2023 Commercial and Taxation Law Syllabus Based eREVIEWER v2.01

Commercial and Tax Law
Syllabus-based eReviewer for the 2023 Bar

Version 2 with Bar Chair Case Digests
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
Table of Contents
National Taxation 139 3. Dissolution and Winding Up
Business Organizations 2 Income Tax 141 4. Limited Partnership
Partnerships 2 Value-Added Tax 183 1 General Provisions
Corporations 14 Tax Remedies Under the NIRC 200 a) De nition, Elements, and Characteristics
Banking Laws 55 Local Taxation 218 Definition
New Central Bank Act 55 Local Government Taxation 218 By the contract of partnership
1. two or more persons bind themselves
General Banking Law of 2000 58 Real Property Taxation 228 2. to contribute money, property, or industry
Secrecy of Bank Deposits 64 Judicial Remedies 234 3. to a common fund,

4. with the intention of dividing the pro ts among themselves.
Anti-Money Laundering Act 66
Commercial Law Characteristic Elements
Insurance Law 72 1) Consensual — perfected by mere consent;
Transportation Law 87 I Business Organizations 2) Nominate — has a special name in law;

3) Bilateral — entered into by 2 or more persons with
Intellectual Property Code 94 Partnerships reciprocal rights and obligations;
4) Onerous — parties aspire to gain some bene t;
Electronic Commerce Act 119 Corporations
5) Commutative — the undertaking of each of the partners is
Foreign Investments Act 120 considered as the equivalent of that of the others;
A Partnerships
6) Principal — does not depend upon some other contracts;
Public Service Act 123 1. General Provisions 7) Preparatory — a means to an end.
General Principles in Taxation Law 125 2. Rights and Obligations of Partnership and Partners Essential Features
1) There must be a valid contract;
eCodal+Pro by RGL 2 of 239

2) The parties have legal capacity to enter into the contract; e) Consideration for the sale of a goodwill of a business i) no time is speci ed and is not formed for a particular
or other property by installments or otherwise. undertaking and which may be terminated anytime
3) There must be a mutual contribution of money, property or
by mutual agreement of the partners or by the will of
industry to a common fund; Incidents of a partnership
one of them; OR
4) The object must be lawful; and 1) Partners share in pro ts and losses. There is community of
ii) one for a xed term or particular undertaking that is
interest; (1767, 1797, 1798)
5) The primary purpose is to carry on a business for pro ts and continued after the termination of such term or
to divide the same among the parties. 2) They have equal rights in the management and conduct of the particular undertaking without any express agreement
business; (1803)
b) Rules to Determine Existence b) With a xed term — one in which the term is xed or
3) Every partner is an agent of the partnership who binds the agreed upon or formed for a particular undertaking, and
others for his acts for the purpose of its business; (1818) upon expiration of the term or completion of the
1) Persons who are not partners as to each other are not partners
as to third persons except as provided by Article 1825 on 4) All partners are personally liable for the debts of the undertaking, the partnership is dissolved, unless
partnership by estoppel; partnership with their separate property (1816, 1822-1824) continued by the partners.
exc limited partners; (1843)
2) Co-ownership or co-possession does not of itself establish a d) Partnership by Estoppel
partnership, whether such co-owners or co-possessors do or do 5) The books shall be kept at the principal place of business;
not share any pro ts made by the use of the property; (1805)
When does partnership liability result?
3) The sharing of gross returns does not of itself establish a 6) A duciary relation exists between partners; (1807)
Partnership by estoppel results if ALL the actual partners
partnership, whether or not the persons sharing them have a 7) A capitalist partner cannot carry on a competing business consented to the representation.
joint or common right or interest in any property from which unless expressly allowed (1808), while an industrial partner is
the returns are derived; When is liability pro rata?
absolutely prohibited from engaging in any other business;
4) The receipt by a person of a share of the pro ts of a (1789) a) When there is NO existing partnership, and all those
business is prima facie evidence that he is a partner in the represented as partners consented; or
8) The partnership is not terminated upon dissolution, but
business, except if such pro ts were received in payment as: continues until the winding up is completed. (1828) b) When there is an existing partnership, and not all of the
a) Debt by installments or otherwise; partners consented.
c) Partnership Term
b) Wages of an employee or rent to a landlord; When is liability separate?
c) Annuity to a widow or representative of a deceased a) When there is NO existing partnership, and only some of
1) There is no time limit for the existence of the partnership as
partner; those represented consented; or
this depends on the agreement of the parties.
d) Interest on a loan, though the amount of payment b) When there is an existing partnership, and none of the
2) A partnership may be formed
vary with the pro ts of the business; partners consented.
a) At will —

Elements to establish liability as a partner on ground of estoppel c) Even if a co-venturer transfers his interest to another, A partnership for the practice of law, constituted in accordance with
the transferee does not become a co-venturer together the Civil Code provisions on partnership, acquires juridical
1) Proof by plainti that he was individually aware of the
with the others in the joint venture unless all the other personality by operation of law. Having a juridical personality
defendant’s representations;
co-venturers consent. This is in consonance with the distinct and separate from its partners, such partnership is the real
2) Reliance on such representation by the plainti ; and principle of delectus personarum. party-in-interest in a suit brought in connection with a contract
3) Lack of any denial or refutation of the statements by the entered into in its name and by a person authorized to act on its
d) Generally, the co-venturers acting on behalf of the
defendant. behalf.
joint venturers are agents thereof with capacity to
bind the joint venture.
e) Partnership as Distinguished from Joint Venture g) Management
e) Death, retirement, insolvency, civil interdiction or
dissolution of any co-venturer dissolves the joint
1) A joint venture is an association of persons or companies 1) If ONE is appointed manager
venture. [Cesar L. Villanueva, Philippine Corporate
jointly undertaking some commercial enterprise; generally,
Law] May execute all acts of administration despite the opposition
a) all contribute assets and share risks which requires a of his partners, unless he should act in bad faith;
community of interest in the performance of the Primelink Properties v. Lazatin-Magat If appointed in articles of partnership, his power is irrevocable
subject matter,
As a general rule, the relation of the parties in joint ventures is without just or lawful cause. Thus, removal may be had
b) a right to direct and govern the policy in connection only
governed by their agreement. When the agreement is silent on any
therewith, and
particular issue, the general principles of partnership may be resorted a) For lawful cause of if there is bad faith; AND
c) a duty, which may be altered by agreement to share to.
b) Through the votes of the partners representing the
both in pro t and losses.
An important distinction between these two business forms is that controlling interest.
2) Under Philippine law, a joint venture is a form of partnership although a corporation cannot enter into a partnership contract, it
If appointed after the partnership has been constituted, his
and should thus be governed by the law of partnerships. may, however, engage in a joint venture with others.
power may be revoked at any time by the vote of the partners
3) Since a joint venture is a particular partnership, it would have citing Aurbach v. Sanitary Wares Manufacturing Corporation representing the controlling interest.
the following characteristics:
2) If TWO OR MORE are appointed managers
a) It would have a juridical personality separate and f ) Professional Partnership
a) without speci cation of their respective duties, or
distinct from that of each of the joint venturers.
General professional partnership. Two or more persons may also b) without a stipulation that one of them shall not act
b) Each of the co-venturers would be liable with their
form a partnership for the exercise of a profession. without the consent of all the others,
private property to the creditors of the joint venture
beyond their contributions to the joint venture.
Saludo, Jr. v. PNB 2018

each one may separately execute all acts of administration, a) Rights and Obligations of the Partnership Unless expressly allowed, not merely by toleration. The
but if any of them should oppose the acts of the others, the remedies of the other partners would be
decision of the majority of the managers shall prevail.
1) Refund amounts disbursed by the partner in behalf of the a) To exclude the erring industrial partner from the
In case of a tie, the matter shall be decided by the partners partnership plus the corresponding interest from the time the rm; or
owning the controlling interest. expenses are made; b) To avail themselves of the bene ts which he may
In case UNANIMITY OF ACTION is stipulated, the 2) Answer for the obligations the partner may have contracted in have obtained;
CONCURRENCE OF ALL shall be necessary for the good faith in the interest of the business; and c) Plus right to damages in either case.
validity of the acts.
3) Answer for risks in consequence of its management. 2) Capitalist partner — Relative prohibition, only to any
The absence or disability of any one of them cannot be alleged, business of the same kind, unless there is a stipulation to the
unless there is imminent danger of grave or irreparable b) Obligations of Partners Among Themselves
contrary. Sanctions for violating the prohibition include:
injury to the partnership.
a) Bringing to the common funds any pro ts from the
3) When the manner of management has NOT been agreed When does a partnership commence?
other business; and
upon, the following rules shall be observed: GR: From the moment of the execution of the contract.
b) Personally bearing the losses.
a) ALL the partners shall be considered agents and EXC: Unless otherwise stipulated.
whatever any one of them may do alone shall bind the When is a capitalist partner obliged to sell his interest to others?
partnership. Obligations of partners with respect 1) There is an imminent loss of the partnership business;
to contribution of property
b) UNANIMOUS CONSENT is required in making 2) The majority of the capitalist partners are of the opinion
1) To contribute at the beginning of the partnership or at the
any important alteration in the immovable that an additional contribution to the common fund would
stipulated time the money, property, or industry which he may
property of the partnership, even if it may be useful to save the business;
have promised to contribute;
the partnership. 3) The capitalist partner refuses deliberately to contribute an
2) To answer for eviction in case the partnership is deprived of
But if the refusal of consent by the other partners is additional share to the capital; and
the determinate property contributed;
manifestly prejudicial to the interest of the partnership, 4) There is no agreement that even in case of an imminent loss of
the court's intervention may be sought. 3) To answer for the fruits of the property the contribution of
the business, the partners are not obliged to contribute.
which he delayed, from the date they should have been
GR: Partner NOT entitled to compensation. Here, an industrial partner is exempt from contributing an additional
contributed up to the time of actual delivery.
EXC: The law may imply a contract for compensation. share. He has already contributed his entire industry.
Prohibition against engaging in business
Obligation of managing partner who collects debt
Rights and Obligations of Partnership and 1) Industrial partner — Absolutely prohibited, regardless of
2 the nature of the business whether of the same kind or not. Where
Partners

1) There exists at least 2 debts, one where the collecting partner is EXC: If through the partner's extraordinary e orts in other i) The share of the capitalist partner is in proportion to
creditor, and the other, the partnership is the creditor; activities of the partnership, unusual pro ts have been his capital contribution.
2) Both debts are demandable; and realized, the courts may equitably lessen this ii) The industrial partner shall receive such share as may
responsibility. be just and equitable, which must be satis ed rst
3) The collecting partner is authorized to manage and actually
before the capitalist partners shall divide the pro ts.
manages the partnership, the RULE is as follows: Risk of loss of things contributed
Who bears loss? This means the least amount that a capitalist partner
GR: The sum received is to be applied to the 2 credits in
gets.
proportion to their amounts.
Speci c and determinate things, which are not
Partner 3) Losses
EXC: If received, for the account of the partnership, shall be applied fungible where only use is contributed
to the partnership credit only. a) According to agreement;
Speci c and determinate things the ownership
EXC to EXC: Partnership b) If no agreement, but the contract provides for a
of which is transferred to the partnership
pro t-sharing scheme, the losses shall be in accordance
If credit to the collecting partner is more onerous, the debtor
Fungibles or things which cannot be kept with that scheme.
is given the right to prefer payment to the former.
without deteriorating even if contributed only Partnership c) If there is also no pro t-sharing stipulated, then losses
Obligation of partner who receives for use shall be borne in proportion to capital contribution.
share of partnership credit
Things contributed to be sold Partnership In any case, the purely industrial partner shall not be
A partner shall be obliged to bring to the partnership capital what
liable for the losses.
he received even though he may have given receipt for his share only, Things brought and appraised in the inventory Partnership
IF Can a third person be designated to determine share in profits
or losses?
1) He has received, in whole or in part, his share of a partnership Rules for distribution of profits and losses
credit; 1) Capital YES. If the partners have agreed to intrust to a third person.
2) The other partners have not collected theirs; AND a) According to agreement; Such designation may be impugned only when it is manifestly
inequitable. In no case may a partner complain of such decision if
3) The partnership debtor has become insolvent. b) If no agreement, the share shall be equal;
he
Obligations of partner for damages to partnership c) In case of imminent loss of the business, additional shares
1. Has begun to execute the decision of the third person, or
may be determined by the majority.
GR: The damages caused by a partner to the partnership
2. Has not impugned the same within a period of three
CANNOT be o set by the pro ts or bene ts which he may 2) Pro ts months from the time he had knowledge thereof,
have earned for the partnership by his industry.
a) According to agreement; The designation of losses and pro ts cannot be intrusted to one of
b) If no agreement the partners.

A stipulation which excludes one or more partners from any share A partner is co-owner with his partners. Original capital Aggregate of the
in the pro ts or losses is VOID. contribution + All individual contributions
a) Equal right to possess for partnership purposes,
Assets property subsequently made in establishing or
Subpartnership but not for any other purpose without the consent of
included acquired + Partnership continuing the
the other partners;
Every partner may associate another person with him in his share, name + Goodwill partnership
but the associate shall NOT be admitted into the partnership b) NOT assignable except in connection with the
without the consent of ALL the other partners, even if the assignment of rights of all the partners in the same
Assignment of partner’s whole interest
partner having an associate should be a manager. property;
This is permitted without causing dissolution. However, such
c) NOT subject to attachment or execution except
Right of partner to a formal account assignment does NOT grant the assignee the right to:
on a claim against the partnership;
GR: During the existence of the partnership, a partner is NOT a) Interfere in the management;
entitled to a formal account of partnership a airs since his When partnership property is attached for a
partnership debt the partners, or any of them, or the b) Require any information or account; or
right to know are amply protected with regard to access to
partnership books. representatives of a deceased partner, cannot claim c) Inspect partnership books.
any right under the homestead or exemption
EXC: Action for accounting. Any partner shall have the right to a The only rights of the assignee are:
laws.
formal account as to partnership a airs: 1) To receive the pro ts accruing to the assigning partner;
d) NOT subject to legal support.
1) If he is wrongfully excluded from the partnership business or 2) To avail of usual remedies in the event of fraud in the
possession of its property by his co-partners; 2) His interest in the partnership;
management;
2) If the right exists under the terms of any agreement; Refers to his share of the pro ts and surplus. These may be
3) To receive assignor’s interest in case of dissolution;
assigned.
3) As provided by Article 1807 — Every partner must account to 4) To require an account of partnership a airs, but only in case
the partnership for any bene t, and hold as trustee for it any A partner shall NOT be deprived of his right, if any, under the
of dissolution.
pro ts derived by him without the consent of the other exemption laws, as regards his interest in the partnership.
Remedies of separate judgment creditor of a partner
partners from any transaction connected with the formation, 3) His right to participate in the management.
conduct, or liquidation of the partnership or from any use by 1) Application for a charging order after securing judgment
Partnership Property Partnership Capital
him of its property. on his credit. However, claims of partnership creditors
must be satis ed rst.
4) Whenever other circumstances render it just and reasonable. Changes VARIES CONSTANT
e.g. a partner has been assigned abroad for a long time. in value 2) Other remedies may include
Property Rights of a Partner a) Receivership;
1) His rights in speci c partnership property; b) Sale of interest.

The interest charged may be redeemed. A stipulation among partners contrary to the pro rata and 4) Confess a judgment;
subsidiary liability expressly imposed is VOID and of no e ect as
5) Enter into a compromise concerning a partnership
c) Obligations of Partnership/Partners to Third to third persons.
Persons claim or liability;
Such stipulation however is VALID and enforceable among the
6) Submit a partnership claim or liability to arbitration;
partners.
Liability for inclusion of name in firm name 7) Renounce a claim of the partnership.
Partners by estoppel. Persons who, being not partners, include Liability of partnership for acts of partners
3) Acts in contravention of a restriction on authority
their names in the rm name 1) Acts for apparently carrying out the usual way of
business of the partnership a.k.a. Acts of administration GR: Partnership is NOT liable to third persons having
1. DO NOT acquire the rights of a partner, actual or presumptive knowledge of the restrictions.
GR: Every partner is an agent and may execute such acts
2. but they shall be SUBJECT to the liability of a partner EXC: Such persons not having such notice have a right to
with binding e ect.
insofar as third persons without notice are concerned.
assume that the authority of a partner is co-extensive
Liability for contractual obligations of the partnership EXC: If the partner so acting with the business transacted by his rm.
The general rule is that a partner, who had actual or apparent a) Has in fact no authority; AND
Conveyance of real property owned by partnership
authority, has the right to make all partners liable for the b) The third person KNOWS. Title in Conveyance
contracts he makes for the partnership in the name and for the EFFECT
2) Acts of strict dominion or ownership name of in name of
account of the partnership.
GR: NOT binding; Passes title, but partnership can
The individual liability of partners to creditors is pro rata and
subsidiary. EXC: Unless authorized by the other partners. recover if
a) Conveyance was not in usual
1) Pro rata — based on the number of partners, and not on the Except when authorized by the other partners or
Partnership Partnership way of business; or
amount of contribution. unless they have abandoned the business, one or
b) Buyer had knowledge that
2) Subsidiary or secondary — only after all the partnership more but less than all the partners have no authority
the partner-seller had no
assets have been exhausted. to:
authority.
Industrial partners, although not liable for losses, are 1) Assign the partnership property in trust for creditors
or on the assignee's promise to pay the debts of the Buyer gets equitable interest of the
personally liable for liabilities of the partnership to third
partnership; partnership except if
persons. Partner’s
Partnership a) Partnership is not engaged in
2) Dispose of the goodwill of the business; name
Losses = settlement of partnership a airs among partners; buying and selling of lands;
3) Do any other act which would make it impossible to or
Liabilities = to third persons.
carry on the ordinary business of a partnership;
Stipulation against liability

b) Buyer had knowledge that 3. who reasonably could and should have communicated it to the Liability of incoming partner for partnership obligations
the partner-seller had no acting partner,
1) Limited to his share in the partnership property for
authority.
operate as notice to or knowledge of the partnership. existing obligations.
Partner/s in EXC: in the case of fraud on the partnership, committed by or with GR: Not personally liable for existing partnership
One or
whose name the consent of that partner. obligations.
more Passes title, same as (1)
the title
partners NB: Notice to any partner, under certain circumstances, operates as EXC: Unless there is a stipulation to the contrary.
stands
notice to or knowledge to the partnership only. Evidently, it
2) Extends to his separate property for subsequent obligations.
One or does not provide for the reverse situation, or that notice to the
more or all partnership is notice to the partners. (Guy v. Gacott 2016)
3 Dissolution and Winding Up
partners or
Partnership Buyer gets equitable interest of the Liability arising from partner’s wrongful
a third act, omission, or breach of trust Three stages of ending a partnership:
or partner partnership, same as (2)
person in
The partners and partnership are SOLIDARILY liable for: 1) Dissolution — is the change in the relation of the partners
trust for
caused by any partner ceasing to be associated in the carrying
partnership 1) Loss or injury caused to third persons — Requisites for
on of the business.
liability
All 2) Winding up — is the actual process of settling the business
All partners Passes title. a) Partner must be guilty of a wrongful act or omission;
partners or partnership a airs after dissolution, involving
AND
Admission by a partner a) The collection and distribution of partnership assets,
b) He must be acting in the ordinary course of business,
An admission or representation made by any partner concerning or with the authority of his co-partners even if the act b) Payment of debts, and
partnership a airs within the scope of his authority is evidence is unconnected with the business. c) Determination of the value of each partner’s interest in
against the partnership. 2) Loss where one partner acting within the scope of his the partnership.
Notice to, or knowledge of, a partner apparent authority receives money or property of a third 3) Termination — point in time when all partnership a airs are
person and misapplies it; completely wound up and nally settled. It signi es the end of
GR: Notice to any partner of any matter relating to partnership
a airs, and the knowledge of the partner acting in the 3) Loss where the partnership in the course of its business the partnership life.
particular matter, receives money or property of a third person and the money or
property so received is misapplied by any partner while it is in
Causes of Dissolution
1. acquired while a partner or the custody of the partnership. 1) Act of parties NOT in violation of their agreement —
2. then present to his mind, and a) Termination of the de nite term or particular
the knowledge of any other partner undertaking speci ed in the agreement;

b) Express will of any partner, who must act in good faith, e) The business of the partnership can only be carried GR: Each partner is liable to his co-partners for his
when no de nite term or particular is speci ed; on at a loss; share of any liability created by any partner acting
c) Express will of ALL the partners who have not assigned f) Other circumstances render a dissolution equitable. for the partnership as if the partnership had not
their interests or suffered them to be charged for their been dissolved
i) Abandonment of the business;
separate debts, either before or after the termination of any EXC: Unless the partner acting for the partnership had
speci ed term or particular undertaking; ii) Fraud in the management of the business;
a) knowledge of the dissolution caused by act of
d) Expulsion of any partner from the business bona de in iii) Refusal without justi able cause to render accounting
any partner; OR
accordance with such a power conferred by the agreement of partnership a airs, etc.
b) knowledge or notice of the death or
between the partners; On the application of the purchaser of a partner's interest:
insolvency.
2) Act of parties in violation of their agreement; a) After the termination of the speci ed term or particular
b) With respect to third persons —
3) Operation of law — undertaking;
i) As to prior or former dealers — persons who extended
a) Any event which makes it unlawful for the business of b) At any time if the partnership was a partnership at will
credit to partnership prior to dissolution — must have
the partnership to be carried on or for the members to when the interest was assigned or when the charging
knowledge or actual notice of the dissolution to relieve
carry it on in partnership; order was issued.
partnership from liability;
b) Loss of speci c thing — When a speci c thing which a E ect of dissolution on authority of partner ii) As to persons who had known of partnership’s existence
partner had promised to contribute to the partnership, GR: Upon dissolution, a partnership ceases to be a going concern — publication;
perishes before the delivery; and the partner’s power of representation is con ned only to In both instances, the liability of a partner shall be satis ed
c) Death of any partner; 1. acts incident to winding up or out of partnership assets alone when such partner had
d) Insolvency of any partner or of the partnership; been prior to dissolution:
2. completing transactions begun but not nished.
e) Civil interdiction of any partner; 1) Unknown as a partner to the person with whom the
This rule is subject to quali cations.
contract is made; and
4) Court decree — On application by or for a partner the a) With respect to partners themselves —
2) So far unknown and inactive in partnership a airs
court shall decree a dissolution due to:
i) If the dissolution is NOT caused by the act, insolvency that the business reputation of the partnership could
a) Insanity; or death of a partner, the authority of any partner to bind not be said to have been to any degree due to his
b) Incapacity; the partnership by a new contract is IMMEDIATELY connection with it.
terminated.
c) Misconduct; iii) The partnership is in NO case bound by any act of a
ii) Otherwise, termination of authority depends upon WON partner after dissolution:
d) Persistent breach of partnership agreement;
the partner had knowledge or notice of the dissolution —

1) Unlawful to carry on the business, unless the act is 1) If dissolution NOT in contravention of agreement — 1) To have the value of his interest in the partnership
appropriate for winding up partnership a airs; Partners have the right to have at the time of dissolution, less damages
ascertained and paid in cash or secured by bond
2) Insolvency of partner; a) The partnership property applied to discharge the
approved by the court; and
liabilities of the partnership; AND
3) Partner has no authority to wind up partnership
2) To be released from all existing and future
a airs; except by a transaction with one who — b) The surplus, if any, applied to pay in cash the net amount
liabilities of the partnership.
owing to respective partners.
a) Is a former dealer and had no knowledge or
In ascertaining the value of the partner's interest
notice of his want of authority; or NO partner is liable for any loss sustained as a result of
the value of the goodwill of the business shall
dissolution.
b) Is not a former dealer, and, having no knowledge NOT be considered.
or notice of his want of authority, the fact of his 2) If dissolution in contravention of agreement — The
Rights of injured partner where partnership contract rescinded
want of authority has not been duly published. rights of a partner vary depending on his innocence.
a) If innocent — 1) Right of a lien on, or retention of, the surplus of partnership
Winding up; manner, persons authorized
property after satisfying partnership liabilities for any sum of
Winding up may be done judicially or extrajudicially by i) To have partnership property applied for the money paid or contributed by him;
payment of its liabilities and to receive in cash his
1) The partners designated by the agreement; 2) Right to subrogation in place of partnership creditors after
share of the surplus;
2) In the absence of such agreement, by all partners who have not payment of partnership liabilities; and
ii) To be indemni ed for damages caused by the guilty
wrongfully dissolved the partnership; OR 3) Right of indemni cation by the guilty partner against all
partner;
3) The legal representative of the last surviving partner, not debts and liabilities of the partnership.
iii) To continue the business in the same name during
insolvent; OR Rules in settling accounts between partners
the agreed term, by themselves or jointly with others;
4) A court-appointed receiver. and 1) Assets of the partnership. —
Right of partner to application of partnership property on iv) To possess partnership property should they a) Partnership property + Goodwill; AND
dissolution decide to continue the business.
b) Contributions of the partners necessary for the payment
“Partner’s lien” is the right of every partner, on a dissolution, b) If guilty of wrongfully causing the dissolution — of all liabilities.
against the other partners and persons claiming through them in i) If the business is NOT continued — To have 2) Order of application of the assets. —
respect of their interests as partners, to have the partnership partnership property applied for the payment of its
property applied to discharge partnership liabilities and the surplus liabilities and to receive in cash his share of the surplus a) Those owing to partnership creditors;
assets, if any, distributed in cash to the respective partners, after less damages. b) Those owing to partners other than for capital and pro ts,
deducting what may be due to the rm from them as partners.
ii) If the business is continued such as loans given by partners or advances for business
expenses;

c) Return of capital contribution of partners; Rights of creditors of dissolved partnership which is continued De nition and Requirements
d) Pro ts. 1) Equal rights of dissolved and new partnership creditors. A limited partnership is one formed by two or more persons,
3) Right of a partner where assets insu cient. — The 2) Liability of persons continuing the business. — shall be having as members
following shall have the right to enforce the contributions satis ed out of the partnership property only, unless there 1. one or more general partners AND
is a stipulation to the contrary.
a) Any partner or his legal representative, to the extent of the 2. one or more limited partners.
amount which he has paid in excess of his share of the 3) Prior right of dissolved partnership creditors as against
liability; purchaser. — When a retiring or deceased partner has sold his The limited partners as such shall not be bound by the obligations
interest without a nal settlement with partnership creditors, of the partnership.
b) An assignee for the bene t of creditors; or
such creditors have an equitable lien on the consideration As to General Limited
c) Any person appointed by the court paid to the retiring or deceased partner by the purchaser.
Extends only to capital
4) Liability of deceased partner’s individual property. — The lien comes ahead of the separate creditors of said partner. Liability Personally liable
contribution
shall be liable for his share of the contributions necessary to
satisfy the liabilities incurred while he was a partner. Rights of retiring, or of estate of deceased, partner
Management ✔ ✘
5) Priority to payment of partnership creditors/ partners’ when business is continued
creditors. — When partnership property and the individual Money, property or
1) To have the value of the interest of the retiring or deceased Contribution At least money or property
properties of the partners are in possession of a court for industry
partner in the partnership ascertained as of the date of
distribution retirement or death; AND NO unless also a general
a) partnership creditors shall have priority on 2) To receive thereafter, as an ordinary creditor, an amount To proceedings by partner, or where the object
partnership property; and Proper Party or against the is to enforce his right
a) equal to the value of his share in the dissolved
partnership against, or liability to, the
b) separate creditors on individual property. partnership
partnership.
This is otherwise known as the doctrine of the b) with interest,
marshalling of assets. Does not make
c) or, at his option, in lieu of interest, the pro ts
Assignment of assignee new partner
6) Distribution of property of insolvent partner. — his attributable to the use of his right. Freely assignable
interest without consent of
individual property shall be distributed as follows:
others.
a) To those owing separate creditors;
4 Limited Partnership
Name in firm ✔ ✘
b) To those owing to partnership creditors; and
c) To those owing to partners by way of contribution. Absolutely or
Other business No prohibition
relatively prohibited

Retirement, death, insanity, 6) To receive a share of the pro ts or other compensation by way a) Receive or hold as collateral security any partnership
Dissolution ✔ insolvency DOES NOT of income; property; or
dissolve
7) To receive the return of his contribution provided there is a b) Receive payment, conveyance or release from liability if it
surplus. will prejudice the right of third persons.
Statutory requirements
1) Sign and swear to a certi cate;

GR: Unless he is a general partner, a limited partner is NOT a IF at the time the assets of the partnership are not
proper party to proceedings by or against a partnership su cient to discharge partnership liabilities to persons
2) File for record the certi cate in the O ce of the SEC. not claiming as general or limited partners.
EXC: Where the object is to enforce a limited partner's right against
A limited partnership is formed if there has been substantial or liability to the partnership. Any violation of the prohibition will give rise to the
compliance in good faith with the foregoing requirements. presumption that it has been made to defraud
Status of person erroneously believing
partnership creditors.
If there is no substantial compliance, the partnership becomes a himself to be a limited partner
general partnership as far as third persons are concerned, in A person who has contributed to a partnership erroneously believing Return of contribution
which ALL members are liable as general partners. that he has become a limited partner, is NOT personally liable as a GR: A limited partner only has the right to demand and receive
When does a limited partner become liable as a general general partner, provided: CASH for his contribution, whether he contributed money or
partner? a) On ascertaining the mistake he promptly renounces his property.
1. If his surname appears in rm name; interest in the pro ts of the business, or other compensation EXC: When there is stipulation to the contrary in the certi cate; or
by way of income;
2. If he takes part in the control of the business. Where ALL partners consent to the return other than in form
b) His surname does NOT appear in the partnership name; and of cash.
Limited partner; speci c rights
c) He does NOT participate in the management of the business. When may a limited partner have the partnership dissolved?
1) To require that the partnership books be kept at the principal
place of business; Transactions of limited partner with the partnership Upon petition with the court:
2) To inspect and copy at a reasonable hour partnership books 1) Allowable transactions.— a) When his demand for the return of his contribution is
or any of them; a) Grant loans to the partnership; denied although he has a right to such return; or
3) To demand true and full information of all things a ecting b) Transacting other business with it; and b) When his contribution is not paid because the other
the partnership; liabilities of the partnership have not been paid or the
c) Receiving a pro rata share of the partnership assets with
partnership property is insu cient for their payment.
4) To demand a formal account of partnership a airs whenever general creditors if he is not also a general partner.
circumstances render it just and reasonable; Before seeking judicial redress, he may rst ask the other partners to
2) Prohibited transactions. —
have the partnership dissolved.
5) To ask for dissolution and winding up by decree of court;

Limited partner; liabilities 1) Is made with unanimous consent; and GR: A substituted limited partner is liable for all the liabilities of his
2) Does not prejudice partnership creditors who extended assignor;
1) To the partnership —
credit or whose claims arose before the cancellation or EXC: Those of which he was ignorant at the time he became a
a) For the di erence between his contribution as actually
amendment of the certi cate. limited partner and which could not be ascertained from the
made and that stated in the certi cate as having been
certi cate.
made, and Limited partner; assignee to substituted
b) For any unpaid contribution which he agreed in the A substituted limited partner is a person admitted to all the Limited Partnership; Dissolution
certi cate to make in the future at the time and on the rights of a limited partner who has died or has assigned his interest The partnership liabilities shall be settled in the following order:
conditions stated in the certi cate. in a partnership.
1) Those due to creditors, including limited partners,
2) To partnership creditors and other partners — becomes An assignee, who does NOT become a substituted limited partner, has
except those on account of their contributions, in the order of
liable for partnership obligations when
1. NO right to priority as provided by law;
a) He contributes services, instead of only money or
a. require any information or 2) Those to limited partners
property;
b. account of the partnership transactions or a) in respect to their share of the pro ts and other
b) He allows his surname to appear in the rm name;
c. to inspect the partnership books; compensation by way of income on their contributions;
c) He fails to have a false statement in the certi cate
2. He is only entitled to b) in respect to the capital of their contributions;
corrected, knowing it to be false;
a. receive the share of the pro ts or other compensation by 3) Those to general partners
d) He takes part in the control of the business;
way of income, or a) other than for capital and pro ts;
e) He receive partnership property as collateral security,
payment, conveyance, or release in fraud of partnership b. the return of his contribution, to which his assignor b) in respect to pro ts;
creditors; and would otherwise be entitled.
c) in respect to capital. (NB: in general partnership, capital
f) There is failure to substantially comply with the legal What are the requisites for an assignee to enjoys preference over pro ts)
become a substituted limited partner?
requirements governing the formation of limited
partnerships. 1) Unanimous consent of all members; or if the limited partner Corporations
is empowered by the certi cate, must give the assignee the right B
3) To separate creditors — Charging order — The interest Revised Corporation Code of the Philippines
to become a limited partner;
may be redeemed with the separate property of any
general partner, but may NOT be redeemed with 2) The certi cate must be amended; and
De nition of Corporation
partnership property. 3) The amended certi cate must be registered in the SEC.
Classes of Corporations
The liabilities may be waived or compromised,
provided the waiver or compromise:

Nationality of Corporations b) Participation in Management l) Responsibility for Crimes
Corporate Juridical Entity c) Proprietary Rights m) Special Fact Doctrine
Capital Structure d) Remedial Rights n) Inside Information
Incorporation and Organization e) Obligations of a Stockholder o) Contracts
a) Promoter f) Meetings 10. Capital A airs
b) Subscription Contract 9. Board of Directors and Trustees a) Certi cate of Stock
c) Pre-Incorporation Subscription Agreements a) Repository of Corporate Powers b) Watered Stocks
d) Consideration for Stocks b) Tenure, Quali cations, and Disquali cations of c) Payment of Balance of Subscription
Directors
e) Articles of Incorporation d) Sale of Delinquent Shares
c) Requirement of Independent Directors
f) Corporate Name and Limitations on its Use e) Alienation of Shares
d) Elections
g) Registration, Incorporation, and Commencement of f) Corporate Books and Records
Corporate Existence e) Removal
11. Dissolution and Liquidation
h) Election of Directors or Trustees f) Filling of Vacancies
a) Modes of Dissolution
i) Adoption of By-Laws g) Compensation
b) Methods of Liquidation
j) E ects of Non-Use of Corporate Charter h) Disloyalty
12. Other Corporations
7. Corporate Powers i) Business Judgment Rule
a) Close Corporations
8. Stockholders and Members j) Solidary Liabilities for Damages
b) Non-Stock Corporations
a) Fundamental Rights of a Stockholder k) Personal Liabilities
c) Educational Corporations

applies when persons assume to form a corporation and

d) Religious Corporations Moreover, a corporation which has failed to le its by-laws within
exercise corporate functions and enter into business relations
with third persons. the prescribed period does not ipso facto lose its powers as such.
e) One Person Corporations
All persons who assume to act as a corporation knowing it to
f) Foreign Corporations
be without authority to do so shall be liable as general
Seventh Day Adventist Conference Church of Southern
13. Merger and Consolidation partners for all debts, liabilities and damages incurred or
Phil. Inc. v. Northeastern Mindanao Mission of Seventh
arising as a result thereof. (§20) Day Adventist, Inc.
1 De nition of Corporation 2. De facto Corporation. There are stringent requirements

The alleged donation to petitioners was void. The donation could
before one can qualify as a de facto corporation:
not have been made in favor of an entity yet inexistent at the time it
A corporation is
a. the existence of a valid law under which it may be was made. Nor could it have been accepted as there was yet no one
1. an arti cial being incorporated; to accept it.
2. created by operation of law, b. an attempt in good faith to incorporate; and There are stringent requirements before one can qualify as a de
facto corporation. The ling of articles of incorporation and the
3. having the right of succession and c. assumption of corporate powers.
issuance of the certi cate of incorporation are essential for the
4. the powers, attributes, and properties expressly authorized The due incorporation of any corporation claiming in good existence of a de facto corporation.
by law or incidental to its existence. faith to be a corporation, and its right to exercise corporate
Corporate existence begins only from the moment a certi cate of
powers, shall not be inquired into collaterally in any
incorporation is issued. No such certi cate was ever issued to
2 Classes of Corporations private suit to which such corporation may be a party. Such
petitioners or their supposed predecessor-in-interest at the time of
inquiry may be made by the Solicitor General in a quo
1. Stock corporations are those the donation. Petitioners obviously could not have claimed
warranto proceeding. (§19)
succession to an entity that never came to exist. Neither could the
a. which have capital stock
principle of separate juridical personality apply since there was never
Sawadjaan v. CA
b. divided into shares and any corporation to speak of.
c. are authorized to distribute to the holders of such WON AIIBP had NO legal personality to dismiss Sawadjaan since it
shares, dividends, or allotments of the surplus pro ts failed to file its by-laws within the designated 60 days from the
on the basis of the shares held. effectivity of Rep. Act No. 6848. Lozano v. De los Santos
2. All other corporations are nonstock corporations. NO. At the very least, by its failure to submit its by-laws on time, The doctrine of corporation by estoppel advanced by Anda cannot
the AIIBP may be considered a de facto corporation whose right to override jurisdictional requirements. Jurisdiction is xed by law and
Other Classifications
exercise corporate powers may not be inquired into collaterally in is not subject to the agreement of the parties. It cannot be acquired
1. Corporation by estoppel. Founded on principles of any private suit to which such corporations may be a party. through or waived, enlarged or diminished by any act or omission of
equity and is designed to prevent injustice and unfairness. It

required. (Gamboa v. Teves 2011 En Banc)

the parties, neither can it be conferred by the acquiescence of the SEC issued the corresponding Certi cate of Incorporation only on
court. August 31, two (2) days after Puri cacion executed a Deed of 2. Both the Voting Control Test and the Bene cial
Donation on August 29. Clearly, at the time the donation was Ownership Test must be applied to determine whether a
Corporation by estoppel is founded on principles of equity and is
made, the Petitioner cannot be considered a corporation de facto. corporation is a “Philippine national.”
designed to prevent injustice and unfairness. It applies when persons
assume to form a corporation and exercise corporate functions and Rather, a review of the attendant circumstances reveals that it calls The 60-40 ownership requirement in favor of Filipino
enter into business relations with third persons. Where there is no for the application of the doctrine of corporation by estoppel. citizens must apply separately to each class of shares,
third person involved and the conflict arises only among those whether common, preferred non-voting, preferred
Jurisprudence dictates that the doctrine of corporation by estoppel
assuming the form of a corporation, who therefore know that it has not voting or any other class of shares. (Heirs of Gamboa v.
applies for as long as there is no fraud and when the existence of the
been registered, there is no corporation by estoppel. Teves 2012 En Banc Resolution)
association is attacked for causes attendant at the time the contract
or dealing sought to be enforced was entered into, and not 3. The SEC suggested applying the Grandfather Rule on
thereafter.
a. two (2) levels of corporate relations for
Macasaet v. Co, Jr. 2013
Here, Puri cacion dealt with the petitioner as if it were a
i. publicly-held corporations or
Abante Tonite is a corporation by estoppel as the result of its corporation. This is evident from the fact that Puri cacion executed
having represented itself to the reading public as a corporation two (2) documents conveying her properties in favor of the ii. where the shares are traded in the stock
despite its not being incorporated. petitioner. exchanges, and to
The non-incorporation of Abante Tonite with the SEC was of no Further, the subsequent act by Puri cacion of re-conveying the b. three (3) levels for
consequence, for, otherwise, whoever of the public who would property in favor of the petitioner is a ratification by conduct of i. closely held corporations or
su er any damage from the publication of articles in the pages of its the otherwise defective donation.
ii. the shares of which are not traded in the
tabloids would be left without recourse.
stock exchanges. (Narra Nickel Mining v.
Redmont Consolidated Mines 2015
3 Nationality of Corporations Resolution)
Missionary Sisters of Our Lady of Fatima v. Alzona 2018
1. The term "capital" in Section 11, Article XII of the 4. If the Filipino has
WON petitioner has the legal capacity to accept the donation of Constitution refers only to shares of stock entitled to vote a. Political Rights — the voting power of the
Purificacion. in the election of directors, and thus, refers ONLY TO "speci c stock", i.e., he can vote the stock or direct
YES, not in the capacity as a de facto corporation but as a COMMON SHARES, and NOT to the total outstanding another to vote for him, or
corporation by estoppel. It is the act of registration with SEC capital stock comprising both common and non-voting
preferred shares. b. Economic Rights — the investment power over the
through the issuance of a certi cate of incorporation that marks the
"speci c stock", i.e., he can dispose of the stock or
beginning of an entity's corporate existence. Full bene cial ownership of 60% of the outstanding direct another to dispose of it for him, or
Petitioner led its AOI and by-laws on August 28. However, the capital stock, coupled with 60% of the voting rights, is

Grandfather Rule is necessary if doubt exists as to the locus of the

c. both, i.e., he can vote and dispose of that "speci c 3. Limited Liability Rule — A stockholder is personally liable
“bene cial ownership” and “control.”
stock" or direct another to vote or dispose it for him, for the nancial obligations of the corporation to the extent of
“Doubt” refers to various indicia that the “bene cial ownership” his unpaid subscription.
then such Filipino is the "bene cial owner" of that "speci c
and “control” of the corporation do not in fact reside in Filipino Liability for tort and crimes
stock." (Roy III v. Herbosa 2017 En Banc Resolution)
shareholders but in foreign stakeholders. These indicators are:
The corporation should alone be liable for its own corporate acts
a) Control Test a. That the foreign investors provide practically all the and liabilities entered into by its authorized o cers.
funds for the joint investment undertaken by these
Recovery of damages
Control Test nds initial application and "must govern in Filipino businessmen and their foreign partner;
reckoning foreign equity ownership in corporations engaged in b. That the foreign investors undertake to provide GR: A corporation is not entitled to moral damages because, not
nationalized economic activities." practically all the technological support for the joint being a natural person, it cannot experience physical su ering
Where a corporation and its non-Filipino stockholders own stocks venture; or sentiments like wounded feelings, serious anxiety, mental
in a SEC registered enterprise, anguish and moral shock.
c. That the foreign investors, while being minority
a. at least 60% of the capital stock outstanding and stockholders, manage the company and prepare all EXC: A juridical person can validly claim for libel or any other form
entitled to vote of each of both corporations must be economic viability studies. (Narra Nickel Mining v. of defamation and claim moral damages.
owned and held by citizens of the Philippines; AND Redmont Consolidated Mines 2015 Resolution) Article 2219(7) of the Civil Code expressly authorizes the
b. at least 60% of the members of the Board of Directors of 4 Corporate Juridical Entity recovery of moral damages in cases of libel, slander or any
each of both corporations must be citizens of the other form of defamation. Article 2219(7) does not qualify
Philippines, a) Doctrine of Separate Juridical Personality whether the plaintiff is a natural or juridical person.
in order that the corporation shall be considered a Philippine

Silverio Jr. v. Filipino Business Consultants Inc.
national. A corporation has a personality separate and distinct from that of
its stockholders or members composing it, as well as from the WON FBCI's acquisition of the "substantial and controlling shares of
b) Grandfather Rule directors, trustees and o cers who act on its behalf. stocks" of Esses and Tri-Star entitles it to the possession of the property
Consequences owned by the latter.
The Grandfather Rule may be used as a supplement to the
1. The property of the corporation is not the property of its NO. Esses and Tri-Star, just like FBCI, are corporations. A
Control Test, that is, as a further check to ensure that control and
stockholders or members. corporation has a personality distinct from that of its
bene cial ownership of a corporation is in fact lodged in Filipinos.
stockholders. Thus, FBCI's alleged controlling shareholdings in
2. A corporation can incur obligations which should not be
The Grandfather Rule is the method by which the percentage of Esses and Tri-Star merely represent a proportionate or aliquot
attributed to its stockholders, directors and o cers.
Filipino equity in a corporation engaged in nationalized and/or interest in the properties of the two corporations. Such controlling
partly nationalized areas of activities is computed. A resort to the shareholdings do not vest FBCI with any legal right or title to any of

Esses and Tri-Star's corporate properties. 3) Alter ego cases, where a corporation is merely a farce since it is ction is used as a vehicle for the evasion of an
a mere alter ego or business conduit of a person, or where the existing obligation;
b) Doctrine of Piercing the Corporate Veil corporation is so organized and controlled and its a airs are so
2.2. in fraud cases, or when the corporate entity is used
conducted as to make it merely an instrumentality, agency,
to justify a wrong, protect a fraud, or defend a
Under the doctrine of "piercing the veil of corporate fiction," conduit or adjunct of another corporation.
crime; or
the court looks at the corporation as a mere collection of Case law lays down a three-pronged test to determine the application
2.3. is used in alter ego cases, i.e., where a corporation is
individuals or an aggregation of persons undertaking business as a of the alter ego theory, which is also known as the instrumentality
essentially a farce, since it is a mere alter ego or
group, disregarding the separate juridical personality of the theory, namely:
business conduit of a person, or where the
corporation unifying the group.
1) Instrumentality or Control Test — Control, not mere corporation is so organized and controlled and its
The procedure for the doctrine to be properly applied: majority or complete stock control, but complete a airs conducted as to make it merely an
1) The court must first acquire jurisdiction over the domination, not only of nances but of policy and business instrumentality, agency, conduit or adjunct of
corporation or corporations involved before its or their practice in respect to the transaction attacked so that the another corporation.
separate personalities are disregarded; and corporate entity as to this transaction had at the time no
3. Here, the application of the doctrine of piercing the
separate mind, will or existence of its own;
2) The doctrine can only be raised during a full-blown trial over a corporate veil is unwarranted.
cause of action duly commenced involving parties duly 2) Fraud Test — Such control must have been used by the
3.1. no evidence was presented to prove that CyberOne
brought under the authority of the court by way of service of defendant to commit fraud or wrong; and
PH was organized for the purpose of defeating
summons or what passes as such service. (Kukan International 3) Harm Test — The aforesaid control and breach of duty must public convenience or evading an existing
v. Reyes 2010) have proximately caused the injury or unjust loss obligation;
Stockholders of a corporation are liable for the debts of the corporation complained of. (DBP v. Hydro Resources Contractors 2013)
3.2. petitioners failed to allege any fraudulent acts
up to the extent of their unpaid subscriptions. They cannot invoke committed by CyberOne PH in order to justify a
the veil of corporate identity as a shield from liability, because the veil Gesolgon v. CyberOne PH 14 Oct 2020 wrong, protect a fraud, or defend a crime;
may be lifted to avoid defrauding corporate creditors. (Halley v. 1. While it is true that CyberOne AU owns majority of the 3.3. the mere fact that CyberOne PH's major
Printwell 2011) shares of CyberOne PH, this, nonetheless, does not stockholders are CyberOne AU and respondent
The doctrine of piercing the corporate veil applies only in three (3) warrant the conclusion that CyberOne PH is a mere Mikrut does not prove that CyberOne PH was
basic areas, namely: conduit of CyberOne AU. organized and controlled and its a airs conducted
1) Defeat of public convenience as when the corporate ction 2. The doctrine of piercing the corporate veil applies only in a manner that made it merely an
is used as a vehicle for the evasion of an existing obligation; in three basic instances, namely: instrumentality, agency, conduit or adjunct of
CyberOne AU.
2) Fraud cases or when the corporate entity is used to justify a 2.1. when the separate distinct corporate personality
wrong, protect fraud, or defend a crime; or defeats public convenience, as when the corporate See Labor Law Case Digest No. 48

Survey of Cases Trading, Inc. the capital stocks of a corporation is

Apply v. Labayen not by itself a su cient ground to
Parayday v. Shogun Shipping Co. 06 Jul 2020
Case Circumstance 2014 disregard the separate corporate
Piercing
1. Other than their bare allegations, petitioners could have personality. The wrongdoing must
presented before the labor tribunals Oceanview's amended A corporation not impleaded in a be clearly and convincingly
Kukan
Articles of Incorporation indicating that it changed its suit cannot be subject to the court's established.
name to Shogun Ships.
International
process of piercing the veil of its
✘
v. Reyes 2010 Rosales v. New
2. The doctrine of piercing the veil of corporate entity can corporate ction. The sale of the assets of New ANJH
A.N.J.H.
only be raised during a full-blown trial over a cause of Enterprises
to NH Oil was a circumvention of ✔
The prevailing rule is that a
action duly commenced involving parties duly brought the employees' security of tenure.
Halley v. stockholder is personally liable for 2015
under the authority of the court by way of service of
Printwell, Inc. the nancial obligations of the ✔
summons or what passes as such service. International Santos used I/AME as a means to
2011 corporation to the extent of his
2.1. Here, Oceanview was never impleaded as a party Academy of defeat judicial processes and to evade
unpaid subscription.
respondent and was never validly served with Management his obligation to Litton. ✔
summons. Goldkey was merely an adjunct of & Economics Outsider reverse veil-piercing is
Heirs of Tan
Hammer and, as such, the legal v. Litton 2017 applicable in the instant case.
Uy v.
See Labor Law Case Digest No. 55 ction that it has a separate
International
personality from that of Hammer
✔ G Holdings-being the majority and
Reverse Piercing of the Corporate Veil Exchange Maricalum controlling stockholder-had been
should be brushed aside as they are,
Bank 2013 Mining Corp. exercising signi cant control over
The plainti seeks to reach the assets of a corporation to satisfy undeniably, one and the same.
v. Florentino Maricalum Mining.
✘
claims against a corporate insider. It has two (2) types:
While ownership by one corporation 2018 However, the fraud and harm tests
Outsider reverse piercing occurs when a party with a claim of all or a great majority of stocks of were not satis ed.
against an individual or corporation attempts to be repaid with DBP v. Hydro
another corporation and their
assets of a corporation owned or substantially controlled by the Resources
interlocking directorates may serve as
defendant. Contractors
indicia of control, by themselves and
✘ 5 Capital Structure
Corporation
In contrast, in insider reverse piercing, the controlling members without more, however, these
2013
will attempt to ignore the corporate ction in order to take circumstances are insu cient to a) Number and Quali cations of Incorporators
advantage of a bene t available to the corporation, such as an establish an alter ego relationship.
interest in a lawsuit or protection of personal assets. (International Incorporators are those stockholders or members mentioned in the
WPM The mere ownership by a single
Academy of Management & Economics v. Litton 2017)
International stockholder of even all or nearly all of
✘ AOI as originally forming and composing the corporation and who are
signatories thereof.

1. Any person, partnership, association or corporation, bu er fund against In other words, at least 6.25% of the increase has been paid up.
corporate losses.
2. Singly or jointly with others; c) Corporate Term
3. Not more than fteen (15) in number; The amount of The PUC is the reference
capital which the point of the extent of GR: Perpetual existence, including those already existing during
4. Incorporators who are natural persons must be of legal age;
corporation already corporate earnings that the the e ectivity of the RCC.
5. Each incorporator of a stock corporation must own or be a received from its board may retain for use of
subscriber to at least one (1) share of the capital stock. Paid-up EXC: Unless the AOI of newly established corporations provide
subscribers the corporation.
Capital otherwise.
Changes from BP 68 (represents the paid Whenever a corporation
portion of the SCS) proposes to increase its The existing corporation, upon a vote of its stockholders
6. No more prescribed minimum number of incorporators; (PUC)
and the value of assets ACS, it must establish that representing a MAJORITY of its outstanding capital stock,
7. Majority need not be PH residents. that are available to it has received additional noti es the SEC that it elects to retain its speci c corporate
the corporation for its PUC of at least 6.25% of term pursuant to its AOI.
b) Subscription Requirements use. the proposed increase.
Corporations with a limited term may extend or shorten its term by
Type What It Is Practical Purpose The aggregate amending its AOI within 3 years prior to the expiration of the term.
amount of premium 1. An extension may be made earlier than the three (3) year
The APIC also forms part
Information about the ACS arising from capital period only for justi able reasons.
The minimum of the corporate trust
permits government stock subscriptions,
amount of capital Additional fund; thus, it may not be 2. Such extension of the corporate term shall take e ect only on
Authorized regulators and major donations received,
which the Paid-in declared as dividend not be the day following the original or subsequent expiry date.
Capital corporate creditors to assess and shareholders’
corporation will Capital reclassi ed to absorb
Stock the ability of the additional capital 3. In case of extension of corporate term, a dissenting
receive when it issues de ciency except through
corporation to raise their infusion without stockholder may exercise the right of appraisal.
all its shares. (APIC) an organizational
(ACS) prescribed capital without corresponding shares
ACS = No. of Shares restructuring approved by Corporations with expired terms may apply for a revival of its
further approval from the of stock to wipe out
x Par Value the SEC. corporate existence. The GR and EXC apply.
SEC and its stockholders. the corporation
de cit. Action Taken Voting Required
The committed The amount of SCS
Subscribed
amount of capital represents the value of Stock corporations shall NOT BE REQUIRED to have a minimum
Capital Opting out from the default Stockholders representing
which the assets that are considered as capital stock, except as otherwise speci cally provided by special law.
Stock regime of Perpetual Existence MAJORITY of OCS
corporation will corporate trust fund.
However, if the corporation intends to increase its capital stock, at
receive from its Prospective creditors may Extending or Shortening the Majority of Board +
(SCS) least 25% of the increase in capital stock shall have been subscribed and
existing subscribers. rely on this amount as their Corporate Term Stockholders representing 2/3
that at least 25% of the amount subscribed shall have been paid.

of OCS Preferred except as otherwise provided in the stock certi cate, the redemption
rests entirely with the corporation and the stockholder is without
One which entitles the holder thereof to certain preferences over
d) Classi cation of Shares the holders of common stock. The preferences are designed to
right to either compel or refuse the redemption of its stock.
induce persons to subscribe for shares of a corporation. Preferred
Common
Scope of voting rights subject to classification shares take a multiplicity of forms. The most common forms may
be classi ed into two: Shares with no preferences. Holders of these shares are regarded as
Common shareholders, as residual owners, have full voting
residual owners, who assume all the risks but reap all the bene ts
rights. Holders of other shares have similar rights, except when 1. preferred shares as to assets;
in the a airs of the corporation. They may only receive dividends
denied by the corporation’s charter or in compliance with the
gives the holder thereof preference in the distribution of the and/or assets upon liquidation following the satisfaction of the
provisions of the constitution or the law.
assets of the corporation in case of liquidation. stipulated returns to other funders of the corporation, such as
Non-voting shares are merely prevented from electing directors creditors or preferred shareholders.
2. preferred shares as to dividends.
and other matters presented to the shareholders in general for
Founder's
approval. the holder of which is entitled to receive dividends on said
share to the extent agreed upon before any dividends at all are Where the exclusive right to vote and be voted for in the
Holders of nonvoting shares shall nevertheless be entitled to vote on
paid to the holders of common stock. There is no guaranty, election of directors is granted, it must be for a limited period not
the following matters:
however, that the share will receive any dividends. to exceed ve (5) years from the date of incorporation.
a) Amendment of the AOI;
Such exclusive right shall not be allowed if its exercise will violate
b) Adoption and amendment of bylaws; Republic Planters Bank v. Agana, Sr.
1. the “Anti-Dummy Law”;
c) Sale, lease, exchange, mortgage, pledge, or other disposition WON petitioner can be compelled to redeem the preferred shares
2. the “Foreign Investments Act of 1991”; and
of all or substantially all of the corporate property; issued to the private respondent.
3. other pertinent laws.
d) Incurring, creating, or increasing bonded indebtedness; NO. Preferences granted to preferred stockholders do not give
them a lien upon the property of the corporation nor make them Redeemable
e) Increase or decrease of ACS;
creditors of the corporation, the right of the former being always Shares usually preferred, which by their terms are redeemable
f) Merger or consolidation of the corporation with another subordinate to the latter. Dividends are thus payable only when
corporation or other corporations; 1. at a xed date, or
there are pro ts earned by the corporation and as a general rule, even
g) Investment of corporate funds in another corporation or if there are existing pro ts, the BOD has the discretion to 2. at the option of either issuing corporation, or the
business; and determine whether or not dividends are to be declared. stockholder, or both
h) Dissolution of the corporation. In this case, while the stock certi cate does allow redemption, the at a certain redemption price. A redemption by the corporation of
option to do so was clearly vested in the petitioner bank. The its stock is, in a sense, a repurchase of it for cancellation.
redemption therefore is clearly the type known as "optional". Thus, Redemption of shares is allowed even if there are no

unrestricted retained earnings on the books of the corporation. bonus plan for management and employees or for acquiring agreement was expressly made subject to such approval or
It in e ect quali es the general rule that the corporation cannot another company. It may be held inde nitely, resold or retired. rati cation.
purchase its own shares except out of current retained earnings. While held in the company's treasury, the stock earns no
2) The promoter should remit to the corporation pro ts that he
dividends and has no vote in company a airs.
However, while redeemable shares may be redeemed regardless of derived that properly pertain to the corporation.
the existence of unrestricted retained earnings, this is subject to Instances giving rise to Treasury Shares
(2) Liability of Corporation for Promoter’s Contracts
the condition that the corporation has, after such
1) When the corporation redeems its shares pursuant to its
redemption, assets in its books to cover debts and liabilities 1) The corporation is NOT bound by the contract entered into
contract with shareholders;
inclusive of capital stock. Redemption, therefore, may not be by the promoter before incorporation unless the contract is
made where 2) When permitted or required by law, as when: rati ed.
1. the corporation is insolvent or a) The corporation eliminates fractional shares

b) Subscription Contract
arising out of stock dividends;
2. if such redemption will cause insolvency or inability of
the corporation to meet its debts as they mature. b) The corporation collects or compromises on Any contract for the acquisition of unissued stock in an existing
delinquency subscription; or corporation or a corporation still to be formed shall be deemed a
These may be issued by the corporation when expressly provided
c) The corporation pays a dissenting stockholder. subscription, notwithstanding the fact that the parties refer to it as
in the AOI.
a purchase or some other contract.
Mandatory Redemption 3) In close corporations, in case of:
a) Deadlock (§ 103); or c) Pre-Incorporation Subscription Agreements
Corporations which have issued mandatory redeemable shares
with mandatory redemption features are required to set up and b) Withdrawal by a shareholder (§ 104).
maintain a sinking fund to be deposited in a trustee bank, and A subscription of shares in a corporation still to be formed shall be
irrevocable for a period of at least six (6) months from the date
which shall not be invested in risky or speculative ventures. 6 Incorporation and Organization
of subscription, unless
Treasury
a) Promoter 1. all of the other subscribers consent to the revocation, or
Shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through 2. the corporation fails to incorporate within the same
A self-constituted organizer who nds an enterprise or venture and period or within a longer period stipulated in the contract
purchase, redemption, donation, or some other lawful means.
helps to attract investors, forms a corporation and launches it in of subscription.
Such shares may again be disposed of for a reasonable price xed by
business, all with a view to promoting pro ts.
the board of directors. No pre-incorporation subscription may be revoked after the AOI
The common shares after conversion and release from (1) Liability of Promoter are submitted to the SEC.
sequestration become treasury stocks. 1) The promoter is personally liable for contracts or agreements
d) Consideration for Stocks
A treasury share or stock, which may be common or preferred, with third persons contracted in behalf of the future
may be used for a variety of corporate purposes, such as for a stock corporation if the latter does not ratify the same or unless the

Stocks shall not be issued for a consideration less than the par or c) The place where the principal o ce of the corporation is to 3) amount contributed by each.
issued price thereof. Consideration for the issuance of stock may be: be located, which must be within the Philippines;
j) An arbitration agreement may be provided in the AOI
a) Actual cash paid to the corporation; d) The term for which the corporation is to exist, if the pursuant to Section 181.
corporation has not elected perpetual existence;
b) Property, tangible or intangible, actually received by the (2) Non-Amendable Items
corporation and necessary or convenient for its use and lawful e) The names, nationalities, and residence addresses of the
1) names of the incorporators,
purposes at a fair valuation equal to the par or issued value of incorporators;
the stock issued; 2) the rst set of directors and subscribers,
f) The number of directors, which shall not be more than
c) Labor performed for or services actually rendered to the fteen (15) or the number of trustees which may be more than 3) the initial treasurer,
corporation; fteen (15); 4) their original subscription and
d) Previously incurred indebtedness of the corporation; g) The names, nationalities, and residence addresses of persons 5) the place and date of execution.
who shall act as directors or trustees until the rst regular
e) Amounts transferred from unrestricted retained earnings to
directors or trustees are duly elected and quali ed; f ) Corporate Name and Limitations on its Use
stated capital;
h) If it be a stock corporation,
f) Outstanding shares exchanged for stocks in the event of
No corporate name shall be allowed by the SEC
reclassi cation or conversion; 1) the amount of its authorized capital stock,
1. if it is not distinguishable from that already reserved or
g) Shares of stock in another corporation; and/or 2) number of shares into which it is divided,
registered for the use of another corporation, or
h) Other generally accepted form of consideration. 3) the par value of each, names,
2. if such name is already protected by law, or
e) Articles of Incorporation 4) nationalities, and residence addresses of the original
3. when its use is contrary to existing law, rules and regulations.
subscribers,
The SEC
(1) Contents 5) amount subscribed and paid by each on the
a) The name of the corporation; subscription, and 1. may summarily order the corporation to immediately cease
and desist from using such name;
b) The speci c purpose or purposes for which the corporation 6) a statement that some or all of the shares are without par
is being formed. Where a corporation has more than one value, if applicable; 2. may require the corporation to register a new one;
stated purpose, the AOI shall indicate the primary purpose i) If it be a nonstock corporation, 3. shall cause the removal of all visible signages, marks,
and the secondary purpose or purposes. advertisements, labels, prints and other e ects bearing such
1) the amount of its capital,
A nonstock corporation may not include a purpose which corporate name.
would change or contradict its nature as such; 2) the names, nationalities, and residence addresses of the
If the corporation fails to comply with the SEC’s order, the SEC may
contributors, and

1. hold the corporation and its responsible directors or o cers in EXC: When the exclusive right is reserved for holders of founders’ (1) Contents of By-Laws
contempt and/or shares under Section 7.
a) The time, place and manner of calling and conducting regular
2. hold them administratively, civilly and/or criminally liable Within thirty (30) days after the election, the secretary, or any or special meetings of the directors or trustees;
and/or revoke the registration of the corporation. other o cer of the corporation, shall submit to the SEC the
b) The time and manner of calling and conducting regular or
names, nationalities, shareholdings, and residence addresses of
g) Registration, Incorporation, and Commencement special meetings and mode of notifying the stockholders
those elected.
of Corporate Existence or members thereof;
The non-holding of elections and the reasons therefor shall be
c) The required quorum in meetings of stockholders or
reported to the SEC within thirty (30) days from the date of the
1. A person or group of persons desiring to incorporate shall members and the manner of voting therein;
scheduled election. The report shall specify a new date for the
submit the intended corporate name to the SEC for
election, which shall not be later than sixty (60) days from the d) The modes by which a stockholder, member, director, or
veri cation.
scheduled date. trustee may attend meetings and cast their votes;
2. If the Commission nds that the name is distinguishable, not
If no new date has been designated, or if the rescheduled election is e) The form for proxies of stockholders and members and the
protected by law and is not contrary to law, rules and
likewise not held, the SEC may, upon the application of a manner of voting them;
regulations, the name shall be reserved in favor of the
stockholder, member, director or trustee, and after veri cation of f) The directors’ or trustees’
incorporators.
the unjusti ed non-holding of the election, summarily order that
3. The incorporators shall then submit their AOI and bylaws to i) quali cations, duties and responsibilities,
an election be held.
the SEC. ii) the guidelines for setting the compensation of
The SEC shall have the power to issue such orders as may be
4. If the SEC nds that the submitted documents and directors or trustees and o cers, and
appropriate, including orders directing the issuance of a notice
information are fully compliant, the SEC shall issue the stating the time and place of the election, designated presiding iii) the maximum number of other board representations
certi cate of incorporation. o cer, and the record date or dates for the determination of that an independent director or trustee may have
A private corporation organized under the RCC commences its stockholders or members entitled to vote. which shall, in no case, be more than the number
corporate existence and juridical personality from the date prescribed by the SEC;
Should a director, trustee or o cer die, resign or in any
the SEC issues the certificate of incorporation. manner cease to hold office, the secretary, or the director, trustee g) The time for holding the annual election of directors or
or o cer of the corporation, shall, within seven (7) days from trustees and the mode or manner of giving notice thereof;
h) Election of Directors or Trustees
knowledge thereof, report in writing such fact to the SEC. h) The manner of election or appointment and the term of o ce
of all o cers other than directors or trustees;
GR: Each stockholder or member shall have the right to nominate i) Adoption of By-Laws
any director or trustee who possesses all of the quali cations i) The penalties for violation of the bylaws;
and none of the disquali cations. j) In the case of stock corporations, the manner of issuing
stock certi cates; and

k) Such other matters as may be necessary The amended or new bylaws shall only be e ective upon the a) General Powers; Theory of General Capacity
issuance by the SEC of a certi cation that the same is in
i) for the proper or convenient transaction of its
accordance with this Code and other relevant laws.
corporate a airs a) To sue and be sued in its corporate name;
ii) for the promotion of good governance and anti-graft j) E ects of Non-Use of Corporate Charter b) To have perpetual existence unless the certi cate of
and corruption measures. incorporation provides otherwise;
l) An arbitration agreement may be provided in the bylaws. 1. If a corporation does not formally organize AND
c) To adopt and use a corporate seal;
commence its business within ve (5) years from the date of
(2) Binding Effects its incorporation, its certi cate of incorporation shall be d) To amend its articles of incorporation;
Bylaws shall be e ective only upon the issuance by the SEC of deemed revoked as of the day following the end of the ve e) To adopt bylaws, not contrary to law, morals or public policy,
a certi cation that the bylaws are in accordance with the Code. (5)-year period. and to amend or repeal the same;
For the adoption of bylaws, the a rmative vote of the stockholders 2. However, if a corporation has commenced its business but f) In case of stock corporations, to issue or sell stocks to
representing at least a majority of the OCS, or of at least a subsequently becomes inoperative for a period of at least subscribers and to sell treasury stocks; and to admit members
majority of the members in case of nonstock corporations, shall ve (5) consecutive years, the SEC may, after due notice and to the corporation if it be a nonstock corporation;
be necessary. hearing, place the corporation under delinquent status.
g) To purchase, receive, take or grant, hold, convey, sell, lease,
(3) Amendments 3. A delinquent corporation shall have a period of two (2) pledge, mortgage, and otherwise deal with such real and
years to resume operations and comply with all personal property, including securities and bonds of other
A majority of the board of directors or trustees, and the owners
requirements that the SEC shall prescribe. corporations, as the transaction of the lawful business of the
of at least a majority of the OCS, or at least a majority of the
4. Upon compliance by the corporation, the SEC shall issue an corporation may reasonably and necessarily require, subject to
members of a nonstock corporation, at a regular or special meeting
order lifting the delinquent status. the limitations prescribed by law and the Constitution;
duly called for the purpose, may amend or repeal the bylaws or
adopt new bylaws. 5. Failure to comply with the requirements and resume h) To enter into a partnership, joint venture, merger,
operations within the period given by the SEC shall cause the consolidation, or any other commercial agreement with
Delegation to the Board — The owners of two-thirds (2/3) of
revocation of the corporation’s certi cate of incorporation. natural and juridical persons;
the OCS or two-thirds (2/3) of the members in a nonstock
corporation may delegate to the board of directors or trustees 6. The SEC shall give reasonable notice to, and coordinate with i) To make reasonable donations, including those for the public
the power to amend or repeal the bylaws or adopt new bylaws. the appropriate regulatory agency prior to the suspension or welfare or for hospital, charitable, cultural, scienti c, civic, or
revocation of the certi cate of incorporation of companies similar purposes:
Revocation of the Delegation — Any power delegated to the
board to amend, repeal, or adopt new bylaws shall be considered as under their special regulatory jurisdiction. Provided, That no foreign corporation shall give donations in
revoked whenever stockholders owning or representing a aid of any political party or candidate or for purposes of
majority of the OCS or majority of the members shall so vote at a 7 Corporate Powers partisan political activity;
regular or special meeting.

j) To establish pension, retirement, and other plans for the Needs to be approved by a majority vote of the board of directors 1. A corporation can only decrease its capital stock if the
bene t of its directors, trustees, o cers, and employees; and and by two-thirds (2/3) of the outstanding capital stock at a following are present:
stockholders’ meeting duly called for the purpose.
k) To exercise such other powers as may be essential or 1.1. Approval by a majority vote of the board of
necessary to carry out its purpose or purposes as stated in the A certi cate must be signed by a majority of the directors of the directors;
articles of incorporation. corporation and countersigned by the chairperson and secretary of
1.2. Written notice of the proposed diminution of the
the stockholders’ meeting.
b) Speci c Powers; Theory of Speci c Capacity capital stock, and of the time and place of a
Prior approval of the SEC shall be required, and where stockholders' meeting duly called for the purpose,
appropriate, of the PCC. The application with the SEC shall be addressed to each stockholder at his place of
Theory of specific capacity — No corporation shall possess or
made within six (6) months from the date of approval of the residence;
exercise any corporate powers except
BOD and stockholders, which period may be extended for
1.3. 2/3 of the outstanding capital stock voting
1. those conferred by law, its AOI, justi able reasons.
favorably at the said stockholders' meeting duly;
2. those implied from express powers and E ectivity is upon approval by the SEC and the issuance by the
1.4. Certi cate in duplicate, signed by majority of the
3. those as are necessary or incidental to the exercise of the SEC of its certi cate of ling.
directors and countersigned by the chairman and
powers so conferred. SEC shall not accept for ling any certi cate of increase of capital secretary of the stockholders' meeting stating that
The corporation’s capacity is limited to such express, implied and stock unless accompanied by a sworn statement of the treasurer of legal requirements have been complied with;
incidental powers. the corporation lawfully holding o ce at the time of the ling of
1.5. Prior approval of the SEC; and
the certi cate, showing that
c) Power to Extend or Shorten Corporate Term 1.6. E ects do not prejudice the rights of corporate
1. at least 25% of the increase in capital stock has been
creditors.
subscribed and
When approved by a majority vote of the board of directors or 2. SEC only has the ministerial duty to approve the decrease
2. that at least 25% of the amount subscribed has been paid
trustees, and rati ed at a meeting by the stockholders or members of a corporation's authorized capital stock.
in actual cash to the corporation or
representing at least two-thirds (2/3) of the OCS or of its 2.1. After a corporation faithfully complies with the
members. 3. that property, the valuation of which is equal to 25% of
requirements laid down in Section 38, the SEC has
the subscription, has been transferred to the corporation.
In case of extension of corporate term, a dissenting stockholder nothing more to do other than approve the same.
may exercise the right of appraisal. No decrease in capital stock shall be approved by the SEC if its
3. Ong Yang v. Tiu teaches that decreasing a corporation's
effect shall prejudice the rights of corporate creditors.
authorized capital stock, which is an amendment of the
d) Power to Increase or Decrease Capital Stock or
corporation's AOI, is a decision that only the stockholders
Incur, Create, Increase Bonded Indebtedness Metroplex Berhad and Paxell Investment Ltd and the directors can make.
v. Sinophil Corp 28 Jun 2021
4. Furthermore, the SEC is not vested by law with any power

to interpret contracts and interfere in the determination of 3) To acquire needed investment through property-for-share g) Power to Acquire Own Shares
the rights between and among a corporation's stockholders. exchange; and
Neither can the SEC adjudicate on the contractual relations
4) To restructure the nances of the corporation through a debt Provided that the corporation has unrestricted retained
among these same stockholders.
to equity conversion. earnings in its books to cover the shares to be purchased or
See Commercial Law Case Digest No. 5 acquired, a stock corporation shall have the power to purchase or
f ) Power to Sell or Dispose Corporate Assets
acquire its own shares for a legitimate corporate purpose, including
e) Power to Deny Pre-Emptive Rights the following cases:
A corporation may, by a majority vote of its board of directors
a) To eliminate fractional shares arising out of stock
or trustees, sell, lease, exchange, mortgage, pledge, or otherwise
Pre-emptive right under Sec 38 of the RCC refers to the right dividends;
dispose of its property and assets, upon such terms and conditions
of a stockholder of a stock corporation to subscribe to all issues or and for such consideration, which may be money, stocks, bonds, or b) To collect or compromise an indebtedness to the
disposition of shares of any class, in proportion to their respective other instruments for the payment of money or other property or corporation,
shareholdings. consideration, as its board of directors or trustees may deem
1) arising out of unpaid subscription,
The right may be restricted or denied under the articles of expedient.
2) in a delinquency sale, and
incorporation, and subject to certain exceptions and limitations. a. If ordinary disposition = No need for authorization from
stockholders; 3) to purchase delinquent shares sold during said sale;
The stockholder must be given a reasonable time within which to
and
exercise their preemptive rights. Upon the expiration of said b. If it involves the sale of all or substantially all of the
period, any stockholder who has not exercised such right will be corporation’s properties and assets, including its goodwill = c) To pay dissenting or withdrawing stockholders entitled to
deemed to have waived it. must be authorized by the vote of the stockholders payment for their shares under the provisions of this Code.
Stock Transactions Covered representing at least 2/3 of the OCS, or at least 2/3 of the
h) Power to Invest Corporate Funds in Another
members, in a stockholders’ or members’ meeting duly called
1) Increase in the ACS; Corporation or Business
for the purpose.
2) Opening for subscription of the unissued portion of existing
When is the sale deemed a substantial disposition? Investment Voting Required
capital stock; and
If the corporation would be rendered incapable of
3) Disposition of treasury shares. is reasonably necessary to accomplish its
1. continuing the business or Majority of Board
primary purpose as stated in the AOI
When NOT Available
2. accomplishing the purpose for which it was incorporated.
1) When denied by the AOI; Majority of Board +
in any other corporation, business, or for
Here, any dissenting stockholder may exercise the right of Stockholders
2) Shares issued to comply with the prescribed stock o erings or any purpose other than the primary
appraisal. representing 2/3 of OCS
minimum stock ownership by the public; purpose for which it was organized
or 2/3 of members.

corporation also constitute a majority of the members of the

The board must evaluate whether the investment has a logical a) when justi ed by de nite corporate expansion projects or
board of directors of the managed corporation,
relation to or is in direct and immediate furtherance of the programs approved by the board; or
corporation’s main business. Management Contract — contract whereby a corporation
b) when the corporation is prohibited under any loan
undertakes to manage or operate all or substantially all of the
Rati cation by stockholders or members must be in a meeting duly agreement with nancial institutions or creditors, whether
business of another corporation, whether such contracts are called
called for the purpose. local or foreign, from declaring dividends without their
service contracts, operating agreements or otherwise.
consent, and such consent has not yet been secured; or
Here, any dissenting stockholder may exercise the right of
appraisal. c) when it can be clearly shown that such retention is necessary GR: No management contract shall be entered into for a period
under special circumstances obtaining in the corporation, such longer than ve (5) years for any one (1) term.
i) Power to Declare Dividends as when there is need for special reserve for probable EXC: Such service contracts or operating agreements which relate to
contingencies. the exploration, development, exploitation or utilization of
The board of directors of a stock corporation may declare natural resources may be entered into for such periods as
dividends out of the unrestricted retained earnings which shall j) Power to Enter into Management Contract
may be provided by the pertinent laws or regulations.
be payable in
Voting Required A management contract amounts to a de facto merger when the
1) cash, management relates to all or substantially all of the business of the
2) property, or In interlocking Majority of Board + corporation. This does NOT trigger the exercise of appraisal
ownership or right.
3) in stock Stockholders representing 2/3 of OCS or 2/3 of
management members of MANAGED corporation.
to ALL stockholders on the basis of outstanding stock held by k) Doctrine of Individuality of Subscription
them: Majority of Board +
Any cash dividends due on delinquent stock shall rst be applied The law requires payment of the “full amount of subscription.”
otherwise Stockholders representing majority of OCS or
to the unpaid balance on the subscription + costs and expenses, majority of members. A subscription covers all stipulated shares. The corporation
while stock dividends shall be withheld from the delinquent accepted partial payment on the premise that the nonpayment of
stockholders until their unpaid subscription is fully paid. a) Interlocking ownership — where a stockholder or the balance renders all subscribed shares delinquent.
stockholders representing the same interest of both the
No stock dividend shall be issued without the approval of A subscription contract is indivisible. Consequently, where
managing and the managed corporations own or control more
stockholders representing at least 2/3 of the OCS at a regular or stocks were subscribed and part of the subscription contract price
than one-third (1/3) of the total OCS entitled to vote of the
special meeting duly called for the purpose. was not paid, the whole subscription shall be considered
managing corporation; or
GR: Stock corporations are prohibited from retaining surplus delinquent and not only the shares which correspond to the
b) Interlocking management — where a majority of the amount not paid.
pro ts in excess of 100% of their paid-in capital stock.
members of the board of directors of the managing
EXC:

some rules of public policy or public duty, and are, like

l) Doctrine of Equality of Shares incorporation enforcement and, if proper, institute a
similar transactions between individuals, VOID. They
derivative suit.
cannot serve as basis of a court action, nor acquire validity
Each share shall be equal in all respects to every other share, except by performance, rati cation, or estoppel. If the action has been implemented, the
as otherwise provided in the AOI and in the certi cate of stock. members of the board shall be liable jointly and
2. Mere ultra vires acts, on the other hand, or those which
A common stock represents the residual ownership interest in the are not illegal and void ab initio, but are not merely within severally for all damages resulting from the ultra
corporation. It is a basic class of stock ordinarily and usually issued the scope of the articles of incorporation, are merely vires act.
without extraordinary rights or privileges and entitles the VOIDABLE and may become binding and enforceable
shareholder to a pro rata division of pro ts. when rati ed by the stockholders. (Bernas v. Cinco 2015)
Preferred stocks are those which entitle the shareholder to some The test to be applied is whether the act in question is in direct and University of Mindanao, Inc. v. BSP 2016 as to Sec 41
priority on dividends and asset distribution. immediate furtherance of the corporation's business, fairly incidental Acts of an o cer that are not authorized by the board of
Both shares are part of the corporation's capital stock. Both to the express powers and reasonably necessary to their exercise. If so, directors/trustees do not bind the corporation unless the
stockholders are no di erent from ordinary investors who take on the corporation has the power to do it; otherwise, not. corporation rati es the acts or holds the o cer out as a
the same investment risks. Preferred and common shareholders (Magallanes Watercraft Association v. Auguis 2016) person with authority to transact on its behalf.
participate in the same venture, willing to share in the pro ts and WON UM is bound by the real estate mortgage contracts executed by
Ultra Vires Act Consequences
losses of the enterprise. Petalcorin.
Moreover, under the doctrine of equality of shares — all stocks The resulting contract is void.
NO. The mortgage contracts executed in favor of respondent do
issued by the corporation are presumed equal with the same
The contract is not subject to rati cation. not bind petitioner. They were executed without authority from
privileges and liabilities, provided that the AOI is silent on such
Acts contrary to petitioner.
di erences. (CIR v. CA)
law, morals or The action or defense for the
UM does not have the power to mortgage its properties in
m) Ultra Vires Doctrine public policy declaration of its nullity does not
order to secure loans of other persons. As an educational
prescribe.
institution, it is limited to developing human capital through formal
No corporation shall possess or exercise corporate powers other The rule on in pari delicto applies. instruction. It is not a corporation engaged in the business of
than those conferred by this Code or by its AOI and except as securing loans of others. Securing FISLAI's loans by mortgaging
necessary or incidental to the exercise of the powers conferred. Acts performed The act is unenforceable. petitioner's properties does not appear to have even the remotest
outside the scope connection to the operations of petitioner as an educational
A distinction should be made between corporate acts or contracts The act shall not prejudice third parties who
of the powers institution. Securing loans is not an adjunct of the educational
which are illegal and those which are merely ultra vires. acted in good faith.
granted to the institution's conduct of business. It does not appear that securing
1. An illegal act contemplates the doing of an act which is corporation by its third-party loans was necessary to maintain petitioner's business of
contrary to law, morals, or public order, or contravene articles of Shareholders may ratify the action, prevent its providing instruction to individuals.

The relationship between a corporation and its representatives is n) Trust Fund Doctrine b) Participation in Management
governed by the general principles of agency.
Unauthorized acts that are merely beyond the powers of the Under the doctrine, the capital stock, property, and other assets of Proxy
corporation under its articles of incorporation are NOT void a corporation are regarded as equity in trust for the payment of
A proxy is a form of agency created in instances when a person is
ab initio. They may be rati ed. corporate creditors, who are preferred in the distribution of
unable to personally cast his or her vote; hence, the act of voting is
corporate assets. Thus, any disposition of corporate funds and
Here, it was not shown that petitioner issued a resolution ratifying delegated to another person. There is NO requirement that the same
assets to the prejudice of creditors is null and void. (Turner v.
the execution of the mortgage contracts. It was not shown that it be notarized.
Lorenzo Shipping 2010)
received proceeds of the loans secured by the mortgage contracts. Proxies shall be
There was also no showing that it received any consideration for the The Trust Fund Doctrine provides that subscriptions to the
execution of the mortgage contracts. It even appears that petitioner capital stock of a corporation constitute a fund to which the 1. in writing,
was unaware of the mortgage contracts until respondent noti ed it creditors have a right to look for the satisfaction of their claims. 2. signed and led, by the stockholder or member,
of its desire to foreclose the mortgaged properties. This doctrine is the underlying principle in the procedure for the 3. in any form authorized in the bylaws and
The general rule is that knowledge of an o cer is considered distribution of capital assets, embodied in the Corporation
4. received by the corporate secretary within a reasonable time
knowledge of the corporation. Code, which allows the distribution of corporate capital only in
before the scheduled meeting.
three instances:
However, even though the Sps Torres were o cers of both the thrift
Unless otherwise provided in the proxy form, it shall be valid only for
banks and petitioner, their knowledge of the mortgage contracts 1) amendment of the AOI to reduce the ACS,
the meeting for which it is intended. No proxy shall be valid and
cannot be considered as knowledge of the corporation. 2) purchase of redeemable shares by the corporation, e ective for a period longer than ve (5) years at any one time.
The rule that knowledge of an o cer is considered knowledge of the regardless of the existence of unrestricted retained
Voting trust
corporation applies only when the officer is acting within the earnings, and
authority given to him or her by the corporation. Thus, 3) dissolution and eventual liquidation of the corporation. One or more stockholders of a stock corporation may create a voting
knowledge should be actually communicated to the corporation (Ong Yong v. Tiu) trust for the purpose of conferring upon a trustee or trustees the right
through its authorized representatives. to vote and other rights pertaining to the shares.
The doctrine of apparent authority does not go into the 8 Stockholders and Members GR: For a period not exceeding ve (5) years at any time.
question of the corporation's competence or power to do a
a) Fundamental Rights of a Stockholder EXC: In the case of a voting trust speci cally required as a condition
particular act. It involves the question of whether the o cer has the
in a loan agreement, said voting trust may be for a period
power or is clothed with the appearance of having the power to act
exceeding ve (5) years but shall automatically expire upon
for the corporation. A nding that there is apparent authority is not 1) Political;
full payment of the loan.
the same as a nding that the corporate act in question is within the
2) Economic or Proprietary;
corporation's limited powers.
3) Remedial.

A voting trust agreement must be in writing and notarized, and Unless expressly renewed, all rights granted in a VTA shall 2) Calling a special meeting of the stockholders or members for
shall specify the terms and conditions thereof. A certi ed copy of such automatically expire at the end of the agreed period. The voting trust the purpose of removing any director or trustee (§27);
agreement shall be led with the corporation and with the SEC; certi cates as well as the certi cates of stock in the name of the trustee
3) Granting compensation to directors or trustees (including the
otherwise, the agreement is ine ective and unenforceable. or trustees shall thereby be deemed cancelled and new certi cates of
amount thereof) (§);
stock shall be reissued in the name of the trustors.
The certi cate or certi cates of stock covered by the VTA shall be 4) Concluding a management contract with another corporation
cancelled and new ones shall be issued in the name of the trustee or The voting trustee or trustees may vote by proxy or in any manner
(§43);
trustees, stating that they are issued pursuant to said agreement. The authorized under the bylaws unless the agreement provides otherwise.
5) Adoption of the by laws (§45);
books of the corporation shall state that the transfer in the name of the
trustee or trustees is made pursuant to the VTA. Proxy Voting Trust Agreement 6) Amendment, repeal, or adoption of a new bylaws (§47);
The trustee or trustees shall execute and deliver to the transferors, Legal title to the shares 7) Quorum in meetings (§51);
Legal title is NOT transferred
voting trust certi cates, which shall be transferable in the same manner transferred to transferee 8) Fixing the issue price of no-par value shares (§61);
and with the same e ect as certi cates of stock.
Revocable at any time, unless Irrevocable for a de nite and 9) Voluntary dissolution where no creditors are a ected (§134).
The VTA led with the corporation shall be subject to examination by
coupled with interest limited period of time By a 2/3 vote
any stockholder of the corporation in the same manner as any other
corporate book or record. Both the trustor and the trustee or Can only act at the speci ed NOT limited to any particular 1) Amendment of the AOI;
trustees may exercise the right of inspection of all corporate books meeting meeting 2) Extending or shortening corporate term;
and records.
Can vote and exercise all rights 3) Increasing or decreasing capital stock or incurring, creating or
Any other stockholder may transfer the shares to the same trustee or Votes only in the absence of the
of the transferor even when the increasing bonded indebtedness;
trustees upon the terms and conditions stated in the VTA, and owner of the stock
latter is present. 4) Sale of all or substantially all of the corporation’s properties
thereupon shall be bound by all the provisions of said agreement.
and assets, including its goodwill;
No VTA shall be entered into for purposes of circumventing the laws Need NOT be notarized or a Must be notarized and led with
against copy be led with SEC SEC 5) Approval of the plan of merger or consolidation (and any
amendment thereto) (§76);
1. anti-competitive agreements, NO right of inspection HAS the right of inspection
6) Removal of director or trustees;
2. abuse of dominant position,
Cases when stockholders' action is required 7) Ratifying an act which amounts to disloyalty of a director
3. anti-competitive mergers and acquisitions,
By a majority vote (corporate business opportunity rule);
4. violation of nationality and capital requirements, or
1) Electing to retain speci c corporate term indicated in the AOI 8) Approving property-for-share exchange and debt to equity
5. for the perpetuation of fraud. (§11); conversion (§38);

9) Investing funds in any other corporation, business, or for any Who may declare dividends? within 30 days after the date on which the vote was
purpose other than the primary purpose for which the taken for the payment of the fair value of his shares. The
1. BOD alone — for cash, property dividends; failure to make the demand within the period is deemed a
corporation was organized (§41);
2. BOD + stockholders representing not less than 2/3 of the waiver of the appraisal right.
10) Issuing stock dividends (§42); OCS in a meeting called for the purpose — for stock 2. Appraisal Committee — If the withdrawing stockholder
11) Approving the conclusion of a management contract where dividends. and the corporation cannot agree on the fair value of the
there is interlocking ownership or interlocking management ⭐Appraisal right shares within a period of 60 days from the date the
(§43); stockholders approved the corporate action, the fair value
Any stockholder of a corporation shall have the right to dissent and
12) Delegating to the board of directors or trustees the power to shall be determined and appraised by three disinterested
demand payment of the fair value of the shares in the following
persons, one of whom shall be named by the stockholder,
amend or repeal the bylaws or adopt new bylaws (§47); instances:
another by the corporation, and the third by the two thus
13) Approving a plan for the distribution of assets in non-stock a) In case an amendment to the AOI has the e ect of chosen.
corporations (§94); i) changing or restricting the rights of any stockholder The ndings and award of the majority of the appraisers
14) Voluntary dissolution (§135). or class of shares, or
shall be nal, and the corporation shall pay their award within
By cumulative voting ii) authorizing preferences in any respect superior to 30 days after the award is made. Upon payment by the
those of outstanding shares of any class, or of corporation of the agreed or awarded price, the stockholder
Manner of voting
iii) extending or shortening the term of corporate shall forthwith transfer his or her shares to the corporation.
Stockholders and members may vote in person or by proxy in all existence; 3. Suspension of Rights — All rights accruing to the
meetings of stockholders or members. withdrawing stockholder's shares, including voting and
b) In case of sale, lease, exchange, transfer, mortgage, pledge or
When so authorized in the bylaws or by a majority of the board of other disposition of all or substantially all of the corporate dividend rights, shall be suspended from the time of
directors, the stockholders or members of corporations may also vote property and assets; demand for the payment of the fair value of the shares until
through remote communication or in absentia: Provided, That the either
c) In case of merger or consolidation; and
votes are received before the corporation nishes the tally of votes. a. the abandonment of the corporate action involved or
d) In case of investment of corporate funds for any purpose
c) Proprietary Rights other than the primary purpose of the corporation. b. the purchase of the shares by the corporation,
The Corporation Code de nes how the right of appraisal is except the right of such stockholder to receive payment of the
Right to Dividends exercised, as well as the implications of the right of appraisal, as fair value of the shares.
Dividends is the unrestricted retained earnings set apart from the follows: 4. Surrender Certificate of Stocks for Notation — Within
general mass of the funds of the corporation and distributed among the 1. Written Demand — The appraisal right is exercised by any 10 days after demanding payment for his or her shares, a
stockholders in proportion to their shares or interest in the stockholder who has voted against the proposed corporate dissenting stockholder shall submit to the corporation the
corporation, in the form of cash, property or stocks. action by making a written demand on the corporation certi cates of stock representing his shares for notation
thereon that such shares are dissenting shares.

