THE LAW PERTAINING TO THE STATE AND ITS RELATIONSHIP WITH ITS CITIZENS

POLITICAL LAW

Constitutional Law (Basic Principles of Political Law)

1. Briefly explain, differentiate, or expound the following concepts:

a. Separation of powers
b. Restrictive Theory of State Immunity
b. Act of State Doctrine
c. Appointment and Designation

a. The distribution of powers is a fundamental maxim of constitutional law and essential to the
separation of the three branches of government, separation which, though incomplete, is
one of the chief characteristics of our Constitution. This principle is too well known to require
principle the Supreme Court is independent of executive or legislative control as the executive
and the Congress are of the judiciary. (Radiowealth vs Agregado, G.R. No. L-3066. May 22,
1950)

b. The Restrictive Theory of State Immunity means that a State may be said to have
descended to the level of an individual and can thus be deemed to have tacitly given its
consent to be sued only when it enters into business contracts. However, the restrictive
application of State immunity is proper only when the proceedings arise out of commercial
transactions of the foreign sovereign, its commercial activities, or economic affairs. It does
not apply where the contract relates to the exercise of its sovereign functions. (United States
vs. Ruiz, G.R. No. L-35645, May 22, 1985)

c. Act of State Doctrine means that courts of one country will not sit in judgment on the acts
of the government of another in due deference to the independence of sovereignty of every
Sovereign State (PCGG v Sandiganbayan, G.R. Nos. 151809-12. April 12, 2005)

d. Appointment is the selection by the proper authority of an individual who is to exercise the
powers and functions of a given office. Appointees have a right to claim compensation as
stated in the appointment, whereas Designation is the imposition of additional duties, usually
by law, upon a person already in the public service by virtue of an earlier appointment. Does
not entail payment of additional benefits or grants upon the person so designated (National
Amnesty Commission v. COA, )

Composition and Powers of Government Organs

2. Under the 1987 Constitution, to whom does each duty/power/privilege/prohibition/

disqualification apply:
a. privilege from arrest, in all offenses punishable by not more than six years
imprisonment, while the Congress is in session
b. the sole judge of all contests relating to the election, returns, and qualifications of
the President or Vice- President
c. the power to make appointments during the recess of the Congress, whether
voluntary or compulsory, but such appointments shall be effective only until after
disapproval by the Commission on Appointments or until the next adjournment of
the Congress
 d. File, upon a verified complaint, or on its own initiative, petitions in court for
inclusion or exclusion of voters; investigate and, where appropriate, prosecute
cases of violations of election laws, including acts or omissions constituting
election frauds, offenses, and malpractices.
e. Investigate on its own, or on complaint by any person, any act or omission of any
public official, employee, office, or agency, when such act or omission appears to
be illegal, unjust, improper, or inefficient

a. A Senator or Member of the House of Representatives (Section 11, Article VI)

b. The Supreme Court, sitting en banc (Section 4, Article VII)
c. The President (Section 16, Article VII)
d. The Commission on Elections (Section 2(6) Article IX(C))
e. The Office of the Ombudsman (Section 13(1) Article XI)

Powers of Government Organs/Legislation

3. Mr. T, an agent appointed by the Philippine Charity Sweepstakes Office (PCSO) to install
a lotto terminal, requested for a mayor’s permit to open the lotto outlet. The request was,
however, denied, as the mayor cited an ordinance passed by the provincial government
prohibiting lotto operations within their jurisdiction. Because of this, Mr. T filed a petition
for declaratory relief which aimed to annul and set aside the ordinance, and to allow him
to be granted a mayor’s permit.

According to Mr. T, the national legislature itself has declared that lotto is legal and
permitted its operations in the country, and therefore the provincial ordinance is a
curtailment of the power of the State. The provincial government, on the other hand,
alleges that the ordinance is a valid exercise of police power under the Local Government
Code, and that under the 1987 Constitution, local governments are given autonomy by the
State. If you were the judge in this petition, how would you rule the case?

I would rule in favor of Mr. T. The basic relationship between the national legislature and LGUs
has not been enfeebled by the new provisions in the Constitution strengthening the policy of local
autonomy. Although there are notable innovations in the Constitution regarding local autonomy,
the national legislature is still the principal of LGUs, which cannot defy its wll or modify or violate
it. Being so, any form of autonomy granted to local governments will necessarily be limited and
confined within the extent allowed by the central authority. (Lina v. Pano, G.R. No. 129093, 30
August 2001)

Composition and Powers of Government Organs

4. As a general rule, Section 2(2), Article IX-B of the 1987 Constitution provides that
appointments in the civil service shall be made only according to merit and fitness to be
determined by a competitive examination, except for certain positions. Enumerate these
positions and briefly explain each position.

The following are the civil service positions which are exempt from the competitive examination
requirement under the Constitution:

a. Policy determining - where the officer lays down principal or fundamental guidelines or
rules, or formulates a method of action for government or any of its subdivisions;
 b. Primarily confidential - denoting not only confidence in the aptitude of the appointee for
the duties of the office but primarily close intimacy which ensures freedom of intercourse
without embarrassment or freedom from misgivings or betrayals on confidential matters
of state, or one declared to be so by the President upon recommendation of the CSC;

c. Highly technical - one which requires possession of technical skill or training in a

supreme or superior degree.

Composition and Powers of Government Organs

5. The Commission on Appointments is a body created by the Constitution consisting of

the President of the Senate, as ex-officio Chairman, twelve Senators and twelve Members
of the House of the Representatives, elected by each house on the basis of proportional
representation from the political parties and parties or organizations registered under the
party-list system represented therein. The Chairman of the Commission shall not vote,
except in case of a tie. The Commission shall act on all appointments submitted to it within
thirty session days of the Congress from their submission. The Commission shall rule by
a majority vote of all the Members.

Decide whether the following positions need confirmation by the Commission on

Appointments:

a. Philippine Ambassador to Germany

b. COA Commissioner
c. The Vice President as a Member of the Cabinet
d. Court of Tax Appeals Associate Justice
e. the highest ranking officer of the Coast Guard

a. Yes (Section 16, Article VII)

b. Yes (Section 1(2), Article IX(D))
c. No (Section 3, Article VII)
d. No (Section 9, Article VIII)
e. No (Section 16, Article VII)

Selection of the President

6. Out of fear of prosecution after his term, President DG filed a Certificate of Candidacy
for the position of the Vice President before the COMELEC. Upon knowing this fact,
Senators LN and KP filed a petition before the Supreme Court assailing its
constitutionality. Senator LN argued that this is a disrespect to the intent of the
Constitution, because if the President resigns, dies, or becomes incapacitated, he will
succeed to the Presidency. In effect, he will serve for more than one full term. Will the
petition prosper?

No, the petition will not prosper. The Constitution does not explicitly prohibit a sitting President to
run for other positions except the Presidency. The petition is also premised on the occurrence of
many contingent events. Considering that these contingencies may or may not happen,
petitioners merely pose a hypothetical issue which has yet to ripen to an actual case or
controversy (Mariano v COMELEC).
Economic Activities

7. Mrs. A, born a Filipina, got married to an Australian citizen, and migrated to Australia
soon afterwards. There, she became a naturalized Australian citizen, and gave birth to a
daughter, Ms. B. Years after, however, Mrs. A’s husband passed away. Because her
husband’s untimely demise, Mrs. A eventually got homesick and decided to come back to
the Philippines, when she bought house and lot in Quezon City with an area of 3,000 sq.m.
from her unwed sister Ms. C. However, Ms. C’s anak-anakan, Mr. D, is contesting the sale
of the land, stating that Mrs. A is a foreigner who cannot own land in the Philippines.

a. Was the sale of house and lot in the Philippines to Mrs. A, an Australian citizen,
valid?
b. A year after she purchased the land, Mrs. A succumbed to cancer, leaving Ms. B as
her sole heir. Assuming the prior sale was valid, may Ms. B inherit the Quezon City
property even if she is an Australian citizen?

a. Yes, it is valid. Under Section 8, Article XII of the 1987 Constitution, a natural-born citizen
of the Philippines who has lost her Philippine citizenship may be a transferee of private
lands, subject to certain limitations. In this case, Mrs. A qualifies as a natural-born Filipino
citizen, but has subsequently lost her Philippine citizenship to become an Australian
citizen, and is therefore allowed to purchase the parcel of land from her sister. Therefore,
the sale to Mrs. A is valid.
b. Yes, Ms. B can still inherit the same parcel of land from her deceased mother. Under
Section 7, Article XII of the 1987 Constitution, an exception to the general rule on exclusive
ownership of private lands by Filipinos is in case of hereditary succession. In this case,
since Ms. B is the surviving heir of Mrs. A, she can still inherit the Quezon City property
even if she is an Australian citizen. Therefore, Ms. B’s eventual acquisition of the property
is likewise valid.

Structure of Government

8. What are the exceptions to the non-delegability of legislative power? Discuss.

a. Where the delegation to the President or to the people at large is expressly authorized by the
Constitution in certain cases and specific conditions (See secs. 23(2), 32; Art. X, Sec 10; Art
XVII, Sec 2) and so there can be no ground for legal objection;

b. Where the delegation is made to local governments (Art XI, Sec 5; see Art X, Sec. 10.). This
exception is logical for after all, municipal corporations, which historically ante-dated state
contitutions, are merely instrumentalities of State for the better administration of the
government in matters of local concern.

c. Where the delegation is made to administrative agencies. Their creation has become
necessary in view of the increasing complexity and the growing inability of the legislature to
cope directly with the problems demanding its attention. In theory, what is delegated is not the
discretion to determine what the law shall be (i.e. lawmaking or legislation), but how the law
may be enforced (rule-making or law execution) (Eastern Shipping Lines, Inc. vs. POEA, 166
SCRA 533 [1988]) to ensure the attainment of statutory objectives. (Pp15-16, Philippine
Constitutional Law, Principles and Cases Volume II, Hector S. De Leon and Hector M. De
Leon, Jr.)
Structure of Government

9. Justice X is one of the current rosters of the Supreme Court of the Philippines. He has
been appointed as one of the justices from September 2019. Prior to becoming a member
of the bar and admitted as a judge and eventually an associate justice, he practiced his
engineering profession and even continued to be one even during his judiciary stint. As
such, he was also appointed by the President to be the Secretary of the Department of
Public Works and Highways. If you were to file a petition of mandamus against the
appointment of Judge to be the Secretary of DPWH, will your petition prosper?

Yes. Under the Constitution, it is clearly stated that the members of the Supreme Court and of
other courts established by law shall not be designated to any agency performing quasi-judicial
or administrative function. Here, Justice X was a member of the Supreme Court. As such member,
he should not have been appointed to be a Secretary of DPWH which appointment shall designate
him to perform an administrative function. Considering said appointment of Justice X is a clear
violation of the Constitution, my petition will definitely prosper. (Section 12, Article VIII of the Phil.
Constitution; Manila Electric Company vs. Pasay Transportation 57 Phil 600)

Bill of Rights – Freedom of Speech

10. The Diocese of Bacolod posted in its private compound a tarpaulin which contains the
heading “Conscience Vote” and lists candidates as either “(Anti-RH) Team Buhay” with a
check mark, or “(Pro- RH) Team Patay” with an “X” mark. The COMELEC Law Department
issued a letter ordering the immediate removal of the tarpaulin; otherwise, it will be
constrained to file an election offense against petitioners. Concerned about the imminent
threat of prosecution for their exercise of free speech, petitioners initiated this case
through this petition for certiorari and prohibition with application for preliminary
injunction and temporary restraining order. Does the action of COMELEC injures the
petitioner’s freedom of speech?

Yes. In a democracy, the citizen’s right to freely participate in the exchange of ideas in furtherance
of political decision-making is recognized. It deserves the highest protection the courts may
provide, as public participation in nation-building is a fundamental principle in our Constitution. As
such, their right to engage in free expression of ideas must be given immediate protection by this
court. there is a clear threat to the paramount right of freedom of speech and freedom of
expression which warrants invocation of relief from this court. (THE DIOCESE OF BACOLOD vs.
COMELEC, G.R. N0. 205728, Jan. 21, 2015).

Bill of Rights – Freedom of Speech

11. What are the requisites for protection of Commercial Speech?
a. The speech must not be false or misleading or proposing an illegal activity.
b. The governmental interest sought to be served by the regulation must be substantial.
c. The regulation must directly advance the governmental interest.
d. The regulation must not be overboard. (Central Hudson Gas vs. Public Service
Commission, 447 U.S. 557 [1980])

Bill of Rights

12. What is the difference between the guarantees of the Bill of Rights and the guarantees
provided in Article XIII on Social Justice and Human Rights?
 The guarantees in the Bill of Rights are self-implementing even in the absence of
implementing legislation, whereas the guarantees in Article XIII on Social Justice and Human
Rights require implementing legislation.

Bill of Rights

13. What is the effect if privacy of communication and correspondence is violated?

Any evidence obtained in violation of Section 3 unless upon lawful order of the Court; or, when
public safety or order requires otherwise, as prescribed by law, shall be inadmissible for any
purpose in any proceeding.

Bill of Rights

14. May the right to privacy of communication and correspondence be validly violated?

Yes, the right to privacy of communication and correspondence may be validly violated in any of
the following circumstances: upon lawful order of the Court; or, when public safety or order
requires otherwise, as prescribed by law. [

Bill of Rights

15. Upon what grounds may a court allow intrusion into the privacy of communication and
correspondence?

The Constitution is silent on the matter. However, since Section 3, akin to Section 2, guarantees
the right to privacy, the requirement of Section 2 as to what constitutes probable cause may guide
the court in issuing the said intrusion. Therefore; the sound discretion of the court as to what is
deemed justified in each case, considering the requirements of probable cause, would be the
yardstick in determining whether or not the court has committed grave abuse of authority and
discretion.

Bill of Rights > Freedom of Speech and Expression

16. What is the purpose of protecting freedom of speech and of the press?

The freedom of speech and of the press is protected for the following purposes: first, to protect
and preserve the right of the people to information on matters of public concern [Section 7, Article
III, 1987 Constitution]; second, to enable every citizen to bring the government and any person in
authority to the bar of public opinion; and third, to insure free and general discussion of public
matters. [Rolando A. Suarez, Political Law Reviewer, Second Edition, (2011).]

