Taxation Law Reviewer

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Taxation Law Reviewer
Juris Doctorate (University of Bohol)
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Taxation Law
Reviewer
Compiled by Rehne Gibb N. Larena | University of San Carlos

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Taxation Law REVIEWER For the 2020/21 #BestBarEver
TABLE OF CONTENTS 2. Classi ication of Decedent 55 b. Recovery of tax erroneously or illegally collected 91
3. Composition of Gross Estate 55 c. Power of CIR to compromise 95
General Principles 3
D. DONOR’S TAX 59 3. Government remedies for collection of delinquent taxes 96
A. Concept and Purpose of Taxation 3
1. Basic Principles, Concept, and De inition 59 4. Civil penalties 103
B. Inherent Powers Distinguished 4
2. Requisites of a Valid Donation 60 Local Taxation 104
C. Theory and Basis of Taxation 4
3. Transfers which may be considered as donation 60 A. LOCAL GOVERNMENT TAXATION 104
D. Jurisdiction Over Subject and Objects 4
4. Classi ication of Donor 60 1. Fundamental principles 104
E. Principles of a Sound Tax System 5
5. Determination of Gross Gift 61 2. Nature and source of taxing power 104
F. Inherent and Constitutional Limitations on Taxation 5
6. Tax credit for donor's taxes paid to a foreign country 61 3. Scope of taxing power 104
G. Stages or Aspects of Taxation 11
7. Filing of return and payment 62 4. Speci ic taxing power of LGUs 105
H. Requisites of a Valid Tax 11
E. VAT 62 5. Common revenue raising powers 107
I. Kinds of Taxes 12
1. Nature and characteristics of VAT 62 6. Community tax 107
J. General Concepts in Taxation 12
2. Persons liable to VAT 64 7. Common limitations on the taxing powers of LGUs 107
K. Construction and Interpretation of Tax Laws, Rules and
Regulations 18 3. Imposition of VAT 65 8. Requirements for a valid tax ordinance 108
National Taxation 19 4. Zero-rated and effectively zero-rated sales of goods or 9. Taxpayer's remedies 108
properties, and services 68 10. Assessment and collection of local taxes 109
A. TAXING AUTHORITY 19
5. VAT-exempt transactions 70 B. REAL PROPERTY TAXATION 111
1. Jurisdiction, Power, and Functions of the CIR 19
6. Input and output tax 73 1. Fundamental principles 111
2. Rule-making Authority of the Secretary of Finance 20
7. Refund or tax credit of excess input tax; procedure 74 2. Nature 111
B. INCOME TAX 20
8. Compliance requirements 78 3. Imposition 111
1. De inition, Nature, and General Principles 21
F. PERCENTAGE TAXES 81 4. Appraisal and assessment 113
2. Concept of Income 23
G. EXCISE TAX 81 5. Collection 113
3. Gross Income 25
H. DOCUMENTARY STAMP TAX 81 6. Taxpayer's remedies 114
4. Deductions 33
I. TAX REMEDIES UNDER THE NIRC 84 Judicial Remedies 115
5. Income Tax on Individuals 39
1. Assessment of internal revenue taxes 84 A. JURISDICTION OF THE CTA 115
6. Income Tax on Corporations 42
2. Taxpayer's remedies 89 En Banc 115
7. Filing of Returns and Payment 50
Administrative 89 In Division 115
8. Withholding Tax 52
Judicial 90 B. PROCEDURE 118
C. ESTATE TAX 54
Substantive 90
1. Basic Principles, Concept, and De inition 54
a. Protest 90
Based on the Reviewers of Mamalateo, Dimaampao and Ingles by RGL 2 of 119

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General Principles GR: The power to tax is essentially a legislative function and 1) License is in the nature of a special privilege, or authority to
which the central legislative body cannot delegate to other do what is within its terms. It makes lawful an act which would
NIRC, as amended by TRAIN branches. otherwise be unlawful. A license granted by the State is always
revocable.
A. CONCEPT AND PURPOSE OF TAXATION EXC: Permissive delegation of the power to tax
Primary purpose test (To be considered a license fee)
1. Definition 1) Local governments in respect to matters of local concern; a. must relate to an occupation or activity that so
Taxation is the 2) The President with respect to tariff rates, import and export engages the public interest in health, morals,
quotas, lexible tariff clause, etc; development and safety, as to require regulation for
a) inherent power of the State exercised by the legislature the protection and promotion of such public interest.
3) Administrative regulations (Assessment and Collection).
b) to demand enforced contributions from the people to raise b. must bear a reasonable relation to the probable
revenue
2. Purpose expenses of regulation, taking into account not only
Primary the costs of direct regulation but also its incidental
c) in order to defray the necessary expenses of the
consequences as well.
Government. A. REVENUE;
2) Toll is a sum of money for the use of something, generally
Secondary
INHERENT ATTRIBUTE OF SOVEREIGNTY applied to the consideration which is paid for the use of a road,
B. REDISTRIBUTION; bridge or the like, of a public nature.
Such inherent power of the State anchors on its "social contract” with its C. REPRICING; 3) Compromise penalty is the amount collected by the BIR in
citizens which obliges it to promote public interest and common good.
D. REPRESENTATION. lieu of criminal prosecution for violations committed by
Manifestations taxpayers.
NON-REVENUE RAISING — Sumptuary Purpose
1) Taxes can be imposed even in the absence of a constitutional 4) Special assessment is a charge imposed on lands
1) Regulation — to curtail or improve a particular industry.
provision. especially bene ited by public works or improvements
2) The state can select the object and subject matter of taxation. 2) Promotion of General Welfare — as an implement of police
inanced by the government. It is not a personal liability of the
Thus, unlimited. power for the purpose of promoting general welfare. person assessed. His liability is limited only to the land
3) No injunction in the collection of taxes. The power to tax can be used to destroy (MARSHALL DICTUM) involved. It is based wholly on bene its and not necessity.
only if it is used as an implement of police power. In all other 5) Taxes and debts cannot be the subject of compensation
EXC: There is a pending case iled in the CTA to enjoin the
instances, it is not because the court will always be there to see
collection of tax. because the government and the taxpayer are not mutually
whether the inherent and constitutional limitations are
creditors and debtors of each other and a claim for taxes is not
4) Taxation is not subject to set-off. violated. (HOLMES DICTUM)
a debt, demand contract, or judgment allowed to be set off.
EXC: When both debts are due and demandable and have 3) Reduction of Social Inequalities — progressive system
6) Subsidy is a sum of money granted by the government or a
been fully liquidated. based on one’s ability to pay.
public body to assist an industry or business so that the price
TN: There can be no compensation as the Government and 4) Encourage Economic Growth — exemptions and incentives of a commodity or service may remain low or competitive.
the people are not principal debtors and creditors of to entice investments.
7) Revenue refers to all funds or income derived by the
each other.
3. Distinguish: tax and other forms of exactions government, whether from tax or from whatever source and
LEGISLATIVE IN CHARACTER whatever manner.
If they are not considered taxes, the requirements for a valid tax
(PUJ-DL) need not be complied with.

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8) Internal Revenue refers to taxes imposed by the legislature C. THEORY AND BASIS OF TAXATION
other than duties on imports and exports. YES. Non-resident aliens, whether or not engaged in trade or
1. Lifeblood theory business, are subject to Philippine income taxation on their income
9) Customs Duties is a tax levied on imports (and, sometimes, received from all sources within the Philippines. Thus, the keyword
on exports) by the customs authorities of a country to raise Taxes are the lifeblood of the government and their prompt and in determining the taxability of non-resident aliens is the income's
state revenue, and/or to protect domestic industries from more certain availability is an imperious need. Without taxes, the "source."
ef icient or predatory competitors from abroad. government would be paralyzed for lack of motive power to
activate and operate it. The important factor which determines the source of income of
10) Tariff is a tax imposed on imported goods and services. personal services is not the residence of the payor, or the place where
Tariffs are used to restrict trade, as they increase the price of Its collection should be made in accordance with law as any the contract for service is entered into, or the place of payment, but
imported goods and services, making them more expensive to arbitrariness will negate the very reason for government itself. the place where the services were actually rendered.
consumers. They are one of several tools available to shape
2. Necessity theory "Source of income" relates to the property, activity or service that
trade policy.
produced the income. With respect to rendition of labor or personal
The existence of a government is a necessity. No sovereign State can service, as in the instant case, it is the place where the labor or
B. INHERENT POWERS DISTINGUISHED
continue to exist without the means to pay its expenses, and for service was performed that determines the source of the income.
Police Eminent those means, it has the right to compel all citizens and property There is therefore no merit in petitioner's interpretation which
As to TAXATION
Power Domain within its limit to contribute. equates source of income in labor or personal service with the
residence of the payor or the place of payment of the income.
Promote General Public 3. Benefits-received theory
Purpose REVENUE
Welfare convenience CIR v. American Express
The basis of taxation, and is founded on the reciprocal duties of
Limited to cost protection and support between the State and its inhabitants. As a general rule, the VAT system uses the destination principle.
Amount UNLIMITED No exaction
of regulation However, our VAT law itself provides for a clear exception, under
D. JURISDICTION OVER SUBJECT AND OBJECTS
which the supply of service shall be zero-rated when the following
Non- Inferior to NIC Superior to NIC Superior to NIC SCOPE OF TAXATION requirements are met:
impairment
1) Comprehensive; 1) the service is performed in the Philippines;
Property and
Scope Property Rights Property Rights 2) the service falls under any of the categories provided in
Liberty Rights 2) Unlimited — in force and so searching in extent, that the Section 102(b) of the Tax Code; and
courts scarcely venture to declare that it is subject to any
Altruistic feeling restrictions whatever, except such as rest at the discretion of 3) it is paid for in acceptable foreign currency that is
Enjoyment of Just
Bene its of contributing to accounted for in accordance with the regulations of the BSP.
govt services compensation the authority which exercises it.
society‘s welfare
Since respondent’s services meet these requirements, they are
3) Plenary — the legislative body has the power to impose taxes zero-rated. Petitioner’s Revenue Regulations that alter or revoke the
Property Generally, as they may deem expedient
Any Any above requirements are ultra vires and invalid.
Taken money
4) Supreme. Tax situs of a zero-rated service
State and
Who
State and LGU State and LGU quasi-public CIR v. Baier-Nickel The place where the service is rendered determines the jurisdiction
exercises
entities to impose the VAT. Performed in the Philippines, such service is
WON respondent's sales commission income is taxable in the necessarily subject to its jurisdiction, for the State necessarily has to
Philippines. have “a substantial connection” to it, in order to enforce a zero rate.
The place of payment is immaterial; much less is the place where the

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output of the service will be further or ultimately used. g. Non-imprisonment for non-payment of a poll tax; 4. Public purpose is determined at the time of the
h. Non-impairment of the jurisdiction of the SC in tax cases; enactment of the tax law and not at the time of its
E. PRINCIPLES OF A SOUND TAX SYSTEM implementation.
i. Prohibition on the use of special purpose fund;
1) Fiscal adequacy — revenues generated should be suf icient to j. Power of the President to veto any particular items in a revenue Planters Products, Inc. v. Fertiphil
meet the demands of public expenditure. or tariff bill.
While it is true that the power of taxation can be used as an
2) Theoretical justice or equity ⭐ — Similarly situated Indirect Constitutional limitations implement of police power, the primary purpose of the levy is
taxpayers should pay equal taxes, while those who have more a. Due process of law; revenue generation. If the purpose is primarily revenue, or if revenue
should pay more. is, at least, one of the real and substantial purposes, then the exaction
b. Equal protection of the laws; is properly called a tax.
3) Administrative feasibility — can be easily implemented. c. Non-impairment of the obligations of contracts;
An inherent limitation on the power of taxation is public
4) Economic ef iciency/elasticity — cost of collecting taxes d. Non-infringement of religious freedom; purpose. Taxes are exacted only for a PUBLIC PURPOSE. They
should not be higher than the bene its derived from it. cannot be used for purely private purposes or for the exclusive
e. No appropriation for religious purposes;
bene it of private persons.
F. INHERENT AND CONSTITUTIONAL f. Non-infringement of the freedom of the press.
Public purpose is the heart of a tax law. When a tax law is only a
LIMITATIONS ON TAXATION INHERENT LIMITATIONS mask to exact funds from the public when its true intent is to give
Inherent limitations (PENIS) undue bene it and advantage to a private enterprise, that law will not
1) Public Purpose. — has now evolved to include social satisfy the requirement of “public purpose.”
a. Public purpose; justice.
The purpose of a law is evident from its text or inferable from other
b. Exemption from taxation of government entities; Determination that the tax is for public purpose secondary sources. Here, the levy imposed under LOI No. 1465 was
c. Non-delegation of the legislative power to tax; a. Used for the support of the government, speci ically not for a public purpose.
d. International comity; on its governmental functions; Requisites of a Valid Taxpayer’s Suit

b. For any of the recognized objects of the government;
e. Situs. 1. The tax money is being extracted and spent in violation of
c. Promotes the welfare of the community. speci ic constitutional protection against abuses of
Direct Constitutional limitations
Concepts legislative power;
a. Revenue bill must originate exclusively in the House but the
1. Inequalities resulting from the singling out of one 2. Public money is being de lected to any improper purpose;
Senate may propose with amendments;
b. Concurrence of a majority of ALL the members of Congress for particular class for taxation or exemption infringe no 3. Petitioner seeks to restrain wastage of public funds
constitutional limitation; through enforcement of an invalid law.
the passage of a law granting tax exemption;
c. Rule of uniformity and equity in taxation;
2. Individual taxpayers need not derive direct bene its Important Concepts Regarding Taxpayer’s Suit
from the tax; 1. The public funds must be derived from taxation;
d. Progressive system of taxation;
3. Public purpose is continually expanding, areas
e. Exemption of religious, charitable and education entities, 2. Does not apply to donations and contributions made by
formerly left to private initiative may not be
nonpro it cemeteries, and churches from property taxation; public individuals or private entities;
undertaken by the government if it is to meet the
f. Exemption of non-stock, non-pro it education institution from increasing social challenges of the time; 3. Taxpayer is not relieved from the obligation to pay tax just
taxation; because of his belief that it is being misappropriated;

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4. A taxpayer has no legal standing to question acts Only provinces and cities are allowed to impose a tax on the
Abakada Guro Party List v. Ermita
which do not involve the use of public funds. transfer of ownership of real property.
2) Exemption from taxation of Government entities This case involves the constitutionality of RA 9337 that increased the
VAT rate to 12%. NPC v. City of Cabanatuan
Refers only to real property tax.
No Undue Delegation of Legislative Power A “franchise” is “a right or privilege, affected with public interest
GR: Agencies and instrumentalities of the government which is conferred upon private persons or corporations, under such
performing governmental functions are tax exempt. If Petitioners contend that giving the President the stand-by authority to terms and conditions as the government and its political
performing proprietary functions, taxable. raise the VAT rate from 10% to 12% when a certain condition is met, subdivisions may impose in the interest of the public welfare,
constitutes undue delegation of the legislative power to tax. security and safety.”
EXC: Even if performing proprietary functions, if the
franchise or law creating them exempts them — tax The general rule barring delegation of legislative powers is subject to The LGC de ines “business” as “trade or commercial activity
exempt. the following recognized limitations or exceptions: regularly engaged in as means of livelihood or with a view to pro it.”
If taxing authority is LGU 1) Delegation of tariff powers to the President under Section 28
The power to tax is no longer vested exclusively on Congress; local
(2) of Article VI of the Constitution;
a. TAX EXEMPT — GOCCs with original charter; attached legislative bodies are now given direct authority to levy taxes,
2) Delegation of emergency powers to the President under fees and other charges pursuant to Art X Sec 5 of the 1987
to the government; unincorporated;
Section 23 (2) of Article VI of the Constitution; Constitution.
Exempt from Income Tax
3) Delegation to the people at large;
1. GSIS Although as a general rule, LGUs cannot impose taxes, fees or
4) Delegation to local governments; and charges of any kind on the National Government, its agencies and
2. SSS 5) Delegation to administrative bodies. instrumentalities, this rule now admits an exception, i.e., when
3. PHIC speci ic provisions of the LGC authorize the LGUs to impose taxes,
In every case of permissible delegation, there must be a showing that fees or charges on the aforementioned entities.
4. PCSO the delegation itself is valid. It is valid only if the law
In the case at bar, section 151 in relation to section 137 of the LGC
5. PAGCOR (but not exempted from business a) is complete in itself, setting forth therein the policy to be clearly authorizes the respondent city government to impose on the
tax) executed, carried out, or implemented by the delegate; and petitioner the franchise tax in question. To determine whether the
b. TAXABLE — GOCCs with special charter; personality b) ixes a standard — the limits of which are suf iciently petitioner is covered by the franchise tax in question, the following
distinct from the government; incorporated determinate and determinable — to which the delegate must requisites should concur:
conform in the performance of his functions.
3) Non-delegation 1) that petitioner has a “franchise” in the sense of a secondary
The case before the Court is not a delegation of legislative power. It is or special franchise; and
Matters which cannot be delegated simply a delegation of ascertainment of facts upon which 2) that it is exercising its rights or privileges under this
1. Nature of taxation; enforcement and administration of the increase rate under the law is franchise within the territory of the respondent city
contingent. government.
2. Object and purpose;
It is the ministerial duty of the President to immediately impose the Ful illing both requisites, petitioner is, and ought to be, subject of the
3. Subject or coverage;
12% rate upon the existence of any of the conditions speci ied by franchise tax in question. To stress, a franchise tax is imposed
4. Amount or rate of tax; Congress. This is a duty which cannot be evaded by the President. based not on the ownership but on the exercise by the
There is no undue delegation of legislative power but only of the corporation of a privilege to do business. The taxable entity is the
5. Manner, means and agencies of collection; discretion as to the execution of a law. This is constitutionally corporation which exercises the franchise, and not the individual
6. Situs. permissible. stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government.
Delegation to LGU

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Delegation to the President its dignity by placing itself under the jurisdiction of
within the sole province of the legislature under the Constitution.
another.
The authority of the President, upon the recommendation of NEDA,
Without Section 28(2), Article VI, the executive branch has no 5) Situs
to ix tariff rates, import and export quotas, tonnage and wharfage authority to impose tariffs and other similar tax levies involving the
dues, and other duties or imposts. [Sec 28(2) Art VI, 1987 importation of foreign goods. The constitutional provision shields GR: Taxation may be exercised only within the territorial
Constitution] such delegation from constitutional in irmity, and should be jurisdiction of the taxing authority.
Delegation to Administrative Bodies recognized as an exceptional grant of legislative power to the
EXC: Where privity of relationship exists.
President, rather than the af irmation of an inherent executive power.
1. Power to value property for purposes of taxation; The quali iers mandated by the Constitution on this presidential
authority attain primordial consideration. DIRECT CONSTITUTIONAL LIMITATIONS
2. Power to assess and collect taxes;
3. Power to perform an innumerable details of computation, 1. First, there must be a law, such as the SMA. 1. Revenue bill must originate exclusively in the House of
appraisal and adjustment. 2. Second, there must be speci ied limits, a detail which would Representatives but the Senate may propose
be illed in by the law. amendments. (Sec 24(4) Art VI)
Southern Cross Cement Corporation v. CMAP
3. And further, Congress is further empowered to impose It is not the statute that must originate in the HREP but the bill.
limitations and restrictions on this presidential authority.
The Safeguard Measures Act provides the structure and mechanics
Abakada Guro Party List v. Ermita
for the imposition of emergency measures, including tariffs, to The Court recognizes that the authority delegated to the President
protect domestic industries and producers from increased imports under Section 28(2), Article VI may be exercised, in accordance R.A. No. 9337 Does Not Violate Article VI,
which in lict or could in lict serious injury on them. with legislative sanction, by the alter egos of the President, such Section 24 of the Constitution on Exclusive
as department secretaries. Origination of Revenue Bills
Concerning as they do the foreign importation of products into the
Philippines, these safeguard measures fall within the ambit of Section There is only one viable ground for challenging the legality of the Is the introduction by the Senate of provisions not dealing directly
28(2), Article VI of the Constitution. The Court acknowledges the limitations and restrictions imposed by Congress under Section with the VAT, which is the only kind of tax being amended in the
basic postulates ingrained in the provision, and, hence, governing in 28(2) Article VI, and that is such limitations and restrictions are House bills, still within the purview of the constitutional provision
this case. They are: themselves violative of the Constitution. Thus, no matter how authorizing the Senate to propose or concur with amendments to a
distasteful or noxious these limitations and restrictions may seem, revenue bill that originated from the House?
1) It is Congress which authorizes the President to impose
the Court has no choice but to uphold their validity unless their
tariff rates, import and export quotas, tonnage and
constitutional in irmity can be demonstrated. YES. Since there is no question that the revenue bill exclusively
wharfage dues, and other duties or imposts. Thus, the
authority cannot come from the Finance Department, the originated in the House of Representatives, the Senate was acting
4) International Comity within its constitutional power to introduce amendments to the
NEDA, or the WTO, no matter how insistent or persistent
these bodies may be. 1. Doctrine of sovereign equality among states — as House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and franchise
2) The authorization granted to the President must be between equals, there is no sovereign. One state cannot
taxes. Verily, Article VI, Section 24 of the Constitution does not
embodied in a LAW. exercise its sovereign powers over another.
contain any prohibition or limitation on the extent of the
3) The authorization to the President can be exercised only 2. Non-suability of States — under international law, a amendments that may be introduced by the Senate to the House
within the speci ied limits set in the law and is further foreign government may not be sued without its consent. revenue bill.
subject to limitations and restrictions which Congress may Hence, it is useless to impose a tax which could not be
impose. Likewise, the Court inds the sections referring to other percentage
collected. and excise taxes germane to the reforms to the VAT system, as
There is one fundamental principle that animates these constitutional 3. Usage among states — when a foreign sovereign enters these sections would cushion the effects of VAT on consumers.
postulates. These impositions under Section 28(2), Article VI fall the territorial jurisdiction of another, there is an implied
within the realm of the power of taxation, a power which is
understanding that the former does not intend to degrade

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2. Concurrence of a majority of all the members of Congress c. The exemption extends to facilities which are
for the passage of a law granting tax exemption (Sec 28(4) The rule of uniform taxation does not deprive Congress of the incidental to or reasonably necessary for the
Art VI) power to classify subjects of taxation, and only demands accomplishment of said purpose.
uniformity within the particular class.
Votes required Scope of exemption. Real property taxes on facilities which
R.A. No. 9337 is also equitable. are:
a. For the GRANT of tax exemption — absolute majority
of the members of Congress (50+1 of all the members 1. The law is equipped with a threshold margin. a. Actual;
voting separately) 2. Congress provided mitigating measures to cushion the b. Incidental;
b. For WITHDRAWAL of tax exemption — relative impact of the imposition of the tax on those previously
c. Reasonably necessary for the accomplishment of said
majority or majority of the quorum. exempt.
purpose.
3. Rule of uniformity and equity in taxation 3. Congress also increased the income tax rates of
corporations, in order to distribute the burden of taxation. 6. Exemption of non-stock, non-pro it educational
Valid Classi ication institutions from taxation
Progressivity of Taxation
a. It is based upon substantial distinctions which a. Covers income, property, and donor‘s taxes, custom
make real differences; Taxation is progressive when its rate goes up depending on the duties, and other taxes imposed by either or both the
b. These are germane to the purpose of the legislation resources of the person affected. The VAT is an antithesis of national government or political subdivisions on ALL
progressive taxation. By its very nature, it is regressive. revenues, assets, property or donations, used actually,
or ordinance;
directly and exclusively for educational purposes.
c. Applies, not only to present conditions, but, also, to Nevertheless, the Constitution does not really prohibit the imposition
of indirect taxes, like the VAT. What it simply provides is that b. Does not cover revenues derived from, or assets used
future conditions substantially identical to those of
Congress shall "evolve a progressive system of taxation." in, unrelated activities or enterprise.
the present;
d. Applies equally to all those who belong to the same In the case of the VAT, the law minimizes the regressive effects of this c. Lands, buildings, and improvements actually, directly
class. imposition by providing for zero rating of certain transactions, while and exclusively used for educational purposes are
granting exemptions to other transactions. exempt from property tax (Sec 28 (3) Art VI), whether
4. Progressive system of taxation
the educational institution is proprietary or non-pro it.
All things considered, there is NO raison d'être for the
Abakada Guro Party List v. Ermita unconstitutionality of R.A. No. 9337. d. The test is usage and not ownership.
e. Similar tax exemptions may be extended to proprietary
Uniformity and Equitability of Taxation 5. Exemption of religious, charitable and educational
educational institutions by law subject to such
entities, nonpro it cemeteries, and churches from
Article VI, Section 28(1) of the Constitution reads: The rule of limitations as it may provide, including restrictions
property taxation (Sec 28(3) Art VI)
taxation shall be uniform and equitable. The Congress shall evolve on dividends and provisions for reinvestment.
a progressive system of taxation. Important Principles
Requisites for the application of the 10% preferential rate:
Uniformity in taxation means that all taxable articles or kinds of a. The tax exemption of religious, charitable and
1. It must be private;
property of the same class shall be taxed at the same rate. Different educational institutions covers real property tax
articles may be taxed at different amounts provided that the rate is only. 2. It has permit to operate as an educational institution;
uniform on the same class everywhere with all people at all times. 3. It is non-pro it; AND
b. The test is usage and not ownership.
In this case, the tax law is uniform as it provides a standard rate of ★ Actual, direct, and exclusive use for 4. Its gross income from unrelated trade or business
0% or 10% (or 12%) on all goods and services. religious, charitable and educational must not exceed 50% of its total gross income from
purposes. all sources,

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otherwise, it will be subject to the 30% corporate income tax Income Exempt from Income Tax funds. The BIR treated them as public funds and the very laws
rate. governing coconut levies recognize their public character.
Revenues from properties
The 10% preferential tax rate does not apply to the following: Income from properties The coco-levy funds are evidently special funds. Section 2 of P.D.
Income or activities conducted
or activities conducted 755, Article III, Section 5 of P.D. 961, and Article III, Section 5 of P.D.
a. The passive income derived by the educational from FOR pro it that are ADE
FOR pro it are taxable 1468 completely ignore the fact that coco-levy funds are public funds
institution, which is subject to inal income tax, i.e. Property for educational purposes
regardless of disposition raised through taxation. And since taxes could be exacted only for a
rent income or interest in income; are tax-exempt.
public purpose, they cannot be declared private properties of
b. Engaged in unrelated trade or business or other 7. Non-imprisonment for non-payment of a poll tax (Sec 20 individuals although such individuals fall within a distinct group of
activity where the gross income from such exceeds Art III) persons. Consequently, such declarations are void since they
50% of the total gross income. appropriate public funds for private purpose and, therefore,
Poll tax is a tax of a ixed amount ixed on persons residing violate the citizens’ right to substantive due process.
within a speci ied territory, whether resident or not, without
Thus, when a non-stock, non-pro it educational institution proves regard to their property or the occupation of business in which E.O. 313 runs counter to the constitutional provision which directs
that it uses its revenues actually, directly, and exclusively for they may be engaged. that all money collected on any tax levied for a special purpose shall
educational purposes, it shall be exempted from income tax, VAT, be treated as a special fund and paid out for such purpose only.
and LBT. On the other hand, when it also shows that it uses its 8. Non-impairment of the jurisdiction of the SC in tax cases Assisting other agriculturally-related programs is way off the
assets in the form of real property for educational purposes, it shall (Sec 5(2) Art VIII) coco-fund’s objective of promoting the general interests of the
coconut industry and its farmers.
be exempted from RPT. The Supreme Court shall have the following powers: (2)
To be clear, proving the actual use of the taxable item will result in an Review, revise, modify or af irm on appeal or certiorari, as the 10. Power of the President to veto any particular items in a
exemption, but the speci ic tax from which the entity shall be laws or the Rules of Court may provide, inal judgments and revenue or tariff bill
exempted from shall depend on whether the item is an item of orders of lower courts in xxx (b) all cases involving the
GR: The President has to approve or disapprove a bill in its
revenue or asset. legality of any tax, impost, assessment or toll or any
entirety.
penalty imposed in relation thereto.
The crucial point of inquiry then is on the use of the assets or on the
EXC where partial or item veto is allowed
use of the revenues. These are two things that must be viewed and 9. Prohibition on the use of special fund (Sec 29(3) Art VI)
treated separately. But so long as the assets or revenues are used
All money collected on any tax levied for a special purpose
a. Appropriation bill;
actually, directly and exclusively for educational purposes, they are
shall be treated as a special fund and paid out for such purpose b. Revenue bill;
exempt from duties and taxes.
only. If the purpose for which a special fund was created has
The tax exemption granted by the Constitution to non-stock, been ful illed or abandoned, the balance, if any, shall be c. Tariff bill.
non-pro it educational institutions, unlike the exemption that transferred to the general funds of the Government.
CIR v. CTA, Manila Golf & Country Club
may be availed of by proprietary educational institutions, is not
subject to limitations imposed by law. (CIR v. DLSU 2016) PKSMMN, et al. v. Executive Secretary, et al. 2012 En Banc
An “item” in a revenue bill does NOT refer to an entire
These are consolidated petitions to declare unconstitutional certain section imposing a particular kind of tax, but rather to the subject of
Summary for Charitable, Religious and Educational Entities the tax and the tax rate. In the portion of a revenue bill which actually
PDs and EOs of the martial law era relating to the raising and use of
Non-Stock, Non-Pro it coco-levy funds. imposes a tax, a section identi ies the tax and enumerates the persons
Charitable or Religious liable therefor with the corresponding tax rate. To construe the word
Educational
These funds are not only affected with public interest; they are, in “item” as referring to the whole section would tie the President’s
Real fact, prima facie public funds. They were raised with the use of the hand in choosing either to approve the whole section at the expense
Exempt from RPT If used ADE for intended purpose. police and taxing powers of the State for the bene it of the coconut of also approving a provision therein which he deems unacceptable
Property
industry and its farmers in general. The COA reviewed the use of the or veto the entire section at the expense of foregoing the collection of

lOMoARcPSD|4853470
there are less restrictive means to advance a right Non-establishment clause. No law shall be made respecting
the kind of tax altogether.
under the constitution. an establishment of religion, or prohibiting the free exercise
INDIRECT CONSTITUTIONAL LIMITATIONS 2. Rational Basis Test – The classi ication is valid if it thereof.
is rationally related to a constitutionally permissible Free exercise clause. The free exercise and enjoyment of
1) Due process of law state interest. e.g. Senior Citizens Act religious profession and worship, without discrimination or
a. The validity of a statute must be contested only by one 3. Quasi-Suspect Case – Available if needed. Based on preference, shall forever be allowed. This is the basis of tax
who sustained or stands to sustain direct injury in gender/legitimacy. It points out a speci ic exemptions.
consequence of its performance EXC: Transcendental constitutionally granted state interest such as The free exercise of religion clause, however, does not prohibit
importance, taxpayer‘s suit. protection of women where there is a valid imposing a generally applicable sales tax on the sale of
b. There must be proof of arbitrariness, otherwise, the classi ication between men and women. religious materials by religious organizations. The sale of
presumption of constitutionality applies. 3) Non-impairment of the obligations of contracts Sec 10 Art religious articles can be subject to VAT, what cannot be taxed is
c. Due process requires hearing before adoption of legislative III; the exercise of religious worship or activity. The income of the
rules by administrative bodies of interpretative rulings. a. If the exemption was granted for a valuable priest from the exercise of a religious activity cannot also be
consideration on the basis of a contract – it cannot be taxed. (Tolentino v. SOF)
d. Compliance of strict procedural requirements must be
followed to avoid a collision course between the state‘s revoked by passing another law. The non-impairment
American Bible Society v. City of Manila
power to tax and the individual‘s recognized rights. clause applies.
b. If the exemption is granted by virtue of a contract between In the case at bar, the license fee herein involved is imposed upon
e. Due process clause may be correctly invoked only when
a private corporation and the government – it cannot be appellant for its distribution and sale of bibles and other religious
there is a clear contravention of inherent or literature. It may be true that in the case at bar the price asked for the
constitutional limitations. revoked unilaterally by the government. The
bibles and other religious pamphlets was in some instances a little
non-impairment clause applies.
2) Equal protection of the laws bit higher than the actual cost of the same, but this cannot mean that
c. If the basis of the tax exemption is a mere franchise appellant was engaged in the business or occupation of selling said
a. No person or class of persons shall be deprived of the "merchandise" for pro it. For this reason We believe that the
granted by Congress – it can be unilaterally revoked by the
same protection of laws which is enjoyed by other persons government. NIC does not apply. provisions of City of Manila Ordinance No. 2529, as amended,
or other classes in the same place and in the like cannot be applied to appellant, for in doing so it would impair its
Important Cases free exercise and enjoyment of its religious profession and worship
circumstances.
1. VAT replaced the national franchise tax, but it did not as well as its rights of dissemination of religious beliefs.
b. All persons subject to legislation shall be treated alike
under similar circumstances and conditions both in the prohibit nor abolish the imposition of local franchise With respect to Ordinance No. 3000, as amended, which requires the
privileges conferred and liabilities imposed. tax by cities or municipalities. (Smart v. City of obtention of the Mayor's permit before any person can engage in
Davao) any of the businesses, trades or occupations enumerated therein, We
c. All persons, businesses, and properties should be taxed at
2. Since taxation is the rule and tax exemption, the do not ind that it imposes any charge upon the enjoyment of a right
the same rate, so long as they belong to the same granted by the Constitution, nor tax the exercise of religious practices.
classi ication. Equality among equals. exception, any tax exemption unilaterally granted can
be withdrawn at the pleasure of the taxing authority It seems clear, therefore, that Ordinance No. 3000 cannot be
d. Does not require territorial uniformity of laws. (Tiu v CA)
without violating the Constitution. (MCIAA v. Marcos) considered unconstitutional, even if applied to plaintiff Society. But
TESTS TO DETERMINE VALID CLASSIFICATION 3. The Constitution provides that franchise is subject to as Ordinance No. 2529 of the City of Manila, as amended, is not
applicable to plaintiff-appellant and defendant-appellee is powerless
1. Compelling State Interest Test – State balances the amendment, alteration or repeal by Congress when the
to license or tax, We ind that Ordinance No. 3000, as amended, is
public interest against religious freedom. The need to public interest so requires. (Cagayan Electric v. CIR) also inapplicable to said business, trade or occupation of the
advance the constitution and public interest. In case 4) Non-infringement of religious freedom

lOMoARcPSD|4853470
plaintiff. c. Transfer tax

The MCIT is imposed on gross income which is arrived at by
d. Donors and estate tax
5) No appropriation for religious purposes deducting the capital spent by a corporation in the sale of its goods,
i.e., the cost of goods and other direct expenses from gross sales. e. Percentage tax
GR: No appropriation is allowed in favor of any sect,
Clearly, the capital is not being taxed. Furthermore, the MCIT is not
church, or any priest, minister, etc. f. Excise tax
an additional tax imposition. It is imposed in lieu of the normal net
EXC: When such priest is assigned to the armed forces, income tax, and only if the normal income tax is suspiciously low. g. Documentary stamp tax
penal institution or government orphanage or 2) Local/Municipal taxes – Provided under the LGC
No violation of Equal Protection
leprosarium.
3) Tariff and customs duties – Provided under the TCC
6) Non-infringement of the freedom of the press The taxing power has the authority to make reasonable
classi ications for purposes of taxation. Inequalities which result 4) Taxes and tax incentives under special laws.
There is curtailment of press freedom and freedom of thought from a singling out of one particular class for taxation, or exemption,
and expression if a tax is levied in order to suppress this basic infringe no constitutional limitation. The real estate industry is, by ESSENTIAL CHARACTERISTICS AND ATTRIBUTES OF TAXES
right and impose prior restraint. itself, a class and can be validly treated differently from other
business enterprises. 1) Enforced contribution - independent of the will of taxpayer;
CREBA v. Romulo 2010 En Banc
2) Generally payable in money;
G. STAGES OR ASPECTS OF TAXATION
Petitioner assails the validity of the imposition of minimum EXC:
corporate income tax (MCIT) on corporations and creditable 1) Levy - enactment of a law by Congress.
1. Tax credit certi icate or back pay certi icate – When
withholding tax (CWT) on sales of real properties classi ied as
ordinary assets.
2) Assessment - determination of how much tax is due. taxes are paid in excess of that due, the government
issues a certi icate where said excess in taxes will be
3) Collection - implementing the tax laws.
MCIT is not violative of Due Process deducted from the taxes payable the following year.
Other aspects of taxation:
Taxes are the lifeblood of the government. Without taxes, the 2. Tax liens – Forfeiture of property by reason of failure
government can neither exist nor endure. Taxation is an inherent 1) Payment – involves the act of compliance by the taxpayer of to pay real property tax – but this property will be
attribute of sovereignty. It is a power that is purely legislative. his tax obligation, as when he actually pays his taxes; sold and the proceeds shall be used to satisfy the tax
Essentially, this means that in the legislature primarily lies the 2) Refund – Taxes paid will be returned to the taxpayers as when obligation.
discretion to determine the nature (kind), object (purpose), extent
there is an erroneous or illegal collection of taxes. 3) Proportionate in character — ability to pay.
(rate), coverage (subjects) and situs (place) of taxation. It has the
authority to prescribe a certain tax at a speci ic rate for a particular H. REQUISITES OF A VALID TAX 4) Levied on persons, property, exercise of a right or
public purpose on persons or things within its jurisdiction. privilege, act or transactions;
The enforced proportional contributions, generally payable in
As a general rule, the power to tax is plenary and unlimited in its money and paid at regular periods or intervals, levied from persons 5) Levied by the State which has jurisdiction over the
range, acknowledging in its very nature no limits, so that the and property or the exercise of a right or privilege, by the State subject or object of taxation;
principal check against its abuse is to be found only in the which has jurisdiction over the subject or object of taxation, through 6) Levied by the lawmaking body of the State;
responsibility of the legislature (which imposes the tax) to its
the legislative body of the State, for the support of the government
constituency who are to pay it. Nevertheless, it is circumscribed by 7) For public purpose.
constitutional limitations. and for all public needs.
Requisites for a Valid Tax (PUJ-DL)
1) Internal Revenue taxes – Provided under the NIRC
Certainly, an income tax is arbitrary and con iscatory if it taxes 1) It must be for a Public purpose;
capital because capital is not income. In other words, it is income, a. Income tax
not capital, which is subject to income tax. However, the MCIT is not 2) The rule on taxation should be Uniform;
b. Business tax
a tax on capital.

lOMoARcPSD|4853470
3) Subject taxed must be within the Jurisdiction of the taxing taxpayer can be determined. e.g. Income tax, real estate tax, GR: Tax laws are prospective in operation because the nature and
excise tax on automobiles
authority; amount of the tax could not be foreseen and understood by the
c. Mixed – Basis of the tax is the value of the article and weight. taxpayer at the time the transactions which the law seeks to tax
4) The assessment and collection must be in consonance with the
e.g. Customs duties were completed.
Due process clause;
AS TO PURPOSE EXC: While it is not favored, a statute may nevertheless operate
5) The tax must not infringe the inherent and constitutional
a. General, Fiscal or Revenue – tax levied for the general or retroactively provided it is expressly declared or is clearly the
Limitations of the power of taxation.
ordinary purposes of the government, i.e. raise revenue for legislative intent.
I. KINDS OF TAXES governmental and public needs. These funds can be used for EXC to the EXC:
AS TO SUBJECT MATTER OR OBJECT whatever purpose. e.g. Income tax, VAT, and almost all taxes. A tax law should not be given retroactive application when it
a. Personal, Poll, or Capitation – tax imposed on persons b. Special or Regulatory – tax levied for special purposes, i.e. to would be so harsh and oppressive, for in such case, the
residing within a speci ied territory, whether citizens or not, achieve some social or economic ends, irrespective of whether constitutional limitation of due process would be violated.
without regard to their property or the occupation or business revenue is actually raised or not. TN: These funds can be used Non-retroactivity of repeal of regulations or rulings
in which they may be engaged. e.g. Community tax only for the speci ic purpose which the law creating it
indicated. GR: No retroactivity if the repeal, revocation, modi ication or
b. Property – tax levied on property, real or personal, in reversal of regulations or rulings is prejudicial to the taxpayer.
proportional to its value or in accordance with some rule of AS TO SCOPE OR AUTHORITY IMPOSING THE TAX
EXC:
apportionment. e.g. Real estate tax a. National – taxes imposed by the national government e.g. NIR
taxes, customs duties, national taxes imposed by laws 1. Where the taxpayer deliberately misstates or omits material
c. Excise – tax imposed upon the performance of an act, the
facts from his return or in any document required of him by the
enjoyment of a privilege, or the engagement in an occupation or b. Municipal or Local – taxes provided in the LGC and imposed
BIR;
business. E.g. Income tax, donor‘s tax, estate tax by local governments. e.g. Business taxes imposed under the
LGC 2. Where the facts subsequently gathered by the BIR are
AS TO BURDEN OR INCIDENCE
materially different from the facts on which the ruling is
a. Direct – tax demanded from the very person who, as intended AS TO GRADUATION
based;
should pay the tax which he cannot shift to another. e.g. Income a. Proportion – based on a ixed percentage of the amount of the
3. Where the taxpayer acted in bad faith.
tax, estate tax, donor‘s tax, community tax property receipts or other basis to be taxed. e.g. Real estate tax,
b. Indirect – tax demanded in the irst instance from one person corporate tax ( ixed at 30% regardless of how much income 2. Imprescriptibility
with the expectation that he can shift the burden to someone the corporation earns)
As a rule, taxes are imprescriptible as they are the lifeblood of the
else, not as taxes, but as part of the purchase price. e.g. VAT, b. Progressive – rate of which increases as the tax base or government. However, tax laws may provide for statute of
percentage tax, excise tax, customs duties bracket increases. e.g. Income tax limitations.
AS TO TAX RATE Digressive - started as progressive but becomes stagnant at 3. Situs of taxation
a. Speci ic – tax imposed by the head or number, or by some some point.
FACTORS
standard of weight or measurement. Requires statistics. No c. Regressive – tax rate decreases as the tax base or bracket
need for an appraisal. e.g. Wines, fermented liquors, etc. increases. e.g. VAT (regressive as to its effect) 1. Nature of the tax;
b. Ad valorem – tax of a ixed proportion of the value of the 2. Subject matter of the tax (person, property, act or activity);
J. GENERAL CONCEPTS IN TAXATION
property with respect to which the tax is assessed. It requires 3. Possible protection and bene it that may accrue both to the
the intervention of assessors or appraisers to estimate the 1. Prospectivity of tax laws government and the taxpayer;
value of such property before the amount due from each APPLICATION OF TAX LAWS

lOMoARcPSD|4853470
4. Citizenship of the taxpayer;

