a.
Processing, manufacturing, or repacking of
goods for other persons doing business outside
the Philippines, which goods are subsequently
exported, where services are paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
BSP; and
b. Services performed by subcontractor and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose
export sales exceed 70% of the total annual
production (R.R. No. 13-18, Sec. 2).
7. VAT-Exempt Transactions
VAT-exempt transactions refer to the sale of
goods or properties and/or services and the use
or lease of properties that is not subject to VAT
(output tax) and the seller is not allowed any tax
credit of VAT (input tax) on purchases. The person
making the exempt sale of goods, properties or
services shall not bill any output tax to his
customers because the said transaction is not
subject to VAT. (R.R. 16-2005)
FEATURES OF VAT EXEMPT TRANSACTIONS
1. VAT exempt transactions shall not be included
in determining the general threshold prescribed
by law [P3,000,000] (R.R. No. 16-2011, Sec. 3).
2. VAT-exempt transactions shall not be liable for
VAT or the 3% percentage tax under Sec. 116 of
the NIRC except those sale or lease of goods and
properties under Sec. 109(BB) which shall be
subject to 3% percentage tax if not exceeding the
VAT threshold. [Inferable from Sec. 116 of the
NIRC and Sec. 4.109-1 of R.R. No. 16-2005].
3. The person making the exempt sale of goods,
properties, or services shall not bill any output
tax to his customers because the said transaction
is not subject to VAT (R.R. No. 16-2005, Sec.
4.109-1).
TRANSACTIONS EXEMPT FROM VAT (NIRC, SEC.
109, As AMENDED BY TRAIN LAW):
1. Agricultural and marine food products in their
original state, livestock and poultry of a kind
51
generally used as, or yielding or producing foods
for human consumption; and breeding stock and
genetic materials therefor
Livestock shall include cows, bulls and calves,
pigs, sheep, goats, and rabbits. Poultry shall
include fowls, ducks, geese, and turkey. Livestock
or poultry does not include fighting cocks,
racehorses, zoo animals and other animals
generally considered as pets.
Marine food products shall include fish and
crustaceans, such as, but not limited to, eels,
trout, lobster, shrimps, prawns, oysters, mussels,
and clams. Meat, fruit, fish, vegetables, and
other agricultural and marine food products
classified under this paragraph shall be
considered in their original date even if they have
undergone the simple processes of preparation or
preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking or
stripping, including those using advanced
technological means of packaging. such as shrink
wrapping in plastics, vacuum packing, tetra pack,
and other similar packaging methods.
Polished and/or husked rice, corn grits, raw cane
sugar and molasses, ordinary salt and copra shall
be considered as agricultural food products in
their original state.
Sugar whose content of sucrose by weight, in the
dry state, has a polarimeter reading of 99.5* and
above are presumed to be refined sugar.
Bagasse is not included in the exemption provided
for under this section (Sec. 4.109-1(B)(1)(a), RR
No. 16 - 2005).
2. Fertilizers; seeds, seedlings, and fingerlings;
fish, prawn, livestock and poultry feeds including
ingredients, whether locally produced or
imported, used in the manufacture of finished
feeds (NIRC, Sec, 109 (B));
XPN: Specialty feeds for Racehorses, fighting
cocks, Aquarium fish, Zoo animals and other
animals generally considered as pets (NIRC, Sec.
109 (B)).
3. Importation of personal and household effects
belonging to residents of the Philippines returning
from abroad and nonresident citizens coming to
resettle in the Philippines Provided the goods are
exempt from customs duties under the Tariff and
Customs Code of the Philippines;
4. Importation of professional instruments and
implements, wearing apparel, domestic animals,
and personal household effects (except vehicles,
goods for use in manufacture and merchandise for
any kind of commercial quantity). Belonging to
people coming to settle in the Philippines and are
not for sale;
5. Services subject to percentage tax;
6. Services by Agricultural contract growers, and
milling for others of Palay into rice, Corn into
grits, and Sugar cane into raw sugar;
● Agricultural contract growers refer to
those persons producing for others
poultry, livestock or other agricultural
and marine food products in their original
state.
7. Medical, dental hospital and veterinary
services, except those rendered by professionals;
● Laboratory services are exempted. If the
hospital or clinic operates a pharmacy or
drugstore, the sale of drugs and medicine
is subject to VAT.
8. Educational services rendered by private
educational institutions, accredited by the
DEPED, CHED, TESDA, and those rendered by
government educational institutions
● Educational services do not include
seminars, In-service training, review
classes and other similar services
rendered by persons who are not
accredited by the DEPED, CHED or TESDA.