A failure to do so shall, at the option of the corporation, Right to inspect corporate books The only time when the demand to examine and copy the
terminate his appraisal rights. corporation's records and minutes could be refused is when the
Corporate records, regardless of the form in which they are stored, shall
5. Rights of Transferee — If shares represented by the be open to inspection by any director, trustee, stockholder or member corporation puts up as a defense to any action that:
certi cates bearing such notation are transferred, and the of the corporation in person or by a representative at reasonable hours
1. the person demanding had improperly used any information;
certi cates are consequently canceled, the appraisal rights of on business days, and a demand in writing may be made by such
the transferor as a dissenting stockholder shall cease and the director, trustee or stockholder at their expense, for copies of such 2. secured through any prior examination of the records or
transferee shall have all the rights of a regular stockholder; and records or excerpts from said records. The inspecting or reproducing minutes of such corporation or of any other corporation, or
all dividend distributions that would have accrued on such party shall remain bound by con dentiality rules under prevailing laws 3. was not acting in good faith or for a legitimate purpose in
shares shall be paid to the transferee. and the Rules of Court. making his demand.
6. Payment of Fair Value — If the proposed corporate action A requesting party who is
Among the purposes held to justify a demand for inspection are the
is implemented or e ected, the corporation shall pay to such
1. not a stockholder or member of record, or following:
stockholder, upon the surrender of the certi cates of stock
representing his shares, the fair value thereof as of the day prior 2. a competitor, director, o cer, controlling stockholder or 1) To ascertain the nancial condition of the company or the
to the date on which the vote was taken, excluding any otherwise represents the interests of a competitor propriety of dividends;
appreciation or depreciation in anticipation of such corporate shall have no right to inspect or demand reproduction of corporate 2) the value of the shares of stock for sale or investment;
action. records. 3) whether there has been mismanagement;
7. Unrestricted Retained Earnings Required — No Any stockholder who shall abuse such right shall be penalized under
payment shall be made to any dissenting stockholder unless 4) in anticipation of shareholders' meetings to obtain a mailing
Section 158, without prejudice to the provisions of the IPC and DPA. list of shareholders to solicit proxies or in uence voting;
the corporation has unrestricted retained earnings in its
books to cover the payment. In case the corporation has no 5) to obtain information in aid of litigation with the corporation
Insigne v. Abra Valley Colleges, Inc. 2015
available unrestricted retained earnings in its books, Section 82 or its o cers as to corporate transactions.
of the RCC provides that if the dissenting stockholder is not WON petitioners were entitled to demand the production of the STB
paid the value of his shares within 30 days after the Among the improper purposes which may justify denial of the right
of Abra Valley
award, his voting and dividend rights shall immediately of inspection are:
be restored. (Turner v. Lorenzo Shipping)
YES. A person becomes a stockholder of a corporation by acquiring
1) Obtaining of information as to business secrets or to aid a
a share through either purchase or subscription. Considering that
The right is regarded as su cient to redress a perceived wrong competitor;
Abra Valley’s STB was not in the possession of the petitioners, or at
committed to the corporation; thus, its availability precludes a 2) to secure business "prospects" or investment or advertising
their disposal, they could not be reasonably expected or justly
shareholder from instituting a derivative action against corporate lists;
compelled to prove that their stock subscriptions and purchases
controllers.
were recorded therein. This was precisely why they led their 3) to nd technical defects in corporate transactions in order to
Motion for Production/Inspection of Documents. bring "strike suits" for purposes of blackmail or extortion.

The right of the shareholder to inspect the books and records of 2. Second. The demand was refused; Preemptive right
the petitioner should not be made subject to the condition of a
3. Third. If such refusal is made pursuant to a resolution or Pre-emptive right refers to the right of a stockholder of a stock
showing of any particular dispute or of proving any
order of the board, the liability shall be imposed upon the corporation to subscribe to all issues or disposition of shares of any
mismanagement or other occasion rendering an examination
directors or trustees who voted for such refusal; and, class, in proportion to their respective shareholdings. (Lu Ym v. Lu
proper. (Terelay Investment and Development v. Yulo 2015)
4. Fourth. Where the defense that the person demanding has 2018)
A criminal action based on the violation of a stockholder's right to
improperly used any information secured through any prior The preemptive right of stockholders in close corporations shall
examine or inspect the corporate records and the stock and transfer
examination, or was not acting in good faith or for a legitimate extend to ALL stock to be issued, including reissuance of treasury
book of a corporation under the second and fourth paragraphs of
purpose, the contrary must be shown or proved. (Ang-Abaya shares, whether for money, property or personal services, or in
Section 73 can only be maintained against corporate o cers or
v. Ang) payment of corporate debts, unless the AOI provides otherwise.
any other persons acting on behalf of such corporation.
Thus, the provision can only be violated by a corporation. ⭐Corporations may raise their objections to the right of Right to vote
(Yujuico v. Quiambao 2014) inspection through a rmative defense in an ordinary civil
No share may be deprived of the right to vote except those
action for speci c performance or damages, or through a comment
Among the actions that may be led is classi ed and issued as “preferred” or “redeemable” shares.
in a petition for mandamus.
1. an action for speci c performance, Non-voting shares are those that deprive their holders of the right
NB: Thus, a corporation cannot preempt a stockholder from
to elect directors and vote on other matters presented to the
2. damages, exercising his right to inspect corporate books by ling an shareholders in general for approval. Nonetheless, nonvoting
3. petition for mandamus, or action for injunction as the exception to the right may only shares may vote on corporate actions that materially change the
be raised as a defense. premises and conditions when they subscribed to their shares.
4. for violation of Section 73, in relation to Section 158 of the
RCC. 2016 d) Remedial Rights
Philippine Associated Smelting and Refining v. Lim
The corporation carries the burden of proving
WON a petition for injunction with prayer for writ of preliminary
a) that the stockholder has improperly used information before; Suits by stockholders or members of a corporation based on
injunction is proper to prevent stockholders from inspecting corporate
wrongful or fraudulent acts of directors or other persons may be
b) lack of good faith; or books.
classi ed into individual suits, class suits, and derivative suits.
c) lack of legitimate purpose. (Philippine Associated Smelting and NO. When the corporation, through its o cers, denies the
Refining Corp v. Lim 2016) stockholders of such right, the latter could then go to court and Florete, Jr v. Florete 2016
enforce their rights. It is then that the corporation could set up its
In order therefore for the penal provision to apply, the following The determination of the stockholder's appropriate remedy hinges on
defenses and the reasons for the denial of such right.
elements must be present: the object of the wrong done.
Thus, the proper remedy is the writ of mandamus to be led by
1. First. A director, trustee, stockholder or member has made a 1) Individual suit — when the object is a speci c
the stockholders and not a petition for injunction led by the
prior demand in writing; stockholder and the remedy is speci c to him.
corporation.

1. He was a stockholder or member at the time the acts or 1) Liability to the corporation for unpaid subscription; (§66-69)
2) Representative or class suit — when the object is a
transactions subject of the action occurred and the time
de nite class of stockholder and the remedy is speci c to 2) Liability to the corporation for interest on unpaid
the action was led;
them. subscription if so required by the bylaws; (§65-66)
2. He exerted all reasonable e orts, and alleges the same,
3) Derivative suit — when the object of the wrong done is 3) Liability to the creditors of the corporation for unpaid
to exhaust all remedies available to obtain the relief he
the corporation itself or the whole body of its stock and subscription subject to the Limited Liability Rule;
desires;
property without any severance or distribution among
4) Liability for watered stock; (§64)
individual holders. 3. No appraisal rights are available for the acts or acts
complained of; and 5) Liability for dividends unlawfully paid; (§42)
Individual suit
4. The suit is not a nuisance or harassment suit; 6) Administrative, civil and criminal liability of a stockholder
Where a stockholder or member is denied the right of inspection, responsible for violation or for acts indispensable to the
his suit would be individual because the wrong is done to him 5. The action brought by the stockholder or member must violation of the RCC. (§171)
personally and not to the other stockholders or the corporation. be in the name of the corporation or association.
f ) Meetings
Representative suit 2014
Ching v. Subic Bay Golf and Country Club, Inc.
Where the wrong is done to a group of stockholders, as where A stockholders' or members' meeting must comply with the following
WON the complaint filed by petitioners is a derivative suit and such
preferred stockholders’ rights are violated, a class or requisites to be valid:
is NOT properly filed.
representative suit will be proper for the protection of all
1. The meeting must be held on the date xed in the By Laws or
stockholders belonging to the same group. YES. Although the shareholdings of petitioners are indeed only two
in accordance with law;
Derivative suit out of the 409 alleged outstanding shares or 0.24%, the Court has
held that it is enough that a member or a minority of 2. Prior written notice of such meeting must be sent to all
A suit by a shareholder to enforce a corporate cause of action. It is stockholders le a derivative suit for and on behalf of a stockholders/members of record;
the corporation that is properly regarded as the REAL corporation. 3. It must be called by the proper party;
PARTY IN INTEREST, while the relator-stockholder is
merely a NOMINAL party. (Ang v. Sps Ang 2013) With regard, however, to the second requisite, the Court nds that 4. It must be held at the proper place; and
petitioners failed to state with particularity in the Complaint
Since the derivative suit is a remedy of last resort, it must be that they had exerted all reasonable e orts to exhaust all 5. Quorum and voting requirements must be met. (Lim v.
shown that the board, to the detriment of the corporation and remedies available. Such failure allows the RTC to dismiss the Moldex Land 2017)
without a valid business consideration, refuses to remedy a Complaint, even motu proprio, in accordance with the Interim Regular
corporate wrong. A derivative suit may only be instituted after Rules.
such an omission. (Ago Realty & Development Corp. v. Ago 2019) Regular meetings of stockholders or members shall be held
⭐The requisites are enumerated in the Interim Rules of e) Obligations of a Stockholder 1. annually
Procedure for Intra-Corporate Controversies: 2. on a date xed in the bylaws, or

3. if not so xed, on any date after April 15 of every year as 1. the principal o ce of the corporation as set forth in the AOI, The directors of a corporation must formally organize and elect:
determined by the board. or, if not practicable,
a) a president, who must be a director;
Written notice of regular meetings shall be sent to all stockholders 2. in the city or municipality where the principal o ce of the
b) a treasurer, who must be a resident;
or members of record at least twenty-one (21) days prior to the corporation is located.
meeting, unless a di erent period is required in the bylaws, law, or c) a secretary, who must be a citizen and resident of the
Any city or municipality in Metropolitan areas shall be
regulation. Written notice of regular meetings may be sent through Philippines; and
considered a city or municipality.
email. d) such other o cers as may be provided in the bylaws.
Quorum
Special If the corporation is vested with public interest, the board shall also
A quorum shall consist of the stockholders representing a
Shall be held at any time deemed necessary or as provided in the elect a compliance o cer.
majority of the OCS or a majority of the members.
bylaws. At least one (1) week written notice shall be sent, unless The same person may hold two (2) or more positions concurrently,
a di erent period is provided in the bylaws, law or regulation. SEC Intervention
except that no one shall act as
Notice Whenever for any cause, there is no person authorized or the
1. president and secretary or
person authorized unjustly refuses to call a meeting, the SEC,
Notice of meetings shall be sent through the means of 2. president and treasurer at the same time.
upon petition of a stockholder or member on a showing of good
communication provided in the bylaws, which shall state the time,
cause therefor, may issue an order directing the petitioning
place and purpose of the meetings. a) Repository of Corporate Powers
stockholder or member to call a meeting of the corporation by
Each notice of meeting shall further be accompanied by the following: giving proper notice.
Doctrine of Centralized Management or Principle of Board
a) The agenda for the meeting; The petitioning stockholder or member shall preside thereat until Supremacy — The board of directors or trustees shall
at least a majority of the stockholders or members present have
b) A proxy form which shall be submitted to the corporate 1. exercise the corporate powers,
chosen from among themselves, a presiding o cer.
secretary within a reasonable time prior to the meeting;
Closing of Books 2. conduct all business, and
c) When attendance, participation, and voting are allowed by
remote communication or in absentia, the requirements and Unless the bylaws provide for a longer period, the stock and 3. control all properties of the corporation.
procedures to be followed when a stockholder or member transfer book or membership book shall be closed at least b) Tenure, Quali cations, and Disquali cations of
elects either option; and Directors
1. 20 days for regular meetings and
d) When the meeting is for the election of directors or trustees,
2. 7 days for special meetings
the requirements and procedure for nomination and 1. Directors shall be elected for a term of one (1) year from
election. before the scheduled date of the meeting. among the holders of stocks registered in the corporation’s
Place and time books,
9 Board of Directors and Trustees
Meetings shall be held in

2. While trustees shall be elected for a term not exceeding three The board of the following corporations vested with public e) Removal
(3) years from among the members of the corporation. interest shall have independent directors constituting at least
3. Each director and trustee shall hold o ce until the successor is 20% of such board:
1. Any director or trustee of a corporation may be removed from
elected and quali ed. a) Corporations covered by Section 17.2 of the SRC, namely o ce by a vote of the stockholders holding or representing at
4. A director who ceases to own at least one (1) share of stock those least two-thirds (2/3) of the OCS, or in a nonstock
or a trustee who ceases to be a member of the corporation shall corporation, by a vote of at least two-thirds (2/3) of the
i) whose securities are registered with the SEC,
cease to be such. members entitled to vote.
ii) corporations listed with an exchange or with assets of
A person shall be disquali ed from being a director, trustee or o cer 2. Such removal shall take place either at a regular meeting of
at least P50M AND having 200 or more holders of
of any corporation if, within ve (5) years prior to the election or the corporation or at a special meeting called for the purpose,
shares, each holding at least 100 shares of a class of its
appointment as such, the person was: and in either case, after previous notice to stockholders or
equity shares;
members of the corporation of the intention to propose such
a) Convicted by nal judgment: b) Banks and quasi-banks, NSSLAs, pawnshops, corporations removal at the meeting.
1) Of an o ense punishable by imprisonment for a engaged in money service business, pre-need, trust and
3. A special meeting of the stockholders or members for the
period exceeding six (6) years; insurance companies, and other nancial intermediaries;
purpose of removing any director or trustee must be called
and
2) For violating this Code; and
a. by the secretary on order of the president, or
c) Other corporations engaged in business vested with public
3) For violating the SRC;
interest. b. upon written demand of the stockholders
b) Found administratively liable for any o ense involving representing or holding at least a majority of the
fraudulent acts; and d) Elections OCS, or a majority of the members entitled to vote.
c) By a foreign court or equivalent foreign regulatory authority If there is no secretary, or if the secretary, despite demand, fails
for acts, violations or misconduct similar to those enumerated Quorum or refuses to call the special meeting or to give notice thereof,
in paragraphs (a) and (b) above. Owners of majority of the outstanding capital stock must be the stockholder or member of the corporation signing
present either in person, by proxy or in absentia. the demand may call for the meeting by directly addressing
c) Requirement of Independent Directors the stockholders or members.
The law follows plurality voting. The nominees who received the
highest number of votes shall be elected as members of the board. 4. Removal may be WITH or WITHOUT cause.
An independent director is a person who, apart from
shareholdings and fees received from the corporation, is The election is generally done through Removal without cause may NOT be used to deprive
independent of management and free from any business or other minority stockholders or members of the right of
a) straight voting; or
relationship. representation to which they may be entitled under Section
b) cumulative voting. 23.

5. The SEC shall, motu proprio or upon veri ed complaint, and If still GR: In the absence of any provision in the bylaws xing their
after due notice and hearing, order the removal of a director or constituting a compensation, the directors or trustees shall not receive any
trustee quorum, by the compensation in their capacity as such, except for reasonable
No later than forty- ve (45)
All other vote of at least a per diems.
a. elected despite the disquali cation, or days from the time the vacancy
causes majority of the
b. whose disquali cation arose or is discovered arose EXC: The stockholders representing at least a majority of the OCS
remaining;
subsequent to an election. or majority of the members may grant directors or trustees
otherwise, same as
with compensation and approve the amount thereof at a
The removal of a disquali ed director shall be without above
regular or special meeting.
prejudice to other sanctions that the SEC may impose on the
board of directors or trustees who, with knowledge of the Emergency Board: Matling Doctrine In no case shall the total yearly compensation of directors
disqualification, failed to remove such director or trustee. When applicable exceed ten (10%) percent of the net income before income
tax of the corporation during the preceding year.
f ) Filling of Vacancies 1. When the vacancy prevents the remaining directors from
constituting a quorum and h) Disloyalty
Reason Manner of Filling Period to Fill Up 2. Emergency action is required to prevent grave, substantial, and
irreparable loss or damage to the corporation, Observance of the duty of loyalty is relevant when directors or
On the same day of the trustees enter in to a
The vacancy may be temporarily lled from among the o cers of the
Removal meeting authorizing the
corporation by unanimous vote of the remaining directors or trustees. 1) contract with the corporation (self-dealing contracts),
removal
Scope — The action by the designated director or trustee shall be 2) negotiate on their compensation, and
No later than the day of such limited to the emergency action necessary, and the term shall cease
Expiration By the stockholders 3) personally acquire a corporate opportunity.
expiration at a meeting called within a reasonable time
of Term or members in a
for that purpose Where a director, by virtue of such o ce, acquires a business
regular or special 1. from the termination of the emergency or opportunity which should belong to the corporation, thereby
meeting called for At a regular or at a special 2. upon election of the replacement director or trustee, obtaining pro ts to the prejudice of such corporation, the director
the purpose meeting duly called for the must account for and refund to the latter all such
whichever comes earlier.
Increase in purpose, or in the same pro ts.
number meeting authorizing the Notice to SEC — The corporation must notify the SEC within three
increase if so stated in the notice (3) days from the creation of the emergency board, stating therein the Unless the act has been rati ed by a vote of the stockholders
of the meeting. reason for its creation. owning or representing at least 2/3 of the OCS.
Material Related Party Transactions
g) Compensation

1. “Material”. A transaction is material if its value is at least 2. is from its nature, in the line of the corporation's business 3. The business judgment rule applies in the observance of
10% of the corporation’s total assets, as provided in its latest and is of practical advantage to it, substantive due care (hindsight cases). The substantive due care
AFS. standard depends on the actual abilities of the concerned director
3. is one in which the corporation has an interest or a
or trustee.
2. “Related Party”. A party is regarded as related party if such reasonable expectancy, and
person is 4. Under the substantive due care standard, there must be no
4. by embracing the opportunity, the self-interest of the
obvious corporate waste and the action must have a rational
a. a director, trustee, o cer, or a substantial shareholder o cer or director will be brought into con ict with that
business purpose or actuated by legitimate business reasons.
(one who is directly or indirectly a bene cial owner of of his corporation, the law will not permit him to seize the
at least 10% of any class of equity security), and opportunity for himself. As a Defense
b. his spouse or relative within the 4th CDCA. And, if, in such circumstances, the interests of the corporation are The law upholds board supremacy. Thus, the business judgment rule is
betrayed, the corporation may elect to claim all of the benefits a defense when:
3. Rule if no disinterested board. The law only requires the
of the transaction for itself. (Gokongwei, Jr. v. SEC)
approval of the shareholders or members if there is no a) the act is intra vires;
disinterested board that may approve the transaction. i) Business Judgment Rule b) the members of the board observed process due care; and
4. Rule if disinterested board disapproves. Where the
c) the action has a rational business purpose, with no obvious
disinterested board disapproves the self-dealing transaction, Contracts intra vires entered into by the board of directors are corporate waste.
the shareholders or members cannot override such decision binding upon the corporation and courts will not interfere unless
of the board, consistent with the principle of board Legal Effects
such contracts are so unconscionable and oppressive as to amount
supremacy. to wanton destruction to the rights of the minority. (Ong Yong v. 1. First Branch. The resolutions, contracts and transactions of
Tiu) the board cannot be overturned by the stockholders or
Doctrine of Corporate Opportunity
members, and not even by the courts.
Corporate o cers "are not permitted to use their position of trust The duty of diligence requires the members of the board to
and con dence to further their private interests." 2. Second Branch. Directors and authorized o cers cannot be
a) take steps to su ciently inform themselves of relevant
held personally liable for acts or contracts done with the
The doctrine of "corporate opportunity" is precisely a information before making a decision (process due care) and
exercises of their business judgment, except:
recognition by the courts that the duciary standards could not be b) act in good faith and in the honest belief that their action is in
upheld where the duciary was acting for two entities with a) When otherwise provided by law;
the best interest of the corporation (substantive due care).
competing interests. b) When the directors or o cers acted with fraud,
1. The business judgment rule does not apply in process due care
If there is presented to a corporate o cer or director a business gross negligence or in bad faith; and
(oversight cases).
opportunity c) When directors or o cers act against the
2. There is gross negligence if there is sustained or systematic
1. which the corporation is nancially able to undertake, corporation in conflict of interest situation.
failure of the board to exercise oversight.

j) Solidary Liabilities for Damages 4. When a director, trustee or o cer is made, by speci c
2.2. He consents to the issuance of watered stocks or
provision of law, personally liable for his corporate action.
who, having knowledge thereof, does not
Directors or trustees who (Heirs of Tan Uy v. International Exchange Bank 2013)
forthwith le with the corporate secretary his
1. willfully and knowingly vote for or assent to patently unlawful written objection thereto;
acts of the corporation or
Atienza v. Golden Ram Engineering Supplies 2.3. He agrees to hold himself personally and solidarily
2. are guilty of gross negligence or bad faith in directing the and Equipment 28 Jun 2021 liable with the corporation; or
a airs of the corporation or
1. Settled is the rule that a director or o cer shall only be 2.4. He is made, by a speci c provision of law, to
3. acquire any personal or pecuniary interest in con ict with personally liable for the obligations of the corporation, if personally answer for his corporate action.
their duty as such directors or trustees the following conditions concur 3. Here, Atienza established su cient and speci c evidence to
shall be liable jointly and severally for all damages. 1.1. the complainant alleged in the complaint that the show that Bartolome had acted in bad faith or gross
Solidary liability will only attach to the directors, o cers or director or o cer assented to patently unlawful negligence in the sale of the defective vessel engine.
employees of the corporation in certain circumstances, such as: acts of the corporation, or that the o cer was
See Civil Law Case Digest No. 27
guilty of gross negligence or bad faith; and
1. When directors and trustees or, in appropriate cases, the
o cers of a corporation: 1.2. the complainant clearly and convincingly proved k) Personal Liabilities
such unlawful acts, negligence or bad faith.
a) vote for or assent to patently unlawful acts of the
corporation; 2. Tramat Mercantile v. CA ruled that personal liability of a A director, trustee, or o cer shall not attempt to acquire, or
corporate director, trustee or o cer along (although not acquire any interest adverse to the corporation
b) act in bad faith or with gross negligence in
necessarily) with the corporation may so validly attach, as a
directing the corporate a airs; and 1. in respect of any matter which has been reposed in them in
rule, only when:
con dence, and
c) are guilty of con ict of interest to the prejudice of
2.1. He assents
the corporation, its stockholders or members, and 2. upon which, equity imposes a disability upon themselves to
other persons; 2.1.1. to a patently unlawful act of the deal in their own behalf;
corporation, or
2. When a director or o cer has consented to the issuance of Otherwise he shall be liable as a trustee for the corporation and must
watered stocks or who, having knowledge thereof, did not 2.1.2. for bad faith or gross negligence in account for the pro ts which otherwise would have accrued to
forthwith le with the corporate secretary his written directing its a airs, or the corporation. The following requisites must concur:
objection thereto; 2.1.3. for con ict of interest, resulting in 1) The complainant must allege in the complaint that the
3. When a director, trustee or o cer has contractually agreed damages to the corporation, its director or o cer assented to patently unlawful acts of the
or stipulated to hold himself personally and solidarily liable stockholders or other persons; corporation, or that the o cer was guilty of gross negligence
with the corporation; or or bad faith; AND

2) The complainant must clearly and convincingly prove such In determining whether such special facts exist that a duciary duty a) the issuer;
unlawful acts, negligence or bad faith. (Heirs of Tan Uy v. should be imposed, the following circumstances may be considered:
b) a director or o cer of, or a person controlling the issuer;
International Exchange Bank 2013)
a) The number of stockholders in the corporation;
c) a person whose relationship or former relationship to the
l) Responsibility for Crimes b) WON a sale of all or almost all corporate stock appeared likely issuer gives or gave him access to material information about
in the immediate future; the issuer or the security that is not generally available to
The following provisions of the RCC provide speci c penalties, the public;
c) WON the sale of stock involved a misuse of corporate o ce or
which render the non-application of the “other violations” a breach of duties owing to the corporation by the o cers, d) a government employee, or director, or o cer of an exchange,
provision under Section 170: directors, or controlling stockholders in question; clearing agency and/or self-regulatory organization who has
1. Corporation by estoppel (§20); access to material information about an issuer or a security
d) WON there was a partial disclosure of relevant facts by the
that is not generally available to the public; or
2. E ects of non-use of corporate charter and continuous o cers, directors, or controlling stockholders which disclosure
inoperation of a corporation (§21); was not the whole truth; e) Tippee. — a person who learns such information by a
communication from any of the foregoing insiders.
3. Liability of directors, trustees or o cers (§30); e) WON the corporation possessed a unique asset and WON a
principal objective of the purchaser of the corporate stock was It shall be unlawful for an insider to sell or buy a security of the issuer,
4. Disloyalty of a director (§33);
to acquire that asset; while in possession of material information with respect to the issuer or
5. Liability of directors for watered stocks (§64); the security that is not generally available to the public, unless:
f) Any other acts by the o cers, directors, or controlling
6. Interest on unpaid subscriptions (§65); stockholders in question which tended to depreciate the value a) The insider proves that the information was not gained from
7. Payment of balance of subscription (§66); and of the minority stock. such relationship; or
8. Books to be kept (§73). Under the law, what is required to be disclosed is a fact of “special b) If the other party selling to or buying from the insider (or his
signi cance” which may be agent) is identi ed, the insider proves:
m) Special Fact Doctrine a) a material fact which would be likely, on being made i) that he disclosed the information to the other party,
generally available, to a ect the market price of a security to a or
In the absence of special facts, any director, o cer or shareholder is signi cant extent, or
ii) that he had reason to believe that the other party
entitled to sell his stock to a third person for such price; and on
b) one which a reasonable person would consider especially otherwise is also in possession of the information.
such terms as he may desire.
important in determining his course of action with regard to
A purchase or sale of a security of the issuer made by an insider, or
However, o cers, directors, and controlling stockholders of a the shares of stock. (SEC v. Interport Resources)
such insider's spouse or relatives by a nity or consanguinity
corporation owe a limited duciary duty toward minority
n) Inside Information within the second degree, legitimate or common-law, shall be
stockholders in the matter of sales of stock where there are special
presumed to have been e ected while in possession of material
facts which make it inequitable for them to act without regard to
nonpublic information.
the interests of other shareholders. ⭐Insider" means:

provisions regarding self-dealing directors insofar as the latter

Blackout Rule — The "blackout rule" prevents top o cials of a is voidable, at the option of such corporation, unless all the following
corporation or corporations are concerned.
listed company from trading on their own securities at speci c conditions are present:
periods prior to the public disclosure of any price-sensitive
a) The presence of such director or trustee in the board meeting Stockholdings exceeding twenty percent (20%) of the OCS shall
information. be considered substantial for purposes of interlocking directors.
in which the contract was approved was not necessary to
Insiders are not allowed to deal in their own securities from the constitute a quorum for such meeting;
period when a material non-public information is obtained up to 10 Capital A airs
b) The vote of such director or trustee was not necessary for the
two full trading days after the price sensitive information is
approval of the contract;
disclosed. Material fact or information is any fact or a) Certi cate of Stock
information that c) The contract is fair and reasonable under the circumstances;
1. may result in a change in the market price or value of d) In case of corporations vested with public interest, material (1) Nature of the Certificate
any of the Issuer's securities, or contracts are approved by A certi cate of stock is a written instrument signed by the proper
2. may potentially a ect the investment decision of an i) at least two-thirds (2/3) of the entire o cer of a corporation stating or acknowledging that the person
investor. (Rule 3.1.12) membership of the board, with named in the document is the owner of a designated number of
shares of its stock.
Material Nonpublic Information ii) at least a majority of the independent directors
voting to approve the material contract; and It is prima facie evidence that the holder is a shareholder of a
Information is "material nonpublic" if: corporation. A certi cate, however, is merely a tangible
e) In case of an o cer, the contract has been previously
a) It has not been generally disclosed to the public; or evidence of ownership of shares of stock. (Teng v. SEC 2016)
authorized by the board of directors.
b) would be considered by a reasonable person important under No transfer, shall be valid, except as between the parties, until the
Where any of the rst three (3) conditions is absent, in the case of a
the circumstances in determining his course of action whether transfer is recorded in the books of the corporation showing the
contract with a director or trustee, such contract may be ratified
to buy, sell or hold a security. 1. names of the parties to the transaction,
by the vote of the stockholders representing at least 2/3 of the
o) Contracts OCS or of the members in a meeting called for the purpose. 2. the date of the transfer,
(2) Between Corporations With Interlocking Directors 3. the number of the certi cate or certi cates, and
(1) By Self-Dealing Directors With the Corporation Except in cases of fraud, and provided the contract is fair and 4. the number of shares transferred.
A contract of the corporation with reasonable under the circumstances, a contract between two (2) or
No shares of stock against which the corporation holds any
more corporations having interlocking directors shall not be
a. one or more of its directors, trustees, o cers OR unpaid claim shall be transferable in the books of the corporation.
invalidated on that ground alone.
b. their spouses and relatives within the fourth civil degree of
If the interest of the interlocking director in one (1) corporation is Insigne v. Abra Valley Colleges, Inc. 2015
consanguinity or a nity
substantial and the interest in the other corporation or
corporations is merely nominal, the contract shall be subject to the Is the presentation of a stock certificate a condition sine qua non for

proving one’s shareholding in a corporation? WON the November 18, 2009 Meeting organized by Madrid is legal 1. First, the certi cates must be signed by the president or
and valid; vice-president, countersigned by the secretary or assistant
NO. To establish their stock ownership, the petitioners adduced
secretary, and sealed with the seal of the corporation,
competent proof showing that the respondents had allowed the NO. Madrid's inheritance of Angela's shares of stock does not ipso
petitioners to become members of the Board of Directors. facto a ord him the rights accorded to such majority ownership of 2. Second, delivery of the certi cate is an essential element of
Considering that Section 23 of the Corporation Code requires every FSVCI's shares of stock. Section 63 of the Corporation Code its issuance,
director to be the holder of at least one share of capital stock of the governs the rule on transfers of shares of stock.
3. Third, the par value, as to par value shares, or the full
corporation, the respondents would not have then allowed any of
All transfers of shares of stock must be registered in the subscription as to no par value shares, must rst be fully paid.
the petitioners to be elected to sit in the Board unless they believed
corporate books in order to be binding on the corporation. — Indivisibility of Subscription
that the petitioners so elected were not disquali ed for lack of stock
Speci cally, this refers to the Stock and Transfer Book, which is
ownership. Conformably with the doctrine of estoppel, the 4. Fourth, the original certi cate must be surrendered where
described in Section 74.
respondents could no longer deny the petitioners’ status as the person requesting the issuance of a certi cate is a transferee
stockholders of Abra Valley. Jurisprudence in Lao v. Lao is instructive on this matter, that the from a stockholder.
mere inclusion as shareholder in the General Information
The surrender of the original certificate of stock is necessary
(2) Uncertificated Shares Sheet is insu cient proof that one is a shareholder of the
before the issuance of a new one so that the old certificate may be
company.
Uncerti cated shares are shares that are tracked and represented in canceled. (Teng v. SEC 2016)
the books of a company. These shares are recorded in the company
(5) Stock and Transfer Book
as a “book entry” and are not represented with a paper certi cate. Guy v. Guy 2016
a) Contents
The SEC may require corporations whose securities are traded in
Cheu was not a stockholder of record of GCI and was therefore
trading markets and which can reasonably demonstrate their Shall contain a record of
not entitled to any notice of meeting.
capability to do so to issue their securities or shares of stocks in 1. all stocks in the names of the stockholders alphabetically
uncerti cated or scripless form. The corporation shall not consider any transfer e ective until the
arranged;
indorsed certi cate is submitted for cancellation and a new one
(3) Negotiability; Requirements for Valid Transfer of issued in the name of the transferee. 2. the installments paid and unpaid on all stocks for which
Stocks subscription has been made, and the date of payment of any
1) It is NOT a negotiable instrument. (4) Issuance installment;
2) Certi cates of stock may be issued only to registered owners of No certi cate of stock shall be issued to a subscriber until the full 3. a statement of every alienation, sale or transfer of stock made,
stock. The issuance of "bearer" stock certi cates is not allowed amount of the subscription together with interest and expenses, in the date thereof, by and to whom made; and
under the law. case of delinquent shares, if any is due, has been paid. 4. such other entries as the bylaws may prescribe.
In Bitong v. CA, the Court outlined the procedure for the issuance The stock and transfer book shall be kept in the principal o ce of
F & S Velasco Co., Inc. v. Madrid 2015 of NEW certi cates of stock in the name of a transferee: the corporation or in the o ce of its stock transfer agent and shall

be open for inspection by any director or stockholder of the

a) consents to the issuance of stocks for a consideration less Failure to pay on such date shall render the entire balance due and
corporation at reasonable hours on business days.
than its par or issued value; payable and shall make the stockholder liable for interest at the
b) Who is authorized to make entries? legal rate on such balance, unless a di erent interest rate is provided
b) consents to the issuance of stocks for a consideration other
in the subscription contract.
Only the corporate secretary. Entries made by the Chairman or than cash, valued in excess of its fair value; or
President are INVALID. (Torres, Jr. v. CA) If no payment is made within thirty (30) days from the said
c) having knowledge of the insu cient consideration, does
date, all stocks covered by the subscription shall thereupon become
c) Stock transfer agent not le a written objection with the corporate secretary,
delinquent and shall be subject to sale.
A stock transfer agent or one engaged principally in the business of shall be liable to the corporation or its creditors, solidarily
registering transfers of stocks in behalf of a stock corporation shall with the stockholder concerned for the di erence between the (2) Notice Requirement
be allowed to operate in the Philippines upon value received at the time of issuance of the stock and the par or 1. Where call is necessary, notice must be given to the
issued value of the same. stockholder concerned. A call without notice to the subscriber
1. securing a license from the SEC and
is practically no call at all.
2. the payment of a fee to be xed by the SEC, which shall be (3) Trust Fund Doctrine for Liability for Watered
renewable annually. Stocks 2. The notice is regarded as a condition precedent to the right of
The issuance of watered stocks constitutes fraud on creditors. It recovery. In the absence of notice of call for the payment of
A stock corporation is not precluded from performing or making
gives a false impression that the corporation has a certain amount unpaid subscriptions, the same is not yet due and payable.
transfers of its own stocks. The SEC may require stock
of assets equivalent to the subscribed capital stock that creditors 3. The right to notice of call, however, may be waived by the
corporations which transfer and/or trade stocks in secondary
may rely on as a bu er against losses. subscriber. (De Leon and De Leon, Jr., The Corporation Code
markets to have an independent transfer agent.
of the Philippines 2010)
(6) Situs of the Shares of Stock
c) Payment of Balance of Subscription
The place where the corporation is domiciled. (Wells Fargo v. d) Sale of Delinquent Shares
CIR) (1) Call by Board of Directors
The board of directors may, at any time, declare due and payable (1) Effect of Delinquency
b) Watered Stocks
to the corporation unpaid subscriptions and may collect the same Delinquency suspends the political and economic rights of the
or such percentage thereof, in either case, with accrued interest, if subscriber, except the right to receive dividends. The dividends
(1) Definition any, as it may deem necessary. corresponding to such shares, however, shall be applied against the
Are those issued not in exchange for its equivalent in cash, Payment of unpaid subscription or any percentage thereof, unpaid amount.
property, share, stock dividends, or services. Such issuance is together with any interest accrued shall be made on the date
(2) Call by Resolution of the Board of Directors
prohibited.
1. speci ed in the subscription contract or
order the sale of delinquent stock and shall speci cally state
(2) Liability of Directors for Watered Stocks 2. stated in the call made by the board.
A director or o cer of a corporation who:

1. the amount due on each subscription plus all accrued e) Alienation of Shares corporation.
interest, and
2. the date, time and place of the sale which shall not be (1) Allowable Restrictions on the Sale of Shares f ) Corporate Books and Records
less than thirty (30) days nor more than sixty (60) days Allowable restrictions on the sale of shares — Deny
from the date the stocks become delinquent. recognition of share transfers. No shares of stock against which the (1) Right to Inspect Corporate Records
corporation holds any unpaid claim shall be transferable in the
Notice of sale — with a copy of the resolution, shall be sent to Corporate records, regardless of the form in which they are stored,
books of the corporation.
every delinquent stockholder either personally, by registered mail, shall be open to inspection by any director, trustee, stockholder or
or through other means provided in the bylaws. Sale of partially paid shares — The incomplete payment of the member of the corporation in person or by a representative at
subscription does not preclude the subscriber from alienating his reasonable hours on business days, and a demand in writing may
The same shall be published once a week for two (2) consecutive
shares of stock. be made at their expense, for copies of such records or excerpts
weeks in a newspaper of general circulation in the province or city
where the principal o ce of the corporation is located. from said records.
(2) Requisites of a Valid Transfer
Auction sale (2) Effect of Refusal to Inspect Corporate Records
Teng v. SEC 2016
A delinquent stock shall be sold at a public auction to such bidder Any o cer or agent of the corporation who shall refuse to allow
who shall o er to pay Certain minimum requisites must be complied with for there to be the inspection and/or reproduction of records shall be liable for
a valid transfer of stocks, to wit: damages, and in addition, shall be guilty of an o ense which shall
1. the full amount of the balance on the subscription
be punishable under Section 161 of this Code.
a) there must be delivery of the stock certi cate;
2. together with accrued interest,
If such refusal is made pursuant to a resolution or order of the
b) the certi cate must be endorsed by the owner or his
3. costs of advertisement and board of directors or trustees, the liability shall be imposed upon
attorney-in-fact or other persons legally authorized to make
the directors or trustees who voted for such refusal.
4. expenses of sale, for the smallest number of shares or the transfer; and
fraction of a share.
c) to be valid against third parties, the transfer must be 11 Dissolution and Liquidation
The remaining shares, if any, shall be credited in favor of the recorded in the books of the corporation.
delinquent stockholder who shall likewise be entitled to the a) Modes of Dissolution
It is the delivery of the certi cate, coupled with the endorsement by
issuance of a certi cate of stock covering such shares.
the owner or his duly authorized representative that is the operative
What happens when there’s no bidder who can fully pay? act of transfer of shares from the original owner to the transferee. (1) Voluntary Dissolution
The corporation may bid for the same, and the total amount The delivery contemplated in Section 62 (RCC), however, pertains Without Creditors With Creditors
due shall be credited as fully paid in the books of the corporation. to the delivery of the certi cate of shares by the transferor to the
Title shall be vested in the corporation as treasury shares. transferee. No transfer shall be valid, except as between the What to Request for
Veri ed petition
parties, until the transfer is recorded in the books of the file dissolution

Petition signed by majority led prior to

Majority vote of the no later than fteen (15)
vote of the board + publication of the
Vote board + by a resolution Hearing on the petition Period to days from receipt by the
petition is resolved upon order setting the
required adopted by at least a and trial on any issued withdraw SEC of the request for
majority of the OCS
by a rmative vote of at Hearing ✘ raised in the objections dissolution.
deadline for ling
least 2/3 of the OCS objections to the petition
led, if any
1. Notice to the (2) Involuntary Dissolution
stockholders; What is
Certi cate of dissolution A corporation may be dissolved by the SEC motu proprio or
2. the order of the SEC issued
upon ling of a veri ed complaint by any interested party. The
reciting the purpose
At least 20 days prior By shortening of corporate term following may be grounds for dissolution of the corporation:
of the petition and
Notice, to the meeting;
xing the deadline for 1. Upon the expiration of the shortened term, as stated in the a) Non-use of corporate charter as provided under
publication published once in a
ling objections shall approved amended AOI, the corporation shall be deemed Section 21;
and newspaper in the
be published once a dissolved without any further proceedings; b) Continuous inoperation of a corporation as provided
posting corporation’s principal
week for 3 consecutive 2. In the case of expiration of corporate term, dissolution shall under Section 21;
o ce
weeks; automatically take e ect on the day following the last day of c) Upon receipt of a lawful court order dissolving the
3. order to be posted for the corporate term stated in the AOI, without the need for corporation;
3 consecutive weeks in the issuance by the SEC of a certi cate of dissolution.
3 public places d) Upon nding by nal judgment that the corporation
Withdrawal procured its incorporation through fraud;
1. copy of the resolution authorizing dissolution,
of Request of Petition e) Upon nding by nal judgment that the corporation:
certi ed by a majority of the board of directors
or trustees and countersigned by the secretary In the form a veri ed 1) Was created for the purpose of committing,
Form In writing and veri ed
of the corporation; motion concealing or aiding the commission of securities
violations, smuggling, tax evasion, money laundering,
Documents 2. proof of Petition signed by or graft and corrupt practices;
to submit publication; and Majority vote of the majority vote of the
3. favorable 2) Committed or aided in the commission of
to SEC Vote board + by a resolution board + petition is
recommendation securities violations, smuggling, tax evasion, money
required adopted by at least a resolved upon by
2. list of all its creditors. laundering, or graft and corrupt practices, and its
from the majority of the OCS a rmative vote of at least
appropriate stockholders knew; and
2/3 of the OCS
regulatory agency, 3) Repeatedly and knowingly tolerated the
when necessary commission of graft and corrupt practices or other

fraudulent or illegal acts by its directors, trustees, cannot be found shall be escheated in favor of the national 3) There is a view to the e ect that the trustee or receiver CAN
o cers, or employees. government. maintain an action for the corporation even after the
b) Methods of Liquidation Winding up the affairs of the corporation means the collection three-year period. (Reyes v. Bancom Development 2018)
of all assets, the payment of all its creditors, and the distribution of
the remaining assets, if any among the stockholders thereof in 12 Other Corporations
(1) By the Corporation Itself
accordance with their contracts, or if there be no special contract,
Every corporation shall nevertheless remain as a body corporate for on the basis of their respective interests. (Rich v. Paloma III 2018) a) Close Corporations
three (3) years after the e ective date of dissolution, for the
Intra-corporate disputes remain even
purpose of when the corporation is dissolved.
(1) Characteristics
1. prosecuting and defending suits by or against it and A corporation’s board of directors is not rendered functus officio by
A close corporation is one whose AOI provide that:
enabling it to settle and close its a airs, its dissolution. Thus, a cause of action involving an intra-corporate
controversy remains and must be led as an intra-corporate dispute 1) All of the corporation’s issued stock of all classes, exclusive of
2. dispose of and convey its property, and
despite the subsequent dissolution of the corporation. (Aguirre II treasury shares, shall be held of record by not more than a
3. distribute its assets, v. FQB+7, Inc. 2013) speci ed number of persons, not exceeding twenty (20);
4. BUT NOT for the purpose of continuing the business 2) All of the issued stock of all classes shall be subject to one or
(4) Liquidation after Three Years
for which it was established. more speci ed restrictions on transfer; and
1) If full liquidation can only be e ected after the three-year
(2) Conveyance to a Trustee Within a Three-Year period and there is no trustee, the directors may be permitted 3) The corporation shall not list in any stock exchange or make
Period to complete the liquidation by continuing as trustees by legal any public o ering of any of its stock of any class.
The corporation is authorized and empowered to convey all of its implication. A corporation shall be deemed NOT a close corporation when at least
property to trustees for the bene t of stockholders, members, two-thirds (2/3) of its voting stock or voting rights is owned or
2) The trustee of a corporation may continue to prosecute a case
creditors and other persons in interest. After any such conveyance, controlled by another corporation which is not a close corporation.
commenced by the corporation until rendition of the nal
all interest which the corporation had in the property terminates, (San Juan Structural and Steel Fabricators, Inc. v. CA)
judgment, even if such judgment is rendered beyond the
the legal interest vests in the trustees, and the bene cial interest
three-year period. GR: ANY corporation may be incorporated as a close corporation;
in the stockholders, members, creditors or other
persons-in-interest. However, an already defunct corporation is not allowed to EXC:
initiate a suit after the lapse of the said three-year period.
(3) By Management Committee or Rehabilitation (Alabang Development Corp. v. Alabang Hills Village 1) mining or oil companies,
Receiver
Association 2014) 2) stock exchanges,
Distribution of Assets
3) banks,
Upon the winding up of corporate a airs, any asset distributable to
4) insurance companies,
any creditor or stockholder or member who is unknown or

5) public utilities, (3) Preemptive Right Any pro t which a nonstock corporation may obtain incidental to
its operations shall, whenever necessary or proper, be used for the
6) educational institutions and Extends to ALL stock to be issued, including reissuance of
furtherance of the purpose or purposes for which the
7) corporations declared to be vested with public interest. treasury shares, whether for money, property or personal
corporation was organized. The law strictly implements the
services, or in payment of corporate debts, unless the AOI
non-diversion rule by:
Bustos v. Millians Shoe, Inc. 2017 provides otherwise.
a) Forbidding distribution of pro ts;
WON the CA correctly considered the properties of Spouses Cruz (4) Amendment of Articles of Incorporation
b) Requiring immediate utilization of contributions for
answerable for the obligations of MSI. Shall require the a rmative vote of at least two-thirds (2/3) of
intended purposes; and
the OCS, whether with or without voting rights, or of such
NO. Section 97 of the Corporation Code only speci es that "the c) Limiting administrative expenses of certain eleemosynary
greater proportion of shares as may be speci cally provided in
stockholders of the corporation shall be subject to all liabilities of corporations. (of, relating to, or supported by charity)
the AOI.
directors." Nowhere in that provision do we nd any inference that
stockholders of a close corporation are automatically liable for b) Non-Stock Corporations c) Educational Corporations
corporate debts and obligations.
Given that the true owner of the subject property is not the The number of trustees of educational institutions organized as
(1) Definition
corporation, petitioner cannot be considered a creditor of MSI but a nonstock corporations shall be between 5 and 15.
A nonstock corporation is one where no part of its income is
holder of a claim against respondent spouses. The number of trustees shall be in multiples of ve (5).
distributable as dividends to its members, trustees, or o cers.
Unless otherwise provided in the AOI or bylaws, the BOT shall, as
(2) Validity of Restrictions on Transfer of Shares May be formed or organized for
soon as organized, so classify themselves that the term of o ce of
MUST APPEAR in the AOI, in the bylaws, as well as in the
1) charitable, 6) fraternal, or similar purposes, like one- fth (1/5) of their number shall expire every year.
certi cate of stock; otherwise, the same shall not be binding on
any purchaser in good faith. 2) religious, 7) literary, 11) trade, Trustees thereafter elected to ll vacancies, occurring before the
expiration of a particular term, shall hold o ce only for the
Said restrictions shall not be more onerous than granting the 3) educational, 8) scienti c, 12) industry,
unexpired period. Trustees elected thereafter to ll vacancies
existing stockholders or the corporation the option to purchase 4) professional, 9) social, 13) agricultural and like caused by expiration of term shall hold o ce for ve (5) years.
the shares. chambers,
5) cultural, 10) civic service, A majority of the trustees shall constitute a quorum for the
1. The law only permits restrictions based on quali cations or any combination thereof. transaction of business.
and conditions, and NOT on the personality of shareholders.
2. The most the restrictions may do is to give the remaining (2) Treatment of Profits d) Religious Corporations
stockholders the right of rst refusal—that is, to match the Non-Diversion Rule
o er of a third party meeting the prescribed quali cations.

proof of such authority to act on behalf of the trust or

(1) Corporation Sole e) One Person Corporations estate; and
A corporation sole may be formed by the chief archbishop,
b) Name, nationality, residence of the nominee and
bishop, priest, minister, rabbi, or other presiding elder of such A One Person Corporation is a corporation with a single
alternate nominee, and the extent, coverage and
religious denomination, sect, or church, for the purpose of stockholder. Only a natural person, trust, or an estate may form
limitation of the authority.
administering and managing, as trustee, the a airs, property and an OPC.
temporalities of such religious denomination, sect or church. Bylaws are NOT required to be submitted.
(1) Excepted Corporations
A corporation aggregate formed for the same purpose, on the (4) Corporate Name
1) Banks and quasi-banks,
other hand, consists of two or more persons. A corporation sole The letters “OPC” shall be indicated either below or at the end of
may be converted into a corporation aggregate by mere 2) Pre-need,
its corporate name.
amendment of its AOI. The one member, with the 3) Trust,
concurrence of two-thirds of the membership of the (5) Corporate Structure and Officers
4) Insurance,
organization for whom he acts as trustee, can self-will the The single stockholder shall be
amendment. (Iglesia Evangélica Metodista en las Islas Filipinas v. 5) Public and publicly-listed companies, and
1) The sole director and president of the OPC;
Lazaro)
6) Non-chartered GOCCs
2) May NOT be appointed as the corporate secretary;
Effectivity — From and after ling with the SEC of the AOI,
may not incorporate as an OPC
veri ed by a davit or a rmation, and accompanied by the 3) May likewise be the self-appointed treasurer.
required documents. 7) A natural person who is licensed to exercise a profession may
Here, the single stockholder shall give a bond to the SEC in
not organize as an OPC for the purpose of exercising such
DOES NOT require approval of the SEC in consonance with the such a sum as may be required, to be renewed every two (2)
profession except as otherwise provided under special laws.
separation of church and state doctrine. years or as often as may be required.
(2) Capital Stock Requirement
(2) Religious Societies (6) Nominee
Shall not be required to have a minimum ACS except as
Any religious society, religious order, diocese, synod, or district In the event of the single stockholder’s death or incapacity, the
otherwise provided by special law.
organization of any religious denomination, sect or church, may, nominee shall take the place of the single stockholder as director
upon written consent and/or by an a rmative vote at a meeting (3) Articles of Incorporation and By-Laws and shall manage the corporation’s a airs.
called for the purpose of at least two-thirds (2/3) of its Aside from the requirements set forth in Sec 14, the AOI of the The written consent of the nominee and alternate nominee shall
membership, incorporate for the administration of its OPC shall likewise substantially contain the following: be attached to the application for incorporation. Such consent
temporalities or for the management of its a airs, properties, and may be withdrawn in writing any time before the death or
a) If the single stockholder is a trust or an estate, the name,
estate by ling with the SEC, AOI veri ed by the a davit of the incapacity of the single stockholder.
nationality, and residence of the trustee, administrator,
presiding elder, secretary, or clerk or other member of such
executor, guardian, conservator, custodian, or other
religious society.
person exercising duciary duties together with the

(7) Liability b) convert it into an ordinary stock corporation. a) An essential condition to be considered as doing business in the
Philippines is actual performance of speci c commercial
A sole shareholder claiming limited liability has the burden of f ) Foreign Corporations acts within the PH territory for the plain reason that the
a rmatively showing that the corporation was adequately
PH has no jurisdiction over commercial acts performed
nanced.
(1) Bases of Authority Over Foreign Corporations elsewhere;
The principles of piercing the corporate veil applies with equal
(a) Consent b) Activities within PH jurisdiction that do not create earnings
force to OPCs as with other corporations.
or pro ts to the foreign corporation do NOT constitute doing
A foreign corporation is one formed, organized or existing under
(8) Conversion of Corporation to One Person business in PH.
laws other than those of the Philippines’ and whose laws allow
Corporations and Vice-Versa
Filipino citizens and corporations to do business in its own c) A foreign company that merely imports goods from a PH
1. From Ordinary to OPC country or State. It shall have the right to transact business in the exporter without opening an o ce or appointing an agent in
When a single stockholder acquires all the stocks of an Philippines after obtaining PH is NOT doing business in PH.
ordinary stock corporation, the latter may apply for 1. a license for that purpose; and d) A foreign corporation that exports products to PH, without
conversion into an OPC. doing any speci c commercial act is NOT doing business in
2. a certi cate of authority from the appropriate
2. From OPC to Ordinary Stock PH.
government agency.
A notice shall be led with the SEC within sixty (60) days e) The appointment of a distributor in the PH is not
(b) Doctrine of “Doing Business” su cient to constitute “doing business” unless it is under the
from the occurrence of the circumstances leading to the
conversion into an ordinary stock corporation.. Mentholatum v. Mangaliman discussed the two general tests full control of the foreign corporation.
to determine whether or not a foreign corporation can be
In case of death of the single stockholder, the nominee or On the other hand, if the distributor is an independent entity
considered as “doing business” in the Philippines.
alternate nominee shall which buys and distributes products, other than those of the
First, the substance test, whether the foreign corporation is foreign corporation, for its own name and its own account, the
a) transfer the shares to the duly designated legal heir or
continuing the body of the business or enterprise for which it was latter cannot be considered to be doing business in the PH.
estate within seven (7) days from receipt of either an
organized or whether it has substantially retired from it and turned (Steel Case v. Design International Selections 2012)
a davit of heirship or self-adjudication executed by a
it over to another.
sole heir, and (2) Necessity of a License to Do Business
Second, the continuity test, implies a continuity of commercial
b) notify the SEC of the transfer. A foreign corporation applying for a license to transact business
dealings and arrangements, and contemplates, to that extent, the in the Philippines shall submit to the SEC a copy of its AOI and
Within sixty (60) days from the transfer of the shares, the performance of acts or works or the exercise of some of the bylaws, certi ed in accordance with law, and their translation to an
legal heirs shall notify the SEC of their decision to either functions normally incident to, and in the progressive prosecution o cial language of the Philippines, if necessary.
a) wind up and dissolve the OPC or of, the purpose and object of its organization.
The application shall be under oath and, unless already stated in
The Contract Test of doing business, on the other hand its AOI.

(a) Resident Agent 1) if a foreign corporation does business in the Philippines 4) The publication of a general advertisement through any
without a license, it cannot sue before the Philippine print or broadcast media;
A resident agent may be either
courts;
5) Maintaining a stock of goods in the Philippines solely for the
1. an individual residing in the Philippines or
2) if a foreign corporation is not doing business in the purpose of having the same processed by another entity in the
2. a domestic corporation lawfully transacting business in Philippines, it needs no license to sue before Philippine Philippines;
the Philippines. courts on an isolated transaction or on a cause of action
6) Consignment by a foreign entity of equipment with a local
entirely independent of any business transaction;
(3) Personality to Sue company to be used in the processing of products for export;
3) if a foreign corporation does business in the Philippines
No foreign corporation transacting business in the Philippines 7) Collecting information in the Philippines; and
without a license, a Philippine citizen or entity which has
without a license, or its successors or assigns, shall be permitted to contracted with said corporation may be estopped from 8) Performing services auxiliary to an existing isolated contract
maintain or intervene in any action, suit or proceeding in any court challenging the foreign corporation’s corporate of sale which are not on a continuing basis, such as installing
or administrative agency of the Philippines. personality in a suit brought before Philippine courts; and in the Philippines machinery it has manufactured or exported
to the Philippines, servicing the same, training domestic
Llorente v. Star City Pty Limited 2020 4) if a foreign corporation does business in the Philippines
workers to operate it, and similar incidental services.
with the required license, it can sue before Philippine
Compliance with the requirement of license, or the fact that the courts on any transaction. (Agilent Technologies Singapore
suing corporation is exempt therefrom, as the case may be, cannot Magna Ready Mix Concrete Corporation v.
v. Integrated Silicon Technology Phil. Corp) Andersen Bjornstad Kane Jacobs, Inc. 20 Jan 2021
be inferred from the mere fact that the party suing is a foreign
corporation. The qualifying circumstance being an essential part of (5) Instances When Unlicensed Foreign Corporations
May be Allowed to Sue (Isolated Transactions) 1. ANDERSEN has no legal capacity to sue for doing
the plainti ’s capacity to sue must be a rmatively pleaded. Hence,
business in the Philippines without procuring the necessary
the ultimate fact that a foreign corporation is not doing business in Section 1 of the IRR of the FIA (as amended by RA 8179) provides
license.
the Philippines must rst be disclosed for it to be allowed to sue in that the following shall NOT be deemed “doing business”:
Philippine courts under the isolated transaction rule. Failing in his 1.1. It is not suing on an isolated transaction on the
1) Mere investment as a shareholder by a foreign entity in
requirement, the complaint led by plainti with the trial court, it basis of the contract it entered into with MAGNA.
domestic corporations duly registered to do business, and/or
must be said, fails to show its legal capacity to sue. 1.2. However, MAGNA is already estopped from
the exercise of rights as such investor;
Having pleaded these averments in the complaint su ciently challenging ANDERSEN's legal capacity when it
2) Having a nominee director or o cer to represent its interest
clothed SCPL the necessary legal capacity to sue before Philippine entered into a contract with it.
in such corporation;
courts. 2. A foreign corporation that conducts business in the
3) Appointing a representative or distributor domiciled in the
Philippines must rst secure a license for it to be allowed to
(4) Suability of Foreign Corporations Philippines which transacts business in the representative’s or
initiate or intervene in any action in any court or
distributor’s own name and account;
The principles regarding the right of a foreign corporation to administrative agency in the Philippines.
bring suit in PH courts may be condensed in four statements:

3. As an exception, a foreign corporation may sue without a

challenging the foreign corporation's personality 13 Merger and Consolidation
or legal capacity to sue when the former already
license on the basis of an isolated transaction.
acknowledged the same by entering into a contract a) Concept
3.1. Eriks Pte. Ltd. v. CA describes the concept of with the latter and deriving bene ts therefrom.
isolated transaction as a transaction or series of
1) In a merger, a corporation absorbs another corporation and
transactions set apart from the common business See Commercial Law Case Digest No. 9
remains in existence while the other is dissolved. It signi es the
of a foreign enterprise in the sense that there is no
absorption of one corporation by another which retains its
intention to engage in a progressive pursuit of the (6) Grounds for Revocation of License
name and corporate identity with the added capital, franchises
purpose and object of the business organization. a) Failure to le its annual report or pay any fees;
and powers of a merged corporation.
3.2. Whether a foreign corporation is "doing business" b) Failure to appoint and maintain a resident agent in the
does not necessarily depend upon the frequency of 2) In consolidation, a NEW corporation is created, and the
Philippines;
its transactions, but more upon the nature and consolidating corporations are extinguished (Aquino, The
c) Failure, after change of its resident agent or address, to submit Philippine Corporate Law Compendium, 2014 Ed.)
character of the transactions.
to the SEC a statement of such change;
4. Here, ANDERSEN's act of entering into a contract with Statutory Merger
d) Failure to submit to the SEC an authenticated copy of any
MAGNA does not fall into the category of isolated This refers to pooling with automatic dissolution, which
amendment to its AOI or bylaws or of any articles of merger or
transactions. requires
consolidation within the time prescribed (within 60 days);
4.1. It was performing acts that were in progressive 1. the execution of a plan,
e) A misrepresentation of any material matter in any
pursuit of its business purpose, which involved
application, report, a davit or other document submitted; 2. the approval of the concerned shareholders,
consultation and design services.
f) Failure to pay any and all taxes, imposts, assessments or 3. the execution of the articles of merger or consolidation,
4.2. In doing business without a license, ANDERSEN
penalties, if any, lawfully due; and
had no legal capacity to sue in the Philippines.
g) Transacting business in the Philippines outside of the 4. the issuance of a certi cate or merger of consolidation.
5. However, MAGNA is already estopped from challenging
purpose or purposes for which such corporation is authorized
ANDERSEN's legal capacity to sue. De Facto Merger
under its license;
5.1. The doctrine of estoppel states that the other Pooling of resources and business without automatic dissolution is
h) Transacting business in the Philippines as agent of or acting on
contracting party may no longer challenge the called de facto merger. It may involve
behalf of any foreign corporation or entity not duly licensed
foreign corporation's personality after
to do business in the Philippines; or a) transfer of all or substantially all assets of one or more
acknowledging the same by entering into a
corporations to the other corporation, OR
contract with it. i) Any other ground as would render it un t to transact
business in the Philippines. b) the management of one or more corporations by the
5.2. A party cannot take undue advantage by
other corporation.

corporation;
A de facto merger can be pursued by one corporation acquiring d) Articles of Merger or Consolidation
all or substantially all of the properties of another corporation in 3. The surviving or the consolidated corporation shall
exchange of shares of stock of the acquiring corporation. thereupon and thereafter
Shall be executed by each of the constituent corporations, to be signed
b) Constituent Corporation vs. Consolidated by the president or vice president and certi ed by the secretary or a. possess all the rights, privileges, immunities and franchises
Corporation assistant secretary of each corporation setting forth: of each of the constituent corporations; and
a) The plan of the merger or the plan of consolidation; b. all property, real or personal, and all receivables due on
There is merger when two or more corporations are folded into whatever account, including subscriptions to shares and
b) As to stock corporations, the number of shares
one of the constituent corporations or a “surviving” corporation. other choses in action, and all and every other interest of,
outstanding, or in the case of nonstock corporations, the
or belonging to, or due to each constituent corporation,
A + B = A or B number of members;
shall be deemed transferred to and vested in such
There is consolidation when two or more corporations are c) As to each corporation, the number of shares or members surviving or consolidated corporation without further
folded into a new corporation or a “consolidated” corporation. voting for or against such plan, respectively; act or deed; and
A+B=C d) The carrying amounts and fair values of the assets and 4. The surviving or consolidated corporation shall be responsible
liabilities of the respective companies as of the agreed cut-o and liable for
c) Plan of Merger or Consolidation date;
a. all the liabilities and obligations of each of the constituent
e) The method to be used in the merger or consolidation of corporations in the same manner as if such surviving or
The board of directors or trustees of each corporation, party to the accounts of the companies; consolidated corporation had itself incurred such
merger or consolidation, shall approve a plan of merger or liabilities or obligations; and
f) The provisional or pro forma values, as merged or
consolidation setting forth the following:
consolidated, using the accounting method; and b. any pending claim, action or proceeding brought by or
a) The names of the corporations proposing to merge or against any of such constituent corporations may be
g) Such other information as may be prescribed by the SEC.
consolidate, hereinafter referred to as the constituent prosecuted by or against the surviving or consolidated
corporations; e) E ects corporation.
b) The terms of the merger or consolidation and the mode of The rights of creditors or liens upon the property of any
carrying the same into e ect; A merger of two corporations produces, among others, the following of such constituent corporations shall not be impaired by
c) A statement of the changes, if any, in the AOI of the surviving e ects: such merger or consolidation. (BPI v. Lee 2012)
corporation in case of merger; and, in case of consolidation, all 1. The constituent corporations shall become a single 5. Pending cases. The surviving corporation in a merger
the statements required to be set forth in the AOI; and corporation; e ectively becomes a “virtual party” to the civil case
d) Such other provisions with respect to the proposed merger or involving the dissolved constituent corporations. As such, it
2. The separate existence of the constituent corporation shall
consolidation as are deemed necessary or desirable. became bound by the orders and processes issued by the trial
cease, except that of the surviving or the consolidated

court despite not having been properly impleaded therein.

Y-I Leisure Phils., Inc. v. Yu 2015 not an essential element for the application of the
(ibid.)
business-enterprise transfer.
WON fraud must exist in the transfer of all the corporate assets in
6. Surviving entity’s right to foreclosure. Pursuant to such
order for the transferee to assume the liabilities of the transferor. WON petitioners became a continuation of MADCI's business.
merger and consolidation, BPI’s right to foreclose the
mortgage on petitioner's property depends on the status of the NO. The Nell Doctrine pronounced the rule regarding the YES. The business-enterprise transfer rule applies when two
contract and the corresponding obligations of the parties transfer of all the assets of one corporation to another as follows: requisites concur:
originally involved, that is, the agreement between its a) the transferor corporation sells all or substantially all of its
GENERALLY, where one corporation sells or otherwise transfers
predecessor BSA and petitioner. (Spouses Ong v. BPI Family assets to another entity; and
all of its assets to another corporation, the latter is not liable for the
Savings Bank 2018)
debts and liabilities of the transferor, EXCEPT: b) the transferee corporation continues the business of the
7. Effects on constituent employees. The merger of a transferor corporation.
1. Where the purchaser expressly or impliedly agrees to
corporation with another does not operate to dismiss the
assume such debts; Both requisites are present in this case.
employees of the corporation absorbed by the surviving
corporation. Although the absorbed employees are retained as 2. Where the transaction amounts to a consolidation or
employees of the merged corporation, the employer retains the merger of the corporations;
right to terminate their employment for a just or authorized 3. Where the purchasing corporation is merely a II Banking Laws
cause. Likewise, the employees are not precluded from severing continuation of the selling corporation; and
their employment through resignation or retirement. New Central Bank Act
4. Where the transaction is entered into fraudulently in
(Philippine Geothermal, Inc. Employees Union v. Unocal
order to escape liability for such debts. General Banking Law of 2000
Philippines 2016)
Section 40 suitably re ects the business-enterprise transfer
Free and Harmless Clause Secrecy of Bank Deposits
under the exception of the Nell Doctrine. It does not apply
In a business-enterprise transfer, the transferor and the
1) if the sale of the entire property and assets is necessary in Anti-Money Laundering Act
transferee may enter into a contractual stipulation stating that the
the usual and regular course of business of corporation, or
transferee shall not be liable for any or all debts arising from the
business which were contracted prior to the time of transfer. Such 2) if the proceeds of the sale or other disposition of such New Central Bank Act
stipulations are valid, but only as to the transferor and the property and assets will be appropriated for the conduct of A
R.A. No. 7653, as amended by R.A. No. 11211
transferee. These stipulations are not binding on the creditors of its remaining business.
the business enterprise who can still go after the transferee for the Thus, the litmus test to determine the applicability of Section 40 State Policies
enforcement of the liabilities. (Y-I Leisure Phils., Inc. v. Yu 2015 would be the capacity of the corporation to continue its
En Banc) business after the sale of all or substantially all its assets. Monetary Board and its Powers and Functions
An evaluation of the relevant jurisprudence reveals that fraud is

empowered to authorize entities or persons to engage in

The Bangko Sentral ng Pilipinas and Banks in b) any information on the discussions or resolutions of the
money service businesses.
Monetary Board, or
Distress
The primary objective of the BSP is to maintain price c) about the con dential operations of the BSP,
a) Conservatorship stability conducive to a balanced and sustainable growth of the
economy and employment. It shall also promote and maintain unless the disclosure is in connection with the
b) Closure monetary stability and the convertibility of the peso. performance of o cial functions with the BSP, or is with
prior authorization of the Monetary Board or the
c) Receivership It shall promote nancial stability and closely work with the Governor; or
National Government, including, but not limited to, the DOF,
d) Liquidation SEC, the IC, and the PDIC. 2) the use of such information for personal gain or to the
detriment of the Government, the BSP or third parties.
It shall oversee the payment and settlement systems in the
1 State Policies Philippines, including critical nancial market infrastructures, in
The Bangko Sentral ng Pilipinas and Banks in
order to promote sound and prudent practices consistent with the 3
The State shall maintain a central monetary authority that shall Distress
maintenance of nancial stability.
function and operate as an independent and accountable body
corporate in the discharge of its mandated responsibilities The powers and functions of the BSP shall be exercised by the BSP a) Conservatorship
concerning money, banking and credit. Monetary Board composed of seven (7) members appointed by
the President for a term of six (6) years. Conservatorship is a tool in restoring the viability of banks and
The central monetary authority, while being a government-owned quasi-banks.
a) The Governor of the BSP, who shall be the Chairman of
corporation, shall enjoy fiscal and administrative autonomy.
the Monetary Board. His appointment shall be subject to Whenever, on the basis of a report submitted by the appropriate
2 Monetary Board and its Powers and Functions con rmation by the Commission on Appointments. supervising or examining department, the Monetary Board nds
b) Member of the Cabinet to be designated by the that a bank or a quasi-bank is in a state of continuing inability
1) Shall provide policy directions in the areas of money, banking, or unwillingness to maintain a condition of liquidity
President.
and credit. deemed adequate to protect the interest of depositors and
c) ve (5) members who shall come from the private sector,
2) Shall have supervision over the operations of banks and creditors, the Monetary Board may appoint a conservator who
all of whom shall serve full-time.
exercise such regulatory and examination powers over the shall have the power to overrule or revoke the actions of the
quasi-banking operations of non-bank nancial institutions. No member of the Monetary Board may be reappointed more than previous management and board of directors of the bank or
once. quasi-bank;
3) As may be determined by the Monetary Board, it shall
likewise exercise regulatory and examination powers over Similar responsibility shall apply for: The conservatorship shall NOT exceed one (1) year.
money service businesses, credit granting businesses, and 1) the disclosure of The Monetary Board shall terminate the conservatorship
payment system operators. The Monetary Board is hereby
a) any information of a con dential nature, or

1. when it is satis ed that the institution can continue to A conservator may be appointed without the need of rst declaring 4. Lastly, the Monetary Board shall nd the statements of the
operate on its own and the conservatorship is no longer the bank insolvent. Nonetheless, the designation of a conservator is department head to be true.
necessary. NOT a precondition to the designation of a receiver.
The test of insolvency is measured by determining whether the
2. if, on the basis of the report of the conservator or of its b) Closure realizable assets of a bank are less than its liabilities.
own ndings, determine that the continuance in business
Hence, a bank is solvent if the fair cash value of all its assets,
of the institution would involve probable loss to its
Under the law, the sanction of closure could be imposed upon a realizable within a reasonable time by a reasonably prudent person,
depositors or creditors, in which case receivership or
bank by the BSP even without notice and hearing. would equal or exceed its total liabilities exclusive of stock liability;
liquidation shall apply.
but if such fair cash value so realizable is not su cient to pay such
Judicial review enters the picture only after the MB has taken
There are three requisites in placing an institution under liabilities within a reasonable time, the bank is insolvent. (Banco
action; it cannot prevent such action by the MB. The threat of the
conservatorship: Filipino v. Monetary Board)
imposition of sanctions, even that of closure, does not violate their
1) There must be a report submitted by the appropriate right to due process, and cannot be the basis for a WPI. (BSP v. The obligation to pay interest on a deposit ceases from the
supervising or examining department of the BSP; Antonio-Valenzuela) moment the operation of the bank is completely suspended by the
Central Bank. (General Bank and Trust v. Central Bank)
2) A nding by the Monetary Board that a bank or The actions of the Monetary Board shall be nal and executory
quasi-bank is in a state of continuing inability or and may not be restrained or set aside by the court except on A deposit in a distressed bank already forbidden by the BSP to do
unwillingness to maintain a condition of liquidity petition for certiorari. (Apex v. BSP 2017) business does NOT become a preferred credit simply because
deemed adequate to protect the interest of depositors and judgments were secured against the bank. (Central Bank v. Morfe,
Under Section 30 of the NCBA, the following are the mandatory
creditors; and Vda de Ballesteros v. Rural Bank of Canaman 2010)
requirements to be complied with before a bank found to be
3) The BOD must be informed in writing of the order of the insolvent is ordered closed and forbidden to do business in the c) Receivership
Monetary Board directing conservatorship. Philippines:
Liquidity is the ability to pay o obligations when they fall due. 1. Firstly, an examination shall be conducted by the head of the The appointment of a receiver operates to suspend the authority of
It refers to that condition wherein a high percentage of the assets appropriate supervising or examining department; the bank over its property and e ects, such authority being reposed
can be quickly converted into cash without involving any in the receiver, and in this respect, the receivership is equivalent to
2. Secondly, it shall be disclosed in the examination
considerable loss by accepting sacri ce prices. an injunction to restrain the bank o cers from intermeddling with
a. that the condition of the bank is one of insolvency, OR the property of the bank in any way. (Abacus Real Estate
The conservator merely takes the place of the BOD. What the said
b. that its continuance in business would involve probable Development v. Manila Banking)
board cannot do, the conservator cannot do either. His power is
not unilateral and he cannot simply repudiate valid obligations of loss to its depositors or creditors; However, the receiver of the bank is in fact obliged to collect
the bank. (First Philippine International Bank v. CA) 3. Thirdly, the department head concerned shall inform the debts owing to the bank, which debts form part of the assets of
Monetary Board in writing, of the facts; and the bank. (Sps Aguilar v. Manila Banking)

The period during which the bank cannot do business due to A liquidation proceeding is a special proceeding involving the General Banking Law of 2000
insolvency is NOT a fortuitous event, unless it is shown that the administration and disposition, with judicial intervention, of an B
government's action to place a bank under receivership or insolvent's assets for the bene t of its creditors. This proceeding is R.A. No. 8791
liquidation proceedings is tainted with arbitrariness, or that the cognizable by the RTC. (Consolidated Bank v. CA 2015)
regulatory body has acted without jurisdiction. (Sps Poon v. Prime
De nition and Classi cation of Banks
It is basically a two-phased proceeding.
Savings Bank 2016)
Distinction of Banks from Quasi-Banks and Trust
The first phase is concerned with the approval and
Only stockholders representing the majority of capital stock of a
disapproval of claims. The claim shall be classi ed whether it is Entities
bank have the personality to le action for annulment of the
ordinary or preferred, and thereafter included liquidated. In
MB resolution placing the bank under receivership. The closed Nature of Bank Funds and Bank Deposits
either case, the order allowing or disallowing a particular claim is a
bank may sue and be sued only through its receiver. The receiver
nal order, and may be appealed by the party aggrieved thereby.
does so as a representative party. Any action filed by the closed Diligence Required of Banks
bank without its receiver may be dismissed. (Banco Filipino v. BSP The second phase involves the approval by the Court of the
2018) distribution plan prepared by the duly appointed liquidator. Prohibited Transactions by Bank Directors and
(Vda de Ballesteros v. Rural Bank of Canaman 2010) O cers
The execution and enforcement of a nal decision of a court other
than the liquidation court against the assets of a closed bank shall The insolvent bank's legal personality is not dissolved. A bank
Stipulation on Interests
be stayed. The prevailing party shall le the nal decision as a retains its juridical personality. (Balayan Bay Rural Bank v.
CLAIM with the liquidation court and settled in accordance National Livelihood Development 2015)
with the Rules on Concurrence and Preference of Credits
1 De nition and Classi cation of Banks
As a general rule, if there is a judicial liquidation of an insolvent
under the Civil Code or other laws. (Cu v. Small Business bank, all claims against the bank should be led in the liquidation "Banks" shall refer to entities engaged in the lending of funds obtained
Guarantee and Finance 2017) proceeding. This, however, should NOT be applied if it would be in the form of deposits. They shall be classi ed into:
The prescriptive period to institute foreclosure proceeding was "an exercise in futility." In one case, the claimants were poor
a) Universal banks (expanded commercial banks)
legally interrupted when the mortgagee-bank was placed under and the disputed parcel of land was their only property, and the
receivership with express prohibition from transacting business, a parties' claims and defenses were properly ventilated in and Banks that have authority to exercise, in addition to the powers
circumstance considered as force majeure. (Provident Savings v. considered by the judicial court. (Cudiamat v. Batangas Savings and functions of commercial banks, powers of an investment
CA) and Loan Bank 2010) house and the power to invest in non-allied enterprises.
(§23)
The dissolution of a corporation by the SEC is a totally di erent Section 52(C) of the NIRC is NOT applicable to banks ordered
proceeding from the receivership and liquidation of a bank by the placed under liquidation by the Monetary Board, and a tax An investment house is any enterprise which engages in the
BSP. (PDIC v. BIR) clearance is NOT a prerequisite to the approval of the underwriting of securities of other corporations. (§2 PD 129)
project of distribution of the assets of a bank under liquidation
b) Commercial banks
d) Liquidation by the PDIC. (PDIC v. BIR 2013)

Banks that have, in addition to the general powers incident to The SEC shall not register the articles of incorporation of any Residents and citizens of PH who are creditors of a branch in PH
corporations, all such powers as may be necessary to carry on bank, or any amendment thereto, unless accompanied by a of a foreign bank shall have preferential rights to the assets of
the business of commercial banking. (§29) certi cate of authority issued by the Monetary Board. such branch in accordance with existing laws.
c) Thrift banks, composed of: The SEC shall not register the by-laws of any bank, or any Bank Branches
amendment thereto, unless accompanied by a certi cate of
i) Savings and mortgage banks, Cross-Selling. A bank may, subject to prior approval of the
authority from the BSP.
Monetary Board, use any or all of its branches as outlets for the
ii) Stock savings and loan associations, and
No person or entity shall engage in banking operations or presentation and/or sale of the nancial products of its allied
iii) Private development banks, quasi-banking functions without authority from the BSP. An undertaking or of its investment house units.
as de ned in "Thrift Banks Act"; entity authorized by the BSP to perform universal or commercial
A bank authorized to establish branches or other o ces shall be
banking functions shall likewise have the authority to engage in
d) Rural banks, as de ned in "Rural Banks Act" responsible for all business conducted in such branches and o ces
quasi-banking functions.
to the same extent and in the same manner as though such business
Banks that are created to make needed credit available and
Shareholdings had all been conducted in the head o ce. A bank and its
readily accessible in the rural areas for the purpose of
1. Foreign — up to 40% of voting stock (Aggregate); branches and o ces shall be treated as ONE UNIT.
promoting comprehensive rural development.
2. Filipino — up to 40% of voting stock (Single); Full disclosure in all transactions with the bank is required:
e) Cooperative banks, as de ned in "Cooperative Code"
3. Non-Voting — NO limit; 1. Stockholdings of individuals related to each other within the
Banks that primarily provide nancial, banking and credit
fourth degree of consanguinity or a nity, legitimate or
services to cooperative organizations and their members. 4. Par value. common-law, considered family groups or related interests;
f) Islamic banks as de ned in the "Charter of Al Amanah Entry of Foreign Banks (§12)
Islamic Investment Bank of the Philippines."
1. by acquiring, purchasing or owning up to 100% of the voting 2. Two or more corporations owned or controlled by the same
Organization stock of an existing bank; family group or same group of persons considered related
The Monetary Board may authorize the organization of a bank or interests. (§13)
2. by investing in up to 100% of the voting stock of a new
quasi-bank subject to the following conditions: banking subsidiary incorporated under the laws of the
Philippines; or
Distinction of Banks from Quasi-Banks and
1. That the entity is a stock corporation; 2
Trust Entities
2. That its funds are obtained from the public, which shall 3. by establishing branches with full banking authority.
mean twenty (20) or more persons (2-Da); and Banks are required to be stock corporations and that their funds
Head Office Guarantee. — the head o ce of such branches
are obtained from the public, which shall mean twenty (20) or
3. That the minimum capital requirements for each category shall fully guarantee the prompt payment of all liabilities of its
more persons.
of banks are satis ed. PH branch. (§75)
“Deposit substitutes" is an alternative form of obtaining funds
from the public, other than deposits, through the issuance,

endorsement, or acceptance of debt instruments for the borrower's

underwriting of securities of other corporations. Securities A bank is statutorily required to conduct a credit check on all of
own account. The source of funds are borrowings rather than
underwriting, in turn, refers to the process by which underwriters its borrowers, even though it be made under a loan
deposits.
raise capital investments on behalf of the corporation issuing the accommodation scheme. RA 8791 only intended to cover loans by
Elements of Quasi-Banking securities. third persons and those extended to DOSRI and does not
automatically apply to loans to bank employees. (HBILU v. HSBC
1) Borrow funds for own use; Conspicuously absent in the enumerated additional powers of an
2018)
investment house, however, is the authority to perform
2) From the public;
quasi-banking functions. Wincorp engaged in practices that Kinds of Deposits
3) Through deposit substitutes; rendered the transactions to be "with recourse" and, consequently,
The deposit operations of a bank consist of the following:
4) With recourse; within the ambit of quasi-banking rules.
1. Demand Deposits — are deposits, subject to withdrawal
5) For the purpose of relending or purchasing receivables or other either by check or thru the ATMs which are otherwise known
obligations. as current or checking accounts.
3 Nature of Bank Funds and Bank Deposits
A “trust entity” is a stock corporation or a person duly authorized by 2. Savings Deposits — are interest-bearing deposits.
the Monetary Board that has the power to: Bank deposits are in the nature of irregular deposits (Serrano v.
Central Bank). They are not true deposits but are simple loans. 3. Negotiable Order of Withdrawal Accounts — are interest-
1. Act as trustee on any mortgage or bond issued by any bearing savings deposit which are withdrawable by means of
Banks where monies are deposited are considered the owners
municipality, corporation, or any body politic; Negotiable Orders of Withdrawal. Savings + Checking.
(People v. Puig). Hence, the relationship between a depositor and a
2. Act under the order or appointment of any court as bank is that of creditor and debtor. Thus: 4. Time Deposits — are interest-bearing deposits with speci c
guardian, receiver, trustee, or depositary of the estate of maturity dates and evidenced by certi cates issued by the bank.
1. The bank can make use as its own the money deposited.
any minor or other incompetent person;
2. Third persons who may have a right to the money Savings Time
3. Act as the executor of any will; SSDA
deposited cannot hold the bank responsible unless there is Account Deposit
4. Act as administrator of the estate of any deceased person; a court order or garnishment.
Regular
5. Accept and execute any trust for the holding, management, 3. Bank o cers cannot be held liable for estafa if they Higher
Interest rate savings Higher interest rate
and administration of any estate, real or personal, and the authorized the use of the money deposited by the interest rate
interest
rents, issues and pro ts thereof; and depositor.
Period ✘ Fixed Term Fixed Term
6. Establish and manage common trust funds. 4. The bank has the right of compensation. It can set o
the deposits with the indebtedness of the depositor that Certi cate of
Virata v. Ng Wee 2017 are due and demandable. Evidenced by Passbook Time Passbook
Deposit
An investment house is an enterprise that engages in the 5. Deposits are common preferred credits under Art
2244(9) of the NCC.