Cross-border Doctrine or the same jurisdiction for the same thing."
5. Residence of the taxpayer; Destination Principle - where
consumed. First, the taxes herein are imposed on two different subject
6. Source of income. matters. The subject matter of the FWT is the passive income
Factors in the Philippines for Purposes of Situs of Income Tax Sales Where consummated generated in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT is the privilege of
1. Domiciliary Theory – the residence of the taxpayer is the Business Place of business engaging in the business of banking.
basis of the tax.
Poll Residence Second, the taxing periods they affect are different. The FWT is
2. Nationality Theory – the citizenship of the taxpayer is the
deducted and withheld as soon as the income is earned, and is paid
basis of the tax. after every calendar quarter in which it is earned. On the other hand,
4. Double taxation
3. Source Theory – the source of the income of the taxpayer is the GRT is neither deducted nor withheld, but is paid only after every
1. Strict Sense — DIRECT taxable quarter in which it is earned.
the basis of the tax.
Requisites
Summary of Rules Third, these two taxes are of different kinds or characters. The
a. Same subject/object taxed twice; FWT is an income tax subject to withholding, while the GRT is a
Kind of Tax Situs percentage tax not subject to withholding.
b. For the same purpose;
Property Real Property Location c. By the same taxing authority; Instances of double taxation
Tangible Location d. Within the same jurisdiction; 1. A tax on mortgage as personal property when the mortgaged
Personal Property e. During the same period; AND property is also taxed at its full value as real estate.
f. Of the same kind or character. 2. A tax upon a corporation for its property and upon its
Intangibles e.g. GR: Domicile of owner
shareholders for their shares.
credits, bills, Mobilia sequuntur 2. Broad Sense — INDIRECT
stocks, personam 3. A tax upon a corporation for its capital stock as a whole and
promissory notes EXC: if any of the elements for direct duplicate taxation is absent. upon the shareholders for their shares.
1. Acquired business situs Not prohibited.
elsewhere; 4. A tax upon depositors in a bank for their deposits and a tax
NOTES upon the bank for the property in which such deposits are
2. The law provides so.
a. It is not prohibited by the Constitution. Hence, it may not be invested.
Excise Excise Where act performed or occupation invoked as a defense against the validity of a tax law. Though 5. An excise tax upon certain use of property and a property tax
pursued not prohibited, it is not favored. It should be avoided and upon the same property.
prevented whenever possible.
Income Source, nationality or residence of 6. A tax upon the same property imposed by two different states.
earner b. It may be unconstitutional in relation to the equal protection
clause. Domestic double taxation — arises when the taxes are imposed by
Donor’s Location, nationality or residence of the local or the national government.
taxpayer CIR v. Solidbank International double taxation — imposition of comparable taxes in
Estate
two or more states on the same taxpayer with respect to the same
NO Double Taxation
VAT Where transaction is made. subject matter and for an identical period.
Double taxation means taxing the same property twice when it
Others Franchise Grantee State should be taxed only once; that is, "taxing the same person twice by

lOMoARcPSD|4853470
➔ Allowed because they are imposed by different taxing

taxation in two different jurisdictions. More precisely, the tax the tax that may be collected by the state of source. Furthermore, the
authorities. Measures allowed by the government are tax refund conventions are drafted with a view towards the elimination of method employed to give relief from double taxation is the allowance
or credit but not to declare it invalid. international juridical double taxation, which is de ined as the of a tax credit to citizens or residents of the United States.
HOW TO ELIMINATE? imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical Given the purpose underlying tax treaties and the rationale for the
1. Allowing reciprocal exemption either by law or by treaty periods. most favored nation clause, the concessional tax rate of 10 percent
provided for in the RP-Germany Tax Treaty should apply only if the
2. Allowance of tax credit for foreign taxes paid
Double taxation usually takes place when a person is a resident of a taxes imposed upon royalties in the RP-US Tax Treaty and in the
Tax Credit – deduction from tax payable. It reduces the amount contracting state and derives income from, or owns capital in, the RP-Germany Tax Treaty are paid under similar circumstances. This
payable directly. It is a full deduction of the amount paid other contracting state and both states impose tax on that income or would mean that private respondent must prove that the RP-US Tax
abroad. This is the best option. capital. In order to eliminate double taxation, a tax treaty resorts to Treaty grants similar tax reliefs to residents of the United States in
several methods. respect of the taxes imposable upon royalties earned from sources
3. Allowance of deduction for foreign taxes paid within the Philippines as those allowed to their German counterparts
Tax Credit – deduction from taxable income. The amount of First, it sets out the respective rights to tax of the state of source or under the RP-Germany Tax Treaty.
situs and of the state of residence with regard to certain classes of
taxes paid abroad is used to reduce tax payable in the
income or capital. If the rates of tax are lowered by the state of source, in this case, by
Philippines. Here, the amount paid abroad is multiplied by the the Philippines, there should be a concomitant commitment on
tax rate in the Philippines. Second, is when the state of source is given a full or limited right to the part of the state of residence to grant some form of tax
tax together with the state of residence. In this case, the treaties make relief, whether this be in the form of a tax credit or exemption.
4. Reduction of Philippine tax rate
it incumbent upon the state of residence to allow relief in order to
MOST FAVORED NATION CLAUSE avoid double taxation. There are two methods of relief — the The purpose of a most favored nation clause is to grant to the
★ A method of establishing equality of trading opportunity
exemption method and the credit method. contracting party treatment not less favorable than that which has
been or may be granted to the "most favored" among other countries.
among states by guaranteeing that if one country is given better In the exemption method, the income or capital which is The most favored nation clause is intended to establish the principle
trade terms by another, then all other states must get the same taxable in the state of source or situs is exempted in the state of of equality of international treatment by providing that the citizens or
terms. residence, although in some instances it may be taken into subjects of the contracting nations may enjoy the privileges accorded
★ The iling of a tax treaty relief application is not a condition account in determining the rate of tax applicable to the taxpayer's by either party to those of the most favored nation.
remaining income or capital.
precedent to the availment of a preferential tax rate. The denial
We accordingly agree with petitioner that since the RP-US Tax Treaty
of the availment of tax relief for the failure of a taxpayer to On the other hand, in the credit method, although the income does not give a matching tax credit of 20 percent for the taxes paid to
apply within the prescribed period under the administrative or capital which is taxed in the state of source is still taxable in the Philippines on royalties as allowed under the RP-West Germany
issuance would impair the value of the tax treaty. At most, the the state of residence, the tax paid in the former is credited Tax Treaty, private respondent cannot be deemed entitled to the 10
application for a tax treaty relief from the BIR should merely against the tax levied in the latter. percent rate granted under the latter treaty for the reason that there is
operate to con irm the entitlement of the taxpayer to the relief. no payment of taxes on royalties under similar circumstances.
The basic difference between the two methods is that in the
(Deutsche Bank)
exemption method, the focus is on the income or capital itself, 5. Escape from taxation
Tax Treaties as Relief from Double Taxation whereas the credit method focuses upon the tax.
CIR v. S.C. Johnson and Son 1) SHIFTING
Here, the state of source is the Philippines because the royalties are
paid for the right to use property or rights, i.e. trademarks, patents a. Tax burden is transferred from the statutory taxpayer to another
The RP-US Tax Treaty is just one of a number of bilateral treaties
and technology, located within the Philippines. The US is the state of without violation of law.
which the Philippines has entered into for the avoidance of double
taxation. The purpose of these international agreements is to residence since the taxpayer, S. C. Johnson and Son, U. S. A., is based b. Statutory taxpayer. the original taxpayer required under the
reconcile the national iscal legislations of the contracting there. Under the RP-US Tax Treaty, the state of residence and the state
law to pay the tax.
parties in order to help the taxpayer avoid simultaneous of source are both permitted to tax the royalties, with a restraint on

lOMoARcPSD|4853470
c. Impact of taxation. The point on which a tax is originally a. The end to be achieved is to lessen payment of taxes Example: Forgive the taxpayer out of pure liberality. Must not be applied to a
imposed. the payment of less than that known by the taxpayer to be speci ic person. It is equivalent to an exemption and should thus
d. Incidence of taxation. That point on which the tax burden legally due, or in paying no tax when such is due. follow the rules on tax exemption.
inally rests or settles down. b. An accompanying state of mind described as being “evil”, “in 6. Exemption from taxation
3 Kinds: bad faith”, “willful” or “deliberate and not accidental”
Broad Sense – Tax not applied on a particular property. Tax on
a. Forward shifting – the transfer of the burden of tax c. A course of action (or failure of action) which is unlawful. (CIR particular property or object within the same jurisdiction but not
from the units of production to the units of v. Estate of Toda) taxed by the taxing authority. e.g. Tax on property used by the
distribution to the consumer. E.g. VAT, percentage tax Indicia of Fraud Government when the other properties in the same area are subject
b. Backward shifting – The transfer of the burden of tax a. Failure to declare true and actual income derived from to tax.
from the consumer back to the units of distribution to business for 2 consecutive years; OR Narrow Sense – Exemption of a particular class. An entire class of
the units of production. b. Substantial under-declaration of ITR for 4 consecutive years the same conditions are exempted from taxes supposedly imposed
c. Onward shifting – When the tax is shifted two or on a bigger class.
coupled with intentional overstatement of deductions.
more times either forward or backward. More than one Important principles
6) EXEMPTION
shift. a. It is an immunity or privilege that is personal in nature;
The grant of immunity to particular persons or corporations or to
2) CAPITALIZATION person or corporations of a particular class from a tax which b. It is freedom from a inancial charge or burden to which others
a. The reduction in the price of the taxed object equal to the persons and corporations generally within the same state or taxing are subjected;
capitalized value of future taxes which the purchaser expects to district are obliged to pay. c. Allowed only when there is a clear provision of the law;
be called upon to pay. It occurs when the tax falls on an 7) ASSUMPTION d. Strictly construed against the taxpayer;
income-producing property, i.e. commercial building.
To "assume" means to take on, become bound as another is bound, e. It is not necessarily discriminatory as long as there is a
b. Special kind of backward shift.
or put oneself in place of another as to an obligation or liability.” reasonable foundation or rational basis.
3) TRANSFORMATION This means that the obligation or liability remains, although
DOUBLE NEXUS RULE. Person claiming exemption must prove:
Manufacturer or producer upon whom the tax has been imposed, the same is merely passed on to a different person. In this
light, the concept of an assumption is therefore different from an 1. The law granting the exemption; AND
fearing the loss of his market should he add the tax to the price,
pays the tax and endeavors to recoup himself by improving his exemption, the latter being the freedom from a duty, liability or 2. That he falls within the law or is quali ied in the exemption.
process of production thereby turning out his units of products at a other requirement or a privilege given to a judgment debtor by law,
GROUNDS FOR TAX EXEMPTION
lower cost. allowing the debtor to retain a certain property without liability.
Thus, the constitutional provisions on tax exemptions would not a. It may be based on contract. When the charter provides for
4) AVOIDANCE apply. (Mitsubishi Corporation v. CIR) such exemption.
Exploitation by the taxpayer of legally permissible alternative tax 8) REMISSION TN: In such a case, the public which is represented by the
rates or methods of assessing taxable property or income in order government is supposed to receive a full equivalent therefor.
To desist or refrain from exacting, in licting or enforcing something
to avoid or reduce tax liability. e.g. estate planning.
as well as to restore what has already been taken. b. It may be based on some ground of public policy. The
5) EVASION exemption is provided in the law itself or the constitution.
9) CONDONATION
Elements of Tax Evasion (How to Establish Tax Evasion) TN: To encourage new industries or to foster charitable
institutions. Here, the government need not receive any
consideration in return for the tax exemption

lOMoARcPSD|4853470
c. It may be created in a treaty on grounds of reciprocity or to a. Personal – granted directly in favor of certain persons e.g. d. If there is an express mention or if the taxpayer falls within
lessen the rigors of international or multiple taxation. Basic personal exemption of 50k and additional exemption of the purview of the exemption by clear legislative intent, the
TN: Recognition of international comity. 25k for each dependent up with a maximum of 4 dependents; rule on strict construction does not apply.
However, these have been repealed by the TRAIN Law effective e. If exemption refers to public property (in case of public
AS TO MANNER OF CREATION
January 1, 2018. property, the general rule is exemption and taxation is the
a. Express or af irmative – when certain persons, property or b. Impersonal – granted directly in favor of a certain class of exception)
transactions are, by express provision, exempted from all or property. e.g. Property f. Solutio indebiti
certain taxes. - When the provision itself provides for
CONSTRUCTION OF TAX EXEMPTION STATUTES RESTRICTIONS ON REVOCATION OF TAX EXEMPTION
exemption
TN: May be made by provisions of the Constitution, statutes, GR: Tax exemption statutes are construed strictly against the a. Non-impairment clause – Applies in contractual tax
treaties, ordinances, franchises, or contracts. taxpayer and liberally in favor of the government. exemptions or those agreed to by the taxing authority in
b. Implied exemption or exemption by omission – when a tax a. In the construction of tax statutes, in case of doubt, exemptions contracts, such as those contained in government bonds or
is levied on certain classes of persons, properties or are not favored and are construed strictissimi juris against the debentures, lawfully entered into by them under enabling laws
transactions without mentioning the other classes. taxpayer. in which the government, acting in its private capacity, sheds
b. The fundamental theory is that all taxable property should bear its cloak of authority and waives its governmental immunity.
TN: The omission may be either accidental or intentional.
its share in the cost and expenses of the government. b. Adherence to form – If the exemption is granted by the
Exemptions are not presumed, but when public property is
involved, exemption is the rule, and taxation, the exception. c. Taxation is the rule and exemption the exception, and Constitution, it can only be revoked through a Constitutional
therefore, he who claims exemption must be able to justify his amendment. It cannot be revoked by mere passage of a law.
c. Contractual – in the real sense of the term and where the
claim or right thereto, by a grant expressed in terms ― too plain c. Tax-exempting grant is in the form of a special law – where
non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in to be mistaken and too categorical to be misinterpreted. the grant is given through a special law and not by a general
contracts, such as those contained in government bonds or d. Claims for an exemption must be able to point out some law, even if the terms of the general act are broad enough to
debentures, lawfully entered into by them under enabling laws provision of law creating the right, and cannot be allowed to include the intent to repeal or alter the special law, there would
in which the government, acting in its private capacity, sheds exist upon a mere vague implication or inference. still be no revocation.
its cloak of authority and waives its governmental immunity. e. Refunds are in the nature of exemption, and must be CIR v. The Philippine American Accident Insurance Company
TN: These contractual tax exemptions, however, are not to be construed strictly against the grantee/taxpayer.
confused with tax exemptions granted under franchises. A Section 182(A)(3)(dd) of CA 466 imposes an annual ixed tax on
EXC:
franchise partakes of the nature of a grant which is beyond the lending investors, depending on their location. The sole question
a. When the law itself expressly provides for a liberal before the CTA was whether respondents insurance companies
purview of the non-impairment clause of the Constitution.
construction, that is, in case of doubt, it shall be resolved in were subject to the percentage tax on lending investors under
AS TO SCOPE OR EXTENT Section 195-A.
favor of exemption.
a. Total – when certain persons, property or transactions are b. When the exemption is in favor of the government itself or The rule that tax exemptions should be construed strictly against the
exempted, expressly or implied, from all taxes entirely. its agencies, or of religious, charitable, and educational taxpayer presupposes that the taxpayer is clearly subject to the tax
b. Partial – when certain persons, property or transactions are institutions because the general rule is that they are exempt being levied against him. Unless a statute imposes a tax clearly,
exempted, expressly or implied, from certain taxes in part. e.g. from tax. expressly and unambiguously, what applies is the equally
well-settled rule that the imposition of a tax cannot be presumed.
Basic personal exemption and additional exemption c. When the exemption is granted under special circumstances to Where there is doubt, tax laws must be construed strictly against the
AS TO OBJECT special classes of persons. government and in favor of the taxpayer.

lOMoARcPSD|4853470
taxes. On the other hand, the portions of the land occupied by the before the Court. R.A. No 7294 does not expressly provide what kind
In this case, petitioner does not dispute that respondents are in the hospital and portions of the hospital used for its patients, whether of taxes Smart is exempted from. What is clear is that Smart shall pay
insurance business. Petitioner merely alleges that the de inition of paying or non-paying, are exempt from real property taxes. franchise tax equivalent to three percent (3%) of all gross receipts of
lending investors under CA 466 is broad enough to encompass the business transacted under its franchise. But whether the franchise
insurance companies. The question is whether the lending activities Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in tax exemption would include exemption from exactions by both the
of insurance companies make them lending investors for purposes of order to be entitled to the exemption, the petitioner is burdened to local and the national government is not unequivocal.
taxation. We agree with the CTA and Court of Appeals that it does not. prove, by clear and unequivocal proof, that
The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on
PAGCOR v. BIR 2011 En Banc a) it is a charitable institution; and whether Smart is exempted from both local and national franchise tax
b) its real properties are ACTUALLY, DIRECTLY and must be construed strictly against Smart which claims the
WON PAGCOR is still exempt from corporate income tax and VAT with EXCLUSIVELY used for charitable purposes. exemption.
the enactment of R.A. No. 9337. NO.
What is meant by actual, direct and exclusive use of the property for In this case, the doubt must be resolved in favor of the City of Davao.
Petitioner is no longer exempt from corporate income tax as it charitable purposes is the direct and immediate and actual The "in lieu of all taxes" clause applies only to national internal
has been effectively omitted from the list of GOCCs that are exempt application of the property itself to the purposes for which the revenue taxes and NOT to local taxes.
from it. charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property 7. Equitable recoupment
The non-impairment clause provides that no law impairing the is used for tax-exempt purposes. Where the refund of a tax illegally or erroneously collected from or
obligation of contracts shall be passed. The non-impairment clause is
limited in application to laws that derogate from prior acts or overpaid by a taxpayer is barred by prescription, a tax presently being
John Hay People’s Alternative Coalition, et al. v. Lim, et al.
contracts by enlarging, abridging or in any manner changing the assessed against a taxpayer may be recouped or set-off.
intention of the parties. There is impairment if a subsequent law Whether Proclamation No. 420 is constitutional by providing for NB: INAPPLICABLE.
changes the terms of a contract between the parties, imposes new national and local tax exemption within and granting other
conditions, dispenses with those agreed upon or withdraws remedies economic incentives to the John Hay Special Economic Zone. 8. Prohibition on compensation and set-off
for the enforcement of the rights of the parties. GR: Taxation is not subject to set-off.
NO. Under Section 12 of R.A. No. 7227, it is only the Subic SEZ which
As regards franchises, Section 11, Article XII of the Constitution EXC: When both debts are due and demandable and have been
was granted by Congress with tax exemption, investment incentives
provides that no franchise or right shall be granted except under the fully liquidated, and the amount due the taxpayer has
and the like. There is no express extension of the aforesaid bene its to
condition that it shall be subject to amendment, alteration, or repeal already been appropriated by law, compensation follows
other SEZs still to be created at the time via presidential
by the Congress when the common good so requires. by operation of law.
proclamation.
In Manila Electric Company v. Province of Laguna, the Court held TN: There can be no compensation as the Government and the
that a franchise partakes the nature of a grant, which is beyond the Smart Communications v. The City of Davao
people are not principal debtors and creditors of each
purview of the non-impairment clause of the Constitution. other.
WON Smart is liable to pay the franchise tax imposed by the City of
Anent the validity of RR No. 16-2005, the Court holds that the Davao. Air Canada v. CIR 2016 Leonen, J
provision subjecting PAGCOR to 10% VAT is invalid for being
contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided YES. Smart argues that it is not covered by Section 137, in relation to The issue of petitioner's claim for tax refund is intertwined with the
that petitioner can be subjected to VAT. Section 151 of R.A. No. 7160, because its franchise was granted after issue of the proper taxes that are due from petitioner. A claim for tax
the effectivity of the said law. We agree with Smart's contention on refund carries the assumption that the tax returns iled were correct.
Lung Center of the Philippines v. Quezon City this matter. The withdrawal of tax exemptions or incentives provided If the tax return iled was not proper, the correctness of the amount
in R.A. No. 7160 can only affect those franchises granted prior to the paid and, therefore, the claim for refund become questionable. In that
Portions of the land leased to private entities as well as those parts of effectivity of the law. case, the court must determine if a taxpayer claiming refund of
the hospital leased to private individuals are NOT exempt from such erroneously paid taxes is more properly liable for taxes other than
The "in lieu of all taxes" clause in Smart's franchise is put in issue that paid.

lOMoARcPSD|4853470
In South African Airways v. CIR, South African Airways claimed for 10. Tax amnesty amnesty program it wants to avail.
refund of its erroneously paid 2 1/2% taxes on its gross Philippine
Amnesty Exemption CIR v. Trans ield Philippines, Inc. 2019
billings. This court did not immediately grant South African's claim
for refund. This is because although this court found that South Here, respondent has successfully availed itself of the tax amnesty
Immunity from ALL liabilities Immunity from CIVIL liabilities
African Airways was not subject to the 2 1/2% tax on its gross bene its granted under R.A. No. 9480. The CIR, however, insists that
only
Philippine billings, this court also found that it was subject to 32% respondent is still liable for de iciency taxes, contending that under
tax on its taxable income. A general pardon to all taxpayers A privilege, a freedom from a RMC No. 19-2008, respondent is disquali ied to avail of the tax
charge or burden of which others amnesty because it falls under the exception of "delinquent accounts
SMI-ED Philippines Technology v. CIR 2014 Leonen, J are subjected or accounts receivable considered as assets by the BIR or the
In an action for the refund of taxes allegedly erroneously paid, the Government, including self-assessed tax."
Court of Tax Appeals may determine whether there are taxes that Of retroactive application Generally prospective
In implementing tax amnesty laws, the CIR cannot now insert an
should have been paid in lieu of the taxes paid. Determining the
Asia International Auctioneers, Inc. v. CIR⭐ 2012 exception where there is none under the law. Indeed, a tax
proper category of tax that should have been paid is not an
amnesty must be construed strictly against the taxpayer and liberally
assessment. It is incidental to determining whether there should be a
A tax amnesty is a general pardon or the intentional overlooking in favor of the taxing authority. However, the rule-making power of
refund.
by the State of its authority to impose penalties on persons otherwise administrative agencies cannot be extended to amend or expand
A PEZA-registered corporation that has never commenced statutory requirements or to embrace matters not originally
guilty of violating a tax law. It partakes of an absolute waiver by the
operations may not avail the tax incentives and preferential encompassed by the law.
government of its right to collect what is due it and to give tax
rates given to PEZA-registered enterprises. Such corporation is
evaders who wish to relent a chance to start with a clean slate.
subject to ordinary tax rates. K. CONSTRUCTION AND INTERPRETATION
The amount of the taxpayer’s liability should be computed and A tax amnesty, much like a tax exemption, is never favored or OF TAX LAWS, RULES AND REGULATIONS
deducted from the refundable amount. Any liability in excess of the presumed in law. The grant of a tax amnesty, similar to a tax
refundable amount, however, may not be collected in a case involving exemption, must be construed strictly against the taxpayer and Internal revenue laws are not political in nature. Tax laws are civil and
solely the issue of the taxpayer’s entitlement to refund. liberally in favor of the taxing authority. not penal in nature. Even if there is change in government control, it
The Tax Amnesty Program under RA 9480 may be availed of by any remains to be implemented.
9. Compromise
person except those who are disquali ied under Section 8 thereof. The GR: In case of doubt, tax laws are to be construed strictly against
Kepco Philippines v. CIR 2020 CIR contends that AIA is disquali ied under Section 8(a) of RA 9480 the government and liberally in favor of the taxpayer.
from availing itself of the Tax Amnesty Program because it is
The CIR may compromise an assessment when a reasonable doubt “deemed” a withholding agent for the de iciency taxes. This argument EXC:
as to the validity of the claim against the taxpayer exists, or the is untenable.
inancial position of the taxpayer demonstrates a clear inability to a. Where the language of the statute is plain and there is no doubt
pay the tax. The CIR also argues that AIA, being an accredited investor/taxpayer as to the legislative intent.
situated at the Subic Special Economic Zone, should have availed of b. Where the taxpayer claims exemption from taxation.
As to whether the CIR properly accepted Kepco's offer for a the tax amnesty granted under RA 9399 and not under RA 9480. This
compromise because "the assessment is lacking in legal and/or is also untenable. As to Tax Exemptions
factual basis," the general rule is that the authority of the CIR to
compromise is purely discretionary and the courts cannot GR: In case of doubt, tax exemptions are to be construed strictly
RA 9399 was passed prior to the passage of RA 9480. RA 9399 does
interfere with his exercise of discretionary functions, absent grave not preclude taxpayers within its coverage from availing of other tax against the taxpayer and liberally in favor of the taxing
abuse of discretion. Here, no grave abuse of discretion exists. Kepco amnesty programs available or enacted in futuro like RA 9480. authority.
complied with the procedures prescribed under the BIR rules on the Moreso, RA 9480 does not exclude from its coverage taxpayers EXC:
application and approval of compromise settlement on the ground of operating within special economic zones. As long as it is within the
doubtful validity. bounds of the law, a taxpayer has the liberty to choose which tax a. Statute provides for the liberal construction thereof;

lOMoARcPSD|4853470
b. Special taxes relating to special cases and affecting only special Tax refunds are in the nature of tax exemptions which are Important Concepts on Jurisdiction
cases; construed strictissimi juris against the taxpayer and liberally in 1. Follow the hierarchy of the courts;
favor of the government. As tax refunds involve a return of revenue
c. Exemptions refer to public property; 2. If it is a question pertaining to the constitutionality of a ruling
from the government, the claimant must show indubitably the
d. Exemptions granted to religious, charitable and educational speci ic provision of law from which her right arises; it cannot be or IRR, raise it immediately before the regular courts;
institutions or their property; allowed to exist upon a mere vague implication or inference nor can
3. But if it pertains to questions on the tax payable computations,
it be extended beyond the ordinary and reasonable intendment of the
e. Exemptions in favor of the government, its political question it irst with the BIR (Administrative level) then appeal
language actually used by the legislature in granting the refund. To
subdivisions or instrumentalities. repeat, strict compliance with the conditions imposed for the return it to the CIR (depends on the amount), then after it can be
MCIAA v. Marcos of revenue collected is a doctrine consistently applied in this appealed later to the Sec of Finance or CTA, and then after, that‘s
jurisdiction. the time you can go the SC.
If the grantee of the exemption is a political subdivision or
Tax laws are prospective in operation, unless the language of the 4. But in the SC, it should only be purely questions of law.
instrumentality; the rigid rule of construction does not apply
because the practical effect of the exemption is merely to reduce the statute clearly provides otherwise.
amount of money that has to be handled by the government in the
course of its operations. Revenue statutes are substantive laws and in no sense must their National Taxation
application be equated with that of remedial laws. As well said in a
Since taxation is the rule and exemption therefrom the exception, the prior case, revenue laws are not intended to be liberally construed. A. TAXING AUTHORITY
exemption may thus be withdrawn at the pleasure of the taxing Considering that taxes are the lifeblood of the government and in
authority. The only exception to this rule is where the exemption Holmes's memorable metaphor, the price we pay for civilization, tax 1. Jurisdiction, Power, and Functions of the CIR
was granted to private parties based on material consideration laws must be faithfully and strictly implemented.
1) The BIR shall be under the supervision and control of the DOF
of a mutual nature, which then becomes contractual and is thus
KEPCO v. CIR 2011 and its powers and duties shall comprehend
covered by the non-impairment clause of the Constitution.
a) the assessment and collection of all national internal
Reading together Sections 133, 232, and 234 of the LGC, we conclude WON Kepco's failure to imprint the words "zero-rated" on its of icial revenue taxes, fees, and charges, and
that receipts issued to NPC justi ies an outright denial of its claim for
refund of unutilized input tax credits. b) the enforcement of all forfeitures, penalties, and ines
As a general rule, as laid down in Section 133, the taxing
connected therewith,
powers of local government units cannot extend to the levy of, YES. The imprinting of "zero-rated" is necessary to distinguish
inter alia, "taxes, fees and charges of any kind on the National sales subject to 10% VAT, those that are subject to 0% VAT c) including the execution of judgments in all cases
Government, its agencies and instrumentalities, and local (zero-rated) and exempt sales, to enable the Bureau of Internal decided in its favor by the CTA and the ordinary
government units"; Revenue to properly implement and enforce the other provisions of courts.
the 1997 NIRC on VAT.
however, pursuant to Section 232, provinces, cities, and 2) Powers of the CIR include:
municipalities in the Metropolitan Manila Area may impose the Kepco's claim that Section 4.108-1 of R.R. 7-95 expanded the letter
real property tax a) to interpret the provisions of the NIRC and other tax
and spirit of Section 113 of 1997 Tax Code, is unavailing. Indubitably,
said revenue regulation is merely a precautionary measure to ensure laws, subject to review by the SOF; (Sec 4)
except on, inter alia, "real property owned by the Republic of the
the effective implementation of the Tax Code. As a matter of fact, the b) to obtain information, and to summon, examine, and
Philippines or any of its political subdivisions except when the
provision of Section 4.108-1 of R.R. 7-95 was incorporated in Section take testimony of persons; (Sec 5)
bene icial use thereof has been granted, for consideration
113 (B)(2)(c) of R.A. No. 9337. This, in effect, and as correctly
or otherwise, to a taxable person," as provided in item (a) of
concluded by the CIR, con irms the validity of the imprinting i) Examine any document which may be
the irst paragraph of Section 234.
requirement on VAT invoices or of icial receipts even prior to the relevant or material to an inquiry;
enactment of R.A. No. 9337 under the principle of legislative
CIR v. Acosta
approval of administrative interpretation by reenactment.

lOMoARcPSD|4853470
ii) Obtain information from a third party in 2) minor criminal violations — which c. It must be published in the OG or newspaper of general
relation to an investigation or audit of a may be compromised by a Regional circulation
taxpayer; Evaluation Board. TN: Interpretative rules or those merely internal in nature may
iii) Summon the taxpayer or any person holding iv) to assign or reassign internal revenue of icers simply be posted in conspicuous places in the agency itself.
records of the taxpayer to appear and produce to establishments where articles subject to d. Where the regulations impose penal sanctions, the law itself
the documents; excise tax are produced or kept. must declare as punishable the violation of the administrative
rule or regulation and should ix or de ine the penalty thereof.
Correlate with Sec 266 for Failure to Obey Summons 2. Rule-making Authority of the Secretary of Finance
which is penal in nature, subject to the following Kinds of Administrative Issuances
Directory provisions — those designed merely for the information
requisites: 1. Legislative rules — rules in the nature of subordinate
or direction of of icers or to secure methodical and systematic
1. A person is duly summoned to appear to modes of proceedings. e.g. Revenue memorandum circulars issued legislation designed to implement a primary legislation by
testify, or to appear and produce books of by BIR to guide personnel on matters of regulation. providing the details thereof. Before it is adopted, there must be
accounts, records, memoranda or other a hearing under the AC of 1987.
Mandatory provisions — those intended for the security of the
papers, or to furnish information; and 2. Interpretative rules — are rules and regulations construing
citizens or which are designed to ensure equality of taxation or
2. The person neglected to do so. or interpreting the provisions of a statute to be enforced and are
certainty as to the nature and amount of each person‘s tax. e.g.
c) to make assessments and prescribe additional Remedies under the tax code (security); tax rate (equality) binding on all concerned until they are changed. Designed to
requirements for tax administration and enforcement; provide guidelines to the law, which the administrative agency
The determination of the validity of these issuances clearly falls
(Sec 6) is in charge of enforcing. They have the effect of law and are
within the exclusive appellate jurisdiction of the CTA under Section
entitled to great respect and have in their favor the presumption
d) to examine bank deposits, in the following cases 7 (1) of RA No. 1125, as amended, subject to prior review by the
of legality.
Secretary of Finance, as required under the NIRC. (Steel
i) A decedent, to determine his gross estate; RMC 20-86 was issued to govern the drafting, issuance and
Corporation of the Philippines v. BOC and BIR 2018)
ii) Any taxpayer who has iled an application for implementation of revenue tax issuances, including:
RULES and REGULATIONS
compromise based on inancial incapacity; or 1. Revenue regulations;
a. Promulgation: Secretary of Finance;
iii) Pursuant to an international convention or tax 2. Revenue audit memorandum orders;
b. Recommendation: CIR;
agreement. 3. Revenue memorandum circulars (external) and orders
c. Administrative Rulings: CIR.
e) To delegate power, except (internal).
REVENUE REGULATIONS
i) to recommend the promulgation of rules and
regulations by the SOF; GR: Revenue regulations are general interpretations of the BIR B. INCOME TAX
issued by the CIR or by its delegate.
ii) to issue rulings of irst impression or to ➔ RR 08-18. Revenue Regulation Implementing the Income Tax
EXC: When it tramples novel issues or is intended to revoke or
reverse, revoke or modify any existing ruling Provisions of TRAIN Act
amend or modify a previous ruling.
of the BIR;
REQUISITES FOR VALIDITY & EFFECTIVITY OF REGULATIONS ➔ RR 11-18. Revenue Regulation Implementing the
iii) to compromise or abate any tax liability,
a. It must be issued under authority of law; Withholding of Income Tax Provisions of TRAIN Act
except
b. It must be within the scope and purview of the law; not ➔ RMC 50-18.
1) For tax liabilities P500K or less and
contrary to law and the Constitution;

lOMoARcPSD|4853470
income from sources within the Philippines but is exempt from

1. Definition, Nature, and General Principles Gross Income NRA-NETB NRFC
Taxation tax on his income from sources outside the Philippines.
INCOME TAX is a direct tax on all yearly pro its arising from property, 3. Source of Income Principle — an alien is subject to
professions, trades or of ices or a tax on a person's income, 1) Residence — RA, 1) Residence — RFC; Philippine income tax because he derives income from sources
emoluments, pro its, and the like. It is: RC; 2) Place — NRFC; within the Philippines.
Situs
2) Place — NRA, NRC; 3) Nationality — DC.
1. National; 3) Citizenship — RC. d. General principles of income taxation
2. Direct; a) A citizen of the Philippines residing therein is taxable on all

Common Features income derived from sources within and without the
3. Excise; and Philippines;
1) Pay as you ile system. —
4. General. b) A nonresident citizen is taxable only on income derived from
a) Individuals — upon iling of ITRs;
a. Income Tax Systems sources within the Philippines;
b) Corporations — upon iling of quarterly corporate
a) Schedular — The items are classi ied based on kind or c) An individual citizen of the Philippines who is working and
ITRs and inal adjustment corporate returns;
category of income and this is subject to different tax rates deriving income from abroad as an overseas contract worker is
based on the income classi ication. 2) Creditable Withholding Tax System taxable only on income derived from sources within the
Philippines:
b) Global — lump all items of income and a single/ a) Withholding agent — withholds tax and remits to the
proportional/uniform income tax rate is imposed. BIR; Provided, That a seaman who is a citizen of the Philippines and
who receives compensation for services rendered abroad as a
c) Mixed (applicable in PH) — it is schedular in the sense that b) Tax withheld — creditable against income tax due.
member of the complement of a vessel engaged exclusively in
we lump different items of income per type or category and it
3) Final Withholding Tax System international trade shall be treated as an overseas contract
is global in the sense that we subject all the items in this lump
worker;
to one tax rate. a) Withholding agent — withholds tax and remits to the
BIR; d) An alien individual, whether a resident or not of the
b. Features of the Philippine Income tax law Philippines, is taxable only on income derived from sources
b) Tax withheld — inal settlement of the tax liability on
Feature Individual Corporate within the Philippines;
the income covered.
e) A domestic corporation is taxable on all income derived from
Schedular Global c. Criteria in imposing Philippine income tax sources within and without the Philippines; and
1) It classi ies income; 1) Generally provides 1. Citizenship or Nationality Principle — a citizen of the f) A foreign corporation, whether engaged or not in trade or
2) Provides for for uniform rules; Philippines is subject to Philippine income tax
Tax business in the Philippines, is taxable only on income derived
different tax rules; 2) Generally imposes
Treatment a. On his worldwide income, if he resides in the from sources within the Philippines. (Sec 23)
3) Imposes different uniform tax rate;
Philippines, or In short… Only RESIDENT CITIZENS and DOMESTIC CORPORATIONS
tax rates. 3) Does not generally
classify income. b. Only on his Philippine-source income, if he quali ies are taxable on income derived from ALL sources. All others are only
as a non-resident citizen; hence, his foreign-source taxable on income derived from sources within PH.
1) RC; 1) DC; income shall be exempt.
e. Types of Philippine income taxes
Net Income 2) NRC; 2) RFC.
2. Residence or Domicile Principle — an alien is subject to
Taxation 3) RA; 1. Personal Income Tax on Individuals (Secs 24-25);
income tax because of his residence in the Philippines. Thus, a
4) NRA-ETB. 2. Regular Corporate Income Tax (Sec 27[A]);
resident alien is liable to pay Philippine income tax only on his

lOMoARcPSD|4853470
3. Minimum Corporate Income Tax (Sec 27[E]); NON-RESIDENT CITIZEN NON-RESIDENT ALIEN
4. Capital Gains Tax; 1) A citizen of the Philippines who establishes to the satisfaction The test to classify NRA is the length of stay in the Philippines, whether
5. Tax on passive investment income; of the Commissioner the fact of his physical presence abroad he stays for more than 180 days or, 180 days or less.
with a de inite intention to reside therein.
6. Fringe Bene its Tax (Sec 33); NRA-ETB
2) A citizen of the Philippines who leaves the Philippines during
7. Branch Pro it Remittance Tax (Sec 27); a. More than 180 days
the taxable year to reside abroad, either as an immigrant or for
8. Improperly Accumulated Earnings Tax (Sec 29); and b. 0-35% tax on net income
employment on a permanent basis.
9. Final Withholding Income Tax. NRA-NETB
3) A citizen of the Philippines who works and derives income
from abroad and whose employment thereat requires him to be a. 180 days or less
f. Kinds of taxpayers
physically present abroad most of the time during the b. 25% inal tax on gross income
taxable year.
SPECIAL EMPLOYEES
- At least 183 days.
Special employees are alien individuals or Filipino citizens who are
- Temporary employment
subject to 15% tax based on their gross compensation income when:
4) A citizen who has been previously considered as 1. They are employed occupying managerial and/or technical
non-resident citizen and who arrives in the Philippines at any positions with regional or area headquarters of
time during the taxable year to reside permanently in the
a. multinational corporations,
Philippines shall likewise be treated as a non-resident citizen
for the taxable year in which he arrives in the Philippines with b. petroleum service contractors and subcontractors, or
respect to his income derived from sources abroad until the c. offshore banking units.
date of his arrival in the Philippines.
2. If the special taxpayer is an alien, all of his gross
- Hybrid
compensation income received is subject to 15% inal tax.
Within and Without Within Final Tax Rate of 25% within
5) Receives compensation for services rendered abroad as a 3. If the taxpayer is a Filipino citizen, he has the option to be
seaman. taxed at 15% inal tax based on his gross compensation income
RESIDENT CITIZEN
a. He is a member of the complement of a vessel received or at a regular income tax rate (0%-35%) based on the
1) Those who are citizens of the Philippines at the time of the b. The vessel is engaged exclusively in international net taxable compensation income if his gross annual taxable
adoption of this Constitution; trade. compensation is at least P975,000 (whether or not actually
2) Those whose fathers or mothers are citizens of the Philippines; received).
RESIDENT ALIEN
3) Those born before January 17, 1973, of Filipino mothers, who TN: 15% preferential tax rate vetoed
elect Philippine citizenship upon reaching the age of majority; A resident alien is one who has a residence in the Philippines Present and future quali ied employees of existing ROHQ, RAHQ,
and although he is not a Filipino citizen. He has no de inite period of OBU, and Petroleum service contractors and subcontractors as of
stay in the Philippines. December 31, 2017 shall enjoy preferential tax treatment.
4) Those who are naturalized in accordance with law.
He is not a mere transient or sojourner. His de inite purpose for It shall not apply for employees of ROHQ, RAHQ, OBU and
A Resident Citizen is a Filipino citizen who stayed permanently in the
staying requires an extended stay and to that end, he makes his Petroleum service contractors and subcontractors which registered
Philippines or stayed outside the Philippines for less than 183 days home temporarily in the Philippines.
during the taxable year. with the SEC beginning January 1, 2018.

lOMoARcPSD|4853470
Tests for Filipinos to avail of the option (prior to 1 Jan 2018) a) partnerships, no matter how created or organized, The corporate income tax rate shall be applied on the amount
a. Position and function test – employees must be occupying computed by multiplying the number of months covered by the
b) joint-stock companies,
managerial or technical position. new rate within the iscal year by the taxable income of the
c) joint accounts (cuentas en participación), corporation for the period, divided by twelve.
b. Compensation test – employees must be paid in their contract
(whether actual or not, as long as stipulated in the contract) the d) association, or 2. Concept of Income
amount of P975,000 per annum which is the minimum e) insurance companies, a. Definition
amount.
but does not include In the broad sense, INCOME refers to all wealth which lows into
c. Exclusivity Test - one employer at a time. the taxpayer other than those that are mere return of capital. It is
a) general professional partnerships and
ESTATES AND TRUSTS return on capital or return above the capital as opposed to return of
b) a joint venture or consortium formed for the purpose of capital.
An ESTATE is composed of all properties, rights and obligations
undertaking construction projects or engaging in In the strict sense, INCOME refers to the amount of money coming
including those properties, earnings or obligations that have petroleum, coal, geothermal and other energy operations to the taxpayer for services performed or an activity which he is
accrued thereto since the opening of the succession. The estate is to pursuant to an operating consortium agreement under a engaged in or for an investment which he has made including those
be transferred from the decedent to his successors. Its status is the service contract with the Government. that do not have speci ic owners but comes in the hands of a inder.
same as that of the decedent prior to his death.
'General professional partnerships' are partnerships formed by CAPITAL denotes the original investment or fund used in order to
It will only be taxable when it is under administration or
persons for the sole purpose of exercising their common generate earnings which is called income. It is the fund or property
settlement.
profession, no part of the income of which is derived from engaging existing at one point in time.
GR: An estate under judicial settlement is subject to income in any trade or business.
REVENUE refers to the amount received by the business from
tax.
Domestic corporations are those created or organized in the selling main goods or services to its customers during the period.
EXC: The distribution to the heirs during the taxable year of Philippines or under its laws. Otherwise, foreign corporations.
estate income is deductible from the taxable income of the b. When income is taxable
estate. Such will form part of the taxable income of the The term 'resident foreign corporation' applies to a foreign
HOW TO TELL IF INCOME IS TAXABLE
heirs. corporation engaged in trade or business within the Philippines.
1. There is gain or pro it;
A TRUST is an obligation imposed or a right to administer over a The term 'nonresident foreign corporation' applies to a foreign
2. Gain or pro it is realized or received (actually or
property given to a person for the bene it of another. corporation not engaged in trade or business within the Philippines.
constructively)
1. Where the income is accumulated or held for future g. Taxable period Constructive receipt:
distribution by the trustee;
1) 'Taxable year' means the calendar year, or the iscal year a. Matured interest coupons;
2. Where it is up to the iduciary whether there will be
ending during such calendar year, upon the basis of which the
distribution or not; b. Interest on savings bank deposit;
net income is computed.
3. Where the income is collected by a guardian of an infant c. Dividends applied to indebtedness of a shareholder;
2) For Corporations — In the case of corporations adopting the
which is to be held or distributed as the court may direct. d. Share in the pro its of a partner in GPP.
iscal-year accounting period, the taxable income shall be
computed without regard to the speci ic date when speci ic 3. Such gain or pro it is NOT exempted by any treaty or law.
CORPORATIONS
sales, purchases and other transactions occur. Their income
The term 'corporation' shall include and expenses for the iscal year shall be deemed to have been
earned and spent equally for each month of the period.

lOMoARcPSD|4853470
c. Tests in determining whether income term "reasonable accuracy" implies something less than an exact or
d. Methods of accounting
is earned for tax purposes completely accurate amount.
An accounting method is a "set of rules for determining when and
1) Flow of Wealth - whether any gain was derived from the The propriety of an accrual must be judged by the facts that a
how to report income and deductions."
transaction. taxpayer knew, or could reasonably be expected to have known, at
i. Distinguish: cash and accrual method the closing of its books for the taxable year
2) Realization - Revenue is realized when
a) The earning process is complete; AND The accrual method relies upon the taxpayer’s right to receive ii. Special method: installment, deferred payment, percentage
amounts or its obligation to pay them, in opposition to actual of completion (in long-term contracts)
b) An exchange has taken place.
receipt or payment, which characterizes the cash method of
3) Economic-Bene it - taxable to the extent the taxpayer is 1) 'Long-term contracts' means
accounting.
economically bene ited. a) building, installation or construction contracts
Amounts of income accrue where the right to receive them become
4) Net Effect - substance of whole transaction. ixed, where there is created an enforceable liability. Similarly, b) covering a period in excess of one (1) year.
5) Claim of Right - if there is control over the fund. liabilities are accrued when ixed and determinable in amount,
Persons whose gross income is derived in whole or in part
without regard to indeterminacy merely of time of payment.
6) Recovery of Capital Doctrine. from such contracts shall report such income upon the basis of
7) All-events - right to collect income the amount of which is
For a taxpayer using the accrual method, the determinative question percentage of completion.
is, when do the facts present themselves in such a manner that the
liquidated or certain. The return should be accompanied by a return certi icate of
taxpayer must recognize income or expense?
i. Realization test architects or engineers showing the percentage of completion
The accrual of income and expense is permitted when the during the taxable year of the entire work performed under
Income is recognized when both conditions are met: all-events test has been met. This test requires: contract.
a) The earning is complete or virtually complete; AND 1) ixing of a right to income or liability to pay; and 2) Installment Basis. —
b) An exchange has taken place. 2) the availability of the reasonable accurate determination of a) Sales of Dealers in Personal Property. — a person
ii. Claim of right doctrine or doctrine of ownership, command or such income or liability. who regularly sells or otherwise disposes of personal
control property on the installment plan may return as income
The all-events test requires the right to income or liability be
therefrom in any taxable year that proportion of the
If the taxpayer receives earnings under a claim of right and without ixed, and the amount of such income or liability be determined
installment payments actually received in that year,
restriction as to its disposition. with reasonable accuracy. However, the test does not demand that
which the gross pro it realized or to be realized when
the amount of income or liability be known absolutely, only that a
iii. Economic benefit test or doctrine of proprietary interest payment is completed, bears to the total contract
taxpayer has at his disposal the information necessary to compute
price.
Anything that bene its a person materially or economically. Note the amount with reasonable accuracy. The all-events test is satis ied
however that there must irst be actual realization, such as through b) Sales of Realty and Casual Sales of Personality. —
a) where computation remains uncertain, if its basis is
sale or disposition. In the case
unchangeable; the test is satis ied
Mere increase in the value of property is not income. 1) of a casual sale or other casual disposition of
b) where a computation may be unknown, but is not as much
personal property, for a price exceeding P1K,
iv. Severance test as unknowable, within the taxable year.
or
Income is recognized when there is separation of something which The amount of liability does not have to be determined exactly; it
2) of a sale or other disposition of real property,
is of exchangeable value. must be determined with "reasonable accuracy." Accordingly, the

lOMoARcPSD|4853470
if in either case the initial payments do not exceed Interest Residence of debtor (b) NET INCOME TAXATION — Certain deductions are allowed
25% of the selling price, the income may be returned and subtracted from the aggregate of incomes not subject to
on the basis and in the manner above prescribed. Rent Property located inal tax, and the tax computed based on the resulting net
income.
'Initial payments' means the payments received Royalties Where intangible is used
during the taxable period in which the sale or other 𝑁𝐸𝑇 𝐼𝑁𝐶𝑂𝑀𝐸 = 𝐺𝑟𝑜𝑠𝑠 𝐼𝑛𝑐𝑜𝑚𝑒 – 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑠
disposition is made. 1. From Domestic Corp - income purely within;
2. From Foreign Corp - if income derived from PH: c. Sources of income subject to tax
c) Sales of Real Property Considered as Capital Asset
by Individuals. — An individual who sells or Dividend a. > 85% = purely within; CG2IR2DAP3
b. <50% = purely without;
disposes of real property, considered as capital asset, 1) Compensation for services in whatever form paid, including,
c. 50%-85% = allocation.
and is otherwise quali ied to report the gain therefrom but not limited to fees, salaries, wages, commissions, and
under (B) may pay the capital gains tax in similar items;
Annuities Place of contract
installments.
2) Gross income derived from the conduct of trade or business or
d) Change from Accrual to Installment Basis. — If a Prizes Either where services rendered or where given. the exercise of a profession;
taxpayer entitled to the bene its of (A) elects for any
Pension Where given on account of services rendered. 3) Gains derived from dealings in property;
taxable year to report his taxable income on the
installment basis, then in computing his income for 4) Interests;
Professional
the year of change or any subsequent year, amounts 5) Rents;
income of Exercise of profession
actually received during any such year on account of partners 6) Royalties;
sales or other dispositions of property made in any
prior year shall not be excluded. 3. Gross Income 7) Dividends;
e. Situs of Income 8) Annuities;

a. Definition
9) Prizes and winnings;
Source Situs In a narrow sense, gross income means all income derived from
10) Pensions; and
whatever source, including but not limited to CG2IR 2DAP3.
Compensation Where service rendered
11) Partner's distributive share from the net income of the
In a broad sense, it means all items of income less exclusions. It is
Merchandising, Farming, Mining general professional partnership.
the total income from all sources before deductions, exemptions or
- Where business undertaken. other tax reductions. i. Compensation income
Manufacturing
b. Distinguish: gross income, net income, and taxable It refers to all remuneration for services rendered by an employee
goods manufactured and sold
Business income for his employer, unless speci ically excluded under the Tax Code.
a. Within PH - Purely within;
b. Outside - Purely without; First Lepanto v. CIR 2013
(a) GROSS INCOME TAXATION — This is a system based on gross
c. Place of manufacture and selling different The non-inclusion of the names of some of petitioner’s directors in
income, which doesn‘t allow deductions but allows exclusions.
- Proportionate. the company’s Alpha List does not ipso facto create a presumption
Applicable to passive income.
that they are not employees of the corporation, because the
From sale or 1. Personal - Place of sale;
𝐺𝑅𝑂𝑆𝑆 𝐼𝑁𝐶𝑂𝑀𝐸 = 𝐼𝑛𝑐𝑜𝑚𝑒 – 𝐸𝑥𝑐𝑙𝑢𝑠𝑖𝑜𝑛𝑠 imposition of withholding tax on compensation hinges upon the
exchange of 2. Sale of transport documents - place where sold;
nature of work performed by such individuals in the company.
property 3. Real - Location.

lOMoARcPSD|4853470
In Kind: 7. Expense for Foreign Travel 4. Granted to rank and ile.
a. Stock Options. Stock options are taxable as compensation 8. Holiday and Vacation Expense EXPENSE ACCOUNT
income taxed only if there is a bene it to the employee such 9. Educational Assistance
a. In general, expenses incurred by EE but are paid by his ER are
as when he can buy the share at a more favorable price than the 10. Life or Health Insurance taxable, except when:
public.
TN: This list is NOT exclusive. i. They are duly receipted;
The tax will be on the amount of the difference between the
Conditions for FB to be taxable ii. In the name of ER; and
book value or the FMV of the stock, whichever is higher, and
the exercise price. It is imposed whether or not the stock a. Given to managerial or supervisory employees; iii. Do not partake the nature of a personal expense;
option is exercised. b. Good, service furnished or granted in cash or in kind;
b. Expenses paid for by EE, but reimbursed by ER are taxable,
b. Promissory Notes. Equivalent to the face value of the c. Must NOT be for the bene it or convenience of the employer. except when (same as a);
promissory note, unless it is discounted. For a discounted
c. Personal expenses of EE paid for or reimbursed by ER are
promissory note, the cash discounted value. HOUSING
taxable, regardless if they are receipted or not in the name of
c. Cancellation of Debt. Considered an income when you render ER;
services and in exchange, your debt is forgiven. Case Annual Value Monthly MV
d. RATA are NOT taxable fringe bene its, but are taxable
d. Tax Liability. When the employer shoulders your tax on 50% x Monthly compensation income:
ER leases house for use of EE NA
compensation instead of you getting less than your gross Rent
i. Fixed in amounts;
monthly salary.
50% x Monthly ii. Regularly received by EE;
COURAGE v. CIR 2018 En Banc 5% of FMV, or
Value
ER owns house, assigns use Zonal Value, iii. Part of Monthly compensation income.
Withholding tax on compensation applies to the Government of the to EE whichever is
Philippines, including its agencies, instrumentalities, and political Monthly Value =
higher MOTOR VEHICLES
subdivisions. AV/12
ER purchases house on 5% of Case Monetary Value