9. Services rendered by regional, or area
headquarters established in the Philippines by
multinational corporations. Which act as
supervisory, communications, and coordinating
centers in the Asia pacific region for their
affiliates, subsidiaries, or branches, and do not
earn or derive income from the Philippines;
52
10. Transactions which are exempt under
international agreements to which the Philippines
is a signatory or under special laws except those
granted under PD No. 529 which refers to
Petroleum Exploration Concessionaires under the
Petroleum Act of 1949;
11. Sales by agricultural cooperatives duly
registered with the Cooperative Development
Authority (CDA) to their members, as well as sale
of their produce, whether in its original state or
processed form, to non-members; their
importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to
be used directly and exclusively in the production
and/ or processing of their produce;
12. Gross receipts from lending activities by
credit or multi-purpose cooperatives duly
registered and in good standing with the
Cooperative Development Authority;
13. Sales by non-agricultural, non-electric and
non-credit cooperatives duly registered with and
in good standing with the CDA; Provided, That the
share capital contribution of each member does
not exceed Fifteen Thousand Pesos (₱15,000.00)
and regardless of the aggregate capital and net
surplus ratably distributed among the members;
14. Export sales by persons who are not
VAT-registered;
15. Sale of real properties not primarily held for
sale to customers or held for lease in the ordinary
course of trade or business;
● If the real property is not primarily held
for sale to customers or held for lease In
the ordinary course of trade or business
BUT the same is used in the trade or
business of the seller, the sale thereof
shall be subject to VAT being a
transaction incidental to the taxpayer's
main business. (R.R. 4-2007)
●
16. Sale of real properties utilized for low-cost
housing;
● "Low-cost housing" refers to housing
projects intended for homeless
 low-income family beneficiaries,
undertaken by the Government or private
developers, which may either be a
subdivision, or a condominium registered
and licensed by the HLURB.
17. Sale of real properties utilized for socialized
housing;
● "Socialized housing" refers to housing
programs and projects covering houses
and lots or home lots only undertaken by
the Government or the private sector for
the underprivileged and homeless
citizens.
18. Sale of the following:
● Residential lot valued at Pl,919,500 and
below, or
● House and lot and other residential
dwellings valued at P3,199,200 and below
(R.R. 16-2011, to be read with R.R.
3-2012)
● If two or more adjacent residential lots,
house and lots or other residential
dwellings are sold or disposed in favor of
one buyer from the same seller, for the
purpose of utilizing the lots, house, and
lots or other residential dwellings as one
residential area, the sale shall be exempt
from VAT only if the aggregate value of
the lots do not exceed Pl,919,500 for
residential lots, and P3,199,200 for
residential house and lots or other
residential dwellings. Adjacent
residential lots, house and lots or other
residential dwellings although covered by
separate titles and/or separate tax
declarations, when sold or disposed to
one and the same buyer, whether covered
by one or separate Deed of Conveyance,
shall be presumed as a sale of one
residential lot, house and lots or
residential dwelling. (R.R. 13-2012).
● This does not include the sale of parking
lot which may or may not be included in
the sale of condominium units. The sale
of parking lots in a condominium is a
separate and distinct transaction and is
not covered by the rules on threshold
amount not being a residential lot, house
and lot or a residential dwelling. Thus,
53
the sale is subject to VAT regardless of
the selling price (R.R. 13-2012).
19. Beginning 2021, the VAT exemption for the
sale of real properties shall only apply to the:
● Sale of real properties not primarily held
for sale to customers or held for lease in
the ordinary course of trade or business;
● Sale of real property utilized for
socialized housing as defined under R.A.
7279;
● Sale of house and lot, and other
residential dwellings with selling price of
not more than P2,000,000 (to be adjusted
every 3 years depending on the Consumer
Price Index);
20. Lease of residential units where the monthly
rental per unit does not exceed ₱15,000,
regardless of the number of aggregate rentals
received by the lessor during the year (R.R.
13-2018).
● However, the lease of residential units
where the monthly rental per unit
exceeds PlS,000 but the aggregate of
such rentals of the lessor during the year
do not exceed P3,000,000 shall likewise
be exempt from VAT. However, it shall be
subjected to the 3% percentage tax (R.R.
13- 2018).
● Less than ₱15,000/month -> exempt.
More than ₱15,000/month but less than
P3,000,000/year -> 3% Percentage tax.
