Bar Materials in Taxation

Series 2021

Prepared by: Dr. Jeannie P. Lim

PROBLEM EXERCISES PATTERNED FROM DECIDED CASES
OF THE SUPREME COURT.
1) The BIR sent X Corporation a preliminary assessment notice (PAN). After several months,
BIR noticed that X has not responded to the PAN. BIR issued a final assessment notice (FAN)
and sent the same together with a copy of the PAN to X corporation. X disputed the
assessment notices, but BIR denied the protest. On appeal to the CTA, X argued that the
simultaneous issuance of the PAN and FAN violated the procedural due process he is
entitled to. On the other hand, CIR countered that X failed to question the simultaneous
issuance of the PAN and FAN in his protest in the administrative level and therefore has
waived such defense and X cannot raise that issue on appeal for the first time. (a) Did the
simultaneous issuance of the PAN and FAN violate the procedural due process in taxation?
(b) Is the CTA correct in given due course to the appeal of X Corporation? (CIR vs. Yumex
Phil. Corp., May 5, 2021)
Answer. (a) The PAN and FAN cannot be issued simultaneously to a taxpayer. Under Sec. 228 of
the Tax Code, the taxpayer is given fifteen (15) days from receipt to dispute the PAN, denying the
taxpayer this is a violation of due process. The BIR must show proof that a PAN was sent to the
taxpayer before it is allowed to issue the FAN because the issuance of a FAN without a PAN is
VOID. (b) Yes, the CTA is correct. Even if X failed to mention in its petition for review the validity of
the PAN and FAN simultaneously issued to it. X had called the attention of the CTA about it in its
Motion for Reconsideration, the CTA is not precluded from considering other related issues, not
otherwise stipulated by the parties which may be necessary to achieve a just and orderly disposition
of the cases in accordance with the Revised Rules of the CTA. (Sec. 1, Rule 14, RRCTA)

2) What are the requirements of a valid assessment? (CIR vs. Metro Star Superama, December 8,
2010)
Answer. The sending of a Notice of Discrepancy (NOD) and a preliminary assessment notice (PAN)
to the taxpayer to inform him of the assessment is part of the “due process requirement in the
issuance of a deficiency tax assessment.” The absence of which render nugatory any assessment
made by the tax authorities. Hence, failure to send “NOD” and “PAN” stating the facts and the law,
Rules and Regulations on which the assessment was made as required under Sec. 228, NIRC, the
assessment made the CIR is VOID. Thereby, any collection under a void assessment has no leg to
stand on.

3) Requirements for validity of taxpayer’s protest: (Sec. 3.1.5, Rev. Reg. 12-99)
Answer. The taxpayer shall state the facts, the applicable law, rules and regulations, or
jurisprudence on which the protest is based, otherwise, his protest shall be considered void and
without force and effect. If there are several issues involved in the disputed assessment and the
taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support
of his protest against some of the several issues on which the assessment is based, the same shall
be considered undisputed issue(s), in which case the taxpayer shall be required to pay the
corresponding deficiency tax(es) attributable thereto.

4) HW converted their property into a resort complete with swimming pools, bath houses, hot
springs, and SPA. The business flourished and became one of the major tourist spots in the
province. Admission fees are collected from customers except for children below seven (7)
years old. The province of “X” imposes a 10% percentage tax on admission fees collected
from HW’s business. HW argued that the imposition is in violation of Sec. 133(i) of the LGC –
“common limitations” (local government cannot imposed a tax already taxed under the
NIRC), hence, the imposition is null and void. Is “X” authorized to impose amusement taxes
on admission fees upon HW’s business being an “amusement place” under the Local
Government Code”?

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 Answer. The Amusement taxes collected by the BIR under Sec. 125, NIRC are collected from the
proprietors, lessees or operators of theaters, cinemas, concert halls, boxing arena/stadia, cockpits,
cabaret, and “other amusement places” at 30% of the gross receipts from admission fees. These
are places where one seeks admission to entertain oneself by seeing or viewing the film, show or
performances. The events are meant to be viewed by an audience. Resorts, swimming pools,
bath houses, hot springs, spa, and tourist spots cannot be considered venues primarily where
one seeks admission to view the show, exhibitions, or performances. Therefore, they cannot be
considered as among the “other places of amusement” contemplated under Sec. 140 of the LGC
which may be the proper subject of amusement places. The province cannot impose the 10%
percentage tax it enacted as the same is null and void. (Justice Leonen case)

5) X local government enacted a tax ordinance imposing regulatory fees on “cellcites”

constructed and installed by telecommunication companies within X’s territorial jurisdiction.
SMI, Inc., a telecommunication company questioned the validity of the tax ordinance. SMI
believes that the imposition violates the “common limitations” of the LGC because the
telecommunication companies are already taxed by the Tax Code. (a) Is SMI correct?
Granting that SMI filed a petition for review before the CTA questioning the validity of the tax
ordinance (b) Does CTA have jurisdiction over the petition for review?
Answer. (a) The imposition of fees on “cell cites” are within the taxing power of the local
government. The common limitations and restriction of the LGC applies to taxes and not to fees.
The local tax ordinance of X imposes regulatory fees and not taxes. Hence, the tax ordinance of X
is valid as it did not violate the “common limitations and restrictions” on local taxation. (b) the CTA
does not have jurisdiction over questions of constitutionality or validity of tax ordinance, such
controversy should be filed before the regular court. (Justice Leonen case)

6) The Congress granted a legislative franchise to X Corporation. X sets up a business

operation in “S” Province. (a) Can “S” impose another local franchise tax on X? Granting
that X refuses to pay and “S” now enforces collection of the unpaid taxes, surcharge,
interests, and other penalties. (b) Distinguish surcharge from interest under the given facts.
Answer. (a) The local government of “S” can impose a franchise tax on a taxpayer enjoying a
legislative franchise operating within its territorial jurisdiction. Franchise tax is among the taxes that
a province is allowed to impose. There is no prohibition to that effect. (b) Both surcharge and
interest are imposable in cases of delinquency and/or deficiency. However, under the TRAIN Law,
the simultaneous imposition of deficiency interest and delinquency interest is not allowed. (Justice
Leonen case)

SURCHARGE
This is a deterrent for late payment of
taxes.
It is 25% of the main tax and it is not
based on periods of delay. 50% in case
of finding of fraud.
It is a civil penalty imposed only once for
late payment within the year. However, it
should be computed yearly based on
the total unpaid tax for each particular
year.
It is not subject to a compromise
agreement.
INTEREST
This is a sanction for withholding the
payment of money that rightfully belongs
to the government.
It is computed in proportion to the period
of delay at 12% per annum (IR taxes) and
2% per month with maximum of 72% only
for local taxes.
In case of extended payment, the CIR or
local treasurer shall impose interest on
extended payment at the rate of 20% per
annum.
The computation of interest payable may
be adjusted under a compromise
agreement.

7) X Corporation is a PEZA-registered entity operating inside the Freeport Economic Zone

(FEZ). It constructed a building within the zone but due to the Asian financial crises it did not
commence business operation. It sold the land, building, machineries, and equipment and
paid the 5% preferential tax rate. It had also filed an ITR showing a loss. Thereafter, X filed
with the CIR a claim for tax refund of the alleged 5% tax contending it as an erroneous
payment. CIR did not resolve the claim. X filed an appeal before the CTA. CTA ruled that: (a)
X is not entitled to the 5% preferential tax because it has not commenced its business

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 operation. (b). (c) The sale of the land and building is subject to 6% CGT whereas the sale of
machineries and equipment is subject to the normal income tax. X argued that 6% CGT is
erroneous, and that the CTA cannot make an assessment. Is X correct?
Answer. When CTA imposed the 6% CGT, it was merely determining the proper category of tax that
X should have paid which is incidental matter necessary for the resolution of the principal issue. It
did not make an assessment but determined the correct tax payable. The CTA can determine and
recompute the liability of a taxpayer based on CIR’s assessment and computation. X is liable to pay
6% CGT on the sale of its real properties but no CGT on the sale of machineries and equipment
which shall be covered by the normal income tax. (Justice Leonen case)

8) X Corporation borrowed money from “P”, a private entity. X issued corporate bonds to “P” in
support of the obligations. Thereafter “P” assigned, sold, and transferred the bonds to other
investors numbering to more than twenty 20. On maturity X gathered all the bonds and
surrendered them to the Bureau of Treasury (BoT) for payment of interest and principal. The
BIR advised the BoT to withhold 20% Final withholding tax from the interest earned by X.
because the transactions are considered interest earned from deposit substitutes. Is X liable
for pay the 20% final withholding tax under the “20-Lender Rule”?
Answer. Deposit substitutes is borrowing of funds obtained from 20 or more individuals or corporate
lenders “at any one time” – which is referring to the time or original issuance of the debts instrument
(bonds). At the time X issued the bonds it was issued only to “P,” so there is only one (1) lender in
the transaction between X and P. The 20% final withholding tax is applicable only when there are 20
and more lenders in the primary market (first issuance of new shares between the issuer and
investor) such that if the lender-investors are numbering only 19 and below, the interest paid in the
transaction is not subject to 20% FWTax, the payor thereof need not withhold the final taxes on the
interest paid. The lender earning the interest will subject the interest income earned to the ordinary
income tax. (Justice Leonen case)

9) Is the power of the Secretary of Finance to issue Revenue Regulations (RR) a

quasi-legislative function or is it a quasi-judicial function?
Answer. The power of the Secretary of Finance to issue RR for the effective enforcement of the
provisions of the Tax Code is QUASI-LEGISLATIVE (Rulemaking) function which is outside the
scope of a Petition for Certiorari. Under Sec. 244 of the Tax Code, Petition for Certiorari may be
invoked only against a public officer, tribunal, board, or officer exercising a judicial or quasi-judicial
function. The Sec. of Finance or the CIR is not a tribunal, board or officer exercising judicial or
quasi-judicial functions because they do not investigate facts or ascertain the existence of facts,
hold hearings, and draw conclusions from them as a basis of their official action to execute
discretion of a judicial in nature. They are not clothed with power or authority to determine the law
and adjudicate the respective rights of the contending parties. (Justice Leonen case)

10) X Corporation is engaged in garments manufacturing. In 2018, X is among the 1000 large
taxpayers in the country. In 2019 and 2020, it had been suspending its operation every now
and then due to the pandemic. X declared losses in its ITR for 2019 and 2020. The BIR sent X
a preliminary assessment notice alleging deficiency taxes (income VAT and withholding)
under its 2018 tax return. X did not reply due to the COVID situation. In March 2021, BIR sent
X a final assessment notice (FAN) inclusive of a final demand letter (FDL) and personally
served them to X at its principal place of business. The FDL has the usual statement in an
assessment notice stating that “please note that the total amount and interest under this
notice will have to be adjusted if paid after due date.” X disputed that the final demand letter
has no legal basis, arguing among other things, that it did not contain any definite amount
payable and for reason thereof it is void. The BIR holds otherwise. Decide.
Answer. Yes, X is correct, the law requires that the FAN must include a FDL when serve upon the
taxpayer. It must contain a definite and conclusive amount. The usual statement in an assessment
notice stating that “please note that the total amount and interest herein indicated will have to be
adjusted if paid after due date” is held to be void. (Justice Leonen case)

11) The CIR issued a Final Decision on Disputed Assessment (FDDL) and a Final Demand Letter
(FDL) denying T’s protest. Both documents were sent via registered mail to the T. T never
responded by way of payment because the letter of demand for payment did not specify a
date within which T must pay although the FDDA has a date on it. Thereafter, BIR enforces
judicial collection. T argues that the collection is premature. Is the collection valid?

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 Answer. A final demand letter without an indication of date of payment is VOID. The FDDA is
different from the FDL.

