of warning that unless the tax
or penalty alleged to have been collected erroneously or illegally is refunded, court action will follow.
(CIR vs. CBK Power Company Ltd., vs, CIR, GR Nos. 193407-08 dated January 14, 2015)
When is the last day to file the judicial claim for refund in the following instances?
Filing of Annual Date of Filing of Claim Decision denying the

ITR for calendar with the BIR claim for refund
year 2015
1. 4/15/2016 2/14/2017 3/1/2018
2. 4/10/2016 12/20/2017 4/1/2018
3. 4/20/2016 9/1/2017 4/25/2018

3. A written claim for refund is not necessary if:
a) Tax return filed shows an overpayment; [Sec. 204(C)] or,
b) The face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid. [Sec. 229]
4.a. The period to file a claim for refund under Sec. 229 is two (2) years counted from the date of
payment regardless of any supervening event and not from the date of discovery of the erroneous
payment.
4.b. In the case of erroneously paid withholding taxes, the six (6) year prescriptive period under Art.
1145 of the Civil Code on solutio indebiti is not applicable because the first requisite of solutio
indebiti is not present, i.e., payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the payment. Also, the provisions of
the Tax Code, being a special law prevails over the provisions of the Civil Code, being a general law.
(CIR vs. Meralco, GR No. 181459 dated June 9, 2014)
5.a. As aptly put in CIR v. TMX Sales, Inc., "payment of quarterly income tax should only be considered
[as] mere installments of the annual tax due. These quarterly tax payments which are computed
based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable
income, should be treated as advances or portions of the annual income tax due, to be adjusted at
the end of the calendar or fiscal year. x x x Consequently, the two-year prescriptive period x
x x should be computed from the time of filing of the Adjustment Return or Annual
Income Tax Return and final payment of income tax."
5.b. Final withholding taxes are considered as full and final payment of the income tax due, and thus,
are not subject to any adjustments. Thus, the two (2)-year prescriptive period commences to run
from the time the refund is ascertained, i.e., the date such tax was paid, and not upon the discovery
by the taxpayer of the erroneous or excessive payment of taxes. (Metrobank vs. CIR, GR No. 182582
dated April 17, 2017)
6. Even if the two (2)-year prescriptive period, if applicable, had already lapsed, the same is not
jurisdictional and may be suspended for reasons of equity and other special circumstances. (CIR vs.
PNB, GR No. 161997 dated October 25, 2005).
7. In claims for refund, the CTA may determine whether there are taxes that should have been paid in
lieu of the taxes paid. Determining the proper category of tax that should have been paid is not an
assessment. It is incidental to determining whether there should be a refund.
Any liability in excess of the refundable amount, however, may not be collected in a case involving
solely the issue of the taxpayer’s entitlement to refund. (SMI-ED Technology Corporation, Inc. vs. CIR,
GR No. 175410 dated November 12, 2014)
8. If the employee alleges that the employer over-withheld and over-remitted withholding tax on
compensation income, the employee has no cause of action for a tax refund against the employer.

The claim for refund should be filed with the BIR. (Honda Cars Philippines, Inc. vs. Honda Cars Technical
Specialist Supervisors Union, GR No. 204142 dated November 19, 2014)
Mitsubishi Corporation-Manila Branch vs. CIR, GR No. 175772 dated June 5, 2017:
On June 11, 1987, the governments of Japan and the Philippines executed an Exchange of Notes,
whereby the former agreed to extend a loan amounting to Forty Billion Four Hundred Million Japanese
Yen (¥40,400,000,000) to the latter through the then Overseas Economic Cooperation Fund (OECF, now
Japan Bank for International Cooperation) for the implementation of the Calaca II Coal-Fired Thermal
Power Plant Project (Project). In Paragraph 5 (2) of the Exchange of Notes, the Philippine Government,
by itself or through its executing agency, undertook to assume all taxes imposed by the Philippines
on Japanese contractors engaged in the Project.
Pursuant to RMC No. 42-99, in cases where income taxes were previously paid directly by the
Japanese contractors or nationals, the corresponding cash refund shall be recovered from
the government executing agencies upon the presentation of proof of payment by the Japanese
contractors or nationals.
1. Case law explains that an exchange of notes is considered as an executive agreement, which is
binding on the State even without Senate concurrence. To "assume" means "[t]o take on, become
bound as another is bound, or put oneself in place of another as to an obligation or liability." This
means that the obligation or liability remains, although the same is merely passed on to a different
person. In this light, the concept of an assumption is therefore different from an
exemption, the latter being the "[f]reedom from a duty, liability or other requirement"
or "[a] privilege given to a judgment debtor by law, allowing the debtor to retain [a]
certain property without liability." Thus, contrary to the CTA En Banc's opinion, the
constitutional provisions on tax exemptions would not apply.
2.a. In this case, it is fairly apparent that the subject taxes in the amount of P52,612,812.00 was
erroneously collected from petitioner, considering that the obligation to pay the same had already
been assumed by the Philippine Government by virtue of its Exchange of Notes with the Japanese
Government.
2.b.1. As above-stated, the NIRC vests upon the CIR, being the head of the BIR, the authority to credit or
refund taxes which are erroneously collected by the government. This specific statutory mandate
cannot be overridden by averse interpretations made through mere administrative issuances, such
as RMC No. 42-99, which — as argued by the CIR — shifts to the executing agencies (particularly,
NPC in this case) the power to refund the subject taxes.
2.b.2. A revenue memorandum circular is an administrative ruling issued by the CIR to interpret tax laws.
It is widely accepted that an interpretation by the executive officers, whose duty is to enforce the
law, is entitled to great respect from the courts. However, such interpretation is not conclusive and
will be disregarded if judicially found to be incorrect. Verily, courts will not tolerate administrative
issuances that override, instead of remaining consistent and in harmony with, the law they seek to
implement, as in this case. Thus, Item B(3) of RMC No. 42-99, an administrative issuance
directing petitioner to claim the refund from NPC, cannot prevail over Sections 204 and

229 of the NIRC, which provide that claims for refund of erroneously collected taxes
must be filed with the CIR.
Proper Party to File Claim for Refund:
1.a. A withholding agent has a legal right to file a claim for refund for two reasons: (a) He is considered
a taxpayer under the NIRC as he is personally liable for the withholding tax as well as for deficiency
assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be
less than the amount that should have been withheld under law. (b) As an agent of the taxpayer,
his authority to file the necessary income tax return and to remit the tax withheld to the government
impliedly includes the authority to file a claim for refund and to bring an action for
recovery of such claim.
1.b. It is however significant to add that while the withholding agent has the right to recover the taxes
erroneously or illegally collected, he nevertheless has the obligation to remit the same to the
principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has recovered;
otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from
whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund.
(CIR vs. Smart Communications, Inc., GR Nos. 179045-46 dated August 25, 2010)
Diageo Phils., Inc. vs. CIR, GR No. 183553 dated November 12, 2012:
1. Sec. 130 (D) Credit for Excise tax on Goods Actually Exported.- When goods locally produced or
manufactured are removed and actually exported without returning to the Philippines, whether so
exported in their original state or as ingredients or parts of any manufactured goods or products,
any excise tax paid thereon shall be credited or refunded upon submission of the proof of
actual exportation and upon receipt of the corresponding foreign exchange payment: Provided, That
the excise tax on mineral products, except coal and coke, imposed under Section 151 shall not be
creditable or refundable even if the mineral products are actually exported.
2.a. A reading of the foregoing provision, however, reveals that contrary to the position of Diageo, the
right to claim a refund or be credited with the excise taxes belongs to its supplier. The phrase
"any excise tax paid thereon shall be credited or refunded" requires that the claimant be the
same person who paid the excise tax. In Silkair (Singapore) Pte, Ltd. v. CIR , the Court has
categorically declared that "[t]he proper party to question, or seek a refund of, an indirect tax is
the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to another.
2.b. Pursuant to the foregoing, the person entitled to claim a tax refund is the statutory taxpayer or
the person liable for or subject to tax. In the present case, it is not disputed that the supplier of
Diageo imported the subject raw alcohol, hence, it was the one directly liable and obligated to file a
return and pay the excise taxes under the Tax Code before the goods or products are removed from
the customs house. It is, therefore, the statutory taxpayer as contemplated by law and
remains to be so, even if it shifts the burden of tax to Diageo. Consequently, the right to
claim a refund, if legally allowed, belongs to it and cannot be transferred to another, in this case
Diageo, without any clear provision of law allowing the same.