Types of regulation > Prior Restraint and Subsequent Punishment

Police Power

17. What is Prior Restraint?

Prior restraint refers to the official governmental restrictions on the press or other forms of
expression in advance of actual publication or dissemination. Freedom from prior restraint
pertains largely to the freedom from government censorship of publications, whatever the form of
censorship, and regardless of whether it is wielded by the executive, legislative or judicial branch
of the government. Thus, it precludes governmental acts that required approval of a proposal to
publish; licensing or permits as prerequisites to publication including the payment of license taxes
for the privilege to publish; and even injunctions against publication. Even the closure of the
business and printing offices of certain newspapers, resulting in the discontinuation of their
printing and publication, are deemed as restraint or censorship. Any law or official that requires
some form of permission to be had before publication can be made, commits an infringement of
the constitutional right, and remedy can be had at the courts. [Rolando A. Suarez, Political Law
Reviewer, Second Edition, (2011).]

Separation of Powers

18. Under the Constitution, the power to ratify is vested in the President, subject to the
concurrence of the Senate.
a. May the Senate compel the President to submit the treaty to them in order for the former
to give its consent or withhold its concurrence?
b. May the Court compel the President to ratify a treaty via a writ of mandamus?

a. No. While the power to ratify is vested in the President, subject to the concurrence of the
Senate, the role of the Senate is limited only to giving or withholding its consent, or concurrence,
to the ratification. It is within the authority of the President to refuse to submit a treaty to the Senate
or, having secured its consent for its ratification, refuse to ratify it. [Pangilinan, et. al. / Philippine
Coalition for the International Criminal Court (PCICC), et. al. / IBP vs. Medialdea, et. al., G.R. Nos.
238875, 239483, and 240954, July 21, 2021.]

b. No. Although the refusal of a state to ratify a treaty which has been signed in its behalf is a
serious step that should not be taken lightly, such decision is within the competence of the
President alone, which cannot be encroached by the Court via a writ of mandamus. The Court
has no jurisdiction over actions seeking to enjoin the President in the performance of his official
duties. [supra.]

Separation of Powers/Executive Department

19. Under the Constitution, the power to ratify is vested in the President, subject to the
concurrence of the Senate.
a. May the Senate compel the President to submit the treaty to them in order for the former
to give its consent or withhold its concurrence?
b. May the Court compel the President to ratify a treaty via a writ of mandamus?

a. No. While the power to ratify is vested in the President, subject to the concurrence of the
Senate, the role of the Senate is limited only to giving or withholding its consent, or concurrence,
to the ratification. It is within the authority of the President to refuse to submit a treaty to the Senate
or, having secured its consent for its ratification, refuse to ratify it. [Pangilinan, et. al. / Philippine
Coalition for the International Criminal Court (PCICC), et. al. / IBP vs. Medialdea, et. al., G.R. Nos.
238875, 239483, and 240954, July 21, 2021.]

b. No. Although the refusal of a state to ratify a treaty which has been signed in its behalf is a
serious step that should not be taken lightly, such decision is within the competence of the
President alone, which cannot be encroached by the Court via a writ of mandamus. The Court
has no jurisdiction over actions seeking to enjoin the President in the performance of his official
duties. [supra.]

Powers of the Supreme Court / Judicial Review [Expanded Judicial Power of Review]

20. What is the concept of Expanded Judicial Power of Review?

The expanded judicial power of review pertains to the power of the Court not only to settle actual
controversies involving rights which are legally demandable and enforceable but also to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of government. [Section 1, Article VIII,
1987 Constitution; Estrada vs. Desierto, GR Nos. 146710-15, 2 March 2001].

Powers of the Supreme Court

21. X contends that matters of foreign relations are political question, and thus, beyond
the judiciary’s reach. Is the contention of X correct?

No. The Constitution expressly states that the Supreme Court, through its power of judicial review,
may declare any treaty r international agreement unconstitutional. In fulfilling his or her functions
as primary architect of foreign policy, and in negotiating and enforcing treaties, all of the
president's actions must always be within the bounds of the Constitution and our laws. This
mandate is exceeded when acting outside what the Constitution or our laws allow. When any
such excess is so grave, whimsical, arbitrary, or attended by bad faith, it can be invalidated
through judicial review. [Pangilinan, et. al. / Philippine Coalition for the International Criminal Court
(PCICC), et. al. / IBP vs. Medialdea, et. al., G.R. Nos. 238875, 239483, and 240954, July 21,
2021.]

Judicial Review

22. What are the requisites for the exercise of judicial review?

The exercise of judicial review requires the concurrence of these requisites for justiciability: (a)
there must be an actual case or controversy calling for the exercise of judicial power; (b) the
person challenging the act must have the standing to question the validity of the subject act of
issuance; (c) the question of constitutionality must be raised at the earliest opportunity; and (d)
the issue of constitutionality must be the very lis mota of the case. [Pangilinan, et. al. / Philippine
Coalition for the International Criminal Court (PCICC), et. al. / IBP vs. Medialdea, et. al., G.R. Nos.
238875, 239483, and 240954, July 21, 2021.]

INTERNATIONAL LAW- Sources of International Law

23. What is a "protocol de cloture"? Will it require concurrence by the Senate?

A final act, sometimes called protocol decloture, is an instrument which records the winding up of
the proceedings of a diplomatic conference and usually includes production of the texts of treaties,
conventions, recommendations and other acts agreed upon and signed by the plenipotentiaries
attending the conference. It is not the treaty itself. It is rather a summary of the proceedings of a
protracted conference which may have taken place over several years. It will not require the
concurrence of the Senate. The documents contained therein are deemed adopted without need
for ratification. (Tanada v. Angara, 272 SCRA 18, May 2, 1997)

INTERNATIONAL LAW- Relationship with Domestic Law

24. The Philippine Government is negotiating a new security treaty with the United States
which could involve engagement in joint military operations of the two countries’ armed
forces. A loose organization of Filipinos, the Kabataan at Matatandang Makabansa (KMM)
wrote the Department of Foreign Affairs (DFA) and the Department of National Defense
(DND) demanding disclosure of the details of the negotiations, as well as copies of the
minutes of the meetings. The DFA and the DND refused, contending that premature
disclosure of the offers and counteroffers between the parties could jeopardize on-going
negotiations with another country. KMM filed suit to compel disclosure of the negotiation
details and be granted access to the records of the meetings, invoking the constitutional
right of the people to information on matters of public concern. Decide with reasons.

The suit filed by KMM should be dismissed. It is true that the details of the treaty negotiation,
including the offers and counteroffers between the Philippine Government and United States, are
matters of public concern. However, it is also well-established in jurisprudence that neither the
right to information nor the policy of full public disclosure is absolute, there being matters which,
albeit of public concern or public interest, are recognized as privileged in nature. The privileged
character of diplomatic negotiations has been recognized in this jurisdiction. In discussing valid
limitations on the right to information, the Supreme held that “information on inter-government
exchanges prior to the conclusion of treaties and executive agreements may be subject to
reasonable safeguards for the sake of national interest.” (Court in Chavez v. PCGG (360 Phil.
133, 1998)

Even earlier, the same privilege was upheld wherein the Supreme Court stressed that “secrecy
of negotiations with foreign countries is not violative of the constitutional provisions of freedom of
speech or of the press nor of the freedom of access to information.” (People’s Movement for
Press Freedom (PMPF) v. Manglapus (G.R. No. 84642, September 13, 1988)

Relationship with Domestic Law

25. Will the retroactive application of an extradition treaty violate the constitutional
prohibition against"ex post facto" laws?

The prohibition against ex post facto law applies only to criminal legislation which affects the
substantial rights of the accused. This being so, there is no merit in the contention that the ruling
sustaining an extradition treaty’s retroactive application violates the constitutional prohibition
against ex post facto laws. The treaty is neither a piece of criminal legislation or a criminal
procedural statute. (Wright v. CA, 235 SCRA 341, Aug. 15, 1994)

Relationship with Domestic Law

26. The City Mayor issued an Executive Order declaring that the city promotes responsible
parenthood and upholds natural family planning. He prohibits all hospitals operated by the
city from prescribing the use of artificial methods of contraception, including condoms,
pills, intrauterine devices and surgical sterilization. As a result, poor women in his city lost
their access to affordable family planning programs. Private clinics, however, continue to
render family planning counsel and devices to paying clients.
a. Will the acts of the City Mayor be attributed to the Philippines?
b. Is the Philippines in breach of any obligation under international law concerning human
rights?

a. The acts of the City Mayor may be attributed to the Philippines under the principle of state
responsibility. Article 4 of the Articles on State Responsibility for for Internationally Wrongful
Acts provides that the conduct of of any State organ shall be considered an act of that State
under international law, whether the organ exercises legislative, executive, judicial or any
other functions, whatever position it holds in the organization of the State, and whatever its
character as an organ of the central Government or of a territorial unit of the State.

b. The Philippines is in breach of its obligations under Article 26 of the International Covenant
on Civil and Political Rights which requires that Philippine law shall prohibit any discrimination
and shall guarantee to all persons equal and effective protection against discrimination on any
ground such as social origin, birth or other status. The Executive Order of the City Mayor
discriminates against poor women.

The Philippines is also in breach of its obligations under the Convention on the Elimination of All
Forms of Discrimination Against Women (CEDAW) of which the country is a signatory. Under the
CEDAW, “State Parties shall take all appropriate measures to eliminate discrimination against
women in the field of health care in order to ensure, on basis of equality of men and women,
access to health care services, including those related to family planning” (Article 12, Section 1).
Women shall likewise have “access to adequate health care facilities, including information,
counseling and services in family planning” (Article 14, Section 2[b]).

Relationship with Domestic Law

27. What is the MIRROR PRINCIPLE?

The Mirror Principle states that the degree of legislative approval needed to exit an international
agreement must parallel the degree of legislative approval originally required to enter it.
[Pangilinan, et. al. / Philippine Coalition for the International Criminal Court (PCICC), et. al. / IBP
vs. Medialdea, et. al., G.R. Nos. 238875, 239483, and 240954, July 21, 2021.]
What are the guidelines adopted by the Supreme Court as to the modality for evaluating
cases concerning the President’s withdrawal from agreements which he or she determines
to be contrary to the Constitution or Statutes?

First, the president enjoys some leeway in withdrawing from agreements which he or she
determines to be contrary to the Constitution or statutes. Second, the president cannot unilaterally
withdraw from agreements which were entered into pursuant to congressional imprimatur. And
third, the President cannot unilaterally withdraw from international agreements where the Senate
concurred and expressly declared that any withdrawal must also be made with its concurrence.
[Pangilinan, et. al. / Philippine Coalition for the International Criminal Court (PCICC), et. al. / IBP
vs. Medialdea, et. al., G.R. Nos. 238875, 239483, and 240954, July 21, 2021.]
i. Basic Principles

1. In his SONA, President Duterte stressed the need to provide an investor-friendly

business environment so that the country’s economy can recover which is now
suffering from Covid-19 crisis. Responding to the call, Congress passed legislative
measures, namely: (1) a law abolishing the security of tenure clause in the Labor
Code; and (2) a law allowing contractualization in all areas needed in the employer’s
business operations. Decide on the constitutionality of these laws.

A law abolishing the security of tenure clause in the Labor Clause is unconstitutional. It is
against the entitlement of workers to security of tenure under Section 3, Article XIII of the
1987 Constitution which provides that the State shall afford full protection to labor, local
and overseas, organized and unorganized, and promote full employment and equality of
employment opportunities for all.

On the other hand, a law allowing contractualization in all areas needed in the employer‘s
business operations is legal because it is management prerogative to contract out
services. This management prerogative of contracting out services, however, is not
without limitation. In contracting out services, the management must be motivated by good
faith and the contracting out should not be resorted to circumvent the law or must not have
been the result of malicious arbitrary actions. (Goya, Inc. vs. Goya, G.R. No. 170054, Jan.
21, 2013, J. Peralta)

ii. Existence of employer-employee relationship; tests

2. Sharpie Philippines, Inc is engaged in the manufacture of writing materials. Lexie

was hired to cut cogon grass and weeds at the back of the factory building used by
Sharpie. She was not required to work on a fixed schedule and only worked on any
day of the week at her own discretion and convenience. Sharpie terminated her
employment before the expiration of the 1-year period. She filed a suit for illegal
dismissal. Will the suit prosper?

No. Article 294 of the Labor Code provides security of tenure to regular employees.
Under Article 295 of the Labor Code, there is casual employment where the employee is
engaged in an activity which is not usually necessary or desirable in the usual business
or trade of the employer, provided such employment is neither project nor seasonal. The
only exception is when said casual employee has rendered at least one year of service,
in such case he or she shall be considered a regular employee with respect to the
activity in which he is employed and his employment shall continue while such activity
exists. Here, Lexie was a casual employee as her nature of work was not necessary nor
desirable in the usual business of Sharpie. She was dismissed before the 1-year period,
hence she does not fall under the exception. Thus, the suit will not prosper.

3. NBC has a rest house and recreational facility in the highlands of Tagaytay City
for the use of its top executives and corporate clients. The rest house includes a
caretaker, two cooks and a laundry woman. All of them are reported to the SSS as
domestic or household employees of the resthouse and recreational facility and not
of NBC. Can NBC legally consider the caretaker, cooks and laundrywoman as
domestic employees of the rest house and not of NBC?
 NO. The definition of domestic servant or househelper contemplates one who is employed
in the employer’s home to minister exclusively to the personal comfort and enjoyment of
the employer’s family. The mere fact that the house helper is working in relation to or in
connection with its business warrants the conclusion that such househelper or domestic
servant is and should be considered as a regular employee (Apex Mining Co., Inc. vs.
NLRC, G.R. No. 94951, April 22, 1991, Gancayco). They are the employees of NBC
because the rest house and recreational facility are business facilities which are for use
of NBC’s top executives and clients (Traders Royal Bank vs. NLRC, G.R. No. 127864,
December 22, 1999, Bellosillo).

iii. Termination of employment

4. X is sharing an apartment with his manager Y. Unfortunately, a misunderstanding

transpired between X and Manager Y, which led to a verbal altercation between
them. It happened on a Friday and when he reported for work the following week, X
said that Manager Y told him to leave the company. He said no one was there except
the two of them, so nobody really heard Manager Y saying that to him. X is thinking
of filing a labor complaint for illegal dismissal. Do you think the allegation of X is
enough to win the case?