12) X and Y Corporations entered into a merger agreement. Y is the absorbing corporation while
X is the absorbed corporation. BIR assessed Y for unpaid Documentary Stamps Tax (DST)
pursuant to the Merger Agreement. The BIR discovered that Y is the surviving entity, and it
has acquired several real properties from X where no DST were paid. BIR invokes Sec. 196 of
the Tax Code. It insists that DST is payable regardless of the manner of conveyance. The
Deed of Assignment is subject to DST. Is the BIR correct?
Answer. No, the BIR is not correct. DST is imposed only on conveyances, deeds, instrument, or
writing, where real property is sold to a buyer or purchaser, in merger or consolidation, there is no
buyer or purchasers, rather there is consolidation of properties, powers and facilities of the
constituent companies. In addition, RA 9243, April 27, 2004 (An Act amending NIRC’s sections on
DST) provides that transfer of real properties to a surviving corporation pursuant to Merger or
Consolidation is NOT subject to DST. (Justice Leonen case)

13) The general rule provides that a taxpayer receiving a valid assessment notice cannot
question the legality or validity of the same before the court without disputing the
assessment under the Principle of Exhaustion of Administrative remedies (“PEAR”). When is
direct appeal to the appellate court allowed without violating “PEAR” or the Doctrine of
Hierarchy of Courts? (Justice Leonen case)
Answer. Instances when a party can go directly to court without satisfying the “PEAR”:
a) When there is violation of due process.
b) When the issue involved is purely a legal question or pure question of law.
c) When the administrative action is patently illegal amounting to lack or excess of jurisdiction.
d) Where there is estoppel on the part of the administrative agency concerned.
e) Where there is irreparable injury.
f) Where the required “PEAR” would be unreasonable because it is an exercise in futility.
g) When it would amount to a nullification of a claim.
h) When the rule does not provide a plain, speedy, and adequate remedy.
i) When the subject matter is a private land in land proceedings, and
j) When the respondent is a department secretary who acts as an alter ego of the president, he
bears the implied and assumed approval of the latter.
k) Where there are circumstances indicating the urgency of judicial intervention.

14) This case (Declaratory Relief) was filed jointly by TPs against the three (3) BIG Oil Companies –
(Shell, Petron, and Chevron) contending that there is cartelization among them. When oil prices
abroad increased, the “3” would immediately increase their oil prices here even if what they are
selling are not bought at the increased price. Likewise, when one (1) would increase its oil price the
other 2 would also follow and jack-up their prices. A joint action was filed before the RTC by some
cause- oriented groups so that the “big 3” will stop from such practice.

The RTC ruled in favor of the complainants and ordered the big 3 to allow examination of their
business books and records. The Big 3 refused. The RTC ordered the COA, BIR and BOC to
conduct an audit and the big 3s’ business records and books. COA, BIR and BOC refused to
comply contending that such an order is an excess or abuse of jurisdiction.

RTC invokes the DOCTRINE OF PARENS PATRIAE in its order – (Father of his country) The
judiciary, as an agency of the State, has the supreme power and authority to intervene and to
provide protection to persons non sui juris – “those who because of their age or incapacity are
unable to care and fend for themselves.

SC ruled in favor of the petitioners and held that –

⮴ This doctrine cannot be applied when there is a law enacted providing for mechanism to protect
the interest of the Filipino people/consumers.

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 ⮴ It is the DOE/DOJ joint task force that has the sole power and authority to monitor, investigate
and endorse the filing of complaints, if necessary, against oil companies.

⮴ COA cannot audit private corporations, its jurisdiction is on public corporations or

non-governmental entities receiving financial aids from the government.

⮴ When is BIR allowed to examine taxpayer’s business records and book of accounts? -
BIR is authorized to examine books, papers, records, or other data of the TPs but only to
ascertain the correctness of any return or in making a return when none was filed or in
determining the liability of any person for any IR taxes, or in collecting such liability or evaluating
the person’s tax compliance.

⮴ When is BoC allowed to examine taxpayer’s business records and book of accounts? -
BOC is authorized to audit or examine all books, records, and documents of importers
necessary or relevant for the purpose of collecting the proper duties and taxes.

⮴ If no taxes are involved the BIR/BOC have no power and authority to open and examine the
books of accounts of taxpayers. (Justice Leonen case)

15) X, a businessman is under tax investigation. He was required to produce all his business
records, sales invoices, purchase receipt, proof of tax payments and other papers used in
his business operations. X was not able to comply contending that his business
establishment inclusive of all his business records, documents, tax returns and papers were
totally submerged and destroyed in flood water during the super typhoon that hit the
country. (a) Is X exempt from tax investigation under his allegations? (b) How will the BIR
pursue the tax audit if taxpayer does not cooperate with the production of his records?
Answer. (a) No. the absence of taxpayer’s business records and other documents used relative to
his business operations and proof of tax payments will not exempt him from tax examination by the
tax officials. (b) The investigating revenue officers may resort to the “Best Evidence Obtainable”
Rule as provided in Sec. 5(B) of the NIRC in their audit. (CIR vs. Hon. Gonzalez, LM Camus
Engineering Corporation, October 13, 2010)

16) The tax examiners under the authority of the CIR sent X a Letter of Authority (LOA) in
support of a tax investigation. The LOA (authority to investigate) states that X is being
investigated on his business activities covering the year 2018 and all “unverified prior
years”. Is the LOA valid? (CIR vs. Sony Phils., Inc. November 17, 2010)
Answer. The practice of the BIR of issuing Letters of Authority covering an audit of “unverified prior
years” is prohibited. If the audit of a taxpayer shall include more than one (1) taxable period, the
other periods, or years shall be specifically indicated in the LOA.

17) Is the issuance of a Letter of Authority (LOA) mandatory prior to a tax audit/examination of a
taxpayer?
Answer. There is no need for the issuance of a LOA if the alleged erroneous payment of tax is
already manifested on the face of the taxpayer’s Monthly Remittances of Final Income Taxes
Withheld. There is no need for the CIR to examine and scrutinize the books of accounts and other
accounting records of the taxpayer to determine its correct tax liabilities. (Masin-AES Pte. Ltd. (Phil.
Br.) vs. CIR, CTA case No. 8543, April 10, 2014)

Hence, LOA is mandatory in (a) ascertaining the correctness of any tax return, or (b) in
making a return when none has been made filed, or (c) in determining the tax liability of any person,
or (d) in collecting any such liability, or (e) in evaluating tax compliance, the CIR is authorized to
examine any book, paper or other data which may be relevant or material in such inquiry.

18) BIR issued a LOA to X for assessment of deficiency taxes for taxable year 2015 and prior
years. Simultaneously, the tax official was looking into the income tax return of X for the year
2016 and disallowed expenses covering the next fiscal year 2016. Is the assessment valid?
(CIR vs. Lancaster Phils., Inc. GR No. 183408, July 12, 2017)
Answer. The LOA specified the assessment for the taxable year 2015, the other “prior or
subsequent years” not specifically covered by the assessment notice is VOID. Therefore, the

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 disallowance of expenses for the year 2016 is unauthorized and invalid. A valid LOA does not
necessarily clothe validity to an assessment issued pursuant thereto, as tax official designated in
the LOA acted in excess or outside of the authority granted under the said LOA.

19) Who are the “duly authorized representatives” of the CIR who can issue PAN, FAN, Formal
demand letter for tax payments (FLD) and final decision on disputed assessment (FDDA)?
Answer. The “duly authorized representatives” refers to (1) Revenue Regional Directors, (2)
Assistant Commissioner - Large Taxpayers Service, and (3) Assistant Commissioner – Enforcement
and Advocacy Service. Taxpayers shall submit/file their responses and protests with the duly
authorized representative of the CIR who signed the PAN, FLD or FAN.

If protest is denied by the Commissioner’s duly authorized representative, the same is not
considered final, executory, and demandable and may still be appealed to the CIR within 30 days
from receipt thereof. NOTE: An MR to the CIR will not toll the 30-day period to appeal to the CTA.
(Belle Corp. vs. CIR, CTA case No. 8175, September 18, 2012)

20) “M” Resources, Inc. filed its corporate income tax return before the due date. Subsequently
it amended its tax return within the reglamentary period. “M” is now under audit; it
challenges the validity of the assessment on the ground that the same is based on its mere
first “tentative return” and not on the amended return it filed. It is the position of “M” that the
BIR should have confined its assessment to the “final (amended) return. Is “M” correct?
(Magnetic Resonance Imaging Services, Inc. vs., CIR, CTA case No. 6608, October 20, 2009)
Answer. Sec. 5(A) and 6(A) of the Tax Code provide that once tax return has been filed, CIR or his
duly authorized representative is authorized to examine correctness of return filed. The Court held
that in ascertaining the correctness of “M’s” final return, the CIR is not prevented from looking into a
taxpayer’s tentative return nor in determining taxpayer’s tax liability, CIR may examine any book,
paper, record, or any material relevant to such inquiry, including any return, statement or declaration
filed by the taxpayer.

A tax return is a self-serving document of the taxpayer. The government is not bound by a tax
return.

21) X validly disputed an assessment. While his protest has not yet been resolved by the CIR X
submitted a compromise proposal to the BIR. Upon receipt of the proposal CIR dismissed
the protest of X contending that there is now an abandonment of X’s protest of the
assessment. Is the tax official, correct?
Answer. The mere act of applying for a compromise does not equate to abandonment of any
claim/protest against the validity of an assessment and/or a waiver. It is the act of immediately
paying the tax assessment covered by the waivers of the statute of limitations that renders the
taxpayer estopped from questioning the validity of said assessment and/or waivers. (Dole Phils.,
Inc. vs., CIR, CTA case No. 8155, March 21, 2014)

22) Does the CTA acquire jurisdiction of a taxpayer’s appeal contesting a final assessment of the
CIR?
Answer. No. The jurisdiction of the CTA is to review by appeal decisions (expressed or implied) of
the CIR on disputed assessment and NOT those that are uncontested or those that have become
final already for failure to seasonably appeal the denial to the CTA within the 30-day period. (CIR vs.
Villa, 22 SCRA 3)

23) Does CTA acquire jurisdiction on question related on the authority of the revenue officer to
examine the books and records of any person? (CIR vs. Lancaster Phils., Inc. GR No. 183408,
July 12, 2017)
Answer. Yes. It may be considered covered by the terms “other matters” under Sec. 7, RA 1125, or
its amendment under RA 9282. The authority to make an examination or assessment being a
matter provided for by the NIRC is well within the exclusive and appellate jurisdiction of the CTA.

24) The CIR issued a letter stating that alkylate is subject to excise taxes. Thereafter, the Bureau
of Customs issued CMC No. 164-2012 to implement the letter. X taxpayer, being affected by

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 the letter and its implementation questioned the validity of the letter before the CTA. Did the
CTA acquire jurisdiction on the matter? (Petron Corp. vs. CIR et.al., CTA case No. 8544,
November 15, 2012)
Answer. The jurisdiction of the CTA to resolve tax disputes EXCLUDES power to rule on
constitutionality or validity of a letter, memorandum, or circulars. The available recourse of X is to
question the said issuance with the Sec. of Finance and eventually, before the regular courts and
not with the CTA

25) X validly disputed an assessment within the prescriptive period. Within 180 days the CIR
sent him a Final Decision on the Disputed Assessment (FDDA) and Final Demand Letter
(FDL). X seasonably appealed before the CTA Division. CTA Division rendered a decision
sustaining CIR’s denial. X moved for reconsideration. CTA Division amended its decision.
The CIR failed to move for a reconsideration on the Amended Decision of CTA Division
within fifteen (15) days from receipt thereof. Several months thereafter, X filed a Motion to
execute the final decision of the CTA Division.

When the CIR received a copy of the Order of execution of judgment, he immediately
filed a Petition for Review before the CTA En Banc and moved for the revocation of the CTA’s
amended decision contending that the decision is adverse to the interest of the government.
Is the action of the CIR proper? (Asia Trust Development Bank, Inc. vs. CIR, GR Nos.
201530/201680-81, April 19, 2017)
Answer. The failure of the CIR to move for a timely reconsideration of the CTA Division’s Amended
Decision is a ground for the dismissal of his Petition for Review before the CTA En Banc. Sec. 1,
Rule 8 of the Revised Rules of CTA provides that failure to file timely motion for reconsideration or
new trial with the CTA Division is a ground for the dismissal of the appeal before the CTA En Banc.