PAL vs. CIR, GR No. 198759 dated July 1, 2013:
1. Based on these rulings, it may be observed that the propriety of a tax refund claim is hinged on the
kind of exemption which forms its basis. If the law confers an exemption from both direct or
indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic
burden of the applicable tax. On the other hand, if the exemption conferred only applies to
direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim.
2. In other words, in view of PAL’s payment of either the basic corporate income tax or franchise tax,
whichever is lower, PAL is exempt from paying: (a) taxes directly due from or imposable upon it as
the purchaser of the subject petroleum products; and (b) the cost of the taxes billed or passed on to
it by the seller, producer, manufacturer, or importer of the said products either as part of the
purchase price or by mutual agreement or other arrangement. Therefore, given the foregoing
direct and indirect tax exemptions under its franchise, and applying the principles as
above-discussed, PAL is endowed with the legal standing to file the subject tax refund
claim, notwithstanding the fact that it is not the statutory taxpayer as contemplated by
law.
Illustration of the Creditable Withholding Tax System:
Lease contract with a monthly lease of P10,000.00, withholding tax rate is 5%:
Particulars ITR of the Lessor

Sales 120,000.00
Cost of Sales 80,000.00
Gross Income 40,000.00
Allowable Deductions 100,000.00
Taxable Income (60,000.00)
Tax Rate 30%
Tax Due -
Creditable Withholding Tax 6,000.00
Tax Payable (6,000.00)
Doctrines:
1. Requisites of claim for refund of excess Creditable Withholding Tax (―CWT‖): (a) The claim must be
filed with the CIR within the two-year period from the date of payment of the tax; (b) It must be
shown on the return that the income received was declared as part of the gross income; and, (c)
The fact of withholding must be established by a copy of a statement (BIR Form 2307) duly issued
by the payor to the payee showing the amount paid and the amount of the tax withheld . (CIR vs.
Cebu Holdings, Inc., GR No. 189792 dated June 20, 2018).

2.a. Actual remittance of CWT need not be proven. Under the Tax Code, it is the payor-withholding
agent, and not the payee-refund claimant, who is vested with the responsibility of withholding and
remitting income taxes. BIR Form 2307 may be presented before the CTA. Cases filed in the CTA are
litigated de novo. (CIR vs. PNB, GR No. 180290 dated September 29, 2014; PAL vs. CIR, GR Nos. 206079-80
& 206309 dated January 17, 2018)
2.b. In refunds of erroneously paid CWT, while perhaps it may be necessary to prove that the taxpayer
did not use the claimed creditable withholding tax to pay for his/its tax liabilities, there is no basis in
law or jurisprudence to say that BIR Form No. 2307 is the only evidence that may be adduced to
prove such non-use. (PNB vs. CIR, GR No. 206016 dated March 18, 2015)
Irrevocability Rule:
1.a. Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If
the sum of the quarterly tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable income of that year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
1.b. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income
taxes paid, the excess amount shown on its final adjustment return may be carried over and
credited against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable years. Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered irrevocable for that taxable period
and no application for cash refund or issuance of a tax credit certificate shall be allowed
therefor.
1. Under the cited law, there are two options available to the corporation whenever it overpays its
income tax for the taxable year: (1) to carry over and apply the overpayment as tax credit against
the estimated quarterly income tax liabilities of the succeeding taxable years (also known as
automatic tax credit) until fully utilized (meaning, there is no prescriptive period); and (2) to apply
for a cash refund or issuance of a tax credit certificate within the prescribed period. Such
overpayment of income tax is usually occasioned by the over-withholding of taxes on the income
payments to the corporate taxpayer. (University Physicians Services, Inc. vs. CIR, GR No. 205955 dated
March 7, 2018)
2.a. The phrase "for that taxable period" merely identifies the excess income tax, subject of the option,
by referring to the taxable period when it was acquired by the taxpayer.
The phrase "for that taxable period" is not a prescriptive period for the irrevocability rule. This
construal effectively renders nugatory the irrevocability rule. The evident intent of the

legislature, in adding the last sentence to Section 76, is to keep the taxpayer from flip-flopping on its
options and avoid confusion and complication as regards said taxpayer's excess tax credit. The
interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding
taxable period.
Irrevocability Rule – Illustration:
Irrevocability Rule – Doctrines:
3.a. Presentation of the Quarterly Income Tax Return of the succeeding taxable year is not necessary to
prove non-carry over. What Section 76 requires, just like in all civil cases, is to prove the prima facie
entitlement to a claim, including the fact of not having carried over the excess credits to the
subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding quarterly
ITRs are absolutely needed. (Winebrenner & Inigo Insurance Brokers, Inc. vs. CIR, GR No. 206526 dated
January 28, 2015)
3.b. When the taxpayer was able to establish prima facie its right to the refund by testimonial and object
evidence, the BIR should have presented rebuttal evidence to shift the burden of evidence back to
the BIR. Indeed, the BIR ought to have its own copies of the taxpayer’s quarterly returns on file, on
the basis of which it could rebut the taxpayer's claim that it did not carry over its unutilized and
excess creditable withholding taxes for the immediately succeeding quarters. The BIR's failure to
present such vital document during the trial in order to bolster the BIR's contention against the
taxpayer's claim for the tax refund was fatal. (Republic vs. Team (Phils.) Energy Corporation, GR No.
188016 dated January 14, 2015)
4. Where, however, the corporation permanently ceases its operations before full utilization of the tax
credits it opted to carry over, it may then be allowed to claim the refund of the remaining tax
credits. In such a case, the remaining tax credits can no longer be carried over and the irrevocability
rule ceases to apply. (Systra Phils. Inc. vs. CIR (GR No. 176290, September 21, 2007)
ITRs in the University Physicians Case:
Filed a claim for refund of P10,000.00 for the year 2011.
Irrevocability Rule – Does it Apply to the Option to Refund?
1.a. We cannot subscribe to the suggestion that the irrevocability rule enshrined in Section 76 of the
National Internal Revenue Code (NIRC) applies to either of the options of refund or carry-over. Our
reading of the law assumes the interpretation that the irrevocability is limited only to
the option of carry-over such that a taxpayer is still free to change its choice after
electing a refund of its excess tax credit. But once it opts to carry over such excess creditable
tax, after electing refund or issuance of tax credit certificate, the carry-over option becomes
irrevocable. Accordingly, the previous choice of a claim for refund, even if subsequently pursued,
may no longer be granted.
1.b. A perfunctory reading of the law unmistakably discloses that the irrevocable option referred to is
the carry-over option only. There appears nothing therein from which to infer that the other

choice, i.e., cash refund or tax credit certificate, is also irrevocable. If the intention of the lawmakers
was to make such option of cash refund or tax credit certificate also irrevocable, then they would
have clearly provided so. Law and jurisprudence unequivocally support the view that only the option
of carry-over is irrevocable.
2. The CTA was correct in considering UPSI-MI to have constructively chosen the option of carry-
over, for which reason, the irrevocability rule forbade it to revert to its initial choice. It does not
matter that UPSI-Ml had not actually benefited from the carry-over on the ground that it did not
have a tax due in its 2007 short period. Neither may it insist that the insertion of the carry-over in
the 2007 FAR was by mere mistake or inadvertence. As we previously laid down, the
irrevocability rule admits of no qualifications or conditions. (University Physicians Services, Inc.
vs. CIR, GR No. 205955 dated March 7, 2018)
Jursidiction of the CTA in Civil Cases:
1. Decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties in relations thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases in the exercise of their
original jurisdiction;
4. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or
city board of assessment appeals;
5. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for
taxes, fees, charges and penalties, where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is One million pesos (P1,000,000.00) or more.
Jurisdiction of the CTA in Criminal Cases:
1. The CTA has exclusive original jurisdiction over all criminal offenses arising from violations of the
National Internal Revenue Code or Tariff and Customs Code and other laws administered by the
Bureau of Internal Revenue or the Bureau of Customs where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is One million pesos (P1,000,000.00) or more.
2. In cases within the jurisdiction of the CTA, the criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall be deemed jointly instituted in the same
proceeding. The filing of the criminal action shall necessarily carry with it the filing of the civil action.
No right to reserve the filing of such civil action separately from the criminal action shall be allowed
or recognized. (Sec. 11, Rule 9 of the CTA Rules)