No. The burden of proof rests upon the party who asserts the affirmative of an issue
(Doctor vs. NII Enterprises, G.R. No. 194001, November 22, 2017, Leonardo-De Castro).
In illegal dismissal cases, the employer has the burden of proving that the termination was
for a valid or authorized cause. However, there are cases wherein the facts and the
evidence do not establish prima facie that the employee was dismissed from employment.
Fair evidentiary rule dictates that before employers are burdened to prove that they did
not commit illegal dismissal, it is incumbent upon the employee to first establish by
substantial evidence the fact of his or her dismissal. (Bognot vs. Pinic, G.R. No. 212471,
March 11, 2019, Reyes, J. Jr.) Here, it is imperative for X to establish, by substantial
evidence, that he was in fact terminated from his job. There must be concrete proof to
show that he was prevented or disallowed to perform his work, or that his employer or its
authorized representative/s refused to accept him to render his tasks without any just or
authorized basis or was he given due process.

5. The Company Legal Counsel advised the Board of Directors as follows: "A
company cannot retrench to prevent losses until actual losses occur. The Company
must wait until the end of the Business Year when its Books of Accounts, Profit and
Loss Statement showing the actual loss and Balance Sheet have been audited by
an Independent auditing firm." Is the legal advice of counsel correct?

No. Article 283 of the Labor Code provides that the employer may also terminate the
employment of any employee due retrenchment to prevent losses. In its ordinary
connotation, the phrase "to prevent losses" means that the retrenchment or termination of
some employees is authorized to be undertaken by the employer sometime before the
losses anticipated are actually sustained or realized. It is not, in other words, the intention
 of the lawmaker to compel the employer to stay his hand and keep all his employees until
sometime after losses shall have in fact materialized; if such an intent were expressly
written into law, the law may well be vulnerable to constitutional attack as taking property
from one man to another (Lopez Sugar Corporation vs. Federation of Free Workers, G.R.
Nos. 75700-01, August 30, 1990, Feliciano).

In addition, jurisprudence has set the standards for losses which may justify retrenchment,
thus:

(1) the losses incurred are substantial and not de minimis; (2) the losses are actual or
reasonably imminent; (3) the retrenchment is reasonably necessary and is likely to be
effective in preventing the expected losses; and (4) the alleged losses, if already incurred,
or the expected imminent losses sought to be forestalled, are proven by sufficient and
convincing evidence. (Fulton vs. Bernardo, G.R. 187214, Aug. 14, 2013, J. Perez)

Under the foregoing, it is clear that the losses need not be actual in order to warrant
retrenchment.

6. Are the principal officers of a corporation liable in their personal capacity in case
of illegal dismissal?

It depends. As a general rule, officers are not personally liable for corporate obligation,
with the exception that in order to hold a director or officer personally liable occurs when
the following requisites are present: (1) the complaint must allege that the director or officer
assented to the patently unlawful acts of the corporation, or that the director or officer was
guilty of gross negligence or bad faith; and (2) there must be proof that the director or
officer acted in bad faith. (Lozada vs Mendoza, G.R. No. 196134, October 12, 2016,
Bersamin).

7. Isobel was employed by Mercy West Hospital as a nurse. During the first year of
her employment, she did not report for work for one month. In a notice to explain,
she was made to explain her absence. She replied in a letter apologizing for her
absence and explaining that she was sick for a month. She also showed proof that
she notified her supervisor of her sickness. A day later, her employer sent her a
notice of acceptance of her resignation. She filed with the Labor Arbiter a complaint
for illegal dismissal alleging she did not abandon her work and that in terminating
her employment, Mercy West illegally dismissed her. Will the complaint prosper?

Yes. In illegal dismissal cases, it is a fundamental rule that when an employer interposes
the defense of resignation, on him necessarily rests the burden to prove that the employee
indeed voluntarily resigned. (Panasonic Manufacturing Philippines Corporation vs.
Peckson, G.R. No. 206316 March 20, 2019, Reyes Jr.). Here, Mercy West was not able
to prove that Isobel indeed resigned. In fact, it was Isobel who was able to show proof that
she did not resign from her work.

iv. Requirements for labor-only contracting

7. Agency A executed a one-year contract with Company X for the former to provide
the latter with security guards to safeguard the persons and belongings of the
 company. The security guards filled up Company X application form and submitted
them directly to the Security Department of Company X. The pay slips of the
security guards has Company X logo and showed that Company X deducted
therefrom the amounts for SSS premiums, contributions and withholding taxes.
Assignments of security guards, who should be on duty or on call, promotions,
suspensions, dismissals and award citations for meritorious services were all done
upon approval by Company X’s chief Security officer. After the expiration of the
contract with Agency A, Company X did not renew the same. Agency A placed the
affected security guards on “floating status” on “no work no pay” basis. Having
been displaced from work, the security guards filed a case against Company X for
illegal dismissal. Company X denied liability alleging that Agency A is the employer
of the security guards and therefore, their complaint for illegal dismissal should be
directed against the Agency. Is there an employer-employee relationship between
the Company X and Agency A’s security guards?

Yes. As a general rule, the security guards of a private security guard agency are the
employees of the latter and not of the establishment that has entered into a contract with
the private security guard agency for security services.

However, under Sec. 9 (b) of Department Order No. 150-16 or the Revised Rules
Governing the Employment and Working Conditions of Security Guards and Other Private
Personnel In The Private Security Personnel, the Principal is liable with the Security
Service Contractor when there is labor-only contracting.

In Department Order No. 174, there is labor-only contracting if the contractor or sub-
contractor does not exercise the right of control over the performance of work of the
employee.

Here, it appears that Company X have hired the security guards, to have paid their wages,
to have the power to promote, suspend or dismiss the security guards and the power of
control over them, namely, the security guards were under orders of Company X with
regard to their employment. Having been engaged in labor-only contracting, Company X
is deemed as the employer of the security guards.

v. Rights of employees and of labor organizations; membership in unions

8. In the Collective Bargaining Agreement (CBA) between Seattle Grace Hospital

and SG Union, its rank-and-file Union which is directly affiliated with Grey
Federation, a national federation, a provision on the maintenance of membership
expressly provides that SG Union can demand the dismissal of any member
employee who commits acts of disloyalty to the Union as provided for in its
Constitution and By-Laws. The same provision contains an undertaking by the
Federation to hold Seattle Grace free from any and all claims of any employee
dismissed. During the term of the CBA, the Federation discovered that certain
employee members were initiating a move to disaffiliate from Grey Federation and
join a rival federation, Mercy West Federation. Forthwith, Grey Federation sought
the dismissal of its employee members initiating the disaffiliation movement from
Grey to Mercy West. Seattle Grace, relying on the provision of the aforementioned
CBA, complied with Grey Federation’s request and dismissed the employees
identified by Grey as disloyal to it. Will an action for Illegal dismissal against Seattle
Grace Hospital and Grey Federation prosper?

No, it is Seattle Grace Hospital, as the employer that has committed illegal dismissal and
not the Federation.

There is illegal dismissal because a local union has the right to disaffiliate from its mother
union or declare its autonomy, and such disaffiliation cannot be considered disloyalty; In
the absence of specific provisions in the federation’s constitution prohibiting disaffiliation
or the declaration of autonomy of a local union, a local union may dissociate from its parent
union (Malayang Samahan ng mga Manggagawa sa M. Greenfield vs. Ramos, G.R. No.
113907, February 28, 2000, Purisima).

Moreover, the CBA provision partakes of the nature of a union security clause. While
recognized as a that dismissal from employment due to the enforcement of the union
security clause in the CBA is another just· cause for termination of employment, pursuant
to security of tenure, in order to effect a valid dismissal of an employee, both substantial
and procedural due process must be observed by the employer.

To validly terminate the employment of an .employee through the enforcement of the union
·security clause, the following requisites must concur: (1) the union security clause is
applicable; (2) the union is requesting for the enforcement of the union security provision
in the CBA; and (3) there is sufficient evidence to support the decision of the union to expel
the employee from the union. (Slord vs. Noya, G.R. No. 232687, Feb. 4, 2019)

Falling short of said requirements, illegal dismissal was committed by Seattle Grace.

9. The Samahan ng Mga Manggagawa sa Seattle Grace Inc. lost its majority status
in the bargaining unit one year after the signing of the Collective Bargaining
Agreement (CBA). Bickerings among all the three other unions in the bargaining
unit were a daily occurrence, with each union asserting majority status. To resolve
this pestering problem, the Company and the three other unions agreed to hold a
consent election under the supervision of the Bureau of Labor Relations. In the
consent election, Seattle Grace Union won, and was accordingly recognized by the
Company as the exclusive bargaining representative in the bargaining unit. Is the
Seattle Grace Union bound by the CBA signed between the Company and the
Samahan ng Mga Manggagawa Sa Seattle Grace Inc.?

Yes. The Collective Bargaining Agreement is not invalidated by the change of the
bargaining agent while the CBA is still effective. Under the Substitutionary doctrine, during
the effectiveness of a collective bargaining agreement executed between employer and
employees thru their agent, the employees can change said agent but the contract
continues to bind them up to its expiration date. They may bargain, however, for the
shortening of said expiration date “In formulating the ‘substitutionary’ doctrine, the only
consideration involved was the employees’ interest in the existing bargaining agreement.
The agent’s interest never entered the picture. Here, there is still an effective CBA between
the employees and the company. There was only a change in the bargaining
representative of the employees. Applying the substitutionary doctrine, Seattle Grace
Union is still bound by the CBA signed by the Company and the previous union
representative (Benguet Consolidated Inc. vs. BCI Employees and Workers Union-
PAFLU, G.R. No. L-24711, April 30, 1968, Bengzon).

10. Union X filed a Notice of Strike with the National Conciliation and Mediation
Board (NCMB) of the Department of Labor and Employment. Upon a motion to
dismiss by the Company on the ground that the acts complained of in the notice of
strike are non-strikeable, the NCMB dismissed the Notice of Strike but continued
to mediate the issues contained therein to prevent the escalation of the dispute
between the parties. While the NCMB was conducting mediation proceedings, the
Union proceeded to conduct a strike vote as provided for under the Labor Code.
After observance of the procedural processes required under the Code, the Union
declared a strike. Is the strike legal?

No. Procedurally, for a strike to be valid, it must comply with Article 278 of the Labor Code,
which requires that: (a) a notice of strike be filed with the NCMB 30 days before the
intended date thereof, or 15 days in case of unfair labor practice; (b) a strike vote be
approved by a majority of the total union membership in the bargaining unit concerned,
obtained by secret ballot in a meeting called for that purpose; and (c) a notice be given to
the NCMB of the results of the voting at least seven days before the intended strike. These
requirements are mandatory, and the union’s failure to comply renders the strike illegal.
Considering that the strike was declared after the NCMB dismissed the Notice of Strike, it
is as if, no notice of strike was filed (Ergonomic Systems Philippines, Inc. vs. Enaje, G.R.
No. 195163 December 13, 2017, Martires).

Additionally, a strike made on the ground of a non-strikeable issue is always illegal.

11. The Secretary of Labor assumed jurisdiction over a strike and issued a return-
to-work order. The Union defied the return-to-work order and continued the strike.
The Company proceeded to declare all those who participated in the strike as
having lost their employment status. Was the Company's action valid?

Yes. Article 263 of the Labor Code provides that the assumption or certification of the
Secretary of Labor has the effect of automatically enjoining the intended or impending
strike or lockout as specified in the assumption or certification order. If one has already
taken place at the time of assumption or certification, all striking or locked out employees
shall immediately return-to-work and the employer shall immediately resume operations
and readmit all workers under the same terms and conditions prevailing before the strike
or lockout. Furthermore, the moment a worker defies a return-to-work order, he is deemed
 to have abandoned his job, as it is already in itself knowingly participating in an illegal act,
otherwise the worker will simply refuse to return to his work and cause a standstill in
company operations while returning the position he refuses to discharge or allow
management to fill (St. Scholastica's College vs. Torres, G.R. No. 100158, June 29, 1992,
Bellosillo).

From the moment a worker defies a return-to-work order, he is deemed to have

abandoned his job. The loss of employment status results from the striking employees'
own act - an act which is illegal, an act in violation of the law and in defiance of authority.
(PAL vs. Acting Secretary of Labor, 345 Phil. 756, 759)

12. PSEA is a local union of Skylander Company which is affiliated with PAFLU.
PSEA won the certification election among the rank and file employees of the
Skylander Company but its rival union PSEA·WATU protested the results. Pending
the resolution of such controversy, PSEA disaffiliated with PAFLU and hence
affiliated with NCW which was supported by its members. May a local union
disaffiliate with its mother federation pending the settlement of the status as the
sole and exclusive bargaining agent?

Yes. The pendency of an election protest does not bar the valid disaffiliation of the local
union which was supported by the majority of its members. The right of a local union to
disaffiliate with the federation in the absence of any stipulation in the Constitution and by-
laws of the federation prohibiting disaffiliation is well settled. Local unions remain as the
basic unit of association, free to serve their own interest subject to the restraints imposed
by the Constitution and by-laws of national federation and are free to renounce such
affiliation upon the terms and conditions laid down in the agreement which brought such
affiliation to existence. Here, no prohibition existed under the Constitution and by-laws of
the federation. Hence, the union may freely disaffiliate with the federation (Philippine
Skylanders vs. NLRC, G.R. No. 127374, January 3.1, 2002, Bellosillo).

vi. Management prerogative

13. In their recruitment process for flight attendants, Company A requires that the
applicant be single, not more than 24 years old and attractive. X, 23 years old, was
accepted as she possesses all the qualifications. After passing the probationary
period, X disclosed that she got married when she was 18 years old but the marriage
was already in the process of being annulled on the ground that her husband was
afflicted with a sexually transmissible disease at the time of the celebration of their
marriage. As a result of this revelation, X was not hired as a regular flight attendant.
Consequently, she filed a complaint against A alleging that the pre-employment
qualifications violate relevant provisions of the Labor Code and are against public
policy. Is the contention of A tenable?