Pre- Banks are also expected to exercise the highest degree of diligence
✘ With penalty With penalty 2.1. The savings deposit agreement between the bank
termination in the selection and supervision of their employees. (PNB v.
and the depositor is the contract that determines
Holding Raymundo 2016)
the rights and obligations of the parties as in a
✘ ✓ ✓
Period simple loan. The bank is expected to ensure that the depositor's funds shall only
Allowed provided the be given to him or his authorized representative. Indeed, the bank
3. Allied Bank cannot repudiate the resulting banking
Withdrawal minimum amount to earn should be solidarily liable with its employee for the damages
relationship with the Sps Mario Macam and the duciary
amounts to the higher interest rate is committed to its depositor. (Oliver v. Philippine Savings 2016)
nature thereof when it accepted the spouses' initial deposit
Withdrawal Allowed
pre-terminati maintained, otherwise, the of P1.59M, the very same funds it now claims as its own. A bank that wrongly advertises the area of a property acquired
on regular savings interest rate through foreclosure because it failed to dutifully ascertain the
4. A certi cate of deposit is de ned as a written
will apply. property's speci cations is grossly negligent as to practically be in
acknowledgment by a bank or banker of the receipt of a
bad faith in o ering that property to prospective buyers. Any sale
A document to be deemed a certi cate of deposit requires no sum of money on deposit which the bank or banker
made on this account is voidable for causal fraud. As-is-where-is
speci c form as long as there is some written memorandum that promises to pay to the depositor, to the order of the
stipulations can only encompass physical features that are readily
the bank accepted a deposit of a sum of money from a depositor. depositor, or to some other person or his order, whereby
perceptible by an ordinary person possessing no specialized skills.
(Philippine Banking v. CIR) the relation of debtor and creditor between the bank and
(Poole-Blunden v. Union Bank 2017 Leonen, J)
the depositor is created.
Third parties with unveri ed claims against the deposit of another
In loan transactions, banks have the particular obligation of
do not have a better right over the deposit. The bank’s contractual 5. With its acceptance of the Sps Mario Macam's deposit and
ensuring that clients comply with all the documentary
relations are with its depositor, not with the third party. (Sps their opening of an account with the bank's Pasong Tamo
requirements pertaining to the approval of their loan applications
Serfino v. FEBTC 2012) Branch, Allied Bank explicitly recognized the spouses'
and the subsequent release of their proceeds. (Prudential Bank v.
ownership and title over the P1.59M.
Rapanot 2017)
Allied Banking v. Sps Macam 01 Feb 2021
See Commercial Law Case Digest No. 8
1. RA 8791 enshrines the duciary nature of banking that BPI and Gonzales v. Sps Quiaoit 2019
requires high standards of integrity and performance.
WON BPI failed to exercise due diligence in the transaction and is
4 Diligence Required of Banks
1.1. All banks are charged with extraordinary diligence therefore liable for damages to Sps Quiaoit.
in the handling and care of its deposits as well as The General Banking Act of 2000 demands of banks the highest YES. BPI had ample opportunity to prepare the dollar bills. BPI
the highest degree of diligence in the selection and standards of integrity and performance. As such, the banks could have listed down the serial numbers of the dollar bills and
supervision of its employees. are under obligation to treat the accounts of their depositors with erased any doubt as to whether the counterfeit bills came from it.
2. Here, there is a deposit agreement between Allied Bank and meticulous care. (Sps Carbonell v. MBTC 2017) Banks are required to exercise the highest degree of diligence in its
the Sps Mario Macam. banking transactions. In releasing the dollar bills without listing
down their serial numbers, BPI failed to exercise the highest degree

of care and diligence required of it. 2) Partnership of which a director, o cer, or stockholder of a 8) NGOs/foundations that are engaged in retail micro nance
BSFI or his spouse or relative within the rst degree of operations which are incorporated by any of the stockholders
consanguinity or a nity, or relative by legal adoption, is a and/or directors and/or o cers or related BSFIs. (MORB,
Prohibited Transactions by Bank Directors and general partner; 2018)
5
O cers 3) Co-owner with the director, o cer, stockholder or his spouse The limit on loans, credit accommodations and guarantees shall not
or relative within the rst degree of consanguinity or a nity, apply to loans, credit accommodations and guarantees extended by a
No director or o cer of any bank
or relative by legal adoption, of the property or interest or cooperative bank to its cooperative shareholders.
1. shall, directly or indirectly, for himself or as the representative right mortgaged, pledged or assigned to secure the loans or
Requirements for Valid Insider Lending
or agent of others, borrow from such bank nor other credit accommodations,
1) In the regular course of business;
2. shall he become a guarantor, indorser or surety for loans from except when the mortgage, pledge or assignment covers only
such bank to others, or said co-owner’s undivided interest; 2) Upon terms not less favorable to the bank than those o ered
to third parties;
3. in any manner be an obligor or incur any contractual liability 4) Corporation, association or rm of which any or a group of
to the bank directors, o cers, stockholders of the BSFI and/or their 3) There is a written approval of the majority of ALL the
spouses or relatives within the rst degree of consanguinity or directors of the bank, excluding the director concerned;
except with the written approval of the majority of all the
directors of the bank, excluding the director concerned: a nity, or relative by legal adoption, hold or own at least This is NOT required where a fringe bene t plan is granted
twenty percent (20%) of the subscribed capital of such to o cers as approved by the BSP.
Provided, That such written approval shall not be required
corporation, or of the equity of such association or rm;
for loans, other credit accommodations and advances granted 4) The required approval
to o cers under a fringe bene t plan approved by the BSP. 5) Corporation, association or rm wholly or majority-owned or
a) shall be entered upon the record of the bank and
controlled by any related entity or a group of related entities
Dealings of a bank with any of its DOSRI shall be upon terms not b) a copy of such entry shall be transmitted forthwith to
mentioned in Items “(2)” and “(4)” above;
less favorable to the bank than those offered to others. the appropriate supervising and examining
6) Corporation, association or rm which owns or controls
After due notice to the board of directors of the bank, the o ce of any department of the BSP; and
directly or indirectly whether singly or as part of a group of
bank director or o cer who violates the provisions of this Section may 5) Limited to an amount equivalent to the DOSRI borrower’s
related interest at least twenty percent (20%) of the
be declared vacant and the director or o cer shall be subject to the unencumbered deposits and book value of his paid-in capital
subscribed capital of a substantial stockholder of the BSFI or
penal provisions of the NCBA. contribution in the bank.
which controls majority interest of the BSFI pursuant to Item
Related interests shall refer to any of the following: “g” of Sec. 362; In other words, three restrictions are imposed by law on DOSRI
1) Spouse or relative within the rst degree of consanguinity 7) Corporation, association or rm which has an existing transactions, to wit:
or a nity, or relative by legal adoption, of a director, o cer or management contract or any similar arrangement with the 1. Approval Requirements — The transactions, which must be
stockholder of the BSFI; parent of the BSFI; and upon terms not less favorable to the bank than those o ered to

others, must be with the written approval of the MAJORITY

rate would have been under the circumstances had the parties had
of ALL directors of the bank excluding the director concerned; There may be instances wherein an interest rate scheme which does
equal bargaining power.
not speci cally indicate a particular interest rate may be validly
2. Reportorial Requirements — The required approval shall be
An interest rate is not inherently conscionable or imposed. Such interest rate scheme refers to what is typically called a
entered upon the records of the bank and copy of such entry
unconscionable. Interest rates become unconscionable in light of oating interest rate system.
shall be submitted to the BSP; and
the context in which they were imposed or applied.
In Security Bank Corp. v. Sps Mercado, the Court explained that
3. Ceiling Requirements — Unless for these bene ts, the loan
oating rates of interest refer to the variable interest rates stated on a
which a bank may extend shall be limited to an amount
market-based reference rate agreed upon by the parties. Stipulations
equivalent to the unencumbered deposit and book value of Vasquez v. PNB 2019 on oating rate of interest di er from escalation clauses. Escalation
the borrower’s paid-in capital contribution in the bank,
clauses are stipulations which allow for the increase of the original
unless the loan is secured by non-risk assets. (§36 RA 8791) In Sps Silos v. PNB, PNB implemented an identical interest rate
xed interest rate. In contrast, a oating rate of interest pertains
scheme, wherein PNB imposed on the petitioners therein interest to
Except with the prior approval of the MB the total to the interest rate itself that is not xed as it is dependent on a
be determined based on the "prime rate plus applicable spread in
outstanding loans, other credit accommodations and market-based reference that was agreed upon by the parties. In
e ect." The Court invalidated the imposition of interest as it found
guarantees to DOSRI shall not exceed fteen percent order for the concept of a oating rate of interest to apply, it
that such method of xing interest rates based on the "prime rate
(15%) of the total loan portfolio of the bank or 100% of net presupposes that a market-based reference rate is indicated in
plus applicable spread in e ect" is based on a "one-sided,
worth whichever is lower: writing and agreed upon by the parties.
indeterminate, and subjective criteria such as pro tability, cost
Provided, That in no case shall the total unsecured loans, of money, bank costs, etc., that is arbitrary for there is no xed
other credit accommodations and guarantees to said DOSRI standard or margin above or below these considerations."
exceed thirty percent (30%) of the aggregate ceiling or the Villa Crista Monte Realty and
Imposing the "prevailing lending rate" is not synonymous with 2018
outstanding loans, other credit accommodations and Development v. Equitable PCI Bank
the usual banking practice of imposing the "prevailing market
guarantees, whichever is lower. (§X331, MORB) An escalation clause without a concomitant de-escalation clause
rate." The Court explained that the latter is valid "because it cannot
be said to be dependent solely on the will of the bank as it is also is void and ine ectual for violating "The Usury Law," as well as the
6 Stipulation on Interests dependent on the prevailing market rates. The uctuation in the principle of mutuality of contracts unless the established facts and
market rates is beyond the control of the bank." However, when circumstances, as well as the admissions of the parties, indicate that
banks impose "prevailing lending rates," such imposition is the lender at times lowered the interest rates, or, at least, allowed the
Vitug v. Abuda 2016 considered one-sided, arbitrary, and potestative as the bank is "still borrower the discretion to continue with the repriced rates.
Voluntariness of stipulations on interest rates is not su cient to the one who determines its own prevailing lending rate." The escalation clause is not void per se. Yet, the escalation clause that
make the interest rates valid. Thus, even if the parties voluntarily The nullity of PNB's unilateral determination of interest rates "grants the creditor an unbridled right to adjust the interest
agree to an interest rate, courts are given the discretionary power to in the instant case follows a long line of judicial precedent. independently and upwardly, completely depriving the debtor of
equitably reduce it if it is later found to be iniquitous or the right to assent to an important modi cation in the agreement" is
unconscionable. Courts approximate what the prevailing market

VOID. Verily, the escalation clause, to be valid, should speci cally void, 'only the interest rate imposed is nulli ed; hence, it is
5. Based on the Manual of Regulations of Banks (MORB) of
provide: deemed not written in the contract.
the Bangko Sentral ng Pilipinas (BSP), banks and borrowers
1) that there can be an increase in interest rates if allowed by are allowed to agree on a oating rate of interest, 10. The agreement on payment of interest on the principal loan
law or by the Monetary Board; and provided that it must be based on market-based reference obligation remains.'
rates.
2) that there must be a stipulation for the reduction of the 10.1. The Court shall apply the applicable legal rate of
stipulated interest rates in the event that the applicable 5.1. In order for the concept of a oating rate of interest, which refers to 'the prevailing rate at the
maximum rates of interest are reduced by law or by the interest to apply, it presupposes that a time when the agreement was entered into.
Monetary Board. market-based reference rate is indicated in writing
and agreed upon by the parties. See Civil Law Case Digest No. 29
6. Here, based on the DSAs, Metrobank had the authority to

Goldwell Properties Tagaytay v. MBTC 12 May 2021 unilaterally apply the "prevailing market rate" without
Secrecy of Bank Deposits
specifying the market-based reference and securing the
1. As a principal condition and an important component in
written assent of the petitioners, which is in violation of the C R.A. No. 1405, as amended
contracts of loan, interest rates are only allowed if agreed
principle of mutuality of contracts. R.A. No. 6426, as amended
upon by express stipulation of the parties, and only when
reduced into writing. Any change to it must be mutually 6.1. Thus, the repriced monetary interest of 14.25%
agreed upon, or it produces no binding e ect. per annum should be declared as VOID. Purpose
2. The right to recover interest arises only either 7. In addition, the debtor companies should not be required Prohibited Acts
to pay the 10% VAT as the borrower should not bear the
2.1. by virtue of a contract (monetary interest) or
burden of paying taxes on behalf of the bank. Deposits Covered
2.2. as damages for delay or failure to pay the principal
7.1. Such part of the provision should also be struck Exceptions from Coverage
loan on which the interest is demanded
down for being invalid.
(compensatory interest).
8. As to the penal/compensatory interest, considering the Garnishment of Deposits, including Foreign
3. As regards monetary interest, although the parties are "free
nulli cation of the repriced monetary interest, the penalty Deposits
to stipulate their preferred rate," the courts are "allowed to
interest rate of 18% per annum stipulated in the DSAs
equitably temper interest rates that are found to be
should likewise be reduced to 6%.
excessive, iniquitous, unconscionable, and/or exorbitant." 1 Purpose
9. In a situation wherein the interest rate scheme imposed by
4. Here, the interest rate of 14.25% per annum (or 1.1875%.
the bank was struck down because the bank was allowed To give encouragement to the people to deposit their money in
per month) upon the principal obligation should, in theory,
under the loan agreement to unilaterally determine and banking institutions and to discourage private hoarding so that the
be considered as a fair rate.
Increase the imposable interest rate, thus being null and

same may be properly utilized by banks in authorized loans to assist

c) upon order of a competent court in the case of bribery or m) Inquiry and examination by the PDIC in case there is a nding
in the economic development of the country.
dereliction of duty of public o cials or, of unsafe or unsound banking practice;
2 Prohibited Acts d) when the money deposited or invested is the subject matter n) Examination and inquiry into deposit records by the PDIC
of the litigation; when there is failure of prompt corrective action as declared by
1) Bank deposits may not be examined, inquired or looked into the Monetary Board due to capital de ciency;
by any person, government o cial, bureau or o ce; e) In cases involving unexplained wealth, even if placed in
another person’s name; o) When there is a waiver in case of DOSRI loans;
2) Any o cial or employee of a bank may not disclose any
information concerning said deposits to any person other than f) Upon inquiry of the CIR to determine the net estate of a p) Disclosure to the BSP in the course of examination to ensure
those mentioned in Section Two hereof, or deceased depositor; compliance with the AMLA and testing of numbered
accounts;
3) For an independent auditor hired by a bank to conduct its g) Upon the order of a competent court, by the AMLC where
regular audit to disclose to any person other than a bank there is probable cause of money laundering; q) Plunder (Ejercito v. SB)
director, o cial or employee authorized by the bank any A court order is NOT necessary in the following cases: For FOREIGN currency deposits, the following are the exceptions:
information concerning said deposits.
i) Kidnapping for ransom; a) When there is written consent of the depositor;
3 Deposits Covered ii) RA 9165; b) Under Sec 11 of AMLA;

iii) Hijacking; destructive arson and murder. c) Upon order of the CA, examination by law enforcement
All deposits of whatever nature with banks or banking institutions
o cers in terrorism cases under the Human Security Act;
IN the Philippines including investments in bonds issued by the h) Examination by the AMLC even without court order under
Government, are considered as of an absolutely con dential nature Sec 11 of AMLA; d) Investigation where AMLC is authorized to examine deposits
and may not be examined, inquired or looked into by any person, and investments with any banking or NBFI and their
i) Disclosure to the Treasurer of the Philippines for dormant
government o cial, bureau or o ce. subsidiaries and a liates without a court order;
deposits for at least 10 years under the Unclaimed Balances
Trust accounts are covered by the term ‘deposits’. The use of the Act; e) ⭐Examination and disclosure to the CIR under Sec 6(F) of
term ‘deposits’ is to be understood broadly and not limited only to the NIRC;
j) Report of banks to AMLC of covered and/or suspicious
accounts which give rise to creditor-debtor relationship between transactions; f) Disclosure to the BSP in the course of examination to ensure
the depositor and the bank. (Ejercito v. SB) compliance with the AMLA and testing of numbered
k) Upon order of the CA, examination by law enforcement
accounts; and
o cers in terrorism cases under the Human Security Act;
4 Exceptions from Coverage
g) Inquiry and examination by the PDIC in case there is a nding
l) Investigation where AMLC is authorized to examine deposits
A PESO bank deposit may be inquired into in the following cases: of unsafe or unsound banking practice.
and investments with any banking or NBFI and their
a) upon written permission of the depositor, subsidiaries and a liates without a court order;
b) in cases of impeachment,

body whatsoever. (RA 6426) See the case of Salvacion v. Central

The Real Bank, Inc. v. Maningas 16 Mar 2022 1 Policy
Bank, where the Court made an exception against a transient
1. Real Bank contends that the RTC's action directing it to foreigner charged with raping a minor. a) To protect and preserve the integrity of the Philippine
produce the bank records of the impostor violates the law nancial system, including the con dentiality of bank
on secrecy of bank deposits. Anti-Money Laundering Act accounts.
1.1. The Court agrees. D R.A. No. 9160, as last amended by R.A. No. 11521 b) To ensure that the Philippines shall not be used as a money
laundering site for the proceeds of any unlawful activity.
2. Union Bank of the Philippines v. CA noted that inquiry will 2018 Implementing Rules and Regulations
be allowed if the money deposited in the account is itself c) To extend cooperation, consistent with Philippines' foreign
the subject matter of litigation. Policy policy, in transnational investigations and prosecutions of
persons involved in money laundering activities wherever
2.1. BSB Group, Inc. v. Go elaborated that the subject
Covered Institutions and Their Obligations committed.
matter of the action should be deduced from the
indictment and not from the evidence sought to be Covered Transactions d) To protect life, liberty and property from acts of terrorism and
admitted. to condemn terrorism and those who support and nance it;
Suspicious Transactions and to make the nancing of terrorism a crime against
3. Here, Maningas' action was directed against the banks, and
the Filipino people, against humanity and against the
not against the impostor. Safe Harbor Provision law of nations.
3.1. The exception provided in the law is not present in
this case, thus, the inquiry ordered by the RTC is Money Laundering e) To recognize and to adhere to international commitments to
combat the nancing of terrorism.
improper.
Anti-Money Laundering Council and its Functions
f) To reinforce the ght against terrorism by preventing and
See Commercial Law Case Digest No. 2 suppressing the commission of said o enses through freezing
Authority to Inquire into Bank Deposits
and forfeiture of property or funds while protecting human
Bank Inquiry Order by the Court rights.
Garnishment of Deposits, including Foreign
5
Deposits Bank Inquiry Order by the AMLC 2 Covered Institutions and Their Obligations
There is NO VIOLATION if the accounts are garnished. The Freezing of Monetary Instrument or Property The following are the covered persons under the AMLA:
amount of deposit is not disclosed and the legislature did not
intend to cover garnishment. Court-Issued Freeze Order a) The following financial institutions:
However, foreign currency deposits are exempt from 1) Persons supervised and/or regulated by BSP, including
AMLC-Issued Freeze Order
attachment, garnishment, or any other order or process of any their subsidiaries and a liates, which are also covered persons,
court, legislative body, government agency or any administrative supervised and/or regulated by the BSP.

2) Persons supervised or regulated by IC. d) Creation, operation or management of juridical persons With respect to closed accounts, for at least five (5) years
or arrangements, and buying and selling business entities. from the dates when they were closed.
3) Persons supervised or regulated by the SEC.
b) The following Designated Non-Financial Businesses and 5) Casinos, including internet-based casinos and ship-based c) Reporting of Covered and Suspicious Transactions. —
casinos, with respect to their casino cash transactions related to Covered persons shall report to the AMLC all covered
Professions or DNFBPs:
their gaming operations. transactions and suspicious transactions within ve (5)
1) Jewelry dealers. working days from occurrence thereof,
6) Real estate developers and brokers;
2) Dealers in precious metals, and dealers in precious stones. unless the AMLC prescribes a di erent period not exceeding
7) O shore gaming operation, as well as their service
3) Company service providers, which, as a business, provide fteen (15) working days.
providers, supervised, accredited or regulated by the PAGCOR
any of the following services to third parties: or any government agency;
3 Covered Transactions
a) acting as a formation agent of juridical persons; The term 'covered persons' shall EXCLUDE lawyers and
b) acting as (or arranging for another person to act as) accountants acting as independent legal professionals 1) A transaction in cash or other equivalent monetary instrument
1. in relation to information concerning their clients or exceeding P500K within one (1) banking day;
i) a director or corporate secretary of a company,
2. where disclosure of information would compromise client 2) A transaction with or involving jewelry dealers, dealers in
ii) a partner of a partnership, or
con dences or the attorney-client relationship: precious metals and dealers in precious stones in cash or
iii) a similar position in relation to other juridical other equivalent monetary instrument exceeding P1M.
persons; Provided, That these lawyers and accountants
3) A casino cash transaction exceeding P5M or its equivalent in
c) providing a registered o ce; business address or 1. are authorized to practice in the Philippines and other currency.
accommodation, correspondence or administrative 2. shall continue to be subject to the provisions of their 4) A single cash transaction by real estate developers and
address for a company, a partnership or any other juridical respective codes of conduct and/or professional responsibility. brokers involving an amount in excess of P7.5M or its
person or legal arrangement; and
equivalent in any other currency.
Obligations
d) acting as (or arranging for another person to act as) a
nominee shareholder for another person. a) Customer Identification. — Covered institutions shall
4 Suspicious Transactions
establish and record the true identity of its clients based on
4) Persons, including lawyers, accountants and other
o cial documents. They shall maintain a system of verifying refers to a transaction, regardless of amount, where any of the
professionals, who provide any of the following services:
the true identity of their clients. suspicious circumstances is determined, based on suspicion or, if
a) Managing of client money, securities or other assets; available, reasonable grounds, to be existing.
b) Record Keeping. — All records of all transactions of covered
b) Management of bank, savings, securities or other assets; institutions shall be maintained and safely stored for ve (5) 1) There is no underlying legal or trade obligation, purpose
c) Organization of contributions for the creation, operation years from the dates of transactions. or economic justi cation;
or management of companies; and 2) The client is not properly identi ed;

3) The amount involved is not commensurate with the business 1) transacts said monetary instrument or property; Anti-Money Laundering Council and its
7
or nancial capacity of the client;
2) converts, transfers, disposes of, moves, acquires, possesses Functions
4) It may be perceived that the client’s transaction is or uses said monetary instrument or property; The powers and functions of the AMLC shall be exercised by a
structured in order to avoid being the subject of reporting Council composed of the following persons:
3) conceals or disguises the true nature, source, location,
requirements;
disposition, movement or ownership of or rights with a) Chairperson — Governor of the BSP;
5) Any circumstance relating to the transaction which is observed respect to said monetary instrument or property;
to deviate from the pro le of the client and/or the client’s b) Member — Chairperson of the SEC; and
4) attempts or conspires to commit ML o enses referred
past transactions with the covered institution; c) Member — Commissioner of the IC.
to in (1), (2), or (3) above;
6) The transaction is in a way related to an unlawful activity The Council shall act unanimously in the discharge of its functions.
5) aids, abets, assists in, or counsels the commission of the
or o ense that is about to be, is being, or has been committed;
ML o enses referred to in (1), (2), or (3) above; and 1) to require and receive covered or suspicious transaction
7) Any analogous or similar transactions to the foregoing. reports from covered institutions;
6) performs or fails to perform any act as a result of which he
facilitates the o ense of ML referred to in items (1), (2), 2) to issue orders addressed to the appropriate Supervising
5 Safe Harbor Provision or (3) above. Authority or the covered institution to determine the true
NO administrative, criminal or civil proceedings shall lie b) Any covered person who, knowing that a covered or suspicious identity of the owner of any monetary instrument or
against any person transaction is required under the AMLA to be reported to the property subject of a covered transaction or suspicious
AMLC, fails to do so. transaction report or request for assistance from a foreign
1. for having made a CTR or an STR
State.
2. in the regular performance of his duties and Unlawful activities refer to any act or omission, or series or
3) to institute civil forfeiture proceedings and all other remedial
combination thereof, involving or having direct relation, to the
3. in good faith, proceedings through the OSG;
following: (deleted for brevity; See Sec. 3[b-1])
4. whether or not such reporting results in any criminal 4) to cause the ling of complaints with the DOJ or the
Same Conduct Approach. — In determining whether or not a
prosecution under the AMLA or any other Philippine law. Ombudsman for the prosecution of money laundering
felony or o ense punishable under the penal laws of other
o enses;
countries is "of a similar nature" so as to constitute an unlawful
Money Laundering activity under the AMLA, it is su cient that both the 5) to investigate suspicious transactions and covered
6
How Committed; Unlawful Activities or Predicate Crimes Philippines and the other jurisdiction criminalize the transactions deemed suspicious after an investigation by
conduct or activity underlying the o ense, regardless of AMLC, money laundering activities, and other violations;
Money laundering is committed by:
whether both countries place the o ense within the same category,
6) to apply before the CA, ex parte, for the freezing of any
a) Any person who, knowing that any monetary instrument or or denominate the o ense under the same nomenclature.
monetary instrument or property alleged to be laundered,
property represents, involves, or relates to the proceeds of any
proceeds from, or instrumentalities used in or intended for use
unlawful activity:
in any unlawful activity;

7) to implement such measures as may be necessary and justi ed 2. Inquiry into or Examination of Related Accounts. — A d) Felonies or o enses of a nature similar to those mentioned
to counteract money laundering; court order ex parte must be obtained before the AMLC in Rule 11, Section 2.1 (a), (b) and (c), which are
can inquire into the related accounts. punishable under the penal laws of other countries;
8) to receive and take action in respect of, any request from
foreign states for assistance in their own anti-money 3. No Prior Criminal Charge, Pendency of a Case, or e) Terrorism and conspiracy to commit terrorism; and
laundering operations; Conviction Necessary.
f) Financing of terrorism under Section 4 and o enses
9) xxxx 4. Compliance with Article III, Sections 2 and 3 of the punishable under Sections 5, 6, 7 and 8 of the TFPSA.
Constitution.
10) to enlist the assistance of any branch, department, bureau, 2. The relevant requirements for Bank Inquiry Order by the
o ce, agency or instrumentality of the government, including 5. Period to Resolve Application. — 24 HOURS; Court shall apply to Bank Inquiry Order by the AMLC,
GOCCs, in undertaking any and all anti-money laundering including the procedure for inquiry into related accounts.
6. Bank Inquiry Order. — The AMLC may inquire into or
operations;
examine any particular deposit or investment account,
11) to impose administrative sanctions for the violation of laws, including related accounts, with any banking institution or 9 Freezing of Monetary Instrument or Property
rules, regulations and orders and resolutions issued pursuant non-bank nancial institution, upon order by the Court The following requirements shall be observed in the issuance of freeze
thereto; and of Appeals based on an ex parte application in cases of orders:
violation of the AMLA when probable cause exists.
12) to require the Land Registration Authority and all its a) NO prior criminal charge, pendency of a case, or conviction
Registries of Deeds to submit to the AMLC, reports on all real Bank Inquiry Order by the AMLC for an unlawful activity or ML o ense is necessary for the
estate transactions involving an amount in excess of P500K commencement or the resolution of a petition for freeze order.
1. The AMLC shall issue an ex parte order authorizing the
within fteen (15) days from the date of registration of the
AMLC Secretariat to inquire into or examine any particular b) No asset shall be frozen to the prejudice of a candidate for an
transaction.
deposit or investment account, including related accounts, electoral o ce during an election period.
with any banking institution or non-bank nancial
8 Authority to Inquire into Bank Deposits c) No court shall issue a TRO or a writ of injunction against any
institution and their subsidiaries and a liates when it
freeze order, except the Supreme Court.
has been established that probable cause exists that the
Bank Inquiry Order by the Court
deposits or investments involved, including related accounts, Court-Issued Freeze Order
1. Application for Issuance of Bank Inquiry Order. — By are in any way related to any of the following unlawful
authority of the Council, the AMLC Secretariat shall le 1. Ex Parte Petition for Issuance of Freeze Order. — By
activities:
before the CA, through the OSG, an Ex Parte Application for authority of the Council, the AMLC Secretariat shall le
the Issuance of Bank Inquiry Order to examine or inquire into a) Kidnapping for ransom; before the Court of Appeals, through the OSG.
any particular deposit or investment account that is related to b) RA 9165; 2. Related Accounts. — The AMLC may include in its petition
an unlawful activity or ML o ense. the freezing of related and materially-linked accounts.
c) Hijacking and other violations under RA 6235;
destructive arson and murder;

acceptable securities of equal value to the amount or value facilitating the commission of nancing of terrorism or
3. Period to Resolve Petition. — The CA shall resolve within
subject of the freeze order. terrorist acts.
24 hours from ling thereof.
The court must resolve the motion before the expiration of The freeze order shall be e ective for a period not exceeding
4. Issuance. — Upon veri ed ex parte petition by the AMLC
the freeze order. twenty (20) days. Upon a petition led by the AMLC before the
and after determination that probable cause exists, the CA
expiration of the period, the e ectivity of the freeze order may be
may issue a freeze order, which shall be e ective 9. Lifting the Effects of the Freeze Order.
extended up to a period not exceeding six (6) months upon
immediately, for a period of 20 days. a) The freeze order shall be deemed ipso facto lifted after order of the Court of Appeals:
5. Coverage. — The freeze order shall be limited only to the its expiration, unless an ML complaint against the
Provided, That the twenty-day period shall be tolled upon ling of
amount of cash or monetary instrument, or value of person whose monetary instrument or property was
a petition to extend the e ectivity of the freeze order.
property that the CA nds there is probable cause. frozen, or a Petition for Civil Forfeiture against the
frozen monetary instrument or property, has been led, in Period of validity of a freeze order: may it be extended? YES
6. Summary Hearing and Extension. — Before the
which case the freeze order shall remain e ective until the for a total period not exceeding six (6) months.
expiration of the 20-day freeze order, the CA shall conduct a
ML case is terminated or an asset preservation order is
summary hearing, with notice to the parties, to determine The following rules shall be observed in asset forfeiture
issued, respectively.
whether or not to modify or lift the freeze order, or to extend proceedings:
its e ectivity. Pending resolution by the CA, the freeze order b) Before the expiration of the freeze order, the covered
a) No prior criminal charge, pendency of a case, or
shall remain e ective. person shall secure a written con rmation from the
conviction for an unlawful activity or ML o ense is
AMLC to ascertain if a petition for civil forfeiture or an
7. Effectivity of Freeze Order. — Immediately and shall necessary for the commencement or the resolution of a
ML complaint has been led.
remain e ective for a total period not exceeding 6 months. petition for civil forfeiture.
8. Motion to Lift. — If a freeze order is imposed on an account,

AMLC-Issued Freeze Order b) No asset shall be attached or forfeited to the prejudice of a
including bank account, of a covered person that it uses for Freeze orders issued by the AMLC shall be governed by the candidate for an electoral o ce during an election period.
payment of TFPSA and its IRR. Petition for Civil Forfeiture — Upon determination that
a) salary, The AMLC, either upon its own initiative or at the request of the probable cause exists that any monetary instrument or property is
ATC, is hereby authorized to issue, ex parte, an order to freeze in any way related to an unlawful activity or ML o ense, the
b) rent,
without delay: AMLC shall le with the RTC, through the OSG, a veri ed
c) suppliers, and/or petition for civil forfeiture.
a) property or funds that are in any way related to nancing
d) taxes of terrorism or terrorist acts; or Equal Value Assets — Other monetary instrument or property of
in the ordinary course of a legitimate business, the equal value may be included in the Petition where the monetary
b) property or funds of any person, terrorist organization,
covered person may apply with the court which issued the instrument or property that should be subject of forfeiture:
association or group of persons in relation to whom there
freeze order to lift the same by submitting a bond or other is probable cause to believe that they are committing or a) cannot be located despite due diligence;
attempting or conspiring to commit, or participating in or

securities of equal value to the amount or value subject of the asset

b) has been substantially altered, destroyed, diminished in an undivided right to the entire balance, and any of them may
preservation order.
value or otherwise rendered worthless by any act or deposit and/or withdraw, partially or wholly, the funds without the
omission; Relevant Banking Law Jurisprudence need or consent of the other, during their lifetime. Here, while
Dominador is a co-owner of the subject account as far as the bank is
c) has been concealed, removed, converted, or otherwise
Goyanko, Jr v. UCPB 2013 concerned, Evangeline — as between him and Evangeline, his
transferred;
authority to withdraw, as well as the amount to be withdrawn, is
d) is located outside the Philippines or has been placed or UCPB did not become a trustee by the mere opening of the circumscribed by the purpose for which the subject account
brought outside the jurisdiction of the court; or ACCOUNT. While this may seem to be the case, by reason of the was opened.
e) has been commingled with other monetary instruments duciary nature of the bank’s relationship with its depositors, this
or property belonging to either the o ender himself or a duciary relationship does not “convert the contract between the
third person or entity, thereby rendering the same di cult bank and its depositors from a simple loan to a trust agreement, Cabanting v. BPI Family Savings Bank 2016
to identify or be segregated for purposes of forfeiture. whether express or implied.” It simply means that the bank is
obliged to observe “high standards of integrity and performance” in Here, there is no proof that petitioners were disadvantaged,
Asset Preservation Order. — Upon veri ed petition by the complying with its obligations under the contract of simple loan. uneducated or utterly inexperienced in dealing with nancial
AMLC, with prayer for issuance of asset preservation order, and institutions; thus, there is no reason for the court to step in and
Per Article 1980 of the Civil Code, a creditor-debtor relationship
after determination that probable cause exists that any monetary protect the interest of the supposed weaker party. Verily, petitioners
exists between the bank and its depositor. The savings deposit are bound by the aforementioned stipulation in the Promissory
instrument or property is in any way related to an unlawful agreement is between the bank and the depositor; by receiving the Note with Chattel Mortgage waiving the necessity of notice and
activity, the RTC may issue an asset preservation order which shall deposit, the bank impliedly agrees to pay upon demand and only demand to make the obligation due and payable.
be e ective immediately, forbidding any transaction, withdrawal, upon the depositor’s order.
deposit, transfer, removal, conversion, concealment or other
disposition of the subject monetary instrument or property. Sps Yulo v. BPI 2019
Motion to Discharge. — If an APO is imposed on an account of Tan v. Rodriguez 2018
When issuing a pre-screened or pre-approved credit card, the
a covered person that it uses for payment of
Here, there exists no survivorship agreement between Anita and credit card provider must prove that its client read and consented to
1. salary, Reynaldo. Hence, it is rightful to determine their respective shares the terms and conditions governing the credit card's use. Failure to
2. rent, based on evidence presented during trial. prove consent means that the client cannot be bound by the
provisions of the terms and conditions, despite admitted use of the
3. suppliers, and/or
credit card.
4. taxes Apique v. Fahnenstich 2015
in the ordinary course of a legitimate business, the covered
The common banking practice is that regardless of who puts the BPI v. Sps Sarda 2019
person may apply with the court which issued the APO to
money into the account, each of the named account holder has
discharge the same by submitting a bond or other acceptable

In a situation where a pre-approved client was issued a credit card, Servo v. PDIC 2019 h) Compulsory Insurance Coverage for
we have held that such client accepted the credit card by signing a
Section 5(g) of RA 3591, as amended by RA 10846, provides that Agency-Hired Workers
receipt and using the card to purchase goods and services. A
the actions of PDIC on matters relating to insured deposits and
contractual relationship was thereby created between the cardholder Insurable Interest
deposit liabilities may only be assailed before the Court of Appeals
and the credit card issuer, governed by the terms and conditions
via a Petition for Certiorari under Rule 65. Double Insurance and Overinsurance
found in the card membership agreement.
The submission of statements of account is not enough to No Fault, Suicide, and Incontestability Clause
establish that the cardholder incurred the obligation to pay
the purchases appearing therein. Insurance Law Perfection of the Insurance Contract
III
The Insurance Code
O er and acceptance; consensuality
Fil-Agro Rural Bank v. Villaseñor, Jr 2020 Basic Concepts Premium payment
Disputed claims covers all claims whether they be against the assets Elements of an Insurance Contract
of the insolvent bank, for speci c performance, breach of contract,
Non-default options in life insurance
damages or whatever. The term is de ned in an all-encompassing Characteristics/Nature of Insurance Contracts Reinstatement of a lapsed policy of life insurance
and broad manner so as to include any cause of action against the
insolvent bank, regardless of its nature or character, irrespective of Classes of Insurance Refund of premiums
whether the relief sought would directly a ect the property of the
bank under liquidation. In fact, Section 30(2) of R.A. 7653
a) Marine Rights and Obligations of Parties
authorizes the receiver to defend any action against the insolvent
b) Fire Rescission of Insurance Contracts
bank.
Here, when Antonio led the complaint for annulment of the c) Casualty Devices to Ascertain and Control Risks
mortgages, he is essentially assailing Fil-Agro's right to foreclose the
d) Suretyship Concealment
mortgages constituted to secure the principal obligation, including
the closed bank's right to sell the property and apply the proceeds of e) Life Misrepresentation or Omissions
the sale to the satisfaction of the unpaid loan. Indubitably, the claim
lodged by Antonio is a disputed claim over which the RTC of f) Microinsurance Breach of Warranties
Malolos City sitting as liquidation court has jurisdiction.
g) Compulsory Motor Vehicle Liability Insurance
A Basic Concepts

1. Definition. — A contract of insurance is an agreement 6. However, it does not follow that the contract that is entered e) In consideration of the insurer’s promise, the insured pays a
whereby into is not insurance; the nature of the contract will be premium.
examined on a case-to-case basis. Thus, a health care
a. one undertakes for a consideration Risk
agreement may be construed as a non-life insurance if it is
b. to indemnify another primarily a contract of indemnity. (Fortune Medicare v. 1. Any contingent or unknown event, whether past or future,
c. against loss, damage or liability Amorin 2014) Uncertainty is a feature in insurance contracts.
d. arising from an unknown or contingent event. 7. Mutual Insurance Companies. A mutual insurance Past events that may be insured is peculiar to marine
company is a cooperative enterprise where the members are insurance.
2. For regulatory purposes, a contract of suretyship shall be
both the insurer and insured.
deemed to be an insurance contract ONLY if made by a surety 2. Which may damnify a person having an insurable interest, or
who is doing an insurance business. Additionally, they provide three types of coverage, namely, create a liability against him.
protection and indemnity, war risks, and defense costs.
3. Insurance is a contract whereby Further, the risk must be INSURABLE, wherein:
8. Mutual Insurance Companies like P&I Clubs are
a. One party called the insurer undertakes for a 1. There must be a large number of homogenous exposure
considered insurers. A protection and indemnity club, is
consideration units;
an association composed of shipowners generally formed for
b. To pay another party called the insured, or his the speci c purpose of providing insurance cover against 2. The loss must be accidental and unintentional;
bene ciary, third-party liabilities of its members. (Steamship Mutual
3. The loss must be determinable and measurable;
Underwriting Association (Bermuda) Ltd. v. Sulpicio Lines
c. Upon the happening of the peril insured against,
2017) 4. The loss should NOT be catastrophic;
d. Whereby the insured or his bene ciary su ers loss or
9. Pro t not material — Absence of PROFIT does NOT Nevertheless, trivial losses are NOT insurable. De minimis
damage or is exposed to liability.
negate the existence of an insurance contract. non curat lex.
4. The TEST to determine whether a contract is one of 5. The chance of loss must be calculable; and
insurance is whenever the assumption of risk and the 1 Elements of an Insurance Contract
indemnification of loss is the principal object and 6. The premium must be economically feasible.
purpose of the contract. a) The insured has an insurable interest; Assumption of Risk — The insurer promises to pay the insured if
5. Applying the "principal object and purpose test," a b) The insured is subject to a risk of loss by the happening of the risk insured against occurs.
corporation, such as an HMO, whether or not organized for the designated peril;
pro t, whose main object is to provide the members of a 2 Characteristics/Nature of Insurance Contracts
c) The insurer assumes the risk;
group with health services, is NOT engaged in the insurance
d) Such assumption of risk is part of a general scheme to Insurance contracts are:
business. (Philippine Health Care Providers v. CIR)
distribute actual losses among a large group of persons 1) Contracts of Adhesion;
bearing a similar risk; and

2) Risk-Distributing Device; b) Against liability ii) Strikes, riots and civil commotion (SR&CC)
clause; or
3) Aleatory — the obligation of the insurer to pay arises only i) Running Down Clause — insures liability against
upon the happening of an event, which is uncertain, or is to collision; b) One due to fraud or intentional misconduct of insured.
occur at an indeterminate time. ii) Marine Protection and Indemnity Insurance; 2) Named Perils Policy
4) Unilateral — upon payment of the premium, there is only iii) Excess Protection and Indemnity Insurance — a) Perils of the sea or navigation — include only such
one party who has the obligation, the insurer’s obligation to covers damage or liability in excess of the value of the losses as are of extraordinary nature or arise from some
pay the proceeds of insurance in case of loss. ship. It is an exception to the limited liability rule in overwhelming power which cannot be guarded against by
5) Personal — Each party enters into the contract in view of maritime law. Includes cases when shipowner was the ordinary exertion of human skill or prudence.
negligent.
the character, credit, and conduct of the other. b) Perils of the ship — a loss which in the ordinary course
iv) Water Pollution Liability. of events, results:
6) Consensual — perfected by mere consent.
c) Over the cargo i) From the ordinary, natural, and inevitable action of
7) Uberrimae Fidae — one of perfect good faith. Parties must
i) Trip or Single Risk Cargo Policy; the sea;
avoid material concealment or misrepresentations.
ii) Open Cargo Policy. ii) From ordinary wear and tear of the ship; and
8) Executory and Conditional — executory to the insurer
and subject to conditions, principal of which is the happening d) Over freightage and income — cover loss of freightage iii) From the negligent failure of the ship’s owner to
of the event insured against. for failure to complete voyage or delivery of goods. provide the vessel with the proper equipment to
convey the cargo.
e) Compulsory Passenger and Cargo Liability
3 Classes of Insurance Insurance — mandated by RA 9295. P200K for each c) Fire and Related Perils;
passenger imposed on shipowners. P50K each for d) Jettison — goods are thrown overboard to save other
a) Marine
survivors of a maritime accident. cargoes and/or the ship;
Includes policies that cover risks connected with navigation, to
2) Inland Marine — do not relate to navigation. Includes e) Barratry — act committed by the master or crew for
which a ship, cargo, freightage, pro ts, or other insurable interest
in movable property, may be exposed during a certain voyage or a insurance over cargoes, infrastructure and oaters. some unlawful or fraudulent purpose contrary to their
xed period of time. duty;
3) Aviation — over aircrafts.
Different Types f) Assailing Thieves — theft of cargo committed by force;
Risks Insured Against
g) All Other like Perils — to be interpreted as covering
1) Ocean Marine — connected with navigation; they are 1) All Risk Policy — against ALL conceivable causes except
risks which are of like kind with particular risks which are
insurance
a) As otherwise excepted, such as enumerated in the preceding part of the same clause,
a) Over the vessel; following ejusdem generis.
i) Free capture and seizure (FC&S) clause;

Clauses that Modify Coverage If ship also insured by charterer, the shipowner can EXC: In marine insurance, where information of the belief or
only recover the portion that he cannot recover from expectation of a third person, in reference to a material fact, is
1) Inchmaree Clause — included in a hull policy to cover loss or
the charterer. material.
damage
b) Charterer - to the extent that he is liable to be damni ed GR: Insurer may rescind contract even if the risk concealed is NOT
a) through the bursting of the boiler, breaking of shafts
by its loss; the cause of the loss.
or
c) Lender on Bottomry - up to the extent of the loan; EXC: In marine insurance, insurer is exonerated ONLY if the risk
b) through the latent defects of the machinery and
equipment, hull or its appurtenances and d) Mortgagee. concealed is the cause of the loss and relates to the:
c) faults or errors in the navigation or management of 2) Over cargo 1) national character of the insured;
the vessel. a) Both the shipowner and shipper. 2) liability of the thing insured to capture and detention;
2) Running Down Clause — insures liability against collision; b) In Respondentia. 3) liability to seizure from breach of foreign laws of trade;
3) Delay Clause — exempts insurer from liability if there was 3) Over freightage and income 4) want of necessary documents; OR
delay in the voyage;
a) Shipowner and charterer - over the expected freightage, 5) use of false and simulated papers.
4) Sue and Labor (S&L) Clause — requires the insured and his which arises: Representation
representative to take all reasonable steps that are necessary to
limit or reduce an imminent loss. i) If there is a charter party — when the ship has 1. If intentionally false in any material respect, or in respect of
broken ground on the chartered voyage; any fact on which the character and nature of the risk
5) Protection and Indemnity (P&I) Clause — insures the
ii) In carriage of goods — when the goods are depends, the insurer may rescind the entire contract.
shipowner from liability for damages caused by the ship to
wharves, piers and other harbor installations; actually on board or there is some contract for 2. Expectations of insured are not material unless it will amount
putting them on board, and both ship and goods to promissory representation.
6) Institute War Clause (IWC) — covers risks covered by are ready for the speci ed voyage.
FC&S + capture, seizure, arrest, restraint or detainment, 3. The contract will be avoided only if there is fraud in
including by civil authorities. b) One who has an interest in the thing from which representing an expectation that turns out to be false (§114).
pro ts are expected to proceed has an insurable interest in
7) Memorandum Clause — provides for the list of goods for the pro ts. (§107) Implied Warranties
which the insurer will be liable unless damage exceeds a stated
Concealment 1) Seaworthiness — a ship is seaworthy if it is able to
percentage of total value.
withstand the rigors of the voyage and it has been
Who has Insurable Interest GR: In ordinary insurance, belief or expectation of third persons
are NOT material and need not be disclosed. a) properly laden,
1) Over the ship b) provided with competent crew and
a) Shipowner - up to the full value of the ship;

c) equipped with the appropriate appurtenances and b) When necessary to comply with a warranty, or to avoid iii) Expense of transshipment exceeds ¾ of the value of
equipment. a peril, whether or not the peril is insured against;
cargo.
GR: It is only at the commencement of the voyage that the c) When made in good faith, and upon reasonable grounds
GR: Fact of actual loss must be established by su cient
ship be seaworthy. There is no breach of warranty if of belief in its necessity to avoid a peril; or
evidence.
the ship becomes unseaworthy afterwards. d) When made in good faith, for the purpose of saving
EXC: There is presumed actual total loss if the following
EXC: If there is unreasonable delay in repairing the human life or relieving another vessel in distress.
requisites concur:
defect when the ship becomes unseaworthy during Every other deviation, IMPROPER.
the voyage. The insurer is exonerated. (§120) a) Continued absence of the ship for a considerable
4) Legality of voyage. length of time; and
As to cargo owners, it is their responsibility to make sure the
Loss b) The vessel has not been heard of. (§134)
carrier they choose to ship their goods is seaworthy.
1) TOTAL 2) PARTIAL — not total.
2) That the ship has the documents of neutrality or
nationality — a) Actual — caused by: Reshipment
a) Vessel has the requisite documents of nationality or i) Total destruction of the thing insured; Whenever the ship is prevented from completing its voyage because of a
neutrality; and ii) The irretrievable loss of the thing by sinking, or by peril insured against, the rules are as follows:
b) Vessel will not carry documents that will cast reasonable being broken up; 1) If the goods are reshipped, the insurance over the goods
suspicion on its nationality or neutrality if nationality or iii) Any damage to the thing which renders it valueless continue when they are thus reshipped;
neutrality is expressly warranted. (§122) to the owner for the purpose for which he held it; or 2) The insurer may require the additional premium if the hazard
3) Against improper deviation — Instances of deviation: iv) Any other event which e ectively deprives the is increased by this extension of liability;
a) Departure from the course of sailing xed by mercantile owner of the possession, at the port of destination, 3) The marine insurer is bound to pay for damages, expenses,
usage; of the thing insured. extra freightage, etc. incurred in saving cargo reshipped, up to
b) Departure from the most natural, direct and b) Constructive, commercial, or conventional — gives to the amount insured; and
advantageous route if not xed by mercantile usage; a person insured a right to abandon, under §141. 4) The marine insurer shall NOT be liable for any amount in
excess of the insured value or, if there be none, of the insurable
c) Unreasonable delay in pursuing the voyage; or i) Actual loss of more than ¾ of its value;
value.
d) Commencement of an entirely di erent voyage. ii) Damage reducing the value of the vessel and cargo by
Abandonment
A deviation is PROPER: more than ¾;
a) When caused by circumstances over which neither the
master nor the owner of the ship has any control;

The act of the insured by which, after a constructive total loss, he 2) There is UNDER insurance, or that the insurance coverage is d) The expenses and damages should have been incurred
declares the relinquishment to the insurer of his interest in the LESS than the value of the property insured. or in icted after taking proper legal steps and
thing insured. 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 authority.
𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑟 = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦
𝑥 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐷𝑎𝑚𝑎𝑔𝑒
The formula for the determination of the general average
Abandonment in Maritime Law Marine Insurance Averages contribution of the insurer is:
Need for All extraordinary or accidental expenses which may be incurred during 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
constructive loss
✘ ✔ the voyage in order to preserve the vessel and/or cargo and any damage
𝐴𝑚𝑜𝑢𝑛𝑡 = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦 𝐼𝑛𝑠𝑢𝑟𝑒𝑑
𝑥 𝐺𝐴 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑑
or deterioration which the vessel may su er. GR: The insured may either hold the insurer directly liable for the
Persons whom the whole of the insured value of the property sacri ced for the
Made in favor of Insured 1) Simple or Particular — may be covered by the insurance
carrier is liable general bene t, subrogating him to his own right of
policy. They are all expenses and damages caused to the vessel
or to her cargo which have NOT inured to the bene t and contribution from the other interested parties as soon as the
Abandonment shall be e ective if the following requisites are present:
pro t of ALL the persons interested. If not general, then it vessel arrives at her destination.
1) There must be an actual relinquishment by the person
is particular. EXC: The insured cannot claim in the following instances:
insured of his interest in the thing insured;
The owner of the goods which gave rise to the expense or 1) There is already separation of interest liable to the
2) There must be constructive total loss;
su ered the damage shall bear the simple averages. contribution;
3) Be neither partial nor conditional;
Free from Particular Average (FPA) Clause — free from 2) The insured neglects to claim contribution although he has
4) Made within a reasonable time after receipt of reliable PA only, and not GA. the opportunity to enforce the same; and
information of the loss;
2) General or Gross — all damages and expenses which are 3) Insured waives his right to claim contribution.
5) Must be factual; DELIBERATELY caused in order to save the vessel and/or its
cargo at the same time, from real and known risk. The
6) Made by giving notice thereof to the insurer orally or in
requisites are: b) Fire
writing; AND
a) There must be a common danger; Shall include insurance against loss by re, lightning,
7) The notice of abandonment must be explicit and must
specify the particular cause. b) For the common safety, part of the vessel or of the windstorm, tornado or earthquake and other allied risks,
cargo or both is sacri ced deliberately; when such risks are covered by extension to re insurance policies or
Co-insurance
under separate policies.
c) From the expenses or damages caused follows the
There is ALWAYS co-insurance in marine insurance. The requisites for
successful saving of the vessel and cargo; and NB: Insurer is liable only if there is hostile re and NOT friendly
its application are as follows:
re.
1) There must be PARTIAL loss; and
1. Hostile re is one that is uncontrolled, or initially friendly
but passed outside the limits assigned to it.

2. Friendly re is one contained in its proper receptacle. petitioner's machinery and equipment. If direct liability to third party is provided for, a no action
clause is NOT allowed.
Alteration 2. American Home Assurance Company v. Chua held that
where the insurance policy speci es as a condition the A no action clause disallows suit against insurer unless nal
Will prevent recovery on the policy if the following requisites are
disclosure of existing co insurers, non-disclosure thereof is a judgment is obtained by a third party against the insured.
present:
violation that entitles the insurer to avoid the policy.
3. Plate glass insurance,
1) The alteration is on the use or condition of the thing
3. It is apparent that Policy Condition No. 3, or the "other
insured; 4. Burglary and theft insurance,
insurance clause", was violated since petitioner failed to
2) The use or condition is limited in the policy; notify the insurers of the re insurance policies it procured Excluded are those in the insured’s service and employment
3) It is without consent of the insurer; from the di erent insurers covering the same subject and 5. Personal accident and health insurance as written by
interest. non-life insurance companies — normally includes
4) Within the control of the insured; AND
See Commercial Law Case Digest No. 7 a. Income coverage;
5) It increases the risk.
b. Coverage for loss of life, sight or limb; or
Option to Rebuild Clause — insurer may cause the repair,
rebuilding, or replacement of the buildings or structures wholly or c. Medical expenses coverage.
partially destroyed or damaged. c) Casualty
6. Other substantially similar kinds of insurance.
Insurance covering loss or liability arising from accident or mishap,
Prohibitions
excluding those covered in re or marine insurance. It includes, but is 7. Criminal negligence is insurable, so long as it is not gross
§175. No policy of fire insurance shall be pledged, not limited to, amounting to willful misconduct.
hypothecated, or transferred to any person, rm or company
1. Employer's liability insurance — usual exclusions: Authorized Driver Clause — Insurer will be liable only if the driver
who acts as agent for or otherwise represents the issuing
is an “authorized driver” at the time of accident.
company, and any such pledge, hypothecation, or transfer a. When there is serious or willful misconduct on the part of
hereafter made shall be void and of no e ect insofar as it may insured; 1. Duly licensed, need not prove if insured is the driver; and
a ect other creditors of the insured. 2. Authorized by the owner of vehicle to drive.
b. When the employee was hired in violation of law;
c. When insured failed to comply with health and safety Theft Clause — makes theft a risk insured against. Theft Is NOT
Multi-Ware Manufacturing v. Cibeles Insurance
regulations; and covered by the Malicious Damage Clause.
01 Feb 2021
1. Petitioner obtained re insurance policies from Cibeles d. When the employer discharges, coerces, or discriminates
Insurance simultaneously with Western Guaranty and against an employee.
d) Suretyship
Prudential Guarantee covering the same matter and the 2. Motor vehicle liability insurance — third party victim may
same risk, i.e., the policies uniformly cover re losses of proceed directly against the insurer for indemnity. Suretyship Insurance

or acts as a trustee for such retirement program shall be

Three parties: Principal, f ) Microinsurance
Two parties: Insurer and Insured considered a life insurance contract.
Obligee, Surety
A nancial product or service that meets the risk protection needs of
GR: Not a contract of indemnity. The measure of indemnity is the
Surety, in theory, expects no loss the poor where:
Loss is expected to occur sum xed in the policy. It is therefore a valued policy.
to occur a) The amount of contributions, premiums, fees or charges,
EXC: Unless the interest of a person insured is susceptible of exact
computed on a daily basis, does not exceed seven and a half
Surety has right of pecuniary measurement, i.e. a creditor insures the life of his
Insurer has NO such right from percent (7.5%) of the current daily minimum wage rate for
reimbursement against debtor based on the value of indebtedness.
the insured nonagricultural workers in Metro Manila; and
defaulting principal
Kinds of Life Insurance
b) The maximum sum of guaranteed bene ts is not more than
Surety guarantees the qualities 1) Whole Life — o ers permanent protection. Further classi ed 1000x of the current daily minimum wage rate for
Covers losses beyond the control
of the principal as to Character, as to mode of payment of premium: nonagricultural workers in Metro Manila. (§187)
of insured
Capacity, and Capital (3C’s)
a) Single Premium;
Kinds of Bonds b) Continuous Premium or Ordinary Life; g) Compulsory Motor Vehicle Liability Insurance
1) Fidelity Bond — answers for the loss of an employer who is c) Limited Payment Period. aka Compulsory Third Party Liability (CTPL)
the obligee, for the dishonesty of the employee;
2) Term — Insurer pays proceeds if insured dies within a It shall be unlawful for any land transportation operator or owner of a
2) Surety Bond. speci ed period; insured gets nothing if he survives the period. motor vehicle to operate the same in the public highways unless there is
Fidelity Guaranty Insurance — a contract whereby one, for a 3) Endowment Policy — proceeds shall be payable to the in force
consideration, agrees to indemnify the assured against loss arising from assured if he lives to a certain date; to the bene ciary if the 1. a policy of insurance or
the want of integrity, delity, or honesty of employees or other persons assured dies before said date.
holding positions of trusts. 2. guaranty
4) Industrial Life — premiums are payable either monthly or
Continuing Surety — In the case of a continuing bond, the obligor a. in cash bond or
oftener.
shall pay the subsequent annual premium as it falls due until the b. surety bond
5) Variable Life or Variable Unit-Linked (VUL) Insurance
contract of suretyship is cancelled.
Contractor Policy — see §238(a) on Variable Contract. to indemnify the death, bodily injury, and/or damage to property of a
third-party or passenger.
Accidental Death Benefit Clause
e) Life Coverage, Extent and Limit of Liability
Gives bene ciaries additional bene ts if the death of the insured is
Every contract or undertaking for the payment of annuities through accidental means. 1) Coverage — P100K (+ P100K if vehicle is for public utility);
including contracts for the payment of lump sums under a 2) Death Indemnity — P70K + P30K funeral expenses;
retirement program where a life insurance company manages
3) Limit — P100K or P200K per person/injury.

No Fault Indemnity Clause — Proof of fault or negligence is NOT not listed in the same Schedule of Indemnities is the total e) Subsistence allowance bene t, with at least US$100.00 per
necessary for payment of any claim if the following are established: amount of insurance coverage. month for a maximum of six (6) months for a migrant worker
who is involved in a case or litigation for the protection of
1) A claim may be made against ONE motor vehicle only; 4. Thus, the amounts in excess of the limits of liability in the
his/her rights in the receiving country;
schedule for items listed therein are not covered by the total
2) Total indemnity shall not exceed P15K;
coverage. f) Money claims arising from employer's liability which may be
3) Proofs of loss submitted under oath. awarded or given to the worker in a judgment or settlement of
4.1. Such excess is already for the personal account of
Transfer of ownership DOES NOT suspend the policy. (§395) his or her case in the NLRC. The insurance coverage for
the insured or an excess coverage provider.
money claims shall be equivalent to at least three (3) months
Claims Settlement
See Commercial Law Case Digest No. 6 for every year of the migrant worker's employment contract;
1) File within 6 months from date of accident, otherwise, deemed
(Section 37–A of RA No. 8042, as amended by RA No. 10022)
waived; h) Compulsory Insurance Coverage for Agency-Hired
Workers
2) File in court or with the Commissioner within 1 year from 4 Insurable Interest
denial of claim, otherwise, claimant’s right of action shall have Each migrant worker deployed by a recruitment or manning
prescribed. agency shall be covered by a compulsory insurance policy which shall ⭐Such an interest, arising from the relation of the party
be secured AT NO COST to said worker. obtaining the insurance, either as creditor of or surety for the
assured, or from ties of blood or marriage to him, as will justify a
Malayan Insurance v. Stronghold Insurance Such insurance policy shall be e ective for the duration of the migrant
28 Jun 2021 reasonable expectation of advantage or benefit from the continuance
worker's employment contract and shall cover, at the minimum:
of his life.
1. The purpose of CMVLI is to provide compensation for the a) Accidental death, with at least US$15K survivor's bene t
Its presence has the following purposes:
death or bodily injuries su ered by innocent third parties or payable to the migrant worker's bene ciaries;
passengers as a result of the negligent operation and use of 1) To reduce moral hazard — dishonesty or character defects in
b) Natural death, with at least US$10K survivor's bene t
motor vehicles. the individual that increases the chance of loss; and
payable to the migrant worker's bene ciaries;
2. Western Guaranty v. CA clari es the applicability of the 2) Helps in measuring the loss of the insured.
c) Permanent total disablement, with at least US$7.5K
limits provided in the Schedule of Indemnities to injuries E ect of lack of insurable interest. — If the insured has no
disability bene t payable to the migrant worker;
listed therein and allows claims for other kinds of damages insurable interest over the life or property he insures, the insurance
not otherwise indicated in the schedule against CMVLI d) Repatriation cost of the worker when his/her employment is
contract is UNENFORCEABLE.
policy providers, as long as liability is established and the terminated without any valid cause, including the transport of
requisites for the kind of damages claimed are present. his or her personal belongings. In case of death, the insurance If the contract is really a wager, then it is VOID for being against
provider shall arrange and pay for the repatriation or return of public policy.
3. The limit of liability with regard to the items listed in the
the worker's remains;
Schedule of Indemnities is the amount provided therein; In Life Insurance
the limit of liability with regard to other kinds of damages Every person has an insurable interest in the life and health:

a) Of himself, of his spouse and of his children; §16. A mere contingent or expectant interest in any thing, a) A shareholder over the properties of the
not founded on an actual right to the thing, nor upon any corporation;
b) Of any person on whom he depends wholly or in part for
valid contract for it, is NOT insurable.
education or support, or in whom he has a pecuniary b) Purchaser of a property in a judicial sale subject to
interest; §17. The measure of an insurable interest in property is the redemption.
extent to which the insured might be damni ed by loss or
c) Of any person under a legal obligation to him for the An heir has NO insurable interest over properties that he will
injury thereof.
payment of money, or respecting property or services, of inherit.
which death or illness might delay or prevent the performance; The TEST is whether one will
3) Expectancy, coupled with one existing out of which the
A creditor has an insurable interest over the life of his debtor, 1. Derive pecuniary bene t or advantage from its preservation; expectancy arises —
but not the other way around. OR
a) Interest over the pro ts that are to be earned by a
d) Of any person upon whose life any estate or interest vested 2. Su er pecuniary loss or damage from its destruction, business;
in him depends. (Sec 10 IC) termination, injury by the happening of the event insured
b) Future crops of farmers;
against.
For (b) - (d), the basis of insurable interest is NOT blood
c) Expected commission of agents;
relationship but PECUNIARY INTEREST. Kinds of Insurable Interest
d) Owner of a ship in expected freightage.
In Property Insurance 1) Existing —
Insurable Interest in Property vs. Life Insurance
§18. No contract or policy of insurance on property shall be a) Owner;
As to Property Life
enforceable except for the bene t of some person having b) Lessee;
an insurable interest in the property insured. Unlimited, except if secured
c) Depositary; Extent Limited up to value
§13. Every interest in property, whether real or personal, or by creditor
d) Usufructuary;
any relation thereto, or liability in respect thereof, of such
e) Borrower in commodatum; Perfection of contract
nature that a contemplated peril might directly damnify the
Time when AND at the time of Perfection of insurance
insured, is an insurable interest. f) Possessor holding the property without it must exist loss; Need not exist in contract
§14. An insurable interest in property may consist in: consideration with the consent of owner; between
a) An existing interest; g) An unpaid seller, even if ownership had already been
Expectation of Need not have legal basis or
transferred upon delivery; Need for
b) An inchoate interest founded on an existing interest; or bene t must have be based on legally
h) Vendee, even while the goods are still in transit. legal basis
c) An expectancy, coupled with an existing interest in legal basis enforceable obligation
that out of which the expectancy arises. 2) Inchoate, founded on an existing interest —

If insured took out the 7) When a policy is so framed that it will inure to the bene t of Under this rule, if an injured person receives compensation for his
policy on his own life and whomsoever, during the continuance of the risk, may become injuries from a source wholly independent of the tortfeasor, the
Bene ciary MUST
designated another — the owner of the interest insured. (Sec 57 IC) payment should NOT be deducted from the damages which he
HAVE insurable
Beneficiary’s NOT necessary would otherwise collect from the tortfeasor.
interest; otherwise, NB: The policy is AVOIDED, and not merely suspended, if there
interest
considered a is an express prohibition to alienate but the insured breached AQUINO: Applies in Life Insurance, but NOT in Property Insurance.
If one took out an
wagering contract the prohibition.
insurance on the life of
another — MUST HAVE 6 No Fault, Suicide, and Incontestability Clause
5 Double Insurance and Overinsurance
Assignee’s No Fault Indemnity Clause — Proof of fault or negligence is NOT
MUST HAVE NOT necessary necessary for payment of any claim if the following are established:
interest Double Insurance
1) A claim may be made against ONE motor vehicle only;
A double insurance exists where the same person is insured by several
GR: A change of interest in any part of a thing insured 2) Total indemnity shall not exceed P15K;
insurers separately in respect to the same subject and interest. Thus:
unaccompanied by a corresponding change of interest in the
1) The same person is insured; 3) Proofs of loss submitted under oath.
insurance, SUSPENDS the insurance to an equivalent extent,
until the interest in the thing and the interest in the insurance 2) There are two or more insurers that insured the person Suicide Clause
are vested in the same person. separately; The insurer is liable in case of suicide when it is committed
EXC: Will NOT suspend in the following cases: AFTER the policy has been in force for 2 years from date of issue
3) Over the same subject;
or last reinstatement.
1) In life, health, and accident insurance; 4) Involving the same interest; and
The insurer is still liable even before the two year period in any of
2) If there is a change in interest in the thing insured after the 5) The same peril is insured against. the following cases:
occurrence of the loss;
GR: NOT PROHIBITED; 1) When a shorter period is provided for;
3) If there is a change in interest in one or more of several things 2) When the suicide was committed in a state of insanity.
that are separately insured;
EXC: Other Insurance Clause.
Applicability of Incontestability Clause
4) Change of interest through succession; Overinsurance
If the insured dies within the two-year contestability period, the
5) Transfer of interest from one partner to another partner of If the insured takes out an insurance over the property insured in insurer is bound to make good its obligation under the policy,
interest over a property jointly insured; and an amount which is in excess of the value of the insurable regardless of the presence or lack of concealment or
interest. misrepresentation.
6) Transfer of interest from one joint or co-owner to another of
the jointly or co-owned property insured. Collateral Source Rule After the two-year period lapses, OR when the insured dies within
Here, the defendant is prevented from bene ting from the the period, the insurer must make good on the policy, even
plainti ’s receipt of money from other sources.

though the policy was obtained by fraud, concealment, or

6) The cause of the loss is an excepted risk; Delay in acceptance. — Mere delay in acceptance of the insurance
misrepresentation. (Sun Life of Canada v. Sibya 2016)
7) The bene ciary feloniously kills the insured; application will not result in a binding contract. However, in proper
The insurer CANNOT prove that the policy is void ab initio or is cases, the insurer may be liable for TORT.
rescindable by reason of the fraudulent concealment or 8) Bene ciary failed to comply with conditions subsequent, i.e.
failure to submit notice of loss; and Delivery of policy. — not necessary for perfection since an insurance
misrepresentation of the insured or his agent:
contract is consensual.
After a policy of life insurance made payable on the death of the 9) The claim is barred by extinctive prescription.
insured shall have been in force during the lifetime of the Premium payment
insured for a period of two (2) years from the date of its issue B Perfection of the Insurance Contract An insurer is entitled to payment of the premium as soon as the thing
or of its last reinstatement, insured is exposed to the peril insured against.
The incontestability clause applies if the following requisites are O er and acceptance; consensuality
GR: Cash and carry principle. No policy or contract of
present: Cognition Theory — An insurance contract is perfected the moment
insurance issued by an insurance company is valid and binding
1) The policy must be a Life Insurance policy; the o eror learns of the acceptance of his o er by the other party.
unless and until the premium thereof has been paid,
2) The policy is in force for 2 years from issue or last 1. The contract, to be binding from the date of application, must notwithstanding any agreement to the contrary.
reinstatement. (Manila Bankers Life Insurance Corp. v. Aban have been a completed contract. There can be no contract of
EXC: in the case of
2013) insurance unless the minds of the parties have met in
agreement. (Steamship Mutual Underwriting Association 1) A life or an industrial life policy whenever the grace period
What if the insured dies during the two-year period? The death
(Bermuda) Ltd. v. Sulpicio Lines 2017) provision applies;
of the insured within the two-year period will render the right of the
insurer to rescind nugatory. (Sun Life v. Sibya 2016) 2. An insurance contract can be entered into through an agent. Applies only when the policy had already been in force.
For example, a bank is an agent of the insurer if it o ers a 2) Whenever under the broker and agency agreements with duly
NB: This rule is quite controversial as the prevailing rule had been to
allow the lapse of the 2-year period first before the special type of savings and insurance account whereby the licensed intermediaries, a ninety (90)-day credit extension is
incontestability clause can be invoked. depositor has automatic insurance coverage for disability or given, which is non-extendible;
death. (BPI v. Laingo 2016)
The clause CANNOT be invoked in the following cases: 3) When there is an acknowledgment in the policy or receipt
3. However, there are cases when the insurer assumed the risk of that the premium has been paid;
1) Non-payment of premium;
loss without approving the application. This includes cases
2) Violation of the conditions of the policy relating to military or when the buyer of a memorial lot is deemed insured the 4) When there is an agreement that the premium shall be payable
naval service in times of war; moment it enters into a contract with the seller. (Eternal on installment; (Makati Tuscany Condo Corp v. CA) and
3) Property insurance; Gardens Memorial Park v. Phil. American Life Insurance 5) When the equitable doctrine of estoppel applies.
Corp.)
4) Absence of insurable interest; Effect of Non-payment
5) When VICIOUS fraud was employed in obtaining the policy, 1. The obligation of the insurer will NOT become valid and
i.e. fraudulent impersonation, scheme to murder insured; binding if the first premium has not been paid.

2. If the subsequent premiums have not been paid, the policies b) Automatic policy loan from the policy’s cash 2) Time policy. When the policy is surrendered before the
issued will be deemed to have been lapsed. Thus, the insurer surrender value; expiration of the stipulated time. Refund is pro rata;
has NO liability to indemnify.
c) Application of dividend; and 3) When the contract is voidable and subsequently annulled;
3. It does NOT give the insurer the right to sue or demand
d) Reinstatement clause. 4) The insurance contract is voidable due to the fraud or
payment from the insured.
misrepresentation of insurer or of his agent.
4. Will not create the vinculum juris between the parties. Reinstatement of a lapsed policy of life insurance
5) When the contract is annulled on account of
The stipulation in a life insurance policy giving the insured the
Devices to Prevent Lapse of Life Insurance Policy
privilege to reinstate it upon written application does not give the a) fraud or misrepresentation of the insurer or his agent, or
1) Grace Period; insured absolute right to such reinstatement by the mere ling of b) facts, or the existence of which the insured was ignorant of
2) Automatic Policy Loan — Cash surrender value is the an application. The insurer has the right to deny the without his fault.
amount of money the company agrees to pay to the reinstatement if it is not satis ed as to the insurability of the
6) When by any default of the insured other than actual fraud,
policyholder if he surrenders it and releases his claims upon it. insured and if the latter does not pay all overdue premium and all
the insurer never incurred liability under the policy; and
other indebtedness to the insurer. After the death of the insured
If at the end of the grace period the premium has not been
the insurance Company cannot be compelled to entertain an 7) When there is overinsurance.
paid, a policy loan will automatically be made from the
application for reinstatement of the policy because the 8) When rescission is granted due to the insurer’s breach of
policy’s cash value to pay the premium. This is to prevent
conditions precedent to reinstatement can no longer be contract.
unintentional lapse of the policy.
determined and satis ed. (Lalican v. The Insular Life Assurance)
3) Application of Dividend — in case of participating When NOT recoverable
The policyholder shall be entitled to have the policy reinstated at any
insurance policy, the insured is entitled to dividends that may 1) The risk has already attached, is entire and indivisible;
time within three (3) years from the date of default of premium
be available. The dividend shall be applied to the premiums
payment unless the cash surrender value has been duly paid, or the 2) In life insurance;
that are due or payable.
extension period has expired. There must be:
3) The contract is rescindable or rendered void ab initio due to
4) Reinstatement Clause — at any time within 3 years from
a) upon production of evidence of insurability satisfactory to the fraud of insured.
date of default subject to conditions:
the company and
a) Insured must prove insurability; and
b) payment of all overdue premiums and any indebtedness to Philam Insurance v. Parc Chateau Condominium 2019
b) Pay overdue premium. the company upon said policy. (Sec 233[j] IC)
WON Philam has NO right to recover the unpaid premium based on
Non-default options in life insurance Refund of premiums void and ineffective insurance policies.
1) To prevent the lapse of life insurance policy, the insured may Return of Premium YES. The Jumbo Risk Provision clearly indicates that failure to pay
avail of: in full any of the scheduled installments on or before the due date
1) When the thing was not exposed to the peril insured against;
a) Grace period; shall render the insurance policy void and ine ective as of 4 p.m. of

such date. Parc Association's failure to pay on the rst due date, a. Forfeited share shall pass on to other bene ciaries; a) alteration in the use or condition of a thing insured from
resulted in a void and ine ective policy as of 4 p.m. of November 30, that to which it is limited by the policy
b. If there are no other bene ciaries, or that they are also
2003. Hence, there is no credit extension to consider as the Jumbo
DQed, look at the policy contract; b) made without the consent of the insurer,
Risk Provision itself expressly cuts o the inception of the insurance
policy in case of default. c. If the contract is silent, proceeds go to the estate of the c) by means within the control of the insured, and
insured.
d) increasing the risks.
5. Grounds for DQ
Other Defenses of Insured Against Revocation
C Rights and Obligations of Parties a. Those made between persons who were guilty of adultery
1) Guaranteed Insurability Clause — statements that tend to
or concubinage at the time of donation; Conviction, not
1. The insurer is the party who promises to pay in case of loss. show that the insured is uninsurable cannot be used against
necessary.
him in the following cases:
2. The insured is either
b. Those made between persons found guilty of the same
a) If the insurance has been in force prior to the contest
a. The owner of the policy whose life or property is insured; criminal o ense, in consideration thereof;
for a period of 2 years during the person’s lifetime; or
Here, the insured and the owner of the policy is one c. Those made to a public o cer or his wife, descendants
b) If the statement is not in writing and/or not signed by
and the same. and ascendants, by reason of his o ce.
the insured.
b. One who took out the insurance over the life of persons in
2) Failure to invoke before commencement of action;
whom he has insurable interest. D Rescission of Insurance Contracts
3) Waiver;
Here, the owner of the policy is called the assured, 1) When representation is false on material point whether
while the person whose life is insured is the insured. a rmative or promissory; 4) Estoppel.
If the owner dies, the policy automatically vests in the 2) Violation of material warranty on the part of either party or Devices to Ascertain and Control Risks
insured, unless otherwise provided for in the policy. other material provisions of the policy; 1) Concealment;
3. A third person is the bene ciary whose favor the insurance 3) Intentional or unintentional concealment; 2) Representation;
was taken by the insured and who will receive the proceeds of 4) Violation of a special provision of the policy where the policy 3) Warranties;
the insurance. declares that violation thereof shall avoid the policy;
4) Conditions;
GR: Designation of bene ciary is REVOCABLE. 5) Intentional or fraudulent omission, on the part of one insured,
to communicate information of matters proving or tending to 5) Exception, Exclusion, or Exemption.
EXC: Unless, expressly designated as IRREVOCABLE.
prove the falsity of a warranty; and
Thus, an irrevocable bene ciary has VESTED rights over the 1 Concealment
policy. 6) With respect to fire insurance,
4. If a bene ciary is disquali ed:

§26. A neglect to communicate that which a party knows 2 Misrepresentation or Omissions 1) When there is waiver;
and ought to communicate, xxx.
2) When an action has already been commenced on the
§27. xxx whether intentional or unintentional entitles the
Representation contract; and
injured party to rescind a contract of insurance. Statements made to give information to the insurer to induce him to
3) When the incontestability clause applies.
enter into the insurance contract.
Thus, good faith is NOT a defense.
1. It is a collateral communication 3 Breach of Warranties
§28. Each party to a contract of insurance must communicate
to the other, in good faith, all facts 2. Made at the time of, or before, issuance of the policy, oral or
written. Warranty
1. within his knowledge
1. An a rmation of fact or a promise that forms part of the
EXC: It may also be one that induces the party to modify
2. which are material to the contract and terms and conditions of the policy.
the contract.
3. as to which he makes no warranty, and 2. It is a statement or promise set forth in the policy, or by
Concealment Representation reference incorporated therein, the untruth or non-ful llment,
4. which the other has not the means of ascertaining.
renders the policy voidable by the insurer.
The test of materiality is the e ect which the knowledge of the fact Involves an omission — Involves a positive assertion or
non-disclosure a rmation 3. It is either expressed or implied.
in question would have on the making of the contract. The fact need
not increase the risk or contribute to any loss or damage. It is 4. A statement of a matter relating to the person or thing
Can pertain to the future, if insured, or to the risk, as fact, is an express warranty.
su cient if the knowledge of it would influence the parties in Cannot refer to future acts
promissory
making the contract. a. It must be contained in the policy; or
The matter concealed NEED NOT be the cause of the loss. Same test of materiality for both
b. Expressed in another instrument provided that such is
Requisites to rescind on ground of concealment Ground for rescission signed by the insured and referred to in the policy.
1) The party involved must know, or ought to know, the 5. It may relate to the past, the present, the future, or to any or
fact concealed; The Insurance Code dispenses with proof of fraudulent intent in all of these.
cases of rescission due to concealment, but not so in cases of
2) The fact concealed must be material; rescission due to false representations. (The Insular Life v. Heirs 6. Promissory warranty is a statement which imparts that it is
of Alvarez 2018) intended to do or not to do a thing which materially a ects the
3) No warranty is extended by the party regarding the fact
risk.
concealed; and IOW: Fraudulent intent is required to rescind an insurance
4) The other party does not have the means of contract due to false representations; but NOT if the GR: Rescission is available only if the breach is on a material
ascertaining. ground is concealment. warranty.
When Rescission UNAVAILABLE

of the existence of another insurance coverage of the same

EXC: Even if the provision is immaterial, a policy may declare that a Extent of Liability for Damages
property. Otherwise, the policy is null and void.
violation of such avoids the policy, thereby converting the
provision into a material one. The Montreal Convention of 1999
Exception, Exclusion, or Exemption
§76. A breach of warranty without fraud merely These should be expressed in the policy in clear and unmistakable Applicability
exonerates an insurer from the time that it occurs, or where it language.
is broken in its inception, prevents the policy from attaching Extent of Liability of Air Carrier
to the risk.
IV Transportation Law
A Common Carriers
Warranty Representation
Common Carriers
Common carriers are
Not part of the contract but a
Part of the contract Diligence Required 1. persons, corporations, rms or associations
collateral inducement
Liabilities 2. engaged in the business of carrying or transporting passengers
Written on a policy or its rider May be oral or written
or goods or both,
Vigilance Over Goods
Must be established to be 3. by land, water, or air,
Presumed to be material
material Exempting Causes 4. for compensation,
There must be strict compliance Must be substantially true Contributory Negligence 5. o ering their services to the public.
A common carrier is one that holds itself out as ready to engage in
Conditions Duration of Liability
the transportation of goods for hire as a public employment and not as
Are in the nature of collateral terms. They include: a casual occupation.
Stipulation for Limitation of Liability
1) Promises or obligations regarding claims procedure that The TRUE TEST for a common carrier is NOT the quantity or
are not fundamental to the validity of the contract; and Liability for Baggage of Passengers extent of business actually transacted, or the number and character of
2) Conditions conferring more rights to the insurer enlarging the conveyances used in the activity, but whether the undertaking is
Safety of Passengers
or repeating the minimum rights provided by law. a part of the activity engaged in by the carrier that he has held
Void Stipulations out to the general public as his business or occupation.
May be either condition precedent like payment of premium or
condition subsequent like giving notice of loss. Thus, the CHARACTERISTICS of a common carrier are
Duration of Liability determined following these principles:
An example is an “Other Insurance Clause” wherein it may be
expressly provided as a condition that the insured must give notice Liability for Acts of Others 1) Art 1732 makes no distinction between one whose principal
business activity is the carrying of persons or goods or both,

and one who does such carrying only as an ancillary activity,

Diligence That of a good father of g) Tramp service. — the operation of a contract carrier which
or “sideline”. Extraordinary
required the family
i) has no regular and xed routes and schedules
2) Art 1732 makes no distinction as to the regularity of the
Presumption ii) but accepts cargo wherever and whenever the shipper
o er of such service.
of negligence
✔ ✘ desires,
3) Art 1732 does not distinguish between a carrier o ering its
services to the “general public”, and one to a narrow segment Provisions on Common iii) Is hired on a contractual basis,
of the general population. Governing Carriage of the NCC + Provisions on ordinary iv) Or chartered by any one or few shippers under
4) No need to secure a Certi cate of Public Convenience. law Public Services Act + contracts of the NCC mutually agreed terms
Special Transpo Laws
5) Transportation may be by land, water or air. v) And usually carries bulk or break bulk cargoes.
Exemption Those engaged in tramp services may also be considered
6) Transportation need not be by motor vehicle.
from CANNOT stipulate MAY stipulate common carriers depending on the circumstances.
Thus, a pipeline operator is considered a common carrier. Liability
7) No need to have a xed and publicly known route, nor 1 Diligence Required
a) Travel agent. Not an entity engaged in the business of
maintain terminals and issue tickets.
transporting either passengers or goods and is therefore, Common carriers, from the nature of their business and for reasons of
8) Need not be engaged in the business of public transportation. neither a private nor a common carrier. (Crisostomo v. CA) public policy, are bound to observe extraordinary diligence
9) Need not own the vehicle or vessel that he or she operates. b) Pipeline operators are common carriers because 1. in the vigilance over the goods and
NB: Under Sec 7 of RA 10668, foreign vessels engaging in transportation need not be by motor vehicle.
2. for the safety of the passengers
carriage conducted in accordance with the said law shall not c) Customs brokers have been regarded as COMMON carriers
be considered common carriers and are not o ering to the transported by them, according to all the circumstances of each case.
because transportation of goods is an integral part of their
public. business.
2 Liabilities
d) Towage is the bringing of one vessel from a port to another.
As to Common Carrier Private Carrier
Here, there is NO transportation to speak of. GR: Common carriers cannot lawfully decline to accept a
Undertaking At least occasional Single transaction particular class of goods.
e) Arrastre undertakes to transport goods from the ship's side to
the warehouse of the consignee. Such is NOT a common EXC:
Part of general business
Part of NOT part of general carrier but the diligence required is still extraordinary.
or occupation; may also 1) Goods are dangerous objects, or substances including
business business or occupation
be ANCILLARY f) Stevedoring is the carriage of goods within the holds of the explosives;
vessel or from the ship’s tackle to the cargo hold. Also NOT a 2) Goods are un t for transportation;
Fee Gratuitous or for a fee Gratuitous or for a fee common carrier.
3) Acceptance would result in overloading;

4) Contrabands or illegal goods; Absence of delay. If the common carrier negligently incurs in
There is no need to rely on the presumption of the law that a
delay in transporting the goods, a natural disaster shall not free
5) Goods are injurious to health; common carrier is presumed to have been at fault or have acted
such carrier from responsibility. (Art 1740)
negligently in case of damaged goods. This is because the delay in
6) Goods will be exposed to untoward danger like ood, capture
the release of the goods was through no fault of 2100 CBI. Due diligence to prevent or lessen the loss. In order that the
by enemies, and the like;
The damage was caused by the late payment of the funds needed for common carrier may be exempted from responsibility, the
7) Goods like livestock will be exposed to diseases; the release of the goods from the custody of BOC which was natural disaster must have been the proximate and only
8) Strike; AND originally TSPIC's responsibility. cause of the loss.
9) Failure to tender goods on time. Under Art 1745 (6), a common carrier is held responsible — and
will not be allowed to divest or to diminish such responsibility —
2100 Customs Brokers, Inc. v. B Vigilance Over Goods even for acts of strangers like thieves or robbers, except where such
2020
Philam Insurance Company thieves or robbers in fact acted "with grave or irresistible threat,
The consignee is the person to whom the goods are to be delivered.
violence or force."
WON a Marine Cargo Certificate may include goods transported by 1. He may be the shipper himself.
air. The loss here was not attended by grave or irresistible threat,
2. He may also be a third person who is not a party to the violence, or force. Instead, it was brought about by petitioner's
YES. Simply because the word "marine" was used in Marine Cargo contract of carriage. failure to exercise extraordinary diligence when she neglected
Certi cate does not mean that TSPIC availed the wrong insurance vetting her driver or providing security for the cargo and failing to
policy for its cargo transported through airplane. 1 Exempting Causes take out insurance on the shipment's value. (Tan v. Great Harvest
Section 101(a)(2) of RA 10607 provides that the scope of marine Enterprises 2019)
Common carriers are responsible for the loss, destruction, or
insurance includes inland marine insurance and covers over the land
deterioration of the goods, unless the same is due to any of the
transportation perils of property shipped by airplanes. 2 Contributory Negligence
following causes only:
WON the insurance policy must be presented to establish the liability 1) Contributory negligence is conduct on the part of the
1) Flood, storm, earthquake, lightning, or other natural
of the common carrier to Philam. plainti which falls below the standard to which he should
disaster or calamity;
YES. The original copy of the insurance policy is the best proof of conform for his own protection and which is legally
2) Act of the public enemy in war, whether international or contributing cause, cooperating with the negligence of the
its contents. The contract of insurance must be presented in
civil; defendant in bringing about the plainti 's harm.
evidence to indicate the extent of its coverage.
3) Act or omission of the shipper or owner of the goods; 2) Contributory negligence on the part of the shipper is NOT
WON 2100 CBI was negligent in handling the shipment of TSPIC,
thus making it liable for damages. 4) The character of the goods or defects in the packing or in a defense that will excuse the carrier from liability. It will only
the containers; MITIGATE such liability.
NO. 2100 CBI was not negligent in handling the shipment of
TSPIC. 5) Order or act of competent public authority.

3) For a common carrier to be absolved from liability in case of b) Temporary Unloading or Storage 1) That the goods are transported at the risk of the owner or
force majeure, it is not enough that the accident was caused by shipper;
1. The common carrier's duty to observe extraordinary diligence
a fortuitous event. The common carrier must still prove that it
over the goods remains in full force and e ect even when they 2) That the common carrier will not be liable for any loss,
did not contribute to the occurrence of the incident due to its
are temporarily unloaded or stored in transit, destruction, or deterioration of the goods;
own or its employees' negligence. (Sulpicio Lines v. Sesante
2016) unless the shipper or owner has made use of the right of 3) That the common carrier need not observe any diligence in
stoppage in transitu. (Art 1737) the custody of the goods;
4) When there is NO contributory negligence. The
responsibility to avoid the collision with the front vehicle lies 2. The extraordinary liability of the common carrier continues to 4) That the common carrier shall not be responsible for the acts
with the driver of the rear vehicle. Consequently, no other be operative even during the time the goods are stored in a or omission of his or its employees;
person was to blame but the victim himself since he was the warehouse of the carrier at the place of destination, until the 5) That the common carrier's liability for acts committed by
one who bumped his motorcycle into the rear of the Isuzu consignee thieves, or of robbers who do not act with grave or irresistible
truck. He had the last clear chance of avoiding the accident. a) has been advised of the arrival of the goods and threat, violence or force, is dispensed with or diminished;
(Raynera v. Hiceta)
b) has had reasonable opportunity thereafter to remove 6) That the common carrier is not responsible for the loss,
5) When there is contributory negligence. The proximate them or otherwise dispose of them. (Art 1738) destruction, or deterioration of goods on account of the
cause of the death of the victim is the negligence of petitioner's defective condition of the car, vehicle, ship, airplane or other
bus driver, with the contributory negligence of the driver and equipment used in the contract of carriage.
4 Stipulation for Limitation of Liability
owner of the jeepney. (Travel & Tours Advisers v. Cruz, Sr., et
al 2016) A stipulation between the common carrier and the shipper or owner b) Limitation of Liability to Fixed Amount
6) The operator of a school bus service is a common carrier limiting the liability of the former for the loss, destruction, or A stipulation that the common carrier's liability is limited to the
in the eyes of the law. (Sps Perena v. Sps Zarate 2012) deterioration of the goods to a degree less than extraordinary diligence value of the goods appearing in the bill of lading, unless the
shall be VALID, provided it be: shipper or owner declares a greater value, is binding.
3 Duration of Liability 1) In writing, signed by the shipper or owner; A contract xing the sum that may be recovered by the owner or
2) Supported by a valuable consideration OTHER than the shipper for the loss, destruction, or deterioration of the goods is
a) Actual or Constructive Liability VALID, if it
service rendered by the common carrier; and
The extraordinary responsibility of the common carrier lasts 1. is reasonable and just under the circumstances, and
3) Reasonable, just and not contrary to public policy.
1. from the time the goods are unconditionally placed in the 2. has been fairly and freely agreed upon.
possession of, and received by the carrier for transportation a) Void Stipulations
2. until the same are delivered, actually or constructively, by the Any of the following or similar stipulations shall be considered
carrier to the consignee, or to the person who has a right to unreasonable, unjust and contrary to public policy:
receive them. (Art 1736)

c) Limitation of Liability in Absence of Declaration 5. The hotel-keeper cannot free himself from responsibility 1. A stipulation limiting the liability of the carrier for the injuries
of Greater Value by posting notices to the e ect that he is not liable for the to paying passengers is VOID.
articles brought by the guest.
A stipulation that the common carrier's liability is limited to the 2. The common carrier's responsibility pertaining to acts of its
value of the goods appearing in the bill of lading, unless the a) Checked-In Baggage employees as well as to the safety of its passengers in general
shipper or owner declares a greater value, is binding. (Art 1749) cannot be eliminated or limited by stipulation, by the posting
The rules applicable to goods that are being shipped are applicable
of notices, by statements on the tickets or otherwise.
to baggage delivered to the custody of the carrier as an incident of a
5 Liability for Baggage of Passengers contract of carriage of passenger.
2 Duration of Liability
The provisions of Articles 1733 to 1753 shall apply to the passenger's
b) Hand-Carried Baggage
baggage which is not in his personal custody or in that of his Such duty of a common carrier to provide safety to its passengers
employee. As to other baggage, the rules on deposit concerning the The rules on necessary deposit applies. Thus, the passenger is so obligates it not only during the course of the trip but for so
responsibility of hotel-keepers shall be applicable. duty bound to: long as the passengers are within its premises and where they
1) Give notice to the common carrier or its employees, of the ought to be in pursuance to the contract of carriage. The statutory
1. The keepers of hotels or inns shall be responsible for them as
e ects brought by the passenger; AND provisions render a common carrier liable for death of or injury to
depositaries, provided that notice was given to them and
passengers
that the guests take the precautions relative to the care and 2) To take the precautions which the common carrier or
vigilance of their e ects. their substitutes advised relative to the care and vigilance a) through the negligence or wilful acts of its employees or
2. The responsibility shall include the loss of, or injury to the of their e ects. b) on account of wilful acts or negligence of other passengers
personal property of the guests caused by the servants or The law requires the common carrier to observe the same or of strangers if the common carrier’s employees through
employees of the keepers of hotels or inns as well as strangers; diligence as the hotel keepers in case the baggage remains with the exercise of due diligence could have prevented or
but not that which may proceed from any force majeure. the passenger; otherwise, extraordinary diligence must be exercised. stopped the act or omission. (LRTA v. Navidad)
3. The act of a thief or robber, who has entered the hotel is not (Sulpicio Lines v. Sesante 2016)
deemed force majeure, unless it is done with the use of
3 Liability for Acts of Others
However, common carriers are still duty-bound to observe
arms or through an irresistible force. extraordinary diligence even for hand carried luggage.
a) Employees
4. The hotel-keeper is NOT liable for compensation if the loss
Generally, when an injury is caused by the negligence of a servant
C Safety of Passengers
a. is due to the acts of the guest, his family, servants or or employee, there instantly arises a presumption of law that there
visitors, or Under Article 1758 of the NCC, when a passenger is carried was negligence on the part of the master or employer either in the
b. arises from the character of the things brought into gratuitously, a stipulation limiting the common carrier’s liability selection of the servant or employee or in the supervision over him
the hotel. is VALID. after the selection, or both. (Mendoza v. Sps Gomez 2014)
1 Void Stipulations

The registered owner is deemed the employer of the driver and is The passenger or his heirs can recover not only actual damages, association of persons obligates themselves to transport
thus vicariously liable under Article 2176 in relation with 2180 of but also consequential or compensatory damages: persons, things, or goods from one place to another for a
the Civil Code. (Filcar Transport Services v. Espinas 2012) xed price.
a) Loss of earning capacity — 2/3 x (80 – age at time
b) Other Passengers and Strangers of death) x Net Earnings; 3. Considering that a contract of carriage is vested with public
interest, a common carrier is presumed to have been at fault
A common carrier is responsible for injuries su ered by a passenger b) Straight death indemnity of P50K under Art 2206;
or to have acted negligently in case of lost or damaged
on account of the wilful acts or negligence of other passengers c) Moral damages + Attorney’s fees. goods unless they prove that they observed extraordinary
or of strangers, if the common carrier's employees through the
2) Moral Damages diligence.
exercise of the diligence of a good father of a family could have
prevented or stopped the act or omission. Recoverable if the cases under Art 2219 of the NCC are the 4. In an action based on a breach of contract of carriage, the
proximate result of the breach of contract of carriage. aggrieved party does not need to prove that the common
In Pilapil v. CA, the Court clari ed that where the injury sustained
Recoverable only when carrier was at fault or was negligent.
by the passenger was in no way due
a) Death of passenger results; or 4.1. He or she is only required to prove the existence of
1) to any defect in the means of transport or in the method
the contract and its non-performance by the
of transporting, or b) The carrier was guilty of fraud and bad faith even if
carrier.
death does not result.
2) to the negligent or willful acts of the common carrier's
5. Here, KLM breached its contract with Dr. Tiongco when it
employees with respect to the foregoing — Without the award of moral damages, award of exemplary
failed to deliver his checked-in suitcase at the designated
damages and attorney’s fees is improper.
such as when the injury arises wholly from causes created by place and time.
strangers which the carrier had no control of or prior 3) Exemplary Damages
5.1. KLM's liability for the lost suitcase was su ciently
knowledge to prevent — there would be no issue regarding the May be awarded only if the defendant had acted in a wanton, established as it failed to overcome the
common carrier's negligence in its duty to provide safe and suitable fraudulent, reckless, oppressive or malevolent manner. presumption of negligence.
care, as well as competent employees in relation to its transport
business; as such, the presumption of fault/negligence foisted 4) Attorney’s Fees and Interest. 6. KLM also acted in bad faith. Nobody from KLM's
under Article 1756 of the Civil Code should not apply. (G.V. personnel updated him on what happened to the search.
Florida v. Heirs of Battung 2015) KLM v. Tiongco 04 Oct 2021
7. The bad faith on the part of KLM as found by the RTC
Liability for temperate damages may NOT be limited to that and the CA thus renders the same liable for moral and
4 Extent of Liability for Damages prescribed in Article 22(2) of the Warsaw Convention, as amended by exemplary damages.
the Hague Protocol, in the presence of bad faith. 8. Kierulf v. CA pronounced that "the social and nancial
Recoverable damages
1. KLM is liable for breach of contract of carriage. standing of a claimant of moral damages may be considered
1) Actual and Consequential Damages in awarding moral damages only if he or she was subjected
2. A contract of carriage is one whereby a certain person or
to contemptuous conduct despite the o ender's knowledge

of his or her social and nancial standing." 3) International carriage means any carriage in which, 2 Extent of Liability of Air Carrier
according to the agreement between the parties, the place of
9. KLM is liable for temperate, NOT nominal, damages.
departure and the place of destination, whether or not there be a) Death or Injury of Passenger
9.1. Temperate damages or moderate damages, a break in the carriage or a transhipment, are situated either 1. In case of death or bodily injury of a passenger — the
which are more than nominal but less than
a) within the territories of two States Parties, or accident which caused the death or injury took place
compensatory damages, may be recovered when
the court nds that some pecuniary loss has been b) within the territory of a single State Party if there is an a. on board the aircraft or
su ered but its amount cannot, from the nature of agreed stopping place within the territory of another b. in the course of any of the operations of embarking or
the case, be provided with certainty. State, even if that State is not a State Party. disembarking.
10. KLM's liability for temperate damages may not be limited 4) Carriage between two points within the territory of a single For damages not exceeding 100,000 Special Drawing
to that prescribed in Article 22(2) of the Warsaw State Party without an agreed stopping place within the Rights for each passenger, the carrier shall not be able to
Convention, as amended by the Hague Protocol, in the territory of another State is NOT international carriage. exclude or limit its liability.
presence of bad faith.
5) Carriage to be performed by several successive carriers is The carrier shall NOT be liable for damages to the extent that
11. As aptly held in Northwest Airlines, Inc. v. CA, citing deemed to be one undivided carriage if it has been regarded they exceed for each passenger 100,000 Special Drawing
Alitalia: The Convention's provisions do not "regulate or by the parties as a single operation, whether it had been agreed Rights if the carrier proves that:
exclude liability for other breaches of contract by the upon under the form of a single contract or of a series of
carrier" or misconduct of its o cers and employees, or for contracts, and it does not lose its international character a. such damage was not due to the negligence or other
some particular or exceptional type of damage. merely because one contract or a series of contracts is to be wrongful act or omission of the carrier or its servants
performed entirely within the territory of the same State. or agents; or
See Commercial Law Case Digest No. 4 b. such damage was solely due to the negligence or other
6) Carriage by Air Performed by a Person other than the wrongful act or omission of a third party.
Contracting Carrier. —
b) Lost or Delayed Baggage
D The Montreal Convention of 1999 a) A person (“the contracting carrier”) as a principal
makes a contract of carriage with a passenger or 1. In case of destruction or loss of, or of damage to, checked
consignor or with a person acting on behalf of the baggage — the event that caused the destruction, loss or
passenger or consignor, and damage took place
1 Applicability
b) Another person (“the actual carrier”) performs, by a. on board the aircraft or
1) To ALL international carriage of persons, baggage or cargo
virtue of authority from the contracting carrier, the b. during any period within which the checked baggage
performed by aircraft for reward.
whole or part of the carriage, but is NOT with respect was in the charge of the carrier.
2) It applies equally to gratuitous carriage by aircraft performed to such part a successive carrier.
by an air transport undertaking.

