Le Tax

2020 BAR REVIEW TAXATION LAW
CHAIR’S CASES Handout No. 33

Justice Marvic Mario Victor F. Leonen
GENERAL PRINCIPLES
The power to tax “is an attribute of sovereignty,” and as such, inheres in the State. Such,
however, is not true for provinces, cities, municipalities and barangays as they are not the
sovereign; rather, they are mere “territorial and political subdivisions of the Republic of the
Philippines.”
The rule governing the taxing power of provinces, cities, municipalities and barangays is
summarized in Icard v. City Council of Baguio: It is settled that a municipal corporation unlike a
sovereign state is clothed with no inherent power of taxation. The charter or statute must plainly
show an intent to confer that power or the municipality, cannot assume it. And the power when
granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the term
used in granting that power must be resolved against the municipality. Inferences, implications,
deductions—all these—have no place in the interpretation of the taxing power of a municipal
corporation. Pelizloy Realty Corporation vs. Province of Benguet, 695 SCRA 491, G.R. No. 183137
April 10, 2013
The power of taxation is inherently legislative and may be imposed or revoked only by the
legislature.
The power of taxation is inherently legislative and may be imposed or revoked only by the
legislature. Moreover, this plenary power of taxation cannot be delegated by Congress to any
other branch of government or private persons, unless its delegation is authorized by the
Constitution itself. Hence, the discretion to ascertain the following — (a) basis, amount, or rate
of tax; (b) person or property that is subject to tax; (c) exemptions and exclusions from tax; and
(d) manner of collecting the tax — may not be delegated away by Congress. La Suerte Cigar &
Cigarette Factory vs. Court of Appeals, 739 SCRA 489, G.R. No. 165499 November 11, 2014
“Tax” and “Debt,” Distinguished.
Philex Mining Corporation v. Commissioner of Internal Revenue, 294 SCRA 687 (1998), ruled that
“[t]here is a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity.” Rejecting
Philex Mining’s assertion that the imposition of surcharge and interest was unjustified because it
had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it
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still had pending claims for VAT input credit/refund with the Bureau of Internal Revenue. Air
Canada vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016
The taxpayer cannot simply refuse to pay tax on the ground that the tax liabilities were offset
against any alleged claim the taxpayer may have against the government.
Such would merely be in keeping with the basic policy on prompt collection of taxes as the
lifeblood of the government. Here, what is involved is a denial of a taxpayer’s refund claim on
account of the Court of Tax Appeals’ finding of its liability for another tax in lieu of the Gross
Philippine Billings tax that was allegedly erroneously paid. Air Canada vs. Commissioner of
Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016
Generally, tax statutes are construed strictly against the government and in favor of the
taxpayer.
“[S]tatutes levying taxes or duties [are] not to extend their provisions beyond the clear import of
the language used”; and “tax burdens are not to be imposed, nor presumed to be imposed
beyond what the statute[s] expressly and clearly [import]. . . .” Similarly, we cannot impose a
penalty for nonpayment of a tax greater than what the law provides. To do so would amount to
a deprivation of property without due process of law. National Power Corporation vs. City of
Cabanatuan, 737 SCRA 305, G.R. No. 177332 October 1, 2014
Taxes and its surcharges and penalties cannot be construed in such a way as to become
oppressive and confiscatory.
Taxes are implied burdens that ensure that individuals and businesses prosper in a conducive
environment assured by good and effective government. A healthy balance should be maintained
such that laws are interpreted in a way that these burdens do not amount to a confiscatory
outcome. Taxes are not and should not be construed to drive businesses into insolvency. To a
certain extent, a reasonable surcharge will provide incentive to pay; an unreasonable one delays
payment and engages government in unnecessary litigation and expense. National Power
Corporation vs. City of Cabanatuan, 737 SCRA 305, G.R. No. 177332 October 1, 2014

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Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority.
The onus of proving that stemmed leaf tobacco is not subject to the specific tax lies with the
cigarette manufacturers. Taxation is the rule, exemption is the exception. Accordingly, statutes
granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally
in favor of the taxing authority. The cigarette manufacturers must justify their claim by a clear
and categorical provision in the law. Otherwise, they are liable for the specific tax on stemmed
leaf tobacco found in their possession pursuant to Section 127 of the 1986 Tax Code, as amended.
La Suerte Cigar & Cigarette Factory vs. Court of Appeals, 739 SCRA 489, G.R. No. 165499
November 11, 2014
For double taxation in the objectionable or prohibited sense to exist, “the same property must
be taxed twice, when it should be taxed but once.”
The contention that the cigarette manufacturers are doubly taxed because they are paying the
specific tax on the raw material and on the finished product in which the raw material was a part
is also devoid of merit. For double taxation in the objectionable or prohibited sense to exist, “the
same property must be taxed twice, when it should be taxed but once.” “[B]oth taxes must be
imposed on the same property or subject- matter, for the same purpose, by the same . . . taxing
authority, within the same jurisdiction or taxing district, during the same taxing period, and they
must be the same kind or character of tax.” La Suerte Cigar & Cigarette Factory vs. Court of
Appeals, 739 SCRA 489, G.R. No. 165499 November 11, 2014
In this case, there is no double taxation in the prohibited sense because the specific tax is
imposed by explicit provisions of the Tax Code on two (2) different articles or products: (1) on
the stemmed leaf tobacco; and (2) on cigar or cigarette.
Excise taxes are essentially taxes on property because they are levied on certain specified goods
or articles manufactured or produced in the Philippines for domestic sale or consumption or for
any other disposition, and on goods imported. La Suerte Cigar & Cigarette Factory vs. Court of
Appeals, 739 SCRA 489, G.R. No. 165499 November 11, 2014

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A tax amnesty is a general pardon or the intentional overlooking by the State of its authority
to impose penalties on persons otherwise guilty of violation of a tax law.
In several cases, this court explained the nature of a tax amnesty. In Metropolitan Bank and Trust
Co. v. Commissioner of Internal Revenue, 595 SCRA 234 (2009): A tax amnesty is a general pardon
or the intentional overlooking by the State of its authority to impose penalties on persons
otherwise guilty of violation of a tax law. It partakes of an absolute waiver by the government of
its right to collect what is due it and to give tax evaders who wish to relent a chance to start with
a clean slate. A tax amnesty, much like a tax exemption, is never favored or presumed in law. The
grant of a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer
and liberally in favor of the taxing authority. LG Electronics Philippines, Inc. vs. Commissioner of
Internal Revenue, 743 SCRA 511, G.R. No. 165451 December 3, 2014
A tax amnesty “partakes of an absolute waiver by the Government of its right to collect what
otherwise would be due it.”
Republic Act No. 9480 provides a general grant of tax amnesty subject only to the cases
specifically excepted by it. A tax amnesty “partakes of an absolute . . . waiver by the Government
of its right to collect what otherwise would be due it[.]” The effect of a qualified taxpayer’s
submission of the required documents and the payment of the prescribed amnesty tax was
immunity from payment of all national internal revenue taxes as well as all administrative, civil,
and criminal liabilities founded upon or arising from nonpayment of national internal revenue
taxes for taxable year 2005 and prior taxable years. ING Bank N.V. vs. Commissioner of Internal
Revenue, 763 SCRA 359, G.R. No. 167679 July 22, 2015
Pursuant to Section 10 of the Tax Amnesty Law, amnesty taxpayers who willfully understate
their net worth shall not only be liable for perjury under the Revised Penal Code (RPC), but,
upon conviction, also subject to immediate tax fraud investigation in order to collect all taxes
due and to criminally prosecute for tax evasion.
The amnesty granted under the law is revoked once the taxpayer is proven to have under-
declared his assets in his SALN by 30% or more. Commissioner of Internal Revenue vs. Apo
Cement Corporation, 817 SCRA 168, G.R. No. 193381 February 8, 2017

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The Office of the Solicitor General (OSG) is the proper party to represent the interests of the
government through the Bureau of Internal Revenue (BIR).
The Legal Division of the Bureau of Internal Revenue should be mindful of this procedural lapse
in the future. However, records show that the Office of the Solicitor General has been apprised
of developments in the case since the beginning of the proceedings. We, thus, rule that the
interests of the government have been duly protected. LG Electronics Philippines, Inc. vs.
Commissioner of Internal Revenue, 743 SCRA 511, G.R. No. 165451 December 3, 2014
NATIONAL TAXATION
Under Section 6(E) of Republic Act (RA) No. 8424, only the Commissioner of Internal Revenue
(CIR) has the power to determine the zonal value of properties; Under Section 7 of RA No. 8424,
the Commissioner is authorized to delegate his or her powers under the law.
Under Section 6(E) of Republic Act No. 8424, only the Commissioner of Internal Revenue has the
power to determine the zonal value of properties. The provision states: Section 6. Power of the
Commissioner to Make assessments and Prescribe additional Requirements for Tax
Administration and Enforcement.—(E) Authority of the Commissioner to Prescribe Real Property
Values.—The Commissioner is hereby authorized to divide the Philippines into different zones or
areas and shall, upon consultation with competent appraisers both from the private and public
sectors, determine the fair market value of real properties located in each zone or area. For
purposes of computing any internal revenue tax, the value of the property shall be, whichever is
the higher of[:] (1) the fair market value as determined by the Commissioner, or (2) the fair
market value as shown in the schedule of values of the Provincial and City Assessors. (Emphasis
supplied) Under Section 7 of Republic Act No. 8424, the Commissioner is authorized to delegate
his or her powers under the law. Republic vs. Heirs of Gabriel Q. Fernandez, 754 SCRA 298, G.R.
No. 175493 March 25, 2015
Section 4 of the National Internal Revenue Code (NIRC) states that the Commissioner has the
power to decide on tax refunds, but his or her decision is subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals (CTA).
This Court rules that the Court of Tax Appeals is not limited by the evidence presented in the
administrative claim in the Bureau of Internal Revenue. The claimant may present new and
additional evidence to the Court of Tax Appeals to support its case for tax refund. Section 4 of
the National Internal Revenue Code states that the Commissioner has the power to decide on tax
refunds, but his or her decision is subject to the exclusive appellate jurisdiction of the Court of

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Tax Appeals. Philippine Airlines, Inc. (PAL) vs. Commissioner of Internal Revenue, 851 SCRA 518,
G.R. Nos. 206079-80, G.R. No. 206309 January 17, 2018
While the Commissioner has the right to hear a refund claim first, if he or she fails to act on it,
it will be treated as a denial of the refund, and the Court of Tax Appeals (CTA) is the only entity
that may review this ruling.
Republic Act No. 9282, amending Republic Act No. 1125, is the governing law on the jurisdiction
of the Court of Tax Appeals. Section 7 provides that the Court of Tax Appeals has exclusive
appellate jurisdiction over tax refund claims in case the Commissioner fails to act on them:
x x x This means that while the Commissioner has the right to hear a refund claim first, if he or
she fails to act on it, it will be treated as a denial of the refund, and the Court of Tax Appeals is
the only entity that may review this ruling. The power of the Court of Tax Appeals to exercise its
appellate jurisdiction does not preclude it from considering evidence that was not presented in
the administrative claim in the Bureau of Internal Revenue. Republic Act No. 1125 states that the
Court of Tax Appeals is a court of record. Philippine Airlines, Inc. (PAL) vs. Commissioner of
Internal Revenue, 851 SCRA 518, G.R. Nos. 206079-80, G.R. No. 206309 January 17, 2018
The Bureau of Internal Revenue is the primary agency tasked to assess and collect proper taxes,
and to administer and enforce the Tax Code.
To perform its functions of tax assessment and collection properly, it is given ample powers under
the Tax Code, such as the power to examine tax returns and books of accounts, to issue a
subpoena, and to assess based on best evidence obtainable, among others. However, these
powers must "be exercised reasonably and [under] the prescribed procedure." The
Commissioner and revenue officers must strictly comply with the requirements of the law, with
the Bureau of Internal Revenue's own rules, and with due regard to taxpayers' constitutional
rights. Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc., G.R. Nos.
201398-99 October 3, 2018; Avon Products Manufacturing, Inc. vs. Commissioner of Internal
Revenue, G.R. Nos. 201418-19 October 3, 2018

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The Commissioner exercises administrative adjudicatory power or quasi-judicial function in

adjudicating the rights and liabilities of persons under the Tax Code.
In carrying out these quasi-judicial functions, the Commissioner is required to "investigate facts
or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from
them as basis for their official action and exercise of discretion in a judicial nature." Tax
investigation and assessment necessarily demand the observance of due process because they
affect the proprietary rights of specific persons. Commissioner of Internal Revenue vs. Avon
Products Manufacturing, Inc., G.R. Nos. 201398-99 October 3, 2018; Avon Products
Manufacturing, Inc. vs. Commissioner of Internal Revenue, G.R. Nos. 201418-19 October 3, 2018
Tax assessments issued in violation of the due process rights of a taxpayer are null and void.
While the government has an interest in the swift collection of taxes, the Bureau of Internal
Revenue and its officers and agents cannot be overreaching in their efforts, but must perform
their duties in accordance with law, with their own rules of procedure, and always with regard
to the basic tenets of due process.
The 1997 National Internal Revenue Code, also known as the Tax Code, and revenue regulations
allow a taxpayer to file a reply or otherwise to submit comments or arguments with supporting
documents at each stage in the assessment process. Due process requires the Bureau of Internal
Revenue to consider the defenses and evidence submitted by the taxpayer and to render a
decision based on these submissions. Failure to adhere to these requirements constitutes a
denial of due process and taints the administrative proceedings with invalidity. Commissioner of
Internal Revenue vs. Avon Products Manufacturing, Inc., G.R. Nos. 201398-99 October 3, 2018;
Avon Products Manufacturing, Inc. vs. Commissioner of Internal Revenue, G.R. Nos. 201418-19
October 3, 2018
In the seminal case of Fisher v. Trinidad, 43 Phil. 973 (1922), the Supreme Court (SC) defined
income tax as “a tax on the yearly profits arising from property, professions, trades, and
offices.”
Otherwise stated, income tax is the “tax on all yearly profits arising from property, professions,
trades or offices, or as a tax on a person’s income, emoluments, profits and the like.” LG
Electronics Philippines, Inc. vs. Commissioner of Internal Revenue, 743 SCRA 511, G.R. No.
165451 December 3, 2014

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Under the National Internal Revenue Code (NIRC), every form of compensation for personal
services is subject to income tax and, consequently, to withholding tax.
Under the National Internal Revenue Code, every form of compensation for personal services is
subject to income tax and, consequently, to withholding tax. The term “compensation” means
all remunerations paid for services performed by an employee for his or her employer, whether
paid in cash or in kind, unless specifically excluded under Sections 32(B) and 78(A) of the 1997
National Internal Revenue Code. The name designated to the remuneration for services is
immaterial. Thus, “salaries, wages, emoluments and honoraria, bonuses, allowances (such as
transportation, representation, entertainment, and the like), [taxable] fringe benefits[,] pensions
and retirement pay, and other income of a similar nature constitute compensation income” that
is taxable. ING Bank N.V. vs. Commissioner of Internal Revenue, 763 SCRA 359, G.R. No. 167679
July 22, 2015
The tax on compensation income is withheld at source under the creditable withholding tax
system wherein the tax withheld is intended to equal or at least approximate the tax due of the
payee on the said income.
It was designed to enable (a) the individual taxpayer to meet his or her income tax liability on
compensation earned; and (b) the government to collect at source the appropriate taxes on
compensation. Taxes withheld are creditable in nature. Thus, the employee is still required to file
an income tax return to report the income and/or pay the difference between the tax withheld
and the tax due on the income. For over withholding, the employee is refunded. Therefore,
absolute or exact accuracy in the determination of the amount of the compensation income is
not a prerequisite for the employer’s withholding obligation to arise. ING Bank N.V. vs.
Commissioner of Internal Revenue, 763 SCRA 359, G.R. No. 167679 July 22, 2015
Compensation is constructively paid within the meaning of these regulations when it is credited
to the account of or set apart for an employee so that it may be drawn upon by him at any time
although not then actually reduced to possession.
Constructive payment of compensation is further defined in Revenue Regulations No. 6-82:

Section 25. Applicability; constructive receipt of compensation.—. . . . Compensation is
constructively paid within the meaning of these regulations when it is credited to the account of
or set apart for an employee so that it may be drawn upon by him at any time although not then
actually reduced to possession. To constitute payment in such a case, the compensation must be
credited or set apart for the employee without any substantial limitation or restriction as to the

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time or manner of payment or condition upon which payment is to be made, and must be made
available to him so that it may be drawn upon at any time, and its payment brought within his
control and disposition. ING Bank N.V. vs. Commissioner of Internal Revenue, 763 SCRA 359,
G.R. No. 167679 July 22, 2015
If the taxpayer is on cash basis, the expense is deductible in the year it was paid, regardless of
the year it was incurred. If he is on the accrual method, he can deduct the expense upon accrual
thereof.
An item that is reasonably ascertained as to amount and acknowledged to be due has “accrued”;
actual payment is not essential to constitute “expense.” Stated otherwise, an expense is accrued
and deducted for tax purposes when (1) the obligation to pay is already fixed; (2) the amount can
be determined with reasonable accuracy; and (3) it is already knowable or the taxpayer can
reasonably be expected to have known at the closing of its books for the taxable year. ING Bank
N.V. vs. Commissioner of Internal Revenue, 763 SCRA 359, G.R. No. 167679 July 22, 2015
Section 29(j) of the 1977 National Internal Revenue Code (NIRC) (Section 34[K] of the 1997 NIRC)
expressly requires, as a condition for deductibility of an expense, that the tax required to be
withheld on the amount paid or payable is shown to have been remitted to the Bureau of
Internal Revenue (BIR) by the taxpayer constituted as a withholding agent of the government.
The provision of Section 72 of the 1977 National Internal Revenue Code (Section 79 of the 1997
National Internal Revenue Code) regarding withholding on wages must be read and construed in
harmony with Section 29(j) of the 1977 National Internal Revenue Code (Section 34[K] of the
1997 National Internal Revenue Code) on deductions from gross income. This is in accordance
with the rule on statutory construction that an interpretation is to be sought which gives effect
to the whole of the statute, such that every part is made effective, harmonious, and sensible, if
possible, and not defeated nor rendered insignificant, meaningless, and nugatory. If we go by the
theory of petitioner ING Bank, then the condition imposed by Section 29(j) would have been
rendered nugatory, or we would in effect have created an exception to this mandatory
requirement when there was none in the law. ING Bank N.V. vs. Commissioner of Internal
Revenue, 763 SCRA 359, G.R. No. 167679 July 22, 2015

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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 the determination of the taxes due
from a taxpayer under the National Internal Revenue Code of 1997. SMI-ED Philippines
Technology, Inc. vs. Commissioner of Internal Revenue, 739 SCRA 691, G.R. No. 175410
November 12, 2014
The power and duty to assess national internal revenue taxes are lodged with the Bureau of
Internal Revenue (BIR).
SEC. 2. Powers and Duties of the Bureau of Internal Revenue.—The Bureau of Internal Revenue
shall be under the supervision and control of the Department of Finance and its powers and
duties shall comprehend the assessment and collection of all national internal revenue taxes,
fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected
therewith, including the execution of judgments in all cases decided in its favor by the Court of
Tax Appeals and the ordinary courts. The Bureau shall give effect to and administer the
supervisory and police powers conferred to it by this Code or other laws. (Emphasis supplied) The
BIR is not mandated to make an assessment relative to every return filed with it. Tax returns filed
with the BIR enjoy the presumption that these are in accordance with the law. Tax returns are
also presumed correct since these are filed under the penalty of perjury. Generally, however, the
BIR assesses taxes when it appears, after a return had been filed, that the taxes paid were
incorrect, false, or fraudulent. The BIR also assesses taxes when taxes are due but no return is
filed. SMI-ED Philippines Technology, Inc. vs. Commissioner of Internal Revenue, 739 SCRA 691,
G.R. No. 175410 November 12, 2014
Taxes are generally self-assessed. They are initially computed and voluntarily paid by the
taxpayer. The government does not have to demand it.
Taxes are generally self-assessed. They are initially computed and voluntarily paid by the
taxpayer. The government does not have to demand it. If the tax payments are correct, the BIR
need not make an assessment. The self-assessing and voluntarily paying taxpayer, however, may
later find that he or she has erroneously paid taxes. Erroneously paid taxes may come in the form
of amounts that should not have been paid. Thus, a taxpayer may find that he or she has paid
more than the amount that should have been paid under the law. Erroneously paid taxes may
also come in the form of tax payments for the wrong category of tax. Thus, a taxpayer may find
that he or she has paid a certain kind of tax that he or she is not subject to. SMI-ED Philippines

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Technology, Inc. vs. Commissioner of Internal Revenue, 739 SCRA 691, G.R. No. 175410
November 12, 2014
A claim for tax refund carries the assumption that the tax returns filed were correct.
The issue of petitioner’s claim for tax refund is intertwined with the issue of the proper taxes that
are due from petitioner. A claim for tax refund carries the assumption that the tax returns filed
were correct. If the tax return filed was not proper, the correctness of the amount paid and,
therefore, the claim for refund become questionable. In that case, the court must determine if a
taxpayer claiming refund of erroneously paid taxes is more properly liable for taxes other than
that paid. SMI-ED Philippines Technology, Inc. vs. Commissioner of Internal Revenue, 739 SCRA
691, G.R. No. 175410 November 12, 2014
“Capital assets” refers to taxpayer’s property that is NOT any of the following
Thus, “capital assets” refers to taxpayer’s property that is NOT any of the following: 1. Stock in
trade; 2. Property that should be included in the taxpayer’s inventory at the close of the taxable
year; 3. Property held for sale in the ordinary course of the taxpayer’s business; 4. Depreciable
property used in the trade or business; and 5. Real property used in the trade or business. SMI-
ED Philippines Technology, Inc. vs. Commissioner of Internal Revenue, 739 SCRA 691, G.R. No.
175410 November 12, 2014
For corporations, the National Internal Revenue Code (NIRC) of 1997 treats the sale of land and
buildings, and the sale of machineries and equipment, differently.
Domestic corporations are imposed a 6% capital gains tax only on the presumed gain realized
from the sale of lands and/or buildings. The National Internal Revenue Code of 1997 does not
impose the 6% capital gains tax on the gains realized from the sale of machineries and equipment.
SMI-ED Philippines Technology, Inc. vs. Commissioner of Internal Revenue, 739 SCRA 691, G.R.
No. 175410 November 12, 2014

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Section 203 of the National Internal Revenue Code (NIRC) of 1997 provides that as a general
rule, the Bureau of Internal Revenue (BIR) has three (3) years from the last day prescribed by
law for the filing of a return to make an assessment.
If the return is filed beyond the last day prescribed by law for filing, the three-year period shall
run from the actual date of filing. Thus: SEC. 203. Period of Limitation Upon Assessment and
Collection.—Except as provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the return, and no proceeding
in court without assessment for the collection of such taxes shall be begun after the expiration
of such period: Provided, That in a case where a return is filed beyond the period prescribed by
law, the three (3)-year period shall be counted from the day the return was filed. For purposes
of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. SMI-ED Philippines Technology, Inc. vs. Commissioner of
Internal Revenue, 739 SCRA 691, G.R. No. 175410 November 12, 2014
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) other than deposits, through the issuance, endorsement, or acceptance of debt
instruments for the borrower’s own account, for the purpose of relending or purchasing of
receivables and other obligations, or financing their own needs or the needs of their agent or
dealer.
The definition of deposit substitutes was amended under the 1997 National Internal Revenue
Code with the addition of the qualifying phrase for public — borrowing from 20 or more
individual or corporate lenders at any one time. Under Section 22(Y), deposit substitute is defined
thus: SEC. 22. Definitions.—When used in this Title: . . . . (Y) 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) other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the borrower’s own
account, for the purpose of relending or purchasing of receivables and other obligations, or
financing their own needs or the needs of their agent or dealer. These instruments may include,
but need not be limited to, bankers’ acceptances, promissory notes, repurchase agreements,
including reverse repurchase agreements entered into by and between the Bangko Sentral ng
Pilipinas (BSP) and any authorized agent bank, certificates of assignment or participation and
similar instruments with recourse: Provided, however, That debt instruments issued for
interbank call loans with maturity of not more than five (5) days to cover deficiency in reserves
against deposit liabilities, including those between or among banks and quasi-banks, shall not be
considered as deposit substitute debt instruments. Under the 1997 National Internal Revenue
Code, Congress specifically defined “public” to mean “twenty (20) or more individual or corporate

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lenders at any one time.” Hence, the number of lenders is determinative of whether a debt
instrument should be considered a deposit substitute and consequently subject to the 20% final
withholding tax. Banco de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756 January 13, 2015
Interest income from deposit substitutes are necessarily part of taxable income.
It must be emphasized, however, that debt instruments that do not qualify as deposit substitutes
under the 1997 National Internal Revenue Code are subject to the regular income tax. The phrase
“all income derived from whatever source” in Chapter VI, Computation of Gross Income, Section
32(A) of the 1997 National Internal Revenue Code discloses a legislative policy to include all
income not expressly exempted as within the class of taxable income under our laws. “The
definition of gross income is broad enough to include all passive incomes subject to specific tax
rates or final taxes.” Hence, interest income from deposit substitutes are necessarily part of
taxable income. “However, since these passive incomes are already subject to different rates and
taxed finally at source, they are no longer included in the computation of gross income, which
determines taxable income.” “Stated otherwise . . . if there were no withholding tax system in
place in this country, this 20 percent portion of the ‘passive’ income of [creditors/lenders] would
actually be paid to the [creditors/lenders] and then remitted by them to the government in
payment of their income tax.” Banco de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756
January 13, 2015
When there are twenty (20) or more lenders/investors in a transaction for a specific bond issue,
the seller is required to withhold the twenty percent (20%) final income tax on the imputed
interest income from the bonds.
This court, in Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, 614 SCRA 605
(2010), explained the rationale behind the withholding tax system: The withholding [of tax at
source] was devised for three primary reasons: first, to provide the taxpayer a convenient
manner to meet his probable income tax liability; second, to ensure the collection of income tax
which can otherwise be lost or substantially reduced through failure to file the corresponding
returns[;] and third, to improve the government’s cash flow. This results in administrative
savings, prompt and efficient collection of taxes, prevention of delinquencies and reduction of
governmental effort to collect taxes through more complicated means and remedies. (Citations
omitted) “The application of the withholdings system to interest on bank deposits or yield from
deposit substitutes is essentially to maximize and expedite the collection of income taxes by
requiring its payment at the source.” Banco de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756
January 13, 2015