Yes. Company X’s pre-employment requirement cannot be justified as a bona fide

occupational qualification, where the particular requirements of the job would justify it. The
said requirement is not valid because it does not reflect an inherent quality that is
reasonably necessary for a satisfactory job performance (Philippine Telegraph and
Telephone Company vs. NLRC, G.R. No. 118978, May 23, 1997). Further, Article 136 of
the Labor Code prohibits any form of discrimination against married women.

14. Hidilyn was hired by Grey Corporation sometime in 2014 as a front desk
receptionist at its hotel in Pasay City. In 2015, she was transferred to the
corporation’s hotel in Boracay. Hidilyn was promoted to the position of a hotel
supervisor two years after. In view of the pandemic, the corporation had to close its
hotel in Boracay Hidilyn thereafter received a written memorandum from the
corporation, reassigning her to the hotel in Pasay effective April 1, 2020, with
assurance that her position of supervisor was still there for her to hold. Hidilyn tried
to persuade the management to consider her position as redundant so that she
could be entitled to severance pay. Grey Corp did not accept Hidilyn’s proposal.
When Hidilyn continuously failed to report for work at the Pasay hotel, Grey corp
terminated her employment because of his refusal to accept her new assignment.
Hidilyn claims that his reassignment is tantamount to an Illegal constructive
dismissal. Do you agree with Hidilyn? Explain.

No. There is no constructive dismissal by the mere act of transferring an employee. There
is constructive dismissal if an act of clear discrimination, insensibility, or disdain by an
employer becomes so unbearable on the part of the employee that it would foreclose any
choice by him except to forego his continued employment. It exists where there is
cessation of work because “continued employment is rendered impossible, unreasonable
or unlikely, as an offer involving a demotion in rank and a diminution in pay (Phil. Employ
Services and Resources, Inc. vs. Paramio, 427 SCRA 732, G.R. No. 144786 April 15,
2004, Callejo Sr.). The act of transferring of an employee is part of management
prerogative of the company. In this case of constructive dismissal, the burden of proof lies
in the petitioner as the employer to prove that the transfer of the employee from one area
of operation to another was for a valid and legitimate ground, like genuine business
necessity. (Chateau Royale vs. Balba, G.R. No. 197492, Jan. 18, 2017)

In this case, the transfer could not be validly assailed as a form of constructive dismissal
as the actual place of work had to be closed.

15. April Kepner filed an Unfair Labor Practice case against its employer Mercy West
Hospital for changing her work shift from the morning shift to the evening shift. Will
the suit prosper?

No. An unfair labor practice under 259 of the renumbered Labor Code is when an employer
interferes, restrains or coerces employees in the exercise of their right to self-organization
or the right to form association. The right to self-organization necessarily includes the right
to collective bargaining. The change in work hours, unless to discourage or encourage
membership in any labor organization, is not a ULP.

Management retains the prerogative, whenever exigencies of the service so require, to

change the working hours of its employees. So long as such prerogative is exercised in
good faith for the advancement of the employer’s interest and not for the purpose of
defeating or circumventing the rights of the employees under special laws or under valid
agreements, the Court will uphold such exercise (Sime Darby Pilipinas Inc. v. NLRC, G.R.
No. 119205, April 15, 1998, Bellosillo).

16. The projected Christmas bonus for the employees of Isla Mararison Hotel was
50% of their monthly compensation. Unfortunately, due to the slump in the
business, the president reduced the bonus to 25% of their compensation. Can the
company unilaterally reduce the amount of bonus?

Yes. The matter of giving a bonus over and above the worker’s lawful salaries and
allowances is entirely dependent on the financial capability of the employer to give it
(Kimberly-Clark Philippines, Inc. vs. Dimayuga, G.R. No. 177705, September 18, 2009,
Carpio Morales). It is basically a management prerogative which cannot be forced upon
the employer "who may not be obliged to assume the onerous burden of granting bonuses
or other benefits aside from the employee's basic salaries or wages" xxx. (Kamaya Point
Hotel vs. NLRC, G.R. No. 75289, August 31, 1989, Fernan; Traders Royal Bank vs. NLRC,
G.R. No. 120592, March 14, 1997, Regalado).

17. Callie was hired by petitioner DMC as a nurse, and was eventually assigned to
the Pediatric Unit. In May 2019, upon exiting, Callie was subjected to the standard
inspection and in the course thereof, the Security Guard noticed found medical
stocks inside her bag which were subsequently confiscated. She was later required
to write an Incident Report giving an explanation. Consequently, Callie was placed
under preventive suspension until the conclusion of the investigation by DMC
which required her to explain why she should not be terminated from service for
"acts of dishonesty" due to her possession of the questioned items in violation of
the Code of Discipline, After hearing her side, SLMC, on July 4, 2019, informed
Sanchez of its decision to terminate her employment. Was Sanchez illegally
dismissed?

No. The right of an employer to regulate all aspects of employment, aptly called
"management prerogative," gives employers the freedom to regulate, according to their
discretion and best judgment, all aspects of employment, including work assignment,
working methods, processes to be followed, working regulations, transfer of employees,
work supervision, lay-off of workers and the discipline, dismissal and recall of workers.
Among the employer's management prerogatives is the right to prescribe reasonable rules
and regulations necessary or proper for the conduct of its business or concern, to provide
certain disciplinary measures to implement said rules and to assure that the same would
be complied with. At the same time, the employee has the corollary duty to obey all
reasonable rules, orders, and instructions of the employer; and willful or intentional
disobedience thereto, as a general rule, justifies termination of the contract of service and
the dismissal of the employee (St Luke's vs. Sanchez, G.R. No. 212054, March 11, 2015,
Perlas-Bernabe).

Alternative answer
If the incident report with explanation was not based on a Notice to Explain or any document of
similar nature giving Callie five (5) days to respond pursuant to Department Order No. 147-15, the
same shall be considered as illegal dismissal in violation of procedural due process.

18. Seattle Pres issued a memorandum implementing a new work schedule. It

eliminated the 30-minute paid "on call" lunch break of its monthly salaried
employees and instead provided for a 10-minute break time and one hour lunch
break. The employees felt adversely affected by the memorandum and filed before
the Labor Arbiter a complaint for unfair labor practice. The LA dismissed the
complaint on the ground that the change in the work schedule constituted a valid
exercise of management prerogative. Is changing the work schedule of the
employees a valid exercise of management prerogative?

Yes. The right to fix the work schedules of the employee rests principally on their employer.
The petitioner, as the employer, cites as reason for the adjustment the efficient conduct of
its business operations and improved production. Management retains the prerogative,
whenever exigencies of the service so require, to change the working hours of its
employees. So long as such prerogative is exercised in good faith for the advancement of
the employer's interest and not for the purpose of defeating and circumventing the rights
of the employees under special laws or under valid agreements, this court will uphold such
exercise (Sime Darby Pilipinas Inc. v. NLRC, G.R. No. 119205, April 15, 1998, Bellosillo).

19. Richard Webber had been working for Ellis Corporation since 1987. He later on
applied for retirement. Ellis required Webber to sign an undated Undertaking where
he promised that he will not seek employment with a competitor bank or financial
institution within one (1) year from February 28, 2015, and that any breach of the
Undertaking or the provisions of the Release, Waiver and Quitclaim would entitle
Ellis to a cause of action against him before the appropriate courts of law. Adele
Banking Corporation employed Webber. Is the post-retirement employment ban
incorporated in the Undertaking which Webber executed upon his retirement
unreasonable, oppressive, hence, contrary to public policy?

No. There is a distinction between restrictive covenants barring an employee to accept a

postemployment competitive employment or restraint on trade in employment contracts
and restraints on post-retirement competitive employment in pension and retirement plans
either incorporated. In employment contracts or in CBAs between the employer and the
union of employees, or separate from said contracts or CBAs which provide that an
employee who accepts post retirement competitive employment will forfeit retirement and
other benefits or will be obliged to reinstitute the same to the employer. The strong weight
of authority is that forfeitures for engaging in subsequent competitive employment included
in pension and retirement plans are valid even though unrestricted in time or geography.
A post-retirement competitive employment restriction is designed to protect the employer
against competition by former employees who may retire and obtain retirement or pension
benefits and, 'at the same time, engage in competitive employment (Rivera v. Solidbank,
G.R. No.163269, April 19, 2006, Callejo Sr.).
vii. Illegal recruitment of overseas Filipino workers

20. A was approached for possible overseas deployment to Dubai by X, an

interviewer of job applicants for Alpha Personnel Services, Inc., an overseas
recruitment agency. X required A to submit certain documents and to pay P25,000
as processing fee. Upon payment of the said amount to the agency cashier, A was
advised to wait for his visa. After five months, A visited the office of Alpha
Personnel Services, Inc. during which X told him that he could no longer be
deployed for employment abroad. A was informed by the Philippine Overseas
Employment Administration (POEA) that while Alpha Personnel Services, Inc. was
a licensed agency, X was not registered as its employee, contrary to POEA Rules
and Regulations. Under POEA Rules and Regulations, the obligation to register
personnel with the POEA belongs to the officers of a recruitment agency.

May X be held criminally liable for illegal recruitment?

It depends. Under the law, the persons criminally liable for illegal recruitment are the
principals, accomplices and accessories. While the obligation to register the personnel
belongs to the agency, if X actively engaged in recruitment despite knowledge that he/she
was not registered, then X may be held liable. (People vs. Chowdury, G.R. No. 129577-
80, February 15, 2000)

May the officers having control, management or direction of Alpha Personnel

Services, Inc. be held criminally liable for illegal recruitment?

Yes. Under Section 6 of Republic Act. No. 8042 or the Migrant Workers Act of 1995, the
failure to deploy without a valid reason and the failure to reimburse expenses incurred by
the worker in connection with his documentation and processing for purposes of
deployment, in cases where the deployment does not actually take place without the
worker‘s fault, amount to illegal recruitment. Here, Alpha, being a licensed recruitment
agency, failed to deploy the recruited worker and thus, is liable to reimburse him on the
expenses incurred with the required employment documents and processing fee of
P25,000.

21. In initiating actions against alleged illegal recruiters, may the Philippine
Overseas Employment Agency or the Secretary of Labor and Employment validly
issue warrants of search and seizure for arrest?

No. Under Section 2, Article III of the l987 Constitution, it is only a judge who may issue
warrants of search and arrest. The Secretary of Labor, not being a judge, may no longer
issue search or arrest warrants. Hence, the authorities must go through the judicial
process (Salazar vs. Achacoso, G.R. No. 81510, March 14, 1990, Sarmiento).

22. A, B and C fell victim to an unscrupulous person who represented himself to be

a recruiter who has the license to undertake recruitment and placement activities
and promised them work abroad. They want to file cases against the “recruiter” but
 are doubtful if both illegal recruitment and estafa will prosper since they will be
suing based on the same facts and acts committed. Will both cases prosper?

Yes. A conviction for illegal recruitment whether simple or committed on a large scale
would not preclude punishment for estafa under Article 315(2)(a) of the Revised Penal
Code because no double jeopardy could attach from the prosecution and conviction of the
accused for both crimes considering that they are penalized under different laws and
involve elements distinct from one another (People vs. Estrada, G.R. No. 225730,
February 28, 2018, Martires).

Conviction under Article 315(2)(a) of RPC requires the concurrence of the following
elements: (1) the accused defrauded another by abuse of confidence or by means of
deceit; and (2) the offended party, or a third party, suffered damage or prejudice capable
of pecuniary estimation. On the other hand, conviction for illegal recruitment under R.A.
No. 8042 in relation to the Labor Code requires two (2) elements: 1) the offender has no
valid license or authority required by law to enable one to lawfully engage in the
recruitment and placement of workers; and 2), the offender undertakes any of the activities
within the meaning of recruitment and placement defined in Article 13(b) of the Labor
Code, or any of the prohibited practices enumerated under Section 6 of R.A. No. 8042.

viii. Remedies (labor standards violations)

23. A sued for underpayment of wages before the NLRC, alleging that he was paid
below the minimum wage. The employer denied any underpayment, arguing that
based on long standing, unwritten policy, the company provided food and lodging
to its housekeeping employees, the costs of which were partly shouldered by it and
the balance was charged to the employees. The employees’ corresponding share
in the costs was thus deducted from their wages. The employer concluded that such
valid deduction naturally resulted in the payment of wages below the prescribed
minimum. Decide on the case.

I will rule in favor of A, the employee. Even if food and lodging were provided and
considered as facilities by the employer, the employer could not deduct such facilities from
its workers‘ wages without compliance with law (Mayon Hotel & Restaurant vs. Adana,
G.R. No. 157634, May 16, 2005, Puno). The employer simply cannot deduct the value
form the employee‘s wages without satisfying the following: (a) proof that such facilities
are customarily furnished by the trade; b) the provision of deductible facilities is voluntarily
accepted in writing by the employee; and (c) the facilities are charged at fair and
reasonable value (Mabeza v. NLRC, G.R. No. 118506, April 18, 1997, Kapunan).

Jurisprudence has likewise stated that board and lodging fees shouldered by the employer
do not automatically qualify as facilities. The purpose test means that even if a benefit is
customarily provided by the trade, it must still pass the purpose test set by jurisprudence.
Under this test, if a benefit or privilege granted to the employee is clearly for the employer’s
convenience, it will not be considered as a facility but a supplement. This test is used to
address inequitable situations wherein employers consider a benefit deductible from the
wages even if the factual circumstances show that it clearly redounds to the employers’
greater advantage. (Our Haus vs. Parian, G.R. No. 20465, Aug. 6, 2014, J. Brion)
24. A filed a case for Sexual Harassment against X alleging that the latter catcalled
her on the street just outside their house. X, in his defense, said that said offense
is not covered under the law against sexual harassment because it was not
committed in a workplace, educational, or training environment. Is X correct?

It depends whether the case for sexual harassment that was filed was under R.A. 7877 or
under R.A. 11313.

If the case for sexual harassment was filed under RA 7877, then X would be correct as
the act of sexual harassment must have been committed either in the work, education or
training environment.

However, this is not true if the same was filed under the Safe Spaces Act.

Under R.A. No. 11313 or the Safe Spaces Act, sexual harassment can now be committed
in streets and public spaces. The following are public spaces under the law: 1) streets and
alleys, public parks; 2) schools, buildings, malls, bars, restaurants; 3) transportation
terminals, public markets; 4) spaces used as evacuation centers; 5) government offices;
6) public utility vehicles as well as private vehicles covered by app-based transport
network services; and 7) other recreational spaces such as, but not limited to, cinema
halls, theaters, and spas Here, A was catcalled by X on the street, and the said location
is considered a public space under R.A. No. 11313. Therefore, X is guilty of sexual
harassment.