26) X received a final assessment notice from the BIR. Notwithstanding, X did not attend to the
BIR’s concern. Two (2) years thereafter the BIR issued a warrant of levy. X filed a complaint
before the RTC for a declaration of nullity of notice of seizure of real property, declaration of
forfeiture of real property, deed of sale and for specific performance for reconveyance of his
real property. The CIR moved for the dismissal of his complaint contending that the regular
court has no jurisdiction. Is the CIR correct? (Alcantara vs. Republic, GR No. 192536, March 15,
2017)
Answer. X failed to avail of his administrative remedies resulting to the assessment’s finality. The
BIR can pursue collection in such instance by issuing a warrant of levy to seize X’s properties.
Despite assailing the supposedly illegal confiscation of his property in satisfaction of his tax
liabilities, X was really challenging the assessment and collection of taxes made against him for
being in violation of his right to due process. The complaint is concerned with the validity of the
assessment and eventual collection of the taxes by the BIR, which does not fall within the
jurisdiction of the RTC but CTA. Ergo, CIR is correct.

27) X received a valid assessment from RDO. X failed to dispute the same seasonably within the
30-day period from receipt thereof. Thereafter, BIR enforces tax collection. X appealed to the
CTA disputing the validity of the assessment which was used as the basis of the BIR’s
collection. Did the CTA acquire jurisdiction on X’s appeal? (Castalloy Technology et.al., vs.
RDO of Cebu City (Region 13) for and in behalf of CIR, CTA case No. 8244, January 30, 2014)
Answer. No. CTA has not acquired jurisdiction because the assessment was not disputed before
the RDO. When X received the assessment from the RDO, he has an administrative remedy. He
should have initiated the prescribed administrative procedure to obtain relief and to pursue it to its
appropriate conclusion before seeking judicial intervention in order to give the administrative agency
an opportunity to decide the matter correctly and prevent unnecessary and premature resort to
court. Before a taxpayer is allowed to seek judicial remedy, he must prove that the principles of
administrative remedies were exhausted. (Don’t forget - “no dispute of an assessment no appeal”
to the CTA.)

28) X, a domestic corporation, received a deficiency income tax assessment from the BIR on
May 17, 2010. On June 15, 2010, “X” filed its Motion for Reinvestigation with the BIR. On
August 13, 2010, it submitted to the BIR all relevant documents in support of its protest. The
CIR did not formally rule on the protest but on February 9, 2011, the Bureau filed a collection
case against X before the RTC. On April 5, 2011, X was served a summons and a copy of the

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 complaint for collection of deficiency tax filed by the BIR. On April 25, 2011, X brought a
petition for review before the CTA. The BIR contended that the petition is premature since
there was no formal denial of the protest of X and therefore it must be dismissed. (a) Has the
CTA acquired jurisdiction over the case? (b) Does the RTC have jurisdiction over the
collection case filed by the BIR? Explain.
Answer. Yes, the CTA has acquired jurisdiction over the case because this qualifies as an appeal
from the CIR’s decision on the disputed assessment. When the CIR decided to collect the tax
assessed against X without first deciding on the taxpayer’s protest, that is an implied denial of X’s
protest, in which event the taxpayer may file an appeal with the CTA within 30 days from receipt of
the summons from the regular court. (Republic vs. Lim Tian Teng & Sons, Inc., Dayrit vs. Cruz)

The RTC has no jurisdiction over the collection case filed by the BIR. The filing of an appeal
with the CTA has the effect of divesting the RTC of its jurisdiction over the CIR’s collection case. It
gives a justifiable basis for the taxpayer to move for dismissal in the RTC of the Government’s
action to collect the tax liability under dispute. (Yabes vs. Flojo, San Juan vs. Vasquez). There is no
final, executory and demandable assessment that can be enforced by the BIR, once a timely appeal
is filed before the CTA.

29) X Corporation is a GOCC. The BIR sent an assessment notice to X for failure to pay taxes
and withhold taxes on its payments. X refused to respond to BiR’s notices contending that
being a government agency it is not subject to an investigation by another government
agency. Is X correct?
Answer. No. X is not correct. GOCC is deemed to be a taxable person and subject to BIR
investigation and assessment. The only time X can claim exemption from taxes is when the law
creating it categorically provides for such exemption.

30) What will happen to an assessment if the final decision on the disputed assessment (FDDA)
is found to be void for failure to state facts and law as bases of its issuance? (CIR Vs
Liquigaz Phils. Corp., GR No. 215557, April 18, 2016)
Answer. The assessment remains valid notwithstanding the nullity of the FDDA because the
assessment itself differs from a decision on the disputed assessment. If the final decision on
disputed assessment (FDDA) is VOID, it may be subjected to a review before the appellate courts,
but it will not invalidate the assessment.

31) X seasonably disputed an assessment. The CIR issued a Final Decision on the Disputed
Assessment (FDDA) categorically denying X’s dispute. Can X avail of tax amnesty under the
given facts? (CIR vs. Phil. Aluminum Wheels, Inc., GR No. 216161, August 9, 2017)
Answer. The FDDA issued by the BIR is NOT a tax case “subject to a final and executory judgment
by the courts” as contemplated by Sec. 8(f) of the Tax Amnesty Law (RA 9480). BIR is not a court
but an administrative body. X is not disqualified to avail of a tax amnesty program. The taxpayer has
30 days from receipt of the FDDA to question its validity before the CTA.

NOTE: When there is a pending appeal before the CTA or the SC, no final decision yet can be
executed, therefore, a persons may avail of tax amnesty during the pendency of its/his appeal.

32) T filed a claim for its unutilized input VAT on capital goods purchased. CIR did not act on T’s
claim. Within the reglamentary period T filed a judicial claim before the CTA. In CIR’s answer
to T’s petition for review, it holds that T is not entitled to a refund for reason that T failed to
submit some documents required of it in support of its claim. CTA ordered both parties to
file their Memorandum. T complied but CIR did not despite notice. Thereafter, CTA Division
rendered a decision in favor of T. CIR did not file an MR to said decision. Hence, said
decision became final and executory. CTA ordered CIR to issue a Certificate of Tax Credit to
T. Upon receipt of the order the CIR filed his MR before the CTA En Banc praying for the
annulment of the CTA Division’s decision and order to issue tax credit certificate in favor of
T. May CTA En Banc annul the decision of the Division? Briefly explain. (CIR vs. KEPCO IIijan
Corp., GR No. 1994322, June 21, 2016)
Answer. CTA En Banc cannot annul decisions of the CTA Division that has become final and
executory already. That decision of the CTA Division is the decision of the CTA En Banc in the given
case, CIR’s repeated failure to file his Memorandum as ordered by the CTA Division and MR upon
receipt of CTA Division’s decision is fatal to the cause of the government.

8
33) The Regional Director sent X a preliminary assessment notice with a deficiency tax of Php
1.7 million on income tax, Vat and withholding taxes. X was not able to dispute the same in
due time. The RD then sent X a final assessment notice. This time, X seasonably disputed
the notice, and he submitted all his documentary evidence in support of his dispute. The RD
denied X’s protest. Within fifteen (15) days from receipt of said denial X files a Motion for
Reconsideration before the office of the CIR. Within 180 days the CIR sent X a resolution
likewise denying X’s Motion. Within 30 days from receipt thereof, X filed an appeal before the
CTA. The CTA dismissed the petition for review contending that it has no jurisdiction
because the appeal is time barred. Is the dismissal correct? Reason. (PAGCOR vs. BIR, GR
No. 208731, January 27, 2016)

Answer. Yes, the appeal is time barred; it was filed beyond the 30-day period of appeal to the CTA.
It must be noted that Sec. 228 and Sec.3.1.5 of RR No. 12-99 will readily show that neither of these
provisions of law provides for the remedy of an appeal to the CIR in case the RD’s renders an
adverse decision or failure to act. The law provides that the remedy of the taxpayer in case of an
adverse decision of the CIR or his inaction or that of his authorized representative is to appeal to
the CTA within 30 days after the lapse of 180 days from submission of required supporting
documents or inaction. In addition, the RD is the alter ego of the CIR, the former’s decision is the
decision of the CIR. An appeal to the CIR from the RD will not toll the 30-day period of appeal to the
CTA.

34) In 2018 the Regional Director (RD) sent X both the pre-requisites of a final assessment notice
for deficiency taxes on Income, VAT and Withholding taxes for the tax period 2014. X failed to
contest both notices within the reglamentary period provided by law. The RD issued a
warrant of Distraint and Levy to enforce administrative collection. (a) Is the RD authorized to
issued tax warrants to enforce collection? (b) How much time does the government have to
enforce administrative collection of delinquency taxes? (c) Does the CTA have jurisdiction
over X’s petition for Review questioning the validity of an administrative collection of the
RD? Reasons.

Answer. (a) The CIR’s power to assess is a delegable authority. Since the RD is the alter ego of the
CIR he may undertake assessment and enforce tax collection. Under the given facts, what were
issued to X were the pre-requisites (NOD and PAN) of a final assessment notice (FAN), failure to
disputes the pre-requisite notices will not ripen to a collection case. The RD should have sent X a
“FAN” and a Final Demand Letter (FDL) to give X another chance to protest the “FAN.” Should X
again fail to dispute the same, the FAN will ripen to a collection case.

(b) The reckoning period of a valid administrative collection will depend on whether or not there was
a valid dispute to a “FAN.” Under the given facts, there was no “FAN” issued to X and therefore the
collection is VOID.

(c) The CTA has no jurisdiction over X’s Petition for Review because there was no “FAN” issued
that will justify the validity of the administrative collection.

35) X received a valid “FAN” but failed to seasonably dispute the same. He was told by his friend
that he can pay the assessed tax and thereafter avail of the remedy of tax refund by invoking
that the payment was an erroneously payment. Is the advice of X’s friend sound, and
correct?
Answer. No, the advice is not correct. The relief sought by “T” is not justified. He was trying to
circumvent the law When an assessment has become final and executory it is binding upon the
taxpayer, the procedure for refund is not available to revive the right to contest the validity of the
assessment. After the lapse of the 30-day period to assess, the assessment becomes final and
therefore, any payment committed in relation thereto shall be deemed a valid payment which is not
covered by a tax refund. (It is not any of these – “OIEP” under Section 229) (CIR vs. Jose
Concepcion, 22 SCRA 1058, 1998)

36) X failed to validly dispute the final assessment notice (FAN) that was sent to him. Thereafter
the CIR issued a warrant of distraint and levy to enforce collection. X never bothered to
protest or dispute CIR’s actions. Thereafter, the CIR caused the levy on X’s real property.

9
 During the scheduled public sale, no bidders participated except X. However, X’s bid was
lower than the floor price. As a result, BIR purchased the subject property for the amount of
the taxes inclusive of all incidental charges, expenses and penalties. (a) Is the one (1) year
Right of Redemption from date of public sale granted to the property owner available in
taxation? (b) Granting that the government opted not to buy the property and instead sold it
at a price lower than X’s tax liabilities, may the CIR enforce collection against X on the
difference between the selling price and X’s tax liabilities? Briefly explain.

Answer. (a) Yes, X has the one (1) year right of redemption in taxation. He may recover his real
property sold by paying the government the full amount of his tax liabilities plus, surcharge, interest,
penalties, cost of sale, and other incidental expenses together with 15% interest on the purchase
price per annum from date of purchase to the date of redemption.

(b) If the government opted not to participate in the public sale and instead sold the levied property
for less than X’s tax liabilities, the CIR may use other remedies available, even repeatedly, if
necessary, until the full amount of unpaid taxes due the government is collected.

37) When may the BIR commence the collection of deficiency interest and delinquency interest?
(Takenaka Corp. (Phil. Br.) vs. CIR, CTA EB case No. 745, September 4, 2012)
Answer. Deficiency interest shall be collected from the date prescribes for the payment or from
demand of the tax until the full payment thereof. Whereas the delinquency interest shall be collected
from the due date appearing on the notice and demand of the Commissioner until fully paid.

38) X Engineering Firm was assessed of deficiency income tax. Payment was made accordingly,
thereafter, and within the same year X was again subjected to another assessment on
deficiency withholding taxes, VAT, and other taxes. Is the repeated assessment within the
year allowed under the Tax Code? (CIR vs. Hon. Raul Gonzales & L. M. Camus Engineering
Corp., October 13, 2010)
Answer. It depends. If it involves income tax, only one examination of the books of accounts of
taxpayer is allowed per taxable year. Whereas, if it involves withholding taxes, VAT and other
business taxes examination may be pursued oftener than once a year. In addition, in case of fraud,
irregularities or mistakes as determined by the CIR, the examination can also be done more than
once per taxable period.