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The interest income earned from bonds is not synonymous with the “gains” contemplated
under Section 32(B)(7)(g) of the 1997 National Internal Revenue Code (NIRC), which exempts
gains derived from trading, redemption, or retirement of long-term securities from ordinary
income tax.
The term “gain” as used in Section 32(B)(7)(g) does not include interest, which represents
forbearance for the use of money. Gains from sale or exchange or retirement of bonds or other
certificate of indebtedness fall within the general category of “gains derived from dealings in
property” under Section 32(A)(3), while interest from bonds or other certificate of indebtedness
falls within the category of “interests” under Section 32(A)(4). The use of the term “gains from
sale” in Section 32(B)(7)(g) shows the intent of Congress not to include interest as referred under
Sections 24, 25, 27, and 28 in the exemption. Hence, the “gains” contemplated in Section
32(B)(7)(g) refers to: (1) gain realized from the trading of the bonds before their maturity date,
which is the difference between the selling price of the bonds in the secondary market and the
price at which the bonds were purchased by the seller; and (2) gain realized by the last holder of
the bonds when the bonds are redeemed at maturity, which is the difference between the
proceeds from the retirement of the bonds and the price at which such last holder acquired the
bonds. For discounted instruments, like the zero-coupon bonds, the trading gain shall be the
excess of the selling price over the book value or accreted value (original issue price plus
accumulated discount from the time of purchase up to the time of sale) of the instruments. Banco
de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756 January 13, 2015
Under Section 24 of the 1997 National Internal Revenue Code (NIRC), interest income received
by individuals from long-term deposits or investments with a holding period of not less than
five (5) years is exempt from the final tax.
Should there have been a simultaneous sale to 20 or more lenders/investors, the PEACe Bonds
are deemed deposit substitutes within the meaning of Section 22(Y) of the 1997 National Internal
Revenue Code and RCBC Capital/CODE-NGO would have been obliged to pay the 20% final
withholding tax on the interest or discount from the PEACe Bonds. Further, the obligation to
withhold the 20% final tax on the corresponding interest from the PEACe Bonds would likewise
be required of any lender/investor had the latter turned around and sold said PEACe Bonds,
whether in whole or part, simultaneously to 20 or more lenders or investors. Banco de Oro vs.
Republic, 745 SCRA 361, G.R. No. 198756 January 13, 2015

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The three (3)-year prescriptive period under Section 203 of the 1997 National Internal Revenue
Code (NIRC) to assess and collect internal revenue taxes is extended to ten (10) years in cases
of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a
return, to be computed from the time of discovery of the falsity, fraud, or omission.
Section 203 states: SEC. 203. Period of Limitation Upon Assessment and Collection.—Except as
provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such period:
Provided, That in a case where a return is filed beyond the period prescribed by law, the three
(3)-year period shall be counted from the day the return was filed. For purposes of this Section,
a return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day. (Emphasis supplied) . . . . SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes.—(a) In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be filed without assessment, at any time within ten (10) years after
the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof. Banco de Oro vs. Republic, 745 SCRA 361, G.R. No.
198756 January 13, 2015
In case of doubt, a withholding agent may always protect himself or herself by withholding the
tax due and return the amount of the tax withheld should it be finally determined that the
income paid is not subject to withholding.
Hence, respondent Bureau of Treasury was justified in withholding the amount corresponding to
the 20% final withholding tax from the proceeds of the PEACe Bonds, as it received this court’s
temporary restraining order only on October 19, 2011, or the day after this tax had been
withheld. Banco de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756 January 13, 2015
Petitioner, as an offline international carrier with no landing rights in the Philippines, is not
liable to tax on Gross Philippine Billings under Section 28(A)(3) of the 1997 National Internal
Revenue Code (NIRC).
SEC. 28. Rates of Income Tax on Foreign Corporations.—(A) Tax on Resident Foreign
Corporations.—. . . . (3) International Carrier.—An international carrier doing business in the
Philippines shall pay a tax of two and one-half percent (2 1/2%) on its ‘Gross Philippine Billings’

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as defined hereunder: (a) International Air Carrier.—‘Gross Philippine Billings’ refers to the
amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place
of sale or issue and the place of payment of the ticket or passage document: Provided, That
tickets revalidated, exchanged and/or indorsed to another international airline form part of the
Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines:
Provided, further, That for a flight which originates from the Philippines, but transshipment of
passenger takes place at any port outside the Philippines on another airline, only the aliquot
portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point
of transshipment shall form part of Gross Philippine Billings. (Emphasis supplied) Under the
foregoing provision, the tax 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. Not having flights to and from the Philippines,
petitioner is clearly not liable for the Gross Philippine Billings tax. Air Canada vs. Commissioner
of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016
Petitioner falls within the definition of resident foreign corporation under Section 28(A)(1) of
the 1997 National Internal Revenue Code (NIRC), thus, it may be subject to thirty-two percent
(32%) tax on its taxable income.
Petitioner, an offline carrier, is a resident foreign corporation for income tax purposes. Petitioner
falls within the definition of resident foreign corporation under Section 28(A)(1) of the 1997
National Internal Revenue Code, thus, it may be subject to 32% tax on its taxable
income. x x x The definition of “resident foreign corporation” has not substantially changed
throughout the amendments of the National Internal Revenue Code. All versions refer to “a
foreign corporation engaged in trade or business within the Philippines.” Commonwealth Act No.
466, known as the National Internal Revenue Code and approved on June 15, 1939, defined
“resident foreign corporation” as applying to “a foreign corporation engaged in trade or business
within the Philippines or having an office or place of business therein.” Section 24(b)(2) of the
National Internal Revenue Code, as amended by Republic Act No. 6110, approved on August 4,
1969, reads: Sec. 24. Rates of tax on corporations.—. . . (b) Tax on foreign corporations.—. . . (2)
Resident corporations.—A corporation organized, authorized, or existing under the laws of any
foreign country, except a foreign life insurance company, engaged in trade or business within the
Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income
received in the preceding taxable year from all sources within the Philippines. Air Canada vs.
Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016

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The Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 7042 clarifies that
“doing business” includes “appointing representatives or distributors, operating under full
control of the foreign corporation, domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totaling one hundred eighty (180) days or more.”
Republic Act No. 7042 or the Foreign Investments Act of 1991 also provides guidance with its
definition of “doing business” with regard to foreign corporations. Section 3(d) of the law
enumerates the activities that constitute doing business: d. the phrase “doing business” shall
include soliciting orders, service contracts, opening offices, whether called “liaison” offices or
branches; appointing representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred eighty (180) days
or more; participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of acts
or works, or the exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase “doing business” shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor having a nominee director or officer
to represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own account[.]
(Emphasis supplied) While Section 3(d) above states that “appointing a representative or
distributor domiciled in the Philippines which transacts business in its own name and for its own
account” is not considered as “doing business,” the Implementing Rules and Regulations of
Republic Act No. 7042 clarifies that “doing business” includes “appointing representatives or
distributors, operating under full control of the foreign corporation, domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods totaling one hundred
eighty (180) days or more[.]”Air Canada vs. Commissioner of Internal Revenue, 778 SCRA 131,
G.R. No. 169507 January 11, 2016
An offline carrier is “any foreign air carrier not certificated by the [Civil Aeronautics] Board, but
who maintains office or who has designated or appointed agents or employees in the
Philippines, who sells or offers for sale any air transportation in behalf of said foreign air carrier
and/or others, or negotiate for, or holds itself out by solicitation, advertisement, or otherwise
sells, provides, furnishes, contracts, or arranges for such transportation.”
“Anyone desiring to engage in the activities of an offline carrier [must] apply to the [Civil
Aeronautics] Board for such authority.” Each offline carrier must file with the Civil Aeronautics
Board a monthly report containing information on the tickets sold, such as the origin and

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destination of the passengers, carriers involved, and commissions received. Petitioner is

undoubtedly “doing business” or “engaged in trade or business” in the Philippines. Air Canada
vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016
Petitioner is a resident foreign corporation that is taxable on its income derived from sources
within the Philippines.
Aerotel performs acts or works or exercises functions that are incidental and beneficial to the
purpose of petitioner’s business. The activities of Aerotel bring direct receipts or profits to
petitioner. There is nothing on record to show that Aerotel solicited orders alone and for its own
account and without interference from, let alone direction of, petitioner. On the contrary,
Aerotel cannot “enter into any contract on behalf of [petitioner Air Canada] without the express
written consent of [the latter,]” and it must perform its functions according to the standards
required by petitioner. Through Aerotel, petitioner is able to engage in an economic activity in
the Philippines. Further, petitioner was issued by the Civil Aeronautics Board an authority to
operate as an offline carrier in the Philippines for a period of five years, or from April 24, 2000
until April 24, 2005. Petitioner is a resident foreign corporation that is taxable on its income
derived from sources within the Philippines. Petitioner’s income from sale of airline tickets,
through Aerotel, is income realized from the pursuit of its business activities in the Philippines.
Air Canada vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11,
2016
International air carrier[s] maintain[ing] flights to and from the Philippines . . . shall be taxed
at the rate of two and one-half percent (2 1⁄2%) of its Gross Philippine Billings[;] while
international air carriers that do not have flights to and from the Philippines but nonetheless
earn income from other activities in the country [like sale of airline tickets] will be taxed at the
rate of thirty-two percent (32%) of such [taxable] income.
In the earlier case of South African Airways v. Commissioner of Internal Revenue, 612 SCRA 665
(2010), this court held that Section 28(A)(3)(a) does not categorically exempt all international air
carriers from the coverage of Section 28(A)(1). Thus, if Section 28(A)(3)(a) is applicable to a
taxpayer, then the general rule under Section 28(A)(1) does not apply. If, however, Section
28(A)(3)(a) does not apply, an international air carrier would be liable for the tax under Section
28(A)(1). Air Canada vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507
January 11, 2016

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A tax treaty is an agreement entered into between sovereign states “for purposes of
eliminating double taxation on income and capital, preventing fiscal evasion, promoting
mutual trade and investment, and according fair and equitable tax treatment to foreign
residents or nationals.”
Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., 309 SCRA 87 (1999), explained
the purpose of a tax treaty: The purpose of these international agreements is to reconcile the
national fiscal legislations of the contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are
drafted with a view towards the elimination of international juridical double taxation, which is
defined as the imposition of comparable taxes in two or more states on the same taxpayer in
respect of the same subject matter and for identical periods. The apparent rationale for doing
away with double taxation is to encourage the free flow of goods and services and the movement
of capital, technology and persons between countries, conditions deemed vital in creating robust
and dynamic economies. Foreign investments will only thrive in a fairly predictable and
reasonable international investment climate and the protection against double taxation is crucial
in creating such a climate. Air Canada vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R.
No. 169507 January 11, 2016
The application of the provisions of the National Internal Revenue Code (NIRC) must be subject
to the provisions of tax treaties entered into by the Philippines with foreign countries.
In Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, 704 SCRA 216 (2013),
this court stressed the binding effects of tax treaties. It dealt with the issue of “whether the
failure to strictly comply with [Revenue Memorandum Order] RMO No. 1-2000 will deprive
persons or corporations of the benefit of a tax treaty.” Air Canada vs. Commissioner of Internal
Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016
Tax treaties form part of the law of the land, and jurisprudence has applied the statutory
construction principle that specific laws prevail over general ones.
While petitioner is taxable as a resident foreign corporation under Section 28(A)(1) of the 1997
National Internal Revenue Code on its taxable income from sale of airline tickets in the
Philippines, it could only be taxed at a maximum of 1 1/2% of gross revenues, pursuant to Article
VIII of the Republic of the Philippines-Canada Tax Treaty that applies to petitioner as a “foreign
corporation organized and existing under the laws of Canada[.]” Tax treaties form part of the law
of the land, and jurisprudence has applied the statutory construction principle that specific laws

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prevail over general ones. The Republic of the Philippines-Canada Tax Treaty was ratified on
December 21, 1977 and became valid and effective on that date. On the other hand, the
applicable provisions relating to the taxability of resident foreign corporations and the rate of
such tax found in the National Internal Revenue Code became effective on January 1, 1998.
Ordinarily, the later provision governs over the earlier one. In this case, however, the provisions
of the Republic of the Philippines-Canada Tax Treaty are more specific than the provisions found
in the National Internal Revenue Code. Air Canada vs. Commissioner of Internal Revenue, 778
SCRA 131, G.R. No. 169507 January 11, 2016
Withholding tax is a method of collecting income tax in advance.
“In the operation of the withholding tax system, the payee is the taxpayer, the person on whom
the tax is imposed, while the payor, a separate entity, acts no more than an agent of the
government for the collection of the tax in order to ensure its payment. Obviously, the amount
thereby used to settle the tax liability is deemed sourced from the proceeds constitutive of the
tax base.” There are three reasons for the utilization of the withholding tax system: “first, to
provide the taxpayer a convenient manner to meet his probable income tax liability; second, to
ensure the collection of income tax which can otherwise be lost or substantially reduced through
failure to file the corresponding returns[;] and third, to improve the government’s cash flow.” LG
Electronics Philippines, Inc. vs. Commissioner of Internal Revenue, 743 SCRA 511, G.R. No.
165451 December 3, 2014
The certificate of creditable tax withheld at source is the competent proof to establish the fact
that taxes are withheld.
This court accords respect to the conclusion reached by the Court of Tax Appeals and will not
presumptuously set it aside absent any showing of gross error or abuse on its part. The certificate
of creditable tax withheld at source is the competent proof to establish the fact that taxes are
withheld. It is not necessary for the person who executed and prepared the certificate of
creditable tax withheld at source to be presented and to testify personally to prove the
authenticity of the certificates. Commissioner of Internal Revenue vs. Philippine National Bank,
736 SCRA 609, G.R. No. 180290 September 29, 2014

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Upon presentation of a withholding tax certificate complete in its relevant details and with a
written statement that it was made under the penalties of perjury, the burden of evidence then
shifts to the Commissioner of Internal Revenue (CIR) to prove that (1) the certificate is not
complete; (2) it is false; or (3) it was not issued regularly.
As correctly held by the Court of Tax Appeals En Banc, the figures appearing in the withholding
tax certificates can be taken at face value since these documents were executed under the
penalties of perjury, pursuant to Section 267 of the 1997 National Internal Revenue Code, as
amended, which reads: SEC. 267. Declaration under Penalties of Perjury.—Any declaration,
return and other statements required under this Code, shall, in lieu of an oath, contain a written
statement that they are made under the penalties of perjury. Any person who willfully files a
declaration, return or statement containing information which is not true and correct as to every
material matter shall, upon conviction, be subject to the penalties prescribed for perjury under
the Revised Penal Code. Commissioner of Internal Revenue vs. Philippine National Bank, 736
SCRA 609, G.R. No. 180290 September 29, 2014
Under Sections 57 and 58 of the 1997 National Internal Revenue Code (NIRC), as amended, it is
the payor-withholding agent, and not the payee-refund claimant such as respondent, who is
vested with the responsibility of withholding and remitting income taxes.
Petitioner’s posture that respondent is required to establish actual remittance to the Bureau of
Internal Revenue deserves scant consideration. Proof of actual remittance is not a condition to
claim for a refund of unutilized tax credits. Commissioner of Internal Revenue vs. Philippine
National Bank, 736 SCRA 609, G.R. No. 180290 September 29, 2014
Estate tax may also serve as guard against the release of deposits to persons who have no
sufficient and valid claim over the deposits.
Taxes are created primarily to generate revenues for the maintenance of the government.
However, this particular tax may also serve as guard against the release of deposits to persons
who have no sufficient and valid claim over the deposits. Based on the assumption that only
those with sufficient and valid claim to the deposit will pay the taxes for it, requiring the
certificate from the BIR increases the chance that the deposit will be released only to them.
Philippine National Bank vs. Santos, 744 SCRA 664, G.R. No. 208295 December 10, 2014

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A claim for input Value-Added Tax (VAT) refund or credit is construed strictly against the
taxpayer.
“Excess input tax is not an excessively, erroneously, or illegally collected tax.” A claim for refund
of this tax is in the nature of a tax exemption, which is based on Sections 110(B) and 112(A) of
1997 NIRC, allowing VAT-registered persons to recover the excess input taxes they have paid in
relation to their zero-rated sales. “The term ‘excess’ input VAT simply means that the input VAT
available as [refund] credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due.” Accordingly, claims for tax refund/credit of excess
input tax are governed not by Section 229 but only by Section 112 of the NIRC. A claim for input
VAT refund or credit is construed strictly against the taxpayer. Accordingly, there must be strict
compliance with the prescriptive periods and substantive requirements set by law before a claim
for tax refund or credit may prosper. The mere fact that Team Energy has proved its excess input
VAT does not entitle it as a matter of right to a tax refund or credit. The 120+30-day periods in
Section 112 is not a mere procedural technicality that can be set aside if the claim is otherwise
meritorious. It is a mandatory and jurisdictional condition imposed by law. Team Energy’s failure
to comply with the prescriptive periods is, thus, fatal to its claim. Team Energy Corporation
(formerly: Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.) vs. Commissioner of
Internal Revenue, 859 SCRA 1, G.R. No. 197663 March 14, 2018
Claimants of tax refunds have the burden to prove their entitlement to the claim under
substantive law and the factual basis of their claim.
Moreover, in claims for VAT refund/credit, applicants must satisfy the substantiation and
invoicing requirements under the NIRC and other implementing rules and regulations. Under
Section 110(A)(1) of the 1997 NIRC, creditable input tax must be evidenced by a VAT invoice or
official receipt, which must in turn reflect the information required in Sections 113 and 237 of
the Code. Team Energy Corporation (formerly: Mirant Pagbilao Corporation and Southern
Energy Quezon, Inc.) vs. Commissioner of Internal Revenue, 859 SCRA 1, G.R. No. 197663 March
14, 2018

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Value-Added Tax (VAT) is a tax imposed on each sale of goods or services in the course of trade
or business, or importation of goods “as they pass along the production and distribution chain.”
It is an indirect tax, which “may be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services.”
This Court reiterates that to claim a refund of unutilized or excess input VAT, purchase of goods
or properties must be supported by VAT invoices, while purchase of services must be supported
by VAT official receipts. For context, VAT is a tax imposed on each sale of goods or services in the
course of trade or business, or importation of goods “as they pass along the production and
distribution chain.” It is an indirect tax, which “may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services.” The output tax due from VAT-
registered sellers becomes the input tax paid by VAT-registered purchasers on local purchase of
goods or services, which the latter in turn may credit against their output tax liabilities. On the
other hand, for a non-VAT purchaser, the VAT shifted forms part of the cost of goods, properties,
and services purchased, which may be deductible as an expense for income tax purposes. Team
Energy Corporation (formerly: Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.)
vs. Commissioner of Internal Revenue, 859 SCRA 1, G.R. No. 197663 March 14, 2018
A Value-Added Tax (VAT)-registered entity is liable to VAT, or the output tax at the rate of zero
percent (0%) or ten percent (10%) (now twelve percent [12%]) on the gross selling price of goods
or gross receipts realized from the sale of services.
Our VAT system is invoice-based, i.e., taxation relies on sales invoices or official receipts. A VAT-
registered entity is liable to VAT, or the output tax at the rate of 0% or 10% (now 12%) on the
gross selling price of goods or gross receipts realized from the sale of services. Sections 106(D)
and 108(C) of the Tax Code expressly provide that VAT is computed at 1/11 of the total amount
indicated in the invoice for sale of goods or official receipt for sale of services. This tax shall also
be recognized as input tax credit to the purchaser of the goods or services. Team Energy
Corporation (formerly: Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.) vs.
Commissioner of Internal Revenue, 859 SCRA 1, G.R. No. 197663 March 14, 2018

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Strict compliance with substantiation and invoicing requirements is necessary considering

Value-Added Tax’s (VAT’s) nature and VAT system’s tax credit method, where tax payments
are based on output and input taxes and where the seller’s output tax becomes the buyer’s
input tax that is available as tax credit or refund in the same transaction.
It ensures the proper collection of taxes at all stages of distribution, facilitates computation of
tax credits, and provides accurate audit trail or evidence for BIR monitoring purposes. The Court
of Tax Appeals further pointed out that the non-interchangeability between VAT official receipts
and VAT invoices avoids having the government refund a tax that was not even paid. It should be
noted that the seller will only become liable to pay the output VAT upon receipt of payment from
the purchaser. If we are to use sales invoice in the sale of services, an absurd situation will arise
when the purchaser of the service can claim tax credit representing input VAT even before there
is payment of the output VAT by the seller on the sale pertaining to the same transaction. As a
matter of fact[,] if the seller is not paid on the transaction, the seller of service would legally not
have to pay output tax while the purchaser may legally claim input tax credit thereon. The
government ends up refunding a tax which has not been paid at all. Hence, to avoid this, VAT
official receipt for the sale of services is an absolute requirement. Team Energy Corporation
(formerly: Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.) vs. Commissioner of
Internal Revenue, 859 SCRA 1, G.R. No. 197663 March 14, 2018
The prescriptive periods regarding claims for refunds or tax credits of input value-added tax
(VAT) are explicitly set forth in Section 112 of the Tax Code.
Petitioner’s judicial claim was filed beyond the thirty (30)-day period required in Section 112(c)
of the Tax Code. The administrative claim for refund was filed on September 26, 2007. Thus, the
one hundred twenty (120)-day period for the Bureau of Internal Revenue to act on the claim
lapsed on January 24, 2008. Petitioner had until February 23, 2008 to file a petition before the
Court of Tax Appeals, but it filed its appeal only on March 14, 2008. Petitioner was late by 19
days. The prescriptive periods regarding claims for refunds or tax credits of input VAT are
explicitly set forth in Section 112 of the Tax Code. CE Casecnan Water and Energy Company, Inc.
vs. Commissioner of Internal Revenue, 763 SCRA 553, G.R. No. 203928 July 22, 2015

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Ordinarily, Value-Added Tax (VAT)-registered entities are liable to pay excess output tax if their
input tax is less than their output tax at any given taxable quarter. However, if the input tax is
greater than the output tax, VAT-registered persons can carry over the excess input tax to the
succeeding taxable quarter or quarters.
Excess input tax or creditable input tax is not an erroneously, excessively, or illegally collected
tax. Hence, it is Section 112(C) and not Section 229 of the National Internal Revenue Code that
governs claims for refund of creditable input tax. The tax credit system allows a VAT-registered
entity to “credit against or subtract from the VAT charged on its sales or outputs the VAT paid on
its purchases, inputs and imports.” The VAT paid by a VAT-registered entity on its imports and
purchases of goods and services from another VAT-registered entity refers to input tax. On the
other hand, output tax refers to the VAT due on the sale of goods, properties, or services of a
VAT-registered person. Ordinarily, VAT-registered entities are liable to pay excess output tax if
their input tax is less than their output tax at any given taxable quarter. However, if the input tax
is greater than the output tax, VAT-registered persons can carry over the excess input tax to the
succeeding taxable quarter or quarters. CE Luzon Geothermal Power Company, Inc. vs.
Commissioner of Internal Revenue, 832 SCRA 589, G.R. No. 197526, G.R. Nos. 199676-77 July
26, 2017
If the excess input tax is derived from zero-rated or effectively zero-rated transactions, the
taxpayer may either seek a refund of the excess or apply the excess against its other internal
revenue tax.
It is unnecessary to construe and harmonize Sections 112(C) and 229 of the National Internal
Revenue Code. Excess input tax or creditable input tax is not an excessively, erroneously, or
illegally collected tax because the taxpayer pays the proper amount of input tax at the time it is
collected. That a VAT-registered taxpayer incurs excess input tax does not mean that it was
wrongfully or erroneously paid. It simply means that the input tax is greater than the output tax,
entitling the taxpayer to carry over the excess input tax to the succeeding taxable quarters. If the
excess input tax is derived from zero-rated or effectively zero-rated transactions, the taxpayer
may either seek a refund of the excess or apply the excess against its other internal revenue tax.
CE Luzon Geothermal Power Company, Inc. vs. Commissioner of Internal Revenue, 832 SCRA
589, G.R. No. 197526, G.R. Nos. 199676-77 July 26, 2017

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In Aichi Forging Company of Asia, Inc., this Court applied the plain text of the law and declared
that the observance of the 120+30-day periods is crucial in filing an appeal before the Court of
Tax Appeals.
This Court also declared that, following Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation, claims for refund or tax credit of excess input tax are governed not by Section 229,
but by Section 112 of the Tax Code. These doctrines were reiterated in San Roque Power
Corporation, where this Court stressed that Section 112, in providing the 120+30 day periods to
appeal before the Court of Tax Appeals, "must be applied exactly as worded since it is clear, plain,
and unequivocal." Eag State Power, Inc. vs. Commissioner of Internal Revenue, G.R. No. 205282
January 14, 2019
Under Section 112 of the Tax Code, only the administrative claim for refund of input value-
added tax must be filed within the two (2)-year prescriptive period, the judicial claim need not
be.
In Aichi Forging Company of Asia, Inc. and San Roque Power Corporation, the phrase "within two
(2) years ... apply for the issuance of a tax credit certificate or refund" refers to administrative
claims for refund or credit filed with the Commissioner of Internal Revenue, not to appeals made
before the Court of Tax Appeals.
This is apparent in Section 112(D), Paragraph 1 of the Tax Code, which gives the Commissioner
[120] days from the date of submission of complete documents in support of the application filed
in accordance with Subsections (A) and (B) within which he or she can decide on the claim. On
the other hand, Section 112(D), Paragraph 2 provides a 30-day period within which one may
appeal a judicial claim before the Court of Tax Appeals.
Reading together Subsections (A) and (D), San Roque Power Corporation declared that the 30-
day period does not have to fall within the two (2)-year prescriptive period, as long as the
administrative claim is filed within the two (2)-year prescriptive period. Eag State Power, Inc. vs.
Commissioner of Internal Revenue, G.R. No. 205282 January 14, 2019

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In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc., 503 SCRA 398 (2006),
the Supreme Court defined percentage tax as a “tax measured by a certain percentage of the
gross selling price or gross value in money of goods sold, bartered or imported; or of the gross
receipts or earnings derived by any person engaged in the sale of services.”
Also, Republic Act No. 8424, otherwise known as the National Internal Revenue Code (NIRC), in
Section 125, Title V, lists amusement taxes as among the (other) percentage taxes which are
levied regardless of whether or not a taxpayer is already liable to pay value-added tax (VAT).
Pelizloy Realty Corporation vs. Province of Benguet, 695 SCRA 491, G.R. No. 183137 April 10,
2013
Excise tax is a tax on the production, sale, or consumption of a specific commodity in a country.
Section 110 of the 1986 Tax Code explicitly provides that the “excise taxes on domestic products
shall be paid by the manufacturer or producer before [the] removal [of those products] from the
place of production.” “It does not matter to what use the article[s] subject to tax is put; the excise
taxes are still due, even though the articles are removed merely for storage in some other place
and are not actually sold or consumed.” The excise tax based on weight, volume capacity or any
other physical unit of measurement is referred to as “specific tax.” If based on selling price or
other specified value, it is referred to as “ad valorem” tax. La Suerte Cigar & Cigarette Factory
vs. Court of Appeals, 739 SCRA 489, G.R. No. 165499 November 11, 2014
When tobacco is harvested and processed either by hand or by machine, all its products become
subject to specific tax.
It is evident that when tobacco is harvested and processed either by hand or by machine, all its
products become subject to specific tax. Section 141 reveals the legislative policy to tax all forms
of manufactured tobacco — in contrast to raw tobacco leaves — including tobacco refuse or all
other tobacco which has been cut, split, twisted, or pressed and is capable of being smoked
without further industrial processing. La Suerte Cigar & Cigarette Factory vs. Court of Appeals,
739 SCRA 489, G.R. No. 165499 November 11, 2014