25. In sexual harassment cases, who is deemed to be an offender in the original law
as compared to the new law?
Under the original law, only persons in authority could be charged as offenders. There are
no provisions for harassment by subordinates or peers. Under the new law (R.A. No.
11313 or the Safe Spaces Act), anyone can be an offender. The Safe Spaces Act covers
even sexist, homophobic, and transphobic remarks.

26. In relation to Q24, can a case be filed under both laws?

Yes. The new law does not supersede the original Anti-Sexual Harassment Act. Hence, if
someone’s offense qualifies under both the Safe Spaces and Anti-Sexual Harassment
acts, they can be charged for counts under both laws. Offenses can also intersect other
laws like the Anti-Violence Against Women and Children Act.

27. Amiel Dela Cruz had been an employee of Avatar Insurance Company for the
last ten (10) years. His wife of seven (7) years died last year. They had four (4)
children. He then fell in love with Marie, his co-employee and they eventually got
married. In September this year, Marie, Amiel’s new wife, is expected to give birth
to her first child. He has accordingly filed his application for paternity leave. The
HRD manager of the insurance firm denied his application, on the ground that Amiel
had already used up his entitlement under that law. Amiel argued that he has a new
wife who will be giving birth for the first time, therefore, his entitlement to paternity
leave benefits would begin to run anew. Whose contention is correct, Amiel or the
HRD manager?
The contention of Amiel is correct. The facts do not show that Amiel, despite having a
previous marriage with four (4) children, has already availed of his paternity leave benefits.

More importantly, under R.A. No. 8187 or the Paternity Leave Act, every married male is
entitled to a paternity leave of seven (7) days for the first four (4) deliveries of the legitimate
spouse with whom he is cohabiting. Marie is Amiel's legitimate spouse with whom he is
cohabiting. The fact that Marie is his second wife and that Amiel had four (4) children with
his first wife is beside the point. The important fact is that this is the first child of Marie with
Amiel. The law provides that the paternity leave was intended to enable the husband to
effectively lend support to his wife in her period of recovery and/or in the nursing of the
newly born child. To deny Amiel of this benefit would be to defeat the rationale for the law.

28. John died in an accident while in the performance of his duties as an electrician
at a vessel. At the time of his demise, he was childless and unmarried, predeceased
by his adoptive parent Cornelio during his minority, and survived only by his
biological parent Bernardina. Bernardina filed a claim for death benefits, but the
SSS rejected her claim because she is no longer considered a primary beneficiary,
because she is no longer John’s legitimate parent due to his legal adoption by
Cornelio. Is the SSS correct?

NO. The term "parents" in the phrase "dependent parents" ought to be taken in its general
sense and cannot be unduly limited to "legitimate parents”. The phrase "dependent
parents" should, therefore, include all parents, whether legitimate or illegitimate and
whether by nature or by adoption. When the law does not distinguish, one should not
distinguish. Plainly, "dependent parents" are parents, whether legitimate or illegitimate,
biological or by adoption, who are in need of support or assistance.

The biological parent has the right to the benefits stemming from John’s death as a
dependent parent given the adoptive parent’s untimely demise during John’s minority. It
is true that adoption decree severed the relation between John and his biological parent,
effectively divesting the latter’s status of a legitimate parent, and consequently, that of
being a secondary beneficiary. However, it should be noted that parental authority should
be deemed to have reverted in favor of the biological parent upon death of the adoptive
parent during the adoptee’s minority. Thus, the death benefits under the Employees
Compensation Program shall accrue solely to the surviving biological parent, John’s sole
remaining beneficiary (Bartolome vs. SSS, G.R. No. 192531, 12 November 2014, Velasco,
Jr.).

Section 4(b) (7) of R.A. No. 8282 mandates SSS to examine available statistical and
economic data to ensure that the benefits fall into the rightful beneficiaries, assuming that
the biological parent is able to prove filiation via necessary documents, said parent is
considered as a qualified beneficiary under the SSS law.

29. Nicolas married Mila on July 10, 1983. Nicolas was a 72- year old widower when
he married Milagros who was then 43 years old. In his retirement application,
Nicolas designated his wife Milagros as his sole beneficiary. Nicolas' last day of
actual service was on 17 February 1985. On 31 January 1986, GSIS approved
Nicolas' application for retirement "effective 17 February 1984," granting a lump
sum payment of annuity for the first five years and a monthly annuity thereafter.
Nicolas died on 22 April 1992. Milagros filed with GSIS a claim for survivorship
pension under PD 1146. On 8 June 1992, GSIS denied the claim because under
Section 18 of PD 1146, the surviving spouse has no right to survivorship pension if
the surviving spouse contracted the marriage with the pensioner within three years
before the pensioner qualified for the pension. According to GSIS, Nicolas wed
Milagros on 10 July 1983, less than one year from his date of retirement on "17
February 1984." Is the GSIS correct?

No. The law defines dependent as "the legitimate, legitimated, legally adopted,
acknowledged natural or illegitimate child who is unmarried, not gainfully employed, and
not over twenty-one years of age or is over twenty-one years of age but physically or
mentally incapacitated and incapable of self-support." The term also includes the
legitimate spouse dependent for support on the member, and the legitimate parent wholly
dependent on the member for support. The present GSIS law does not presume that
marriages contracted within three years before retirement or death of a member are sham
marriages contracted to avail of survivorship benefits. The law acknowledges that whether
the surviving spouse contracted the marriage mainly to receive survivorship benefits is a
matter of evidence (GSIS v. Montesclaros, G.R. No. 146494, July 14, 2004, Carpio).

30. Pedro was elected as the Mayor of the town of Isabela when he was 64 years old
and was required to pay the life and retirement premiums under the compulsory
coverage of the GSIS Law. During the next year when he turned 65 years old, Pedro
alleges that he should not be required to pay premiums anymore since he has
already attained the compulsory retirement age. Is Pedro correct?

No. As a general rule, all employees receiving compensation who have not reached the
compulsory retirement age, irrespective of employment status. However, an employee
who is already beyond the mandatory retirement age of 65 shall be compulsorily covered
and be required to pay both the life and retirement premiums under the certain situations
which includes those instances when an elective official who at the time of election to
public office is below 65 years of age and will be 65 years or more at the end of his term
of office, including the period/s of his re-election to public office thereafter without
interruption. Since Pedro was elected when he was 64 years old, he is still required to pay
premiums (Section 2.2, Rule II, IRR, R.A. No. 829).

31. Ariel worked in the private sector for 15 years and now starts to work as a public
servant. As a new employee in the public sector, he inquired with the Human
Resource Department whether his payments to the Social Security System (SSS)
can be transferred or credited to the Government Service Insurance System (GSIS).
The HR staff told him that his previous payments to SSS will be forfeited. Is the HR
staff correct?

No. Under R.A. No. 7699, otherwise known as the Portability Law, an employee may
combine his years of service in the private sector represented by his contributions to the
Social Security System (SSS) with his government service and contributions to the GSIS.
The contributions shall be totalized for purposes of old-age, disability, survivorship and
other benefits in case the covered member does not qualify for such benefits in either or
both Systems without totalization. In this case, Ariel’s previous and current contribution to
SSS and GSIS, respectively, may be totalized for his availment of benefits, provided that
he would not qualify for such benefits in either or both Systems without totalization (Section
3, R.A. No. 7699).

32. Wilfredo, a truck driver employed by a local construction company, was injured
in an accident while on assignment in one of his employer’s projects in Iraq.
Considering that his injury was sustained in a foreign country, is Wilfredo entitled
to benefits under the Employees’ Compensation Program?

Yes. Under jurisprudence, for the injury and the resulting disability or death to be
compensable, the injury must be the result of an employment accident satisfying all of the
following conditions:

The employee must have been injured at the place where his work requires him to be;

The employee must have been performing his official functions; and

If the injury is sustained elsewhere, the employee must have been executing an order for
the employer

Filipinos working abroad in the service of an Employer, domestic or foreign, who carries
on in the Philippines any trade, business, industry, undertaking or activity of any kind, are
covered by the Employees Compensation Program (Section 5, Rule 1, ECC Rules; Article
169, Labor Code).

33. New Filipino Maritime Agencies, Inc. (NFMA), for and on behalf of St. Paul
Maritime Corp. (SPMC), employed Simon Datayan II (Simon) as deck cadet on board
the vessel Corona Infinity for a period of nine months. On December 30, 2007,
Raymond Ocleasa saw Simon jump overboard after being reprimanded due to poor
performance in a fire and emergency drill. After a few weeks, Simon was declared
missing and was presumed dead. A suicide note was found in his belongings.
Simon 's father (Datayan) filed for death benefits but his claim was unheeded. He
then filed a complaint against the company and averred that Simon died during the
term of his employment, thus entitled for such benefit. NFMA on the other hand
argued that Simon’s death was a result of Simon’s deliberate act. Is NFMA liable for
the death benefits of Simon?

No. As claimant for death benefits, Datayan has the burden to prove by substantial
evidence that his son's death is work-related and that it transpired during the term of his
employment contract. In this respect, Datayanwas able to discharge his burden. The
burden then shifted to the company to prove that Simon's death was due to his deliberate
act. NFMA discharged their burden to prove that Simon committed suicide. The Master's
Report as well as the Statement of Facts described the events that occurred prior to,
during and after the incident when Simon went overboard. Furthermore, the suicide note
found was informative as to why Simon committed suicide (New Filipino Maritime
Agencies Inc., et.al., vs. Datayan, G.R. No. 202859, November 11, 2015, Del Castillo).

34. Myra, a 60-year old unmarried mother to a 17-year old daughter. has been a stay-
in kasambahay of Spouses Rolando and Liza in Pasay City for 15 years. The
spouses left for Canada for a month, leaving behind their 17-year old son, Marco.
The spouses had instructed Myra to stay and take care of the house and Marco, just
like the previous years when the spouses went out of the country. A week before
the spouses returned from their Canada trip. Myra asked Marco if she could avail
her parental leave for 7 days to go home to Bacolod to check on her sick 17-year
old daughter, Tin, who is living with Myra's sister, Natalie. Marco did not agree due
to the instructions of his parents but was prevailed upon. Is Myra entitled to a
parental leave under the Solo Parents' Welfare Act of 2000, or R.A. No. 8972?

No. Section 3 of R.A. No. 8972 provides the categories of inclusion in the term "Solo
Parent" which includes unmarried mother/father who has preferred to keep and rear
her/his child/children instead of having others care for them or give them up to a welfare
institution. In this case, Myra has not kept the custody of her daughter, Tin and left the
care of Tin to her sister, Natalie. Hence, Myra does not classify as a Solo Parent entitled
to a parental leave under R.A. No. 8972.

35. Erik was abandoned by his wife and left their 3-year old daughter with him for
more than 3 years. Thereafter, he applied and was qualified as a solo parent entitled
to solo parent leave. During the current year, his wife reconciled with him and they
agreed with an arranged schedule of taking care of their daughter. Subsequently,
Erik went to the Social Welfare Office to renew his Solo Parent ID. However, the
Social Worker informed him that he is not eligible anymore since he already
reconciled with his wife. Erik argues that although they reconciled, they are still not
living together as husband and wife, hence, he is still a solo parent. Is Erik correct?

No. Section 3 of R.A. No. 8972 provides that a change in the status or circumstance of
the parent claiming benefits under the Solo Parent Act, such that he/she is no longer left
alone with the responsibility of parenthood, shall terminate his/her eligibility for these
benefits. Since Erik does not bear the sole responsibility of taking care of their daughter
anymore, he is disqualified from being a Solo Parent under R.A. No. 8972.

36. Soledad, a widowed school teacher, takes under her wing one of her students,
Kiko, 13 years old, who was abandoned by his parents and has to do odd jobs in
order to study. She allows Kiko to live in her house, provides him with clean clothes,
food, and a daily allowance of 200 pesos. In exchange, Kiko does routine
housework, consisting of cleaning the house and doing errands for Soledad. One
day, a representative of the DOLE and the DSWD came to Soledad's house and
charged her with violating the law that prohibits work by minors. Soledad objects
and offers as a defense that she was not requiring Kiko to work as the chores were
not hazardous. Further, she did not give him chores regularly but only intermittently
as the need may arise. Is Soledad's defense meritorious?

No. Under the DOLE Rules, children under foster family arrangement are those who are
living with a family or household of relative/s and are provided access to education and
given an allowance incidental to education, i.e., “baon,” transportation, school projects,
and school activities; provided, that the foster family and foster care arrangements are in
compliance with the procedures and requirements as prescribed by Republic Act No.
10165 or Foster Care Act of 2012.

There is no proof that Soledad as complied with statutory requirements stated above
coupled with the fact that it was the DOLE and the DSWD, the main agencies involved in
the matter, that declared Soledad to have committed the violation of employing a minor.

37. Billy served as a chief baker for Panaderia de Tony's, a bakery in Makati-/10 Due
to serious business losses on account of bad management by the owners, coupled
with the Metro Manila lockdown due to a pandemic, the panaderia closed down and
Billy lost her job. To survive, Billy sought for whatever work she could find. In April
2020, Billy found work as an in-house cook for Spouses Gabo and Rio, and for
P5,000.00 monthly. Just barely a month into her work, Billy had to borrow
P150,000.00 for the surgery of her father who is in Nueva Valencia. As payment.
Billy proposed a salary deduction of P1,000.00, and to make, in her free time during
afternoons, a special pudding for the spouses to sell, with ingredients provided by
the latter. According to Billy, her special pudding was able to sustain the panaderia
were it not for bad management. The spouses agreed with the proposals.
Thereafter, a successful surgery of her father took place. On the other hand, for May
2020, the sale of special pudding registered a net income of P24,000.00. But for the
first two weeks of June 2020, the production deteriorated since Billy was busy with
her new boyfriend. Stephen. Consequently, a net loss was recorded for that month.
At the start of July 2020, Billy requested if she could go home to Nueva Valencia to
take care of her father. Feeling deceived, the spouses denied the request of Billy
and told her that she must continue working to their satisfaction even after the
borrowed money is paid through salary deduction. Are the spouses justified in
denying Billy's request?