Withholding shall be made by the of icer or employee having control 50% x Monthly
of the payments or by any of icer or employee duly designated for installment, assigns use to acquisition cost,
Value Purchases vehicle in the name of Acquisition Cost
such purpose. EE exc interest
EE
ii. Fringe benefits ER purchases then transfers Acquisition cost
NA Provides EE with cash for Cash received by EE
ownership to EE or FMV
Any good, service or other bene it furnished or granted in cash or in purchase
kind by an employer to an individual employee (except rank and ile ER purchases then transfers Zonal Value or
employees) ownership to EE at a lower NA Assessed Value, Shoulders a portion of the Amount shouldered
price minus cost of EE purchase price
1. Housing
2. Expense Account Exceptions (Not taxable): Purchases car on installment in Acquisition cost (excl interest) /
the name of EE 5 years.
3. Vehicle of any kind 1. AFP, Navy, Air Force;
4. Household Personnel 2. Housing unit inside or within a maximum of 50 meters from Owns a leet of vehicles for the Acquisition cost of all motor
5. Interest on loan use of EEs vehicles not normally used in
perimeter of business;
business / 5 years x 50%
6. Membership Fees 3. Temporary housing = 3 months or less;

lOMoARcPSD|4853470
GR: Taxable;
Leases and maintains leet of Amount of rent x 50% 6) De minimis bene its
vehicles EXC:
1. Directly connected with ER’s trade, business or profession; DE MINIMIS
Use of yacht Depreciation at 20 years of
useful life. AND
2. There is a written contract to the effect that EE is obliged Are of relatively small value and are offered or furnished merely as a
to remain in the employ of ER for a mutually agreed period. means of promoting goodwill, contentment or ef iciency of his
HOUSEHOLD EXPENSES
employees.
To the Dependent of EE:
For household personnel, such as salaries of household help, personal
GR: Taxable; Bene it Monthly Annual
driver of the employee, or other similar personal expenses.
EXC: Assistance provided through a competitive scheme. Monetized unused VL not exceeding 10 days NA NA
INTEREST ON LOAN at less than Market Rate
LIFE OR HEALTH INSURANCE
Monetized value of VL and SL credits of Public NA NA
Market rate is at 12%. employees
GR: Taxable;
MEMBERSHIP FEES EXC: Medical cash allowance 250 3,000
a. Should not be pursuant to the nature of the business of ER; a) Pursuant to existing law, i.e. SSS, GSIS; AND
Rice subsidy 2,000 24,000
b. Should not be necessary for the position. b) Cost of premiums borne by ER for the group insurance of
EEs. Uniform and Clothing 500 6,000
EXPENSES FOR FOREIGN TRAVEL
Bene iciary Actual medical assistance 10,000
a. Reasonable business expenses for the purpose of attending
➔ Heir — income of EE;
business meetings or conventions are NOT taxable FBs. Laundry 300 3,600
➔ If EE managerial or supervisory — FB subject to tax;
- Inland travel expenses must not exceed 300 USD, not
including lodging cost. ➔ Company — NOT FB; Awards 10,000
b. Economy and business class NOT taxable. 30% of cost of First ➔ For Group of EEs — NOT FB. Gifts during Christmas, etc 5,000
class ticket taxable.
Exemption from FBT Daily Meal Allowance for OT, night-shift < 25% of MW
c. There should be documentary evidence proving the travel was
in connection with a meeting or convention. Otherwise, taxable By virtue of CBA, productivity incentive 10,000
FB. 1) Authorized and exempted under the NIRC or special laws; scheme
d. If for the family members of EE, paid by ER, taxable. 2) For EE’s retirement, insurance and hospitalization (GROUP Threshold of P90,000
HOLIDAY AND VACATION EXPENSES INSURANCE); The list of de minimis bene its is exclusive. The threshold now
under the TRAIN Law is P90,000. The amount in excess of P90,000
Everything is considered as fringe bene it since it is not pursuant to the 3) Given to Rank and File;
will be subject to the normal income tax rate or fringe bene it tax, as
purpose of the business of the employer.
4) Required by the nature of, or necessary to the trade, business the case may be.
EDUCATIONAL ASSISTANCE or profession of ER; iii. Professional income
To the EE: 5) For the convenience of ER; Professionals. — refer to persons who derive their income from
the practice of their profession.

lOMoARcPSD|4853470
iv. Income from business c. Registered as habitually engaged in real estate business exchange of capital asset held for
with the LGU or BIR. not more than 12 months.
1) Self-employment income consists of the earnings derived by
Loss must be in an amount not in
the individual from the practice of profession or conduct of (b) Types of gains
excess of the net income of such
trade or business carried on by him as a sole proprietor or by a 1) CAPITAL GAINS year.
partnership by which he is a member.
Gains or income from the sale or exchange of capital assets,
2) Business is any activity that entails the time, attention and including: Holding 100% — asset was held for NOT Individuals
effort of an individual or group of individuals for livelihood or period more than 12 months;
a. Income from dealings in shares of stocks or domestic
pro it. 50% — asset was held for more
corporation WON through the stock exchange;
than 12 months
v. Income from dealings in property b. Income from dealings in real property located in PH;
(a) Distinguish ordinary asset and capital asset c. Income from dealings in other capital assets. CIR v. Ocier 2018
The term 'capital assets' means property held by the taxpayer 2) ORDINARY GAINS The taxpayer is liable to pay capital gains taxes for the sale, barter,
(whether or not connected with his trade or business), but does exchange or other disposition of shares of stock in a domestic
Gains or income from the sale or exchange of properties which corporation except if the sale or disposition is through the stock
not include (ordinary assets)
are not capital assets. exchange. For this purpose, the term disposition includes any act of
1. stock in trade of the taxpayer; disposing, transferring or parting with, or alienation of, or giving up
a. Business income;
2. other property of a kind which would properly be included of property to another.
b. Compensation income;
in the inventory of the taxpayer if on hand at the close of
c. Passive income; Republic v. Sps Bunsay 2019
the taxable year;
d. Others. CGT, being a tax on passive income, is imposed by the NIRC on
3. property held by the taxpayer primarily for sale to
the seller as a consequence of the latter's presumed income
customers in the ordinary course of his trade or business; (c) Special rules pertaining to income or loss from dealings in from the sale or exchange of real property.
4. property used in the trade or business, of a character capital asset In case of transfer by expropriation, the expropriating authority
which is subject to the allowance for depreciation Rule Applies to shall shoulder the CGT, other taxes and fees as part of the just
provided in Subsection (F) of Section 34; or compensation due to the affected owner of the property.
5. real property used in trade or business of the taxpayer. Loss Capital losses are allowed only to Individuals
limitation the extent of capital gains. and (d) Tax-free exchanges
For speci ic guidelines in determining WON real property is a
a) Ordinary loss deductible from corporations GR: Upon the sale or exchange or property, the entire amount of the
capital or ordinary asset, please see RR 7-2003.
ordinary gain; except trust gain or loss, as the case may be, shall be recognized.
Main takeaway — a taxpayer habitually engaged in the real b) Capital loss deductible from companies
estate business is someone: EXC: No gain or loss shall be recognized if in pursuance of a plan of
capital gain; and banks.
merger or consolidation —
a. Registered with the HLURB or HUDCC as as a real estate c) Capital loss NOT deductible
from ordinary gain; 1. A corporation, which is a party to a merger or consolidation,
dealer or developer; or
d) Ordinary loss deductible from exchanges property solely for stock in a corporation, which is
b. If not registered with the above, having consummated capital gain. a party to the merger or consolidation; or
during the preceding year of at least six (6) taxable real
2. A shareholder exchanges stock in a corporation, which is a
estate sale transactions, regardless of amount; or Loss Shall be treated in the succeeding Individuals
party to the merger or consolidation, solely for the stock of
carry-over taxable year as loss from the sale or

lOMoARcPSD|4853470
another corporation also a party to the merger or

quali ies as a tax-free transaction. c) Dividend received from DC by an individual or NRFC;
consolidation; or
Bearing in mind the meaning of "gross income", it cannot be gainsaid, d) Prizes of > Php 10K;
3. A security holder of a corporation, which is a party to the
merger or consolidation, exchanges his securities in such even then, that a mere increase or appreciation in the value of e) Winnings except sweepstakes and lotto;
said shares cannot be considered income for taxation purposes.
corporation, solely for stock or securities in such corporation,
Since "a mere advance in the value of the property of a person or f) Partner’s share from the net income after tax of business
a party to the merger or consolidation.
corporation in no sense constitute the ‘income’ speci ied in the partnership, joint account, joint venture or consortium.
Also revenue law," it has been held in the early case of Fisher v. Trinidad,
that it "constitutes and can be treated merely as an increase of (a) Interest
4. If property is transferred to a corporation by a person in
capital." Hence, the CIR has no factual and legal basis in assessing Amount of compensation paid for the use of money or forbearance
exchange for stock or unit of participation in such a
income tax on the increase in the value of FDC's shareholdings in FAC from such use.
corporation of which as a result of such exchange said person,
until the same is actually sold at a pro it.
alone or together with others, not exceeding four (4) persons, However, interest income which are already subject to inal tax need
gains control of said corporation. (Sec 40[c]) CIR v. Lucio Co 2020 further clarifying Filinvest not be included in the computation for a taxpayer’s annual ITR.
Nos. 1 - 4 are thus properly termed as tax-free exchanges. As regards the element of control, the Court, in Filinvest, clari ied that (b) Dividend
it is not necessary that, after the exchange, each of the transferors
CIR v. Filinvest 2011 En Banc re Tax-free Exchange Any distribution made by a corporation to its shareholders out of
individually gains control of the transferee corporation.
FDC and its af iliates come within the purview of Section 43 of the its earnings or pro its and payable to its shareholders, whether in
It also does not prohibit instances when the transferor gains further
1993 NIRC. Aside from owning signi icant portions of the shares of money or in other property. (Sec 73)
control of the transferee corporation. The Court explained that the
stock of FLI, FAI, DSCC and FCI, the fact that FDC extended substantial element of control is satis ied even if one of the transferors is already 1) Cash dividend — paid in given sum of money;
sums of money as cash advances to its said af iliates for the purpose owning at least 51% of the shares of the transferee corporation, as
of providing them inancial assistance for their operational and long as after the exchange, the transferors, not more than ive, 2) Property dividend — one paid by a corporation in
capital expenditures seemingly indicate that the situation sought to collectively increase their equity in the transferee corporation by securities (not its own stock) or other property;
be addressed by the subject provision exists. 51% or more.
3) Stock dividend — one paid by a corporation with its OWN
We also ind a dearth of merit in the CIR's insistence on the There is nothing in Section 40(C)(2) of the NIRC of 1997, as amended, stock.
imposition of de iciency income taxes on the transfer FDC and FAI which requires the taxpayer to irst secure a prior con irmatory
ruling before the transaction may be considered as a tax-free GR: NOT taxable since they are considered unrealized gain.
effected in exchange for the shares of stock of FLI.
exchange. EXC:
The requisites for the non-recognition of gain or loss are as
follows: vi. Passive investment income a) Change in the stockholder’s equity, right or interest in
the net assets of the corporation;
a) the transferee is a corporation; ➔ It is an income subject to FWT.
b) Recipient is other than the shareholder. Stock dividend
b) the transferee exchanges its shares of stock for property/ies ➔ The recipient is not required to include the income in his gross is taxable to the usufructuary.
of the transferor; income nor in his taxable income.
c) the transfer is made by a person, acting alone or together c) Cancellation or redemption of shares of stock;
➔ Taxpayer is not required to ile ITR if his income consists solely of
with others, not exceeding four persons; and,
income subject to inal tax. d) Distribution of treasury stocks;
d) as a result of the exchange the transferor, alone or together
with others, not exceeding four, gains control of the Examples of passive investment income: e) Dividends declared in the guise of treasury stock
transferee. dividend to avoid income taxation;
a) Interest income from bank deposit;
The exchange of property for stocks between FDC, FAI and FLI clearly f) Different classes of stocks were issued.
b) Royalties;

lOMoARcPSD|4853470
4) Liquidating dividend — one resulting from the c) The source of redemption is the original capital 2) Security deposit — not taxable unless lessee violates
distribution by a corporation of all its property or assets in subscription upon establishment of the corporation or any provision of the contract.
complete liquidation or dissolution. initial capital investment in an existing enterprise.
3) Loan — not taxable.
Generally a return of capital, and hence, not income. 2) Taxable —
vii. Annuities and proceeds from life insurance or other types of
However, it is taxable income with respect to the excess of
a) The redeemed shares are from stock dividend insurance
amount received over cost of the share surrendered.
declarations other than as initial capital investment.
Annuity is a sum of money payable yearly or at regular intervals.
CIR v. Premium Leisure Corp 2019
b) There is redemption or cancellation; the transaction Note however that life insurance annuities are excluded from gross
The distribution of liquidating dividends on account of the involves stock dividends; and the “time and manner” income.
dissolution of a corporation is not to be treated as a sale for purposes of the transaction makes it essentially equivalent to a
of the imposition of capital gains tax. Under Section 73 (A) of the viii. Prizes and awards
distribution of taxable dividends.
1997 NIRC, receipt by a stockholder, whether corporate or individual, GR: Taxable.
of liquidating dividends is subject to ordinary income tax on the (c) Royalty income
part of the individual stockholder. EXC:
Any payment of any kind received as consideration for the use of or
right to use: 1) If the recipient was selected without any action on his part
Giver Recipient Tax Rate to enter the contest and he was not required to render
1) Any patent, trademark, design or model;
substantial future services as a condition for receiving the
Domestic DC, RFC Exempt 2) Secret formula or process; prize or award;
RC, NRC, RA 10% 3) Industrial, commercial or scienti ic equipment; 2) Those granted to athletes in local and international sports
competitions sanctioned by their respective national
4) Information concerning industrial, commercial or
NRA - ETB 20% sports associations; and
scienti ic experience.
3) Those that are in the nature of gifts.
NRA - NETB 25% (d) Rental income
ix. Pension, retirement benefit, or separation pay
Fixed sum either in cash or property equivalent, to be paid at a
NRFC 15% subject to allowance for tax credit
de inite period for the use or enjoyment of a thing or right. A pension is a gratuity granted as a favor or reward or one paid
or the tax sparing rule; otherwise, 30%
under given conditions to a person following retirement from
Value of permanent improvements made by lessee on leased
➔ Dividend received from foreign corporation is subject to PH property that will become the property of the lessor upon the
service or to surviving dependents. Note however that pensions and
income tax if at least 50% of the world income of the FC is retirement bene its under RA 7641 are excluded from gross income.
expiration of the lease. The lessor shall report such an income
derived from PH for 3 years preceding the declaration of such under any of the following methods: x. Income from any source
dividend.
1) Outright method — FMV of the completed building or (a) Condonation of indebtedness
Rules on redemption of share of stock improvement shall be reported as additional rent income.
Cancellation or forgiveness of debt may amount to
1) NOT taxable — 2) Spread out method — Allocate the depreciated value over
a) Payment of income — taxable;
a) Shares are redeemed in the absence of the availability the remaining term of the lease contract.
of unrestricted earnings; b) Payment of dividends — taxable;
How about advance rentals?
b) Not in the nature of a recurring return on stock; c) Gift — exempt.
1) Prepaid rentals — taxable if so received under a claim of
right and without restriction as to use.

lOMoARcPSD|4853470
(b) Recovery of accounts previously written o GR: NOT taxable regardless of the bene iciaries 3. Interest for non-taxable damages above;
Recovery of bad debts previously allowed as deduction in the Conditions: 4. Damages as compensation for unrealized income.
preceding years shall be included as part of the gross income in the 1. Paid to heirs; 5) Income Exempt under Treaty. — Income of any kind, to the
year of recovery to the extent of the income tax bene it of said extent required by any treaty obligation binding upon the
2. Paid upon death of the insured;
deduction. (Sec 34[e][1]) Government of the Philippines.
3. Paid in a single sum or in instalment
(c) Receipt of tax refunds or credit 6) Retirement Bene its, Pensions, Gratuities, etc. —
EXC: (When taxable)
Taxes which were previously claimed and allowed as deductions a) Retirement bene its received under RA No. 7641 and
1. Used to secure money obligation;
but were subsequently refunded or granted as tax credit should be those received by of icials and employees of private
declared as part of gross income of that year. Except 2. Transfer for valuable consideration. irms, whether individual or corporate, in accordance
with a reasonable private bene it plan maintained
a) Estate and donor’s tax;
𝐼𝑁𝐶𝑂𝑀𝐸 = 𝑃𝑟𝑜𝑐𝑒𝑒𝑑𝑠 – (𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 + 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑠 𝑃𝑎𝑖𝑑) by the employer: xxxx
b) Income, war-pro it and excess pro it taxes imposed by a REQUISITES:
foreign country; 2) Amount Received by Insured as Return of Premium. —
1. At least 50 years old;
The amount received by the insured, as a return of premiums
c) Taxes assessed against local bene its of a kind tending to
paid by him under life insurance, endowment, or annuity 2. At least 10 years of service in same company
increase the value of the property assessed;
contracts, either during the term or at the maturity of the term (aggregate, not necessarily continuous);
d) Stock transaction tax; mentioned in the contract or upon surrender of the contract. 3. Reasonable private bene it plan;
e) Taxes which are not allowable as deductions under the law. 4. In the nature of pension, plan, pro it sharing
𝐼𝑁𝐶𝑂𝑀𝐸 = 𝐸𝑛𝑑𝑜𝑤𝑚𝑒𝑛𝑡 – 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑠 𝑃𝑎𝑖𝑑
d. Exclusions plan, stock bonus or gratuity;
LAGCIRM 3) Gifts, Bequests, and Devises. — The value of property
5. Approved by the BIR;
acquired by gift, bequest, devise, or descent:
1) Life Insurance. — The proceeds of life insurance policies paid 6. Employer must give contribution and must be
to the heirs or bene iciaries upon the death of the insured, Provided, however, That income from such property, as well as
established for the common bene it of ALL.
whether in a single sum or otherwise, but if such amounts are gift, bequest, devise or descent of income from any property, in
cases of transfers of divided interest, shall be included in gross 7. Availed of only ONCE. (except if 2nd
held by the insurer under an agreement to pay interest
income. employer is Government — still exempt)
thereon, the interest payments shall be included in gross
income. 4) Compensation for Injuries or Sickness. — amounts b) Any amount received by an of icial or employee or by
received, through Accident or Health Insurance or under his heirs from the employer as a consequence of
● If the company insures its employee and makes the
Workmen's Compensation Acts, as compensation for personal separation of such of icial or employee from the
latter’s estate the bene iciary, THE PREMIUM IS
injuries or sickness, plus the amounts of any damages service of the employer because of death sickness or
TAXABLE, while the proceeds NOT TAXABLE.
received, whether by suit or agreement, on account of such other physical disability or for any cause beyond
● When taxable? the control of the said of icial or employee.
injuries or sickness.
a. Insurer and insured agreed that the amount of c) The provisions of any existing law to the contrary
EXC (Taxable):
the proceeds shall be withheld by the insurer notwithstanding, social security bene its, retirement
with the obligation to pay interest in the same 1. Actual damages for loss of anticipated pro its;
gratuities, pensions and other similar bene its
– the interest is the one subject to tax. 2. Moral and exemplary damages awarded as a result of received by resident or nonresident citizens of the
b. There is transfer of the insurance policy. breach of contract; Philippines or aliens who come to reside permanently

lOMoARcPSD|4853470
in the Philippines from foreign government agencies e) 13th Month Pay and Other Bene its. — Gross
P362,386.87, for taxation purposes.
and other institutions, private or public. bene its received by of icials and employees of public
d) Payments of bene its due or to become due to any 7) Miscellaneous Items. — and private entities: Provided, however, That the total
person residing in the Philippines under the laws of a) Income Derived by Foreign Government. — exclusion under this subparagraph shall not exceed
the United States administered by the United States Income derived from investments in the Philippines in Ninety thousand pesos (P90,000) which shall cover:
Veterans Administration. loans, stocks, bonds or other domestic securities, or 1. Bene its received by of icials and employees
e) Bene its received from or enjoyed under the Social from interest on deposits in banks in the Philippines of the national and local government pursuant
Security System in accordance with the provisions of by to Republic Act No. 6686;
Republic Act No. 8282. 1. foreign governments, 2. Bene its received by employees pursuant to
f) Bene its received from the GSIS under Republic Act No. 2. inancing institutions owned, controlled, or Presidential Decree No. 851, as amended by
8291, including retirement gratuity received by enjoying re inancing from foreign Memorandum Order No. 28, dated August 13,
government of icials and employees. governments, and 1986;
Ma. Isabel T. Santos v. Servier Phil., Inc. on Retirement Bene its 3. international or regional inancial institutions 3. Bene its received by of icials and employees
established by foreign governments. not covered by Presidential Decree No. 851,
In the instant case, the Retirement Plan bars the petitioner from
as amended by Memorandum Order No. 28,
claiming additional bene its on top of that provided for in the Plan. b) Income Derived by the Government or its Political
Clearly, the bene its received by petitioner from the respondent dated August 13, 1986; and
Subdivisions. — Income derived from any public
represent her retirement bene its under the Plan. The question that utility or from the exercise of any essential 4. Other bene its such as productivity
now confronts us is whether these bene its are taxable. If so, governmental function accruing to the Government of incentives and Christmas bonus.
respondent correctly made the deduction for tax purposes.
the Philippines or to any political subdivision thereof. f) GSIS, SSS, Medicare and Other Contributions. —
Otherwise, the deduction was illegal and respondent is still liable for
the completion of petitioner's retirement bene its. GOCC must be engaged in proprietary activity for it to GSIS, SSS, Medicare and Pag-Ibig contributions, and
be TAXABLE. union dues of individuals.
⭐For the retirement bene its to be exempt from the
withholding tax, the taxpayer is burdened to prove the concurrence c) Prizes and Awards. — Prizes and awards made g) Gains from the Sale of Bonds, Debentures or other
of the following elements: primarily in recognition of religious, charitable, Certi icate of Indebtedness. — Gains realized from
1) a reasonable private bene it plan is maintained by the scienti ic, educational, artistic, literary, or civic the same or exchange or retirement of bonds,
employer; achievement but only if: debentures or other certi icate of indebtedness with a
maturity of more than ive (5) years.
2) the retiring of icial or employee has been in the service of 1. The recipient was selected without any
the same employer for at least ten (10) years; action on his part to enter the contest or ● Debentures are used for bonds, backed by
3) the retiring of icial or employee is not less than ifty (50) proceeding; and general credit of the issuer rather than a
years of age at the time of his retirement; and particular asset. They are unsecured
2. The recipient is not required to render
4) the bene it had been availed of only once. liabilities. This is like a bank letting someone
substantial future services as a condition to
owe money without any collateral.
Petitioner was quali ied for disability retirement. At the time of such receiving the prize or award.
h) Gains from Redemption of Shares in Mutual Fund.
retirement, petitioner was only 41 years of age; and had been in the d) Prizes and Awards in Sports Competition. — All
service for more or less eight (8) years. As such, the above provision — Gains realized by the investor upon redemption of
prizes and awards granted to athletes in local and
is not applicable for failure to comply with the age and length of shares of stock in a mutual fund company.
international sports competitions and tournaments
service requirements. Therefore, respondent cannot be faulted for i) Income Derived from the Sale of Gold Pursuant to
whether held in the Philippines or abroad and
deducting from petitioner's total retirement bene its the amount of
sanctioned by their national sports associations. RA No. 7076. — Income derived from the following

lOMoARcPSD|4853470
transactions pursuant to the “People‘s Small-scale

ii. Distinguish: exclusions, deductions, and tax credits 6) Charitable Contributions;
Mining Act of 1991”:
i) The sale of gold to the BSP by registered Exclusions from gross income refer to a low of wealth to the 7) Research and Development;
taxpayer which are not treated as part of gross income, for purposes
small-scale miners and accredited traders;
of computing the taxpayer’s taxable income either because it is 8) Pension;
and
exempted by the constitution, by statute, or it does not come within
ii) The sale of gold by registered small-scale 9) Depreciations;
the de inition of income.
miners to accredited traders for eventual sale
Deductions from gross income are the amounts which the law
10) Depletion.
to the BSP. (RA 11256)
allows to be deducted from gross income in order to arrive at net
i. Rationale EXPENSES
income.
Generally, they are excluded because they do not fall within the Tax credits are directly deducted from tax liability. KINDS [CARTERS]
de inition of income for income tax purposes or a provision of the a) Compensation;
Tax Code or special law exempts them from income tax. iii. Exclusions under the Constitution
1. Must be reasonable;
Exclusion Rationale All revenues and assets of non-stock, non-pro it educational
institutions used actually, directly, and exclusively for educational 2. Payment for actual services rendered.
Proceeds of Life Indemnity rather than as gain or pro it. purposes shall be exempt from taxes and duties. (Sec 4 Art XIV) Additional for Bonuses:
Insurance
4. Deductions 3. Made in good faith;
Amount received as Return of capital Who are not allowed to avail of the deductions under Sec 34? 4. Consider:
return of premium
Taxpayers earning compensation income arising from personal services a. Nature of Business;
Gifts, bequests and Not a product of capital or industry rendered under an employer-employee relationship. b. Financial capacity of taxpayer; AND
devises 1. Citizens and Resident Aliens whose income is purely c. Extent of services rendered;
compensation income; 5. General economic condition
Compensation for Compensatory; not gain or pro it
injuries or sickness 2. NRA-NETB; b) Advertising and Promotional Expense;
3. NRFC. To be deductible outright:
Income exempt under Adherence to generally accepted principles
treaty of international law a. General Rule — Deductions i) Must be reasonable; AND
ExInTaLoBaChaRePenDepDep ii) Incurred to stimulate current sales and not establish
Retirement bene its, Gratuity for years of service
goodwill or future sales.
pensions, gratuities 1) Expenses;
c) Rent;
Income received by To lessen the burden of foreign loans 2) Interest;
i) Required as condition for continued use or
foreign governments inasmuch as the interest of these loans are,
3) Taxes; possession;
from their investments by contractual arrangement, borne by
in PH domestic borrowers. 4) Losses; ii) Purpose is for trade, business, profession;
iii) Taxpayer not owner of property leased;
5) Bad Debts;
iv) Subject to withholding tax of 5%.

lOMoARcPSD|4853470
d) Travelling Expense; b) Spread-out Method = subject to depreciation. the amount of respondent corporation’s general and administrative
i) Reasonable and necessary; expenses. We ind the subject expense for the advertisement of a
CIR v. General Foods on Advertising Expense
single product to be inordinately large. Therefore, even if it is
ii) Incurred or paid while away from home - station WON the subject media advertising expense for “Tang” incurred necessary, it cannot be considered an ordinary expense
assignment or principal place of business; by respondent corporation was an ordinary and necessary expense deductible under then Section 29 (a) (1) (A) of the NIRC.
iii) In the conduct of trade or business. fully deductible under the NIRC. Or was it a capital expenditure, Advertising is generally of two kinds:
paid in order to create “goodwill and reputation” for respondent
e) Entertainment, Amusement and Recreational; 1) advertising to stimulate the current sale of merchandise
corporation and/or its products, which should have been amortized
or use of services and
i) Paid or incurred during taxable year; over a reasonable period?
2) advertising designed to stimulate the future sale of
To be deductible from gross income, the subject advertising expense
ii) In carrying or which are directly attributable to the merchandise or use of services.
must comply with the following requisites:
development, management, operation and/or conduct The second type involves expenditures incurred, in whole or in part,
of the trade, business or exercise of profession; a) the expense must be ordinary and necessary; to create or maintain some form of goodwill for the taxpayer’s trade
b) it must have been paid or incurred during the taxable year; or business or for the industry or profession of which the taxpayer is
iii) Supported by adequate invoices or receipts;
c) it must have been paid or incurred in carrying on the trade a member.
iv) Not contrary to law, public policy or moral; or business of the taxpayer; and If the expenditures are for the advertising of the irst kind, then,
v) Not a bribe; d) it must be supported by receipts, records or other pertinent except as to the question of the reasonableness of amount, there is no
papers. doubt such expenditures are deductible as business expenses.
vi) Properly withheld appropriate tax;
The Commissioner, as upheld by the Court, maintains that the subject If, however, the expenditures are for advertising of the second kind,
vii) Limitation: then normally they should be spread out over a reasonable period of
advertising expense was not ordinary on the ground that it failed the
1) Sale of goods = 0.5% of net sales; two conditions set by U.S. jurisprudence: time.
2) Service = 1% of net revenue. 1. irst, “reasonableness” of the amount incurred and

2. second, the amount incurred must not be a capital outlay to INTEREST
f) Repair and Maintenance;
create “goodwill” for the product and/or private
Arbitrage rule
i) Ordinary - cost of repair increases the life of an respondent’s business.
asset for a period not more than 1 year; Otherwise, the expense must be considered a capital expenditure to The taxpayer’s allowable deduction for interest expense shall be
be spread out over a reasonable time. reduced by an amount equal to 33% of the interest income earned by
ii) Extraordinary - > 1 year; Capitalized, subject to
There being no hard and fast rule on the reasonableness of an him which has been subjected to inal tax.
depreciation.
advertising expense, the right to a deduction depends on a number of Theoretical interest
g) Supplies and Materials. factors such as but not limited to:
An interest computed for the purposes of determining the opportunity
- Must be actually consumed during the taxable year. 1. the type and size of business in which the taxpayer is
cost of investing in a business. This is not paid or incurred. Theoretical
engaged;
h) Litigation Expense interest income and theoretical interest expense is no longer
2. the volume and amount of its net earnings; applicable in our jurisdiction since the interest must be stipulated in
- If incurred in the defense or protection of title = capital
3. the nature of the expenditure itself; writing to be demandable.
in nature, NOT deductible;
4. the intention of the taxpayer and the general economic Non-deductible interest expense
- If ordinary and necessary in pursuit of business = conditions.
deductible. 1. Interest expense on preferred stock;
It is the interplay of these, among other factors and properly weighed,
Option to Private Educational Institutions: that will yield a proper evaluation. 2. When there is no agreement in writing to pay interest;
a) Outright Method; OR The subject media advertising expense for “Tang” was almost double 3. On loan entered into between related taxpayers;

lOMoARcPSD|4853470
a. Members of family 1) Resident Citizens; applicable case of individual taxpayer

i. Spouses; 2) Domestic Corporations;
Can be carried over in the next 3 Treated in the succeeding year
ii. Siblings; 3) Members of GPPS; consecutive years immediately as a deduction as short-term
iii. Descendants and ascendants. 4) Bene iciaries of estates and trusts. following the year of such loss capital loss from the net capital
gains in case of individual
b. Between 2 corporations owned and controlled by 1 Options of Taxpayer quali ied for a credit taxpayer
individual;
1) Deducting the foreign income tax from gross income; or LOSSES ARISING FROM SECURITIES. When the securities which
c. Between a corporation and its majority shareholder;
2) Claiming tax credit. can be in the form of shares of stocks or loan receivables be
d. Parties to a trust considered as worthless, the losses can be deducted. It will be
Limitations on Credit
i. Grant or Fiduciary; worthless when the company loses operations in which the shares
a) Per Country; belong.
ii. One grantor, different iduciaries;
b) Global. China Banking Corp. v. CA on Worthless Securities
iii. Bene iciary and Fiduciary.
LOSSES An equity investment is a capital, not ordinary, asset of the
4. Interest paid or calculated for cost-keeping purposes;
investor the sale or exchange of which results in either a capital gain
5. Paid in advance through discount; NET OPERATING LOSS CARRY OVER (NOLCO). The net operating or a capital loss. The gain or the loss is ordinary when the property
loss of the business or enterprise for any taxable year immediately sold or exchanged is not a capital asset.
6. On obligation to inance petroleum exploration;
preceding the current taxable year, which had not been previously
7. On unclaimed salaries of employees; When the shares held by such investor become worthless, the loss is
offset as deduction from gross income shall be carried over as a
deemed to be a loss from the sale or exchange of capital assets. A
8. 33% of the interest income subject to inal tax. deduction from gross income for the next three (3) consecutive capital gain or a capital loss normally requires the concurrence of
years immediately following the year of such loss. two conditions for it to result:
TAXES
When NOLCO is not deductible 1) There is a sale or exchange; and
Exceptions: 1. Incurred during tax holiday; 2) The thing sold or exchanged is a capital asset.
1) Special Assessment; 2. Tax is based on gross income or receipts; When securities become worthless, there is strictly no sale or
2) Income Tax; 3. OSD is claimed; exchange but the law deems the loss anyway to be "a loss from the
sale or exchange of capital assets.” Capital losses are allowed to be
3) Not connected with trade, business, profession; 4. MCIT is imposed; deducted only to the extent of capital gains, i.e., gains derived from
4) Estate, Donor’s; 5. Substantial change in ownership (75%). the sale or exchange of capital assets, and not from any other income
of the taxpayer.
5) VAT;
NOLCO NCLCO
6) Final Taxes; In the case at bar, First CBC Capital (Asia), Ltd., the investee
Excess of deductions over gross Loss from sale or exchange of corporation, is a subsidiary corporation of petitioner bank whose
7) Excess electric consumption tax; shares in said investee corporation are not intended for purchase or
income for any taxable year capital asset
8) Foreign income tax, war pro its and excess pro its tax - if used sale but as an investment. Unquestionably then, any loss therefrom
as tax credit; Additional deductible item from Capital losses are allowed only would be a capital loss, not an ordinary loss, to the investor.
gross income similar to other to the extent of capital gains
9) Paid for commodities not connected with business. allowable deductions The exclusionary clause found in the text of the law does not include
all forms of securities but speci ically covers only bonds,
Who may claim tax credit for taxes of foreign countries
Holding period is NOT Holding period is applicable in debentures, notes, certi icates or other evidence of indebtedness,

lOMoARcPSD|4853470
with interest coupons or in registered form, which are the WAGERING LOSSES. Losses from wagering transactions shall be a. 5% for Corporations;
instruments of credit normally dealt with in the usual lending allowed only to the extent of the gains from such transactions. b. 10% for Individuals.
operations of a inancial institution. Equity holdings cannot come
CASUALTY LOSSES. The loss is caused by fortuitous event or force 2. Special – deductible in full from gross income
close to being, within the purview of "evidence of indebtedness".
Verily, it is for a like thesis that the loss of petitioner bank in its majeure. Requisites for deductibility
Conditions if Recipient is an NGO
equity investment in the Hongkong subsidiary cannot also be a. Report to taxing authorities within 45 days from
deductible as a bad debt. The shares of stock in question do not a. Organized and operated exclusively for the aforementioned
occurrence of the loss;
constitute a loan extended by it to its subsidiary (First CBC Capital) purposes or a combination thereof, no part of the net income of
or a debt subject to obligatory repayment by the latter, essential b. Related to trade and business;
which inures to the bene it of any private individual;
elements to constitute a bad debt, but a long term investment made c. Evidenced by a closed and completed transaction b. The donation must be utilized not later than the 15th day of
by CBC. (perfected sale; the 3rd month following the close of its taxable year.(taxable
In sum — d. Actually sustained during the taxable year; year of the NGO concerned not the taxpayer);
a) The equity investment in shares of stock held by CBC of e. Must not be compensated by insurance or other forms of c. The administrative expense must not exceed 30% of total
approximately 53% in its Hongkong subsidiary, the First indemnity. expenses;
CBC Capital (Asia), Ltd., is not an indebtedness, and it is a
capital, not an ordinary, asset. ABANDONMENT LOSSES. In the event a contract area where d. Upon dissolution, assets would be distributed to another
b) Assuming that the equity investment of CBC has indeed petroleum operations are undertaken is partially or wholly nonpro it domestic corporation organized for similar purpose
become "worthless," the loss sustained is a capital, not an abandoned, all accumulated exploration and development or purposes, or to the state for public purpose ,or would be
ordinary, loss. expenditures shall be allowed as a deduction. distributed by a court to another organization to be used in
c) The capital loss sustained by CBC can only be deducted such manner as in the judgment of said court shall best
BAD DEBTS accomplish the general purpose for which the dissolved
from capital gains if any derived by it during the same
taxable year that the securities have become "worthless." When are bad debts ascertained to be worthless? A court order is organization was organized.
LOSSES FROM SHARE TRANSACTIONS. Losses from share necessary and the regular procedure is as follows:
RESEARCH AND DEVELOPMENT
transactions can be claimed as deduction upon realization of the 1. Creditor sends a statement of Account to the debtor which
The deduction shall not apply
loss. Shrinkage in value of shares of stocks cannot be used to claim states the maturity date and amount due;
for the deduction as loss because you haven't realized it yet. Only if 2. If no payment is made, then the creditor sends a collection 1. Any expenditure or the acquisition or improvement of land, or
you sold it then if there is any loss, you can claim it as a deduction. letter to the debtor; for the improvement of property to be used in connection with
LOSSES FROM WASH SALES. A wash sale is the buying or selling research and development of a character which is subject to
3. Still no payment is made, then the creditor‘s lawyer will send a
of the same type of stock or security at a loss within 30 days before depreciation and depletion; and
formal demand letter to the debtor;
the date of sale or 30 days after date of sale. It cannot be claimed as 2. Any expenditure paid or incurred for the purpose of
4. Still failed to pay, then an action is iled in court for collection;
allowable deduction. ascertaining the existence, location, extent, or quality of any
A wash sale is a price manipulation activity prohibited under the 5. No payment despite the order of court, then the account will be deposit of ore or other mineral, including oil or gas.
SRC. It is a practice where a person or entity who is not a dealer of considered as bad debt. TYPES OF R&D
securities disposes of such securities. It occurs when the taxpayer 1. Not chargeable to capital account — deducted outright, Ex.
CHARITABLE CONTRIBUTIONS
disposes shares of stock or securities and within 30 days before or Project feasibility study;
after such disposition acquires substantially identical stocks or Kinds of Charitable Contributions
2. Chargeable to a capital account — spread out or amortized
securities. That‘s why it is termed as a 61-day sale. 1. Ordinary – those subject to limitations as to the amount
over a period of 60 months.
deductible from gross income

lOMoARcPSD|4853470
PENSION its claim for refund. As correctly found by the CTA, the goods or Costs of goods purchased for resale, with proper adjustment for
properties must be recorded and treated as depreciable assets. opening and closing inventories, is deducted from gross sales in
Current Service Cost is the cost of the services rendered from the
computing gross income.
time the pension trust is set up until its retirement. Petitioner further contends that since the disallowed items are
treated as capital goods in the general ledger and accounting Payment of principal by a debtor to a creditor is deducted from the
Past Service Cost is the cost of the services relating to those prior
records, this should have been given more signi icance than the total amount received by the latter in order to determine his interest
to the setting up of the pension trust. account vouchers which listed the items under inventory accounts. income.
DEPRECIATION A general ledger is a record of a business entity's accounts which 1) Sale of inventory of goods by manufacturers and
make up its inancial statements. Information contained in a general dealers of properties — That portion of the receipt
Depreciable amount or cost is the cost of an asset or other
ledger is gathered from source documents such as account vouchers, representing return of capital is not subject to income tax.
amount substituted for cost, less its residual value. purchase orders and sales invoices. In case of variance between
Salvage value is the estimated net amount currently obtainable if the source document and the general ledger, the former is Thus, cost of goods manufactured and sold or cost of sales
the asset is at the end of the useful life. It is the value of the asset at preferred. is deducted from gross sales and is re lected above the
the end of its useful life. gross income line in pro it and loss statement.
Useful life is either the period over which an asset is expected to be DEPLETION 2) Sale of stock in trade by a real estate dealer and
available for use by the entity, or the number of production or The exhaustion of natural resources like mines and oil and gas as dealer in securities.
similar units expected to be obtained from the asset by the entity. well as the result of production or severance from such mines or 3) Sale of services — Generally, the entire gross receipts of
METHODS OF DEPRECIATION wells. These are non-replaceable assets. This is applicable to sellers of services are treated as part of income. However,
1. Straight line method wasting asset entities. some have cost of services that must be deducted from
Cost Depletion Method. The method allowed under the tax code is their gross receipt in order to arrive at their gross income.
𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = the cost depletion method. This is similar to the unit of production
𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒 c. Distinguish: Itemized Deductions
2. Declining balance method; method. The depletable amount of the wasting asset is divided by and Optional Standard Deduction
the units estimated to be extracted to obtain a depletion rate per (OSD)
3. Sum of the years digit method. unit. The depletion rate per unit is then multiplied by the units
extracted during the year to arrive at the depletion for the period. ➔ Optional Standard Deduction or OSD is a standard
Kepco Phil. Corp. v. CIR
The depletable amount is equivalent to the cost of the asset less deduction of an amount not exceeding 40% of gross sales or
"Capital goods or properties" refer to goods or properties salvage value, if any. receipts (for individuals), or gross income (for corporations),
1. with estimated useful life greater than one year and as the case may be, in lieu of the itemized deductions.
Essential Factors
2. which are treated as depreciable assets under Section 29 ➔ It may be availed of by:
(f), 1. Basis of the property;
2. Estimated total recoverable units; AND a. A citizen;
3. used directly or indirectly in the production or sale of
taxable goods or services. 3. Number of units recovered during the taxable year. b. Resident alien;
From petitioner's evidence, the account vouchers speci ically b. Concept of Return of Capital c. Domestic corporation;
indicate that the disallowed purchases were recorded under
The amount representing return of capital should be deducted from d. Resident foreign corporation;
inventory accounts, instead of depreciable accounts. That petitioner
failed to indicate under its ixed assets or depreciable assets account, the proceeds from sales of assets and should NOT be subject to e. Partnership; and
goods and services allegedly purchased pursuant to the rehabilitation income tax.
and maintenance of Malaya Power Plant Complex, militates against f. Taxable estate and trust.

lOMoARcPSD|4853470
In other words, NRAs and NRFCs cannot claim OSD. d. Connected with the trade, business or e. Arise from trade or business or profession of
➔ With the election of OSD, there is no more need to substantiate profession; taxpayer.
with receipts. e. Paid or incurred during taxable year;
Charitable a. Contribution or gift must actually be paid;
➔ Those not allowed to use OSD are f. Interest must have been stipulated in writing; Contributions
b. Given to organizations speci ied in the tax
a. those that are exempt, with no other taxable income; or g. Legally due; code;
b. those with income subject to a special or preferential h. Not between related taxpayers; c. Net income of the institution must not inure to
tax rate. i. Not incurred to inance petroleum operations; the bene it of any private stockholder or
individual;
c. those earning purely compensation income. j. Not treated as capital expenditure.
d. Made within the taxable year;
➔ The taxpayer must signify in his return his intention to elect
Taxes a. Paid or incurred during taxable year; e. Evidenced by adequate records or receipts;
the OSD. Such election shall be irrevocable for the taxable year
for which the return is made. b. In connection with trade, business, profession. f. Not exceed 10% in the case of individuals and
➔ A general professional partnership and the partners comprising Losses a. Must be incurred in the trade, business, or
5% in the case of a corporation, of the
such partnership may avail of the OSD only once, either by the taxpayer‘s taxable income (except where the
profession of the taxpayer;
donation is deductible in full) to be determined
GPP or the partners comprising the partnership.
b. Actually sustained and charged off within the without the bene it of the contribution.
d. Requirements for deductible items taxable year and not mere anticipated losses;
c. Evidenced by a closed and completed Research and a. Incurred during taxable year;
Deduction Requisites for Deductibility
Development
transaction; b. In connection with trade or business.
Expenses a. Ordinary and necessary;
d. Not be compensated by insurance or other
b. Paid or incurred during the taxable year; Pension a. Employer must have established a pension or
forms of indemnity;
retirement plan to provide for the payments of
c. Paid or incurred in carrying on or which are e. IIf partly compensated, only the amount not reasonable pensions to his employees;
directly attributable to the development, compensated by insurance is deductible;
b. Pension plan is reasonable and actuarially
management, operation and/or conduct of the
f. In the case of casualty loss, taxpayer must ile a sound;
trade, business or exercise of profession;
sworn declaration of loss within 45 days after
d. Supported by adequate invoices or receipts; c. Contribution must be made by the employer to
the date of discovery of the casualty or
the pension fund;
e. Not contrary to law, public policy or moral; robbery, theft or embezzlement.
d. Funded by the employer;
f. Tax required to be withheld on the expense
Bad Debt a. Arise from a valid and subsisting obligation; e. Amount contributed must no longer be subject
paid or payable is shown to have been remitted
b. Ascertained to be worthless; to the control and disposition of the employer;
to the BIR.
c. Charged off and uncollectible within the taxable f. Payment has not yet been allowed as
Interest a. There must be an indebtedness; year; deduction;
b. Paid or incurred upon such indebtedness; d. Uncollectible in the near future; g. Deduction is apportioned in equal parts over a
c. Must be that of the taxpayer; period of 10 consecutive years beginning with

lOMoARcPSD|4853470
the year in which the transfer or payment is 3) Any amount expended in restoring property or in making 5. Income Tax on Individuals
made. good the exhaustion thereof for which an allowance is or has
a. RC, NRC, RA
been made; or
Depreciation a. Property must be used in trade, business or i. Coverage
4) Premiums paid on any life insurance policy covering the life
profession of the taxpayer;
of any of icer or employee, or of any person inancially Individual Source of Income Tax Base
b. There must be depreciable properties; interested in any trade or business carried on by the taxpayer,
c. Allowance for depreciation must be individual or corporate, when the taxpayer is directly or RC Within and without Taxable income
reasonable; indirectly a bene iciary under such policy.
NRC within Taxable income
d. Depreciation must be charged off during the Losses from Sales or Exchanges of Property. — In computing net
taxable year; income, no deductions shall in any case be allowed in respect of RA within Taxable income
e. Statement of the allowance must be attached losses from sales or exchanges of property directly or indirectly —
NRA-ETB within Taxable income
to the return; 1) Between members of a family. For purposes of this
f. Method for computing the allowance for paragraph, the family of an individual shall include only his NRA-NETB within Gross income
depreciation must be in accordance with the brothers and sisters, spouse, ancestors, and lineal descendants;
method prescribed by the SOF upon the or ii. Taxation on compensation income
recommendation of the CIR. 2) Except in the case of distributions in liquidation, between an (a) Inclusions
individual and corporation more than ifty percent (50%) in
Depletion a. Depletible asset — natural resources, i.e. All remuneration for services rendered by an employee for his
value of the outstanding stock of which is owned, directly or
mines, gas and oil wells; employer unless speci ically excluded. It includes
indirectly, by or for such individual; or
b. Charged off within taxable year; a) salaries, wages, emoluments,
3) Except in the case of distributions in liquidation, between two
c. Allowance for depletion is computed in corporations more than ifty percent (50%) in value of the b) honoraria,
accordance with cost depletion method. outstanding stock of which is owned, directly or indirectly, by
c) bonuses,
or for the same individual if either one of such corporations,
e. Items not deductible with respect to the taxable year of the corporation preceding the d) allowances,
In computing net income, no deduction shall in any case be allowed date of the sale of exchange was under the law applicable to
e) fringe bene its including director’s fee,
in respect to — such taxable year, a personal holding company or a foreign
personal holding company; f) taxable pensions and retirement pay and
1) Personal, living or family expenses;
4) Between the grantor and a iduciary of any trust; or g) other income of similar nature including those paid in
2) Any amount paid out for new buildings or for permanent kind.
improvements, or betterments made to increase the value of 5) Between the iduciary of and the iduciary of a trust and the
any property or estate; iduciary of another trust if the same person is a grantor with i) COLA, PERA, housing allowance, OT pay, Emergency
respect to each trust; or pay, Hazard pay, Rice and clothing allowance, Medical
Does not apply to intangible drilling and development costs allowance, grocery allowance.
incurred in petroleum operations which are deductible under 6) Between a iduciary of a trust and bene iciary of such trust.
Sec 34(g)(1). (Sec 36) (b) Exclusions
a) Compensation for services rendered by an independent
contractor;

lOMoARcPSD|4853470
b) Amounts paid either as advances or reimbursement for 7. Special Employees – 15% of gross compensation income. ➔ The GPP then distributes the net income to the partners. The
transportation, representation, and other bona ide (b) 8% option share of the partner is taxable income of each partner.
ordinary and necessary expenses incurred in the
Self-employed individuals and/or professionals shall have the ➔ The partners then cannot claim further deductions from their
performance of duties unless there is an excess over actual
option to avail of an eight percent (8%) tax on gross sales or distributive share.
expenses;
gross receipts and other non-operating income in excess of ➔ The partners cannot also avail of the 8% income tax rate with
c) Income derived by partner from professional partnership. Php250K in lieu of the graduated income tax rates and the regard to his share from the GPP.
d) Convenience of the Employer Rule. — bene its which are percentage tax.
v. Taxation of passive income
given for the exclusive bene it or convenience of the Rules on availing the 8% tax rate
employer. Passive Income Rate
a) The irst Php250K is not subject to tax;
e) De minimis bene its. For RC, NRC, RA
b) This is in lieu of the 3% percentage tax;
iii. Taxation of business income/income from practice of
c) Taxpayer must signify intention to use this option in the Royalties, in general 20%
profession
1st quarter percentage or income tax return. Otherwise,
- Books, literary and musical compositions 10%
graduated rates apply.
d) Mixed income earners are not entitled to the Php250K Prizes and Winnings - P10K or less 0-35%
reduction.
- > P10K 20%
e) This option is NOT available to:
PCSO and Lotto winnings - P10K or less EXEMPT
i) Purely compensation income earners;
- > P10K 20%
ii) VAT-registered taxpayers, regardless of gross sales or
receipts; Interest income from FCDU 15%
iii) Non-VAT taxpayers whose gross sale or receipts and
Cash and Property Dividends - Individual to DC 10%
other non-operating income > Php3M;
iv) Taxpayers subject to OPT except those under Sec 116. - DC to DC 0%
v) Partners of a GPP since their distributive share is Interest on long-term deposit or investment in banks
EXEMPT
already net of costs and expenses; and (With maturity of at least 5 years)
(a) Schedular
vi) Individuals enjoying income tax exemption, i.e. Plus NRA-ETB
1. RC – 0-35% of net income within & without; BMBEs.
2. NRC – 0-35% on net income within; Interest from currency deposits, trust funds and 20%
iv. Taxation of partners in a general professional partnership
deposit substitutes
RA – 0-35% of net income within;
➔ A GPP is not a taxable entity for income tax purposes because it
3.
Interest Income from long-term deposit or investment EXEMPT
4. NRA-ETB – 0-35% of net income within; only acts as a pass-through entity where its income is
5. NRA-NETB – 25% of gross income within; ultimately passed to the partners.
- Upon pre-termination with Holding period of 5%
6. Estates & Trusts – 0-35% of net income; ➔ The GPP may avail of itemized deductions or the 40% OSD. 4-5 years