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Section 137 of the Tax Code authorizes a tax exemption subject to the following: (1) that the
stemmed leaf tobacco is sold in bulk as raw material by one manufacturer directly to another;
and (2) that the sale or transfer has complied with the conditions prescribed by the Department
of Finance.
Section 137 authorizes a tax exemption subject to the following: (1) that the stemmed leaf
tobacco is sold in bulk as raw material by one manufacturer directly to another; and (2) that the
sale or transfer has complied with the conditions prescribed by the Department of Finance. La
Suerte Cigar & Cigarette Factory vs. Court of Appeals, 739 SCRA 489, G.R. No. 165499 November
11, 2014
To be valid, a revenue regulation must be within the scope of statutory authority or standard
granted by the legislature.
Rules and regulations implementing the law are designed to fill in the details or to make explicit
what is general, which otherwise cannot all be incorporated in the provision of the law. Such
rules and regulations, when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, “deserve to be given weight and respect by the courts in
view of the rule-making authority given to those who formulate them and their specific expertise
in their respective fields.” To be valid, a revenue regulation must be within the scope of statutory
authority or standard granted by the legislature. Specifically, the regulation must (1) be germane
to the object and purpose of the law; (2) not contradict, but conform to, the standards the law
prescribes; and (3) be issued for the sole purpose of carrying into effect the general provisions of
our tax laws. La Suerte Cigar & Cigarette Factory vs. Court of Appeals, 739 SCRA 489, G.R. No.
165499 November 11, 2014
The Tax Code treats an importer and a manufacturer differently. Section 123 clearly
distinguishes between goods manufactured or produced in the Philippines and things imported.
The Tax Code treats an importer and a manufacturer differently. Section 123 clearly distinguishes
between goods manu-factured or produced in the Philippines and things imported. The law uses
the proper term “importation” or “imported” whenever the transaction involves bringing in
articles from foreign countries as provided under Section 125 (cf. Section 124). Whenever the
Tax Code refers to importers and manufacturers, they are separately mentioned as two distinct
persons or entities (Sections 156 and 160). Under Chapter II, whenever the law uses the word
manufacturer, it only means local manufacturer or producer of domestic products (Sections 150,
151, and 152 of the 1939 Tax Code). Moreover, foreign manufacturers of tobacco products not

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engaged in trade or business in the Philippines cannot be designated as L-7 since these are
beyond the pale of Philippine law and regulations. The factories contemplated are those located
or operating only in the Philippines. La Suerte Cigar & Cigarette Factory vs. Court of Appeals,
Prolonged practice of the Bureau of Internal Revenue (BIR) in not collecting the specific tax on
stemmed leaf tobacco cannot validate what is otherwise an erroneous application and
enforcement of the law. The government is never estopped from collecting legitimate taxes
because of the error committed by its agents.
This court reiterated this rule in Abello v. Commissioner of Internal Revenue, 452 SCRA 162
(2005), where it rejected petitioners’ claim that the prolonged practice (since 1939 up to 1988)
of the Bureau of Internal Revenue in not subjecting political contributions to donor’s tax was an
authoritative interpretation of the statute, entitled to great weight and the highest respect: This
Court holds that the BIR is not precluded from making a new interpretation of the law, especially
when the old interpretation was flawed. It is a well-entrenched rule that[:] . . . erroneous
application and enforcement of the law by public officers do not block subsequent correct
application of the statute, and that the Government is never estopped by mistake or error on the
part of its agents. La Suerte Cigar & Cigarette Factory vs. Court of Appeals, 739 SCRA 489, G.R.
No. 165499 November 11, 2014
Excise taxes are imposed on the production, sale, or consumption of specific goods.
Generally, excise taxes on domestic products are paid by the manufacturer or producer before
removal of those products from the place of production. The excise tax based on weight, volume
capacity, or any other physical unit of measurement is referred to as “specific tax.” If based on
selling price or other specified value, it is referred to as “ad valorem” tax. Commissioner of
Internal Revenue vs. San Miguel Corporation, 815 SCRA 563, G.R. No. 205045, G.R. No. 205723
January 25, 2017
The excise tax on beer is a specific tax based on volume, or on a per liter basis.
Before its amendment, Section 143 provided for three (3) layers of tax rates, depending on the
net retail price per liter. How a new beer product is taxed depends on its classification, i.e.,
whether it is a variant of an existing brand or a new brand. Variants of a brand that were

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introduced in the market after January 1, 1997 are taxed under the highest tax classification of
any variant of the brand. On the other hand, new brands are initially classified and taxed
according to their suggested net retail price, until a survey is conducted by the Bureau of Internal
Revenue to determine their current net retail price in accordance with the specified procedure.
Commissioner of Internal Revenue vs. San Miguel Corporation, 815 SCRA 563, G.R. No. 205045,
G.R. No. 205723 January 25, 2017
Any reclassification of fermented liquor products should be by act of Congress.
Section 143 of the Tax Code, as amended by Rep. Act No. 9334, provides for this classification
freeze referred to by the parties: Provided, however, That brands of fermented liquors
introduced in the domestic market between January 1, 1997 and December 31, 2003 shall remain
in the classification under which the Bureau of Internal Revenue has determined them to belong
as of December 31, 2003. Such classification of new brands and brands introduced between
January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress. . . . .
The classification of each brand of fermented liquor based on its average net retail price as of
October 1, 1996, as set forth in Annex ‘C,’ including the classification of brands for the same
products which, although not set forth in said Annex ‘C,’ were registered and were being
commercially produced and marketed on or after October 1, 1996, and which continue to be
commercially produced and marketed after the effectivity of this Act, shall remain in force until
revised by Congress. Commissioner of Internal Revenue vs. San Miguel Corporation, 815 SCRA
563, G.R. No. 205045, G.R. No. 205723 January 25, 2017
A reclassification of a fermented liquor brand introduced between January 1, 1997 and

December 31, 2003, such as “San Mig Light,” must be by act of Congress.
In any event, petitioner’s letters and Notices of Discrepancy, which effectively changed San Mig
Light’s brand’s classification from “new brand to variant of existing brand,” necessarily changes
San Mig Light’s tax bracket. Based on the legislative intent behind the classification freeze
provision, petitioner has no power to do this. A reclassification of a fermented liquor brand
introduced between January 1, 1997 and December 31, 2003, such as “San Mig Light,” must be
by act of Congress. There was none in this case. Commissioner of Internal Revenue vs. San
Miguel Corporation, 815 SCRA 563, G.R. No. 205045, G.R. No. 205723 January 25, 2017

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Republic Act (RA) No. 9334 took effect on January 1, 2005 and deleted the second type of
“variant” from the definition: A ‘variant of a brand’ shall refer to a brand on which a modifier
is prefixed and/or suffixed to the root name of the brand.
Before Rep. Act No. 9334 was passed, the Tax Code under Republic Act No. 8240 defined a
“variant of a brand” as follows: A variant of a brand shall refer to a brand on which a modifier is
prefixed and/or suffixed to the root name of the brand and/or a different brand which carries
the same logo or design of the existing brand. This definition includes two (2) types of “variants.”
The first involves the use of a modifier that is prefixed and/or suffixed to a brand root name, and
the second involves the use of the same logo or design of an existing brand. Rep. Act No. 9334
took effect on January 1, 2005 and deleted the second type of “variant” from the definition: A
‘variant of a brand’ shall refer to a brand on which a modifier is prefixed and/or suffixed to the
root name of the brand. Commissioner of Internal Revenue vs. San Miguel Corporation, 815
SCRA 563, G.R. No. 205045, G.R. No. 205723 January 25, 2017
A manufacturer of beer may produce different versions of its products, distinguished by

features such as flavor, quality, or calorie content, to suit the tastes and needs of specific
segments of the domestic market.
To be sure, all beers are composed of four (4) raw materials: barley, hops, yeast, and water.
Barley grain has always been used and associated with brewing beer, while hops act as the
bittering substance. Yeast plays a role in alcoholic fermentation, with bottom-fermenting yeasts
resulting in light lager and top-fermenting ones producing the heavy and rich ale. With only four
(4) ingredients combined and processed in varying quantities, all beer are essentially related
variants of these mixtures. A manufacturer of beer may produce different versions of its
products, distinguished by features such as flavor, quality, or calorie content, to suit the tastes
and needs of specific segments of the domestic market. It can also leverage on the popularity of
its existing brand and sell a lower priced version to make it affordable for the low-income
consumers. These strategies are employed to gain a higher overall level of share or profit from
the market. Commissioner of Internal Revenue vs. San Miguel Corporation, 815 SCRA 563, G.R.
No. 205045, G.R. No. 205723 January 25, 2017

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The purpose behind the definition (of variant) was to properly tax brands that were presumed
to be riding on the popularity of previously registered brands by being marketed under an
almost identical name with a prefix, suffix, or a variant.
The variant contemplated under the Tax Code has a technical meaning. A variant is determined
by the brand (name) of the beer product, whether it was formed by prefixing or suffixing a
modifier to the root name of the alleged parent brand, or whether it carries the same logo or
design. The purpose behind the definition was to properly tax brands that were presumed to be
riding on the popularity of previously registered brands by being marketed under an almost
identical name with a prefix, suffix, or a variant. It seeks to address price differentials employed
by a manufacturer on similar products differentiated only in brand or design. Specifically, the
provision was meant to obviate any tax avoidance by manufacturing firms from the sale of lower
priced variants of its existing beer brands, thus, falling in the lower tax bracket with lower excise
tax rates. To favor government, a variant of a brand is taxed according to the highest rate of tax
for that particular brand. “San Mig Light” and “Pale Pilsen” do not share a root word. Neither is
there an existing brand in the list (Annexes C-1 and C-2 of the Tax Code) called “San Mig” to
conclude that “Light” is a suffix rendering “San Mig Light” as its “variant.” As discussed in the
Court of Tax Appeals Decision, “San Mig Light” should be considered as one brand name.
G.R. No. 205723 January 25, 2017
Section 143 of the Tax Code, as amended by Republic Act (RA) No. 9334, provides for the Bureau
of Internal Revenue’s (BIR’s) role in validating and revalidating the suggested net retail price
of a new brand of fermented liquor for purposes of determining its tax bracket.
‘Suggested net retail price’ shall mean the net retail price at which new brands, as defined above,
of locally manufactured or imported fermented liquor are intended by the manufacturer or
importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those
marketed nationwide, and in other regions, for those with regional markets. At the end of three
(3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested
net retail price of the new brand against the net retail price as defined herein and determine the
correct tax bracket to which a particular new brand of fermented liquor, as defined above, shall
be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal
Revenue shall revalidate the initially validated net retail price against the net retail price as of the
time of revalidation in order to finally determine the correct tax bracket which a particular new
brand of fermented liquors shall be classified: Provided, however, That brands of fermented
liquors introduced in the domestic market between January 1, 1997 and December 31, 2003 shall
remain in the classification under which the Bureau of Internal Revenue has determined them to
belong as of December 31, 2003. Such classification of new brands and brands introduced

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between January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress. Commissioner of Internal Revenue vs. San Miguel Corporation, 815 SCRA 563, G.R.
No. 205045, G.R. No. 205723 January 25, 2017
While estoppel generally does not apply against government, especially when the case involves
the collection of taxes, an exception can be made when the application of the rule will cause
injustice against an innocent party.
Respondent had already acquired a vested right on the tax classification of its San Mig Light as a
new brand. To allow petitioner to change its position will result in deficiency assessments in
substantial amounts against respondent to the latter’s prejudice. Commissioner of Internal
Revenue vs. San Miguel Corporation, 815 SCRA 563, G.R. No. 205045, G.R. No. 205723 January
25, 2017
The Tax Code includes remedies for erroneous collection and overpayment of taxes. Under
Sections 229 and 204(C) of the Tax Code, a taxpayer may seek recovery of erroneously paid
taxes within two (2) years from date of payment.
SEC. 229. Recovery of tax Erroneously or Illegally Collected.—No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed or collected, or of any penalty claimed to have
been collected without authority, of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or penalty regardless of any
supervening case that may arise after payment: Provided, however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have been erroneously paid.
G.R. No. 205723 January 25, 2017

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The documentary stamp tax (DST) and onshore income tax are covered by the tax amnesty
program under Republic Act (RA) No. 9480 and its Implementing Rules and Regulations (IRR).
Moreover, as to the deficiency tax on onshore interest income, it is worthy to state that petitioner
ING Bank was assessed by respondent Commissioner of Internal Revenue, not as a withholding
agent, but as one that was directly liable for the tax on onshore interest income and failed to pay
the same. Considering petitioner ING Bank’s tax amnesty availment, there is no more issue
regarding its liability for deficiency documentary stamp taxes on its special savings accounts for
1996 and 1997 and deficiency tax on onshore interest income for 1996, including surcharge and
interest. ING Bank N.V. vs. Commissioner of Internal Revenue, 763 SCRA 359, G.R. No. 167679
July 22, 2015
The period to assess and collect taxes may be extended upon the Commissioner of Internal
Revenue (CIR) and the taxpayer’s written agreement, executed before the expiration of the
three (3)-year period.
As a general rule, petitioner has three (3) years to assess taxpayers from the filing of the return.
Section 203 of the National Internal Revenue Code provides: Section 203. Period of Limitation
Upon Assessment and Collection.—Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return is filed beyond
the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day. An exception to the rule of prescription
is found in Section 222(b) and (d) of this Code, viz.: Section 222. Exceptions as to Period of
Limitation of Assessment and Collection of Taxes.—. . . . (b) If before the expiration of the time
prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer
have agreed in writing to its assessment after such time, the tax may be assessed within the
period agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon. . . . . (d) Any internal
revenue tax, which has been assessed within the period agreed upon as provided in paragraph
(b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (5) year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of
the period previously agreed upon. Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc., 846 SCRA 514, G.R. No. 227544 November 22, 2017

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The Preliminary Assessment Notice (PAN) is a part of due process. It gives both the taxpayer
and the Commissioner of Internal Revenue (CIR) the opportunity to settle the case at the earliest
possible time without the need for the issuance of a Final Assessment Notice (FAN).
On the other hand, a FAN contains not only a computation of tax liabilities but also a demand for
payment within a prescribed period. As soon as it is served, an obligation arises on the part of
the taxpayer concerned to pay the amount assessed and demanded. It also signals the time when
penalties and interests begin to accrue against the taxpayer. Thus, the National Internal Revenue
Code imposes a 25% penalty, in addition to the tax due, in case the taxpayer fails to pay the
deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise,
an interest of 20% per annum, or such higher rate as may be prescribed by rules and regulations,
is to be collected from the date prescribed for payment until the amount is fully paid. Failure to
file an administrative protest within 30 days from receipt of the FAN will render the assessment
final, executory, and demandable. Commissioner of Internal Revenue vs. Transitions Optical
Philippines, Inc., 846 SCRA 514, G.R. No. 227544 November 22, 2017
To avail of the extraordinary period of assessment in Section 222(a) of the National Internal
Revenue Code (NIRC), the Commissioner of Internal Revenue (CIR) should show that the facts
upon which the fraud is based is communicated to the taxpayer.
The burden of proving that the facts exist in any subsequent proceeding is with the
Commissioner. Furthermore, the Final Assessment Notice is not valid if it does not contain a
definite due date for payment by the taxpayer. Commissioner of Internal Revenue vs. Fitness by
Design, Inc., 808 SCRA 422, G.R. No. 215957 November 9, 2016
The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law
on which the assessment was based; otherwise, these shall be void.
The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law
on which the assessment was based; otherwise, these shall be void. The taxpayer or the
authorized representative may administratively protest the formal letter of demand and
assessment notice within 30 days from receipt of the notice. Commissioner of Internal Revenue
vs. Fitness by Design, Inc., 808 SCRA 422, G.R. No. 215957 November 9, 2016

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The rationale behind the requirement that taxpayers should be informed of the facts and the
law on which the assessments are based conforms with the constitutional mandate that no
person shall be deprived of his or her property without due process of law.
Between the power of the State to tax and an individual’s right to due process, the scale favors
the right of the taxpayer to due process. Commissioner of Internal Revenue vs. Fitness by Design,
Inc., 808 SCRA 422, G.R. No. 215957 November 9, 2016
The purpose of the written notice requirement is to aid the taxpayer in making a reasonable
protest, if necessary.
Merely notifying the taxpayer of his or her tax liabilities without details or particulars is not
enough. Commissioner of Internal Revenue vs. Fitness by Design, Inc., 808 SCRA 422, G.R. No.
215957 November 9, 2016
To immediately ensue with tax collection without initially substantiating a valid assessment
contravenes the principle in administrative investigations that taxpayer should be able to
present their case and adduce supporting evidence.
Due process requires that taxpayers be informed in writing of the facts and law on which the
assessment is based in order to aid the taxpayer in making a reasonable protest. Commissioner
of Internal Revenue vs. Fitness by Design, Inc., 808 SCRA 422, G.R. No. 215957 November 9,
2016
The prescriptive period in making an assessment depends upon whether a tax return was filed
or whether the tax return filed was either false or fraudulent.
The prescriptive period in making an assessment depends upon whether a tax return was filed or
whether the tax return filed was either false or fraudulent. When a tax return that is neither false
nor fraudulent has been filed, the Bureau of Internal Revenue may assess within three (3) years,
reckoned from the date of actual filing or from the last day prescribed by law for filing.
Commissioner of Internal Revenue vs. Fitness by Design, Inc., 808 SCRA 422, G.R. No. 215957
November 9, 2016

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The willful neglect to file the required tax return or the fraudulent intent to evade the payment
of taxes cannot be presumed.
Fraud is a question of fact that should be alleged and duly proven. “The willful neglect to file the
required tax return or 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. Commissioner of Internal Revenue vs. Fitness by Design, Inc., 808
SCRA 422, G.R. No. 215957 November 9, 2016
The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes.
Neither the National Internal Revenue Code nor the revenue regulations provide for a “specific
definition or form of an assessment.” Commissioner of Internal Revenue vs. Fitness by Design,
Inc., 808 SCRA 422, G.R. No. 215957 November 9, 2016
Taxes are the lifeblood of government and should be collected without hindrance.
However, the collection of taxes should be exercised “reasonably and in accordance with the
prescribed procedure.” Commissioner of Internal Revenue vs. Fitness by Design, Inc., 808 SCRA
422, G.R. No. 215957 November 9, 2016
Having settled that the case falls under Section 203 of the Tax Code, the three (3)-year
prescriptive period should be applied.
For the ten-year period under Section 222(a) to apply, it is not enough that fraud is alleged in the
complaint, it must be established by clear and convincing evidence. The petitioner, having failed
to discharge the burden of proving fraud, cannot invoke Section 222(a). Having settled that the
case falls under Section 203 of the Tax Code, the three-year prescriptive period should be applied.
In GMCC’s case, the last day prescribed by law for filing its 1998 tax return was April 15, 1999.
The petitioner had three years or until 2002 to make an assessment. Since the Preliminary
Assessment was made only on December 8, 2003, the period to assess the tax had already
prescribed. Republic vs. GMCC United Development Corporation, 813 SCRA 136, G.R. No.
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LOCAL TAXATION
The power of a province to tax is limited to the extent that such power is delegated to it either
by the Constitution or by statute.
Section 5, Article X of the 1987 Constitution is clear on this point: Section 5. 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. Pelizloy Realty Corporation vs. Province of Benguet, 695
SCRA 491, G.R. No. 183137 April 10, 2013
Per Section 5, Article X of the 1987 Constitution, “the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct authority to levy taxes,
fees and other charges.”
Nevertheless, such authority is “subject to such guidelines and limitations as the Congress may
provide.” In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted
Republic Act No. 7160, otherwise known as the Local Government Code of 1991. Book II of the
LGC governs local taxation and fiscal matters. Relevant provisions of Book II of the LGC establish
the parameters of the taxing powers of LGUS found below. First, Section 130 provides for the
following fundamental principles governing the taxing powers of LGUs: 1. Taxation shall be
uniform in each LGU. 2. Taxes, fees, charges and other impositions shall: a. be equitable and
based as far as practicable on the taxpayer’s ability to pay; b. be levied and collected only for
public purposes; c. not be unjust, excessive, oppressive, or confiscatory; d. not be contrary to
law, public policy, national economic policy, or in the restraint of trade. 3. The collection of local
taxes, fees, charges and other impositions shall in no case be let to any private person. 4. The
revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and
be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless
otherwise specifically provided by the LGC. 5. Each LGU shall, as far as practicable, evolve a
progressive system of taxation. Pelizloy Realty Corporation vs. Province of Benguet, 695 SCRA
491, G.R. No. 183137 April 10, 2013

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Provinces are not barred from levying amusement taxes even if amusement taxes are a form
of percentage taxes.
Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain
specified establishments. Thus, applying the definition in CIR v. Citytrust and drawing from the
treatment of amusement taxes by the NIRC, amusement taxes are percentage taxes as correctly
argued by Pelizloy. However, provinces are not barred from levying amusement taxes even if
amusement taxes are a form of percentage taxes. Section 133 (i) of the LGC prohibits the levy of
percentage taxes “except as otherwise provided” by the LGC. Pelizloy Realty Corporation vs.
Province of Benguet, 695 SCRA 491, G.R. No. 183137 April 10, 2013
Section 140, Local Government Code (R.A. No. 7160) expressly allows for the imposition by
provinces of amusement taxes on “the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement.” However, resorts,
swimming pools, bath houses, hot springs, and tourist spots are not among those places
expressly mentioned by Section 140 of the Local Government Code as being subject to
amusement taxes.
Thus, the determination of whether amusement taxes may be levied on admissions to resorts,
swimming pools, bath houses, hot springs, and tourist spots hinges on whether the phrase ‘other
places of amusement’ encompasses resorts, swimming pools, bath houses, hot springs, and
tourist spots. Pelizloy Realty Corporation vs. Province of Benguet, 695 SCRA 491, G.R. No.
183137 April 10, 2013
In Philippine Basketball Association v. Court of Appeals, 337 SCRA 358 (2000), the Supreme
Court had an opportunity to interpret a starkly similar provision or the counterpart provision of
Section 140 of the Local Government Code in the Local Tax Code then in effect.
Petitioner Philippine Basketball Association (PBA) contended that it was subject to the imposition
by LGUs of amusement taxes (as opposed to amusement taxes imposed by the national
government). In support of its contentions, it cited Section 13 of Presidential Decree No. 231,
otherwise known as the Local Tax Code of 1973, (which is analogous to Section 140 of the LGC).
Pelizloy Realty Corporation vs. Province of Benguet, 695 SCRA 491, G.R. No. 183137 April 10,
2013

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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 Local Government Code and which may properly be subject to amusement taxes.
As defined in The New Oxford American Dictionary, ‘show’ means “a spectacle or display of
something, typically an impressive one”; while ‘performance’ means “an act of staging or
presenting a play, a concert, or other form of entertainment.” As such, the ordinary definitions
of the words ‘show’ and ‘performance’ denote not only visual engagement (i.e., the seeing or
viewing of things) but also active doing (e.g., displaying, staging or presenting) such that actions
are manifested to, and (correspondingly) perceived by an audience. Considering these, it is clear
that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be considered
venues primarily “where one seeks admission to entertain oneself by seeing or viewing the show
or performances”. While it is true that they may be venues where people are visually engaged,
they are not primarily venues for their proprietors or operators to actively display, stage or
present shows and/or performances. Pelizloy Realty Corporation vs. Province of Benguet, 695
SCRA 491, G.R. No. 183137 April 10, 2013
Under Section 133(n) of the Local Government Code (LGC), the taxing power of local
government units (LGUs) shall not extend to the levy of taxes, fees, or charges on duly
registered cooperatives under the Cooperative Code.
Section 234(d) of the Local Government Code specifically provides for real property tax
exemption to cooperatives: SECTION 234. Exemptions from Real Property Tax.—The following
are exempted from payment of the real property tax: . . . . (d) All real property owned by duly
registered cooperatives as provided for under [Republic Act] No. 6938[.] (Emphasis supplied)
NGPI-NGEI, as the owner of the land being leased by respondent, falls within the purview of the
law. 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.
Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation, Inc., 805 SCRA 112, G.R.
No. 183416 October 5, 2016

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The roads that respondent constructed within the leased area should not be assessed with real
property taxes.
Bislig Bay finds application here. Bislig Bay Lumber Company, Inc. (Bislig Bay) was a timber
concessionaire of a portion of public forest in the provinces of Agusan and Surigao. To aid in
developing its concession, Bislig Bay built a road at its expense from a barrio leading towards its
area. The Provincial Assessor of Surigao assessed Bislig Bay with real property tax on the
constructed road, which was paid by the company under protest. It claimed that even if the road
was constructed on public land, it should be subjected to real property tax because it was built
by the company for its own benefit. On the other hand, Bislig Bay asserted that the road should
be exempted from real property tax because it belonged to national government by right of
accession. Moreover, the road constructed already became an inseparable part of the land. The
records also showed that the road was not only built for the benefit of Bislig Bay, but also of the
public. This Court ruled for Bislig Bay, thus: We are inclined to uphold the theory of appellee. In
the first place, it cannot be disputed that the ownership of the road that was constructed by
appellee belongs to the government by right accession not only because it is inherently
incorporated or attached to the timber land leased to appellee but also because upon the
expiration of the concession, said road would ultimately pass to the national government. . . . In
the second place, while the road was constructed by appellee primarily for its use and benefit,
the privilege is not exclusive, for, under the lease contract entered into by the appellee and the
government and by public in by the general. Thus, under said lease contract, appellee cannot
prevent the use of portions, of the concession for homesteading purposes. . . . It is also in duty-
bound to allow the free use of forest products within the concession for the personal use of
individuals residing in or within the vicinity of the land. . . . In other words, the government has
practically reserved the rights to use the road to promote its varied activities. Since, as above
shown, the road in question cannot be considered as an improvement which belongs to appellee,
although in part is for its benefit, it is clear that the same cannot be the subject of assessment
within the meaning of section 2 of Commonwealth Act No. 470. Provincial Assessor of Agusan
del Sur vs. Filipinas Palm Oil Plantation, Inc., 805 SCRA 112, G.R. No. 183416 October 5, 2016
Section 199(o) of the Local Government Code (LGC) defines “machinery” as real property subject
to real property tax.
SECTION 199. Definition of Terms.—When used in this Title, the term: . . . . (o) “Machinery”
embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus
which may or may not be attached, permanently or temporarily, to the real property. It 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