39) What are the requisites in a claim for tax refund in case there is an overpayment of income
tax? (United Int’l. Pictures AB vs. CIR, October 11, 2012, CIR vs. Mirant (Phils.) Operations Corp.
June 15, 2011)
Answer. The claim for refund should be filed within two (2) years as prescribed under Sec. 229,
NIRC, (b) the income upon which the taxes were withheld were included in the return of the
recipient, and (c) the fact of withholding is established by a copy of a statement duly issued by the
payor (withholding agent) to the payee showing the amount paid and the tax withheld therefrom.

40) What are the requirements set by law for the refund of excess creditable withholding tax?
(United International Pictures, AB vs. CIR, October 11, 2011)
Answer.
a) The claim for refund was made within 2 years as prescribed by law, (Sec. 229, NIRC)
b) It must be shown on the return that the income received was declared as part of the gross
income, (Sec. 10, RR 6-85),
c) The fact of withholding is established by a copy of a statement duly issued by the
payor-withholding agent to the payee showing the amount paid and the amount of tax
withheld therefrom.

41) Where is the reckoning point of the 2-year period to claim refund for excess creditable
withholding taxes (CWT)?
Answer. To an individual taxpayer, the 2-year period for claiming a refund of excess creditable
withholding tax is reckoned from the time of payment of tax pursuant to Sec. 204(C), in relation to
Sec. 229 of the NIRC. To a corporate taxpayer, the reckoning point is the date of filing of its Final
Adjustment Return (FAR). (Jardine Lloyd Ins. vs. CIR. 9/23/2-11) But the excess CWT NOT
reflected in the annual ITR of a taxpayer exempt from income tax, the reckoning point is the date of

10
 the monthly remittance of the claimed CWT. (Locators’ Association Inc., vs. CIR, CTA case No.
7906, September 22, 2011)

42) X corporation cease operation due to very poor business activities. It has excess income tax
payments and decides to claim refund thereof. Where is the reckoning point of the 2-year
prescriptive period to validly claim the same?
Answer. In case of DISSOLUTION, the 2-YEAR prescriptive period to file claim for refund of IR
taxes begins 30 DAYS AFTER APPROVAL by SEC of dissolution. (Mindanao Geothermal
Partnership vs. CIR, CTA case No. 8250, November 9, 2012)
43) In 2010 X Corporation has excess withholding taxes. During said year X amended its income
tax return. If X would like to claim for tax credit certificate from the BIR. Where is the
reckoning point of the two-year period for the claim? (Mausell Phils. Inc., vs. CIR, CTA case
No. 7860, October 21, 2011)
Answer. The two-year period is reckoned from the date when the first (original) tax return was filed
and not from the date when amended return was filed. In claiming for issuance of tax credit
certificate for excess withholding taxes, the original, not just the amended tax return must be
presented in evidence so that the court can ascertain if the claim was filed on time.

44) X Corporation committed an error in the payment of its third quarter corporate income tax.
The overpayment was noticed much later after it had already filed its Final Adjustment
Return on April 15, 2006. Can X still claim for tax refund when it failed to signify its intention
to avail of refund in its last return?
Answer. The prescriptive period for tax refund or tax credit is two (2) years from payment but to a
corporate taxpayer claiming excess income tax payment, this period is reckoned from the filing of
its Final Adjustment Return (“FAR”). Failure to signify one’s intention in the “FAR” to avail of the
overpayment does not mean outright barring of a valid request for a refund for as long as the claim
is made within the 2-year prescriptive period. (2005 case)

45) On April 18, 2014, X overpaid its final withholding tax on the first quarter of 2014. Its Final
Adjustment Return was filed on April 11, 2015. On April 9, 2017, well within 2-year period
from the filing of its “FAR”, X filed a claim for tax credit. The CIR denied the claim
contending that the claim is time barred. Is the CIR correct? (Metropolitan Bank & Trust
Company vs. CIR, GR No. 182582, April 17, 2017)
Answer. The tax involved in the given problem is final withholding tax, not annual corporate income
tax. Final withholding taxes are considered as full and final payment of the income tax due, and
thus, are not subject to any adjustments. In case of overpayment of final withholding taxes, the
2-year prescriptive period commences to run from the time the refund is ascertained, or the date
such tax was paid, and NOT upon the discovery by the taxpayer of the erroneous or excessive
payment of taxes. Since X remitted its final withholding tax on April 18, 2014, it only had until April
18, 2016 to file its administrative and judicial claims for refund. Its claim was filed only on April 9,
2017 which was clearly beyond the 2-year period from payment. Hence, the denial of the CIR is
correct.

NOTE: The reckoning period of 2-year from the submission of the “FAR” applies to tax refund/credit
of Corporate Income Tax and not to other internal revenue taxes.

46) X, a corporation overpaid its quarterly income tax in 2010. In its final adjustment return it
indicated that would carry-over (tax credit) that excess payment in the following year.
Subsequently, in 2011, X changed its mind and opted to apply for tax refund or for the
issuance of a tax credit certificate for the amount representing such overpayment. X claim
was denied by the CIR. X argued that the denial resulted to the unjust enrichment of the
government at its expense. Is the denial warranted? (United International Pictures, AB vs. CIR,
October 11, 2011, Mirant (Phils.) Operations, Corporation vs. CIR, June 15, 2011)
Answer. The BIR is correct. In cases of invalid payments of taxes (overpayment, illegal payment,
erroneous payment, or there are penalties imposed without authority in a tax computation) the
taxpayer has the following remedies: (a) claim for tax refund, (b) apply for tax credit or (c) ask for
the issuance of a tax credit certificate corresponding to the amount of the invalid payment. These
remedies are alternative remedies. The availment of one will abandon the other two remedies.
Once a choice of the remedies is made that decision is irrevocable.

11
47) X had Php 300,000 excess payment of IR taxes in 2018, It applied for tax credit so that he
could deduct his overpayment from any tax payment the following year. In the succeeding
year, it had only Php 200,000 tax payable. It applied his 2018 overpayment resulting to an
unutilized excess payment of Php 100,000.00. It applied for tax refund. The CIR denied his
claim. Is the CIR’s denial valid? Reason. (Belle Corporation vs. CIR, January 10, 2011, CIR vs. PI
Management International Phils., Inc. April 4, 2011)
Answer. Yes, the denial of the CIR is valid. X cannot alter his choice of tax credit. Such option shall
be considered irrevocable for that taxable period and no application for cash refund or issuance of a
tax credit certificate shall be allowed. (Sec. 76, NIRC) The carry-over of the excess income tax
payments in not limited only to the following taxable year but is carried over to the succeeding
taxable year(s) until it is fully utilized.

In view of its irrevocable choice, a taxpayer remained entitled to utilize that amount of excess
tax in succeeding taxable years. There is no prescriptive period for the unutilized excess income tax
payments as a tax credit and it can be applied in subsequent taxable years until it is fully utilized.
(United Int’l. Pictures AB vs. CIR, October 11, 2012, CIR vs. Mirant (Phils.) Operations Corp. June
15, 2011; Belle Corp. vs. CIR, January 10, 2011; CIR vs. BPI, July 7, 2009; CIR vs. McGeorge Food
Industries, October 20, 2010; CIR vs. Phil-Am Life & Gen. Insurance Company, September 29,
2010; AsiaWorld Properties Phil. Corp. vs. CIR, July 29, 2010))

Sec. 76, NIRC states that the “option shall be considered irrevocable for that taxable period” –
referring to the period comprising the succeeding taxable period until the excess payment is fully
utilized.

It further states that “no application for cash refund or issuance of a tax credit certificate shall
be allowed therefore.”

48) X made an error in the payment of his taxes. X noticed the overpayment three (3) days before
the expiration of the 2-year period to claim for refund. X hurriedly prepared for the written
claim and filed it on the last day of the prescriptive period. On the same last day, he filed an
appeal before the CTA because RA 1125 provides that an appeal to the CTA relative to tax
refund/credit under Section 229 of the Tax Code should be filed within the original
prescriptive period of two (2) years of claim. The BIR opposed the appeal. Is X correct? (CIR
vs. McGeorge Food Industries, Inc. October 20, 2010)
Answer. The simultaneous claim for tax refund and Petition for Review or Appeal to the CTA filed
on the last day of the 2-year period to claim is valid because under the Doctrine of Twin Prescriptive
Period of RA 1125 an appeal to the CTA cannot be filed outside of the 2-year period.

49) Phil. Government and Japan entered into an Agreement (Exchange of Notes) whereby the
Philippines, by itself or through its executing agency, undertook to assume all taxes
imposed by the Phils. on Japanese contractors engaged in power plant projects. Thereafter,
the BIR issued a Rev. Memorandum Circular (RMC) that the remedy for a Japanese
contractor engaged in power plant project that previously paid taxes directly to the BIR is to
recover or obtain a refund from the government executing agency.

X, Japanese Corporation was contracted by National Power Corporation (NPC), an

executing agency, to implement the project. X, sought from the CIR a refund of taxes it
erroneously paid on such project. The CIR denied the claim because the RMC clearly
specifies the proper remedy of X contractor to recover taxes it paid from the executing
agency and not from the CIR. Is the CIR correct in relaying his denial on the RMC? (Mitsubishi
Corporation – Manila Branch vs. CIR, GR No. 175772, June 5, 2017)
Answer. No. The CIR’s denial is not valid. The NIRC vests unto the CIR the authority to credit or
refund taxes erroneously paid by a taxpayer and not to any person or agency. The administrative
issuance (RMC) that directs the claimant to file the refund from NPC, or the government’s executing
agency is invalid for being inconsistent with the NIRC’s provision on claims for refund of erroneously
collected taxes. When there is a conflict between administrative issuance or Revenue Regulations
and the Tax Code, the Tax Code shall prevail.

50) The BIR filed a collection case against X before the regular court. X believes that the right of
the BIR to collect has prescribed. The regular court decided the case against X. Where will X

12
 file his appeal questioning the validity of the collection? Is it before the CA or the CTA? (CIR
vs. Hambrecht & Quist Phils., Inc., November 17, 2010)
Answer. His appeal (petition for review) must be filed with the CTA within 30 days from receipt of
the adverse decision of the regular court and not with the CA. In the case at bar, the issue at hand
is whether or not the BIR’s right to collect the taxes had already prescribed. The validity of the
assessment itself is a separate and distinct issue from the principal action of whether the right of the
CIR to collect the assessed tax has prescribed. This issue of prescription, being a matter provided
under the NIRC, is well within the jurisdiction of the CTA to decide.

51) What is the prescriptive period for tax assessment under the Tax Code (RA 8424) and
provide the exceptions thereto and the instances when it may be suspended.? (2005 case)
Answer. The right of the government to assess is three (3) years after the last day prescribed by
law for the filing of the return or from actual payment of the tax whichever is later. A tax return filed
before the last day prescribed by law for the filing thereof shall be considered as filed on the last
day. (Sec. 203)

Exceptions to the 3-year period to assess:

a) If during the 3-year period to assess, there is a valid written agreement entered into between
the taxpayer and the government to suspend the period of assessment. (Sec. 222)
b) Where there is a discovery that the taxpayer failed a fraudulent return the period to assess is
ten (10) years from discovery of the fraud in the tax return; (Sec. 222)
c) Discovery of failure to file a tax return when one is required, the period to assess is 10 years
from discovery of the omission to file a return; (Sec. 222)
d) In case of a valid tax waiver filed by the taxpayer (Sec. 222).
e) In case of Tax Amnesty, the BIR has only one (1) year from payment to determine the validity
of the Tax Amnesty Return.