However, the carrier is NOT liable if and to the extent that the Nevertheless, the carrier shall NOT be liable for damage Intellectual Property Code
damage resulted from the inherent defect, quality or vice of occasioned by delay if it proves that it and its servants and V
the baggage. agents took all measures that could reasonably be required to Intellectual Property Code of the Philippines
avoid the damage or that it was impossible for it or them to
The liability of the carrier is limited to 1,000 Special The term "intellectual property rights" consists of:
take such measures.
Drawing Rights for each passenger unless the passenger has
made, at the time when the checked baggage was handed over In the carriage of persons, the liability of the carrier for each a) Copyright and Related Rights;
to the carrier, a special declaration of interest in delivery at passenger is limited to 4,150 Special Drawing Rights. b) Trademarks and Service Marks;
destination and has paid a supplementary sum
5. The Special Drawing Right (SDR) is an interest-bearing c) Geographic Indications;
2. In the case of unchecked baggage — the carrier is liable if the international reserve asset created by the IMF. It is based on a
d) Industrial Designs;
damage resulted from its fault or that of its servants or agents. basket of international currencies comprising the U.S. dollar,
Japanese yen, euro, pound sterling and Chinese Renminbi. It e) Patents;
3. In the event of the destruction or loss of, or damage to, cargo
is not a currency, nor a claim on the IMF, but is potentially f) Layout-Designs (Topographies) of Integrated Circuits; and
— the event which caused the damage so sustained took place
a claim on freely usable currencies of IMF members. The value
during the carriage by air. However, the carrier is NOT liable g) Protection of Undisclosed Information
of the SDR is set daily by the IMF on the basis of xed
if such event resulted from one or more of the following:
currency amounts of the currencies included in the SDR Copyright Patent Trademark
a. inherent defect, quality or vice of that cargo; basket and the daily market exchange rates between the
currencies included in the SDR basket. Literary and Any visible sign
b. defective packing of that cargo performed by a person Any technical
artistic works capable of
other than the carrier or its servants or agents; 6. A carrier may stipulate that the contract of carriage shall be solution of a
which are distinguishing
c. an act of war or an armed con ict; subject to higher limits of liability than those provided for in problem in any
original the goods or
this Convention or to no limits of liability whatsoever. eld of human
d. an act of public authority carried out in connection intellectual services of an
activity which is
with the entry, exit or transit of the cargo. 7. Any provision tending to relieve the carrier of liability or to Scope creations in the enterprise and
new, involves an
x a lower limit than that which is laid down in this literary and shall include a
The liability of the carrier is limited to a sum of 17 Special inventive step,
Convention shall be NULL and VOID. artistic domains stamped or
Drawing Rights per kg, unless the consignor has made, at and is
protected from marked
the time when the package was handed over to the carrier, a 8. Prescription. — The right to damages shall be extinguished if industrially
the moment of container of
special declaration of interest in delivery at destination and an action is not brought within a period of two (2) years, applicable.
their creation. goods.
has paid a supplementary sum. reckoned from the date of arrival at the destination, or from
the date on which the aircraft ought to have arrived, or from Optional;
4. Delay. — The carrier is liable for damage occasioned by delay Where to
the date on which the carriage stopped. National Library IPO IPO
in the carriage by air of passengers, baggage or cargo. register
or IPO

Generally up to no artistic design or value. Non-Patentable Inventions

20 years from
50 years after
Duration ling or priority 10 years Trademark, copyright and patents are di erent intellectual
the death of the Ownership of a Patent
date property rights that cannot be interchanged with one
author.
another. a) Right to a Patent
Exclusive Yes, A trademark is any visible sign capable of distinguishing the goods
No, National No, National b) First-to-File Rule
Right to International (trademark) or services (service mark) of an enterprise and shall
Exhaustion Exhaustion
Import Exhaustion include a stamped or marked container of goods. In relation c) Invention Created Pursuant to a Commission
thereto, a trade name means the name or designation identifying or
distinguishing an enterprise. d) Right of Priority
Ching v. Salinas, et. al.
Meanwhile, the scope of a copyright is con ned to literary and Grounds for Cancellation of a Patent
WON the Utility Model, described as “Leaf Spring Eye Bushing for artistic works which are original intellectual creations in the literary
Automobile” is copyrightable. and artistic domain protected from the moment of their creation. Remedy of the True and Actual Inventor
NO. Ownership of copyrighted material is shown by proof of Patentable inventions, on the other hand, refer to any technical Rights Conferred by a Patent
originality and copyrightability. A “work of applied art” is an solution of a problem in any eld of human activity which is new,
artistic creation with utilitarian functions or incorporated in involves an inventive step and is industrially applicable. Limitations of Patent Rights
a useful article, whether made by hand or produced on an
industrial scale. Patents a) Prior User
It bears stressing that the focus of copyright is the usefulness of the Trademarks b) Use by Government
artistic design, and not its marketability. The central inquiry is
whether the article is a work of art. Indeed, while works of Copyright Patent Infringement
applied art, original intellectual, literary and artistic works are
copyrightable, useful articles and works of industrial design are
a) Tests in Patent Infringement
not. A useful article may be copyrightable only if and only to
A Patents
b) Defenses in Action for Infringement
the extent that such design incorporates pictorial, graphic, or Patentable Inventions
sculptural features that can be identi ed separately from, and Licensing
are capable of existing independently of the utilitarian aspects a) Novelty
of the article. a) Voluntary
b) Inventive Step
In this case, the petitioner’s models are not works of applied art, nor b) Compulsory
artistic works. They are utility models, useful articles, albeit with c) Industrial Applicability

applicant on the ground of lack of novelty if such disclosure was

Assignment and Transmission of Rights 1. Is new,
made by:
2. involves an inventive step and
a) The inventor;
Basic Patent Principles 3. is industrially applicable.
also means any person who, at the ling date of application,
1. Territoriality — patents are only valid in the country or A patentable invention may be, or may relate to, a product, or had the right to the patent.
region in which they have been granted; process, or an improvement of any of the foregoing. (§21) b) A patent o ce and the information was contained
2. First-to-File — applicant who les rst gets the patent; The patent law has a three-fold purpose: i) in another application led by the inventor, or
3. Disclosure — applicant shall disclose the invention in a
1. first, it seeks to foster and reward invention; ii) in an application led without the knowledge or
manner su ciently clear and complete;
2. second, it promotes disclosures of inventions; consent of the inventor by a third party which
Quid pro quo – protection in exchange for disclosure; obtained the information directly or indirectly from
3. third, seeks to ensure that ideas in the public domain
4. Conditional — patents are granted only upon compliance the inventor; or
remain therefor the free use of the public.
with the criteria of patentability; c) A third party which obtained the information directly or
5. Limited Rights. a) Novelty indirectly from the inventor.
— it must NOT form part of a prior art; Filing Date
Elements of Patentability
Prior Art The ling date of a patent application shall be the date of receipt
1) Novelty — it must NOT form part of a prior art;
1) Everything which has been made available to the public by the O ce of at least the following elements:
2) Inventive Step — if, having regard to prior art, it is not
anywhere in the world, before the filing date or the priority date a) An express or implicit indication that a Philippine patent
obvious to a person skilled in the art at the time of the ling
of the application claiming the invention; and is sought;
date or priority date of the application claiming the invention.
2) The whole contents of an application for a patent, utility b) Information identifying the applicant; and
Someone who is aware or presumed to have knowledge in the
model, or industrial design registration, published in
specific industry where the invention is engaged in. Not c) Description of the invention and one (1) or more claims
accordance with this Act, led or e ective in the Philippines,
necessarily an expert. in Filipino or English.
with a ling or priority date that is earlier than the ling or
3) Industrial Applicability — can be produced and used in priority date of the application. If any of these elements is not submitted within the period set by
any industry. Non-Prejudicial Disclosure the Regulations, the application shall be considered withdrawn.
1 Patentable Inventions The disclosure of information contained in the application during b) Inventive Step
the twelve (12) months preceding the ling date or the — if, having regard to prior art, it is not obvious to a person
Patent refers to the right granted by statute in favor of the
priority date of the application shall NOT prejudice the skilled in the art at the time of the ling date or priority date of
inventor of a product or process referring to any technical
solution of a problem in any eld of human activity which the application claiming the invention.

Someone who is aware or presumed to have knowledge in the This provision shall not apply to micro-organisms and c) Invention Created Pursuant to a Commission
specific industry where the invention is engaged in. Not non-biological and microbiological processes.
The person who commissions the work shall own the patent, unless
necessarily an expert.
5. Aesthetic creations; and otherwise provided in the contract.
c) Industrial Applicability 6. Anything which is contrary to public order or morality. In case the employee made the invention in the course of his
— can be produced and used in any industry. employment contract, the patent shall belong to:
3 Ownership of a Patent
a) The employee, if the inventive activity is NOT a part of his
2 Non-Patentable Inventions regular duties even if the employee uses the time, facilities and
a) Right to a Patent
The following shall be excluded from patent protection: materials of the employer.
The right to a patent belongs to
1. Discoveries, scienti c theories and mathematical b) The employer, if the invention is the result of the
1. The inventor, his heirs, or assigns; performance of his regularly-assigned duties, unless there is an
methods, and
2. When two (2) or more persons have jointly made an agreement, express or implied, to the contrary. (§30)
In the case of drugs and medicines,
invention, the right to a patent shall belong to them jointly.
d) Right of Priority
a. the mere discovery of a new form or new property
3. If two (2) or more persons have made the invention separately
of a known substance which does not result in the An application for patent led by any person who has previously
and independently of each other, the right to the patent shall
enhancement of the known efficacy of that substance, applied for the same invention in another country which by treaty,
belong to the person who led an application for such
or convention, or law a ords similar privileges to Filipino citizens, shall be
invention;
considered as led as of the date of ling the foreign application:
b. the mere discovery of any new property or new use
4. Where two or more applications are led for the same Provided, That:
for a known substance, or
invention, to the applicant who has the earliest filing date
a) the local application expressly claims priority;
c. the mere use of a known process unless such known or, the earliest priority date. (§28-29)
process results in a new product that employs at least b) it is led within twelve (12) months from the date the
one new reactant. b) First-to-File Rule earliest foreign application was led; and
If two (2) or more persons have made the invention separately and c) a certi ed copy of the foreign application together with an
2. Schemes, rules and methods of performing mental acts,
independently of each other, the right to the patent shall belong to English translation is led within six (6) months from the
playing games or doing business, and programs for computers;
1. the person who led an application for such invention, OR date of ling in the Philippines. (§31)
3. Methods for treatment of the human or animal body by
surgery or therapy and diagnostic methods practiced on the 2. where two or more applications are led for the same
E.I. Dupont de Nemours and Co. v. Francisco 2016
human or animal body. invention,
4. Plant varieties or animal breeds or essentially biological process a. to the applicant who has the earliest ling date OR, WON the CA erred in allowing the intervention of respondent
for the production of plants or animals. Therapharma, Inc. in petitioner's appeal.
b. the earliest priority date. (§29)

using the process, and from manufacturing, dealing in, using,

NO. The mandatory disclosure requirement in the TRIPS selling or o ering for sale, or importing any product obtained
Agreement precipitated the shift from a rst-to-invent system to a 4 Grounds for Cancellation of a Patent directly or indirectly from such process.
rst-to- le system in the new IPC. The patent application is
a) That what is claimed as the invention is not new or Patent owners shall also have the right
only confidential BEFORE its publication.
patentable; c) to assign, or transfer by succession the patent, and
WON the abandoned patent application of petitioner may be revived
b) That the patent does not disclose the invention in a manner d) to conclude licensing contracts for the same. (§71)
after 13 years.
su ciently clear and complete for it to be carried out by any
NO. The IPC provides for a shorter period of three (3) months person skilled in the art; or
7 Limitations of Patent Rights
from abandonment within which to le for revival.
c) That the patent is contrary to public order or morality.
Petitioner's patent application, therefore, should NOT be The owner of a patent has no right to prevent third parties from
(§61)
revived since it was led beyond the allowable period. performing, without his authorization, the acts referred to in Section
71 hereof in the following circumstances:
WON filing of a patent application vests petitioner the right to be 5 Remedy of the True and Actual Inventor
protected from becoming part of the public domain because of 1. Using a patented product which has been put on the market in
If a person, who was deprived of the patent without his consent or the Philippines by the owner of the product, or with his
convention priority under the Paris Convention for the Protection of
through fraud is declared by nal court order or decision to be the true express consent, insofar as such use is performed after that
Industrial Property.
and actual inventor, the court shall product has been so put on the said market.
NO. The right of priority given to a patent applicant is only 1. order for his substitution as patentee, or 2. Where the act is done privately and on a non-commercial
relevant when there are two or more conflicting patent applications on
2. at the option of the true inventor, cancel the patent, and scale or for a non-commercial purpose:
the same invention. Because a right of priority does not
automatically grant letters patent to an applicant, possession of a 3. award actual and other damages in his favor if warranted by Provided, That it does not significantly prejudice the
right of priority does not confer any property rights on the the circumstances. (§68) economic interests of the owner of the patent;
applicant in the absence of an actual patent. 3. Where the act consists of making or using exclusively for
A right of priority is not equivalent to a patent. After the lapse 6 Rights Conferred by a Patent experimental use of the invention for scienti c purposes or
of 20 years, the invention becomes part of the public domain and is educational purposes and such other activities directly
A patent shall confer on its owner the following exclusive rights:
free for the public to use. In addition, a patent holder of inventions related to such scienti c or educational experimental use;
relating to food or medicine does not enjoy absolute monopoly a) Where the subject matter of a patent is a product, to
4. In the case of drugs and medicines, where the act includes
over the patent. Both RA No. 165 and the IPC provide for restrain, prohibit and prevent any unauthorized person or
testing, using, making or selling the invention including any
compulsory licensing. The patent holder's proprietary right over entity from making, using, offering for sale, selling or
data related thereto, solely for purposes reasonably related to
the patent only lasts for three (3) years from the grant of the importing that product;
the development and submission of information and issuance
patent, after which any person may be allowed to manufacture, use, b) Where the subject matter of a patent is a process, to restrain, of approvals by government regulatory agencies required
or sell the invention subject to the payment of royalties. prevent or prohibit any unauthorized person or entity from under any law of the Philippines or of another country that

regulates the manufacture, construction, use or sale of any

b) A judicial or administrative body has determined that the components thereof are virtually the same. In operation, the
product.
manner or exploitation, by the owner of the patent or his oating power tiller of the defendant operates also in similar manner
5. Where the act consists of the preparation for individual licensee, is anti-competitive; or as the turtle power tiller of plainti .
cases, in a pharmacy or by a medical professional, of a
In the case of drugs and medicines, Next, courts have adopted the doctrine of equivalents which
medicine in accordance with a medical prescription or acts
c) there is a national emergency or other circumstance of recognizes that minor modi cations in a patented invention are
concerning the medicine so prepared; and
extreme urgency requiring the use of the invention; or su cient to put the item beyond the scope of literal infringement.
6. Where the invention is used in any ship, vessel, aircraft, or land
d) there is public non-commercial use of the patent by the According to this doctrine, an infringement also occurs when a
vehicle of any other country entering the territory of the
patentee, without satisfactory reason; or device appropriates a prior invention by incorporating its
Philippines temporarily or accidentally. (§72)
innovative concept and, albeit with some modi cation and
e) the demand for the patented article in the Philippines is not change, performs substantially the same function in
a) Prior User
being met to an adequate extent and on reasonable terms, as substantially the same way to achieve substantially the same
Any prior user, who, in good faith was using the invention or has determined by the Secretary of the DOH. (§74) result.
undertaken serious preparations to use the invention in his
enterprise or business, before the ling date or priority date of the 8 Patent Infringement (2) Doctrine of Equivalents
application on which a patent is granted, shall have the right to
continue the use thereof as envisaged in such preparations within a) Tests in Patent Infringement Smith Kline Beckman v. CA
the territory where the patent produces its e ect.
(1) Literal Infringement WON Tryco committed patent infringement to the prejudice of
⭐The right of the prior user may only be transferred or assigned
Smith Kline.
together Godines v. CA
1. with his enterprise or business, or NO. From a reading of the 9 claims of the Letters Patent in relation
Did petitioner's product infringe upon the patent of private to the other portions thereof, no mention is made of the
2. with that part of his enterprise or business in which the respondent? compound Albendazole. When the language of its claims is clear
use or preparations for use have been made. (§73) and distinct, the patentee is bound thereby and may not claim
YES. In using literal infringement as a test, resort must be had,
in the rst instance, to the words of the claim. The Court must anything beyond them.
b) Use by Government
juxtapose the claims of the patent and the accused product within The doctrine of equivalents provides that an infringement also
A Government agency or third person authorized by the Government
the overall context of the claims and speci cations, to determine takes place when a device appropriates a prior invention by
may exploit the invention even without agreement of the patent owner
whether there is exact identity of all material elements. incorporating its innovative concept and, although with some
where:
The trial court found that in appearance and form, both the modi cation and change, performs substantially the same function
a) The public interest, in particular, national security, nutrition,
floating power tillers of the defendant and the turtle power in substantially the same way to achieve substantially the same
health or the development of other sectors, as determined by
tiller of the plainti are virtually the same. The parts or result.
the appropriate agency of the government, so requires; or

While both compounds have the e ect of neutralizing parasites in 9 Licensing c) employment generation,
animals, identity of result does not amount to infringement of d) regional dispersal of industries and/or substitution with or use
patent unless Albendazole operates in substantially the same way or
a) Voluntary of local raw materials, or
by substantially the same means as the patented compound, even Technology transfer arrangements — Refer to contracts or
e) in the case of Board of Investments, registered companies with
though it performs the same function and achieves the same result. agreements involving
pioneer status.
In other words, the principle or mode of operation must be the a) the transfer of systematic knowledge for the manufacture of a
same or substantially the same. product, the application of a process, or rendering of a service b) Compulsory
The doctrine of equivalents thus requires satisfaction of the including management contracts; and §93. Grounds for Compulsory Licensing. — The Director
function-means-and-result test. b) the transfer, assignment or licensing of all forms of intellectual General of the IPO may grant a license to exploit a patented
property rights, including licensing of computer software invention, even without the agreement of the patent owner,
As for the concept of divisional applications pro ered by
except computer software developed for mass market. in favor of any person who has shown his capability to exploit the
petitioner, it comes into play when two or more inventions are
invention, under any of the following circumstances:
claimed in a single application but are of such a nature that a single The Requirement for Registration
patent may not be issued for them. The applicant thus is required 1. Urgency. National emergency or other circumstances of
Technology transfer arrangements that
"to divide," that is, to limit the claims to whichever invention he may extreme urgency;
elect, whereas those inventions not elected may be made the subject a) Conform with the provisions of Sec 87 on Prohibited
2. Vital Sector. Where the public interest, in particular,
of separate applications which are called "divisional applications." Clauses and Sec 88 on Mandatory Provisions need not be national security, nutrition, health or the development of
What this only means is that petitioner's methyl 5 registered with the Documentation, Information and other vital sectors of the national economy as determined by
propylthio-2-benzimidazole carbamate is an invention distinct from Technology Transfer Bureau. the appropriate agency of the Government, so requires; or
the other inventions claimed in the original application divided out, b) Non-conformance with any of the provisions of Sections 87 3. Anti-Competitive Exploitation. Where a judicial or
Albendazole being one of those other inventions. Otherwise, methyl and 88, however, shall automatically render the technology administrative body has determined that the manner of
5 propylthio-2- benzimidazole carbamate would not have been the transfer arrangement unenforceable, unless said technology exploitation by the owner of the patent or his licensee is
subject of a divisional application if a single patent could have been transfer arrangement is approved and registered under the anti-competitive; or
issued for it as well as Albendazole. provisions of Section 91 on Exceptional Cases.
4. Public Non-Commercial Use. In case of public
Prohibited Clauses are those deemed prima facie to have an adverse non-commercial use of the patent by the patentee, without
b) Defenses in Action for Infringement
e ect on competition and trade. satisfactory reason;
In an action for infringement, the defendant, in addition to other
defenses available to him, may show the invalidity of the patent, Exceptional or meritorious cases are those where substantial bene ts 5. Non-Commercial Use. If the patented invention is not
or any claim thereof, on any of the grounds on which a petition of will accrue to the economy, such as being worked in the Philippines on a commercial scale,
cancellation can be brought. (§82) a) high technology content, although capable of being worked, without satisfactory reason:
b) increase in foreign exchange earnings,

Provided, That the importation of the patented article shall Acquisition of Ownership of Mark "Collective Mark" is any visible sign designated as such in the
constitute working or using the patent; and application for registration and capable of distinguishing the origin
Actual Use or any other common characteristic, including the quality of goods
6. Unmet Demand. Where the demand for patented drugs
and medicines is not being met to an adequate extent and or services of di erent enterprises.
Acquisition of Ownership of Trade Name
on reasonable terms, as determined by the Secretary of the Trademark is any distinctive word, name, symbol, emblem, sign,
DOH. Non-Registrable Marks or device, or any combination thereof, adopted and used by a
manufacturer or merchant on his goods to identify and distinguish
10 Assignment and Transmission of Rights Test to Determine Confusing Similarity Between
them from those manufactured, sold, or dealt by others.
Marks
Inventions and any right, title or interest in and to patents and Trade Name means the name or designation identifying or
inventions covered thereby, may be assigned or transmitted by a) Dominancy test distinguishing an enterprise.
inheritance or bequest or may be the subject of a license In Philippine jurisprudence, the function of a trademark is
contract. (§103) Well-known Marks
1) to point out distinctly the origin or ownership of the goods;
An assignment may be of the entire right, title or interest in and to Rights Conferred by Registration
the patent and the invention covered thereby, or of an undivided 2) to secure to him the fruit of his industry and skill;
share of the entire patent and invention, in which event the parties Cancellation of Registration 3) to assure the public that they are procuring the genuine
become joint owners thereof. An assignment may be limited to a article;
speci ed territory. (§104) Trademark Infringement
4) to protect the manufacturer against substitution and sale of
The assignment must be Damages an inferior and di erent article as his product. (Mirpuri v. CA)
1. in writing, Trademarks perform three (3) distinct functions:
Requirement of notice
2. acknowledged before a notary public or other o cer 1) they indicate origin or ownership of the articles to which
authorized to administer oath or perform notarial acts, Penalties they are attached;
and
Unfair Competition 2) they guarantee that those articles come up to a certain
3. certi ed under the hand and o cial seal of the notary or standard of quality; and
such other o cer. (§105)
1 Marks vs. Collective Marks vs. Trade Names 3) they advertise the articles they symbolize. (W Land Holding,
Inc. v. Starwood Hotels and Resorts Worldwide, Inc. 2017)
B Trademarks "Mark" is any visible sign capable of distinguishing the goods
There is also an underlying economic justification for the
(trademark) or services (service mark) of an enterprise.
Marks vs. Collective Marks vs. Trade Names protection of trademarks: an e ective trademark system helps
bridge the information gap between producers and

consumers, and thus, lowers the costs incurred by consumers in

IOW, for a mark to be denied registration, it must both be: thus considered to have acquired all the rights of a trademark owner
searching for and deciding what products to purchase. (Citigroup,
under the IP Code upon the registration of the "ZYNAPSE" mark.
Inc. v. Citystate Savings Bank, Inc. 2018) 1. Geographically-descriptive; AND
Consequently, Zuneca's counterclaims against Natrapharm were
GENERIC TERMS are commonly used as the name or description of 2. That the public would make a goods/place association,
correctly dismissed by the lower courts. To be sure, Zuneca did not
a kind of goods. believing that the goods originate in that place.
have any right to prevent third parties, including Natrapharm, from
What is prohibited is not having a generic mark, but having such using marks confusingly similar to its unregistered "ZYNAPS" mark
2 Acquisition of Ownership of Mark
generic mark being identi able to the good or service. (Kensonic, because it is not an "owner of a registered mark" contemplated in
Inc. v. Uni-Line Multi-Resources, Inc. 2018) The rights in a mark shall be acquired through registration. Section 147.1.
DESCRIPTIVE TERMS convey the characteristics, functions, However, Zuneca, as a prior user in good faith, is protected by
Zuneca Pharmaceutical v. Natrapharm 2020 En Banc
qualities or ingredients of a product to one who has never seen or does Section 159.1 and cannot be prevented by Natrapharm from using
not know that it exists. How is ownership over a trademark acquired? its ZYNAPS trademark.
SUGGESTIVE TERMS are those which require “imagination, REGISTRATION. Under the IP Code, ownership of a mark is
thought and perception to reach a conclusion as to the nature of the acquired through registration. The prima facie nature of the
goods" and are eligible for protection in the absence of secondary Birkenstock Orthopaedie Gmbh and Co. Kg v.
certi cate of registration is meant to recognize the instances when 2013
meaning. Philippine Shoe Expo Marketing
the certi cate of registration is not re ective of ownership of the
SECONDARY MEANING is established when a descriptive mark no holder thereof, such as when: WON the subject marks should be allowed registration in the name of
longer causes the public to associate the goods with a particular place, petitioner.
1) the rst registrant has acquired ownership of the mark
but to associate the goods with a particular source. through registration but subsequently lost the same due to YES. It must be emphasized that registration of a trademark, by
What are the requirements to conclude that a non-use or abandonment (e.g., failure to le the itself, is not a mode of acquiring ownership. If the applicant is not
geographically-descriptive mark has acquired secondary Declaration of Actual Use); the owner of the trademark, he has no right to apply for its
meaning? 2) the registration was done in bad faith; registration. Registration merely creates a prima facie
presumption of the validity of the registration, of the
a) the secondary meaning must have arisen as a result of 3) the mark itself becomes generic; registrant’s ownership of the trademark, and of the exclusive right to
substantial commercial use of a mark in the Philippines;
4) the mark was registered contrary to the IP Code; or the use thereof. Such presumption, just like the presumptive
b) such use must result in the distinctiveness of the mark regularity in the performance of o cial functions, is rebuttable and
insofar as the goods or the products are concerned; and 5) the registered mark is being used by, or with the permission
must give way to evidence to the contrary.
of, the registrant so as to misrepresent the source of the
c) proof of substantially exclusive and continuous commercial goods or services on or in connection with which the mark In the instant case, petitioner was able to establish that it is the
use in the Philippines for ve (5) years before the date on is used. owner of the mark “BIRKENSTOCK.” It submitted evidence
which the claim of distinctiveness is made. (Shang Properties relating to the origin and history of “BIRKENSTOCK” and its use
Realty v. St. Francis Development 2014) Since Natrapharm was not shown to have been in bad faith, it is
in commerce long before respondent was able to register the same

here in the Philippines. rule on acquisition of ownership under the Trademark Law, as ling or registration."
amended. At present, as expressed in the language of the provisions
Indeed, Section 123.1(e) of R.A. No. 8293 now categorically states
of the IP Code, prior use no longer determines the acquisition
that "a mark which is considered by the competent authority
FC Philippines, Inc. v. Barrio Fiesta Manufacturing 2016 of ownership of a mark in light of the adoption of the rule that
of the Philippines to be well-known internationally and in
ownership of a mark is acquired through registration made validly in
the Philippines, whether or not it is registered here," cannot
The ownership of a trademark is acquired by accordance with the provisions of the IP Code.
be registered by another in the Philippines.
1. its registration AND
2. its actual use
Fredco Manufacturing v. Harvard University 2011
W Land Holding v. Starwood Hotels 2017
by the manufacturer or distributor of the goods made available to
the purchasing public. WON Fredco can validly cancel the registration of Harvard
The "use" which the law requires to maintain the registration of a
University. NO. There are two compelling reasons why Fredco's
A certi cate of registration of a mark, once issued, constitutes mark must be genuine, and not merely token. Genuine use may
petition must fail.
prima facie evidence of be characterized as a bona fide use which results or tends to result, in
First, Fredco's registration of the mark "Harvard" and its one way or another, into a commercial interaction or transaction
1. the validity of the registration,
identi cation of origin as "Cambridge, Massachusetts" falsely "in the ordinary course of trade."
2. the registrant's ownership of the mark, and suggest that Fredco or its goods are connected with Harvard
The use of a registered mark representing the owner's goods
3. the registrant's exclusive right to use the same in connection University. That should not have been allowed because Section 4(a)
or services by means of an interactive website may constitute
with the goods or services and those that are related thereto of R.A. No. 166 prohibits the registration of a mark "which may
proof of actual use that is su cient to maintain the
speci ed in the certi cate. disparage or falsely suggest a connection with persons, living
registration of the same.
or dead, institutions, beliefs x x x." This provision is intended to
R.A. No. 8293, however, requires the applicant for registration or It must be emphasized, however, that the mere exhibition of
protect the right of publicity of famous individuals and
the registrant to le a declaration of actual use (DAU) of the goods or services over the internet, without more, is not
institutions from commercial exploitation of their goodwill by
mark, with evidence to that e ect, within three (3) years from the enough to constitute actual use. It must be shown that the owner
others. What Fredco has done is precisely to exploit commercially
ling of the application for registration; otherwise, the has actually transacted. A showing of an actual commercial
the goodwill of Harvard University without the latter's consent.
application shall be refused or the mark shall be removed from the link to the country is therefore imperative.
Such violation is a ground for cancellation of Fredco's
register.
registration of the mark "Harvard." Thus, Starwood's use of its "W" mark through its interactive website
Second, the Philippines and the US are both signatories to the Paris is intended to produce a discernible commercial e ect or activity
Actual Use
Convention for the Protection of Industrial Property. Thus, within the Philippines, or at the very least, seeks to establish
under Philippine law, a trade name of a national of a State that is a commercial interaction with local consumers. Accordingly,
Zuneca Pharmaceutical v. Natrapharm 2020 En Banc
party to the Paris Convention, whether or not the trade name forms Starwood's use of the "W" mark in its reservation services
The current rule under the IP Code is thus in stark contrast to the part of a trademark, is protected "without the obligation of through its website constitutes use of the mark su cient to

keep its registration in force. as a dominant feature.

1.3.1. the rst registrant has acquired ownership
of the mark through registration but 2. While the protection a orded to a registered trademark
subsequently lost the same due to non-use extends to market areas that are the normal potential
Kolin Electronics v. Taiwan Kolin 01 Dec 2021 or abandonment (e.g., failure to le the expansion of its business, such protection must not infringe
Declaration of Actual Use); on the rights of another trademark owner with a registered
The protection afforded to a trademark with regard to goods and
mark in its favor.
services in market areas that are the normal potential expansion of the 1.3.2. the registration was done in bad faith;
trademark owner's business must not infringe on the rights of another 2.1. KECI's rights from its existing trademark
1.3.3. the mark itself becomes generic;
trademark owner with a registered mark in its favor. registrations for "KOLIN" do extend to product
1.3.4. the mark was registered contrary to the IP and market areas that are the normal potential
1. KECI has the right to register and use the mark
Code (e.g., when a generic mark was expansion of its business, and goods and services
"www.kolin.ph".
successfully registered for some reason); or and those in respect of which the trademark is
1.1. As reiterated in the 2021 Kolin case, KECI was registered where such use would result in a
1.3.5. the registered mark is being used by, or
already declared the rst and prior user of the likelihood of confusion.
with the permission of, the registrant so as
"KOLIN" mark in the Philippines and thus the
to misrepresent the source of the goods or 2.2. The rulings in Dermaline and Big Mak remain to
owner of the "KOLIN" mark.
services on or in connection with which be good law. However, they did not contemplate
1.2. It is settled that a certi cate of registration of a the mark is used. the exceptional situation where there may be
mark is prima facie evidence of existing marks owned by another proprietor that
1.4. KECI's right to exclusively use the "KOLIN" mark
1.2.1. the validity of the registration, under Class 35 necessarily includes the right to could potentially be infringed should the
register its domain name containing KOLIN as the registered trademark owner be a orded blanket
1.2.2. the registrant's ownership of the mark,
dominant feature. protection in product and market areas that are the
and
normal potential expansion of its business.
1.5. In W Land Holding, Inc. v. Starwood Hotels and
1.2.3. the registrant's exclusive right to use the
Resorts Worldwide, Inc., the Court held that the 2.3. The Court holds that the protection a orded to a
same in connection with the goods or
use of a registered mark representing the owners trademark with regard to goods and services in
services and those that are related thereto
goods or services by means of an interactive market areas that are the normal potential
speci ed in the certi cate.
website may constitute proof of actual use that is expansion of the trademark owner's business must
1.3. The said presumption may be challenged and su cient to maintain the registration of the same. not infringe on the rights of another trademark
rebutted when an adverse party, in the appropriate owner with a registered mark in its favor.
1.6. In ne, the owner of a registered trademark, absent
action, can show that the certi cate of registration
any legal obstacle or compelling reason to the See Commercial Law Case Digest No. 3
is not re ective of ownership of the holder, such as
contrary, should be allowed to register, in its favor,
when:
a domain name containing its registered trademark

3 Acquisition of Ownership of Trade Name b. Consists of the ag or coat of arms or other insignia of the f. Is identical with, or confusingly similar to, or constitutes a
Philippines or any of its political subdivisions, or of any translation of a mark considered well-known in accordance
Tradename Infringement foreign nation, or any simulation thereof; with the preceding paragraph, which is registered in the
A trade name need not be registered with the IPO before an Philippines with respect to goods or services which are not
c. Consists of a name, portrait or signature identifying a
infringement suit may be led by its owner against the owner of an similar to those with respect to which registration is applied
particular living individual except by the person's written
infringing trademark. All that is required is that the trade name is for:
consent; or
previously used in trade or commerce in the Philippines. Provided, That use of the mark in relation to those goods or
(Coffee Partners v. San Francisco Coffee and Roastery 2010) the name, signature, or portrait of a deceased President of the
services would indicate a connection between those goods
Philippines, during the life of the surviving spouse, if any,
a) Notwithstanding any laws or regulations providing for any or services, and the owner of the registered mark:
except by the latter's written consent;
obligation to register trade names, such names shall be Provided further, That the interests of the owner of the
protected, even prior to or without registration, against d. Is identical with a registered mark belonging to a di erent
registered mark are likely to be damaged by such use;
any unlawful act committed by third parties. proprietor or a mark with an earlier ling or priority
(DILUTION of well-known marks)
date, in respect of:
b) In particular, any subsequent use of the trade name by a third g. Is likely to mislead the public, particularly as to the nature,
party, whether as a trade name or a mark or collective mark, or i) The same goods or services, or
quality, characteristics or geographical origin of the goods or
any such use of a similar trade name or mark, likely to mislead ii) Closely related goods or services, or services;
the public, shall be deemed unlawful. (§165.2)
iii) If it nearly resembles such a mark as to be likely to h. Consists exclusively of signs that are generic for the goods or
deceive or cause confusion; services that they seek to identify;
4 Non-Registrable Marks
e. Is identical with, or confusingly similar to, or constitutes a i. Consists exclusively of signs or of indications that have become
A mark is susceptible to registration if it is crafted fancifully or translation of a mark which is considered by the competent customary or usual to designate the goods or services in
arbitrarily and is capable of identifying and distinguishing the goods authority of the Philippines to be WELL-KNOWN everyday language or in bona de and established trade
of one manufacturer or seller from those of another. Thus, the mark internationally and in the Philippines, whether or not it is practice;
must be distinctive. registered here, as being already the mark of a person other
j. Consists exclusively of signs or of indications that may serve in
A mark cannot be registered if it: than the applicant for registration, and used for identical or
trade to designate the kind, quality, quantity, intended
similar goods or services:
a. Consists of immoral, deceptive or scandalous matter, or purpose, value, geographical origin, time of production of the
matter which may disparage or falsely suggest a Provided, That in determining whether a mark is well-known, goods or rendering of the services, or other characteristics of
connection with persons, living or dead, institutions, beliefs, account shall be taken of the knowledge of the relevant the goods or services;
or national symbols, or bring them into contempt or disrepute; sector of the public, rather than of the public at large,
k. Consists of shapes that may be necessitated by technical
including knowledge in the Philippines which has been
factors or by the nature of the goods themselves or factors that
obtained as a result of the promotion of the mark;
a ect their intrinsic value;

l. Consists of color alone, unless de ned by a given form; or related, the doctrine in Mighty Corporation is authoritative. of endearment for one's father, is a word over which petitioner
There, the Court held that the goods should be tested against several could not claim exclusive use and ownership.
m. Is contrary to public order or morality.
factors before arriving at a sound conclusion on the question of
A person's father has no logical connection with catsup products,
As regards signs or devices mentioned in paragraphs (j), (k), and (l), relatedness. Among these are:
and that precisely makes "PAPA" as an arbitrary mark capable
nothing shall prevent the registration of any such sign or device
which has become distinctive in relation to the goods and/or
a) the business (and its location) to which the goods belong; of being registered, as it is distinctive, coming from a family
services for which registration is requested as a result of the use that b) the class of product to which the goods belong; name that started the brand several decades ago. What was registered
has been made of it in commerce in the Philippines. was not the word "Papa" as de ned in the dictionary, but the word
c) the product’s quality, quantity, or size, including the nature "Papa" as the last name of the original owner of the brand.
The O ce may accept as prima facie evidence that the mark has of the package, wrapper or container;
become distinctive, as used in connection with the applicant's
d) the nature and cost of the articles;
goods and/or services in commerce, proof of substantially exclusive
e) the descriptive properties, physical attributes or essential Mang Inasal Philippines, Inc. v. IFP Manufacturing 2017
and continuous use thereof by the applicant in commerce in the
Philippines for ve (5) years before the date on which the claim characteristics with reference to their form, composition, WON “INASAL” can be appropriated as a mark.
of distinctiveness is made. texture or quality;
YES. The dominant element "INASAL," as stylized in the Mang
f) the purpose of the goods;
Inasal mark, is di erent from the term "inasal' per se. The term
Taiwan Kolin v. Kolin Electronics 2015
g) whether the article is bought for immediate consumption, "inasal" per se is a descriptive term that cannot be appropriated.
WON petitioner is entitled to its trademark registration of “KOLIN” that is, day-to-day household items;
However, the dominant element "INASAL," as stylized in the Mang
over its specific goods of television sets and DVD players. h) the elds of manufacture; Inasal mark, is not. Petitioner, as the registered owner of the Mang
YES. Identical marks may be registered for products from the same i) the conditions under which the article is usually purchased; Inasal mark, can claim exclusive use of such element.
classi cation. and
The parties admit that their respective sets of goods belong to Class j) the channels of trade through which the goods ow, how
Seri Somboonsakdikul v. Orlane S.A. 2017
9 of the NCL. But mere uniformity in categorization, by itself, they are distributed, marketed, displayed and sold.
does not automatically preclude the registration of what WON there is confusing similarity between ORLANE and
appears to be an identical mark, if that be the case. LOLANE which would bar the registration of LOLANE before the
It is hornbook doctrine that emphasis should be on the similarity FC Philippines, Inc. v. Barrio Fiesta Manufacturing 2016 IPO.
of the products involved and not on the arbitrary NO. There is no colorable imitation between the marks
WON Nutri-Asia cannot claim exclusive ownership and use of the
classi cation or general description of their properties or LOLANE and ORLANE which would lead to any likelihood of
"PAPA" mark for its sauce products because "PAPA" is supposedly a
characteristics. confusion to the ordinary purchasers. In Mighty Corporation v. E.
common term of endearment for one's father.
In resolving whether or not the products of the parties involved are & J. Gallo Winery, the Court laid down the requirements for a
NO. The CA erred in nding that "PAPA," being a common term

nding of likelihood of confusion: presentation or in their essential and substantive and distinctive but having such generic mark being identifiable to the good
parts as would likely mislead or confuse persons in the ordinary or service.
There are two types of confusion in trademark infringement.
course of purchasing the genuine article."
Although SAKURA refers to the Japanese owering cherry and is,
The rst is "confusion of goods" when an otherwise prudent
Here, there is no confusing similarity between the two marks. The therefore, of a generic nature, such mark did not identify Kensonic's
purchaser is induced to purchase one product in the belief that
su x LANE is not the dominant feature of petitioner's mark. goods unlike the mark in Asia Brewery, Inc., v. CA. Kensonic's DVD
he is purchasing another, in which case defendant's goods are
Neither can it be considered as the dominant feature of ORLANE or VCD players and other products could not be identi ed with
then bought as the plainti s and its poor quality re ects badly
which would make the two marks confusingly similar. cherry blossoms. Hence, the mark can be appropriated. Kensonic's
on the plainti s reputation.
prior use of the mark since 1994 made it the owner of the mark, and
First, an examination of the appearance of the marks would show
The other is "confusion of business" wherein the goods of its ownership cannot anymore be challenged.
that there are noticeable di erences in the way they are written or
the parties are di erent but the defendant's product can
printed.
reasonably (though mistakenly) be assumed to originate from
the plainti , thus deceiving the public into believing that there Second, as to the aural aspect of the marks, LOLANE and
Great White Shark v. Caralde, Jr 2012
is some connection between the plainti and defendant which, ORLANE do not sound alike. Similar to Etepha, appeals to the ear
in fact, does not exist. in pronouncing ORLANE and LOLANE are dissimilar. A trademark device is susceptible to registration if it is crafted
Respondent failed to show proof that the su x LANE has fancifully or arbitrarily and is capable of identifying and
In determining the likelihood of confusion, the Court must
registered in the mind of consumers that such su x is exclusively or distinguishing the goods of one manufacturer or seller from those of
consider:
even predominantly associated with ORLANE products. another. Apart from its commercial utility, the benchmark of
a) the resemblance between the trademarks; trademark registrability is distinctiveness. Thus, a generic
Thus, the mark LOLANE is entitled to registration.
gure, as that of a shark in this case, if employed and designed in a
b) the similarity of the goods to which the trademarks are
distinctive manner, can be a registrable trademark device.
attached;
c) the likely e ect on the purchaser and Kensonic, Inc. v. Uni-Line Multi-Resources, Inc. 2018
d) the registrant's express or implied consent and other fair Is the SAKURA mark capable of appropriation? Test to Determine Confusing Similarity
5
and equitable considerations. Between Marks
YES. To be noted is that the controversy revolves around the
The most essential requirement for the determination of SAKURA mark which is NOT a copyright. The SAKURA mark is In determining if colorable imitation exists, jurisprudence has
likelihood of confusion is the existence of resemblance not an artistic or literary work but a sign used to distinguish the developed two kinds of tests — the Dominancy Test and the
between the trademarks, i.e., colorable imitation. Absent any goods or services of one enterprise from those of another. Holistic Test.
nding of its existence, there can be no likelihood of confusion.
Section 123(h) of the IPC prohibits the registration of a trademark
Colorable imitation has been de ned as "such similarity in form, a) Dominancy test
that consists exclusively of signs that are generic for the goods or
content, words, sound, meaning, special arrangement or general
services that they seek to identify. It is clear from the law itself, ⭐The test of dominancy focuses on the similarity of the
appearance of the trademark or trade name in their overall prevalent features of the competing trademarks which might
therefore, that what is prohibited is not having a generic mark

cause confusion or deception and thus constitute infringement. determining confusing similarity.
4) the goods covered by KPII's kolin fall within the normal
Infringement occurs if the competing trademark contains the The holistic test is contrary to the elementary postulate of the
potential expansion of business of KECI;
main, essential, and dominant features of another, and confusion law on trademarks and unfair competition that confusing
or deception is likely to result. Exact duplication or imitation is not 5) sophistication of buyers is not enough to eliminate similarity is to be determined on the basis of visual, aural,
required. confusion; connotative comparisons and overall impressions engendered
6) KPII's adoption of KECI's coined and fanciful mark would by the marks in controversy as they are encountered in the realities
Upon the passage of the IPC, the trend has been to veer away from
greatly contribute to likelihood of confusion; and of the marketplace.
the holistic test and to focus more on the dominancy test.
7) KPII applied for kolin in bad faith.
Citigroup v. Citystate Savings Bank 2018
⭐Kolin Electronics v. Kolin Philippines 2021 En Banc
Thus, KPII's application for kolin should be denied because it
would cause likelihood of confusion and KECI's rights would be WON the CA committed an error of law in finding that there exists
Considering the adoption of the Dominancy Test and the
damaged. no confusing similarity between petitioner Citigroup, Inc.'s and
abandonment of the Holistic Test, as con rmed by the provisions of
respondent Citystate Savings Bank, Inc.'s marks.
the IP Code and the legislative deliberations, the Court hereby
makes it crystal clear that the use of the Holistic Test in NO. A visual comparison of the marks reveals no likelihood of
determining the resemblance of marks has been abandoned. Levi Strauss & Co v. Sevilla 2021 confusion. The Court agrees with the observation of Director
Applying the Dominancy Test here, KPII's kolin mark resembles General Cristobal that the most noticeable part of this mark is the
The Dominancy Test must be used in determining the existence of
KECI's KOLIN mark because the word "KOLIN" is the prevalent golden lion's head device, and nds that after noticing the
confusing similarity between the "LEVI'S" and LIVE'S marks.
feature of both marks. Phonetically or aurally, the marks are exactly image of the lion's head, the words "CITY" and "CASH" are equally
Again, this test relies not only on the visual but also on the aural and
the same. Surely, the manner of pronouncing the word "KOLIN" prominent.
connotative comparisons and overall impressions between the two
does not change just because KPII's mark is in lowercase and trademarks. Examining these marks, this Court nds that petitioner's marks can
contains an italicized orange letter "i". In terms of connotation and best be described as consisting of the pre x "CITI" added to other
Respondents’ LIVE'S mark is but a mere anagram of petitioner's
overall impression, there seems to be no di erence between the two words. Applying the dominancy test, this Court sees that the
"LEVI'S" marks. It would not be farfetched to imagine that a buyer,
marks. prevalent feature of respondent's mark, the golden lion's head
when confronted with such striking similarity would be led to
To summarize: device, is not present at all in any of petitioner's marks. The only
confuse one over the other. Thus, by simply applying the
similar feature between respondent's mark and petitioner's
1) there is resemblance between KECI's KOLIN and KPII's Dominancy Test, it can already be concluded that there is a
collection of marks is the word "CITY" in the former, and the
kolin marks; likelihood of confusion between petitioner's "LEVI'S" marks and
"CITI" pre x found in the latter.
respondents' LIVE'S mark.
2) the goods covered by KECI's KOLIN are related to the
In addition, the context where respondent's mark is to be used,
goods covered by KPII's kolin;
b) Holistic test namely, for its ATM services, which could only be secured at
3) there is evidence of actual confusion between the two respondent's premises and not in an open market of ATM services,
On the other side of the spectrum, the holistic test mandates that
marks; further diminishes the possibility of confusion on the part of
the entirety of the marks in question must be considered in

prospective customers. c) Idem sonans Criteria for determining whether a mark is well-known. — In
determining whether a mark is well-known, the following criteria or
Prosel Pharmaceuticals v. Tynor Drug House 2020 any combination thereof may be taken into account:
ABS-CBN Publishing v. Director, a) the duration, extent and geographical area of any use of
2018 Petitioner's registration of CEEGEEFER as a drug and not just a
Bureau of Trademarks the mark, in particular, the duration, extent and geographical
vitamin food supplement does not exculpate it from liability.
WON the ODG was correct in refusing to register the applicant mark area of any promotion of the mark, including advertising or
CEEGEEFER's classi cation as a drug is immaterial. Since the case
for being identical and confusingly similar with the cited marks publicity and the presentation, at fairs or exhibitions, of the
involves a violation of a trademark, the gravamen of the o ense is a
already registered with the IPO. goods and/or services to which the mark applies;
likelihood of confusion between the two marks. Both products are
YES. According to Section 123.1(d) of the IPC, a mark cannot be over-the-counter multivitamins that do not require a medical b) the market share, in the Philippines and in other countries, of
registered if it is "identical with a registered mark belonging to a prescription. As such, CEEGEEFER and CHERIFER may be easily the goods and/or services to which the mark applies;
di erent proprietor or a mark with an earlier ling or priority date." obtained without the advice of another person. Therefore, the c) the degree of the inherent or acquired distinction of the
parties' target market may be confused, mistaken, or deceived into mark;
Upon the passage of the IPC, the trend has been to veer away from thinking that CEEGEEFER is the same as CHERIFER.
the usage of the holistic test and to focus more on the usage of the d) the quality-image or reputation acquired by the mark;
dominancy test. The test of dominancy is now explicitly Given the phonetic and visual similarities between the two products
(i.e., how the product names are spelled, the sound of both product e) the extent to which the mark has been registered in the
incorporated into law in Section 155.1 of the IPC which de nes world;
names, and the colors and shapes combination of the products'
infringement as the 'colorable imitation' of a registered mark or a
respective packaging), it is obvious that petitioner attempted to pass f) the exclusivity of registration attained by the mark in the
dominant feature thereof. In using this test, focus is to be given to
CEEGEEFER as a colorable imitation of CHERIFER. world;
the dominant features of the marks in question.
The determining point in trademark infringement is a likelihood of g) the extent to which the mark has been used in the world;
In the present case, the dominant feature of the applicant mark is
confusion. The fact that CEEGEEFER is idem sonans for
the word "METRO" which is identical, both visually and aurally, to h) the exclusivity of use attained by the mark in the world;
CHERIFER is enough to violate respondent's right to protect
the cited marks already registered with the IPO.
its trademark, CHERIFER. i) the commercial value attributed to the mark in the world;
The concurrent use by the parties of the word METRO is likely to
cause confusion among purchasers as well as confusion of business
⭐ The ponencia adopts the observations of Justice Leonen in Asia j) the record of successful protection of the rights in the mark;
Pacific Resources International Holdings, Ltd. v. Paperone, Inc. that k) the outcome of litigations dealing with the issue of whether
or origin hence, registration of this subject application is proscribed.
there should be "objective, scienti c, and economic standards to the mark is a well-known mark; and
It must be emphasized that absolute certainty of confusion or even determine whether goods or services o ered by two parties are so
actual confusion is not required to refuse registration. Indeed, it is l) the presence or absence of identical or similar marks validly
related that there is a likelihood of confusion."
the mere likelihood of confusion that provides the impetus to registered.
accord protection to trademarks already registered with the IPO.
7 Rights Conferred by Registration
6 Well-known Marks

The owner of a registered mark shall have the exclusive right to iv) if the registered mark is being used by, or with the Mustang-Bekleidungswerke GmbH + Co. KG v. Hung Chiu Ming)
prevent all third parties not having the owner's consent from permission of, the registrant so as to misrepresent
Shangri-la supports the de nition of bad faith in trademark
using in the course of trade identical or similar signs or containers the source of the goods or services on or in
registrations as knowledge by the registrant of prior creation, use,
for goods or services which are identical or similar where such use connection with which the mark is used.
and/or registration by another of an identical or similar trademark.
would result in a likelihood of confusion, which is presumed.
If the registered mark becomes the generic name for less than
Pagasa Industrial Corporation v. CA likewise supports the
The exclusive right of the owner of a well-known mark which is all of the goods or services for which it is registered, a petition
de nition of bad faith as prior knowledge. In said case, the
registered in the Philippines, shall extend to goods and services to cancel the registration for only those goods or services may
Court found that Pagasa registered the "YKK" mark in bad faith
which are not similar to those in respect of which the mark is be led. A registered mark shall not be deemed to be the
because it had previously known that there was another person
registered. (§147) generic name of goods or services solely because such mark is
using the mark. Hence, the Court a rmed the cancellation of the
also used as a name of or to identify a unique product or
mark.
8 Cancellation of Registration service. The primary signi cance of the registered mark to the
relevant public rather than purchaser motivation shall be the Birkenstock Orthopaedie GmbH and Co. KG v. Phil. Shoe Expo
Upon application of the registrant, the IPO may permit any test for determining whether the registered mark has become Marketing Corp. also involved a nding that a party was in bad faith
registration to be surrendered for cancellation, and upon the generic name of goods or services on or in connection with because it had known of the existence and use by another person of
cancellation the appropriate entry shall be made in the records of which it has been used. the mark before said party appropriated and registered the same.
the O ce. (§140)
c) At any time, if the registered owner of the mark without While the Court in the Shangri-la Resolution declared the
§151. Cancellation. — 151.1. A petition to cancel a registration legitimate reason fails to use the mark within the trademark registration as void based on two grounds, i.e., the
of a mark under this Act may be led with the Bureau of Legal Philippines, or to cause it to be used in the Philippines by presence of bad faith and the fact that the mark was registered
A airs by any person who believes that he is or will be virtue of a license during an uninterrupted period of three contrary to provisions of the law, either one of these grounds
damaged by the registration of a mark under this Act as (3) years or longer. may be used as su cient basis for the courts or the IPO to declare
follows: trademark registrations as void.
a) Within ve (5) years from the date of the registration of the Zuneca Pharmaceutical v. Natrapharm 2020 En Banc Note that the de nition of bad faith as knowledge of prior creation,
mark under this Act. use and/or registration by another of an identical or similar
What constitutes fraud or bad faith in trademark registration? Bad
b) At any time, if the registered mark trademark is ALSO applicable in the use of trademarks without
faith means that the applicant or registrant has knowledge of prior
the benefit of registration.
i) becomes the generic name for the goods or services, creation, use and/or registration by another of an identical or similar
or a portion thereof, for which it is registered, or trademark. In other words, it is copying and using somebody else's
trademark. Fraud, on the other hand, may be committed by making
ii) has been abandoned, or 9 Trademark Infringement
false claims in connection with the trademark application and
iii) its registration was obtained fraudulently or registration, particularly, on the issues of origin, ownership, and use
The elements of trademark infringement under the IP Code are
contrary to the provisions of this Act, or of the trademark in question, among other things. (citing
the following:

with the goods or services and those that are related thereto
1) REGISTRATION — the trademark being infringed is Zuneca Pharmaceutical v. Natrapharm 2020 En Banc
speci ed in the certi cate.
registered in the IPO;
Should Zuneca be held liable for trademark infringement?
Registration is NOT required to protect the goodwill that Republic Gas, et. al. v. Petron, et. al. 2013
identi es in the mind of the public the goods he manufactures NO. Even without Section 159.1 of the IP Code, a third party's
or deals in. WON probable cause exists to hold petitioners liable for the crime of prior use of an unregistered mark, if said mark subsequently
trademark infringement. becomes registered by another, could not be considered as
Registration is NOT necessary for purposes of filing a case trademark infringement because there was no trademark registration
for unfair competition or false designation of origin. YES. Reading Sec 155 of the IPC, the Court in a very similar case,
- a requirement for a trademark infringement action to prosper -
made it categorically clear that the mere unauthorized use of a
2) COLORABLE IMITATION — the trademark or trade when the third party was using its mark.
container bearing a registered trademark in connection with the sale,
name is reproduced, counterfeited, copied, or colorably Essentially, Section 159.1 is an exception to the rights of the
distribution or advertising of goods or services which is likely to
imitated by the infringer; trademark owner in Section 147.1.
cause confusion, mistake or deception among the buyers or
3) USE — the infringing mark or trade name is used in consumers can be considered as trademark infringement. The Court declares ZUNECA as the prior user in good faith
connection with the sale, o ering for sale, or advertising of any of the "ZYNAPS" mark and accordingly protected under
goods, business or services; or the infringing mark or trade Section 159.1.
name is applied to labels, signs, prints, packages, wrappers,
Shang Properties Realty v. St. Francis Development 2014
receptacles or advertisements intended to be used upon or in
Damages
connection with such goods, business or services; WON petitioners are guilty of unfair competition in using the marks
“THE ST. FRANCIS TOWERS” and “THE ST. FRANCIS 1. The owner of a registered mark may recover damages from
4) CONFUSION CAUSED — the use or application of the any person who infringes his rights, and the measure of the
SHANGRI-LA PLACE.”
infringing mark or trade name is likely to cause confusion or damages su ered shall be either
mistake or to deceive purchasers or others as to the goods or NO. It is essential to prove the existence of fraud, or the
services themselves or as to the source or origin of such goods a. the reasonable pro t, or
intent to deceive, actual or probable. Here, records are bereft of
or services or the identity of such business; and any showing that petitioners gave their goods/services the general b. a reasonable percentage based upon the amount
5) NO CONSENT — it is without the consent of the trademark appearance that it was respondent which was o ering the same to of gross sales of the defendant or the value of the
or trade name owner or the assignee thereof. the public. Neither did petitioners employ any means to induce the services in connection with which the mark or trade
public towards a false belief that it was o ering respondent’s name was used in the infringement of the rights of the
A certi cate of registration of a mark, once issued, constitutes goods/services. Nor did petitioners make any false statement or complaining party.
prima facie evidence of commit acts tending to discredit the goods/services o ered by
2. On application of the complainant, the court may impound
1. the validity of the registration, respondent. Accordingly, the element of FRAUD which is the
during the pendency of the action, sales invoices and other
core of unfair competition had not been established.
2. the registrant's ownership of the mark, and documents evidencing sales.
3. the registrant's exclusive right to use the same in connection

3. In cases where actual intent to mislead the public or to The law on trademarks and trade names precisely precludes a person
YES. Thus, the essential elements of an action for unfair
defraud the complainant is shown, in the discretion of the from pro ting from the business reputation built by another and
competition are:
court, the damages may be doubled. from deceiving the public as to the origins of products.
1) confusing similarity in the general appearance of the
4. The complainant, upon proper showing, may also be granted The argument that the words “Made in Portugal” and “Original
goods; and
injunction. Portugal” refer to the origin of the design and not to the origin of
the goods does not negate the nding of probable cause; at the same 2) intent to deceive the public and defraud a competitor.
Requirement of notice time, it is an argument that the petitioners are not barred by this The confusing similarity may or may not result from similarity in
In any suit for infringement, the owner of the registered mark shall Resolution from raising as a defense during the hearing of the case. the marks, but may result from other external factors in the
not be entitled to recover pro ts or damages unless the acts have packaging or presentation of the goods. The intent to deceive and
been committed with knowledge that such imitation is likely to defraud may be inferred from the similarity of the appearance of
cause confusion, or to cause mistake, or to deceive. 10 Unfair Competition the goods as o ered for sale to the public. Actual fraudulent
Such knowledge is presumed if the registrant gives notice that his intent need not be shown.
mark is registered by displaying with the mark the words Republic Gas, et. al. v. Petron, et. al. 2013 Foodsphere's intent to deceive the public, to defraud its competitor,
'"Registered Mark" or ® or if the defendant had otherwise actual and to ride on the goodwill of SMPFCI's products is evidenced by
WON probable cause exists to hold petitioners liable for the crime of
notice of the registration. (§158) the fact that not only did Foodsphere switch from its old box
unfair competition.
packaging to the same paper ham bag packaging as that used by
Penalties YES. From jurisprudence, unfair competition has been de ned as SMPFCI, it also used the same layout design printed on the same.
Independent of the civil and administrative sanctions imposed by the passing o (or palming o ) or attempting to pass o upon the
law, a criminal penalty of public of the goods or business of one person as the goods or
business of another with the end and probable e ect of deceiving Asia Pacific Resources International v. Paperone 2018
a. imprisonment from two (2) years to ve (5) years and
the public.
b. a ne ranging from P50K - P200K, WON Paperone is liable for unfair competition.
Passing o (or palming o ) takes place where the defendant, by
shall be imposed on any person who is found guilty of committing imitative devices on the general appearance of the goods, misleads YES. Relative to the issue on confusion of marks and trade names,
1. Trademark Infringement; prospective purchasers into buying his merchandise under the jurisprudence has noted two types of confusion, viz.:
impression that they are buying that of his competitors.
2. Unfair Competition; 1) confusion of goods (product confusion), where the
ordinarily prudent purchaser would be induced to
3. False Designations of Origin; False Description or
purchase one product in the belief that he was purchasing
Representation. San Miguel Pure Foods Co., Inc. v. Foodsphere, Inc. 2018 the other; and
Uyco v. Lo 2013 re False Designations of Origin WON Foodsphere is liable for unfair competition. 2) confusion of business (source or origin confusion),
where, although the goods of the parties are di erent, the

product, the mark of which registration is applied for by charge them with Unfair Competition. b) Derivative Works
one party, is such as might reasonably be assumed to
2.1. The confusing similarity may or may not result
originate with the registrant of an earlier product; and the Non-Copyrightable Works
from similarity in the marks, but may result from
public would then be deceived either into that belief or into
other external factors in the packaging or Rights Conferred by a Copyright
the belief that there is some connection between the two
presentation of the goods.
parties, though inexistent. Duration of Economic Rights
2.2. Likelihood of confusion of goods or business is a
Thus, while there is confusion of goods when the products are
relative concept, to be determined only according Ownership of a Copyright
competing, confusion of business exists when the products are
to peculiar circumstances of each case.
non-competing but related enough to produce confusion of
2.3. The element of intent to deceive and to defraud Limitations on Copyright
affiliation.
may be inferred from the similarity of the
This case falls under the second type of confusion. The Doctrine of Fair Use
appearance of the goods as o ered for sale to the
element of intent to deceive and to defraud may be inferred
public. Copyright Infringement
from the similarity of the appearance of the goods as o ered
for sale to the public. Contrary to the ruling of the CA, actual 3. Here, petitioners' product which is a medicated facial
cream sold to the public is contained in the same pink
Remedies
fraudulent intent need not be shown. Factual circumstances were
established showing that respondent adopted PAPERONE in its oval-shaped container which had the mark "Chin Chun
Criminal penalties
trade name even with the prior knowledge of the existence of Su," as that of respondent.
PAPER ONE as a trademark of petitioner. 4. The acts complained of against petitioners constituted the
1 Basic Principles
o ense of Unfair Competition and probable cause exists to
hold them for trial. a. A copyright refers to "the right granted by a statute to the
Kho v. Summerville General Merchandising proprietor of an intellectual production to its exclusive use and
04 Aug 2021 See Remedial Law Case Digest No. 33 enjoyment to the extent speci ed in the statute."
1. The essential elements of an action for unfair b. Rights over copyrights are conferred from the moment of
competition are: creation.
C Copyright
1.1. confusing similarity in the general appearance of c. Works are protected by the sole fact of their creation,
the goods, and Basic Principles irrespective of their mode or form of expression, as well as of
their content, quality and purpose. (§172.2)
1.2. intent to deceive the public and defraud a Copyrightable Works
competitor. d. The copyright is distinct from the property in the material
a) Original Works object subject to it.
2. Here, the acts complained of constituted probable cause to
Consequently, the transfer, assignment or licensing of the

copyright shall not itself constitute a transfer of the material

a) a ect the force of any subsisting copyright upon the Copyrightability of a work is di erent from fair use of a work for
object. Nor shall a transfer or assignment of the sole copy or of
original works employed or any part thereof, or purposes of news reporting.
one or several copies of the work imply transfer, assignment or
licensing of the copyright. (§181) b) be construed to imply any right to such use of the original
works, or
Olaño v. Lim Eng Co 2016
2 Copyrightable Works c) to secure or extend copyright in such original works.
WON the hatch doors of LEC fall within copyrightable works.
1) Literary and Artistic Works; §174. Published Edition of Work. — In addition to the right
to publish granted by the author, his heirs, or assigns, the publisher NO. It is clear that the hatch doors were NOT artistic works
2) Derivative Works;
shall have a copyright consisting merely of the right of within the meaning of copyright laws. A copyrightable work
3) Published Edition of Work. reproduction of the typographical arrangement of the published refers to literary and artistic works defined as original intellectual
edition of the work. creations in the literary and artistic domain.
a) Original Works
A hatch door, by its nature, is an object of utility. A "useful
§172. Literary and Artistic Works. — 172.1. Literary and ABS-CBN v. Gozon 2015
artistic works, hereinafter referred to as "works", are original
article" de ned as an article "having an intrinsic utilitarian function
intellectual creations in the literary and artistic domain WON news footage is copyrightable under the law; that is not merely to portray the appearance of the article or to
protected from the moment of their creation xxxx. convey information" is excluded from copyright eligibility.
YES. It is true that under Section 175 of the IPC, "news of the day
and other miscellaneous facts having the character of mere items of The only instance when a useful article may be the subject of
b) Derivative Works copyright protection is when it incorporates a design element
press information" are considered unprotected subject matter.
§173. Derivative Works. — 173.1. The following derivative However, the Code does not state that expression of the news that is physically or conceptually separable from the underlying
works shall also be protected by copyright: of the day, particularly when it underwent a creative process, product. This means that the utilitarian article can function
is not entitled to protection. without the design element. In such an instance, the design
a) Dramatizations, translations, adaptations, abridgments,
element is eligible for copyright protection.
arrangements, and other alterations of literary or artistic News or the event itself is NOT copyrightable. However, an
works; and event can be captured and presented in a speci c medium. As
b) Collections of literary, scholarly or artistic works, and recognized by this court in Joaquin v. Drilon, television "involves a
whole spectrum of visuals and e ects, video and audio." News 3 Non-Copyrightable Works
compilations of data and other materials which are
original by reason of the selection or coordination or coverage in television involves framing shots, using images, graphics, §175. Unprotected Subject Matter. — Notwithstanding the
arrangement of their contents. and sound e ects. It involves creative process and originality. provisions of Sections 172 and 173, no protection shall extend,
Television news footage is an expression of the news. under this law, to any
173.2. Derivative works shall be protected as new works if such
new work shall not: News as expressed in a video footage is entitled to copyright a) idea, procedure, system, method or operation, concept,
protection. Broadcasting organizations have not only copyright principle, discovery or mere data as such, even if they are
on but also neighboring rights over their broadcasts. expressed, explained, illustrated or embodied in a work;

b) news of the day and other miscellaneous facts having the 3. speeches, lectures, sermons, addresses, and dissertations, 2. to Alter or Withhold Publication;
character of mere items of press information; or pronounced, read or rendered in courts of justice, before
3. to Object to Modi cation; and
administrative agencies, in deliberative assemblies and in
c) any o cial text of a legislative, administrative or legal
meetings of public character. 4. Against the Use of Name in a Distorted Version of
nature, as well as any o cial translation thereof.
Work.
176.2. The author of speeches, lectures, sermons, addresses, and
Joaquin, Jr. v. Drilon, et. al. dissertations shall have the exclusive right of making a §211. Scope of Right. — Subject to the provisions of Section 212,
collection of his works. broadcasting organizations shall enjoy the exclusive right to
To begin with, the format of a show is not copyrightable. carry out, authorize or prevent any of the following acts:
Petitioner BJPI’s copyright covers audio-visual recordings of each
4 Rights Conferred by a Copyright 1. The rebroadcasting of their broadcasts;
episode of Rhoda and Me.
§177. Copyright or Economic Rights. — Subject to the 2. The recording in any manner, including the making of
The copyright does NOT extend to the general concept or
provisions of Chapter VIII, copyright or economic rights shall lms or the use of video tape, of their broadcasts for the
format of its dating game show. Accordingly, by the very nature
consist of the exclusive right to carry out, authorize or purpose of communication to the public of television
of the subject of petitioner BJPI’s copyright, the investigating
prevent the following acts: broadcasts of the same; and
prosecutor should have the opportunity to compare the
videotapes of the two shows. 1. Reproduction of the work or substantial portion of the 3. The use of such records for fresh transmissions or for fresh
work; recording.
Mere description by words of the general format of the two dating
game shows is insu cient; the presentation of the master 2. Dramatization, translation, adaptation, abridgment, §212. Limitations on Rights. — The provisions of Chapter VIII
videotape in evidence was indispensable to the determination of arrangement or other transformation of the work; shall apply mutatis mutandis to the rights of performers,
the existence of probable cause. producers of sound recordings and broadcasting organizations.
3. The first public distribution of the original and each
§176. Works of the Government. — 176.1. No copyright shall copy of the work by sale or other forms of transfer of
ABS-CBN v. Gozon 2015
subsist in any work of the Government of the Philippines. ownership;
4. Rental of the original or a copy irrespective of its Under Section 211 of the IPC broadcasting organizations are
However, prior approval of the government agency or o ce
ownership; granted a more speci c set of rights called related or
wherein the work is created shall be necessary for exploitation of
neighboring rights.
such work for profit. Such agency or o ce may, among other 5. Public display of the original or a copy of the work;
things, impose as a condition the payment of royalties. No prior Broadcasting organizations shall enjoy the right to authorize or
6. Public performance of the work; and
approval or conditions shall be required for the use for any prohibit:
purpose of 7. Other communication to the public of the work.
a) the rebroadcasting of their broadcasts;
1. statutes, §193. Scope of Moral Rights. — The author of a work shall have
b) the xation of their broadcasts;
the right:
2. rules and regulations, and c) the reproduction:
1. of Attribution;

Art regularly-assigned duties, unless there is an

i) of xations, made without their consent, of their
agreement, express or implied, to the
broadcasts; Photographic works If published – 50 years from publication; contrary.
ii) of xations, made in accordance with the provisions of Audiovisual works Unpublished – 50 years from making.
Article 15, of their broadcasts, if the reproduction is Commissioned a) Commissioner owns the work;
made for purposes di erent from those referred to in Performances not 50 years from end of the year in which Work
incorporated in performance took place b) Creator owns the copyright, unless there is
those provisions; a written stipulation to the contrary.
recordings
d) the communication to the public of their television
broadcasts if such communication is made in places Sound recordings 50 years from end of the year in which Audiovisual Shall belong to the producer, the author of the
accessible to the public against payment of an entrance fee; and performances recording took place Work scenario, the composer of the music, the lm
it shall be a matter for the domestic law of the State where incorporated therein director, and the author of the work so adapted.
protection of this right is claimed to determine the However, subject to contrary or other
conditions under which it may be exercised. stipulations among the creators, the producer
Rebroadcasting as de ned in Article 3(g) of the 1961 Rome 5 Ownership of a Copyright shall exercise the copyright to an extent
required for the exhibition of the work in any
Convention is "the simultaneous broadcasting by one broadcasting
Original Author manner,
organization of the broadcast of another broadcasting organization."
Literary and except for the right to collect performing
Duration of Economic Rights Artistic Works
license fees for the performance of musical
Works of Joint GR: Co-authors, subject to agreement; or in compositions, with or without words, which are
Literary and Artistic Life of author +50 years after his death.
Works and Derivative Authorship the absence thereof, on rules on incorporated into the work.
Works co-ownership;
Letters a) Writer owns copyright;
Works of Joint Life of the last surviving author +50 years EXC: if a work of joint authorship consists of
b) Recipient owns letter, but it cannot be
Authorship after his death parts that can be used separately and the
published or disseminated without the
author of each part can be identi ed, the
consent of the writer or his heirs.
Anonymous or 50 years from date it is rst lawfully author of each part shall be the original
Pseudonymous published If before expiration of period, owner of the copyright in the part that Anonymous Publishers shall be deemed to represent the
Works identity is revealed or no longer in doubt, he has created. and authors of articles and other writings published
the rule on Literary and Joint Authorship Pseudonymous unless
applies Work in the a) EE — creation is NOT part of regular duty;
Works
Course of 1. the contrary appears, or
b) ER — result of the performance of his
Work of Applied 25 years from date of making Employment 2. the pseudonyms or adopted name leaves

no doubt as to the author's identity, or f) The recording made in schools, universities, or 7 Doctrine of Fair Use
educational institutions of a work included in a broadcast:
3. if the author of the anonymous works
§185. Fair Use of a Copyrighted Work. — 185.1. The fair
discloses his identity. Provided, That such recording must be deleted within a
use of a copyrighted work for criticism, comment, news reporting,
reasonable period after they were rst broadcast;
teaching including limited number of copies for classroom use,
g) The making of ephemeral recordings by a broadcasting scholarship, research, and similar purposes is not an
6 Limitations on Copyright organization; infringement of copyright.
§184. Limitations on Copyright. — 184.1. The following h) The use of a work by or under the direction or control of the Decompilation, which is understood here to be the reproduction
acts shall NOT constitute infringement of copyright: Government, by the National Library or by educational, of the code and translation of the forms of a computer program to
scienti c or professional institutions where such use is in achieve the interoperability of an independently created
a) The recitation or performance of a work,
the public interest and is compatible with fair use; computer program with other programs may also constitute fair
i) once it has been lawfully made accessible to the use under the criteria established by this section, to the extent that
i) The public performance or the communication to the public
public, such decompilation is done for the purpose of obtaining the
of a work, in a place where no admission fee is charged, by a
ii) if done privately and club or institution for charitable or educational purpose only, information necessary to achieve such interoperability.
iii) free of charge or if made strictly for a charitable or whose aim is not profit making;
ABS-CBN v. Gozon 2015
religious institution or society; j) Public display of the original or a copy of the work not made
by means of a lm, slide, television image or otherwise on FOUR-FACTOR TEST. In determining whether the use made of
b) The making of quotations from a published work if they are
screen or by means of any other device or process; a work in any particular case is FAIR USE, the factors to be
compatible with fair use;
considered shall include:
c) The reproduction or communication to the public by mass k) Any use made of a work for the purpose of any judicial
proceedings or for the giving of professional advice by a legal a. The purpose and character of the use, including whether
media of articles on current political, social, economic,
practitioner. such use is of a commercial nature or is for non-pro t
scienti c or religious topic, lectures, addresses and other
educational purposes;
works of the same nature; l) The reproduction or distribution of published articles or
materials in a specialized format exclusively for the use of the b. The nature of the copyrighted work;
d) The reproduction and communication to the public of
literary, scienti c or artistic works as part of reports of blind, visually- and reading-impaired persons: c. The amount and substantiality of the portion used in
current events; Provided, That such copies and distribution shall relation to the copyrighted work as a whole; and
e) The inclusion of a work in a publication, broadcast, or other 1. be made on a nonpro t basis and d. The e ect of the use upon the potential market for or
communication to the public, sound recording or lm, if such value of the copyrighted work.
2. indicate the copyright owner and the date of the original
inclusion is made by way of illustration for teaching
publication. (as amended by RA No 10372) GMA-7's rebroadcast of ABS-CBN's news footage without the
purposes and is compatible with fair use;
latter's consent is not an issue. The mere act of rebroadcasting

import for distribution, broadcast, or communicate

without authority from the owner of the broadcast gives rise to the
to the public works or copies of works knowing that 1) ownership of a validly copyrighted material by the
probability that a crime was committed under the IPC.
electronic rights management information has been complainant; and
removed or altered without authority. (aab RA No 2) infringement of the copyright by the respondent.
10372)
8 Copyright Infringement The respondent failed to substantiate the alleged reproduction of
c) Deliver under oath, for impounding, sales invoices and other the drawings/sketches of hatch doors copyrighted under the First
§216. Infringement. — A person infringes a right protected documents evidencing sales, all articles and their packaging Certi cate of Registration. LEC's copyright protection
under this Act when one: alleged to infringe a copyright and implements. thereunder covered only the hatch door sketches/ drawings and
a) Directly commits an infringement; d) Deliver under oath for destruction without any not the actual hatch door they depict. To constitute
compensation all infringing copies or devices. infringement, the usurper must have copied or appropriated the
b) Bene ts from the infringing activity of another person
original work of an author or copyright proprietor; absent
who commits an infringement if the person bene ting has e) Such other terms and conditions, including the payment of
copying, there can be no infringement of copyright.
been given notice of the infringing activity and has the moral and exemplary damages.
right and ability to control the activities of the other Unlike a patent, a copyright gives no exclusive right to the art
person; Criminal penalties disclosed; protection is given only to the expression of the idea
Any person infringing any right secured by provisions of Part IV of — not the idea itself.
c) With knowledge of infringing activity, induces, causes or
materially contributes to the infringing conduct of this Act or aiding or abetting such infringement shall be guilty. Anent, LEC's Second Certi cate of Registration, the Court
another. The respective maximum penalty shall be imposed when the nds that the ownership thereof was not established by the evidence
infringement is committed by: on record because the element of copyrightability is absent.
Remedies Here, evidence negating originality and copyrightability as
a) The circumvention of e ective technological measures;
216.1 Remedies for Infringement. — Any person infringing elements of copyright ownership was satisfactorily pro ered against
a right protected under this law shall be liable: b) The removal or alteration of any electronic rights LEC's certi cate of registration.
management information; or
a) To an injunction restraining such infringement.
c) The distribution of works or copies of works knowing
b) To pay to the copyright proprietor or his assigns or heirs such Habana v. Robles
that electronic rights management information has been
actual damages: removed or altered without authority.
It does not necessarily require that the entire copyrighted work, or
Provided, That the amount of damages to be awarded shall be
even a large portion of it, be copied. If so much is taken that the
doubled against any person who: Olaño v. Lim Eng Co 2016
value of the original work is substantially diminished, there is
i) Circumvents e ective technological measures; or For a claim of copyright infringement to prevail, the evidence on an infringement of copyright and to an injurious extent, the
record must demonstrate: work is appropriated.
ii) Remove or alter any electronic rights management
information from a copy of a work, or distribute, A copy of a piracy is an infringement of the original, and it is

that it is merely incorporated by reference in that electronic

no defense that the pirate, in such cases, did not know WON the printing or copying is essential in the commission of the
data message.
whether or not he was infringing any copyright; he at least crime of copyright infringement.
knew that what he was copying was not his, and he copied at his 2) Electronic documents shall have the legal e ect, validity or
NO. The "gravamen of copyright infringement," according to
peril. enforceability as any other document or legal writing, and —
NBI-Microsoft Corporation v. Hwang is not merely the
In cases of infringement, copying alone is not what is unauthorized manufacturing of intellectual works but rather the a) Where the law requires a document to be in writing,
prohibited. The copying must produce an "injurious e ect". unauthorized performance of any of the acts covered by Sec 5. that requirement is met by an electronic document if
For another to represent a work as her own is injury enough. the said electronic document maintains its integrity
The mere sale of the illicit copies of the software programs was
and reliability and can be authenticated so as to be
enough by itself to show the existence of probable cause for
usable for subsequent reference, in that —
copyright infringement. There was no need for the petitioner to still
ABS-CBN v. Gozon 2015 prove who copied, replicated or reproduced the software programs. i) The electronic document has remained
complete and unaltered, apart from the
WON lack of knowledge that a material is copyrighted is a defense
addition of any endorsement and any
against copyright infringement and that good faith is a defense in a
authorized change, or any change which
criminal prosecution for violation of the IPC. VI Electronic Commerce Act arises in the normal course of
NO. Infringement under the IPC is malum prohibitum. The communication, storage and display; and
IPC is a special law. The general rule is that acts punished under a Legal Recognition of Electronic Data Messages,
ii) The electronic document is reliable in the
special law are malum prohibitum. The IPC requires strict Documents, and Signatures light of the purpose for which it was
liability for copyright infringement whether for a civil action or a
generated and in the light of all relevant
criminal prosecution; it does not require mens rea or culpa. Presumption Relating to Electronic Signatures
circumstances.
WON GMA-7's officers and employees cannot be held liable for Admissibility and Evidential Weight of Electronic Data b) Paragraph (a) applies whether the requirement therein
infringement.
Message or Electronic Document is in the form of an obligation or whether the law
Only Dela Peña-Reyes and Manalastas should be implicated. simply provides consequences for the document not
Section 217 states that "any person" may be found guilty of Obligation of Con dentiality being presented or retained in its original form.
infringement. The criminal liability of a corporation's o cers or
c) Where the law requires that a document be presented
employees stems from their active participation in the
Legal Recognition of Electronic Data or retained in its original form, that requirement is
commission of the wrongful act. A
Messages, Documents, and Signatures met by an electronic document if —
1) Information shall not be denied validity or enforceability i) There exist a reliable assurance as to the
2015 solely on the ground that it is in the form of an electronic integrity of the document from the time
Microsoft v. Manansala
data message purporting to give rise to such legal e ect, or when it was rst generated in its nal form;
and

hereof shall be the best evidence of the agreement and

ii) That document is capable of being displayed d) The other party is authorized and enabled to verify
transaction contained therein.
to the person to whom it is to be presented: the electronic signature and to make the decision to
Provided, That no provision of this Act shall proceed with the transaction authenticated by the In assessing the evidential weight of an electronic data message or
apply to vary any and all requirements of same. electronic document, the reliability of the manner in which it was
existing laws on formalities required in the generated, stored or communicated, the reliability of the manner in
execution of documents for their validity. Presumption Relating to Electronic which its originator was identi ed, and other relevant factors shall be
B
For evidentiary purposes, an electronic document shall be the Signatures given due regard.
functional equivalent of a written document under existing
In any proceedings involving an electronic signature, it shall be D Obligation of Confidentiality
laws.
presumed that,
3) This Act does not modify any statutory rule relating to the Except for the purposes authorized under this Act, any person who
1) The electronic signature is the signature of the person to
admissibility of electronic data messages or electronic obtained access to any electronic key, electronic data message or
whom it correlates; and
documents, except the rules relating to authentication and best electronic document, book, register, correspondence, information,
evidence. 2) The electronic signature was a xed by that person with the or other material pursuant to any powers conferred under this Act,
intention of signing or approving the electronic document shall not convey to or share the same with any other person.
4) An electronic signature on the electronic document shall
unless the person relying on the electronically signed electronic
be equivalent to the signature of a person on a written
document knows or has notice of defects in or unreliability of
document if the signature is an electronic signature and Foreign Investments Act
proved by showing that a prescribed procedure, not alterable
the signature or reliance on the electronic signature is not VII
reasonable under the circumstances. RA 7042, as amended by RA 11647
by the parties interested in the electronic document, existed
under which —
Admissibility and Evidential Weight of Policy of the Law
a) A method is used to identify the party sought to be C Electronic Data Message or Electronic
bound and to indicate said party's access to the De nition of Terms
Document
electronic document necessary for his consent or
approval through the electronic signature; In any legal proceedings, nothing in the application of the rules on Foreign Investment
evidence shall deny the admissibility of an electronic data message or
b) Said method is reliable and appropriate for the Doing Business
electronic document in evidence —
purpose for which the electronic document was
generated or communicated, in the light of all 1) On the sole ground that it is in electronic form; or Export Enterprise
circumstances, including any relevant agreement; 2) On the ground that it is not in the standard written form, and Domestic Market Enterprise
c) It is necessary for the party sought to be bound, in the electronic data message or electronic document meeting,
order to proceed further with the transaction, to have and complying with the requirements under Sections 6 or 7
executed or provided the electronic signature; and

Registration of Investment of Non-Philippine 5) transfer relevant technologies in agriculture, industry and 2 Doing Business
support services.
Nationals Shall include
Foreign investments shall be welcome as a supplement to Filipino
Foreign Investments in Export Enterprises 1) soliciting orders, service contracts, opening o ces, whether
capital and technology in those enterprises serving mainly the domestic
called liaison o ces or branches;
market.
Foreign Investments in Domestic Market Enterprises
2) appointing representatives or distributors domiciled in the
Foreign investments shall be conducted, based on the principles of
Foreign Investment Negative List Philippines or who in any calendar year stay in the country for
transparency, reciprocity, equity, and economic cooperation.
a period or periods totalling one hundred eighty (180) days or
GR: There are no restrictions on the extent of foreign ownership of more;
A Policy of the Law export enterprises. In domestic market enterprises, foreigners
3) participating in the management, supervision or control of any
can invest as much as one hundred percent (100%) equity.
It is the policy of the State domestic business, rm, entity or corporation in the
EXC: In areas included in the negative list. Philippines; and
1) to attract, promote and welcome productive investments from
foreign individuals, partnerships, corporations, and Foreign owned rms catering mainly to the domestic market shall be 4) any other act or acts that imply a continuity of commercial
governments, including their political subdivisions, encouraged to undertake measures that will gradually increase dealings or arrangements, and contemplate to that extent the
Filipino participation in their businesses by performance of acts or works, or the exercise of some of the
2) in activities which signi cantly contribute to sustainable,
1) taking in Filipino partners, functions normally incident to, and in progressive prosecution
inclusive, resilient, and innovative economic growth,
of, commercial gain or of the purpose and object of the
productivity, global competitiveness, employment creation, 2) electing Filipinos to the board of directors, business organization.
technological advancement, and countrywide development
3) implementing transfer of technology to Filipinos, Shall NOT be deemed to include
3) to the extent that foreign investment is allowed in such activity
by the Constitution and relevant laws, and consistent with the 4) generating more employment for the economy and 1) mere investment as a shareholder by a foreign entity in
protection of national security. 5) enhancing skills of Filipino workers. domestic corporations duly registered to do business, and/or
the exercise of rights as such investor; nor
Foreign investments shall be encouraged in enterprises that signi cantly
B Definition of Terms 2) having a nominee director or o cer to represent its interests in
1) expand livelihood and employment opportunities for
such corporation; nor
Filipinos;
1 Foreign Investment 3) appointing a representative or distributor domiciled in the
2) enhance economic value of agricultural products;
Philippines which transacts business
3) promote the welfare of Filipino consumers; Shall mean an equity investment made by a non-Philippine
national in the form of foreign exchange and/or other assets a) in its own name and
4) expand the scope, quality and volume of exports and their actually transferred to the Philippines and duly registered with the b) for its own account.
access to foreign markets; and/or Bangko Sentral ng Pilipinas.

of SEC or DTI registration, and/or the penalties provided in

3 Export Enterprise 3) Any enterprise seeking to avail of incentives under the
Section 14 hereof.
Omnibus Investment Code of 1987 must apply for
Shall mean an enterprise registration with the BOI, which shall process such application
for registration in accordance with the criteria for evaluation Foreign Investments in Domestic
a) wherein a manufacture, processor or service (including E
tourism) enterprise exports 60% or more of its output, or prescribed in said Code. Market Enterprises
b) wherein a trader purchases products domestically and exports 4) A non-Philippine national intending to engage in the same Non-Philippine nationals may own up to one hundred percent
60% or more of such purchases. line of business as an existing joint venture, in which he or his (100%) of domestic market enterprises unless foreign ownership
majority shareholder is a substantial partner, must disclose the therein is prohibited or limited by
4 Domestic Market Enterprise fact and the names and addresses of the partners in the existing
1) the Constitution and existing law or
joint venture in his application for registration with SEC.
Shall mean an enterprise which 2) the Foreign Investment Negative List.
a) produces goods for sale, or Foreign Investments in Export
D F Foreign Investment Negative List
b) renders services to the domestic market entirely or Enterprises
c) if exporting a portion of its output fails to consistently export 1) Foreign investment in export enterprises whose products and The Foreign Investment Negative List shall have two (2) component
at least 60% thereof. services do NOT fall within Lists A and B of the Foreign lists: A and B:
Investment Negative List is allowed up to one hundred 1) List A shall enumerate the areas of activities reserved to
Registration of Investment of percent (100%) ownership. Philippine nationals by mandate of the Constitution and
C
Non-Philippine Nationals 2) Export enterprises which are non-Philippine nationals shall speci c laws.
register with BOI and submit the reports that may be required 2) List B shall contain the areas of activities and enterprises
1) Without need of prior approval, a non-Philippine national
to ensure continuing compliance of the export enterprise with regulated pursuant to law:
may, upon registration with the SEC, or the DTI in the case of
its export requirement. BOI shall advise SEC or STI, as the
single proprietorships, do business or invest in a domestic a) which are defense-related activities, requiring prior
case may be, of any export enterprise that fails to meet the
enterprise up to 100% of its capital, unless participation of clearance and authorization from Department of National
export ration requirement. The SEC or DTI shall thereupon
non-Philippine nationals in the enterprise is prohibited or Defense (DND) to engage in such activity, such as the
order the non-complying export enterprise to reduce its sales
limited to a smaller percentage by existing law and/or under manufacture, repair, storage and/or distribution of
to the domestic market to not more than forty percent (40%)
the provisions of this Act. rearms, ammunition, lethal weapons, military ordinance,
of its total production.
explosives, pyrotechnics and similar materials, unless such
2) The SEC or the DTI, as the case may be, shall not impose any
3) Failure to comply with such SEC or DTI order, without manufacturing or repair activity is speci cally authorized
limitations on the extent of foreign ownership in an enterprise
justi able reason, shall subject the enterprise to cancellation by the Secretary of National Defense; or (as amended by
additional to those provided in this Act.
RA No 11647)

b) which have implications on public health and morals, Public Service as Public Utility 2) control, through ownership interests, the exercise of more
such as the manufacture and distribution of dangerous than fty percent (50%) of the voting rights; OR
drugs, all forms of gambling, nightclubs, bars, beer houses, Unlawful Acts
3) holds the power to appoint a majority of members of the
dance halls, sauna and steam bathhouses and massage
Powers of the President to Suspend or Prohibit board of directors or any other equivalent management body.
clinics.
Transaction or Investment
Micro and small domestic market enterprises with paid-in equity C Public Service as Public Utility
capital less than the equivalent of US$200K are reserved to Investments by an Entity Controlled by or Acting on
Philippine nationals. 1) The term 'public service’ includes every person that now or
Behalf of the Foreign Government, or Foreign hereafter may own, operate, manage, or control in the
A minimum paid-in capital of US$100K shall be allowed to
State-owned Enterprises Philippines, for hire or compensation, with general or limited
non-Philippine nationals, if:
clientele, whether permanent, occasional or accidental, and
1) they involve advanced technology as determined by the DOST, Reciprocity Clause done for general business purposes,
or
a) any common carrier, railroad, street railway, traction
2) they are endorsed as startup or startup enablers by the lead A Critical Infrastructure railway, subway motor vehicle, either for freight or
host agencies pursuant to RA No. 11337, otherwise known as passenger, or both with or without xed route and
the Innovative Startup Act; or Refers to any public service whatever may be its classi cation,
3) a majority of their direct employees are Filipinos, but in no 1) which owns, uses, or operates systems and assets, whether b) freight or carrier service of any class, express service,
case shall the number of Filipino employees be less than fteen physical or virtual, steamboat, or steamship line, pontines, ferries, and
(15). 2) so vital to the Republic of the Philippines watercraft, engaged in the transportation of
Registered foreign enterprises employing foreign nationals and passengers or freight or both,
3) that the incapacity or destruction of such systems or assets
enjoying scal incentive shall implement an understudy or skills would have a detrimental impact on national security, c) shipyard, marine railway, marine repair shop, wharf or
development program to ensure the transfer of technology or skills to dock,
4) including telecommunications and other such vital services as
Filipinos.
may be declared by the President of the Philippines. d) ice plant, ice-refrigeration plant,
e) canal, irrigation system,
Public Service Act B Foreign State-Owned Enterprise
VIII f) gas, electric light, heat and power, water supply and
CA 146, as amended by RA 11659
Refers to an entity in which a foreign State: power, petroleum,
Critical Infrastructure 1) directly or indirectly owns more than fty-percent (50%) of g) sewerage system,
the capital taking into account both the voting rights and h) wire or wireless communications systems,
Foreign State-Owned Enterprise bene cial ownership;

can be supplied by a single entity at a lower cost that maintained or operated by any such public service, upon such
i) wire or wireless broadcasting stations and
by two or more entities; terms and conditions and for a consideration in such amounts
j) other similar public services. as may be agreed upon between the Postmaster General and
c) The commodity or service is necessary for the
2) Public Utility refers to a public service that operates, manages the public service carrier or xed by the Commission in the
maintenance of life and occupation of the public; and
or controls for public use any of the following: absence of an agreement between the Postmaster General and
d) The commodity or service is obligated to provide the carrier.
a) Distribution of Electricity; adequate service to the public on demand.
d) To refuse or neglect, when requested by the Administrative
b) Transmission of Electricity; 5) A public service which is NOT classi ed as a public utility Agency to urgently use, deliver or render the public service for
c) Petroleum and Petroleum Products Pipeline under this Act shall be considered a business a ected with the purpose of avoiding further loss on human, material,
Transmission Systems; public interest for purposes of Sections 17 and 18 of Article economic, or environment during a state of calamity.
d) Water Pipeline Distribution Systems and Wastewater XII of the Constitution.
Pipeline Systems, including sewerage pipeline Powers of the President to Suspend or
D Unlawful Acts E
systems; Prohibit Transaction or Investment
e) Seaports; and a) To provide or maintain any service that is unsafe, improper, or In the interest of national security, the President, after review,
f) Public Utility Vehicles. inadequate, or withhold or refuse any service which can evaluation and recommendation of the relevant government
reasonably be demanded and furnished. department or Administrative Agency, may, within sixty (60)
3) All concessionaires, joint ventures and other similar entities
b) To make or give, directly or indirectly, by itself or through its days from the receipt of such recommendation, suspend or
that wholly operate, manage or control for public use the
agents, attorneys or brokers, or any of them, discounts or prohibit
sectors above are public utilities.
rebates on authorized rates, or grant credit for the payment of 1) any proposed merger or acquisition transaction, or
4) Upon the recommendation of the NEDA, the President may freight charges, or any undue or unreasonable preference or
recommend to Congress the classi cation of a public service 2) any investment in a public service
advantage to any person or corporation or to any locality or
as a public utility on the basis of the following criteria: to any particular description of tra c or service, or subject any that e ectively results in the grant of control, whether direct or
a) The person or juridical entity regularly supplies and particular person or corporation or locality or any particular indirect, to a foreigner or a foreign corporation.
transmits and distributes to the public through a description of tra c to any prejudice or disadvantage in any
network a commodity or service of public respect whatsoever; to adopt, maintain, or enforce any Investments by an Entity Controlled by
consequence; regulation, practice or measurement which shall be found or or Acting on Behalf of the Foreign
F
b) The commodity or service is a natural monopoly that
determined by the Commission to be unjust, unreasonable, Government, or Foreign State-owned
needs to be regulated when the common good so
unduly preferential or unjustly discriminatory. Enterprises
requires. For this purpose, natural monopoly exists c) To refuse or neglect, when requested by the Postmaster
1) An entity controlled by or acting on behalf of the foreign
when the market demand for a commodity or service General or his authorized representative, to carry public mail
government or foreign state-owned enterprises shall be
on the regular trips of any public land transportation service

prohibited from owning capital in any public service

3) Any foreign national seeking admission to the Philippines for Tax as Distinguished from Other Forms of Exactions
classi ed as public utility or critical infrastructure.
employment purposes and any public service which desires to
2) The prohibition shall apply only to investments made engage a foreign national for employment in the Philippines Kinds of Taxes
AFTER the e ectivity of this Act. must obtain an employment permit.
Doctrines in Taxation
3) Foreign state-owned enterprises which own capital prior to the 4) Public services employing foreign nationals issued
e ectivity of this law are prohibited from investing in employment permits in industries to be determined by the Construction and Interpretation of Tax Laws, Rules, and
additional capital upon the e ectivity of this Act. DOLE shall implement an understudy/skills development Regulations
program to ensure the transfer of technology/skills to
4) The sovereign wealth funds and independent pension funds of
Filipinos, whether next-in-rank or otherwise, with the Prospectivity of Tax Laws
each state may collectively own up to thirty percent (30%) of
potential of succeeding the foreign national in the same
the capital of such public services.
establishment or its subsidiary, within a speci c period as may Imprescriptibility of Taxes
5) In the interest of national security, an entity controlled by or be determined by the DOLE, upon consultation with relevant
acting on behalf of the foreign government or foreign-owned government agencies and industry experts.
Double Taxation
enterprises shall not make any date or information disclosure,
nor extend assistance, support or cooperation to any foreign
Escape from Taxation
government, instrumentalities or agents. Taxation Law Exemption from Taxation
The National Internal Revenue Code
G Reciprocity Clause Equitable Recoupment
1) Foreign nationals shall not be allowed to own more than fty

I General Principles Prohibition on Compensation and Set-O
percent (50%) of the capital of entities engaged in the
operation and management of critical infrastructure unless Power of Taxation as Distinguished from Police Power Compromise and Tax Amnesty
the country of such foreign national accords reciprocity to
and Eminent Domain 1. Taxes are the enforced proportional contributions from
Philippine Nationals as may be provided by foreign law,
persons and property, levied by the State by virtue of its
treaty or international agreement. Inherent and Constitutional Limitations of Taxation sovereignty, for the support of government and for all public
Reciprocity may be satis ed by according rights of similar needs. Obligation to pay taxes is not based on contract.
value in other economic sectors.
Inherent Limitations
2. Except only in the case of poll taxes, nonpayment of a tax may
2) A public service shall employ a foreign national ONLY after Direct Constitutional Limitations be the subject of criminal prosecution and punishment.
the determination of non-availability of a Philippine
Indirect Constitutional Limitations 3. Taxes are the nation’s lifeblood through which government
National who is competent, able and willing to perform the
agencies continue to operate and with which the State
services for which the foreign national is desired.
Requisites of a Valid Tax discharges its functions for the welfare of its constituents.