No. Section 15 of R.A. No. 10361 or the "Domestic Workers Act” provides that it shall be
unlawful for the employer or any person acting on behalf of the employer to place the
domestic worker under debt bondage. Further, debt bondage was defined in Section 4 of
the said Act as the rendering of service by the domestic worker as security or payment for
a debt where the length and nature of service is not clearly defined or when the value of
the service is not reasonably applied in the payment of the debt. In this case, the demand
of the spouses that Billy must continue working to their satisfaction even after the borrowed
money is paid through salary deduction constitutes debt bondage, hence, not valid.

38. Allan broke his arm and was immediately brought to the hospital for immediate
treatment. After his treatment, and while he was being informed of the further
treatments that he needs to avail, he was asked for his Philhealth ID. The
administrative assistant explained to him that his Philhealth ID is a requirement for
the availment of medical services. Is the administrative assistant correct?

No. Section 9 of R.A. No. 11223 or the Universal Health Care Act provides that every
member shall be granted immediate eligibility for health benefit package under the
Program and that PhilHealth Identification Card shall not be required in the availment of
any health service.

Further, under said act, all citizens are members of PhilHealth which does not even
presuppose an ID.

39. A has been working as a housemaid for the B spouses for three (3) years. While
they were watching the live coverage of the finals of the Tokyo Olympics boxing
match, A shouted that the scoring was unfair. Peeved by A’s angry remarks, the B
spouses fired her on the spot. A thereafter filed a complaint with the Regional
Director of the DOLE for unpaid salaries totaling P5,500.00. The B spouses moved
to dismiss the complaint on the belief that A’s claim falls within the Jurisdiction of
the Labor Arbiter. A, however, claimed that the Regional Director can decide on her
claim by virtue of his plenary visitorial powers under Art. 128 and of Art. 129 of the
Labor Code, as amended, which empowers the Regional Director to hear and
decide, among others, matters involving recovery of wages. If you were the
Regional Director, how would you decide?

I will dismiss A’s complaint; the claim does not fall within the jurisdiction of the Regional
Director. Under Article 129 of the Labor Code, a money claim arising from employer-
employee relations, except SSS/ECC/Medicare claims, is within the jurisdiction of the
Labor Arbiter if (a) the claim, regardless of amount, is accompanied with a claim of
reinstatement or (b) the claim exceeds P5000 whether or not there is a claim for
reinstatement. Here, the case did not arise as a result of the exercise of visitorial and
enforcement powers by the Regional Director, as the duly authorized representative of the
Secretary of Labor and Employment. Instead, the claim is for unpaid salaries amounting
to P5500. Thus, it is the Labor Arbiter who has jurisdiction.

Will your answer be the same if A’s claim is P4500 with reinstatement?

Yes. Under Article 129 of the Labor Code, a money claim arising from employer-employee
relations, except SSS/ECC/Medicare claims, is within the jurisdiction of the Labor Arbiter
if (a) the claim, regardless of amount, is accompanied with a claim of reinstatement or (b)
the claim exceeds P5000 whether or not there is a claim for reinstatement.Since there is
a claim for reinstatement, the jurisdiction still remains with the Labor Arbiter.

40. M, janitor at Dolomite Company, sued the company for constructive dismissal.
The Labor Arbiter upheld M’s claim of constructive dismissal and ordered Dolomite
Company to immediately reinstate him. Dolomite appealed the decision to the
NLRC. M sought immediate enforcement of the reinstatement order while the appeal
was pending. Dolomite opposed on the ground that it was able to post a bond.
Decide.

Dolomite company should reinstate M pending appeal. Under Article 223 of the Labor
Code, the decision of the Labor Arbiter reinstating a dismissed or separated employee,
insofar as the reinstatement aspect is concerned, shall immediately be executory, even
pending appeal. The employee shall either be admitted back to work under the same terms
and conditions prevailing prior to his dismissal or separation or, at the option of the
employer, merely reinstated in the payroll. The posting of a bond by the employer shall
not stay the execution for reinstatement provided herein. Hence, Dolomite company
should reinstate M despite it being able to post a bond.
 TAXATION LAW
Questions & Answers
ALAS Bar Operations 2020-2021

I. BASIC PRINCIPLE OF TAXATION IN THE CONSTITUTION

General Concepts of Taxation, Prohibition on Compensation and Set-Off

Q: Discuss the rule on prohibition of compensation and off-setting of taxes.

A: As a rule, taxes cannot be subject to compensation because the government and the taxpayer
are not creditors and debtors of each other.

However, where both the claims of the government and the claim of the taxpayer have already
become overdue and demandable as well as fully liquidated, compensation therefore takes place
by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount. Off-setting of taxes is also allowed if
determination of the taxpayer's liability is intertwined with the resolution of the claim for tax refund
of erroneously or illegally collected taxes under Section 229 of the NIRC, as amended. (Philex
Mining Corp. v. Commissioner of Internal Revenue; Domingo v. Garlitos, GR. No. L-18994 dated
June 29, 1963; CIR v. Toledo Power Company, G.R. No. 196415 dated December 2,2015)

Taxing Authority/Jurisdiction, Power and Functions of the Commissioner of Internal

Revenue/Non-retroactivity of rulings

Q: When may rules and regulations or rulings or circulars promulgated by the Commissioner of
Internal Revenue be given retroactive application?

A: The NIRC, as amended, provides that rules and regulations, rulings or circulars promulgated
by the Commissioner may be given retroactive application:
(1) where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue (BIR);
(2) where the facts subsequently gathered by the BIR are materially different from the facts on
which the ruling is based; or
(3) where the taxpayer acted in bad faith. (Section 246 of the NIRC, as amended)
 II. INCOME TAX

Special Rules Pertaining to Income from Dealings in Property,

Q: What is the loss limitation rule for capital asset?

A: Under the loss limitation rule, losses from sales or exchanges of capital assets shall be allowed
only to the extent of the gains from such sales or exchanges. Under this rule, the taxpayer can
only deduct capital loss from capital gain. Stated otherwise, if there is no capital gain, then, no
deduction is can be made because the taxpayer cannot deduct capital loss from ordinary gain.
(Section 39(C) of NIRC, as amended)

Special Rules Pertaining to Income from Dealings in Property,

Q: When will loss limitation rule for capital asset not apply?

A: The loss limitation rule shall not be applicable to any loss resulting from sale by a bank or trust
company incorporated under the laws of the Philippines, a substantial part of whose business is
the receipt of deposits, of any bond, debenture, note, or certificate or other evidence of
indebtedness issued by any corporation (including one issued by a government or political
subdivision thereof), with interest coupons or in registered form. (Section 39(C) of NIRC, as
amended)

Special Rules Pertaining to Income from Dealings in Property,

Q: Explain the Loss carry-over rule or Net Capital Loss Carry-Over (NCLCO).

A: Under the loss carry-over rule, if any taxpayer, other than a corporation, sustains in any taxable
year a net capital loss, such loss (in an amount not in excess of the net income for such year)
shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital
asset held for not more than twelve (12) months. (Section 34(D)(3) of NIRC, as amended)

Special Rules Pertaining to Income from Dealings in Property, Tax Free Exchange

Q: What are the tax-free exchanges under the NIRC as amended by TRAIN Law?

A: 1.) If in pursuance of a plan of merger or consolidation

(a) A corporation, which is a party to a merger or consolidation, exchanges property solely
for stock in a corporation, which is a party to the merger or consolidation; or
(b) A shareholder exchanges stock in a corporation, which is a party to the merger or
consolidation, solely for the stock of another corporation also a party to the merger or
consolidation; or
 (c) A security holder of a corporation, which is a party to the merger or consolidation,
exchanges his securities in such corporation, solely for stock or securities in such corporation, a
party to the merger or consolidation.

2.) If property is transferred to a corporation by a person in exchange for stock or unit of

participation in such a corporation of which as a result of such exchange said person, alone or
together with others, not exceeding four (4) persons, gains control of said corporation.
(Section 40 (C)(2) of the NIRC as amended by TRAIN LAW)

Gross Income, Prizes and Award

Q: What are the prizes and award excluded from gross income?

A: 1. Those made primarily in recognition of religious, charitable, scientific, educational, artistic,

literary, or civic achievement but only if the recipient:
a. Was selected without any action on his part to enter the contest or proceeding; and
b. Is not required to render any substantial future service as a condition to receiving the
prize or award. (Section 32 (B)(7)(c) of the NIRC as amended)
2. Those granted to athletes in local and international sports competitions and tournaments
whether held in the Philippines or abroad provided sanctioned by their national sports
associations. (Section 32 (B)(7)(d) of the NIRC as amended)

Dividends

Q: What are the taxable dividends?

Kinds of Dividends Treatment

Cash Dividends Taxable either under RIT or FT
Property Dividends Taxable either under RIT or FT
Stock Dividends Generally not taxable;
Exception:
1. Under Sec. 73(B) when the following
concur:
a. There is redemption or cancellation of
shares of stock.
b. The transaction involves stock
dividends, and
c. The “time and manner” of the
transaction makes it “essentially
equivalent to a distribution of taxable
dividends” (CIR vs. CA, CTA &
ANSCOR, G.R. No. 108576, January
30, 1999).

2. The recipient is other than the shareholder

(Brachrach vs. Seifert, G.R. No. L-2659,
October 12, 1950).
 3. Change in the stockholder’s equity results
by virtue of the stock dividend issuance.

Liquidating Dividends When a corporation distributes all of its assets

in complete liquidation or dissolution, the gain
realized or loss sustained by the stockholder,
whether individual or corporation, is taxable
income or deductible loss, as the case may be
(Section 73(A) of the NIRC).

Exclusions from Gross Income, Compensation for Injuries or Sickness and Damages

Q: Is backwages, allowances and benefits in a labor dispute part of gross income?

A: Yes. Backwages, allowances and benefits awarded in a labor dispute constitute remuneration
for services that would have been performed by the employee in the year when actually received,
or during the period of his dismissal from the services was subsequently ruled to be illegal. The
employee should report as income and pat the corresponding taxes by allocating or spreading his
backwages, allowances and benefits through the years from his separation up to the final decision
of the court awarding the backwages.the said backwages, allowances and benfits are subject to
withholding tax on wages. (Revenue Memorandum Circular No. 39-2012)

Withholding Tax, Concept

Q: When is the obligation to withhold taxes arises?

A: Obligation to withhold final or creditable withholding taxes arises at the time an income payment
is (1) paid or (2) payable or (3) accrued or recorded as an expense or asset, whichever is
applicable in the payor's books, whichever comes first. (Revenue Regulations No. 2-1998, as
amended)

The term "payable" refers to the date the obligation becomes due, demandable or legally
enforceable. The “accrual” of income and expense is permitted when the all-events test has been
met. This test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of
the reasonable accurate determination of such income or liability. (Regulations No. 2-1998, as
amended; CIR v. Isabela Cultural Corporation. G.R. No. 172231 dated February 12,2007)

Withholding Tax, Concept

Q: Discuss the concept of withholding taxes.

A: The concept of a withholding tax on income obviously and necessarily implies that the amount
of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax
withheld constitutes income earned by the taxpayer, then that amount manifestly forms part the
taxpayer‘s gross receipt. Because the amount withheld belongs to the taxpayer, he can transfer
its ownership to the government in payment of his tax liability. (China Banking Corporation vs.
CA, G.R. No. 146749 dated June 10, 2003).

Withholding Tax, Concept

Q: What are consequences of failure to withhold taxes on income payments?

A: Any person who failed to withhold the required taxes shall be:
1. Liable for interest and surcharges
2. Liable upon conviction to a penalty equal to the total amount of the tax not withheld, or not
accounted for and remitted.
3. Any amount paid or payable which is otherwise deductible from, or taken into account in
computing gross income shall not be allowed as a deduction if it is shown that the tax required to
be deducted and withheld therefrom is not paid to the BIR.
(Sections 34(K), 248, 249, and 251 of the NIRC, as amended)

Withholding Tax, Concept

Q: Smart Corporation, a domestic corporation, entered into three services agreement with PRISM
Corp, a non-resident corporation. Smart withheld the amount of P7 million for the income received
by PRISM. However, the income received by PRISM was not considered taxable income under
a treaty. Smart filed with the BIR an administrative claim for refund for the amount of P7 million.
Is Smart has the legal interest to file the refund?

A: Yes. A withholding agent has a legal right to file a claim for refund for two reasons. First, he is
considered a "taxpayer" under the NIRC as he is personally liable for the withholding tax as well
as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld
be finally found to be less than the amount that should have been withheld under law. Second,
as an agent of the taxpayer, his authority to file the necessary income tax return and to remit the
tax withheld to the government impliedly includes the authority to file a claim for refund and to
bring an action for recovery of such claim. (Commissioner of Internal Revenue vs Smart
Communication, Inc, G.R. No. 179045-46 dated August 25, 2010)

*Note: In this connection, it is however significant to add that while the withholding agent has the
right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to
remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what
he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal
taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a
claim for refund. (Commissioner of Internal Revenue vs Smart Communication, Inc, G.R. No.
179045-46 dated August 25, 2010)
Deductions from Gross Income

Q: Discuss the optional treatment of interest expense for income tax purposes.

A: In general, the amount of interest paid or incurred within a taxable year on indebtedness in
connection with the taxpayer’s profession, trade or business shall be allowed as deduction from
gross income. However, at the option of the taxpayer, interest incurred to acquire property used
in trade, business or exercise of a profession may be treated as a capital expenditure. (Sections
34 (B) of the NIRC, as amended)

Deductions from Gross Income

Q: May interest paid for delinquent taxes be claimed as deductible expense for income tax
purposes?

A: Yes, although interest payment for delinquent taxes is not deductible as tax under Section
23(C) of the NIRC, the taxpayer is not precluded thereby from claiming said interest payment as
deduction as interest on indebtedness under Section 23 (B) of NIRC. (CIR v. Consuelo L. Vda.
De Prieto, G.R. No. L-13912)

Deductions from Gross Income

Q: State the rules regarding the deductibility of advertising expenses.