Suspension of the 3-year period to assess or collect:

a) When there is injunction duly issued by the CTA; (Sec. 223)
b) When the taxpayer requests for a reinvestigation which is granted by the CIR; (Sec. 223)
c) When the taxpayer cannot be located in the address given by him in the tax return upon
which a tax is being assessed or collected; (Sec. 223)
d) When the taxpayer is out of the country. (Sec. 223)
e) When a warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and NO property
could be located to satisfy the collection. (Sec. 223)

52) In 2016 X Corporation was assessed deficiency withholding tax under its tax return filed for
the year 2014. X paid the penalties as imposed. In the same year (2016) the tax officials
discovered that X had income undeclared in 2014. Can the BIR enforce collection of said
income now (May 2021)? (Platinum Plans, Phil. Inc. vs. CIR, CTA case No. 7878, September 7,
2011)
Answer. Late remittances of withholding taxes can be subjected to penalties only within the
prescriptive period of three (3) years from the time of filing of the tax return. Deficiency assessment
comprising of deficiencies in amount paid with respect to income payments declared in the return is
subject to three (3) years prescriptive period of assessment. On the other hand, deficiency
assessments of income payments NOT subjected to withholding tax and NOT declared in the tax
return is subject to the 10-year prescriptive period of assessment. Certainty, the BIR can still
collect the undeclared income of 2014 today. (2021)

53) When will of a criminal action for tax liabilities prescribed? (CIR vs. BPI, 411 SCRA 456 [2003])
Answer.
a) The period for filing a criminal case for violation of the Tax Code is five (5) years from
commission or discovery of violation whichever is later. (Sec. 281)

b) Where there was a failure to effect a timely valid assessment, the period for filing a criminal
case for tax liabilities prescribed.

In the case of People vs. Consebido, CTA En Banc case, January 6, 2021, the tax court
ruled that in criminal cases for violation of the Tax Code the DOJ has FIVE (5) years from the date

13
 of the filing with it by the CIR of a criminal complaint for preliminary investigation within which to
file the criminal information in court before the case is barred by prescription. (Sec. 281)

54) When will the filing of a criminal action in court for tax evasion prescribe?
Answer. In criminal cases involving tax fraud, as when the taxpayer filed a false or fraudulent return
with intent to evade taxes, the five-year prescriptive period within which to file a criminal case for tax
evasion is counted NEITHER from the commission of the fraud NOR the discovery thereof by the
BIR, BUT FROM THE ENDORSEMENT OR REFERRAL OF THE CASE TO THE GOVERNMENT
FOR CRIMINAL PROSECUTION. (Lim, Sr. vs. CA, 190 SCRA 616, Oct. 18, 1990)
A compromise agreement validly entered into between the CIR and the taxpayer prior to the
institution of the corresponding criminal action arising out of a violation of the provisions of the Tax
Code is a bar to such criminal action. (People vs. Magdaluyo, GR No. 16235, April 20, 1961)

55) The BIR forwarded a criminal case to the DOJ for prosecution against T for smuggling. In the
said case, the Judge rendered a decision in favor of the government. Can the criminal action
be used as a vehicle for tax collection?
Answer. The criminal action as a collection vehicle is authorized under Sec. 205(b) of the Tax
Code. The aforesaid section in pertinent part provides that the “judgment in a criminal case shall not
only impose the penalty but also order the payment of the taxes subject of the criminal case as
finally decided by the Commissioner.”

56) X Corporation received an adverse decision of its appeal before the CTA that was heard by a
division. Within the reglamentary period it filed a petition for certiorari before e the SC. The
SC dismissed the appeal. Is the dismissal valid? (CIR vs. CTA & Ayala Land, Inc. September
13, 2012)
Answer. The SC ruled that the dismissal of the appeal before it is warranted in view of X’s failure to
file before the CTA Division a motion for reconsideration of its assailed resolution. The settled rule is
that a MR is a condition sine qua non for the filing of a petition for certiorari before CTA En Banc. Its
purpose is to give an opportunity for the court to correct any actual or perceived error attributed to it
by the re-examination of the legal and factual circumstances of the case. The rationale of the rule
rests upon the presumption that the court or administrative bodies which issued the assailed order
or resolution may amend the same, if given the chance to correct its mistakes or error. The “plain,
speedy and adequate remedy” referred to in Sec.1, Rule 65, RC is a motion for reconsideration of
the questioned order or resolution before the court that rendered the assailed decision. When no
MR is filed, an appeal to a higher court is dismissal.

57) X received a decision of the RTC, sustaining the collection case filed by the Mun. Treasurer
of Taguig. X believes there is abuse. It went directly to the Supreme Court on Rule 45
(petition for review on certiorari) The SC dismissed the appeal. Did X commit an error in
going to the SC? (Team Pacific Corporation vs. Daza vs. Mun. Treasurer of Taguig, July 11, 2012)
Answer. By going directly to the SC on Rule 45, X lost sight of the fact that CTA has the exclusive
appellate jurisdiction over, among others, appeals from judgment, resolutions, or orders of the RTC
in tax collection cases originally decided by them in the respective territorial jurisdictions. Appeals to
the CTA must be perfected within 30 days from receipt of the decision and shall be made by filing a
petition for review under a procedure analogous to that provided for under Rule 42, RC. The
perfection of an appeal in the manner and within the period fixed by law is not only mandatory but
jurisdictional and non-compliance with these legal requirements is fatal to X’s cause. C cannot go
directly to the SC on certiorari.

58) X validly disputed an assessment sent to him by the CIR. Within 60 days from dispute X
submitted all documents in support of his dispute. The CIR failed to resolve his dispute
within the 180-day period. One year thereafter, the tax officials enforce collection, X argued
that the collection is premature because there was no resolution to his valid dispute. The
BIR contends that there is failure on X’s part to seasonably appeal the assessment to the
CTA when there was that inaction. Hence, there is finality of the assessment repining to a
collection case. Is the BIR correct? (Lascona Land, Inc., vs. CIR, March 5, 2012)
Answer. No. BIR is not correct. When there is inaction of the CIR regarding a valid dispute, the
taxpayer has two (2) alternative options: (a) to appeal to the CTA within 30 days from the expiry of
the 180-day period to resolve or (2) to await the final decision of the CIR on the disputed
assessment and appeal such final decision to the CTA within 30 days upon receipt of a copy of the

14
 adverse decision. The word “decision” in Par. 1, Sec. 7 of RA 1125, has been interpreted to mean
the decision of the CIR on the protest of the taxpayer against the assessment. Taxpayers cannot be
left in quandary by the CIR’s inaction on the protested assessments. The taxpayer must be
informed of its action in order that the taxpayer would be able to take recourse to the CTA at the
opportune time. To adopt the interpretation of the CIR will not only sanction inefficiency but will
likewise condone the BIR’s inaction.

If X does not want to appeal the inaction of the CIR within 30-days from the expiry of the
180-day period of CIR to resolve, then X can just wait to a resolution of his valid protest. These
options are alternative courses of action that is available to the taxpayer.

59) X received a valid assessment from the CIR. “X” disputed the same seasonably within 30
days. Instead of resolving X’s Motion for Reconsideration, the CIR sends him a final demand
letter for payment of delinquent taxes within the 180-day period. Is the demand for collection
valid? Why?
Answer. A final demand letter for payment of delinquent taxes may be considered an implied
decision on a disputed or protested assessment, provided the letter of demand indicates to X in a
clear and unequivocal language that it constitutes the CIR’s final determination of the disputed
assessment. Within 30 days from receipt of that demand letter X should file before the CTA a
petition for review otherwise the tax becomes unappealable and therefore demandable. (2005 case)

60) X filed a claim for tax refund. The CIR did not act on the claim. Did the inaction create a
presumption in favor of the correctness of the tax return that entitled the taxpayer to a claim
for tax refund? (CIR vs. Far East Bank & Trust Company, etc. March 15, 2015)
Answer. The burden of establishing the factual basis of a claim for a refund rests on the taxpayer.
There is no presumption of correctness of a tax return in case of inaction of the CIR; the taxpayer
must still present substantial evidence to prove his claim for refund. There is no automatic grant of
tax refund.

61) Can a Motion for Reconsideration and Motion for Reinvestigation be interchanged as a mode
of dispute? (BPI vs. CIR, 473 SCRA 205 (2005)
Answer. Request for reconsideration and request for reinvestigation can no longer be used
interchangeably and their differences so lightly brushed aside. Sec. 223 of the Tax Code provides
that the running of the prescriptive period for collection of taxes can only be suspended by a request
for reinvestigation NOT request for reconsideration for the reason that 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.

62) X Corporation filed its Corporate Annual Income Tax for taxable year ending Sept. 30, 2007.
Subsequently, X’s Senior Vice President signed three (3) separate tax waivers of the Statute
of Limitations. The waivers were not signed by the CIR or any of his agents. On July 29,
2012, the BIR assessed and claimed deficiency income tax from X. The latter disputed the
assessment as having been issued beyond the 3-year prescriptive period. Is the concurrence
of the CIR required in a waiver of the Statute of Limitations executed by the taxpayer to make
the same valid and binding? [Carnation (Phils.) case]
Answer. Yes. For a waiver to have a binding effect and thus work to toll the running of the
prescriptive period of assessment, it must be accepted by the CIR. This is so because the law
speaks of an “agreement in writing” by and between the CIR and the taxpayer, as among the
exceptions as to the period of limitation of assessment and collection of taxes. (CIR vs. CA, GR. No.
115712, February 25, 2000)

When the waiver is VOID, the BIR’s assessment MUST be pursued only within the
prescriptive period to be valid. (CIR vs. System Technology Institute, Inc., GR No. 220835, July 26,
2017)

Requisites of a valid waiver:

Answer.
a) It must be in the prescribe form of the BIR

15
 b) It must not be an indefinite waiver. There should be an agreed date between the BIR and the
taxpayer within which the former may assess and/or credit revenue taxes.
c) It must be signed by the taxpayer and accepted by the CIR before the expiration of the
original period to assess or to collect,
d) The tax waiver must be duly notarized, and
e) A copy of the accepted waiver must be duly served upon the taxpayer. (Phil. Journalists, Inc.
vs. CIR, 2004)

63) Instances when BIR can assess/collect outside of a prescriptive period: Taxpayer is estopped
from questioning the validity of a WAIVER if (a) he impliedly admitted the validity of the waiver or
that he never raised the invalidity of the same at the earliest opportunity, or (b) the taxpayer
benefitted from the waivers and (c) because of the waivers, he was given more time to comply with
the audit requirements of the BIR. (Transitions Optical case, 2017.)

64) X seasonably perfected an appeal before the Tax Court. While his appeal is pending before
the CTA, the BIR discovered certain documents showing that X is liable for additional
charges. Accordingly, the BIR amended its assessment to include the newly discovered
additional charges. Should the amendment be allowed?
Answer. The Supreme Court held that amendment pending appeal should not be allowed. The
CTA, being a court with purely appellate jurisdiction, has no jurisdiction over additional charges
considering that the same were not originally on issue when the case was elevated to the tax court.
To allow amendment would violate the due process clause of the Constitution because X was not
given an opportunity to dispute the additional charges assessed. CIR vs. Guerrero, 19 SCRA 205.

Exception – when the amendment applies only to the surcharge and interest it should be allowed
but NOT to the main tax involved. (BF Goodrich Rubber case)

However, in the case of Batangas Land Transportation vs. Collector, 102 Phil. 822, the S.C.
allowed the amendment pending appeal in order to avoid multiplicity of suits. NOTE: Guerrero case
is of recent vintage.

65) X’s properties (real and personal) were subjected to a warrant of distraint and levy pursuant
to a final assessment. In a labor case filed against X the Labor Arbiter of the NLRC issued a
writ of execution against several properties of X to satisfy a judgment for unpaid wages of
his employees. Said employees alleged that their labor claims are preferred and creates a
lien on the properties under Art. 110 of the Labor Code. Are the employees’ contentions
correct? Reason.
Answer. The employees’ claims are without merit. It is settled that the claim of the government
predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The
tax lien attaches not only from the service of the warrant of distraint on personal property but from
the time the tax became due and demandable. Moreover, the distraint was made prior to the writ of
execution. It must be noted that Art. 110 of the Labor Code applies only in the case of bankruptcy or
judicial liquidation of the employer which is not the case involved in the given facts. (CIR vs. NLRC,
238 SCRA 43)

66) Six of the barges of Maritime Company were subject to warrant of distraint by the CIR to
answer for the internal revenue tax liability of the taxpayer. However, four of the barges were
also placed under constructive distraint to answer a judgment lien in favor of the employees
of the company for unpaid wages. Who has a preferential lien over the barges, the company
employees, or the BIR?
Answer. The Government has a preferential lien pursuant to Art. 2247 and 2241 of the Civil Code.
The preferential lien of the employees for the unpaid wages under Art. 110 of the Labor Code
applies only to bankruptcy cases where the employer is under liquidation due to insolvency. The
preferential lien of the government for taxes is not only limited to taxes accruing on the property
subject of the distraint, but it applies to all kinds of internal revenue taxes. (CIR vs. NLRC, 238
SCRA 43)

NOTE: Wages prevails over taxes in case of bankruptcy!