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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.
Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation, Inc., 805 SCRA 112, G.R.
No. 183416 October 5, 2016
Section 168 of the Local Government Code categorically provides that the local government
unit (LGU) may impose a surcharge not exceeding 25% of the amount of taxes, fees, or charges
not paid on time.
SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges.—The sanggunian may
impose a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or charges not
paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid
taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the
total interest on the unpaid amount or portion thereof exceed thirty-six (36) months. National
Power Corporation vs. City of Cabanatuan, 737 SCRA 305, G.R. No. 177332 October 1, 2014
Both the surcharge and interest are imposable upon failure of the taxpayer to pay the tax on
the date fixed in the law for its payment.
The surcharge is a civil penalty imposed once for late payment of a tax. Contrast this with the
succeeding provisions on interest, which was imposable at the rate not exceeding 2% per month
of the unpaid taxes until fully paid. The fact that the interest charge is made proportionate to the
period of delay, whereas the surcharge is not, clearly reveals the legislative intent for the
different modes in their application. Indeed, both the surcharge and interest are imposable upon
failure of the taxpayer to pay the tax on the date fixed in the law for its payment. The surcharge
is imposed to hasten tax payments and to punish for evasion or neglect of duty, while interest is
imposed to compensate the State “for the delay in paying the tax and for the concomitant use
by the taxpayer of funds that rightfully should be in the government’s hands.” National Power
Corporation vs. City of Cabanatuan, 737 SCRA 305, G.R. No. 177332 October 1, 2014

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The law allows the local government to collect an interest at the rate not exceeding 2% per
month of the unpaid taxes, fees, or charges including surcharges, until such amount is fully
paid.
Respondent’s yearly imposition of the 25% surcharge, which was sustained by the trial court and
the Court of Appeals, resulted in an aggregate penalty that is way higher than petitioner’s basic
tax liabilities. Furthermore, it effectively exceeded the prescribed 72% ceiling for interest under
Section 168 of the Local Government Code. The law allows the local government to collect an
interest at the rate not exceeding 2% per month of the unpaid taxes, fees, or charges including
surcharges, until such amount is fully paid. However, the law provides that the total interest on
the unpaid amount or portion thereof should not exceed thirty-six (36) months or three (3) years.
In other words, respondent cannot collect a total interest on the unpaid tax including surcharge
that is effectively higher than 72%. Here, respondent applied the 25% cumulative surcharge for
more than three years. Its computation undoubtedly exceeded the 72% ceiling imposed under
Section 168 of the Local Government Code. Hence, respondent’s computation of the surcharge
is oppressive and unconscionable. National Power Corporation vs. City of Cabanatuan, 737 SCRA
305, G.R. No. 177332 October 1, 2014
In real property tax cases such as this, the remedy of a taxpayer depends on the stage in which
the local government unit (LGU) is enforcing its authority to impose real property taxes.
Moreover, as jurisdiction is conferred by law, reference must be made to the law when
determining which court has jurisdiction over a case, in relation to its factual and procedural
antecedents. Philippine Ports Authority vs. City of Davao, 864 SCRA 303, G.R. No. 190324 June
6, 2018
Urgency does not remove the Central Board of Assessment Appeals’ (CBAA’s) decision from the
exclusive appellate jurisdiction of the Court of Tax Appeals (CTA).
Despite the clear wording of the law placing this case within the exclusive appellate jurisdiction
of the Court of Tax Appeals, petitioner insists that the Court of Appeals could have issued the
relief prayed for despite the provisions of Republic Act No. 9282, considering its urgent need for
injunctive relief. Petitioner’s contention has no legal basis whatsoever and must be rejected.
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

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prayed for. Philippine Ports Authority vs. City of Davao, 864 SCRA 303, G.R. No. 190324 June 6,
2018
In City of Manila v. Grecia-Cuerdo, 715 SCRA 182 (2014), the Supreme Court (SC) expressly
recognized the Court of Tax Appeals’ (CTA’s) power to determine whether or not there has been
grave abuse of discretion in cases falling within its exclusive appellate jurisdiction and its power
to issue writs of certiorari.
In City of Manila v. Grecia-Cuerdo, 715 SCRA 182 (2014), this Court expressly recognized the Court
of Tax Appeals’ power to determine whether or not there has been grave abuse of discretion in
cases falling within its exclusive appellate jurisdiction and its power to issue writs of certiorari.
Philippine Ports Authority vs. City of Davao, 864 SCRA 303, G.R. No. 190324 June 6, 2018
In case of an erroneous assessment, the taxpayer must exhaust the administrative remedies
provided under the Local Government Code (LGC) before resorting to judicial action.
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. 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. City of Lapu-Lapu vs.
Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November 26, 2014
Payment under protest and appeal to the Local Board of Assessment Appeals (LBAA) are
“successive administrative remedies to a taxpayer who questions the correctness of an
assessment.”
The Local Board Assessment Appeals shall not entertain an appeal “without the action of the
local assessor” on the protest. If the taxpayer is still unsatisfied after appealing with the Local
Board of Assessment Appeals, the taxpayer may appeal with the Central Board of Assessment
Appeals within 30 days from receipt of the Local Board’s decision. City of Lapu-Lapu vs. Philippine
Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November 26, 2014

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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 (CBAA).
On the other hand, an assessment is illegal if it was made without authority under the law. City
of Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November
26, 2014
Real property taxes are collected by the Local Treasurer, not by the Bureau of Internal Revenue
(BIR) in charge of collecting national internal revenue taxes, fees, and charges.
The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as
amended, include cases involving real property taxes. Real property taxation is governed by Book
II of the Local Government Code on “Local Taxation and Fiscal Matters.” Section 7, paragraph
(a)(5) of Republic Act No. 1125, as amended by Republic Act No. 9282, separately provides for
the exclusive appellate jurisdiction of the Court of Tax Appeals over decisions of the Central Board
of Assessment Appeals involving the assessment or collection of real property taxes. City of Lapu-
Lapu vs. Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November 26,
2014
The Supreme Court (SC) has ruled that the Court of Tax Appeals (CTA), not the Court of Appeals
(CA), has the exclusive original jurisdiction over petitions for certiorari assailing interlocutory
orders issued by Regional Trial Courts (RTCs) in a local tax case.
We explained in The City of Manila v. Hon. Grecia-Cuerdo, 715 SCRA 182 (2014), that while the
Court of Tax Appeals has no express grant of power to issue writs of certiorari under Republic Act
No. 1125, as amended, the tax court’s judicial power as defined in the Constitution includes the
power to determine “whether or not there has been grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of the [Regional Trial Court] in issuing an interlocutory order
of jurisdiction in cases falling within the exclusive appellate jurisdiction of the tax court.” City of
Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November
26, 2014

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Exhaustion of administrative remedies under the Local Government Code (LGC) is necessary in
cases of erroneous assessments where the correctness of the amount assessed is assailed.
The taxpayer must first pay the tax then file a protest with the Local Treasurer within 30 days
from date of payment of tax. If protest is denied or upon the lapse of the 60-day period to decide
the protest, the taxpayer may appeal to the Local Board of Assessment Appeals within 60 days
from the denial of the protest or the lapse of the 60-day period to decide the protest. The Local
Board of Assessment Appeals has 120 days to decide the appeal. City of Lapu-Lapu vs. Philippine
If the taxpayer is unsatisfied with the Local Board’s decision, the taxpayer may appeal before
the Central Board of Assessment Appeals (CBAA) within thirty (30) days from receipt of the
Local Board’s decision.
The decision of the Central Board of Assessment Appeals is appealable before the Court of Tax
Appeals En Banc. The appeal before the Court of Tax Appeals shall be filed following the
procedure under Rule 43 of the Rules of Court. The Court of Tax Appeals’ decision may then be
appealed before this court through a petition for review on certiorari under Rule 45 of the Rules
of Court raising pure questions of law. City of Lapu-Lapu vs. Philippine Economic Zone Authority,
In case of an illegal assessment where the assessment was issued without authority, exhaustion
of administrative remedies is not necessary and the taxpayer may directly resort to judicial
action.
The taxpayer shall file a complaint for injunction before the Regional Trial Court to enjoin the
local government unit from collecting real property taxes. The party unsatisfied with the decision
of the Regional Trial Court shall file an appeal, not a petition for certiorari, before the Court of
Tax Appeals, the complaint being a local tax case decided by the Regional Trial Court. The appeal
shall be filed within fifteen (15) days from notice of the trial court’s decision. City of Lapu-Lapu
vs. Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November 26, 2014

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In case the local government unit (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.
In case the local government unit 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. The decisions of
the Regional Trial Court in these cases shall be appealable before the Court of Tax Appeals, and
the latter’s decisions appealable before this court through a petition for review on certiorari
under Rule 45 of the Rules of Court. City of Lapu-Lapu vs. Philippine Economic Zone Authority,
Real property taxes are annual taxes levied on real property such as lands, buildings,
machinery, and other improvements not otherwise specifically exempted under the Local
Government Code (LGC).
Real property taxes are ad valorem, with the amount charged based on a fixed proportion of the
value of the property. Under the law, provinces, cities, and municipalities within the Metropolitan
Manila Area have the power to levy real property taxes within their respective territories. The
general rule is that real properties are subject to real property taxes. This is true especially since
the Local Government Code has withdrawn exemptions from real property taxes of all persons,
whether natural or juridical. City of Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA
524, G.R. No. 187583 November 26, 2014
For persons granted tax exemptions or incentives before the effectivity of the Local Government
Code (LGC), Section 193 withdrew these tax exemption privilege. Nevertheless, local
government units (LGUs) may grant tax exemptions under such terms and conditions as they
may deem necessary.
These persons consist of both natural and juridical persons, including government-owned or -
controlled corporations: SEC. 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise
provided in this code, tax exemptions or incentives granted to or presently enjoyed by all persons,
whether natural or juridical, including government-owned or -controlled corporations, except
local water districts, cooperatives duly registered under R.A. 6938, non-stock and nonprofit
hospitals and educational institutions, are hereby withdrawn upon effectivity of this Code. As
discussed, Section 234 withdrew all tax privileges with respect to real property taxes.

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Nevertheless, local government units may grant tax exemptions under such terms and conditions
as they may deem necessary. City of Lapu-Lapu vs. Philippine Economic Zone Authority, 742
In Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 (1996), the Supreme
Court (SC) classified the exemptions from real property taxes into ownership, character, and
usage exemptions.
Ownership exemptions are exemptions based on the ownership of the real property. The
exemptions of real property owned by the Republic of the Philippines, provinces, cities,
municipalities, barangays, and registered cooperatives fall under this classification. Character
exemptions are exemptions based on the character of the real property. Thus, no real property
taxes may be levied on charitable institutions, houses and temples of prayer like churches,
parsonages, or convents appurtenant thereto, mosques, and nonprofit or religious cemeteries.
Usage exemptions are exemptions based on the use of the real property. Thus, no real property
taxes may be levied on real property such as: (1) lands and buildings actually, directly, and
exclusively used for religious, charitable or educational purpose; (2) machineries and equipment
actually, directly and exclusively used by local water districts or by government-owned or -
controlled corporations engaged in the supply and distribution of water and/or generation and
transmission of electric power; and (3) machinery and equipment used for pollution control and
environmental protection. City of Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA
524, G.R. No. 187583 November 26, 2014
The Philippine Economic Zone Authority (PEZA) is an instrumentality of the national

government. It is not integrated within the department framework but is an agency attached
to the Department of Trade and Industry (DTI).
An instrumentality is “any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter.” Examples of instrumentalities of the national government are the
Manila International Airport Authority, the Philippine Fisheries Development Authority, the
Government Service Insurance System, and the Philippine Reclamation Authority. These entities
are not integrated within the department framework but are nevertheless vested with special
functions to carry out a declared policy of the national government. Similarly, the PEZA is an
instrumentality of the national government. It is not integrated within the department

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framework but is an agency attached to the Department of Trade and Industry. City of Lapu-Lapu
vs. Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November 26, 2014
Congress created the Philippine Economic Zone Authority (PEZA) to operate, administer,
manage and develop special economic zones in the Philippines. Special economic zones are
areas with highly developed or which have the potential to be developed into agro-industrial,
industrial tourist/recreational, commercial, banking, investment and financial centers.
As an instrumentality of the national government, the PEZA is vested with special functions or
jurisdiction by law. City of Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA 524,
G.R. No. 187583 November 26, 2014
Being an instrumentality of the national government, the Philippine Economic Zone Authority
(PEZA) cannot be taxed by local government units (LGUs).
Although a body corporate vested with some corporate powers, the PEZA is not a government-
owned or -controlled corporation taxable for real property taxes. City of Lapu-Lapu vs. Philippine
Under the Constitution, government-owned or -controlled corporations (GOCCs) are created in

the interest of the common good and should satisfy the test of economic viability.
Government entities are created by law, specifically, by the Constitution or by statute. In the case
of government-owned or -controlled corporations, they are incorporated by virtue of special
charters to participate in the market for special reasons which may be related to dysfunctions or
inefficiencies of the market structure. This is to adjust reality as against the concept of full
competition where all market players are price takers. Thus, under the Constitution, government-
owned or -controlled corporations are created in the interest of the common good and should
satisfy the test of economic viability. Article XII, Section 16 of the Constitution provides: Section
16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. City of Lapu-Lapu vs. Philippine Economic Zone Authority,

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When a government entity performs sovereign functions, it need not meet the test of economic
viability.
Government instrumentalities, on the other hand, are also created by law but partake of
sovereign functions. City of Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA 524,
G.R. No. 187583 November 26, 2014
Under the Special Economic Zone Act of 1995, the Philippine Economic Zone Authority (PEZA)
was established primarily to perform the governmental function of operating, administering,
managing, and developing special economic zones to attract investments and provide
opportunities for preferential use of Filipino labor.
The law created the PEZA’s charter. xxx Under its charter, the PEZA was created a body corporate
endowed with some corporate powers. However, it was not organized as a stock or non-stock
corporation. Nothing in the PEZA’s charter provides that the PEZA’s capital is divided into shares.
The PEZA also has no members who shall share in the PEZA’s profits. City of Lapu-Lapu vs.
Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November 26, 2014
The Supreme Court (SC) ruled that the Philippine Economic Zone Authority (PEZA) is exempt
from real property taxes by virtue of its charter. A provision in the Special Economic Zone Act
of 1995 explicitly exempting the PEZA is unnecessary.
The PEZA assumed the real property exemption of the EPZA under Presidential Decree No. 66.
Section 11 of the Special Economic Zone Act of 1995 mandated the EPZA “to evolve into the PEZA
in accordance with the guidelines and regulations set forth in an executive order issued for this
purpose.” President Ramos then issued Executive Order No. 282 in 1995, ordering the PEZA to
assume the EPZA’s powers, functions, and responsibilities under Presidential Decree No. 66 not
inconsistent with the Special Economic Zone Act of 1995. City of Lapu-Lapu vs. Philippine

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Contrary to the Philippine Economic Zone Authority’s (PEZA’s) claim, developers of economic
zones, whether public or private developers, are liable for real property taxes on lands they
own.
Section 24 does not distinguish between a public and private developer. Thus, courts cannot
distinguish. Unless the public developer is exempt under the Local Government Code or under
its charter enacted after the Local Government Code’s effectivity, the public developer must pay
real property taxes on their land. City of Lapu-Lapu vs. Philippine Economic Zone Authority, 742
The Philippine Economic Zone Authority (PEZA) cannot be taxed for real property taxes even if
it acts as a developer or operator of special economic zones. The PEZA is an instrumentality of
the national government exempt from payment of real property taxes under Section 133(o) of
the Local Government Code (LGC).
As this court said in Manila International Airport Authority v. Court of Appeals, 495 SCRA 591
(2006), “there must be express language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether such power exists is resolved against
local governments.” City of Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA 524,
G.R. No. 187583 November 26, 2014
The Freeport Area of Bataan, where the government allows tax and duty-free importation of
goods, is considered property of public dominion. The Freeport Area of Bataan is owned by the
state and cannot be taxed under Section 234(a) of the Local Government Code (LGC).
A port of entry, where imported goods are unloaded then introduced in the market for public
consumption, is considered property for public use. Thus, Article 420 of the Civil Code classifies
a port as property of public dominion. The Freeport Area of Bataan, where the government allows
tax and duty-free importation of goods, is considered property of public dominion. The Freeport
Area of Bataan is owned by the state and cannot be taxed under Section 234(a) of the Local
Government Code. Properties of public dominion, even if titled in the name of an instrumentality
as in this case, remain owned by the Republic of the Philippines. If property registered in the
name of an instrumentality is conveyed to another person, the property is considered conveyed
on behalf of the Republic of the Philippines. City of Lapu-Lapu vs. Philippine Economic Zone
Authority, 742 SCRA 524, G.R. No. 187583 November 26, 2014

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Even the Philippine Economic Zone Authority’s (PEZA’s) lands and buildings whose beneficial
use have been granted to other persons may not be taxed with real property taxes; Under
Section 24 of the Special Economic Zone Act of 1995, no taxes, whether local or national, shall
be imposed on all business establishments operating within the economic zones.
Under Section 24 of the Special Economic Zone Act of 1995, no taxes, whether local or national,
shall be imposed on all business establishments operating within the economic zones. City of
Lapu-Lapu vs. Philippine Economic Zone Authority, 742 SCRA 524, G.R. No. 187583 November
26, 2014
A government instrumentality exercising corporate powers is not liable for the payment of real
property taxes on its properties unless it is alleged and proven that the beneficial use of its
properties been extended to a taxable person.
The Executive and Legislative Branches, therefore, have already categorized petitioner not as a
government-owned and controlled corporation but as a Government Instrumentality with
Corporate Powers/Government Corporate Entity like the Manila International Airport Authority
and the Philippine Fisheries Development Authority. Privileges enjoyed by these Government
Instrumentalities with Corporate Powers/Government Corporate Entities should necessarily also
extend to petitioner. Hence, petitioner's real property tax exemption under Republic Act No.
6234 is still valid as the proviso of Section 234 of the Local Government Code is only applicable
to government-owned and -controlled corporations. Thus, petitioner is not liable to respondent
Local Government of Quezon City for real property taxes, except if the beneficial use of its
properties has been extended to a taxable person. MWSS vs. Quezon City, G.R. No. 194388
November 7, 2018
Under Section 187 of the Local Government Code (LGC) of 1991, aggrieved taxpayers who
question the validity or legality of a tax ordinance are required to file an appeal before the
Secretary of Justice before they seek intervention from the regular courts.
Parties are generally precluded from immediately seeking the intervention of courts when “the
law provides for remedies against the action of an administrative board, body, or officer.” The
practical purpose behind the principle of exhaustion of administrative remedies is to provide an
orderly procedure by giving the administrative agency an “opportunity to decide the matter by
itself correctly [and] to prevent unnecessary and premature resort to the courts.” Aala vs. Uy,
814 SCRA 41, G.R. No. 202781 January 10, 2017

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Section 187 of the Local Government Code (LGC) of 1991 gives the Secretary of Justice sixty (60)
days to act on the appeal. Within thirty (30) days from receipt of an unfavorable decision or
upon inaction by the Secretary of Justice within the time prescribed, aggrieved taxpayers may
opt to lodge the appropriate proceeding before the regular courts.
To question the validity of the ordinance, petitioners should have first filed an appeal before the
Secretary of Justice. However, petitioners justify direct resort to this Court on the ground that
they are entangled in a “catch-22 situation.” They believe that filing an appeal before the
Secretary of Justice would merely delay the process and give the City Government of Tagum
ample time to collect real property taxes. The questioned ordinance was published in July 2012.
Had petitioners immediately filed an appeal, the Secretary of Justice would have had enough
time to render a decision. Aala vs. Uy, 814 SCRA 41, G.R. No. 202781 January 10, 2017
In cases where the validity or legality of a tax ordinance is questioned, the rule that real
property taxes must first be paid before a protest is lodged does not apply.
Taxpayers must first receive an assessment before this rule is triggered. In Jardine Davies
Insurance Brokers, Inc. v. Aliposa, 398 SCRA 176 (2003), this Court ruled that prior payment under
protest is not required when the taxpayer is questioning the very authority of the assessor to
impose taxes: Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax
assessment, he is required to “first pay the tax” under protest. Otherwise, the city or municipal
treasurer will not act on his protest. In the case at bench, however, the petitioners are
questioning the very authority and power of the assessor, acting solely and independently, to
impose the assessment and of the treasurer to collect the tax. These are not questions merely of
amounts of the increase in the tax but attacks on the very validity of any increase. Aala vs. Uy,
814 SCRA 41, G.R. No. 202781 January 10, 2017
Section 137 is categorical in stating that franchise tax can only be imposed on businesses
enjoying a franchise.
This goes without saying that without a franchise, a local government unit cannot impose
franchise tax. National Power Corporation vs. Provincial Government of Bataan, 819 SCRA 173,
G.R. No. 180654 March 6, 2017

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JUDICIAL REMEDIES
The remedy within the administrative machinery must be resorted to first and pursued to its
appropriate conclusion before the court’s judicial power can be sought.
Under Section 4 of the 1997 National Internal Revenue Code, interpretative rulings are
reviewable by the Secretary of Finance. 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. (Emphasis supplied) Thus, it was held that “[i]f superior administrative
officers [can] grant the relief prayed for, [then] special civil actions are generally not entertained.”
The remedy within the administrative machinery must be resorted to first and pursued to its
appropriate conclusion before the court’s judicial power can be sought. Nonetheless,
jurisprudence allows certain exceptions to the rule on exhaustion of administrative remedies:
[The doctrine of exhaustion of administrative remedies] is a relative one and its flexibility is called
upon by the peculiarity and uniqueness of the factual and circumstantial settings of a case.
Hence, it is disregarded (1) when there is a violation of due process, (2) when the issue involved
is purely a legal question, (3) when the administrative action is patently illegal amounting to lack
or excess of jurisdiction, (4) when there is estoppel on the part of the administrative agency
concerned, (5) when there is irreparable injury, (6) when the respondent is a department
secretary whose acts as an alter ego of the President bears the implied and assumed approval of
the latter, (7) when to require exhaustion of administrative remedies would be unreasonable, (8)
when it would amount to a nullification of a claim, (9) when the subject matter is a private land
in land case proceedings, (10) when the rule does not provide a plain, speedy and adequate
remedy, (11) when there are circumstances indicating the urgency of judicial intervention. Banco
de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756 January 13, 2015
Section 7(a)(1) and Section 7(a)(2) of Republic Act (RA) No. 1125, as amended by RA No. 9282,
provide that the Court of Tax Appeals (CTA) reviews decisions and inactions of the
Commissioner of Internal Revenue (CIR) in disputed assessments and claims for tax refunds.
The Court of Tax Appeals has no power to make an assessment at the first instance. On matters
such as tax collection, tax refund, and others related to the national internal revenue taxes, the
Court of Tax Appeals’ jurisdiction is appellate in nature. Section 7(a)(1) and Section 7(a)(2) of
Republic Act No. 1125, as amended by Republic Act No. 9282, provide that the Court of Tax
Appeals reviews decisions and inactions of the Commissioner of Internal Revenue in disputed
assessments and claims for tax refunds. SMI-ED Philippines Technology, Inc. vs. Commissioner
of Internal Revenue, 739 SCRA 691, G.R. No. 175410 November 12, 2014

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The Court of Tax Appeals (CTA) is not precluded from accepting respondent’s evidence
assuming these were not presented at the administrative level. Cases filed in the CTA are
litigated de novo.
The Court of Tax Appeals is not precluded from accepting respondent’s evidence assuming these
were not presented at the administrative level. Cases filed in the Court of Tax Appeals are
litigated de novo. Thus, respondent “should prove every minute aspect of its case by presenting,
formally offering and submitting . . . to the Court of Tax Appeals [all evidence] . . . required for
the successful prosecution of [its] administrative claim.” Commissioner of Internal Revenue vs.
Philippine National Bank, 736 SCRA 609, G.R. No. 180290 September 29, 2014
The Court of Tax Appeals (CTA) has no power to make an assessment.
Petitioner argued that the Court of Tax Appeals had no jurisdiction to subject it to 6% capital
gains tax or other taxes at the first instance. The Court of Tax Appeals has no power to make an
assessment. As earlier established, the Court of Tax Appeals has no assessment powers. In stating
that petitioner’s transactions are subject to capital gains tax, however, the Court of Tax Appeals
was not making an assessment. It was merely determining the proper category of tax that
petitioner should have paid, in view of its claim that it erroneously imposed upon itself and paid
the 5% final tax imposed upon PEZA-registered enterprises. SMI-ED Philippines Technology, Inc.
vs. Commissioner of Internal Revenue, 739 SCRA 691, G.R. No. 175410 November 12, 2014
Denial or the inaction of the Commissioner of Internal Revenue (CIR)
A simple reading of the provision quoted above reveals that the taxpayer may appeal the denial
or the inaction of the Commissioner of Internal Revenue only within thirty (30) days from receipt
of the decision that denied the claim or the expiration of the 120-day period given to the
Commissioner to decide the claim. CBK Power Company Limited vs. Commissioner of Internal
Revenue, 737 SCRA 218, G.R. No. 205353 September 30, 2014

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Compliance with the 120-day and the 30-day periods under Section 112 of the Tax Code, save
for those Value-Added Tax (VAT) refund cases that were prematurely (i.e., before the lapse of
the 120-day period) filed with the Court of Tax Appeals (CTA) between December 10, 2003
(when the Bureau of Internal Revenue [BIR] Ruling No. DA-489-03 was issued) and October 6,
2010, is mandatory and jurisdictional.
In the fairly recent case of Commissioner of Internal Revenue v. San Roque Power Corporation,
690 SCRA 336 (2013), this court En Banc affirmed with qualification the decision of its First
Division in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., 632 SCRA
422 (2010). CBK Power Company Limited vs. Commissioner of Internal Revenue, 737 SCRA 218,
G.R. No. 205353 September 30, 2014
“The reckoning frame would always be the end of the quarter when the pertinent sales or
transaction was made, regardless when the input Value-Added Tax (VAT) was paid”
The September 12, 2008 case of Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation, 565 SCRA 154 (2008), abandoned Atlas Consolidated Mining v. Commissioner of
Internal Revenue, 524 SCRA 73 (2007), when it ruled that “[t]he reckoning frame would always
be the end of the quarter when the pertinent sales or transaction was made, regardless when
the input VAT was paid,” applying Section 112(A) of the Tax Code and not other provisions that
pertain to erroneous tax payments. CBK Power Company Limited vs. Commissioner of Internal
Revenue, 737 SCRA 218, G.R. No. 205353 September 30, 2014

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LOCAL GOVERNMENT TAXATION
The Local Government’s power to tax is deemed to exist although Congress may provide
statutory limitations and guidelines.
Prefatorily, it might be well to recall that local governments do not have the inherent power to
tax except to the extent that such power might be delegated to them either by the basic law or
by statute. Presently, under Article X of the 1987 Constitution, a general delegation of that power
has been given in favor of local government units. The 1987 Constitution has a counterpart
provision in the 1973 Constitution, which did come out with a similar delegation of revenue
making powers to local governments. Under the regime of the 1935 Constitution no similar
delegation of tax powers was provided, and local government units instead derived their tax
powers under a limited statutory authority. Manila Electric Co. v. Province of Laguna, G.R. No.
131359, May 5, 1999
The Local Government Code withdrew exemptions and privileges from local taxes that existed
upon its enactment. The exemptions that remain are those that are provided for under the Code
and those under laws enacted thereafter.
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes,
et al., the Court has held that the phrase in lieu of all taxes "have to give way to the peremptory
language of the Local Government Code specifically providing for the withdrawal of such
exemptions, privileges," and that "upon the effectivity of the Local Government Code all
exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim
liability for the local tax. Manila Electric Co. v. Province of Laguna, G.R. No. 131359, May 5, 1999
Even exemptions under a franchise are deemed withdrawn upon the implementation of the
Local Government Code as it is not covered by the non-impairment clause of the Constitution.
These contractual tax exemptions, however, are not to be confused with tax exemptions granted
under franchises. A franchise partakes the nature of a grant which is beyond the purview of the
non-impairment clause of the Constitution. Manila Electric Co. v. Province of Laguna, G.R. No.
131359, May 5, 1999

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LOCAL TAXATION
A local law that fails to follow the procedures to enact a law is null and void. And the enactment
of a law that amends a void law does not cure the latter of its defect.
Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated
the findings of the DOJ Secretary that respondents failed to follow the procedure in the
enactment of tax measures as mandated by Section 188 of the Local Government Code of 1991,
in that they failed to publish Tax Ordinance No. 7988 for three consecutive days in a newspaper
of local circulation. From the foregoing, it is evident that Tax Ordinance No. 7988 is null and void
as said ordinance was published only for one day in the 22 May 2000 issue of the Philippine Post
in contravention of the unmistakable directive of the Local Government Code of 1991.
Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May
2002, went on to dismiss petitioner's case on the force of the enactment of Tax Ordinance No.
8011, amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise
declared null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that
"[I]nstead of amending Ordinance No. 7988, [herein] respondent should have enacted another
tax measure which strictly complies with the requirements of law, both procedural and
substantive. The passage of the assailed ordinance did not have the effect of curing the defects
of Ordinance No. 7988 which, anyway, does not legally exist." Said Resolution of the DOJ
Secretary had, as well, attained finality by virtue of the dismissal with finality by this Court of
respondents' Petition for Review on Certiorari in G.R. No. 157490 assailing the dismissal by the
RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its Order, dated 11 August
2003. Coca-Cola Bottlers Philippines, Inc. v. City of Manila, G.R. No. 156252, June 27, 2006
A license could be a form of taxation if it is generally for generating revenue and if it is so, the
rule that license fees for regulation must bear a reasonable relation to the expense of the
regulation has no application.
A municipality is authorized to impose three kinds of licenses:
1) license for regulation of useful occupations or enterprises;

2) license for restriction or regulation of non-useful occupations or enterprises; and
3) license for revenue.
The first two easily fall within the broad police power granted under the general welfare clause.
The third class, however, is for revenue purposes. It is not a license fee, properly speaking, and
yet it is generally so termed. It rests on the taxing power. That taxing power must be expressly
conferred by statute upon the municipality. The tax in question is granted upon the municipality
under Commonwealth Act 472.