More than P15,000/month and more than
P3,000,000/ year-> 12% VAT (R.R.
13-2018).
8. Input and Output Tax
Input tax refers to the VAT due from or paid by a
VAT-registered person
● in the course of his trade or business,
● on importation of goods, or
● local purchase of goods or
services including lease or use of property
● from a VAT-registered person
● including transitional input tax.
(Sec. 110(A)(3), NIRC).
Output tax refers to the VAT due on the sale or
lease of taxable goods or properties or service by
any person registered or required to register
under the NIRC. (Sec. 110(A)(3), NIRC)
The following input taxes are creditable to output
taxes:
• Any input tax evidenced by a VAT invoice or
official receipt in accordance with the NIRC;
• The input tax on domestic purchase of goods or
properties; and
• Transactions of a VAT- registere·d person
engaged in transactions not subject to VAT in the
following:
1. Total input tax which can be directly
attributed to transactions subject to BAT;
and
2. A ratable portion of any input tax which
cannot be directly attributed to either
activity. (Sec. 110(A)(1), NIRC)
9. Tax Refund or Tax Credit
The VAT-registered person must go through the
following process:
The VAT-registered person may apply for the
issuance of a tax credit or refund within two
years after the close of the taxable quarter:
1. when the sales were paid in the case of
zero-rated or effectively zero-rated sales,
or
2. when the purchase or importation was
made in the case of importation or
purchase of capital goods, to the extent
that such input tax has not been applied
against output tax. (Sec. 112(A), NIRC)
The taxpayer has the following remedies:
In case the full or partial denial of his
application:
● the taxpayer may, within thirty days from
the decision, appeal to the CTA.
In case of the failure of the BIR to act on the
application within 90 days:
● the inaction is deemed as a denial, and to
appeal is with CTA within 30 days. (sec,
112(C), NIRC)
54
10. Filing of Returns and Payment
Every person liable to pay VAT shall file a
quarterly return of the amount of his quarterly
gross sales or receipts within twenty-five days
following the close of the taxable quarter using
the latest version of Quarterly VAT Return (Sec.
4.114-1, RR 16-05).
The following transactions are subject to the
advance payment of VAT:
1. Sale of refined sugar
An advance payment shall be paid by the
owner/seller to the BIR through:
1. an Authorized Agent Bank (AAB)
2. the revenue
collection officer, or
3. the deputized city
or municipal treasurer in places where
there are no AABs
before any refined sugar can be withdrawn from
any sugar refinery/mill.
2. Sale of flour
The sale of flour milled from imported wheat
shall be paid prior to the release of the Bureau of
Custom's custody of the wheat, and
Purchases by flour millers of imported wheat
from traders shall be paid by the flour miller
prior to delivery. (Ceballos, p.128)
D. Tax Remedies Under the National Internal
Revenue
1. Assessment of Internal Revenue Taxes
Kinds of Assessment
1. Self - Assessments
A self assessment is when the the taxpayer:
● Computes his own tax liability
● Files his return
● Pays the tax based on his own
computation
2. Deficiency Assessments
● Occurs upon discovery of the BIR that
○ Self-assessment was deficient
○ No return was made
 ● If the taxpayer is not amenable to the
Revenue Officer’s audit, he shall be
informed in writing of the discrepancy
in his payment for the purpose of
Informal Conference which in no case
shall extend beyond 30 days.
● If there is still deficiency and the
taxpayer is not amenable, the case
may be endorsed to the Assessment
Division of the Revenue Regional Office
or to the Commissioner for issuance of
deficiency tax assessment (Rev. Reg.