lOMoARcPSD|4853470
- 3-4 years 12% secondary market in connection with the purchase or sale of required of any lender/investor had the latter turned around and sold
securities. said PEACe Bonds, whether in whole or part, simultaneously to 20 or
- < 3 years 20% more lenders or investors.
Where the inancial assets involved are government securities like
ALL, including NRA-NETB bonds, the reckoning of “20 or more lenders/investors” is made at Under Section 24 of the 1997 NIRC, interest income received by
any transaction in connection with the purchase or sale of the individuals from long-term deposits or investments with a holding
Capital gains 6% Government Bonds. Consequently, the seller is required to period of not less than ive (5) years is exempt from the inal tax.
withhold the 20% inal withholding tax on the imputed interest
Capital gains for shares of stock not traded 15% income from the bonds. Thus, should the PEACe Bonds be found to be within the coverage of
deposit substitutes, the proper procedure was for the Bureau of
Only NRA-NETB For debt instruments that are Treasury to pay the face value of the PEACe Bonds to the bondholders
NOT deposit substitutes, regular and for the BIR to collect the unpaid inal withholding tax
Gross amount of income within PH 25% income tax applies directly from RCBC Capital/CODE-NGO, or any lender or investor
if such be the case, as the withholding agents.
BDO v. Republic 2015 Leonen En Banc It must be emphasized, however, that debt instruments that do not
qualify as deposit substitutes under the 1997 NIRC are subject to the vi. Taxation of capital gains
WON the PEACe Bonds are “deposit substitutes” and thus subject to regular income tax.
20% inal withholding tax under the 1997 NIRC. a) Income from sale of shares of stock of a Philippine
The “gains” contemplated in Section 32(B)(7)(g) refers to: corporation
Related to this question is the interpretation of the phrase
“borrowing from twenty (20) or more individual or corporate 1) gain realized from the trading of the bonds before their In the case of shares of stock not listed and traded in the local
lenders at any one time” under Section 22(Y) of the 1997 NIRC, maturity date, which is the difference between the selling stock exchanges, the following rules shall apply:
particularly on whether the reckoning of the 20 lenders includes price of the bonds in the secondary market and the price at
trading of the bonds in the secondary market. which the bonds were purchased by the seller; and a. For common shares of stock, the book value based on the
latest available inancial statements duly certi ied by an
20-lender rule 2) gain realized by the last holder of the bonds when the bonds
independent public accountant prior to the date of sale, but
are redeemed at maturity, which is the difference between
the proceeds from the retirement of the bonds and the price not earlier than the immediately preceding taxable year,
Whether referring to money market securities or capital market
securities, transactions occur either in the primary market or in the at which such last holder acquired the bonds. shall be considered as the prima facie fair market value.
secondary market. Primary markets facilitate the issuance of new b. For preferred shares of stock, the liquidation value,
securities. Secondary markets facilitate the trading of existing For discounted instruments, like the zero-coupon bonds, the trading
gain shall be the excess of the selling price over the book value or which is equal to the redemption price of the preferred
securities, which allows for a change in the ownership of the
accreted value (original issue price plus accumulated discount from shares as of balance sheet date nearest to the transaction
securities. The transactions in primary markets exist between
issuers and investors, while secondary market transactions exist the time of purchase up to the time of sale) of the instruments. date, including any premium and cumulative preferred
among investors. dividends in arrears, shall be considered as fair market
The BIR’s interpretation of “at any one time” to mean at the
value.
The inancial market, therefore, is an agglomeration of inancial point of origination alone is unduly restrictive.
transactions in securities performed by market participants that c. In case there are both common and preferred shares, the
Tax treatment of income derived book value per common share is computed by deducting
works to transfer the funds from the surplus units (or from the PEACe Bonds
investors/lenders) to those who need them (de icit units or the liquidation value of the preferred shares from the total
borrowers). Should there have been a simultaneous sale to 20 or more equity of the corporation and dividing the result by the
lenders/investors, the PEACe Bonds are deemed deposit number of outstanding common shares as of balance sheet
Thus, from the point of view of the inancial market, the phrase “at substitutes. Further, the obligation to withhold the 20% inal tax on date nearest to the transaction date.
any one time” for purposes of determining the “20 or more lenders” the corresponding interest from the PEACe Bonds would likewise be
would mean every transaction executed in the primary or

lOMoARcPSD|4853470
b. Change of hands to recipient not engaged in real estate or to use ● NO. It is settled that the transfer of property through
d. For this purpose, the book value of the common shares of
in business: expropriation proceedings is a sale or exchange within
stock or the liquidation value of the preferred shares of
i. Succession or donation - CAPITAL; the meaning of Sections 24(D) and 56(A)(3) of the NIRC,
stock need not be adjusted to include any appraisal surplus
and pro it from the transaction constitutes capital gain. Since
from any property of the corporation not re lected or ii. As dividend - CAPITAL; capital gains tax is a tax on passive income, it is the seller, or
included in the latest audited inancial statements, in order
iii. Exchange - ORDINARY; respondents in this case, who are liable to shoulder the tax.
to determine the fair market value of the shares of stock.
The latest audited inancial statements shall be suf icient iv. Involuntary Transfers - NO EFFECT. ● As far as the government is concerned, the capital gains tax
in determining the fair market value of the shares of stock CONDITIONALLY EXEMPT FROM CGT in expropriation proceedings remains a liability of the
subject of the sale, barter, exchange, or other disposition. seller, as it is a tax on the seller's gain from the sale of real
a) Proceeds of sale of the principal residence have been fully property.
(RR 20-2020)
utilized in acquiring a new one within 18 months from date of
b) Income from sale of real property situated in the sale; b. NRA-ETB
Philippines
b) The historical cost or adjusted basis of RP sold will be carried Please see Taxation of Passive Income (5[a][v])
c) Income from sale, exchange, and other disposition of other over to the new PR;
c. NRA-NETB
capital assets. c) CIR has been duly noti ied, through a prescribed return, within
Please see Taxation of Passive Income (5[a][v])
30 days, from date of sale of intention to avail of tax
Type Rate Basis
exemption. a) 25% Gross Income Tax;
Sale of shares of stocks not 15% Net Capital Gains d) Net of proceeds not utilized will be subject to CGT. b) CGT on sale of shares of stock not traded in the LSE;
traded
e) Buyer of principal residence shall deduct 6%, deposit in cash c) CGT on sale of real property located in PH.
- Listed and Traded 0.6% Gross Selling Price or manager’s check in an interest-bearing account with an
d. Special Aliens
Authorized Agent Bank under an Escrow Agreement.
Sale of real property located 6% GSP, FMV, higher EXEMPT ENTITIES FROM CGT ➔ Aliens employed by regional headquarters, regional operating
in PH headquarters, offshore banking units, and petroleum service
1) Dealer in securities;
contractors.
Sale of other capital assets
2) Exempt under special laws;
➔ They are now subject to the regular income tax rate without
- > 12 Months 0-35% 50% of CG 3) Exchange of real property solely for shares of stock resulting in prejudice to preferential rates under existing tax treaties.
corporate control;
- 12 Months or less 0-35% 100% of CG e. Individual taxpayers exempt from income tax
4) GOCC selling real property;
RULES i. Minimum wage earner
5) Disposition is gratuitous;
a. Real properties formerly forming part of the stock in trade of a Statutory minimum wage shall refer to the rate ixed by the
taxpayer engaged in real estate or formerly used in trade or 6) Pursuant to CARP Law;
RTWPB, as de ined by the Bureau of Labor and Employment
business which were later on abandoned continue to be treated 7) Requirements above have been met, reg. principal residence. Statistics (BLES) of DOLE.
as ORDINARY assets. Republic v. Sps Salvador 2017 Minimum wage earner shall refer to a worker in the private sector
Provided, that such is automatically converted to CAPITAL ● Whether the capital gains tax on the transfer of the paid the statutory minimum wage or to an employee in the public
assets upon showing proof that they have not been used in expropriated property can be considered as consequential sector with compensation income of not more than the statutory
business for more than 2 years prior to the consummation of damages that may be awarded to respondents. minimum wage in the non-agricultural sector where he/she is
the taxable transaction. assigned.

lOMoARcPSD|4853470
The proper interpretation of R.A. 9504 is that it imposes taxes only From FC imposable commencement year following commencement
on the taxable income received in excess of the minimum wage, but is exempt of business operation
the MWEs will not lose their exemption as such. Workers who
NRA- If greater than MCIT If greater than RCIT
receive the statutory minimum wage and their basic pay remain 25% GIT on all income from PH sources (FINAL TAX)
NETB
MWEs. The receipt of any other income during the year does not Relief from the Minimum Corporate Income Tax Under Certain
disqualify them as MWEs. They remain MWEs, entitled to 6. Income Tax on Corporations Conditions. — Imposition of MCIT is suspended on any corporation
exemption as such, but the taxable income they receive other than
a. Domestic corporations 1. which suffers losses on account of prolonged labor dispute,
as MWEs may be subjected to appropriate taxes. (Soriano v.
or
Secretary of Finance 2017 En Banc) i. Taxation - in general
2. because of force majeure, or
ii. Exemptions granted under international agreements (a) Regular Corporate Income Tax (RCIT)
3. because of legitimate business reverses.
➔ Of icers and staff of the ADB who are NOT PH nationals shall Regular Corporate Income Tax — effective January 1, 2009, the rate
"Substantial losses from a prolonged labor dispute" means losses
be exempt from PH income tax. of income tax shall be thirty percent (30%).
arising from a strike staged by the employees which lasted for more
➔ Alien individual employees of foreign embassies or (b) Minimum Corporate Income Tax (MCIT) than six (6) months within a taxable period and which has caused the
international organizations in PH are exempt from our income temporary shutdown of business operations.
tax based on the international agreements entered into by PH Under the MCIT scheme, a corporation,
Gross Income De ined
with said international organizations or under the Vienna 1. beginning on its fourth year of operation,
Convention. gross income = gross sales — sales returns, discounts and
2. is assessed an MCIT of 2% of its gross income
allowances and cost of goods sold.
Resume of Individual Income Taxation 3. when such MCIT is greater than the normal corporate income
'Cost of goods sold' shall include all business expenses directly
Passive Income (FINAL TAX RATE) tax imposed under Section 27(A).
incurred to produce the merchandise to bring them to their present
Kind of Ordinary
If the regular income tax is higher than the MCIT, the corporation does location and use.
Individual Income Prizes &
Royalties Interest Dividend not pay the MCIT. Any excess of the MCIT over the normal tax shall be
Winning For a trading or merchandising concern, 'cost of goods sold' shall
carried forward and credited against the normal income tax for the
include
RC, NRC, RA GR: 20% GR: 20% 20% if From DC three immediately succeeding taxable years.
>10K is 10% 1. the invoice cost of the goods sold,
Purely Carry Forward of Excess Minimum Tax. — Any excess of the MCIT
Schedular 10% for 15% for 2. plus import duties,
Compensation
books, EFCD; Part of GI From FC: over the normal income tax shall be carried forward and credited
literary exempt if 10K or against the normal income tax for the three (3) immediately succeeding 3. freight in transporting the goods to the place where the goods
Business Schedular
and or 8% works for NRC < Part of GI taxable years. are actually sold
Professional GIT and for RC 4. including insurance while the goods are in transit.
RCIT MCIT
music 5, 12, Lotto or
20% for PCSO is Exempt For a manufacturing concern, 'cost of goods manufactured and sold'
Apply Applicable to ALL corporate TPs DC and RFC only
Mixed both pre- 20% exc for NRC shall include all costs of production of inished goods, such as
terminated 10K or < and RA
rules
long term Tax rate 30% 2% 1. raw materials used,
Tax base Taxable Income Gross Income 2. direct labor and manufacturing overhead,
Same but From DC
NRA- 3. freight cost,
GITR Same exempt Same is 20%
ETB When Upon Beginning on the 4th taxable
for EFCD 4. insurance premiums and

lOMoARcPSD|4853470
5. other costs incurred to bring the raw materials to the factory or speci ically governing the taxation of said corporation. The Court foreign currency exchanges, hedging involves contracting with a
warehouse. concludes that PAL cannot be subjected to MCIT for FY 2000-2001. foreign currency broker to deliver or receive a speci ied foreign
currency at a speci ied future date and at a speci ied exchange rate.
In the case of taxpayers engaged in the sale of service, First, PD No. 1590 refers to "basic corporate income tax." Here, a fully hedged transaction results in no exchange gain or loss to
gross income = gross receipts — sales returns, allowances, discounts the company; and for a fee, the broker assumes all the risks
Second, PD NO. 1590 further provides that the basic corporate associated with exchange rate changes. This is because the equivalent
and cost of services. income tax of PAL shall be based on its annual net taxable income. amount or value of the foreign currency in legal tender remains to be
'Cost of services' shall mean all direct costs and expenses necessarily In comparison, the 2% MCIT under Section 27(E) of the NIRC of 1997 a mere estimate until it is actually converted to local currency.
incurred to provide the services required by the customers and clients shall be based on the gross income of the domestic corporation. Therefore, any occurring luctuation in local currency value before
including the conversion of foreign currency does not result in the
Third, even if the basic corporate income tax and the MCIT are both
realization of any gain or loss.
1. salaries and employee bene its of personnel, consultants and income taxes under Section 27 of the NIRC of 1997, and one is paid in
specialists directly rendering the service and place of the other, the two are distinct and separate taxes. MCIT is In the instant case, petitioner may validly enter into a hedging
included in "all other taxes" from which PAL is exempted. contract to manage its foreign currencies on-hand earned as gross
2. cost of facilities directly utilized in providing the service such
revenues. Consequently, the Court considers hedging to be very
as depreciation or rental of equipment used and cost of Fourth, the evident intent of Section 13 of PD No. 1590 is to extend to
much related to its registered activities and, hence, still subject
supplies: PAL tax concessions not ordinarily available to other domestic
to a preferential tax treatment under R.A. No. 7916 and EO No.
corporations.
Provided, however, That in the case of banks, 'cost of services' 226.
shall include interest expense. Fifth, the Substitution theory of the CIR is untenable. It is not the fact
of tax payment that exempts PAL, but the exercise of its option. Manila Bankers' Life Insurance Corp. v. CIR 2019
Exceptions to MCIT
CTA held ✘ that premium taxes on insurance policies are considered
Corporations subject to special tax rates are exempt from MCIT: Aegis PeopleSupport, Inc. v. CIR 2019 "costs of service" in computing the Minimum Corporate Income Tax
1. Proprietary Educational Institutions that are subject to the Petitioner is a domestic corporation. It is registered with the Board (MCIT);
preferential 10% rate; of Investments (BOI) as a new and pioneer IT Export service irm in
Section 27(E) of the NIRC allows the government to collect from
2. Non-pro it Hospitals that are subject to the preferential 10% the ield of Customer Contact Center. Also, petitioner is registered
corporations MCIT equivalent to 2% of "gross income" in lieu of
with the PEZA.
rate; the 30% of "gross income" basic income tax for domestic
WON petitioner's foreign exchange gains derived from its hedging corporations, whenever the former is higher. It must be borne in
For (1) and (2), the income derived from unrelated trade,
contract with the Citibank is covered by Income Tax Holiday and mind, however, that although both rates of taxes are applied to "gross
business, or activity should not exceed 50% of the gross income" as tax base, the de inition of "gross income," for purposes of
subject to tax refund.
income. MCIT and basic corporate income tax, varies.
3. PEZA-registered entities for registered activities that are YES. Section 4 of R.A. No. 7916 provides that enterprises located
within the recognized economic or trade zones "are granted "Gross income" as used in determining MCIT means "gross receipts
subject to 5% preferential rate;
preferential tax treatment." Any income earned by a less sales returns, allowances, discounts and cost of services."
4. Offshore Banking Units; PEZA-registered enterprise which is NOT related to its
"Cost of services" means all DIRECT costs and expenses
5. International Carriers subject to 2.5% of Gross Philippine registered activities is NOT covered by the incentives granted
necessarily incurred to provide the services required by the
Billings. under R.A. No. 7916 and EO No. 226.
customers and clients.
CIR v. PAL In its rudimentary de inition, a hedge (as opposed to speculation
Premium taxes are NOT deductible cost of service
and arbitrage) is an investment undertaken to reduce the risk of
WON PAL is liable for de iciency MCIT for FY 2000-2001. adverse price movements in an asset. Simply put, it is a loose form The claimed deduction should be a direct cost or expense. A
of insurance against value or price luctuations of a particular cost or expense is deemed "direct" when it is readily attributable to
NO. PD No. 1590, the franchise of PAL, contains provisions asset (such as cash in the form of foreign currency). In the context of the production of the goods or for the rendition of the service.

lOMoARcPSD|4853470
If shares of stock are listed and traded 6/10 of 1% of GSP or

Premium taxes, though payable by MBLIC, are not direct costs Indeed, the exclusion of demurrage and detention fees from the through LSE gross value
within the contemplation of the phrase "cost of services," incurred preferential rate of 2.5% is proper since they are not considered
as they are AFTER the sale of service had already transpired. income derived from transportation of persons, goods and/or If shares not traded through the LSE 15% of net capital
This cannot therefore be considered as the equivalent of raw mail, in accordance with the rule expressio unios est exclusio alterius. gains
materials, labor, and manufacturing cost of deductible "cost of sales"
in the sale of goods. Demurrage and detention fees de initely form part of an international (e) Improperly accumulated earnings tax
sea carrier's gross income. For they are acquired in the normal
Association of International Shipping Lines, Inc.et al. v. SOF 2020 course of trade or business. a) In General. — In addition to other taxes imposed by this Title,
there is hereby imposed for each taxable year on the
WON demurrage and detention fees are subject to the preferential (c) Taxation of passive income improperly accumulated taxable income of each corporation an
tax rate of 2.5% of Gross PH Billings.
Passive Income Rate improperly accumulated earnings tax equal to ten percent
NO. They are properly regular income subject to regular income (10%) of the improperly accumulated taxable income.
tax rate. Interest under the expanded foreign currency deposit
15% b) Tax on Corporations Subject to Improperly Accumulated
(EFCD) system
To determine whether demurrage and detention fees are subject to the Earnings Tax. —
preferential 2.5% rate, we refer to the de inition of "Gross Philippine Royalty of all types within PH 20%
1) In General. - The IAET imposed shall apply to every
Billings" (GPB) under Section 28(A)(I)(3a) of the NIRC, as amended
by RA 10378, viz.: "gross revenue whether for passenger, cargo or - From abroad 30% corporation formed or availed for the purpose of
mail originating from the Philippines up to inal destination, avoiding the income tax with respect to its
regardless of the place of sale or payments of the passage or freight Interest on any current bank deposit, yield or other shareholders or the shareholders of any other
documents." monetary bene its from deposit substitute, trust fund 20% corporation, by permitting earnings and pro its to
and similar arrangement accumulate instead of being divided or distributed.
Verily, the GPB covers gross revenue derived from transportation of
passengers, cargo and/or mail originating from the Philippines up to Intercorporate dividend from other DCs EXEMPT 2) Exceptions. - The IAET shall not apply to:
the inal destination. Any other income, therefore, is subject to the
Tax Rate of Banks on income derived under the EFCD System a. Publicly-held corporations;
regular income tax rate.
b. Banks and other nonbank inancial
Demurrage fee is the allowance or compensation due to the master Income derived by a depository bank from foreign
EXEMPT intermediaries; and
or owners of a ship, by the freighter, for the time the vessel may have currency transactions with nonresidents, OBUs
been detained beyond the time speci ied or implied in the contract of c. Insurance companies;
affreightment or the charter-party. It is only an extended freight or Interest income from foreign currency loans granted
10% d. Taxable partnerships;
reward to the vessel, in compensation for the earnings the carrier is by a bank to residents other than OBUs
improperly caused to lose. e. Foreign corporations.
(d) Taxation of capital gains
Detention occurs when the consignee holds on to the carrier's c) Evidence of Purpose to Avoid Income Tax. —
container outside of the port, terminal, or depot beyond the free time On sale of shares of stock of a DC NOT 15% of net capital
that is allotted. Detention fee is charged when import containers have 1) Prima Facie Evidence. - the fact that any corporation
traded through a local stock exchange held gains
been picked up, but the container (regardless if it is full or empty) is as a capital asset is a mere holding company or investment company
still in the possession of the consignee and has not been returned shall be prima facie evidence of a purpose to avoid the
within the allotted time. Detention fee is also charged for export On sale of real property in PH held as a 6% of GSP or current tax upon its shareholders or members.
containers in which the empty container has been picked up for capital asset MV whichever is higher
loading, and the loaded container is returned to the steamship line 2) Evidence Determinative of Purpose. - The fact that
after the allotted free time. the earnings or pro its of a corporation are permitted

lOMoARcPSD|4853470
to accumulate beyond the reasonable needs of the

essentially a penalty tax designed to compel corporations to For purposes of this Subsection, the term 'unrelated trade, business
business shall be determinative of the purpose to distribute earnings so that the said earnings by shareholders could, or other activity' means any trade, business or other activity, the
avoid the tax upon its shareholders or members unless in turn, be taxed. conduct of which is not substantially related to the exercise or
the corporation, by the clear preponderance of
performance by such educational institution or hospital of its
evidence, shall prove to the contrary. Petitioner does not fall among those exempt classes.
primary purpose or function.
d) Improperly Accumulated Taxable Income. — means taxable
If the CIR determined that the corporation avoided the tax on
income adjusted by: A 'proprietary educational institution' is any private school
shareholders by permitting earnings or pro its to accumulate, and the
taxpayer contested such a determination, the burden of proving the maintained and administered by private individuals or groups with
a. Income exempt from tax;
determination wrong, together with the corresponding burden of an issued permit to operate from the DepEd, or CHED, or TESDA, as
b. Income excluded from gross income; irst going forward with evidence, is on the taxpayer. This applies the case may be, in accordance with existing laws and regulations.
even if the corporation is not a mere holding or investment company
c. Income subject to inal tax; and CIR v. St. Luke’s Medical Center 2012
and does not have an unreasonable accumulation of earnings or
d. The amount of net operating loss carry-over deducted; pro its.
WON St. Luke’s is liable for de iciency income tax in 1998 under
And reduced by the sum of: In order to determine whether pro its are accumulated for the Section 27(B) of the NIRC, which imposes a preferential tax rate of
reasonable needs of the business to avoid the surtax upon 10% on the income of proprietary non-pro it hospitals.
a. Dividends actually or constructively paid; and
shareholders, it must be shown that the controlling intention of
b. Income tax paid for the taxable year. the taxpayer is manifested at the time of accumulation, not The Court partly grants the petition of the BIR but on a different
intentions declared subsequently, which are mere afterthoughts. ground. Section 27(B) of the NIRC does not remove the income tax
e) Reasonable Needs of the Business. — includes the Furthermore, the accumulated pro its must be used within a exemption of proprietary non-pro it hospitals under Section 30(E)
reasonably anticipated needs of the business. reasonable time after the close of the taxable year. and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the
other hand, can be construed together without the removal of such
a. Allowance for the increase in the accumulation of To determine the ‘reasonable needs’ of the business in order to tax exemption. The effect of the introduction of Section 27(B) is to
earnings up to 100% of the paid-up capital; justify an accumulation of earnings, the Courts of the United States subject the taxable income of two speci ic institutions, namely,
have invented the so-called ‘Immediacy Test’ which construed the proprietary non-pro it educational institutions and proprietary
b. For de inite corporate expansion projects or programs
words ‘reasonable needs of the business’ to mean the immediate non-pro it hospitals, among the institutions covered by Section 30,
requiring considerable capital expenditure; to the 10% preferential rate under Section 27(B) instead of the
needs of the business, and it was generally held that if the
c. For building, plants, or equipment acquisition; corporation did not prove an immediate need for the accumulation of ordinary 30% corporate rate under the last paragraph of Section 30 in
the earnings and pro its, the accumulation was not for the reasonable relation to Section 27(A)(1).
d. For compliance with any loan covenant or pre-existing needs of the business, and the penalty tax would apply.
obligation; Section 27(B) of the NIRC imposes a 10% preferential tax rate on
the income of
e. Earnings required by law or regulations to be retained; ii. Proprietary educational institutions and non-profit hospitals
Proprietary educational institutions and hospitals which are 1) proprietary non-pro it educational institutions and
f. In the case of subsidiaries of FCs in PH, all
nonpro it shall pay a tax of ten percent (10%) on their taxable 2) proprietary non-pro it hospitals.
undistributed earnings intended for investments
within PH. income except those covered by Subsection (D) hereof:
The only quali ications for hospitals are that they must be
Cyanamid Philippines, Inc. v. CA on IAET Provided, that if the gross income from 'unrelated trade, proprietary and non-pro it.
business or other activity' exceeds ifty percent (50%) of the
The provision discouraged tax avoidance through corporate surplus “Proprietary” means private, following the de inition of a
total gross income derived by such educational institutions or “proprietary educational institution” as “any private school
accumulation. When corporations do not declare dividends, income
hospitals from all sources, the tax prescribed in Subsection (A) maintained and administered by private individuals or groups” with
taxes are not paid on the undeclared dividends received by the
shareholders. The tax on improper accumulation of surplus is hereof shall be imposed on the entire taxable income. a government permit.

lOMoARcPSD|4853470
shown by its articles of incorporation, by-laws and other constitutive Section 30 (H) of the 1997 Tax Code, as amended.
“Non-pro it” means no net income or asset accrues to or bene its any documents.
member or speci ic person, with all the net income or asset devoted Based on jurisprudence and tax rulings, a taxpayer shall be granted
to the institution’s purposes and all its activities conducted not for To be exempt from income taxes, Section 30(E) of the NIRC requires with this tax exemption after proving that:
pro it. that a charitable institution must be “organized and operated
exclusively” for charitable purposes. Likewise, to be exempt from 1) it falls under the classi ication of non-stock, non-pro it
“Non-pro it” does not necessarily mean “charitable.” To be a income taxes, Section 30(G) of the NIRC requires that the institution educational institution; and
charitable institution, an organization must meet the substantive test be “operated exclusively” for social welfare. However, the last 2) the income it seeks to be exempted from taxation is used
of charity in Lung Center. Charity is essentially a gift to an inde inite paragraph of Section 30 of the NIRC quali ies the words “organized actually, directly and exclusively for educational
number of persons which lessens the burden of government. In other and operated exclusively.” In short, the last paragraph of Section 30 purposes.
words, charitable institutions provide for free goods and services to provides that if a tax exempt charitable institution conducts
the public which would otherwise fall on the shoulders of “any” activity for pro it, such activity is NOT tax exempt even as Petitioner Foundation has ful illed both of the abovementioned
government. its not-for-pro it activities remain tax exempt. requirements.
As a general principle, a charitable institution does not lose its Thus, even if the charitable institution must be “organized and For the irst requirement, there is no contest as both the parties have
character as such and its exemption from taxes simply because it operated exclusively” for charitable purposes, it is nevertheless stipulated that petitioner Foundation is a non-stock, non-pro it
derives income from paying patients, whether out-patient, or allowed to engage in “activities conducted for pro it” without losing educational institution. In several cases, this Court has ruled that a
con ined in the hospital, or receives subsidies from the government, its tax exempt status for its not-for-pro it activities. The only non-pro it institution will not be considered pro it driven simply
so long as the money received is devoted or used altogether to the consequence is that the “income of whatever kind and character” of a because of generating pro its.
charitable object which it is intended to achieve; and no money charitable institution “from any of its activities conducted for pro it,
inures to the private bene it of the persons managing or operating the regardless of the disposition made of such income, shall be Article XIV, Section 4(3) does not require that the revenues and
institution. subject to tax.” income must have also been earned from educational activities or
activities related to the purposes of an educational institution. The
For real property taxes, the incidental generation of income is The Court cannot expand the meaning of the words “operated phrase "all revenues" is unquali ied by any reference to the source of
permissible because the test of exemption is the USE of the exclusively” without violating the NIRC. Services to paying revenues. Thus, so long as the revenues and income are used
property. The effect of failing to meet the use requirement is simply patients are activities conducted for pro it. They cannot be actually, directly and exclusively for educational purposes, then
to remove from the tax exemption that portion of the property not considered any other way. There is a “purpose to make pro it over said revenues and income shall be exempt from taxes and
devoted to charity. and above the cost” of services. duties.
The Constitution exempts charitable institutions only from real St. Luke’s fails to meet the requirements under Section 30(E) and (G) In the instant case, petitioner Foundation irmly and adequately
property taxes. In the NIRC, Congress decided to extend the of the NIRC to be completely tax exempt from all its income. argued that none of its income inured to the bene it of any of icer
exemption to income taxes. Section 30(E) of the NIRC provides that a However, it remains a proprietary non-pro it hospital under Section or entity. Instead, its income has been actually, exclusively and
charitable institution must be: 27(B) of the NIRC as long as it does not distribute any of its pro its to directly used for performing its purpose as an educational
its members and such pro its are reinvested pursuant to its corporate institution. Undoubtedly, petitioner Foundation has also proven this
1) A non-stock corporation or association; purposes. St. Luke’s, as a proprietary non-pro it hospital, is second requisite.
2) Organized exclusively for charitable purposes; entitled to the preferential tax rate of 10% on its net income
3) Operated exclusively for charitable purposes; and from its for-pro it activities. iii. GOCCs, agencies, instrumentalities
4) No part of its net income or asset shall belong to or inure to 1) The provisions of existing special or general laws to the
La Sallian Educational Innovators Foundation v. CIR 2019
the bene it of any member, organizer, of icer or any speci ic contrary notwithstanding, all corporations, agencies, or
person. instrumentalities owned or controlled by the Government,
No less than the 1987 Constitution expressly exempt ALL revenues
Thus, both the organization and operations of the charitable and assets of non-stock, non-pro it educational institutions from SHALL PAY such rate of tax upon their taxable income as are
institution must be devoted “exclusively” for charitable purposes. taxes provided that they are actually, directly and exclusively used for imposed by this Section upon corporations or associations
The organization of the institution refers to its corporate form, as educational purposes. This constitutional exemption is reiterated in engaged in a similar business, industry, or activity

lOMoARcPSD|4853470
except Any income of nonresidents, whether individuals or corporations, and similar arrangement
from transactions with depository banks under the expanded
a) the Government Service Insurance System (GSIS), Intercorporate dividend from DCs EXEMPT
system shall be EXEMPT from income tax.
b) the Social Security System (SSS),
b. Resident foreign corporations (e) Taxation of capital gains
c) the Philippine Health Insurance Corporation (PHIC),
i. Taxation - in general
and On sale of shares of stock of a DC NOT traded through a local stock
(a) Regular Corporate Income Tax (RCIT) exchange held as a capital asset
d) the local water districts.
Same with DC 5% of net capital
PAGCOR v. BIR, 2014 - Capital gains not over Php100K
gains
(b) Minimum Corporate Income Tax (MCIT)
We uphold our earlier ruling that Section 1 of R.A. No. 9337,
amending Section 27(c) of R.A. No. 8424, by excluding petitioner Same with DC 10% of net capital
- Capital gains > Php100K
from the enumeration of GOCCs exempted from corporate income tax, gains
is valid and constitutional. In addition, we hold that: (c) Branch Pro its Remittance Tax (BPRT)
On sale of real property in PH 30% RCIT
Any pro it remitted by a branch to its head of ice shall be subject to
1. Petitioner’s tax privilege of paying ive percent (5%)
franchise tax in lieu of all other taxes with respect to its a tax of 15% which shall be based on the total pro its applied or ii. Resident foreign corporations subject to preferential tax rates
income from gaming operations, pursuant to P.D. 1869, as earmarked for remittance without any deduction for the tax
amended, is not repealed or amended by Section 1(c) of R.A. component thereof except those activities which are registered with (a) International carriers
No. 9337; the PEZA. An international carrier doing business in the Philippines shall pay
2. Petitioner’s income from gaming operations is subject to Interests, dividends, rents, royalties, including remuneration for a tax of 2.5% on its 'Gross Philippine Billings.'
the ive percent (5%) franchise tax only; and
technical services, salaries, wages premiums, annuities, ➔ Under RA 10378, international carriers doing business in PH
3. Petitioner’s income from other related services is subject emoluments or other ixed or determinable annual, periodic or
to corporate income tax only. may avail of a preferential rate or exemption from tax based on
casual gains, pro its, income and capital gains received by a foreign
corporation during each taxable year from all sources within the a) A treaty or international agreement; or
iv. Foreign currency deposit units
Philippines shall not be treated as branch pro its unless the b) The basis of reciprocity.
Income derived by a depository bank under the expanded foreign same are effectively connected with the conduct of its trade or
currency deposit system from foreign currency transactions with business in the Philippines. ➔ GPB refers to
non-residents, offshore banking units in the Philippines, local a) Gross revenue derived from carriage of persons,
(d) Taxation of passive income
commercial banks including branches of foreign banks that may be excess baggage, cargo and mail;
authorized by the BSP to transact business with foreign currency Passive Income Rate
deposit system shall be EXEMPT from all taxes, except net income b) Originating from PH in a continuous and uninterrupted
from such transactions. Interest under the expanded foreign currency deposit light;
7.5%
(EFCD) system
Interest income from foreign currency loans granted by such c) Irrespective of the place of sale or issue and the place
depository banks under said expanded system to residents other Royalty of all types within PH 20% of payment of the ticket.
than offshore banking units in the Philippines or other depository ➔ Note that for international shippers, demurrage and detention
- From abroad EXEMPT
banks under the expanded system, shall be subject to a inal tax at fees are NOT part of GPB as they are subject to the regular
the rate of ten percent (10%). Interest on any current bank deposit, yield or other income tax rate. (Association of International Shipping Lines v.
20% SOF 2020 case)
monetary bene its from deposit substitute, trust fund

lOMoARcPSD|4853470
(b) Foreign currency deposit units and o shore banking units h) research and development services and product
development; YES. The threshold question is whether the IGC was doing business
Income derived by offshore banking units authorized by the BSP, in the Philippines when it collected dividend earnings from sources
from foreign currency transactions with non-residents, other i) technical support and maintenance; within the Philippines.
offshore banking units, local commercial banks, including branches
j) data processing and communications; and Doing business implies a continuity of commercial dealings and
of foreign banks that may be authorized by the BSP to transact
business with offshore banking units shall be EXEMPT from all k) business development. arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally
taxes except net income from such transactions.
ROHQs are taxed 10% on taxable income. incident to, and in progressive prosecution of, the purpose and object
Any interest income derived from foreign currency loans granted to of its organization.
c. Non-resident foreign corporations (NRFC)
residents other than offshore banking units or local commercial
Mere investment as a shareholder by a foreign corporation in a
banks, including local branches of foreign banks that may be i. Taxation of NRFC in general
duly registered domestic corporation shall NOT be deemed
authorized by the BSP to transact business with offshore banking "doing business" in the Philippines. It is clear then that the IGC's
NRFCs are subject to 30% income tax on gross income derived
units, shall be subject only to a inal tax at the rate of 10%. act of subscribing shares of stocks from McCann, a duly registered
during each taxable year from all sources within PH.
domestic corporation, maintaining investments therein, and deriving
Any income of nonresidents, whether individuals or corporations, Passive Income Rate dividend income therefrom, does not qualify as "doing business"
from transactions with said offshore banking units shall be contemplated under R.A. No. 7042. Hence, the IGC is not required to
EXEMPT from income tax. Interest on foreign loans, i.e. lending to DC 20% secure a license before it can ile a claim for tax refund.
(c) Regional or area headquarters and regional operating The general rule that a foreign corporation is the same juridical
Intercorporate dividend from DC
headquarters - Subject to a condition that the country of entity as its branch of ice in the Philippines cannot apply here. When
1) RAHQ is a branch established by multinationals which domicile of the NRFC allows a credit against 15% the foreign corporation transacts business in the Philippines
the tax due from the NRFC taxes deemed to independently of its branch, the principal-agent relationship is set
a) Do not earn or derive income from PH; and have been paid in PH equivalent to 15%. aside. The transaction becomes one of the foreign corporation, not of
the branch. Consequently, the taxpayer is the foreign corporation, not
b) Acts as supervisory, communications and - Otherwise 30% the branch or the resident foreign corporation.
coordinating center for their af iliates, subsidiaries or
branches in the Asia-Paci ic. ii. NRFCs subject to preferential tax rates Corollarily, if the business transaction is conducted through the
branch of ice, the latter becomes the taxpayer, and not the foreign
RAHQs are EXEMPT from income tax. 1) Cinematographic Film Owner, Lessor or Distributor. — corporation.
2) ROHQ is a branch engaged in any of the following services: 25%;
The RP-US Tax Treaty created a treaty obligation on the part of the US
a) general administration and planning; 2) Owner or Lessor of Vessels Chartered by Philippine that it "shall allow" to a US parent corporation receiving dividends
Nationals. — 4% of gross rentals, lease or charter fees from from its Philippine subsidiary "a tax credit for the appropriate
b) business planning and coordination; amount of taxes paid or accrued to the Philippines by the said
leases or charters to Filipino citizens or corporations, as
c) sourcing and procurement of raw materials and Philippine subsidiary. The US allowed a "deemed paid" tax credit to
approved by MARINA;
US corporations on dividends received from foreign corporation.
components;
3) Owner or Lessor of Aircraft, Machineries and Other
This goes to show that the IGC, being a non-resident US corporation is
d) corporate inance advisory services; Equipment. — 7.5% of gross rental or fees.
quali ied to avail of the aforesaid 15% preferential tax rate on the
e) marketing control and sales promotion; CIR v. Interpublic Group of Companies 2019 dividends it earned from the Philippines. It was proven that the
country which it was domiciled shall grant similar tax relief/credit
f) training and personnel management; Can an NRFC which collects dividends from the Philippines sue here against the tax due upon the dividends earned from sources within
to claim tax refund?
g) logistic services;

lOMoARcPSD|4853470
H) A nonstock and nonpro it educational institution;

the Philippines. Clearly, the IGC has made an overpayment of its a. Organizational Test — constitutive documents must
tax due of FWT by using the 35% tax rate. I) Government educational institution; show that its primary purpose of incorporation fall
J) Farmers' or other mutual typhoon or ire insurance under Sec 30 of the NIRC; and
Since the RP-US Tax Treaty does not provide for any other
prerequisite for the availment of the bene its under the said treaty, to company, mutual ditch or irrigation company, mutual or b. Operational Test — the regular activities must be
impose additional requirements would negate the availment of the cooperative telephone company, or like organization of a purely exclusively devoted to the accomplishment of such
reliefs provided for under international agreements. local character, the income of which consists solely of purpose.
assessments, dues, and fees collected from members for the
d. Corporations exempt from income tax sole purpose of meeting its expenses; and 2. Must be non-pro it — Non-inurement Rule. What are
considered as inurements:
A) Labor, agricultural or horticultural organization not organized K) Farmers', fruit growers', or like association organized and
operated as a sales agent for the purpose of marketing the a. Payment of compensation, salaries, or honorarium to
principally for pro it;
products of its members and turning back to them the proceeds its trustees or organizers;
B) Mutual savings bank not having a capital stock represented by
of sales, less the necessary selling expenses on the basis of the b. Payment of exorbitant or unreasonable compensation
shares, and cooperative bank without capital stock organized
quantity of produce inished by them; to its employees;
and operated for mutual purposes and without pro it;
The income of whatever kind and character of the foregoing c. Provision of welfare aid and inancial assistance to its
C) Bene iciary society, order or association, operating for the
organizations from any of their properties, real or personal, or from any members; except life, sickness, accident and other
exclusive bene it of the members such as a fraternal
of their activities conducted for pro it regardless of the disposition bene its.
organization operating under the lodge system, or mutual aid
made of such income, shall be subject to tax.
association or a nonstock corporation organized by employees d. Donation to any person or entity;
providing for the payment of life, sickness, accident, or other GR: These entities are exempt from income tax because they
bene its exclusively to the members of such society, order, or are not intended for pro it. They earn income to e. Purchase of goods or services in excess of the FMV
association, or nonstock corporation or their dependents; realize their purpose. from an entity in which one or more trustees, of icers
or iduciaries have an interest; and
D) Cemetery company owned and operated exclusively for the EXC: They can still be subject to tax regardless of the
bene it of its members; disposition of income f. When upon dissolution and satisfaction of all
liabilities, its remaining assets are distributed to its
E) Nonstock corporation or association organized and operated 1. Earned income of whatever kind and character by using
trustees, organizers, of icers or members.
exclusively their property, real or personal.
2. Income from activities conducted for pro it. Requisites for the Tax Exemption under Sec 30 exc Non-Stock,
(a) for religious, charitable, scienti ic, athletic, or cultural
EXC to EXC: Non-Pro it Educational Institution (RMO 38-2019)
purposes, or
(b) for the rehabilitation of veterans, Article XIV, Section 4 of the Constitution provides that: ― a) It is a non-stock, non-pro it corporation;
All revenues and assets of non-stock, non-pro it b) No part of the corporation or association’s net income shall
no part of its net income or asset shall belong to or inure to the
educational institutions used actually, directly, and inure to the bene it of any private individual; and
bene it of any member, organizer, of icer or any speci ic person;
exclusively for educational purposes shall be exempt from
F) Business league chamber of commerce, or board of trade, taxes and duties. c) The trustees do not receive any compensation or remuneration.
not organized for pro it and no part of the net income of
In short, to be exempt d) In case of dissolution, assets shall be transferred to similar
which inures to the bene it of any private stock-holder, or
institutions or to the government.
individual; 1. The corporation passed the
G) Civic league or organization not organized for pro it but
operated exclusively for the promotion of social welfare;

lOMoARcPSD|4853470
e. Tax on other business entities: general partnerships, Requisites for a Joint Venture not to be considered a taxable 4. Every nonresident alien engaged in trade or business or in the
general professional partnerships, co-ownerships, joint corporation exercise of profession in the Philippines.
ventures, and consortia
1) The JV should be for the undertaking of a construction The following individuals shall not be required to ile an income tax
There are two kinds of partnerships for income tax purposes: project; return:
1) Those NOT subject to income tax 2) Should involve joining or pooling of resources by licensed 1. An individual whose taxable income does not exceed P250K.
local contracts;
a) GPPs; Those individuals engaged in business or practice of
3) The contractors are engaged in the construction business; profession within the Philippines shall ile an income tax
b) Joint venture or consortium agreement formed for the
and return, regardless of the amount of gross income;
purpose of
4) The JV itself must be licensed under PCAB. 2. Purely compensation income earners.
i) Undertaking construction projects; or
Determination of OSD by the GPP and its Partners However, an individual deriving compensation concurrently
ii) Engaging in petroleum, coal, geothermal and
from two or more employers at any time during the taxable
other energy operations pursuant to an 1. GPP and the professional partners may avail of OSD only
year shall ile an income tax return.
operating or consortium agreement under a ONCE;
service contract with the government. 3. An individual whose sole income has been subjected to FWT;
2. Distributable net income of GPP may be determined using ID or
and
2) Those subject to tax — those that derive income from trade OSD;
or business and are considered as corporations under the 4. A minimum wage earner or an individual who is exempt
3. Share in the net income of the GPP shall be reported as taxable
Tax Code. from income tax. (Sec 51)
income of each partner;
With regard to Nontaxable Taxable ii. Substituted filing
4. The professional partners can no longer claim further
Partner’s distributive deduction from their distributive share regardless of method Who shall not be required to ile an annual income tax return?
Will form part of used in claiming deduction;
share in the net income 1. Individual taxpayers
partner’s gross income
Distributive is subject to a 10%
in the ITR subject to 5. However, if the partner also derives other income outside the
share inal tax, except for 2. receiving purely compensation income, regardless of amount,
graduated income tax GPP, then the deduction from the other income would either be
NRA-ETB which is
rates ID or OSD. 3. from only one employer in the Philippines for the calendar
subject to 20%
year,
7. Filing of Returns and Payment
May be claimed as a
Partner’s share NOT deductible since 4. the income tax of which has been withheld correctly by the
deductible expense in a. Individual return
in net loss subject to inal tax. said employer (tax due equals tax withheld).
his personal ITR
i. Who are required to file; exceptions The certi icate of withholding iled by the respective employers, duly
Still required to ile an stamped 'received' by the BIR, shall be tantamount to the substituted
1. Every Filipino citizen residing in the Philippines;
annual information
Deemed and treated as iling of income tax returns by said employees. (Sec 51-A)
How return on their incomes 2. Every Filipino citizen residing outside the Philippines, on his
corporations subject to
partnership is and expenses for the income from sources within the Philippines; iii. When and where to file
the corporate income
taxed purpose of ascertaining
tax rate. Where to File. — The return shall be iled with
the partners’ taxable 3. Every alien residing in the Philippines, on income derived from
shares. sources within the Philippines; and 1. An authorized agent bank,
2. Revenue District Of icer,

lOMoARcPSD|4853470
3. Collection Agent or i. Quarterly income tax iv. Return of corporations contemplating dissolution or
reorganization
4. Duly authorized Treasurer of the city or municipality in which ➔ Every corporation shall ile in duplicate a quarterly summary
such person has his legal residence or principal place of declaration of its gross income and deductions on a ➔ Every corporation shall, within thirty (30) days after the
business in the Philippines, or cumulative basis for the preceding quarter or quarters. adoption by the corporation of a resolution or plan
5. If there be no legal residence or place of business in the ➔ The tax so computed shall be decreased by the amount of tax 1. for its dissolution, or
Philippines, with the Of ice of the Commissioner. (Sec 50[b]) previously paid or assessed during the preceding quarters and
2. for the liquidation of the whole or any part of its
shall be paid not later than sixty (60) days from the close of
When to File. — capital stock, including a corporation which has been
each of the irst three (3) quarters of the taxable year, whether
1. On or before April 15 of each year covering income for the noti ied of possible involuntary dissolution by the
calendar or iscal year. (Sec 75)
preceding taxable year. SEC, or
ii. Final adjustment return
2. Individuals subject to tax on capital gains; 3. for its reorganization,
➔ Every corporation shall ile a inal adjustment return covering
a. From the sale or exchange of shares of stock not traded render a correct return to the Commissioner, veri ied under
the total taxable income for the preceding calendar or iscal
thru a local stock exchange shall ile a return within oath, setting forth the terms of such resolution or plan.
year.
thirty (30) days after each transaction and a inal ➔ The dissolving or reorganizing corporation shall, prior to the
consolidated return on or before April 15 of each year ➔ If the sum of the quarterly tax payments made during the said
issuance by the SEC of the Certi icate of Dissolution or
covering all stock transactions of the preceding taxable taxable year is not equal to the total tax due on the entire
Reorganization, secure a certi icate of tax clearance from the
year; and taxable income of that year, the corporation shall either:
BIR which certi icate shall be submitted to the SEC. (Sec 52[c])
b. From the sale or disposition of real property shall ile 1. Pay the balance of tax still due; or
c. Return on capital gains realized from sale of shares of
a return within thirty (30) days following each sale 2. Carry-over the excess credit; or stock and real estate
or other disposition. (Sec 50[c])
3. Be credited or refunded with the excess amount paid,
Return of Parent to Include Income of Children. — The income of as the case may be. Sale or exchange of stock NOT Within 30 days after each
unmarried minors derived from properly received from a living traded through LSE transaction and inal
➔ Option shall be considered irrevocable for that taxable period. consolidated return on or before
parent shall be included in the return of the parent, except
(Sec 76) April 15
1. when the donor's tax has been paid on such property, or
iii. When and where to file Sale or disposition of real Within 30 days following each
2. when the transfer of such property is exempt from donor's tax. property sale or other disposition
Where to ile. — same as Individual.
(Sec 50[e])
When to File. — Gains received by installment Within 30 days from receipt of
b. Corporate returns
each installment.
1. The corporate quarterly declaration shall be iled within sixty
Every corporation subject to the tax herein imposed, except foreign
(60) days following the close of each of the irst three (3) 8. Withholding Tax
corporations not engaged in trade or business in the Philippines, shall
quarters of the taxable year.
render, in duplicate, a true and accurate
a. Concept
2. The inal adjustment return shall be iled on or before April
1. quarterly income tax return, on a cumulative basis for the
15, or on or before the ifteenth (15th) day of the fourth (4th) The types of income subject to withholding tax are divided into three
preceding quarters, and
month following the close of the iscal year, as the case may be. categories:
2. inal or adjustment return, on or before April 15.
a) withholding of inal tax on certain incomes;

lOMoARcPSD|4853470
b) withholding of creditable tax at source and ➔ Some principles of FWT 3. Income is one of the income payments listed in the regulations;
and
c) tax-free covenant bonds. a) The amount of tax withheld is full and inal.
4. Income recipient is a RESIDENT of the PH liable to income tax.
The withholding tax system was devised for three primary reasons: b) The liability for payment rests primarily on the
withholding agent. If the recipient is a nonresident, then income payment is
1. to provide the taxpayer a convenient manner to meet his
subject to FWT, not CWT.
probable income tax liability; c) In case of failure to withhold, the agent is liable for the
2. to ensure the collection of income tax which can otherwise be de iciency. ii. Withholding tax on compensation
lost or substantially reduced through failure to ile the
d) The payee is not required to ile any ITR for the Income subject to CWT Rate
corresponding returns and
particular income.
3. to improve the government's cash low. Professional fees, promotional and talent fees, referred by
e) The inality of withheld tax is limited on that individuals, entertainers, and athletes
FWT CWT particular income and will not extend to the payee’s
other tax liability on said income. Individual payee
a) The amount of income tax a) Taxes withheld on certain
c. Creditable withholding tax - If gross income > P3M or VAT-registered 10%
withheld by the withholding income payments are intended to
agent is constituted as a full and equal or at least approximate the The Secretary of Finance may require the withholding of a tax on
- If gross income did not exceed P3M 5%
inal payment of the income tax tax due of the payee on said the items of income payable to natural or juridical persons, residing
due from the payee on the said income. in the Philippines, by payor-corporation/persons as provided for Non-individual payee
income. by law, at the rate of not less than one percent (1%) but not more
than ifteen percent (15%) of the income payment, which shall be - If gross income > P720K 15%
b) The liability for payment of b) Payee of income is required to
credited against the income tax liability of the taxpayer for the
the tax rests primarily on the report the income and/or pay the - If gross income did not exceed P720K 10%
taxable year.
payor as a withholding agent. difference between the tax
withheld and the tax due on the ➔ Creditable tax must be withheld at source, but should still be Rentals for continued use or possession of real
income. The payee also has the included in the tax return of recipient. properties used in business, which the payor has not 5%
taken title
➔ There are three types:
right to ask for a refund if the tax
withheld is more than the tax due.
Cinematographic ilm rentals and other payments 5%
a) Expanded withholding tax on certain income payments
c) The payee is not required to c) The income recipient is still made by private persons to resident taxpayers; Income payments to certain contractors, general
ile an income tax return for the required to ile an income tax
b) Withholding tax on compensation income in PH; engineering, general building, specialty and other 2%
particular income. return, as prescribed in Sec. 51
contractors
and Sec. 52 of the NIRC, as c) Withholding tax on money payments of the
amended. government. Income distributed to the bene iciaries of estates and
15%
trusts
b. Final withholding tax i. Expanded withholding tax
10%
➔ Income subject to inal tax refers to income wherein tax due is
Income payments to certain brokers and agents
When EWT will apply
fully collected through the withholding tax system, wherein the Real property which are NOT capital assets sold by a 1.5% or
1. Expense is paid by the taxpayer, which is income to the
payor of the income withholds the tax and then remits it to the person engaged in the real estate business 3% or 5%
recipient thereof subject to income tax;
government.
2. Income is ixed or determinable at the time of payment;

lOMoARcPSD|4853470
- If NOT engaged in real estate business 6% 5% GRT.