Cases directly filed with the CTA En Banc:
1. Decisions by the Central Board of Assessment Appeals in Real Property Tax Cases;
2. Decisions by the Regional Trial Court in the exercise of its appellate jurisdiction in local tax cases;
3. Decisions by the Regional Trial Court in the exercise of its appellate jurisdiction in tax collection
cases; and,
4. Decisions by the Regional Trial Court in the exercise of its appellate jurisdiction in criminal cases.
Doctrines:
1. Cases under ―other matters‖ arising under the NIRC or other laws administered by the BIR:
a) Whether or not the BIR was able to collect the deficiency tax within the 5-year period to collect
under Sec. 222(c). (CIR vs. Hambrecht & Quist Philippines, Inc., GR No. 169225 November 17, 2010)
b) Validity of a waiver of the statute of limitations. (Philippine Journalists, Inc. vs. CIR, GR No. 162852
dated December 16, 2004)
c) Whether or not the CIR may be compelled to issue an assessment. (Meralco Securities Corporation,
Inc. vs. Savellano, GR No. L-36181 dated October 23, 1982)
d) Unfavorable BIR Rulings/Decision of the SOF on appeals of BIR Rulings. (Philamlife vs. SOF, GR No.
210987 dated November 24, 2014)
e) Whether the revenue officers who had conducted the examination on Lancaster exceeded their
authority pursuant to LOA No. 00012289 may be considered as covered by the terms "other
matters" under Section 7 of R.A. No. 1125 or its amendment, R.A. No. 9282. The authority to
make an examination or assessment, being a matter provided for by the NIRC, is well within the
exclusive and appellate jurisdiction of the CTA. (CIR vs. Lancaster Philippines, Inc., GR No. 183408
dated July 12, 2017)
f) Cases asking for the cancellation and withdrawal of a warrant of distraint and/or levy. (CIR vs.
BPI, GR No. 224327 dated June 11, 2018)
2.a. General Rule: No appeal taken to the CTA shall suspend the payment, levy, distraint, or sale of any
property of the taxpayer for the satisfaction of his tax liability.
Exception: The CTA may order suspension of collection by the BIR if collection may jeopardize the
interest of the Government and/or the taxpayer. Taxpayer must file a bond with the CTA. Amount of
Bond: (a) cash bond = amount claimed; (b) surety bond = amount not more than double the
amount (claimed). Amount claimed = principal amount of taxes excluding penalties, interests and
surcharges.

2.b. Bond should be dispensed with:
a) If prescription has already set in; or,
b) Whenever it is determined by the courts that the method employed by the Collector
(Commissioner) of Internal Revenue in the collection of tax is not sanctioned by law.
2.c.The purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more
importantly, to prevent the absurd situation wherein the court would declare ―that the collection by
the summary methods of distraint and levy was violative of law, and then, in the same breath
require the petitioner to deposit or file a bond as a prerequisite for the issuance of a writ of
injunction.‖ (Spouses Pacquiao vs. The CTA, GR No. 213394 dated April 6, 2016)
2.d. If the taxpayer raises the illegality of the assessment, the CTA should conduct a preliminary hearing
in order to determine whether the required surety bond should be dispensed with or reduced.
(Tridharma Marketing Corporation vs. CTA, GR No. 215950 dated June 20, 2016)
3. The original period for filing the petition for review may be extended for a period of fifteen (15)
days, which for the most compelling reasons, may be extended for another period not exceeding
fifteen (15) days. The CTA rules does not explicitly sanction extensions to file a petition for review
with the CTA, the same rules provides that in the absence of any express provision in the CTA rules,
Rules 42, 43, 44 and 46 of the Rules of Court may be applied in a suppletory manner . (Metro Manila
Shopping Mecca Corp. vs. Toledo, GR No. 190818 dated June 5, 2013)
4. In civil cases, in order for the CTA En Banc to take cognizance of an appeal, a timely motion for
reconsideration or new trial must first be filed with the CTA Division. Failure to do so is a ground for
the dismissal of the appeal. The foregoing rule also applies to an amended decision. An amended
decision is a different decision and is a proper subject of a motion for reconsideration. Thus, if an
amended decision is rendered by the CTA Division disposing of the motions for reconsideration filed
by the taxpayer and the CIR, the amended decision must also be contested by way of a motion for
reconsideration before any appeal can be made to the CTA En Banc. (CIR vs. Asiatrust Development
Bank, GR Nos. 201680-81 dated April 19, 2017)
5. No decision of the CTA division may be elevated to the Supreme Court under Rule 45 of the 1997
Rules of Civil Procedure without passing through the CTA en banc. (Duty Free Phils. vs. BIR, GR No.
197228 dated October 8, 2014)
6. The decision or resolution of the CTA Division relative to a motion for reconsideration is appealable
to CTA En Banc via a Petition for Review under Rule 43. A Petition for Certiorari under Rule 65 filed
with the Supreme Court is not the proper remedy. A writ of certiorari is not a substitute for a lost
appeal. When an appeal is available, certiorari will not prosper especially if the appeal was lost
because of one's own negligence or error in the choice of remedy, even if the ground is grave abuse
of discretion. Under the Rules of Court, the remedy against a final judgment or order is an appeal.
(BIR vs. Acosta, GR No. 195320 dated April 23, 2018)
Ignacio vs. Office of the City Treasurer of Quezon City, GR No. September 11, 2017:
Allegedly, Ignacio’s real property was sold at public auction for non-payment of Real Property Tax to the
Spouses Dimalanta without notice of the levy and auction sale proceedings, thereby depriving her of said
property without due process of law. Ignacio filed a Complaint with the RTC for Annulment of Warrant of

Levy, Public Auction Sale, Sheriff's Certificate of Sale, Recovery of Ownership and Possession, and
Damages (―Annulment Complaint‖). Eventually, the RTC rendered a decision dismissing the case. Ignacio
appealed to the Court of Appeals. Respondent opposed the appeal arguing that the Court of Tax
Appeals has jurisdiction over Ignacio‟s appeal.
1.a. Sec 7(a)(3) of RA No. 9282 provides that the CTA shall exercise: exclusive appellate jurisdiction to
review by appeal, over Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their original or appellate
jurisdiction.
• Court of 1.b. Based on the above-cited provision of law, it is apparent that the CTA's appellate
jurisdiction over decisions, orders, or resolutions of the RTCs becomes operative only when the
RTC has ruled on a local tax case.
2. Cases decided by the RTC which involve issues relating to the power of the local government to
impose real property taxes are considered as local tax cases, which fall under the appellate
jurisdiction of the CTA. To note, these issues may, inter alia, involve the legality or validity of the
real property tax assessment; protests of assessments; disputed assessments, surcharges, or
penalties; legality or validity of a tax ordinance; claims for tax refund/credit; claims for tax
exemption; actions to collect the tax due; and even prescription of assessments.
3. In this case, a reading of the Annulment Complaint shows that Teresa's action before the RTC is
essentially one for recovery of ownership and possession of the property, with damages,
which is not anchored on a tax issue, but on due process considerations. In other words,
the Annulment Complaint's allegations do not contest the tax assessment on the property, as
Ignacio only bewails the alleged lack of due process which deprived her of the opportunity to
participate in the delinquency sale proceedings. As such, the RTC‟s ruling thereon could not
be characterized as a local tax case over which the CTA could have properly assumed
jurisdiction on appeal. In fine, the case was correctly elevated to the CA.
4. The CA correctly asserted its jurisdiction in this case. Here, the dispute arose from the alleged non-
compliance of the respondents with the pertinent provisions of the LGC on tax delinquency sale. A
plain reading of Magpile's petition before the RTC would show that he did not assail the legality
or validity and reasonableness or correctness of the real property tax assessment and
collection. In fact, he categorically and repeatedly admits in his pleadings that he
failed to pay the real property tax from 1998 up to 2006. As the CA ruled, what he is
questioning is the alleged denial of due process in the levying of his property.
Salva vs. Magpile, GR No. 220440 dated November 8, 2017:
Basic is the rule that the allegations in the complaint and the character of the relief sought determine the
nature of an action. In order for the trial court to resolve Magpile's petition, the issues regarding the
legality/validity or reasonableness/correctness of the real property tax assessment and
collection need not be dealt with. At bar, the issue of the validity and legality of the tax sale is not
essentially related to the issue of the demandability of the real property tax. Therefore, the non-dismissal
of Magpile's appeal by the CA was in order.