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The cost of regulation cannot be taken as a gauge, if the municipality really intended to enact a
revenue ordinance. For, "if the charge exceeds the expense of issuance of a license and costs of
regulation, it is a tax." And if it is, and it is validly imposed, as in this case, "the rule that license
fees for regulation must bear a reasonable relation to the expense of the regulation has no
application." And then, a cash surplus alone cannot stop a municipality from enacting a revenue
ordinance increasing license taxes in anticipation of municipal needs. Discretion to determine the
amount of revenue required for the needs of the municipality is lodged with the municipal
authorities. Again, judicial intervention steps in only when there is a flagrant, oppressive and
excessive abuse of power by said municipal authorities. Victorias Milling Co., Inc. v. Municipality
of Victorias, G.R. No. L-21183, September 27, 1968
Constitutionality or Validity of a Tax Ordinance
Sec. 187 of the LGC, which requires that the constitutionality of an ordinance be questioned
before the Secretary of Justice, only applies to a tax ordinance and does not apply to an ordinance
which imposes a regulatory fee. Smart vs. Municipality of Malvar, Batangas, GR No. 204429
February 18, 2014
Common Carriers are excluded from the taxing power of local governments.
It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the so-
called "common carrier's tax." First Philippine Industrial Corp. v. Court of Appeals, G.R. No.
125948, December 29, 1998
Pipeline operators are common carriers not subject to the taxing power of the LGUs.
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." The BIR
Ruling No. 069-83, it declared: " since [petitioner] is a pipeline concessionaire that is engaged
only in transporting petroleum products, it is considered a common carrier under Republic Act
No. 387. Such being the case, it is not subject to withholding tax prescribed by Revenue
Regulations No. 13-78 as amended." From the foregoing disquisition there is no doubt that
petitioner is a "common carrier" and, therefore, exempt from the business tax as provided for in
Section 133 (j) of the Local Government Code, to wit: "Section 133. Common Limitations on the
Taxing Power of Local Government Units. — Unless otherwise provided herein, the exercise of

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the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following: . . . (j) Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and common carriers by air, land
or water except as provided in this Code. First Philippine Industrial Corp. v. Court of Appeals,
G.R. No. 125948, December 29, 1998
National Government, its agencies and instrumentalities are excluded from the taxing powers
of the LGU, unless provided for under the Code.
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when
specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz: "Section 133. Common Limitations on the Taxing Powers of the
Local Government Units — Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
...(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." National Power Corporation v. City of
Cabanatuan, G.R. No. 149110, April 9, 2003
The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether Smart is
exempted from both local and national franchise tax is construed strictly against Smart who is
claiming the exemption.
Another argument of Smart is that the imposition of the local franchise tax by the City of Davao
would violate the constitutional prohibition against impairment of contracts. The franchise,
according to petitioner, is in the nature of a contract between the government and Smart.
However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine
Constitution. As previously discussed, the franchise of Smart does not expressly provide for
exemption from local taxes. Absent the express provision on such exemption under the franchise,
we are constrained to rule against it. The "in lieu of all taxes" clause in Section 9 of R.A. No. 7294
leaves much room for interpretation. Due to this ambiguity in the law, the doubt must be
resolved against the grant of tax exemption. Moreover, Smart's franchise was granted with the
express condition that it is subject to amendment, alteration, or repeal.

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LOCAL TAXATION
The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether Smart is exempted
from both local and national franchise tax is construed strictly against Smart who is claiming the
exemption. Smart has the burden of proving that, aside from the imposed 3% franchise tax,
Congress intended it to be exempt from all kinds of franchise taxes — whether local or national.
However, Smart failed in this regard.
Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally
in favor of the taxing authority. They can only be given force when the grant is clear and
categorical. The surrender of the power to tax, when claimed, must be clearly shown by a
language that will admit of no reasonable construction consistent with the reservation of the
power. If the intention of the legislature is open to doubt, then the intention of the legislature
must be resolved in favor of the State. In this case, the doubt must be resolved in favor of the
City of Davao. Smart Communications, Inc. v. City of Davao, G.R. No. 155491, September 16,
2008
Amusement places subject to amusement tax are venues where one seeks admission to
entertain oneself by seeing or viewing the show or performances. Hence resorts, swimming
pools, bath houses, hot springs and tourist spots are not included.
Section 131. Definition of Terms. — When used in this Title, the term: (c)" Amusement Places"
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
Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common
typifying characteristic in that they are all venues primarily for the staging of spectacles or the
holding of public shows, exhibitions, performances, and other events meant to be viewed by an
audience. Accordingly, 'other places of amusement' must be interpreted in light of the typifying
characteristic of being venues "where one seeks admission to entertain oneself by seeing or
viewing the show or performances" or being venues primarily used to stage spectacles or hold
public shows, exhibitions, performances, and other events meant to be viewed by an audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist
spots cannot be considered venues primarily "where one seeks admission to entertain oneself by
seeing or viewing the show or performances". While it is true that they may be venues where
people are visually engaged, they are not primarily venues for their proprietors or operators to
actively display, stage or present shows and/or performances.
Thus, 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

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LOCAL TAXATION
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. Pelizloy Realty
Corp. v. Province of Benguet, G.R. No. 183137, April 10, 2013
Imposing business taxes based on gross revenue when business taxes the previous year were
based on gross receipts results to unconstitutional double taxation.
"Gross Sales or Receipts" include the total amount of money or its equivalent representing the
contract price, compensation or service fee, including the amount charged or materials supplied
with the services and the deposits or advance payments actually or constructively received during
the taxable quarter for the services performed or to be performed for another person excluding
discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT);
In contrast, gross revenue covers money or its equivalent actually or constructively received,
including the value of services rendered or articles sold, exchanged or leased, the payment of
which is yet to be received.
The imposition of local business tax based on petitioner's gross revenue will inevitably result in
the constitutionally proscribed double taxation — taxing of the same person twice by the same
jurisdiction for the same thing — inasmuch as petitioner's revenue or income for a taxable year
will definitely include its gross receipts already reported during the previous year and for which
local business tax has already been paid.
Thus, respondent committed a palpable error when it assessed petitioner's local business tax
based on its gross revenue as reported in its audited financial statements, as Section 143 of the
Local Government Code and Section 22 (e) of the Pasig Revenue Code clearly provide that the tax
should be computed based on gross receipts. Ericsson Telecommunications, Inc. v. City of Pasig,
G.R. No. 176667, November 22, 2007
Since the imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it be
extended by implication. A law will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT
on the gross receipts of cinema/theater operators or proprietors derived from admission tickets.
The removal of the prohibition under the Local Tax Code did not grant nor restore to the national
government the power to impose amusement tax on cinema/theater operators or proprietors.
Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden on the

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taxpayer, it cannot be presumed nor can it be extended by implication. A law will not be
construed as imposing a tax unless it does so clearly, expressly, and unambiguously. As it is, the
power to impose amusement tax on cinema/theater operators or proprietors remains with the
local government.
Revenue Memorandum Circular No. 28-2001 is invalid. Considering that there is no provision of
law imposing VAT on the gross receipts of cinema/theater operators or proprietors derived from
admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts from admission to
cinema houses must be struck down. We cannot overemphasize that RMCs must not override,
supplant, or modify the law, but must remain consistent and in harmony with, the law they seek
to apply and implement. Commissioner of Internal Revenue v. SM Prime Holdings, Inc., G.R. No.
183505, February 26, 2010
The rule that tax exemptions should be construed strictly against the taxpayer presupposes
that the taxpayer is clearly subject to the tax being levied against him.
Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to
an exemption from the coverage of VAT. The rule that tax exemptions should be construed
strictly against the taxpayer presupposes that the taxpayer is clearly subject to the tax being
levied against him. The reason is obvious: it is both illogical and impractical to determine who are
exempted without first determining who are covered by the provision. Thus, unless a statute
imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule
that the imposition of a tax cannot be presumed. In fact, in case of doubt, tax laws must be
construed strictly against the government and in favor of the taxpayer. Commissioner of Internal
Revenue v. SM Prime Holdings, Inc., G.R. No. 183505, February 26, 2010
The collection of local taxes may be subjected to injunction, subject to the requirements of Rule
58.
An opinion has been expressed that injunction is available as an ancillary remedy in actions to
determine the construction or validity of a local tax ordinance. Unlike the National Internal
Revenue Code, the Local Tax Code does not contain any specific provision prohibiting courts from
enjoining the collection of local taxes. Such Statutory lapse or intent, however it may be viewed,
may have allowed preliminary injunction where local taxes are involved but cannot negate the
procedural rules and requirements under Rule 58.

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The circumstances required for the writ to issue do not obtain in the case at bar. The damage
that may be caused to the petitioner will not, of course, be irreparable; where so indicated by
subsequent events favorable to it, whatever it shall have paid is easily refundable. Besides, the
damage to its property rights must perforce take a back seat to the paramount need of the State
for funds to sustain governmental functions. Compared to the damage to the State which may
be caused by reduced financial resources, the damage to petitioner is negligible. The policy of
the law is to discountenance any delay in the collection of taxes because of the oft repeated but
unassailable consideration that taxes are the lifeblood of the Government and their prompt and
certain availability is an imperious need. Valley Trading Co., Inc. v. Court of First Instance of
Isabela, Branch II, G.R. No. L-49529, March 31, 1989
The Secretary of Justice is not given the same latitude under Section 187 as the Secretary of
Finance. All he is permitted to do is ascertain the constitutionality or legality of the tax measure,
without the right to declare that, in his opinion, it is unjust, excessive, oppressive or
confiscatory. He has no discretion on this matter.
The principal issue in this case is the constitutionality of Section 187 of the Local Government
Code reading as follows:
Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory
Public Hearings. — The procedure for approval of local tax ordinances and revenue measures
shall be in accordance with the provisions of this Code: Provided, That public hearings shall be
conducted for the purpose prior to the enactment thereof; Provided, further, That any question
on the constitutionality or legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however,
That such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty
(30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary
of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a
court of competent jurisdiction.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance
shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to
suspend the effectivity of any ordinance within one hundred and twenty days after receipt by
him of a copy thereof, if, in his opinion, the tax or fee therein levied or imposed is unjust,
excessive, oppressive, or confiscatory, or when it is contrary to declared national economy policy,
and when the said Secretary exercises this authority the effectivity of such ordinance shall be
suspended, either in part or as a whole, for a period of thirty days within which period the local

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legislative body may either modify the tax ordinance to meet the objections thereto, or file an
appeal with a court of competent jurisdiction; otherwise, the tax ordinance or the part or parts
thereof declared suspended, shall be considered as revoked. Thereafter, the local legislative body
may not reimpose the same tax or fee until such time as the grounds for the suspension thereof
shall have ceased to exist.
That section allowed the Secretary of Finance to suspend the effectivity of a tax ordinance if, in
his opinion, the tax or fee levied was unjust, excessive, oppressive or confiscatory. Determination
of these flaws would involve the exercise of judgment or discretion and not merely an
examination of whether or not the requirements or limitations of the law had been observed;
hence, it would smack of control rather than mere supervision. That power was never questioned
before this Court but, at any rate, the Secretary of Justice is not given the same latitude under
Section 187. All he is permitted to do is ascertain the constitutionality or legality of the tax
measure, without the right to declare that, in his opinion, it is unjust, excessive, oppressive or
confiscatory. He has no discretion on this matter. In fact, Secretary Drilon set aside the Manila
Revenue Code only on two grounds, to wit, the inclusion therein of certain ultra vires provisions
and non-compliance with the prescribed procedure in its enactment. These grounds affected the
legality, not the wisdom or reasonableness of the tax measure.
The only exceptions are the posting of the ordinance as approved but this omission does not
affect its validity, considering that its publication in three successive issues of a newspaper of
general circulation will satisfy due process. It has also not been shown that the text of the
ordinance has been translated and disseminated, but this requirement applies to the approval of
local development plans and public investment programs of the local government unit and not
to tax ordinances. Drilon v. Lim, G.R. No. 112497, August 4, 1994
Failure to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160
is fatal.
In this case, petitioner, relying on the resolution of the Secretary of Justice in The Philippine
Racing Club, Inc. v. Municipality of Makati case, posited in its complaint that the ordinance which
was the basis of respondent Makati for the collection of taxes from petitioner was null and void.
However, the Court agrees with the contention of respondents that petitioner was proscribed
from filing its complaint with the RTC of Makati for the reason that petitioner failed to appeal to
the Secretary of Justice within 30 days from the effectivity date of the ordinance as mandated by
Section 187 of the Local Government Code.
In Reyes v. Court of Appeals, we ruled that failure of a taxpayer to interpose the requisite appeal
to the Secretary of Justice is fatal to its complaint for a refund: “Clearly, the law requires that the

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dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal
to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides
the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the
Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek
relief in court. These three separate periods are clearly given for compliance as a prerequisite
before seeking redress in a competent court. Such statutory periods are set to prevent delays as
well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts
construe these provisions of statutes as mandatory.” Jardine Davies Insurance Brokers Inc. v.
Aliposa, G.R. No. 118900, February 27, 2003
REAL PROPETY TAXATION
The Manila International Airport Authority is exempt from real property tax while Mactan Cebu
International Airport Authority is not.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the

National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax. The power to
tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it.
This "transfer" of assets to MCIAA is actually an absolute conveyance of the ownership thereof
because the petitioner's authorized capital stock consists of, inter alia, "the value of such real
estate owned and/or administered by the airports." Hence, the petitioner MCIAA is now the
owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable.
To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the National Government was
in effect. However, as this Court ruled, nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be
subject to tax. In enacting the LGC, Congress exercised its prerogative to tax instrumentalities
and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC,
this Court held that MCIAA, although an instrumentality of the national government, was subject
to real property tax. Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082,
September 11, 1996

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Exemption from Real Property Tax
The following are real property exempt from real property tax:
a) 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;
b) 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;
c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government owned or controlled corporations engaged in the supply
and distribution of water and/or generation and transmission of electric power;
d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and
e) Machinery and equipment used for pollution control and environmental protection. Sec.
234 of the LGC
Beneficial use principle. The Republic may grant the beneficial use of its property to an agency
or instrumentality of the national government and such does not necessarily result in the loss
of the tax exemption. The tax exemption the property of the Republic or its instrumentality
carries ceases only if, as stated in Sec. 234 (a) of the LGC of 1991 beneficial use thereof has been
granted, for a consideration or otherwise, to a taxable person.
It is true that said Sec. 234 (a), quoted below, exempts from real estate taxes real property owned
by the Republic, unless the beneficial use of the property is, for consideration, transferred to a
taxable person.
SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of
the real property tax: (a) 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.
This exemption, however, must be read in relation with Sec. 133 (o) of the LGC, which prohibits
LGUs from imposing taxes or fees of any kind on the national government, its agencies, and
instrumentalities: SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following: xxx (o) Taxes, fees or

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charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units.
Thus read together, the provisions allow the Republic to grant the beneficial use of its property
to an agency or instrumentality of the national government. Such grant does not necessarily
result in the loss of the tax exemption. The tax exemption the property of the Republic or its
instrumentality carries ceases only if, as stated in Sec. 234 (a) of the LGC of 1991,"beneficial use
thereof has been granted, for a consideration or otherwise, to a taxable person." GSIS, as a
government instrumentality, is not a taxable juridical person under Sec. 133 (o) of the LGC. GSIS,
however, lost in a sense that status with respect to the Katigbak property when it contracted its
beneficial use to MHC, doubtless a taxable person. Thus, the real estate tax assessment of
PhP54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as
said tax delinquency is concerned as assessed over said property. Government Service Insurance
System v. City Treasurer of the City of Manila, G.R. No. 186242, December 23, 2009
Taxable entity having beneficial use of leased property is liable for real property taxes thereon.
As we declared in Testate Estate of Concordia T. Lim, "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." Of the same tenor is the Court's holding in the
subsequent Manila Electric Company v. Barlis and later in Republic v. City of Kidapawan. Actual
use refers to the purpose for which the property is principally or predominantly utilized by the
person in possession thereof.
Being in possession and having actual use of the Katigbak property since November 1991, MHC
is liable for the realty taxes assessed over the Katigbak property from 1992 to 2002. Government
Service Insurance System v. City Treasurer of the City of Manila, G.R. No. 186242, December 23,
2009
The exemption to real estate taxes enjoyed by government instrumentalities does not extend
to taxable entities they contract with who actually use the real property to be taxed.
We note, in the first place, that the present case is not the first occasion where NAPOCOR claimed
real property tax exemption for a contract partner under Sec. 234 (c) of the LGC. In FELS Energy,
Inc. v. The Province of Batangas (that was consolidated with NAPOCOR v. Local Board of
Assessment Appeals of Batangas, et al.), the Province of Batangas assessed real property taxes
against FELS Energy, Inc. — the owner of a barge used in generating electricity under an

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agreement with NAPOCOR. Their agreement provided that NAPOCOR shall pay all of FELS' real
estate taxes and assessments. We concluded in that case that we could not recognize the tax
exemption claimed, since NAPOCOR was not the actual, direct and exclusive user of the barge as
required by Sec. 234 (c). In making this ruling, we cited the required standard of construction
applicable to tax exemptions and said:
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is
between FELS and NPC and does not bind a third person not privy thereto, in this case, the
Province of Batangas.
Consistent with the BOT concept and as implemented, BPPC — the owner-manager-operator of
the project — is the actual user of its machineries and equipment. BPPC's ownership and use of
the machineries and equipment are actual, direct, and immediate, while NAPOCOR's is
contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax
exemption. Thus, the CTA committed no reversible error in denying NAPOCOR's claim for tax
exemption. National Power Corp. v. Central Board of Assessment Appeals, G.R. No. 171470,
January 30, 2009
The period of redemption of tax delinquent properties should be counted not from the date of
registration of the certificate of sale, but rather on the date of sale of the tax delinquent
property.
Is without question that Section 263 of the LGC lacks definiteness as to the reckoning point for
the redemption of tax delinquent properties. It merely employs the phrase, "within one (1) year
from the date of such forfeiture." On one hand, the City avers that the period commences from
the date of the forfeiture, that is, the date of the auction. On the other hand, the Estate insists
that the redemption period begins from the date when the declarations of forfeiture were issued.
From the foregoing, the owner of the delinquent real property or person having legal interest
therein, or his representative, has the right to redeem the property within one (1) year from the
date of sale upon payment of the delinquent tax and other fees. Verily, the period of redemption
of tax delinquent properties should be counted not from the date of registration of the certificate
of sale, as previously provided by Section 78 of P.D. No. 464, but rather on the date of sale of the
tax delinquent property, as explicitly provided by Section 261 of R.A. No. 7160. City of Davao v.
Intestate Estate of Dalisay, G.R. No. 207791, July 15, 2015

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A motion for reconsideration against an assessment of a local assessor is not an acceptable

remedy. It should be appealed to the LBAA instead.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial,
city or municipal assessor in the assessment of the property. It follows then that the
determination made by the respondent Provincial Assessor with regard to the taxability of the
subject real properties falls within its power to assess properties for taxation purposes subject to
appeal before the LBAA.
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman, where we ruled that under Section 226 of R.A. No. 7160, 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. v. Province of Batangas, G.R. Nos. 168557 & 170628, February 16,
2007
Under certain circumstances, exhaustion of administrative remedies may be forgone and direct
recourse to the courts allowed.
With the reality that Bayantel's real properties were already levied upon on account of its
nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the
LBAA is not a speedy and adequate remedy within the context of the aforequoted Section 2 of
Rule 65. This is not to mention of the auction sale of said properties already scheduled on July
30, 2002.
In addition, although as a rule, administrative remedies must first be exhausted before resort to
judicial action can prosper, there is a well-settled exception in cases where the controversy does
not involve questions of fact but only of law, immediate judicial recourse may be allowed.
Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment
under protest of the amount of P43,878,208.18, a figure which, in the light of the then prevailing
Asian financial crisis, may have been difficult to raise up. Given this reality, an appeal to the LBAA
may not be considered as a plain, speedy and adequate remedy. It is thus understandable why
Bayantel opted to withdraw its earlier appeal with the LBAA and, instead, filed its petition for
prohibition with urgent application for injunctive relief in Civil Case No. Q-02-47292. The remedy
availed of by Bayantel under Section 2, Rule 65 of the Rules of Court must be upheld. City
Government of Quezon City v. Bayan Telecommunications, Inc., G.R. No. 162015, March 6, 2006

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The Court may entertain an action despite not exhausting administrative remedies and refer it
back to an administrative body as a fact-finding commission to assist the court. The court still
retains jurisdiction and the court action continues.
Finally, it will be noted that in the consolidated cases of Mathay/Javier/Puyat-Reyes cited earlier,
the Supreme Court referred the petitions (which similarly questioned the schedules of market
values prepared solely by the respective assessors in the local government units concerned) to
the Board of Assessment Appeal, not for the latter to exercise its appellate jurisdiction, but rather
to act only as a fact-finding commission. Said the Court thru Chief Justice Andres R. Narvasa:
On November 5, 1991, the Court issued a Resolution clarifying its earlier one of May 16, 1991. It
pointed out that the authority of the Central Board of Assessment Appeals 'to take cognizance of
the factual issues raised in these two cases by virtue of the referral by this Court in the exercise
of its extraordinary or certiorari jurisdiction should not be confused with its appellate jurisdiction
over appealed assessment cases under Section 36 of P.D. 464 otherwise known as the Real
Property Tax Code. The Board is not acting in its appellate jurisdiction in the instant cases, but
rather, it is acting as a Court-appointed fact-finding commission to assist the Court in resolving
the factual issues raised in G.R. Nos. 97618 and 97760.
In other words, the Court gave due course to the petitions therein in spite of the fact that the
petitioners had not a priori, exhausted administrative remedies by filing an appeal before said
Board. Because there were factual issues raised in the Mathay, et al. cases, the Supreme Court
constituted the Central Board of Assessment Appeals as a fact finding body to assist the Court in
resolving said factual issues. Ty v. Trampe, G.R. No. 117577, December 1, 1995
Remedy for erroneous and illegal assessment
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.
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. City of Lapu-Lapu v. PEZA, G.R. No. 184203, November 26, 2014