No. 7-2018)
3. Delinquency Assessments
● Occurs upon failure of the taxpayer to
pay his tax due, making him a
delinquent taxpayer
a) Procedural Due Process in Tax Assessments
1. Issuance of a Letter of Authority
2. Tax Audit or Investigation
3. Notice of Informal Conference
4. Issuance of Preliminary Assessment Notice
(PAN)
5. Issuance of Formal Letter of Demand /
Final Assessment Notice (FAN)
6. Administrative Action / Inaction on
Disputed Assessment
1. Letter of Authority (LOA)
● A LOA is the authority given to the
appropriate revenue officers assigned to
perform assessment functions. It
empowers or enables said revenue
officers to examine the books of account
55
and other accounting records of a
taxpayer for the purpose of collecting the
correct amount of tax (Medicard
Philippines Inc. vs CIR, G.R. No. 222743)
● LOA covers a taxable period not
exceeding 1 year
● Valid only for 30 days from the days of
issue within which it must be served to
the taxpayer (Medicard Philippines vs CIR)
● Thereafter, unless, revalidated, the
taxpayer can refuse the service
● A letter of authority is revalidated
○ By the issuance of a new letter of
authority
○ Revalidation can be done once, if
the LOA is issued by the Regional
Director
○ Revalidation can be made twice,
if the LOA is issued by the
Commissioner
○ The previous LOA has to be
attached to the newly issued LOA
(RMO 38-88)
A letter of authority is not necessary when
● The assessment was made by the
Commissioner or the Revenue Regional
Director
● In cases involving civil or criminal tax
fraud falling under the jurisdiction of the
Tax Fraud Division of the Enforcement
Services
● Policy cases audited by the special teams
of the National Office (Revenue
Memorandum Order 36-99)
Letter Notice
● A Letter Notice is served by the BIR upon
taxpayers upon taxpayers who were found
to have under-declared their sales or
purchases through the Third-Party
Information Program.
● It can be considered a notice of audit or
investigation which would in effect
disqualify the taxpayers concerned from
amending any return which is the subject
of such audit or investigation
Difference between Letter Notice and Letter of ● Taxpayer has 30 days from notice to
Authority submit relevant documents to explain the
discrepancy (RMC No. 22-2020)
LETTER NOTICE LOA

Not an authority to Serves as authority to 4. Preliminary Assessment Notice (Very

conduct an audit conduct an audit important)
● Issued if after review and evaluation by
Merely a notice to Official Document the Assessment Division or by the
taxpayer, does not giving the Revenue Commissioner or his duly authorized
serve as authority of Officer the power to representative, it is determined that
an officer to conduct perform assessment there exists sufficient basis to assess the
assessment functions functions taxpayer for any deficiency taxes
(Mamalateo, 2019)
No limitation as to ● Serves as an ● Shall show in detail the facts and the law,
period of validity LOA for only rules and regulations, or jurisprudence on
one taxable which the proposed assessment is based
year ● The remedy of the taxpayer is to make
a REPLY to the PAN
● Valid only ○ A requests for reconsideration
from 30 days and requests for reinvestigation is
from the date not yet an available remedy as
of issue they are remedies in the
issuance of a Final Assessment
No limitation as to the Allows the Revenue Notice not for the issuance of a
period within which Officer only a period Preliminary Assessment Notice
the Revenue Officer of 10 days from the ○ Making a reply is optional,failure
must conduct an receipt thereof to to do so will only give the CIR,
examination conduct his the duty to make a FAN after 15
examination days from the issuance of the PAN
○ Issuance of FAN reiterating
2. Tax Audit or Investigation immediate payment of deficiency
● Involves the examination of the books and taxes and penalties is a denial of
records of the taxpayer the response to PAN. (RMC No.
● For the purpose of 11-2014)
○ ascertaining the correctness of
the tax declared and paid by the Instances when a PAN is no longer needed
taxpayer (Section 228, NIRC)
○ determining the correct tax ● When the finding for any deficiency tax is
liability the result of mathematical error in the
computation of the tax
3. Notice of Discrepancy ● When a discrepancy has been determined
● Requisite before issuing a preliminary between the tax withheld and the
assessment notice (PAN) amount actually remitted by the
● Issued to the taxpayer if he is found withholding agent; or
liable for deficiency taxes during the ● When a taxpayer who opted to claim a
investigation conducted by a revenue refund or tax credit of excess creditable
officer withholding tax for a taxable period was
● Gives the taxpayer 5 days from the notice determined to have carried over and
to explain the discrepancy automatically applied the same amount
claimed against the estimated tax
liabilities for the taxable quarter

56
 ● When the excise tax due on excisable
articles has not been paid; or
● When the article locally purchased or
imported by an exempt person, such as,
but not limited to, vehicles, capital
equipment, machineries and spare parts,
has been sold, traded or transferred to
non-exempt person
5. Formal Letter of Demand and Final
Assessment Notice
● Issued by the Commissioner or his duly
authorized representative
● Calls the taxpayer for the payment of the
taxpayer’s deficiency tax or taxes
● Issued 15 days
● Shall state the facts and the law, rules
and regulations, or jurisprudence on
which the proposed assessment is based;
otherwise, the assessment is void
○ From the issuance of the PAN if no
reply was made by the taxpayer
○ From the date of the reply of the
taxpayer, if he makes one
○ A FAN can still be issued after 15 days
from the issuance of the PAN or from
the reply of the taxpayer, provided it
is within the period to assess the said
tax
■ Such will only be an
administrative infraction,
making the officer in charge
liable
6. Administrative Action / Inaction on Disputed
Assessment
Administrative Remedies
1) Tax lien
● A tax lien is a legal claim or charge on
property, either real or personal, as
security for the payment of some debt or
obligation. (Hongkong & Shanghai Banking
Corporation vs Rafferty, G.R. No.