When we speak of the "gross earnings" of a person or corporation, we
On additional payments by importers, shipping and Two types of taxes are involved in the present controversy: mean the entire earnings or receipts of such person or corporation
airline companies to government personnel for OT 15% 1) the GRT, which is a percentage tax; and from the business or operation to which we refer.
services
2) the FWT, which is an income tax. From these cases, "gross receipts" refer to the total, as opposed to the
On the amount paid by any credit card company to any 1% of ½ of net income. These are therefore the total receipts before any
As a bank, petitioner is covered by both taxes. deduction for the expenses of management.
business entity representing the sale of goods, gross
services made by them to cardholders amounts A percentage tax is a national tax measured by a certain percentage The Manila Jockey Club does not apply to the cases at bar because
of the gross selling price or gross value in money of goods sold, what happened there is earmarking and not withholding.
1% bartered or imported; or of the gross receipts or earnings derived by
Payments made by any of the top withholding agents (goods) Earmarking is not the same as withholding. Amounts earmarked do
any person engaged in the sale of services. It is not subject to not form part of gross receipts because these are by law or regulation
to their local suppliers 2% withholding.
(services) reserved for some person other than the taxpayer, although delivered
or received. On the contrary, amounts withheld form part of gross
An income tax, on the other hand, is a national tax imposed on the
1% receipts because these are in constructive possession and not
net or the gross income realized in a taxable year. It is subject to
Payments by the government to local suppliers except (goods) subject to any reservation, the withholding agent being merely a
withholding.
if below P10K 2% conduit in the collection process.
(services) In a withholding tax system, the payee is the taxpayer, the person
on whom the tax is imposed; the payor, a separate entity, acts as no d. Fringe benefits tax
Income payments to partners of GPP more than an agent of the government for the collection of the tax in
A inal tax of 35% is hereby imposed on the grossed-up monetary
order to ensure its payment. In our withholding tax system,
- If gross income > P720K 15% possession is acquired by the payor as the withholding agent of the value of fringe bene it.
government, because the taxpayer rati ies the very act of possession
- If it does not exceed P720K 10% for the government. There is thus constructive receipt. The 𝑀𝑉
Income payments made by political parties and
processes of bookkeeping and accounting for interest on deposits
and yield on deposit substitutes that are subjected to FWT are indeed
𝐺𝑈𝑀𝑉 = 65%
𝐹𝐵𝑇 = 𝐺𝑈𝑀𝑉𝑥 35%
candidates for all purchases of goods and services as -- for legal purposes -- tantamount to delivery, receipt or remittance.
campaign expenditures, as well as income payments 25% for NRA-NETB
5%
made by individuals and juridical entities for all CIR v. Citytrust Investment Phils.
purchases intended to be given as campaign e. Duties of a withholding agent
contribution Does the twenty percent (20%) inal withholding tax (FWT) on a
bank's passive income form part of the taxable gross receipts for the ➔ A withholding agent is one required to deduct and withhold any
Interest income from other instruments, i.e. not purpose of computing the ive percent (5%) gross receipts tax (GRT)? tax.
15%
deposit substitutes
YES. A catena of cases are unanimous in de ining "gross receipts" ➔ He also has the legal interest to ile a claim for tax refund.
CIR v. Solidbank as "the entire receipts without any deduction." As commonly a. Considered a taxpayer under the NIRC as he is
understood, the term "gross receipts" means the entire receipts personally liable for the withholding tax; and
Whether the 20% FWT Forms Part of the Taxable Gross Receipts without any deduction. Deducting any amount from the gross
receipts changes the result, and the meaning, to net receipts. Any b. As agent of the taxpayer, he has the implied authority
YES. Although the 20% FWT on respondent's interest income was deduction from gross receipts is inconsistent with a law that to ile a claim for refund and to bring an action for
not actually received by respondent because it was remitted directly mandates a tax on gross receipts, unless the law itself makes an recovery of such claim.
to the government, the fact that the amount redounded to the bank's exception.
bene it makes it part of the taxable gross receipts in computing the ING Bank v. CIR 2016 Resolution Leonen, J

lOMoARcPSD|4853470
nonresident of the Philippines, a tax at the rate of six percent

The liability of the withholding agent is independent from that of the authorized by law to make such payments without being subjected to
taxpayer. (6%) based on the value of such net estate. (Sec 84 of RA the payment of penalties for failure to pay his taxes within the
10963) prescribed period.
The withholding agent cannot be made liable for the tax due because
it is the taxpayer who earned the income subject to withholding tax. Lorenzo v. Posadas, Jr. The delinquency in payment occurred on March 10, 1924, the date
The withholding agent is liable only insofar as he failed to perform when Moore became trustee. The interest due should be computed
a) When does the inheritance tax accrue and when must it be
his duty to withhold the tax and remit the same to the government. from that date and it is error on the part of the defendant to compute
satis ied?
The liability for the tax, however, remains with the taxpayer because it one month later. The provision of law requiring the payment of
the gain was realized and received by him. The accrual of the inheritance tax is distinct from the obligation to interest in appropriate cases is mandatory, and neither the Collector
pay the same. The tax therefore is upon transmission or the transfer of Internal Revenue nor this court may remit or decrease such
Indirect taxes, like VAT and excise tax, are different from withholding interest, no matter how heavily it may burden the taxpayer.
or devolution of property of a decedent, made effective by his death.
taxes. To distinguish, in indirect taxes, the incidence of taxation falls
on one person but the burden thereof can be shifted or passed on to b) Should the inheritance tax be computed on the basis of the 2. Classification of Decedent
another person, such as when the tax is imposed upon goods before value of the estate at the time of the testator's death, or on
reaching the consumer who ultimately pays for it. 1. Citizen and resident alien
its value ten years later?
a. Real property wherever situated;
On the other hand, in case of withholding taxes, the incidence and If death is the generating source from which the power of the state to
burden of taxation fall on the same entity, the statutory taxpayer. The impose inheritance taxes takes its being and if, upon the death of the b. Tangible personal property;
burden of taxation is not shifted to the withholding agent who merely decedent, succession takes place and the right of the state to tax vests c. Intangible personal property.
collects, by withholding, the tax due from income payments to instantly, the tax should be measured by the value of the estate
entities arising from certain transactions and remits the same to the as it stood at the time of the decedent's death regardless of any GR: The situs is at the domicile or residence of the
government. Due to this difference, the de iciency VAT and excise tax subsequent contingency affecting value or any subsequent increase owner following the principle of mobilia
cannot be "deemed" as withholding taxes merely because they or decrease in value. sequuntur personam.
constitute indirect taxes.
c) In determining the net value of the estate subject to tax, is it EXC:
proper to deduct the compensation due to trustees? 1) When it is inconsistent with express
C. ESTATE TAX
provisions of statute, OR
NO. A trustee, no doubt, is entitled to receive a fair compensation for
➔ RR 12-18 Consolidated Revenue Regulations on Estate Tax his services. But from this it does not follow that the compensation 2) When justice does not demand that it should
and Donor's Tax Incorporating the Amendments Introduced by due him may lawfully be deducted in arriving at the net value of the be, as when the property has in fact a situs
RA 10963. estate subject to tax. There is no statute in the Philippines which elsewhere.
requires trustees' commissions to be deducted in determining the net
1. Basic Principles, Concept, and Definition value of the estate subject to inheritance tax SEC 104 of the NIRC provides that the following
intangible personal properties have situs in PH:
➔ It is an excise tax or privilege tax and its object is to tax the d) What law governs the case at bar?
1) Franchise which must be exercised in PH;
shifting of economic bene its and enjoyment of property
Inheritance taxation is governed by the statute in force at the time 2) Shares, obligations or bonds issued by any
from the dead to the living.
of the death of the decedent.
corporation or sociedad anonima organized
➔ Estate taxation is governed by the statute in force at the time of
e) Has there been delinquency in the payment of the or constituted in PH in accordance with its
death of decedent.
inheritance tax? If so, should the additional interest claimed laws;
➔ There shall be levied, assessed, collected and paid upon the by the defendant in his appeal be paid by the estate? 3) Shares, obligations or bonds by any foreign
transfer of the net estate as determined in accordance with corporation eighty- ive percent (85%) of the
The mere failure to pay one's tax does not render one delinquent until
Sections 85 and 86 of every decedent, whether resident or business of which is located in PH;
and unless the entire period has elapsed within which the taxpayer is

lOMoARcPSD|4853470
4) Shares, obligations or bonds issued by any 1) the possession or enjoyment of, or the right to the income 3) by deed under which he has retained for his life or any
foreign corporation if such shares, from the property, or period not ascertainable without reference to his death or
obligations or bonds have acquired a for any period which does not in fact end before his death
2) the right, either alone or in conjunction with any person, to
business situs in PH;
designate the person who shall possess or enjoy the a) the possession or enjoyment of, or the right to the
5) Shares or rights in any partnership, business property or the income therefrom; income from, the property, or
or industry established in PH.
except in case of a bona ide sale for an adequate and full b) the right, either alone or in conjunction with any
2. Non-resident alien
consideration in money or money's worth. person, to designate the persons who shall possess or
a. Real property situated in PH; enjoy the property or the income therefrom;
Circumstances taken into account include
b. Tangible personal property situated in PH; except in case of a bona ide sale for an adequate and full
1) Age and state of health of decedent;
c. Intangible personal property with a situs in PH, unless consideration in money or money's worth.
exempted on the basis of reciprocity (Sec 104, NIRC). 2) Length of time between the gift and date of death. A short
v. Proceeds of life insurance
interval suggests the transfer was in contemplation of
When is the Rule on Reciprocity applicable?
death; Will depend on:
1. The donor or decedent is a NRA; and 3) Concurrent making of a will or making a will within a 1) The designated bene iciary;
2. It involves intangible personal property located in PH. short time after the transfer.
2) Manner of designation, whether irrevocable or revocable;
3. Composition of Gross Estate iii. Revocable transfers
3) Period and source of the funds used in paying the
The value of the gross estate of the decedent shall be determined by To the extent of any interest therein, of which the decedent has at premium.
including the value at the time of his death of all property, real or any time made a transfer by trust or otherwise,
personal, tangible or intangible, wherever situated. (Sec 85 of RA 1. ✔ Taxable if the bene iciary is:
a) where the enjoyment thereof was subject at the date of his
10963) death to any change through the exercise of a power by the a. the estate, his executor or administrator, irrespective of the
decedent alone or by the decedent in conjunction with any manner of designation;
a. Items to be included in determining gross estate
other person, to alter, amend, revoke, or terminate, or b. other than those mentioned in (a), when the designation is
i. Decedent's interest
b) where any such power is relinquished in contemplation of not expressly made irrevocable or that the designation is
a. Property owned; the decedent's death revocable.
b. Interest in property possessed; except in case of a bona ide sale for an adequate and full 2. ✘ NOT taxable:
c. Property or interest transferred. consideration in money or money's worth. a. Accident insurance proceeds;
ii. Transfers in contemplation of death iv. Property passing under a general power of appointment b. Proceeds of a group insurance policy taken out by a
company for its EEs;
To the extent of any interest therein of which the decedent has at To the extent of any property passing under a GENERAL power of
appointment exercised by the decedent: c. Amount received by any bene iciary irrevocably
any time made a transfer, by trust or otherwise, in contemplation of
or intended to take effect in possession or enjoyment at or after designated in the policy of insurance by the insured;
1) by will, or
death, or of which he has at any time made a transfer, by trust or d. GSIS;
otherwise, under which he has retained for his life or for any period 2) by deed executed in contemplation of, or intended to take
e. SSS;
which does not in fact end before his death effect in possession or enjoyment at, or after his death, or

lOMoARcPSD|4853470
f. Payable to heirs of deceased members of military Unpaid mortgages and taxes ✔ decedent’s gross approval of the bond constitute a condition precedent to acceptance
personnel. estate in PH bears of the responsibilities of the trust. If an individual does not desire to
✔
to his entire gross assume the position of executor or administrator, he may refuse to do
3. To determine the conjugal or separate character of proceeds: Losses estate so. On the other hand, when the individual prefers an adequate bond
a. Policy taken before marriage — source of funds; and has it approved by the probate court, he thereby admits the
b. Policy taken during marriage
Property previously taxed or
✔ ✔ adequacy of the compensation which is permitted him pursuant to
Vanishing deductions law. It would be a very far-fetched construction to deduce that the
i. Bene iciary is estate of the insured — proceeds are giving of a bond in order to qualify for the of ice of executor or
presumed conjugal; hence, ½ share of surviving Transfers for public use ✔ ✔ administrator is a necessary expense in the care, management, and
spouse is NOT taxable; settlement of the estate for these are expenses incurred after the
ii. Bene iciary is 3rd person — proceeds are payable to Family home P10M ✘ executor or administrator has met the requirements of the law and
has entered upon the performance of his duties.
the bene iciary even if premiums were paid out of the
conjugal partnership.
Amount received by heirs under RA
✔ ✘ CIR v. CA
4917
vi. Prior interests All expenses incurred in relation to the estate of the deceased
Net Share of surviving spouse in will be deductible for estate tax purposes provided these are
Transfer in contemplation of death, revocable transfers, and the conjugal partnership or ✔ ✔ necessary and ordinary expenses for administration of the
proceeds of life insurance shall apply to the transfers, trusts, community of property settlement of the estate.
estates, interests, rights, powers and relinquishment of powers, as
Claims against the estate Among the deductions from the gross estate allowed by the CTA were
severally enumerated and described therein.
the amounts of P60,753 representing the notarial fee for the
1. Contracted in good faith and for an adequate and full Extrajudicial Settlement and the amount of P50,000 as the attorney's
vii. Transfers for insufficient consideration
consideration; fees.
➔ For transfers in contemplation of death, revocable transfers,
2. Existing against the estate; Whether the notarial fee paid for the extrajudicial settlement and
and transfers under a GPA, if such transfer is in the nature of a
3. Enforced by the claimants; the attorney's fees in the guardianship proceedings may be allowed
bona ide sale, then the value will NOT form part of the gross as deductions from the gross estate of decedent in order to arrive at
estate. 4. Reasonably certain in amount; AND the value of the net estate.
➔ However, if the consideration received was LESS than adequate 5. At the time the debt was incurred, the debt instrument was YES. Attorneys' and guardians' fees incurred in a trustee's accounting
and full, then include in gross estate: duly notarized and if the loan was contracted within 3 years of a taxable inter vivos trust attributable to the usual issues involved
before the death of decedent, a statement showing the in such an accounting was held to be proper deductions because
FMV at time of death — consideration received. these are expenses incurred in terminating an inter vivos trust that
disposition of the proceeds of the loan must be submitted.
b. Allowable deductions from gross estate was includible in the decedent's estate.
Carlos Moran Sison v. Narcisa F. Teodoro
Citizen & Attorney's fees are allowable deductions if incurred for the
NRA Whether a judicial administrator, serving without compensation, is settlement of the estate. It is noteworthy to point out that PNB was
Resident
entitled to charge as an expense of administration the premiums appointed the guardian over the assets of the deceased. Necessarily
Standard deduction P5M P500K paid on his bond. the assets of the deceased formed part of his gross estate.
Accordingly, all expenses incurred in relation to the estate of the
NO. The expense incurred by an execution or administrator to
✔ Proportion of total deceased will be deductible for estate tax purposes provided these
Claims against the estate procure a bond is not a proper charge against the estate.
losses and are necessary and ordinary expenses for administration of the
Expense incurred by an executor or administrator to produce a bond settlement of the estate.
✔
indebtedness
Claims against insolvent persons which the value of is not a proper charge against the estate. The ability to give this bond
Although the Tax Code speci ies "judicial expenses of the
is in the nature of a quali ication for the of ice. The execution and

lOMoARcPSD|4853470
testamentary or intestate proceedings," there is no reason why creditors have been condoned. Family Home
expenses incurred in the administration and settlement of an estate in We express our agreement with the date-of-death valuation rule, 1. The family home must be the actual residential home of the
extrajudicial proceedings should not be allowed. However, deduction made pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust
is limited to such administration expenses as are actually and decedent and his family at the time of his death, as certi ied by
Co. v. United States.
necessarily incurred in the collection of the assets of the estate, the Barangay Captain of the locality where the family home is
payment of the debts, and distribution of the remainder among those First. It bears emphasis that tax burdens are not to be imposed, nor situated;
entitled thereto. Such expenses may include presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against 2. The total value of the family home must be included as part of
1. executor's or administrator's fees, the government. Any doubt on whether a person, article or activity is the gross estate of the decedent; and
2. attorney's fees, taxable is generally resolved against taxation. 3. Allowable deduction must be in an amount equivalent to the
3. court fees and charges, Second. Such construction inds relevance and consistency in our current fair market value of the family home as declared or
Rules on Special Proceedings wherein the term "claims" required to included in the gross estate, or the extent of the decedent's
4. appraiser's fees,
be presented against a decedent's estate is generally construed to
5. clerk hire, interest, whichever is lower, but not exceeding P10M.
mean debts or demands of a pecuniary nature which could have been
6. costs of preserving and distributing the estate and storing or enforced against the deceased in his lifetime, or liability contracted Property Previously Taxed or Vanishing Deductions
maintaining it, by the deceased before his death. Therefore, the claims existing at the
time of death are signi icant to, and should be made the basis of, the An amount equal to the value speci ied below of any property
7. brokerage fees or commissions for selling or disposing of
determination of allowable deductions. forming part of the gross estate situated in the Philippines of any
the estate, and the like.
person who died within ive (5) years prior to the death of the
Deductible attorney's fees are those incurred by the executor or Claims against insolvent persons decedent, or transferred to the decedent by gift within ive (5) years
administrator in the settlement of the estate or in defending or
1. The amount of said claims has been initially included as part of prior to his death, where such property can be identi ied as having
prosecuting claims against or due the estate.
the gross estate; AND been received by the decedent from the donor by gift, or from such
Attorney's fees, on the other hand, in order to be deductible from the prior decedent by gift, bequest, devise or inheritance, or which can
gross estate must be essential to the settlement of the estate. 2. The incapacity of the debtors to pay is proven and not merely be identi ied as having been acquired in exchange for property so
Coming to the case at bar, the notarial fee paid for the extrajudicial alleged. received:
settlement is clearly a deductible expense since such settlement Taxes
effected a distribution of Pedro Pajonar's estate to his lawful heirs.
100% Within 1 year
Similarly, the attorney's fees paid to PNB for acting as the guardian of 1. Deductible if accrued PRIOR to decedent’s death.
Pedro Pajonar's property during his lifetime should also be 80% 1-2 years
Losses
considered as a deductible administration expense. PNB provided a
detailed accounting of decedent's property and gave advice as to the 1. Arising from ire, storm, shipwreck, or other casualty, robbery, 60% 2-3 years
proper settlement of the latter's estate, acts which contributed theft or embezzlement;
towards the collection of decedent's assets and the subsequent 40% 3-4 years
settlement of the estate. 2. Not compensated by insurance or otherwise;
20% 4-5 years
Dizon v. CTA and CIR 3. Not claimed as a deduction in an income tax return of the estate
subject to income tax; Requisites
WON the actual claims of the creditors may be fully allowed as
deductions from the gross estate of Jose despite the fact that the said 4. Occurring during the settlement of the estate; and 1. Death — Present decedent died within 5 years from date
claims were reduced or condoned through compromise agreements 5. Occurring before the last day for the payment of the estate tax. of death of prior decedent or date of gift;
entered into by the Estate with its creditors.
2. Identity of property;
YES. It is admitted that the claims of the estate's aforementioned 3. Inclusion of property;

lOMoARcPSD|4853470
4. Previous taxation of property; bequests to religious and educational institutions are NOT
Time for iling estate tax return. — For purposes of determining
exempt.
5. No previous vanishing deduction on the property. the estate tax, the estate tax return shall be iled within one (1)
d. Tax credit for estate taxes paid to a foreign country year from the decedent's death.
c. Exclusions from gross estate and exemptions of
Shall be credited with the amounts of any estate tax imposed by the
certain acquisitions and transmissions Extension of time to ile estate tax return. — The Commissioner
authority of a foreign country. or any Revenue Of icer authorized by him pursuant to the NIRC
1. Amount received by heirs under RA 4917 — any amount
Limitations on Credit. — The amount of the credit taken shall be shall have authority to grant, in meritorious cases, a reasonable
received by the heirs from the decedent’s employer as a
consequence of death of a decedent-employee in accordance subject to each of the following limitations: extension, not exceeding thirty (30) days, for iling the return.
with a reasonable private bene it plan maintained by the a) The amount of the credit in respect to the tax paid to any The application for the extension of time to ile the estate tax return
employer; provided, such amount is included in the gross country shall not exceed the same proportion of the tax must be iled with the Revenue District Of ice (RDO) where the
estate; against which such credit is taken, which the decedent's estate is required to secure its TIN and ile the tax returns of the
net estate situated within such country taxable under this estate, which RDO, likewise, has jurisdiction over the estate tax
2. Share of surviving spouse in the conjugal property;
Title bears to his entire net estate; and return required to be iled by any party as a result of the
3. Amount received by heirs under special laws: distribution of the assets and liabilities of the decedent.
b) The total amount of the credit shall not exceed the same
a. GSIS; Time for payment of the estate tax. — As a general rule, the
proportion of the tax against which such credit is taken,
b. SSS; which the decedent's net estate situated outside the estate tax imposed under the NIRC shall be paid at the time the
Philippines taxable under this Title bears to his entire net return is iled by the executor, administrator or the heirs.
c. From PH and US governments for damages suffered
during the last war; estate. Extension of time to pay estate tax. — When the CIR inds that
e. Filing of estate tax returns and payment of estate tax the payment of the estate tax or of any part thereof would impose
d. US Veterans Administration;
undue hardship upon the estate or any of the heirs, he may extend
e. Grants and donations to the Intramuros a) In all cases of transfers subject to the tax imposed herein, or
the time for payment of such tax or any part thereof not to exceed
administration; b) regardless of the gross value of the estate, where the said estate
a. ive (5) years in case the estate is settled through the
f. PERA assets of decedent-contributor (Sec 14, RA consists of registered or registrable property such as
courts, or
9505). i) real property,
b. two (2) years in case the estate is settled extrajudicially.
Exemptions of certain acquisitions and transmissions ii) motor vehicle,
Any amount paid after the statutory due date of the tax, but within
1. Merger of usufruct in the owner of the naked title; iii) shares of stock or
the extension period, shall be subject to interest but NOT to
2. Transmission or delivery of the inheritance or legacy by the iv) other similar property for which a Certi icate surcharge.
iduciary heir or legatee to the ideicommissary; Authorizing Registration from the BIR is Payment of the estate tax by installment and partial
3. Transmission from the irst heir, legatee or donee in favor of required as a condition precedent for the transfer of disposition of estate. — In case of insuf iciency of cash for the
another bene iciary, in accordance with the desire of the ownership thereof in the name of the transferee, immediate payment of the total estate tax due, the estate may be
predecessor; the executor, or the administrator, or any of the legal heirs, as the allowed to pay the estate tax due through the following options,
4. Bequests, legacies or donations mortis causa to social welfare, case may be, shall ile a return under oath. including the corresponding terms and conditions:
cultural, or charitable organizations, no part of the net income 1. Cash installment
Estate tax returns showing a gross value exceeding Php5M shall
of which inures to the bene it of any individual, provided that
be supported with a statement duly certi ied to by a CPA. a) The cash installments shall be made within two (2)
not more than 30% of said bequests, devises, legacies or
years from the date of iling of the estate tax return;
transfers shall be used for administration purposes; but

lOMoARcPSD|4853470
b) The estate tax return shall be iled within one year shall be issued as many as there are properties ➔ Any contribution in cash or in kind to any candidate or
from the date of decedent's death; intended to be disposed to cover the total estate tax political party or coalition of parties for campaign purposes,
due, net of the proportionate estate tax(es) previously duly reported to the Comelec shall NOT be subject to the
c) The frequency, deadline and amount of each
paid under this option; and payment of any gift tax. (Sec 13, RA 7166)
installment shall be indicated in the estate tax return;
d) In case of lapse of two years without the payment of
g) In case of failure to pay the total estate tax due out ➔ The donor's tax shall not apply unless and until there is a
from the proceeds of the said disposition, the estate completed gift. The transfer of property by gift is perfected
the entire tax due, the remaining balance thereof shall tax due shall be immediately due and demandable
be due and demandable subject to the applicable from the moment the donor knows of the acceptance by the
subject to the applicable penalties and interest donee; it is completed by the delivery, either actually or
penalties and interest reckoned from the prescribed reckoned from the prescribed deadline for iling the
deadline for iling the return and payment of the estate constructively, of the donated property to the donee.
return and payment of the estate tax, without prejudice
tax; and ➔ Thus, the law in force at the time of the
of withholding the issuance of eCAR(s) on the
e) No civil penalties or interest may be imposed on remaining properties until the payment of the perfection/completion of the donation shall govern the
estates permitted to pay the estate tax due by remaining balance of the estate tax due, including the imposition of the donor's tax.
installment. Nothing in this subsection, however, penalties and interest. 2. Requisites of a Valid Donation
prevents the CIR from executing enforcement action
1. Capacity of donor;
against the estate after the due date of the estate tax. D. DONOR’S TAX
2. Partial disposition of estate and application of its 2. Donative intent;
proceeds to the estate tax due 1. Basic Principles, Concept, and Definition
3. Delivery, whether actual or constructive, of the subject matter;
a) The disposition, for purposes of this option, shall ➔ Donation is an act of liberality whereby a person disposes
4. Acceptance of the gift by the donee.
refer to the conveyance of property, whether real, gratuitously of a thing or right in favor of another who accepts
personal or intangible property, with the equivalent it. Manuel G. Abello, et al. v. CIR
cash consideration; ➔ In taxation, donation extends to sales or exchanges of property, During the 1987 national elections, petitioners, who are partners in
b) The estate tax return shall be iled within one year other than real property classi ied as capital asset located in the ACCRA law irm, contributed P882,661.31 each to the campaign
from the date of decedent's death; PH, for less than adequate and full consideration in money or funds of Senator Edgardo Angara, then running for the Senate. The BIR
money’s worth. assessed each of the petitioners P263,032.66 for their contributions.
c) The written request for the partial disposition of estate
shall be approved by the BIR. The said request shall be ➔ Gift tax is also an excise tax imposed on the privilege of the The present case falls squarely within the de inition of a donation.
iled, together with a notarized undertaking that the owner to give.
Petitioners maintain that the de inition of an “electoral contribution”
proceeds thereof shall be exclusively used for the ➔ Gifts in favor of religious institutions are now exempt from under the Omnibus Election Code is essential to appreciate how a
payment of the total estate tax due; donor’s tax. political contribution differs from a taxable gift.
d) The computed estate tax due shall be allocated in ➔ Rate of Donor’s Tax. The tax for each calendar year shall be Donative intent is not negated by the presence of other intentions,
proportion to the value of each property; six percent (6%) computed on the basis of the total gifts in motives or purposes which do not contradict donative intent.
e) The estate shall pay to the BIR the proportionate estate excess of P250,000 exempt gift made during the calendar
tax due of the property intended to be disposed of; year. Subsequent to the donations involved in this case, Congress approved
Republic Act No. 7166 on November 25, 1991, providing in Section
f) An electronic Certi icate Authorizing Registration ➔ "NET GIFT" shall mean the net economic bene it from the 13 thereof that political/electoral contributions, duly reported to the
(eCAR) shall be issued upon presentation of the proof transfer that accrues to the donee. Comelec, are not subject to the payment of any gift tax. This all the
of payment of the proportionate estate tax due of the more shows that the political contributions herein made are subject
property intended to be disposed. Accordingly, eCARs

lOMoARcPSD|4853470
to the payment of gift taxes, since the same were made prior to the 5. Determination of Gross Gift
exempting legislation, and RA No. 7166 provides no retroactive effect Furthermore, the fact that private respondent sold its real property
on this point. for a price less than its declared fair market value did not by itself a. Composition of gross gift
justify a inding of false return. Indeed, private respondent declared
the sale in its 1974 return submitted to the BIR. Within the ive-year Gross gifts include real and personal property, whether tangible or
3. Transfers which may be considered as donation
prescriptive period, the BIR could have issued the questioned intangible, or mixed, wherever situated: Provided, however, That
a. Sale, exchange, or transfer of property for less than assessment, because the declared fair market value of said property where the donor was a nonresident alien at the time of donation, his
adequate and full consideration; exception was of public record. This it did not do, however, during all those ive real and personal property so transferred but which are situated
years. Moreover, the BIR failed to prove that respondent's 1974 return outside the Philippines shall not be included as part of his 'gross
Where property is transferred for less than an adequate and full had been iled fraudulently. gift.’
consideration in money or money's worth, then the amount by
which the fair market value of the property exceeded the value of b. Condonation or remission of debt The computation of the donor's tax is on a cumulative basis
the consideration shall be deemed a gift, and shall be included in over a period of one calendar year. Husband and wife are
If a creditor desires to bene it a debtor, and without any
computing the amount of gifts made during the calendar year: considered as separate and distinct taxpayer's for purposes of the
consideration therefore, cancels the debt, the amount of the debt is
donor's tax. However, if what was donated is a conjugal or
Provided, however, That a sale, exchange, or other transfer of a donation by the creditor to the debtor.
community property and only the husband signed the deed of
property made in the ordinary course of business, a transaction
c. Renunciation of inheritance; exception donation, there is only one donor for donor's tax purposes, without
which is
Renunciation by the surviving spouse of his/her share in the prejudice to the right of the wife to question the validity of the
1) a bona ide, donation without her consent.
conjugal partnership or absolute community after the dissolution of
2) at arm's length, and the marriage in favor of the heirs of the deceased spouse or any b. Valuation of gifts made in property
other person/s is subject to donor's tax.
3) free from any donative intent, Valuation. — The amount of any charitable contribution of
Whereas general renunciation by an heir, including the surviving property other than money shall be based on the acquisition cost
will be considered as made for an adequate and full consideration
spouse, of his/her share in the hereditary estate left by the decedent of said property. (Sec 34[H][3])
in money or money's worth.
is NOT subject to donor's tax, unless speci ically and categorically
CIR v. B.F. Goodrich Phils., Inc. If real property — the appraised value as of the time of donation
done in favor of identi ied heir/s to the exclusion or disadvantage of
shall be whichever is higher of the FMV as:
Petitioner insists that private respondent committed "falsity" when it the other co-heirs in the hereditary estate.
sold the property for a price lesser than its declared fair market a) Determined by the CIR; or
4. Classification of Donor
value. This fact alone did not constitute a false return which contains b) Shown in the schedule of values ixed by local assessors.
wrong information due to mistake, carelessness or ignorance. It is 1. Resident or citizen and DC. — donation of all types of
possible that real property may be sold for less than adequate properties wherever situated; If shares of stocks — the FMV depends on whether the shares are
consideration for a bona ide business purpose; in such event, listed or unlisted.
the sale remains an "arm's length" transaction. 2. Nonresident alien and FC. — donation of real property and
tangible personal property situated in PH; a) Unlisted common shares = Book value;
In the present case, the private respondent was compelled to sell the
Donation of intangible PP with a situs in PH, unless exempted b) Unlisted preferred shares = Par value.
property even at a price less than its market value, because it would
have lost all ownership rights over it upon the expiration of the parity on the basis of reciprocity. In determining the book value of common shares, appraisal surplus
amendment. In other words, private respondent was attempting to shall not be considered as well as the value assigned to preferred
minimize its losses. At the same time, it was able to lease the
shares, if there are any.
property for 25 years, renewable for another 25. This can be regarded
as another consideration on the price. c) Listed in stock exchange = FMV shall be the arithmetic
mean between the highest and lowest quotation at a date

lOMoARcPSD|4853470
nearest the date of death, if none is available on the date of 2) - same - but change ‘accredited non-government which the donor's net gifts situated outside the Philippines
death itself. organization’ to ‘foundation’. taxable under this title bears to his entire net gifts.
Units of participation in any association, recreation or Deductions under RR 12-2018 7. Filing of return and payment
amusement club — the bid price nearest the date of death
1) Encumbrance on the property donated, if assumed by Requirements. — Any person making a donation (whether direct
published in any newspaper or publication of general circulation.
donee; or indirect), unless the donation is speci ically exempt under the
Right to usufruct, use or habitation, as well as that of annuity NIRC or other special laws, is required, for every donation, to
— there shall be taken into account the probable life of the 2) Those speci ically provided by the donor as a diminution
accomplish under oath a donor's tax return in duplicate. The return
bene iciary in accordance with the latest basic standard mortality of the property donated.
shall set forth:
table, to be approved by the Secretary of Finance, upon Exemptions under Special Laws
1. Each gift made during the calendar year which is to be
recommendation of the Insurance Commissioner.
1) Donations to PH government for scienti ic, engineering, included in gifts;
c. Exemption of certain gifts and technological research, invention and development;
2. The deductions claimed and allowable;
Made by a Resident 2) To social welfare, cultural, and charitable organizations;
3. Any previous net gifts made during the same calendar year;
1) Gifts made to or for the use of the National Government or 3) To IRRI;
4. The name of the donee; and
any entity created by any of its agencies which is not
conducted for pro it, or to any political subdivision of the 4) To Ramon Magsaysay Award Foundation;
5. Such further information as the Commissioner may
said Government; and 5) To the National Museum, National Library, and the require.
2) Gifts in favor of an educational and/or charitable, archives of the NHI;
Time and place of iling and payment. — The donor's tax return
religious, cultural or social welfare corporation, 6) To the Southern Philippines Development Administration; shall be iled within thirty (30) days after the date the gift is made
institution, accredited non-government organization, or completed and the tax due thereon shall be paid at the same time
trust or philanthropic organization or research institution 7) To the Intramuros Foundation.
that the return is iled.
or organization: Provided, however, That not more than 6. Tax credit for donor's taxes paid to a foreign country
thirty percent (30%) of said gifts shall be used by
such donee for administration purposes. The tax imposed by this Title upon a donor who was a citizen or a E. VAT
resident at the time of donation shall be credited with the amount of
The donee-entity must be:
any donor's tax of any character and description imposed by the ➔ RR 13-18. Revenue Regulation Implementing the VAT
a) Non-stock; authority of a foreign country. Provisions of TRAIN Act.
b) Paying no dividends; Limitations on Credit. — The amount of the credit taken under 1. Nature and characteristics of VAT
this Section shall be subject to each of the following limitations:
c) Governed by trustees who receive no a. Tax on value added
compensation; and a) The amount of the credit in respect to the tax paid to any
VAT is a tax on the value added of a taxpayer arising from taxable
country shall not exceed the same proportion of the tax
d) Devotes all its income to the accomplishment of sales of goods, properties, or services during the quarter at the rate
against which such credit is taken, which the net gifts
its purpose as enumerated in its AOI. of 0 or 12%.
situated within such country taxable under this Title bears
Made by a Non-resident Alien to his entire net gifts; and Value added is the difference between total sales of the taxpayer
1) - same - for the taxable quarter subject to VAT and his total purchases for the
b) The total amount of the credit shall not exceed the same
same period subject also to VAT.
proportion of the tax against which such credit is taken,

lOMoARcPSD|4853470
Output tax means the VAT due on the sale or lease of taxable subject to VAT. Cross border doctrine mandates that no VAT shall be imposed to
goods, properties or services by any person registered or required form part of the cost of the goods destined for consumption outside
to register. c. Tax on consumption the territorial border of the taxing authority.
Input tax means the VAT due from or paid by a VAT-registered VAT is broad-based because every sale at the levels of CIR v. Burmeister and Wain Scandinavian Contractor Mindanao
person in the course of his trade or business on importation of manufacturers or producers and distributors is subject to VAT. The WON respondent is entitled to the refund of P6,994,659.67 as
goods or local purchase of goods, properties, or services, including tax burden rests with the inal consumer who consumes the goods, erroneously paid output VAT for the year 1996.
lease or use of property, from a VAT-registered person. properties or services.
Respondent contends that its services need not be “destined to be
b. Sales tax d. Indirect tax: impact and incidence consumed abroad in order to be VAT zero-rated.” Respondent is
VAT is a tax on the taxable sale, barter or exchange of goods, An indirect tax is a tax demanded in the irst instance from one WRONG.
properties or services. A sale may be an actual or deemed sale, or person in the expectation and intention that he can shift the burden Services other than processing, manufacturing, or repacking of goods
an export or a local sale. to someone else. must likewise be performed for persons doing business outside the
GR: There must be an actual sale in PH in order that VAT may The impact of taxation is on the seller upon whom the tax has been Philippines. When Section 102(b)(2) stipulates payment in
be imposed. “acceptable foreign currency” under BSP rules, the law clearly
imposed, while the incidence of tax is on the inal consumer, the
envisions the payer-recipient of services to be doing business
EXC: place at which the tax comes to rest. outside the Philippines. Only those not doing business in the
e. Tax credit method Philippines can be required under BSP rules to pay in
1. Importation of goods; acceptable foreign currency for their purchase of goods or
2. Erroneous issuance of VAT invoice or receipt for Cost deduction method — refers to the manner of computing the services from the Philippines.
VAT-exempt sales; taxpayer’s VAT liability by deducting his costs and expenses subject
to VAT from his taxable sales and multiplying the resulting value In this case, the payer-recipient of respondent’s services is the
3. Deemed sales of goods or properties. Consortium which is a joint-venture doing business in the
added by 12%.
Philippines. While the Consortium’s principal members are
CIR v. CA and COMASERCO Tax credit method or invoice method — the input taxes shifted non-resident foreign corporations, the Consortium itself is doing
by the sellers to the buyer are credited against the buyer’s output business in the Philippines.
WON COMASERCO was engaged in the sale of services, and thus
liable to pay VAT thereon. taxes when he in turn sells the taxable goods, properties, or
The Consortium’s operation and maintenance of NAPOCOR’s power
services. barges cannot be classi ied as a single or isolated transaction.
YES. Sec 105 of the NIRC clari ies that even a non-stock, non-pro it,
There is generally forward shifting of tax when there is a seller’s The Consortium does not fall under Section 102(b)(2) which requires
organization or government entity, is liable to pay VAT on the sale of
market — more buyers than sellers, or demand > supply. that the recipient of the services must be a person doing business
goods or services.
outside the Philippines. Therefore, respondent’s services to the
Section 108 of the NIRC de ines the phrase "sale of services" as the There is backward shifting when there is a buyer’s market like in Consortium, not being supplied to a person doing business outside
"performance of all kinds of services for others for a fee, real estate and the coconut oil industries. the Philippines, cannot legally qualify for 0% VAT.
remuneration or consideration." f. Destination principle and cross border doctrine As the Court held in CIR v. American Express International, Inc.
Hence, it is immaterial whether the primary purpose of a corporation (Philippine Branch), the place of payment is immaterial, much less
The destination of the goods determines taxation or exemption
indicates that it receives payments for services rendered to its is the place where the output of the service is ultimately used. An
from tax. Export sales of goods are zero-rated, while imports of essential condition for entitlement to 0% VAT under Section
af iliates on a reimbursement-on-cost basis only, without realizing
goods are subject to 12% VAT. Thus, the situs of taxation is where 102(b)(1) and (2) is that the recipient of the services is a
pro it, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee, the goods are consumed. As for services, consumption takes person doing business outside the Philippines. In this case,
remuneration or consideration, then the service rendered is place where the service is performed. the recipient of the services is the Consortium, which is doing

lOMoARcPSD|4853470
business not outside, but within the Philippines because it has a b) Avail of the Optional Registration for VAT of Exempt Person
15-year contract to operate and maintain NAPOCOR’s two 100-MW Respondent is a VAT-registered person that facilitates the collection under Sec 236(H) of the NIRC, subject to the condition that once
power barges in Mindanao. and payment of receivables belonging to its non-resident foreign availed of, shall not be entitled to cancel the VAT registration
client, for which it gets paid in acceptable foreign currency inwardly
for the next 3 years.
The Court recognizes the rule that the VAT system generally follows remitted and accounted for in conformity with BSP rules and
the “destination principle.” To be exempt from the destination regulations. For facilitating in the Philippines the collection and A taxable person may conduct business as
principle under Section 102(b)(1) and (2), the services must be payment of receivables belonging to its Hong Kong-based foreign a) An individual;
client, and getting paid for it in duly accounted acceptable foreign
a) performed in the Philippines; currency, respondent renders service falling under the category b) Estate or trust;
b) for a person doing business outside the Philippines; and of zero rating. c) Partnership;
c) paid in acceptable foreign currency accounted for in Tax Situs of a Zero-Rated Service d) Joint venture;
accordance with BSP rules.
The law neither makes a quali ication nor adds a condition in e) Corporation;
Nevertheless, in seeking a refund of its excess output tax, respondent determining the tax situs of a zero-rated service. Under this criterion,
relied on VAT Ruling No. 003-99, which recon irmed BIR Ruling No. f) Cooperative; or
the place where the service is rendered determines the jurisdiction to
023-95 “insofar as it held that the services being rendered by impose the VAT. Performed in the Philippines, such service is g) Association.
BWSCMI is subject to VAT at zero percent (0%).” Respondent’s necessarily subject to its jurisdiction, for the State necessarily has to
reliance on these BIR rulings binds petitioner. Husband and Wife — treated as separate taxpayers. However, the
have “a substantial connection” to it, in order to enforce a zero rate.
aggregation rule for each spouse shall apply, which means that the
The place of payment is immaterial; much less is the place
CIR v. American Express where the output of the service will be further or ultimately
taxable sales by each spouse shall be added together to determine
used. whether he/she has exceeded the general threshold prescribed by law. If
As a general rule, the VAT system uses the destination principle.
However, our VAT law itself provides for a clear exception, under he/she does, then register as a VAT person; otherwise, subject to 3%
which the supply of service shall be zero-rated when the following 2. Persons liable to VAT percentage tax under Sec 116.
requirements are met: A person may be characterized as a taxable person, if Joint Venture — An unincorporated JV engaged in construction activity
1) the service is performed in the Philippines; or in energy-related projects, although exempt from income tax, is liable
a) He undertakes taxable transactions in goods, properties, or
2) the service falls under any of the categories provided in to VAT.
services consumed or destined for consumption within PH;
Section 102(b) of the Tax Code; and
b) Such transactions are entered into in the course of his trade Government — liable to VAT if engaged in the sale of goods, properties,
3) it is paid for in acceptable foreign currency that is accounted or services in its proprietary capacity.
for in accordance with the regulations of the Bangko Sentral or business; AND
ng Pilipinas. c) The amount of his gross sales or receipts is over the threshold Non-stock, non-pro it association or organization — if not
Since respondent’s services meet these requirements, they are ixed by law or regulations. organized for pro it, relies solely on the mandatory contributions of its
zero-rated. members for its operating expenses, and performs functions exclusively
An importer of goods, whether or not made in the course of trade or
for the bene it of its members, NOT subject to VAT.
WON respondent is entitled to the refund of the amount of business, is also a taxable person.
BIR v. First E-Bank Tower Condo 2020
P3,352,406.59 allegedly representing excess input VAT for the year Registration as a VAT person is NOT a requirement to make a person
1997. re Condominium corporation
liable to VAT. An existing VAT-registered person whose gross
sales/receipts in the preceding year did not exceed the VAT-exempt A petition for declaratory
YES. Services performed by VAT-registered persons in the
relief is NOT the proper
Philippines (other than the processing, manufacturing or repacking of threshold of P3M, may opt to: remedy to seek the invalidation
goods for persons doing business outside the Philippines), when
a) Register as a Non-VAT; or of RMC No. 65-2012
paid in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP, are zero-rated.

lOMoARcPSD|4853470
replenishment of the funds for the maintenance and operations of the