Does the CTA have Certiorari Jurisdiction over local tax cases decided by the RTC?
1. Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it
must have the authority to issue, among others, a writ of certiorari. In transferring
exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law
intended to transfer also such power as is deemed necessary, if not indispensable, in aid of such
appellate jurisdiction. There is no perceivable reason why the transfer should only be considered as
partial, not total.
2.a. If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies
with the CA, this Court would be confirming the exercise by two judicial bodies, the CA
and the CTA, of jurisdiction over basically the same subject matter – precisely the split-
jurisdiction situation which is anathema to the orderly administration of justice. Thus,
the Court agrees with the ruling of the CA that since appellate jurisdiction over private respondents'
complaint for tax refund is vested in the CTA, it follows that a petition for certiorari seeking
nullification of an interlocutory order issued in the said case should, likewise, be filed with the same
court.
2.b. To rule otherwise would lead to an absurd situation where one court decides an appeal in the main
case while another court rules on an incident in the very same case.
3. It is more in consonance with logic and legal soundness to conclude that the grant of appellate
jurisdiction to the CTA over tax cases filed in and decided by the RTC carries with it the
power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction.
The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate
jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction to review, by
appeal, the final orders and decisions of the RTC, in order to have complete supervision over the
acts of the latter. (City of Manila vs. Grecia-Cuerdo, GR No. 175723 dated February 4, 2014)
BIR vs. Government Agency (PSALM Case):
1.a. Under Presidential Decree No. 242 (PD 242) as amended by the Revised Administrative Code, all
disputes and claims solely between government agencies and offices, including government-owned
or controlled· corporations, shall be administratively settled or adjudicated by the Secretary of
Justice or the Solicitor General, depending on the issues and government agencies involved.
But, the the procedure shall not apply to disputes involving the Congress, the Supreme Court, the
Constitutional Commissions, and local governments.
1.b. The use of the word "shall" in a statute connotes a mandatory order or an imperative obligation.
xxx. Thus, under PD 242, it is mandatory that disputes and claims "solely" between government
agencies and offices, including government-owned or controlled corporations, involving only
questions of law, be submitted to and settled or adjudicated by the Secretary of Justice.
1.c. The law is clear and covers "all disputes, claims and controversies solely between or among
the departments, bureaus, offices, agencies and instrumentalities of the National

Government, including constitutional offices or agencies arising from the interpretation

and application of statutes, contracts or agreements." When the law says "all disputes,
claims and controversies solely" among government agencies, the law means all, without exception.
2.a. It is only proper that intra-governmental disputes be settled administratively since the opposing
government offices, agencies and instrumentalities are all under the President's
executive control and supervision. Section 17, Article VII of the Constitution states
unequivocally that: "The President shall have control of all the executive departments,
bureaus and offices. ‖
2.b. This power of control vested by the Constitution in the President cannot be diminished by law. xxx.
This constitutional power of control of the President cannot be diminished by the CTA.
Thus, if two executive offices or agencies cannot agree, it is only proper and logical that
the President, as the sole Executive who under the Constitution has control over both
offices or agencies in dispute, should resolve the dispute instead of the courts. The
judiciary should not intrude in this executive function of determining which is correct
between the opposing government offices or agencies, which are both under the sole
control of the President. Under his constitutional power of control, the President decides
the dispute between the two executive offices. The judiciary cannot substitute its
decision over that of the President.
3.a. Furthermore, under the doctrine of exhaustion of administrative remedies, it is mandated

that where a remedy before an administrative body is provided by statute, relief must be
sought by exhausting this remedy prior to bringing an action in court in order to give the
administrative body every opportunity to decide a matter that comes within its
jurisdiction.
3.b. A litigant cannot go to court without first pursuing his administrative remedies; otherwise, his action
is premature and his case is not ripe for judicial determination. PD 242 (now Chapter 14, Book IV of
Executive Order No. 292), provides for such administrative remedy. Thus, only after the
President has decided the dispute between government offices and agencies can the
losing party resort to the courts, if it so desires. Otherwise, a resort to the courts would be
premature for failure to exhaust administrative remedies. Non-observance of the doctrine of
exhaustion of administrative remedies would result in lack of cause of action, which is one of the
grounds for the dismissal of a complaint.
4.a. SEC 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds in internal revenue taxes, fees or other charges.
penalties imposed in relation thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. (Emphasis
supplied)

4.b. The second paragraph of Section 4 of the 1997 NIRC, providing for the exclusive appellate
jurisdiction of the CTA as regards the CIR's decisions on matters involving disputed assessments,
refunds in internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or
other matters arising under NIRC, is in conflict with PD 242. Under PD 242, all disputes and
claims solely between government agencies and offices, including government-owned or controlled
corporations, shall be administratively settled or adjudicated by the Secretary of Justice, the Solicitor
General, or the Government Corporate Counsel, depending on the issues and government agencies
involved.
4.c. To harmonize Section 4 of the 1997 NIRC with PD 242, the following interpretation should be
adopted: (1) As regards private entities and the BIR, the power to decide disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the NIRC or other laws administered by the BIR is vested in the CIR subject to
the exclusive appellate jurisdiction of the CTA, in accordance with Section 4 of the NIRC; and (2)
Where the disputing parties are all public entities (covers disputes between the BIR and other
government entities), the case shall be governed by PD 242.
5. Since the amount involved in this case is more than one million pesos, the DOJ Secretary's
decision may be appealed to the Office of the President in accordance with Section 70, Chapter 14,
Book IV of EO 292 and Section 552 of PD 242. If the appeal to the Office of the President is denied,
the aggrieved party can still appeal to the Court of Appeals under Section 1, Rule 43 of the 1997
Rules of Civil Procedure. (Power Sector Assets and Liabilities Management vs. CIR, GR No. 198146 dated
August 8, 2017)
LOCAL TAXATION
Local Government Unit‟s Power to Tax:
Each local government unit shall have the power to create its own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments. (Sec. 5, Art. X, 1987 Constitution)
Each local government unit shall exercise its power to create its own sources of revenue and to levy
taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. (Sec. 129)
Are Secs. 13 and 14 of RA 9167 constitutional?
1. The Amusement Tax Reward system granted to ―graded films‖ under Secs. 13 and 14 of RA No. 9167
violates the local fiscal autonomy provision under Sec. 5 Art. X of the Constitution which provides that:
―Each local government unit shall have the power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.‖

Are Secs. 13 and 14 of RA 9167 constitutional?
2. The same is echoed in Sec. 130(d) of the LGC which provides that ―The revenue collected xxx shall
inure solely to the benefit of, and be subject to the disposition by, the local government
unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein x
x x. (Film Development Council of the Philippines vs. Colon Heritage Realty Corporation, GR No. 203754 dated
June 16, 2015)
Common Limitations:
1. An LGU cannot impose business tax on the sale of petroleum products. Sec. 133(h) of the LGC
provides that the taxing powers of LGUs shall not extend to taxes fees and charges on petroleum
products. (Petron Corp. vs. Tiangco, GR No. 158881 dated April 16, 2008)
2. An LGU cannot impose business tax on common carriers. Sec. 133(j) of the LGC provides that the
taxing powers of LGUs shall not extend to taxes on gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire and common carriers. (City of
Manila vs. Colet, GR No. 120051 etc. dated December 10, 2014)
3. By express mandate of the LGC, LGUs cannot impose any kind of tax on national government
instrumentalities like the MIAA [Sec. 133(o)]. The taxing powers of local governments do not extend
to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this
Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the
exception to the exemption from real estate tax of real property owned by the Republic. (MIAA vs. CA,
GR No. 155640 dated July 20, 2006)
4. An LGU cannot impose percentage tax subject to certain exceptions. One exception is Amusement Tax
which is considered a percentage tax. (Pelizloy Realty Corp., vs. Province of Benguet, GR No. 183137, April
10, 2013)
Franchise Tax:
1. Under the Local Government Code, a municipality is bereft of authority to levy and impose franchise
tax on franchise holders within its territorial jurisdiction. That authority belongs to provinces and cities
only. A franchise tax levied by a municipality is, thus, null and void. The nullity is not cured by the
subsequent conversion of the municipality into a city. (City of Pasig vs. Meralco, GR No. 181710 dated
March 7, 2018)
2. Since franchise tax partakes the nature of an excise tax, the situs of taxation is the place where the
privilege is exercised (the taxpayer’s principal office and from where it operates) regardless of the
place where its services or products are delivered. (City of Iriga vs. Camarines Sur III Electric
Cooperative, Inc., GR No. 192945, September 5, 2012)
3.a. Whether ABS-CBN is liable for local franchise tax despite its charter under Republic Act No. 7966
effective May 3, 1995 stating that it shall pay a franchise tax equivalent to three percent (3%) of
all gross receipts of the radio/television business transacted under this franchise by the grantee, its
successors or assigns, and the said percentage tax shall be in lieu of all taxes on this franchise or
earnings thereof?