4. Taxes = levied to raise revenues; Licenses = imposed for Power of Taxation as Distinguished Inherent and Constitutional Limitations
B
regulatory purpose. A from Police Power and Eminent of Taxation
5. In Angeles University Foundation v. City of Angeles, SC held Domain
that the payment of building permit fee is a regulatory Inherent Limitations
imposition, and not a charge on property, and is therefore not Police Eminent
As to TAXATION
an imposition from which petitioner is exempt. Power Domain 1) Public Purpose. — has now evolved to include social
Purpose justice.
Promote Public
Purpose REVENUE
1) Revenue — The purpose of taxation is to provide funds or General Welfare convenience Determination that the tax is for public purpose
property with which the State promotes the general welfare a. Used for the support of the government, speci cally
and protection of its citizens. Raising the revenues is the Limited to cost
Amount UNLIMITED No exaction on its governmental functions;
principal object of taxation. of regulation
b. For any of the recognized objects of the government;
2) Non-Revenue. — Non- Superior to Superior to
Inferior to NIC c. Promotes the welfare of the community.
a) Regulation; impairment NIC NIC
d. Public purpose is determined at the time of the
b) Promotion of General Welfare; Property and Property enactment of the tax law and not at the time of its
Scope Property Rights
c) Reduction of Social Inequality; Liberty Rights Rights implementation.
d) Promote Economic Growth; Altruistic

Planters Products, Inc. v. Fertiphil
Enjoyment of feeling of Just
e) Protectionism. Benefits
govt services contributing to compensation Public purpose is the heart of a tax law. When a tax law is only a
Characteristics society‘s welfare mask to exact funds from the public when its true intent is to give
1) Inherent — the power to tax, an inherent prerogative, has to undue bene t and advantage to a private enterprise, that law will
Property Generally,
be availed of to assure the performance of vital state functions. Any Any not satisfy the requirement of “public purpose.”
Taken money
2) Legislative — taxing power is peculiarly and exclusively The purpose of a law is evident from its text or inferable from other
legislative in character and remains undiminished in the State and secondary sources. Here, the levy imposed under LOI No. 1465 was
Who
legislative in character. State and LGU State and LGU quasi-public not for a public purpose.
exercises
entities
Constitutionally limited — the power to tax is an attribute of
Requisites of a Valid Taxpayer’s Suit
sovereignty. It is the strongest of all the powers of the government. The
Constitution sets forth such limits.

1. The tax money is being extracted and spent in violation of 1. GSIS

3) Delegation to the people at large;
speci c constitutional protection against abuses of
2. SSS
legislative power; 4) Delegation to local governments; and
3. PHIC
2. Public money is being de ected to any improper purpose; 5) Delegation to administrative bodies.
4. PCSO
3. Petitioner seeks to restrain wastage of public funds The case before the Court is not a delegation of legislative power. It
through enforcement of an invalid law. 5. PAGCOR (but not exempted from business is simply a delegation of ascertainment of facts upon which
tax) enforcement and administration of the increase rate under the law is
Important Concepts Regarding Taxpayer’s Suit
contingent.
b. TAXABLE — GOCCs with special charter;
1. The public funds must be derived from taxation;
personality distinct from the government; It is the ministerial duty of the President to immediately impose
2. Does not apply to donations and contributions made by incorporated the 12% rate upon the existence of any of the conditions speci ed by
public individuals or private entities; Congress. This is a duty which cannot be evaded by the President.
3) Non-delegation
There is no undue delegation of legislative power but only of the
3. Taxpayer is not relieved from the obligation to pay tax just
Matters which cannot be delegated discretion as to the execution of a law. This is constitutionally
because of his belief that it is being misappropriated;
permissible.
1. Nature of taxation;
4. A taxpayer has no legal standing to question acts which do
not involve the use of public funds. 2. Object and purpose; Delegation to LGU
2) Exemption from taxation of Government entities 3. Subject or coverage; Only provinces and cities are allowed to impose a tax on the
transfer of ownership of real property.
Refers only to real property tax. 4. Amount or rate of tax;
GR: Agencies and instrumentalities of the government 5. Manner, means and agencies of collection; NPC v. City of Cabanatuan
performing governmental functions are tax exempt. If
performing proprietary functions, taxable. 6. Situs. The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes,
EXC: Even if performing proprietary functions, if the fees and other charges pursuant to Art X Sec 5 of the 1987
Abakada Guro Party List v. Ermita
franchise or law creating them exempts them — tax Constitution.
exempt. The general rule barring delegation of legislative powers is subject to
the following recognized limitations or exceptions: To determine whether the petitioner is covered by the franchise tax
If taxing authority is LGU in question, the following requisites should concur:
1) Delegation of tari powers to the President under Section
a. TAX EXEMPT — GOCCs with original charter; 1) that petitioner has a “franchise” in the sense of a secondary
28 (2) of Article VI of the Constitution;
attached to the government; unincorporated; or special franchise; and
2) Delegation of emergency powers to the President under
Exempt from Income Tax 2) that it is exercising its rights or privileges under this
Section 23 (2) of Article VI of the Constitution;

franchise within the territory of the respondent city constitutional in rmity can be demonstrated. Article VI, Section 24 of the Constitution does not contain any
government. prohibition or limitation on the extent of the amendments that may
4) International Comity be introduced by the Senate to the House revenue bill.
Ful lling both requisites, petitioner is, and ought to be, subject of
the franchise tax in question. To stress, a franchise tax is imposed 1. Doctrine of sovereign equality among states — as Likewise, the Court nds the sections referring to other percentage
based not on the ownership but on the exercise by the between equals, there is no sovereign. One state cannot and excise taxes germane to the reforms to the VAT system, as
corporation of a privilege to do business. exercise its sovereign powers over another. these sections would cushion the effects of VAT on consumers.
2. Non-suability of States — under international law, a
Delegation to the President 2. Concurrence of a majority of all the members of
foreign government may not be sued without its consent.
Congress for the passage of a law granting tax exemption
The authority of the President, upon the recommendation of Hence, it is useless to impose a tax which could not be
(Sec 28(4) Art VI)
NEDA, to x tari rates, import and export quotas, tonnage and collected.
wharfage dues, and other duties or imposts. [Sec 28(2) Art VI, Votes required
3. Usage among states — when a foreign sovereign enters
1987 Constitution]
the territorial jurisdiction of another, there is an implied a. For the GRANT of tax exemption — absolute
Delegation to Administrative Bodies understanding that the former does not intend to degrade majority of the members of Congress (50+1 of all the
its dignity by placing itself under the jurisdiction of members voting separately)
1. Power to value property for purposes of taxation;
another. b. For WITHDRAWAL of tax exemption — relative
2. Power to assess and collect taxes;
5) Situs majority or majority of the quorum.
3. Power to perform an innumerable details of computation,
3. Rule of uniformity and equity in taxation
appraisal and adjustment. GR: Taxation may be exercised only within the territorial
jurisdiction of the taxing authority. Valid Classification
Southern Cross Cement Corporation v. CMAP EXC: Where privity of relationship exists. a. It is based upon substantial distinctions which
The Court recognizes that the authority delegated to the President make real di erences;
under Section 28(2), Article VI may be exercised, in accordance Direct Constitutional Limitations b. These are germane to the purpose of the legislation
with legislative sanction, by the alter egos of the President, such 1. Revenue bill must originate exclusively in the House of or ordinance;
as department secretaries. Representatives but the Senate may propose c. Applies, not only to present conditions, but, also, to
There is only one viable ground for challenging the legality of the amendments. (Sec 24(4) Art VI) future conditions substantially identical to those of
limitations and restrictions imposed by Congress under Section It is not the statute that must originate in the HREP but the the present;
28(2) Article VI, and that is such limitations and restrictions are bill. d. Applies equally to all those who belong to the same
themselves violative of the Constitution. Thus, no matter how
class.
distasteful or noxious these limitations and restrictions may seem, Abakada Guro Party List v. Ermita
the Court has no choice but to uphold their validity unless their 4. Progressive system of taxation

Abakada Guro Party List v. Ermita c. The exemption extends to facilities which are Poll tax is a tax of a xed amount xed on persons residing
incidental to or reasonably necessary for the within a speci ed territory, whether resident or not, without
Uniformity in taxation means that all taxable articles or kinds of
accomplishment of said purpose. regard to their property or the occupation of business in
property of the same class shall be taxed at the same rate. Di erent
which they may be engaged.
articles may be taxed at di erent amounts provided that the rate is Scope of exemption. Real property taxes on facilities which
uniform on the same class everywhere with all people at all times. are: 8. Non-impairment of the jurisdiction of the SC in tax
cases (Sec 5(2) Art VIII)
In this case, the tax law is uniform as it provides a standard rate of a. Actual;
0% or 10% (or 12%) on all goods and services. The rule of uniform The Supreme Court shall have the following powers: (2)
b. Incidental;
taxation does not deprive Congress of the power to classify Review, revise, modify or a rm on appeal or certiorari, as the
c. Reasonably necessary for the accomplishment of said laws or the Rules of Court may provide, nal judgments and
subjects of taxation, and only demands uniformity within the
purpose. orders of lower courts in xxx (b) all cases involving the
particular class.
6. Exemption of non-stock, non-pro t educational legality of any tax, impost, assessment or toll or any
Taxation is progressive when its rate goes up depending on the
institutions from taxation penalty imposed in relation thereto.
resources of the person a ected. The VAT is an antithesis of
progressive taxation. By its very nature, it is regressive. Summary for Charitable, Religious and Educational Entities 9. Prohibition on the use of special fund (Sec 29(3) Art VI)
Nevertheless, the Constitution does not really prohibit the Charitable or Non-Stock, Non-Pro t All money collected on any tax levied for a special purpose
imposition of indirect taxes, like the VAT. What it simply provides is Religious Educational shall be treated as a special fund and paid out for such purpose
that Congress shall "evolve a progressive system of taxation." only. If the purpose for which a special fund was created has
Real Exempt from RPT If used ADE for intended been ful lled or abandoned, the balance, if any, shall be
5. Exemption of religious, charitable and educational Property purpose. transferred to the general funds of the Government.
entities, nonpro t cemeteries, and churches from
Income Exempt from Income Tax
property taxation (Sec 28(3) Art VI) PKSMMN, et al. v. Executive Secretary 2012 En Banc
Important Principles Revenues from Coco-levy funds are not only a ected with public interest; they are,
Income from properties properties or activities in fact, prima facie public funds. They were raised with the use of
a. The tax exemption of religious, charitable and
Income from or activities conducted conducted FOR pro t the police and taxing powers of the State for the bene t of the
educational institutions covers real property tax
Property FOR pro t are taxable that are ADE for coconut industry and its farmers in general.
only.
regardless of disposition educational purposes are
b. The test is usage and not ownership. — Actual, tax-exempt. E.O. 313 runs counter to the constitutional provision which directs
direct, and exclusive use for religious, charitable and that all money collected on any tax levied for a special purpose shall
educational purposes. 7. Non-imprisonment for non-payment of a poll tax (Sec 20 be treated as a special fund and paid out for such purpose only.
Art III) Assisting other agriculturally-related programs is way off the
coco-fund’s objective of promoting the general interests of the coconut

cannot be revoked unilaterally by the government. The

industry and its farmers. EXC: Transcendental importance, taxpayer‘s suit.
non-impairment clause applies.
2) Equal protection of the laws
10. Power of the President to veto any particular items in a c. If the basis of the tax exemption is a mere franchise
revenue or tari bill a. All persons, businesses, and properties should be taxed at granted by Congress – it can be unilaterally revoked by
the same rate, so long as they belong to the same the government. NIC does not apply.
GR: The President has to approve or disapprove a bill in its
classi cation. Equality among equals.
entirety. 4) Non-infringement of religious freedom
b. Does not require territorial uniformity of laws. (Tiu v CA)
EXC where partial or item veto is allowed The free exercise of religion clause, however, does not prohibit
TESTS TO DETERMINE VALID CLASSIFICATION imposing a generally applicable sales tax on the sale of religious
a. Appropriation bill;
1. Compelling State Interest Test – State balances the materials by religious organizations. The sale of religious
b. Revenue bill; articles can be subject to VAT, what cannot be taxed is the
public interest against religious freedom. The need to
c. Tari bill. advance the constitution and public interest. In case exercise of religious worship or activity. The income of the
there are less restrictive means to advance a right priest from the exercise of a religious activity cannot also be
CIR v. CTA, Manila Golf & Country Club under the constitution. taxed. (Tolentino v. SOF)
An “item” in a revenue bill does NOT refer to an entire 2. Rational Basis Test – The classi cation is valid if it
American Bible Society v. City of Manila
is rationally related to a constitutionally permissible
section imposing a particular kind of tax, but rather to the subject
state interest. e.g. Senior Citizens Act We believe that the provisions of City of Manila Ordinance No.
of the tax and the tax rate. In the portion of a revenue bill which
3. Quasi-Suspect Case – Available if needed. Based on 2529, as amended, cannot be applied to appellant, for in doing
actually imposes a tax, a section identi es the tax and enumerates
gender/legitimacy. It points out a speci c so it would impair its free exercise and enjoyment of its religious
the persons liable therefor with the corresponding tax rate.
constitutionally granted state interest such as profession and worship as well as its rights of dissemination of
To construe the word “item” as referring to the whole section would religious beliefs.
protection of women where there is a valid
tie the President’s hand in choosing either to approve the whole
classi cation between men and women. With respect to Ordinance No. 3000, as amended, which requires
section at the expense of also approving a provision therein which
3) Non-impairment of the obligations of contracts the obtention of the Mayor's permit before any person can
he deems unacceptable or veto the entire section at the expense of
engage in any of the businesses, trades or occupations enumerated
foregoing the collection of the kind of tax altogether. a. If the exemption was granted for a valuable therein, We do not nd that it imposes any charge upon the
consideration on the basis of a contract – it cannot be enjoyment of a right granted by the Constitution, nor tax the
revoked by passing another law. The non-impairment exercise of religious practices.
Indirect Constitutional Limitations clause applies.
1) Due process of law. — The validity of a statute must be b. If the exemption is granted by virtue of a contract 5) No appropriation for religious purposes
contested only by one who sustained or stands to sustain direct between a private corporation and the government – it GR: No appropriation is allowed in favor of any sect,
injury in consequence of its performance church, or any priest, minister, etc.

EXC: When such priest is assigned to the armed forces, 1) Enforced contribution - independent of the will of taxpayer; If they are not considered taxes, the requirements for a valid tax
penal institution or government orphanage or (PUJ-DL) need not be complied with.
2) Generally payable in money;
leprosarium.
EXC: 1) License is in the nature of a special privilege, or authority to
6) Non-infringement of the freedom of the press do what is within its terms. It makes lawful an act which
a. Tax credit certi cate or back pay certi cate; would otherwise be unlawful. A license granted by the State is
There is curtailment of press freedom and freedom of thought
and expression if a tax is levied in order to suppress this basic b. Tax liens. always revocable. Primary purpose test (To be considered a
right and impose prior restraint. license fee)
3) Proportionate in character — ability to pay.
a. must relate to an occupation or activity that so
4) Levied on persons, property, exercise of a right or
CREBA v. Romulo 2010 En Banc engages the public interest in health, morals,
privilege, act or transactions;
development and safety, as to require regulation for
Certainly, an income tax is arbitrary and con scatory if it taxes 5) Levied by the State which has jurisdiction over the the protection and promotion of such public interest.
capital because capital is not income. In other words, it is income, subject or object of taxation;
not capital, which is subject to income tax. However, the MCIT is b. must bear a reasonable relation to the probable
not a tax on capital. 6) Levied by the lawmaking body of the State; expenses of regulation, taking into account not only
7) For public purpose. the costs of direct regulation but also its incidental
The MCIT is imposed on gross income which is arrived at by
consequences as well.
deducting the capital spent by a corporation in the sale of its goods, Requisites for a Valid Tax (PUJ-DL)
i.e., the cost of goods and other direct expenses from gross sales. 2) Toll is a sum of money for the use of something, generally
1) It must be for a Public purpose;
Clearly, the capital is not being taxed. applied to the consideration which is paid for the use of a road,
2) The rule on taxation should be Uniform; bridge or the like, of a public nature.
No violation of Equal Protection
The taxing power has the authority to make reasonable 3) Subject taxed must be within the Jurisdiction of the taxing 3) Compromise penalty is the amount collected by the BIR in
classi cations for purposes of taxation. Inequalities which result authority; lieu of criminal prosecution for violations committed by
from a singling out of one particular class for taxation, or taxpayers.
4) The assessment and collection must be in consonance with the
exemption, infringe no constitutional limitation. The real estate Due process clause; 4) Special assessment is a charge imposed on lands especially
industry is, by itself, a class and can be validly treated bene ted by public works or improvements nanced by the
5) The tax must not infringe the inherent and constitutional
differently from other business enterprises. government. It is not a personal liability of the person assessed.
Limitations of the power of taxation.
His liability is limited only to the land involved. It is based
wholly on bene ts and not necessity.
Tax as Distinguished from Other Forms
C Requisites of a Valid Tax D 5) Revenue refers to all funds or income derived by the
of Exactions
government, whether from tax or from whatever source and
Essential Characteristics and Attributes of Taxes whatever manner.

else, not as taxes, but as part of the purchase price. e.g. VAT,
6) Customs Duties is a tax levied on imports (and, sometimes, a. Proportion – based on a xed percentage of the amount of
percentage tax, excise tax, customs duties
on exports) by the customs authorities of a country to raise the property receipts or other basis to be taxed. e.g. Real estate
state revenue, and/or to protect domestic industries from more AS TO TAX RATE tax, corporate tax ( xed at 30% regardless of how much income
e cient or predatory competitors from abroad. the corporation earns)
a. Specific – tax imposed by the head or number, or by some
7) Tari is a tax imposed on imported goods and services. standard of weight or measurement. e.g. Wines, fermented b. Progressive – rate of which increases as the tax base or bracket
Tari s are used to restrict trade, as they increase the price of liquors, etc. increases. e.g. Income tax
imported goods and services, making them more expensive to b. Ad valorem – tax of a xed proportion of the value of the Digressive - started as progressive but becomes stagnant at
consumers. They are one of several tools available to shape property with respect to which the tax is assessed. e.g. Income some point.
trade policy. tax, real estate tax, excise tax on automobiles
c. Regressive – tax rate decreases as the tax base or bracket
c. Mixed – Basis of the tax is the value of the article and weight. increases. e.g. VAT (regressive as to its e ect)
E Kinds of Taxes e.g. Customs duties
AS TO SUBJECT MATTER OR OBJECT AS TO PURPOSE F Doctrines in Taxation
a. Personal, Poll, or Capitation – tax imposed on persons a. General, Fiscal or Revenue – tax levied for the general or Taxes are the lifeblood of the government and their
residing within a speci ed territory, whether citizens or not, ordinary purposes of the government, i.e. raise revenue for prompt and certain availability is an imperious need. Without
without regard to their property or the occupation or business governmental and public needs. These funds can be used for taxes, the government would be paralyzed for lack of motive power
in which they may be engaged. e.g. Community tax whatever purpose. e.g. Income tax, VAT, and almost all taxes. to activate and operate it.
b. Property – tax levied on property, real or personal, in b. Special or Regulatory – tax levied for special purposes, i.e. Its collection should be made in accordance with law as any
proportional to its value or in accordance with some rule of to achieve some social or economic ends, irrespective of arbitrariness will negate the very reason for government itself.
apportionment. e.g. Real estate tax whether revenue is actually raised or not. TN: These funds can
c. Excise – tax imposed upon the performance of an act, the be used only for the speci c purpose which the law creating it CIR v. Standard Insurance 28 Apr 2021
enjoyment of a privilege, or the engagement in an occupation indicated.
The RTC acted without jurisdiction in taking cognizance of the
or business. E.g. Income tax, donor‘s tax, estate tax AS TO SCOPE OR AUTHORITY IMPOSING THE TAX
Petition for Declaratory Relief and issuing an injunction against the
AS TO BURDEN OR INCIDENCE a. National – taxes imposed by the national government e.g. collection of taxes.
a. Direct – tax demanded from the very person who, as intended NIR taxes, customs duties, national taxes imposed by laws
1.1. CA 55 provides that petitions for declaratory relief do not
should pay the tax which he cannot shift to another. e.g. b. Municipal or Local – taxes provided in the LGC and apply to cases where a taxpayer questions his liability for the
Income tax, estate tax, donor‘s tax, community tax imposed by local governments. e.g. Business taxes imposed payment of any tax under any law administered by the BIR.
b. Indirect – tax demanded in the rst instance from one person under the LGC
1.2. Thus, the courts have no jurisdiction over petitions for
with the expectation that he can shift the burden to someone AS TO GRADUATION declaratory relief against the imposition of tax liability or

validity of tax assessments. GR: In case of doubt, tax laws are to be construed strictly contractual and is thus covered by the non-impairment
against the government and liberally in favor of the clause of the Constitution.
1.3. Taxes being the lifeblood of the government should be
collected promptly, without unnecessary hindrance or taxpayer.
delay. EXC:
CIR v. Acosta
1.3.1. Section 218 of the NIRC expressly provides that a. Where the language of the statute is plain and there is no
no court shall have the authority to grant an doubt as to the legislative intent. Tax refunds are in the nature of tax exemptions which are
injunction to restrain the collection of any national construed strictissimi juris against the taxpayer and liberally in
b. Where the taxpayer claims exemption from taxation.
internal revenue tax, fee or charge imposed by the favor of the government. Tax laws are prospective in operation,
code. As to Tax Exemptions unless the language of the statute clearly provides otherwise.
1.3.2. An exception to this rule, provided under Section GR: In case of doubt, tax exemptions are to be construed strictly Revenue statutes are substantive laws and in no sense must their
11 of RA 1125, obtains only when in the opinion against the taxpayer and liberally in favor of the taxing application be equated with that of remedial laws. As well said in a
of the CTA the collection thereof may jeopardize authority. prior case, revenue laws are not intended to be liberally construed.
the interest of the government and/or the taxpayer. Considering that taxes are the lifeblood of the government, tax laws
EXC:
must be faithfully and strictly implemented.
1.4. Here, respondent only proceeded with its petition after
a. Statute provides for the liberal construction thereof;
receiving tax assessments from the BIR and after various
requests for reconsideration, where it notably already raised b. Special taxes relating to special cases and a ecting only special
the alleged unconstitutionality of Sections 108 and 184 of cases; KEPCO v. CIR 2011
the NIRC as a ground to contest the tax assessment. c. Exemptions refer to public property;
WON Kepco's failure to imprint the words "zero-rated" on its official
See Remedial Law Case Digest No. 49 d. Exemptions granted to religious, charitable and educational receipts issued to NPC justifies an outright denial of its claim for
institutions or their property; refund of unutilized input tax credits.
e. Exemptions in favor of the government, its political YES. The imprinting of "zero-rated" is necessary to distinguish
Construction and Interpretation of Tax Laws, subdivisions or instrumentalities.
1 sales subject to 10% VAT, those that are subject to 0% VAT
Rules, and Regulations
(zero-rated) and exempt sales. Said revenue regulation is merely a
MCIAA v. Marcos precautionary measure to ensure the e ective implementation of the
Internal revenue laws are not political in nature. Tax laws are civil
Tax Code. As a matter of fact, the provision of Section 4.108-1 of
and not penal in nature. Even if there is change in government Since taxation is the rule and exemption therefrom the exception,
R.R. 7-95 was incorporated in Section 113 (B)(2)(c) of R.A. No.
control, it remains to be implemented. the exemption may thus be withdrawn at the pleasure of the
9337. This, in e ect, and as correctly concluded by the CIR,
taxing authority. The only exception to this rule is where the
con rms the validity of the imprinting requirement on VAT
exemption was granted to private parties based on material
invoices or o cial receipts even prior to the enactment of R.A. 9337
consideration of a mutual nature, which then becomes

under the principle of legislative approval of administrative Non-retroactivity of repeal of regulations or rulings 2. Broad Sense — INDIRECT
interpretation by reenactment.
GR: No retroactivity if the repeal, revocation, modi cation or if any of the elements for direct duplicate taxation is absent.
reversal of regulations or rulings is prejudicial to the taxpayer. Not prohibited.
EXC:
Important Concepts on Jurisdiction CIR v. Solidbank
1. Where the taxpayer deliberately misstates or omits material
1. Follow the hierarchy of the courts;
facts from his return or in any document required of him by Double taxation means taxing the same property twice when it
2. If it is a question pertaining to the constitutionality of a ruling the BIR; should be taxed only once; that is, "taxing the same person twice by
or IRR, raise it immediately before the regular courts; the same jurisdiction for the same thing."
2. Where the facts subsequently gathered by the BIR are
3. But if it pertains to questions on the tax payable materially di erent from the facts on which the ruling is First, the taxes herein are imposed on two di erent subject
computations, question it rst with the BIR (Administrative based; matters. The subject matter of the FWT is the passive income
level) then appeal it to the CIR (depends on the amount), then generated in the form of interest on deposits and yield on deposit
3. Where the taxpayer acted in bad faith.
after it can be appealed later to the Sec of Finance or CTA, and substitutes, while the subject matter of the GRT is the privilege of
then after, that‘s the time you can go the SC. engaging in the business of banking.
3 Imprescriptibility of Taxes
4. But in the SC, it should only be purely questions of law. Second, the taxing periods they a ect are di erent. The FWT is
As a rule, taxes are imprescriptible as they are the lifeblood of the deducted and withheld as soon as the income is earned, and is paid
2 Prospectivity of Tax Laws government. However, tax laws may provide for statute of after every calendar quarter in which it is earned. On the other hand,
limitations. the GRT is neither deducted nor withheld, but is paid only after
APPLICATION OF TAX LAWS
every taxable quarter in which it is earned.
GR: Tax laws are prospective in operation because the nature and
4 Double Taxation
Third, these two taxes are of di erent kinds or characters. The
amount of the tax could not be foreseen and understood by 1. Strict Sense — DIRECT FWT is an income tax subject to withholding, while the GRT is a
the taxpayer at the time the transactions which the law seeks to percentage tax not subject to withholding.
Requisites
tax were completed.
a. Same subject/object taxed twice; Domestic double taxation — arises when the taxes are imposed by
EXC: While it is not favored, a statute may nevertheless operate
retroactively provided it is expressly declared or is clearly the b. For the same purpose; the local or the national government.
legislative intent. International double taxation — imposition of comparable taxes in
c. By the same taxing authority;
EXC to the EXC: two or more states on the same taxpayer with respect to the same
d. Within the same jurisdiction; subject matter and for an identical period.
A tax law should not be given retroactive application when it
e. During the same period; AND HOW TO ELIMINATE?
would be so harsh and oppressive, for in such case, the
constitutional limitation of due process would be violated. f. Of the same kind or character. 1. Allowing reciprocal exemption either by law or by treaty

2. Allowance of tax credit for foreign taxes paid taxation. The purpose of these international agreements is to a. Tax burden is transferred from the statutory taxpayer to
reconcile the national scal legislations of the contracting another without violation of law.
Tax Credit – deduction from tax payable. It reduces the
parties in order to help the taxpayer avoid simultaneous
amount payable directly. It is a full deduction of the amount b. Statutory taxpayer. the original taxpayer required under the
taxation in two di erent jurisdictions. More precisely, the tax
paid abroad. This is the best option. law to pay the tax.
conventions are drafted with a view towards the elimination of
3. Allowance of deduction for foreign taxes paid international juridical double taxation, which is de ned as the c. Impact of taxation. The point on which a tax is originally
imposition of comparable taxes in two or more states on the same imposed.
Tax Credit – deduction from taxable income. The amount of
taxes paid abroad is used to reduce tax payable in the taxpayer in respect of the same subject matter and for identical d. Incidence of taxation. That point on which the tax burden
Philippines. Here, the amount paid abroad is multiplied by the periods. nally rests or settles down.
tax rate in the Philippines. There are two methods of relief — the exemption method and the Kinds:
4. Reduction of Philippine tax rate credit method.
a. Forward shifting – the transfer of the burden of tax
MOST FAVORED NATION CLAUSE In the exemption method, the income or capital which is from the units of production to the units of
taxable in the state of source or situs is exempted in the state of distribution to the consumer. E.g. VAT, percentage tax
1. A method of establishing equality of trading opportunity
residence, although in some instances it may be taken into
among states by guaranteeing that if one country is given b. Backward shifting – The transfer of the burden of
account in determining the rate of tax applicable to the
better trade terms by another, then all other states must get the tax from the consumer back to the units of
taxpayer's remaining income or capital.
same terms. distribution to the units of production.
On the other hand, in the credit method, although the
2. The ling of a tax treaty relief application is not a c. Onward shifting – When the tax is shifted two or
condition precedent to the availment of a preferential tax rate. income or capital which is taxed in the state of source is still more times either forward or backward. More than
The denial of the availment of tax relief for the failure of a taxable in the state of residence, the tax paid in the former is one shift.
taxpayer to apply within the prescribed period under the credited against the tax levied in the latter.
b Tax Avoidance
administrative issuance would impair the value of the tax The basic di erence between the two methods is that in the
treaty. At most, the application for a tax treaty relief from the exemption method, the focus is on the income or capital itself, Exploitation by the taxpayer of legally permissible alternative tax
BIR should merely operate to con rm the entitlement of the whereas the credit method focuses upon the tax. rates or methods of assessing taxable property or income in order
taxpayer to the relief. (Deutsche Bank) to avoid or reduce tax liability. e.g. estate planning.
Tax Treaties as Relief from Double Taxation c Tax Evasion
5 Escape from Taxation
Elements of Tax Evasion (How to Establish Tax Evasion)
CIR v. S.C. Johnson and Son
a. The end to be achieved is to lessen payment of taxes Example:
The RP-US Tax Treaty is just one of a number of bilateral treaties a Shifting of Tax Burden the payment of less than that known by the taxpayer to be
which the Philippines has entered into for the avoidance of double
legally due, or in paying no tax when such is due.

claim or right thereto, by a grant expressed in terms ― too

b. An accompanying state of mind described as being “evil”, “in DOUBLE NEXUS RULE. Person claiming exemption must prove:
plain to be mistaken and too categorical to be misinterpreted.
bad faith”, “willful” or “deliberate and not accidental”
1. The law granting the exemption; AND
d. Claims for an exemption must be able to point out some
c. A course of action (or failure of action) which is unlawful.
2. That he falls within the law or is quali ed in the exemption. provision of law creating the right, and cannot be allowed to
(CIR v. Estate of Toda)
GROUNDS FOR TAX EXEMPTION exist upon a mere vague implication or inference.
Indicia of Fraud
a. It may be based on contract. When the charter provides for e. Refunds are in the nature of exemption, and must be
a. Failure to declare true and actual income derived from construed strictly against the grantee/taxpayer.
such exemption.
business for 2 consecutive years; OR
TN: In such a case, the public which is represented by the EXC:
b. Substantial under-declaration of ITR for 4 consecutive years
government is supposed to receive a full equivalent therefor. a. When the law itself expressly provides for a liberal
coupled with intentional overstatement of deductions.
b. It may be based on some ground of public policy. The construction, that is, in case of doubt, it shall be resolved in
exemption is provided in the law itself or the constitution. favor of exemption.
6 Exemption from Taxation
TN: To encourage new industries or to foster charitable b. When the exemption is in favor of the government itself or
Broad Sense – Tax not applied on a particular property. Tax on its agencies, or of religious, charitable, and educational
institutions. Here, the government need not receive any
particular property or object within the same jurisdiction but not institutions because the general rule is that they are exempt
consideration in return for the tax exemption
taxed by the taxing authority. e.g. Tax on property used by the from tax.
Government when the other properties in the same area are subject c. It may be created in a treaty on grounds of reciprocity or to
to tax. lessen the rigors of international or multiple taxation. c. When the exemption is granted under special circumstances to
special classes of persons.
Narrow Sense – Exemption of a particular class. An entire class of TN: Recognition of international comity.
the same conditions are exempted from taxes supposedly imposed d. If there is an express mention or if the taxpayer falls within
CONSTRUCTION OF TAX EXEMPTION STATUTES
on a bigger class. the purview of the exemption by clear legislative intent, the
GR: Tax exemption statutes are construed strictly against the rule on strict construction does not apply.
Important principles taxpayer and liberally in favor of the government.
e. If exemption refers to public property (in case of public
a. It is an immunity or privilege that is personal in nature; a. In the construction of tax statutes, in case of doubt, property, the general rule is exemption and taxation is the
b. It is freedom from a nancial charge or burden to which exemptions are not favored and are construed strictissimi juris exception)
others are subjected; against the taxpayer.
f. Solutio indebiti
c. Allowed only when there is a clear provision of the law; b. The fundamental theory is that all taxable property should
RESTRICTIONS ON REVOCATION OF TAX EXEMPTION
bear its share in the cost and expenses of the government.
d. Strictly construed against the taxpayer; a. Non-impairment clause – Applies in contractual tax
c. Taxation is the rule and exemption the exception, and
e. It is not necessarily discriminatory as long as there is a exemptions or those agreed to by the taxing authority in
therefore, he who claims exemption must be able to justify his
reasonable foundation or rational basis. contracts, such as those contained in government bonds or

debentures, lawfully entered into by them under enabling laws

WON PAGCOR is still exempt from corporate income tax and VAT property is used for tax-exempt purposes.
in which the government, acting in its private capacity, sheds
with the enactment of R.A. No. 9337. NO. Petitioner is no longer
its cloak of authority and waives its governmental immunity.
exempt from corporate income tax as it has been e ectively
b. Adherence to form – If the exemption is granted by the omitted from the list of GOCCs that are exempt from it. John Hay People’s Alternative Coalition, et al. v. Lim
Constitution, it can only be revoked through a Constitutional
In Manila Electric Company v. Province of Laguna, the Court
amendment. It cannot be revoked by mere passage of a law. Under Section 12 of R.A. No. 7227, it is only the Subic SEZ which
held that a franchise partakes the nature of a grant, which is beyond
was granted by Congress with tax exemption, investment incentives
c. Tax-exempting grant is in the form of a special law – the purview of the non-impairment clause of the Constitution.
and the like. There is no express extension of the aforesaid bene ts
where the grant is given through a special law and not by a
Anent the validity of RR No. 16-2005, the Court holds that the to other SEZs still to be created at the time via presidential
general law, even if the terms of the general act are broad
provision subjecting PAGCOR to 10% VAT is invalid for being proclamation.
enough to include the intent to repeal or alter the special law,
contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it
there would still be no revocation.
provided that petitioner can be subjected to VAT.
Smart Communications v. The City of Davao
CIR v. The Phil-American Accident Insurance Company
WON Smart is liable to pay the franchise tax imposed by the City of
The rule that tax exemptions should be construed strictly against the Lung Center of the Philippines v. Quezon City
Davao.
taxpayer presupposes that the taxpayer is clearly subject to the tax
Portions of the land leased to private entities as well as those parts of
being levied against him. Unless a statute imposes a tax clearly, YES. The uncertainty in the "in lieu of all taxes" clause in R.A. No.
the hospital leased to private individuals are NOT exempt from
expressly and unambiguously, what applies is the equally well-settled 7294 on whether Smart is exempted from both local and national
such taxes. On the other hand, the portions of the land occupied by
rule that the imposition of a tax cannot be presumed. Where franchise tax must be construed strictly against Smart which
the hospital and portions of the hospital used for its patients,
there is doubt, tax laws must be construed strictly against the claims the exemption.
whether paying or non-paying, are exempt from real property taxes.
government and in favor of the taxpayer.
In this case, the doubt must be resolved in favor of the City of
In order to be entitled to the exemption, the petitioner is burdened
In this case, petitioner does not dispute that respondents are in the Davao. The "in lieu of all taxes" clause applies only to national
to prove, by clear and unequivocal proof, that
insurance business. Petitioner merely alleges that the de nition of internal revenue taxes and NOT to local taxes.
lending investors under CA 466 is broad enough to encompass a) it is a charitable institution; and
insurance companies. The question is whether the lending activities b) its real properties are ACTUALLY, DIRECTLY and
of insurance companies make them lending investors for purposes EXCLUSIVELY used for charitable purposes. 7 Equitable Recoupment
of taxation. We agree with the CTA and Court of Appeals that it
does not. What is meant by actual, direct and exclusive use of the property for Where the refund of a tax illegally or erroneously collected from or
charitable purposes is the direct and immediate and actual overpaid by a taxpayer is barred by prescription, a tax presently
application of the property itself to the purposes for which being assessed against a taxpayer may be recouped or set-o .
the charitable institution is organized. It is not the use of the
PAGCOR v. BIR 2011 En Banc NB: INAPPLICABLE.
income from the real property that is determinative of whether the

8 Prohibition on Compensation and Set-O a refund. Amnesty Exemption
GR: Taxation is not subject to set-o . A PEZA-registered corporation that has never commenced Immunity from ALL liabilities Immunity from CIVIL
operations may not avail the tax incentives and preferential liabilities only
EXC: When both debts are due and demandable and have been rates given to PEZA-registered enterprises. Such corporation is
fully liquidated, and the amount due the taxpayer has subject to ordinary tax rates. A general pardon to all taxpayers A privilege, a freedom from a
already been appropriated by law, compensation follows charge or burden of which
by operation of law. The amount of the taxpayer’s liability should be computed and
deducted from the refundable amount. Any liability in excess of the others are subjected
TN: There can be no compensation as the Government and refundable amount, however, may not be collected in a case
the people are not principal debtors and creditors of each Of retroactive application Generally prospective
involving solely the issue of the taxpayer’s entitlement to refund.
other.
Air Canada v. CIR 2016 Asia International Auctioneers, Inc. v. CIR 2012
9 Compromise and Tax Amnesty
The issue of petitioner's claim for tax refund is intertwined with A tax amnesty is a general pardon or the intentional overlooking
the issue of the proper taxes that are due from petitioner. A claim by the State of its authority to impose penalties on persons
for tax refund carries the assumption that the tax returns led were Kepco Philippines v. CIR 2020 otherwise guilty of violating a tax law. It partakes of an absolute
correct. In South African Airways v. CIR, South African Airways waiver by the government of its right to collect what is due it and to
claimed for refund of its erroneously paid 2 1/2% taxes on its gross The CIR may compromise an assessment when a reasonable give tax evaders who wish to relent a chance to start with a clean
Philippine billings. This court did not immediately grant South doubt as to the validity of the claim against the taxpayer exists, or slate.
African's claim for refund. This is because although this court the nancial position of the taxpayer demonstrates a clear inability
A tax amnesty, much like a tax exemption, is never favored or
found that South African Airways was not subject to the 2 1/2% tax to pay the tax.
presumed in law. The grant of a tax amnesty, similar to a tax
on its gross Philippine billings, this court also found that it was As to whether the CIR properly accepted Kepco's o er for a exemption, must be construed strictly against the taxpayer and
subject to 32% tax on its taxable income. compromise because "the assessment is lacking in legal and/or liberally in favor of the taxing authority.
factual basis," the general rule is that the authority of the CIR
The Tax Amnesty Program under RA 9480 may be availed of by
to compromise is purely discretionary and the courts cannot
any person except those who are disquali ed under Section 8
SMI-ED Philippines Technology v. CIR 2014 interfere with his exercise of discretionary functions, absent grave
thereof. The CIR contends that AIA is disquali ed under Section
abuse of discretion. Here, no grave abuse of discretion exists. Kepco
In an action for the refund of taxes allegedly erroneously paid, the 8(a) of RA 9480 from availing itself of the Tax Amnesty Program
complied with the procedures prescribed under the BIR rules on the
Court of Tax Appeals may determine whether there are taxes that because it is “deemed” a withholding agent for the de ciency taxes.
application and approval of compromise settlement on the ground
should have been paid in lieu of the taxes paid. Determining the This argument is untenable.
of doubtful validity.
proper category of tax that should have been paid is not an The CIR also argues that AIA, being an accredited
assessment. It is incidental to determining whether there should be investor/taxpayer situated at the Subic Special Economic Zone,

should have availed of the tax amnesty granted under RA 9399 and The tax amnesty under RA 9480 does NOT extend to CEDCO 1. Here, Tuyay availed of the tax amnesty under RA 9480 and
not under RA 9480. This is also untenable. with respect to its existing withholding tax liabilities. complied with all the requirements thereof.
RA 9399 was passed prior to the passage of RA 9480. RA 9399 1.1. Tax amnesty refers to the absolute waiver by a sovereign of 2. Tuyay was not disquali ed to avail of the tax amnesty
does not preclude taxpayers within its coverage from availing of its right to collect taxes and power to impose penalties on because at the time she availed of it in February 2008, there
other tax amnesty programs available or enacted in futuro like RA persons or entities guilty of violating a tax law. was no pending criminal case against her before any court as
9480. Moreso, RA 9480 does not exclude from its coverage it was only in October 2009 that the criminal cases were
1.1.1. It aims to grant a general reprieve to tax evaders
taxpayers operating within special economic zones. As long as it is led against her with the CTA.
who wish to come clean by giving them an
within the bounds of the law, a taxpayer has the liberty to choose
opportunity to straighten out their records. 3. In sum, having availed of the tax amnesty and having fully
which tax amnesty program it wants to avail.
complied with all its requirements and conditions, Tuyay is
1.2. Sec 8 of RA 9480 provides that withholding taxes are not
indeed entitled to the immunities and privileges conferred
covered by the amnesty program.
by RA 9480, which includes her immunity from criminal
CIR v. Transfield Philippines, Inc. 2019 1.2.1. Thus, there is merit in the BIR's submission that liability under the NIRC.
CEDCO is not quali ed to avail of the tax
Here, respondent has successfully availed itself of the tax amnesty amnesty with respect to its withholding tax See Taxation Law Case Digest No. 4
bene ts granted under R.A. No. 9480. The CIR, however, insists liabilities.
that respondent is still liable for de ciency taxes, contending that
1.3. A tax amnesty, much like a tax exemption, is never favored
under RMC No. 19-2008, respondent is disquali ed to avail of the La Flor Dela Isabela v. CIR 28 Apr 2021
or presumed in law.
tax amnesty because it falls under the exception of "delinquent
accounts or accounts receivable considered as assets by the BIR or 1.3.1. It must be construed strictly against the taxpayer La Flor's compliance with the requirements under RA 9480 as
the Government, including self-assessed tax." and liberally in favor of the taxing authority. implemented by DOF DO No. 20-97 extinguished its tax liabilities,
additions, and all appurtenant civil, criminal, or administrative
In implementing tax amnesty laws, the CIR cannot now insert an 1.4. However, with respect to the de ciency taxes pertaining to
penalties under the NIRC.
exception where there is none under the law. Indeed, a tax CEDCO's income tax and VAT for taxable years for 2000
amnesty must be construed strictly against the taxpayer and liberally and 2001, CEDCO is entitled or quali ed to avail of the tax 1.1. La Flor's immunity from paying taxes under RA 9480 is
in favor of the taxing authority. However, the rule-making power of amnesty considering that it had submitted the necessary e ective despite the fact that the CIR already issued the
administrative agencies cannot be extended to amend or expand documents and complied with the requirements under RA FDDA prior to its application for tax amnesty and
statutory requirements or to embrace matters not originally 9480. subsequent payment thereof.
encompassed by the law. 1.2. CIR v. Philippine Aluminum Wheels, Inc. ruled that only
See Taxation Law Case Digest No. 1
persons with "tax cases subject of nal and executory
judgment by the courts" are disquali ed to avail of the Tax
BIR v. Cagang 16 Mar 2022 Amnesty Program under RA 9480, which means that there
People v. Tuyay 01 Dec 2021
must be a nal and executory judgment promulgated by a

court. c) including the execution of judgments in all cases i) A decedent, to determine his gross estate;
decided in its favor by the CTA and the ordinary
1.2.1. The FDDA issued by the BIR is not a tax case ii) Any taxpayer who has led an application for
courts.
subject of nal and executory judgment by the compromise based on nancial incapacity; or
court. 2) Powers of the CIR include:
iii) Pursuant to an international convention or
See Taxation Law Case Digest No. 7 a) to interpret the provisions of the NIRC and other tax tax agreement.
laws, subject to review by the SOF; (Sec 4)
e) To delegate power, except
b) to obtain information, and to summon, examine, and
i) to recommend the promulgation of rules and
II National Taxation take testimony of persons; (Sec 5)
regulations by the SOF;
i) Examine any document which may be
ii) to issue rulings of rst impression or to
Income Tax relevant or material to an inquiry;
reverse, revoke or modify any existing ruling
Value-Added Tax ii) Obtain information from a third party in of the BIR;
relation to an investigation or audit of a
iii) to compromise or abate any tax liability,
Tax Remedies Under the National Internal Revenue taxpayer;
except
Code iii) Summon the taxpayer or any person holding
1) For tax liabilities P500K or less and
records of the taxpayer to appear and
A Taxing Authority produce the documents; 2) minor criminal violations — which
may be compromised by a Regional
Correlate with Sec 266 for Failure to Obey
Evaluation Board.
Summons which is penal in nature, subject to the
Jurisdiction, Power, and Functions of the iv) to assign or reassign internal revenue o cers
1 following requisites:
Commissioner of Internal Revenue to establishments where articles subject to
1. A person is duly summoned to appear to
excise tax are produced or kept.
testify, or to appear and produce books of
a Interpreting Tax Laws and Deciding Tax Cases
accounts, records, memoranda or other
b Non-Retroactivity of Rulings
1) The BIR shall be under the supervision and control of the papers, or to furnish information; and
DOF and its powers and duties shall comprehend 2. The person neglected to do so. Any revocation, modi cation or reversal of any of the rules and
regulations promulgated or any of the rulings or circulars
a) the assessment and collection of all national internal c) to make assessments and prescribe additional
promulgated by the CIR shall not be given retroactive application if
revenue taxes, fees, and charges, and requirements for tax administration and enforcement;
the revocation, modi cation or reversal will be prejudicial to the
(Sec 6)
b) the enforcement of all forfeitures, penalties, and nes taxpayers, except in the following cases:
connected therewith, d) to examine bank deposits, in the following cases

and are entitled to great respect and have in their favor the
a) Where the taxpayer deliberately misstates or omits REVENUE REGULATIONS
presumption of legality.
material facts from his return or any document required
GR: Revenue regulations are general interpretations of the BIR
of him by the BIR; RMC 20-86 was issued to govern the drafting, issuance and
issued by the CIR or by its delegate.
implementation of revenue tax issuances, including:
b) Where the facts subsequently gathered by the BIR are
EXC: When it tramples novel issues or is intended to revoke or
materially di erent from the facts on which the ruling is 1. Revenue regulations;
amend or modify a previous ruling.
based; or
2. Revenue audit memorandum orders;
Requisites for Validity & E ectivity of Regulations
c) Where the taxpayer acted in bad faith.
3. Revenue memorandum circulars (external) and orders
a. It must be issued under authority of law;
(internal).
Rule-Making Authority of the Secretary of b. It must be within the scope and purview of the law; not
2
Finance contrary to law and the Constitution;
B Income Tax
Directory provisions — those designed merely for the c. It must be published in the OG or newspaper of general
circulation De nition, Nature, and General Principles
information or direction of o cers or to secure methodical and
systematic modes of proceedings. e.g. Revenue memorandum TN: Interpretative rules or those merely internal in nature Income
circulars issued by BIR to guide personnel on matters of may simply be posted in conspicuous places in the agency
regulation. itself. Gross Income
Mandatory provisions — those intended for the security of the d. Where the regulations impose penal sanctions, the law itself Deductions from Gross Income
citizens or which are designed to ensure equality of taxation or must declare as punishable the violation of the administrative
certainty as to the nature and amount of each person‘s tax. e.g. rule or regulation and should x or de ne the penalty thereof. Income Tax on Individuals
Remedies under the tax code (security); tax rate (equality)
Kinds of Administrative Issuances
Income Tax on Corporations
The determination of the validity of these issuances clearly falls
1. Legislative rules — rules in the nature of subordinate
within the exclusive appellate jurisdiction of the CTA under Withholding Taxes
legislation designed to implement a primary legislation by
Section 7 (1) of RA No. 1125, as amended, subject to prior review
providing the details thereof. Before it is adopted, there must
by the Secretary of Finance, as required under the NIRC. (Steel
be a hearing under the AC of 1987.
Corporation of the Philippines v. BOC and BIR 2018) Important Revenue Regulations
2. Interpretative rules — are rules and regulations construing
RULES and REGULATIONS 1. RR 08-18. Revenue Regulation Implementing the Income
or interpreting the provisions of a statute to be enforced and
a. Promulgation: Secretary of Finance; are binding on all concerned until they are changed. Designed Tax Provisions of TRAIN Act
b. Recommendation: CIR; to provide guidelines to the law, which the administrative 2. RR 11-18. Revenue Regulation Implementing the
agency is in charge of enforcing. They have the e ect of law Withholding of Income Tax Provisions of TRAIN Act
c. Administrative Rulings: CIR.

3. RMC 50-18. Kinds of Income and Taxes Taxes

Taxpayer Source Taxpayer Type of Income
4. RR 2-21. (A) (B) (C) (D) Income VAT %
5. RR 5-21. Implementing the New Income Tax Rates on 20 or CIE Compensation NIT ✘ ✘
the Regular Income of Corporations under CREATE DC Any 25% FWT
Act, as modified by RR 14-21. NIT With GS/GR NIT ✘ 3%
not more than
25% SEP/ 3M 8% ✘ ✘
At a Glance (Based from the lectures of Atty. Lumbera) RFC w/in FWT SEI
NIT
N/A With GS/GR >
Sec 24 NIRC. — NIT 12% ✘
NRFC w/in 25% FT FWT 3M
(A) Other than income subject to tax under Subsections (B), (C),
and (D) Compensation NIT ✘ ✘
1
Compensation Income Earner Net Income Tax
(B) Passive Income; On Income from NIT ✘ 3%
(C) Capital Gains from Sale of Shares of Stock not Traded in the not T/B or EP not
NIT or 8% of Gross MIE
Stock Exchange; more more than 3M 8% ✘ ✘
Self-Employe With Gross Income in excess of
than
(D) Capital Gains from Sale of Real Property. d Professional Sales or P250K
3M On Income from
or Individual Receipts NIT 12% ✘
T/B or EP > 3M
Kinds of Income and Taxes > 3M Net Income Tax
Taxpayer Source
(A) (B) (C) (D) On Compensation
Net Income Tax 1 De nition, Nature, and General Principles
Income
RC Any
Mixed not INCOME TAX is a direct tax on all yearly pro ts arising from
NRC w/in 0-35% On Income property, professions, trades or o ces or a tax on a person's income,
Income more NIT or 8% of Gross
NIT or from Trade emoluments, pro ts, and the like. It is:
FWT Earner than Income
RA w/in 8% of or Business
3M 1. National;
GR/GS1 or Exercise of
NRA -
w/in Profession 2. Direct;
ETB > 3M Net Income Tax
3. Excise; and
NRA-
2
except those who are employed in OBUs, MNCs, PSCs who are
w/in 25% FT2 FWT subject to NIT rates 4. General.
NETB

taxable only on income derived from sources within the

Income Tax Systems RC; 2) Place — NRFC;
Philippines:
2) Place — NRA, 3) Nationality — DC.
a) Schedular — The items are classi ed based on kind or
NRC; Provided, That a seaman who is a citizen of the Philippines
category of income and this is subject to di erent tax rates
3) Citizenship — RC. and who receives compensation for services rendered abroad as
based on the income classi cation.
a member of the complement of a vessel engaged exclusively in
b) Global — lump all items of income and a single/ Common Features international trade shall be treated as an overseas contract
proportional/uniform income tax rate is imposed. worker;
1) Pay as you le system. —
c) Mixed (applicable in PH) — it is schedular in the sense that d) An alien individual, whether a resident or not of the
a) Individuals — upon ling of ITRs;
we lump di erent items of income per type or category and it Philippines, is taxable only on income derived from sources
is global in the sense that we subject all the items in this lump b) Corporations — upon ling of quarterly corporate
within the Philippines;
to one tax rate. ITRs and nal adjustment corporate returns;
e) A domestic corporation is taxable on all income derived
Features of the Philippine Income Tax Law 2) Creditable Withholding Tax System
from sources within and without the Philippines; and
a) Withholding agent — withholds tax and remits to the
Feature Individual Corporate f) A foreign corporation, whether engaged or not in trade or
BIR;
business in the Philippines, is taxable only on income derived
Schedular Global b) Tax withheld — creditable against income tax due. from sources within the Philippines. (Sec 23)
1) It classi es income; 1) Generally provides 3) Final Withholding Tax System In short… Only RESIDENT CITIZENS and DOMESTIC
2) Provides for for uniform rules; CORPORATIONS are taxable on income derived from ALL sources.
Tax a) Withholding agent — withholds tax and remits to the
di erent tax rules; 2) Generally imposes All others are only taxable on income derived from sources within PH.
Treatment BIR;
3) Imposes di erent uniform tax rate;
tax rates. 3) Does not generally b) Tax withheld — nal settlement of the tax liability on a Criteria in Imposing Philippine Income Tax
classify income. the income covered.
1. Citizenship or Nationality Principle — a citizen of the
General principles of income taxation
1) RC; 1) DC; Philippines is subject to Philippine income tax
Net Income 2) NRC; 2) RFC. a) A citizen of the Philippines residing therein is taxable on all
a. On his worldwide income, if he resides in the
Taxation 3) RA; income derived from sources within and without the
Philippines, or
4) NRA-ETB. Philippines;
b. Only on his Philippine-source income, if he quali es
Gross Income b) A nonresident citizen is taxable only on income derived
NRA-NETB NRFC as a non-resident citizen; hence, his foreign-source
Taxation from sources within the Philippines;
income shall be exempt.
c) An individual citizen of the Philippines who is working and
Situs 1) Residence — RA, 1) Residence — RFC; 2. Residence or Domicile Principle — an alien is subject to
deriving income from abroad as an overseas contract worker is
income tax because of his residence in the Philippines. Thus, a

resident alien is liable to pay Philippine income tax only on his

The corporate income tax rate shall be applied on the amount A Resident Citizen is a Filipino citizen who stayed permanently in the
income from sources within the Philippines but is exempt
computed by multiplying the number of months covered by Philippines or stayed outside the Philippines for less than 183 days
from tax on his income from sources outside the Philippines.
the new rate within the scal year by the taxable income of the during the taxable year.
3. Source of Income Principle — an alien is subject to corporation for the period, divided by twelve.
Non-Resident Citizen
Philippine income tax because he derives income from sources
within the Philippines. d Kinds of Taxpayers 1) A citizen of the Philippines who establishes to the satisfaction
of the Commissioner the fact of his physical presence abroad
b Types of Philippine Income Taxes with a de nite intention to reside therein.
1. Personal Income Tax on Individuals (Secs 24-25); 2) A citizen of the Philippines who leaves the Philippines during
2. Regular Corporate Income Tax (Sec 27[A]); the taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis.
3. Minimum Corporate Income Tax (Sec 27[E]);
3) A citizen of the Philippines who works and derives income
4. Capital Gains Tax; from abroad and whose employment thereat requires him to
5. Tax on passive investment income; be physically present abroad most of the time during the
taxable year.
6. Fringe Bene ts Tax (Sec 33);
➔ At least 183 days.
7. Branch Pro t Remittance Tax (Sec 27);
Within and Without Within Final Tax Rate of 25% within ➔ Temporary employment
8. Improperly Accumulated Earnings Tax (Sec 29); and
4) A citizen who has been previously considered as
9. Final Withholding Income Tax.
Resident Citizen non-resident citizen and who arrives in the Philippines at
c Taxable Period any time during the taxable year to reside permanently in the
1) Those who are citizens of the Philippines at the time of the Philippines shall likewise be treated as a non-resident citizen
1) 'Taxable year' means the calendar year, or the fiscal year adoption of this Constitution; for the taxable year in which he arrives in the Philippines with
ending during such calendar year, upon the basis of which the
2) Those whose fathers or mothers are citizens of the Philippines; respect to his income derived from sources abroad until the
net income is computed.
date of his arrival in the Philippines.
2) For Corporations — In the case of corporations adopting 3) Those born before January 17, 1973, of Filipino mothers, who
elect Philippine citizenship upon reaching the age of majority; ➔ Hybrid
the scal-year accounting period, the taxable income shall be
computed without regard to the speci c date when speci c and 5) Receives compensation for services rendered abroad as a
sales, purchases and other transactions occur. Their income 4) Those who are naturalized in accordance with law. seaman.
and expenses for the scal year shall be deemed to have been a. He is a member of the complement of a vessel
earned and spent equally for each month of the period.

b. The vessel is engaged exclusively in international b. petroleum service contractors and subcontractors, or and Service Providers
trade.
c. o shore banking units. Shall pay a nal withholding tax of 25% on their gross income.
Resident Alien 2. If the special taxpayer is an alien, all of his gross compensation The minimum FWT due for any taxable month from said persons
income received is subject to 15% nal tax. shall not be lower than P12,500.00.
A resident alien is one who has a residence in the Philippines
although he is not a Filipino citizen. He has no de nite period of 3. If the taxpayer is a Filipino citizen, he has the option to be Gross income shall include, whether in cash or in kind,
stay in the Philippines. taxed at 15% nal tax based on his gross compensation income
1. basic salary/wages,
received or at a regular income tax rate (0%-35%) based on the
He is not a mere transient or sojourner. His de nite purpose for
net taxable compensation income if his gross annual taxable 2. annuities,
staying requires an extended stay and to that end, he makes his
compensation is at least P975,000 (whether or not actually 3. compensation,
home temporarily in the Philippines.
received).
4. remuneration and
Non-Resident Alien TN: 15% preferential tax rate vetoed
5. other emoluments, such as honoraria and allowances,
The test to classify NRA is the length of stay in the Philippines, Present and future quali ed employees of existing ROHQ, received from such service providers or o shore gaming
whether he stays for more than 180 days or, 180 days or less. RAHQ, OBU, and Petroleum service contractors and licensees.
NRA-ETB subcontractors as of December 31, 2017 shall enjoy preferential tax
treatment. Estates and Trusts
a. More than 180 days
It shall not apply for employees of ROHQ, RAHQ, OBU and An ESTATE is composed of all properties, rights and obligations
b. 0-35% tax on net income Petroleum service contractors and subcontractors which registered including those properties, earnings or obligations that have
NRA-NETB with the SEC beginning January 1, 2018. accrued thereto since the opening of the succession. The estate is to
Tests for Filipinos to avail of the option (prior to 1 Jan 2018) be transferred from the decedent to his successors. Its status is the
a. 180 days or less
same as that of the decedent prior to his death.
b. 25% nal tax on gross income a. Position and function test – employees must be occupying
managerial or technical position. It will only be taxable when it is under administration or
Special Employees settlement.
b. Compensation test – employees must be paid in their
Special employees are alien individuals or Filipino citizens who are contract (whether actual or not, as long as stipulated in the GR: An estate under judicial settlement is subject to income
subject to 15% tax based on their gross compensation income when: contract) the amount of P975,000 per annum which is the tax.
minimum amount. EXC: The distribution to the heirs during the taxable year of
1. They are employed occupying managerial and/or technical
positions with regional or area headquarters of c. Exclusivity Test - one employer at a time. estate income is deductible from the taxable income of the
estate. Such will form part of the taxable income of the
a. multinational corporations, Alien Individuals Employed by an O shore Gaming Licensee heirs.

profession, no part of the income of which is derived from those that do not have speci c owners but comes in the hands of a
A TRUST is an obligation imposed or a right to administer over a
engaging in any trade or business. nder.
property given to a person for the bene t of another.
Domestic corporations are those created or organized in the CAPITAL denotes the original investment or fund used in order
1. Where the income is accumulated or held for future
Philippines or under its laws. Otherwise, foreign corporations. to generate earnings which is called income. It is the fund or
distribution by the trustee;
property existing at one point in time.
The term 'resident foreign corporation' applies to a foreign
2. Where it is up to the duciary whether there will be
corporation engaged in trade or business within the Philippines. REVENUE refers to the amount received by the business from
distribution or not;
selling main goods or services to its customers during the period.
The term 'nonresident foreign corporation' applies to a foreign
3. Where the income is collected by a guardian of an infant
corporation not engaged in trade or business within the
which is to be held or distributed as the court may direct. b When Income is Taxable
Philippines.
HOW TO TELL IF INCOME IS TAXABLE
Corporations 2 Income
1. There is gain or pro t;
The term 'corporation' shall include De nition and Nature 2. Gain or pro t is realized or received (actually or constructively)
a) one person corporations,
When Income is Taxable Constructive receipt:
b) partnerships, no matter how created or organized,
a. Matured interest coupons;
Tests in Determining Whether Income is Earned for Tax
c) joint-stock companies,
b. Interest on savings bank deposit;
Purposes
d) joint accounts (cuentas en participación),
c. Dividends applied to indebtedness of a shareholder;
e) association, or Tax-Free Exchanges
d. Share in the pro ts of a partner in GPP.
f) insurance companies, Situs of Income Taxation 3. Such gain or pro t is NOT exempted by any treaty or law.
but does not include
a De nition and Nature
a) general professional partnerships and
Tests in Determining Whether Income is Earned
c
In the broad sense, INCOME refers to all wealth which ows into for Tax Purposes
b) a joint venture or consortium formed for the purpose
the taxpayer other than those that are mere return of capital. It is
of undertaking construction projects or engaging in (1) Realization Test
return on capital or return above the capital as opposed to return
petroleum, coal, geothermal and other energy operations Income is recognized when both conditions are met:
of capital.
pursuant to an operating consortium agreement under a
In the strict sense, INCOME refers to the amount of money a) The earning is complete or virtually complete; AND
service contract with the Government.
coming to the taxpayer for services performed or an activity which b) An exchange has taken place.
'General professional partnerships' are partnerships formed by
he is engaged in or for an investment which he has made including
persons for the sole purpose of exercising their common

acquiring corporation had control immediately before the

(2) Economic Benefit Test, Doctrine of Proprietary Interest the purpose of providing them nancial assistance for their
acquisition; or
operational and capital expenditures seemingly indicate that the
Anything that bene ts a person materially or economically. Note
3. The acquisition by one corporation, in exchange solely for all situation sought to be addressed by the subject provision exists.
however that there must rst be actual realization, such as through
or a part of its voting stock or in exchange solely for all or part
sale or disposition. We also nd a dearth of merit in the CIR's insistence on the
of the voting stock of a corporation which is in control of the
imposition of de ciency income taxes on the transfer FDC and FAI
Mere increase in the value of property is not income. acquiring corporation, of substantially all of the properties
e ected in exchange for the shares of stock of FLI.
of another corporation. In determining whether the exchange
(3) Severance Test The requisites for the non-recognition of gain or loss are as
is solely for stock, the assumption by the acquiring
Income is recognized when there is separation of something which corporation of a liability of the others shall be disregarded; or follows:
is of exchangeable value.
4. A recapitalization, which shall mean an arrangement a) the transferee is a corporation;
d Tax-Free Exchanges whereby the stock and bonds of a corporation are readjusted as b) the transferee exchanges its shares of stock for property/ies
to amount, income, or priority or an agreement of all of the transferor;
GR: Upon the sale or exchange or property, the entire amount of stockholders and creditors to change and increase or decrease
c) the transfer is made by a person, acting alone or together
the gain or loss, as the case may be, shall be recognized. the capitalization of debts of the corporation or both; or
with others, not exceeding four persons; and,
EXC: No gain or loss shall be recognized on a corporation or on its 5. A reincorporation, which shall mean the formation of the
d) as a result of the exchange the transferor, alone or together
stock or securities if such corporation is a party to a same corporate business with the same assets and the same
with others, not exceeding four, gains control of the
reorganization and exchanges property in pursuance of a stockholders surviving under a new charter.
transferee.
plan of reorganization solely for stock or securities in another No gain or loss shall also be recognized if property is
corporation that is a party to the reorganization. The exchange of property for stocks between FDC, FAI and FLI
transferred to a corporation by a person, alone or together
clearly quali es as a tax-free transaction.
A reorganization is de ned as: with others, not exceeding four (4) persons, in exchange for
stock or unit of participation in such a corporation of which as Bearing in mind the meaning of "gross income", it cannot be
1. A corporation, which is a party to a merger or
a result of such exchange the transferor or transferors, gainsaid, even then, that a mere increase or appreciation in the
consolidation, exchanges property solely for stock in a
collectively, gains or maintains control of said corporation. value of said shares cannot be considered income for taxation
corporation, which is a party to the merger or consolidation;
purposes. Since "a mere advance in the value of the property of a
or
person or corporation in no sense constitute the ‘income’ speci ed
2. The acquisition by one corporation, in exchange solely for all CIR v. Filinvest 2011 En Banc re Tax-free Exchange in the revenue law," it has been held in the early case of Fisher v.
or a part of its voting stock, or in exchange solely for all or part Trinidad, that it "constitutes and can be treated merely as an
FDC and its a liates come within the purview of Section 43 of the
of the voting stock of a corporation which is in control of the increase of capital." Hence, the CIR has no factual and legal
1993 NIRC. Aside from owning signi cant portions of the shares
acquiring corporation, of stock of another corporation if,
of stock of FLI, FAI, DSCC and FCI, the fact that FDC extended basis in assessing income tax on the increase in the value of FDC's
immediately after the acquisition, the acquiring corporation
substantial sums of money as cash advances to its said a liates for shareholdings in FAC until the same is actually sold at a profit.
has control of such other corporation whether or not such

in secondary o ering.
2.1. Each sale of shares of stock in closely held
CIR v. Lucio Co 2020 further clarifying Filinvest corporations through initial public o ering is See Taxation Law Case Digest No. 10
taxed under Section 127(B).
As regards the element of control, the Court, in Filinvest, clari ed
that it is not necessary that, after the exchange, each of the 3. The second paragraph of Section 127(B) provides for the
transferors individually gains control of the transferee corporation. types of sales covered in the sale of shares through initial e Situs of Income Taxation
public o ering:
It also does not prohibit instances when the transferor gains
3.1. sale by the issuing corporation in primary o ering, Source Situs
further control of the transferee corporation. The Court explained
that the element of control is satis ed even if one of the transferors and
Compensation Where service rendered
is already owning at least 51% of the shares of the transferee 3.2. sale by each of the corporation's shareholders in
corporation, as long as after the exchange, the transferors, not more secondary o ering. Merchandising, Farming, Mining
than ve, collectively increase their equity in the transferee - Where business undertaken.
4. Thus, every sale in Section 127(B) is referenced to the seller,
corporation by 51% or more. Manufacturing
i.e.,
goods manufactured and sold
There is nothing in Section 40(C)(2) of the NIRC of 1997, as Business
4.1. the issuing corporation in case of primary o ering, a. Within PH - Purely within;
amended, which requires the taxpayer to rst secure a prior
and b. Outside - Purely without;
con rmatory ruling before the transaction may be considered as a
4.2. each of the selling shareholders of the corporation c. Place of manufacture and selling
tax-free exchange.
in case of secondary o ering. di erent - Proportionate.
5. The sale contemplated is not a lone, lump sum sale, as From sale or 1. Personal - Place of sale;
I-Remit, Inc. v. CIR 09 Nov 2020 suggested by the petitioner, since more than one sale may exchange of 2. Sale of transport documents - place where sold;
transpire under Section 127(B). property 3. Real - Location.
The tax on sale of shares of stock in closely held corporations sold or
exchanged through initial public offering under Sec. 127 (B) is 6. While the tax on sale of shares in primary o ering should Interest Residence of debtor
SEPARATELY computed as to shares offered in primary and be led and paid by the issuing corporation within thirty
secondary offerings. (30) days from the date of listing of the shares of stock in Rent Property located
the local stock exchange, the tax on sale of shares in
1. A plain reading of Section 127(B) shows that tax is imposed Royalties Where intangible is used
secondary o ering should be collected and remitted by the
on EVERY sale, barter, exchange or other disposition
stock broker within ve (5) banking days from the date of
through initial public o ering of shares of stock in closely 1. From Domestic Corp - income purely within;
collection thereof.
held corporations. 2. From Foreign Corp - if income derived from
Dividend
7. It cannot be any clearer from the foregoing that the sale of PH:
2. The word "every" precedes the word "sale."
shares in primary o ering is treated separately from the sale a. > 85% = purely within;

b. <50% = purely without; b Concept of Income from Whatever Source Derived c) TAXABLE INCOME —
c. 50%-85% = allocation.
𝐺𝑟𝑜𝑠𝑠 𝐼𝑛𝑐𝑜𝑚𝑒 – 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠, 𝐿𝑜𝑠𝑒𝑠, 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑠
Annuities Place of contract CIR v. Filinvest 2011 En Banc
Prizes Either where services rendered or where given. While it has been held that the phrase "from whatever source d Sources of Income Subject to Tax
derived" indicates a legislative policy to include all income not
Pension Where given on account of services rendered.
expressly exempted within the class of taxable income under our CG2IR2DAP3
Professional laws, the term "income" has been variously interpreted to mean 1) Compensation for services in whatever form paid, including,
income of Exercise of profession "cash received or its equivalent", "the amount of money coming to a but not limited to fees, salaries, wages, commissions, and
partners person within a speci c time" or "something distinct from principal similar items;
or capital."
2) Gross income derived from the conduct of trade or business
Otherwise stated, there must be proof of the actual or, at the very or the exercise of a profession;
3 Gross Income least, probable receipt or realization by the controlled taxpayer of the
item of gross income sought to be distributed, apportioned or 3) Gains derived from dealings in property;
De nition
allocated by the CIR. 4) Interests;
Concept of Income from Whatever Source Derived 5) Rents;
Gross Income vs. Net Income vs. Taxable Income c Gross Income vs. Net Income vs. Taxable Income 6) Royalties;
7) Dividends;
Sources of Income Subject to Tax a) GROSS INCOME TAXATION — This is a system based on
gross income, which doesn‘t allow deductions but allows 8) Annuities;
Exclusions exclusions. Applicable to passive income. 9) Prizes and winnings;
a De nition 𝐺𝑅𝑂𝑆𝑆 𝐼𝑁𝐶𝑂𝑀𝐸 = 𝐼𝑛𝑐𝑜𝑚𝑒 – 𝐸𝑥𝑐𝑙𝑢𝑠𝑖𝑜𝑛𝑠 10) Pensions; and
In a narrow sense, gross income means all income derived from 11) Partner's distributive share from the net income of the
b) NET INCOME TAXATION — Certain deductions are
whatever source, including but not limited to CG2IR2DAP3. general professional partnership.
allowed and subtracted from the aggregate of incomes not
In a broad sense, it means all items of income less exclusions. It is subject to nal tax, and the tax computed based on the
the total income from all sources before deductions, exemptions or resulting net income. 1) Compensation Income
other tax reductions.
𝑁𝐸𝑇 𝐼𝑁𝐶𝑂𝑀𝐸 = 𝐺𝑟𝑜𝑠𝑠 𝐼𝑛𝑐𝑜𝑚𝑒 – 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑠 2) Fringe Bene ts

as when he can buy the share at a more favorable price than the 2. Expense Account
3) Professional Income
public.
3. Vehicle of any kind
4) Income from Business The tax will be on the amount of the di erence between the
book value or the FMV of the stock, whichever is higher, and 4. Household Personnel
5) Income from Dealings in Property
the exercise price. It is imposed whether or not the stock
5. Interest on loan
6) Passive Investment Income option is exercised.
b. Promissory Notes. Equivalent to the face value of the 6. Membership Fees
7) Annuities, Proceeds from Life Insurance or Other promissory note, unless it is discounted. For a discounted 7. Expense for Foreign Travel
Types of Insurance promissory note, the cash discounted value.
8. Holiday and Vacation Expense
c. Cancellation of Debt. Considered an income when you
8) Prizes and Awards
render services and in exchange, your debt is forgiven. 9. Educational Assistance
9) Pensions, Retirement Bene t or Separation Pay d. Tax Liability. When the employer shoulders your tax on 10. Life or Health Insurance
compensation instead of you getting less than your gross
10) Income from Any Source monthly salary. TN: This list is NOT exclusive.
Conditions for FB to be taxable
COURAGE v. CIR 2018 En Banc
(1) Compensation Income a. Given to managerial or supervisory employees;
It refers to all remuneration for services rendered by an employee Withholding tax on compensation applies to the Government of the b. Good, service furnished or granted in cash or in kind;
for his employer, unless speci cally excluded under the Tax Code. Philippines, including its agencies, instrumentalities, and political
c. Must NOT be for the bene t or convenience of the employer.
subdivisions.
First Lepanto v. CIR 2013 Withholding shall be made by the o cer or employee having control HOUSING
of the payments or by any o cer or employee duly designated for
The non-inclusion of the names of some of petitioner’s directors in
such purpose. Case Annual Value Monthly MV
the company’s Alpha List does not ipso facto create a presumption
that they are not employees of the corporation, because the
(2) Fringe Benefits ER leases house for use of 50% x Monthly
imposition of withholding tax on compensation hinges upon the NA
nature of work performed by such individuals in the company. Any good, service or other bene t furnished or granted in cash or in EE Rent
kind by an employer to an individual employee (except rank and file
5% of FMV, or 50% x Monthly
In Kind: employees)
ER owns house, assigns use Zonal Value, Value
a. Stock Options. Stock options are taxable as compensation 1. Housing to EE whichever is
income taxed only if there is a benefit to the employee such higher Monthly Value =

AV/12 c. Personal expenses of EE paid for or reimbursed by ER are Use of yacht Depreciation at 20 years of
taxable, regardless if they are receipted or not in the name of useful life.
ER purchases house on 5% of ER;
50% x Monthly
installment, assigns use to acquisition cost,
Value d. RATA are NOT taxable fringe bene ts, but are taxable
EE exc interest HOUSEHOLD EXPENSES
compensation income:
ER purchases then transfers Acquisition cost i. Fixed in amounts; For household personnel, such as salaries of household help,
NA personal driver of the employee, or other similar personal expenses.
ownership to EE or FMV
ii. Regularly received by EE;
ER purchases then transfers Zonal Value or iii. Part of Monthly compensation income. INTEREST ON LOAN at less than Market Rate
ownership to EE at a lower NA Assessed Value,
price minus cost of EE MOTOR VEHICLES Market rate is at 12%.
Exceptions (Not taxable):

Case Monetary Value MEMBERSHIP FEES
1. AFP, Navy, Air Force;
Purchases vehicle in the name of Acquisition Cost a. Should not be pursuant to the nature of the business of ER;
2. Housing unit inside or within a maximum of 50 meters from
perimeter of business; EE b. Should not be necessary for the position.
3. Temporary housing = 3 months or less; Provides EE with cash for Cash received by EE
EXPENSES FOR FOREIGN TRAVEL
4. Granted to rank and le. purchase
a. Reasonable business expenses for the purpose of attending
Shoulders a portion of the Amount shouldered
EXPENSE ACCOUNT business meetings or conventions are NOT taxable FBs.
purchase price
a. In general, expenses incurred by EE but are paid by his ER are - Inland travel expenses must not exceed 300 USD, not
taxable, except when: Purchases car on installment in Acquisition cost (excl interest) / including lodging cost.
the name of EE 5 years.
i. They are duly receipted; b. Economy and business class NOT taxable. 30% of cost of First
ii. In the name of ER; and Owns a eet of vehicles for the Acquisition cost of all motor class ticket taxable.
use of EEs vehicles not normally used in c. There should be documentary evidence proving the travel was
iii. Do not partake the nature of a personal expense;
business / 5 years x 50% in connection with a meeting or convention. Otherwise,
b. Expenses paid for by EE, but reimbursed by ER are taxable, taxable FB.
except when (same as a); Leases and maintains eet of Amount of rent x 50%
vehicles d. If for the family members of EE, paid by ER, taxable.