Certiorari or prohibition, not declaratory relief, is the proper In ANPC v. BIR, the Court pronounced that membership fees, facilities offered by recreational clubs to their exclusive members. They
remedy to assail the validity or constitutionality of executive assessment dues, and other fees collected by recreational clubs are represent funds "held in trust" by these clubs to defray their operating
issuances. In Diaz v. The Secretary of Finance, et al., the Court, not subject to income tax. Similarly, therefore, association dues, and general costs and hence, only constitute infusion of capital.
nonetheless, held that a petition for declaratory relief may be membership fees, and other assessments/charges are not subject to
treated as one for prohibition if the case has far-reaching income tax because they do not constitute pro it or gain. Association of Non-Pro it Clubs, Inc. v. BIR 2019
implications and raises questions that need to be resolved for the
Association dues, membership fees, and other assessments/charges Applying the doctrine of casus omissus pro omisso habendus est,
public good; or if the assailed act or acts of executive of icials are
do not arise from transactions involving the sale, barter, or exchange the fact that the 1997 NIRC omitted recreational clubs from the list of
alleged to have usurped legislative authority.
of goods or property. Nor are they generated by the performance of exempt organizations under the 1977 Tax Code evinces the deliberate
Here, RMC No. 65-2012 has far-reaching rami ications among services. As such, they are not subject to VAT. intent of Congress to remove the tax income exemption previously
condominium corporations which have proliferated throughout the accorded to these clubs. As such, the income that recreational clubs
country. The matter of whether indeed the contributions of unit Neither can it be said that a condominium corporation is rendering derive "from whatever source" is now subject to income tax under the
owners solely intended for maintenance and upkeep of the common services to the unit owners for a fee, remuneration or consideration. provisions of the 1997 NIRC.
areas of the condominium building are taxable is imbued with public Association dues, membership fees, and other assessments/charges
form part of a pool from which a condominium corporation must However, RMC No. 35-2012 erroneously foisted a sweeping
interest.
draw funds in order to bear the costs for maintenance, repair, interpretation that membership fees and assessment dues are
RMC No. 65-2012 is Invalid improvement, reconstruction expenses and other administrative sources of income of recreational clubs from which income tax
expenses. liability may accrue.
A condominium corporation is NOT engaged in trade or
business. Under the Condominium Act, the corporate purposes of a Case law provides that in order to constitute "income," there must
Section 57 of RA 8424 directs that only income, be it active or
condominium corporation are limited to be realized "gain." Clearly, because of the nature of membership
passive, earned by a payor-corporation can be subject to
fees and assessment dues as funds inherently dedicated for the
withholding tax.
a) holding the common areas, either in ownership or any other maintenance, preservation, and upkeep of the clubs' general
interest in real property recognized by law; operations and facilities, nothing is to be gained from their
Subdivisions or Villages Homeowners Associations — Sec 18 of RA
collection.
b) management of the project; and 9904 provides that association dues and income derived from rentals
c) to such other purposes necessary, incidental, or convenient of property may be exempted from income tax, VAT, and percentage tax, In ine, for as long as these membership fees, assessment dues, and
to the accomplishment of these purposes. provided that the association complements, supports, and strengthens the like are
The collection of association dues, membership fees, and other the LGU in providing vital services to their members. 1. treated as collections by recreational clubs from their
assessments/charges is purely for the bene it of the condominium 1) The association must be duly-constituted as de ined under SEC members as an inherent consequence of their membership,
owners. It is a necessary incident to the purpose to effectively 3(b) of RA 9904; and
oversee, maintain, or even improve the common areas of the 2. are, by nature, intended for the maintenance, preservation,
condominium as well as its governance. 2) Certi ication from the LGU identifying the basic services and upkeep of the clubs' general operations and facilities,
rendered by the association and therein stating its lack of
Association dues, membership fees, and resources to render such services; and then these fees cannot be classi ied as "the income of recreational
other assessments/charges are not subject to clubs from whatever source" that are "subject to income tax." Instead,
income tax, VAT and withholding tax 3) Proof, i.e. inancial statements, that the income and dues are they only form part of capital from which no income tax may be
used for the cleanliness, safety, security, and other basic collected or imposed.
As established in Yamane, the expenditures incurred by services needed by members, including the maintenance of
condominium corporations on behalf of the condominium owners facilities. In the same way, the Court declares as invalid the BIR's interpretation
are not intended to generate revenue nor equate to the cost of in RMC No. 35-2012 that membership fees, assessment dues, and the
doing business. Recreational or sports club — Membership fees, assessment dues, like are part of "the gross receipts of recreational clubs" that are
and other fees of similar nature only constitute contributions to and/or "subject to VAT."

lOMoARcPSD|4853470
b) The real property is located in PH; In the course of trade or business — means the regular conduct
Membership fees, assessment dues, and the like are not subject to or pursuit of a commercial or an economic activity, including
c) The seller or transferor is engaged in real estate business either
VAT because in collecting such fees, the club is not selling its
as a real estate dealer, developer, or lessor; transactions incidental thereto, by any person regardless of
service to the members. Conversely, the members are not buying
services from the club when dues are paid; hence, there is no whether or not the person engaged therein is a non-stock, nonpro it
d) The real property is held primarily for sale or for lease in the
economic or commercial activity to speak of as these dues are private organization (irrespective of the disposition of its net
ordinary course of his trade or business, or at least an
devoted for the operations/maintenance of the facilities of the income and whether or not it sells exclusively to members or their
ordinary asset used in the trade or business of the VAT taxpayer
organization. As such, there could be no "sale, barter or exchange of guests), or government entity.
as an incident to his VAT-taxable activity; AND
goods or properties, or sale of a service" to speak of, which would
then be subject to VAT under the 1997 NIRC. e) Not exempt from VAT under Sec 109 of NIRC, special law, or The rule of regularity, to the contrary notwithstanding, services
international agreement. rendered in the Philippines by nonresident foreign persons shall
Importer — VAT is properly and legally due on the local buyers who be considered as being rendered in the course of trade or business.
are the importers and should no longer be imposed on the PH branch of i. Tax base: gross selling price
iii. Change or cessation of status as VAT-registered person
the seller based outside PH. The term "gross selling price" means the total amount of money
or its equivalent which the purchaser pays or is obligated to pay to A VAT-registered person whose registration has been cancelled due
3. Imposition of VAT
the seller in consideration of the sale, barter or exchange of the to retirement from or cessation of business, or due to changes in or
What are the transactions subject to VAT? goods or properties, excluding the VAT. cessation of status under Sec. 106 (C) of the Tax Code may, within
two (2) years from the date of cancellation, apply for the issuance
1. Sale of goods or properties subject to 12% VAT (Sec 106[A]); The excise tax, if any, on such goods or properties shall form part of tax credit certi icate for any unused input tax which he may use
2. Transactions Deemed Sale subject to 12% VAT (Sec 107[B]); of the gross selling price in payment of his other internal revenue taxes.
3. Sale or Exchange of Services and Use or Lease of properties ii. Transactions deemed sale He shall be entitled to a refund if he has no internal revenue tax
subject to 12% VAT (Sec 108[A]); 1) Transfer, use or consumption not in the course of business of liabilities against which the tax credit certi icate may be utilized.
4. Sale of goods or properties subject to 0% VAT (Sec 106[A][2]); goods or properties originally intended for sale or for use in The date of cancellation is the date of issuance of tax clearance by
the course of business; the BIR, after full settlement of all tax liabilities relative to
5. Sale or Exchange of Services and Use or Lease of properties
2) Distribution or transfer to: cessation of business or change of status of the concerned taxpayer.
subject to 0% VAT (Sec 108[B]);
a) Shareholders or investors as share in the pro its of the (Sec. 4.112-1.[b] RR 13-18)
6. Importation of goods (Sec 107).
VAT-registered persons; or b. On importation of goods
a. On sale of goods or properties
b) Creditors in payment of debt; There shall be levied, assessed and collected on every importation
To be subject to VAT, the sale of goods must be 3) Consignment of goods if actual sale is not made within sixty of goods a VAT equivalent to twelve percent (12%) based on the
a) An actual or deemed sale for a valuable consideration; (60) days following the date such goods were consigned; and total value used by the Bureau of Customs in determining tariff
and customs duties, plus customs duties, excise taxes, if any, and
b) Undertaken in the course of trade or business; 4) Retirement from or cessation of business, with respect to
other charges, such tax to be paid by the importer prior to the
c) For the use or consumption in PH; AND inventories of taxable goods existing as of such retirement or
release of such goods from customs custody.
cessation.
d) Not exempt from VAT under Sec 109 of NIRC, special law, or Transfer of Goods by Tax-exempt Persons. (Technical
international agreement. Here, the seller is also the buyer and no valuable consideration is
Importation) — In the case of tax-free importation of goods into
thus paid. The rationale is to recapture the VAT that was claimed as
With respect to sale or exchange of real property the Philippines by persons, entities or agencies exempt from tax
input tax at the time of purchase.
a) The seller executes a deed of sale, barter, or exchange, where such goods are subsequently sold, transferred or exchanged
in the Philippines to non-exempt persons or entities, the
assignment or conveyance, or contract to sell, of real property;

lOMoARcPSD|4853470
purchasers, transferees or recipients shall be considered the

13. sales of electricity by generation companies, transmission by basis only and without realizing pro it are also subject to VAT.
importers thereof, who shall be liable for any internal revenue tax The case, however, is not applicable to the present case.
any entity, and distribution companies, including electric
on such importation.
cooperatives;
Here, Sony did not render any service to SIS at all. The services
The tax due on such importation shall constitute a lien on the
14. services of franchise grantees of electric utilities, telephone rendered by the advertising companies, paid for by Sony using SIS
goods superior to all charges or liens on the goods, irrespective of dole-out, were for Sony and not SIS. SIS just gave assistance to Sony
and telegraph, radio and television broadcasting and all other
the possessor thereof. (Sec 107 NIRC) in the amount equivalent to the latter's advertising expense but never
franchise grantees except those under Section 119 of this Code
received any goods, properties or service from Sony.
c. On sale of services and use or lease of properties and
The phrase 'sale or exchange of services' means the performance of 15. non-life insurance companies (except their crop insurances), Diaz, et al. v. Secretary of Finance, et al. 2011 En Banc re Toll Fees
all kinds of services in the Philippines for others for a fee, remuneration including surety, idelity, indemnity and bonding companies;
May toll fees collected by tollway operators be subjected to VAT?
or consideration, including those performed or rendered by and
1. construction and service contractors; 16. similar services regardless of whether or not the performance YES. The law imposes VAT on "all kinds of services" rendered in
thereof calls for the exercise or use of the physical or mental the Philippines for a fee, including those speci ied in the list. The
2. stock, real estate, commercial, customs and immigration enumeration of affected services is not exclusive. By qualifying
faculties.
brokers; "services" with the words "all kinds," Congress has given the term
CIR v. Sony Phil., Inc. 2010 "services" an all-encompassing meaning.
3. lessors of property, whether personal or real;
The CIR contends that since Sony's advertising expense was When a tollway operator takes a toll fee from a motorist, the fee is in
4. warehousing services;
reimbursed by SIS, the former never incurred any advertising effect for the latter's use of the tollway facilities over which the
5. lessors or distributors of cinematographic ilms; expense. As a result, Sony is not entitled to a tax credit. At most, the operator enjoys private proprietary rights that its contract and the law
CIR continues, the said advertising expense should be for the account recognize. In this sense, the tollway operator is no different from
6. persons engaged in milling, processing, manufacturing or of SIS, and not Sony. the service providers under Section 108 who allow others to
repacking goods for others; use their properties or facilities for a fee.
The Court is not persuaded. Sony's de iciency VAT assessment
7. proprietors, operators or keepers of hotels, motels, resthouses, stemmed from the CIR's disallowance of the input VAT credits that Not only do tollway operators come under the broad term "all kinds
pension houses, inns, resorts; should have been realized from the advertising expense of Sony. of services," they also come under the speci ic class described in
8. proprietors or operators of restaurants, refreshment parlors, Section 108 as "all other franchise grantees" who are subject to
Insofar as the subsidy may be considered as income and, therefore, VAT, "except those under Section 119 of this Code." Tollway
cafes and other eating places, including clubs and caterers; subject to income tax, the Court agrees. However, the Court does not operators are franchise grantees and they do not belong to
9. dealers in securities; agree that the same subsidy should be subject to the 10% VAT. To exceptions.
begin with, the said subsidy termed by the CIR as reimbursement was
10. lending investors; not even exclusively earmarked for Sony's advertising expense for it Next, petitioners argue that a toll fee is a "user's tax" and to impose
was but an assistance or aid in view of Sony's dire or adverse VAT on toll fees is tantamount to taxing a tax.
11. transportation contractors on their transport of goods or economic conditions.
cargoes, including persons who transport goods or cargoes for Tollway fees are NOT taxes. Indeed, they are not assessed and
hire and other domestic common carriers by land relative to There must be a sale, barter or exchange of goods or properties collected by the BIR and do not go to the general coffers of the
their transport of goods or cargoes; before any VAT may be levied. Certainly, there was no such sale, government.
barter or exchange in the subsidy given by SIS to Sony. It was but a
12. common carriers by air and sea relative to their transport of dole out by SIS and not in payment for goods or properties sold, Consequently, VAT on tollway operations is not really a tax on the
passengers, goods or cargoes from one place in the Philippines bartered or exchanged by Sony. tollway user, but on the tollway operator.
to another place in the Philippines;
In the case of CIR v. CA, the Court had the occasion to rule that CIR v. SM Prime Holdings, Inc. 2010
services rendered for a fee even on reimbursement-on-cost

lOMoARcPSD|4853470
3)
WON the gross receipts derived by operators or proprietors of Tax base: gross receipt
cinema/theater houses from admission tickets are subject to VAT. a) Sale of raw materials or packaging materials
The term 'gross receipts' means the total amount of money or its
NO. Among those included in the enumeration of "sale or exchange of equivalent representing the contract price, compensation, service b) to export-oriented enterprise
services" subject to VAT is the "lease of motion picture ilms, ilms, fee, rental or royalty, including the amount charged for materials
tapes and discs." This, however, is NOT the same as the showing or c) whose export sales exceed seventy percent (70%) of
supplied with the services and deposits and advanced payments
exhibition of motion pictures or ilms. total annual production;
actually or constructively received during the taxable quarter for
4) Those considered export sales under EO No. 226, otherwise
the services performed or to be performed for another person,
Since the activity of showing motion pictures, ilms or movies by known as the Omnibus Investment Code of 1987, and other
cinema/theater operators or proprietors is not included in the excluding VAT.
special laws; and
enumeration, it is incumbent upon the court to determine whether 4. Zero-rated and effectively zero-rated sales of goods or
such activity falls under the phrase "similar services." "Considered export sales under EO No. 226" shall mean the
properties, and services
Philippine port F.O.B. value determined from invoices, bills of
The legislative intent is not to impose VAT on persons already
covered by the amusement tax. Zero-rated sale lading, inward letters of credit, landing certi icates, and other
commercial documents, of export products exported directly
a. Export Sales. — The term 'export sales' means:
To hold otherwise would impose an unreasonable burden on by a registered export producer, or the net selling price of
cinema/theater houses operators or proprietors, who would be 1) export products sold by a registered export producer to another
paying an additional 10% VAT on top of the 30% amusement tax export producer, or to an export trader that subsequently
imposed by Section 140 of the LGC of 1991, or a total of 40% tax. a) The sale and actual shipment of goods from the
exports the same:
Philippines to a foreign country, irrespective of any
Tambunting Pawnshop, Inc. v. CIR 2010 shipping arrangement that may be agreed upon which may Sales of export products to another producer or to an export
in luence or determine the transfer of ownership of the trader shall only be deemed export sales when actually
WON pawnshops are liable to pay VAT. exported by the latter, as evidenced by landing certi icates or
goods so exported and
YES. R.A. No. 9238 inally classi ied pawnshops as Other Non-bank similar commercial documents:
Financial Intermediaries. b) paid for in acceptable foreign currency or its equivalent in
Without actual exportation the following shall be considered
goods or services, and
As ruled in First Planters Pawnshop v. CIR: constructively exported for purposes of these provisions:
Since petitioner is a NBFI, it is subject to 10% VAT for the tax c) accounted for in accordance with the rules and regulations
years 1996 to 2002; however, with the levy, assessment and of the BSP; 1. sales to bonded manufacturing warehouses of
collection of VAT from non-bank inancial intermediaries being 2) export-oriented manufacturers;
speci ically deferred by law, then petitioner is not liable for VAT
during these tax years. But with the full implementation of the a) Sale of raw materials or packaging materials 2. sales to export processing zones;
VAT system on non-bank inancial intermediaries starting 3. sales to registered export traders operating bonded
January 1, 2003, petitioner is liable for 10% VAT for said tax b) to a nonresident buyer
trading warehouses supplying raw materials in the
year. And beginning 2004 up to the present, by virtue of R.A. No. c) for delivery to a resident local export-oriented enterprise manufacture of export products under guidelines to be
9238, petitioner is no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5%, as the case may d) to be used in manufacturing, processing, packing or set by the Board in consultation with the BIR and the
be. repacking in the Philippines of the said buyer's goods and BOC;
Since the imposition of VAT on pawnshops, which are non-bank e) paid for in acceptable foreign currency and 4. sales to diplomatic missions and other agencies
inancial intermediaries, was deferred for the tax years 1996 to 2002, and/or instrumentalities granted tax immunities, of
petitioner is not liable for VAT for the tax year 1999. f) accounted for in accordance with the rules and regulations locally manufactured, assembled or repacked products
of the BSP; whether paid for in foreign currency or not.

lOMoARcPSD|4853470
5) The sale of goods, supplies, equipment and fuel to persons b) rendered to a person engaged in business conducted percent of its annual production are to be zero-rated, provided
outside the Philippines or to a nonresident person not the seller complies with other requirements, like registration with
engaged in international shipping or international air
engaged in business who is outside the Philippines when the BOI and the EPZA. The said Regulation does not even hint,
transport operations: Provided, That the goods, supplies, much less expressly mention, that only a percentage of the
equipment and fuel shall be used for international shipping or the services are performed,
sales would be zero-rated. The internal revenue commissioner
air transport operations. c) the consideration for which is paid for in acceptable cannot, by administrative iat, amend the law by making compliance
foreign currency and therewith more burdensome.
Provided, That subparagraphs (3), (4), and (5) hereof shall be subject to
the 12% VAT and no longer be considered export sales subject to 0% d) accounted for in accordance with the rules and regulations WON Section 21 of Revenue Regulations No. 5-87 is invalid, insofar
VAT rate upon satisfaction of the following conditions: of the BSP; as it went beyond the law by disallowing input VAT for purchases not
3) Services rendered to persons or entities whose exemption covered by VAT invoices.
1) The successful establishment and implementation of an
under special laws or international agreements to which the
enhanced VAT refund system that grants refunds of NO. Section 21 of Revenue Regulation 5-87 is not invalid, as it
Philippines is a signatory effectively subjects the supply of
creditable input tax within ninety (90) days from the iling of simply prescribes the penalty for failure to comply with the
such services to zero percent (0%) rate; accounting and invoicing requirements laid down in Section 108, a
the VAT refund application with the BIR; and
4) Services rendered to persons exclusively engaged in penalty similar to that found in Sections 111 and 263. In short,
2) All pending VAT refund claims as of December 31, 2017 shall international shipping or international air transport operations, Section 108 provides the guidelines and necessary requirements for
including leases of property for use thereof; VAT invoices; Sections 111 and 263 of the Tax Code provide penalties
be fully paid in cash by December 31, 2019.
for different types of violations of Section 108; and Section 21 of
xxxx 5) Services performed by subcontractors and/or contractors in Revenue Regulation 5-87 speci ies the penalty for a speci ic violation
processing, converting, or manufacturing goods for an of Section 108.
b. Effectively Zero-Rated Transaction. — Sales to persons or
enterprise whose export sales exceed seventy percent (70%)
entities whose exemption under special laws or international Furthermore, we agree with respondent's position that the
of total annual production;
agreements to which the Philippines is a signatory effectively computation of the output VAT of the seller should be based on
subjects such sales to zero rate. 6) Transport of passengers and cargo by domestic air or sea the selling price appearing on its own VAT invoice, not on the
vessels from the Philippines to a foreign country; and selling price appearing on that of the customer. Indeed, it is the duty
The following services performed in the Philippines by VAT-registered of the seller to comply with the invoicing and accounting
★ If international, VAT-exempt if passenger; and
requirements.
persons shall be subject to zero percent (0%) rate: subject to other percentage tax of 3% if cargo.
1) 7) Sale of power or fuel generated through renewable sources of CIR v. Filminera Resources Corporation 2020
energy such as, but not limited to, biomass, solar, wind, Proof of actual exportation of goods sold by a Value Added Tax
a) Processing, manufacturing or repacking goods
hydropower, geothermal, ocean energy, and other emerging (VAT)-registered taxpayer to a Board of Investments
b) for other persons doing business outside the Philippines energy sources using technologies such as fuel cells and (BOI)-registered enterprise is vital for the transaction to be
c) which goods are subsequently exported, hydrogen fuels. considered as zero-rated export sales.
d) where the services are paid for in acceptable foreign Atlas Consolidated Mining v. CIR WON the sales made to PGPRC for the third and fourth quarters of
currency and the FY ending June 30, 2010 are zero-rated export sales based on the
WON the totality of sales to EPZA-registered enterprises should be
certi ication issued by the BOI on January 27, 20 I 0.
zero-rated, not merely the proportion which such sales have to the
e) accounted for in accordance with the rules and regulations
actual exports of the enterprise. CIR is correct.
of the BSP;
2) YES. An examination of Section 4.100.2 of Revenue Regulation 7-95 The tax treatment of export sales is based on the Cross Border
a) Services other than PMR, in relation to Section 102 (b) of the Tax Code shows that sales to an Doctrine and Destination Principle of the Philippine VAT system.
export-oriented enterprise whose export sales exceed 70 Under the Destination Principle, goods and services are taxed only

lOMoARcPSD|4853470
in the country where these are consumed. In this regard, the Cross 3) the claim must be iled within two years after the close of rather than exempt transactions.
Border Doctrine mandates that no VAT shall be imposed to form the taxable quarter when such sales were made;
part of the cost of goods destined for consumption outside the Generally, sale of goods and supply of services performed in the
territorial border of the taxing authority. Hence, actual export of 4) the creditable input tax due or paid must be attributable to Philippines are taxable at the rate of 10% (now 12%). However,
goods and services from the Philippines to a foreign country must be such sales, except the transitional input tax, to the extent that export sales, or sales outside the Philippines, shall be subject to VAT
free of VAT; while, those destined for use or consumption within the such input tax has not been applied against the output tax; at 0% if made by a VAT-registered person.
Philippines shall be imposed with VAT. Plainly, sales of export and
products to another producer or to an export trader are subject to zero 5) in case of zero-rated sales, the acceptable foreign currency While the zero rating and the exemption are computationally the
percent rate provided the export products are actually exported and exchange proceeds have been duly accounted for in same, they actually differ in several aspects, to wit:
consumed in a foreign country. accordance with BSP rules and regulations.
a) A zero-rated sale is a taxable transaction but does not
Section 4.106-5(a)(5) of RR No. 16-2005 classi ied sales to As for the second requisite, Filminera Resources failed to prove result in an output tax while an exempted transaction is not
BOI-registered entities as zero-rated export sales if the following that its sales to PGPRC for the third and fourth quarters of FY subject to the output tax;
conditions are met: 2010 are export sales. b) The input VAT on the purchases of a VAT-registered person
with zero-rated sales may be allowed as tax credits or
1) the buyer is a BOI-registered manufacturer/producer; In ine, Filminera Resources Corporation is NOT entitled to a refund refunded while the seller in an exempt transaction is not
2) the buyer's products are 100% exported; and or the issuance of tax credit certi icate in the amount of entitled to any input tax on his purchases despite the
P111,579,541.76, representing its unutilized input VAT attributable to issuance of a VAT invoice or receipt.
3) the BOI certi ied that the buyer exported 100% of its zero-rated sales for the third and fourth quarters of the iscal year
products. c) Persons engaged in transactions which are zero-rated, being
ending June 30, 2010.
subject to VAT, are required to register while registration is
For this purpose, the BOI Certi ication is vital for the seller-taxpayer optional for VAT-exempt persons.
CIR v. Cebu Toyo Corporation
to avail of the bene its of zero-rating. The certi ication is evidence
that the buyer exported its entire products and shall serve as WON the CA erred in af irming the CTA resolution granting a refund Here, respondent is engaged in the export business and is registered
authority for the seller to claim for refund or tax credit. in the amount of P2,158,714.46 representing unutilized input VAT on as a VAT taxpayer. Further, the records show that the respondent is
goods and services for the period April 1, 1996 to December 31, 1997. subject to VAT as it availed of the income tax holiday under E.O. No.
To be entitled for the refund or tax credit, the taxpayer must not only 226. Perforce, respondent is subject to VAT at 0% rate and is
prove the existence of zero-rated sales, but must also prove that the NO. Petitioner’s contention that respondent is not entitled to entitled to a refund or credit of the unutilized input taxes.
zero-rated sales were issued valid invoice or of icial receipts refund for being exempt from VAT is untenable.
pursuant to Sections 113(A) and (B), and 237 of the 1997 NIRC, in 5. VAT-exempt transactions
relation to Section 4.113-l(B) of RR No. 16-2005. Under RA 7916, respondent had two options with respect to its tax
burden. A. Sale or importation of
To ensure compliance with invoicing requirements, Section 3 of RMO
1. agricultural and marine food products in their original
No. 09-00 requires the BOI-registered buyer to furnish its suppliers 1. It could avail of an income tax holiday pursuant to
with a copy of the BOI Certi ication attesting that it exported 100% of state,
provisions of E.O. No. 226, thus exempt it from income taxes
its products. for a number of years but not from other internal revenue 2. livestock and poultry of a kind generally used as, or
taxes such as VAT; or yielding or producing foods for human consumption;
Under Section 112(A) of the 1997 NIRC, the seller may claim a refund
2. It could avail of the tax exemptions on all taxes, including and
or tax credit for the input VAT attributable to its zero-rated sales
VAT under P.D. No. 66 and pay only the preferential tax rate
subject to the following conditions: 3. breeding stock and genetic materials therefor.
of 5% under Rep. Act No. 7916.
1) the taxpayer is VAT-registered; B. Sale or importation of
Respondent availed of the income tax holiday for four (4) years.
2) the taxpayer is engaged in zero-rated or effectively zero-rated Hence, respondent is NOT exempt from VAT and it correctly 1. fertilizers;
sales; registered itself as a VAT taxpayer. In ine, it is engaged in taxable 2. seeds, seedlings and ingerlings;

lOMoARcPSD|4853470
3. ish, prawn, livestock and poultry feeds, including 5) Service rendered for overseas dispatch, message or a) Sales by agricultural cooperatives duly registered with
ingredients, whether locally produced or imported, conversation originating from the Philippines (Sec. 120); the CDA to their members
used in the manufacture of inished feeds 6) Services rendered by any person, company or corporation b) as well as sale of their produce, whether in its original
except specialty feeds for race horses, ighting cocks, (except purely cooperative companies or associations) state or processed form, to non-members;
aquarium ish, zoo animals and other animals doing life insurance business of any sort in the
Philippines (Sec. 123); c) their importation of direct farm inputs, machineries and
generally considered as pets;
equipment, including spare parts thereof, to be used
C. Importation of personal and household effects belonging to 7) Services rendered by ire, marine or miscellaneous
directly and exclusively in the production and/or
the residents of the Philippines returning from abroad and insurance agents of foreign insurance companies (Sec. processing of their produce;
nonresident citizens coming to resettle in the Philippines: 124);
CIR v. United Cadiz Sugar Farmers Association MPC 2016
Provided, That such goods are exempt from customs duties; 8) Services of proprietors, lessees or operators of cockpits,
D. Importation of professional instruments and implements, cabarets, night or day clubs, boxing exhibitions, Although the sale of re ined sugar is generally subject to VAT,
tools of trade, occupation or employment, wearing apparel, professional basketball games, Jai-Alai and race tracks such transaction may nevertheless qualify as a VAT-exempt
domestic animals, and personal and household effects (Sec. 125); and transaction if the sale is made by a cooperative. Under Section
belonging to persons coming to settle in the Philippines or 109(L) of the NIRC, sales by agricultural cooperatives are exempt
9) Receipts on sale, barter or exchange of shares of stock from VAT provided the following conditions concur, viz:
Filipinos or their families and descendants who are now
listed and traded through the local stock exchange or First, the seller must be an agricultural cooperative duly registered
residents or citizens of other countries.
through initial public offering (Sec. 127). with the CDA. An agricultural cooperative is "duly registered" when it
Vehicles, vessels, aircrafts, machineries and other similar F. Services by agricultural contract growers and milling for has been issued a certi icate of registration by the CDA. This
goods for use in manufacture, shall NOT fall within this others of palay into rice, corn into grits and sugar cane into raw
certi icate is conclusive evidence of its registration.
classi ication and shall therefore be subject to duties, taxes sugar; Second, the cooperative must sell either:
and other charges; 1) exclusively to its members; or
G. Medical, dental, hospital and veterinary services except those
E. Services subject to percentage tax under Title V; rendered by professionals; 2) to both members and non-members, its produce, whether
in its original state or processed form.
1) Sale or lease of goods or properties or the performance of H. Educational services rendered by private educational
services of non-VAT-registered persons, other than the The second requisite differentiates cooperatives according to its
institutions, duly accredited by the DepEd, CHED, TESDA and
customers. If the cooperative transacts only with members, all its
transactions mentioned in paragraphs (A) to (AA) of Sec. those rendered by government educational institutions; sales are VAT-exempt, regardless of what it sells. On the other hand, if
109(1) of the Tax Code, the gross annual sales and/or
“Educational services” shall refer to academic, technical or it transacts with both members and non-members, the product sold
receipts of which does not exceed the amount of Php3M. must be the cooperative's own produce in order to be VAT-exempt.
vocational education.
2) Services rendered by domestic common carriers by land, Stated differently, if the cooperative only sells its produce or goods
I. Services rendered by individuals pursuant to an that it manufactures on its own, its entire sales is VAT-exempt.
for the transport of passengers and keepers of garages
employer-employee relationship; A cooperative is the producer of the sugar if it owns or leases the land
(Sec. 117);
J. Services rendered by RAHQ that do not earn or derive tilled, incurs the cost of agricultural production of the sugar, and
3) Services rendered by international air/shipping
income from the Philippines; produces the sugar cane to be re ined. It should not have merely
carriers (Sec. 118); purchased the sugar cane from its planters-members.
K. Transactions which are exempt under international
4) Services rendered by franchise grantees of radio and/or
agreements to which the Philippines is a signatory or under CIR v. Negros Consolidated Farmers MPC 2018
television broadcasting whose annual gross receipts of
special laws, except those under PD No. 529;
the preceding year do not exceed Php10M, and by For an agricultural cooperative to be exempted from the payment of
franchise grantees of gas and water utilities (Sec. 119); L. advance VAT on re ined sugar, it must be

lOMoARcPSD|4853470
If two or more adjacent residential lots are sold or disposed 2. The gross receipts from rentals exceeding P15K per
a) a cooperative in good standing duly accredited and
registered with the CDA; and of in favor of one buyer, for the purpose of utilizing the lots month per unit shall be subject to VAT if the aggregate
as one residential lot, the sale shall be exempt from VAT annual gross receipts from said units only exceeds
b) the producer of the sugar.
only if the aggregate value of the lots do not exceed P3M. Otherwise, the gross receipts will be subject to
M. Gross receipts from lending activities by credit or Php1,919,500M. the 3% tax imposed under Section 116 of the Tax
multi-purpose cooperatives duly registered with the CDA; Adjacent residential lots, although covered by separate titles Code.
N. Sales by non-agricultural, non-electric and non-credit and/or separate tax declarations, when sold or disposed to In case of mixed transactions, the abovementioned rule should
cooperatives duly registered with the CDA. one and the same buyer, whether covered by one or be observed.
separate Deed of Conveyance, shall be presumed as a sale The term 'residential units' shall refer to apartments and
The share capital contribution of each member does not
of one residential lot. houses & lots used for residential purposes, and buildings or
exceed Php15K and regardless of the aggregate capital and net
surplus ratably distributed among the members; Provided, That beginning January 1, 2021, the VAT parts or units thereof used solely as dwelling places (e.g.,
exemption shall only apply to dormitories, rooms and bed spaces) except motels, motel
Importation by non-agricultural, non-electric and non-credit
1. sale of real properties not primarily held for sale rooms, hotels and hotel rooms, lodging houses, inns and
cooperatives of machineries and equipment, including spare
to customers or held for lease in the ordinary pension houses.
parts thereof, to be used by them are subject to VAT.
course of trade or business, The term 'unit' shall mean an apartment unit in the case of
O. Export sales by persons who are not VAT-registered;
2. sale of real property utilized for socialized apartments, house in the case of residential houses; per person
If VAT-registered, zero-rated. in the case of dormitories, boarding houses and bed spaces;
housing,
P. The following sales of real properties are exempt from and per room in case of rooms for rent.
3. sale of house and lot, and other residential
VAT, namely: R. Sale, importation, printing or publication of books and any
dwellings with selling price of not more than
1) Sale of real properties not primarily held for sale to Php3,199,200. newspaper, magazine, review or bulletin which appears at
customers or held for lease in the ordinary course of regular intervals with ixed prices or subscription and sale and
Q. Lease of a residential unit with a monthly rental not
trade or business. However, even if the real property is which is not devoted principally to the publication of paid
exceeding P15K; advertisements;
not primarily held for sale to customers or held for lease
in the ordinary course of trade or business but the same is The foregoing notwithstanding, lease of residential units where S. Transport of passengers by international carriers;
used in the trade or business of the seller, the sale thereof the monthly rental per unit exceeds P15K, but the aggregate of
If cargo, 3% OPT.
shall be subject to VAT being a transaction incidental to such rentals of the lessor during the year do not exceed P3M
the taxpayer's main business. shall likewise be exempt from VAT; however, the same shall be T. Sale, importation or lease of passenger or cargo vessels and
subject to three percent (3%) percentage tax under Section aircraft, including engine, equipment and spare parts thereof
2) Sale of real properties utilized for low-cost housing.
116 of the Tax Code. for domestic or international transport operations;
3) Sale of real properties utilized for socialized housing
In cases where a lessor has several residential units for lease, U. Importation of fuel, goods and supplies by persons engaged in
wherein the price ceiling per unit is P450K or as may
some are leased out for a monthly rental per unit of not international shipping or air transport operations:
from time to time be determined by the HUDCC and the exceeding P15K while others are leased out for more than Provided, That the fuel, goods, and supplies shall be used for
NEDA and other related laws. P15K per unit, his tax liability will be as follows: international shipping or air transport operations;
4) Sale of residential lots valued at Php1,919,500 and 1. The gross receipts from rentals not exceeding P15K Thus, said fuel, goods and supplies shall be used exclusively or
below, or house & lot and other residential dwellings per month per unit shall be exempt from VAT
valued at Php3,199,200 and below. shall pertain to the transport of goods and/or passenger from a
regardless of the aggregate annual gross receipts. It is port in the Philippines directly to a foreign port, or vice versa,
also exempt from the 3% percentage tax. without docking or stopping at any other port in the

lOMoARcPSD|4853470
Philippines unless the docking or stopping at any other 5. Excess input tax credit.
Philippine port is for the purpose of unloading passengers Petitioner’s claim, however, for exemption from VAT for its
and/or cargoes that originated from abroad, or to load purchases of supplies and raw materials is incongruous with its Sources of input tax credits
passengers and/or cargoes bound for abroad. claim that it is VAT-Exempt, for only VAT-Registered entities can 1. Purchase or importation of goods:
claim Input VAT Credit/Refund.
V. Services of bank, non-bank inancial intermediaries
a. For sale; or
performing quasi-banking functions, and other non-bank WON the petitioner may claim a refund on the Input VAT erroneously
inancial intermediaries; passed on to it by its suppliers. b. For conversion into or intended to form part of a
inished product for sale including packaging
Such as money changers and pawnshops, subject to
NO. While it is true that the petitioner should not have been liable for materials; or
percentage tax under Secs. 121 and 122, respectively, of the Tax the VAT inadvertently passed on to it by its supplier since such is a
Code; zero-rated sale on the part of the supplier, the petitioner is not the c. For use as supplies in the course of business; or
W. Sale or lease of goods and services to senior citizens and proper party to claim such VAT refund. Since the transaction is d. For use as materials supplied in the sale of service; or
deemed a zero-rated sale, petitioner’s supplier may claim an Input
persons with disability, as provided under RA Nos. 9994 and
VAT credit with no corresponding Output VAT liability. Congruently, e. For use in trade or business for which deduction for
10754, respectively;
no Output VAT may be passed on to the petitioner. depreciation or amortization is allowed under this
X. Transfer of property pursuant to Section 40(C)(2) of the Code.
NIRC, as amended; Rather, it is the petitioner’s suppliers who are the proper parties
to claim the tax credit and accordingly refund the petitioner of the 2. Purchase of services on which a VAT has been actually paid.
Tax-free exchange of property in pursuance of a plan of merger VAT erroneously passed on to the latter.
or consolidation. 3. Transactions deemed sale;
PSALM v. CIR 2019 4. Transitional input tax.
Y. Association dues, membership fees, and other
assessments and charges collected by homeowners WON PSALM’s privatization activities are subject to VAT. When creditable
associations and condominium corporations;
NO. The sale of the power plants in this case is not subject to VAT 1. On purchase of goods or properties — upon consummation
Z. Sale of gold to the BSP; since the sale was made pursuant to PSALM's mandate to privatize of sale, or issue of the sales invoice, although no payment
AA. Sale of drugs and medicines prescribed for diabetes, high NPC's assets, and was not undertaken in the course of trade or thereof was made by the buyer.
cholesterol, and hypertension beginning January 1, 2019; business. In selling the power plants, PSALM was merely exercising a
governmental function for which it was created under the EPIRA law. 2. On importation — upon payment of the VAT prior to the
and
release of the goods from customs custody.
BB. Sale or lease of goods or properties or the performance of During its corporate life, PSALM has powers relating to the
management of its personnel and leasing of its properties as may be 3. On purchase of services — when paid by the buyer and
services other than the transactions mentioned in the preceding
necessary to discharge its mandate. evidenced by the seller’s of icial receipt.
paragraphs, the gross annual sales and/or receipts do not
exceed the amount of P3M. Substantiation of Input Tax Credits
6. Input and output tax
Contex Corp. v. CIR a) Input taxes for the importation of goods or the domestic
Categories of Input taxes purchase of goods, properties or services is made in the
The petitioner’s claim to VAT exemption in the instant case for its
1. Input tax credit on importation of goods and current local course of trade or business, whether such input taxes shall be
purchases of supplies and raw materials is founded mainly on
Section 12 (b) and (c) of RA 7227, which basically exempts them purchases of goods, properties, and services (Sec 110); credited against zero-rated sale, non-zero-rated sales, or
from all national and local internal revenue taxes, including VAT. subjected to the 5% Final Withholding VAT, must be
2. Transitional input tax credit — 2%;
Petitioner is registered as a NON-VAT taxpayer per Certi icate of substantiated and supported by the following documents, and
Registration issued by the BIR. As such, it is exempt from VAT on 3. Presumptive input tax credit — 4%; must be reported in the information returns required to be
all its sales and importations of goods and services. 4. Final withholding tax credit; and submitted to the Bureau:

lOMoARcPSD|4853470
1) For the importation of goods - import entry or other 1. on his beginning inventory of goods, materials and supplies 4. apply for the issuance of a tax credit certi icate or refund of
equivalent document showing actual payment of VAT on equivalent to two percent (2%) of the value of such inventory creditable input tax due or paid attributable to such sales,
the imported goods. or except transitional input tax, to the extent that such input tax
2) For the domestic purchase of goods and properties – 2. the actual VAT paid on such goods, materials and supplies, has not been applied against output tax.
invoice showing the information required under Secs. 113 Cancellation of VAT Registration. — A person whose registration has
whichever is higher, which shall be creditable against the output tax.
and 237 of the Tax Code. been cancelled due to retirement from or cessation of business, or due
When may one claim transitional input tax to changes in or cessation of status under Section 106(C) of this Code
3) For the purchase of real property – public instrument
i.e., deed of absolute sale, deed of conditional sale, 1. He becomes liable to VAT for the irst-time either through a may, within two (2) years from the date of cancellation, apply for
contract/agreement to sell, etc., together with VAT invoice new law or when his taxable transactions exceed the P3M the issuance of a tax credit certi icate for any unused input tax which
issued by the seller. threshold; may be used in payment of his other internal revenue taxes.
4) For the purchase of services – of icial receipt showing Period within which Refund or Tax Credit of Input Taxes shall be
2. He elects to register as a VAT-registered person; and
the information required under Secs. 113 and 237 of the Made. — In proper cases, the Commissioner shall grant a refund for
3. He is already VAT-registered and also deals in goods or creditable input taxes within ninety (90) days from the date of
Tax Code.
properties, the sale of which is exempt, but later becomes a submission of the of icial receipts or invoices and other
A cash register machine tape issued to a registered buyer shall taxable transaction through legislation. documents in support of the application iled:
constitute valid proof of substantiation of tax credit only if it
Presumptive Input Tax Credits Provided, That should the CIR ind that the grant of refund is not proper,
shows the information required under Secs. 113 and 237 of the
Tax Code. the CIR must state in writing the legal and factual basis for the denial.
Persons or irms engaged
b) Transitional input tax shall be supported by an inventory of In case of full or partial denial of the claim for tax refund, the taxpayer
1. in the processing of sardines, mackerel and milk, and
goods as shown in a detailed list to be submitted to the BIR. affected may, within thirty (30) days from the receipt of the
2. in manufacturing re ined sugar and cooking oil, decision denying the claim, appeal the decision with the CTA:
c) Input tax on “deemed sale” transactions shall be substantiated
shall be allowed a presumptive input tax, creditable against the output Provided, however, That failure on the part of any of icial, agent, or
with the invoice required under Sec. 4.113-2.
tax, equivalent to four percent (4%) of the gross value in money of employee of the BIR to act on the application within the ninety (90)-day
d) Input tax from payments made to non-residents (such as for their purchases of primary agricultural products which are used as period shall be punishable under Section 269 of this Code.
services, rentals and royalties) shall be supported by a copy of inputs to their production.
When based on statute, a claim for tax refund partakes of the nature of
the Monthly Remittance Return of Value Added Tax Withheld
(BIR Form 1600) iled by the resident payor in behalf of the The term 'processing' shall mean pasteurization, canning and activities an exemption.
non-resident evidencing remittance of VAT due which was which through physical or chemical process alter the exterior texture or Categories of refunds or credits
withheld by the payor. form or inner substance of a product in such manner as to prepare it for
1. Zero-rated or effectively zero-rated sales of goods.
special use to which it could not have been put in its original form or
e) Advance VAT on sugar shall be supported by the Payment Order Petitioner must prove or comply the following:
condition.
showing payment of the advance VAT. a. He is a VAT-registered person;
7. Refund or tax credit of excess input tax; procedure
Transitional Input Tax Credits b. Filed with the BIR or DOF Center within 2 years after
1. Any VAT-registered person,
A person who becomes liable to VAT or any person who elects to be a the close of taxable quarter when the sales were
VAT-registered person shall, subject to the iling of an inventory be 2. whose sales are zero-rated or effectively zero-rated may, made
allowed input tax 3. within two (2) years after the close of the taxable quarter With the CTA within 30 days from date of receipt of
when the sales were made, denial from CIR;

lOMoARcPSD|4853470
c. The claimed input tax payments were not applied Claims for input tax refund of direct exporters shall be exclusively iled
Code.
against any output tax during the period covered by the with the VAT Credit Audit Division (VCAD).
claim and in the succeeding periods, unless there be a Who is entitled to the refund or credit Tax liability required for Tax credit
separate claim; 1. Under the zero-rated or effectively zero-rated sales — seller; Since a tax credit is used to directly reduce the tax that is due, there
d. Deduct from its quarterly return the input tax being ought to be a tax liability before the tax credit can be applied.
2. In the purchase of capital goods — purchaser.
claimed as refund or credit; The existence of a tax credit or its grant by law is not the same as the
Manner of Giving Refund. — Refunds shall be made upon warrants availment or use of such credit. While the grant is mandatory, the
e. Directly attributable to the sale; availment or use is not. By its nature, the tax credit may still be
drawn by the Commissioner or by his duly authorized representative
f. The acceptable foreign currency exchange proceeds without the necessity of being countersigned by the Chairman, deducted from a future, not a present, tax liability, without which it
had been duly accounted for, if applicable; Commission on Audit, the provisions of the Administrative Code of does not have any use. In the meantime, it need not move. But it
breathes.
g. Duly supported by VAT invoices or of icial receipts; 1987 to the contrary notwithstanding:
Provided, That refunds under this paragraph shall be subject to post Prior tax payments NOT required for Tax credit
Imprinting of the word “zero-rated” on the invoices or
receipts is required. audit by the Commission on Audit.
While a tax liability is essential to the availment or use of any tax
h. The VAT return for the succeeding quarters covered by CIR v. Central Luzon Drug Corporation credit, prior tax payments are not. On the contrary, for the existence
or grant solely of such credit, neither a tax liability nor a prior
the claim must be submitted with the CTA. The 20 percent discount required by the law to be given to senior tax payment is needed. Regarding this matter, a private
2. Cancellation of VAT registration due to cessation of business citizens is a tax credit, not merely a tax deduction from the gross establishment reporting a net loss in its inancial statements is no
income or gross sale of the establishment concerned. A tax credit is different from another that presents a net income. Both are entitled to
or dissolution of the corporation.
used by a private establishment only after the tax has been computed; the tax credit provided for under RA 7432, since the law itself accords
Within two (2) years from the date of cancellation, apply for a tax deduction, before the tax is computed. RA 7432 that unconditional bene it. However, for the losing establishment to
the issuance of a tax credit certi icate for any unused input tax unconditionally grants a tax credit to all covered entities. immediately apply such credit, where no tax is due, will be an
which may be used in payment of his other internal revenue improvident usance.
WON respondent, despite incurring a net loss, may still claim the 20
taxes.
percent sales discount as a tax credit. As a result of the 20 percent discount imposed by RA 7432,
The date of cancellation being referred herein is the date of respondent becomes entitled to a just compensation. This term
issuance of tax clearance by the BIR, after full settlement of YES. Section 4(a) of RA 7432 grants to senior citizens the privilege
refers not only to the issuance of a tax credit certi icate indicating the
all tax liabilities relative to cessation of business or change of of obtaining a 20 percent discount on their purchase of medicine
correct amount of the discounts given, but also to the promptness in
from any private establishment in the country. The latter may then
status. its release.
claim the cost of the discount as a tax credit.
The iling of the claim shall be made only after completion of
Tax credit generally refers to an amount that is “subtracted directly CIR v. Aichi Forging October 6, 2010
the mandatory audit of all internal revenue tax liabilities
from one’s total tax liability.” It is an “allowance against the tax WON respondent's judicial and administrative claims for tax
covering the immediately preceding year and the short period
itself” or “a deduction from what is owed” by a taxpayer to the refund/credit were iled within the two-year prescriptive period.
return and the issuance of the applicable tax clearance/s by the
government. Examples of tax credits are withheld taxes, payments of
appropriate BIR Of ice which has jurisdiction over the estimated tax, and investment tax credits. NO. Unutilized input VAT must be claimed within two years after
taxpayer. the close of the taxable quarter when the sales were made.
Tax credit should be understood in relation to other tax concepts.
Where to ile the claim for refund/credit — Claims for refunds shall
One of these is tax deduction — de ined as a subtraction “from The two-year period to ile a claim for tax refund/credit for the period
be iled with the appropriate Bureau of Internal Revenue (BIR) Of ice income for tax purposes,” or an amount that is “allowed by law to July 1, 2002 to September 30, 2002 expired on September 30, 2004.
(Large Taxpayers Service (LTS), Revenue District Of ice (RDO)) having reduce income prior to [the] application of the tax rate to compute Hence, respondent's administrative claim was timely iled.
jurisdiction over the principal place of business of the taxpayer. the amount of tax which is due.” An example of a tax deduction is any
of the allowable deductions enumerated in Section 34 of the Tax However, notwithstanding the timely iling of the administrative