3.b. ABS-CBN is liable for Local Franchise Tax (―LFT‖) because its exemption from the LFT is not
express. The right to exemption from the LFT must be clearly established and cannot be made out
of inference or implications but must be laid beyond reasonable doubt. Verily, the uncertainty in the
"in lieu of all taxes" provision should be construed against ABS-CBN. ABS-CBN has the burden to
prove that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in this regard.
3.c. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus officio with the
abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding
P10,000,000.00. ABS-CBN is subject to the payment of VAT. It does not have the option to choose
between the payment of franchise tax or VAT since it is a broadcasting company with yearly gross
receipts exceeding P10,000,000.00. The clause "in lieu of all taxes" does not pertain to VAT or any
other tax. It cannot apply when what is paid is a tax other than a franchise tax. Since the franchise
tax on the broadcasting companies with yearly gross receipts exceeding ten million pesos has been
abolished, the "in lieu of all taxes" clause has now become functus officio, rendered inoperative.
(Quezon City vs. ABS-CBN Broadcasting Corporation, GR No. 166408 dated October 6, 2008)
Amusement Tax:
1. Under Sec. 140 of the LGC, the Amusement Tax may be imposed on proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of
amusement.
2. Sec. 131 (c) defines "Amusement Places― as to include theaters, cinemas, concert halls, circuses and
other places of amusement where one seeks admission to entertain oneself by seeing or viewing the
show or performances.
3. Criteria of Amusement Places in PBA vs. CA – ―artistic expression‖ has been modified by the LGC.
4. Resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same
category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they
cannot be considered as among the ―other places of amusement‖ contemplated by Section 140 of
the LGC and which may properly be subject to amusement taxes.
5. Must primarily be a venue for their proprietors or operators to actively display, stage or present
shows and/or performances. (Pelizloy Realty Corp., vs. Province of Benguet, GR No. 183137, April 10, 2013)
6. An LGU cannot impose amusement tax on an operator of a golf course. In order to be subject to
amusement tax, the venue must be an amusement place where one seeks admission to entertain
oneself by seeing or viewing a show or performance. People do not enter a golf course to see or
view a show or performance. The proprietor or operator of the golf course does not actively display,
stage, or present a show or performance. People go to a golf course to engage themselves in a
physical sport activity, i.e., to play golf. (Alta Vista Golf and Country Club vs. The City of Cebu, GR No.
180235 dated January 20, 2016)
Business Tax:
If a business is already paying business tax as a retailer under Sec. 143(a) of the Local Government Code
(―LGC‖), it is no longer liable to pay business tax on businesses subject to VAT and Percentage Tax under
Sec. 143(h) of the LGC. Sec. 143(h) of the LGC may invoked by the Local Government Unit if the

business is not otherwise specified in the preceding paragraphs (Secs. 143(a) to (g) of the LGC). (Nursery
Care Corporation vs. Acevedo, GR No. 180651 dated July 30, 2014)
Remedies:
1. Section 187 of the LGC which outlines the procedure for questioning the constitutionality of a tax
ordinance, is inapplicable, if what is imposed by the ordinance is a mere regulatory fee and not a local
tax. (Smart vs. Municipality of Malvar, Batangas, GR No. 204429 dated February 18, 2014.)
2. The Regional Trial Court, in deciding an appeal taken from a denial of a protest by a local treasurer
under Section 195 of the Local Government Code, exercises "original jurisdiction‖. (Yamane vs. BA
Lepanto – GR No 154992, October 25, 2005)
3. Procedure in Protest Cases:
a. Treasurer issues a notice of assessment against the taxpayer.

b. File protest within 60 days from receipt of the protest. Otherwise, the assessment becomes final
and executory.
c. Treasurer decides within 60 days from receipt of the protest.
d. The taxpayer shall have 30 days from the receipt of the denial of the protest or from the lapse of
the 60-day period in No. 3 within which to an appeal with the MTC/RTC, otherwise, the
assessment becomes conclusive and unappealable. (Sec. 195)
4. Mandamus cannot be a substitute for the requirement of filing a written protest against the
assessment. (San Juan vs. Castro, GR No. 174617 dated December 27, 2007)
4.a. Refund Provision:
Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any court
for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for
refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained in
any court after the expiration of two (2) years from the date of the payment of such tax, fee, or
charge, or from the date the taxpayer is entitled to a refund or credit.
4.b. Refund Provision:
A perusal of Section 196 of the LGC reveals that in order to be entitled to a refund/credit of local
taxes, the following procedural requirements must concur: first, the taxpayer concerned must file a
written claim for refund/credit with the local treasurer; and second, the case or proceeding for refund
has to be filed within two (2) years from the date of the payment of the tax, fee, or charge or from
the date the taxpayer is entitled to a refund or credit. (Metro Manila Shopping Mecca Corp. vs. Toledo, GR
No. 190818 dated June 5, 2013)
City of Manila vs. Cosmos Bottling Corporation, GR No. 196681 dated June 27, 2018:
What is the proper procedure if the taxpayer receives an assessment for local business tax, pays it under
protest and then asks for a refund?

1. There is nothing to prevent the taxpayer from paying the tax under protest or simultaneous to a
protest. There are compelling reasons why a taxpayer would prefer to pay while maintaining a
protest against the assessment. For instance, a taxpayer who is engaged in business would be hard-
pressed to secure a business permit unless he pays an assessment for business tax and/or
regulatory fees. Also, a taxpayer may pay the assessment in order to avoid further penalties, or
save his properties from levy and distraint proceedings.
2.a. Procedure:
1. File written protest within 60 days from receipt of assessment. The written protest will be
considered the written claim for refund in compliance with Sec. 196.
2. File an appeal with the court of competent jurisdiction within 30 days from receipt of decision or
inaction. Otherwise, the assessment becomes final, executory and unappelable.
2.b. Even though the suit is seemingly grounded on Section 196, the taxpayer could not avail of the full
extent of the two-year period within which to initiate the action in court.
The reason is obvious. This is because an assessment was made, and if not appealed in court within
thirty (30) days from decision or inaction on the protest, it becomes conclusive and unappealable.
Even if the action in court is one of claim for refund, the taxpayer cannot escape assailing the
assessment, invalidity or incorrectness, the very foundation of his theory that the taxes were paid
erroneously or otherwise collected from him illegally.
Real Property Taxation
General Principles/Assessment of Real Property Tax:
1.a. Transformers, electric posts, transmission lines, insulators and electric meters owned and used by
Meralco may be considered as machineries subject to real property tax.
Under Sec. 199 (o) of the LGC, machinery, to be deemed real property subject to real property tax,
need no longer be annexed to the land or building as these "may or may not be attached,
permanently or temporarily to the real property," and in fact, such machinery may even be "mobile."
1.b. The same provision requires that the machinery: (a) must be actually, directly, and exclusively used
to meet the needs of the particular industry, business, or activity; and (b) by their very nature and
purpose, are designed for, or necessary for manufacturing, mining, logging, commercial, industrial,
or agricultural purposes. Therefore, in determining whether machinery is real property subject to
real property tax, the definition and requirements under the Local Government Code (not the Civil
Code) are controlling. (Meralco vs. The City Assessor and City Treasurer of Lucena City, GR No. 166102 dated
August 5, 2015)
2. Submarine or undersea communications cables are akin to electric transmission lines and are
considered as machinery subject to real property tax. There is no reason to distinguish between
submarine cables used for communications and aerial or underground wires or lines used for electric
transmission, so that both pieces of property do not merit a different treatment in the aspect of real

property taxation. (Capitol Wireless, Inc. vs. The Provincial Treasurer of Batangas, GR No. 180110 dated May
30, 2016)
3.a. The road equipment owned and used by Filipinas Palm Oil in its Palm Oil business are real properties
subject to real property tax.
3.b. Under the definition provided in Sec. 199(o) of the LGC, the road equipment and the mini haulers
are classified as machinery, thus:
"Machinery" . . . includes the physical facilities for production, the installations and appurtenant
service facilities, those which are mobile, self-powered or self propelled, and those not
permanently attached to the real property which are actually, directly, and exclusively used
to meet the needs of the particular industry, business or activity and which by their very
nature and purpose are designed for, or necessary to its manufacturing, mining, logging,
commercial, industrial or agricultural purposes.
3.c. The phrase pertaining to physical facilities for production is comprehensive enough to include the
road equipment and mini haulers as actually, directly, and exclusively used by respondent to meet
the needs of its operations in palm oil production. Moreover, "mini-haulers are farm tractors pulling
attached trailers used in the hauling of seedlings during planting season and in transferring fresh
palm fruits from the farm [or] field to the processing plant within the plantation area." The
indispensability of the road equipment and mini haulers in transportation makes it actually, directly,
and exclusively used in the operation of respondent's business. (Provincial Assessor of Agusan del Sur
vs. Filipinas Palm Oil Plantation, Inc., GR No. 183416 dated October 5, 2016)
4.a. Under Sec. 223 of the LGC, when real property is assessed for the first time or when an existing
assessment is increased or decreased, the assessor shall within thirty (30) days give written notice
of such new or revised assessment to the person in whose name the property is declared.
4.b. A notice of collection is not the same as a notice of assessment. For failure to issue the notice of
assessment, the appraisal and assessment of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO not being in compliance with the LGC, are attempts at
deprivation of property without due process of law and, therefore, null and void. (Meralco vs. The City
Assessor and City Treasurer of Lucena City, GR No. 166102 dated August 5, 2015)
Exemption from Real Property Taxation – Sec. 234(a):
1. Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
If Sec. 234(a) is in issue correlate with Sec. 133(o) of the LGC and Art. 420 of the Civil Code, if
applicable.
2. In order to be exempt from execution sales, the property owned by the Republic must be considered
property of public dominion. (City of Pasig vs. Republic, GR No. 185023 dated August 24, 2011)