L-13188, November 15, 1918)
Nature and extent of a tax lien
The following persons can have properties
attached to a tax lien
● Person
● Corporation
● Partnership
57
● Joint-account
● Association
● Insurance Company
➔ Who are liable to pay an internal
revenue tax and neglects or
refuses to pay the same, despite
demand (Section 219, NIRC)
Extinguishment of tax lien
A tax lien may be extinguished on the following
grounds
● Payment or rescission of the tax
● Prescription of the right of the
government to assess or collect
● Failure to file a notice of lien in the
office of the Register of Deeds as against
mortgagee, purchaser, or judgment
creditor, or
● by destruction of the property subject of
the lien
2) Distraint
● The collection of delinquent taxes
● Is enforced on the goods, chattels or
effects, and other personal property of
whatever character of the taxpayer (Sec.
205 (a) NIRC)
Kinds of Distraint
● Actual Distraint
○ Resorted to when at the time
required for payment a person
fails to pay his delinquent tax
obligation.
○ Actual distraint consists in the
actual seizure and taking
possession of the personal
property of the taxpayer (Section
207, NIRC)
● Constructive Distraint
○ Issued where actual tax
delinquency of the taxpayer is
necessary before the same is
resorted by the government
○ Can be availed of when
■ The taxpayer is retiring
from any business subject
to tax
 ■ He intends to leave the Differentiate between Distraint and Levy
Philippines
Distraint (Sec 207 Levy (Sec 207 (B),
■ He removes his property
(A), NIRC NIRC)
therefore
■ He performs any act
Covers personal Covers real properties
tending to obstruct the
properties
proceedings for collecting
the tax due or which may Is effected by the Is effected by writing
be due from him (Sec seizure of the goods, upon the duly
206, NIRC) chattels, or effects authenticated
certificate, the
Difference between Actual Distraint and description of the
Constructive Distraint property upon which
Actual Distraint Constructive Distraint the levy is made and
at the same time
Made on the property Made on the property written notice of the
of a delinquent even if the taxpayer is levy shall be mailed to
taxpayer not delinquent or served upon the
Register of Deeds and
Involves the taking of Prevents taxpayer upon the taxpayer
possession from disposing his
property Involves a notice of Involves an
the sale, shall be advertisement of real
Effected by a service Is effected by exhibited in not less property for sale
of warrant of distraint requiring the taxpayer than 2 public places in within 20 days after
or leaving a list of the to sign a receipt of the municipality or the levy for a period
property the property or city where the of at least 30 days.
leaving a list of such distraint was made,
property One place of posting The advertisement
of which is the Office shall be effected by
3) Levy of the Mayor posting a notice at the
● Remedy whereby the collection of main entrance of the
delinquent taxes is enforced on the real municipal building or
property belonging to the delinquent city hall and in a
taxpayer. (Sec 207, NIRC) public and
● May be done after the expiration of the conspicuous place in
the time required to pay the delinquent the barrio or district
tax or delinquent revenue, in which the real
● May be done simultaneously, or after the estate lies.
distraint of personal property belonging
to the delinquent (Sec. 207 (B), NIRC) There is also
● Both Levy and Distraint may be repeated publication once every
if necessary until the full amount week for 3
including all expenses, is collected (Sec. consecutive weeks in
217, NIRC) a newspaper of
general circulation

4. Forfeiture of Personal Property

a) For personal properties
● Forfeitures of chattels and removable
fixtures of any sort shall be enforced by

58
 ○ Seizure and Sale, or Differentiate PAN from FAN (Asked in the 2019
○ Destruction (Section 224, NIRC) Bar Exams)
Preliminary Final Assessment
● The sales of forfeited chattels and
Assessment Notice Notice (FAN)
removable fixtures shall be effected, so far
(PAN)
as practicable, in the same manner and
under the same conditions, as the public It merely informs the As soon as it is served,
notice and the time and manner of sale as taxpayer of the initial an obligation arises on
are prescribed for sales of personal property findings of the Bureau the part of the
distrained for the non-payment of taxes of Internal Revenue. It taxpayer concerned to
(Sec. 225, NIRC) contains the proposed pay the amount
assessment, and the assessed and
The following goods or articles may be destroyed facts, law, rules, and demanded
● Distilled spirits regulations or
● Liquors jurisprudence on
● Cigars which the proposed
● Cigarettes, or assessment is based
● Other manufactures product of tobacco,
and It does not contain a It contains not only a
● All apparatus used in or about the illicit demand for payment computation of tax
production of such articles but usually requires liabilities but also a
the taxpayer to reply demand for payment
They may, upon forfeiture, be destroyed by order within 15 days from within a prescribed
of the Commissioner, when the sale of the same receipt. Otherwise, period.