lOMoARcPSD|4853470
claim, we are constrained to deny respondent's claim for tax invoices are required to be presented in claiming refunds. must be a wrongful payment because what is paid, or part of it, is not
refund/credit for having been iled in violation of Section 112(D) of legally due. As the Court held in Mirant, Section 229 should “apply
the NIRC. CIR v. San Roque Power 2013 En Banc only to instances of erroneous payment or illegal collection of
in rel to Sec 112 for Refund or Tax Credit of Input Taxes internal revenue taxes.”
In this case, the administrative and the judicial claims were
simultaneously iled on September 30, 2004. Obviously, respondent Application of the 120+30 Day Periods (please note that the 120 Under the VAT System, there is no claim or issue that the “excess”
did not wait for the decision of the CIR or the lapse of the 120-day days is now 90 days under the TRAIN law) input VAT is “excessively or in any manner wrongfully collected.”
period. For this reason, we ind the iling of the judicial claim with
the CTA premature. San Roque failed to comply with the 120-day waiting period, the CIR v. Dash Engineering 2013 cf. San Roque
time expressly given by law to the Commissioner to decide whether
NB: to grant or deny San Roque’s application for tax refund or credit. It is WON respondent’s judicial claim for refund was iled within the
indisputable that compliance with the 120-day waiting period is prescriptive period.
1. Thus, in claims for tax refund or credit of unutilized input
VAT, only the administrative claim must be within the 2-year mandatory and jurisdictional.
NO. Respondent iled its administrative claim for refund on August 9,
prescriptive period reckoned from the close of the taxable
The 120-day period may extend beyond the two-year prescriptive 2004. The 120-day period within which the CIR should act on the
quarter when the sale was made.
period, as long as the administrative claim is iled within the claim expired on December 7, 2004 without any action on the part of
2. The claimant may then ile his judicial claim two-year prescriptive period. petitioner. Thus, respondent only had 30 days from the lapse of the
a. Within 30 days from receipt of the denial of the CIR; said period, or until January 6, 2005, to ile a petition for review with
OR Like San Roque, Taganito also iled its petition for review with the the CTA. The petition, however, was iled only on May 5, 2005.
CTA without waiting for the 120-day period to lapse. However,
b. Within 30 days after the lapse of the 90-day period Respondent’s compliance with the two-year prescriptive period
Taganito can invoke BIR Ruling No. DA-489-03 dated 10 December
given to the CIR to decide that is reckoned from the under Section 112(A) is not an issue. What is being questioned in this
2003, which expressly ruled that the “taxpayer-claimant need not
date when documents are deemed submitted. case is DEPI’s failure to observe the requisite 120+30-day period as
wait for the lapse of the 120-day period before it could seek judicial
This is considered a denial on the part of the CIR. relief with the CTA by way of Petition for Review.” Taganito iled its mandated by Section 112(C).
3. If the claimant iles his judicial claim without respecting the judicial claim after the issuance of BIR Ruling No. DA-489-03 but
before the adoption of the Aichi doctrine (6 October 2010). Thus, In accordance with San Roque, respondent’s judicial claim for refund
90-day period, such will be dismissed as being premature.
Taganito is deemed to have iled its judicial claim with the CTA on must be denied for having been iled late. Although respondent iled
4. The rule that both administrative and judicial claims fall its administrative claim with the BIR on August 9, 2004 before the
time.
within the 2-year period applies to erroneously or expiration of the two-year period in Section 112(A), it undoubtedly
excessively paid taxes, and is reckoned from the date of GR: Taxpayer must wait for the lapse of 120 days before it could failed to comply with the 120+30-day period in Section 112(D) (now
payment. Input VAT is NOT erroneously or excessively paid. seek relief with the CTA. subparagraph C) which requires that upon the inaction of the CIR for
120 days after the submission of the documents in support of the
Philippine Phosphate Fertilizer v. CIR EXC: Those who iled their judicial claim between claim, the taxpayer has to ile its judicial claim within 30 days after
the lapse of the said period.
WON the CTA should have granted petitioner’s claim for refund. 10 Dec 2003 — 6 Oct 2010.
YES. In this case, there is no dispute that petitioner is entitled to ROHM Apollo v. CIR 2015
“Excess” Input VAT and “Excessively” Collected Tax
exemption from the payment of excise taxes by virtue of its being an WON the CTA acquired jurisdiction over the claim for the refund or
EPZA registered enterprise. As stated by the CTA, the only thing left to The input VAT is NOT “excessively” collected as understood under tax credit of unutilized input VAT.
be determined is whether or not petitioner is entitled to the amount Section 229 because at the time the input VAT is collected the amount
claimed for refund. paid is correct and proper. NO. The taxpayer’s judicial claim for a refund/tax credit was iled
beyond the prescriptive period.
Petitioner’s entire claim for refund, however, was denied for From the plain text of Section 229, it is clear that what can be
petitioner’s failure to present invoices allegedly in violation of CTA refunded or credited is a tax that is “erroneously, x x x illegally, x x x The taxpayer can ile an appeal in one of two ways:
Circular No. 1-95. But nowhere in said Circular is it stated that excessively or in any manner wrongfully collected.” In short, there
1) ile the judicial claim within 30 days after the Commissioner

lOMoARcPSD|4853470
denies the claim within the 120-day waiting period, or deemed timely iled. In view of the foregoing, the CTA En Banc erred should the taxpayer decide to submit additional documents and
2) ile the judicial claim within 30 days from the expiration of in dismissing outright petitioner’s claim on the ground of effectively extend the 120-period, it grants the CIR more time to
the 120-day period if the CIR does not act within that period. prematurity. decide the claim.
On 11 December 2000, petitioner iled with the BIR an application for Cargill Phils., Inc. v. CIR 2015 It is the taxpayer who has that right and the burden of providing any
the refund or credit of accumulated unutilized creditable input taxes. and all documents that would support his claim for tax credit or
WON the CTA En Banc correctly af irmed the CTA Division’s outright refund.
Thus, the CIR had a period of 120 days from 11 December 2000, or
dismissal of Cargill’s claims for refund of unutilized input VAT on the
until 10 April 2001, to act on the claim. It failed to do so, however.
ground of prematurity. ⭐It bears mentioning at this point that the foregoing summation of
Rohm Apollo should then have treated the CIR’s inaction as a denial
the rules should only be made applicable to those claims for tax
of its claim. Petitioner would then have had 30 days, or until 10 May In this case, records disclose that anent Cargill’s irst refund claim, credit or refund iled prior to June 11, 2014, such as the claim at
2001, to ile a judicial claim with the CTA. But Rohm Apollo iled a it iled its administrative claim with the BIR on June 27, 2003, and its
Petition for Review with the CTA only on 11 September 2002. The bench.
judicial claim before the CTA on June 30, 2003, or before the period
judicial claim was thus iled late. when BIR Ruling No. DA-489-03 was in effect, i.e., from December 10, Thus, under the current rule, the reckoning of the 120-day period
2003 to October 6, 2010. As such, it was incumbent upon Cargill to has been withdrawn from the taxpayer by RMC 54-2014, since it
The taxpayers are reminded that when the 120-day period lapses and
wait for the lapse of the 120-day period before seeking relief with requires him at the time he iles his claim to complete his supporting
there is inaction on the part of the CIR, they must no longer wait for it
the CTA, and considering that its judicial claim was iled only after documents and attest that he will no longer submit any other
to come up with a decision thereafter. The CIR’s inaction is the
three (3) days later, the CTA En Banc, thus, correctly dismissed document to prove his claim. Further, the taxpayer is barred from
decision itself. It is already a denial of the refund claim. Thus, the
Cargill’s petition in CTA Case No. 6714 for being prematurely iled. submitting additional documents after he has iled his administrative
taxpayer must ile an appeal within 30 days from the lapse of the
120-day waiting period. claim.
In contrast, records show that with respect to Cargill’s second
refund claim, its administrative and judicial claims were both iled Applying the foregoing precepts to the case at bench, Total Gas, thus,
Panay Power Corp. v. CIR 2015 on May 31, 2005, or during the period of effectivity of BIR Ruling NO. timely iled its judicial claim on January 23, 2009.
WON the CTA En Banc correctly af irmed the CTA Division’s outright DA-489-03, and, thus, fell within the exemption window period
dismissal of petitioner’s claim for tax refund/credit on the ground of contemplated in San Roque. Verily, the CTA En Banc erred when it WON the submission of incomplete documents at the administrative
prematurity. outrightly dismissed CTA Case No. 7262 on the ground of level (BIR) renders the judicial claim premature and dismissible for
prematurity. lack of jurisdiction.
NO. Reconciling the pronouncements in the Aichi and San Roque
cases, the rule must therefore be that during the period December 10, Pilipinas Total Gas v. CIR 2015 En Banc NO. The alleged failure of Total Gas to submit the complete
2003(when BIR Ruling No. DA-489-03 was issued) to October 6, re Submission of Documents documents at the administrative level did not render its petition for
2010 (when the Aichi case was promulgated), taxpayers-claimants review with the CTA dismissible for lack of jurisdiction. First, the
WON the judicial claim for refund was belatedly iled on 23 January 120-day period had commenced to run and the 120+30 day period
need not observe the 120-day period before it could ile a judicial
2009, or way beyond the 30-day period to appeal as provided in was, in fact, complied with. As already discussed, it is the taxpayer
claim for refund of excess input VAT before the CTA. Before and after
Section 112(c). who determines when complete documents have been
the aforementioned period (i.e., December 10, 2003 to October 6,
2010), the observance of the 120-day period is mandatory and submitted for the purpose of the running of the 120-day period.
NO. Sec 112(C) categorically provides that the 120-day period is
jurisdictional to the iling of such claim.
counted "from the date of submission of complete documents in Second, the CIR sent no written notice informing Total Gas that the
In this case, records disclose that petitioner iled its administrative support of the application." documents were incomplete or required it to submit additional
and judicial claims for refund/credit of its input VAT on December documents. As stated above, such notice by way of a written request
Under present law, when should the submission of documents be is required by the CIR to be sent to Total Gas.
29, 2005 and January 20, 2006, respectively, or during the period
deemed "completed" for purposes of determining the running of
when BIR Ruling No. DA-489-03 was in place.
the 120-day period? Ideally, upon iling his administrative claim, a Finally, it should be mentioned that the appeal made by Total Gas to
As such, it need not wait for the expiration of the 120-day taxpayer should complete the necessary documents to support his the CTA cannot be said to be premature on the ground that it did not
period before iling its judicial claim before the CTA, and hence, is claim for tax credit or refund or for excess utilized VAT. After all, observe the otherwise mandatory and jurisdictional 120+30 day

lOMoARcPSD|4853470
period. When Total Gas iled its appeal with the CTA on January 23, BIR Ruling No. DA-489-03. The general interpretative rule
2009, it simply relied on BIR Ruling No. DA-489-03, which, at that allowed the premature iling of judicial claims by providing that In a claim for credit/refund of input VAT attributable to zero-rated
time, was not yet struck down by the Court's ruling in Aichi. the "taxpayer-claimant need not wait for the lapse of the 120-day sales, Section 112 (A) of the NIRC lays down four requisites, to wit:
period before it could seek judicial relief with the CTA by way of
In the present case, Total Gas iled its judicial claim due to the Petition for Review." The rule certainly did not allow the iling of a 1) the taxpayer must be VAT-registered;
inaction of the BIR. Considering that the administrative claim was judicial claim long after the expiration of the 120+30 day period. 2) the taxpayer must be engaged in sales which are zero-rated
never acted upon; there was no decision for the CTA to review on or effectively zero-rated;
appeal per se. Consequently, the CTA may give credence to all As things stood, the CTA had no jurisdiction to act upon, take
3) the claim must be iled within two years after the close of
evidence presented by Total Gas, including those that may not have cognizance of, and render judgment upon the petitions for review
the taxable quarter when such sales were made; and
been submitted to the CIR as the case is being essentially decided in iled by petitioner.
the irst instance. 4) the creditable input tax due or paid must be attributable to
8. Compliance requirements such sales, except the transitional input tax, to the extent that
The case shall, thus, be remanded to the CTA Division for trial de such input tax has not been applied against the output
novo. A person subject to pay internal revenue tax must comply with certain tax.
administrative requirements:
Hedcor, Inc. v. CIR 2015 also on Submission of Documents To prove that it is engaged in zero-rated sales, petitioner presented
1. Registration as a VAT taxpayer; export sales invoices, certi ications of inward remittance, export
The Transmittal Letter submitted by petitioner is not a substantial declarations, and airway bills of lading for the fourth quarter of 1998.
submission that would warrant a change in the reckoning date for the 2. Keeping and stamping of books of accounts, sales invoices, and The CTA Division, however, found the export sales invoices of no
120-day period for the BIR to act on the claim for refund. As aptly of icial receipts and other accounting records; probative value in establishing petitioner's zero-rated sales for the
found by the CTA, the letter does not even bear any stamp marking purpose of claiming credit/refund of input VAT because petitioner
3. Issuance of invoices and receipts;
that would show that it was legitimately received by the BIR. The failed to show that it has an ATP from the BIR and to indicate the
only proof of receipt was a signature, which was not even identi ied 4. Filing of tax returns and payment of taxes; and ATP and the word "zero-rated" in its export sales invoices.
by petitioner.
5. Withholding of tax on certain payments made to other persons. We partly agree with the CTA.
To allow petitioner’s allegations to prevail would set a dangerous
KEPCO Phils. v. CIR 2011 supra Printing the ATP on the invoices or receipts is NOT required
precedent, as the reckoning period for the 120 days would be at the
mercy of taxpayers. Failure to print the word "zero-rated" on the invoices or receipts is
It has been settled in Intel Technology Philippines, Inc. v. CIR that
fatal to a claim for refund or credit of input VAT on zero-rated sales.
What is peculiar to this case is that prior to the alleged completion the ATP need not be re lected or indicated in the invoices or receipts
of its supporting documents, petitioner had already iled its because there is no law or regulation requiring it.
judicial claim with the CTA. Silicon Phil., Inc. v. CIR 2011 on printing of “zero-rated”
See also Western Mindanao Power Corp. v. CIR, Panasonic But while there is no law requiring the ATP to be printed on the
If we follow the assumptions of petitioner, its administrative claim Communications Imaging v. CIR invoices or receipts, Section 238 of the NIRC expressly requires
would only be considered as of icially received on 20 September persons engaged in business to secure an ATP from the BIR prior to
2010, when it allegedly iled its complete supporting documents. By WON the denial by the CTA En Banc of its claim for refund of input printing invoices or receipts. Failure to do so makes the person liable
that time, the period for iling an administrative application for a VAT attributable to its zero-rated sales has no legal basis because the under Section 264 of the NIRC.
refund would have already prescribed on 30 June 2010, or two (2) printing of the ATP and the word "zero-rated" on the export sales
years from the close of the taxable quarter when the relevant sales invoices are not required under Sections 113 and 237 of the NIRC. This brings us to the question of whether a claimant for unutilized
were made. input VAT on zero-rated sales is required to present proof that it has
NO. Before us are two types of input VAT credits. One is a secured an ATP from the BIR prior to the printing of its invoices or
Silicon Philippines v. CIR 2016 credit/refund of input VAT attributable to zero-rated sales under receipts. YES.
Section 112 (A) of the NIRC, and the other is a credit/refund of input
The judicial claim for the 4th quarter of 2001, while iled within the VAT on capital goods pursuant to Section 112 (B) of the same Code. Under Section 112 (A) of the NIRC, a claimant must be engaged in
period 10 December 2003 up to 6 October 2010, cannot ind solace in sales which are zero-rated or effectively zero-rated. To prove this,

lOMoARcPSD|4853470
head of ice or branch of that person, and shall pay the annual
duly registered invoices or receipts evidencing zero-rated sales must taxable goods or services.
be presented. However, since the ATP is not indicated in the invoices registration fee.
or receipts, the only way to verify whether the invoices or receipts Based on the foregoing de inition, we ind no reason to deviate from If he fails to register, he shall be liable to pay the tax under Title IV as if
are duly registered is by requiring the claimant to present its ATP the indings of the CTA that training materials, of ice supplies,
he were a VAT-registered person, but without the bene it of input tax
from the BIR. Without this proof, the invoices or receipts would have posters, banners, T-shirts, books, and the other similar items
credits for the period in which he was not properly registered.
no probative value for the purpose of refund. re lected in petitioner's Summary of Importation of Goods are NOT
capital goods. Optional Registration for VAT of Exempt Person. —
Failure to print the word "zero-rated" on
1) Any person who is not required to register for VAT may elect to
the sales invoices is fatal to a claim for Northern Mindanao Power v. CIR 2015 on Invoice vs Receipt
refund of input VAT register for VAT by registering with the RDO, and paying the
Invoice vs Receipt annual registration fee.
The non-presentation of the ATP and the failure to indicate the
As regards the suf iciency of a company invoice to prove the sales 2) Any person who elects to register shall not be entitled to
word "zero-rated" in the invoices or receipts are fatal to a claim
for credit/refund of input VAT on zero-rated sales. The failure to of services to NPC, we ind this claim is without suf icient legal cancel his registration for the next three (3) years.
basis. Section 113 of the NIRC of 1997 provides that a VAT invoice
indicate the ATP in the sales invoices or receipts, on the other hand, Any person who elected to pay the eight percent (8%) tax on gross
is not. In this case, petitioner failed to present its ATP and to print is necessary for every sale, barter or exchange of goods or properties,
sales or receipts shall not be allowed to avail of this option.
the word "zero-rated" on its export sales invoices. Thus, we ind no while a VAT of icial receipt properly pertains to every lease of
error on the part of the CTA in denying outright petitioner's claim for goods or properties; as well as to every sale, barter or exchange of b. Invoicing requirements
credit/refund of input VAT attributable to its zero-rated sales. services.
A) A VAT-registered person shall issue: —
WON the CTA En Banc erred in ruling that only the amount of A VAT invoice is the seller’s best proof of the sale of goods or 1) A VAT invoice for every sale, barter or exchange of goods
P9,898,867.00 can be classi ied as input VAT paid on capital goods. services to the buyer, while a VAT receipt is the buyer’s best evidence
or properties; and
of the payment of goods or services received from the seller. A VAT
NO. A reduction in the refundable input VAT on capital goods from invoice and a VAT receipt should not be confused and made to refer to 2) A VAT of icial receipt for every lease of goods or
P15,170,082.00 to P9,898,867.00 is in order. To claim a refund of one and the same thing. Certainly, neither does the law intend the properties, and for every sale, barter or exchange of
input VAT on capital goods, Section 112 (B) of the NIRC requires two to be used alternatively. services.
that:
a. Registration Only VAT-registered persons are required to print their TIN
1) the claimant must be a VAT registered person; followed by the word “VAT” in their invoice or of icial receipts.
Persons Required to Register for VAT. — Said documents shall be considered as a “VAT Invoice” or VAT
2) the input taxes claimed must have been paid on capital
goods; 1) Any person who, in the course of trade or business, sells, of icial receipt. All purchases covered by invoices/receipts
3) the input taxes must not have been applied against any barters or exchanges goods or properties, or engages in the sale other than VAT Invoice/VAT Of icial Receipt shall not give rise
output tax liability; and or exchange of services, shall be liable to register for VAT if: to any input tax.
4) the administrative claim for refund must have been iled a) His gross sales or receipts for the past twelve (12) VAT invoice /of icial receipt shall be prepared at least in
within two (2) years after the close of the taxable quarter months, other than those that are exempt under duplicate, the original to be given to the buyer and the
when the importation or purchase was made. Section 109(A) to (BB), have exceeded Php3M; OR duplicate to be retained by the seller as part of his accounting
records.
"Capital goods or properties" refer to goods or properties b) There are reasonable grounds to believe that his gross
sales or receipts for the next twelve (12) months will B) Information contained in VAT invoice or VAT of icial
a. with estimated useful life greater than one year and receipt. – The following information shall be indicated in VAT
exceed Php3M. OR
b. which are treated as depreciable assets under Section invoice or VAT of icial receipt:
2) Every person who becomes liable to be registered shall register
29(f),
with the Revenue District Of ice which has jurisdiction over the 1) A statement that the seller is a VAT-registered person,
c. used directly or indirectly in the production or sale of
followed by his TIN;

lOMoARcPSD|4853470
2) The total amount which the purchaser pays or is obligated 2) If a VAT-registered person issues a VAT invoice or VAT d. Withholding of final VAT on sales to government
to pay to the seller with the indication that such amount of icial receipt for a VAT-exempt transaction, but fails to display
The Government or any of its political subdivisions,
includes the VAT; Provided, That: prominently on the invoice or receipt the term 'VAT exempt
instrumentalities or agencies, including GOCCs shall, before making
a) The amount of tax shall be shown as a separate item sale', the issuer shall be liable to account for the tax imposed
payment on account of each purchase of goods and services which
in the invoice or receipt; in section 106 or 108 as if Section 109 did not apply.
are subject to the VAT imposed in Sections 106 and 108 of this
b) If the sale is exempt from VAT, the term “VAT-exempt CIR v. Euro-Philippines Airline Services 2018 Code, deduct and withhold a inal VAT at the rate of ive percent
sale” shall be written or printed prominently on the (5%) of the gross payment thereof:
Nowhere in Sec 113 is a presumption created by law that the
invoice or receipt; non-imprintment of the word "zero rated" deems the transaction Provided, That beginning January 1, 2021, the VAT withholding
c) If the sale is subject to zero percent (0%) VAT, the term subject to 12 % VAT. system under this Subsection shall shift from inal to a
“zero-rated sale” shall be written or printed Thus, in this case, failure to comply with invoicing requirements as creditable system:
prominently on the invoice or receipt; mandated by law does not deem the transaction subject to 12% VAT. Provided, further, That the payment for lease or use of properties or
d) xxxx property rights to nonresident owners shall be subject to
c. Filing of returns and payment
twelve percent (12%) withholding tax at the time of payment.
3) The date of transaction, quantity, unit cost and description Every person liable to pay VAT shall ile a quarterly return of the
of the goods or properties or nature of the service; and ➔ The payor or person in control of the payment shall be
amount of his gross sales or receipts within twenty- ive (25) days
considered as the withholding agent.
4) In the case of sales in the amount of one thousand pesos following the close of each taxable quarter prescribed for each
(P1,000.00) or more where the sale or transfer is made to taxpayer: ➔ The 5% inal VAT shall represent the net VAT payable of the
a VAT-registered person, the name, business style, if any, seller.
Provided, however, That VAT-registered persons shall pay the VAT
address and TIN of the purchaser, customer or client, shall
on a monthly basis: ➔ The remaining 7% effectively accounts for the standard input
be indicated in addition to the information required in (1) VAT, in lieu of the actual input VAT directly attributable or
and (2) of this Section. Provided, inally, That beginning January 1, 2023, the iling and ratably apportioned to such sales.
payment required under this Subsection shall be done within
Consequence of Issuing Erroneous VAT Invoice or VAT Of icial ➔ Should actual input VAT attributable to sales to the government
twenty- ive (25) days following the close of each taxable quarter.
Receipt. — exceed 7% of the gross payments, the excess may form
1) If a person who is NOT a VAT-registered person issues an Any person, whose registration has been cancelled in accordance part of the sellers’ expense or cost.
with Section 236, shall ile a return and pay the tax due thereon
invoice or receipt showing his Taxpayer Identi ication Number ➔ On the other hand, if actual input VAT is less than 7% of gross
within twenty- ive (25) days from the date of cancellation of
(TIN), followed by the word "VAT"; payment, the difference must be closed to expense or cost.
registration:
a) The issuer shall, in addition to any liability to other e. Administrative and penal sanctions
percentage taxes, be liable to: Provided, That only one consolidated return shall be iled by the
taxpayer for his principal place of business or head of ice and all The Commissioner or his authorized representative is empowered to
1. The tax imposed in Section 106 or 108 without the
branches. suspend the business operations and temporarily close the
bene it of any input tax credit; and business establishment of any person for any of the following
The return shall be iled with and the tax paid to an authorized agent
2. A 50% surcharge under Section 248(B) of this Code; violations:
bank, Revenue Collection Of icer or duly authorized city or
b) The VAT shall, if the other requisite information required municipal Treasurer in the Philippines located within the revenue a) In the case of a VAT-registered Person. —
under Subsection (B) hereof is shown on the invoice or district where the taxpayer is registered or required to 1) Failure to issue receipts or invoices;
receipt, be recognized as an input tax credit to the register.
purchaser under Section 110 of this Code. 2) Failure to ile a VAT return as required under Section 114;
or

lOMoARcPSD|4853470
3) Understatement of taxable sales or receipts by thirty EXC: The party who bears the economic burden is allowed if the law
percent (30%) or more of his correct taxable sales or grants such party an exemption from BOTH direct and indirect Chevron, being the statutory taxpayer, paid the excise taxes on its
receipts for the taxable quarter. importation of the petroleum products.
taxes.
b) Failure of any Person to Register as Required under Sec 236. Chevron Philippines v. CIR 2015 SEC. 135. Petroleum Products Sold to International Carriers and
Exempt Entities or Agencies. — Petroleum products sold to the
The temporary closure of the establishment shall be for the duration of Excise tax on petroleum products is essentially a tax on following are exempt from excise tax:
not less than ive (5) days and shall be lifted only upon compliance property, the direct liability for which pertains to the statutory
with whatever requirements prescribed by the Commissioner in the taxpayer (i.e., manufacturer, producer or importer). Any excise tax xxxx
closure order. paid by the statutory taxpayer on petroleum products sold to any of
the entities or agencies named in Section 135 of the NIRC exempt (c) Entities which are by law exempt from direct and indirect
F. PERCENTAGE TAXES from excise tax is deemed illegal or erroneous, and should be taxes.
credited or refunded to the payor pursuant to Section 204 of the NIRC.
Pursuant to Section 135(c), supra, petroleum products sold to
Any person This is because the exemption granted under Section 135 of the NIRC
entities that are by law exempt from direct and indirect taxes are
must be construed in favor of the property itself, that is, the
1. whose sales or receipts are exempt under Section 109 (BB) exempt from excise tax.
petroleum products.
of this Code from the payment of VAT and
As a duly-registered enterprise in the CSEZ, CDC has been exempt
WON Chevron was entitled to the tax refund or the tax credit for the
2. who is NOT a VAT-registered person. from paying direct and indirect taxes pursuant to Section 24 of RA
excise taxes paid on the importation of petroleum products that it
No. 7916, in relation to Section 15 of RA No. 9400.
shall pay a tax equivalent to three percent (3%) of his gross had sold to CDC in 2007.
quarterly sales or receipts: Inasmuch as its liability for the payment of the excise taxes accrued
YES. The excise taxes that Chevron paid on its importation of
immediately upon importation and prior to the removal of the
Provided, That cooperatives shall be exempt from the three petroleum products subsequently sold to CDC were illegal and
petroleum products from the customshouse, Chevron was bound to
percent (3%) gross receipts tax. erroneous, and should be credited or refunded to Chevron in
pay, and actually paid such taxes. But the status of the petroleum
accordance with Section 204 of the NIRC.
products as exempt from the excise taxes would be con irmed
only upon their sale to CDC in 2007. Before then, Chevron did not
G. EXCISE TAX Under Section 129 of the NIRC, as amended, excise taxes are imposed
on two kinds of goods, namely: have any legal basis to claim the tax refund or the tax credit as to the
petroleum products.
Excise taxes apply to goods manufactured or produced in the
a) goods manufactured or produced in the Philippines for
Philippines for domestic sales or consumption or for any other Consequently, the payment of the excise taxes by Chevron upon its
domestic sales or consumption or for any other disposition;
disposition and to things imported as well as services performed in and importation of petroleum products was deemed illegal and erroneous
the Philippines. The excise tax imposed shall be in addition to VAT. b) things imported. upon the sale of the petroleum products to CDC. Section 204 of the
NIRC explicitly allowed Chevron as the statutory taxpayer to claim
Excise taxes herein imposed and based on weight or volume the refund or the credit of the excise taxes thereby paid.
Undoubtedly, the excise tax imposed under Section 129 of the NIRC is
capacity or any other physical unit of measurement shall be a tax on property. With respect to imported things, Section 131 of the
referred to as 'speci ic tax' and an excise tax herein imposed and NIRC declares that excise taxes on imported things shall be paid by H. DOCUMENTARY STAMP TAX
based on selling price or other speci ied value of the good or the owner or importer to the Customs of icers, conformably with the
service performed shall be referred to as 'ad valorem tax.' regulations of the DOF and before the release of such articles from Upon documents, instruments, loan agreements and papers, and
the customs house, unless the imported things are exempt from
Who is allowed to ile a claim for tax refund/credit? upon acceptances, assignments, sales and transfers of the
excise taxes and the person found to be in possession of the same is
obligation, right or property incident thereto, there shall be levied,
GR: The statutory taxpayer and not the party who only bears the other than those legally entitled to such tax exemption. For this
purpose, the statutory taxpayer is the importer of the things collected and paid for, and in respect of the transaction so had or
economic burden. accomplished, the corresponding documentary stamp taxes by
subject to excise tax.
the person making, signing, issuing, accepting, or transferring the

lOMoARcPSD|4853470
same wherever the document is made, signed, issued, accepted or instance or for the use or bene it of the person iling Provided, That for purposes of this exemption, repurchase
transferred when the obligation or right arises from Philippine them; agreements and reverse repurchase agreements shall be treated
sources or the property is situated in the Philippines, and the same vi) certi ied copies and other certi icates placed upon similarly as derivatives.
time such act is done or transaction had: documents, instruments and papers for the national, i) Interbank or interdepartmental advances within the same legal
Provided, That whenever one party to the taxable document enjoys provincial, city, or municipal governments, made at entity.
exemption from the tax herein imposed, the other party who is not the instance and for the sole use of some other branch
j) All forbearances arising from sales or service contracts
exempt shall be the one directly liable for the tax. of the national, provincial, city or municipal
governments; and including credit card and trade receivables:
The following instruments, documents and papers shall be
vii) certi icates of the assessed value of lands, not Provided, That the exemption be limited to those executed by
exempt from the documentary stamp tax: the seller or service provided.
exceeding Two hundred pesos (P200) in value
a) Policies of insurance or annuities made or granted by a k) Bank deposit accounts without a ixed term or maturity.
assessed, furnished by the provincial, city or
fraternal or bene iciary society, order, association or municipal Treasurer to applicants for registration of l) All contracts, deeds, documents, documents and transactions
cooperative company, operated on the lodge system or local title to land.
cooperation plan and organized and conducted solely by the related to the conduct of business of the Bangko Sentral ng
members thereof for the exclusive bene it of each member and
c) Borrowing and lending of securities executed under the Pilipinas.
not for pro it. Securities Borrowing and Lending Program of a registered m) Transfer of property pursuant to Section 40 (C) (2) of the
exchange, or in accordance with regulations prescribed by the NIRC, as amended.
b)
appropriate regulatory authority.
i) Certi icates of oaths administered to any n) Interbank call loans with maturity of not more than seven (7)
d) Loan agreements or promissory notes, the aggregate of
government of icial in his of icial capacity or of days to cover de iciency in reverses against deposit liabilities
which does not exceed Two hundred ifty thousand pesos including those between or among banks and quasi-banks.
acknowledgment by any government of icial in the (P250,000) or any such amount as may be determined by the
performance of his of icial duties, written appearance Secretary of Finance, executed by an individual for his purchase Effect of Failure to Stamp Taxable Document. — An instrument,
in any court by any government of icial, in his of icial on installment for his personal use or that for his family document or paper which is required by law to be stamped and which
capacity; and not for business or resale, barter or hire of a house, lot, has been signed, issued, accepted or transferred without being duly
ii) certi icates of the administration of oaths to any motor vehicle, appliance or furniture. stamped, shall not be recorded, nor shall it or any copy thereof or any
person as to the authenticity of any paper required to record of transfer of the same be admitted or used in evidence in
e) Sale, barter or exchange of shares of stock listed and traded
be iled in court by any person or party thereto, any court until the requisite stamp or stamps are af ixed thereto and
through the local stock exchange.
whether the proceedings be civil or criminal; cancelled.
f) Assignment or transfer of any mortgage, lease or policy of
iii) papers and documents iled in courts by or for the No notary public or other of ice authorized to administer oaths shall
insurance, or the renewal or continuance of any agreement,
national, provincial, city or municipal governments; add his jurat or acknowledgment to any document subject to
contract, charter, or any evidence of obligation or indebtedness,
documentary stamp tax unless the proper documentary stamps are
iv) af idavits of poor persons for the purpose of proving if there is no change in the maturity date or remaining period of
af ixed thereto and cancelled.
poverty; coverage from that of the original instrument.
v) statements and other compulsory information g) Fixed income and other securities traded in the secondary Michel J. Lhuillier Pawnshop, Inc. v. CIR
required of persons or corporations by the rules and market or through an exchange. This resolves petitioner's motion for reconsideration of the May 3,
regulations of the national, provincial, city or h) Derivatives: 2006 Decision of the Court holding that contracts of pledge entered
municipal governments exclusively for statistical into by pawnshops are subject to Documentary Stamp Tax (DST). We
purposes and which are wholly for the use of the ruled therein that DST is essentially an excise tax; it is not an
bureau or of ice in which they are iled, and not at the imposition on the document itself but on the privilege to enter into

lOMoARcPSD|4853470
a taxable transaction of pledge. security or indebtedness. However, for purposes of taxation, the the documentary stamp tax due on the accounts. Thus, the DST on the
same pawn ticket is proof of an exercise of a taxable privilege of special savings account is covered by RA 9480.
The gist of the motion for reconsideration is that before an exercise of concluding a contract of pledge.
a taxable privilege may be subject to DST, it is indispensable that Manila Bankers' Life Insurance Corp. v. CIR 2019
the transaction must be embodied in and evidenced by a CIR v. The Insular Life Assurance Co. Ltd. 2014
document. Since a pawn ticket as de ined in PD No. 114 or the CTA held
Pawnshop Regulation Act is merely the pawnbrokers' receipt for a WON the CTA En Banc erred in ruling that respondent is a a) ✔ that Documentary Stamp Taxes (DSTs) paid on the
pawn and not a security nor a printed evidence of indebtedness, it cooperative and is thus exempt from DST. insurance policies are not considered "costs of service" in
cannot be considered as among the documents subject to DST. the MCIT computation;
NO. The NIRC of 1997 de ined a cooperative company or
association as “conducted by the members thereof with the money b) ✔ that the DST may be assessed on the increase in the
Section 195 of the NIRC imposes a DST on every pledge regardless
collected from among themselves and solely for their own protection assured coverage of an insurance policy, even when no new
of whether the same is a conventional pledge governed by the Civil
and not for pro it.” Consequently, as long as these requisites are policy is issued;
Code or one that is governed by the provisions of P.D. No. 114.
satis ied, a company or association is deemed a cooperative insofar c) that MBLIC belatedly raised the defense of prescription; and
For purposes of Section 195, pawnshop tickets need not be an as taxation is concerned. d) ✔ that compromise penalties cannot be imposed.
evidence of indebtedness nor a debt instrument because it taxes
The Court presented three justi ications in Sunlife why registration DSTs are NOT deductible costs of services
the same as a pledge instrument. Neither should the de inition of
pawnshop ticket, as not a security, exempt it from the imposition of with the CDA is NOT necessary for cooperatives to claim exemption DST is incurred "by the person making, signing, issuing, accepting, or
DST. It was correctly de ined as such because the ticket itself is not from DST. transferring" the document subject to the tax. And since a contract of
the security but the pawn or the personal property pledged to the insurance is mutual in character, either the insurer or the insured
First, the NIRC of 1997 does not require registration with the may shoulder the cost of the DST.
pawnbroker.
CDA.
In this case, it was duly noted by the CTA that MBLIC never disputed
No law on legal hermeneutics could change the fact that the entries charging DSTs from its clients as part of their premiums. Hence, it
Second, the provisions of the Cooperative Code of the
contained in a pawnshop ticket spell out a contract of pledge and that cannot readily be said that it was MBLIC who "necessarily incurred"
Philippines do not apply.
the exercise of the privilege to conclude such a contract is taxable the expense. Moreover, DSTs cannot also qualify as direct costs "to
under Section 195 of the NIRC. Nothing in P.D. No. 114 exempts Third, the Insurance Code does not require registration with the provide the services required by the customers and clients" since,
pawnshops or pawnshop tickets from DST. CDA. just like premium taxes, they are incurred AFTER the service had
been rendered.
Nevertheless, all is not lost for petitioner. The settled rule is that There being no cogent reason for the Court to deviate from its ruling
good faith and honest belief that one is not subject to tax on the basis Liability for DST
in Sunlife, the Court holds that the respondent, being a cooperative
of previous interpretation of government agencies tasked to company not mandated by law to be registered with the CDA, cannot DST becomes due at the same time the insurance policy is executed
implement the tax law, are suf icient justi ication to delete the be required under RMC No. 48-91, a mere circular, to be registered or had. However, an insurance contract may again attract DST at the
imposition of surcharges and interest. prior to availing of DST exemption. same rate when it is
a) assigned or transferred, or
Tambunting Pawnshop, Inc. v. CIR 2010 ING Bank v. CIR 2016 Resolution Leonen, J
b) renewed or continued by alteration or otherwise.
In dodging liability for documentary stamp tax on its pawn tickets, As a party to a taxable transaction, petitioner is responsible for the Under the latter circumstance, an alteration of the policy may result
petitioner argues that such tickets are neither securities nor printed payment and remittance of the documentary stamp tax. However, if in attracting DST, though no new policy is issued. MBLIC is then
evidence of indebtedness. The argument fails. petitioner were exempt from the tax, it should be required to remit mistaken in its claim that it can only be liable under Section 183
A Documentary Stamp Tax is an excise tax on the exercise of a right the same only as a collecting agent of respondent. whenever a new policy is issued. For the pivotal question is not the
or privilege to transfer obligations, rights or properties incident issuance or non-Issuance of a new policy, but whether or not an
thereto. Pledge is among the privileges, the exercise of which is Here, there is no proof that petitioner is exempt from the increase in the assured amount amounted to a renewal or
subject to DST. documentary stamp tax on the special savings accounts. Neither is continuance by alteration or otherwise.
there any agreement/evidence on record showing the party liable for
True, the law does not consider a pawn ticket as an evidence of Increases in the amount ixed in the policy by virtue of the automatic

lOMoARcPSD|4853470
false, incomplete or erroneous, the Commissioner unauthorized person will render the assessment VOID for
increase clause necessarily altered or affected the subject policies,
and therefore, created or granted existing policyholders new and shall assess the proper tax on the best evidence violation of the due process requirement.
additional rights. obtainable.
6) Filing of administrative protest by the taxpayer against
b) Net worth method of investigation — this method the assessment. — The taxpayer has 30 days from receipt of
I. TAX REMEDIES UNDER THE NIRC is supported by Sec 43 of the NIRC which allows the LD/FAN to ile a protest.
CIR to use any method of computation or accounting
Type of Remedies The taxpayer may protest part of the LD/FAN, in which case,
which would more clearly re lect the income of the
those undisputed issues may be duly collected.
1) Summary — remedies at the administrative level that are taxpayer.
executed without ceremony or delay; short or concise; No action shall be taken on the disputed issues until the taxes
2) Preparation of tentative indings and holding of informal
on the undisputed issues have been fully paid.
2) Substantive — remedies provided for by law or regulation; an conference;
essential part or constituent or relating to what is essential; The prescriptive period for assessment or collection of the tax
3) Issuance of Preliminary Assessment Notice (PAN) — the
attributable to the disputed issues shall be suspended.
3) Procedural — remedies involving law of pleading, evidence, Assessment Division or the CIR shall issue by registered mail,
jurisdiction, etc.; a PAN, if there exists suf icient basis to assess the taxpayer for The taxpayer should state the facts, applicable law, rules,
any de iciency tax. regulations, or jurisprudence on which his protest is based;
4) Administrative — remedies available at the administrative
otherwise, protest is deemed void.
level; The PAN shall show the facts and the law, rules and regulations,
or jurisprudence on which the proposed assessment is based. Failure to ile a valid protest within the 30-day period shall
5) Judicial — remedies that are enforced through judicial action,
make the assessment inal, executory and demandable.
which may be civil or criminal. The taxpayer is given 15 days from receipt of PAN to reply.
7) Submission of documentary evidence and arguments. —
1. Assessment of internal revenue taxes Failure to respond within said time, the taxpayer shall be
The taxpayer shall submit the required documents in support
considered in default.
An assessment is the notice to the effect that the amount therein stated of his protest within 60 days from date of iling of protest;
is due from a taxpayer as a tax with a demand for payment of the same A formal letter of demand and assessment shall then be issued, otherwise, the assessment shall become inal, executory and
within the stated period of time. To assess means to impose a tax. calling for payment of the de iciency tax liability + penalties. demandable.
Assessment Process 4) Reply — To contest in writing the indings contained in a PAN. If the protest is denied, appeal to the CTA within 30 days from
receipt of decision.
1) Self-assessment by taxpayer; REPLY PROTEST
8) Denial of protest. — Generally, appeal is to be taken to the
2) Filing of tax return; 15 days from receipt of PAN 30 days from receipt of FAN CTA. But if the taxpayer appeals the adverse decision of the
3) Payment of the entire tax due. duly authorized representative of the CIR to the CIR, then the
Usually done by the taxpayer Needs legal assistance
decision is not yet inal, executory, and demandable.
Role of the government in the assessment process
Directory Mandatory 9) Appeal by the taxpayer of the inal decision of the CIR or
1) Examination of books of accounts and other accounting records
his authorized representative on the disputed
of taxpayers; Failure makes the FAN inal and
Failure makes the taxpayer in assessment to the CTA. — The CIR has 180 days from
executory — taxpayer loses right
a) Best evidence obtainable — When a report required default — no liability for submission of required documents to act on the protest. If the
to contest the assessment both at
by law as a basis for the assessment of any national additional or de iciency tax CIR fails to act during said period, the taxpayer has 30 days
the admin and judicial levels.
internal revenue tax shall not be forthcoming within from the lapse of the 180 day period to appeal to the CTA.
the time ixed by laws or rules and regulations or 5) Issuance of Formal Assessment Notice (FAN) and Letter of
when there is reason to believe that any such report is Demand (LD) — The invalid service of LD/FAN to an

lOMoARcPSD|4853470
against the estimated tax liabilities for the taxable

a. Procedural due process in tax assessments (R.R.) No. 12-99 tantamount to a denial of due process? Speci ically,
quarter or quarters of the succeeding taxable year; or are the requirements of due process satis ied if only the FAN stating
1) Notice of informal conference the computation of tax liabilities and a demand to pay within the
d) When the excise tax due on excisable articles has not
Revenue Of icer been paid; or prescribed period was sent to the taxpayer?
a. Informs the taxpayer of his indings as well as the factual e) When the article locally purchased or imported by an PAN is MANDATORY. Section 228 of the Tax Code clearly requires
and legal bases after the completion of his tax audit in an exempt person, such as, but not limited to, vehicles, that the taxpayer must irst be informed that he is liable for
informal meeting; de iciency taxes through the sending of a PAN. He must be informed
capital equipment, machineries and spare parts, has
of the facts and the law upon which the assessment is made. The law
b. Prepares report of examination based on the results of been sold, traded or transferred to non-exempt
imposes a substantive, not merely a formal, requirement. To proceed
meeting; persons. heedlessly with tax collection without irst establishing a valid
Assessment is NULL and VOID for having been issued on the assessment is evidently violative of the cardinal principle in
c. Submits written report to Revenue District Of icer. administrative investigations - that taxpayers should be able to
day the PAN was received by the taxpayer, or within 15 days
2) Post-reporting Notice present their case and adduce supporting evidence.
from receipt of the PAN.
Revenue District Of icer — 15 days CIR v. Metro Star Superama, Inc. 2010 on mandatoriness of PAN The sending of a PAN to taxpayer to inform him of the assessment
made is but part of the "due process requirement in the issuance of a
a. Taxpayer submits written explanations on indings; Jurisprudence is replete with cases holding that if the taxpayer denies de iciency tax assessment," the absence of which renders
b. RDO forwards report to Assessment Division. ever having received an assessment from the BIR, it is incumbent nugatory any assessment made by the tax authorities.
upon the latter to prove by competent evidence that such notice was
3) Preliminary Assessment Notice (PAN) indeed received by the addressee. The persuasiveness of the right to due process reaches both
substantial and procedural rights and the failure of the CIR to strictly
Chief, Assessment Division — 15 days The facts to be proved to raise this presumption are comply with the requirements laid down by law and its own rules is
a denial of Metro Star's right to due process. Thus, for its failure to
a. Taxpayer submits written explanations on indings; a) that the letter was properly addressed with postage prepaid, send the PAN stating the facts and the law on which the assessment
b. The Chief prepares assessment notice and demand letter and was made as required by Section 228 of R.A. No. 8424, the
for approval by the RD. b) that it was mailed. assessment made by the CIR is VOID.
GR: PAN is REQUIRED to be issued by the BIR Once these facts are proved, the presumption is that the letter was CIR v. Nippo Metal Tech Philippines, Inc 2019
received by the addressee as soon as it could have been transmitted
EXC: to him in the ordinary course of the mail. But if one of the said facts By disregarding the 15-day period provided by law, the CIR utterly
fails to appear, the presumption does not lie. deprived respondent of the opportunity to contest the PAN and
a) When the inding for any de iciency tax is the result of
present evidence in support thereto before an FLD/FAN was issued.
mathematical error in the computation of the tax as The Court agrees with the CTA that the CIR failed to discharge its duty
appearing on the face of the return; or and present any evidence to show that Metro Star indeed received the Clearly, due process demands that the taxpayer receives the PAN and
PAN dated January 16, 2002. It could have simply presented the that he is given the opportunity to respond thereto.
b) When a discrepancy has been determined between
registry receipt or the certi ication from the postmaster that it
the tax withheld and the amount actually remitted by mailed the PAN, but failed. Neither did it offer any explanation on CIR v. Enron Subic Power
the withholding agent; or why it failed to comply with the requirement of service of the PAN. It
merely accepted the letter of Metro Star's chairman dated April 29, Section 228 of the NIRC provides that the taxpayer shall be informed
c) When a taxpayer who opted to claim a refund or tax in writing of the law and the facts on which the assessment is made.
2002, that stated that he had received the FAN dated April 3, 2002, but
credit of excess creditable withholding tax for a Otherwise, the assessment is void. The use of the word "shall" in
not the PAN.
taxable period was determined to have carried over these legal provisions indicates the mandatory nature of the
and automatically applied the same amount claimed Is the failure to strictly comply with notice requirements prescribed requirements laid down therein.
under Section 228 of the NIRC of 1997 and Revenue Regulations

lOMoARcPSD|4853470
and submitting such proof as may be necessary. That letter is Assessment Notice. Thus, the petition should have been iled on
The advice of tax de iciency, given by the CIR to an employee of considered as the taxpayer's request for reconsideration of the December 6, 2006 and not on October 31, 2007.
Enron, as well as the preliminary ive-day letter, were not valid delinquent assessment. After the request is iled and received by the
substitutes for the mandatory notice in writing of the legal and BIR, the assessment becomes a disputed assessment on which it Since petitioner did not submit additional relevant documents in
factual bases of the assessment. These steps were mere must render a decision. That decision is appealable to the CTA for support of its protest, the 180-day period within which respondent
perfunctory discharges of the CIR's duties in correctly assessing review. should act on the protest should be reckoned from the iling of
a taxpayer. petitioner's protest on May 10, 2006. Accordingly, respondent had
Prior to the decision on a disputed assessment, there may still be until November 6, 2006 within which to act on the protest.
The law requires that the legal and factual bases of the exchanges between the commissioner of internal revenue (CIR) and Respondent failed to act on the protest on or before November 6,
assessment be stated in the formal letter of demand and the taxpayer. The former may ask clari icatory questions or require 2006. Thus, petitioner had thirty days from November 6, 2006 or
assessment notice. Thus, such cannot be presumed. Otherwise, the the latter to submit additional evidence. However, the CIR's position until December 6, 2006 within which to appeal respondent's inaction
express provisions of Article 228 of the NIRC and RR No. 12-99 regarding the disputed assessment must be indicated in the inal before the CTA.
would be rendered nugatory. The alleged "factual bases" in the advice, decision. It is this decision that is properly appealable to the CTA for
preliminary letter and "audit working papers" did not suf ice. review. Following this Court's ruling in CIR v. Isabela Cultural Corporation,
the CTA En Banc considered the Final Notice Before Seizure as CIR's
4) Formal Assessment Notice (FAN) and Letter of Demand The Final Notice Before Seizure cannot but be considered as the action on PDCI's protest and reckoned the thirty-day period for
commissioner's decision disposing of the request for appeal from PDCI's receipt thereof.
Regional Director — three (3) years from date of iling of reconsideration iled by respondent, who received no other response
return or 10 years from date of iling false or fraudulent to its request. Not only was the Notice the only response received; its As the Final Notice After Seizure is the inal decision on its protest,
return. content and tenor supported the theory that it was the CIR's inal act PDCI's subsequent motions for reconsideration thereafter iled did
regarding the request for reconsideration. The very title expressly not toll the running of the thirty-day period for appeal to the CTA.
a. RD signs assessment notice and demand letter;
indicated that it was a inal notice prior to seizure of property. The
b. He causes to be released and mailed FAN/DL, or personal letter itself clearly stated that respondent was being given "this LAST 5) Protest letter
service thereof to taxpayer. OPPORTUNITY" to pay; otherwise, its properties would be subjected
a. Taxpayer iles request for reinvestigation or motion for
to distraint and levy. How then could it have been made to believe
CIR v. Isabela Cultural Corp. reconsideration within 30 days from receipt of FAN/DL;
that its request for reconsideration was still pending determination,
despite the actual threat of seizure of its properties? b. He submits additional documentary evidence within 60
A inal demand letter from the Bureau of Internal Revenue,
reiterating to the taxpayer the immediate payment of a tax days from submission of protest letter.
Lastly, jurisprudence dictates that a inal demand letter for payment
de iciency assessment previously made, is tantamount to a of delinquent taxes may be considered a decision on a disputed or 6) Reinvestigation
denial of the taxpayer's request for reconsideration. Such letter protested assessment. In the instant case, the second notice received
amounts to a inal decision on a disputed assessment and is by private respondent verily indicated its nature - that it was inal. a. BIR evaluates the legal and factual arguments;
thus appealable to the CTA (CTA). Unequivocably, therefore, it was tantamount to a rejection of the b. Reiterates original indings or revises report of
request for reconsideration.
Whether or not the Final Notice Before Seizure dated February 9, examination and submits it to RDO until it reaches the RD.
1995 signed by Acting Chief Revenue Collection Of icer Milagros
Philippine Dream Company, Inc. v. CIR 2020 7) Denial of Protest by RD
Acevedo against ICC constitutes the inal decision of the CIR
appealable to the CTA. Did PDCI timely ile its appeal? 180 days from date of iling protest or submission of
documentary evidence by taxpayer.
In the normal course, the revenue district of icer sends the taxpayer a NO. PDCI mistakenly computed the period of appeal. Having chosen
notice of delinquent taxes, indicating the period covered, the amount the remedy of appeal against the CIR's supposed inaction on its 8) Administrative Appeal to CIR of decision of RD
due including interest, and the reason for the delinquency. If the protest, PDCI should have reckoned its thirty-day period for appeal
taxpayer disagrees with or wishes to protest the assessment, it sends 9) Denial of Protest or Inaction by CIR within 180 day period
from the lapse of one hundred eighty (180) days from the time it
a letter to the BIR indicating its protest, stating the reasons therefor, iled its protest against the Final Letter of Demand and RCBC v. CIR

lOMoARcPSD|4853470
quarter or year or to render the same totally or partly

In case the CIR failed to act on the disputed assessment within the from receipt. Otherwise, the penalties and interests begin to
180-day period from date of submission of documents, a taxpayer ineffective unless such proceedings are begun
Commissioner of Internal accrue against the taxpayer.
can either: immediately; Revenue will inalize an
2) De iciency tax liability arising from a tax audit conducted by assessment and issue a FAN. Failure to ile an administrative
1) ile a petition for review with the CTAwithin 30 days after
protest within 30 days from
the expiration of the 180-day period; or the BIR;
receipt of the FAN will render the
2) await the inal decision of the CIR on the disputed 3) Tax lien — If any person liable to pay an internal revenue tax, assessment inal, executory, and
assessments and appeal such inal decision to the CTA neglects or refuses to pay the same after demand, the amount demandable.
within 30 days after receipt of a copy of such decision. shall be a lien in favor of the Government of the Philippines
b. Requisites of a valid assessment
However, these options are mutually exclusive, and resort to one from the time when the assessment was made by the CIR;
bars the application of the other. 1) The Final Assessment Notice (FAN) contains
4) Dissolving corporation — Every corporation shall, within
In the instant case, the Commissioner failed to act on the disputed thirty (30) days after the adoption by the corporation of a a) the name, address, and TIN of the taxpayer;
assessment within 180 days from date of submission of documents. resolution or plan for its dissolution, or for the liquidation of
b) the kind of tax, period covered, basic tax, and
Thus, petitioner opted to ile a petition for review before the CTA. the whole or any part of its capital stock, including a
penalties;
Unfortunately, the petition for review was iled out of time, i.e., it was corporation which has been noti ied of possible involuntary
iled more than 30 days after the lapse of the 180-day period. dissolution by the SEC, or for its reorganization, render a c) signed by the authorized BIR of icial, and
Consequently, it was dismissed by the CTA for late iling. Petitioner
correct return to the CIR, veri ied under oath, setting forth the d) the date of payment of the tax.
did not ile a motion for reconsideration or make an appeal; hence,
terms of such resolution or plan.
the disputed assessment became inal, demandable and executory.
The Demand Letter (DL) contains
The dissolving or reorganizing corporation shall, prior to the
After availing the irst option, i.e., iling a petition for review which a) the computation of the de iciency tax, including
issuance by the SEC of the Certi icate of Dissolution or
was however iled out of time, petitioner can not successfully resort penalties, if any;
to the second option, i.e., awaiting the inal decision of the Reorganization, as may be de ined by rules and regulations
Commissioner and appealing the same to the CTA, on the pretext that prescribed by the Secretary of Finance, upon recommendation b) the factual and legal bases of the assessment; and
there is yet no inal decision on the disputed assessment because of of the CIR, secure a certi icate of tax clearance from the BIR
the Commissioner's inaction. which certi icate shall be submitted to the SEC. c) the demand for payment of the tax.
PAN vs FAN 2) The FAN/DL must be issued on account of or covered by a