3. Under the beneficial use doctrine, the unpaid tax attaches to the property and is chargeable against
the taxable person who had actual or beneficial use and possession of it regardless of whether or not
he is the owner. Thus, the beneficial user or the taxable entity having beneficial use of the leased
property is the one who should pay the real property tax. (GSIS vs. City of Manila, GR No. 186242 dated
December 23, 2009)
Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or

religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes.
What if machineries are owned by a non-stock non-profit educational institution?
To successfully claim exemption under Section 234(c) of the LGC, the claimant must prove two elements:
(a) the machineries and equipment are actually, directly, and exclusively used by local water districts and
government-owned or controlled corporations; and, (b) the local water districts and government-owned
and controlled corporations claiming exemption must be engaged in the supply and distribution of water
and/or the generation and transmission of electric power. (NPC vs. Province of Quezon, GR No. 171586
dated July 15, 2009)
1.a. Under Section 133(n) of the Local Government Code, the taxing power of local government units
shall not extend to the levy of taxes, fees, or charges on duly registered cooperatives under the
Cooperative Code. In addition Sec. 234(d) provides that all real property owned by duly registered
cooperatives as provided for under R.A. No. 6938 shall be exempt from real property tax.
1.b. Section 234 of the Local Government Code exempts all real property owned by cooperatives without
distinction. Nothing in the law suggests that the real property tax exemption only applies when the
property is used by the cooperative itself. Similarly, the instance that the real property is leased to
either an individual or corporation is not a ground for withdrawal of tax exemption.
2.a. Also, the roads that the lessee built should not be assessed with real property tax. The roads that
respondent constructed became permanent improvements on the land owned by the NGPI-NGEI
(cooperative) by right of accession under Arts. 440 and 445 of the Civil Code.
2.b. Article 440. The ownership of property gives the right by accession to everything which is produced
thereby, or which is incorporated or attached thereto, either naturally or artificially.
Article 445. Whatever is built, planted or sown on the land of another and the improvements or
repairs made thereon, belong to the owner of the land.
2.c. Despite the land being leased by respondent when the roads were constructed, the ownership of the
improvement still belongs to NGPI-NGEI. As provided under Article 440 and 445 of the Civil Code,
the land is owned by the cooperatives at the time respondent built the roads. Hence, whatever is
incorporated in the land, either naturally or artificially, belongs to the NGPI-NGEI as the landowner.
Therefore, NGPI-NGEI, as owner of the roads that permanently became part of the land being
leased by respondent, shall be liable for real property taxes, if any. However, by express provision of
the Local Government Code, NGPI-NGEI is exempted from payment of real property tax. (Provincial
Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation, Inc., GR No. 183416 dated October 5, 2016)

How to contest a real property assessment? Is payment under protest always necessary?
1. In disputes involving real property taxation, the general rule is to require the taxpayer to first avail
of administrative remedies and pay the tax under protest before allowing any resort to a judicial
action, except when the assessment itself is alleged to be illegal or is made without legal authority.
For example, prior resort to administrative action is required when among the issues raised is an
allegedly erroneous assessment, like when the reasonableness of the amount is challenged,
while direct court action is permitted when only the legality, power, validity or authority of the
assessment itself is in question.
2. Stated differently, the general rule of a prerequisite recourse to administrative remedies applies when
questions of fact are raised, but the exception of direct court action is allowed when purely questions
of law are involved. (Capitol Wireless, Inc. vs. The Provincial Treasurer of Batangas, GR No. 180110 dated May
30, 2016)
Once an assessment has been issued, what is the proper remedy of the taxpayer?
1. Once an assessment has already been issued by the assessor, the proper remedy of a taxpayer
depends on whether the assessment was erroneous or illegal.
2. An erroneous assessment ―presupposes that the taxpayer is subject to the tax but is disputing the
correctness of the amount assessed.‖ With an erroneous assessment, the taxpayer claims that the
local assessor erred in determining any of the items for computing the real property tax, i.e., the value
of the real property or the portion thereof subject to tax and the proper assessment levels. In case of
an erroneous assessment, the taxpayer must exhaust the administrative remedies provided under the
Local Government Code before resorting to judicial action.
3. On the other hand, an assessment is illegal if it was made without authority under the law. In case of
an illegal assessment, the taxpayer may directly resort to judicial action without paying under protest
the assessed tax and filing an appeal with the Local and Central Board of Assessment Appeals.
4. In the present case, the PEZA did not avail itself of any of the remedies against a notice of
assessment. A petition for declaratory relief is not the proper remedy once a notice of assessment was
already issued. Instead of a petition for declaratory relief, the PEZA should have directly resorted to a
judicial action. The PEZA should have filed a complaint for injunction, the "appropriate ordinary civil
action‖ to enjoin the City from enforcing its demand and collecting the assessed taxes from the PEZA.
After all, a declaratory judgment as to the PEZA’s tax-exempt status is useless unless the City is
enjoined from enforcing its demand. (City of Lapu-Lapu vs. PEZA, GR No. 184203 dated November 26,
2014)
Procedure for Payment under Protest/ Erroneous Assessments:
1. Pay under protest; (Sec. 252)

2. File a written protest with the treasurer within 30 days from payment; (Sec. 252)
3. Treasurer to decide within 60 days; (Sec. 252)

4. If protest is denied or upon lapse of the 60 day period to decide the protest, file a verified petition
with the LBAA within 60 days from receipt of the written notice of assessment/decision of the
treasurer or from lapse of the 60 day period to decide. (Sec. 226)
5. LBAA to decide the appeal/petition within 120 days from receipt of the appeal; (Sec. 229)
6. If the taxpayer is not satisfied with the decision of the LBAA, an appeal may be taken to the CBAA by
filing a notice of appeal within 30 days from receipt thereof. (Sec. 229)
7. From the CBAA, appeal to the CTA EB within 30 days via Petition for review under Rule 43. (CTA
Rules)
8. The decision of the CTA EB is appealable to the SC under Rule 45 raising pure questions of law. (CTA
Rules)
Procedure for Illegal Assessments:
1. Taxpayer shall file a complaint for injunction before the Regional Trial Court to enjoin the LGU from
collecting real property taxes;
2. The party unsatisfied with the decision of the RTC shall file an appeal, not a petition for certiorari,
before the CTA, the complaint being a local tax case decided by the RTC. The appeal shall be filed
within 15 days (should be 30 days); and,
3. Decision of the CTA is appealable to the SC under Rule 45 raising pure questions of law.
Procedure for Other Scenarios:
1. In case the LGU has issued a notice of delinquency, the taxpayer may file a complaint for
injunction to enjoin the impending sale of the real property at public auction; (Sec. 254)
2. In case the LGU has already sold the property at public auction, the taxpayer must first deposit
with the court the amount for which the real property was sold, together with interest of 2% per
month from the date of sale to the time of the institution of action. The taxpayer may then file a
complaint to assail the validity of the public auction; (Sec. 267)
3. Decisions of the RTC in these cases are appealable to the CTA and the latter’s decisions appealable
before the SC under Rule 45; (City of Lapu-Lapu vs. PEZA, GR No. 184203 dated November 26, 2014)
Doctrines:
1. Posting of surety bond (instead of payment in cash), may be considered substantial compliance with
Section 252 of the LGC Government Code for the said bond already guarantees the payment to the
alleged real property tax. (Meralco vs. The City Assessor and City Treasurer of Lucena City, GR No. 166102
dated August 5, 2015)
2.a. Claim of exemption? - Like (in the) Olivarez (case), Napocor, by claiming exemption from realty
taxation, is simply raising a question of the correctness of the assessment. A claim for tax
exemption, whether full or partial, does not question the authority of local assessors to assess real
property tax.
A claim for exemption from payment of real property taxes does not actually question the assessor's
authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the
assessment by the local assessor, a question of fact which should be resolved, at the very first
instance, by the LBAA. This may be inferred from Section 206 of RA No. 7160.