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TAXING AUTHORITY
The Bureau of Internal Revenue may claim police power only when necessary in the
enforcement of its principal powers and duties consisting of the "collection of fees and charges,
and the enforcement of all forfeitures, penalties and fines connected therewith."
The Commissioner of Internal Revenue has no authority to enforce Section 169 of the Tax Code
which requires the proper labelling of filled milk products, since it entails the promotion of the
health of the nation and is thus unconnected with any tax purpose. This is the exclusive function
of the Food and Drug Administration of the Department of Health. Vera v. Cuevas, G.R. Nos. L-
33693-94, May 31, 1979
The CIR and the Secretary of Finance derive their respective powers from two (2) distinct
sources, thus, their respective issuances, too, are separate and independent of each other.
While it is true that RMC 31-2008, subject of Civil Case No. Q-09-64241, on one hand, and RR 15-
2013, subject of the present case, on the other, both treat demurrage and detention fees, in Civil
Case No. Q-09-64241, what was challenged was the CIR's authority to issue RMC 31-2008
pursuant to Section 4 of the NIRC. On the other hand, what is being challenged here is the
Secretary of Finance's authority to issue Revenue Regulation 15-2013 in accordance with Section
244 of the NIRC and Section 5 of RA 10378.
More, the supposed invalidity of the CIR's issuance in Civil Case No. Q-09-64241 does not
preclude the Secretary of Finance from rendering his issuance on the same subject. More
important, the judgment in Civil Case No. Q-09-64241 does not rise to a level of a judicial
precedent to be followed in subsequent cases by all courts in the land, since the same was
rendered by a regional trial court, and not by this Court. Verily, the Order dated May 18, 2012 of
RTC-Branch 98, although binding on the CIR, cannot serve as a judicial precedent for the purpose
of precluding the Secretary of Finance from promulgating a similar issuance on the same subject.
Association of International Shipping Lines, Inc. v. Secretary of Finance, G.R. No. 222239,
January 15, 2020

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INCOME TAX
An income tax is a tax on the yearly profits arising from property, professions, trades, and
offices.
There can be but one answer. There is no reason whatever why the gains derived from the sale
of the products of the farm should not be regarded as income whether reinvested in
improvements upon the farm or not and there is no reason why a tax levied thereon cannot be
considered an income tax. Moreover, to constitute income, profits, or earnings need not
necessarily be converted into cash. Black's Law Dictionary says — and I am again quoting from
the decision of the court — "An income is the return in money from one's business, labor, or
capital invested; gains, profit, or private revenue." As will be seen in the secondary sense of the
word, income need not consist in money; upon this point there is no divergence of view among
the lexicographers. If a farmer stores the grain produced upon his farm without selling, it may
none the less be regarded as income. Fisher v. Trinidad, G.R. No. 17518, October 30, 1922
Income tax covers income from whatever source.
The Income Tax Law of the United States in force in the Philippine Islands has selected income as
the test of faculty in taxation. The aim has been to mitigate the evils arising from the inequalities
of wealth by a progressive scheme of taxation, which places the burden on those best able to
pay. To carry out this idea, public considerations have demanded an exemption roughly
equivalent to the minimum of subsistence. With these exceptions, the Income Tax Law is
supposed to reach the earnings of the entire non-governmental property of the country.
Madrigal v. Rafferty, G.R. No. 12287, August 7, 1918
Global vs Schedular Tax Systems
Global Tax system is a system where the tax treatment views indifferently the tax base and
generally treats in common all categories of taxable income of the taxpayer. While Schedular Tax
system is a system employed where the income tax treatment varies and made to depend on the
kind or category of taxable income of the taxpayer. Tan v. Del Rosario, Jr., G.R. Nos. 109289 &
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The accrual of income and expense is permitted when the all-events test has been met. This
test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the
reasonable accurate determination of such income or liability.
The all-events test requires the right to income or liability be fixed, and the amount of such
income or liability be determined with reasonable accuracy. However, the test does not demand
that the amount of income or liability be known absolutely, only that a taxpayer has at his
disposal the information necessary to compute the amount with reasonable accuracy. The all-
events test is satisfied where computation remains uncertain, if its basis is unchangeable; the
test is satisfied where a computation may be unknown, but is not as much as unknowable, within
the taxable year. ING Bank N.V. v. Commissioner of Internal Revenue, G.R. No. 167679, July 22,
2015
Claim of Right Doctrine
In the claim-of-right doctrine, if a taxpayer receives money or other property and treats it as its
own under the claim of right that the payments are made absolutely and not contingently, such
amounts are included in the taxpayer's income, even though the right to the income has not been
perfected at that time. It does not matter that the taxpayer's title to the property is in dispute
and that the property may later be recovered from the taxpayer. CIR v Manila Electric Co. CTA
EB No. 773 November 13, 2012
All income from whatever source must be reported.
The taxpayer was the recipient of some money from abroad which he presumed to be a gift but
turned out to be an 'error' and is now subject of litigation" but did not declare it as income. The
court ruled that the amount received is income subject to tax, but the tax return filed cannot be
considered as fraudulent because petitioner literally "laid his cards on the table" for respondent
to examine. Error or mistake of fact or law is not fraud. Commissioner vs. Javier, G.R. No. 71479,
July 31, 1991
Income is recognized when there is separation of something which is of exchangeable value.
The provision in section 35 of the Corporation Law (Act No. 1459) which requires the transfer of
shares of stock to be noted and entered upon the books of the corporation, does not invalidate

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the transfer between the parties nor is it essential to vest title upon the vendee. The capital gains
sought to be taxed arose from the severance of gain from the investment occasioned by the
transfer of title abroad and not on account of any registration that might be effected later. In this
case, it is admitted that the negotiation, perfection and consummation of the contract of sale
were all done in California, U.S.A. It follows that title to the shares of stock passed from the
vendor to the vendee at said place, from which time the incidents of ownership were vested on
the buyer.
The Collector argues that the situs of shares of stock of a corporation is considered to be at the
domicile of the latter, as held in some cases cited by him; but in the instant problem, we are not
concerned with imposition of taxes upon the shares themselves, but on a sale effected abroad
that resulted in capital gains, for which there is a specific provision of law. Collector of Internal
Revenue v. Anglo California National Bank, G.R. No. L-12476, January 29, 1960
Difference between Cash and Accrual method of Accounting. The accrual method relies upon
the taxpayer's right to receive amounts or its obligation to pay them, in opposition to actual
receipt or payment, which characterizes the cash method of accounting. Amounts of income
accrue where the right to receive them become fixed, where there is created an enforceable
liability. Similarly, liabilities are accrued when fixed and determinable in amount, without
regard to indeterminacy merely of time of payment.
The accrual method presents largely a question of fact and that the taxpayer bears the burden of
establishing the accrual of an expense or income. However, Isabela Cultural Corp failed to
discharge this burden. As to when the firm's performance of its services in connection with the
1984 tax problems were completed, or whether ICC exercised reasonable diligence to inquire
about the amount of its liability, or whether it does or does not possess the information necessary
to compute the amount of said liability with reasonable accuracy, are questions of fact which ICC
never established. It simply relied on the defense of delayed billing by the firm and the company,
which under the circumstances, is not sufficient to exempt it from being charged with knowledge
of the reasonable amount of the expenses for legal and auditing services.
In the same vein, the professional fees of SGV & Co. for auditing the financial statements of ICC
for the year 1985 cannot be validly claimed as expense deductions in 1986. This is so because ICC
failed to present evidence showing that even with only "reasonable accuracy," as the standard
to ascertain its liability to SGV & Co. in the year 1985, it cannot determine the professional fees
which said company would charge for its services. Commissioner of Internal Revenue v. Isabela
Cultural Corp., G.R. No. 172231, February 12, 2007

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Situs of taxation. The source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the Philippines, it is sufficient
that the income is derived from activity within the Philippines.
In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The
tickets exchanged hands here and payments for fares were also made here in Philippine currency.
The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the protection accorded by the Philippine
government. In consideration of such protection, the flow of wealth should share the burden of
supporting the government. Commissioner of Internal Revenue v. British Overseas Airways
Corp., G.R. Nos. L-65773-74, April 30, 1987
Gross income and taxable income
Taxable income means the pertinent items of gross income specified in the Tax Code, less the
deductions and/or personal and additional exemptions, if any, authorized for these types of
income. Under Section 32 of the Tax Code, gross income means income derived from whatever
source, including compensation for services; the conduct of trade or business or the exercise of
a profession; dealings in property; interests; rents; royalties; dividends; annuities; prizes and
winnings; pensions; and a partner's distributive share in the net income of a general professional
partnership. Commissioner of Internal Revenue. v. Philippine Airlines, Inc., G.R. No. 160528,
October 9, 2006
Capital losses are allowed to be deducted only to the extent of capital gains, i.e., gains derived
from the sale or exchange of capital assets, and not from any other income of the taxpayer.
The exclusionary clause found in Section 33(c) of the National Internal Revenue Code does not
include all forms of securities but specifically covers only bonds, debentures, notes, certificates
or other evidence of indebtedness, with interest coupons or in registered form, which are the
instruments of credit normally dealt with in the usual lending operations of a financial institution.
In the case at bar, First CBC Capital (Asia), Ltd., the investee corporation, is a subsidiary
corporation of petitioner bank whose shares in said investee corporation are not intended for
purchase or sale but as an investment.
Unquestionably then, any loss therefrom would be a capital loss, not an ordinary loss to the
investor. The Court also ruled that equity holdings cannot come close to being, within the purview
of "evidence of indebtedness" under Section 33 of the NIRC. The loss of petitioner bank in its

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equity investment in the Hongkong subsidiary cannot also be deductible as a bad debt. China
Banking Corp. v. Court of Appeals, G.R. No. 125508, July 19, 2000
Tax-free exchanges. The requisites for the non-recognition of gain or loss under the foregoing
provision are as follows: (a) the transferee is a corporation; (b) the transferee exchanges its
shares of stock for property/ies of the transferor; (c) the transfer is made by a person, acting
alone or together with others, not exceeding four persons; and, (d) as a result of the exchange
the transferor, alone or together with others, not exceeding four, gains control of the
transferee.
Evident from the categorical language of Section 34 (c) (2) of the 1993 NIRC, gain or loss will not
be recognized in case the exchange of property for stocks results in the control of the transferee
by the transferor, alone or with other transferors not exceeding four persons. Rather than
isolating the same as proposed by the CIR, FDC's 2,579,575,000 shares or 61.03% control of FLI's
4,226,629,000 outstanding shares should, therefore, be appreciated in combination with the
420,877,000 new shares issued to FAI which represents 9.96% control of said transferee
corporation. Together FDC's 2,579,575,000 shares (61.03%) and FAI's 420,877,000 shares (9.96%)
clearly add up to 3,000,452,000 shares or 70.99% of FLI's 4,226,629,000 shares. Since the term
"control" is clearly defined as "ownership of stocks in a corporation possessing at least fifty-one
percent of the total voting power of classes of stocks entitled to one vote" under Section 34 (c)
(6) [c] of the 1993 NIRC, the exchange of property for stocks between FDC FAI and FLI clearly
qualify as a tax-free transaction under paragraph 34 (c) (2) of the same provision. Commissioner
of Internal Revenue v. Filinvest Development Corp., G.R. Nos. 163653 & 167689, July 19, 2011
The requisites for the deductibility of ordinary and necessary trade, business, or professional
expenses are: (a) the expense must be ordinary and necessary; (b) it must have been paid or
incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade
or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent
papers.
The parties are in agreement that the subject advertising expense was paid or incurred within
the corresponding taxable year and was incurred in carrying on a trade or business. Hence, it was
necessary. However, their views conflict as to whether or not it was ordinary.
To be deductible, an advertising expense should not only be necessary but also ordinary. These
two requirements must be met. We find the subject expense for the advertisement of a single
product to be inordinately large. Therefore, even if it is necessary, it cannot be considered an

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ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC. Commissioner of
Internal Revenue v. General Foods (Phils.) Inc., G.R. No. 143672, April 24, 2003
The income tax is imposed not on the professional partnership, which is tax exempt, but on the
partners themselves in their individual capacity computed on their distributive shares of
partnership profits.
The Court, first of all, should like to correct the apparent misconception that general professional
partnerships are subject to the payment of income tax or that there is a difference in the tax
treatment between individuals engaged in business or in the practice of their respective
professions and partners in general professional partnerships. The fact of the matter is that a
general professional partnership, unlike an ordinary business partnership (which is treated as a
corporation for income tax purposes and so subject to the corporate income tax), is not itself an
income taxpayer. Partnerships are, under the Code, either "taxable partnerships" or "exempt
partnerships." Ordinarily, partnerships, no matter how created or organized, are subject to
income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the context of, and so legally contemplated
as, corporations. Except for few variances, such as in the application of the "constructive receipt
rule" in the derivation of income, the income tax approach is alike to both juridical persons. Tan
v. Del Rosario, Jr., G.R. Nos. 109289 & 109446, October 3, 1994
MWEs receiving other income, such as income from the conduct of trade, business, or practice
of profession, except income subject to final tax, in addition to compensation income are not
exempted from income tax on their entire income earned during the taxable year. This rule,
notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay and hazard
pay shall still be exempt from withholding tax.
The treatment of bonuses and other benefits that an employee receives from the employer in
excess of the P30,000 (Now P90,000) ceiling cannot but be the same as the prevailing treatment
prior to R.A. 9504 — anything in excess of P30,000 is taxable. The treatment of this excess cannot
operate to disenfranchise the MWE from enjoying the exemption explicitly granted by R.A. 9504.
In sum, the proper interpretation of R.A. 9504 is that it imposes taxes only on the taxable income
received in excess of the minimum wage, but the MWEs will not lose their exemption as such.
Workers who receive the statutory minimum wage their basic pay remain MWEs. The receipt of
any other income during the year does not disqualify them as MWEs. They remain MWEs,
entitled to exemption as such, but the taxable income they receive other than as MWEs may be

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subjected to appropriate taxes. Soriano v. Secretary of Finance, G.R. Nos. 184450, 184508,
184538 & 185234 January 24, 2017
The MCIT is imposed beginning on the fourth taxable year immediately following the year in
which the corporation commenced its business operations.
Let it be stressed that Revenue Regulations No. 9-98, implementing R.A. No. 8424 imposing the
minimum corporate income tax on corporations, provides that for purposes of this tax, the date
when business operations commence is the year in which the domestic corporation registered
with the BIR. However, under Revenue Regulations No. 4-95, the date of commencement of
operations of thrift banks, such as herein petitioner, is the date the particular thrift bank was
registered with the SEC or the date when the Certificate of Authority to Operate was issued to it
by the Monetary Board of the BSP, whichever comes later.
Clearly then, Revenue Regulations No. 4-95, not Revenue Regulations No. 9-98, applies to
petitioner, being a thrift bank. It is, therefore, entitled to a grace period of four (4) years counted
from June 23, 1999 when it was authorized by the BSP to operate as a thrift bank. Consequently,
it should only pay its minimum corporate income tax after four (4) years from 1999. Manila
Banking Corp. v. Commissioner of Internal Revenue, G.R. No. 168118, August 28, 2006
Immediacy Test. In order to determine whether profits are accumulated for the reasonable
needs of the business to avoid the surtax upon shareholders, it must be shown that the
controlling intention of the taxpayer is manifested at the time of accumulation, not intentions
declared subsequently, which are mere afterthoughts.
In the present case, the Tax Court opted to determine the working capital sufficiency by using
the ratio between current assets to current liabilities. The working capital needs of a business
depend upon the nature of the business, its credit policies, the amount of inventories, the rate
of turnover, the amount of accounts receivable, the collection rate, the availability of credit to
the business, and similar factors. Petitioner, by adhering to the "Bardahl" formula, failed to
impress the tax court with the required definiteness envisioned by the statute. We agree with
the tax court that the burden of proof to establish that the profits accumulated were not beyond
the reasonable needs of the company, remained on the taxpayer. Unless rebutted, all
presumptions generally are indulged in favor of the correctness of the CIR's assessment against
the taxpayer. With petitioner's failure to prove the CIR incorrect, clearly and conclusively, this
Court is constrained to uphold the correctness of tax court's ruling as affirmed by the Court of
Appeals. Cyanamid Philippines, Inc. v. Court of Appeals, G.R. No. 108067, January 20, 2000

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The "Bardahl" formula was developed to measure corporate liquidity.
The formula requires an examination of whether the taxpayer has sufficient liquid assets to pay
all of its current liabilities and any extraordinary expenses reasonably anticipated, plus enough
to operate the business during one operating cycle. Operating cycle is the period of time it takes
to convert cash into raw materials, raw materials into inventory, and inventory into sales,
including the time it takes to collect payment for the sales. Cyanamid Philippines, Inc. v. Court
of Appeals, G.R. No. 108067, January 20, 2000
Charitable institutions are not ipso facto entitled to a tax exemption. The requirements for a
tax exemption are specified by the law granting it.
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Luke's from paying taxes. This only
refers to the organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable
institution is not ipso facto tax exempt. To be exempt from real property taxes, Section 28 (3),
Article VI of the Constitution requires that a charitable institution use the property "actually,
directly and exclusively" for charitable purposes. To be exempt from income taxes, Section 30 (E)
of the NIRC requires that a charitable institution must be "organized and operated exclusively"
for charitable purposes. Likewise, to be exempt from income taxes, Section 30 (G) of the NIRC
requires that the institution be "operated exclusively" for social welfare. Commissioner of
Internal Revenue v. St. Luke's Medical Center, Inc., G.R. No. 195909, 195960, September 26,
2012
A non-resident foreign corporation is a foreign corporation not engaged in trade or business

within the Philippines and not having any office or place of business therein.
Here, petitioner N.V. Reederij 'Amsterdam' is a non-resident foreign corporation, organized and
existing under the laws of The Netherlands with principal office in Amsterdam and not licensed
to do business in the Philippines. (pp. 8-81, CTA records.) As a non-resident foreign corporation,
it is thus a foreign corporation, not engaged in trade or business within the Philippines and not
having any office or place of business therein. (Sec. 84(h), Tax Code.) As stated above, it is
therefore taxable on income from all sources within the Philippines, as interest, dividends, rents,
salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other
fixed or determinable annual or periodical or casual gains, profits and income and capital gains,
and the tax is equal to thirty per centum of such amount, under Section 24(b) (1) of the Tax Code.
The accent is on the words — 'of such amount.' Accordingly, petitioner N. V. Reederij

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'Amsterdam' being a non-resident foreign corporation, its taxable income for purposes of our
income tax law consists of its gross income from all sources within the Philippines. N.V. Reederij
"Amsterdam" v. Commissioner of Internal Revenue, G.R. No. L-46029, June 23, 1988
Unregistered Partnership. The co-ownership of inherited properties is automatically converted

into an unregistered partnership, for it is easily conceivable that after knowing their respective
shares in the partition, they (heirs) might decide to continue holding said shares under the
common management of the administrator or executor or of anyone chosen by them and
engage in business on that basis.
From the moment petitioners allowed not only the incomes from their respective shares of the
inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña (who
managed the properties) as a common fund in undertaking several transactions or in business,
with the intention of deriving profit to be shared by them proportionally, such act was
tantamount to actually contributing such incomes to a common fund and, in effect, they thereby
formed an unregistered partnership within the purview of the provisions of the Tax Code. Oña v.
Commissioner of Internal Revenue, G.R. No. L-19342, May 25, 1972
Joint venture falls under the provisions of section 84 (b) of the Internal Revenue Code, and
consequently, it is liable to income tax provided for in Section 24 of the same Code.
The Tax Code defines the term "corporation" as including partnership no matter how created or
organized, thereby indicating a joint venture need not be undertaken in any of the standards
forms, or in conformity with the usual requirements of the law on partnership, in order that one
could be deemed constituted for the purposes of the tax on corporations. In the case at bar, while
the two respondent companies were registered and operating separately, they were placed
under one sole management called the "Joint Emergency Operation" for the purpose of
economizing in overhead expenses. Although no legal personality may have been created by the
Joint Emergency Operation, nevertheless, said joint management operated the business affairs
of the two companies as though they constituted a single entity, company or partnership, thereby
obtaining substantial economy and profits in the operation. Collector of Internal Revenue v.
Batangas Transportation Co., G.R. No. L-9692, January 6, 1958

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The withholding agent is constituted the agent both the government and the taxpayer. With
respect to the collection and/or withholding of the tax, he is the Government's agent. In regard
to the filing of the necessary income tax return and the payment of the tax to the Government,
he is the agent of the taxpayer.
Filipinas Synthetic Fiber Corporation received from the Commissioner of Internal Revenue a
deficiency withholding tax assessment consisting of interest and compromise penalties for
alleged late payment of withholding taxes due on interest loan, royalties and guarantee fees paid
by the petitioner to non-resident corporations. The petitioner, through its auditor, SGV and
Company, seasonably protested the assessment. The pivot of inquiry here is whether the liability
to withhold tax at source on income payments to non-resident foreign corporations arises upon
remittance of the amounts due to the foreign creditors or upon accrual thereof. The Supreme
Court ruled that after a careful examination of pertinent records, the Court concurred in the
findings of the Court of Appeals. Petitioner cannot claim that there was no duty to withhold and
remit income taxes because the loan contract was not yet due and demandable. The law sets no
condition for the personal liability of the withholding agent to attach. The reason is to compel
the withholding agent to withhold the tax under all circumstances. In effect, the responsibility
for the collection of the tax as well as the payment thereof is concentrated upon the person over
whom the Government has jurisdiction. Filipinas Synthetic Fiber Corp. v. Court of Appeals, G.R.
Nos. 118498 & 124377, October 12, 1999
ESTATE TAX
Concept of Estate Tax. The nature of the process of estate tax collection has been described as
follows: "Strictly speaking, the assessment of a inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the complete
settlement of an estate, and, under some statutes, it is made the duty of the probate court to
make the amount of the inheritance tax a part of the final decree of distribution of the estate.
It is not against the property of decedent, nor is it a claim against the estate as such, but it is
against the interest or property right which the heir, legatee, devisee, etc., has in the property
formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor it is an adversary proceeding between the state and the
person who owes the tax on the inheritance. However, under other statutes it has been held that
the hearing and determination of the cash value of the assets and the determination of the tax
are adversary proceedings. The proceeding has been held to be necessary a proceeding in rem.
In the Philippine experience, the enforcement and collection of estate tax, is executive in
character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue.
Marcos II v. Court of Appeals, G.R. No. 120880, June 5, 1997

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Requisites of a disposition mortis causa. Disposition post mortem should reveal the following
characteristics; (1) the transferor retains the ownership (full or naked) and control the property
while alive; (2) the transfer is revocable, before his death, by the transferor at will, ad nutum;
and (3) the transfer should be void if the transfer should be void if the transferor should survive
the transferee.
None of these characteristics is discernible in the deeds of donation executed by the late
Domingo Bonsato. The donor only reserved for himself, during his lifetime, the owner's share of
the fruits or produce, a reservation that would be unnecessary if the ownership of the donated
property remained with the donor. Most significant is the absence of stipulation that the donor
could revoke the donations; on the contrary, the deeds expressly declare them to be
"irrevocable", a quality absolutely incompatible with the idea of conveyances mortis causa where
revocability is of the essence of the act, to the extent that a testator can not lawfully waive or
restrict his right of revocation (Old Civil Code, Art. 737; New Civil Code, Art. 828).
It is true that the last paragraph in each donation contains the phrase "that after the death of the
donor the aforesaid donation shall become effective". However, said expression must be
construed together with the rest of the paragraph, and thus taken, its meaning clearly appears
to be that after the donor's death, the donation will take effect so as to make the donees the
absolute owners of the donated property, free from all liens and encumbrances; for it must be
remembered that the donor reserved for himself a share of the fruits of the land donated. Such
reservation constituted a charge or encumbrance that would disappear upon the donor's death,
when full title would become vested in the donees. Heirs of Bonsato v. Court of Appeals, G.R.
No. L-6600, July 30, 1954
Date-of-death valuation rule. Claims existing at the time of death should be made the basis of
the determination of allowable deductions. Thus, post-death developments, such as
condonation in this case, are not material in determining the amount of the deduction
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. The
specific question is whether the actual claims of the aforementioned creditors may be fully
allowed as deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate with its
creditors. The term "claims" required to be presented against a decedent's estate is generally
construed to mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased before his death
where a lien claimed against the estate was certain and enforceable on the date of the decedent's
death, the fact that the claimant subsequently settled for lesser amount did not preclude the

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estate from deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death developments are not
material in determining the amount of the deduction. Dizon v. Court of Tax Appeals, G.R. No.
140944, April 30, 2008
DONOR’S TAX
Donor’s Tax Defined
Donors tax is an excise upon the use made of the properties and upon the privilege of receiving
them. It is not, therefore a property tax, but an excise tax imposed on the transfer of property by
way of gift inter vivos, the imposition of which a property used exclusively for religious purposes,
does not constitute an impairment of the Constitution. Lladoc v. Commissioner of Internal
Revenue, G.R. No. L-19201, June 16, 1965
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the
increase in the patrimony of the donee; and (c) the intent to do an act of liberality or animus
donandi.
Since animus donandi or the intention to do an act of liberality is an essential element of a

donation, petitioners argue that it is important to look into the intention of the giver to determine
if a political contribution is a gift. Petitioners' argument is not tenable. First of all, donative intent
is a creature of the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present when one gives
a part of ones patrimony to another without consideration. Second, donative intent is not
negated when the person donating has other intentions, motives or purposes which do not
contradict donative intent. This Court is not convinced that since the purpose of the contribution
was to help elect a candidate, there was no donative intent. Petitioners' contribution of money
without any material consideration evinces animus donandi. The fact that their purpose for
donating was to aid in the election of the donee does not negate the presence of donative intent.
Abello, et al. v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 120721,
February 23, 2005

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Three requisites for the validity of a simple donation of a real property, to wit: (1) it must be
made in a public instrument; (2) it must be accepted, which acceptance may be made either in
the same Deed of Donation or in a separate public instrument; and (3) if the acceptance is made
in a separate instrument, the donor must be notified in an authentic form, and the same must
be noted in both instruments.
In the present case, the said Affidavit, which is tantamount to a Deed of Donation, met the first
requisite, as it was notarized; thus, it became a public instrument. Nevertheless, it failed to meet
the aforesaid second and third requisites. The acceptance of the said donation was not made by
the petitioner and her husband either in the same Affidavit or in a separate public instrument.
As there was no acceptance made of the said donation, there was also no notice of the said
acceptance given to the donor, Esperanza. Therefore, the Affidavit executed by Esperanza in
favor of petitioner and her husband is null and void. Arangote v. Spouses Maglunob, G.R. No.
178906, February 18, 2009
The absence of donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically states that the amount by
which the fair market value of the property exceeded the value of the consideration shall be
deemed a gift.
In 2009, petitioner, in a bid to divest itself of its interests in the health maintenance organization
industry, offered to sell its shareholdings in PhilamCare through competitive bidding. Thus, on
September 24, 2009, petitioner's Class A shares were sold for USD2,190,000, or PhP104,259,330
based on the prevailing exchange rate at the time of the sale, to STI Investments, Inc., who
emerged as the highest bidder. Petitioner contended that the transaction cannot attract donor's
tax liability since there was no donative intent and, ergo, no taxable donation. Petitioner's
substantive arguments are unavailing. The absence of donative intent, if that be the case, does
not exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in
price is considered a donation by fiction of law. The Philippine American Life and General
Insurance Co. v. The Secretary of Finance, G.R. No. 210987, November 24, 2014

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A donation of property belonging to the conjugal partnership, made during its existence by the
husband alone in favor of the common children, is taxable to him exclusively as sole donor.
Appellants herein are in error when they contend that it is enough that the property donated
should belong to the conjugal partnership in order that the donation be considered and taxed as
a donation of both husband and wife, even if the husband should appear as the sole donor. There
is no blinking the fact that, under the old Civil Code, to be a donation by both spouses, taxable to
both, the wife must expressly join the husband in making the gift; her participation therein
cannot be implied. The consequence of the husband's legal power to donate community property
is that, where made by the husband alone, the donation is taxable as his own exclusive act.
Hence, only one exemption or deduction can be claimed for every such gift, and not two, as
claimed by appellants herein. Tang Ho v. Board of Tax Appeals, G.R. No. L-5949, November 19,
1955
VALUE-ADDED TAX
VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services
bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to
the buyer, transferee or lessee.
In indirect taxation, there is a need to distinguish between the liability for the tax and the burden
of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller
to the buyer. What is transferred in such instances is not the liability for the tax, but the tax
burden. In adding or including the VAT due to the selling price, the seller remains the person
primarily and legally liable for the payment of the tax. What is shifted only to the intermediate
buyer and ultimately to the final purchaser is the burden of the tax. Stated differently, a seller
who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or
services is not necessarily the person who ultimately bears the burden of the same tax. It is the
final purchaser or consumer of such goods or services who, although not directly and legally liable
for the payment thereof, ultimately bears the burden of the tax. Contex Corp. v. Commissioner
of Internal Revenue, G.R. No. 151135, July 2, 2004
An entity can credit against or subtract from the VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports.
If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes
passed on by the suppliers, no payment is required. It is when the output taxes exceed the input

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taxes that the excess has to be paid. If, however, the input taxes exceed the output taxes, the
excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result
from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods,
any excess over the output taxes shall instead be refunded to the taxpayer or credited against
other internal revenue taxes. Commissioner of Internal Revenue v. Seagate Technology
(Philippines), G.R. No. 153866, February 11, 2005
According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority.
Actual export of goods and services from the Philippines to a foreign country must be free of VAT,
while those destined for use or consumption within the Philippines shall be imposed with 10%
VAT. Export processing zones are to be managed as a separate customs territory from the rest of
the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this
reason, sales by persons from the Philippine customs territory to those inside the export
processing zones are already taxed as exports. Plainly, sales to enterprises operating within the
export processing zones are export sales, which, under the Tax Code of 1977, as amended, were
subject to 0% VAT. Atlas Consolidated Mining and Development Corp. v. Commissioner of
Internal Revenue, G.R. Nos. 141104 & 148763, June 8, 2007
Exception to destination principle. The supply of service shall be zero-rated when the following
requirements are met: (1) the service is performed in the Philippines; (2) the service falls under
any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in
acceptable foreign currency that is accounted for in accordance with the regulations of the
Bangko Sentral ng Pilipinas.
American Express is a VAT-registered person that facilitates the collection and payment of
receivables belonging to its non-resident foreign client, for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the Philippines is not in the same category as
"processing, manufacturing or repacking of goods" and should, therefore, be zero-rated. In reply
to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent
earned from its parent company's regional operating centers (ROCs) was automatically zero-
rated effective January 1, 1988.