HOLIDAY AND VACATION EXPENSES 2. If EE managerial or supervisory — FB subject to tax; Uniform and Clothing 500 6,000
3. Company — NOT FB; Actual medical assistance 10,000
Everything is considered as fringe bene t since it is not pursuant to
the purpose of the business of the employer. 4. For Group of EEs — NOT FB.
Laundry 300 3,600
EDUCATIONAL ASSISTANCE Exemption from FBT

Awards 10,000
To the EE: 1) Authorized and exempted under the NIRC or special laws;
Gifts during Christmas, etc 5,000
GR: Taxable; 2) For EE’s retirement, insurance and hospitalization (GROUP
INSURANCE); Daily Meal Allowance for OT, night-shift < 25% of MW
EXC:
3) Given to Rank and File; By virtue of CBA, productivity incentive 10,000
1. Directly connected with ER’s trade, business or
4) Required by the nature of, or necessary to the trade, business scheme
profession; AND
or profession of ER;
2. There is a written contract to the e ect that EE is Threshold of P90,000
obliged to remain in the employ of ER for a mutually 5) For the convenience of ER;
The list of de minimis bene ts is exclusive. The threshold now
agreed period. 6) De minimis bene ts under the TRAIN Law is P90,000. The amount in excess of
To the Dependent of EE: P90,000 will be subject to the normal income tax rate or fringe
DE MINIMIS bene t tax, as the case may be.
GR: Taxable;
EXC: Assistance provided through a competitive scheme. Are of relatively small value and are o ered or furnished merely as a (3) Professional Income
means of promoting goodwill, contentment or e ciency of his Professionals. — refer to persons who derive their income from
LIFE OR HEALTH INSURANCE employees. the practice of their profession.
GR: Taxable; Benefit Monthly Annual (4) Income from Business
EXC: 1) Self-employment income consists of the earnings derived by

Monetized unused VL not exceeding 10 days NA NA
the individual from the practice of profession or conduct of
a) Pursuant to existing law, i.e. SSS, GSIS; AND trade or business carried on by him as a sole proprietor or by a
Monetized value of VL and SL credits of NA NA
b) Cost of premiums borne by ER for the group insurance Public employees partnership by which he is a member.
of EEs. 2) Business is any activity that entails the time, attention and
Medical cash allowance 250 3,000
Bene ciary e ort of an individual or group of individuals for livelihood or
Rice subsidy 2,000 24,000 pro t.
1. Heir — income of EE;

(5) Income from Dealings in Property c) Capital loss NOT deductible from the sale or exchange of real property.
from ordinary gain; In case of transfer by expropriation, the expropriating authority
Types of gains
d) Ordinary loss deductible from shall shoulder the CGT, other taxes and fees as part of the just
1) CAPITAL GAINS capital gain. compensation due to the a ected owner of the property.
Gains or income from the sale or exchange of capital assets,
Shall be treated in the succeeding Individuals
including: Loss (6) Passive Investment Income
taxable year as loss from the sale or
carry-over
a. Income from dealings in shares of stocks or domestic exchange of capital asset held for not 1. It is an income subject to FWT.
corporation WON through the stock exchange; more than 12 months. 2. The recipient is not required to include the income in his gross
b. Income from dealings in real property located in PH; Loss must be in an amount not in income nor in his taxable income.
excess of the net income of such
c. Income from dealings in other capital assets. 3. Taxpayer is not required to le ITR if his income consists
year.
solely of income subject to nal tax.
2) ORDINARY GAINS
100% — asset was held for NOT Individuals 4. Examples of passive investment income:
Gains or income from the sale or exchange of properties which Holding
more than 12 months;
are not capital assets. period a) Interest income from bank deposit;
50% — asset was held for more than
a. Business income; 12 months b) Royalties;
b. Compensation income; c) Dividend received from DC by an individual or NRFC;
c. Passive income; d) Prizes of > Php 10K;
CIR v. Ocier 2018
d. Others. e) Winnings except sweepstakes and lotto;
The taxpayer is liable to pay capital gains taxes for the sale, barter,
Special rules pertaining to income or loss from dealings in exchange or other disposition of shares of stock in a domestic f) Partner’s share from the net income after tax of business
capital asset corporation except if the sale or disposition is through the stock partnership, joint account, joint venture or consortium.
Rule Applies to exchange. For this purpose, the term disposition includes any act of Interest
disposing, transferring or parting with, or alienation of, or giving up
Amount of compensation paid for the use of money or
Capital losses are allowed only to the Individuals and of property to another.
Loss forbearance from such use.
extent of capital gains. corporations
limitation However, interest income which are already subject to nal tax need
a) Ordinary loss deductible from except trust
ordinary gain; companies and Republic v. Sps Bunsay 2019 not be included in the computation for a taxpayer’s annual ITR.
b) Capital loss deductible from banks.
CGT, being a tax on passive income, is imposed by the NIRC
capital gain;
on the seller as a consequence of the latter's presumed income

Dividend Generally a return of capital, and hence, not income. a) Shares are redeemed in the absence of the availability
However, it is taxable income with respect to the excess of of unrestricted earnings;
Any distribution made by a corporation to its shareholders out
amount received over cost of the share surrendered.
of its earnings or profits and payable to its shareholders, whether b) Not in the nature of a recurring return on stock;
in money or in other property. (Sec 73)
CIR v. Premium Leisure Corp 2019 c) The source of redemption is the original capital
1) Cash dividend — paid in given sum of money; subscription upon establishment of the corporation
The distribution of liquidating dividends on account of the or initial capital investment in an existing enterprise.
2) Property dividend — one paid by a corporation in
dissolution of a corporation is not to be treated as a sale for purposes
securities (not its own stock) or other property; 2) Taxable —
of the imposition of capital gains tax. Under Section 73 (A) of the
3) Stock dividend — one paid by a corporation with its 1997 NIRC, receipt by a stockholder, whether corporate or a) The redeemed shares are from stock dividend
OWN stock. individual, of liquidating dividends is subject to ordinary income declarations other than as initial capital investment.
GR: NOT taxable since they are considered unrealized tax on the part of the individual stockholder. b) There is redemption or cancellation; the transaction
gain. involves stock dividends; and the “time and manner”
Giver Recipient Tax Rate of the transaction makes it essentially equivalent to a
EXC:
distribution of taxable dividends.
a) Change in the stockholder’s equity, right or interest in DC, RFC Exempt
Royalty income
the net assets of the corporation;
RC, NRC, RA 10% Any payment of any kind received as consideration for the use of or
b) Recipient is other than the shareholder. Stock
right to use:
dividend is taxable to the usufructuary. NRA - ETB 20%
Domestic
1) Any patent, trademark, design or model;
c) Cancellation or redemption of shares of stock;
NRA - NETB 25%
2) Secret formula or process;
d) Distribution of treasury stocks;
15% subject to allowance for tax credit 3) Industrial, commercial or scienti c equipment;
e) Dividends declared in the guise of treasury stock NRFC
or the tax sparing rule; otherwise, 25%
dividend to avoid income taxation; 4) Information concerning industrial, commercial or
➔ Dividend received from foreign corporation is subject to PH scienti c experience.
f) Di erent classes of stocks were issued.
income tax if at least 50% of the world income of the FC is Rental income
4) Liquidating dividend — one resulting from the derived from PH for 3 years preceding the declaration of such
distribution by a corporation of all its property or assets in dividend. Fixed sum either in cash or property equivalent, to be paid at a
complete liquidation or dissolution. de nite period for the use or enjoyment of a thing or right.
Rules on redemption of share of stock
Value of permanent improvements made by lessee on leased
1) NOT taxable — property that will become the property of the lessor upon the

expiration of the lease. The lessor shall report such an income

3) Those that are in the nature of gifts. c) Taxes assessed against local bene ts of a kind tending to
under any of the following methods:
increase the value of the property assessed;
(9) Pensions, Retirement Benefit or Separation Pay
1) Outright method — FMV of the completed building or
d) Stock transaction tax;
improvement shall be reported as additional rent income. A pension is a gratuity granted as a favor or reward or one paid
under given conditions to a person following retirement from e) Taxes which are not allowable as deductions under the
2) Spread out method — Allocate the depreciated value
service or to surviving dependents. Note however that pensions law.
over the remaining term of the lease contract.
and retirement bene ts under RA 7641 are excluded from gross
How about advance rentals? income. e Exclusions
1) Prepaid rentals — taxable if so received under a claim
(10) Income from Any Source (1) Taxpayers Who May Avail
of right and without restriction as to use.
Condonation of indebtedness LAGCIRM
2) Security deposit — not taxable unless lessee violates any
provision of the contract. Cancellation or forgiveness of debt may amount to 1) Life Insurance. — The proceeds of life insurance policies paid
a) Payment of income — taxable; to the heirs or beneficiaries upon the death of the insured,
3) Loan — not taxable.
whether in a single sum or otherwise, but if such amounts are
b) Payment of dividends — taxable;
(7) Annuities, Proceeds from Life Insurance or Other held by the insurer under an agreement to pay interest thereon,
Types of Insurance c) Gift — exempt. the interest payments shall be included in gross income.
Annuity is a sum of money payable yearly or at regular intervals. Recovery of accounts previously written off ➔ If the company insures its employee and makes the latter’s
Note however that life insurance annuities are excluded from gross estate the bene ciary, THE PREMIUM IS TAXABLE,
Recovery of bad debts previously allowed as deduction in the
income. while the proceeds NOT TAXABLE.
preceding years shall be included as part of the gross income in the
(8) Prizes and Awards year of recovery to the extent of the income tax bene t of said ➔ When taxable?
deduction. (Sec 34[e][1])
GR: Taxable. a. Insurer and insured agreed that the amount of the
Receipt of tax refunds or credit proceeds shall be withheld by the insurer with the
EXC:
obligation to pay interest in the same – the interest is
Taxes which were previously claimed and allowed as deductions
1) If the recipient was selected without any action on his part the one subject to tax.
but were subsequently refunded or granted as tax credit should be
to enter the contest and he was not required to render
declared as part of gross income of that year. Except b. There is transfer of the insurance policy.
substantial future services as a condition for receiving the
prize or award; a) Estate and donor’s tax; GR: NOT taxable regardless of the bene ciaries
2) Those granted to athletes in local and international sports b) Income, war-pro t and excess pro t taxes imposed by a Conditions:
competitions sanctioned by their respective national foreign country;
1. Paid to heirs;
sports associations; and
2. Paid upon death of the insured;

of such o cial or employee from the service of the

3. Paid in a single sum or in installment. 2. Moral and exemplary damages awarded as a result of
employer because of death sickness or other physical
breach of contract;
EXC: (When taxable) disability or for any cause beyond the control of the
3. Interest for non-taxable damages above; said o cial or employee.
1. Used to secure money obligation;
4. Damages as compensation for unrealized income. c) The provisions of any existing law to the contrary
2. Transfer for valuable consideration.
5) Income Exempt under Treaty. — Income of any kind, to the notwithstanding, social security bene ts, retirement
𝐼𝑁𝐶𝑂𝑀𝐸 = 𝑃𝑟𝑜𝑐𝑒𝑒𝑑𝑠 – (𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 + 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑠 𝑃𝑎𝑖𝑑) extent required by any treaty obligation binding upon the gratuities, pensions and other similar bene ts received by
Government of the Philippines. resident or nonresident citizens of the Philippines or
2) Amount Received by Insured as Return of Premium. — aliens who come to reside permanently in the Philippines
The amount received by the insured, as a return of premiums 6) Retirement Bene ts, Pensions, Gratuities, etc. —
from foreign government agencies and other institutions,
paid by him under life insurance, endowment, or annuity a) Retirement bene ts received under RA No. 7641 and private or public.
contracts, either during the term or at the maturity of the term those received by o cials and employees of private rms,
mentioned in the contract or upon surrender of the contract. d) Payments of bene ts due or to become due to any person
whether individual or corporate, in accordance with a
residing in the Philippines under the laws of the United
reasonable private bene t plan maintained by the
𝐼𝑁𝐶𝑂𝑀𝐸 = 𝐸𝑛𝑑𝑜𝑤𝑚𝑒𝑛𝑡 – 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑠 𝑃𝑎𝑖𝑑 States administered by the United States Veterans
employer: xxxx
Administration.
3) Gifts, Bequests, and Devises. — The value of property REQUISITES:
acquired by gift, bequest, devise, or descent: e) Bene ts received from or enjoyed under the Social
1. At least 50 years old; Security System in accordance with the provisions of
Provided, however, That income from such property, as well as Republic Act No. 8282.
2. At least 10 years of service in same company
gift, bequest, devise or descent of income from any property,
(aggregate, not necessarily continuous); f) Bene ts received from the GSIS under Republic Act No.
in cases of transfers of divided interest, shall be included in
gross income. 3. Reasonable private bene t plan; 8291, including retirement gratuity received by
government o cials and employees.
4) Compensation for Injuries or Sickness. — amounts 4. In the nature of pension, plan, pro t sharing
received, through Accident or Health Insurance or under plan, stock bonus or gratuity;
Ma. Isabel T. Santos v.
Workmen's Compensation Acts, as compensation for personal on Retirement Bene ts
5. Approved by the BIR; Servier Phil., Inc.
injuries or sickness, plus the amounts of any damages received,
whether by suit or agreement, on account of such injuries or 6. Employer must give contribution and must be In the instant case, the Retirement Plan bars the petitioner from
sickness. established for the common bene t of ALL. claiming additional bene ts on top of that provided for in the Plan.
7. Availed of only ONCE. (except if 2nd employer is Clearly, the bene ts received by petitioner from the respondent
EXC (Taxable):
Government — still exempt) represent her retirement bene ts under the Plan. The question that
1. Actual damages for loss of anticipated pro ts; now confronts us is whether these bene ts are taxable. If so,
b) Any amount received by an o cial or employee or by his respondent correctly made the deduction for tax purposes.
heirs from the employer as a consequence of separation

Otherwise, the deduction was illegal and respondent is still liable for 3. international or regional nancial institutions 1. Bene ts received by o cials and employees of the
the completion of petitioner's retirement bene ts. established by foreign governments. national and local government pursuant to Republic
Act No. 6686;
⭐For the retirement bene ts to be exempt from the b) Income Derived by the Government or its Political
withholding tax, the taxpayer is burdened to prove the Subdivisions. — Income derived from any public utility 2. Bene ts received by employees pursuant to
concurrence of the following elements: or from the exercise of any essential governmental Presidential Decree No. 851, as amended by
function accruing to the Government of the Philippines Memorandum Order No. 28, dated August 13, 1986;
1) a reasonable private bene t plan is maintained by the
or to any political subdivision thereof.
employer; 3. Bene ts received by o cials and employees not
GOCC must be engaged in proprietary activity for it to be covered by Presidential Decree No. 851, as amended
2) the retiring o cial or employee has been in the service of
TAXABLE. by Memorandum Order No. 28, dated August 13,
the same employer for at least ten (10) years;
1986; and
c) Prizes and Awards. — Prizes and awards made primarily
3) the retiring o cial or employee is not less than fty (50)
in recognition of religious, charitable, scientific, 4. Other bene ts such as productivity incentives and
years of age at the time of his retirement; and
educational, artistic, literary, or civic achievement Christmas bonus.
4) the bene t had been availed of only once. but only if:
f) GSIS, SSS, Medicare and Other Contributions. —
Petitioner was quali ed for disability retirement. At the time of 1. The recipient was selected without any action on GSIS, SSS, Medicare and Pag-Ibig contributions, and
such retirement, petitioner was only 41 years of age; and had been in his part to enter the contest or proceeding; and union dues of individuals.
the service for more or less eight (8) years. As such, the above
2. The recipient is not required to render g) Gains from the Sale of Bonds, Debentures or other
provision is not applicable for failure to comply with the age and
substantial future services as a condition to Certi cate of Indebtedness. — Gains realized from the
length of service requirements. Therefore, respondent cannot be
receiving the prize or award. same or exchange or retirement of bonds, debentures or
faulted for deducting from petitioner's total retirement bene ts the
other certi cate of indebtedness with a maturity of
amount of P362,386.87, for taxation purposes. d) Prizes and Awards in Sports Competition. — All
more than ve (5) years.
prizes and awards granted to athletes in local and
7) Miscellaneous Items. — international sports competitions and tournaments ➔ Debentures are used for bonds, backed by general
a) Income Derived by Foreign Government. — Income whether held in the Philippines or abroad and sanctioned credit of the issuer rather than a particular asset. They
derived from investments in the Philippines in loans, by their national sports associations. are unsecured liabilities. This is like a bank letting
stocks, bonds or other domestic securities, or from someone owe money without any collateral.
e) 13th Month Pay and Other Bene ts. — Gross bene ts
interest on deposits in banks in the Philippines by received by o cials and employees of public and private h) Gains from Redemption of Shares in Mutual Fund.
1. foreign governments, entities: Provided, however, That the total exclusion under — Gains realized by the investor upon redemption of
this subparagraph shall not exceed Ninety thousand shares of stock in a mutual fund company.
2. nancing institutions owned, controlled, or enjoying
pesos (P90,000) which shall cover:
re nancing from foreign governments, and i) Income Derived from the Sale of Gold Pursuant to
RA No. 7076. — Income derived from the following

transactions pursuant to the “People‘s Small-scale Mining

Income received by To lessen the burden of foreign loans 2. NRA-NETB;
Act of 1991”:
foreign governments inasmuch as the interest of these loans are, by
3. NRFC.
i) The sale of gold to the BSP by registered from their contractual arrangement, borne by domestic
small-scale miners and accredited traders; and investments in PH borrowers. General Rule — Deductions
ii) The sale of gold by registered small-scale miners ExInTaLoBaChaRePenDepDep

(2) Distinguished from Deductions and Tax Credits
to accredited traders for eventual sale to the BSP. 1) Expenses;
(RA 11256) 1. Exclusions from gross income refer to a ow of wealth to the
Rationale
taxpayer which are not treated as part of gross income, for 2) Interest;
purposes of computing the taxpayer’s taxable income either
Generally, they are excluded because they do not fall within the because it is exempted by the constitution, by statute, or it 3) Taxes;
de nition of income for income tax purposes or a provision of the does not come within the de nition of income.
Tax Code or special law exempts them from income tax.
4) Losses;
2. Deductions from gross income are the amounts which the law
allows to be deducted from gross income in order to arrive at 5) Bad Debts;
Exclusion Rationale
net income.
6) Charitable Contributions;
Proceeds of Life 3. Tax credits are directly deducted from tax liability.
Indemnity rather than as gain or pro t.
Insurance 7) Research and Development;
4 Deductions from Gross Income 8) Pension;
Amount received as
Return of capital
return of premium General Rule — Deductions 9) Depreciations;
Gifts, bequests and Concept as Return of Capital
Not a product of capital or industry 10) Depletion.
devises
Itemized Deductions vs. Optional Standard Deduction EXPENSES
Compensation for
Compensatory; not gain or pro t
injuries or sickness Items Not Deductible Kinds [CARTERS]
Income exempt Adherence to generally accepted principles Who are not allowed to avail of the deductions under Sec 34? a) Compensation;
under treaty of international law 1. Must be reasonable;
Taxpayers earning compensation income arising from personal services
Retirement benefits, rendered under an employer-employee relationship. 2. Payment for actual services rendered.
Gratuity for years of service
pensions, gratuities 1. Citizens and Resident Aliens whose income is purely Additional for Bonuses:
compensation income;
3. Made in good faith;

public senior high schools, public higher education

4. Consider: ii) In carrying or which are directly attributable to the
institutions, or public technical and vocational institutions
development, management, operation and/or
a. Nature of Business; and duly covered by an apprenticeship agreement.
conduct of the trade, business or exercise of
b. Financial capacity of taxpayer; AND profession; Such deductions shall not exceed ten percent (10%) of direct
c. Extent of services rendered; labor wage.
iii) Supported by adequate invoices or receipts;
5. General economic condition Option to Private Educational Institutions:
iv) Not contrary to law, public policy or moral;
b) Advertising and Promotional Expense; a) Outright Method; OR
v) Not a bribe;
To be deductible outright: b) Spread-out Method = subject to depreciation.
vi) Properly withheld appropriate tax;
i) Must be reasonable; AND vii) Limitation: CIR v. General Foods on Advertising Expense
ii) Incurred to stimulate current sales and not establish 1) Sale of goods = 0.5% of net sales;
goodwill or future sales. WON the subject media advertising expense for “Tang” incurred
2) Service = 1% of net revenue. by respondent corporation was an ordinary and necessary expense fully
c) Rent; deductible under the NIRC. Or was it a capital expenditure, paid
f) Repair and Maintenance;
i) Required as condition for continued use or in order to create “goodwill and reputation” for respondent
i) Ordinary - cost of repair increases the life of an corporation and/or its products, which should have been amortized
possession;
asset for a period not more than 1 year; over a reasonable period?
ii) Purpose is for trade, business, profession;
ii) Extraordinary - > 1 year; Capitalized, subject to To be deductible from gross income, the subject advertising expense
iii) Taxpayer not owner of property leased; depreciation. must comply with the following requisites:
iv) Subject to withholding tax of 5%. g) Supplies and Materials. a) the expense must be ordinary and necessary;
d) Traveling Expense; - Must be actually consumed during the taxable year. b) it must have been paid or incurred during the taxable year;
i) Reasonable and necessary; h) Litigation Expense c) it must have been paid or incurred in carrying on the trade
ii) Incurred or paid while away from home - station - If incurred in the defense or protection of title = or business of the taxpayer; and
assignment or principal place of business; capital in nature, NOT deductible; d) it must be supported by receipts, records or other pertinent
iii) In the conduct of trade or business. - If ordinary and necessary in pursuit of business = papers.
e) Entertainment, Amusement and Recreational; deductible. The Commissioner, as upheld by the Court, maintains that the
i) An additional deduction from taxable income of one-half subject advertising expense was not ordinary on the ground that it
i) Paid or incurred during taxable year;
(1/2) of the value of labor training expenses incurred for failed the two conditions set by U.S. jurisprudence:
skills development of enterprise-based trainees enrolled in

3. On loan entered into between related taxpayers;

1. first, “reasonableness” of the amount incurred and 2) advertising designed to stimulate the future sale of
merchandise or use of services. a. Members of family
2. second, the amount incurred must not be a capital outlay to
create “goodwill” for the product and/or private The second type involves expenditures incurred, in whole or in part, i. Spouses;
respondent’s business. to create or maintain some form of goodwill for the taxpayer’s trade
ii. Siblings;
or business or for the industry or profession of which the taxpayer is
Otherwise, the expense must be considered a capital expenditure to
a member. iii. Descendants and ascendants.
be spread out over a reasonable time.
If the expenditures are for the advertising of the first kind, then, b. Between 2 corporations owned and controlled by 1
There being no hard and fast rule on the reasonableness of an
except as to the question of the reasonableness of the amount, there individual;
advertising expense, the right to a deduction depends on a number
is no doubt such expenditures are deductible as business expenses. c. Between a corporation and its majority shareholder;
of factors such as but not limited to:
If, however, the expenditures are for advertising of the second kind, d. Parties to a trust
1. the type and size of business in which the taxpayer is
then normally they should be spread out over a reasonable period of
engaged; i. Grant or Fiduciary;
time.
2. the volume and amount of its net earnings; ii. One grantor, di erent duciaries;
3. the nature of the expenditure itself; iii. Bene ciary and Fiduciary.
INTEREST
4. the intention of the taxpayer and the general economic 4. Interest paid or calculated for cost-keeping purposes;
conditions. Arbitrage rule
5. Paid in advance through discount;
It is the interplay of these, among other factors and properly The taxpayer’s allowable deduction for interest expense shall be
reduced by an amount equal to 33% of the interest income earned 6. On obligation to nance petroleum exploration;
weighed, that will yield a proper evaluation.
by him which has been subjected to nal tax. 7. On unclaimed salaries of employees;
The subject media advertising expense for “Tang” was almost
double the amount of respondent corporation’s general and Theoretical interest 8. 33% of the interest income subject to nal tax.
administrative expenses. We nd the subject expense for the An interest computed for the purposes of determining the
TAXES
advertisement of a single product to be inordinately large. opportunity cost of investing in a business. This is not paid or
Therefore, even if it is necessary, it cannot be considered an incurred. Theoretical interest income and theoretical interest Exceptions
ordinary expense deductible under then Section 29 (a) (1) (A) of expense is no longer applicable in our jurisdiction since the
1) Special Assessment;
the NIRC. interest must be stipulated in writing to be demandable.
2) Income Tax;
Advertising is generally of two kinds: Non-deductible interest expense
3) Not connected with trade, business, profession;
1) advertising to stimulate the current sale of merchandise 1. Interest expense on preferred stock;
or use of services and 4) Estate, Donor’s;
2. When there is no agreement in writing to pay interest;

5) VAT; When NOLCO is not deductible An equity investment is a capital, not ordinary, asset of the
investor the sale or exchange of which results in either a capital gain
6) Final Taxes; 1. Incurred during tax holiday;
or a capital loss. The gain or the loss is ordinary when the property
7) Excess electric consumption tax; 2. Tax is based on gross income or receipts; sold or exchanged is not a capital asset.
8) Foreign income tax, war pro ts and excess pro ts tax - if used 3. OSD is claimed; When the shares held by such investor become worthless, the loss is
as tax credit; deemed to be a loss from the sale or exchange of capital assets. A
4. MCIT is imposed;
9) Paid for commodities not connected with business. capital gain or a capital loss normally requires the concurrence of
5. Substantial change in ownership (75%).
two conditions for it to result:
Who may claim tax credit for taxes of foreign countries
NOLCO NCLCO 1) There is a sale or exchange; and
1) Resident Citizens;
2) The thing sold or exchanged is a capital asset.
2) Domestic Corporations; Excess of deductions over gross Loss from sale or exchange of
income for any taxable year capital asset When securities become worthless, there is strictly no sale or
3) Members of GPPS;
exchange but the law deems the loss anyway to be "a loss from the
4) Bene ciaries of estates and trusts. Additional deductible item from Capital losses are allowed only to sale or exchange of capital assets.” Capital losses are allowed to be
gross income similar to other the extent of capital gains deducted only to the extent of capital gains, i.e., gains derived from
Options of Taxpayer quali ed for a credit
allowable deductions the sale or exchange of capital assets, and not from any other income
1) Deducting the foreign income tax from gross income; or of the taxpayer.
Holding period is NOT Holding period is applicable in
2) Claiming tax credit. In the case at bar, First CBC Capital (Asia), Ltd., the investee
applicable case of individual taxpayer
Limitations on Credit corporation, is a subsidiary corporation of petitioner bank whose
Can be carried over in the next Treated in the succeeding year shares in said investee corporation are not intended for purchase or
a) Per Country;
3 consecutive years as a deduction as short-term sale but as an investment. Unquestionably then, any loss
b) Global. immediately following the year capital loss from the net capital therefrom would be a capital loss, not an ordinary loss, to the
of such loss gains in case of individual investor.
LOSSES
taxpayer
The exclusionary clause found in the text of the law does not
NET OPERATING LOSS CARRY OVER (NOLCO). The include all forms of securities but speci cally covers only bonds,
LOSSES ARISING FROM SECURITIES. When the securities
net operating loss of the business or enterprise for any taxable year debentures, notes, certi cates or other evidence of indebtedness,
which can be in the form of shares of stocks or loan receivables be
immediately preceding the current taxable year, which had not with interest coupons or in registered form, which are the
considered as worthless, the losses can be deducted. It will be
been previously o set as deduction from gross income shall be instruments of credit normally dealt with in the usual lending
worthless when the company loses operations in which the shares
carried over as a deduction from gross income for the next operations of a nancial institution. Equity holdings cannot come
belong.
three (3) consecutive years immediately following the year of close to being, within the purview of "evidence of indebtedness".
such loss. China Banking Corp. v. CA on Worthless Securities

Verily, it is for a like thesis that the loss of petitioner bank in its A wash sale is a price manipulation activity prohibited under the 2. If no payment is made, then the creditor sends a collection
equity investment in the Hongkong subsidiary cannot also be SRC. It is a practice where a person or entity who is not a dealer of letter to the debtor;
deductible as a bad debt. The shares of stock in question do not securities disposes of such securities. It occurs when the taxpayer
3. Still no payment is made, then the creditor‘s lawyer will send a
constitute a loan extended by it to its subsidiary (First CBC Capital) disposes shares of stock or securities and within 30 days before or
formal demand letter to the debtor;
or a debt subject to obligatory repayment by the latter, essential after such disposition acquires substantially identical stocks or
elements to constitute a bad debt, but a long term investment made securities. That‘s why it is termed as a 61-day sale. 4. Still failed to pay, then an action is led in court for collection;
by CBC. 5. No payment despite the order of court, then the account will
WAGERING LOSSES. Losses from wagering transactions shall
In sum — be allowed only to the extent of the gains from such transactions. be considered as bad debt.
a) The equity investment in shares of stock held by CBC of CASUALTY LOSSES. The loss is caused by fortuitous event or CHARITABLE CONTRIBUTIONS
approximately 53% in its Hong Kong subsidiary, the First force majeure. Requisites for deductibility
CBC Capital (Asia), Ltd., is not an indebtedness, and it is Kinds of Charitable Contributions
a. Report to taxing authorities within 45 days from
a capital, not an ordinary, asset. 1. Ordinary – those subject to limitations as to the amount
occurrence of the loss;
b) Assuming that the equity investment of CBC has indeed deductible from gross income
b. Related to trade and business;
become "worthless," the loss sustained is a capital, not a. 5% for Corporations;
an ordinary, loss. c. Evidenced by a closed and completed transaction
(perfected sale; b. 10% for Individuals.
c) The capital loss sustained by CBC can only be
d. Actually sustained during the taxable year; 2. Special – deductible in full from gross income
deducted from capital gains if any derived by it during
the same taxable year that the securities have become e. Must not be compensated by insurance or other forms of Conditions if Recipient is an NGO
"worthless." indemnity. a. Organized and operated exclusively for the aforementioned
ABANDONMENT LOSSES. In the event a contract area where purposes or a combination thereof, no part of the net income
LOSSES FROM SHARE TRANSACTIONS. Losses from
petroleum operations are undertaken is partially or wholly of which inures to the bene t of any private individual;
share transactions can be claimed as deduction upon realization of
the loss. Shrinkage in value of shares of stocks cannot be used to abandoned, all accumulated exploration and development b. The donation must be utilized not later than the 15th day
claim for the deduction as loss because you haven't realized it yet. expenditures shall be allowed as a deduction. of the 3rd month following the close of its taxable
Only if you sold it then if there is any loss, you can claim it as a year.(taxable year of the NGO concerned not the taxpayer);
BAD DEBTS
deduction. c. The administrative expense must not exceed 30% of total
LOSSES FROM WASH SALES. A wash sale is the buying or When are bad debts ascertained to be worthless? A court order is expenses;
selling of the same type of stock or security at a loss within 30 days necessary and the regular procedure is as follows:
d. Upon dissolution, assets would be distributed to another
before the date of sale or 30 days after date of sale. It cannot be 1. Creditor sends a statement of Account to the debtor which nonpro t domestic corporation organized for similar purpose
claimed as allowable deduction. states the maturity date and amount due; or purposes, or to the state for public purpose ,or would be

distributed by a court to another organization to be used in

Salvage value is the estimated net amount currently obtainable if depreciable assets.
such manner as in the judgment of said court shall best
the asset is at the end of the useful life. It is the value of the asset at
accomplish the general purpose for which the dissolved Petitioner further contends that since the disallowed items are
the end of its useful life.
organization was organized. treated as capital goods in the general ledger and accounting
Useful life is either the period over which an asset is expected to be records, this should have been given more signi cance than the
RESEARCH AND DEVELOPMENT available for use by the entity, or the number of production or account vouchers which listed the items under inventory accounts.
similar units expected to be obtained from the asset by the entity.
The deduction shall not apply A general ledger is a record of a business entity's accounts which
METHODS OF DEPRECIATION make up its nancial statements. Information contained in a general
1. Any expenditure or the acquisition or improvement of land, or
ledger is gathered from source documents such as account vouchers,
for the improvement of property to be used in connection 1. Straight line method
purchase orders and sales invoices. In case of variance between
with research and development of a character which is subject 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = the source document and the general ledger, the former is
to depreciation and depletion; and 𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒
preferred.
2. Any expenditure paid or incurred for the purpose of 2. Declining balance method;
ascertaining the existence, location, extent, or quality of any 3. Sum of the years digit method.
deposit of ore or other mineral, including oil or gas. DEPLETION
TYPES OF R&D Kepco Phil. Corp. v. CIR The exhaustion of natural resources like mines and oil and gas as
well as the result of production or severance from such mines or
1. Not chargeable to capital account — deducted outright, "Capital goods or properties" refer to goods or properties
wells. These are non-replaceable assets. This is applicable to
Ex. Project feasibility study;
1. with estimated useful life greater than one year and wasting asset entities.
2. Chargeable to a capital account — spread out or amortized
2. which are treated as depreciable assets under Section 29 Cost Depletion Method. The method allowed under the tax code
over a period of 60 months.
(f), is the cost depletion method. This is similar to the unit of
PENSION production method. The depletable amount of the wasting asset is
3. used directly or indirectly in the production or sale of
divided by the units estimated to be extracted to obtain a depletion
Current Service Cost is the cost of the services rendered from the taxable goods or services.
rate per unit. The depletion rate per unit is then multiplied by the
time the pension trust is set up until its retirement. From petitioner's evidence, the account vouchers speci cally units extracted during the year to arrive at the depletion for the
Past Service Cost is the cost of the services relating to those prior indicate that the disallowed purchases were recorded under period. The depletable amount is equivalent to the cost of the asset
to the setting up of the pension trust. inventory accounts, instead of depreciable accounts. That petitioner less salvage value, if any.
failed to indicate under its xed assets or depreciable assets account,
DEPRECIATION Essential Factors
goods and services allegedly purchased pursuant to the
rehabilitation and maintenance of Malaya Power Plant Complex, 1. Basis of the property;
Depreciable amount or cost is the cost of an asset or other
militates against its claim for refund. As correctly found by the 2. Estimated total recoverable units; AND
amount substituted for cost, less its residual value.
CTA, the goods or properties must be recorded and treated as

3. Number of units recovered during the taxable year. Taxes

b. Given to organizations speci ed in the tax code;
Requisites for Deductibility
a. Paid or incurred during taxable year; c. Net income of the institution must not inure to the bene t of
Expenses b. In connection with trade, business, profession. any private stockholder or individual;
d. Made within the taxable year;
a. Ordinary and necessary; Losses
e. Evidenced by adequate records or receipts;
b. Paid or incurred during the taxable year; a. Must be incurred in the trade, business, or profession of the
f. Not exceed 10% in the case of individuals and 5% in the case of a
c. Paid or incurred in carrying on or which are directly attributable taxpayer;
corporation, of the taxpayer‘s taxable income (except where the
to the development, management, operation and/or conduct of b. Actually sustained and charged o within the taxable year and donation is deductible in full) to be determined without the
the trade, business or exercise of profession; not mere anticipated losses; bene t of the contribution.
d. Supported by adequate invoices or receipts; c. Evidenced by a closed and completed transaction; Research and Development
e. Not contrary to law, public policy or moral; d. Not be compensated by insurance or other forms of indemnity;
a. Incurred during taxable year;
f. Tax required to be withheld on the expense paid or payable is e. IIf partly compensated, only the amount not compensated by
shown to have been remitted to the BIR. insurance is deductible; b. In connection with trade or business.
Interest f. In the case of casualty loss, taxpayer must le a sworn Pension

declaration of loss within 45 days after the date of discovery of
a. There must be an indebtedness; the casualty or robbery, theft or embezzlement. a. Employer must have established a pension or retirement plan to
provide for the payments of reasonable pensions to his
b. Paid or incurred upon such indebtedness;
Bad Debt employees;
c. Must be that of the taxpayer;
a. Arise from a valid and subsisting obligation; b. Pension plan is reasonable and actuarially sound;
d. Connected with the trade, business or profession;
b. Ascertained to be worthless; c. Contribution must be made by the employer to the pension
e. Paid or incurred during taxable year; fund;
c. Charged o and uncollectible within the taxable year;
f. Interest must have been stipulated in writing; d. Funded by the employer;
d. Uncollectible in the near future;
g. Legally due; e. Amount contributed must no longer be subject to the control
e. Arise from trade or business or profession of taxpayer. and disposition of the employer;
h. Not between related taxpayers;
i. Not incurred to nance petroleum operations; Charitable Contributions f. Payment has not yet been allowed as deduction;
j. Not treated as capital expenditure. a. Contribution or gift must actually be paid;

Costs of goods purchased for resale, with proper adjustment for c. Domestic corporation;
g. Deduction is apportioned in equal parts over a period of 10
opening and closing inventories, is deducted from gross sales in
consecutive years beginning with the year in which the transfer d. Resident foreign corporation;
computing gross income.
or payment is made.
e. Partnership; and
Payment of principal by a debtor to a creditor is deducted from the
Depreciation total amount received by the latter in order to determine his f. Taxable estate and trust.
interest income. In other words, NRAs and NRFCs cannot claim OSD.
a. Property must be used in trade, business or profession of the
taxpayer; 1) Sale of inventory of goods by manufacturers and 3. With the election of OSD, there is no more need to
dealers of properties — That portion of the receipt substantiate with receipts.
b. There must be depreciable properties;
representing return of capital is not subject to income tax.
c. Allowance for depreciation must be reasonable; 4. Those not allowed to use OSD are
Thus, cost of goods manufactured and sold or cost of sales
d. Depreciation must be charged o during the taxable year; a. those that are exempt, with no other taxable income;
is deducted from gross sales and is re ected above the gross
or
e. Statement of the allowance must be attached to the return; income line in pro t and loss statement.
b. those with income subject to a special or preferential
f. Method for computing the allowance for depreciation must be 2) Sale of stock in trade by a real estate dealer and
tax rate.
in accordance with the method prescribed by the SOF upon the dealer in securities.
recommendation of the CIR. c. those earning purely compensation income.
3) Sale of services — Generally, the entire gross receipts of
sellers of services are treated as part of income. However, 5. The taxpayer must signify in his return his intention to elect
Depletion
some have cost of services that must be deducted from the OSD. Such election shall be irrevocable for the taxable year
a. Depletible asset — natural resources, i.e. mines, gas and oil wells; their gross receipt in order to arrive at their gross income. for which the return is made.
b. Charged o within taxable year; 6. A general professional partnership and the partners
Itemized Deductions vs. Optional Standard comprising such partnership may avail of the OSD only once,
b
c. Allowance for depletion is computed in accordance with cost Deduction
either by the GPP or the partners comprising the partnership.
depletion method.
1. Optional Standard Deduction or OSD is a standard
deduction of an amount not exceeding 40% of gross sales or c Items Not Deductible
receipts (for individuals), or gross income (for corporations),
a Concept as Return of Capital In computing net income, no deduction shall in any case be
as the case may be, in lieu of the itemized deductions.
allowed in respect to —
The amount representing return of capital should be deducted 2. It may be availed of by:
from the proceeds from sales of assets and should NOT be subject 1) Personal, living or family expenses;
to income tax. a. A citizen;
b. Resident alien;

with respect to the taxable year of the corporation preceding

2) Any amount paid out for new buildings or for permanent Income Tax on Non-Resident Aliens Not Engaged in
the date of the sale of exchange was under the law applicable to
improvements, or betterments made to increase the value of
such taxable year, a personal holding company or a foreign Trade or Business
any property or estate;
personal holding company;
Does not apply to intangible drilling and development costs Individual Taxpayers Exempt from Income Tax
4) Between the grantor and a duciary of any trust; or
incurred in petroleum operations which are deductible under Sec
34(g)(1). 5) Between the duciary of and the duciary of a trust and the Individual Source of Income Tax Base
duciary of another trust if the same person is a grantor with
3) Any amount expended in restoring property or in making RC within and without Taxable income
respect to each trust; or
good the exhaustion thereof for which an allowance is or has
been made; or 6) Between a duciary of a trust and bene ciary of such trust. NRC within Taxable income
(Sec 36)
4) Premiums paid on any life insurance policy covering the life RA within Taxable income
of any o cer or employee, or of any person nancially
interested in any trade or business carried on by the taxpayer, 5 Income Tax on Individuals NRA-ETB within Taxable income
individual or corporate, when the taxpayer is directly or
Resident Citizens, Non-Resident Citizens, and NRA-NETB within Gross income
indirectly a beneficiary under such policy.
Resident Aliens
Losses from Sales or Exchanges of Property. — In computing net
income, no deductions shall in any case be allowed in respect of 1) Inclusions and Exclusions for Taxation on Resident Citizens, Non-Resident Citizens, and
losses from sales or exchanges of property directly or indirectly — a
Compensation Income Resident Aliens
1) Between members of a family. For purposes of this
paragraph, the family of an individual shall include only his 2) Taxation of Business Income/Income from Practice (1) Inclusions and Exclusions for Taxation on
Compensation Income
brothers and sisters, spouse, ancestors, and lineal descendants; of Profession
or Inclusions
2) Except in the case of distributions in liquidation, between an 3) Taxation of Passive Income All remuneration for services rendered by an employee for his
individual and corporation more than fty percent (50%) in employer unless speci cally excluded. It includes
4) Taxation of Capital Gains
value of the outstanding stock of which is owned, directly or a) salaries, wages, emoluments,
indirectly, by or for such individual; or 5) Capital Asset vs. Ordinary Asset b) honoraria,
3) Except in the case of distributions in liquidation, between two
Income Tax on Non-Resident Aliens Engaged in Trade c) bonuses,
corporations more than fty percent (50%) in value of the
outstanding stock of which is owned, directly or indirectly, by or Business d) allowances,
or for the same individual if either one of such corporations, e) fringe bene ts including director’s fee,

f) taxable pensions and retirement pay and 5. NRA-NETB – 25% of gross income within; vi) Individuals enjoying income tax exemption, i.e.
BMBEs.
g) other income of similar nature including those paid in 6. Estates & Trusts – 0-35% of net income;
kind. (3) Taxation of Passive Income
7. Special Employees – 15% of gross compensation income.
i) COLA, PERA, housing allowance, OT pay,
8% option Passive Income Rate
Emergency pay, Hazard pay, Rice and clothing
allowance, Medical allowance, grocery allowance. Self-employed individuals and/or professionals shall have the
option to avail of an eight percent (8%) tax on gross sales or For RC, NRC, RA
Exclusions
gross receipts and other non-operating income in excess of
Royalties, in general 20%
a) Compensation for services rendered by an independent Php250K in lieu of the graduated income tax rates and the
contractor; percentage tax. - Books, literary and musical compositions 10%
b) Amounts paid either as advances or reimbursement for Rules on availing the 8% tax rate
Prizes and Winnings - P10K or less 0-35%
transportation, representation, and other bona de
a) The rst Php250K is not subject to tax;
ordinary and necessary expenses incurred in the - > P10K 20%
performance of duties unless there is an excess over actual b) This is in lieu of the 3% percentage tax;
expenses; c) Taxpayer must signify intention to use this option in the PCSO and Lotto winnings - P10K or less EXEMPT
c) Income derived by partner from professional partnership. 1st quarter percentage or income tax return. Otherwise,
- > P10K 20%
graduated rates apply.
d) Convenience of the Employer Rule. — bene ts which
d) Mixed income earners are not entitled to the Php250K Interest income from FCDU 15%
are given for the exclusive bene t or convenience of the
employer. reduction.
Cash and Property Dividends - Individual to DC 10%
e) De minimis bene ts. e) This option is NOT available to:
- DC to DC 0%
i) Purely compensation income earners;
(2) Taxation of Business Income/Income from Practice of
Profession ii) VAT-registered taxpayers, regardless of gross sales or Interest on long-term deposit or investment in banks
EXEMPT
receipts; (With maturity of at least 5 years)
Schedular
1. RC – 0-35% of net income within & without; iii) Non-VAT taxpayers whose gross sale or receipts and Plus NRA-ETB
other non-operating income > Php3M;
2. NRC – 0-35% on net income within; Interest from currency deposits, trust funds and 20%
iv) Taxpayers subject to OPT except those under Sec 116.
3. RA – 0-35% of net income within; deposit substitutes
v) Partners of a GPP since their distributive share is
4. NRA-ETB – 0-35% of net income within; Interest Income from long-term deposit or investment EXEMPT
already net of costs and expenses; and

- Upon pre-termination with Holding period 5% securities. The transactions in primary markets exist between issuers which the bonds were purchased by the seller; and
of 4-5 years and investors, while secondary market transactions exist among
2) gain realized by the last holder of the bonds when the
investors.
- 3-4 years 12% bonds are redeemed at maturity, which is the di erence
The nancial market, therefore, is an agglomeration of nancial between the proceeds from the retirement of the bonds and
- < 3 years 20% transactions in securities performed by market participants that the price at which such last holder acquired the bonds.
works to transfer the funds from the surplus units (or For discounted instruments, like the zero-coupon bonds, the
ALL, including NRA-NETB
investors/lenders) to those who need them (de cit units or trading gain shall be the excess of the selling price over the book value or
borrowers). accreted value (original issue price plus accumulated discount from
Capital gains 6%
Thus, from the point of view of the nancial market, the phrase “at the time of purchase up to the time of sale) of the instruments.
Capital gains for shares of stock not traded 15% any one time” for purposes of determining the “20 or more lenders” The BIR’s interpretation of “at any one time” to mean at the
would mean every transaction executed in the primary or point of origination alone is unduly restrictive.
Only NRA-NETB
secondary market in connection with the purchase or sale of
securities. Tax treatment of income derived
Gross amount of income within PH 25%
from the PEACe Bonds
Where the nancial assets involved are government securities like
bonds, the reckoning of “20 or more lenders/investors” is made at Should there have been a simultaneous sale to 20 or more
BDO v. Republic 2015 En Banc any transaction in connection with the purchase or sale of the lenders/investors, the PEACe Bonds are deemed deposit
Government Bonds. Consequently, the seller is required to substitutes. Further, the obligation to withhold the 20% nal tax
WON the PEACe Bonds are “deposit substitutes” and thus subject on the corresponding interest from the PEACe Bonds would
withhold the 20% nal withholding tax on the imputed interest
to 20% final withholding tax under the 1997 NIRC. likewise be required of any lender/investor had the latter turned
income from the bonds.
Related to this question is the interpretation of the phrase “borrowing around and sold said PEACe Bonds, whether in whole or part,
For debt instruments that are simultaneously to 20 or more lenders or investors.
from twenty (20) or more individual or corporate lenders at
NOT deposit substitutes, regular
any one time” under Section 22(Y) of the 1997 NIRC, particularly Under Section 24 of the 1997 NIRC, interest income received by
income tax applies
on whether the reckoning of the 20 lenders includes trading of the individuals from long-term deposits or investments with a holding
bonds in the secondary market. It must be emphasized, however, that debt instruments that do not period of not less than five (5) years is exempt from the final tax.
qualify as deposit substitutes under the 1997 NIRC are subject to
20-lender rule Thus, should the PEACe Bonds be found to be within the coverage
the regular income tax.
Whether referring to money market securities or capital market of deposit substitutes, the proper procedure was for the Bureau of
The “gains” contemplated in Section 32(B)(7)(g) refers to: Treasury to pay the face value of the PEACe Bonds to the
securities, transactions occur either in the primary market or in the
secondary market. Primary markets facilitate the issuance of new 1) gain realized from the trading of the bonds before their bondholders and for the BIR to collect the unpaid nal
securities. Secondary markets facilitate the trading of existing maturity date, which is the di erence between the selling withholding tax directly from RCBC Capital/CODE-NGO,
securities, which allows for a change in the ownership of the price of the bonds in the secondary market and the price at or any lender or investor if such be the case, as the

order to determine the fair market value of the shares of business for more than 2 years prior to the consummation of
withholding agents.
stock. The latest audited nancial statements shall be the taxable transaction.
su cient in determining the fair market value of the
(4) Taxation of Capital Gains b. Change of hands to recipient not engaged in real estate or to
shares of stock subject of the sale, barter, exchange, or
a) Income from sale of shares of stock of a Philippine use in business:
other disposition. (RR 20-2020)
corporation i. Succession or donation - CAPITAL;
b) Income from sale of real property situated in the
In the case of shares of stock not listed and traded in the local ii. As dividend - CAPITAL;
Philippines
stock exchanges, the following rules shall apply:
c) Income from sale, exchange, and other disposition of other iii. Exchange - ORDINARY;
a. For common shares of stock, the book value based on the
capital assets. iv. Involuntary Transfers - NO EFFECT.
latest available nancial statements duly certi ed by an
independent public accountant prior to the date of sale, CONDITIONALLY EXEMPT FROM CGT
Type Rate Basis
but not earlier than the immediately preceding taxable a) Proceeds of sale of the principal residence have been fully
year, shall be considered as the prima facie fair market Sale of shares of stocks not 15% Net Capital Gains utilized in acquiring a new one within 18 months from date
value. traded of sale;
b. For preferred shares of stock, the liquidation value, b) The historical cost or adjusted basis of RP sold will be carried
- Listed and Traded 0.6% Gross Selling Price
which is equal to the redemption price of the preferred over to the new PR;
shares as of balance sheet date nearest to the transaction Sale of real property located 6% GSP, FMV, higher
date, including any premium and cumulative preferred c) CIR has been duly noti ed, through a prescribed return,
in PH
dividends in arrears, shall be considered as fair market within 30 days, from date of sale of intention to avail of tax
value. Sale of other capital assets exemption.
c. In case there are both common and preferred shares, the d) Net of proceeds not utilized will be subject to CGT.
- > 12 Months 0-35% 50% of CG
book value per common share is computed by deducting e) Buyer of principal residence shall deduct 6%, deposit in cash or
the liquidation value of the preferred shares from the total - 12 Months or less 0-35% 100% of CG manager’s check in an interest-bearing account with an
equity of the corporation and dividing the result by the Authorized Agent Bank under an Escrow Agreement.
RULES
number of outstanding common shares as of balance sheet
EXEMPT ENTITIES FROM CGT
date nearest to the transaction date. a. Real properties formerly forming part of the stock in trade of a
taxpayer engaged in real estate or formerly used in trade or 1) Dealer in securities;
d. For this purpose, the book value of the common shares of
business which were later on abandoned continue to be 2) Exempt under special laws;
stock or the liquidation value of the preferred shares of
treated as ORDINARY assets.
stock need not be adjusted to include any appraisal surplus 3) Exchange of real property solely for shares of stock resulting in
from any property of the corporation not re ected or Provided, that such is automatically converted to CAPITAL corporate control;
included in the latest audited nancial statements, in assets upon showing proof that they have not been used in

4) GOCC selling real property; 3. property held by the taxpayer primarily for sale to - > P10K 20%
customers in the ordinary course of his trade or business;
5) Disposition is gratuitous; PCSO and Lotto winnings - P10K or less EXEMPT
4. property used in the trade or business, of a character
6) Pursuant to CARP Law;
which is subject to the allowance for depreciation - > P10K 20%
7) Requirements above have been met, reg. principal residence. provided in Subsection (F) of Section 34; or
Interest income from FCDU 15%
5. real property used in trade or business of the taxpayer.
Republic v. Sps Salvador 2017 For speci c guidelines in determining WON real property is a Cash and Property Dividends - Individual to DC 10%
capital or ordinary asset, please see RR 7-2003.
Whether the capital gains tax on the transfer of the expropriated - DC to DC 0%
property can be considered as consequential damages that may be Main takeaway — a taxpayer habitually engaged in the real
awarded to respondents. estate business is someone: Interest on long-term deposit or investment in banks
EXEMPT
(With maturity of at least 5 years)
NO. It is settled that the transfer of property through a. Registered with the HLURB or HUDCC as as a real
expropriation proceedings is a sale or exchange within the estate dealer or developer; or Interest from currency deposits, trust funds and 20%
meaning of Sections 24(D) and 56(A)(3) of the NIRC, and deposit substitutes
b. If not registered with the above, having consummated
pro t from the transaction constitutes capital gain. Since capital
during the preceding year of at least six (6) taxable real
gains tax is a tax on passive income, it is the seller, or respondents in Interest Income from long-term deposit or investment EXEMPT
estate sale transactions, regardless of amount; or
this case, who are liable to shoulder the tax.
c. Registered as habitually engaged in real estate business - Upon pre-termination with Holding period 5%
As far as the government is concerned, the capital gains tax in of 4-5 years
with the LGU or BIR.
expropriation proceedings remains a liability of the seller, as it
is a tax on the seller's gain from the sale of real property. - 3-4 years 12%
Income Tax on Non-Resident Aliens Engaged in
b
Trade or Business - < 3 years 20%
(5) Capital Asset vs. Ordinary Asset
The term 'capital assets' means property held by the taxpayer
(whether or not connected with his trade or business), but does Passive Income Rate
Income Tax on Non-Resident Aliens Not Engaged
not include (ordinary assets) c
in Trade or Business
Royalties, in general 20%
1. stock in trade of the taxpayer;
2. other property of a kind which would properly be - Books, literary and musical compositions 10%
Passive Income Rate
included in the inventory of the taxpayer if on hand at the
Prizes and Winnings - P10K or less 0-35%
close of the taxable year; Royalties, in general 20%

- Books, literary and musical compositions 10% (2) Minimum Wage Earners Income Tax on Domestic Corporations and Resident
Prizes and Winnings - P10K or less 0-35% Statutory minimum wage shall refer to the rate xed by the Foreign Corporations
RTWPB, as de ned by the Bureau of Labor and Employment
- > P10K 20% Statistics (BLES) of DOLE. Income Tax on Non-Resident Foreign Corporations
PCSO and Lotto winnings - P10K or less EXEMPT Minimum wage earner shall refer to a worker in the private Income Tax on Special Corporations
sector paid the statutory minimum wage or to an employee in the
- > P10K 20% public sector with compensation income of not more than the Exemptions from Tax on Corporations
statutory minimum wage in the non-agricultural sector where
Interest income from FCDU 15% he/she is assigned.
Period Within Which to File Income Tax Return of
The proper interpretation of R.A. 9504 is that it imposes taxes

Individuals and Corporations
Cash and Property Dividends - Individual to DC 10%
only on the taxable income received in excess of the minimum
- DC to DC 0%
Substituted Filing
wage, but the MWEs will not lose their exemption as such.
Workers who receive the statutory minimum wage and their basic Failure to File Returns
Interest on long-term deposit or investment in banks
EXEMPT pay remain MWEs. The receipt of any other income during the
(With maturity of at least 5 years)
year does not disqualify them as MWEs. They remain MWEs, Income Tax on Domestic Corporations and
a
entitled to exemption as such, but the taxable income they receive Resident Foreign Corporations
Capital gains 6%
other than as MWEs may be subjected to appropriate taxes.
Capital gains for shares of stock not traded 15% (Soriano v. Secretary of Finance 2017 En Banc)
Type Rate Condition
Gross amount of income within PH 25% (3) Exemptions Granted Under International Agreements
25% e ective July 1, 2020
1. O cers and sta of the ADB who are NOT PH nationals
shall be exempt from PH income tax. a. with net taxable income P5M
d Individual Taxpayers Exempt from Income Tax DC and below
2. Alien individual employees of foreign embassies or 20%
international organizations in PH are exempt from our b. with total assets P100M and
(1) Senior Citizens below.1
income tax based on the international agreements entered into
The senior citizens who are considered to be minimum wage by PH with said international organizations or under the beginning July 1, 2020 until June 30,
earners shall be entitled to exemption from the payment of Vienna Convention. 1%
PEIH 2 2023
individual income taxes. (Sec 4[b] RA 9257, as amended)
6 Income Tax on Corporations

1
excluding land on which the particular business entity’s o ce, plant, and
equipment are situated during the taxable year for which the tax is imposed
2
Proprietary Educational Institutions and Hospitals.

Type Rate Condition 2% 'Cost of goods sold' shall include all business expenses directly
Tax rate 20 or 25% (1% July 1, 2020 to June 30, incurred to produce the merchandise to bring them to their present
10% thereafter
2023) location and use.
Same as For a trading or merchandising concern, 'cost of goods sold' shall
GOCC3 except GSIS, SSS, HDMF, PHIC. Tax base Taxable Income Gross Income
DC include
RFC 25% e ective July 1, 2020 Beginning on the 4th taxable 1. the invoice cost of the goods sold,
Upon year following
commencement commencement of business 2. plus import duties,
Minimum Corporate Income Tax (MCIT) When
operation 3. freight in transporting the goods to the place where the goods
Under the MCIT scheme, a corporation, imposable
are actually sold
1. beginning on its fourth year of operation, If greater than
If greater than RCIT 4. including insurance while the goods are in transit.
MCIT
2. is assessed an MCIT of 2% of its gross income
For a manufacturing concern, 'cost of goods manufactured and sold'
3. when such MCIT is greater than the normal corporate income Relief from the Minimum Corporate Income Tax Under
shall include all costs of production of nished goods, such as
tax imposed under Section 27(A). Certain Conditions. — Imposition of MCIT is suspended on any
corporation 1. raw materials used,
4. Provided, That e ective July 1, 2020 until June 30, 2023, the
1. which su ers losses on account of prolonged labor dispute, 2. direct labor and manufacturing overhead,
rate shall be one percent (1%)
or 3. freight cost,
If the regular income tax is higher than the MCIT, the corporation
does not pay the MCIT. Any excess of the MCIT over the normal tax 2. because of force majeure, or 4. insurance premiums and
shall be carried forward and credited against the normal income tax for 3. because of legitimate business reverses. 5. other costs incurred to bring the raw materials to the factory or
the three immediately succeeding taxable years. warehouse.
"Substantial losses from a prolonged labor dispute" means losses
Carry Forward of Excess Minimum Tax. — Any excess of the arising from a strike staged by the employees which lasted for more In the case of taxpayers engaged in the sale of service,
MCIT over the normal income tax shall be carried forward and than six (6) months within a taxable period and which has caused the
credited against the normal income tax for the three (3) immediately temporary shutdown of business operations.
gross income = gross receipts — sales returns, allowances, discounts
succeeding taxable years. and cost of services.
Gross Income Defined
RCIT MCIT 'Cost of services' shall mean all direct costs and expenses necessarily
gross income = gross sales — sales returns, discounts and allowances incurred to provide the services required by the customers and clients
ALL corporate and cost of goods sold. including
Applicable to DC and RFC only
TPs
1. salaries and employee bene ts of personnel, consultants and
specialists directly rendering the service and
3
GOCCs + Agencies or Instrumentalities.

2. cost of facilities directly utilized in providing the service such under R.A. No. 7916 and EO No. 226.
Second, PD NO. 1590 further provides that the basic corporate
as depreciation or rental of equipment used and cost of
income tax of PAL shall be based on its annual net taxable income. In its rudimentary de nition, a hedge (as opposed to speculation
supplies:
In comparison, the 2% MCIT under Section 27(E) of the NIRC of and arbitrage) is an investment undertaken to reduce the risk of
Provided, however, That in the case of banks, 'cost of services' 1997 shall be based on the gross income of the domestic adverse price movements in an asset. Simply put, it is a loose form
shall include interest expense. corporation. of insurance against value or price fluctuations of a
particular asset (such as cash in the form of foreign currency). In
Exceptions to MCIT Third, even if the basic corporate income tax and the MCIT are
the context of foreign currency exchanges, hedging involves
both income taxes under Section 27 of the NIRC of 1997, and one
Corporations subject to special tax rates are exempt from MCIT: contracting with a foreign currency broker to deliver or receive a
is paid in place of the other, the two are distinct and separate taxes.
1. Proprietary Educational Institutions that are subject to the speci ed foreign currency at a speci ed future date and at a speci ed
MCIT is included in "all other taxes" from which PAL is exempted.
preferential rate; exchange rate. Here, a fully hedged transaction results in no
Fourth, the evident intent of Section 13 of PD No. 1590 is to exchange gain or loss to the company; and for a fee, the broker
2. Non-pro t Hospitals that are subject to the preferential rate; extend to PAL tax concessions not ordinarily available to other assumes all the risks associated with exchange rate changes. This is
For (1) and (2), the income derived from unrelated trade, domestic corporations. because the equivalent amount or value of the foreign currency in
business, or activity should not exceed 50% of the gross Fifth, the Substitution theory of the CIR is untenable. It is not the legal tender remains to be a mere estimate until it is actually
income. fact of tax payment that exempts PAL, but the exercise of its option. converted to local currency. Therefore, any occurring uctuation in
3. PEZA-registered entities for registered activities that are local currency value before the conversion of foreign currency does
subject to 5% preferential rate; not result in the realization of any gain or loss.
Aegis PeopleSupport, Inc. v. CIR 2019 In the instant case, petitioner may validly enter into a hedging
4. O shore Banking Units;
contract to manage its foreign currencies on-hand earned as gross
5. International Carriers subject to 2.5% of Gross Philippine Petitioner is a domestic corporation. It is registered with the Board
revenues. Consequently, the Court considers hedging to be very
Billings. of Investments (BOI) as a new and pioneer IT Export service rm in
much related to its registered activities and, hence, still subject
the eld of Customer Contact Center. Also, petitioner is registered
to a preferential tax treatment under R.A. No. 7916 and EO No.
CIR v. PAL with the PEZA.
226.
WON petitioner's foreign exchange gains derived from its hedging
WON PAL is liable for deficiency MCIT for FY 2000-2001.
contract with the Citibank is covered by Income Tax Holiday and
NO. PD No. 1590, the franchise of PAL, contains provisions subject to tax refund. Manila Bankers' Life Insurance Corp. v. CIR 2019
speci cally governing the taxation of said corporation. The Court
YES. Section 4 of R.A. No. 7916 provides that enterprises located
concludes that PAL cannot be subjected to MCIT for FY CTA held ✘ that premium taxes on insurance policies are
within the recognized economic or trade zones "are granted
2000-2001. considered "costs of service" in computing the Minimum Corporate
preferential tax treatment." Any income earned by a
Income Tax (MCIT);
First, PD No. 1590 refers to "basic corporate income tax." PEZA-registered enterprise which is NOT related to its
registered activities is NOT covered by the incentives granted Section 27(E) of the NIRC allows the government to collect from

corporations MCIT equivalent to 2% of "gross income" in lieu

To determine whether demurrage and detention fees are subject to Demurrage and detention fees de nitely form part of an
of the 30% of "gross income" basic income tax for domestic
the preferential 2.5% rate, we refer to the de nition of "Gross international sea carrier's gross income. For they are acquired in the
corporations, whenever the former is higher. It must be borne in
Philippine Billings" (GPB) under Section 28(A)(I)(3a) of the normal course of trade or business.
mind, however, that although both rates of taxes are applied to
NIRC, as amended by RA 10378, viz.: "gross revenue whether for
"gross income" as tax base, the de nition of "gross income," for
passenger, cargo or mail originating from the Philippines up to final (1) Branch Profit Remittance Tax
purposes of MCIT and basic corporate income tax, varies.
destination, regardless of the place of sale or payments of the passage or Any pro t remitted by a branch to its head o ce shall be subject to
"Gross income" as used in determining MCIT means "gross receipts freight documents." a tax of 15% which shall be based on the total profits applied or
less sales returns, allowances, discounts and cost of services." earmarked for remittance without any deduction for the tax
Verily, the GPB covers gross revenue derived from transportation
"Cost of services" means all DIRECT costs and expenses of passengers, cargo and/or mail originating from the Philippines up component thereof except those activities which are registered with
necessarily incurred to provide the services required by the to the nal destination. Any other income, therefore, is subject to the PEZA.
customers and clients. the regular income tax rate. Interests, dividends, rents, royalties, including remuneration for
Premium taxes are NOT deductible cost of service Demurrage fee is the allowance or compensation due to the master technical services, salaries, wages premiums, annuities, emoluments
or owners of a ship, by the freighter, for the time the vessel may have or other xed or determinable annual, periodic or casual gains,
The claimed deduction should be a direct cost or expense. A
been detained beyond the time speci ed or implied in the contract pro ts, income and capital gains received by a foreign corporation
cost or expense is deemed "direct" when it is readily attributable to
of a reightment or the charter-party. It is only an extended freight during each taxable year from all sources within the Philippines
the production of the goods or for the rendition of the service.
or reward to the vessel, in compensation for the earnings the carrier shall not be treated as branch profits unless the same are
Premium taxes, though payable by MBLIC, are not direct costs is improperly caused to lose. effectively connected with the conduct of its trade or business
within the contemplation of the phrase "cost of services," incurred in the Philippines.
Detention occurs when the consignee holds on to the carrier's
as they are AFTER the sale of service had already transpired.
container outside of the port, terminal, or depot beyond the free (2) Itemized Deductions vs. Optional Standard Deductions
This cannot therefore be considered as the equivalent of raw
time that is allotted. Detention fee is charged when import
materials, labor, and manufacturing cost of deductible "cost of sales" Please refer here
containers have been picked up, but the container (regardless if it is
in the sale of goods. Income Tax on Non-Resident Foreign
full or empty) is still in the possession of the consignee and has not b
been returned within the allotted time. Detention fee is also charged Corporations
for export containers in which the empty container has been picked
Association of International up for loading, and the loaded container is returned to the steamship
2020
Shipping Lines, Inc.et al. v. SOF Type Rate Condition
line after the allotted free time.
WON demurrage and detention fees are subject to the Indeed, the exclusion of demurrage and detention fees from the e ective January 1, 2021
preferential tax rate of 2.5% of Gross PH Billings. preferential rate of 2.5% is proper since they are not considered In
25% of the gross income received during each
income derived from transportation of persons, goods and/or general
NO. They are properly regular income subject to regular income taxable year from all sources within the
tax rate. mail, in accordance with the rule expressio unios est exclusio alterius.

Philippines, such as interests, dividends, within the Philippines. credit to US corporations on dividends received from foreign
rents, royalties, salaries, premiums corporation.
Doing business implies a continuity of commercial dealings and
(except reinsurance premiums),
arrangements, and contemplates, to that extent, the performance of This goes to show that the IGC, being a non-resident US
annuities, emoluments or other xed or
acts or works or the exercise of some of the functions normally corporation is quali ed to avail of the aforesaid 15% preferential
determinable annual, periodic, or casual
incident to, and in progressive prosecution of, the purpose and tax rate on the dividends it earned from the Philippines. It was
gains, pro ts and income, and capital
object of its organization. proven that the country which it was domiciled shall grant similar
gains, except capital gains from Sale of
tax relief/credit against the tax due upon the dividends earned from
Shares of Stock not Traded in the Stock Mere investment as a shareholder by a foreign corporation in
sources within the Philippines. Clearly, the IGC has made an
Exchange. a duly registered domestic corporation shall NOT be deemed
overpayment of its tax due of FWT by using the 35% tax rate.
"doing business" in the Philippines. It is clear then that the
Capital from Sale of Shares of Stock not Traded IGC's act of subscribing shares of stocks from McCann, a duly Since the RP-US Tax Treaty does not provide for any other
15%
Gains in the Stock Exchange. registered domestic corporation, maintaining investments therein, prerequisite for the availment of the bene ts under the said treaty, to
and deriving dividend income therefrom, does not qualify as "doing impose additional requirements would negate the availment of the
business" contemplated under R.A. No. 7042. Hence, the IGC is reliefs provided for under international agreements.
Passive Income Rate not required to secure a license before it can le a claim for tax
refund.
Interest on foreign loans, i.e. lending to DC 20%
The general rule that a foreign corporation is the same juridical entity c Income Tax on Special Corporations
Intercorporate dividend from DC as its branch office in the Philippines cannot apply here. When the
Proprietary educational institutions and hospitals which are
- Subject to a condition that the country of foreign corporation transacts business in the Philippines
nonpro t shall pay a tax of ten percent (10%) on their taxable
domicile of the NRFC allows a credit against 15% independently of its branch, the principal-agent relationship is set
income except those covered by Subsection (D) hereof:
the tax due from the NRFC taxes deemed to aside. The transaction becomes one of the foreign corporation, not
have been paid in PH equivalent to 15%. of the branch. Consequently, the taxpayer is the foreign Provided, That beginning July 1, 2020 until June 30, 2023, the tax
corporation, not the branch or the resident foreign corporation. rate herein imposed shall be one percent (1%).
- Otherwise 25%
Corollarily, if the business transaction is conducted through the Provided, that if the gross income from 'unrelated trade,
branch o ce, the latter becomes the taxpayer, and not the foreign business or other activity' exceeds fty percent (50%) of the
corporation. total gross income derived by such educational institutions or
CIR v. Interpublic Group of Companies 2019
hospitals from all sources, the tax prescribed in Subsection (A)
The RP-US Tax Treaty created a treaty obligation on the part of the
Can an NRFC which collects dividends from the Philippines sue here hereof shall be imposed on the entire taxable income.
US that it "shall allow" to a US parent corporation receiving
to claim tax refund? dividends from its Philippine subsidiary "a tax credit for the For purposes of this Subsection, the term 'unrelated trade,
YES. The threshold question is whether the IGC was doing business appropriate amount of taxes paid or accrued to the Philippines by business or other activity' means any trade, business or other
in the Philippines when it collected dividend earnings from sources the said Philippine subsidiary. The US allowed a "deemed paid" tax activity, the conduct of which is not substantially related to the

exercise or performance by such educational institution or hospital

assets in the form of real property for educational purposes, it shall proprietary non-pro t hospitals, among the institutions covered
of its primary purpose or function.
be exempted from RPT. by Section 30, to the 10% preferential rate under Section 27(B)
A 'proprietary educational institution' is any private school instead of the ordinary 30% corporate rate under the last paragraph
To be clear, proving the actual use of the taxable item will result in
maintained and administered by private individuals or groups with of Section 30 in relation to Section 27(A)(1).
an exemption, but the speci c tax from which the entity shall be
an issued permit to operate from the DepEd, or CHED, or
exempted from shall depend on whether the item is an item of Section 27(B) of the NIRC imposes a 10% preferential tax rate
TESDA, as the case may be, in accordance with existing laws and
revenue or asset. on the income of
regulations.
The crucial point of inquiry then is on the use of the assets or on 1) proprietary non-pro t educational institutions and
Requisites for the application of the 10% preferential rate:
the use of the revenues. These are two things that must be viewed
2) proprietary non-pro t hospitals.
1. It must be private; and treated separately. But so long as the assets or revenues are used
actually, directly and exclusively for educational purposes, they are The only quali cations for hospitals are that they must be
2. It has permit to operate as an educational institution;
exempt from duties and taxes. proprietary and non-pro t.
3. It is non-pro t; AND
The tax exemption granted by the Constitution to non-stock, “Proprietary” means private, following the de nition of a
4. Its gross income from unrelated trade or business must not non-pro t educational institutions, unlike the exemption that “proprietary educational institution” as “any private school
exceed 50% of its total gross income from all sources, may be availed of by proprietary educational institutions, is maintained and administered by private individuals or groups” with
not subject to limitations imposed by law. a government permit.
otherwise, it will be subject to the 20 or 25% corporate income tax
rate. “Non-pro t” means no net income or asset accrues to or bene ts
any member or speci c person, with all the net income or asset
The preferential tax rate does not apply to the following:
CIR v. St. Luke’s Medical Center 2012 devoted to the institution’s purposes and all its activities conducted
a. The passive income derived by the educational institution, not for pro t.
which is subject to nal income tax, i.e. rent income or interest WON St. Luke’s is liable for deficiency income tax in 1998 under
Section 27(B) of the NIRC, which imposes a preferential tax rate of “Non-pro t” does not necessarily mean “charitable.” To be a
in income;
10% on the income of proprietary non-profit hospitals. charitable institution, an organization must meet the substantive
b. Engaged in unrelated trade or business or other activity where test of charity in Lung Center. Charity is essentially a gift to an
the gross income from such exceeds 50% of the total gross The Court partly grants the petition of the BIR but on a di erent
inde nite number of persons which lessens the burden of
income. ground. Section 27(B) of the NIRC does not remove the income tax
government. In other words, charitable institutions provide for free
exemption of proprietary non-profit hospitals under Section 30(E)
goods and services to the public which would otherwise fall on the
CIR v. DLSU 2016 and (G). Section 27(B) on one hand, and Section 30(E) and (G) on
shoulders of government.
the other hand, can be construed together without the removal of
Thus, when a non-stock, non-pro t educational institution proves such tax exemption. The e ect of the introduction of Section 27(B) As a general principle, a charitable institution does not lose its
that it uses its revenues actually, directly, and exclusively for is to subject the taxable income of two speci c institutions, namely, character as such and its exemption from taxes simply because it
educational purposes, it shall be exempted from income tax, VAT, proprietary non-pro t educational institutions and derives income from paying patients, whether out-patient, or
and LBT. On the other hand, when it also shows that it uses its con ned in the hospital, or receives subsidies from the government,

so long as the money received is devoted or used altogether to the However, the last paragraph of Section 30 of the NIRC quali es No less than the 1987 Constitution expressly exempt ALL
charitable object which it is intended to achieve; and no money the words “organized and operated exclusively.” In short, the last revenues and assets of non-stock, non-pro t educational
inures to the private bene t of the persons managing or operating paragraph of Section 30 provides that if a tax exempt charitable institutions from taxes provided that they are actually, directly and
the institution. institution conducts “any” activity for pro t, such activity is exclusively used for educational purposes. This constitutional
NOT tax exempt even as its not-for-pro t activities remain tax exemption is reiterated in Section 30 (H) of the 1997 Tax Code, as
For real property taxes, the incidental generation of income is
exempt. amended.
permissible because the test of exemption is the USE of the
property. The e ect of failing to meet the use requirement is simply Thus, even if the charitable institution must be “organized and Based on jurisprudence and tax rulings, a taxpayer shall be granted
to remove from the tax exemption that portion of the property not operated exclusively” for charitable purposes, it is nevertheless with this tax exemption after proving that:
devoted to charity. allowed to engage in “activities conducted for pro t” without losing
1) it falls under the classi cation of non-stock, non-pro t
its tax exempt status for its not-for-pro t activities. The only
The Constitution exempts charitable institutions only from educational institution; and
consequence is that the “income of whatever kind and character” of
real property taxes. In the NIRC, Congress decided to extend the
a charitable institution “from any of its activities conducted for 2) the income it seeks to be exempted from taxation is used
exemption to income taxes. Section 30(E) of the NIRC provides
pro t, regardless of the disposition made of such income, shall actually, directly and exclusively for educational
that a charitable institution must be:
be subject to tax.” purposes.
1) A non-stock corporation or association;
The Court cannot expand the meaning of the words “operated Petitioner Foundation has ful lled both of the abovementioned
2) Organized exclusively for charitable purposes; exclusively” without violating the NIRC. Services to paying requirements.
3) Operated exclusively for charitable purposes; and patients are activities conducted for pro t. They cannot be For the rst requirement, there is no contest as both the parties have
considered any other way. There is a “purpose to make pro t over stipulated that petitioner Foundation is a non-stock, non-pro t
4) No part of its net income or asset shall belong to or inure to
and above the cost” of services. educational institution. In several cases, this Court has ruled that a
the bene t of any member, organizer, o cer or any speci c
St. Luke’s fails to meet the requirements under Section 30(E) and non-profit institution will not be considered profit driven simply
person.
(G) of the NIRC to be completely tax exempt from all its income. because of generating profits.
Thus, both the organization and operations of the charitable
However, it remains a proprietary non-pro t hospital under Section Article XIV, Section 4(3) does not require that the revenues and
institution must be devoted “exclusively” for charitable purposes.
27(B) of the NIRC as long as it does not distribute any of its pro ts income must have also been earned from educational activities or
The organization of the institution refers to its corporate form, as
to its members and such pro ts are reinvested pursuant to its activities related to the purposes of an educational institution. The
shown by its articles of incorporation, by-laws and other
corporate purposes. St. Luke’s, as a proprietary non-pro t phrase "all revenues" is unquali ed by any reference to the source of
constitutive documents.
hospital, is entitled to the preferential tax rate of 10% on its revenues. Thus, so long as the revenues and income are used
To be exempt from income taxes, Section 30(E) of the NIRC net income from its for-pro t activities. actually, directly and exclusively for educational purposes,
requires that a charitable institution must be “organized and then said revenues and income shall be exempt from taxes and
operated exclusively” for charitable purposes. Likewise, to be duties.
exempt from income taxes, Section 30(G) of the NIRC requires La Sallian Educational Innovators v. CIR 2019
In the instant case, petitioner Foundation rmly and adequately
that the institution be “operated exclusively” for social welfare.

NRFCs subject to preferential tax rates

argued that none of its income inured to the bene t of any a) Do not earn or derive income from PH; and
o cer or entity. Instead, its income has been actually, exclusively 1) Cinematographic Film Owner, Lessor or Distributor. —
b) Acts as supervisory, communications and
and directly used for performing its purpose as an educational
coordinating center for their a liates, subsidiaries or 25%;
institution. Undoubtedly, petitioner Foundation has also proven
branches in the Asia-Paci c. 2) Owner or Lessor of Vessels Chartered by Philippine
this second requisite.
RAHQs are EXEMPT from income tax. Nationals. — 4.5% of gross rentals, lease or charter fees from
Resident foreign corporations subject to preferential tax rates leases or charters to Filipino citizens or corporations, as
2) ROHQ is a branch engaged in any of the following
approved by MARINA;
International carriers services:
3) Owner or Lessor of Aircraft, Machineries and Other
An international carrier doing business in the Philippines shall pay a) general administration and planning;
Equipment. — 7.5% of gross rental or fees.
a tax of 2.5% on its 'Gross Philippine Billings.' b) business planning and coordination;
1. Under RA 10378, international carriers doing business in PH c) sourcing and procurement of raw materials and d Exemptions from Tax on Corporations
may avail of a preferential rate or exemption from tax based on components;
1) Labor, agricultural or horticultural organization not
a) A treaty or international agreement; or d) corporate nance advisory services; organized principally for pro t;
b) The basis of reciprocity. e) marketing control and sales promotion; 2) Mutual savings bank not having a capital stock represented by
2. GPB refers to shares, and cooperative bank without capital stock organized
f) training and personnel management;
and operated for mutual purposes and without pro t;
a) Gross revenue derived from carriage of persons, excess g) logistic services;
baggage, cargo and mail; 3) Bene ciary society, order or association, operating for the
h) research and development services and product exclusive bene t of the members such as a fraternal
b) Originating from PH in a continuous and development; organization operating under the lodge system, or mutual aid
uninterrupted ight;
i) technical support and maintenance; association or a nonstock corporation organized by employees
c) Irrespective of the place of sale or issue and the place providing for the payment of life, sickness, accident, or other
of payment of the ticket. j) data processing and communications; and
bene ts exclusively to the members of such society, order, or
3. Note that for international shippers, demurrage and detention k) business development. association, or nonstock corporation or their dependents;
fees are NOT part of GPB as they are subject to the regular ROHQs are taxed 10% on taxable income. 4) Cemetery company owned and operated exclusively for the
income tax rate. (Association of International Shipping Lines v. bene t of its members;
Provided, That e ective January 1, 2022, ROHQs shall be
SOF 2020 case)
subject to the regular corporate income tax. 5) Nonstock corporation or association organized and
Regional or area headquarters and regional operating headquarters operated exclusively
1) RAHQ is a branch established by multinationals which a) for religious, charitable, scienti c, athletic, or cultural
purposes, or

b) for the rehabilitation of veterans, GR: These entities are exempt from income tax because they b. Payment of exorbitant or unreasonable compensation
no part of its net income or asset shall belong to or inure to the are not intended for pro t. They earn income to to its employees;
bene t of any member, organizer, o cer or any speci c realize their purpose. c. Provision of welfare aid and nancial assistance to its
person; EXC: They can still be subject to tax regardless of the members; except life, sickness, accident and other
disposition of income bene ts.
6) Business league chamber of commerce, or board of trade,
not organized for pro t and no part of the net income of 1. Earned income of whatever kind and character by using d. Donation to any person or entity;
which inures to the bene t of any private stock-holder, or their property, real or personal. e. Purchase of goods or services in excess of the FMV
individual;
2. Income from activities conducted for pro t. from an entity in which one or more trustees, o cers
7) Civic league or organization not organized for pro t but or duciaries have an interest; and
EXC to EXC:
operated exclusively for the promotion of social welfare;
f. When upon dissolution and satisfaction of all
Article XIV, Section 4 of the Constitution provides that:
8) A nonstock and nonpro t educational institution; liabilities, its remaining assets are distributed to its
― All revenues and assets of non-stock, non-pro t
trustees, organizers, o cers or members.
9) Government educational institution; educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from Requisites for the Tax Exemption under Sec 30 exc Non-Stock,
10) Farmers' or other mutual typhoon or re insurance
taxes and duties. Non-Profit Educational Institution (RMO 38-2019)
company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of a In short, to be exempt a) It is a non-stock, non-pro t corporation;
purely local character, the income of which consists solely of
1. The corporation passed the b) No part of the corporation or association’s net income shall
assessments, dues, and fees collected from members for the
inure to the bene t of any private individual; and
sole purpose of meeting its expenses; and a. Organizational Test — constitutive documents
must show that its primary purpose of incorporation c) The trustees do not receive any compensation or
11) Farmers', fruit growers', or like association organized and
fall under Sec 30 of the NIRC; and remuneration.
operated as a sales agent for the purpose of marketing the
products of its members and turning back to them the b. Operational Test — the regular activities must be d) In case of dissolution, assets shall be transferred to similar
proceeds of sales, less the necessary selling expenses on the basis exclusively devoted to the accomplishment of such institutions or to the government.
of the quantity of produce nished by them; purpose.
Period Within Which to File Income Tax Return
The income of whatever kind and character of the foregoing 2. Must be non-profit — Non-inurement Rule. What are e
of Individuals and Corporations
organizations from any of their properties, real or personal, or from any considered as inurements:
of their activities conducted for pro t regardless of the disposition a. Payment of compensation, salaries, or honorarium to Individual return
made of such income, shall be subject to tax. its trustees or organizers; Who are required to file; exceptions
1. Every Filipino citizen residing in the Philippines;

2. Every Filipino citizen residing outside the Philippines, on his 4. Duly authorized Treasurer of the city or municipality in which 1. quarterly income tax return, on a cumulative basis for the
income from sources within the Philippines; such person has his legal residence or principal place of preceding quarters, and
business in the Philippines, or
3. Every alien residing in the Philippines, on income derived from 2. nal or adjustment return, on or before April 15.
sources within the Philippines; and 5. If there be no legal residence or place of business in the
Quarterly income tax
Philippines, with the O ce of the Commissioner. (Sec 50[b])
4. Every nonresident alien engaged in trade or business or in the
1. Every corporation shall le in duplicate a quarterly summary
exercise of profession in the Philippines. When to File. —
declaration of its gross income and deductions on a
The following individuals shall not be required to le an income tax 1. On or before April 15 of each year covering income for the cumulative basis for the preceding quarter or quarters.
return: preceding taxable year.
2. The tax so computed shall be decreased by the amount of tax
1. An individual whose taxable income does not exceed 2. Individuals subject to tax on capital gains; previously paid or assessed during the preceding quarters and
P250K. shall be paid not later than sixty (60) days from the close of
a. From the sale or exchange of shares of stock not
each of the first three (3) quarters of the taxable year, whether
Those individuals engaged in business or practice of profession traded thru a local stock exchange shall le a return
calendar or scal year. (Sec 75)
within the Philippines shall le an income tax return, within thirty (30) days after each transaction and a
regardless of the amount of gross income; nal consolidated return on or before April 15 of each Final adjustment return
year covering all stock transactions of the preceding
2. Purely compensation income earners. 1. Every corporation shall le a nal adjustment return covering
taxable year; and
the total taxable income for the preceding calendar or scal
However, an individual deriving compensation concurrently
b. From the sale or disposition of real property shall le year.
from two or more employers at any time during the taxable
a return within thirty (30) days following each sale
year shall le an income tax return. 2. If the sum of the quarterly tax payments made during the said
or other disposition. (Sec 50[c])
taxable year is not equal to the total tax due on the entire
3. An individual whose sole income has been subjected to FWT;
Return of Parent to Include Income of Children. — The income taxable income of that year, the corporation shall either:
and
of unmarried minors derived from properly received from a living
a. Pay the balance of tax still due; or
4. A minimum wage earner or an individual who is exempt parent shall be included in the return of the parent, except
from income tax. (Sec 51) b. Carry-over the excess credit; or
1. when the donor's tax has been paid on such property, or
Where to File. — The return shall be led with c. Be credited or refunded with the excess amount paid,
2. when the transfer of such property is exempt from donor's tax.
as the case may be.
1. An authorized agent bank, (Sec 50[e])
3. Option shall be considered irrevocable for that taxable period.
2. Revenue District O cer, Corporate returns
(Sec 76)
3. Collection Agent or Every corporation subject to the tax herein imposed, except foreign
Where to file. — same as Individual.
corporations not engaged in trade or business in the Philippines, shall
render, in duplicate, a true and accurate When to File. —

1. The corporate quarterly declaration shall be led within sixty 3. from only one employer in the Philippines for the calendar 2. actually les a return or statement and subsequently
(60) days following the close of each of the rst three (3) year, withdraws the same return or statement after securing the
quarters of the taxable year. o cial receiving seal or stamp of receipt of internal
4. the income tax of which has been withheld correctly by the
revenue o ce wherein the same was actually led
2. The nal adjustment return shall be led on or before April said employer (tax due equals tax withheld).
15, or on or before the fteenth (15th) day of the fourth (4th) shall be punished by a ne and su er imprisonment.
The certi cate of withholding led by the respective employers, duly
month following the close of the scal year, as the case may be.
stamped 'received' by the BIR, shall be tantamount to the
Return of corporations contemplating dissolution or reorganization substituted filing of income tax returns by said employees. (Sec 51-A) 7 Withholding Taxes
1. Every corporation shall, within thirty (30) days after the

g Failure to File Returns a Concept
adoption by the corporation of a resolution or plan
a. for its dissolution, or §255. Failure to File Return, Supply Correct and Accurate The types of income subject to withholding tax are divided into three
Information, Pay Tax Withhold and Remit Tax and categories:
b. for the liquidation of the whole or any part of its
Refund Excess Taxes Withheld on Compensation. — Any a) withholding of nal tax on certain incomes;
capital stock, including a corporation which has been
person
noti ed of possible involuntary dissolution by the b) withholding of creditable tax at source and
SEC, or 1. required xxx to pay any tax make a return, keep any record,
or supply correct the accurate information, c) tax-free covenant bonds.
c. for its reorganization,
2. who willfully fails to The withholding tax system was devised for three primary reasons:
render a correct return to the Commissioner, veri ed under
a. pay such tax, make such return, keep such record, or 1. to provide the taxpayer a convenient manner to meet his
oath, setting forth the terms of such resolution or plan.
probable income tax liability;
2. The dissolving or reorganizing corporation shall, prior to the b. supply correct and accurate information, or
2. to ensure the collection of income tax which can otherwise be
issuance by the SEC of the Certi cate of Dissolution or c. withhold or remit taxes withheld, or lost or substantially reduced through failure to le the
Reorganization, secure a certi cate of tax clearance from the
d. refund excess taxes withheld on compensation, corresponding returns and
BIR which certi cate shall be submitted to the SEC. (Sec
52[c]) 3. at the time or times required by law or rules and 3. to improve the government's cash ow.
regulations shall xxx be punished by a ne and su er
f Substituted Filing imprisonment. b Creditable vs. Withholding Taxes
Who shall not be required to file an annual income tax return? Any person who attempts to make it appear for any reason that FWT CWT
he or another
1. Individual taxpayers a) The amount of income tax a) Taxes withheld on certain
1. has in fact led a return or statement, or withheld by the withholding income payments are intended
2. receiving purely compensation income, regardless of amount,
agent is constituted as a full to equal or at least

and nal payment of the approximate the tax due of the d) The payee is not required to le any ITR for the 3. Income is one of the income payments listed in the
income tax due from the payee payee on said income. particular income. regulations; and
on the said income.
e) The nality of withheld tax is limited on that 4. Income recipient is a RESIDENT of the PH liable to income
b) The liability for payment of b) Payee of income is required to particular income and will not extend to the payee’s tax.
the tax rests primarily on the report the income and/or pay other tax liability on said income.
If the recipient is a nonresident, then income payment is
payor as a withholding agent. the di erence between the tax
Creditable withholding tax subject to FWT, not CWT.
withheld and the tax due on
the income. The payee also has 1. The Secretary of Finance may require the withholding of a tax Withholding tax on compensation
the right to ask for a refund if on the items of income payable to natural or juridical persons,
the tax withheld is more than residing in the Philippines, by payor-corporation/persons as Income subject to CWT Rate
the tax due. provided for by law, at the rate of not less than one percent
(1%) but not more than fteen percent (15%) of the income Professional fees, promotional and talent fees, referred by
c) The payee is not required to le c) The income recipient is still individuals, entertainers, and athletes
payment, which shall be credited against the income tax
an income tax return for the required to le an income tax
liability of the taxpayer for the taxable year.
particular income. return, as prescribed in Sec. 51 Individual payee
and Sec. 52 of the NIRC, as 2. Creditable tax must be withheld at source, but should still be
included in the tax return of the recipient. - If gross income > P3M or VAT-registered 10%
amended.
3. There are three types: - If gross income did not exceed P3M 5%
Final withholding tax
a) Expanded withholding tax on certain income
1. Income subject to nal tax refers to income wherein tax due is Non-individual payee
payments made by private persons to resident
fully collected through the withholding tax system, wherein
taxpayers; - If gross income > P720K 15%
the payor of the income withholds the tax and then remits it to
the government. b) Withholding tax on compensation income in PH;
- If gross income did not exceed P720K 10%
2. Some principles of FWT c) Withholding tax on money payments of the
government. Rentals for continued use or possession of real
a) The amount of tax withheld is full and nal.
properties used in business, which the payor has not 5%
Expanded withholding tax
b) The liability for payment rests primarily on the taken title
withholding agent. When EWT will apply
Cinematographic lm rentals and other payments 5%
c) In case of failure to withhold, the agent is liable for 1. Expense is paid by the taxpayer, which is income to the
the de ciency. recipient thereof subject to income tax; Income payments to certain contractors, general
2%
2. Income is xed or determinable at the time of payment; engineering, general building, specialty and other

contractors candidates for all purchases of goods and services as

In a withholding tax system, the payee is the taxpayer, the person
campaign expenditures, as well as income payments
Income distributed to the bene ciaries of estates and on whom the tax is imposed; the payor, a separate entity, acts as no
15% made by individuals and juridical entities for all
trusts more than an agent of the government for the collection of the tax
purchases intended to be given as campaign
in order to ensure its payment. In our withholding tax system,
contribution
Income payments to certain brokers and agents 10% possession is acquired by the payor as the withholding agent of the
Interest income from other instruments, i.e. not government, because the taxpayer rati es the very act of possession
Real property which are NOT capital assets sold by a 1.5% or 15% for the government. There is thus constructive receipt. The
deposit substitutes
person engaged in the real estate business 3% or 5% processes of bookkeeping and accounting for interest on deposits
and yield on deposit substitutes that are subjected to FWT are
- If NOT engaged in real estate business 6%
indeed -- for legal purposes -- tantamount to delivery, receipt or
CIR v. Solidbank
On additional payments by importers, shipping and remittance.
airline companies to government personnel for OT 15% Whether the 20% FWT Forms Part of the Taxable Gross Receipts
services YES. Although the 20% FWT on respondent's interest income was
not actually received by respondent because it was remitted directly CIR v. Citytrust Investment Phils.
On the amount paid by any credit card company to 1% of ½ of
any business entity representing the sale of goods, gross to the government, the fact that the amount redounded to the Does the twenty percent (20%) final withholding tax (FWT) on a
services made by them to cardholders amounts bank's bene t makes it part of the taxable gross receipts in bank's passive income form part of the taxable gross receipts for the
computing the 5% GRT. purpose of computing the five percent (5%) gross receipts tax (GRT)?
1% (goods) Two types of taxes are involved in the present controversy:
Payments made by any of the top withholding agents YES. A catena of cases are unanimous in de ning "gross receipts"
2%
to their local suppliers 1) the GRT, which is a percentage tax; and as "the entire receipts without any deduction." As commonly
(services)
understood, the term "gross receipts" means the entire receipts
2) the FWT, which is an income tax.
1% (goods) without any deduction. Deducting any amount from the gross
Payments by the government to local suppliers except As a bank, petitioner is covered by both taxes.
2% receipts changes the result, and the meaning, to net receipts. Any
if below P10K
(services) A percentage tax is a national tax measured by a certain percentage deduction from gross receipts is inconsistent with a law that
of the gross selling price or gross value in money of goods sold, mandates a tax on gross receipts, unless the law itself makes an
Income payments to partners of GPP exception.
bartered or imported; or of the gross receipts or earnings derived by
- If gross income > P720K 15% any person engaged in the sale of services. It is not subject to When we speak of the "gross earnings" of a person or corporation,
withholding. we mean the entire earnings or receipts of such person or
- If it does not exceed P720K 10% corporation from the business or operation to which we refer.
An income tax, on the other hand, is a national tax imposed on the
Income payments made by political parties and 5% net or the gross income realized in a taxable year. It is subject to From these cases, "gross receipts" refer to the total, as opposed to the
withholding.

net income. These are therefore the total receipts before any Tax Refund or Tax Credit VAT is a tax on the taxable sale, barter or exchange of goods,
deduction for the expenses of management. properties or services. A sale may be an actual or deemed sale, or an
Filing of Returns and Payment export or a local sale.
The Manila Jockey Club does not apply to the cases at bar because
what happened there is earmarking and not withholding. GR: There must be an actual sale in PH in order that VAT may
Earmarking is not the same as withholding. Amounts earmarked Important Revenue Regulations be imposed.
do not form part of gross receipts because these are by law or
1. RR 13-18. Implementing the VAT Provisions of TRAIN EXC:
regulation reserved for some person other than the taxpayer,
Act. 1. Importation of goods;
although delivered or received. On the contrary, amounts withheld
form part of gross receipts because these are in constructive 2. RR 4-21 as amended by RR 8-21 Implementing the 2. Erroneous issuance of VAT invoice or receipt for
possession and not subject to any reservation, the withholding Provisions on VAT and Percentage Tax under CREATE VAT-exempt sales;
agent being merely a conduit in the collection process. Act.
3. Deemed sales of goods or properties.
1 Concept and Elements of VATable Transactions CIR v. CA and COMASERCO