for consumption or use would be injurious to the Commissioner of
public health or prejudicial to the enforcement of Internal Revenue will
the law. finalize an assessment
and issue a FAN.
The following may be sold or destroyed
● All other articles subject to excise tax,
which have been manufactured or It gives both the It signals the time
removed in violation of this Code taxpayer and the when penalties and
● Dies for the printing or making of internal Commissioner of interests begin to
revenue stamps and labels which are Internal Revenue the accrue against the
imitation of or purports or be lawful opportunity to settle taxpayer.
stamps or labels (Sec. 225, NIRC) the case at the
earliest possible time
b) For real properties without the need for
● Forfeiture shall be enforced by the issuance of a FAN.
○ Judgment of condemnation or
○ Sale in a legal action or proceeding,
(Commissioner of Internal Revenue v.
civil or criminal (Sec. 224, NIRC)
Transitions Optical Philippines, Inc., G.R. No.
227544, November 22, 2017)
Disputed Assessment
1. If the taxpayer disagrees with the PAN, he has
15 days from receipt of the PAN to file a written
reply to contest the proposed assessment.
2. If the taxpayer disagrees with the FAN, he has
30 days from receipt of the FAN to file a written
protest to contest the proposed assessment

59
Differentiate Request for Reconsideration from 5. The FAN/DL must be issued within the
Request for Reinvestigation original prescriptive period as validly
agreed between the BIR and the
Request for Request
taxpayer; and served by personal delivery
Reconsideration for Reinvestigation
or by registered mail (Sec. 222(b) and
(d),NIRC) (R.R. No. 18-13, Section 3.1.6)
6. The FAN/DL must be addressed and
Does not toll the Tolls the period to
served to the taxpayer in his registered or
period to collect the collect the tax
duly notified address (R.R. No. 18-13,
tax Except if the letter
Sec. 3.1.6)
requesting for
reinvestigation is
c) Tax Delinquency vs. Tax Deficiency
denied
Tax Delinquency Tax Deficiency

No additional Relevant supporting The state of a person The amount by which

documents or other documents will be upon whom the the tax imposed
personal obligation to exceeds the amount
pieces of evidence given by the taxpayer
pay the tax has been
will be given by the Said relevant shown as the tax by
fixed by lawful
taxpayer supporting documents assessment and who the taxpayer upon his
must be submitted thereafter fails to pay return; but the
within 60 days from the tax within the amount so shown on
the Filing of The time limited by law the return shall be
Protest (U.S. v. Abejo, G.R. increased by the
No. 12362, August 29, amounts previously
1917).
assessed (or collected
b) Requisites of a Valid Assessment
without assessment)
1. The FAN contains the name, address, and
as a deficiency, and
TIN of the taxpayer; the kind of tax,
decreased by the
period covered, basic tax and penalties;
amount previously
signed by the authorized BIR official, and
abated, credited,
the date of payment of the tax. The
returned or otherwise
Demand Letter (DL) contains the
repaid in respect of
computation of the deficiency tax, the
such tax (Sec. 56[B],
factual and legal basis of the assessment,
NIRC)
and the demand for payment of the tax.
(R.R. No. 18-13, Sec. 3.1.3)
2. The FAN/DL must be issued on account of
or covered by a validly issued letter of d) Prescriptive Period for Assessment
authority.(R.M.C. No. 75-18; Medicard (1) False Returns vs. Fraudulent Returns vs.