67) Briefly explain how judicial collection of tax liability is pursued in court.

16
 Answer. Civil action is a remedy resorted to (a) when a tax liability becomes collectible or (b) when
the tax assessment has become final either for failure to seasonably dispute or to appeal to the CTA
upon receipt of an expressed or implied denial of the protest. A civil action shall commence only
upon the approval of the CIR except when expressly delegated by the CIR to the Regional Directors
or to the chief of the legal apartment of the BIR. The civil action for the collection of tax liability shall
be filled in the regular courts. In such case, the taxpayer is precluded from raising the following
defenses: (1) The BIR has no authority to collect the tax within the prescriptive period and (2) the
legality or validity of the assessment.

Once the assessment has become final, the civil case for collection of such tax liability
becomes akin to an action to enforce a judgment such that no inquiry can be made thereon as the
merits of the original case or the justness of the final judgment relied upon. (Mambulao Lumber Co.
vs. Republic)

68) Do the provisions of the Civil Code on suspension of the prescriptive period by extra judicial
demand suspend the running of the period of prescription of actions in tax collection cases?
Answer. The provision of the Civil Code on suspension of prescriptive periods, such as by
extra-judicial demands, will NOT suspend the running of the prescriptive period of actions in tax
collection cases. In cases where the tax law provides for a statute of limitation, the latter exclusively
governs. Where the tax law is silent on any such statute of limitation, the enforcement of the tax
liability becomes imprescriptible. In no instance, therefore, will tax liabilities and collection under the
Civil Code provisions on prescription of actions apply. In taxation.

NOTE: A right of refund however, by the taxpayer may be governed in the absence of a provision to
the contrary in the tax law, by the Civil Code provision. Such as, payment by mistake can be
claimed within six (6) years from payment per provision of the Civil Code. (Doctrine of Solutio
Indebiti)

69) What is a compromise penalty?

Answer. A taxpayer’s criminal liability from his violation of the pertinent provisions of the Tax Code
may be settled extra-judicially instead of the BIR instituting a criminal action in court against the
taxpayer. It is now a well settled doctrine that compromise penalty cannot be imposed or collected
without the agreement and conformity of the taxpayer. (CIR vs. UST, November 28, 1958, Wander
Mechanical Engineering Corp. vs. CTA, et. al., 64 SCRA 555). If an offer of compromise by the BIR
is rejected by the taxpayer, the CIR should file a criminal action if it believes that the taxpayer is
criminally liable for violation of the tax law as the only way to enforce a penalty. Thus, compromise
penalty is in lieu of a criminal prosecution. As penalty, it can be imposed only on a finding of criminal
liability. (CIR vs. Abad, 23 SCRA 1132)

70) LAST REMINDER ON TAXPAYER’S JUDICIAL REMEDIES:

a) Civil/Criminal cases involving Php 1 million and above – CTA Division.

b) Civil/Criminal tax cases involving less than Php 1 million – RTC, MTC, MCTC, MeTC.
(depending on the jurisdictional amount)
c) Decisions of CIR, CC, SF, STI and SA – Petition for Review to CTA Division
d) Decision of RTC in the exercise of its original jurisdiction – Petition for Review to CTA
Division
e) Decisions of the CBAA from LBAA on real property – Petition for Review to CTA EN
BANC
f) Decision of RTC in the exercise of its appellate jurisdiction – Petition for Review to CTA
EN BANC

On VAT:

Under the TRAIN LAW, the new threshold for VAT purposes is a gross sales or gross
receipt of Php 3.0 million. For Lease of residential units, the threshold is now Php 15,000.
Under the CREATE Act, sale of real property by real estate dealers valued at more than Php
2.5M is VATABLE.

17
71) Distinguish transitional input tax from creditable input (unutilized) tax: (Fort Bonifacio
Development Corporation vs. CIR, etc., January 22, 2013)
Answer. Transitional input tax credits are input taxes on a taxpayer’s beginning inventory of goods,
materials and supplies equivalent to 2% of the value of such inventory or the actual VAT paid on
such goods, materials, and supplies, whichever is higher, which shall be creditable against the
output tax. It may only be availed of once by first-time VAT taxpayers. On the other hand, creditable
input taxes are input taxes of VAT taxpayers in the course of their trade or business, which should
be applied within two (2) years after the close of the taxable quarter when the sales were made.

On the purchase of capital goods - The 2% transitional input tax credit should not be limited to
the value of the improvements on the real properties but should include the value of the real
properties as well.
72) What the requisites for a valid claim of unutilized input tax credit?
Answer.
a) The taxpayer-claimant must be a vat registered taxpayer
b) He is engaged in sales which are zero-rated or effectively zero-rated.
c) The claim is filed within 2 years after the close of the taxable quarter when such sales were
made, and
d) The creditable input VAT due or paid must be attributable to such sales, except the
transitional input VAT, to the extent that such input tax has not been applied against the output
VAT.

An application for tax refund or credit must be accompanied by copies of the taxpayer’s VAT
return(s) for taxable quarter(s) concerned showing that the claimant is entitled to the refund or credit
of input VAT and the same has not been applied against its output VAT-liabilities. (Atlas
Consolidated Mining and Development Corp., vs. CIR, January 26, 2011)

73) What is “Destination Rule” for purposes of the Value Added Tax? (GR 153205, Jan 22, 2007)
Answer.
a. This principle is followed in our VAT law which means that exports are exempt from 12% VAT,
whereas imports are taxable and subject to VAT.

b. Goods and services are taxed only in the country where they are consumed. Hence, selling of
goods and services by local businessmen to end-consumers abroad is non-VATable.

74) What is the Cross Border Doctrine in taxation?

Answer.
a. This Doctrine finds application in the Philippine VAT system which means that no VAT shall be
imposed to form part of the cost of goods destined for consumption outside the territorial
border of the taxing authority.

b. By fiction of law, the freeport economic zone is a foreign territory. Sales of goods, properties,
and services by a VAT-registered supplier from Customs Territory to an ecozone enterprise
shall be treated as export sales exempt from VAT, while sales to an ecozone enterprise made
by a non-VAT or unregistered supplier would only be exempt from VAT and the supplier shall
not be able to credit credit/refund of its input VAT. (2005 case)

75) X is a businessman registered as a non-VAT taxpayer. He sells his products to businesses

inside the export-processing zone in Cavite. At the end of the 4th quarter of 2011, X has
unutilized input taxes in the amount of Php 350,000.00. May he avail of the privilege of tax
refund of the same?
Answer. No. X is not qualified to claim any unutilized input taxes on his inward exports to
businesses inside the ecozone because his is not a VAT registered taxpayer. Only VAT-registered
businessmen or corporations may avail of the tax refund/credit of unutilized input taxes on their
export activities.

76) X, a domestic corporation is engaged in the manufacture of raw materials for the production
of medicines in the customs territory. X sells to many PEZA-registered enterprises operating
within the export processing zone. (a) What is the nature of the sale of X to the businesses
inside the ecozone? (b) Is X entitled to any tax privilege?

18
 Answer. While an ecozone is geographically within the Philippines, it is deemed a separate
customs territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders
to the ecozone to this separate customs territory are deemed as exports and treated as export
sales. X is entitled to input tax credit if X is a registered VAT-businessman. (2006 case)

77) X is PEZA-Registered Enterprise operating inside the Freeport Economic Zone. Sometimes it
engages in activities which are not registered with PEZA. Is X’s income derived from
unregistered activities taxable?
Answer. The income tax incentives of a PEZA-Registered Enterprise apply only to income derived
from its registered activities. When X engages in activities that are not registered with PEZA, the
income or receipts derived from all its unregistered activities shall be subject to regular internal
revenue tax, such as VAT. In such case, X is obliged to register as a VAT taxpayer and issue a VAT
official receipt or invoice for every sale or transaction which is subject to VAT, Should X use its VAT
official receipt or invoice to evidence its VAT exempt sale, the words “VAT Exempt Sale” must be
prominently printed on the VAT official receipts/invoice as failure to do so shall make it liable to
account for the VAT as if the sale is not VAT exempt. (Sutherland Global Services, Phil. Inc. vs. CIR,
CTA case No. 8180, January 13, 2014, CIR vs. First Sumiden Realty, Inc. CTA EB No. 975, January
7, 2014)

Enterprises registered with PEZA, BOI and BOI-ARMM is NOW subject to ordinary tax
investigation following the revocation of MOA with PEZA, BOI and BOI-ARMM. (RR No. 14-2012,
April 2, 2012)

⮚ Sale of fixed assets used in PEZA-Registered activities is subject to ordinary income tax. (BIR
Ruling 291-2012, April 25, 2012)

78) X Medical Services, Inc. is a medical/health services provider. X sells medicards to its clients
at a package price which includes discounts on doctors’ fees, laboratory and examination
fees, medicines, and other hospital bills in case of need and use. The buyers can use the
medicards for medical services at a discounted rate. Are the amounts received by X
Corporation which is earmarked for payment to doctors, hospitals, and clinics subject to
12% VAT?
Answer. Amounts earmarked and eventually paid to X by X’s clients do not form part of X’s gross
receipts for VAT purposes. X’s gross receipts shall be the total amount of money or its equivalent
representing the service fee actually and constructively received during the taxable period for the
services performed or to be performed for another person’s (doctors), excluding the VAT.

79) In case of VAT Cancellation (retiring from business or change of VAT status to non-VAT) – the
two (2) year period to claim excess Input Tax is reckoned from cancellation of the taxpayer’s
VAT Registration.

80) X Corporation (an exporter of native products) filed its claim for tax credit of its unutilized
input taxes. It submitted to the BIR all its documents in support of said claim. The BIR
denied the claim for reason that the BIR’s permit to print its sales invoices (ATP) was not
properly indicated in the sales invoices used by X. Is the denial valid?
Answer. In the case of Philex Mining Corp. vs. CIR, CTA case No. 8371, April 15, 2014, the court
held that there is no law or regulation requiring it, failure to print the ATP on invoices or receipts
should not result in outright denial of a claim or the invalidation of invoices or receipts for purposes
of claiming a refund. The BIR can just require the taxpayer to produce its permit to print sales
invoices or receipts to check whether the authority exists. (Silicon Phils., Inc. vs. CIR, GR No.
172378, January 17, 2011, Intel Technology Phils., Inc. vs. CIR)

The absence or non-printing of the word ‘ZERO-RATED” sale in the sales invoices of the VAT
businessman is FATAL to a claim for refund and/or credit of unutilized input tax attributable to
zero-rated sales per requirement under a valid revenue regulation. (Panasonic Communications
Imaging Corp. of the Phils., vs. CIR; JRA Philippines, Inc. vs. CIR, GR No. 177127, October 11,
2010)

81) X is a VAT registered taxpayer. It is engaged in export activities. The goods it produced were
actually exported abroad on August 24, 2012. All receipts and documents relative to the

19
 export are intact and available. Thereafter, X applied for the refund of its unutilized creditable
input taxes. The BIR disallowed the claim for reason that the sales receipts of X did not
indicate that the transaction was a “Zero-rated Sales.” X contends that such requirement is
not provided under the Tax Code. Is the BIR’s disallowance valid? (Eastern Telecommunication
Phils., Inc. vs. CIR, August 12, 2012, Microsoft Phils., Inc., vs. CIR, April 67, 2011)
Answer. Sec. 244 of the Tax Code explicitly grants the Sec. of Finance the authority to promulgate
the necessary rules and regulations for the effective enforcement of the provisions of the Tax Code.
The invoicing requirements he set under RR No. 7-95 was integrated with Sec. 113 of the NIRC
when RA 9337 was adopted. Thus, the need for taxpayers engaged in export activities to indicate in
their receipts and invoices that fact that the sale is “zero-rated” is mandatory. Failure to comply will
warrant the disallowance for any claim for credit of unutilized input taxes. Hence, BIR is correct.