C Value-Added Tax
a. Tax on value added WON COMASERCO was engaged in the sale of services, and thus
Concept and Elements of VATable Transactions VAT is a tax on the value added of a taxpayer arising from taxable liable to pay VAT thereon.
sales of goods, properties, or services during the quarter at the rate
Impact and Incidence of Tax YES. Sec 105 of the NIRC clari es that even a non-stock,
of 0 or 12%.
non-pro t, organization or government entity, is liable to pay VAT
Destination Principle and Cross-Border Doctrine Value added is the di erence between total sales of the taxpayer on the sale of goods or services.
for the taxable quarter subject to VAT and his total purchases for
Imposition of VAT on Transfer of Goods by Tax Section 108 of the NIRC de nes the phrase "sale of services" as the
the same period subject also to VAT.
"performance of all kinds of services for others for a fee,
Exempt Persons Output tax means the VAT due on the sale or lease of taxable remuneration or consideration."
goods, properties or services by any person registered or required to
Transactions Deemed Sale Subject to VAT Hence, it is immaterial whether the primary purpose of a
register.
corporation indicates that it receives payments for services rendered
Zero-Rated and E ectively Zero-Rated Sales of Goods Input tax means the VAT due from or paid by a VAT-registered to its a liates on a reimbursement-on-cost basis only, without
or Properties person in the course of his trade or business on importation of realizing pro t, for purposes of determining liability for VAT on
goods or local purchase of goods, properties, or services, including services rendered. As long as the entity provides service for a
VAT-Exempt Transactions lease or use of property, from a VAT-registered person. fee, remuneration or consideration, then the service rendered
b. Sales tax is subject to VAT.
Input and Output Tax
c. Tax on consumption

goods are subject to 12% VAT. Thus, the situs of taxation is where
VAT is broad-based because every sale at the levels of
manufacturers or producers and distributors is subject to VAT. the goods are consumed. As for services, consumption takes place
where the service is performed. CIR v. Filminera Resources Corporation 2020
The tax burden rests with the nal consumer who consumes the
goods, properties or services. Cross border doctrine mandates that no VAT shall be imposed to The tax treatment of export sales is based on the Cross Border
form part of the cost of the goods destined for consumption Doctrine and Destination Principle of the Philippine VAT
d. Tax credit method
outside the territorial border of the taxing authority. system. Under the Destination Principle, goods and services are
Cost deduction method — refers to the manner of computing taxed only in the country where these are consumed. In this regard,
the taxpayer’s VAT liability by deducting his costs and expenses the Cross Border Doctrine mandates that no VAT shall be
CIR v. American Express
subject to VAT from his taxable sales and multiplying the resulting imposed to form part of the cost of goods destined for consumption
value added by 12%. As a general rule, the VAT system uses the destination principle. outside the territorial border of the taxing authority. Hence, actual
However, our VAT law itself provides for a clear exception, under export of goods and services from the Philippines to a foreign
Tax credit method or invoice method — the input taxes shifted
which the supply of service shall be zero-rated when the country must be free of VAT; while, those destined for use or
by the sellers to the buyer are credited against the buyer’s output
following requirements are met: consumption within the Philippines shall be imposed with VAT.
taxes when he in turn sells the taxable goods, properties, or services.
1) the service is performed in the Philippines; Plainly, sales of export products to another producer or to an export
There is generally forward shifting of tax when there is a seller’s
trader are subject to zero percent rate provided the export products are
market — more buyers than sellers, or demand > supply. 2) the service falls under any of the categories provided in
actually exported and consumed in a foreign country.
Section 102(b) of the Tax Code; and
There is backward shifting when there is a buyer’s market like in
real estate and the coconut oil industries. 3) it is paid for in acceptable foreign currency that is
accounted for in accordance with the regulations of the Imposition of VAT on Transfer of Goods by
2 Impact and Incidence of Tax 4
BSP. Tax Exempt Persons
An indirect tax is a tax demanded in the rst instance from one Since respondent’s services meet these requirements, they are
person in the expectation and intention that he can shift the In the case of tax-free importation of goods into the Philippines by
zero-rated. Petitioner’s Revenue Regulations that alter or revoke the
burden to someone else. persons, entities or agencies exempt from tax where such goods are
above requirements are ultra vires and invalid.
subsequently sold, transferred or exchanged in the Philippines to
The impact of taxation is on the seller upon whom the tax has Tax situs of a zero-rated service non-exempt persons or entities, the purchasers, transferees or
been imposed, while the incidence of tax is on the nal consumer,
The place where the service is rendered determines the recipients shall be considered the importers thereof, who shall be
the place at which the tax comes to rest.
jurisdiction to impose the VAT. Performed in the Philippines, such liable for any internal revenue tax on such importation.
service is necessarily subject to its jurisdiction, for the State The tax due on such importation shall constitute a lien on the
Destination Principle and Cross-Border
3 necessarily has to have “a substantial connection” to it, in order to goods superior to all charges or liens on the goods, irrespective of
Doctrine
enforce a zero rate. The place of payment is immaterial; much less is the possessor thereof. (Sec 107 NIRC)
The destination of the goods determines taxation or exemption the place where the output of the service will be further or
from tax. Export sales of goods are zero-rated, while imports of ultimately used. 5 Transactions Deemed Sale Subject to VAT

1) Transfer, use or consumption not in the course of business of Zero-rated sale c) whose export sales exceed seventy percent (70%) of total
goods or properties originally intended for sale or for use in annual production;
a. Export Sales. — The term 'export sales' means:
the course of business;
4) Those considered export sales under EO No. 226, otherwise
1)
2) Distribution or transfer to: known as the Omnibus Investment Code of 1987, and
a) The sale and actual shipment of goods from the other special laws; and
a) Shareholders or investors as share in the pro ts of the
VAT-registered persons; or Philippines to a foreign country, irrespective of any
"Considered export sales under EO No. 226" shall mean
shipping arrangement that may be agreed upon which
b) Creditors in payment of debt; the Philippine port F.O.B. value determined from invoices,
may in uence or determine the transfer of ownership of
bills of lading, inward letters of credit, landing certi cates, and
3) Consignment of goods if actual sale is not made within sixty the goods so exported and
other commercial documents, of export products exported
(60) days following the date such goods were consigned; and
b) paid for in acceptable foreign currency or its equivalent in directly by a registered export producer, or the net selling price
4) Retirement from or cessation of business, with respect to goods or services, and of export products sold by a registered export producer to
inventories of taxable goods existing as of such retirement or another export producer, or to an export trader that
c) accounted for in accordance with the rules and regulations
cessation. subsequently exports the same:
of the BSP;
Here, the seller is also the buyer and no valuable consideration is Sales of export products to another producer or to an export
2)
thus paid. The rationale is to recapture the VAT that was claimed trader shall only be deemed export sales when actually
as input tax at the time of purchase. a) Sale of raw materials or packaging materials exported by the latter, as evidenced by landing certi cates or
In the course of trade or business — means the regular conduct similar commercial documents:
b) to a nonresident buyer
or pursuit of a commercial or an economic activity, including Without actual exportation the following shall be considered
c) for delivery to a resident local export-oriented enterprise
transactions incidental thereto, by any person regardless of constructively exported for purposes of these provisions:
whether or not the person engaged therein is a non-stock, d) to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and 1. sales to bonded manufacturing warehouses of
nonpro t private organization (irrespective of the disposition of its
export-oriented manufacturers;
net income and whether or not it sells exclusively to members or e) paid for in acceptable foreign currency and
their guests), or government entity. 2. sales to export processing zones;
f ) accounted for in accordance with the rules and regulations
The rule of regularity, to the contrary notwithstanding, of the BSP; 3. sales to registered export traders operating bonded
services rendered in the Philippines by nonresident foreign trading warehouses supplying raw materials in the
3)
persons shall be considered as being rendered in the course of trade manufacture of export products under guidelines to
or business. a) Sale of raw materials or packaging materials be set by the Board in consultation with the BIR and
the BOC;
b) to export-oriented enterprise
Zero-Rated and E ectively Zero-Rated Sales of 4. sales to diplomatic missions and other agencies and/or
6
Goods or Properties instrumentalities granted tax immunities, of locally

manufactured, assembled or repacked products

d) where the services are paid for in acceptable foreign ★ If international, VAT-exempt if passenger; and
whether paid for in foreign currency or not.
currency and subject to other percentage tax of 3% if cargo.
5) The sale of goods, supplies, equipment and fuel to persons
e) accounted for in accordance with the rules and regulations 7) Sale of power or fuel generated through renewable sources of
engaged in international shipping or international air
of the BSP; energy such as, but not limited to, biomass, solar, wind,
transport operations: Provided, That the goods, supplies,
hydropower, geothermal, ocean energy, and other emerging
equipment and fuel shall be used for international shipping 2)
energy sources using technologies such as fuel cells and
or air transport operations. a) Services other than PMR, hydrogen fuels.
Provided, That subparagraphs (3), (4), and (5) hereof shall be subject b) rendered to a person engaged in business conducted
to the 12% VAT and no longer be considered export sales subject to 0% outside the Philippines or to a nonresident person not Atlas Consolidated Mining v. CIR
VAT rate upon satisfaction of the following conditions: engaged in business who is outside the Philippines when
WON the totality of sales to EPZA-registered enterprises should be
the services are performed,
1) The successful establishment and implementation of an zero-rated, not merely the proportion which such sales have to the
enhanced VAT refund system that grants refunds of c) the consideration for which is paid for in acceptable actual exports of the enterprise.
creditable input tax within ninety (90) days from the ling of foreign currency and
YES. An examination of Section 4.100.2 of Revenue Regulation
the VAT refund application with the BIR; and d) accounted for in accordance with the rules and regulations 7-95 in relation to Section 102 (b) of the Tax Code shows that sales
of the BSP; to an export-oriented enterprise whose export sales exceed 70
2) All pending VAT refund claims as of December 31, 2017 shall
3) Services rendered to persons or entities whose exemption under percent of its annual production are to be zero-rated, provided
be fully paid in cash by December 31, 2019.
special laws or international agreements to which the the seller complies with other requirements, like registration with
xxxx the BOI and the EPZA. The said Regulation does not even hint,
Philippines is a signatory e ectively subjects the supply of such
b. Effectively Zero-Rated Transaction. — Sales to persons or services to zero percent (0%) rate; much less expressly mention, that only a percentage of the
entities whose exemption under special laws or international sales would be zero-rated. The internal revenue commissioner
4) Services rendered to persons exclusively engaged in
agreements to which the Philippines is a signatory e ectively cannot, by administrative at, amend the law by making compliance
international shipping or international air transport
subjects such sales to zero rate. therewith more burdensome.
operations, including leases of property for use thereof;
WON Section 21 of Revenue Regulations No. 5-87 is invalid, insofar
The services performed in the Philippines by
following 5) Services performed by subcontractors and/or contractors in
as it went beyond the law by disallowing input VAT for purchases not
VAT-registered persons shall be subject to zero percent (0%) rate: processing, converting, or manufacturing goods for an
covered by VAT invoices.
enterprise whose export sales exceed seventy percent (70%)
1)
of total annual production; NO. Section 21 of Revenue Regulation 5-87 is not invalid, as it
a) Processing, manufacturing or repacking goods simply prescribes the penalty for failure to comply with the
6) Transport of passengers and cargo by domestic air or sea
b) for other persons doing business outside the Philippines accounting and invoicing requirements laid down in Section 108, a
vessels from the Philippines to a foreign country; and
penalty similar to that found in Sections 111 and 263. In short,
c) which goods are subsequently exported,

Section 108 provides the guidelines and necessary requirements for export of goods and services from the Philippines to a foreign zero-rated sales subject to the following conditions:
VAT invoices; Sections 111 and 263 of the Tax Code provide country must be free of VAT; while, those destined for use or
1) the taxpayer is VAT-registered;
penalties for di erent types of violations of Section 108; and Section consumption within the Philippines shall be imposed with VAT.
21 of Revenue Regulation 5-87 speci es the penalty for a speci c Plainly, sales of export products to another producer or to an export 2) the taxpayer is engaged in zero-rated or e ectively zero-rated
violation of Section 108. trader are subject to zero percent rate provided the export products are sales;
actually exported and consumed in a foreign country. 3) the claim must be led within two years after the close of
Furthermore, we agree with respondent's position that the
computation of the output VAT of the seller should be based Section 4.106-5(a)(5) of RR No. 16-2005 classi ed sales to the taxable quarter when such sales were made;
on the selling price appearing on its own VAT invoice, not on BOI-registered entities as zero-rated export sales if the 4) the creditable input tax due or paid must be attributable to
the selling price appearing on that of the customer. Indeed, it is the following conditions are met: such sales, except the transitional input tax, to the extent
duty of the seller to comply with the invoicing and accounting that such input tax has not been applied against the output
1) the buyer is a BOI-registered manufacturer/producer;
requirements. tax; and
2) the buyer's products are 100% exported; and
5) in case of zero-rated sales, the acceptable foreign currency
3) the BOI certi ed that the buyer exported 100% of its
exchange proceeds have been duly accounted for in
CIR v. Filminera Resources Corporation 2020 products.
accordance with BSP rules and regulations.
Proof of actual exportation of goods sold by a Value Added For this purpose, the BOI Certi cation is vital for the
As for the second requisite, Filminera Resources failed to prove
Tax (VAT)-registered taxpayer to a Board of Investments seller-taxpayer to avail of the bene ts of zero-rating. The
that its sales to PGPRC for the third and fourth quarters of
(BOI)-registered enterprise is vital for the transaction to be certi cation is evidence that the buyer exported its entire products
FY 2010 are export sales.
considered as zero-rated export sales. and shall serve as authority for the seller to claim for refund or tax
credit. In ne, Filminera Resources Corporation is NOT entitled to a
WON the sales made to PGPRC for the third and fourth quarters of refund or the issuance of tax credit certi cate in the amount of
the FY ending June 30, 2010 are zero-rated export sales based on the To be entitled for the refund or tax credit, the taxpayer must not
P111,579,541.76, representing its unutilized input VAT attributable
certification issued by the BOI on January 27, 20 I 0. only prove the existence of zero-rated sales, but must also prove that
to zero-rated sales for the third and fourth quarters of the scal year
the zero-rated sales were issued valid invoice or o cial receipts
CIR is correct. ending June 30, 2010.
pursuant to Sections 113(A) and (B), and 237 of the 1997 NIRC, in
The tax treatment of export sales is based on the Cross Border relation to Section 4.113-l(B) of RR No. 16-2005.
Doctrine and Destination Principle of the Philippine VAT
To ensure compliance with invoicing requirements, Section 3 of CIR v. Cebu Toyo Corporation
system. Under the Destination Principle, goods and services are
RMO No. 09-00 requires the BOI-registered buyer to furnish its
taxed only in the country where these are consumed. In this regard, WON the CA erred in affirming the CTA resolution granting a
suppliers with a copy of the BOI Certi cation attesting that it
the Cross Border Doctrine mandates that no VAT shall be refund in the amount of P2,158,714.46 representing unutilized input
exported 100% of its products.
imposed to form part of the cost of goods destined for consumption VAT on goods and services for the period April 1, 1996 to December
outside the territorial border of the taxing authority. Hence, actual Under Section 112(A) of the 1997 NIRC, the seller may claim a
31, 1997.
refund or tax credit for the input VAT attributable to its

issuance of a VAT invoice or receipt. except specialty feeds for race horses, ghting cocks,
NO. Petitioner’s contention that respondent is not entitled to
aquarium sh, zoo animals and other animals
refund for being exempt from VAT is untenable. c) Persons engaged in transactions which are zero-rated,
generally considered as pets;
being subject to VAT, are required to register while
Under RA 7916, respondent had two options with respect to its tax
registration is optional for VAT-exempt persons. C. Importation of personal and household e ects belonging
burden.
to the residents of the Philippines returning from abroad and
Here, respondent is engaged in the export business and is registered
1. It could avail of an income tax holiday pursuant to nonresident citizens coming to resettle in the Philippines:
as a VAT taxpayer. Further, the records show that the respondent is
provisions of E.O. No. 226, thus exempt it from income Provided, That such goods are exempt from customs duties;
subject to VAT as it availed of the income tax holiday under E.O.
taxes for a number of years but not from other internal
No. 226. Perforce, respondent is subject to VAT at 0% rate and D. Importation of professional instruments and
revenue taxes such as VAT; or
is entitled to a refund or credit of the unutilized input taxes. implements, tools of trade, occupation or employment,
2. It could avail of the tax exemptions on all taxes, wearing apparel, domestic animals, and personal and
including VAT under P.D. No. 66 and pay only the household e ects belonging to persons coming to settle in the
preferential tax rate of 5% under Rep. Act No. 7916. Philippines or Filipinos or their families and descendants who
7 VAT-Exempt Transactions
Respondent availed of the income tax holiday for four (4) years. are now residents or citizens of other countries.
A. Sale or importation of
Hence, respondent is NOT exempt from VAT and it correctly Vehicles, vessels, aircrafts, machineries and other similar goods
registered itself as a VAT taxpayer. In ne, it is engaged in taxable 1. agricultural and marine food products in their for use in manufacture, shall NOT fall within this
rather than exempt transactions. original state, classi cation and shall therefore be subject to duties, taxes
Generally, sale of goods and supply of services performed in the 2. livestock and poultry of a kind generally used as, or and other charges;
Philippines are taxable at the rate of 10% (now 12%). However, yielding or producing foods for human consumption; E. Services subject to percentage tax under Title V;
export sales, or sales outside the Philippines, shall be subject to VAT and
1) Sale or lease of goods or properties or the performance of
at 0% if made by a VAT-registered person.
3. breeding stock and genetic materials therefor. services of non-VAT-registered persons, other than the
While the zero rating and the exemption are computationally the transactions mentioned in paragraphs (A) to (AA) of Sec.
B. Sale or importation of
same, they actually di er in several aspects, to wit: 109(1) of the Tax Code, the gross annual sales and/or
1. fertilizers;
a) A zero-rated sale is a taxable transaction but does not receipts of which does not exceed the amount of
result in an output tax while an exempted transaction is 2. seeds, seedlings and ngerlings; Php3M.
not subject to the output tax; 3. sh, prawn, livestock and poultry feeds, including 2) Services rendered by domestic common carriers by land,
b) The input VAT on the purchases of a VAT-registered ingredients, whether locally produced or imported, for the transport of passengers and keepers of garages
person with zero-rated sales may be allowed as tax credits used in the manufacture of nished feeds (Sec. 117);
or refunded while the seller in an exempt transaction is not 3) Services rendered by international air/shipping carriers
entitled to any input tax on his purchases despite the (Sec. 118);

4) Services rendered by franchise grantees of radio and/or “Educational services” shall refer to academic, technical or certi cate is conclusive evidence of its registration.
television broadcasting whose annual gross receipts of vocational education.
Second, the cooperative must sell either:
the preceding year do not exceed Php10M, and by
I. Services rendered by individuals pursuant to an
franchise grantees of gas and water utilities (Sec. 119); 1) exclusively to its members; or
employer-employee relationship;
5) Service rendered for overseas dispatch, message or 2) to both members and non-members, its produce, whether
J. Services rendered by RAHQ that do not earn or derive
conversation originating from the Philippines (Sec. 120); in its original state or processed form.
income from the Philippines;
6) Services rendered by any person, company or corporation The second requisite di erentiates cooperatives according to its
K. Transactions which are exempt under international
(except purely cooperative companies or associations) customers. If the cooperative transacts only with members, all its
agreements to which the Philippines is a signatory or under
doing life insurance business of any sort in the sales are VAT-exempt, regardless of what it sells. On the other hand,
special laws, except those under PD No. 529;
Philippines (Sec. 123); if it transacts with both members and non-members, the product
L. sold must be the cooperative's own produce in order to be
7) Services rendered by re, marine or miscellaneous
VAT-exempt. Stated di erently, if the cooperative only sells its
insurance agents of foreign insurance companies (Sec. a) Sales by agricultural cooperatives duly registered with
produce or goods that it manufactures on its own, its entire sales is
124); the CDA to their members
VAT-exempt.
8) Services of proprietors, lessees or operators of cockpits, b) as well as sale of their produce, whether in its original state
A cooperative is the producer of the sugar if it owns or leases the
cabarets, night or day clubs, boxing exhibitions, or processed form, to non-members;
land tilled, incurs the cost of agricultural production of the sugar,
professional basketball games, Jai-Alai and race tracks (Sec. c) their importation of direct farm inputs, machineries and and produces the sugar cane to be re ned. It should not have merely
125); and equipment, including spare parts thereof, to be used purchased the sugar cane from its planters-members.
9) Receipts on sale, barter or exchange of shares of stock directly and exclusively in the production and/or
listed and traded through the local stock exchange or processing of their produce;
through initial public o ering (Sec. 127). CIR v. Negros Consolidated Farmers MPC 2018
CIR v. United Cadiz Sugar Farmers Association 2016
F. Services by agricultural contract growers and milling for
For an agricultural cooperative to be exempted from the payment of
others of palay into rice, corn into grits and sugar cane into Although the sale of re ned sugar is generally subject to VAT,
advance VAT on re ned sugar, it must be
raw sugar; such transaction may nevertheless qualify as a VAT-exempt
transaction if the sale is made by a cooperative. Under Section a) a cooperative in good standing duly accredited and
G. Medical, dental, hospital and veterinary services except those
109(L) of the NIRC, sales by agricultural cooperatives are exempt registered with the CDA; and
rendered by professionals;
from VAT provided the following conditions concur, viz: b) the producer of the sugar.
H. Educational services rendered by private educational
First, the seller must be an agricultural cooperative duly registered
institutions, duly accredited by the DepEd, CHED, TESDA M. Gross receipts from lending activities by credit or
with the CDA. An agricultural cooperative is "duly registered" when
and those rendered by government educational institutions; multi-purpose cooperatives duly registered with the CDA;
it has been issued a certi cate of registration by the CDA. This

N. Sales by non-agricultural, non-electric and non-credit If two or more adjacent residential lots are sold or disposed In cases where a lessor has several residential units for lease,
cooperatives duly registered with the CDA. of in favor of one buyer, for the purpose of utilizing the some are leased out for a monthly rental per unit of not
lots as one residential lot, the sale shall be exempt from exceeding P15K while others are leased out for more than
The share capital contribution of each member does not
VAT only if the aggregate value of the lots do not exceed P15K per unit, his tax liability will be as follows:
exceed Php15K and regardless of the aggregate capital and
Php1,919,500M.
net surplus ratably distributed among the members; 1. The gross receipts from rentals not exceeding P15K
Adjacent residential lots, although covered by separate titles per month per unit shall be exempt from VAT
Importation by non-agricultural, non-electric and non-credit
and/or separate tax declarations, when sold or disposed to regardless of the aggregate annual gross receipts. It is
cooperatives of machineries and equipment, including spare
one and the same buyer, whether covered by one or also exempt from the 3% percentage tax.
parts thereof, to be used by them are subject to VAT.
separate Deed of Conveyance, shall be presumed as a sale
2. The gross receipts from rentals exceeding P15K per
O. Export sales by persons who are not VAT-registered; of one residential lot.
month per unit shall be subject to VAT if the
If VAT-registered, zero-rated. Provided, That beginning January 1, 2021, the VAT aggregate annual gross receipts from said units only
P. The following sales of real properties are exempt from exemption shall only apply to exceeds P3M. Otherwise, the gross receipts will be
VAT, namely: subject to the 3% tax imposed under Section 116 of
1. sale of real properties not primarily held for sale
the Tax Code.
1) Sale of real properties not primarily held for sale to to customers or held for lease in the ordinary
customers or held for lease in the ordinary course of course of trade or business, In case of mixed transactions, the abovementioned rule should
trade or business. However, even if the real property is be observed.
2. sale of real property utilized for socialized
not primarily held for sale to customers or held for lease in housing, The term 'residential units' shall refer to apartments and
the ordinary course of trade or business but the same is houses & lots used for residential purposes, and buildings or
3. sale of house and lot, and other residential
used in the trade or business of the seller, the sale thereof parts or units thereof used solely as dwelling places (e.g.,
dwellings with selling price of not more than
shall be subject to VAT being a transaction incidental to dormitories, rooms and bed spaces) except motels, motel rooms,
Php3,199,200.
the taxpayer's main business. hotels and hotel rooms, lodging houses, inns and pension houses.
Q. Lease of a residential unit with a monthly rental not
2) Sale of real properties utilized for low-cost housing. The term 'unit' shall mean an apartment unit in the case of
exceeding P15K;
3) Sale of real properties utilized for socialized housing apartments, house in the case of residential houses; per person
The foregoing notwithstanding, lease of residential units in the case of dormitories, boarding houses and bed spaces;
wherein the price ceiling per unit is P450K or as may
where the monthly rental per unit exceeds P15K, but the and per room in case of rooms for rent.
from time to time be determined by the HUDCC and the
aggregate of such rentals of the lessor during the year do not
NEDA and other related laws. R. Sale, importation, printing or publication of books, and
exceed P3M shall likewise be exempt from VAT; however, the
4) Sale of residential lots valued at Php1,919,500 and any newspaper, magazine, journal, review bulletin, or any such
same shall be subject to three percent (3%) percentage tax
below, or house & lot and other residential dwellings educational reading material covered by the UNESCO
under Section 116 of the Tax Code.
valued at Php3,199,200 and below. Agreement on the Importation of Educational, Scienti c and
Cultural Materials, including the digital or electronic

format thereof: Provided, That the materials enumerated X. Transfer of property pursuant to Section 40(C)(2) of the
clinical trials, including raw materials directly
herein are not devoted principally to the publication of paid necessary for the production of such drugs.
NIRC, as amended;
advertisements;
Tax-free exchange of property in pursuance of a plan of CC. Sale or lease of goods or properties or the performance of
S. Transport of passengers by international carriers; merger or consolidation. services other than the transactions mentioned in the
If cargo, 3% OPT. preceding paragraphs, the gross annual sales and/or receipts do
Y. Association dues, membership fees, and other
not exceed the amount of P3M.
T. Sale, importation or lease of passenger or cargo vessels and assessments and charges collected by homeowners
aircraft, including engine, equipment and spare parts thereof associations and condominium corporations;
Contex Corp. v. CIR
for domestic or international transport operations; Z. Sale of gold to the BSP;
The petitioner’s claim to VAT exemption in the instant case for its
U. Importation of fuel, goods and supplies by persons engaged AA. Sale of or importation of prescription drugs and medicine for: purchases of supplies and raw materials is founded mainly on
in international shipping or air transport operations:
a) Diabetes, high cholesterol, and hypertension Section 12 (b) and (c) of RA 7227, which basically exempts them
Provided, That the fuel, goods, and supplies shall be used for beginning January 1, 2020; and from all national and local internal revenue taxes, including VAT.
international shipping or air transport operations; Petitioner is registered as a NON-VAT taxpayer per Certi cate of
b) Cancer, mental illness, tuberculosis, and kidney
Thus, said fuel, goods and supplies shall be used exclusively or Registration issued by the BIR. As such, it is exempt from VAT
diseases beginning January 1, 2021; and
shall pertain to the transport of goods and/or passenger from a on all its sales and importations of goods and services.
port in the Philippines directly to a foreign port, or vice versa, BB. Sale or importation of the following beginning January 1,
Petitioner’s claim, however, for exemption from VAT for its
without docking or stopping at any other port in the 2021 to December 31, 2023:
purchases of supplies and raw materials is incongruous with
Philippines unless the docking or stopping at any other a) Capital equipment, its spare parts and raw materials, its claim that it is VAT-Exempt, for only VAT-Registered entities
Philippine port is for the purpose of unloading passengers necessary for the production of personal protective can claim Input VAT Credit/Refund.
and/or cargoes that originated from abroad, or to load equipment components such as coveralls, gown, WON the petitioner may claim a refund on the Input VAT
passengers and/or cargoes bound for abroad. surgical cap, surgical mask, N-96 mask, scrub suits, erroneously passed on to it by its suppliers.
V. Services of bank, non-bank nancial intermediaries goggles and face shield, double or surgical gloves,
performing quasi-banking functions, and other non-bank dedicated shoes, and shoe covers, for COVID-19 NO. While it is true that the petitioner should not have been liable
nancial intermediaries; prevention; for the VAT inadvertently passed on to it by its supplier since such is
a zero-rated sale on the part of the supplier, the petitioner is not
Such as money changers and pawnshops, subject to b) All drugs, vaccines and medical devices speci cally the proper party to claim such VAT refund. Since the transaction
percentage tax under Secs. 121 and 122, respectively, of the prescribed and directly used for the treatment of is deemed a zero-rated sale, petitioner’s supplier may claim an Input
Tax Code; COVID-19; and VAT credit with no corresponding Output VAT liability.
W. Sale or lease of goods and services to senior citizens and Congruently, no Output VAT may be passed on to the petitioner.
c) Drugs for the treatment of COVID-19 approved by
persons with disability, as provided under RA Nos. 9994 Rather, it is the petitioner’s suppliers who are the proper parties
the Food and Drug Administration (FDA) for use in
and 10754, respectively;

to claim the tax credit and accordingly refund the petitioner of a. For sale; or 1) For the importation of goods - import entry or other
the VAT erroneously passed on to the latter. equivalent document showing actual payment of VAT on
b. For conversion into or intended to form part of a nished
the imported goods.
product for sale including packaging materials; or
2) For the domestic purchase of goods and properties –
c. For use as supplies in the course of business; or
PSALM v. CIR 2019 invoice showing the information required under Secs. 113
d. For use as materials supplied in the sale of service; or and 237 of the Tax Code.
WON PSALM’s privatization activities are subject to VAT.
e. For use in trade or business for which deduction for 3) For the purchase of real property – public instrument
NO. The sale of the power plants in this case is not subject to VAT depreciation or amortization is allowed under this Code. i.e., deed of absolute sale, deed of conditional sale,
since the sale was made pursuant to PSALM's mandate to privatize
2. Purchase of services on which a VAT has been actually paid. contract/agreement to sell, etc., together with VAT invoice
NPC's assets, and was not undertaken in the course of trade or
issued by the seller.
business. In selling the power plants, PSALM was merely exercising a 3. Transactions deemed sale;
governmental function for which it was created under the EPIRA 4) For the purchase of services – o cial receipt showing
4. Transitional input tax.
law. the information required under Secs. 113 and 237 of the
When creditable Tax Code.
During its corporate life, PSALM has powers relating to the
management of its personnel and leasing of its properties as may be 1. On purchase of goods or properties — upon A cash register machine tape issued to a registered buyer shall
necessary to discharge its mandate. consummation of sale, or issue of the sales invoice, although constitute valid proof of substantiation of tax credit only if it
no payment thereof was made by the buyer. shows the information required under Secs. 113 and 237 of
2. On importation — upon payment of the VAT prior to the the Tax Code.
8 Input and Output Tax release of the goods from customs custody. b) Transitional input tax shall be supported by an inventory of
3. On purchase of services — when paid by the buyer and goods as shown in a detailed list to be submitted to the BIR.
Categories of Input taxes
evidenced by the seller’s o cial receipt. c) Input tax on “deemed sale” transactions shall be substantiated
1. Input tax credit on importation of goods and current local
Substantiation of Input Tax Credits with the invoice required under Sec. 4.113-2.
purchases of goods, properties, and services (Sec 110);
a) Input taxes for the importation of goods or the domestic d) Input tax from payments made to non-residents (such as for
2. Transitional input tax credit — 2%;
purchase of goods, properties or services is made in the course services, rentals and royalties) shall be supported by a copy of
3. Presumptive input tax credit — 4%; of trade or business, whether such input taxes shall be credited the Monthly Remittance Return of Value Added Tax
4. Final withholding tax credit; and against zero-rated sale, non-zero-rated sales, or subjected to the Withheld (BIR Form 1600) led by the resident payor in
5% Final Withholding VAT, must be substantiated and behalf of the non-resident evidencing remittance of VAT due
5. Excess input tax credit. which was withheld by the payor.
supported by the following documents, and must be reported
Sources of input tax credits in the information returns required to be submitted to the e) Advance VAT on sugar shall be supported by the Payment
1. Purchase or importation of goods: Bureau: Order showing payment of the advance VAT.

form or inner substance of a product in such manner as to prepare it

Transitional Input Tax Credits In case of full or partial denial of the claim for tax refund, the taxpayer
for special use to which it could not have been put in its original form
a ected may, within thirty (30) days from the receipt of the
A person who becomes liable to VAT or any person who elects to be a or condition.
decision denying the claim, appeal the decision with the CTA:
VAT-registered person shall, subject to the ling of an inventory be
allowed input tax 9 Tax Refund or Tax Credit Provided, however, That failure on the part of any o cial, agent, or
employee of the BIR to act on the application within the ninety
1. on his beginning inventory of goods, materials and supplies
1. Any VAT-registered person, (90)-day period shall be punishable under Section 269 of this Code.
equivalent to two percent (2%) of the value of such inventory
or 2. whose sales are zero-rated or e ectively zero-rated may, When based on statute, a claim for tax refund partakes of the nature of
3. within two (2) years after the close of the taxable quarter an exemption.
2. the actual VAT paid on such goods, materials and supplies,
when the sales were made, Categories of refunds or credits
whichever is higher, which shall be creditable against the output tax.
4. apply for the issuance of a tax credit certi cate or refund 1. Zero-rated or e ectively zero-rated sales of goods.
When may one claim transitional input tax
of creditable input tax due or paid attributable to such sales, Petitioner must prove or comply the following:
1. He becomes liable to VAT for the rst-time either through a except transitional input tax, to the extent that such input tax
a. He is a VAT-registered person;
new law or when his taxable transactions exceed the P3M has not been applied against output tax.
threshold; b. Filed with the BIR or DOF Center within 2 years after
Cancellation of VAT Registration. — A person whose registration
the close of taxable quarter when the sales were made
2. He elects to register as a VAT-registered person; and has been cancelled due to retirement from or cessation of business, or
due to changes in or cessation of status under Section 106(C) of this With the CTA within 30 days from date of receipt of
3. He is already VAT-registered and also deals in goods or
Code may, within two (2) years from the date of cancellation, denial from CIR;
properties, the sale of which is exempt, but later becomes a
taxable transaction through legislation. apply for the issuance of a tax credit certi cate for any unused input c. The claimed input tax payments were not applied against
tax which may be used in payment of his other internal revenue taxes. any output tax during the period covered by the claim and
Presumptive Input Tax Credits
Period within which Refund or Tax Credit of Input Taxes shall in the succeeding periods, unless there be a separate claim;
Persons or rms engaged
be Made. — In proper cases, the Commissioner shall grant a refund d. Deduct from its quarterly return the input tax being
1. in the processing of sardines, mackerel and milk, and for creditable input taxes within ninety (90) days from the date of claimed as refund or credit;
2. in manufacturing re ned sugar and cooking oil, submission of the o cial receipts or invoices and other
e. Directly attributable to the sale;
documents in support of the application led:
shall be allowed a presumptive input tax, creditable against the output f. The acceptable foreign currency exchange proceeds had
tax, equivalent to four percent (4%) of the gross value in money of Provided, That should the CIR nd that the grant of refund is not
been duly accounted for, if applicable;
their purchases of primary agricultural products which are used as proper, the CIR must state in writing the legal and factual basis for the
denial. g. Duly supported by VAT invoices or o cial receipts;
inputs to their production.
Imprinting of the word “zero-rated” on the invoices
The term 'processing' shall mean pasteurization, canning and activities
or receipts is required.
which through physical or chemical process alter the exterior texture or

h. The VAT return for the succeeding quarters covered by credit, prior tax payments are not. On the contrary, for the
the claim must be submitted with the CTA. existence or grant solely of such credit, neither a tax liability
Philippine Phosphate Fertilizer v. CIR
nor a prior tax payment is needed. Regarding this matter, a
2. Cancellation of VAT registration due to cessation of
private establishment reporting a net loss in its nancial statements WON the CTA should have granted petitioner’s claim for refund.
business or dissolution of the corporation.
is no di erent from another that presents a net income. Both are YES. Nowhere in the Circular is it stated that invoices are required
a. Within two (2) years from the date of cancellation, entitled to the tax credit provided for under RA 7432, since the law to be presented in claiming refunds.
apply for the issuance of a tax credit certi cate for any itself accords that unconditional bene t.
unused input tax which may be used in payment of his
other internal revenue taxes.
CIR v. San Roque Power 2013 En Banc
b. The date of cancellation being referred herein is the date CIR v. Aichi Forging October 6, 2010
of issuance of tax clearance by the BIR, after full Application of the 120+30 Day Periods (please note that the 120
1. Thus, in claims for tax refund or credit of unutilized input days is now 90 days under the TRAIN law)
settlement of all tax liabilities relative to cessation of
VAT, only the administrative claim must be within the
business or change of status. GR: Taxpayer must wait for the lapse of 120 days before it could
2-year prescriptive period reckoned from the close of the
c. The ling of the claim shall be made only after completion seek relief with the CTA.
taxable quarter when the sale was made.
of the mandatory audit of all internal revenue tax EXC: Those who led their judicial claim between
2. The claimant may then le his judicial claim
liabilities covering the immediately preceding year and the
10 Dec 2003 — 6 Oct 2010.
short period return and the issuance of the applicable tax a. Within 30 days from receipt of the denial of the
clearance/s by the appropriate BIR Office which has CIR; OR “Excess” Input VAT and “Excessively” Collected Tax
jurisdiction over the taxpayer. The input VAT is NOT “excessively” collected as understood under
b. Within 30 days after the lapse of the 90-day
period given to the CIR to decide that is reckoned Section 229 because at the time the input VAT is collected the
CIR v. Central Luzon Drug Corporation from the date when documents are deemed amount paid is correct and proper.
Tax liability required for Tax credit submitted.
Since a tax credit is used to directly reduce the tax that is due, there This is considered a denial on the part of the CIR.
CIR v. Dash Engineering 2013 cf. San Roque
ought to be a tax liability before the tax credit can be applied. 3. If the claimant les his judicial claim without respecting the
While the grant is mandatory, the availment or use is not. By 90-day period, such will be dismissed as being premature. WON respondent’s judicial claim for refund was filed within the
its nature, the tax credit may still be deducted from a future, not a prescriptive period.
4. The rule that both administrative and judicial claims fall
present, tax liability, without which it does not have any use.
within the 2-year period applies to erroneously or NO. In accordance with San Roque, respondent’s judicial claim
Prior tax payments NOT required for Tax credit excessively paid taxes, and is reckoned from the date of for refund must be denied for having been led late. Although
While a tax liability is essential to the availment or use of any tax payment. Input VAT is NOT erroneously or excessively respondent led its administrative claim with the BIR on August 9,
paid. 2004 before the expiration of the two-year period in Section 112(A),

it undoubtedly failed to comply with the 120+30-day period in Cargill Phils., Inc. v. CIR 2015
Section 112(D) (now subparagraph C) which requires that upon
Anent Cargill’s rst refund claim, it led its administrative claim CIR v. Philippine Bank of Communications 23 Feb 2022
the inaction of the CIR for 120 days after the submission of the
with the BIR on June 27, 2003, and its judicial claim before the
documents in support of the claim, the taxpayer has to le its 1. The failure of PBCOM to comply with the requirements of
CTA on June 30, 2003, or before the period when BIR Ruling No.
judicial claim within 30 days after the lapse of the said period. its administrative claim for CWT refund/credit does not
DA-489-03 was in e ect. As such, it was incumbent upon
preclude its judicial claim.
Cargill to wait for the lapse of the 120-day period before
seeking relief with the CTA. It was thus prematurely led. 2. CIR v. Manila Mining Corporation held that cases before
ROHM Apollo v. CIR 2015 the CTA are litigated de novo where party litigants should
In contrast, Cargill’s second refund claims were both led on May
The taxpayer can le an appeal in one of two ways: prove every minute aspect of their cases.
31, 2005, falling within the exemption window period
1) le the judicial claim within 30 days after the contemplated in San Roque. Verily, the CTA En Banc erred 3. Here, since the claim for tax refund/credit was litigated
Commissioner denies the claim within the 90-day waiting when it outrightly dismissed CTA Case No. 7262 on the ground of anew before the CTA, the latter's decision should be solely
period, or prematurity. based on the evidence formally presented before it,
notwithstanding any pieces of evidence that may have been
2) le the judicial claim within 30 days from the expiration of submitted (or not submitted) to the CIR.
the 90-day period if the CIR does not act within that
2015 En Banc re Submission 4. CIR v. Univation Motor Philippines, Inc. has explained that
period. Pilipinas Total Gas v. CIR
of Documents the CTA is not limited by the evidence presented in the
Under the current rule, the reckoning of the 120-day period has administrative claim.
Panay Power Corp. v. CIR 2015 been withdrawn from the taxpayer by RMC 54-2014, since it 5. Sections 204 (C) and 229 of the NIRC require both
requires him at the time he les his claim to complete his supporting administrative and judicial claims to be led within the
In this case, records disclose that petitioner led its administrative documents and attest that he will no longer submit any other same two-year prescriptive period.
and judicial claims for refund/credit of its input VAT on December document to prove his claim. Further, the taxpayer is barred from
29, 2005 and January 20, 2006, respectively, or during the period 6. Clearly, the legislative intent is to treat the judicial claim as
submitting additional documents after he has filed his
when BIR Ruling No. DA-489-03 was in place. independent and separate action from the administrative
administrative claim.
claim; provided that the latter must be led in order for the
As such, it need not wait for the expiration of the 120-day former to be maintained.
period before ling its judicial claim before the CTA, and hence,
is deemed timely led. In view of the foregoing, the CTA En Banc 2015 also on Submission of Documents 7. PBCOM is entitled to a tax credit/refund of its CWT in the
Hedcor, Inc. v. CIR
erred in dismissing outright petitioner’s claim on the ground of amount of P4.6M.
prematurity. The Transmittal Letter submitted by petitioner is not a substantial
8. The requisites for claiming a tax credit or a refund of
submission that would warrant a change in the reckoning date for
CWT are as follows:
the 120-day period for the BIR to act on the claim for refund.
8.1. The claim must be led with the CRR within the

two (2)-year period from the date of payment of See Taxation Law Case Digest No. 3 Philex's claim for refund.
the tax;
4.1. Section 112(A) of the NIRC, which enumerates
8.2. It must be shown on the return that the income the requisites for a taxpayer to be entitled to a tax
received was declared as part of the gross income; CIR v. Philex Mining 18 Jan 2021 refund or credit, does not require subsidiary
and 1. The running of the 120-day period for the CIR to decide journals as part of the substantiation requirements.
8.3. The fact of withholding must be established by a the claim for refund commences from the time of the
copy of a statement duly issued by the payor to the submission of complete documents in support of the tax
payee showing the amount paid and the amount of refund application.
the tax withheld. 2. Pilipinas Total Gas, Inc. v. CIR explained the term 2016
Silicon Philippines v. CIR
9. As to the rst requisite, PBCOM's claim covers its Annual "complete documents" in accordance with RMC No.
The general interpretative rule allowed the premature ling
ITR for taxable year 2006, which it led on April 16, 2007. 49-2003:
of judicial claims by providing that the "taxpayer-claimant need
9.1. Thus, when PBCOM led its administrative claim 2.1. For purposes of determining when the supporting not wait for the lapse of the 120-day period before it could seek
on April 3, 2009, and its judicial claim before the documents have been completed - it is the taxpayer judicial relief with the CTA by way of Petition for Review." The rule
CTA on April 15, both of these were within the who ultimately determines when complete certainly did not allow the filing of a judicial claim long after the
two-year prescriptive period. documents have been submitted for the purpose of expiration of the 120+30 day period.
commencing and continuing the running of the
10. On the other hand, PBCOM complied with the last two
120-day period.
requirements as to the amount of P4.6M which is the
amount both veri ed by the CTA to have been included in 3. Here, Philex led its application for tax refund, attaching Harte-Hanks Philippines, Inc. v. CIR 7 Mar 2022
the former's General Ledger and Annual ITR for 2006, and therewith the necessary documents, on September 28,
1. The general rule under Section 112 (C) of the NIRC, as
supported by the required Certi cates of CTW at Source 2011.
explained in Aichi, is clear that the observance of the 120
(BIR Form No. 2307). 3.1. Considering that no notice was given by the CIR and 30-day periods is crucial in ling a judicial appeal
11. In determining the CWT amount to be credited, the same or no other action was taken within the said 120 before the CTA.
must not only be supported by the required BIR Forms but days, Philex had 30 days from January 26, 2012,
1.1. As an exception, however, during the window
it must also correspond with the income included in the tax the expiration of the 120-day period, or until
period from 10 December 2003, upon the issuance
return of the claimant, upon which the taxes were February 26, 2012, to appeal to the CTA.
of BIR Ruling No. DA-489-03 up to 6 October
withheld. 3.2. Philex properly and timely led its judicial claim 2010, or date of promulgation of Aichi, taxpayers
12. Simply put, the amount of P4.6M is the only amount of on February 3, 2012. need not observe the stringent 120-day period.
CWT claimed by PBCOM that complied with all the 4. Finally, the submission of the subsidiary sales journal and 2. Here, even if petitioner seemed to have prematurely led its
requirements under the law. subsidiary purchase journal is not indispensable to support judicial claim under the general rule, the Court, pursuant

to BIR Ruling No. DA-489-03, considers petitioner to have 1. As held in Aichi, there is nothing in Section 112 of the
1. An administrative claim must be led with the CIR within
led its judicial claim on time. NIRC which sanctions the simultaneous ling of
two years after the close of the taxable quarter when the
administrative and judicial claims, and the ling of the
See Taxation Law Case Digest No. 2 zero-rated or e ectively zero rated sales were made.
judicial claim prior to the action of the CIR or the lapse of
2. The CIR has 120 days from the date of submission of the 120-day period within which the CIR is required to act
complete documents in support of the administrative claim on the administrative claim.
Hedcor Sibulan, Inc v. CIR 15 Sep 2021 within which to decide whether to grant a refund or issue a
2. The Court ruled in San Roque that all taxpayers can rely on
tax credit certi cate.
1. Issued on December 10, 2003, BIR Ruling No. BIR Ruling No. DA-489-03 dated December 10, 2003
DA-A89-03 expressly provides that a taxpayer-claimant 2.1. The 120-day period may extend beyond the issued by the CIR from the time of its issuance up to its
may seek judicial relief with the CTA by ling a petition for two-year period from the ling of the reversal in Aichi on October 6, 2010.
review without waiting for the 120-day period to lapse. administrative claim if the claim is led in the later
2.1. BIR Ruling No. DA-489-03 expressly states that
part of the two-year period.
2. CIR v. San Roque Power recognized BIR Ruling No. the "taxpayer-claimant need not wait for the lapse
DA-489-03 as an equitable estoppel in favor of taxpayers 2.2. If the 120-day period expires without any decision of the 120-day period before it could seek judicial
and whose date of issuance on December 10, 2003 up to from the CIR, then the administrative claim may relief with the CTA by way of Petition for
October 6, 2010 (when CIR v. Aichi was adopted), may be be considered to be denied by inaction. Review."
relied upon by taxpayers. 3. A judicial claim must be led, with the CTA within 30 days 3. Here, EDC did not comply with Section 112 (C) of the
3. Here, the administrative claim was led on June 25, 2010. 3.1. from the receipt of the CIR's decision denying the NIRC relative to the ling of its judicial claim before the
Four days later, or on June 29, 2010, petitioner led its administrative claim or CTA.
judicial claim.
3.2. from the expiration of the 120-day period without 4. However, applying the exception molded in San Roque,
3.1. Thus, the judicial claim was led well within the any action from the CIR. EDC's petition for review before the CTA should be
issuance of BIR Ruling No. DA-489-03 before it reinstated since the ling of its administrative and judicial
4. All taxpayers, however, can rely on BIR Ruling No.
was invalidated by Aichi. claims fell within the stated period.
DA-489-03 from the time of its issuance on 10 December
4. Petitioner's immediate ling of its petition for review 2003 up to its reversal by this Court in Aichi on 6 October See Taxation Law Case Digest No. 8
before the CTA without waiting for the prescribed period 2010, as an exception to the mandatory and jurisdictional
of 120 days to lapse is thus permissible. 120+30 day periods.
The Court proceeded to reiterate the rules on the determination of CIR v. San Miguel Corporation 11 Nov 2019
the prescriptive period for ling a tax refund or credit of unutilized
input VAT under Section 112 of the Tax Code as summarized in 1. The claim for refund/credit of excess excise tax payments of
Mindanao II Geothermal Partnership v. CIR: SMC from January 11 to February 28, 2001 is disallowed
Energy Development Corporation v. CIR 17 Mar 2021 on the grounds of prescription and insu cient evidence.

A claimant's entitlement to a tax refund or credit of excess input

2. Firstly, it is already settled that the qualifying provision 6.1. erroneously or illegally assessed or collected
VAT attributable to zero-rated sales hinges upon the following
under Section 1 of RR 17-99 that the new speci c tax rate internal revenue taxes;
requisites:
for the taxable products shall not be lower than the excise
6.2. penalties imposed without authority; and
tax paid prior to January 1, 2000 was an unauthorized 1) the taxpayer must be VAT-registered;
administrative legislation and was violative of the provisions 6.3. any sum alleged to have been excessive or in any
2) the taxpayer must be engaged in sales which are
of the Tax Reform Act of 1997. manner wrongfully collected.
zero-rated or e ectively zero-rated;
3. Sec 229 of the NIRC is clear that within two (2) years from 7. CIR v. Meralco applied the two (2)-year prescriptive period
3) the claim must be led within two years after the close of
the date of payment of tax, the claimant must rst le an under the Tax Reform Act of 1997 which is mandatory
the taxable quarter when such sales were made; and
administrative claim with the CIR before ling its judicial regardless of any supervening cause that may arise after
claim with the courts of law. payment and categorically declared that solutio indebiti was 4) the creditable input tax due or paid must be attributable to
inapplicable. such sales, except the transitional input tax, to the extent
3.1. Both claims must be led within a two (2)-year
that such input tax has not been applied against the output
reglementary period. See Taxation Law Case Digest No. 11 tax.
3.2. Timeliness of the ling of the claim is mandatory
Procedure for Claiming Refunds or Conditions for Zero-rating of Sales of Services
and jurisdictional.
Tax Credits of Input VAT under First, the seller is VAT-registered.
4. The date of payment of excise tax on domestic products Section 112
depends on the date of actual removal of the taxable Second, the services are rendered "to a person engaged in
1) The claim for refund must be led with the CIR within two
domestic products from the place of production. business conducted outside the Philippines or to a nonresident
(2) years counted from the last day of the quarter when the
person not engaged in business who is outside the Philippines
5. Here, SMC led its administrative claim on January 10, zero-rated sale was made;
when the services are performed."
2003 and its judicial claim through a Petition for Review 2) The claim for refund must be accompanied by a statement
on February 24, 2003. Third, the services are "paid for in acceptable foreign currency
under oath that all documents to support the claim has been
and accounted for in accordance with [BSP] rules and
5.1. Counting back from February 24, 2003, the submitted at the time of ling of claim for refund;
regulations."
reckoning date for the two (2)-year prescriptive 3) The CIR must decide on the claim within 90 days from the
period for this particular judicial claim of SMC Proof of NRFC Status. — The claimant must establish the two
date of ling. The adverse decision is appealable to the CTA
was February 24, 2001. components of a client's NRFC status, viz.:
within 30 days from receipt;
5.2. Accordingly, the claim of SMC for excess excise tax 1) that their client was established under the laws of a country
4) If no decision is made within the 90-day period, there is a
paid prior to said date had already prescribed. not the Philippines or, simply, is not a domestic
deemed denial or adverse decision which is appealable to the
corporation; and
6. Under the Tax Code, a claim for tax refund may be based CTA within 30 days from the lapse of the 90-day period.
on the following: 2) that it is not engaged in trade or business in the Philippines.
CIR v. Deutsche Knowledge Services Pte. Ltd. 2020

The CTA found that the SEC Certi cation of Non-Registration Assessment of Internal Revenue Taxes Civil Penalties
of Company and Authenticated Articles of Association and/or
Procedural Due Process in Tax Assessments Delinquency Interest and De ciency Interest
Certi cates of Registration/Good Standing/Incorporation
su ciently established the NRFC status of 11 of DKS's a liates Requisites of a Valid Assessment Surcharge
clients.
Tax Delinquency vs. Tax De ciency Compromise Penalty
Prescriptive Period for Assessment Type of Remedies

10 Filing of Returns and Payment
1) Summary — remedies at the administrative level that are
1. Every person liable to pay VAT shall le a quarterly return
Taxpayer’s Remedies
executed without ceremony or delay; short or concise;
of the amount of his gross sales or receipts within twenty- ve
Administrative 2) Substantive — remedies provided for by law or regulation; an
(25) days following the close of each taxable quarter
essential part or constituent or relating to what is essential;
prescribed for each taxpayer. Judicial
3) Procedural — remedies involving law of pleading, evidence,
2. VAT-registered persons shall pay the VAT on a monthly
Substantive jurisdiction, etc.;
basis.
Protesting an Assessment 4) Administrative — remedies available at the administrative
3. Any person, whose registration has been cancelled in
level;
accordance with Section 236, shall le a return and pay the tax
due thereon within twenty- ve (25) days from the date of Compromise and Abatement of Taxes 5) Judicial — remedies that are enforced through judicial action,
cancellation of registration. which may be civil or criminal.
Recovery of Tax Erroneously or Illegally Collected
4. Only one consolidated return shall be led by the taxpayer for
his principal place of business or head o ce and all branches. Government Remedies for Collection of Delinquent 1 Assessment of Internal Revenue Taxes
5. The return shall be led with and the tax paid to an authorized Taxes An assessment is the notice to the e ect that the amount therein stated
agent bank, Revenue Collection O cer or duly authorized is due from a taxpayer as a tax with a demand for payment of the same
Requisites within the stated period of time. To assess means to impose a tax.
city or municipal Treasurer in the Philippines located within
the revenue district where the taxpayer is registered or Prescriptive Periods Assessment Process
required to register.
1) Self-assessment by taxpayer;
Administrative Remedies
Tax Remedies Under the National 2) Filing of tax return;
D Judicial Remedies
Internal Revenue Code 3) Payment of the entire tax due.
Role of the government in the assessment process

1) Examination of books of accounts and other accounting REPLY PROTEST 7) Submission of documentary evidence and arguments. —
records of taxpayers; The taxpayer shall submit the required documents in support
15 days from receipt of PAN 30 days from receipt of FAN of his protest within 60 days from date of ling of protest;
a) Best evidence obtainable — When a report required by
otherwise, the assessment shall become nal, executory and
law as a basis for the assessment of any national internal Usually done by the taxpayer Needs legal assistance
demandable.
revenue tax shall not be forthcoming within the time xed
or when there is reason to believe that any such report is Directory Mandatory If the protest is denied, appeal to the CTA within 30 days
false, incomplete or erroneous, the CIR shall assess the from receipt of decision.
Failure makes the FAN nal and
proper tax on the best evidence obtainable. Failure makes the taxpayer in
executory — taxpayer loses right 8) Denial of protest. — Generally, appeal is to be taken to the
default — no liability for
b) Net worth method of investigation — this method is to contest the assessment both at CTA. But if the taxpayer appeals the adverse decision of the
additional or de ciency tax
supported by Sec 43 of the NIRC which allows the CIR the admin and judicial levels. duly authorized representative of the CIR to the CIR, then
to use any method of computation or accounting which the decision is not yet nal, executory, and demandable.
would more clearly re ect the income of the taxpayer. 5) Issuance of Formal Assessment Notice (FAN) and Letter
9) Appeal by the taxpayer of the nal decision of the CIR
of Demand (LD) — The invalid service of LD/FAN to an
2) Preparation of tentative ndings and holding of or his authorized representative on the disputed
unauthorized person will render the assessment VOID for
informal conference; assessment to the CTA. — The CIR has 180 days from
violation of the due process requirement.
submission of required documents to act on the protest. If the
3) Issuance of Preliminary Assessment Notice (PAN) — the
6) Filing of administrative protest by the taxpayer against CIR fails to act during said period, the taxpayer has 30 days
Assessment Division or the CIR shall issue by registered mail,
the assessment. — The taxpayer has 30 days from receipt of from the lapse of the 180 day period to appeal to the CTA.
a PAN, if there exists su cient basis to assess the taxpayer for
LD/FAN to le a protest.
any de ciency tax.
The taxpayer may protest part of the LD/FAN, in which case, a Procedural Due Process in Tax Assessments
The PAN shall show the facts and the law, rules and
those undisputed issues may be duly collected.
regulations, or jurisprudence on which the proposed 1) Notice of informal conference
assessment is based. No action shall be taken on the disputed issues until the taxes
Revenue O cer
on the undisputed issues have been fully paid.
The taxpayer is given 15 days from receipt of PAN to reply. a. Informs the taxpayer of his ndings as well as the factual
The prescriptive period for assessment or collection of the tax
Failure to respond within said time, the taxpayer shall be and legal bases after the completion of his tax audit in an
attributable to the disputed issues shall be suspended.
considered in default. informal meeting;
The taxpayer should state the facts, applicable law, rules,
A formal letter of demand and assessment shall then be issued, b. Prepares report of examination based on the results of
regulations, or jurisprudence on which his protest is based;
calling for payment of the de ciency tax liability + penalties. meeting;
otherwise, protest is deemed void.
4) Reply — To contest in writing the ndings contained in a c. Submits written report to Revenue District O cer.
Failure to le a valid protest within the 30-day period shall
PAN. 2) Post-reporting Notice
make the assessment nal, executory and demandable.

been sold, traded or transferred to non-exempt

Revenue District O cer — 15 days CIR v. Enron Subic Power
persons.
a. Taxpayer submits written explanations on ndings; The advice of tax de ciency, given by the CIR to an employee of
Assessment is NULL and VOID for having been issued on
b. RDO forwards report to Assessment Division. the day the PAN was received by the taxpayer, or within 15 Enron, as well as the preliminary ve-day letter, were not valid
days from receipt of the PAN. substitutes for the mandatory notice in writing of the legal and factual
3) Preliminary Assessment Notice (PAN)
bases of the assessment. These steps were mere perfunctory
Chief, Assessment Division — 15 days discharges of the CIR's duties in correctly assessing a
CIR v. Metro Star
2010 on mandatoriness of PAN taxpayer.
a. Taxpayer submits written explanations on ndings; Superama, Inc.
b. The Chief prepares assessment notice and demand letter The law requires that the legal and factual bases of the
PAN is MANDATORY. Section 228 of the Tax Code clearly
for approval by the RD. assessment be stated in the formal letter of demand and
requires that the taxpayer must rst be informed that he is liable for
assessment notice. Thus, such cannot be presumed. Otherwise, the
GR: PAN is REQUIRED to be issued by the BIR de ciency taxes through the sending of a PAN. He must be
express provisions of Sec 228 of the NIRC and RR No. 12-99
informed of the facts and the law upon which the assessment is
EXC: would be rendered nugatory. The alleged "factual bases" in the
made. The law imposes a substantive, not merely a formal,
a) When the nding for any de ciency tax is the result of advice, preliminary letter and "audit working papers" did not su ce.
requirement. The sending of a PAN to taxpayer to inform him of
mathematical error in the computation of the tax as the assessment made is but part of the "due process requirement in
4) Formal Assessment Notice (FAN) and Letter of Demand
appearing on the face of the return; or the issuance of a de ciency tax assessment," the absence of which
renders nugatory any assessment made by the tax authorities. Regional Director — three (3) years from date of ling
b) When a discrepancy has been determined between
of return or 10 years from date of ling false or
the tax withheld and the amount actually remitted Thus, for its failure to send the PAN stating the facts and the law on
fraudulent return.
by the withholding agent; or which the assessment was made as required by Section 228 of R.A.
No. 8424, the assessment made by the CIR is VOID. a. RD signs assessment notice and demand letter;
c) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a b. He causes to be released and mailed FAN/DL, or personal
taxable period was determined to have carried over service thereof to the taxpayer.
and automatically applied the same amount claimed CIR v. Nippo Metal Tech Philippines, Inc 2019
against the estimated tax liabilities for the taxable CIR v. Isabela Cultural Corp.
By disregarding the 15-day period provided by law, the CIR utterly
quarter or quarters of the succeeding taxable year; or
deprived respondent of the opportunity to contest the PAN and A nal demand letter from the BIR, reiterating to the
d) When the excise tax due on excisable articles has not present evidence in support thereto before an FLD/FAN was issued. taxpayer the immediate payment of a tax de ciency
been paid; or assessment previously made, is tantamount to a denial of the
Clearly, due process demands that the taxpayer receives the PAN
e) When the article locally purchased or imported by an taxpayer's request for reconsideration. Such letter amounts to
and that he is given the opportunity to respond thereto.
exempt person, such as, but not limited to, vehicles, a nal decision on a disputed assessment and is thus
capital equipment, machineries and spare parts, has appealable to the CTA.

of the tax audit and assessment of Unioil. palpably prescribed.
Philippine Dream Company, Inc. v. CIR 2020 2.2. Second, the issue on the ostensibly "missing" PAN 7. The CIR, in exercising its power to assess and collect taxes
arose because of the CIR's contention that the if these are owed, ought to give due consideration to the
Did PDCI timely file its appeal? NO. timely issuance thereof su ciently interrupted the arguments and evidence submitted by the a ected party.
PDCI mistakenly computed the period of appeal. Having chosen three-year prescriptive period for the assessment of
8. Here, the CIR only perfunctorily assessed Unioil and went
the remedy of appeal against the CIR's supposed inaction on its taxes under Section 203 of the NIRC.
through just the motions without due consideration.
protest, PDCI should have reckoned its thirty-day period for appeal 2.3. Lastly, the FAN accompanying the Formal Letter
8.1. This is apparent from the haste in which the FLD
from the lapse of 180 days from the time it led its protest of Demand did not comply with the obligatory
and the FAN were issued on January 14, 2009 in
against the Final Letter of Demand and Assessment Notice. provision on protesting a tax assessment under
order to ostensibly beat the 3-year prescriptive
Thus, the petition should have been led on December 6, 2006 and Section 228 of the NIRC.
period which was set after January 15, 2009.
not on October 31, 2007.
3. In ne, the assessment is void for not stating the factual
9. The requirement set by law to state in writing the factual
Following this Court's ruling in CIR v. Isabela Cultural and legal bases therefor and the three-year period for
and legal bases for the assessment is not a hollow
Corporation, the CTA En Banc considered the Final Notice Before assessment has already prescribed.
exhortation. The law imposes a substantive, not merely a
Seizure as CIR's action on PDCI's protest and reckoned the
4. The SC emphasized the import of an assessment as formal, requirement.
thirty-day period for appeal from PDCI's receipt thereof. As the
containing not only a computation of tax liabilities but also
Final Notice After Seizure is the nal decision on its protest, PDCI's See Taxation Law Case Digest No. 6
a demand for payment within a prescribed period.
subsequent MRs thereafter led did not toll the running of the
thirty-day period for appeal to the CTA. 5. Here, the CIR's assessment of Unioil for de ciency 5) Protest letter
withholding taxes has prescribed. a. Taxpayer les request for reinvestigation or motion for
reconsideration within 30 days from receipt of FAN/DL;
5.1. Section 203 of the NIRC mandates the
CIR v. Unioil Corporation 04 Aug 2021 b. He submits additional documentary evidence within 60
government to assess internal revenue taxes within
days from submission of the protest letter.
3 years from the last day prescribed by law for the
1. The CIR's failure to comply with the notice requirements
ling of the tax return or the actual date of ling of 6) Reinvestigation
under Section 228 of the 1997 NIRC e ectively denied
such return, whichever comes later. a. BIR evaluates the legal and factual arguments;
Unioil of its right to due process. Thus, the CIR's
assessment was void. 6. From the date of the Formal Letter of Demand and the b. Reiterates original ndings or revises report of
FAN which were simultaneously issued on January 14, examination and submits it to RDO until it reaches the
2. The CIR's negligence in their power and duty to properly
2009 and only received by Unioil on January 26, 2009, the RD.
assess taxes is palpable in this case.
three-year prescriptive period reckoned from the deadline
2.1. First, the CIR failed to establish the fact of their set by law for the ling of the return, assessment of the 7) Denial of Protest by RD
issuance of a PAN by not keeping proper records January to November 2005 monthly remittance returns has

180 days from date of ling protest or submission of c) performing any act tending to obstruct the proceedings assessment, and the facts, law,
documentary evidence by taxpayer. for the collection of the tax for the past or current quarter rules, and regulations or As soon as it is served, an
or year or to render the same totally or partly ine ective jurisprudence on which the obligation arises on the part of
8) Administrative Appeal to CIR of decision of RD
unless such proceedings are begun immediately; proposed assessment is based. the taxpayer concerned to pay
9) Denial of Protest or Inaction by CIR within 180 day the amount assessed and
2) De ciency tax liability arising from a tax audit conducted by
period It does not contain a demand for demanded.
the BIR;
payment but usually requires the
RCBC v. CIR 3) Tax lien — If any person liable to pay an internal revenue tax, taxpayer to reply within 15 days It also signals the time when
neglects or refuses to pay the same after demand, the amount from receipt. Otherwise, the penalties and interests begin to
In case the CIR failed to act on the disputed assessment within the shall be a lien in favor of the Government of the Philippines CIR will nalize an assessment accrue against the taxpayer.
180-day period from date of submission of documents, a taxpayer from the time when the assessment was made by the CIR; and issue a FAN.
can either:
4) Dissolving corporation — Every corporation shall, within Failure to le an administrative
1) le a petition for review with the CTA within 30 days after thirty (30) days after the adoption by the corporation of a protest within 30 days from
the expiration of the 180-day period; or resolution or plan for its dissolution, or for the liquidation of receipt of the FAN will render
2) await the nal decision of the CIR on the disputed the whole or any part of its capital stock, including a the assessment nal, executory,
assessments and appeal such nal decision to the CTA corporation which has been noti ed of possible involuntary and demandable.
within 30 days after receipt of a copy of such decision. dissolution by the SEC, or for its reorganization, render a
correct return to the CIR, veri ed under oath, setting forth
However, these options are mutually exclusive, and resort to one
the terms of such resolution or plan. b Requisites of a Valid Assessment
bar the application of the other.
The dissolving or reorganizing corporation shall, prior to the 1) The Final Assessment Notice (FAN) contains
10) Appeal to CTA by taxpayer — 30 days from receipt. issuance by the SEC of the Certi cate of Dissolution or
a) the name, address, and TIN of the taxpayer;
GR: Taxes are SELF-ASSESSING. Reorganization, as may be de ned by rules and regulations
prescribed by the Secretary of Finance, upon recommendation b) the kind of tax, period covered, basic tax, and
EXC: of the CIR, secure a certi cate of tax clearance from the penalties;
1) Tax period of a taxpayer is terminated — When it shall BIR which certi cate shall be submitted to the SEC.
c) signed by the authorized BIR o cial, and
come to the knowledge of the CIR that a taxpayer is
PAN FAN d) the date of payment of the tax.
a) retiring from business subject to tax, or
The Demand Letter (DL) contains
b) intending to leave the Philippines or to remove his Merely informs the taxpayer of Contains not only a
property therefrom or to hide or conceal his property, or the initial ndings of the BIR. computation of tax liabilities a) the computation of the de ciency tax, including
but also a demand for payment penalties, if any;
It contains the proposed within a prescribed period. b) the factual and legal bases of the assessment; and

c) the demand for payment of the tax. fraud is based is communicated to the taxpayer. The burden of 4) In estimating the revenues that may be collected by the
proving that the facts exist in any subsequent proceeding is with the government in the coming year.
2) The FAN/DL must be issued on account of or covered by a
CIR. Furthermore, the Final Assessment Notice is not valid if it
validly issued letter of authority; When is a tax assessment made or deemed made?
does not contain a de nite due date for payment by the
An LOA is the authority given to the appropriate revenue taxpayer. 1) Issue Date — NOT the reckoning point in prescription.
o cer assigned to perform assessment functions. A Letter 2) ✓ Date of Service or Mailing — Assessment is deemed
Notice (LN) cannot be converted into an LOA. An LN is 3) Must state the factual and legal bases of the assessment and
made when notice is released or mailed to the correct
merely a notice of audit or investigation only for the purpose jurisprudence on which it is based; otherwise it shall be void;
taxpayer.
of disqualifying the taxpayer from amending his returns. 4) Must be signed by the CIR or his duly authorized
3) Date of Receipt — The law does not require that the
representative;
Medicard Philippines v. CIR 2017 re LOA vs LN demand or notice be received within the prescriptive
5) Must be issued within the original prescriptive period period.
The following di erences between an LOA and LN are crucial. prescribed by law or within the extended prescriptive period as
1. First, an LOA addressed to a revenue o cer is speci cally validly agreed between the BIR and the taxpayer; and served by c Tax Delinquency vs. Tax De ciency
required under the NIRC before an examination of a personal delivery or by registered mail; and
A taxpayer is delinquent in the payment of his tax when
taxpayer may be had while an LN is not found in the 6) Must be addressed and served to the correct person in his
NIRC and is only for the purpose of notifying the taxpayer registered or duly noti ed new address. 1) The self-assessed tax per return led by the taxpayer on the
that a discrepancy is found based on the BIR's RELIEF prescribed date was not paid at all or was only partially paid;
Forms of Assessment
System. OR
1) Formal Assessment Notice or FAN;
2. Second, an LOA is valid only for 30 days from date of issue 2) The de ciency tax assessed by the BIR became nal and
while an LN has no such limitation. 2) Informal written notice. — An assessment may also be executory.
in the form of a letter or other less formal
3. Third, an LOA gives the revenue o cer only a period of The term 'deficiency' means:
communications to the taxpayer. The noti cation must
120 days from receipt of LOA to conduct his examination 1) The amount by which the tax imposed exceeds the amount
contain an outright demand for payment of the amount
of the taxpayer whereas an LN does not contain such a shown as the tax by the taxpayer upon his return; OR
alleged to be due in order to constitute an assessment.
limitation.
Significance of Assessment — It is relevant 2) If no amount is shown as the tax by the taxpayer upon this
return, or if no return is made by the taxpayer, then the
1) In the proper pursuit of judicial and extrajudicial remedies
amount by which the tax exceeds the amounts previously
CIR v. Fitness by Design, Inc 2016 to enforce tax liabilities and other charges;
assessed (or collected without assessment) as a de ciency.
To avail of the extraordinary period of assessment in Section 222(a) 2) In the application of statutes of limitations;
Remedies in the collection of deficiency and delinquency tax
of the NIRC, the CIR should show that the facts upon which the 3) In the establishment of tax liens; and

Delinquent De cient cognizance of in the civil or criminal action for the collection
act of the taxpayer was intentional and done with intent to evade the
thereof.
taxes due, the ling of a false return can be intentional or due to
Can immediately be collected b) If before the expiration of the time prescribed in Section 203 honest mistake. For instance, an entry of wrong information due to
administratively through the Has to go for the assessment of the tax, both the CIR and the taxpayer mistake, carelessness, or ignorance, without intent to evade tax, does
✔
issuance of warrant of distraint through protest have agreed in writing to its assessment after such time, the tax not constitute a false return.
and levy, and/or judicial action may be assessed within the period agreed upon.
(2) Suspension of the Running of Statute of
May be dismissed c) Collection by distraint or levy or by a proceeding in court
Filing of civil action for the Limitations
✔ during pendency within ve (5) years following the assessment of the tax.
collection in ordinary court The running of the Statute of Limitations shall be suspended
of protest
CIR v. Asalus Corp 2017 re False Return 1. for the period during which the CIR is prohibited from
Subject to administrative making the assessment or beginning distraint or levy or a
penalties such as 25% NOT subject to Under Section 248(B) of the NIRC, there is a prima facie evidence
✔ proceeding in court and for sixty (60) days thereafter;
surcharge, interest and 25% surcharge of a false return if there is a substantial underdeclaration of taxable
compromise penalty sales, receipt or income. The failure to report sales, receipts or 2. when the taxpayer requests for a reinvestigation which is
income in an amount exceeding 30% what is declared in the returns granted by the CIR;
constitute substantial underdeclaration. The CIR need not 3. when the taxpayer cannot be located;
d Prescriptive Period for Assessment immediately present evidence to support the falsity of the return,
4. when the warrant of distraint or levy is duly served upon
unless the taxpayer fails to overcome the presumption against it.
the taxpayer and no property could be located; and
(1) False Returns vs. Fraudulent Returns vs.
Asalus was bound to refute the presumption of the falsity of the
Non-Filing of Returns 5. when the taxpayer is out of the Philippines.
return and to prove that it had led accurate returns. Its failure to
Internal revenue taxes shall be assessed within three (3) years overcome the same warranted the application of the ten (10)-year
after the last day prescribed by law for the ling of the return or CIR v. Hambrecht & Quist Philippines 2010
prescriptive period for assessment under Section 222 of the NIRC.
from the day the return was led in case of belated ling.
The mere ling of a protest letter which is not granted does not
Exceptions as to Period of Limitation of Assessment and Collection operate to suspend the running of the period to collect taxes. In the
of Taxes. — 2017 re Concept of Intentional Falsity as case at bar, the records show that respondent led a request for
CIR v. PDI reiterated in CIR v. BPI-Philam Life Assurance reinvestigation on December 3, 1993, however, there is no indication
a) In the case of a false or fraudulent return with intent to 2019
that petitioner acted upon respondent's protest.
evade tax or of failure to file a return — within ten (10)
years after the discovery of the falsity, fraud or omission: Mere understatement of a tax is not itself proof of fraud for
the purpose of tax evasion.
Provided, That in a fraud assessment which has become nal 2 Taxpayer’s Remedies
and executory, the fact of fraud shall be judicially taken While the ling of a fraudulent return necessarily implies that the

the date of the ling, for the taxable year when the last entry
Administrative 3. A preliminary hearing is required for the proper determination
was made in the books of accounts.
of the necessity of a surety bond or the reduction thereof.
1. Before payment of the de ciency tax assessment, the remedy is
(Pacquiao v. CTA) a. First 5 years — hardcopies;
to le a written protest within 30 days from receipt of FAN;
Substantive b. Next 5 years — may retain only an electronic copy of
2. After payment of the same, the remedy is to le a written the hardcopies.
claim for refund or tax credit — either with the BIR or the 1) Questioning the constitutionality or validity of statutes
or regulations. 4) Publication of RMC and RMO. — Absence of publication
DOF One Stop Shop Center.
renders the RMC and RMO invalid.
The taxpayer need NOT pay the de ciency tax assessment 2) Failure to inform the taxpayer in writing of the legal
and factual bases of assessment makes it VOID. — The 5) Power of CIR to distribute or allocate gross income and
under protest nor is he required to protest at the time of
taxpayers shall be informed in writing of the law and the facts deductions does NOT include the power to impute
payment.
on which the assessment is made; otherwise, the assessment ‘theoretical interests’ to the controlled taxpayer’s
Judicial shall be void. transactions.
1. Appeal to CTA. If the protest is denied in whole or in part, or 3) Preservation of books of accounts and once-a-year 6) Availment of tax amnesty.
is not acted upon within one hundred eighty (180) days from examination. — For income tax purposes, such examination
submission of documents, the taxpayer adversely a ected by and inspection shall be made only once in a taxable year, a Protesting an Assessment
the decision or inaction may appeal to the CTA except in the following cases:
(1) Period to File Protest
a. within thirty (30) days from receipt of the said decision, a) Fraud, irregularity or mistakes, as determined by the
OR Within 30 days from receipt of the assessment.
Commissioner;
b. from the lapse of 180-day period; There are basically two types:
b) The taxpayer requests reinvestigation;
otherwise, the decision shall become nal, executory and c) Veri cation of compliance with withholding tax laws 1) Request for Reconsideration — anchored on
demandable. and regulations; documents, arguments, and legal authorities already submitted
to the BIR.
2. When in the opinion of the Court the collection may d) Veri cation of capital gains tax liabilities; and
jeopardize the interest of the Government and/or the taxpayer, This may involve a question of fact, or law, or both.
e) In the exercise of the CIR's power under Section 5(B)
the Court, at any stage of the proceeding, may suspend the
to obtain information from other persons in which 2) Request for Reinvestigation — grounded on new or
said collection and require the taxpayer either
case, another or separate examination and inspection additional documents, arguments, and legal authorities not yet
a. to deposit the amount claimed or may be made. submitted.
b. to le a surety bond for not more than double the amount All taxpayers are required to preserve their books of accounts The taxpayer shall state in his protest:
with the Court.
for a period of 10 years reckoned from the day following the 1) The nature of the protest;
deadline in ling a return, or if led after the deadline, from
2) Date of the assessment notice; and

3) The applicable law, rules, and regulations, or jurisprudence on 2) If the protest is NOT acted upon by the CIR’s duly a. CIR did not rule on the motion for reconsideration;
which the protest is based; otherwise, the protest shall be authorized representative within the 180-day period
b. Referral by the CIR of request for reinvestigation to OSG;
deemed void.
a) Appeal to the CTA within 30 days after the expiration of
c. Reiterating the demand for immediate payment of
(2) Submission of Supporting Documents the 180-day period; OR
de ciency tax due to taxpayer’s continued refusal to
Submit additional relevant supporting documents within 60 b) Await the nal decision of the CIR’s duly authorized execute waiver;
days from ling of protest. The 180 day period will be reckoned representative of the disputed assessment.
d. Preliminary collection letter may serve as assessment
from the day the taxpayer submitted such documents. 3) If the protest or administrative appeal is denied by the notice.
CIR
(3) Effect of Failure to File Protest c) Effect of failure to appeal
The assessment shall become nal, executory and demandable. No a) Appeal to the CTA within 30 days from receipt.
The assessment shall become nal, executory and demandable.
requests for reconsideration or reinvestigation may then be An MR of the CIR’s denial shall NOT toll the 30-day period
b Compromise and Abatement of Taxes
granted. to appeal to the CTA.
The Commissioner may —
(4) Action of the Commissioner on the Protest Filed 4) If the protest is NOT acted upon by the CIR within the
a) Period to act upon or decide on protest filed 180-day period A) Compromise the payment of any internal revenue tax,
a) Appeal to the CTA within 30 days after the expiration of when:
180 days.
the 180-day period; OR 1) Doubtful validity. A reasonable doubt as to the validity
b) Remedies of the taxpayer in case of denial or inaction of the
b) Await the nal decision of the CIR on the disputed of the claim against the taxpayer exists; or
Commissioner
assessment and appeal such nal decision to the CTA 2) Financial incapacity. The nancial position of the
How to Appeal within 30 days after receipt of the decision. taxpayer demonstrates a clear inability to pay the assessed
1) If the protest is denied by the CIR’s duly authorized NB: These options are MUTUALLY EXCLUSIVE. tax.
representative
Denial of Protest This should be accompanied by a waiver of the secrecy of
a) Appeal to the CTA; OR bank deposits.
A. DIRECT — The decision of the CIR or his duly authorized
b) Elevate the protest through a request for reconsideration representative shall The compromise settlement of any tax liability shall be subject
to the CIR. to the following minimum amounts:
a. State the facts, applicable law, rules and regulations, or
Both within 30 days from receipt of decision. jurisprudence on which such decision is based; and 1) For cases of financial incapacity, a minimum
NO request for reinvestigation is allowed in administrative compromise rate equivalent to ten percent (10%) of the
b. That the same is his nal decision. basic assessed tax; and
appeal.
B. INDIRECT —

2) For other cases, a minimum compromise rate equivalent 1) assessments issued by the regional o ces involving basic 2) A refund is a claim for the payment of cash for taxes
to forty percent (40%) of the basic assessed tax. de ciency taxes of P500K or less, and erroneously or illegally paid by the taxpayer.
Where the basic tax involved exceeds P1M or where the 2) minor criminal violations. 3) No credit or refund of taxes or penalties shall be allowed unless
settlement o ered is less than the prescribed minimum rates, the taxpayer les in writing with the CIR a claim for credit or
may be compromised by a regional evaluation board.
the compromise shall be subject to the approval of the refund within two (2) years after the payment of the tax or
National Evaluation Board. The last step in the abatement process is the issuance of a penalty.
termination letter.
TN: Compromise can not be availed of by a withholding 4) A refund shall not be granted when there is a de ciency tax
agent. assessment against the claimant-taxpayer.
c Recovery of Tax Erroneously or Illegally Collected
B) Abate or cancel a tax liability, when: 5) Once the taxpayer opts to carry-over the excess income tax
If the sum of the quarterly tax payments made during the said taxable
against the taxes due for the succeeding taxable years, such
1) The tax or any portion thereof appears to be unjustly or year is not equal to the total tax due on the entire taxable income of
option is irrevocable for the whole amount of the excess. The
excessively assessed; or that year, the corporation shall either:
excess shall be carried over and duly applied UNTIL FULLY
2) The administration and collection costs involved do a) Pay the balance of tax still due; or UTILIZED.
not justify the collection of the amount due.
b) Carry-over the excess credit; or 6) An exception to the irrevocability rule is when a corporation
⭐All criminal violations may be compromised except: dissolves. A refund is then allowed for any unutilized tax
c) Be credited or refunded with the excess amount paid, as the
a) those already led in court, or case may be. credit it had previously opted to be carried over.
b) those involving fraud. Once the option to carry-over and apply the excess quarterly income 7) A withholding agent is allowed to claim for tax refund,
tax against income tax due for the taxable quarters of the succeeding because under the law, said agent is the one who is held liable
In addition, the following cannot be compromised:
taxable years has been made, such option shall be considered for any violation of the withholding tax law should such
c) Cases where nal reports of reinvestigation or violation occur.
irrevocable for that taxable period and no application for cash
reconsideration have been issued resulting in the
refund or issuance of a tax credit certi cate shall be allowed therefor. 8) Starting date for counting the two-year period —
reduction of the original assessment agreed to by the
taxpayer when he signed the required agreement form. 1) A Tax Credit Certificate is a certi cation, duly issued to the GR: From the date of payment regardless of any
taxpayer named therein acknowledging that the supervening cause that may arise after payment;
d) Payment of withholding tax, where the nancial
grantee-taxpayer is legally entitled a tax credit, the money value
position of the withholding agent shows a clear inability EXC:
of which
to pay. a) Corporate income tax. — Where a corporation paid
a) May be used in payment of any of his internal
GR: The power to compromise and abate belongs to the CIR. quarterly income taxes in any of the rst three
revenue tax liability, or
quarters during the taxable year but incurs a net loss
EXC:
b) May be converted as a cash refund. during said year, the period shall be counted from the

date of the ling of the annual corporate income

3) If no decision is made by the CIR, the aggrieved taxpayer must resolve
tax return.
consider the inaction as a denial and appeal to the CTA must
b) Income tax paid in installments. — Where the tax be led before the lapse of two (2) years counted from date Appeal to the CTA
had been paid in installments, the taxes are deemed of payment.
Within the 2 year 30 days from receipt
paid, for purposes of determining the commencement
When is Tax Erroneously or Illegally Collected prescriptive period; of decision; OR
of the two-year period, on the date the last 30 days from receipt
1. Erroneously or illegally assessed or collected internal revenue or 30 days from From inaction or
installment was paid. of denial of CIR.
taxes; receipt of decision of await then appeal
CIR. within 30 days
University Physician Services v. 2. Penalties imposed without authority;
2018 re Irrevocability Rule
CIR
3. Any sum alleged to have excessively or in any manner
The irrevocability is limited only to the option of carry-over wrongfully collected; CIR v. Smart Communication, Inc. 2010
such that a taxpayer is still free to change its choice after electing a
4. Refund of BIR stamps when returned in good condition by The right of a withholding agent to claim a refund of
refund of its excess tax credit. But once it opts to carry over such
the purchaser; erroneously or illegally withheld taxes comes with the
excess creditable tax, after electing refund or issuance of tax credit
certi cate, the carry-over option becomes irrevocable. 5. Redemption or change of unused stamps rendered un t for responsibility to return the same to the principal taxpayer.
use and refund of their value.
204(c) and 229 112(c) 228 2015 reiterated in CIR v.

Rhombus Energy v. CIR 2018 re Irrevocability Rule
Winebrenner & Iñigo v. CIR Philippine National Bank
The controlling factor for the operation of the irrevocability rule is Refund of 2019
Recovery of tax Administrative
that the taxpayer chose an option; and once it had already done so, it unutilized input
erroneously or Protest on WON the submission and presentation of the quarterly ITRs of
could no longer make another one. VAT from 0%
illegally collected Assessment the succeeding quarters of a taxable year is indispensable in a claim
transactions
for refund.
Procedure for Claiming Refunds or
The 2-year prescriptive period
Tax Credits of Tax Erroneously or NO. The irrevocability rule under Section 76 of the NIRC
Illegally Collected under Section 229 means that once an option, either for refund or issuance of tax credit
Applies to AC only 30-day reglementary
1) A written claim for refund must be led with the CIR within Applies to AC and certi cate or carry-over of CWT has been exercised, the same can no
from close of taxable period
two (2) years from date of payment of the tax; JC from date of longer be modi ed for the succeeding taxable years. What Section 76
quarter when sale
payment requires, just like in all civil cases, is to prove the prima facie
2) A decision of the CIR denying the claim is appealable to the was made
CTA within 30 days from receipt thereof or within two (2) entitlement to a claim, including the fact of not having carried
CIR has no CIR has 90 days to CIR has 180 days to over the excess credits to the subsequent quarters or taxable year. It
years from date of payment, whichever comes rst;
prescribed period to resolve resolve does not say that to prove such a fact, succeeding quarterly

ITRs are absolutely needed. 3) Sale of property; The taxpayer is given three (3) years from date of ling of
original return to amend, provided that no notice for audit or
This simply underscores the rule that any document, other than 4) Forfeiture;
investigation of such return, statement or declaration has in
quarterly ITRs may be used to establish that indeed the
5) Compromise and abatement; the meantime been actually served upon the taxpayer.
non-carry over clause has been complied with, provided that
such is competent, relevant and part of the records. 6) Penalties and nes; and 2) Collection. —
7) Suspension of business operations. a) When the CIR validly issues an assessment within the
three (3)-year period, it has another three (3) years
Zuellig-Pharma Asia Pacific 2020
a Requisites within which to collect the tax due by distraint, levy, or
Ltd. Phils. ROHQ v. CIR
A taxpayer is delinquent in the payment of his tax when court proceeding. (CIR v. United Salvage and Towage
As held in Pilipinas Total Gas, it is the taxpayer who ultimately 2014)
1) The self-assessed tax per return led by the taxpayer on the
determines when complete documents have been submitted for the b) In the case of an omission to le or if the return led is
prescribed date was not paid at all or was only partially paid;
purpose of commencing and continuing the running of the 120-day false or fraudulent, the period to collect is
OR
period. As herein applied, the 120-day period should therefore be
reckoned from the April 29, 2014 letter of Zuellig-PH wherein it 2) The de ciency tax assessed by the BIR became nal and i) within ten (10) years from discovery without
stated that it had already submitted the complete documents in executory. need of assessment; or
support of its refund claim. In turn, the BIR had 120 days from ii) Within ve (5) years from date of assessment.
such time (or until August 27, 2014) to act on Zuellig-PH's b Prescriptive Periods (Sec 222, NIRC)
administrative claim for refund. Since it was established that the
1) Period of Limitation Upon Assessment. — Internal 3) Period to File Criminal Action — All violations of any
BIR failed to act within such period, Zuellig-PH had thirty (30)
revenue taxes shall be assessed within three (3) years provision of this Code shall prescribe after ve (5) years.
days, or until September 26, 2014, to le its judicial claim. Thus, its
Petition for Review was timely led on September 25, 2014. a) after the last day prescribed by law for the ling of the Prescription shall begin to run from the day of the
return, OR commission of the violation of the law, and if the same be not
known at the time, from the discovery thereof.
b) where a return is led beyond the period prescribed by
Government Remedies for Collection of law, from the day the return was led. The prescription shall be interrupted when proceedings are
3
Delinquent Taxes instituted and shall begin to run again if the proceedings are
In the case of a false or fraudulent return with intent to evade
dismissed for reasons not constituting jeopardy.
In a nutshell: tax or of failure to le a return — within ten (10) years after
the discovery of the falsity, fraud or omission. The term of prescription shall not run when the o ender is
1) Tax lien;
absent from the Philippines.
2) Distraint of personal property, or levy of real property, or If the return is amended substantially, then the period to
garnishment of bank deposits; assess will be reckoned from the ling of the amended return.
Imelda Sze, et al. v. BIR 2020

How to determine the reckoning point of the 5-year prescriptive period 6) Under the Tax Code, if the law does not provide for any Lascona Land Co., Inc. v. 2012 waited for CIR Decision
for violations of the NIRC? particular prescriptive period of assessment, the rule is that the CIR even after lapse of 180 days
tax sought to be assessed becomes IMPRESCRIPTIBLE.
The CTA explained that RMC 101-90 provides that an o ense Considering that Lascona opted to await the nal decision of the
under the tax code is considered discovered only after the 7) The issue of prescription must be raised at the CIR on the protested assessment, it then has the right to appeal
manner of commission and the nature and extent of fraud has administrative level and evidence to prove prescription such nal decision to the Court by ling a petition for review within
been de nitely ascertained. This occurs when the BIR renders its must be introduced by the taxpayer. thirty days after receipt of a copy of such decision or ruling, even
nal decision and requires the taxpayer to pay the de ciency after the expiration of the 180-day period xed by law for the
tax. CIR v. Phil. Global Communication, Inc. CIR to act on the disputed assessments.
Here, counting 30 days from the service of the FLD and the FAN, WON CIR's right to collect respondent's alleged deficiency income tax
the violations were considered discovered on March 9, 2005. is barred by prescription.
The BIR's revenue o cers led their joint a davit in the DOJ for CIR v. Primetown Property Group, Inc.
preliminary investigation on May 26, 2005. However, the original YES. The assessment, in this case, was presumably issued on 14
April 1994 since the respondent did not dispute the CIR's claim. The rule is that the two-year prescriptive period for the ling of tax
Information was only led in court on April 23, 2014, which
Therefore, the BIR had until 13 April 1997. However, as there was refunds and tax credits is reckoned from the ling of the nal
exceeded the ve-year prescriptive period. Therefore, the action had
no Warrant of Distraint and/or Levy served on the respondents nor adjusted return. But how should the two-year prescriptive period be
prescribed.
any judicial proceedings initiated by the BIR, the earliest attempt of computed?
4) No credit or refund of taxes or penalties shall be allowed the BIR to collect the tax due based on this assessment was when it Section 31, Chapter VIII, Book I of the Administrative Code
unless the taxpayer les in writing with the Commissioner a led its Answer in CTA Case No. 6568 on 9 January 2003, which of 1987, being the more recent law, governs the computation
claim for credit or refund within two (2) years after the was several years beyond the three-year prescriptive period. Thus, of legal periods. Lex posteriori derogat priori.
payment of the tax or penalty. the CIR is now prescribed from collecting the assessed tax.
We therefore hold that respondent's petition ( led on April 14,
5) Local taxes, fees, or charges shall be assessed within ve (5) 2000) was led on the last day of the 24th calendar month from the
years from the date they became due. day respondent led its nal adjusted return. Hence, it was led
Fishwealth Canning Corp. v. CIR 2010
within the reglementary period.
In case of fraud or intent to evade the payment of taxes, fees,
or charges, the same may be assessed within ten (10) years Since petitioner received the denial of its administrative protest on
from discovery of the fraud or intent to evade payment. August 4, 2005, it had until September 3, 2005 to le a petition for
review before the CTA Division. It led one, however, on October CIR v. Univation Motor Philippines, Inc. 2019
Local taxes, fees, or charges may be collected within ve (5) 20, 2005, hence, it was led out of time. For a motion for
years from the date of assessment by administrative or judicial WON the CTA has prematurely assumed jurisdiction on respondent's
reconsideration of the denial of the administrative protest
action. judicial claim for tax refund or credit without waiting for the decision
does not toll the 30-day period to appeal to the CTA.
of petitioner.