Phil Inc v. CIR, G.R. No. 222743, April 5, Non-Filing of Returns
2017) False Return Fraudulent Failure to
3. The FAN/DL must state the factual and Return File a Return
legal basis of the assessment and
jurisprudence on which it is based; Contains Refers to a Refers to the
wrong return made omission to
otherwise, the assessment is void (R.R.
information with the file a return
No. 18-13, Section 3.1.3) due to: intention of within the
4. The FAN/DL must be signed by the mistake, evading the time
Commissioner or his duly authorized carelessness, correct taxes prescribed by
representative (R.R. No. 18-13, Section or ignorance due law
3.1.3)
May or may Is intentional May or may

60
 not be not be
intentional intentional
Is only Is subject to Is only
subject to 50% surcharge subject to
50% surcharge 50% surcharge
if done if done
intentionally intentionally
(Sec. 222, NIRC)
(2) Suspension of the Running of Statute of
Limitations
● When the CIR is prohibited from making
the assessment or beginning distraint or
levy or a proceeding in court and for sixty
(60) days thereafter;
● When the taxpayer requests for a
reinvestigation which is granted by the
CIR;
● When the taxpayer cannot be located in
the address given by him in the return,
unless he informs the CIR of any change
in his address;
● When the warrant of distraint or levy is
duly served, and no property could be
located; and
● When the taxpayer is out of the
Philippines (Sec. 223, NIRC)
2. Taxpayer’s Remedies
a) Protesting an Assessment
A protest is a vital document which is a formal
declaration of resistance of the taxpayer. It is a
repository of all arguments. It is also the formal
act of the taxpayer questioning the official
actuations of the CIR. This is equivalent to a
pleading.
(1) Period to File Protest
Must be made within 30 days from the
receipt of the FAN
(2) Submission of Supporting Documents
Only applies to requests for
reinvestigation, i.e., the 60-day period
for submission of all relevant supporting
documents shall not apply to requests for
reconsideration (R.R. No. 18-2013)
61
(3) Effect of Failure to File Protest
Failure to file a protest will make the
assessment final, executory and
demandable
(4) Action of the Commissioner on the
Protest Filed
If a decision was made within 180 days
from the request for reconsideration,
the appeal to the CTA is 30 days from the
receipt of the decision of the CIR
If no decision was made within the 180
day period, the taxpayer may either
(a) Appeal to the CTA within 30 days
from the lapse of the 180 day
period to make a decision
(b) Wait for a decision of the CIR
even after the 180 day period. In
case a decision is rendered,
appeal within 30 days from the
said decision
b) Compromise and Abatement of Taxes
Compromise
A contract whereby the parties, by reciprocal
concessions, avoid litigation or put an end to one
already commenced. (Art. 2028, New Civil Code)
GROUNDS FOR COMPROMISE OF CIVIL LIABILITY:
1. Where the assessment is of doubtful
validity;
2. 2. When the financial position of the
taxpayer demonstrates clear inability to
pay the tax.
MINIMUM COMPROMISE RATE
1. Financial Incapacity - 10% of the basic
assessed tax
2. Other Cases - 40% of the basic assessed
tax
Abatement
the diminution or decrease in the amount of tax
imposed,” such that to abate is “to nullify or
reduce in value or amount.” “In abatement or
cancellation, no mutual concessions between the
taxpayer and the CIR are made.” (People v.
Sandigayanbayan, G.R. No. 152532, 2005)
Grounds for Abatement
1. The tax or any portion thereof appears to
be unjustly or excessively assessed; or
2. The administration and collection costs
involved do not justify the collection of
the amount due. (NIRC, Sec. 204(B))
c) Recovery of Tax Erroneously or Illegally
Collected
Requisites for Claims for Tax Refund
1. Necessity of written claim for refund;
XPNs: No written claim is needed
(a) A return filed showing an overpayment
shall be considered as a written claim for
credit or refund (NIRC, Sec. 204[C])
(b) On the face of the return upon which the
payment was made, such payment
appears clearly to have been erroneously
paid (NIRC, Sec. 229)
2. Claim must contain a categorical demand for
reimbursement (Bermejo v. CIR, G.R. No. L-3029,
1950); and
3. Filing of administrative claim for refund and
the suit/proceeding before the CTA both within 2
years from date of payment regardless of any
supervening cause.
Note: The suit may be maintained whether or not
such tax/penalty/sum has been paid under
protest;
If proven that the entity is tax exempt, then the
previously paid tax can be refunded but the claim
is still subject to the prescriptive period of 2
years. (CIR vs. Manila Electric Company, G.R. No.
181459, 2014)
3. Government Remedies for Collection of
Delinquent Taxes
COLLECTION
It is only allowed when there is already a final
assessment made for the determination of the tax
due and must be made within 5 years from such
62
finality; or 10 years from discovery in case of
false or fraudulent return or omission to file one.