The SC ruled that the printing of the word “zero-rated sale” is required to be placed on VAT
invoices covering the zero-rated sales in order to be entitled to claim for tax credit or refund. This
requirement prevents buyers from falsely claiming input VAT from their purchases when no VAT is
actually paid. Absent of such word, the government may be refunding taxes it did not collect.
(Microsoft Phils., Inc., vs. CIR, April 6, 2011, Panasonic vs. CIR)

82) X is a VAT-registered businessman engage in export activities. X filed a claim for tax credit of
his unutilized input taxes within the reglamentary period. X has submitted all documents in
support of said claim. CIR denied his claim for reason that the word “Zero-Rated Sales” is
not duly imprinted in X’s sales invoices and receipts but was merely rubber stamped in
violation of the invoicing requiring under the VAT law. Is the denial valid?
Answer. The words “Zero-Rated Sale” although merely stamped and not pre-printed in the sales
invoices and receipts constitutes sufficient compliance with law. Since the imprinting of the words
“ZRS” was required merely to distinguish sales subject to 12% VAT from those that are subject to
0% VAT and exempt sales, to enable the BIR to properly implement and enforce the other VAT
provisions of the Tax Code. The CIR should not literally interpret the provisions of the Tax Code to
the extent of denial of taxpayer’s right when the later has proven compliance to all requisites of law.
(Toledo Power, Inc. vs. CIR, January 20, 2014)

83) T filed a claim for unutilized input taxes before the CIR for its payments on local purchase of
goods and services, X supported its claim with documents other than VAT invoices and
receipts. The CIR denied the claim. Is the denial meritorious? (Team Energy Corporation vs.
CIR, GR Nos. 197663 & 197770, March 14, 2018)
Answer. The denial is valid. The SC had already passed upon the issue on the validity of a claim in
relation to the supporting documents required for such claim The Court has stated that to claim
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. Invoices
and Receipt are not the same. Other business records will not suffice to support a VAT claim.

84) X filed its claim for unutilized input taxes. The BIR denied the claim for failure of X to submit
complete documents in support of said administrative claim. X filed a judicial claim before
the CTA within 30 days from receipt of the denial and submitted the documents not
submitted earlier to the CIR. Will his appeal prosper?
Answer. Failure to submit complete documents in support of taxpayer’s administrative claim for
refund of unutilized input tax is NOT FATAL to judicial claim. Judicial claims before the CTA are
litigated DE NOVO and decided based on what has been presented and formally offered by parties
during the trial. When a taxpayer’s claim reaches the judicial level or when claim is elevated to CTA,
the Rules of Court and the Revised CTA Rules govern the matter of proving the claim. (Ayala Corp.
vs. CIR, CTA case No. 8262, March 21, 2014)

⮚ NOTE: This case involves the dismissal of claim because of insufficient of supporting
documents.

85) Within the prescriptive period of two (2) years X Corporation filed an administrative claim of
its unutilized input VAT on its zero-rated sales. The CIR did not resolve its claim within
120-days as required by law. As a result of such inaction X filed a judicial claim before the
CTA within 30 days from the expiration of the 120-day period. In its petition for review, X
included additional supporting documents which it failed to submit before the CIR. The CTA

20
 issued an order requiring CIR to answer X’s petition. In CIR’s answer he was objecting to the
inclusion of documents, receipts and other papers which were not submitted in its
administrative claim contenting that evidences not presented cannot be presented for the
first time on appeal. Is the contention of the CIR meritorious? Reason. (CIR vs. Total Gas,
2015)
Answer. The argument of the CIR is valid. If X failed to submit complete documents in support of
its claim for tax refund of its unutilized input VAT before the CIR, it cannot cure such failure to
submit missing documents by filing them before the CTA.

NOTE: The difference between (a) a dismissal by the CIR because of incomplete documents
submitted and (b) inaction of the CIR to resolve the taxpayer’s claim. If there is dismissal of
an administrative claim due to insufficiency of documents taxpayer can present the missing
documents before the CTA on appeal. Whereas, if there is an inaction notwithstanding
submission of complete documents, the taxpayer cannot submit them on appeal to the CTA
to cure the defect of insufficiency of documents.

86) X ceased business operations effective December 31, 2017. On July 1, 2018, it filed an
Application for Registration Update (Akin to a Notice of Dissolution) with the BIR. On July 7,
2018, it filed an administrative claim for issuance of a Tax Credit Certificate (TCC) of its
unutilized input VAT with the BIR. The BIR denied the claim for being premature. Is the
denial correct?
Answer. The administrative claim for issuance of TCC was prematurely filed since the effectivity
date of X’s formal cessation of business is reckoned from the first day of the following month, or on
August 1, 2018. To a dissolving corporation, the 2-year period to claim for zero-rated unutilized input
VAT commences to run from August 1, 2018 and ends 2-years thereafter. Under the given facts, X
filed its claim on July 7, 2018, which is before the reckoning of the 2-year period. Hence, the BIR’s
denial is valid. (Associated Swedish Steels Phils., Inc. vs. CIR, CTA EB case No. 854, August 23,
2012)

87) The decision of the SC in the case of CIR vs. Pilipinas Shell Petroleum Corp., April 25, 2012,
that the excise tax imposed on petroleum products is the direct liability of the manufacturer,
hence, it cannot shift the excise taxes it paid to international carriers buying its petroleum
products because the latter are exempt from excise taxes. Manufacturers are not entitled to
claim tax refund. The SC recently re-examined said ruling and in the latest case of CIR vs.
Pilipinas Shell Petroleum Corp., February 19, 2014, The SC granted the petroleum manufacturer’s
claim for refund or tax credit of excise taxes on petroleum sold to international carriers exempt from
excise taxes on petroleum products giving primary consideration to its broad implication on the
country’s commitment to international agreement.

88) X is a VAT registered enterprise engaged in export activities. In January 2018 it bought
plenty of raw materials. The purchase invoices reflected the value of input taxes X absorbed
from all its purchases. On March 13, 2018, it exported the finished products abroad. On
March 28, 2020, it seeks for the refund of its unutilized input taxes. If X comes to you to
effect the claim, can you still do it on X’s behalf knowing that the claim must be done within
2 years from payment? CIR vs. Mirant Pagbilao Corp., 565 SCRA 154 (2008)]
Answer. Yes, I can still file a valid claim until March 31, 2020, the last day of the last month of the
quarter of export. The prescriptive period of 2 years to claim from payment of an IR tax does not
apply to export activities. Rather, it applies to invalid payments such as overpayment, illegal or
erroneous payment and for penalties imposed in relation thereto under Sec. 229, NIRC.

89) WHAT ARE THE RULES IN DETERMINING THE PRESCRIPTIVE PERIOD FOR CLAIMING A
REFUND OR CREDIT OF UNUTILIZED INPUT TAX [Sec. 112(A)]?
Answer.
a) The administrative claim (before the CIR) must be filed within the two-year period prescriptive
period (Aichi Doctrine)

b) The proper reckoning date for the 2-year prescriptive period is the close of the taxable quarter
when the relevant sales were made (San Roque Doctrine)

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 The taxpayer can file a judicial claim (before the CTA) in two ways: (a) if taxpayer’s claim was
denied within 120-days from submission of complete documents, the taxpayer may file his/its
judicial claim before the CTA (Division) within 30-days from receipt of CIR’s adverse decision or (b)
file a judicial claim within 30 days from the expiration of the 120-day period if CIR does not act on
the claim within the 120-day period. [Nippon Express (Phils.) Corp. vs. CIR, March 12, 2013]

Taxpayer MUST wait for a resolution of his administrative claim within 120 days from
submission of complete documents in support of his claim before he can appeal before the CTA or
in case of CIR’s inaction, taxpayer can appeal within 30 days from lapsed of the 120-day without a
resolution on his claim. A judicial claim with the CTA without a decision of the CIR filed before the
lapse of the 120-day period is premature whereas, a judicial claim filed after the lapsed of the
30-day with the CTA when there is inaction is a claim filed out of time. (CIR vs. Silicon Phils., Inc.
March 12, 2014)

⮚ The 30-day period of appeal to the CTA always applies whether there is a denial or inaction
on the part of the CIR. As a general rule, the 30-day period of appeal is both mandatory and
jurisdictional. (Aichi and San Roque)

⮚ Doctrine of the Twin Prescriptive Period does not apply to a claim for unutilized input taxes
but to a claim for tax refund or credit under an invalid payment. (Sec. 229, NIRC)

NOTE: The “2-year from payment” under Secs. 204(C) and 229 of the NIRC applies only to
instances of invalid payments – overpayment, illegal payment, erroneous payment, or
penalties imposed without authority and NOT to unutilized input VAT under zero-rate sales.

The above rules do not apply to PEZA-REGISTERED ENTITIES because they are exempt
from the enforcement of Customs Laws and other Rules and Regulations, such as the prescriptive
periods and/or procedural requirements of the Tariff and Customs Code of the Philippines to a
refund claim. In case a PEZA-Registered Enterprise overpaid its taxes, the period to claim is SIX (6)
YEARS from payment. (Phil. Associated Smelting & Refining (PASAR) Corp. vs. Comm. Of
Customs and Bureau of Customs, CTA case No. 8404, February 20, 2014)

90) What is the prescriptive period to claim for a refund of taxes of an enterprise duly registered
under the EPZA Law? (Commissioner of Customs vs. Phil. Phosphate Fertilizer Corp., September
1, 2004).
Answer. The EPZA Law itself is silent on the matter, and the prescriptive periods under the TCC
and other revenue laws are inapplicable by specific mandate of Sec 17(1) of the EPZA Law. This
does not mean however, that the prescriptive period will not lie. The provisions on solutio indebitii of
the Civil Code may find application. Solutio indebitii is a quasi-contract, thus the claim for refund
must be commenced within six (6) years from date of payment pursuant to Art. 1145(2) of the New
Civil Code. (This is an isolated exemption to the 2-year prescriptive period for refund under
the Tax Code)

91) The CIR is given 120 days to resolve a claim for unutilized input taxes. Where is the
reckoning point of the 120-day period? (CIR vs. CE Casecnan Water and Energy Co., CTA En
Banc case No. 971, January 7, 2014)
Answer. The 120 day-day period is reckoned from the submission of the “complete documents”
necessary to support the application for tax credit as determined by the taxpayer. Should the
taxpayer decide to submit only certain documents, or should the taxpayer fail, or opted not to submit
any document at all, in support of its application for refund or tax credit certificate under Sec. 112,
NIRC, it is reasonable to conclude that the reckoning date of the 120-day period thereunder, should
be reckoned from the filing of the said application. Hence, the completeness of documents to
support a claim is determined by the taxpayer.

92) X exported his goods on September 22, 2018. On January 24, 2019, it filed an administrative
claim for unutilized input taxes but was able to submit complete documents to the BIR only
on March 24, 2019, in support of the claim. Where is the reckoning period of the 120-day for
the CIR to act on the claim? (CE Cebu Geothermal Power Co., Inc. vs. CIR, CTA case No. 7740,
September 2, 2011)

22
 Answer. The goods were exported on September 22, 2018, and the complete documents in
support of such claim was filed only on March 24, 2019. The Court held that the CIR had 120 days
from the latter date, March 24, 2019, or until July 22, 2019, within which to decide the claim. (Count
the number of days!)

93) Who are the customers or recipient of services under a “Zero-Rated Sale” for VAT purposes?
(Accenture, Inc. vs. CIR, July 11, 2011)
Answer. It is not enough that the customers or recipients of the services is outside of the
Philippines, it must also be proven that it is a non-resident foreign corporation that has no branches
or resident agent in the country.

94) X is a domestic corporation operating a “call center.” The recipients of its services are
entities doing business outside of the Philippines. If X is VAT registered taxpayer its
transactions with the non-resident foreign corporations abroad the payment of which is in
foreign currency inwardly to X. Is the sale a zero-rated transaction? Can X claim for tax
credit on its unutilized input taxes? (Accenture, Inc. vs. CIR, July 11, 2012)
Answer. Yes, the sale is zero-rated sale. It is allowed to claim input tax credit.