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Service has been defined as "the art of doing something useful for a person or company for a fee"
or "useful labor or work rendered or to be rendered by one person to another." For facilitating
in the Philippines the collection and payment of receivables belonging to its Hong Kong-based
foreign client, and getting paid for it in duly accounted acceptable foreign currency, respondent
renders service falling under the category of zero rating. Pursuant to the Tax Code, a VAT of zero
percent should, therefore, be levied upon the supply of that service. Commissioner of Internal
Revenue v. American Express International, Inc., G.R. No. 152609, June 29, 2005
Transitional input tax credits become available either to a person who becomes liable to VAT;
or any person who elects to be VAT-registered.
During the period of transition from non-VAT to VAT status, the transitional input tax credit
serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-
registered taxpayer is obliged to remit a significant portion of the income it derived from its sales
as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's
income by affording the opportunity to offset the losses incurred through the remittance of the
output VAT at a stage when the person is yet unable to credit input VAT payments.
The clear language of the law entitles new trades or businesses to avail of the tax credit once
they become VAT-registered. The transitional input tax credit, whether under the Old NIRC or
the New NIRC, may be claimed by a newly-VAT registered person such as when a business as it
commences operations. Fort Bonifacio Development Corp. v. Commissioner of Internal
Revenue, G.R. Nos. 158885 & 170680, April 2, 2009
A claim for refund or tax credit for unutilized input VAT may be allowed only if the following
requisites concur.
Namely:
a) the taxpayer is VAT-registered;
b) the taxpayer is engaged in zero-rated or effectively zero-rated sales;
c) the input taxes are due or paid;
d) the input taxes are not transitional input taxes;
e) the input taxes have not been applied against output taxes during and in the succeeding
quarters;
f) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales;

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g) for zero-rated sales under Sections 106 (A) (2) (1) and (2); 106 (B); and 108 (B) (1) and (2),
the acceptable foreign currency exchange proceeds have been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas;
h) where there are both zero-rated or effectively zero-rated sales and taxable or exempt
sales, and the input taxes cannot be directly and entirely attributable to any of these sales,
the input taxes shall be proportionately allocated on the basis of sales volume; and
i) the claim is filed within two years after the close of the taxable quarter when such sales
were made.
The petitioner did not reflect any zero-rated sales from its power generation in its four quarterly
VAT returns, which indicated that it had not made any sale of electricity. Had there been zero-
rated sales, it would have reported them in the returns. Indeed, it carried the burden not only
that it was entitled under the substantive law to the allowance of its claim for refund or tax credit
but also that it met all the requirements for evidentiary substantiation of its claim before the
administrative official concerned, or in the de novo litigation before the CTA in Division. Luzon
Hydro Corp. v. Commissioner of Internal Revenue, G.R. No. 188260, November 13, 2013
The two-year prescriptive period does not refer to the filing of the judicial claim with the CTA
but to the filing of the administrative claim with the Commissioner. (Note: Sec 112 has already
been amended by RA 10963 but the two year prescriptive period remains)
Section 112 (A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit at anytime within the
two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it
on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112 (A) and (C).
Commissioner of Internal Revenue v. San Roque Power Corp., G.R. Nos. 187485, 196113 &
197156, February 12, 2013
An applicant for a claim for tax refund or tax credit must not only prove entitlement to the
claim but also compliance with all the documentary and evidentiary requirements.
A claim for the refund of creditable input taxes must be evidenced by a VAT invoice or official
receipt in accordance with Section 110 (A) (1) of the NIRC. Sections 237 and 238 of the same
Code as well as Section 4.108-1 of RR No. 7-95 provide for the invoicing requirements that all

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VAT-registered taxpayers should observe, such as: (a) the BIR Permit to Print; (b) the Tax
Identification Number of the VAT-registered purchaser; and (c) the word "zero-rated" imprinted
thereon. Thus, the failure to indicate the words "zero-rated" on the invoices and receipts issued
by a taxpayer would result in the denial of the claim for refund or tax credit. Eastern
Telecommunications Phils. Inc. v. Commissioner of Internal Revenue, G.R. No. 183531, March
25, 2015
PERCENTAGE TAX
By its nature, a gross receipts tax applies to the entire receipts without any deduction,
exemption or exclusion, unless the law clearly provides otherwise.
As commonly understood, the term "gross receipts" means the entire receipts without any
deduction. Deducting any amount from the gross receipts changes the result, and the meaning,
to net receipts. Any deduction from gross receipts is inconsistent with a law that mandates a tax
on gross receipts, unless the law itself makes an exception||There is a policy objective why no
deductions, exemptions or exclusions are normally allowed in a gross receipts tax. The gross
receipts tax, as opposed to the income tax, was devised to maintain simplicity in tax collection
and to assure a steady source of state revenue even during periods of economic slowdown. Such
a policy frowns upon erosion of the tax base. Deductions, exemptions or exclusions complicate
the tax system and lessen the tax collection. China Banking Corp. v. Court of Appeals, G.R. Nos.
146749 & 147938, June 10, 2003
Cooperatives. Registration with the Cooperative Development Authority (CDA) of a cooperative

is not necessary in order for it to be exempt from the payment of both percentage taxes on
insurance premiums.
The Tax Code defines a cooperative as an association "conducted by the members thereof with
the money collected from among themselves and solely for their own protection and not for
profit." Without a doubt, respondent is a cooperative engaged in a mutual life insurance
business. First, it is managed by its members. Second, it is operated with money collected from
its members. Third, it is licensed for the mutual protection of its members, not for the profit of
anyone. Having determined that respondent is a cooperative that does not have to be registered
with the CDA, we hold that it is entitled to exemption from both premium taxes and documentary
stamp taxes (DST).

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The Tax Code is clear. Section 121 of the Code exempts cooperative companies from the 5
percent percentage tax on insurance premiums. Republic v. Sunlife Assurance Co. of Canada,
G.R. No. 158085, October 14, 2005
EXCISE TAX
Excise taxes refer to taxes applicable to certain specified or selected goods or articles
manufactured or produced in the Philippines for domestic sale or consumption or for any other
disposition and to things imported into the Philippines.
Excise taxes may be considered taxes on production as they are collected only from
manufacturers and producers. Basically an indirect tax, excise taxes are directly levied upon the
manufacturer or importer upon removal of the taxable goods from its place of production or
from the customs custody. These taxes, however, may be actually passed on to the end consumer
as part of the transfer value or selling price of the goods sold, bartered or exchanged. Silkair
(Singapore) Pte. Ltd. v. Commissioner of Internal Revenue, G.R. No. 184398, February 25, 2010
Under Section 129 17 of the NIRC, as amended, excise taxes are imposed on two kinds of goods,
namely: (a) goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition; and (b) things imported.
Undoubtedly, the excise tax imposed under Section 129 of the NIRC is a tax on property. With
respect to imported things, Section 131 of the NIRC declares that excise taxes on imported things
shall be paid by the owner or importer to the Customs officers, conformably with the regulations
of the Department of Finance and before the release of such articles from the customs house,
unless the imported things are exempt from excise taxes and the person found to be in
possession of the same is other than those legally entitled to such tax exemption. For this
purpose, the statutory taxpayer is the importer of the things subject to excise tax. Chevron Phils.,
Inc. v. Commissioner of Internal Revenue, G.R. No. 210836 (Resolution), September 1, 2015

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Refund. The statutory taxpayer, the local manufacturer of the petroleum products who is
directly liable for the payment of excise tax on the said goods, is the proper party to seek a tax
refund.
A foreign airline company who purchased locally manufactured petroleum products for use in its
international flights, as well as a foreign oil company who likewise bought petroleum products
from local manufacturers and later sold these to international carriers, have no legal personality
to file a claim for tax refund or credit of excise taxes previously paid by the local manufacturers
even if the latter passed on to the said buyers the tax burden in the form of additional amount
in the price. Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corp., G.R. No.
188497, April 25, 2012
DOCUMENTARY STAMP TAX
Documentary Stamp Tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto. DST is actually an excise tax because it is imposed on the transaction rather
than on the document.
The documentary stamp tax under this provision of the law may be levied only once, that is upon
the original issue of the certificate. The crucial point therefore, in the case before Us is the proper
interpretation of the word 'issue'. In other words, when is the certificate of stock deemed 'issued'
for the purpose of imposing the documentary stamp tax? Is it at the time the certificates of stock
are printed, at the time they are filled up (in whose name the stocks represented in the certificate
appear as certified by the proper officials of the corporation), at the time they are released by
the corporation, or at the time they are in the possession (actual or constructive) of the
stockholders owning them?
Ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks
in the corporation to fully paid subscription) the certificate of stock can be utilized for the exercise
of the attributes of ownership over the stocks mentioned on its face. The stocks can be alienated;
the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or
encumbered. The certificate as issued by the corporation, irrespective of whether or not it is in
the actual or constructive possession of the stockholder, is considered issued because it is with
value and hence the documentary stamp tax must be paid as imposed by Section 212 of the
National Internal Revenue Code, as amended. Commissioner of Internal Revenue v. First Express
Pawnshop Co., Inc., G.R. Nos. 172045-46, June 16, 2009

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Documentary stamp tax under Section 196 is imposed on the transfer of realty by way of sale
and does not apply to all conveyances of real property.
In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter
could not be considered as "purchaser" of realty since the real properties subject of the merger
were merely absorbed by the surviving corporation by operation of law and these properties are
deemed automatically transferred to and vested in the surviving corporation without further act
or deed. Therefore, the transfer of real properties to the surviving corporation in pursuance of a
merger is not subject to documentary stamp tax. As stated at the outset, documentary stamp tax
is imposed only on all conveyances, deeds, instruments or writing where realty sold shall be
conveyed to a purchaser or purchasers. The transfer of SPPC's real property to respondent was
neither a sale nor was it a conveyance of real property for a consideration contracted to be paid
as contemplated under Section 196 of the Tax Code. Hence, Section 196 of the Tax Code is
inapplicable and respondent is not liable for documentary stamp tax. Commissioner of Internal
Revenue v. Pilipinas Shell Petroleum Corp., G.R. No. 192398, September 29, 2014
The payment of the DST and the filing of the DST Declaration Return upon loading/reloading
of the DS metering machine must not be considered as the "date of payment" when the
prescriptive period to file a claim for a refund/credit must commence.
For DS metering machine users, the payment of the DST upon loading/reloading is merely an
advance payment for future application. The liability for the payment of the DST falls due only
upon the occurrence of a taxable transaction. Therefore, it is only then that payment may be
considered for the purpose of filing a claim for a refund or tax credit. Since actual payment was
already made upon loading/reloading of the DS metering machine and the filing of the DST
Declaration Return, the date of imprinting the documentary stamp on the taxable document
must be considered as the date of payment contemplated under Section 229 of the NIRC.
Applying the foregoing to this case, the DST fell due when petitioner entered into repurchase
agreements with the BSP and the corresponding documentary stamps were imprinted on the
Confirmation Letters. Considering, however, that this transaction is exempt from tax, petitioner
is entitled to a refund. The prescriptive period for the filing of a claim for a refund or tax credit
under Section 229 must be reckoned from the date when the documentary stamps were
imprinted on the Confirmation Letters. Philippine Bank of Communications v. Commissioner of
Internal Revenue, G.R. No. 194065, June 20, 2016

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DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto. Under Section 173 of the 1997 Tax Code, the persons primarily
liable for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or
(5) transferring the taxable documents, instruments or papers.
In general, DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific
instruments. Examples of such privileges, the exercise of which, as effected through the issuance
of particular documents, are subject to the payment of DST are leases of lands, mortgages,
pledges and trusts, and conveyances of real property. As stated above, Section 230 of the 1977
Tax Code, as amended, now Section 181 of the 1997 Tax Code, levies DST on either (a) the
acceptance or (b) the payment of a foreign bill of exchange or order for the payment of money
that was drawn abroad but payable in the Philippines. In other words, it levies DST as an excise
tax on the privilege of the drawee to accept or pay a bill of exchange or order for the payment of
money, which has been drawn abroad but payable in the Philippines, and on the corresponding
privilege of the drawer to have acceptance of or payment for the bill of exchange or order for the
payment of money which it has drawn abroad but payable in the Philippines. Hongkong &
Shanghai Banking Corp. Ltd.-Phil. Branch v. Commissioner of Internal Revenue, G.R. Nos.
166018 & 167728, June 4, 2014

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Definition of Taxation and Tax
Taxation is the process or means by which the sovereign, through its law-making body, raises
income to defray the necessary expenses of government. It is merely a way of apportioning the
cost of government among those who in some measure are privileged to enjoy its benefits and,
therefore, must bear its burdens. 51 Am. Jur. 34
A tax is the enforced proportional contributions from persons and property levied by the law -
making body of the state by virtue of its sovereignty for the support of the government and all
public needs. 1 Cooley 1
Taxation may be made the implement of the state's police power
The stabilization fees collected are in the nature of a tax which is within the power of the State
to impose for the promotion of the sugar industry. They constitute sugar liens (Sec. 7[b], P.D. No.
388). The collections made accrue to a ˜Special Fund,’ a ˜Development and Stabilization Fund,’
almost identical to the ˜Sugar Adjustment and Stabilization Fund’ created under Section 6 of
Commonwealth Act 567. The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy
is primarily in the exercise of the police power of the State. Lutz v. Araneta, G.R. No. L-7859,
December 22, 1955
Taxation is done not merely to raise revenues to support the government, but also to provide
means for the rehabilitation and the stabilization of a threatened industry, which is so affected
with public interest as to be within the police power of the State. Republic v. COCOFED, G.R. Nos.
147062-64, December 14, 2001
In the present case, there is no showing that the tax deduction scheme is confiscatory. The
portion of the 20% discount petitioners are made to bear under the tax deduction scheme will
not result in a complete loss of business for private establishments. As illustrated earlier, these
establishments are free to adjust factors as prices and costs to recoup the 20% discount given to
senior citizens. Neither is the scheme arbitrary. Rules and Regulations have been issued by
agencies as respondent Department of Finance to serve as guidelines for the implementation of
the 20% discount and its tax deduction scheme. In fact, this Court has consistently upheld the
doctrine that "taxing power may be used as an implement of police power" in order to promote
the general welfare of the people. Manila Memorial Park, Inc. v. Secretary of Social Welfare and
Development, G.R. No. 175356, December 3, 2013

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Taxes are the lifeblood of the government and their prompt and certain availability an
imperious need.
We cannot countenance the theory that would make the commencement of the statutory 30-
day period solely dependent on the will of the taxpayer and place the latter in a position to put
off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure
would be detrimental to the interest of the Government, for taxes are the lifeblood of the
government, and their prompt and certain availability an imperious need. North Camarines
Lumber Co., Inc. v. Collector of Internal Revenue, G.R. No. L-12353, September 30, 1960
Taxes are the lifeblood of government and should be collected without hindrance. However,
the collection of taxes should be exercised "reasonably and in accordance with the prescribed
procedure.
The essential nature of taxes for the existence of the State grants government with vast remedies
to ensure its collection. However, taxpayers are guaranteed their fundamental right to due
process of law, as articulated in various ways in the process of tax assessment. After all, the
State's purpose is to ensure the well-being of its citizens, not simply to deprive them of their
fundamental rights.
Compliance with Section 228 of the National Internal Revenue Code is a substantive requirement.
It is not a mere formality. Providing the taxpayer with the factual and legal bases for the
assessment is crucial before proceeding with tax collection. Tax collection should be premised on
a valid assessment, which would allow the taxpayer to present his or her case and produce
evidence for substantiation. Commissioner of Internal Revenue v. Fitness by Design, Inc., G.R.
No. 215957, November 9, 2016
An invalid assessment bears no valid effect.
The Court of Tax Appeals did not err in cancelling the Final Assessment Notice as well as the Audit
Result/Assessment Notice issued by petitioner to respondent for the year 1995 covering the
"alleged deficiency income tax, value-added tax and documentary stamp tax amounting to
P10,647,529.69, inclusive of surcharges and interest" for lack of due process. Thus, the Warrant
of Distraint and/or Levy is void since an invalid assessment bears no valid effect. Commissioner
of Internal Revenue v. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016

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Necessity Theory
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a

necessary burden to preserve the State's sovereignty and a means to give the citizenry an army
to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvements designed for the enjoyment of the citizenry and those which come within
the State's territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and privileges guaranteed by
our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the
state. Phil. Guaranty Co., Inc. v. Commissioner of Internal Revenue, G.R. No. L-22074, April 30,
1965
Benefits-Received or Symbiotic Theory
t is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard-earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for
its part, is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power. Commissioner of Internal Revenue
v. Algue, Inc., G.R. No. L-28896, February 17, 1988
The elements of a sound tax system are fiscal adequacy, administrative feasibility, and
theoretical justice. Fiscal adequacy means the proceeds of tax revenue should coincide with,
and approximate the needs of, government expenditures. Neither an excess nor a deficiency of
revenue vis-Ã -vis the needs of government would be in keeping with the principle.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as: IV. Every tax ought to be so contrived as both
to take out and to keep out of the pockets of the people as little as possible over and above what
it brings into the public treasury of the state. It simply means that sources of revenues must be
adequate to meet government expenditures and their variations. Abakada Guro Party List v.
Ermita, G.R. Nos. 168056, 168207, 168461, 168463 & 168730, September 1, 2005

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Administrative feasibility simply means that the tax system should be capable of being
effectively administered and enforced with the least inconvenience to the taxpayer.
Non-observance of the canon, however, will not render a tax imposition invalid "except to the
extent that specific constitutional or statutory limitations are impaired." Thus, even if the
imposition of VAT on tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any law or the Constitution. Diaz
v. Secretary of Finance, G.R. No. 193007, July 19, 2011
The incidence of taxation refers to the person statutorily liable to pay the tax while the impact
of taxation refers to who the burden of taxation or paying the tax falls.
While it is true that in the case of excise tax imposed on petroleum products, the seller thereof
may shift the tax burden to the buyer, the latter is the proper party to claim for the refund in the
case of exemption from excise tax. Since the excise tax was imposed upon Petron Corporation as
the manufacturer of petroleum products, pursuant to Section 130(A)(2), and that the
corresponding excise taxes were indeed, paid by it, . . . any claim for refund of the subject excise
taxes should be filed by Petron Corporation as the taxpayer contemplated under the law.
Petitioner cannot be considered as the taxpayer because it merely shouldered the burden of the
excise tax and not the excise tax itself.
Therefore, the right to claim for the refund of excise taxes paid on petroleum products lies with
Petron Corporation who paid and remitted the excise tax to the BIR. Petitioner, on the other
hand, may only claim from Petron Corporation the reimbursement of the tax burden shifted to
the former by the latter. The excise tax partaking the nature of an indirect tax, is clearly the
liability of the manufacturer or seller who has the option whether or not to shift the burden of
the tax to the purchaser. Where the burden of the tax is shifted to the [purchaser], the amount
passed on to it is no longer a tax but becomes an added cost on the goods purchased which
constitutes a part of the purchase price. The incidence of taxation or the person statutorily liable
to pay the tax falls on Petron Corporation though the impact of taxation or the burden of taxation
falls on another person, which in this case is petitioner Silkair. Silkair (Singapore) Pte. Ltd. v.
Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008
An indirect and regressive tax is not actually prohibited by the Constitution.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of

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taxation." The constitutional provision has been interpreted to mean simply that "direct taxes
are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." Indeed,
the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Sales taxes,
are form of indirect taxes, and they are also regressive. Resort to indirect taxes should be
minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, 3, amending § 102 (b) of the NIRC), while granting exemptions to
other transactions. (R.A. No. 7716, § 4, amending § 103 of the NIRC) Transactions involving basic
and essential goods and services are exempted from the VAT. On the other hand, the transactions
which are subject to the VAT are those which involve goods and services which are used or availed
of mainly by higher income groups. Tolentino v. Secretary of Finance, G.R. Nos. 115455, 115525,
115543, 115544, 115754, 115781, 115852, 115873 & 115931 (Resolution), October 30, 1995
There is no constitutional prohibition against double taxation in the Philippines.
Double Taxation is something not favored, but is permissible, provided some other constitutional
requirement is not thereby violated, such as the requirement that taxes must be uniform.
Villanueva v. City of Iloilo, G.R. No. L-26521, December 28, 1968
Double taxation means taxing the same property twice when it should be taxed only once; that
is, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct
duplicate taxation," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing
period; and the taxes must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent
is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these
are being imposed: (1) on the same subject matter — the privilege of doing business in the City
of Manila; (2) for the same purpose — to make persons conducting business within the City of
Manila contribute to city revenues; (3) by the same taxing authority — petitioner City of Manila;
(4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of Manila;
(5) for the same taxing periods — per calendar year; and (6) of the same kind or character — a
local business tax imposed on gross sales or receipts of the business. In fine, the imposition of
the tax under Section 21 of the Revenue Code of Manila constituted double taxation, and the
taxes collected pursuant thereto must be refunded. Nursery Care Corp. v. Acevedo, G.R. No.