A:
Kind of Advertising Expense Treatment
Advertising to stimulate current sale of Deductible as business expense for the
merchandise or use of services current period
Advertising designed to stimulate future Spread out over a reasonable period of
sale (example to create or maintain time
goodwill)
(Commissioner of Internal Revenue vs Genera Foods (Phils.), Inc., G.R. No. 143672 dated
April 24, 2003)

Criteria in Imposing Philippine Income Tax

Q: Give the criteria in imposing Philippine income tax.

A: The following are the criteria in imposing Philippine income tax:

1. A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines;
2. A non-resident citizen is taxable only on income derived from sources within the Philippines;
 3. An individual citizen of the Philippines who is working and deriving income from abroad as
an overseas contract worker is taxable only on income derived from sources within the
Philippines: Provided, that a seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an overseas contract worker;
4. An alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines;
5. A domestic corporation is taxable on all income derived from sources within and without the
Philippines; and
6. A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines. (Sections 23 of the NIRC, as
amended)

Gross Income

Q: What is “Tax Benefit Rule”?

A: Under the Tax benefit Rule, otherwise known as the Doctrine of Equitable Tax Benefit, when
a taxpayer recovers or collects an item that was deducted in the previous year, such taxpayer will
be taxed on the amount received or recovered unless the prior deduction was of no "tax benefit"
because it did not reduce his tax liability. Thus, when a taxpayer recovered a bad debt written off
that was previously claimed as deduction in the preceding year or years, such amount recovered
shall be included as part of the taxpayer's gross income in the year of such recovery to the extent
of the income tax benefit of said deduction. (Sections 34(C)(1)(d) and 34(E)(1) of the NIRC, as
amended)

Income Tax on Individuals

Q: Following the effectivity of the Tax Reform for Acceleration and Inclusion (TRAIN) Law, discuss
the taxability of employees of regional or area headquarters and regional operating headquarters,
offshore banking units, and petroleum service contractors and subcontractors.

A: Under the TRAIN Law, the respective income of the alien individuals employed by regional or
area headquarters and regional operating headquarters of multinational companies, offshore
banking units and petroleum service contractors and subcontractors shall be similarly taxed as
income of regular employees of locally established entities.

As such, these alien individuals are subject to the same administrative requirements set by
the BIR on other regular employees, such as the substituted filing, inclusion in the monthly
withholding tax remittance on compensation, as well as in the prescribed alphalists, etc. (Republic
Act No. 10963; Section 4.C of Revenue Regulations No. 08-2018; Revenue Memorandum
Circular No. 116-2019)
Income Tax on Corporations; Domestic Corporations

Q: First E-Bank Tower Condominium Corporation is a non-stock non-profit condominium

corporation and owned and possessed, through its members, a condominium office building. First
E-Bank alleged that the revenue circular issued by the Bureau of Internal Revenue (BIR) in
clarifying that association dues, membership fees, and other assessments/charges collected by
a condominium corporation from its members, tenants and other entities are subject to income
tax was oppressive and confiscatory.

Is the BIR correct in its interpretation that a condominium corporation is engaged in trade or
business and as such its association dues, membership fees, and other assessments/charges
subject to income tax?

A: No, a condominium corporation is not engaged in trade or business and its collection of
association dues, membership fees, and other assessments/charges are not subject to income
tax.

A condominium corporation under the law is not designed to engage in activities that generate
income or profit and the collection of association dues, membership fees, and other
assessments/charges is purely for the benefit of the condominium owners. Jurisprudence
provides that in order to constitute income, there must be realized gain. Under the TRAIN Law,
taxable income means the pertinent items of gross income specified in the Code, less any
deductions if any, authorized for such types of income by the Code or other special laws and
gross income means income derived from whatever source, including compensation for services;
the conduct of trade or business or the exercise of a profession.

Here, the expenditures incurred by condominium corporations on behalf of the condominium

owners are neither intended to generate revenue nor equate to the cost of doing business. Hence,
association dues, membership fees, and other assessments/charges are not subject to income
tax because they do not constitute profit or gain and are only an incidental consequence of a
condominium corporation’s responsibility to effectively oversee, maintain, or even improve the
common areas of the condominium as well as its governance. (G.R. No. 215801, January 15,
2020 In the Matter of Declaratory Relief on the Validity of BIR Revenue Memorandum Circular
No. 65-2012 “Clarifying the Taxability of Association Dues, Membership Fees and Other
Assessments/Charges Collected by Condominium Corporations”; Republic Act No. 10963)

Income Tax on Corporations

Q: On April 8, 2009, PAGCOR granted Bloomberry Resorts and Hotes, Inc. (Bloomberry) a
provisional license to establish and operate an integrated resort and casino complex at the
Entertainment City project site of PAGCOR. Being one of its licensees, Bloomberry only pays
PAGCOR license fees, in lieu of all taxes. However, when Republic Act No. 9337 took effect, it
excluded PAGCOR from the enumeration of government-owned or controlled corporations
exempt from paying income tax. Consequently, the BIR issued a revenue circular declaring that
PAGCOR, in addition to the five percent (5%) franchise tax of its gross revenue, is now subject
to regular corporate income tax. In addition, a provision in the circular states that PAGCOR’s
contractees and licensees, being entities duly authorized and licensed by it to perform gambling
casinos, gaming clubs and other similar recreation or amusement places, and gaming pools, are
likewise subject to income tax. Bloombery is now assailing the validity of the revenue circular and
states that implementing income taxes on PAGCOR’s licensees and operators when an
exemption for such is already provided for by law seriously affects national interest.

If you were the Court, how would you rule on the proper tax treatment of Bloomberry’s income?

A: If I were the Court, I would rule that Bloomberry’s income from its gaming operations of
gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming
pools is not subject to corporate income tax but to the 5% franchise tax. However, its income from
other related services is subject to regular corporate income tax.

Presidential Decree No. 1869, as amended, which expressly provides the tax treatment of
PAGCOR’s income prevails over RA No. 9337, which is a general law. It is a canon of statutory
construction that a special law prevails over a general law.

Here, given that PAGCOR’s Charter is not deemed repealed or amended by RA No. 9337,
PAGCOR’s income derived from gaming operations is subject only to the 5% franchise tax and
with respect to PAGCOR’s income from operation of other related services, the same is subject
to income tax and hence, such grant of exemption inures to the benefit of Bloomberry, as a
corporation with whom PAGCOR has a contractual relationship in connection with the operations
of the casinos authorized to be conducted under its Franchise. (G.R. No. 212530, August 10,
2016 Bloomberry Resorts and Hotels, Inc. vs. Bureau of Internal Revenue)

Income Tax on Corporations; Minimum Corporate Income Tax (MCIT)

Q: The Chamber of Real Estate and Builders’ Associations, Inc. is an association of real estate
developers and builders in the Philippines who is questioning the constitutionality of Republic Act
No. 8424 and the revenue regulations issued by the BIR to implement the imposition of MCIT on
corporations. The association argues that the imposition of MCIT is unconstitutional because it
violates the due process clause and a confiscation of capital because gross income, unlike net
income, is not “realized gain”.

Is the imposition of the MCIT on domestic corporations a tax imposed on capital?

A: No, the MCIT is not a tax on capital.

Under the Code, for income to be taxable, the following requisites must exist: (1) there must be
gain; (2) the gain must be realized or received and; (3) the gain must not be excluded by law or
treaty from taxation. The MCIT is imposed on gross income which is arrived at by deducting the
capital spent by a corporation in the sale of its goods, i.e., the cost of goods sold and other direct
expenses from gross sales to which the capital is not being taxed.

Here, the MCIT is neither an additional tax imposition nor a tax on capital but is imposed in lieu
of the normal net income tax. (G.R. No. 160756, March 9, 2010 Chamber of Real Estate and
Builders’ Associations, Inc. vs. the Hon. Executive Secretary Alberto Romulo, the Hon. Acting
Secretary of Finance Juanita D. Amatong, and the Hon. Commissioner of Internal Revenue
Guillermo Parayno, Jr.)

Income Tax on Individuals

Q: Discuss how income tax is imposed on individuals earning purely compensation income, self-
employed individuals and/or professionals, and partners of a General Professional Partnership
(GPP) following the passage and effectivity of the Tax Reform for Acceleration and Inclusion
(TRAIN) Law.

A: Under the TRAIN Law, individuals earning purely compensation income other than minimum
wage earners shall be taxed at the graduated rates.

Self-employed individual and/or professional whose gross sales/receipts and other non-
operating income does not exceed the VAT threshold of three million have an option to avail of
graduated rates or an 8% tax on gross sales or receipts and other non-operating income in excess
of 250,000 pesos in lieu of the graduated tax rates and the percentage tax. The option to be taxed
at 8% rate is not available to a VAT-registered taxpayer and a taxpayer who is subject to other
percentage taxes except those persons exempt from VAT.

Finally, partners of a GPP by virtue of their distributive share from GPP which is already net of
cost and expenses cannot avail of the 8% income tax rate option. (Revenue Regulations No. 08-
2018 dated January 25, 2018 Implementing the Income Tax Provisions of Republic Act No.
10963, Otherwise Known as the TRAIN Act)

Situs of Taxation

Q: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts with foreign insurance companies not doing business in the Philippines. The said
reinsurance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines.

The said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when
it filed its income tax returns which resulted in an assessment by the BIR. Philippine Guaranty
Co., Inc. maintains that the reinsurance premiums in question did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business in the
Philippines, nor did they have offices here.

Are the reinsurance premiums ceded to foreign reinsurers considered income from Philippine
sources?

A: Yes, the reinsurance premiums ceded to foreign reinsurers are income from Philippine sources.

The NIRC, as amended, does not require a foreign corporation to engage in business in the
Philippines in subjecting its income to tax. The word “sources” has been interpreted as the activity,
property or service giving rise to the income. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling is not the place of business but the place
of activity that created an income. Moreover, where the reinsurance contracts show that the
activities that constituted the undertaking to reinsure a domestic insurer against losses arising
from the original insurances in the Philippines were performed in the Philippines, the reinsurance
premiums are considered as coming from sources within the Philippines and are subject to
Philippine Income Tax.

Here, the reinsurance premiums were income created from an undertaking of the foreign
reinsurance companies to reinsure Philippine Guaranty Co., Inc. against liability for loss under
original insurances and such undertaking took place in the Philippines. Hence, these insurance
premiums came from sources within the Philippines and are subject to corporate income tax.
(G.R. No. L-22074, April 30, 1965 The Philippine Guaranty Co., Inc. vs. The Commissioner on
Internal Revenue and the Court of Tax Appeals)

Income Tax on Individuals

Q: Mr. CSO, works for G.O.D., Inc. He is neither engaged in business nor has any other source
of income other than his employment. In 2019, Mr. CSO earned a total compensation income of
P135,000. The taxpayer contributed to the SSS, Philhealth, and HDMF amounting to P5,000 and
has received 13th month pay of P11,000.00. Moreover, Mr. CSO earned, aside from his basic
wage, additional pay of P140,000 which consists of the overtime pay of P80,000, night shift
differential of P30,000, hazard pay of P15,000, and holiday pay of P15,000. Should Mr. CSO be
subject to income tax from his compensation income in the taxable year 2019?

A: No, Mr. CSO, as a minimum wage earner, is tax-exempt for the taxable year 2019.

The NIRC, as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law,
provides that taxable income for compensation income earners is the gross compensation income
less non-taxable income/benefits such as but not limited to the 13th month pay and other benefits,
de minimis benefits, and employee’s share in the SSS, GSIS, PHIC, Pag-Ibig contributions and
union dues. Moreover, minimum wage earners shall be exempt from the payment of income tax
based on their statutory minimum wage rates. The holiday pay, overtime pay, night shift
differential pay and hazard pay received by such minimum wage earners are likewise exempt.
 Here, Mr. CSO’s income as well as the holiday pay, overtime pay, night shift differential pay and
hazard pay, being a minimum wage earner, are specifically exempt from income tax. (Revenue
Regulations No. 08-2018 dated January 25, 2018 Implementing the Income Tax Provisions of
Republic Act No. 10963, otherwise known as the TRAIN Law)

Income Tax on Corporations; Non-Resident Foreign Corporations subject to Preferential

Tax Rates

Q: D Bank Manila Branch requested from the International Tax Affairs Division (ITAD) a
confirmation of its entitlement to the preferential tax treaty rate of 10% under the RP-Germany
Tax Treaty. The claim however, was denied on the ground that the application for a tax treaty
relief was not filed with the ITAD prior to the payment by D Bank Manila Branch of its branch profit
remittance tax and actual remittance of its branch profits to D Bank Germany, or prior to its
availment of the preferential rate of ten percent (10%) under the RP-Germany Tax Treaty
provision. The Court of Tax Appeals held that D Bank Manila Branch violated the fifteen (15) day
period mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-
2000.

Is the failure to strictly comply with the administrative requirements set by the Bureau of Internal
Revenue (BIR) deprive taxpayers of the benefit of a tax treaty?

A: No, failure to strictly comply with the administrative requirements set by the BIR should not
deprive persons or corporations the benefit of a tax treaty.

Our Constitution provides for adherence to the general principles of international law as part of
the law of the land and tax treaties are entered into to reconcile the national fiscal legislations of
the contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two different
jurisdictions. Jurisprudence provides that tax conventions are drafted with a view towards the
elimination of international juridical double taxation and to encourage the free flow of goods and
services between countries.

Here, the period of application for the availment of tax treaty relief as required by RMO No. 1-
2000 should not operate to divest entitlement to the relief as it would constitute a violation of the
duty required by good faith in complying with a tax treaty and that denial of the availment of tax
relief for the failure of a taxpayer to apply within the prescribed period under the administrative
issuance would impair the value of the tax treaty. Hence, the obligation to comply with a tax treaty
must take precedence over the objective of RMO No. 1-2000. (G.R. No. 188550 August 19, 2013
Deutsche Bank AG Manila Branch vs. Commissioner on Internal Revenue)
Income Tax on Individuals; Informer’s Reward

Q: Danilo Lihaylihay identified himself as a Confidential Informant of the State and sent two letters
to the former head of the Bureau of Internal Revenue-Presidential Commission on Good
Government Task Force concerning information on former President Marcos’ ill-gotten wealth.

Almost twenty years later, Lihaylihay wrote to the Commissioner of Internal Revenue
demanding the payment of an informer’s reward supposedly recovered by the Philippine
government through compromise agreements with the Marcoses.