95) X is a service provider to entities doing businesses in the Philippines. Some of its customers
are branches of foreign corporations. The payment of X’s services to these foreign branches
operating in the Philippines are course thru inward remittances in foreign currency by their
head offices abroad. Are the services of X under the given facts subject to 12% VAT?
(Accenture, Inc. vs. CIR, July 11, 2012)
Answer. If the provider and recipient of services are both doing business in the Philippines, the
payment of foreign currency in irrelevant. The transaction is subject to the regular 12% VAT.

96) X is covered by the Zero (0%) Rated VAT. As of the last day of the third quarter of 2010 it has
unutilized input taxes. On September 1, 2012, it filed a claim for tax credit. Together with the
application X has submitted all documents and proof of its entitlement thereto. Within 30
days from the expiration of the 2-year prescriptive period to claim X filed a judicial claim
before the CTA contending that the inaction/silence of the CIR is an implied denial of its
claim. BIR argues that the judicial claim is time barred having been filed beyond the 2-year
period to claim and moved for the dismissal of the petition for review. Is the tax official,
correct? (CIR vs. Mindanao II Geothermal Partnership, January 15, 2014)
Answer. In a claim for refund for unutilized input VAT, only the administrative claim (before the CIR)
must be filed within the 2-year prescriptive period, which begins to run from the close of the taxable
quarter when relevant sales were made. The judicial claim before the CTA need not be filed within
the 2-year period. The claim for unutilized input taxes is different from the claim for refund/credit of
an invalid payment. In the former, after an administrative claim of the taxpayer, the CIR is given a
120-day period to resolve the validity of the claim. If CIR denies the claim within said period the
taxpayer can file a judicial claim before the CTA within 30 days from receipt of the denial or in case
there is inaction and the 120-day period has expired without resolution on the claim, the taxpayer
may within 30 days from expiration of the 120-day period to resolve, file a judicial claim with the
CTA. The 120 plus 30 days periods are mandatory. In a claim for tax refund/credit of an invalid
payment NO appeal to the CTA is allowed beyond the 2-year period of claim under the Doctrine of
Twin Prescriptive Period. (RA 1125)

97) CIR failed to raise the issue of T’s failure to comply with the “120 + 30 days Rule” at the first
instance when T filed a Petition for Review before the CTA. What is the effect of the CIR’s
failure to raise premature filing of T’s judicial claim during the proceedings before the CTA?
(Team Sual Corporation vs. CIR, GR No. 201225-16, 2018)
Answer. Even if the CIR failed to raise the issue of T’s non-compliance with the 120 + 30 days Rule
at the first instance, such failure would not operate to vest the CTA with jurisdiction over T’s judicial
claim for refund. The SC has already settled the rule that a judicial claim for refund which does not
comply with the 120-day mandatory waiting period renders the same VOID. As such, no right can
be claimed or acquired from it, notwithstanding the failure of the CIR to raise it as a ground for
dismissal.

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98) X is a VAT registered taxpayer. Its business is to convert the steam supplied to it by
PNOC-EDC into electricity and to deliver the electricity to NAPOCOR. In the course of X’s
business, it bought and eventually sold a Nissan Patrol to NAPOCOR. The BIR assessed VAT
on the sale of the motor vehicle. X contends that the sale is an isolated transaction and not a
transaction done “in the course of trade or business” hence it is not VATable. Is X correct?
(Mindanao II Geothermal Partnership vs. CIR, March 11, 2013)
Answer. While the sale of the vehicle is an isolated transaction, it does not follow that an isolated
transaction cannot be an incidental transaction for purposes of the VAT liability of the seller. Sec.
105, NIRC would show that a transaction “in the course of trade or business” includes “transactions
incidental thereto.” Prior to the sale, the Nissan Patrol was part of X’s property, plant, and
equipment. Therefore, the sale is an incidental transaction made in the course of X’s business
which should be liable for the 12% VAT.

This Mindanao II case should be contra-distinguished from the case of Power Sector Asset
and Liabilities Management Corp. (PSALM) vs. CIR case (2017). Here, the BIR assessed the NPC
of VAT on the sale of its generation assets and other properties. NPC gave the assessment notice
to PSALM, the entity created by government to manage the privatization of NPC. PSALM appealed
to the DOJ as it involves two (2) government institutions contending the CTA has no jurisdiction. BIR
insists that this is a tax dispute and therefore CTA has jurisdiction. Held: PSALM is correct. PD 242
applies. DOJ has jurisdiction and not the CTA. The power plants were not previously used by
PSALM in its business. The sale of the power plants cannot be considered an incidental transaction
made in the course of NPC’s or PSALM’s business but an isolated transaction which is not subject
to VAT. After the sale of all of NPC’s assets the business in completely dissolved.

99) X is engaged in lease subsequently it decided to sell the property leased. Is the sale
VATable? (CIR vs. Magsaysay Lines, July 26. 2006)
Answer. The regular conduct or pursuit of a commercial or economic activity including transactions
incident thereto, by any person regardless of whether or not the person engage therein is
non-stock, non-profit private organization (regardless of the disposition of the income) and whether
or not it sells exclusively to members, or their guests or government entity is subject to 12% VAT.

The 2006 case of Magsaysay Lines – The SC ruled that the sale of the vessels of the
National Development Corporation to Magsaysay Lines, Inc. is NOT subject to VAT because
it was not in the course of trade or business, as it was involuntary and made pursuant to the
government’s privatization program. This is also true in the case of National Power Corp.
(NPC) selling assets to private entities; it is NOT subject to VAT. The sale was not in the
course of trade or business as it was not in pursuit of a commercial or economic activity, but
a governmental function mandated by law to privatize the NPC generation assets.

NOTE: If after the sale of corporate assets, the business still continues then the sale in an incidental
sale, the transaction is VATable. But, if the sale is in pursuant to corporate liquidation, dissolution or
privatization, such sale is considered isolated transaction, which is not subject to VAT.

100) X Corporation is a PEZA registered enterprise engage in the manufacture of garments for
sale abroad. Occasional X joins local trade fairs to show case its products and made sales in
those few days of product exhibitions. Is X VATable on its sales during those occasions? (b)
If X sells its used vehicle to its manager, is the sale VATable? (c) Is X VATable on its sales of
garments to its employees if payments thereof are on salary deductions at discounted
prices? (CS Garments, Inc. vs. CIR, March 12, 2014)
Answer.
a) Sales in local trade fairs are considered ordinary sales and therefore are VATable. These
sales are not included in the exemptions from VAT of a Zero-rate Sales of exporters.
b) Sale of ordinary assets used in business is an incidental sale that is VATable.
c) Sale of goods to one’s own employees is an ordinary sale covered by VAT.

101) X, a non-profit, non-stock affiliate of Y Insurance Company organized by the latter to perform
collection, consultative and other technical services, including functioning as an internal
auditor of Y and its other affiliates. The BIR assessed X for deficiency VAT. X contends that
the services it rendered to Y were on a “non-profit, reimbursement-of-cost-only” basis, that it
was not engaged in the business of providing services to Y and its affiliates. X was

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 established to ensure operational orderliness and administrative efficiency of Y and its
affiliates, and not in the sale of services. Thus, since it was not engaged in business, it was
not VATable. Is X’s contention valid? (CIR vs. CA & Commonwealth Management & Services
Corp. March 30, 2000)
Answer. The services of X to Y and its affiliates for a fee or consideration are subject to VAT. VAT is
a tax on the value added by the performance of the service. It is immaterial whether profit is derived
from rendering the service or not. The Tax Code provides that even a non-stock, non-profit
organization, or government entity, is liable to pay VAT on the sale of goods or services even in the
absence of profit attributable thereto, provided the sale or performance of the services were made
in the course of trade or business which requires that the regular conduct or pursuit of a commercial
or an economic activity regardless of whether or not the entity is profit oriented.

⮚ A sale in the regular course of business that resulted to a loss is still VATABLE.

102) An excise tax is an indirect tax like the VAT. The burden of taxation is allowed to be shifted to
another person. Excise taxes are taxes on certain goods whether (a) locally manufactured or
produced in the Philippines for domestic consumption or for any other disposition and (b) to
things imported. X bought excisable goods from the manufacturers and importers. The
excise taxes were passed on to it by the sellers. Thereafter it sought the refund of the taxes
shifted to it contending that it should not be liable because it is not the manufacturer or the
importer of the goods. The BIR denied the claim. Is the denial valid? (Diageo Phils., Inc. vs.
CIR, November 12, 2012)
Answer. Yes, the denial is legal. When indirect taxes are passed on to the buyer it is no longer in
the nature or considered a tax but the same forms part of the purchase price of the goods sold or
services rendered. X cannot claim the excise taxes because this is different from the unutilized
creditable input taxes that businessmen claim under the VAT law particularly in cases of zero-rated
or effectively zero-rated sales.

NOTE: In the event that there is an invalid payment of an indirect tax, the claimant is the payor
even if the burden of taxation has been shifted to another person.

103) X Corporation enjoys blanket tax exemption under PD 1869 (the Charter creating PAGCOR).
X rents a building from Y where it operates its casino activities. Y passes to X the 12% VAT
on lease as required by law. X refused to pay invoking its blanket tax exemption. Y paid the
subject taxes for fear of the legal consequences of non-payment of the tax to the BIR.
Thereafter, albeit belatedly Y realized it should not have paid because the transactions it had
with X is subject to “zero rate” VAT. Immediately, Y filed an administrative claim for tax
refund with the CIR, but the latter failed to resolve in favor of Y. Is the refusal of the CIR on
Y’s claim for refund valid? Reason. [CIR vs. Acecite (Phils.) Hotel Corporation, February 16,
2007]
Answer. The blanket tax exemption of X under PD 1869 applies to both direct and indirect taxes
which extend to entities and individuals dealing with it in its casino operations. Considering that Y
paid the tax under “mistake of facts” and was not aware at the time of payment that the transactions
it had with X is “effectively zero-rated”, the invalid payment can be recovered or refunded. The
principle of solutio indebeti applies to the Government as well, the basis thereto is grounded upon
the right of recovery of money paid through misapprehensions of facts belongs in equity and in
good conscience to the person who paid it and the government cannot enrich itself at the expense
of another. Y is entitled to a tax refund.

104) X is a VAT registered exporter. He seasonably filed an administrative claim for unutilized
input tax. Before the CIR resolves his case, can he claim the unutilized input tax attributable
to his zero-rated sales as an expense for income tax purposes?
Answer. No. The unutilized creditable input tax related to his zero-rated sale can only be recovered
through the application of refund or tax credit. Nowhere in the Tax Code is it provided for another
mode for recovering the same may be used. Therefore, the unapplied input taxes cannot be treated
outright as deductible expense for income tax purposes. (RMC No. 57-2013, August 23, 2013)

105) What is the Doctrine of Operative Fact?

Answer. This principle has been incorporated in Sec. 226 of the NIRC (The non-retroactivity of
rulings). This rule provides that taxpayers may rely upon a rule or ruling issued by the CIR from the

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 time the rule or ruling is issued up to its reversal by the CIR or by the Court. Any reversal is not
given retroactive effect.

Application: X applied for tax credit of its unutilized input taxes on April 28, 2005. The claim was
well within the 2-year period. At the time of X’s application, it relied upon BIR Ruling DA 489-03
which maintains that the taxpayer’s claim need not wait for the lapse of the 120-day period before it
could seek judicial relief with the CTA by way of petition for review. Many taxpayers relied on this
BIR issuance, and it was allowed because of the Doctrine of Equitable Estoppel. In the case of CIR
vs. Aichi Forging Company of Asia, Inc., GR No. 184823, October 10, 2010, 632 SCRA 422, the
Supreme Court ruled that BIR Ruling DA 489-03 is erroneous and rectified the same reiterating the
jurisdictional and mandatory 120 + 30-day period should apply in a claim for unutilized input taxes
under the Tax Code.

In view of this development, the SC maintained that the only exception to the 120 + 30 period
is those claims validly filed between December 10, 2003 to October 6, 2010, when the ruling was
issued until its overturned in the Aichi case.

NOTE: Administrative practices, not formalized into a rule or ruling are not covered by this doctrine
because a mere administrative practice may not be uniformly and consistently applied. They are
usually not known to the general public and can be availed of only by those with informal contacts
with the government agency.

Include in your readings: The General principles, Transfer taxes,

Percentage taxes, Powers of the CIR and the salient features of
CREATE Act.

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