2.b. Sec. 206, by providing that real property not declared and proved as tax-exempt shall be included in
the assessment roll, the above-quoted provision implies that the local assessor has the authority to
assess the property for realty taxes, and any subsequent claim for exemption shall be allowed only
when sufficient proof has been adduced supporting the claim.
Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must
be paid under protest if the exemption from taxation is insisted upon. (NPC vs. Province of Quezon, GR
No. 171586 dated July 15, 2009; Camp John Hay vs. CBAA, GR No. 169234, October 2, 2013)
2.c. However, in NPC vs. Navotas, GR No. 192300 dated November 24, 2014, a claim of exemption under
Sec. 234(c) of the LGC was considered a legal issue. Thus, direct resort to the RTC was correct and
payment under protest was (impliedly) held as not necessary.
The Supreme Court added that the issue in this particular case is clearly legal given that it involves
an interpretation of the contract between the parties vis-à-vis the applicable laws, i.e., which entity
actually, directly and exclusively uses the subject machineries and equipment. The answer to such
question would then determine whether petitioner is indeed exempt from payment of real property
taxes. Since the issue is a question of law, the jurisdiction was correctly lodged with the RTC.
2.d. Also, impliedly, in City of Lapu-Lapu vs. PEZA, GR No. 184203 dated November 26, 2014, which also
involved a claim of exemption, the Supreme Court ruled that it inolved an illegal assessment and the
proper remedy was to directly resort to judicial action (injuction).
2.e. But under latest jurisprudence, Capitol Wireless, Inc. vs. The Provincial Treasurer of Batangas, GR
No. 180110 dated May 30, 2016 and NPC vs. Benguet, GR No. 209303 dated November 14, 2016 ,
the Supreme Court considered a claim of exemption as a factual issue rather than a legal issue and
therefore payment under protest is necessary.
3. Cases wherein the Supreme Court held that payment under protest was not necessary. Therefore,
the assessment may be questioned with the Regional Trial Court. Cases considered involving legal
issues:
a. If the taxpayer questions the authority of the assessor to make the assessment and collect the
tax. (Ty vs. Trampe, GR No. 117577 dated December 1, 1995)
b. If the issue is who should pay the tax? (Testa Estate of Concordia Lim vs. City of Manila, GR No.
90639 dated February 21, 1980)
c. Amount of protest to be paid is huge and the properties were already levied and to be
auctioned-off. In this sense, appeal to the LBAA is not a plain, adequate and speedy remedy.
(Quezon City vs. Bayan Telecommunications, GR No. 162015 dated March 6, 2006)
4.a. Who has personality to file a protest? Section 226 of the LGC lists down the two entities vested with
the personality to contest an assessment: (1) the owner and, (2) the person with legal interest in
the property. A person legally burdened with the obligation to pay for the tax imposed on a property
has legal interest in the property and the personality to protest a tax assessment on the property.
4.b. On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the power plant
and its machineries, specifically, "all real estate taxes and assessments, rates and other charges in

respect of the site, the buildings and improvements thereon and the [power plant]." At first blush,
this contractual provision would appear to make the NPC liable and give it standing to protest the
assessment. The tax liability we refer to above, however, is the liability arising from law that the
local government unit can rightfully and successfully enforce, not the contractual liability that is
enforceable between the parties to a contract as discussed below. By law, the tax liability rests on
Mirant based on its ownership, use, and possession of the plant and its machineries.
4.c. Contractual stipulation to assume payment of the real property tax does not clothe the party legal
interest for purposes of contesting an assessment.
Corollary thereto, the local government units can neither be compelled to recognize the protest of a
tax assessment from an entity against whom it cannot enforce the tax liability. (NPC vs. Province of
Quezon, GR No. 171586 dated July 15, 2009)
5. A motion for reconsideration of the Provincial Assessor’s decision is a remedy not sanctioned by law.
The last action of the local assessor on a particular assessment shall be the notice of assessment; it
is this last action which gives the owner of the property the right to appeal to the LBAA. The
procedure likewise does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor. (Fels Energy, Inc. vs. Province of Batangas, GR No. 168557,
February 16, 2007)
6. While it is evident in jurisprudence that the filing of motion for reconsideration before the LBAA is
allowed, this Court finds that, inevitably, the filing of the appeal before the CBAA through registered
mail on November 16, 2006 was already late. It is settled that the "fresh period rule" in the case of
Domingo Neypes, et al. v. Court of Appeals, et al. applies only to judicial appeals and not to
administrative appeals. (NPC vs. Provincial Treasurer of Benguet, GR No. 209303 dated November 14, 2016)
7. Protest is not a requirement in order that a taxpayer who paid under a mistaken belief that it is
required by law, may claim for a refund. (Ramie Textile vs. Mathay - 89 SCRA 586)
8. Mandamus does not lie to compel the treasurer to recognize a tax exemption claimed by a taxpayer.
Availment of the remedies under Sec. 226 is necessary. (Systems Plus Computer College of Caloocan vs.
Local Government of Caloocan, GR No. 146382 dated August 7, 2003)
9. The CTA has jurisdiction over real property tax cases decided by the RTC. Basis is: ―Decisions,
resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in
the exercise of their original jurisdiction;‖
The term "local taxes" in the aforementioned provision should be considered in its general and
comprehensive sense, which embraces real property tax assessments xxx. (NPC vs. Municipal
Government of Navotas, GR No. 192300 dated November 24, 2014)
10. When a tax case is pending on appeal with the Court of Tax Appeals, the Court of Tax Appeals has
the exclusive jurisdiction to enjoin the levy of taxes and the auction of a taxpayer's properties in
relation to that case.

Urgency does not remove the Central Board of Assessment Appeals decision from the exclusive
appellate jurisdiction of the Court of Tax Appeals. This is particularly true since, as properly
recognized by the Court of Appeals, petitioner could have, and should have, applied for injunctive
relief with the Court of Tax Appeals, which has the power to issue the preliminary injunction prayed
for. (Philippine Ports Authority vs. Davao, GR No. 190324 dated June 6, 2018)
Procedural requirements related to delinquency:
1. Section 254 of the LGC mandates that the notice of delinquency in the payment of the real property
be: (1) posted at the main entrance of the provincial capitol, or city or municipal hall and in a
publicly accessible and conspicuous place in each barangay of the local government unit concerned,
and (2) published once a week for two (2) consecutive weeks, in a newspaper of general circulation
in the province, city, or municipality. In Talusan v. Tayag, the Court added that the notice of
delinquency should be sent to the registered owner of the property subject of a possible
tax sale. Cases involving an auction sale of land for the collection of delinquent taxes are in
personam. Thus, notice by publication, though sufficient in proceedings in rem, does not as a rule
satisfy the requirement of proceedings in personam.
2. Under Section 258 of the LGC, the warrant of levy must be mailed to or served upon the
delinquent owner of the real property or person having legal interest therein, or in case he is out
of the country or cannot be located, to the administrator or occupant of the property. At the same
time, written notice of the levy with the attached warrant shall be mailed to or served upon the
assessor and the Register of Deeds of the province, city or a municipality where the property is
located, who shall annotate the levy on the tax declaration and certificate of title of the property,
respectively. The levying officer shall submit a report on the levy to the sanggunian concerned
within ten (10) days after receipt of the warrant by the owner of the property or person having legal
interest therein.
3. Section 260 of the LGC requires that within thirty (30) days after service of the warrant of levy, the
local treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion
thereof as may be necessary to satisfy the tax delinquency and expenses of sale. The advertisement
shall be effected by: (1) posting a notice at the main entrance of the provincial, city or municipal
building, and in a publicly accessible and conspicuous place in the barangay where the real property
is located, and (2) publication once a week for two (2) weeks in a newspaper of general circulation in
the province, city or municipality where the property is located. (Salva vs. Magpile, GR No. 220440
dated November 8, 2017)
Action Assailing Validity of Tax Sale:
1. Section 267. Action Assailing Validity of Tax Sale. - No court shall entertain any action assailing the
validity or any sale at public auction of real property or rights therein under this Title until the
taxpayer shall have deposited with the court the amount for which the real property was sold,
together with interest of two percent (2%) per month from the date of sale to the time of the
institution of the action. The amount so deposited shall be paid to the purchaser at the
auction sale if the deed is declared invalid but it shall be returned to the depositor if the
action fails. Neither shall any court declare a sale at public auction invalid by reason of irregularities
or informalities in the proceedings unless the substantive rights of the delinquent owner of the real
property or the person having legal interest therein have been impaired.