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180651, July 30, 2014. Note: The scenario above is often referred to as direct double taxation or
double taxation in its strict sense. It is not expressly prohibited but often struck down as it violates
the constitutional guarantees of equal protection and due process.
Double taxation is not present when the law imposes different taxes on the same income,
business or property.
There is no double taxation when Section 121 of the Tax Code imposes a gross receipts tax on
interest income that is already subjected to the 20% final withholding tax under Section 27 of the
Tax Code. The gross receipts tax is a business tax under Title V of the Code, while the final
withholding tax is an income tax under Title II of the Code. There is no double taxation if the law
imposes two different taxes on the same income, business or property. There is no constitutional
prohibition on subjecting the same income or receipt to an income tax and to some other tax like
the gross receipts tax. Similarly, the same income or receipt may be subject to the value-added
tax and the excise tax like the specific tax. If the tax law follows the constitutional rule on
uniformity, making all income, business or property of the same class taxable at the same rate,
there can be no valid objection to taxing the same income, business or property twice. China
Banking Corp. v. Court of Appeals, G.R. Nos. 146749 & 147938, June 10, 2003. Note: If all the
elements of direct double taxation are not met, then it is only indirect double taxation or double
taxation in its broad sense which is generally allowed.
Non-impairment Clause of the Constitution. A subsequent law may repeal a tax exemption
under a franchise or special law and the same will not violate the non-impairment clause under
the Constitution.
A franchise partakes the nature of a grant, which is beyond the purview of the non-impairment
clause of the Constitution. Contractual tax exemptions, in the real sense of the term and where
the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without impairing the obligations of contracts. Article
XII, Sec. 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to amendment, alteration or
repeal by Congress as and when the common good so requires. MERALCO vs. Province of Laguna,
GR No. 131359, May 5, 1999

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Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax
when it is shown that a tax is due; (2) an accompanying state of mind which is described as being
"evil," in "bad faith," "willful," or "deliberate and not accidental"; and (3) a course of action or
failure of action which is unlawful. Commissioner of Internal Revenue v. Estate of Toda, Jr., G.R.
No. 147188, September 14, 2004
Taxes may not be offset and subject to compensation. It is settled that a taxpayer may not
offset taxes due from the claims that he may have against the government. Taxes cannot be
the subject of compensation because the government and taxpayer are not mutually creditors
and debtors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
We may even further state that technically, in respect to the taxes for the OPSF, the oil companies
merely act as agents for the Government in the latter's collection since the taxes are, in reality,
passed unto the end-users — the consuming public. In that capacity, the petitioner, as one of
such companies, has the primary obligation to account for and remit the taxes collected to the
administrator of the OPSF. This duty stems from the fiduciary relationship between the two;
petitioner certainly cannot be considered merely as a debtor. In respect, therefore, to its
collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally
feasible. Firstly, the Government and the petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that petitioner's claim is already due and
liquidate. Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992

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Exception to no Compensation. Both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and demandable as
well as fully liquidated. Compensation, therefore, takes place by operation of law, in
accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount.
The fact that the court having jurisdiction of the estate had found that the claim of the estate
against the Government has been appropriated for the purpose by a corresponding law (Rep Act
No. 2700) shows that both the claim of the Government for inheritance taxes and the claim of
the intestate for services rendered have already become overdue and demandable as well as
fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with
the Provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the
concurrent amount. Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963
The power to tax is not the power to destroy while this Court sits. The power to tax is not
without restrictions.
The power to tax, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of government." (Sarasola v. Trinidad, 40 Phil. 252, 262 [1919]) It is,
of course, to be admitted that for all its plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits. .Adversely affecting as it does property rights,
both the due process and equal protection clauses may properly be invoked, as petitioner does,
to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth
to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to
destroy." (McCulloch vs. Maryland, 4 Wheaton 316) Sison, Jr. v. Ancheta, G.R. No. L-59431, July
25, 1984
Compliance with all the requirements of availment of tax amnesty under P.D. No. 370 would
have the effect of condoning not just income tax liabilities but also "all internal revenue taxes
including the increments or penalties on account of non-payment as well as all civil, criminal or
administrative liabilities, under the Internal Revenue Code, the Revised Penal Code, the Anti-
Graft and Corrupt Practices Act, the Revised Administrative Code, the Civil Service Laws and
Regulations, laws and regulations on Immigration and Deportation, or any other applicable
law or proclamation. However, only when the application has been approved.
Accused Valencia argued that the People were estopped from questioning his entitlement to the
benefits of the tax amnesty, considering that agents of the BIR had already accepted his

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application for tax amnesty and his payment of the required fifteen percent (15%) special tax.
This contention does not persuade. At the time he paid the special fifteen percent (15%) tax
under P.D. No. 370, accused Francisco Valencia had in fact already been subjected by the BIR to
extensive investigation such that the criminal charges against him could not be condoned under
the provisions of the amnesty statute. Further, acceptance by the BIR agents of accused
Valencia's application for tax amnesty and payment of the fifteen percent (15%) special tax was
no more than a ministerial duty on the part of such agents. Accused Valencia does not pretend
that the BIR had actually ruled that he was entitled to the benefits of the tax amnesty statute.
A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted
by statute, the terms of the amnesty like that of a tax exemption must be construed strictly
against the taxpayer and liberally in favor of the taking authority. People v. Castañeda, Jr., G.R.
No. L-46881, September 15, 1988
Tax exemptions are construed against grantee and liberally in favor of taxing authority.
Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor
of the taxing authority. The burden proof rests upon the party claiming exemption to prove that
it in fact covered by the exemption so claimed. The party claiming exemption must therefore be
expressly mentioned in the exempting law or at least be within its purview by clear legislative
intent. Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992
Hornbook Doctrine. As a rule, a statute will not be construed as imposing a tax unless it does
so clearly, expressly, and unambiguously.
The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws
that "(a) statute will not be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously. . . (A) tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in construing statutes applies
with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by
implication." Parenthetically, in answering the question of who is subject to tax statutes, it is
basics that "in case of doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens are not to be imposed nor
presumed to be imposed beyond what statutes expressly and clearly import. Commissioner of
Internal Revenue v. Court of Appeals, G.R. No. 115349, April 18, 1997

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Taxpayer’s Suit. A taxpayer is allowed to sue where there is a claim that public funds are
illegally disbursed, or that the public money is being deflected to any improper purpose, or that
there is wastage of public funds through the enforcement of an invalid or unconstitutional law.
For a taxpayer’s suit to prosper, two requisites must be met: (1) public funds derived from
taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is
violated or some irregularity is committed; and, (2) the petitioner is directly affected by the
alleged act. As to the second requisite, the Supreme Court, in recent cases, has relaxed the
stringent "direct injury test" bearing in mind that locus standi is a procedural technicality. By
invoking "transcendental importance", "paramount public interest", or "far-reaching
implications", ordinary citizens and taxpayers were allowed to sue even if they failed to show
direct injury. In cases where serious legal issues were raised or where public expenditures of
millions of pesos were involved, the Supreme Court did not hesitate to give standing to taxpayers.
A taxpayer need not be a party to the contract to challenge its validity. As long as taxes are
involved, people have a right to question contracts entered into by the government. Mamba vs.
Lara, GR No. 165109, December 14, 2009
The BIR cannot deprive a taxpayer the benefits of a lower tax rate under a tax treaty for failure
to strictly comply with a treaty relief application under Revenue Memorandum Order (“RMO”)
No. 1-2000.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No.
1-2000. 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, August 19, 2013

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An affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and
attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be
questioned before the Court of Tax Appeals.
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 interests 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. Accordingly, an affidavit, which
was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal
complaint for tax evasion, cannot be deemed an assessment that can be questioned before the
Court of Tax Appeals. Adamson v. Court of Appeals, G.R. Nos. 120935 & 124557, May 21, 2009
A written communication containing a computation by a revenue officer of the tax liability of

a taxpayer and giving him an opportunity to contest or disprove the BIR examiner's findings is
not an assessment since it is yet indefinite
The first issue is whether the Commissioner's recommendation letter can be considered as a
formal assessment of private respondents' tax liability. In the context in which it is used in the
NIRC, an assessment is a written notice and demand made by the BIR on the taxpayer for the
settlement of a due tax liability that is there definitely set and fixed. A written communication
containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiner's findings is not an assessment since it is yet
indefinite. Adamson v. Court of Appeals, G.R. Nos. 120935 & 124557, May 21, 2009
The BIR cannot issue an assessment for the year 1998 if the Letter of Authority granted to the
BIR examiners covers only the year 1997.
Under Sec. 6(A) of the NIRC, 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. CIR vs. Sony Phils. Inc., GR No. 178697, November 17,
2010

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TAX REMEDIES
A Letter of Authority should cover a taxable period not exceeding one taxable year.
The practice of issuing LOAs 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 LOA. If the BIR issues assessments for the years 2001, 2002 and
2003 pursuant to an LOA whose covered period provides: “Fiscal Year Ending 2003 and Unverified
Prior Years”, the assessment for year 2003 is valid because this taxable period was specified in
the LOA. The taxpayer was fully apprised that it was being audited for taxable year 2003.On the
other hand, the assessments for taxable years 2001 and 2002 are void for having been
unspecified on separate LOAs as required under RMO No. 43-90. CIR vs. De La Salle University,
GR No. 196596 November 9, 2016
The second paragraph of Section 228 of the Tax Code is clear and mandatory. It provides as
follows: "Sec. 228. Protesting of Assessment. — The taxpayers shall be informed in writing of
the law and the facts on which the assessment is made; otherwise, the assessment shall be
void."
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR,
who had simply relied upon the provisions of former Section 229 prior to its amendment by
Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
To be simply informed in writing of the investigation being conducted and of the

recommendation for the assessment of the estate taxes due is nothing but a perfunctory
discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean
that Reyes already knew the law and the facts on which the assessment was based. It does not
at all conform to the compulsory requirement under Section 228. Commissioner of Internal
Revenue v. Reyes, G.R. Nos. 159694 & 163581, January 27, 2006
The general rule is that administrative agencies such as the BIR are not bound by the technical
rules of evidence.
We agree with the contention of the petitioner that the best evidence obtainable may consist of
hearsay evidence, such as the testimony of third parties or accounts or other records of other
taxpayers similarly circumstanced as the taxpayer subject of the investigation, hence,
inadmissible in a regular proceeding in the regular courts. Moreover, the general rule is that
administrative agencies such as the BIR are not bound by the technical rules of evidence. It can

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TAX REMEDIES
accept documents which cannot be admitted in a judicial proceeding where the Rules of Court
are strictly observed. It can choose to give weight or disregard such evidence, depending on its
trustworthiness. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as
amended, does not include mere photocopies of records/documents. The petitioner, in making
a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said
assessment on mere machine copies of records/documents. Mere photocopies of the
Consumption Entries have no probative weight if offered as proof of the contents thereof. The
reason for this is that such copies are mere scraps of paper and are of no probative value as basis
for any deficiency income or business taxes against a taxpayer. Indeed, in United States v. Davey,
the U.S. Court of Appeals (2nd Circuit) ruled that where the accuracy of a taxpayer's return is
being checked, the government is entitled to use the original records rather than be forced to
accept purported copies which present the risk of error or tampering. Commissioner of Internal
Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005
The law requires that the legal and factual bases of the assessment be stated in the formal
letter of demand and assessment notice.
The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer
of the existence of a deficiency tax assessment is markedly different from the requirement of
what such notice must contain. Just because the CIR issued an advice, a preliminary letter during
the pre-assessment stage and a final notice, in the order required by law, does not necessarily
mean that Enron was informed of the law and facts on which the deficiency tax assessment was
made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter
of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express
provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged
"factual bases" in the advice, preliminary letter and "audit working papers" did not suffice. There
was no going around the mandate of the law that the legal and factual bases of the assessment
be stated in writing in the formal letter of demand accompanying the assessment notice.
Commissioner of Internal Revenue v. Enron Subic Power Corp., G.R. No. 166387 (Resolution),
January 19, 2009

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The law on prescription, being a remedial measure, should be liberally construed in order to
afford such protection while the exceptions to the law on prescription should perforce be strictly
construed.
For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law
on prescription, being a remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should perforce be strictly
construed.
Section 15 of the NIRC, on the other hand, provides that "[w]hen a report required by law as a
basis for the assessment of any national internal revenue tax shall not be forthcoming within the
time fixed by law or regulation, or when there is reason to believe that any such report is false,
incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on
the best evidence obtainable." Clearly, Section 15 does not provide an exception to the statute
of limitations on the issuance of an assessment, by allowing the initial assessment to be made on
the basis of the best evidence available. Having made its initial assessment in the manner
prescribed, the commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under consideration before us.
Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc., G.R. No. 104171, [February 24,
1999
Considering that the deficiency assessment was based on the amended return which, as
aforestated, is substantially different from the original return, the period of limitation of the
right to issue the same should be counted from the filing of the amended income tax return.
The changes and alterations embodied in the amended income tax return consisted of the
exclusion of reinsurance premiums received from domestic insurance companies by Phoenix
Assurance Co., Ltd.'s London head office, reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines and various items of deduction attributable to such excluded
reinsurance premiums, thereby substantially modifying the original return. Furthermore,
although the deduction for head office expenses allocable to Philippine business, whose
disallowance gave rise to the deficiency tax, was claimed also in the original return, the
Commissioner could not have possibly determined a deficiency tax thereunder because Phoenix
Assurance Co., Ltd. declared a loss of P199,583.93 therein which would have more than offset
such disallowance of P15,826.35. Considering that the deficiency assessment was based on the
amended return which, as aforestated, is substantially different from the original return, the
period of limitation of the right to issue the same should be counted from the filing of the
amended income tax return. From August 30, 1955, when the amended return was filed, to July

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TAX REMEDIES
24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of
the Commissioner to assess the deficiency tax on such amended return has not prescribed.
To strengthen our opinion, we believe that to hold otherwise, we would be paving the way for
taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses
and amending the same more than five years later when the Commissioner of Internal Revenue
has lost his authority to assess the proper tax thereunder. The object of the Tax Code is to impose
taxes for the needs of the Government, not to enhance tax avoidance to its prejudice.
Commissioner of Internal Revenue v. Phoenix Assurance Co., Ltd., G.R. Nos. L-19727, L-19903,
May 20, 1965
Once the taxpayer opts to carry-over its unutilized CWT to the succeeding taxable quarters or
years, the option to carry-over could no longer be converted into a claim for tax refund because
of the irrevocability rule provided in Sec. 76 of the NIRC.
The taxpayer is barred from claiming a refund. Despite the irrevocable choice, the taxpayer
remains entitled to utilize the CWT as a tax credit in the succeeding taxable years until fully
exhausted. In this regard, prescription does not bar the taxpayer from applying the amount as a
tax credit considering that there is no prescriptive period for the carrying over of the amount as
a tax credit in the subsequent taxable years. CIR vs. PL Management International Philippines,
Inc., GR No. 160949, April 4, 2011
Fraud must be deliberate.
Pursuant to Section 183 of the National Internal Revenue Code the 50% surcharge should be
added to the deficiency sales tax "in case a false or fraudulent return is willfully made." Although
the sales made by SM are in substance by Yutivo this does not necessarily establish fraud nor the
willful filing of a false or fraudulent return. When GM was the importer and Yutivo, the
wholesaler, of the cars and trucks, the sales tax was paid only once and on the original sales by
the former and neither the latter nor SM paid taxes on their subsequent sales. Yutivo might have,
therefore, honestly believed that the payment by it, as importer, of the sales tax was enough as
in the case of GM. Consequently, in filing its return on the basis of its sales to SM and not on
those by the latter to the public, it cannot be said that Yutivo deliberately made a false return for
the purpose of defrauding the government of its revenues which will justify the imposition of the
surcharge penalty. Yutivo Sons Hardware Co. v. Court of Tax Appeals, G.R. No. L-13203, January
28, 1961

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The attempt to avoid tax does not necessarily establish fraud.
But the attempt to avoid tax does not necessarily establish fraud. It is a settled principle that a
taxpayer may diminish his liability by any means which the law permits. United States vs. Isham,
17 Wall. 496; Gregory vs. Helvering, supra; Chisholm vs. Commissioner, 79 Fed. (2d) 14. If the
petitioner here was of the opinion that the method by which it attempted to effect the sale in
question was legally sufficient to avoid the imposition of tax upon it, its adoption of that method
is not subject to censure. Petitioner took a position with respect to a question of law, the
substance of which was disclosed by the statement endorsed on its return. We cannot say, under
the record before us, that position was taken fraudulently. The determination of the fraud
penalties is reversed." Yutivo Sons Hardware Co. v. Court of Tax Appeals, G.R. No. L-13203,
January 28, 1961
Only a request for reinvestigation can suspend the running of the prescriptive period.
With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions
between a request for reconsideration and a request for reinvestigation, the two types of protest
can no longer be used interchangeably and their differences so lightly brushed aside. It bears to
emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation,
not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a reconsideration of a tax
assessment, which will be limited to the evidence already at hand; this justifies why the former
can suspend the running of the statute of limitations on collection of the assessed tax, while the
latter cannot. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the
request for reinvestigation had been granted by the BIR Commissioner to suspend the running of
the prescriptive periods for assessment and collection. That the BIR Commissioner must first
grant the request for reinvestigation as a requirement for suspension of the statute of limitations
is even supported by existing jurisprudence. Bank of the Philippine Islands v. Commissioner of
Internal Revenue, G.R. No. 139736, October 17, 2005
A taxpayer may still be held in estoppel and be prevented from setting up the defense of
prescription of the statute of limitations on collection.
Even when the request for reconsideration or reinvestigation is not accompanied by a valid
waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner,
the taxpayer may still be held in estoppel and be prevented from setting up the defense of

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TAX REMEDIES
prescription of the statute of limitations on collection when, by his own repeated requests or
positive acts, the Government had been, for good reasons, persuaded to postpone collection to
make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice
is meant by the Government, as laid down by this Court in the Suyoc case. Bank of the Philippine
Islands v. Commissioner of Internal Revenue, G.R. No. 139736, October 17, 2005
The Commissioner of Internal Revenue may delegate his powers except for a few.
The general rule is that the Commissioner of Internal Revenue may delegate any power vested
upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate
the four powers granted to him under the National Internal Revenue Code (NIRC) enumerated in
Section 7 (Rulings of first impression and rulings which reverse, revoke or modify any existing
ruling of the BIR). Thus, the authority to make tax assessments may be delegated to subordinate
officers. Said assessment has the same force and effect as that issued by the Commissioner
himself, if not reviewed or revised by the latter such as in this case. Oceanic Wireless Network
Inc. v. Commissioner of Internal Revenue, G.R. No. 148380, December 9, 2005
A void Formal Letter of Demand and Final Assessment Notice (FLD/FAN) does not affect a valid
Final Decision on a Disputed Assessment (FDDA) and vice versa.
Again, Section 3.1.4 of RR No. 12-99 requires that the FLD must state the facts and law on which
it is based, otherwise, the FLD/FAN itself shall be void. Meanwhile, Section 3.1.6 of RR No. 12-99
specifically requires that the decision of the CIR or his duly authorized representative on a
disputed assessment shall state the facts, law and rules and regulations, or jurisprudence on
which the decision is based. Failure to do so would invalidate the FDDA.
Clearly, a decision of the CIR on a disputed assessment differs from the assessment itself. Hence,
the invalidity of one does not necessarily result to the invalidity of the other — unless the law or
regulations otherwise provide. Commissioner of Internal Revenue v. Liquigaz Philippines Corp.,
G.R. Nos. 215534 & 215557, April 18, 2016
The options in cases of inaction by the CIR after 180 days are mutually exclusive.
In RCBC v. CIR, 12 the Court has held that in case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of submission of documents, a taxpayer can

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TAX REMEDIES
either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or (2) await the final decision of the Commissioner on the
disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days
after receipt of a copy of such decision these options are mutually exclusive and resort to one
bars the application of the other. Lascona Land Co., Inc. v. Commissioner of Internal Revenue,
G.R. No. 171251, March 5, 2012
The sending of the Preliminary Assessment Notice (PAN) is required.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him
of the assessment made is but part of the "due process requirement in the issuance of a
deficiency tax assessment," the absence of which renders nugatory any assessment made by the
tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature
of the service of a PAN. The persuasiveness of the right to due process reaches both substantial
and procedural rights and the failure of the CIR to strictly comply with the requirements laid
down by law and its own rules is a denial of Metro Star's right to due process. Thus, for its failure
to send the PAN stating the facts and the law on which the assessment was made as required by
Section 228 of R.A. No. 8424, the assessment made by the CIR is void. Commissioner of Internal
Revenue v. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010
The BIR cannot require specific documents.
The term "relevant supporting documents" should be understood as those documents necessary
to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR
can only inform the taxpayer to submit additional documents. 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.
Commissioner of Internal Revenue v. First Express Pawnshop Co., Inc., G.R. Nos. 172045-46,
June 16, 2009
A case must be first contested with the CIR before appealed to the CTA.
Since in the instant case the taxpayer appealed from the assessment of the Commissioner of
Internal Revenue without previously contesting the same, the appeal was premature and the
Court of Tax Appeals had no jurisdiction to entertain said appeal. For, as stated, the jurisdiction

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Handout No. 37
TAX REMEDIES
of the Tax Court is to review by appeal decisions of the Commissioner of Internal Revenue on
disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take
cognizance only of such matters as are clearly within its jurisdiction. Commissioner of Internal
Revenue v. Villa, G.R. No. L-23988, January 7, 1968
There are exceptions to the rule on exhaustion of administrative remedies before recourse to
the courts.
However, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to
agree with petitioner that the instant case is an exception to the rule on exhaustion of
administrative remedies, i.e., estoppel on the part of the administrative agency concerned. In the
case of Vda. De Tan v. Veterans Backpay Commission, the respondent contended that before
filing a petition with the court, petitioner should have first exhausted all administrative remedies
by appealing to the Office of the President. However, we ruled that respondent was estopped
from invoking the rule on exhaustion of administrative remedies considering that in its
Resolution, it said, "The opinions promulgated by the Secretary of Justice are advisory in nature,
which may either be accepted or ignored by the office seeking the opinion, and any aggrieved
party has the court for recourse". The statement of the respondent in said case led the petitioner
to conclude that only a final judicial ruling in her favor would be accepted by the Commission. It
is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree,
you may appeal this final decision within thirty (30) days from receipt hereof, otherwise said
deficiency tax assessment shall become final, executory and demandable.
It appears from the foregoing demand letter that the CIR has already made a final decision on
the matter and that the remedy of petitioner is to appeal the final decision within 30 days. Allied
Banking Corporation v. Commissioner of Internal Revenue, G.R. No. 175097, February 5, 2010
The jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the
Court of Tax Appeals, not to the RTC.
Respondent judge has no jurisdiction to take cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court
of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court
of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of
the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other

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TAX REMEDIES
matters arising under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals
jurisdiction over all cases involving said assessments previously cognizable by Courts of First
Instance, and even those already pending in said courts.
The question of whether or not to impose a deficiency tax assessment on Meralco Securities
Corporation undoubtedly comes within the purview of the words "disputed assessments" or of
"other matters arising under the National Internal Revenue Code." In the case of Blaquera, etc.
vs. Rodriguez, etc. (103 Phil. 511 [1958]), this Court ruled that 'the determination of the
correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable, falls
within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under
the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive
appellate jurisdiction to review, on appeal, any decision of the Collector of Internal Revenue in
cases involving disputed assessments and other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal Revenue.
Commissioner of Internal Revenue v. Leal, G.R. No. 113459, November 18, 2002
A FAN which tells the taxpayer to appeal if he does not agree with it and uses the words “final
decision” can be considered the decision on a disputed assessment appealable to the CTA even
if the FAN was not protested.
The words used, specifically the words "final decision" and "appeal", taken together led the
taxpayer to believe that the FAN was in fact the final decision of the CIR on the letter-protest it
filed (on the Preliminary Assessment Notice) and that the available remedy was to appeal the
same to the CTA. This is a case of estoppel on the part of the BIR and considered as an exception
to the rule on exhaustion of administrative remedies. Allied Banking Corporation vs. CIR, GR No.
175097 February 5, 2010.
Other cases that arise out of the NIRC or related laws administered by the Bureau of Internal
Revenue other than assessments or refund are also under the jurisdiction of the CTA.
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters relating to assessments or refunds. The second
part of the provision covers other cases that arise out of the NIRC or related laws administered
by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the
CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and

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TAX REMEDIES
to rule if the Waiver of Statute of Limitations was validly effected. Philippine Journalists, Inc. v.
Commissioner of Internal Revenue, G.R. No. 162852, December 16, 2004
The CTA, not the CA has jurisdiction over tax collection cases decided by the RTC.
Similarly, Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals, as amended, states:
Sec. 3. Cases within the jurisdiction of the Court in Divisions. — The Court in Divisions shall
exercise Exclusive jurisdiction over tax collections cases, to wit: 2. Appellate jurisdiction over
appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection
cases originally decided by them within their respective territorial jurisdiction.
Verily, the foregoing provisions explicitly provide that the CTA has exclusive appellate jurisdiction
over tax collection cases originally decided by the RTC. In the instant case, the CA has no
jurisdiction over respondent's appeal; hence, it cannot perform any action on the same except
to order its dismissal pursuant to Section 2, Rule 50 of the Rules of Court. Therefore, the act of
the CA in referring respondent's wrongful appeal before it to the CTA under the guise of
furthering the interests of substantial justice is blatantly erroneous, and thus, stands to be
corrected. In Anderson v. Ho, the Court held that the invocation of substantial justice is not a
magic wand that would readily dispel the application of procedural rules. Mitsubishi Motors
Phils. Corp. v. Bureau of Customs, G.R. No. 209830, June 17, 2015
Mere appeal to the CTA contesting the validity of an assessment does not suspend collection of
the deficiency taxes.
The taxpayer should file a motion to suspend collection on the ground that collection will
jeopardize the interests of the taxpayer. If granted, the CTA will require the taxpayer to post a
cash bond in an amount equivalent to the basic assessed tax or a surety bond equivalent to not
more than double the basic assessed tax. The bond requirement should be dispensed with if: (a)
prescription has set or (b) whenever it is determined by the courts that the method employed by
the Commissioner in the collection of tax is not sanctioned by law. Spouses Pacquiao vs. The CTA,
GR No. 213394, April 6, 2016

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TAX REMEDIES
A motion for reconsideration in the CTA division is required before appeal to the CTA en banc.
On the procedure, the Court agrees with the CTA En Banc that the Commissioner failed to comply
with the mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax
Appeals requiring that "the petition for review of a decision or resolution of the Court in Division
must be preceded by the filing of a timely motion for reconsideration or new trial with the
Division." The word "must" clearly indicates the mandatory — not merely directory — nature of
a requirement." The rules are clear. Before the CTA En Banc could take cognizance of the petition
for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must
sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned
CTA division. Procedural rules are not to be trifled with or be excused simply because their non-
compliance may have resulted in prejudicing a party's substantive rights. Rules are meant to be
followed. They may be relaxed only for very exigent and persuasive reasons to relieve a litigant
of an injustice not commensurate to his careless non-observance of the prescribed rules.
Commissioner of Customs v. Marina Sales, Inc., G.R. No. 183868, November 22, 2010
Compromise & Abatement
The taxpayer may compromise a tax liability by: (a) paying 40% of the basic assessed tax on the
ground of doubtful validity of an assessment; or (b) paying 10% of the basic assessed tax on the
ground of financial incapacity. A criminal violation that has already been filed in court or a
criminal violation involving fraud cannot be the subject of a compromise between the BIR and
the taxpayer. (Sec. 204(A) of the NIRC)
The CIR may abate or cancel a tax liability when: (a) the tax or any portion thereof appears to be
unjustly or excessively assessed; or (b) the administration and collections costs involved do not
justify the collection of the amount due. The CIR has the sole power or authority to abate taxes.
(Sec. 204(B)and Sec. 7(c) of the NIRC)
Based on the guidelines of RR No. 15-2006, the last step in the tax abatement process is the
issuance of the termination letter. The presentation of the termination letter is essential as it
proves that the taxpayer's application for tax abatement has been approved. Thus, without a
termination letter, a tax assessment cannot be considered closed and terminated. Asiatrust
Development Bank, Inc. vs. CIR, GR No. 201530, April 19, 2017

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2020 BAR REVIEW TAXATION LAW

CHAIR’S CASES Handout No. 33

“Tax” and “Debt,” Distinguished.

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The Commissioner exercises administrative adjudicatory power or quasi-judicial function in

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Constructive payment of compensation is further defined in Revenue Regulations No. 6-82:

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destination of the passengers, carriers involved, and commissions received. Petitioner is

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Withholding tax is a method of collecting income tax in advance.

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Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Strict compliance with substantiation and invoicing requirements is necessary considering

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Any reclassification of fermented liquor products should be by act of Congress.

A reclassification of a fermented liquor brand introduced between January 1, 1997 and

Legal Edge Bar Review 0942 – 949 91 76

A manufacturer of beer may produce different versions of its products, distinguished by

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

The Philippine Economic Zone Authority (PEZA) is an instrumentality of the national

Legal Edge Bar Review 0942 – 949 91 76

Under the Constitution, government-owned or -controlled corporations (GOCCs) are created in

Legal Edge Bar Review 0942 – 949 91 76