2. Except for waiver of collection of taxes which shall indicate the

NO. In the instant case, the two-year period to le a claim for 2. The waivers failed to indicate the date of acceptance.
particular taxes assessed, the waiver need not specify the
refund is reckoned from April 15, 2011, the date respondent led its 3. The fact of receipt by the respondent of its le copy was not
particular taxes to be assessed nor the amount thereof.
Final Adjustment Return. Since respondent led its administrative indicated in the original copies of the waivers.
claim on March 12, 2012 and its judicial claim on April 12, 2013, 3. The waiver may be notarized. However, it is su cient that
therefore, both of respondent's administrative and judicial claim for the waiver is in writing as speci cally provided by the NIRC, Due to the defects in the waivers, the period to assess or collect taxes
refund were led on time or within the two-year prescriptive period as amended. was not extended. Consequently, the assessments were issued by the
provided by law. Under the circumstances, if respondent awaited BIR beyond the three-year period and are VOID.
4. Considering that the waiver is a voluntary act of the taxpayer,
for the commissioner to act on its administrative claim (before the waiver shall take legal e ect and be binding on the taxpayer
resort to the Court), chances are, the two-year prescriptive upon its execution thereof.
period will lapse e ectively resulting to the loss of CIR v. Next Mobile 2015 Asian Transmission v. CIR 2018
respondent's right to seek judicial recourse and worse, its right 5. The taxpayer shall have the duty to retain a copy of the
accepted waiver. The de ciencies of the Waivers in this case are the same as the
to recover the taxes it erroneously paid to the government. Hence,
defects of the waiver in Kudos. In the instant case, the CTA found
respondent's immediate resort to the Court is justi ed. 6. Note that there shall only be two (2) material dates that need
the Waivers because of the following aws:
to be present on the waiver:
Guidelines for the Execution of Waivers 1) they were executed without a notarized board authority;
a) The date of execution of the waiver by the taxpayer or
form the Defense of Prescription
its authorized representative; and 2) the dates of acceptance by the BIR were not indicated
See RMO No. 14-2016 therein; and
b) The expiry date of the period the taxpayer waives the
1. The taxpayer's failure to follow the forms does not invalidate statute of limitations 3) the fact of receipt by respondent of its copy of the Second
the executed waiver, for as long as the following are complied Waiver was not indicated on the face of the original Second
with: 7. Before the expiration of the period set on the previously
Waiver.
executed waiver, the period earlier set may be extended by
a) The Waiver of the Statute of Limitations under subsequent written waiver made in accordance with this Similarly, the BIR violated its own rules and was careless in
Section 222 (b) and (d) shall be executed before the Order. performing its functions with respect to these Waivers. Due to its
expiration of the period to assess or to collect taxes. peculiar circumstances, We shall treat this case as an exception to
The date of execution shall be speci cally indicated in 2010 this rule and nd the Waivers valid.
CIR v. Kudos Metal
the waiver.
It is true that petitioner was also at fault here because it was careless
b) The waiver shall be signed by the taxpayer himself or A perusal of the waivers executed by respondent's accountant reveals
in complying with the requirements of RMO No. 20-90 and
his duly authorized representative; the following in rmities:
RDAO 01-05. Nevertheless, petitioner's negligence may be addressed
c) The expiry date should be indicated; 1. The waivers were executed without the notarized written by enforcing the provisions imposing administrative liabilities upon
authority of Pasco to sign the waiver in behalf of the officers responsible for these errors. The BIR's right to assess
respondent. and collect taxes should not be jeopardized merely because of

the mistakes and lapses of its o cers, especially in cases like November 4, 2004 were not valid.
1.7. A valid waiver of statute of limitations must be:
this where the taxpayer is obviously in bad faith.
1.9. With the defects in the waivers, the periods for the CIR to
1.7.1. in writing;
assess or collect the alleged WTC and EWT de ciencies
1.7.2. agreed to by both the Commissioner and the were not extended and have therefore prescribed.
La Flor Dela Isabela v. CIR 28 Apr 2021 taxpayer;
1.10. Assuming that La Flor indeed failed to timely le an appeal,
La Flor's assessed EWT and WTC de ciencies under FDDA had 1.7.3. before the expiration of the ordinary prescriptive such failure is immaterial in view of the invalidity of the
already prescribed on the ground that the subject waivers failed to periods for assessment and collection; and assessments.
strictly comply with the requirements under the law. 1.7.4. for a de nite period beyond ordinary prescriptive
1.3. In turn, the issuance of the WDL to collect the de ciency period for assessment and collection.
taxes under FLD was therefore null and void as it was 1.8. The waivers subject of this case failed to strictly comply
clearly issued beyond the prescriptive period. with the requirements under the law. CIR v. Systems Technology, Inc. 2017
1.4. Philippine Journalists, Inc. v. CIR ruled that the CTA's 1.8.1. the rst and fourth waivers, failed to specify the
RCBC is not on all fours with the instant case. The estoppel upheld
appellate jurisdiction is not limited to cases involving date of acceptance by the CIR or his duly
in the said case arose from the taxpayer's act of payment and not on
decisions of the CIR on matters relating to assessments or authorized representative;
the reduction in the amount of the assessed taxes. RCBC's partial
refunds.
1.8.2. All ve waivers were signed by Maranan, the payment of the revised assessments e ectively belied its insistence
1.4.1. The CTA has jurisdiction to determine whether Accounting Manager of La Flor. that the waivers are invalid and the assessments were issued beyond
the WDL issued by the BIR is valid and rule on the the prescriptive period.
1.8.2.1. No notarized written authority was attached
validity of the ve waivers of the statute of
to the waivers authorizing Maranan to sign the Here, as no such payment was made by STI, mere reduction of the
limitations and La Flor's application for tax
waivers for and on behalf of La Flor. amount of the assessment because of a request for reinvestigation
amnesty under RA 9480.
1.8.2.2. Neither was there any evidence showing that should not bar it from raising the defense of prescription.
1.5. Section 203 of the NIRC, as amended, provides for a
Maranan was among the responsible o cials
period of three years for the BIR to assess and collect
of La Flor authorized by its by-laws to execute
internal revenue taxes, counted from the last day prescribed 2017
a waiver. CIR v. Transitions Philippines Optical, Inc.
by law for the ling of the return or from the day the return
was led, whichever comes later. 1.8.3. The fourth Waiver was executed and notarized Estoppel applies against a taxpayer who did not only raise at the
only on January 6, 2004, clearly beyond the expiry earliest opportunity its representative's lack of authority to execute
1.6. Section 222(b) of the NIRC provides that any internal
of the third waiver on December 31, 2003. two (2) waivers of defense of prescription, but was also accorded,
revenue tax which has been assessed within the period of
limitation may be collected by distraint or levy or by a 1.8.4. With the nullity of the fourth waiver, the through these waivers, more time to comply with the audit
proceeding in court within ve years from the assessment. execution and acceptance of the fth waiver on requirements of the BIR. Nonetheless, a tax assessment served

beyond the extended period is void. collected. Clearly, the Waivers did not e ectively extend the 1. A tax lien is enforceable against all property and rights to
prescriptive period under Section 203 on account of their invalidity. property belonging to the taxpayer, and retroacts to the
Thus, having bene ted from the Waivers executed at its instance,
The issue on whether the CTA was correct in not admitting them as time when the tax assessment was made.
respondent is estopped from claiming that they were invalid and
evidence becomes immaterial since even if they were properly
that prescription had set in. a. However, the tax lien shall not be valid against any
o ered or considered by the CTA, the same conclusion would be
judgment creditor until notice of such lien is led with
reached — the assessments had prescribed as there was no valid
the Register of Deeds.
waiver.
CIR v. Avon Products Manufacturing 2018 2. Considering GLOWIDE and PMI's rights over the
Administrative Remedies condominium units retroact to December 2000, the
The estoppel upheld in the RCBC case arose from
condominium units may no longer be considered TICO's
a) the bene t obtained by the taxpayer from its execution of Tax lien property when the BIR annotated its tax lien in 2005.
the waiver, in the form of a drastic reduction of the 1. A legal claim or charge on property as security for the payment
de ciency taxes, and of tax due. See Remedial Law Case Digest No. 4
b) the taxpayer's payment of a portion of the reduced tax 2. Attaches from the time when the assessment was made by the Distraint and levy
assessment. CIR until paid, with interests, penalties, and costs that may
Distraint of goods, chattels, or e ects, and other personal
Here, Avon did not receive any bene t from the waivers. On the accrue upon all property and rights to property belonging
property of whatever character, including stocks and other
contrary, there was even a drastic increase in the assessed de ciency to the taxpayer.
securities, debts, credits, bank accounts and interest in and rights to
taxes when the Commissioner increased the alleged sales 3. Shall not be valid against any mortgagee, purchaser or personal property.
discrepancy. Under these circumstances, Avon's payment of an judgment creditor until notice of such lien shall be led by the
insigni cant portion of the assessment cannot be deemed an a) Actual — seizure and taking possession of personal
CIR in the o ce of the Register of Deeds.
admission or recognition of the validity of the waivers. property of taxpayer.
4. The claim of the government for unpaid taxes may only be
b) Constructive — CIR may place under constructive
defeated by claims of unpaid wages if the employer-taxpayer is
distraint the property of a delinquent taxpayer or ANY
bankrupt or under liquidation at the time the warrants of
CIR v. La Flor Dela Isabela, Inc. 2019 taxpayer who, in his opinion,
distraint and levy were issued.
i) is retiring from any business subject to tax, or
In CIR v. Systems Technology Institute, Inc., the Court had ruled that 5. CIR v. Pineda. BIR may collect the de ciency tax due from
waivers extending the prescriptive period of tax assessments must be one heir only or from all the heirs in proportion to their ii) is intending to leave the Philippines or to remove
compliant with RMO No. 20-90 and must indicate the nature inheritance received. The liability, however, shall not exceed his property therefrom or
and amount of the tax due. the amount of the heir’s share. iii) to hide or conceal his property or
In the present case, the Waivers failed to indicate the speci c tax
involved and the exact amount of the tax to be assessed or BIR v. Tico Insurance Co., Inc. 18 Apr 2022

iv) to perform any act tending to obstruct the 2. if the highest bid is for an amount insu cient to pay the taxes, a) Below P300K — MTC;
proceedings for collecting the tax due or which penalties and costs,
b) P300K - P999,999 — RTC;
may be due from him.
the Internal Revenue O cer conducting the sale shall declare the
c) P1M or more — CTA.
Levy upon real property and interest in rights to real property; property forfeited to the Government in satisfaction of the claim in
question. Here, the Republic is the party plainti .
Garnishment is a warning to a person in whose hands the e ects
Within one (1) year from the date of such forfeiture, the taxpayer, 2) Filing an answer to the petition for review led by the taxpayer
of another are attached, not to pay the money or deliver the
or any one for him, may redeem said property. with the CTA.
property or allow the withdrawal of deposits of the defendant in
his hands. Here, the CIR is the respondent, not the Republic.
Suspension of business operation
The BIR is authorized to issue a warrant of garnishment The CIR is empowered to suspend the business operations and When collectibility of tax liability arises
despite the pendency of a protest. xxxx (§208, NIRC) temporarily close the business establishment of any person for any 1) Self-assessed tax shown in the return was not paid within the
The remedy by distraint of personal property and levy on realty of the following violations: date prescribed by law;
may be repeated if necessary until the full amount due, including a) In the case of a VAT-registered Person. — 2) Final assessment is not protested administratively within 30
all expenses, is collected. days from date of receipt;
1) Failure to issue receipts or invoices;
Redemption of property sold — Within one (1) year from the 3) Non-compliance with the condition laid in the approval of
date of sale, the delinquent taxpayer, or any one for him, shall have 2) Failure to le a VAT return as required under Section
114; or protest;
the right of paying to the Revenue District O cer the amount of
the public taxes, penalties, and interest thereon from the date of 3) Understatement of taxable sales or receipts by thirty 4) Failure to le a timely appeal to the CTA on the nal decision
delinquency to the date of sale, together with interest on said percent (30%) or more of his correct taxable sales or of the CIR or his authorized representative on the disputed
purchase price at the rate of fteen percent (15%) per annum receipts for the taxable quarter. assessment.
from the date of purchase to the date of redemption. When to go to court to collect tax liability?
b) Failure of any Person to Register as Required under
The owner shall not be deprived of the possession of the said Section 236. 1. FIVE (5) YEARS from the date of assessment.
property and shall be entitled to the rents and other income
The temporary closure of the establishment shall be for the 2. Republic v. Lim Tian Teng Sons instructs that the CIR is
thereof until the expiration of the time allowed for its redemption.
duration of not less than ve (5) days and shall be lifted only not required to rule rst on the taxpayer’s request for
Marcos II v. CA. The estate tax is EXEMPTED from the upon compliance with whatever requirements prescribed by the reinvestigation before he can go to court for the purpose of
application of the statute of non-claims. CIR in the closure order. (Sec 115) collecting the tax assessed. This is indicative of his decision
against reinvestigation and should prompt the taxpayer to le
Forfeiture of real property Judicial Remedies an appeal to the CTA.
In case Civil actions
1. there is no bidder for real property exposed for sale or 1) Civil case for collection of sum of money

Criminal actions recommending the filing of criminal complaints against AMC can be CIR v. The Estate of Benigno P. Toda, Jr., et al.
Two common crimes under NIRC: considered as a formal assessment. NO. Even a cursory perusal of
Tax avoidance is the tax saving device within the means sanctioned
the said letter would reveal three key points:
1) Attempt to evade or defeat tax; by law. This method should be used by the taxpayer in good faith
1. It was not addressed to the taxpayers. and at arms length. Tax evasion, on the other hand, is a scheme
2) Failure to le return, supply correct and accurate information,
2. There was no demand made on the taxpayers to pay the tax used outside of those lawful means and when availed of, it usually
pay tax, withhold and remit tax, and refund excess taxes
liability, nor a period for payment set therein. subjects the taxpayer to further or additional civil or criminal
withheld on compensation.
liabilities.
3. The letter was never mailed or sent to the taxpayers by the
Dr. Joel C. Mendoza v. People and CTA 2014 Commissioner. Non-filing of Tax Return
In the present case, the amendments sought by the prosecution The next issue is whether the filing of the criminal complaints against 1) The accused is a person required to make or le a return;
pertains to (i) the alleged change in the date in the commission of the private respondents by the DOJ is premature for lack of a formal
2) The accused failed to make or le the return at the time
the crime from 2001 to 2002; (ii) the addition of the phrase “doing assessment. NO. Ungab v. Cusi ruled that there was no need for
required by law; and
business under the name and style of Mendez Medical Group;” (iii) precise computation and formal assessment in order for criminal
the change and/or addition of the branches of petitioner’s complaints to be filed against him. 3) The failure to make or le the return was willful.
operation; and (iv) the addition of the phrase “for income earned.” An assessment of a de ciency is not necessary to a criminal Failure to Supply Correct Information
We cannot see how these amendments would adversely a ect prosecution for willful attempt to defeat and evade the 1) The accused is a person required to pay any tax, make a return,
any substantial right of the petitioner as accused. income tax. keep any record, OR supply correct and accurate information;
Tax Evasion 2) The accused failed to supply correct and accurate information
Lucas G. Adamson, et al. v. CA at the time or times required by law or rules and regulations;
To establish the existence of fraud, the following requisites must be
and
present and established by competent evidence:
An assessment contains not only a computation of tax liabilities,
3) Such failure to supply information is willful.
but also a demand for payment within a prescribed period. It also 1) The end to be achieved — the aim is to pay an amount of tax
signals the time when penalties and interests begin to accrue against that is less than that known by the taxpayer to be legally due; Important points
the taxpayer. To enable the taxpayer to determine his remedies 2) The accompanying state of mind — described as being evil, 1) The GR is that an assessment is NOT necessary before a
thereon, due process requires that it must be served on and received by in bad faith, deliberate and not accident, or willful; and criminal charge can be led.
the taxpayer. Accordingly, an a davit, which was executed by
3) The overt act done or scheme used by the taxpayer — 2) The charge need only be proved by a prima facie showing of
revenue o cers stating the tax liabilities of a taxpayer and attached
must be tinged with some element of deceit, failure to le a required tax return and such fact need not be
to a criminal complaint for tax evasion, cannot be deemed an
misrepresentation, trick, device, concealment, or dishonesty. proved by an assessment. CIR v. Pascor Realty.
assessment that can be questioned before the CTA.
The rst issue is whether the CIR’s letter addressed to the SOJ

3) In the case of associations, partnerships or corporations, the Interest on Extended Payment. — If any person required to pay A substantial under-declaration of taxable sales, receipts or
penalty shall be imposed on the partner, president, general the tax is quali ed and elects to pay the tax on installment, but income, or a substantial overstatement of deductions, shall
manager, branch manager, treasurer, o cer-in-charge, and the fails to pay, or where the CIR has authorized an extension of time constitute prima facie evidence of a false or fraudulent return.
employees responsible for the violation. within which to pay, there shall be assessed and collected interest at
Failure to report sales, receipts or income in an amount exceeding
the rate of 12% on the tax or de ciency tax or any part thereof
thirty percent (30%) of that declared per return, and a claim of
4 Civil Penalties unpaid from the date of notice and demand until it is paid.
deductions in an amount exceeding (30%) of actual deductions,
shall render the taxpayer liable for substantial under-declaration of
b Surcharge sales, receipts or income or for overstatement of deductions, as
a Delinquency Interest and De ciency Interest mentioned herein.
There shall be imposed, in addition to the tax required to be paid, a
In General. — There shall be assessed and collected on any penalty equivalent to twenty- ve percent (25%) of the
unpaid amount of tax, interest at the rate of double the legal amount due, in the following cases: Qatar Airways Company v. CIR 2020
interest rate (12%) for loans or forbearance of any money in the
1) Failure to le any return and pay the tax due thereon The Court agrees that the surcharge imposed upon petitioner was
absence of an express stipulation:
on the date prescribed; or not unjust or excessive pursuant to Section 248(A)(1) of the 1997
Provided, That in no case shall the de ciency and the NIRC which provides for the imposition of a penalty equivalent to
2) Unless otherwise authorized by the CIR, ling a return
delinquency interest be imposed simultaneously. 25% of the amount due for failure to timely le any return and pay
with an internal revenue o cer other than those with
the tax due thereon. Dura lex sed lex.
Deficiency Interest. — Any de ciency in the tax due shall be whom the return is required to be led; or
subject to the 12% interest.
3) Failure to pay the de ciency tax within the time
Delinquency Interest. — In case of failure to pay: prescribed for its payment in the notice of assessment; or
c Compromise Penalty
1) The amount of the tax due on any return to be led, or 4) Failure to pay the full or part of the amount of tax
shown on any return required to be led, or the full COMPROMISE PENALTY COMPROMISE
2) The amount of the tax due for which no return is
amount of tax due for which no return is required to be
required, or
led, on or before the date prescribed for its payment. An amount paid by a taxpayer to
3) A de ciency tax, or any surcharge or interest thereon on compromise a tax violation that Amount paid to settle civil
The penalty to be imposed shall be fty percent (50%) of the tax
the due date appearing in the notice and demand of the he has committed, which may be liability for tax assessed by the
or of the de ciency tax, in case any payment has been made on the
CIR, the subject of criminal government.
basis of such return before the discovery of the falsity or fraud:
there shall be assessed and collected on the unpaid amount, interest prosecution.
1) In case of willful neglect to le the return within the
at the rate of 12% until the amount is fully paid, which interest
period prescribed by this Code or by rules and regulations, The basis is the gross sales or
shall form part of the tax. The basis of the amount paid is
or receipts during the year or the
the basic tax assessed.
tax due.
2) In case a false or fraudulent return is willfully made.

The amount set is based on the Withdrawal of Exemptions The following fundamental principles shall govern the exercise of the
There is a minimum amount
nature of the tax violation and taxing and other revenue-raising powers of LGUs:
prescribed depending on the Scope of Taxing Power
the minimum amount is not less
ground. a) Taxation shall be uniform in each LGU;
than P1K.
Speci c Taxing Power of LGUs b) Taxes, fees, charges and other impositions shall:
★ Requires consent of the taxpayer and a validly entered
Province 1) be equitable and based as far as practicable on the
compromise agreement between the taxpayer and CIR.
taxpayer's ability to pay;
Fraud penalty Municipalities
2) be levied and collected only for public purposes;
A taxpayer who les a false return is liable to pay the fraud penalty Cities 3) not be unjust, excessive, oppressive, or con scatory;
of 50% of the tax due from him or of the de ciency tax in case
Barangays 4) not be contrary to law, public policy, national economic
payment has been made on the basis of the return led before the
policy, or in the restraint of trade;
discovery of the falsity or fraud.
Common Revenue Raising Powers c) The collection of local taxes, fees, charges and other
impositions shall in no case be let to any private person;
III Local Taxation Community Tax
d) The revenue collected pursuant to the provisions of this Code
Local Government Taxation Common Limitations on the Taxing Powers of Local shall inure solely to the benefit of, and be subject to the
Government Units disposition by, the LGU levying the tax, fee, charge or other
Real Property Taxation imposition unless otherwise speci cally provided herein; and
Requirements for a Valid Tax Ordinance e) Each LGU shall, as far as practicable, evolve a progressive
A Local Government Taxation system of taxation.
Taxpayer's Remedies
General Principles
Assessment and Collection of Local Taxes 2 Nature and Source of Taxing Power
Nature and Source of Taxing Power
1 General Principles
Grant of Local Taxing Power Under the Local Grant of Local Taxing Power Under the Local
Each LGU shall have the power to create its own sources of revenues a
Government Code
Government Code and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic Each local government unit shall exercise its power to create its
Authority to Prescribe Penalties for Tax Violations policy of local autonomy. Such taxes, fees, and charges shall accrue own sources of revenue and to levy taxes, fees, and charges subject
exclusively to the local governments. (Sec 5 Art X, 1987 to the provisions herein, consistent with the basic policy of local
Authority to Grant Local Tax Exemptions
Constitution)

autonomy. Such taxes, fees, and charges shall accrue exclusively to

b) to levy taxes, fees, and charges subject to the acquisition of the
the local government units. (Sec 129 LGC)
provisions herein, consistent with the basic policy of property or of the fair
local autonomy. market value
b Authority to Prescribe Penalties for Tax Violations
Such taxes, fees, and charges shall accrue exclusively to it.
The sanggunian may impose a surcharge not exceeding twenty- ve gross annual receipts
Business of Printing not more
(25%) of the amount of taxes, fees or charges not paid on time and 2) LGUs may exercise the power to levy taxes, fees or charges on for the preceding
and Publication than 0.5%
an interest at the rate not exceeding two percent (2%) per month any base or subject not otherwise speci cally enumerated calendar year.
of the unpaid taxes, fees or charges including surcharges, until such herein or taxed under the provisions of the NIRC:
Not more
amount is fully paid but in no case shall the total thirty-six (36) Provided, That the taxes, fees, or charges shall not be unjust, - In the case of a newly
than 1/20 of capital investment
months. excessive, oppressive, con scatory or contrary to declared started business
1%
national policy:
c Authority to Grant Local Tax Exemptions
Provided, further, That the ordinance levying such taxes, fees gross annual receipts
LGUs may, through ordinances duly approved, grant tax or charges shall not be enacted without any prior public for the preceding
exemptions, incentives or reliefs under such terms and conditions hearing conducted for the purpose. not more calendar year based on
Franchise Tax
as they may deem necessary. than 0.5% the incoming receipt, or
3) Any question on the constitutionality or legality of tax realized, within its
d Withdrawal of Exemptions ordinances or revenue measures may be raised on appeal territorial jurisdiction.
within thirty (30) days from the e ectivity thereof to the
Unless otherwise provided in the LGC, tax exemptions or Secretary of Justice who shall render a decision within sixty Not more
- In the case of a newly
incentives granted to, or presently enjoyed by all persons, whether (60) days from the date of receipt of the appeal. than 1/20 of capital investment
started business
natural or juridical, including government-owned or controlled 1%
4) The power to impose a tax, fee, or charge or to generate
corporations, except local water districts, cooperatives duly
revenue under the LGC shall be exercised by the sanggunian Sand, Gravel and
registered under R.A. No. 6938, non-stock and non-pro t
of the LGU concerned through an appropriate ordinance. Not more fair market value in the
hospitals and educational institutions, are hereby withdrawn upon Other Quarry
than 10% locality per cubic meter
the e ectivity of the LGC. Resources
4 Speci c Taxing Power of LGUs
3 Scope of Taxing Power Professional Tax Not more than Php 300.00
Province
1) Each LGU shall exercise its power Not more gross receipts from
TAX RATE BASE Amusement Tax
than 10% admission fees
a) to create its own sources of revenue and
Transfer of Real not more the total consideration Annual Fixed Tax For Not more for every truck, van or
Property Ownership than 0.5% involved in the Every Delivery Truck or than Php any vehicle

Van of Manufacturers or 500.00 stage, or present a show or performance. People go to a golf course independent contractors for the preceding
Producers, Wholesalers to engage themselves in a physical sport activity. calendar year
of, Dealers, or Retailers
in, Certain Products Municipalities banks and other financial not more gross receipts of the
institutions than 0.5% preceding calendar year
May levy taxes, fees, and charges not otherwise levied by provinces.
Professional Tax is paid where the taxpayer
TAX RATE BASE peddlers engaged in the Not more
a) practices his profession or sale of any merchandise than Php Per peddler annually
b) where he maintains his principal o ce in case he practices Tax on Business or article of commerce 50.00
his profession in several places.
manufacturers, gross sales or receipts of
assemblers, repackers, gross sales or receipts any business, not Not more
2013 the preceding calendar
Pelizloy Realty v. Province of Benguet otherwise specified than 2%
processors of any article of See schedule for the preceding year.
‘Other places of amusement’ must be interpreted in light of the commerce of whatever calendar year
typifying characteristic of being venues “where one seeks admission kind or nature Essential Commodities
to entertain oneself by seeing or viewing the show or 1) Rice and corn;
wholesalers, distributors,
performances” or being venues primarily used to stage spectacles or gross sales or receipts
or dealers in any article of 2) Wheat or cassava our, meat, dairy products, locally
hold public shows, exhibitions, performances, and other events See schedule for the preceding
commerce of whatever manufactured, processed or preserved food, sugar, salt and
meant to be viewed by an audience. calendar year
kind or nature other agricultural, marine, and fresh water products, whether
Thus, resorts, swimming pools, bath houses, hot springs and tourist in their original state or not;
spots do not belong to the same category or class as theaters, exporters, and on
a rate not exceeding one-half (½) of 3) Cooking oil and cooking gas;
cinemas, concert halls, circuses, and boxing stadia. It follows that manufacturers , millers,
the rates prescribed under
they cannot be considered as among the ‘other places of amusement’ producers, wholesalers of 4) Laundry soap, detergents, and medicine;
subsection (a), (b) and (d)
contemplated by Section 140 of the LGC and which may properly essential commodities
5) Agricultural implements. equipment and post-harvest
be subject to amusement taxes. facilities, fertilizers, pesticides, insecticides, herbicides and
gross annual receipts for the preceding
calendar year other farm inputs;
retailers 6) Poultry feeds and other animal feeds;

Alta Vista Golf and Country Club v. City of Cebu 2016 2% P400K or less
7) School supplies; and
In light of Pelizloy Realty, a golf course cannot be considered a place 1% More than P400K
of amusement. As petitioner asserted, people do not enter a golf 8) Cement.
course to see or view a show or performance. Petitioner also, as contractors and other See schedule gross sales or receipts "Contractor" includes persons, natural or juridical, whose activity
proprietor or operator of the golf course, does not actively display, consists essentially of the sale of all kinds of services for a fee, regardless

of whether or not the performance of the service calls for the exercise or
Cities For such clearance, the sangguniang barangay may impose a
use of the physical or mental faculties of such contractor or his
reasonable fee.
employees. 1. The city may levy the taxes, fees, and charges which the
province or municipality may impose: d) Other fees and Charges. — The barangay may levy
Thus, a holding company cannot be assessed as a contractor.
reasonable fees and charges:
Provided, however, That the taxes, fees and charges levied and
City of Pasig v. Meralco 2018 collected by highly urbanized and independent 1) On commercial breeding of ghting cocks, cock ghts
component cities shall accrue to them. and cockpits;
Under the LGC of 1991, a municipality is bereft of authority to levy
2. The rates of taxes that the city may levy may exceed the 2) On places of recreation which charge admission fees;
and impose franchise tax on franchise holders within its territorial
maximum rates allowed for the province or municipality by and
jurisdiction. That authority belongs to provinces and cities only. A
franchise tax levied by a municipality is, thus, null and void. The not more than fty percent (50%) 3) On billboards, signboards, neon signs, and outdoor
nullity is not cured by the subsequent conversion of the except the rates of professional and amusement taxes. advertisements.
municipality into a city.
Barangays City of Davao v. Randy Allied Ventures 2019
a) Taxes — On stores or retailers with xed business
WON RAVI is an NBFI subject to LBT under Section 143 (f) of the
Meralco v. City of Muntinlupa 09 Feb 2021 EN BANC establishments with gross sales of receipts of the preceding
LGC.
calendar year of
1. Section 25 of MO 93-35 is null and void for being ultra NO. RAVI is a CIIF holding company. The SMC preferred shares
vires. i) P50K or less, in the case of cities and
held by it are considered government assets owned by the National
2. Applying the Formal Test, the passage of the subject ii) P30K or less, in the case of municipalities, Government for the coconut industry. As held in the same case,
ordinance was beyond the corporate powers of the then at a rate not exceeding one percent (1%) on such these SMC shares as well as any resulting dividends or increments
Municipality of Muntinlupa, hence, ultra vires. gross sales or receipts. from said shares are owned by the National Government and shall
be used only for the bene t of the coconut farmers and for the
2.1. Based on the Substantive Test, Section 25 of MO b) Service Fees or Charges. — Barangays may collect reasonable
development of the coconut industry. Thus, RAVI's management
93-35 deviated from the express provision of RA fees or charges for services rendered in connection with the
of the dividends from the SMC preferred shares, including placing
7160. regulations or the use of barangay-owned properties or service
the same in a trust account yielding interest, is not tantamount to
3. Muntinlupa being then a municipality de nitely had no facilities such as palay, copra, or tobacco dryers.
doing business whether as a bank or other nancial institution, i.e.,
power or authority to enact the subject franchise tax c) Barangay Clearance. — No city or municipality may issue an NBFI, but rather an activity that is essential to its nature as a
ordinance. any license or permit for any business or activity unless a CIIF holding company.
clearance is rst obtained from the barangay where such
See Political Law Case Digest No. 12 business or activity is located or conducted.
City of Davao v. AP Holdings 2020

As a CIIF holding company, is APHI liable to pay local business taxes 2. post o ce personnel delivering mail,
c. Borrow against, or lend on, or buy or sell debt or
on its dividend earnings from its SMC preferred shares?
equity securities. 3. physically-handicapped, and disabled, and
NO. In the recent case of City of Davao, et al. v. Randy Allied APHI cannot be considered as a non-bank nancial 4. citizens who are sixty- ve (65) years or older.
Ventures, Inc. (RAVI), the Court ordained that RAVI, a CIIF intermediary since its investment and placement of funds are not
holding company like APHI, was exclusively established to own and When public safety and welfare so requires, the sanggunian
done in a regular or recurring manner for the purpose of earning
hold SMC shares of stock. As such, it is not liable to pay local concerned may discontinue the collection of the tolls, and
pro t. Rather, its management of dividends from the SMC shares is
business taxes on the dividends earned from its SMC preferred thereafter the said facility shall be free and open for public use.
only in furtherance of its purpose as a CIIF holding company for the
shares as the same shares are government assets owned by the bene t of the Republic.
national government for the bene t of the coconut industry. 6 Community Tax
All told, the City of Davao acted beyond its taxing authority when it
In order to be considered as an NBFI under the NIRC, banking imposed the questioned business tax on APHI. 1) Cities or municipalities may levy a community tax.
laws, and pertinent regulations, the following must concur:
2) Individuals Liable to Community Tax. — Every
1. The person or entity is authorized by the BSP to perform inhabitant of the Philippines
quasi-banking functions; 5 Common Revenue Raising Powers a) eighteen (18) years of age or over
2. The principal functions of said person or entity include the
a) Service Fees and Charges. — LGUs may impose and collect b) who has been regularly employed on a wage or salary
lending, investing or placement of funds or evidences of
such reasonable fees and charges for services rendered. basis for at least thirty (30) consecutive working days
indebtedness or equity deposited to them, acquired by
during any calendar year, or
them, or otherwise coursed through them, either for their b) Public Utility Charges. — LGUs may x the rates for the
own account or for the account of others; and operation of public utilities owned, operated and maintained c) who is engaged in business or occupation, or
by them within their jurisdiction.
3. The person or entity must perform any of the following d) who owns real property with an aggregate assessed
functions on a regular and recurring, not on an isolated c) Toll Fees or Charges. — The sanggunian concerned may value of P1K or more, or
basis, to wit: prescribe the terms and conditions and x the rates for the
e) who is required by law to le an income tax return
imposition of toll fees or charges for the use of any public road,
a. Receive funds from one (1) group of persons, shall pay an annual additional tax of P5.00 and an annual
pier, or wharf, waterway, bridge, ferry or telecommunication
irrespective of number, through traditional additional tax of P1.00 for every P1K of income regardless of
system funded and constructed by the local government unit
deposits, or issuance of debt or equity securities; whether from business, exercise of profession or from property
concerned:
and make available/lend these funds to another which in no case shall exceed P5K.
person or entity, and in the process acquire debt or Provided, That no such toll fees or charges shall be collected
from 3) Juridical Persons Liable to Community Tax. — Every
equity securities;
corporation no matter how created or organized, whether
b. Use principally the funds received for acquiring 1. o cers and enlisted men of the AFP and members of
domestic or resident foreign, engaged in or doing business in
various types of debt or equity securities; the PNP on mission,
the Philippines shall pay an annual community tax of

P500.00 and an annual additional tax, which, in no case, shall

c) Taxes on estates, inheritance, gifts, legacies and other j) Taxes on the gross receipts of transportation contractors and
exceed P10K in accordance with the following schedule:
acquisitions mortis causa, except as otherwise provided herein; persons engaged in the transportation of passengers or
a) For every P5K worth of real property in the freight by hire and common carriers by air, land or water,
d) Customs duties, registration fees of vessel and wharfage on
Philippines owned by it during the preceding year
wharves, tonnage dues, and all other kinds of customs fees, k) Taxes on premiums paid by way or reinsurance or
based on the valuation used for the payment of real
charges and dues except wharfage on wharves constructed and retrocession;
property tax under existing laws, found in the
maintained by the LGU concerned;
assessment rolls of the city or municipality where the l) Taxes, fees or charges for the registration of motor vehicles
real property is situated - Two pesos (P2.00); and e) Taxes, fees, and charges and other impositions upon goods and for the issuance of all kinds of licenses or permits for the
carried into or out of, or passing through, the territorial driving thereof, except tricycles;
b) For every P5K of gross receipts or earnings derived by
jurisdictions of local government units in the guise of charges
it from its business in the Philippines during the m) Taxes, fees, or other charges on Philippine products actually
for wharfage, tolls for bridges or otherwise, or other taxes,
preceding year - Two pesos (P2.00). exported,
fees, or charges in any form whatsoever upon such goods or
The dividends received by a corporation from another merchandise; n) Taxes, fees, or charges, on Countryside and Barangay Business
corporation however shall, for the purpose of the additional Enterprises and cooperatives duly registered under R.A. No.
f) Taxes, fees or charges on agricultural and aquatic products
tax, be considered as part of the gross receipts or earnings of 6810 and R.A. No. 6938; and
when sold by marginal farmers or shermen;
said corporation. o) Taxes, fees or charges of any kind on the National
"Marginal Farmer or Fisherman" refers to an individual
4) Exemptions. — The following are exempt from the Government, its agencies and instrumentalities, and LGUs.
engaged in subsistence farming or shing.
community tax:
g) Taxes on business enterprises certi ed to by the Board of Batangas City, et al. v. Pilipinas Shell 2015
a) Diplomatic and consular representatives; and
Investments as pioneer or non-pioneer for a period of six (6)
WON an LGU is empowered under the LGC to impose business
b) Transient visitors when their stay in the Philippines and four (4) years, respectively from the date of registration;
taxes on persons or entities engaged in the business of
does not exceed three (3) months.
h) manufacturing and distribution of petroleum products.
Common Limitations on the Taxing Powers of i) Excise taxes on articles enumerated under the NIRC, NO. Section 133(h) of the LGC clearly speci es the two kinds of
7 as amended, and
Local Government Units taxes which cannot be imposed by LGUs:
ii) Taxes, fees or charges on petroleum products; 1) excise taxes on articles enumerated under the NIRC, as
Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the NB: ALL types of taxes on petroleum are prohibited. amended; and
levy of the following: i) Percentage or VAT (VAT) on sales, barters or exchanges or 2) taxes, fees or charges on petroleum products.
a) Income tax, except when levied on banks and other nancial similar transactions on goods or services Indisputably, the power of LGUs to impose business taxes derives
institutions; from Section 143 of the LGC. However, the same is subject to the
b) Documentary stamp tax; explicit statutory impediment provided for under Section 133(h) of

which prohibits LGUs from imposing "taxes, fees or charges on When the local treasurer or his duly authorized representative No case or proceeding shall be maintained in any court for the
petroleum products." It can, therefore, be deduced that although nds that correct taxes, fees, or charges have not been paid, he shall recovery of any tax, fee, or charge erroneously or illegally collected
petroleum products are subject to excise tax, the same is issue a notice of assessment stating the nature of the tax, fee, or until a written claim for refund or credit has been led with the
speci cally excluded from the broad power granted to LGUs charge, the amount of de ciency, the surcharges, interests and local treasurer.
under Section 143(h) of the LGC to impose business taxes. penalties.
No case or proceeding shall be entertained in any court after the
Within sixty (60) days from the receipt of the notice of expiration of two (2) years
assessment, the taxpayer may le a written protest with the local a) from the date of the payment of such tax, fee, or charge, or
Angeles University Foundation v. City of Angeles 2012
treasurer contesting the assessment; otherwise, the assessment shall
become nal and executory. b) from the date the taxpayer is entitled to a refund or credit.
Considering that exemption from payment of regulatory fees was
not among those “incentives” granted to petitioner under R.A. No. The local treasurer shall decide the protest within sixty (60) days c Action before the Secretary of Justice
6055, there is no such incentive that is retained under the LGC of from the time of its ling. If the local treasurer nds the protest to
1991. Thus, petitioner is liable to pay the subject building permit be wholly or partly meritorious, he shall issue a notice canceling §187. Procedure for Approval and Effectivity of Tax, Ordinances
and related fees. wholly or partially the assessment. However, if the local treasurer and Revenue Measures; Mandatory Public Hearings. — The
nds the assessment to be wholly or partly correct, he shall deny procedure for approval of local tax ordinances and revenue measures
the protest wholly or partly with notice to the taxpayer. shall be in accordance with the provisions of this Code:
8 Requirements for a Valid Tax Ordinance 1. Public hearings shall be conducted for the purpose prior to the
The taxpayer shall have thirty (30) days
enactment thereof.
1) It must NOT contravene the Constitution or any statute; a) from the receipt of the denial of the protest or
2. Any question on the constitutionality or legality of tax
2) It must NOT be unfair or oppressive; b) from the lapse of the sixty (60) day period prescribed
ordinances or revenue measures may be raised on appeal
3) It must NOT be partial or discriminatory; herein
within thirty (30) days from the effectivity thereof to the
4) It must NOT prohibit but may regulate trade; within which to appeal with the court of competent jurisdiction Secretary of Justice.
otherwise the assessment becomes conclusive and unappealable.
5) It must be general and consistent with public policy; and 3. The SOJ shall render a decision within sixty (60) days from
NB: Note that this does not require payment under protest the date of receipt of the appeal.
6) It must NOT be unreasonable.
unlike that in RPTs. However, non-payment of local
4. Such appeal shall NOT have the e ect of suspending the
business tax may make the business illegal since a mayor’s
9 Taxpayer's Remedies e ectivity of the ordinance and the accrual and payment of the
permit may not then be issued. Better just pay under
tax, fee, or charge levied therein.
protest.
5. Within thirty (30) days after receipt of the decision or the
a Protest b Refund lapse of the sixty-day period without the SOJ acting upon the

appeal, the aggrieved party may le appropriate proceedings

questioning the validity and correctness of the assessment notice of assessment is not only a requirement of due process but it
with a court of competent jurisdiction.
(Section 195, LGC) and at the same time seeking a refund also stands as the rst instance the taxpayer is o cially made aware
of the taxes. In truth, it would be illogical for the taxpayer of the pending tax liability. The local treasurer cannot simply collect
City Treasurer of Manila v. to only seek a reversal of the assessment without praying for de ciency taxes for a di erent taxing period by raising it as a defense
2019
Philippine Beverage Partners
the refund of taxes. Once the assessment is set aside by the in an action for refund of erroneously or illegally collected taxes.
WON a taxpayer who protested an assessment may later on court, it follows as a matter of course that all taxes paid
institute a judicial action for refund. under the erroneous or invalid assessment are refunded to
the taxpayer. 10 Assessment and Collection of Local Taxes
YES. Petitioner contends that the assessment against respondent
became nal and executory when the latter e ectively abandoned its Whether there is payment of the assessed tax or not, it is clear that
the protest in writing must be made within sixty (60) days from Situs
protest and instead sued in court for the refund of the assessed taxes
and charges. receipt of the notice of assessment; otherwise, the assessment shall a) For purposes of collection of the taxes under Section 143 of
become nal and conclusive. Additionally, the subsequent court this Code, manufacturers, assemblers, repackers, brewers,
The Court has settled in Cosmos that a taxpayer facing an
action must be initiated within thirty (30) days from denial or distillers, recti ers and compounders of liquor, distilled spirits
assessment issued by the local treasurer may protest it and
inaction by the local treasurer; otherwise, the assessment becomes and wines, millers, producers, exporters, wholesalers,
alternatively:
conclusive and unappealable. distributors, dealers, contractors, banks and other nancial
1) appeal the assessment in court, or institutions, and other businesses, maintaining or operating
Simply put, there are two conditions that must be satis ed in order
2) pay the tax, and thereafter, seek a refund. to successfully prosecute an action for refund in case the taxpayer branch or sales outlet elsewhere shall record the sale in the
had received an assessment. branch or sales outlet making the sale or transaction,
Where an assessment is to be protested or disputed, the taxpayer and the tax thereon shall accrue and shall be paid to the
may proceed One, pay the tax and administratively assail within 60 days the municipality where such branch or sales outlet is located.
a) without payment, or assessment before the local treasurer, whether in a letter-protest
or in a claim for refund. In cases where there is no such branch or sales outlet in the city
the taxpayer's procedural remedy is governed strictly by or municipality where the sale or transaction is made, the sale
Section 195. That is, in case of whole or partial denial of Two, bring an action in court within thirty (30) days from shall be duly recorded in the principal o ce and the taxes
the protest, or inaction by the local treasurer, the taxpayer's decision or inaction by the local treasurer, whether such action is due shall accrue and shall be paid to such city or municipality.
only recourse is to appeal the assessment with the court of denominated as an appeal from assessment and/or claim for
refund of erroneously or illegally collected tax. b) The following sales allocation shall apply to manufacturers,
competent jurisdiction. The appeal before the court does assemblers, contractors, producers, and exporters with
not seek a refund but only questions the validity or WON the alleged deficiency taxes of respondent may be used to offset factories, project o ces, plants, and plantations in the
correctness of the assessment. its claim for refund. pursuit of their business:
b) with payment of the assessed tax, fee or charge. NO. The issuance of a notice of assessment is mandatory before the 1) Thirty percent (30%) of all sales recorded in the
the taxpayer may thereafter maintain an action in court local treasurer may collect de ciency taxes from the taxpayer. The principal o ce shall be taxable by the city or

municipality where the principal o ce is located;

right to participate in the 70% portion of LHC's business tax. 1) Local Government's Lien. — Local taxes, fees, charges and
and
other revenues constitute a lien, superior to all liens, charges or
Mere Administrative O ce NOT entitled to a share of the
2) Seventy percent (70%) of all sales recorded in the 70%.
encumbrances in favor of any person, enforceable by
principal o ce shall be taxable by the city or appropriate administrative or judicial action, not only upon
municipality where the factory, project o ce, A project o ce has been de ned as "equivalent to the factory of a any property or rights therein which may be subject to the lien
plant, or plantation is located. manufacturer." but also upon property used in business, occupation, practice
The subject tax is a tax on business, particularly one that is expressly of profession or calling, or exercise of privilege with respect to
c) In case of a plantation located at a place other than the place
imposed on gross sales recorded. For this reason, it was relevant to which the lien is imposed.
where the factory is located, said seventy percent (70%) shall be
divided as follows: the CTA's discussion to consider that invoices or records of all sales The lien may only be extinguished upon full payment of the
are not handled by LHC's Makati o ce, nor does it operate any delinquent local taxes fees and charges including related
1) Sixty percent (60%) to the city or municipality where aspect or primary purpose of LHC as provided in its Articles of surcharges and interest.
the factory is located; and Incorporation.
2) Distraint and Levy. — By administrative action thru
2) Forty percent (40%) to the city or municipality where The rules on tax allocation in relation to tax situs under Sec. 150 of distraint of goods, chattels, or e ects, and other personal
the plantation is located. R.A. No. 7160 come into play when a business subject to it does not property of whatever character, including stocks and other
d) In cases where a manufacturer, assembler, producer, exporter operate a branch or sales o ce outside of its principal o ce where securities, debts, credits, bank accounts, and interest in and
or contractor has two (2) or more factories, project o ces, all sales are recorded, but has a factory, project o ce, plant, or rights to personal property, and by levy upon real property
plants, or plantations located in di erent localities, the seventy plantation situated in di erent localities, whether or not sales are and interest in or rights to real property.
percent (70%) sales allocation shall be prorated among the made in these localities.
The remedies by distraint and levy may be repeated if necessary
localities where the factories, project o ces, plants, and Thus, even if no sales were recorded or undertaken at LHC's Makati until the full amount due, including all expenses, is collected.
plantations are located in proportion to their respective o ce, Makati would have been entitled to share with LHC's power
volumes of production during the period for which the tax is 3) Judicial action. — The LGU concerned may enforce the
plant sites in the 70% portion of the business tax if it could be
due. collection of delinquent taxes, fees, charges or other revenues
shown that the Makati o ce was a project o ce of LHC akin to a
by civil action in any court of competent jurisdiction. The civil
e) The foregoing sales allocation shall be applied irrespective of factory. The enumeration itself - factory, project o ce, plant, or
action shall be led by the local treasurer within the period
whether or not sales are made in the locality where the factory, plantation — reveals the character of the o ce contemplated by the
prescribed in Section 194.
project o ce, plant, or plantation is located. provision. These are o ces directly involved in production or
operations; hence, the inescapable conclusion that LHC's Makati
NPC v. City of Cabanatuan 2014
The City of Makati v. The Municipality office was a mere administrative office.
2020
of Bakun and Luzon Hydro Corporation Section 168 of the LGC categorically provides that the LGU may
impose a surcharge not exceeding 25% of the amount of taxes, fees,
WON LHC's Makati office was a project office or a mere
a Remedies of Local Government Units or charges not paid on time.
administrative office, in order to determine whether or not it had a

amended or increased from that stated in the LGC. ve (5)-year period, the option to increase the prevailing ordinance
The surcharge is a civil penalty imposed once for late payment of a
remains open until such right is exercised, at which point, the ve
tax. Contrast this with the succeeding provisions on interest, which However, while Davao City may rectify and amend their old tax
(5)-year period of limitation starts to run again.
was imposable at the rate not exceeding 2% per month of the unpaid ordinance in order to give full implementation of the LGC, it,
taxes until fully paid. The fact that the interest charge is made however, cannot impose a straight 1.25% at its initial On the other hand, were the LGU decides to make such adjustment,
proportionate to the period of delay, whereas the surcharge is not, implementation of the LGC in so far as retailers are concerned. the basis for the increase would be the prevailing tax rate.
clearly reveals the legislative intent for the di erent modes in their Davao City should, at the very least, start with 1% (the minimum
application. tax rate) as provided under Section 143(d) of the LGC. While
Davao City cannot be faulted in failing to immediately implement b Prescriptive Period
§191. Authority of LGUs to Adjust Rates of Tax Ordinances. the LGC, petitioners cannot likewise be unjustly prejudiced by its
— LGUs shall have the authority to adjust the tax rates as initial implementation of the LGC. i. Local taxes, fees, or charges shall be assessed within ve (5)
prescribed herein not oftener than once every ve (5) years, but years from the date they became due. No action for the
Considering that 11 years had already elapsed from its
in no case shall such adjustment exceed ten percent (10%) of the collection of such taxes, fees, or charges, whether
implementing in 2006, Davao City could adjust its tax rate twice
rates xed under this Code. administrative or judicial, shall be instituted after the
now which will make its adjusted tax rate for retailers pegged at
expiration of such period.
Mindanao Shopping Destination v. Duterte 2017 En Banc 1.2%, in accordance with Section 191 of the LGC. To clarify, from
2006-2011 ( rst 5 years), the initial tax rate should start with 1%; ii. In case of fraud or intent to evade the payment of taxes, fees,
Section 191 of the LGC presupposes that the following from 2011-2016 (next 5 years) - 1.1%, thus, for the years 2017-2021, or charges, the same may be assessed within ten (10) years
requirements are present for it to apply, to wit: the tax adjustment is 1.21%. However, for this purpose, Davao City from discovery of the fraud or intent to evade payment.
1) there is a tax ordinance that already imposes a tax in should pass an ordinance to give e ect to the above-discussed tax
iii. Local taxes, fees, or charges may be collected within ve (5)
accordance with the provisions of the LGC; and adjustments.
years from the date of assessment by administrative or judicial
2) there is a second tax ordinance that made adjustment on the action. No such action shall be instituted after the expiration
tax rate xed by the rst tax ordinance. of said period.
De Lima v. City of Manila 2018
Section 191 has no bearing in the instant case because what actually iv. The running of the periods of prescription provided in the
took place in the questioned Ordinance was the correction of an The Court is mindful that the interval of time between the two preceding paragraphs shall be suspended for the time during
erroneous classi cation, and not, an upward adjustment or increase ordinances is 20 years, Ordinance No. 7807 having been enacted in which:
of tax rates. The fact that there occurred an increase in payment due 1993, and Ordinance No. 8331 in 2013. However, this does not
1) The treasurer is legally prevented from making the
to the reclassi cation is of no moment, because: justify the accumulation of allowable increases and then their
assessment of collection;
subsequent one-time imposition. The option to increase the tax
1) reclassi cation is not prohibited;
rates under the LGC arises every ve (5) years reckoned from the 2) The taxpayer requests for a reinvestigation and executes
2) reclassi cation was made to e ect a correction; and enactment of the ordinance sought to be adjusted. a waiver in writing before expiration of the period within
3) the taxes imposed upon the reclassi ed taxpayers, was not which to assess or collect; and
In the event that the LGU fails to make such adjustment within the

3) The taxpayer is out of the country or otherwise cannot a) Real property shall be appraised at its current and fair
Tax Base Assessed Value
be located. market value;
b) Real property shall be classi ed for assessment purposes on the 𝐴𝑠𝑠𝑒𝑠𝑠𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝐹𝑎𝑖𝑟 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 × 𝐴𝑠𝑠𝑒𝑠𝑠𝑚𝑒𝑛𝑡 𝐿𝑒𝑣𝑒𝑙
Real Property Taxation basis of its actual use;
B NPC v. Province of Pangasinan 2019
The Real Property Tax Code Even if the user is not the owner.
Whether the subject machinery and equipment are exempted from
Fundamental Principles c) Real property shall be assessed on the basis of a uniform RPT under Section 234(c) or Section 234(e) of R.A. 7160; whether the
classi cation within each local government unit; same can be considered as a special class of real property under Section
Nature d) The appraisal, assessment, levy and collection of real property 216 of the same Act for a lower assessment of real property tax; or
tax shall not be let to any private person; and whether NPC is entitled to the depreciation allowance under Section
Imposition
225 thereof - all boil down to the pivotal issue of whether NPC has
e) The appraisal and assessment of real property shall be
Appraisal and Assessment legal personality and interest to claim for such exemptions
equitable.
and privileges.
Collection
2 Nature The Court has concluded that the tax exemptions and privileges
Date of Accrual claimed by NPC cannot be recognized since it is not the
1. A tax on property. actual, direct, and exclusive user of the facilities, machinery
Periods to Collect 2. A NATIONAL tax, not a local tax. and equipment subject of the cases.
Indeed, real property tax liability rests on the owner of the property
Remedies of Local Government Units 3 Imposition or on the person with the bene cial use thereof such as taxes on
Taxpayer’s Remedies government property leased to private persons or when tax
assessment is made on the basis of the actual use of the property.
Contesting an Assessment Provinces, Cities, and Municipality WITHIN Metro In this case, however, NPC is neither the owner nor the possessor or
Authority
Manila bene cial user of the subject facilities. Hence, it cannot be
Contesting a Valuation of Property
considered to have any legal interest in the subject property to clothe
Compromise of Real Property Tax Assessment Subject Land, Building, Machinery, Improvement it with the personality to question the assessment and claim for
exemptions and privileges.
Basic — 1% for Provinces;
1 Fundamental Principles Until the transfer of the project to NPC, it does not have anything
Tax Rate — 2% for Cities and Muni in MM to do with the use and operation of the power plant. The direct,
The appraisal, assessment, levy and collection of real property tax actual, exclusive, and bene cial owner and user of the power station,
Special Educational Fund — 1%
shall be guided by the following fundamental principles: machineries, and equipment certainly pertains to Mirant. NPC,

territorial jurisdiction specially benefited by public works projects

therefore, has no legal personality to question on the assessment A province or city or a municipality within the Metropolitan
or improvements funded by the local government unit
or claim for exemption and privileges with regard to the tax liability Manila Area may levy an annual ad valorem tax on real property such
concerned:
attached to the subject properties. as land, building, machinery, and other improvement not speci cally
exempted. The special levy shall not exceed sixty percent (60%) of the
The provisions invoked by NPC for entitlement to exemption and
actual cost of such projects and improvements, including
privilege are clear and unambiguous. To successfully claim a) In the case of a province, at the rate not exceeding one percent
the costs of acquiring land and such other real property in
exemption under Section 234(c) of R.A. No. 7160, the claimant (1%) of the assessed value of real property; and
connection therewith.
must prove that
b) In the case of a city or a municipality within the
It shall not apply to lands exempt from basic real property tax
a) the machinery and equipment are actually, directly and Metropolitan Manila Area, at the rate not exceeding two
and the remainder of the land portions of which have been
exclusively used by local water districts and GOCCs; percent (2%) of the assessed value of real property.
donated to the local government unit concerned for the
and
Special levies construction of such projects or improvements.
b) the local water districts and GOCCs claiming exemption
1. Additional Levy on Real Property for the Special Education
must be engaged in b Exemption from Real Property Tax
Fund. — Annual tax of one percent (1%) on the assessed
i) the supply and distribution of water and/or value of real property which shall be in addition to the basic §234 of the LGC provides for the exemptions from payment of real
ii) the generation and transmission of electric power. real property tax. property taxes based on the ownership, character, and use of the
Likewise, to successfully claim for di erential treatment or a 2. Additional Ad Valorem Tax on Idle Lands. — Annual tax property. Thus:
lower assessment level under Section 216, in relation to Section on idle lands at the rate not exceeding ve percent (5%) of the a) Ownership Exemptions. Exemptions from real property
218 of the same Act, the claimant must prove that the subject lands, assessed value of the property which shall be in addition to the taxes on the basis of ownership are real properties owned by:
buildings, and other improvements are basic real property tax.
1) the Republic,
a) actually, directly, and exclusively used for hospitals, Idle Lands Exempt from Tax. — by reason of
2) a province,
cultural, or scienti c purposes; OR
a. force majeure,
3) a city,
b) owned and used by local water districts and GOCCs
b. civil disturbance,
rendering essential public services in the supply and 4) a municipality,
distribution of water and/or generation and transmission of c. natural calamity or
5) a barangay, and
electric power. d. any cause or circumstance which physically or legally
6) registered cooperatives.
prevents the owner of the property or person having
legal interest therein from improving, utilizing or b) Character Exemptions. Exempted from real property taxes
a Power to Levy cultivating the same. on the basis of their character are:
3. Special Levy by LGUs. — A province, city or municipality 1) charitable institutions,

may impose a special levy on the lands comprised within its

2) houses and temples of prayer like churches, development of the subject land is clearly for an educational purpose,
3.2. Article 420 of the Civil Code de nes property of
parsonages or convents appurtenant thereto, or at the very least, in support of an educational purpose.
public dominion as one "intended for public use."
mosques, and
Considering that the subject land and the revenue derived from the
4. Section 234 (a) of the LGC exempts from real property tax
3) non-pro t or religious cemeteries. lease thereof are used by UP for educational purposes and in
any real property owned by the Republic.
support of its educational purposes, UP should not be assessed,
c) Usage exemptions. Exempted from real property taxes on the
and should not be made liable for RPT on the land subject of 4.1. LRTA, as a government instrumentality, is not a
basis of the actual, direct and exclusive use to which they are
this case. taxable person under Section 133 (o) of the LGC.
devoted are:
Under RA 9500, this tax exemption, however, applies only to "assets 4.2. However, portions of the LRT properties that
1) all lands, buildings and improvements which are
of UP," referring to assets owned by UP. The improvements are not LRTA leases to private entities are not exempt
actually directly and exclusively used for religious,
"assets" owned by UP; and thus, UP's tax exemption under RA 9500 from real estate tax which must consequently be
charitable or educational purposes;
does not extend to these improvements during the term of the lease. paid by said taxable person.
2) all machineries and equipment actually, directly and
exclusively used by local water districts or by See Political Law Case Digest No. 1
government-owned or controlled corporations
LRTA v. City of Pasay 28 Jun 2022 EN BANC
engaged in the supply and distribution of water
and/or generation and transmission of electric power; 1. A government instrumentality like LRTA falls under 4 Appraisal and Assessment
and Section 133 (o) of the LGC.
3) all machinery and equipment used for pollution 1.1. The provision recognizes the basic principle that
a Classes of Real Property
control and environmental protection. local governments cannot tax the national
government, as the former's power to tax is, 1) Residential. — land principally devoted to habitation.
UP v. City Treasurer of QC 2019 historically, merely delegated by the latter.
2) Agricultural. — land devoted principally to the planting of
WON UP is liable for RPT imposed on the subject property leased to 2. The properties owned by LRTA, a national government trees, raising of crops, livestock and poultry, dairying, salt
Ayala Land. instrumentality, are exempt from real property taxation as making, inland shing and similar aquacultural activities, and
they are of public dominion. other agricultural activities;
NO. RA 9500 gave a speci c tax exemption to UP which covers
3. The mere fact that LRTA collects fees and other charges 3) Commercial. — land devoted principally for the object of
the land subject of the present case. After the passage of said law,
from the public does not remove the character of the rail pro t.
there is a need to determine whether UP's property is used for
educational purposes or in support thereof before the property roads and terminals as properties for public use. 4) Industrial. — land devoted principally to industrial activity
may be subjected to real property tax. 3.1. The charging of fees to the public does not as capital investment.
The Contract of Lease between UP and ALI shows that the determine the character of the property whether it
is of public dominion or not.

enforceable by administrative or judicial action, and may only

5) Mineral. — lands in which minerals, metallic or 5 Collection
non-metallic, exist in su cient quantity or grade to justify the be extinguished upon payment of the tax and the related
necessary expenditures to extract and utilize such materials. interests and expenses.
6) Timberland or a Date of Accrual 2) Distraint (Sec 254)
7) Special. All lands, buildings, and other improvements The real property tax for any year shall accrue on the rst day of Personal property may be distrained to e ect payment.
thereon January and from that date it shall constitute a lien on the 3) Levy (Sec 258)
a) actually, directly and exclusively used for property which shall be superior to any other lien, mortgage, or
After the expiration of the time required to pay the basic real
encumbrance of any kind whatsoever, and shall be extinguished
i) hospitals, property tax or any other tax levied under this Title, real
only upon the payment of the delinquent tax.
property subject to such tax may be levied upon through the
ii) cultural, or
b Periods to Collect issuance of a warrant on or before, or simultaneously with, the
iii) scienti c purposes, and institution of the civil action for the collection of the
b) those owned and used by GR: 5 years from the due date. delinquent tax.
i) local water districts, and EXC: If there is fraud, 10 years. Judicial. Civil action to be led by the local treasurer.
ii) GOCCs rendering essential public services in Suspended when

Privatization and Management Office v. CTA 2019
1) the supply and distribution of water and/or 1) The local treasurer is legally prevented from collecting the
tax; WON petitioner, as an agency of the government, is exempt from
2) generation and transmission of electric
posting a surety bond as a condition to the suspension of collection of
power. 2) The owner of the property or the person having legal interest
real property tax.
therein requests for reinvestigation and executes a waiver in
b Assessment Based on Actual Use writing before the expiration of the period within which to YES. The CTA may order the suspension of the collection of taxes,
collect; and provided that the taxpayer either:
Real property shall be classi ed, valued and assessed on the basis of
its actual use regardless of where located, whoever owns it, and 3) The owner of the property or the person having legal interest 1) deposits the amount claimed; or
whoever uses it. (Sec 217 LGC) therein is out of the country or otherwise cannot be located.
2) les a surety bond for not more than double the amount.
Zero level assessment. Applies to residential land assessed at not These condition precedents were required by law in order to
c Remedies of Local Government Units
more than P175K. guarantee the payment of the de ciency taxes assessed against the
The provincial, city or municipal assessor shall undertake a general Administrative taxpayer, if and when the case is nally decided against the said
revision of real property assessments within two (2) years after the 1) Lien (Sec 257) taxpayer.
e ectivity of this Code and every three (3) years thereafter. The requirement of the bond as a condition precedent to the
superior to all liens, charges or encumbrances in favor of any
person, irrespective of the owner or possessor thereof, issuance of the writ of injunction applies only in cases where the

processes by which the collection sought to be made by means person who had actual or bene cial use and possession of it payment of national and local taxes including real property tax on
thereof are carried out in consonance with the law for such cases regardless of whether or not he is the owner. the Maxon and Ultimate Properties.
provided and NOT when said processes are obviously in violation
Here, petitioners cannot conduct a tax delinquency sale of the
of the law to the extreme that they have to be suspended for
Maxon and Ultimate properties which are now owned by
jeopardizing the interests of taxpayer. 6 Taxpayer’s Remedies
respondent. To do so would e ectively make respondent liable for
Verily, since the method employed by the respondent City in the payment of real property taxes due on the Maxon property for
collecting the realty taxes due - through the warrant of levy and the years 2000-2013 and on the Ultimate properties for the years
the eventual public auction of a property of public dominion - is 1997-2013 when it did not yet own or had actual or bene cial use of a Contesting an Assessment
not sanctioned by law, then it is NO longer necessary for the the properties.
1) Pay under Protest;
petitioner to le a surety bond as a condition precedent to
Parenthetically, respondent is exempt from paying real property
suspend the tax collection. 2) File protest with Local treasurer within 30 days from
taxes over the Maxon and Ultimate properties from the time it had
payment;
Indeed, the Republic of the Philippines need not give this security as acquired ownership and/or actual or bene cial use of the properties
it is presumed to be always solvent and able to meet its obligations. pursuant to Section 24 of RA 7916, as amended by RA 8748. 3) Appeal to LBAA 60 days from receipt of decision of local
Thus, the petitioner, being an agent of the national treasurer who is granted 60 days to decide.
As correctly ruled by the CA, there is nothing in Section 24 which
government, is NOT required to put up a bond because to do 4) Appeal to CBAA 30 days from receipt of decision;
requires prior concurrence from the local government unit before
so would be to indirectly require the state to submit such bond.
respondent can avail itself of the exemption provided under the law. 5) Appeal to CTA En banc 30 days from receipt of decision via
In fact, under Section 35 of RA No. 7916, the only requirement for Rule 43;
business enterprises within a designated ECOZONE to avail
Provincial Government of Cavite and Provincial 6) Supreme Court 15 days from receipt of decision via Rule
2020 themselves of all incentives and bene ts provided for under RA
Treasurer of Cavite v. CQM Management, Inc 45.
7916 is to register with the PEZA. This requirement was satis ed
The Provincial Government of Cavite and the Provincial Treasurer by respondent. (1) Payment Under Protest; Exceptions
of Cavite were enjoined by the CA from conducting a tax PEZA issued Memorandum Circular No. 2004-024 which provides GR: No protest shall be entertained unless the taxpayer rst
delinquency sale of the real properties of CQM Management, Inc. in part that "PEZA-registered economic zone enterprises availing of pays the tax. (Sec 252 LGC)
In National Power Corp. v. Province of Quezon, et al., the the 5% [gross income tax] incentive are exempted from payment of
EXC:
Court explained that the liability for taxes generally rests on the all national and local taxes, except real property tax on land owned
by developers." 1. local business tax;
owner of the real property at the time the tax accrues as a necessary
repercussion of exclusive dominion. However, personal liability for In this case, there is nothing to indicate that respondent is a 2. in protesting RPT assessments, when the issue
real property taxes may also expressly rest on the entity with the developer. Thus, considering RA 7916, as amended, its IRR, and involved is a pure question of law.
bene cial use of the real property. In either case, the unpaid tax Memorandum Circular No. 2004-024, it is evident that save for the
attaches to the property and is chargeable against the taxable payment of 5% gross income tax, respondent is exempt from the LRTA v. City of Pasay 28 Jun 2022 EN BANC

2) CBAA — SC, same procedure. 3. calamity

1. The issues involved in this petition are purely legal issues.
(1) Appeal to the Local Board of Assessment Appeals in any province, city or municipality, the sanggunian concerned, by
1.1. Questions regarding jurisdiction are necessarily
ordinance passed prior to the rst (1st) day of January of any year
legal as the existence or extent of an entity's Any owner or person having legal interest in the property who is not
and upon recommendation of the Local Disaster Coordinating
jurisdiction over a certain subject matter is satis ed with the action of the provincial, city or municipal assessor in
Council, may condone or reduce, wholly or partially, the taxes and
determined by what is conferred by law. the assessment of his property may, within sixty (60) days from the
interest thereon for the succeeding year or years in the city or
1.2. Thus, there was no need for the LRTA to exhaust date of receipt of the written notice of assessment, appeal to the Board
municipality a ected by the calamity. (Sec 276)
administrative remedies. of Assessment Appeals.
Condonation or Reduction of Tax by the President of the
2. Also, there are no competent administrative tribunals that The Board shall decide the appeal within one hundred twenty (120)
Philippines. — The President of the Philippines may, when
may grant the relief that LRTA is seeking. days from the date of receipt of such appeal.
public interest so requires, condone or reduce the real
3. Here, the LRTA clearly intended to question the local (2) Appeal to the Central Board of Assessment Appeals property tax and interest for any year in any province or city or a
assessor's authority to assess real property taxes on its The owner of the property or the person having legal interest therein or municipality within the Metropolitan Manila Area. (Sec 277 LGC)
property and the local treasurer's authority to collect such the assessor who is not satis ed with the decision of the Board, may,
taxes. within thirty (30) days after receipt of the decision of said Board, IV Judicial Remedies
3.1. It never invoked Section 206 of the LGC, or even appeal to the CBAA. The decision of the CBAA shall be nal and
bothered to le a protest under Section 252. executory. Court of Tax Appeals
4. The protest provided for in Sections 226 and 229 of RA (3) Effect of Payment of Taxes Exclusive Original and Appellate Jurisdiction Over Civil
7160 is not an adequate remedy, as such protest is limited to
Appeal on assessments of real property shall, in no case, suspend the Cases
questioning the assessment itself, and not the authority of
collection of the corresponding realty taxes on the property involved as
the assessor. Exclusive Original and Appellate Jurisdiction Over
assessed by the provincial or city assessor, without prejudice to
See Political Law Case Digest No. 1 subsequent adjustment depending upon the nal outcome of the Criminal Cases
appeal.
Procedures
b Contesting a Valuation of Property c Compromise of Real Property Tax Assessment
1) Contest to the LBAA 60 days from receipt of Notice of Condonation or Reduction of Real Property Tax and Court of Tax Appeals
Interest. — In case of
A
Assessment; Court of Tax Appeals Act, as amended
NO need to pay under protest. 1. a general failure of crops or
LBAA has 120 days to decide. 2. substantial decrease in the price of agricultural or
agribased products, or

originally decided by the provincial or city board of assessment administered by the BIR, where the NIRC or other
En Banc
appeals; applicable law provides a speci c period for action:
The Court en banc shall exercise exclusive appellate jurisdiction to
f) Decisions, resolutions or orders on motions for Provided, that in case of disputed assessments, the
review by appeal the following:
reconsideration or new trial of the Court in Division in the inaction of the CIR within the one hundred eighty
a) Decisions or resolutions on motions for reconsideration or exercise of its exclusive original jurisdiction over cases day-period under Section 228 of the NIRC shall be
new trial of the Court in Divisions in the exercise of its involving criminal o enses arising from violations of the deemed a denial for purposes of allowing the taxpayer
exclusive appellate jurisdiction over: NIRC or the TCC and other laws administered by the BIR or to appeal his case to the Court and does not
1) Cases arising from administrative agencies – BIR, BOC; necessarily constitute a formal decision of the CIR on
BOC, DOF, DTI, DA; the tax case;
g) Decisions, resolutions or orders on motions for
2) Local tax cases decided by the RTCs in the exercise reconsideration or new trial of the Court in Division in the Provided, further, that should the taxpayer opt to
of their original jurisdiction; and exercise of its exclusive appellate jurisdiction over criminal await the nal decision of the CIR on the disputed
o enses mentioned in the preceding subparagraph; and assessments beyond the one hundred eighty
3) Tax collection cases decided by the RTCs in the
day-period abovementioned, the taxpayer may appeal
exercise of their original jurisdiction involving nal h) Decisions, resolutions or orders of the RTCs in the exercise of
such nal decision to the Court under Section 3(a),
and executory assessments for taxes, fees, charges and their appellate jurisdiction over criminal o enses mentioned
Rule 8 of these Rules; and
penalties, where the principal amount of taxes and in subparagraph (f).
penalties claimed is less than one million pesos; Provided, still further, that in the case of claims for
In Division
refund of taxes erroneously or illegally collected,
b) Decisions, resolutions or orders of the RTCs in local tax cases The Court in Divisions shall exercise: the taxpayer must le a petition for review with the
decided or resolved by them in the exercise of their appellate
a) Exclusive original or appellate jurisdiction to review by Court prior to the expiration of the two-year period
jurisdiction;
appeal the following: under Section 229 of the NIRC;
c) Decisions, resolutions or orders of the RTCs in tax collection
1) Decisions of the CIR in cases involving disputed 3) Decisions, resolutions or orders of the RTCs in local
cases decided or resolved by them in the exercise of their
assessments, refunds of internal revenue taxes, fees or tax cases decided or resolved by them in the exercise of
appellate jurisdiction;
other charges, penalties in relation thereto, or other their original jurisdiction;
d) Decisions, resolutions or orders on motions for matters arising under the NIRC or other laws 4) Decisions of the Commissioner of Customs in cases
reconsideration or new trial of the Court in Division in the administered by the BIR; involving liability for customs duties, fees or other
exercise of its exclusive original jurisdiction over tax
2) Inaction by the CIR in cases involving disputed money charges, seizure, detention or release of
collection cases;
assessments, refunds of internal revenue taxes, fees or property a ected, nes, forfeitures of other penalties
e) Decisions of the Central Board of Assessment Appeals other charges, penalties in relation thereto, or other in relation thereto, or other matters arising under the
(CBAA) in the exercise of its appellate jurisdiction over cases matters arising under the NIRC or other laws Customs Law or other laws administered by the
involving the assessment and taxation of real property BOC;

5) Decisions of the Secretary of Finance on customs Exclusive Original and Appellate Jurisdiction NPC v. Municipal Govt. of Navotas, et al. 2014
2
cases elevated to him automatically for review from Over Criminal Cases
decisions of the Commissioner of Customs adverse to WON the CTA Second Division has jurisdiction to review the decision
the Government under Section 2315 of the Tari and 1) Original jurisdiction in tax collection cases involving nal of the RTC which concerns a petition for declaratory relief involving
Customs Code; and and executory assessments for taxes, fees, charges and penalties, real property taxes.
where the principal amount of taxes and fees, exclusive of
6) Decisions of the Secretary of Trade and Industry, in YES. When the legality or validity of the assessment is in question,
charges and penalties, claimed is P1M or more; and
the case of non-agricultural product, commodity or and not its reasonableness or correctness, appeals to the LBAA, and
article, and the Secretary of Agriculture, in the case of 2) Appellate jurisdiction over appeals from the judgments, subsequently to the CBAA, pursuant to Sections 226 and 229 of
agricultural product, commodity or article, involving resolutions or orders of the RTCs in tax collection cases the LGC, are NOT necessary. Stated di erently, in the event that
dumping and countervailing duties under Section 301 originally decided by them within their respective territorial the taxpayer questions the authority and power of the
and 302, respectively, of the Tari and Customs jurisdiction. assessor to impose the assessment, and of the treasurer to
Code, and safeguard measures under Republic Act collect the real property tax, resort to judicial action may
No. 8800, where either party may appeal the decision Lucas G. Adamson, et al. v. CA prosper.
to impose or not to impose said duties. In fine, if a taxpayer is not satis ed with the decision of the CBAA
Whether the CTA has no jurisdiction to take cognizance of both the
criminal and civil cases here at bar. or the RTC, as the case may be, the taxpayer may le, within thirty
Exclusive Original and Appellate Jurisdiction (30) days from receipt of the assailed decision, a petition for review
1 NO. Under Republic Act No. 1125 as amended, the rulings of the
Over Civil Cases with the CTA pursuant to Section 7(a) of R.A. 9282. In cases where
Commissioner are appealable to the CTA. The power to decide the question involves the amount of the tax or the correctness
1) Original jurisdiction over all criminal o enses arising from disputed assessments, refunds of internal revenue taxes, fees or other thereof, the appeal will be pursuant to Section 7(a)(5) of R.A. 9282.
violations of the NIRC or TCC and other laws administered charges, penalties imposed in relation thereto, or other matters When the appeal comes from a judicial remedy which questions
by the BIR or the BOC, where the principal amount of taxes arising under this Code or other laws or portions thereof the authority of the local government to impose the tax, Section
and fees, exclusive of charges and penalties, claimed is P1M or administered by the BIR is vested in the Commissioner, subject to 7(a)(3) of R.A. 9282 applies. Thereafter, such decision, ruling or
more; and the exclusive appellate jurisdiction of the CTA. resolution may be further reviewed by the CTA En Banc pursuant
2) Appellate jurisdiction over appeals from the judgments, to Section 2, Rule 4 of the Revised Rules of the CTA.
resolutions or orders of the RTCs in their original jurisdiction
Thus, the CTA En Banc erred in dismissing the petition for review
in criminal o enses arising from violations of the NIRC or CIR v. Hambrecht & Quist Philippines 2010
en banc, and a rming the CTA Second Division’s position that the
TCC and other laws administered by the BIR or the BOC,
The issue of prescription of the BIR's right to collect taxes may be RTC has no jurisdiction over the instant case for failure of
where the principal amount of taxes and fees, exclusive of
considered as covered by the term "other matters" over which the petitioner to exhaust administrative remedies which resulted in the
charges and penalties, claimed is less than P1M or where
CTA has appellate jurisdiction. nality of the assessment.
there is no speci ed amount claimed.

Philamlife v. Sec. of Finance and CIR 2014 the PCL and the alleged nality of the terms used for demanding Period to Appeal
payment therein proved that its Request for Re-evaluation/
Where does one seek immediate recourse from the adverse ruling of the Re-investigation and Reconsideration had been denied by the CIR. Appeal to the CTA En Banc
Secretary of Finance in its exercise of its power of review under Sec. 4?
The word "decisions" in the aforementioned provision of R.A. Petition for Review on Certiorari to the SC
Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in No. 9282 has been interpreted to mean the decisions of the
the law as it vests the CTA, albeit impliedly, with jurisdiction over CIR on the protest of the taxpayer against the assessments.
the CA petition as “other matters” arising under the NIRC or De nitely, said word does not signify the assessment itself.
1 Filing of an Action for Collection of Taxes
other laws administered by the BIR.
Evidently, V.Y. Domingo's immediate recourse to the CTA
In the recent case of City of Manila v. Grecia-Cuerdo, the Court a Internal Revenue Taxes
First Division was in violation of the doctrine of exhaustion
en banc has ruled that the CTA now has the power of certiorari of administrative remedies. The civil remedies for the collection of internal revenue taxes, fees
in cases within its appellate jurisdiction. or charges, and any increment thereto resulting from delinquency
Guided by the doctrinal teaching in resolving the case at bar, the fact shall be:
that the CA petition not only contested the applicability of Sec. 100 B Procedures a) By distraint of goods, chattels, or e ects, and other
of the NIRC over the sales transaction but likewise questioned the personal property of whatever character, including stocks
validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not Filing of an Action for Collection of Taxes
and other securities, debts, credits, bank accounts and
divest the CTA of its jurisdiction over the controversy. interest in and rights to personal property, and by levy
Internal Revenue Taxes
upon real property and interest in rights to real property;
Local Taxes and
CIR v. V.Y. Domingo Jewellers, Inc. 2019
b) By civil or criminal action.
Civil Cases
WON the First Division of the CTA has jurisdiction to entertain V.Y. Either of these remedies or both simultaneously may be pursued in
Domingo's petition for review. Who May Appeal, Mode of Appeal, and E ect of Appeal the discretion of the authorities charged with the collection of such
NO. V.Y. Domingo received the PCL issued by petitioner CIR taxes.
informing it of Assessment Notices dated November 18, 2010. On
Suspension of Collection of Taxes
September 12, 2011, the former sent a letter request to the BIR b Local Taxes
Injunction Not Available to Restrain Collection
requesting for certi ed true copies of the said Assessment Notices.
All local taxes, fees, and charges shall be collected by the provincial,
However, instead of ling an administrative protest against the Criminal Cases
city, municipal, or barangay treasurer, or their duly authorized
assessment notice within thirty (30) days from its receipt, V.Y. deputies.
Institution and Prosecution of Criminal Action
Domingo elected to le its petition for review before the CTA First
The provincial, city or municipal treasurer may designate the
Division on September 16, 2011, ratiocinating that the issuance of Institution of Civil Action in Criminal Action barangay treasurer as his deputy to collect local taxes, fees, or

charges. In case a bond is required for the purpose, the provincial, be taken to the Court by petition for review as provided
No court shall have the authority to grant an injunction to restrain
city or municipal government shall pay the premiums thereon in in Rule 43 of the Rules of Court. The Court en banc the collection of any national internal revenue tax, fee or charge
addition to the premiums of bond that may be required under the shall act on the appeal. imposed by the NIRC. (Sec 218)
LGC.
c) An appeal from a decision or ruling of the CBAA or the EXC There is a pending case led in the CTA to enjoin the
RTC in the exercise of their appellate jurisdiction shall be collection of tax. The following conditions concur:
2 Civil Cases taken to the Court by ling before it a petition for
1) There is an appeal to the CTA;
review as provided in Rule 43 of the Rules of Court.
Who May Appeal, Mode of Appeal, and E ect of The Court en banc shall act on the appeal. 2) In the opinion of the court, the collection by the
a
Appeal government may jeopardize the interest of the government
Review of cases in the Court en banc. — In cases falling under b Suspension of Collection of Taxes and/or the taxpayer; and
the exclusive appellate jurisdiction of the Court en banc, the 3) Taxpayer either to deposit the amount claimed or to le a
GR: No appeal taken to the Court shall suspend the payment,
petition for review of a decision or resolution of the Court in surety bond of not more than double the amount.
levy, distraint, or sale of any property of the taxpayer for
Division must be preceded by the ling of a timely motion
the satisfaction of his tax liability; However, the bond requirement may be dispensed with at
for reconsideration or new trial with the Division.
EXC: Where the collection of the amount of the taxpayer’s the sound discretion of the court, or whenever the
a) An appeal from a decision or ruling or the inaction of method employed by the CIR in the collection of tax is
liability, sought by means of a demand for payment, by
i) the CIR on disputed assessments or claim for refund levy, distraint or sale of any property of the taxpayer, or by not sanctioned by law.
of internal revenue taxes erroneously or illegally whatever means, as provided under existing laws, may
collected, jeopardize the interest of the Government or the 3 Criminal Cases
taxpayer, an interested party may le a motion for the
ii) the decision or ruling of the Commissioner of
Customs, the Secretary of Finance, the Secretary of
suspension of the collection of the tax liability. a Institution and Prosecution of Criminal Action
Trade & Industry, the Secretary of Agriculture, and The motion may be led All criminal actions before the Court in Division in the exercise of
iii) the Regional Trial Court a) together with the petition for review or its original jurisdiction shall be instituted by the ling of an
information in the name of the People of the Philippines.
in the exercise of their original jurisdiction, b) with the answer, or
In criminal actions involving violations of the NIRC and other
shall be taken to the Court by ling before it a c) in a separate motion led by the interested party at any
laws enforced by the BIR, the CIR must approve their filing.
petition for review as provided in Rule 42 of the stage of the proceedings.
Rules of Court. The Court in Division shall act on In criminal actions involving violations of the TCC and other laws
The adverse party shall, within ve days after receipt of a copy of
the appeal. enforced by the BOC, the Commissioner of Customs must approve
the motion, le an opposition thereto, if any.
their filing.
b) An appeal from a decision or resolution of the Court in
Division on a motion for reconsideration or new trial shall c Injunction Not Available to Restrain Collection

The institution of the criminal action shall interrupt the running fteen days from receipt of a copy of the decision or Rules of Court. The Court in Division shall act on
resolution appealed from. The Court may, for good cause, the appeal.
of the period of prescription.
extend the time for ling of the petition for review for an b) An appeal from a decision or resolution of the Court in
All criminal actions shall be conducted and prosecuted under the additional period not exceeding fifteen days. Division on a motion for reconsideration or new trial shall be
direction and control of the public prosecutor. In criminal
actions involving violation of the NIRC or other laws enforced by c) An appeal to the Court in criminal cases decided by the RTCs taken to the Court by petition for review as provided in
the BIR, and violations of the TCC or other laws enforced by the in the exercise of their appellate jurisdiction shall be taken by Rule 43 of the Rules of Court. The Court en banc shall act
BOC, the prosecution may be conducted by their respective duly ling a petition for review as provided in Rule 43 of the on the appeal.
deputized legal o cers. Rules of Court within fteen days from receipt of a copy of c) An appeal from a decision or ruling of the CBAA or the RTC
the decision or nal order appealed from. The Court en banc in the exercise of their appellate jurisdiction shall be taken to
b Institution of Civil Action in Criminal Action shall act on the appeal. the Court by ling before it a petition for review as provided
in Rule 43 of the Rules of Court. The Court en banc shall
In cases within the jurisdiction of the Court, the criminal action
4 Appeal to the CTA En Banc act on the appeal.
and the corresponding civil action for the recovery of civil liability
for taxes and penalties shall be deemed jointly instituted in the Review of cases in the Court en banc. — In cases falling under
same proceeding. The ling of the criminal action shall necessarily the exclusive appellate jurisdiction of the Court en banc, the 5 Petition for Review on Certiorari to the SC
carry with it the ling of the civil action. No right to reserve the petition for review of a decision or resolution of the Court in
A party adversely a ected by a decision or ruling of the Court en
ling of such civil action separately from the criminal action shall Division must be preceded by the ling of a timely motion
banc may appeal therefrom by ling with the Supreme Court a
be allowed or recognized. for reconsideration or new trial with the Division.
veri ed petition for review on certiorari within fteen days from
a) An appeal from a decision or ruling or the inaction of receipt of a copy of the decision or resolution, as provided in Rule
c Period to Appeal
i) the CIR on disputed assessments or claim for refund 45 of the Rules of Court.
a) An appeal to the Court in criminal cases decided by a RTC in
of internal revenue taxes erroneously or illegally If such party has led a motion for reconsideration or for new trial,
the exercise of its original jurisdiction shall be taken by ling a
collected, the period herein xed shall run from the party’s receipt of a copy
notice of appeal pursuant to Sections 3(a) and 6, Rule 122 of
ii) the decision or ruling of the Commissioner of of the resolution denying the motion for reconsideration or for
the Rules of Court within fteen days from receipt of a
Customs, the Secretary of Finance, the Secretary of new trial.
copy of the decision or nal order with the court which
rendered the nal judgment or order appealed from and by Trade & Industry, the Secretary of Agriculture, and Effect of appeal. — The motion for reconsideration or for new
serving a copy upon the adverse party. The Court in Division iii) the Regional Trial Court trial led before the Court shall be deemed abandoned if, during
shall act on the appeal. its pendency, the movant shall appeal to the Supreme Court.
in the exercise of their original jurisdiction,
b) An appeal to the Court en banc in criminal cases decided by
shall be taken to the Court by ling before it a
the Court in Division shall be taken by ling a petition for
petition for review as provided in Rule 42 of the
review as provided in Rule 43 of the Rules of Court within

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2023 Commercial and Taxation Law Syllabus Based eREVIEWER v2.01

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Commercial and Tax Law

Syllabus-based eReviewer for the 2023 Bar

Business Organizations 2 Income Tax 141 4. Limited Partnership

Partnerships 2 Value-Added Tax 183 1 General Provisions

Banking Laws 55 Local Taxation 218 Deﬁnition

Secrecy of Bank Deposits 64 Judicial Remedies 234 3. to a common fund,

Transportation Law 87 I Business Organizations 2) Nominate — has a special name in law;

eCodal+Pro by RGL 2 of 239

eCodal+Pro by RGL 3 of 239

eCodal+Pro by RGL 4 of 239

eCodal+Pro by RGL 5 of 239

eCodal+Pro by RGL 6 of 239

Property Rights of a Partner a) Receivership;

1) His rights in speci c partnership property; b) Sale of interest.

eCodal+Pro by RGL 7 of 239

eCodal+Pro by RGL 8 of 239

eCodal+Pro by RGL 9 of 239

eCodal+Pro by RGL 10 of 239

eCodal+Pro by RGL 11 of 239

eCodal+Pro by RGL 12 of 239

1) Sign and swear to a certi cate;

eCodal+Pro by RGL 13 of 239

eCodal+Pro by RGL 14 of 239

Nationality of Corporations b) Participation in Management l) Responsibility for Crimes

Corporate Juridical Entity c) Proprietary Rights m) Special Fact Doctrine

Capital Structure d) Remedial Rights n) Inside Information

Incorporation and Organization e) Obligations of a Stockholder o) Contracts

a) Promoter f) Meetings 10. Capital A airs

b) Subscription Contract 9. Board of Directors and Trustees a) Certi cate of Stock

c) Pre-Incorporation Subscription Agreements a) Repository of Corporate Powers b) Watered Stocks

eCodal+Pro by RGL 15 of 239

applies when persons assume to form a corporation and

1 De nition of Corporation 2. De facto Corporation. There are stringent requirements

eCodal+Pro by RGL 16 of 239

required. (Gamboa v. Teves 2011 En Banc)

eCodal+Pro by RGL 17 of 239

Grandfather Rule is necessary if doubt exists as to the locus of the

in order that the corporation shall be considered a Philippine

eCodal+Pro by RGL 18 of 239

eCodal+Pro by RGL 19 of 239

Survey of Cases Trading, Inc. the capital stocks of a corporation is

eCodal+Pro by RGL 20 of 239

eCodal+Pro by RGL 21 of 239

eCodal+Pro by RGL 22 of 239

1. the corporation is insolvent or a) The corporation eliminates fractional shares

eCodal+Pro by RGL 23 of 239

eCodal+Pro by RGL 24 of 239

eCodal+Pro by RGL 25 of 239

eCodal+Pro by RGL 26 of 239

eCodal+Pro by RGL 27 of 239

eCodal+Pro by RGL 28 of 239

corporation also constitute a majority of the members of the

eCodal+Pro by RGL 29 of 239

some rules of public policy or public duty, and are, like

eCodal+Pro by RGL 30 of 239

eCodal+Pro by RGL 31 of 239

eCodal+Pro by RGL 32 of 239

eCodal+Pro by RGL 33 of 239

eCodal+Pro by RGL 34 of 239

eCodal+Pro by RGL 35 of 239

eCodal+Pro by RGL 36 of 239

eCodal+Pro by RGL 37 of 239

eCodal+Pro by RGL 38 of 239