2.a. As worded, Section 267 operates only within the purview of real property taxation (Title II). The
pertinent tax involved is only real property tax or realty tax. Thus, the reason for the "sale at public
auction of the real property or rights therein" in Section 267 is obviously because of non-payment
of realty tax and no other.
2.b. Clearly, the deposit precondition is an ingenious legal device to guarantee the satisfaction of the tax
delinquency, with the local government unit keeping the payment on the bid price no matter the
final outcome of the suit to nullity the tax sale.
3. Deposit is not required or applicable if:
a. The property is current in its realty tax or not realty tax delinquent. It should not be the subject of
a sale at public auction as contemplated in Section 267. - but there must be competent
evidence that the realty tax due on the property subject of the tax sale has been
seasonably and fully paid.
b. The plaintiff is the government or any of its agencies as it is presumed to be solvent, and more so
where the tax exempt status of such plaintiff as basis of the suit is acknowledged.
4.a. In the present case, the very issue raised in the Petition is the invalidity of the auction sales on
the ground that the subject properties are not tax delinquent. On the assumption that the subject
two lots are not tax delinquent, then there is no need for the deposit requirement under Section 267
because the realty taxes due on the subject two lots have already been paid and there are no tax
delinquencies to be collected or satisfied.
4.b. The required deposit under Section 267 becomes jurisdictional only if there is no dispute that the
real property is tax delinquent. In that instance, the deposit will serve its intended purpose.
However, where the property sold at a public auction sale is not tax delinquent, then the envisioned
purpose becomes irrelevant, if not oppressive.
4.c. Thus, the position taken by the RTC, as affirmed by the CA, that "[s]o long as the plaintiff assails the
validity of the tax sale at public auction then Section 267 is applicable" is unjustified for it
disregards the intended purpose of the deposit requirement, the reason for the sale at
public auction of the subject real property, its realty tax status and the kind of "taxpayer"
contemplated therein. If there is competent evidence that the realty tax due on the
property subject of the tax sale has been seasonably and fully paid, then the deposit
requirement under Section 267 does not serve its intended purpose and ceases to be
jurisdictional. (Beaumont Holdings vs. Reyes, GR No. 203706 dated August 7, 2017)
5. Solco cannot invoke the provision under Section 267 of RA 7160, requiring the posting of a
jurisdictional bond before a court can entertain an action assailing a tax sale. A simple reading of the
title readily reveals that the provision relates to actions for annulment of tax sales. The section
likewise makes use of terms "entertain" and "institution" to mean that the deposit requirement
applies only to initiatory actions assailing the validity of tax sales. Again, the suit filed by Solco
was an action for nullity of title and issuance of new title in lieu thereof; the issue of nullity of the

tax sale was raised by the Megaworld merely as a defense and in no way converted the action to an
action for annulment of a tax sale. (Solco vs. Megaworld Corporation, GR No. 213669 dated March 5, 2018)
6. The first paragraph pertains to the condition precedent of a deposit. The second paragraph limits the
invalidation of tax delinquency sales on the basis of "irregularities or informalities in the
proceedings." Section 267 permits such invalidations only when "substantive rights . . . have been
impaired." These substantive rights may pertain to "the delinquent owner of the real property or the
person having legal interest therein." Stated otherwise, a person having legal interest over
such property, even a non-owner, may bring an action under Section 267, for as long as
his or her substantive rights have been impaired. The right to file an action under Section 267
is not barred merely on account of a plaintiff's not being the owner of the property sold. (Alvarado vs.
Ayala Land, Inc., GR No. 208426 dated September 20, 2017)
RPT Refund Provision:
Repayment of Excessive Collections. - When an assessment of basic real property tax, or any other tax
levied under this Title, is found to be illegal or erroneous and the tax is accordingly reduced or adjusted,
the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city
treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment.
The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from
receipt thereof. In case the claim for tax refund or credit is denied, the taxpayer may avail of the
remedies as provided in Chapter 3, Title II, Book II of this Code. (appeal to the LBAA) [Sec. 253]
But note, however, that the entitlement to a tax refund does not necessarily call for the automatic
payment of the sum claimed. The amount of the claim being a factual matter, it must still be proven in
the normal course and in accordance with the administrative procedure for obtaining a refund of real
property taxes, as provided under the Local Government Code. (Allied Banking Corporation vs. The City
Government of Quezon City, GR No. 154126 dated September 15, 2006 – Motion for Clarification)
In this case, the SC held that: ―the claim for refund may be pursued in accordance with Section 253 of
the Local Government Code within Two (2) Years from the finality of this Decision.‖

CTA Jurisdiction over Tax Rulings and Regulations

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CTA Jurisdiction over Tax Rulings and Regulations

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ARELLANO BAR REVIEW PROGRAM HANDOUT NO.

Center for Legal Education And Research 2019 07

Taxes vs. Fees:

UPDATES AND CRITICAL AREAS IN TAXATION LAW |1

a. Rulings of first impression; and,

How to contest a ruling of the BIR?

How to contest a ruling of the CIR?

3. Next Remedy RTC or CTA?

2 | CENTER FOR LEGAL EDUCATION AND RESEARCH

BDO vs. Republic, GR No. 198756 dated August 16, 2016:

TRAIN Law Amendments – 8% Tax:

a. Compensation Income – graduated rates; and,

UPDATES AND CRITICAL AREAS IN TAXATION LAW |3

1. Purely compensation income earners;

4 | CENTER FOR LEGAL EDUCATION AND RESEARCH

May Juan avail of the 8% income tax rate?

free lance architect – P1,000,000.00;

a. How much taxable income will be subject to 8% tax?

free lance architect – P1,000,000.00;

a. How much taxable income will be subject to 8% tax?

free lance architect – P1,000,000.00;

a. How much taxable income will be subject to 8% tax?

UPDATES AND CRITICAL AREAS IN TAXATION LAW |5

Is Greg entitled to avail of the 8% income tax rate?

Is Willie entitled to avail of the 8% income tax rate?

TRAIN Law Amendments – Exemptions and Deductions:

TRAIN Law Amendments – Optional Standard Deduction:

1. TRAIN Law Provision:

6 | CENTER FOR LEGAL EDUCATION AND RESEARCH

TRAIN Law Amendments – Final Tax Rates:

TRAIN Law Amendments – Others:

2. Substituted Filing - Individual taxpayers receiving purely compensation income, regardless of

UPDATES AND CRITICAL AREAS IN TAXATION LAW |7

(A) Personal profile and information;

3.b. Deadline for Individual ITR:

1st Quarter – May 15

2nd Quarter – August 15

3.c. Payment by Installment of Income Tax for Individuals:

1. Tax due is more than Two Thousand Pesos (P2,000.00);

1. 1st installment - at the time the return is filed;

8 | CENTER FOR LEGAL EDUCATION AND RESEARCH

Rule on excess De Minimis Benefits:

Rule on Minimum Wage Earners:

Provided, however, that an employee who receives/earns additional compensation such as

UPDATES AND CRITICAL AREAS IN TAXATION LAW |9

New Rules under RR No. 11-2018:

Deposit Substitutes – Taxation of bonds:

10 | CENTER FOR LEGAL EDUCATION AND RESEARCH

Capital Gains Tax:

Revenues from Paying Patients: P1,730,000,000.00

UPDATES AND CRITICAL AREAS IN TAXATION LAW | 11

5.a. 10% imposed on taxable income under Sec. 27(B).

12 | CENTER FOR LEGAL EDUCATION AND RESEARCH

Income tax of schools:

a. The proprietary educational institution is nonprofit; and,

4. Exempt under the NIRC:

Sec. 30 (H) - A nonstock and nonprofit educational institution;

Sec. 30 (I) - Government educational institution;

The tax-exemption constitutionally-granted to non-stock, non-profit educational institutions, is not

UPDATES AND CRITICAL AREAS IN TAXATION LAW | 13

Tuition Fees: P1,000,000.00

Interest Income – BPI Dollar Account: P2,000,000.00

Rental Income: P 500,000.00