Who are eligible to an informer’s reward and should this be subject to income tax?

A: The NIRC, as amended, provides that an informer’s reward for the discovery of tax offenses
shall be granted to any person, except an internal revenue official or employee, or other public
official or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives
definite and sworn information, not yet in the possession of the Bureau of Internal Revenue,
leading to the discovery of frauds upon the internal revenue laws or violations of any of the
provisions thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the
conviction of the guilty party and/or the imposition of any of the fine or penalty, shall be rewarded
in a sum equivalent to 10% of the revenues, surcharges or fees recovered and/or fine or penalty
imposed and collected or one million pesos per case, whichever is lower.

The cash rewards of informers are subject to income tax, collected as a final withholding tax at a
rate of ten percent (10%). (Section 282 of the NIRC, as amended by Republic Act No. 8424 or
the Tax Reform Act of 1997; Danilo A. Lihaylihay vs. The Treasurer of the Philippines Roberto C.
Tan, Secretary of Finance Margarito B.Teves, Secretary of the Department of Environment and
Natural Resources, and the Governor of Bangko Sentral ng Pilipinas (BSP), G.R. No. 192223
dated July 23, 2018)

III. DONORS TAX

Sale/Exchange/Transfer of property for insufficient consideration

Q: Mr. A, engaged in the buying and selling of cars, sold to Mr. B a yellow Nissan Juke with market
value of P1,000,000. Due to the current pandemic, Mr. A sold the car for only P800,000, which
Mr. B agreed to pay. Is the transaction subject to donor’s tax?

A: No. The transaction is not subject to donor’s tax.

Section 100 of the NIRC, as amended, provides that a sale, exchange, or other transfer of
property made in the ordinary course of business (a transaction which is bona fide, at arm’s length,
free from any donative intent), will be considered as made for an adequate and full consideration
in money and money’s worth.
 Here, the transaction was made in the ordinary course of business since Mr. A is engaged in
the buying and selling of cars. Therefore, the excess of the market value over the consideration
is not subject to donor’s tax.

Tax credit for donor’s taxes paid to a foreign country

Q: What are the limitations as to the amount of allowable tax credit for donor’s tax purposes?

A: Section 101(C)(2) of the NIRC, as amended, provides the limitation on credit as follows:
The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country taxable bears to his entire net gifts; and
The total amount of the credit shall not exceed the same proportion of the tax against which such
credit is taken, which the donor’s net gifts situated outside the Philippines taxable bears to his
entire net gifts.

Composition of Gross Gift

Q: What is the composition of gross gifts for the donor's tax purposes?

A: The term “gifts” include real and personal property, whether tangible or intangible, or mixed,
wherever situated. Provided, however, that where the donor was a non-resident alien at the time
of his donation, as the case may be, his real and personal property so transferred but which are
situated outside the Philippines shall not be included as part of his “gross gift”

Provided, further, That franchise which must be exercised in the Philippines; shares, obligations
or bonds issued by any corporation or sociedad anonima organized or constituted in the
Philippines in accordance with its laws; shares, obligations or bonds by any foreign corporation
eighty-five percent (85%) of the business of which is located in the Philippines; shares, obligations
or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a
business situs in the Philippines; shares or rights in any partnership, business or industry
established in the Philippines, shall be considered as situated in the Philippines: (Section 104 of
the NIRC as amended)

Filing of Return and Payment

Q: When is the deadline for filing and payment of the donor’s tax return?

A: The donor’s tax return shall be filed within 30 days after the date the gift is made or completed
and the tax due thereon shall be paid at the same time the return is filed. (Section 103 (B) of the
NIRC as amended)
 IV. VALUE ADDED TAX

Destination Principle and Cross-Border Doctrine

Q: Define Destination Principle and Cross Border Doctrine.

A: According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. (Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue 524 SCRA 73,103, 2007)

Change or cessation of status as VAT-registered person

Q: Are goods or properties originally intended for sale or use in business disposed of or existing
as of the date of change of status of a taxpayer from VAT to Non-VAT subject to VAT?

A: Yes. Under the prevailing rules, goods or properties originally intended for sale or use in
business, including capital goods, disposed of or existing as of the date of change of status of a
taxpayer from VAT to Non-VAT are subject to VAT imposed under Section 106(A) of the NIRC,
as amended. (Reiterated in Revenue Memorandum Circular No. 39-2018)

Transitional Input Tax

Q: RLR Developer was a real estate developer that bought from the national government a parcel
of land that used to be the Fort Bonifacio military reservation. At the time of the said sale there
was as yet no VAT imposed so it did not pay any VAT on its purchases. Subsequently, RLR sold
two parcels of land to KCA Corp. In reporting the said sale for VAT purposes (because the VAT
had already been imposed in the interim), RLR claimed transitional input VAT corresponding to
its inventory of land. The BIR disallowed the claim of transitional input VAT and thereby assessed
RLR for deficiency VAT. Is RLR entitled to claim the transitional input VAT on its sale of real
properties given its nature as a real estate dealer?

A: Yes. RLR is entitled to claim transitional input VAT based on the value of not only the
improvements but on the value of the entire real property and regardless of whether there was in
fact actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real estate
business subject to a different treatment from those engaged in the sale of other goods or
properties or in any other commercial trade or business. On the scope of the basis for determining
the available transitional input VAT, the CIR has no power to limit the meaning and coverage of
the term "goods" in Section 105 of the Tax Code without statutory authority or basis. The
transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning inventory of goods, materials and
supplies. (Fort Bonifacio Development vs. CIR, GR No. 158885 dated April 2, 2009)

Invoicing Requirements

Q: What are the invoicing requirements?

A: Section 113 of the Tax Code provides the following invoicing requirements for VAT-registered
taxpayers:
A VAT invoice for every sale, barter, or exchange of goods or properties; and.
A VAT official receipt for every lease of goods or properties and every sale, barter or exchange
of services.

Transactions deemed sale

Q: Give examples of transactions deemed sale.

A: The following transactions shall be deemed sale:

1. Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
2. Distribution or transfer to shareholders or investors as share in the profits of the VAT-
registered persons or creditors in payment of debt;
3. Consignment of goods if actual sale is not made within 60 days following the date of such
goods were consigned; and
4. Retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation. (Section 106 (B) of the NIRC as amended)

Input and Output Tax (Presumptive Input Tax)

Q: Who is entitled to claim Presumptive Input Tax?

A: Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax, creditable
against the output tax, equivalent to 4% of the gross value in money of their purchases of primary
agricultural products which are used as inputs to their production. (Section 111 (B) of the NIRC
as amended)

Input and Output Tax (Transitional Input Tax)

Q: Who is entitled to Transitional Input VAT?

A: Person upon exceeding the threshold amount provided under Section 109(CC) of the NIRC or
voluntarily elects to be a VAT-registered person shall be entitled to the transitional input tax of
two percent (2%) on beginning inventory on hand as of the effectivity of VAT registration or the
actual VAT paid, whichever is higher, on the following:
1. Goods purchased for resale in their present condition;
2. Material purchased for further processing, but which have not yet undergone processing;
3. Goods which have been manufactured by the taxpayer;
4. Goods in process for sale; or
5. Goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-
registered person. (Section 111(A) of the NIRC as amended as implemented by Section 4.111-1
of the Revenue Regulations No. 16-05 as amended)

Allocation of input tax on mixed transaction

Q: How is input tax allocated in case of mixed transaction?

A: Input tax on purchases which can be directly attributable to VATable sale may be creditable
against any VAT liability. However, input tax on purchases which cannot be directly attributable
to any sale must be apportioned ratably based on gross sales in accordance with Section 4.110-
4, RR No. 16-05, as amended by RR No. 4-07.

Refund or Tax Credit of excess input tax; procedure

Q: Compare VAT refund prior to TRAIN Law and VAT refund under TRAIN LAW

A:
Prior TRAIN Law Under TRAIN Law
Period to file Admin Claim Within 2 years from the close Same
of the taxable quarter when
the sales were made
Period to decide on the claim 120 days from date of receipt 90 days from date of receipt
of the written claim for refund of the written claim for refund
Applicability of deemed Yes No.
denial
Action after lapse of the The taxpayer may elevate the The taxpayer has no recourse
period to decide when there is claim for refund to the CTA to elevate; the taxpayer shall
inaction on the part of the within 30 days after the lapse wait or compel the BIR officer
Commissioner of the 120 day period to to decide on the claim
decide
Should there be denial by the The taxpayer must elevate its Same
BIR on the claim claim to the CTA within 30
 days after the receipt of the
denial

Withholding of final VAT on sales to government

Q: What is the treatment of VAT on sales to the government?

A: As a rule, the government or any of its political subdivisions, instrumentalities, or agencies,

including government-owned or controlled corporations are mandated to withhold 5% (out of the
12% VAT) on VATable sales upon payment to value-added tax sellers of goods or services. The
remaining 7% effectively accounts for the Standard Input VAT for sale of goods or services to
government, in lieu of actual input VAT directly attributable or ratably apportioned to such sales.

If the actual input VAT exceeds that 7% of gross payments (sales to government), the excess
may form part of the seller’s expense or cost. Meanwhile, if the actual input VAT is less than the
7%, the difference shall be treated as additional income/revenue.

However, starting January 1, 2021, sales to government will shift from final to a creditable
system on Value Added Tax Withheld. The government or any of its political subdivisions,
instrumentalities or agencies including GOCCs are required to withhold creditable VAT and shall
issue Creditable Tax Withheld at Source (BIR Form No. 2307). The BIR Form No. 2307 shall be
used as a proof by VAT Taxpayer in claiming VAT credit in their monthly and quarterly VAT
declarations. (Section 114 of the NIRC as implemented under Section 4-114-2 of Revenue
Regulation No. 13-2018; Revenue Memorandum Circular No. 36-2021

V. REMEDIES

Letter of Authority (LOA) vs Letter Notice (LN)

Q: Differentiate Letter of Authority and Letter Notice.

A: First, an LOA addressed to a revenue officer is specifically required under the NIRC before an
examination of a taxpayer may be had while an LN is not found in the NIRC and is only for the
purpose of notifying the taxpayer that a discrepancy is found based on the BIR's RELIEF System.

Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation.

Third, an LOA gives the revenue officer only a period of 10 days from receipt of LOA to conduct
his examination of the taxpayer whereas an LN does not contain such a limitation. Simply put, LN
is entirely different and serves a different purpose than an LOA (Medicard vs CIR, April 5, 2017)
Informal Conference (now Notice of Discrepancy)

Q; What is a Notice of Discrepancy?

A: If a taxpayer is found to be liable for deficiency tax or taxes in the course of investigation
conducted by a Revenue Officer, the taxpayer shalt be informed through a Notice of Discrepancy
(NOD). The NOD aims to fully afford the taxpayer with an opportunity to present and explain his
side on the discrepancies found which in no case extend beyond thirty (30) days from receipt of
the NOD. (Revenue Regulation No. 22-2020)

Q: Is NOD a deficiency tax assessment?

A: No. The NOD aims to fully afford the taxpayer with an opportunity to present and explain his
side on the discrepancies found. If after being afforded the opportunity to present his side through
the Discussion of Discrepancy, it is still found that the taxpayer is still liable for deficiency tax or
taxes and the taxpayer does not address the discrepancy through payment of the deficiency taxes
or the taxpayer does not agree with the findings, the investigating office, shall endorse the case
to the reviewing office and approving official in the National Office or the Revenue Regional Office,
for issuance of a deficiency tax assessment in the form of a Preliminary Assessment Notice within
ten (10) days from the conclusion of the Discussion. (Revenue Regulation No. 22-2020)

Requisites of a Valid Assessment

Q: The Final Assessment Notice (FAN) states that Fitness Inc. had a tax deficiency in the amount
of ₱10,647,529.69. The FAN also includes the factual and legal basis of the assessment. It further
provides that that the interest and the total amount due will have to be adjusted if paid prior or
beyond April 15, 2021. Assuming the assessment notice was served within the prescriptive
period. Is the assessment valid?

A: No.

First, it lacks the definite amount of tax liability for which respondent is accountable. It does
not purport to be a demand for payment of tax due, which a final assessment notice should
supposedly be. An assessment, in the context of the National Internal Revenue Code, is a "written
notice and demand made by the [Bureau of Internal Revenue] on the taxpayer for the settlement
of a due tax liability that is there: definitely set and fixed. Although the disputed notice provides
for the computations of respondent's tax liability, the amount remains indefinite. It only provides
that the tax due is still subject to modification, depending on the date of payment.

Second, there are no due dates in the Final Assessment Notice. This negates petitioner's
demand for payment. (CIR vs Fitness by Design Inc, GR No. 215957, November 9, 2016)
Waiver of Statute of Limitation

Q: What are the two material dates for a valid waiver of statute of limitation?

A: 1. The date of execution of the waiver by the taxpayer or its authorized representative; and
2. The expiry date of the period the taxpayer waives the statute of limitation (Revenue
Memorandum Order No. 14-2016)

Suspension of Business Operation

Q: What are the instances when the BIR can suspend the operation of the taxpayer?

A: (a) In the case of a VAT-registered Person. –

(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236. (Section 115 of the NIRC)
(c) Failure to transmit sales data entered on Cash Register Machine (CRM)/ Point of Sale (POS)
Machine to the BIR’ Electronic Sales Reporting System for an aggregate number of days of
violation exceeding 180 days (Section 264-A of the NIRC)

Judicial Remedies

Q: Is assessment pre-requisite in the filing of a criminal action?

A: No.
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to
defeat and evade the income tax. A crime is complete when the violator has knowingly and willfuly
filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is
grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and
the government's failure to discover the error and promptly to assess has no connections with the
commission of the crime (Ungab vs Cusi, GR No. L-41919-24, May 30, 1980)

Under Sections 254 and 255 of the NIRC, the government can file a criminal case for tax
evasion against any taxpayer who willfully attempts in any manner to evade or defeat any tax
imposed in the tax code or the payment thereof The crime of tax evasion is committed by the
mere fact that the taxpayer knowingly and willfully filed a fraudulent return with intent to evade
and defeat a part or all of the tax. It is therefore not required that a tax deficiency assessment
must first be issued for a criminal prosecution for tax evasion to prosper. (Gaw versus CIR, G.R.
No. 222837, dated July 23, 2018)