Under Sec. 205 of the Tax Code, the BIR has the
following options for collection:
1. Distraint of personal property;
2. Levy of real property
3. Civil action
4. Criminal Action; and
5. Enforcement of a Tax Lien.
a) Requisites
Requisites before a taxpayer may be required to
pay delinquent taxes: (AG-NoWri-Pre-Flo-Not)
1. There must be an Assessment that has
become final, executory, and collectible;
2. The amount, being collected must be part
of the Government’s accounts receivable;
3. The amount being collected must Not
have been Written-off or cancelled;
4. The right of the government to collect
has not yet Prescribed;
5. The proper procedure for collection
whether administrative or judicial are
Followed;
6. The taxpayer can still be Located; and
7. The government is Not enjoined from
collecting the tax (DOMONDON, National
Taxation, p. 334)
b) Prescriptive Periods
GR: Five (5) years from the date of assessment
(Sec. 222 (C) , NIRC)
XPN:
1. False or fraudulent return with intent to
evade taxes: within 10 years from
discovery without need for prior
assessment. The government may file a
proceeding in court.
2. Failure or omission to file a return: within
10 years from discovery without need for
assessment.
3. Waiver in writing executed before the
five-year period expires: period agreed
upon. (Ingles, supra at 475)
For false, fraudulent, or failure to file a return:
If the government does not make an assessment,
they can collect within 10 years from discovery.
They are, however, limited to purely judicial
remedies. (Sec. 222 (A), NIRC; Ingles, supra at
477)
4. Civil Penalties
a) Delinquency Interest and Deficiency Interest
Delinquency Interest
12% (or 20% prior to the TRAIN) In case of failure
to pay:
1. The amount of the tax due on any return
required to be filed, or
2. The amount of the tax due for which no
return is required, or
3. A deficiency tax, or any SURCHARGE or
interest thereon on the due date
appearing in the notice and demand of
the Commissioner, there shall be assessed
and collected on the unpaid amount,
interest at the rate of double the legal
interest until the amount is fully paid,
which interest shall form part of the tax.
(NIRC, Sec. 249)
Deficiency Interest
Any deficiency in the tax due, as the term is
defined in NIRC, shall be subject to the double
the legal interest, which interest shall be
assessed and collected from the date prescribed
for its payment until the full payment thereof, or
upon issuance of a notice and demand by the
Commissioner of Internal Revenue, whichever
comes earlier. (Casasola, The Consolidated NIRC
of 1997, pp. 334-335)
NOTE: The deficiency and the delinquency
interest cannot be imposed simultaneously.
(NIRC, Sec. 249)
b) Surcharge
1. Twenty-five percent (25%) of the amount due
shall be imposed in the following:
A. Failure to file any return and pay the tax
due thereon on the date prescribed;
B. Wrong venue - Unless otherwise
authorized by the Commissioner, filing a
return with an internal revenue officer
63
other than those with whom the return is
required to be filed;
C. Failure to pay the deficiency tax within
the time prescribed for its payment in the
notice of assessment; or
D. Failure to pay the full or part of the
amount of tax shown on any return
required to be filed, or the full amount of
tax due for which no return is required to
be filed, on or before the date prescribed
for its payment (Sec. 248 (A), NIRC)
2. Fifty percent (50%) penalty in case of the
following: (WF)
A. Willful neglect to file a return within the
period prescribed; or
NOTE: If the taxpayer voluntarily files the return,
without notice from the BIR, only a 25% surcharge
shall be imposed for late filing and late payment
of the tax.
But if the taxpayer files the return only after
prior notice in writing from the BIR, then the 50%
surcharge will be imposed (Ingles, Reviewer, p.
404)
B. False or fraudulent return willfully made
(Sec. 248(B), NIRC)
NOTE: The following are prima facie evidence of
a false or fraudulent return:
1. Substantial underdeclaration of sales, receipts
or income;
2. Substantial overstatement of
deductions.
Substantial = more than 30% of actual
sales/deductions
Surcharge and interest can be deleted when the
basis of a previous interpretation of the agency
tasked to implement the law is highly
controversial and the taxpayer acted in good
faith and in honest belief that it is not subject to
tax (M Lhuillier Pawnshop v. CIR, 501 SCRA 460,
cited in BSP v. CIR, Feb 2010)
c) Compromise Penalty
In all cases of criminal violations of the NIRC, not
involving the commission of fraudulent act, it is
directed that henceforth, compromise penalties
to be imposed shall follow strictly the amounts in