10) Appeal to CTA by taxpayer — 30 days from receipt.
validly issued letter of authority;
PAN FAN
GR: Taxes are SELF-ASSESSING.
An LOA is the authority given to the appropriate revenue of icer
EXC: Merely informs the taxpayer of Contains not only a computation assigned to perform assessment functions. A Letter Notice (LN)
the initial indings of the BIR. of tax liabilities but also a cannot be converted into an LOA. An LN is merely a notice of
1) Tax period of a taxpayer is terminated — When it shall demand for payment within a audit or investigation only for the purpose of disqualifying the
come to the knowledge of the CIR that a taxpayer is It contains the proposed prescribed period.
taxpayer from amending his returns.
assessment, and the facts, law,
a) retiring from business subject to tax, or
rules, and regulations or As soon as it is served, an Medicard Philippines v. CIR 2017 re LOA vs LN
b) intending to leave the Philippines or to remove his jurisprudence on which the obligation arises on the part of
proposed assessment is based. the taxpayer concerned to pay The following differences between an LOA and LN are crucial.
property therefrom or to hide or conceal his property,
or the amount assessed and 1. First, an LOA addressed to a revenue of icer is speci ically
It does not contain a demand for demanded. required under the NIRC before an examination of a taxpayer
c) performing any act tending to obstruct the proceedings payment but usually requires the may be had while an LN is not found in the NIRC and is only
for the collection of the tax for the past or current taxpayer to reply within 15 days It also signals the time when for the purpose of notifying the taxpayer that a discrepancy

lOMoARcPSD|4853470
validly agreed between the BIR and the taxpayer; and served by 2) The de iciency tax assessed by the BIR became inal and
is found based on the BIR's RELIEF System.
personal delivery or by registered mail; and executory.
2. Second, an LOA is valid only for 30 days from date of issue
while an LN has no such limitation. 6) Must be addressed and served to the correct person in his The term 'de iciency' means:
3. Third, an LOA gives the revenue of icer only a period of 120 registered or duly noti ied new address.
1) The amount by which the tax imposed exceeds the amount
days from receipt of LOA to conduct his examination of the Forms of Assessment shown as the tax by the taxpayer upon his return; but the
taxpayer whereas an LN does not contain such a limitation.
1) Formal Assessment Notice or FAN; amount so shown on the return shall be increased by the
CIR v. Fitness by Design, Inc 2016 Leonen, J amounts previously assessed (or collected without
2) Informal written notice. — An assessment may also be assessment) as a de iciency, and decreased by the amount
To avail of the extraordinary period of assessment in Section 222(a) in the form of a letter or other less formal communications previously abated, credited, returned or otherwise repaid in
of the NIRC, the CIR should show that the facts upon which the fraud to the taxpayer. The noti ication must contain an outright respect of such tax; OR
is based is communicated to the taxpayer. The burden of proving that demand for payment of the amount alleged to be due in
the facts exist in any subsequent proceeding is with the CIR. 2) If no amount is shown as the tax by the taxpayer upon this
order to constitute an assessment.
Furthermore, the Final Assessment Notice is not valid if it does return, or if no return is made by the taxpayer, then the amount
not contain a de inite due date for payment by the taxpayer. Signi icance of Assessment — It is relevant by which the tax exceeds the amounts previously assessed (or
Here, the disputed Final Assessment Notice is not a valid collected without assessment) as a de iciency; but such
1) In the proper pursuit of judicial and extrajudicial remedies
assessment. amounts previously assessed or collected without assessment
to enforce tax liabilities and other charges;
First, it lacks the de inite amount of tax liability for which shall irst be decreased by the amounts previously abated,
respondent is accountable. It does not purport to be a demand for 2) In the application of statutes of limitations; credited returned or otherwise repaid in respect of such tax.
payment of tax due, which a inal assessment notice should
3) In the establishment of tax liens; and Remedies in the collection of de iciency and delinquency tax
supposedly be. Although the disputed notice provides for the
computations of respondent's tax liability, the amount remains 4) In estimating the revenues that may be collected by the Delinquent De icient
inde inite. It only provides that the tax due is still subject to government in the coming year.
modi ication, depending on the date of payment.
Can immediately be collected
When is a tax assessment made or deemed made?
✔
Second, there are no due dates in the Final Assessment Notice. This administratively through the Has to go through
negates petitioner's demand for payment. 1) Issue Date — NOT the reckoning point in prescription. issuance of warrant of distraint protest
and levy, and/or judicial action
2) ✓ Date of Service or Mailing — Assessment is deemed
Compliance with Section 228 of the NIRC is a substantive
requirement. It is not a mere formality. Providing the taxpayer with
the factual and legal bases for the assessment is crucial before made when notice is released or mailed to the correct May be dismissed
proceeding with tax collection. Tax collection should be premised on taxpayer.
Filing of civil action for the
✔ during pendency
collection in ordinary court
a valid assessment, which would allow the taxpayer to present his or of protest
3) Date of Receipt — The law does not require that the
her case and produce evidence for substantiation.
demand or notice be received within the prescriptive Subject to administrative
3) Must state the factual and legal bases of the assessment and period. penalties such as 25%
✔ NOT subject to
surcharge, interest and 25% surcharge
jurisprudence on which it is based; otherwise it shall be void; c. Tax delinquency and tax deficiency compromise penalty
4) Must be signed by the CIR or his duly authorized A taxpayer is delinquent in the payment of his tax when
representative; d. Prescriptive period for assessment
1) The self-assessed tax per return iled by the taxpayer on the
5) Must be issued within the original prescriptive period i. General rule
prescribed date was not paid at all or was only partially paid;
prescribed by law or within the extended prescriptive period as OR Internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the iling of the return, and

lOMoARcPSD|4853470
no proceeding in court without assessment for the collection of 1. for the period during which the Commissioner is
e) Provided, however, That nothing in the immediately preceding
such taxes shall be begun after the expiration of such period. prohibited from making the assessment or beginning
and par (a) hereof shall be construed to authorize the
In a case where a return is iled beyond the period prescribed by examination and investigation or inquiry into any tax return distraint or levy or a proceeding in court and for sixty
law, the three (3)-year period shall be counted from the day the iled in accordance with the provisions of any tax amnesty law (60) days thereafter;
return was iled. or decree. 2. when the taxpayer requests for a reinvestigation which is
Exceptions as to Period of Limitation of Assessment and Collection CIR v. Asalus Corp 2017 re False Return granted by the Commissioner;
of Taxes. — 3. when the taxpayer cannot be located in the address given
Under Section 248(B) of the NIRC, there is a prima facie evidence of a
a) In the case of a false or fraudulent return with intent to false return if there is a substantial underdeclaration of taxable by him in the return iled upon which a tax is being
evade tax or of failure to ile a return, the tax may be assessed, sales, receipt or income. The failure to report sales, receipts or assessed or collected:
or a proceeding in court for the collection of such tax may be income in an amount exceeding 30% what is declared in the returns Provided, that, if the taxpayer informs the Commissioner of
constitute substantial underdeclaration.
iled without assessment, at any time within ten (10) years any change in address, the running of the Statute of
When there is a showing that a taxpayer has substantially Limitations will not be suspended;
after the discovery of the falsity, fraud or omission:
underdeclared its sales, receipt or income, there is a presumption
Provided, That in a fraud assessment which has become inal that it has iled a false return. As such, the CIR need not immediately 4. when the warrant of distraint or levy is duly served upon
and executory, the fact of fraud shall be judicially taken present evidence to support the falsity of the return, unless the the taxpayer, his authorized representative, or a member of
cognizance of in the civil or criminal action for the collection taxpayer fails to overcome the presumption against it. his household with suf icient discretion, and no property
thereof. Asalus was bound to refute the presumption of the falsity of the could be located; and
return and to prove that it had iled accurate returns. Its failure to 5. when the taxpayer is out of the Philippines.
b) If before the expiration of the time prescribed in Section 203 for overcome the same warranted the application of the ten (10)-year
the assessment of the tax, both the CIR and the taxpayer have prescriptive period for assessment under Section 222 of the NIRC. CIR v. Hambrecht & Quist Philippines 2010
agreed in writing to its assessment after such time, the tax may
CIR v. PDI 2017 re Concept of Intentional Falsity as reiterated in The CIR insists that its right to collect the tax de iciency it assessed
be assessed within the period agreed upon. The period so
on respondent is not barred by prescription since the prescriptive
agreed upon may be extended by subsequent written agreement CIR v. BPI-Philam Life Assurance 2019
period thereof was allegedly suspended by respondent's request for
made before the expiration of the period previously agreed Mere understatement of a tax is not itself proof of fraud for the reinvestigation. Two requisites must concur before the period to
upon. purpose of tax evasion. enforce collection may be suspended:
c) Any internal revenue tax which has been assessed within the While the iling of a fraudulent return necessarily implies that the act a) that the taxpayer requests for reinvestigation, and
period of limitation as prescribed in par (a) hereof may be of the taxpayer was intentional and done with intent to evade the
taxes due, the iling of a false return can be intentional or due to b) that petitioner grants such request.
collected by distraint or levy or by a proceeding in court
honest mistake. For instance, an entry of wrong information due to
within ive (5) years following the assessment of the tax. Consequently, the mere iling of a protest letter which is not granted
mistake, carelessness, or ignorance, without intent to evade tax, does
not constitute a false return. does not operate to suspend the running of the period to collect taxes.
d) Any internal revenue tax, which has been assessed within the
In the case at bar, the records show that respondent iled a request for
period agreed upon as provided in par (b) hereinabove, may be Here, we do not ind enough evidence to prove fraud or intentional reinvestigation on December 3, 1993, however, there is no indication
collected by distraint or levy or by a proceeding in court falsity on the part of PDI. that petitioner acted upon respondent's protest.
within the period agreed upon in writing before the expiration
ii. Suspension of statute of limitations 2. Taxpayer's remedies
of the ive (5) year period. The period so agreed upon may be
extended by subsequent written agreements made before the The running of the Statute of Limitations provided in Sections 203
Administrative
expiration of the period previously agreed upon. and 222 on the making of assessment and the beginning of distraint
or levy a proceeding in court for collection, in respect of any 1. Before payment of the de iciency tax assessment, the remedy
de iciency, shall be suspended is to ile a written protest within 30 days from receipt of FAN;

lOMoARcPSD|4853470
2. After payment of the same, the remedy is to ile a written claim 3) Preservation of books of accounts and once-a-year ii. Kinds of protest
for refund or tax credit — either with the BIR or the DOF examination. — For income tax purposes, such examination
There are basically two types:
One Stop Shop Center. and inspection shall be made only once in a taxable year,
except in the following cases: 1) Request for Reconsideration — anchored on documents,
The taxpayer need NOT pay the de iciency tax assessment
arguments, and legal authorities already submitted to the BIR.
under protest nor is he required to protest at the time of a) Fraud, irregularity or mistakes, as determined by the
payment. Commissioner; This may involve a question of fact, or law, or both.
Judicial b) The taxpayer requests reinvestigation; 2) Request for Reinvestigation — grounded on new or
c) Veri ication of compliance with withholding tax laws additional documents, arguments, and legal authorities not yet
1. Appeal to CTA. If the protest is denied in whole or in part, or is
and regulations; submitted.
not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by d) Veri ication of capital gains tax liabilities; and Submit additional relevant supporting documents within 60
the decision or inaction may appeal to the CTA days from iling of protest.
e) In the exercise of the CIR's power under Section 5(B) to
a. within thirty (30) days from receipt of the said obtain information from other persons in which case, The taxpayer shall state in his protest:
decision, OR another or separate examination and inspection may 1) The nature of the protest;
b. from the lapse of one hundred eighty (180)-day be made.
2) Date of the assessment notice; and
period; All taxpayers are required to preserve their books of accounts,
3) The applicable law, rules, and regulations, or jurisprudence on
otherwise, the decision shall become inal, executory and including subsidiary books and other accounting records, for a
which the protest is based; otherwise, the protest shall be
demandable. period of 10 years reckoned from the day following the
deemed void.
deadline in iling a return, or if iled after the deadline, from the
2. When in the opinion of the Court the collection may jeopardize
date of the iling, for the taxable year when the last entry was iii. Submission of supporting documents
the interest of the Government and/or the taxpayer, the Court, at
made in the books of accounts.
any stage of the proceeding, may suspend the said collection Under the current rule, effective June 11, 2014, the reckoning of the
and require the taxpayer either to deposit the amount claimed a. First 5 years — hardcopies; 120-day period has been withdrawn from the taxpayer by RMC
or to ile a surety bond for not more than double the amount b. Next 5 years — may retain only an electronic copy of 54-2014, since it requires him at the time he iles his claim to
with the Court. the hardcopies. complete his supporting documents and attest that he will no
longer submit any other document to prove his claim. Further, the
3. A preliminary hearing is required for the proper determination 4) Publication of RMC and RMO. — Absence of publication
taxpayer is barred from submitting additional documents after he
of the necessity of a surety bond or the reduction thereof. renders the RMC and RMO invalid.
has iled his administrative claim.
Pacquiao v. CTA.
5) Power of CIR to distribute or allocate gross income and
iv. Effect of failure to file protest
Substantive deductions does NOT include the power to impute
‘theoretical interests’ to the controlled taxpayer’s The assessment shall become inal, executory and demandable. No
1) Questioning the constitutionality or validity of statutes or
transactions. requests for reconsideration or reinvestigation may then be granted.
regulations —
6) Availment of tax amnesty. v. Action of the Commissioner on the protest filed
2) Failure to inform the taxpayer in writing of the legal and
factual bases of assessment makes it VOID. — The a. Protest (a) Period to act upon or decide on protest iled
taxpayers shall be informed in writing of the law and the facts
i. Period to file protest 180 days.
on which the assessment is made; otherwise, the assessment
shall be void. Within 30 days from receipt of the assessment.

lOMoARcPSD|4853470
(b) Remedies of the taxpayer in case of denial or inaction of the A. DIRECT — The decision of the CIR or his duly authorized Once the option to carry-over and apply the excess quarterly income
Commissioner representative shall tax against income tax due for the taxable quarters of the succeeding
taxable years has been made, such option shall be considered
How to Appeal a. State the facts, applicable law, rules and regulations, or
irrevocable for that taxable period and no application for cash
jurisprudence on which such decision is based; and
1) If the protest is denied by the CIR’s duly authorized refund or issuance of a tax credit certi icate shall be allowed therefor.
representative b. That the same is his inal decision.
1) A tax credit is a claim for the issuance of a tax credit
a) Appeal to the CTA; OR B. INDIRECT — certi icate, showing an amount owing from the government to
b) Elevate the protest through a request for a. CIR did not rule on the motion for reconsideration; the taxpayer which the latter is legally authorized to credit or
reconsideration to the CIR. offset against national internal taxes payable by him, except
b. Referral by the CIR of request for reinvestigation to withholding taxes.
Both within 30 days from receipt of decision. OSG;
A Tax Credit Certi icate is a certi ication, duly issued to the
NO request for reinvestigation is allowed in administrative c. Reiterating the demand for immediate payment of taxpayer named therein, by the CIR or his duly authorized
appeal. de iciency tax due to taxpayer’s continued refusal to representative, reduced in a BIR accountable form,
execute waiver; acknowledging that the grantee-taxpayer is legally entitled a tax
2) If the protest is NOT acted upon by the CIR’s duly
authorized representative within the 180-day period d. Preliminary collection letter may serve as assessment credit, the money value of which
notice. a) May be used in payment of any of his internal revenue
a) Appeal to the CTA within 30 days after the expiration
of the 180-day period; OR (c) E ect of failure to appeal tax liability, or
b) Await the inal decision of the CIR’s duly authorized The assessment shall become inal, executory and demandable. b) May be converted as a cash refund, or
representative of the disputed assessment. c) May otherwise be disposed of in the manner and in
b. Recovery of tax erroneously or illegally collected
3) If the protest or administrative appeal is denied by the accordance with the limitations, if any.
Final Adjustment Return. — Every corporation liable to tax shall ile a
CIR 2) A refund is a claim for the payment of cash for taxes
inal adjustment return covering the total taxable income for the
a) Appeal to the CTA within 30 days from receipt. preceding calendar or iscal year. If the sum of the quarterly tax erroneously or illegally paid by the taxpayer.
payments made during the said taxable year is not equal to the total tax 3) No credit or refund of taxes or penalties shall be allowed
An MR of the CIR’s denial shall NOT toll the 30-day period to
due on the entire taxable income of that year, the corporation shall unless the taxpayer iles in writing with the CIR a claim for
appeal to the CTA.
either: credit or refund within two (2) years after the payment of the
4) If the protest is NOT acted upon by the CIR within the
a) Pay the balance of tax still due; or tax or penalty.
180-day period
b) Carry-over the excess credit; or 4) The proper party to question or seek a refund of the tax is the
a) Appeal to the CTA within 30 days after the expiration
statutory taxpayer, even when he shifts the burden thereof to
of the 180-day period; OR c) Be credited or refunded with the excess amount paid, as the
another.
case may be.
b) Await the inal decision of the CIR on the disputed
5) A refund shall not be granted when there is a de iciency tax
assessment and appeal such inal decision to the CTA In case the corporation is entitled to a tax credit or refund of the excess
assessment against the claimant-taxpayer.
within 30 days after receipt of the decision. estimated quarterly income taxes paid, the excess amount shown on its
inal adjustment return may be carried over and credited against the 6) A TCC is valid and effective from their issuance and is not
NB: These options are MUTUALLY EXCLUSIVE.
estimated quarterly income tax liabilities for the taxable quarters of the subject to a post-audit as a suspensive condition for their
Denial of Protest succeeding taxable years.

lOMoARcPSD|4853470
validity. This implies that the taxpayer has the right to rely on of the two-year period, on the date the last
3) If no decision is made by the CIR, the aggrieved taxpayer must
the validity and effectivity of the TCC assigned to it. installment was paid.
consider the inaction as a denial and appeal to the CTA must be
7) The phrase “for that taxable period” identi ies the taxable University Physician Services v. CIR 2018 re Irrevocability Rule iled before the lapse of two (2) years counted from date of
period when the excess income tax was acquired by the payment.
The irrevocability is limited only to the option of carry-over
taxpayer. Once the taxpayer opts to carry-over the excess such that a taxpayer is still free to change its choice after electing a
income tax against the taxes due for the succeeding taxable When is Tax Erroneously or Illegally Collected
refund of its excess tax credit. But once it opts to carry over such
years, such option is irrevocable for the whole amount of the excess creditable tax, after electing refund or issuance of tax credit
1. Erroneously or illegally assessed or collected internal revenue
excess. The excess shall be carried over and duly applied certi icate, the carry-over option becomes irrevocable.
taxes;
UNTIL FULLY UTILIZED.
Rhombus Energy v. CIR 2018 re Irrevocability Rule 2. Penalties imposed without authority;
8) An exception to the irrevocability rule is when a corporation
dissolves. A refund is then allowed for any unutilized tax credit The controlling factor for the operation of the irrevocability rule is 3. Any sum alleged to have excessively or in any manner
it had previously opted to be carried over. that the taxpayer chose an option; and once it had already done so, it wrongfully collected;
could no longer make another one.
9) An applicant for a claim for tax refund or tax credit must not 4. Refund of BIR stamps when returned in good condition by the
only prove entitlement to claim, but also compliance with all Procedure for Claiming Refunds or Tax purchaser;
documentary and evidentiary requirements. Failure to indicate Credits of Input VAT under Section 112
5. Redemption or change of unused stamps rendered un it for use
the words “zero-rated” on the invoices and receipts issued by
1) The claim for refund must be iled with the CIR within two (2) and refund of their value.
a taxpayer would result in the denial of the claim.
years counted from the last day of the quarter when the
Secs 204(c) and 229 vs Sec 112(c) vs Sec 228
10) A withholding agent is allowed to claim for tax refund, because zero-rated sale was made;
under the law, said agent is the one who is held liable for any 204(c) and 229 112(c) 228
2) The claim for refund must be accompanied by a statement
violation of the withholding tax law should such violation
under oath that all documents to support the claim has been Recovery of tax Refund of unutilized Administrative
occur.
submitted at the time of iling of claim for refund; erroneously or input VAT from 0% Protest on
11) Starting date for counting the two-year period — illegally collected transactions Assessment
3) The CIR must decide on the claim within 90 days from the date
GR: From the date of payment regardless of any of iling. The adverse decision is appealable to the CTA within The 2-year prescriptive period
supervening cause that may arise after payment; 30 days from receipt;
Applies to AC only 30-day reglementary
EXC: 4) If no decision is made within the 90-day period, there is a
Applies to AC and JC from close of taxable period
deemed denial or adverse decision which is appealable to the from date of payment quarter when sale
a) Corporate income tax. — Where a corporation paid
CTA within 30 days from the lapse of the 90-day period. was made
quarterly income taxes in any of the irst three
quarters during the taxable year but incurs a net loss Procedure for Claiming Refunds or Tax
CIR has no
during said year, the period shall be counted from the Credits of Tax Erroneously or Illegally CIR has 90 days to CIR has 180 days to
prescribed period to
date of the iling of the annual corporate income Collected under Section 229 resolve resolve
resolve
tax return.
1) A written claim for refund must be iled with the CIR within Appeal to the CTA
b) Income tax paid in installments. — Where the tax two (2) years from date of payment of the tax;
had been paid in installments, the taxes are deemed 30 days from receipt
2) A decision of the CIR denying the claim is appealable to the CTA Within 2 years after 30 days from receipt
paid, for purposes of determining the commencement of decision; OR
within 30 days from receipt thereof or within two (2) years iling AC of denial of CIR.
From inaction or
from date of payment, whichever comes irst;

lOMoARcPSD|4853470
await then appeal personally liable for the withholding tax as well as for de iciency entitlement to a claim, including the fact of not having carried over
within 30 days assessments, surcharges, and penalties, should the amount of the the excess credits to the subsequent quarters or taxable year. It does
tax withheld be inally found to be less than the amount that not say that to prove such a fact, succeeding quarterly ITRs are
CIR v. Smart Communication, Inc. 2010 should have been withheld under law. absolutely needed.
The right of a withholding agent to claim a refund of Second, as an agent of the taxpayer, his authority to ile the This simply underscores the rule that any document, other than
erroneously or illegally withheld taxes comes with the necessary income tax return and to remit the tax withheld to the quarterly ITRs may be used to establish that indeed the
responsibility to return the same to the principal taxpayer. government impliedly includes the authority to ile a claim for non-carry over clause has been complied with, provided that
refund and to bring an action for recovery of such claim. such is competent, relevant and part of the records.
WON respondent has the right to ile the claim for refund; and if
respondent has the right, whether the payments made to Prism
Winebrenner & Iñigo v. CIR 2015 CIR v. Philippine National Bank 2019
constitute "business pro its" or royalties.
WON the submission and presentation of the quarterly ITRs of the WON the PNB proved its entitlement to the refund. Of crucial
YES, respondent has a right to ile the claim for refund. succeeding quarters of a taxable year is indispensable in a claim for importance for the resolution thereof, however, is whether the
refund. presentation of the Quarterly ITRs of the succeeding quarters of
The person entitled to claim a tax refund is the taxpayer. However, in
a taxable year is indispensable for such claim.
case the taxpayer does not ile a claim for refund, the withholding
NO. A taxpayer who seeks a refund of excess and unutilized CWT
agent may ile the claim. Winebrenner & Iñigo Insurance Brokers, Inc. v. CIR has ruled that the
must:
presentation of the claimant's quarterly returns is NOT a requirement
A "person liable for tax" has been held to be a "person subject to
1) File the claim with the CIR within the two year period from to prove entitlement to the refund.
tax" and properly considered a "taxpayer." The terms "liable for
the date of payment of the tax;
tax" and "subject to tax" both connote legal obligation or duty to pay a The CTA correctly ruled that there is nothing under the NIRC that
tax. It is very dif icult, indeed conceptually impossible, to consider a 2) Show on the return that the income received was declared
requires the submission of the Quarterly ITRs of the succeeding
person who is statutorily made "liable for tax" as not "subject to tax." as part of the gross income; and
taxable year in a claim for refund. Even the BIR's own regulations do
By any reasonable standard, such a person should be regarded as a 3) Establish the fact of withholding by a copy of a statement not provide for such requirement.
party in interest, or as a person having suf icient legal interest, to duly issued by the payor to the payee showing the amount
bring a suit for refund of taxes he believes were illegally collected paid and the amount of tax withheld. Once the claimant has successfully established that its claim was
from him. iled within the two-year prescriptive period; that the income related
The irrevocability rule under Section 76 of the NIRC means that to the claimed CWT formed part of the return during the taxable year
In Philippine Guaranty Company, Inc. v. CIR, this Court pointed out once an option, either for refund or issuance of tax credit certi icate when the refund is claimed for; and the fact of withholding of said
that a withholding agent is in fact the agent both of the government or carry-over of CWT has been exercised, the same can no longer be taxes, it shall be deemed to be entitled to its claimed CWT refund.
and of the taxpayer, and that the withholding agent is not an ordinary modi ied for the succeeding taxable years.
government agent. Failure to present such document during the trial is fatal against the
There is no question that those who claim must not only prove its BIR's case rather than the claimant's. In CIR v. PERF Realty
If, as pointed out in Philippine Guaranty, the withholding agent is entitlement to the excess credits, but likewise must prove that no Corporation, the Court ruled that it is the duty of the CIR to verify
also an agent of the bene icial owner of the dividends with respect to carry-over has been made in cases where refund is sought. whether or not the claimant had carried over its excess CWT.
the iling of the necessary income tax return and with respect to
actual payment of the tax to the government, such authority may In this case, the fact of having carried over petitioner’s 2003 excess Despite PNB's failure to present at the onset its Quarterly ITRs for
reasonably be held to include the authority to ile a claim for refund credits to succeeding taxable year is in issue. Proving that no 2006, its Annual ITR for 2006 is apt and suf icient to show that no
and to bring an action for recovery of such claim. carry-over has been made does not absolutely require the CWT carry over was made in 2006.
presentation of the quarterly ITRs.
A withholding agent has a legal right to ile a claim for refund for two Zuellig-Pharma Asia Paci ic Ltd. Phils. ROHQ v. CIR 2020
reasons. The logic in not requiring quarterly ITRs of the succeeding taxable
years to be presented remains true to this day. What Section 76 Zuellig-PH is a regional operating headquarters (ROHQ) of
First, he is considered a "taxpayer" under the NIRC as he is requires, just like in all civil cases, is to prove the prima facie Zuellig-Pharma Asia Paci ic Ltd. (Zuellig-HK), a foreign corporation

lOMoARcPSD|4853470
duly organized and existing under the laws of Hong Kong. delineate between verbal or written requests for additional inde initely delay the administrative claim" and in turn "prevent the
documents because the submission thereof is not anymore allowed. iling of a judicial claim with the CTA."
WON Zuellig-PH's judicial claim for refund was iled out of time. To reiterate, the prevailing rule now is that ALL complete
documents are to be submitted upon the iling of the taxpayer's Its belated response to the present claim only brings to light that the
NO. The CIR has a period of 120 days from the date of submission administrative claim for refund. BIR had been remiss in their duties to duly notify the claimant to
of complete documents within which to evaluate an submit additional documentary requirements and to timely resolve
administrative claim for tax credit or refund of creditable input CIR v. Deutsche Knowledge Services Pte. Ltd. 2020 their claim. The CIR cannot now fault DKS for proceeding to court for
taxes (120-day period). If the CIR denies the administrative claim, or the appropriate remedial action on the claim they ignored.
if it remains unacted upon the expiration of the said period - which is WON DKS is entitled to a tax refund/credit. YES.
essentially considered a "denial due to inaction," the taxpayer may, Parenthetically, the Court reiterates that the above analysis involving
within thirty (30) days from such denial or expiration, avail of the CIR insists that DKS is not entitled to a tax refund/credit because: the determination of the completeness of documents supporting a
further remedy of iling a judicial claim before the CTA. First, its judicial claim was iled prematurely. And second, it failed to claim for tax refund or credit applies only to claims iled prior to June
prove that its clients are foreign corporations doing business outside 11, 2014. (see Zuellig-Pharma case for the ratio)
In this relation, the BIR issued RMC No. 49-2003 which provides for the Philippines.
the procedure in instances where there are pending administrative Requisites for the Entitlement to
claims for refund but with incomplete documents. The circular Timeliness of judicial claim Tax Refund or Credit of Excess
states that the taxing authority shall require the further submission of input VAT Attribute to Zero-
the needed supporting documents through a notice-request, which CIR points out that, when DKS iled its administrative claim, it failed rated Sales
should then be complied with by the taxpayer within thirty (30) days to submit the complete documents. Thus, the 120 and 30-day periods
from receipt thereof. did not begin to run. A claimant's entitlement to a tax refund or credit of excess input VAT
attributable to zero-rated sales hinges upon the following requisites:
As held in Pilipinas Total Gas, it is the taxpayer who ultimately In Pilipinas Total Gas, Inc. v. CIR, the Court emphasized that the law
1) the taxpayer must be VAT-registered;
determines when complete documents have been submitted for the accords the claimant suf icient latitude to determine the
completeness of his submission for the purpose of ascertaining the 2) the taxpayer must be engaged in sales which are
purpose of commencing and continuing the running of the 120-day
date of completion from which the 120-day period shall be reckoned. zero-rated or effectively zero-rated;
period. As herein applied, the 120-day period should therefore be
reckoned from the April 29, 2014 letter of Zuellig-PH wherein it 3) the claim must be iled within two years after the close of
This bene it, a component of the claimant's fundamental right to due the taxable quarter when such sales were made; and
stated that it had already submitted the complete documents in
process, allows him:
support of its refund claim. In turn, the BIR had 120 days from such 4) the creditable input tax due or paid must be attributable to
time (or until August 27, 2014) to act on Zuellig-PH's administrative a) to declare that he had already submitted complete such sales, except the transitional input tax, to the extent that
claim for refund. Since it was established that the BIR failed to act supporting documents upon iling his claim and that he no such input tax has not been applied against the output tax.
within such period, Zuellig-PH had thirty (30) days, or until longer intends to make additional submissions thereafter; or
September 26, 2014, to ile its judicial claim. Thus, its Petition for b) to further substantiate his application within 30 days after Conditions for Zero-rating of
Review was timely iled on September 25, 2014. iling. Sales of Services
As a inal note, the Court clari ies that the above disquisition only To counterbalance the claimant's liberty to do so, he may be required Zero-rated sales are, for all intents and purposes, subject to VAT, only
inds application to those claims for refund made prior to June 11, by the tax authorities in the course of their evaluation, to submit that the rate imposed upon them is 0%. Thus, while these sales will
2014 (i.e., the date that RMC No. 54-2014 was issued). Under this additional documents for the proper evaluation thereof. In which not mathematically yield output VAT, the input VAT arising therefrom
new circular, the taxpayer is now required to submit complete case, the CIR shall duly notify the claimant of his request from which is nonetheless creditable or refundable.
documents upon its iling of an administrative claim for VAT the claimant has 30 days to comply.
refund/tax credit, as no other documents shall be accepted Sales of "other services," such as those qualifying services rendered
thereafter. For this purpose, the taxpayer shall also execute a The CIR has no authority to unilaterally determine the completeness by DKS to its foreign af iliates-clients, shall be zero-rated pursuant to
statement under oath attesting to the completeness of said of these documents and dictate the running of the 120-day period to Section 108 (B) (2) of the Tax Code if the following conditions are
documents which shall also be submitted upon such iling. Thus, resolve the claim, as he attempts to do so in the present case. To met:
under the auspices of RMC No. 54-2014, there is no more need to sanction this would be giving the tax authorities "unbridled power to

lOMoARcPSD|4853470
c. Power of CIR to compromise c) Cases where inal reports of reinvestigation or

First, the seller is VAT-registered. reconsideration have been issued resulting in the reduction
The Commissioner may —
Second, the services are rendered "to a person engaged in of the original assessment agreed to by the taxpayer when
A) Compromise the payment of any internal revenue tax, when: he signed the required agreement form.
business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines 1) Doubtful validity. A reasonable doubt as to the validity of d) Payment of withholding tax, where the inancial position of
when the services are performed." the claim against the taxpayer exists; or the withholding agent shows a clear inability to pay. —
Third, the services are "paid for in acceptable foreign currency 2) Financial incapacity. The inancial position of the Note that the withholding tax is not a tax upon the agent but
and accounted for in accordance with [BSP] rules and taxpayer demonstrates a clear inability to pay the assessed is only a procedure for the collection of tax. The agent
regulations." tax. holds the taxes as trust funds that must be remitted to the
BIR.
What remains in contention is whether or not DKS's foreign This should be accompanied by a waiver of the secrecy of
af iliates-clients are NRFCs doing business outside the Philippines. bank deposits. GR: The power to compromise and abate belongs to the CIR.
Proof of NRFC Status The compromise settlement of any tax liability shall be subject EXC:
to the following minimum amounts:
The claimant must establish the two components of a client's NRFC 1) assessments issued by the regional of ices involving basic
1) For cases of inancial incapacity, a minimum de iciency taxes of P500K or less, and
status, viz.:
compromise rate equivalent to ten percent (10%) of the
basic assessed tax; and 2) minor criminal violations.
1) that their client was established under the laws of a country
not the Philippines or, simply, is not a domestic corporation; 2) For other cases, a minimum compromise rate equivalent to may be compromised by a regional evaluation board.
and
forty percent (40%) of the basic assessed tax. The last step in the abatement process is the issuance of a
2) that it is not engaged in trade or business in the Philippines.
Where the basic tax involved exceeds P1M or where the termination letter.
Such proof must be especially required from ROHQs such as DKS. settlement offered is less than the prescribed minimum rates,
That the law expressly authorizes ROHQs to render services to local d. Non-retroactivity of rulings
the compromise shall be subject to the approval of the
and foreign af iliates alike only stresses the ROHQ's burden to Any revocation, modi ication or reversal of any of the rules and
distinguish among their clients' nationalities and actual places of National Evaluation Board.
regulations promulgated or any of the rulings or circulars
business operations and establish that they are seeking refund or TN: Compromise can not be availed of by a withholding agent.
credit of input VAT only to the extent of their sales of services to promulgated by the CIR shall not be given retroactive application if
foreign clients doing business outside the Philippines. B) Abate or cancel a tax liability, when: the revocation, modi ication or reversal will be prejudicial to the
1) The tax or any portion thereof appears to be unjustly or taxpayers, except in the following cases:
The CTA found that the SEC Certi ication of Non-Registration of
excessively assessed; or a) Where the taxpayer deliberately misstates or omits
Company and Authenticated Articles of Association and/or
Certi icates of Registration/Good Standing/Incorporation 2) The administration and collection costs involved do not material facts from his return or any document required of
suf iciently established the NRFC status of 11 of DKS's af iliates justify the collection of the amount due. him by the BIR;
clients.
⭐All criminal violations may be compromised except: b) Where the facts subsequently gathered by the BIR are
To the Court's mind, the SEC Certi ications of Non-Registration materially different from the facts on which the ruling is
a) those already iled in court, or
show that their af iliates are foreign corporations. On the other hand, based; or
the articles of association/certi icates of incorporation stating b) those involving fraud.
that these af iliates are registered to operate in their respective home c) Where the taxpayer acted in bad faith.
In addition, the following cannot be compromised:
countries, outside the Philippines are prima facie evidence that their
clients are not engaged in trade or business in the Philippines.

lOMoARcPSD|4853470
3. Government remedies for collection of delinquent taxes If the return is amended substantially, then the period to did not ile a protest, resulting in the inality, demandability, and
assess will be reckoned from the iling of the amended return. executory nature of the assessment for de iciency taxes. Counting 30
In a nutshell: days from the service of the FLD and the FAN, the violations were
The taxpayer is given three (3) years from date of iling of considered discovered on March 9, 2005. The BIR's revenue
1) Tax lien;
original return to amend, provided that no notice for audit or of icers iled their joint af idavit in the DOJ for preliminary
2) Distraint of personal property, or levy of real property, or investigation of such return, statement or declaration has in the investigation on May 26, 2005. However, the original Information
garnishment of bank deposits; meantime been actually served upon the taxpayer. was only iled in court on April 23, 2014, which exceeded the
ive-year prescriptive period. Therefore, the action had prescribed.
3) Sale of property; 2) The period to collect the tax is within three (3) years from
date of assessment. In the case, however, of an omission to ile 4) No credit or refund of taxes or penalties shall be allowed
4) Forfeiture;
or if the return iled is false or fraudulent, the period to collect unless the taxpayer iles in writing with the Commissioner a
5) Compromise and abatement; is within ten (10) years from discovery without need of claim for credit or refund within two (2) years after the
6) Penalties and ines; and assessment. payment of the tax or penalty.
7) Suspension of business operations. 3) Period to File Criminal Action — All violations of any 5) Local taxes, fees, or charges shall be assessed within ive (5)
provision of this Code shall prescribe after ive (5) years. years from the date they became due.
a. Requisites
Prescription shall begin to run from the day of the commission In case of fraud or intent to evade the payment of taxes, fees, or
A taxpayer is delinquent in the payment of his tax when
of the violation of the law, and if the same be not known at the charges, the same may be assessed within ten (10) years
1) The self-assessed tax per return iled by the taxpayer on the time, from the discovery thereof and the institution of judicial from discovery of the fraud or intent to evade payment.
prescribed date was not paid at all or was only partially paid; proceedings for its investigation and punishment.
OR Local taxes, fees, or charges may be collected within ive (5)
The prescription shall be interrupted when proceedings are
2) The de iciency tax assessed by the BIR became inal and years from the date of assessment by administrative or
instituted against the guilty persons and shall begin to run
executory. judicial action.
again if the proceedings are dismissed for reasons not
b. Prescriptive periods; suspension of running of statute constituting jeopardy. 6) Under the Tax Code, if the law does not provide for any
of limitations particular prescriptive period of assessment, the rule is that the
The term of prescription shall not run when the offender is
tax sought to be assessed becomes IMPRESCRIPTIBLE.
1) Period of Limitation Upon Assessment and Collection. — absent from the Philippines.
Internal revenue taxes shall be assessed within three (3) 7) The issue of prescription must be raised at the administrative
Imelda Sze, et al. v. BIR 2020
years level and evidence to prove prescription must be introduced by
How to determine the reckoning point of the 5-year prescriptive the taxpayer.
a) after the last day prescribed by law for the iling of the period for violations of the NIRC?
CIR v. Phil. Global Communication, Inc.
return, OR
The CTA explained that Revenue Memorandum Circular 101-90
WON CIR's right to collect respondent's alleged de iciency income tax
b) where a return is iled beyond the period prescribed provides that an offense under the tax code is considered
is barred by prescription.
by law, from the day the return was iled. discovered only after the manner of commission and the nature
and extent of fraud has been de initely ascertained. This occurs YES. The law prescribed a period of three years from the date the
In the case of a false or fraudulent return with intent to evade when the BIR renders its inal decision and requires the taxpayer to
tax or of failure to ile a return, the tax may be assessed, or a return was actually iled or from the last date prescribed by law
pay the de iciency tax. for the iling of such return, whichever came later, within which
proceeding in court for the collection of such tax may be iled
The CTA determined that the FLD and the FAN for taxable years 1999 the BIR may assess a national internal revenue tax. However, the law
without assessment, at any time within ten (10) years after
and 2000 were served on Chiat Corp. on February 7, 2005. Chiat Corp. increased the prescriptive period to assess or to begin a court
the discovery of the falsity, fraud or omission. proceeding for the collection without an assessment to ten years

lOMoARcPSD|4853470
when a false or fraudulent return was iled with the intent of evading not toll the 30-day period to appeal to the CTA.
the tax or when no return was iled at all. In such cases, the ten-year Section 31, Chapter VIII, Book I of the Administrative Code of
period began to run only from the date of discovery by the BIR of Lascona Land Co., Inc. v. CIR 2012 1987, being the more recent law, governs the computation of
the falsity, fraud or omission. waited for CIR Decision even after lapse of 180 days legal periods. Lex posteriori derogat priori.
If the BIR issued this assessment within the three-year period or the Whether the subject assessment has become inal, executory and We therefore hold that respondent's petition ( iled on April 14, 2000)
ten-year period, whichever was applicable, the law provided another demandable due to the failure of petitioner to ile an appeal before was iled on the last day of the 24th calendar month from the day
three years after the assessment for the collection of the tax the CTA within thirty (30) days from the lapse of the One Hundred respondent iled its inal adjusted return. Hence, it was iled within
due thereon through the administrative process of distraint and/or Eighty (180)-day period pursuant to Section 228 of the NIRC. the reglementary period.
levy or through judicial proceedings. The three-year period for
collection of the assessed tax began to run on the date the NO. In arguing that the assessment became inal and executory by the CIR v. Univation Motor Philippines, Inc. 2019
assessment notice had been released, mailed or sent by the BIR. sole reason that petitioner failed to appeal the inaction of the
WON the CTA has prematurely assumed jurisdiction on respondent's
Commissioner within 30 days after the 180-day reglementary period,
The assessment, in this case, was presumably issued on 14 April judicial claim for tax refund or credit without waiting for the
respondent, in effect, limited the remedy of Lascona, as a taxpayer,
1994 since the respondent did not dispute the CIR's claim. Therefore, decision of petitioner.
under Section 228 of the NIRC to just one, that is - to appeal the
the BIR had until 13 April 1997. However, as there was no Warrant of inaction of the Commissioner on its protested assessment after the
NO. Sections 204 and 229 of the NIRC (NIRC) provide for the refund
Distraint and/or Levy served on the respondents nor any judicial lapse of the 180-day period. This is incorrect.
of erroneously or illegally collected taxes. Section 204 applies to
proceedings initiated by the BIR, the earliest attempt of the BIR to
The word "decisions" in paragraph 1, Section 7 of Republic Act No. administrative claims for refund, while Section 229 to judicial claims
collect the tax due based on this assessment was when it iled its
1125, has been interpreted to mean the decisions of the for refund.
Answer in CTA Case No. 6568 on 9 January 2003, which was several
years beyond the three-year prescriptive period. Thus, the CIR is now Commissioner of Internal Revenue on the protest of the taxpayer
The two-year period in iling a claim for tax refund is crucial. While
prescribed from collecting the assessed tax. against the assessments. Therefore, as in Section 228, when the law
the law provides that the two-year period is counted from the date of
provided for the remedy to appeal the inaction of the CIR, it did not
payment of the tax, jurisprudence, however, clari ied that the
Among the exceptions invoked by the CIR as a ground for this intend to limit it to a single remedy of iling of an appeal after the
two-year prescriptive period to claim a refund actually commences
petition, is the instance when the taxpayer requests for a lapse of the 180-day prescribed period. Precisely, when a taxpayer
to run, at the earliest, on the date of the iling of the adjusted inal
reinvestigation which is granted by the Commissioner. However, this protested an assessment, he naturally expects the CIR to decide either
tax return because this is where the igures of the gross receipts and
exception does not apply to this case since the respondent never positively or negatively. A taxpayer cannot be prejudiced if he
deductions have been audited and adjusted, re lective of the results of
requested for a reinvestigation. More importantly, the CIR could not chooses to wait for the inal decision of the CIR on the protested
the operations of a business enterprise. "Thus, it is only when the
have conducted a reinvestigation where, as admitted by the CIR in its assessment.
Adjustment Return covering the whole year is iled that the taxpayer
Petition, the respondent refused to submit any new evidence.
Accordingly, considering that Lascona opted to await the inal would know whether a tax is still due or a refund can be claimed
decision of the Commissioner on the protested assessment, it then based on the adjusted and audited igures."
Fishwealth Canning Corp. v. CIR 2010
has the right to appeal such inal decision to the Court by iling a
In the case at bar, petitioner's administrative protest was denied by In the instant case, the two-year period to ile a claim for refund is
petition for review within thirty days after receipt of a copy of such
Final Decision on Disputed Assessment dated August 2, 2005 issued reckoned from April 15, 2011, the date respondent iled its Final
decision or ruling, even after the expiration of the 180-day
by respondent and which petitioner received on August 4, 2005. Adjustment Return. Since respondent iled its administrative claim on
period ixed by law for the Commissioner of Internal Revenue to act
Under Section 228 of the 1997 Tax Code, petitioner had 30 days to March 12, 2012 and its judicial claim on April 12, 2013, therefore,
on the disputed assessments.
appeal respondent's denial of its protest to the CTA. both of respondent's administrative and judicial claim for refund
were iled on time or within the two-year prescriptive period
CIR v. Primetown Property Group, Inc.
Since petitioner received the denial of its administrative protest on provided by law. Under the circumstances, if respondent awaited
August 4, 2005, it had until September 3, 2005 to ile a petition for The rule is that the two-year prescriptive period for the iling of tax for the commissioner to act on its administrative claim (before
review before the CTA Division. It iled one, however, on October 20, refunds and tax credits is reckoned from the iling of the inal resort to the Court), chances are, the two-year prescriptive period
2005, hence, it was iled out of time. For a motion for adjusted return. But how should the two-year prescriptive period be will lapse effectively resulting to the loss of respondent's right
reconsideration of the denial of the administrative protest does computed? to seek judicial recourse and worse, its right to recover the taxes it

lOMoARcPSD|4853470
erroneously paid to the government. Hence, respondent's immediate 2. Except for waiver of collection of taxes which shall indicate the b) The expiry date of the period the taxpayer waives the
resort to the Court is justi ied. particular taxes assessed, the waiver need not specify the statute of limitations
particular taxes to be assessed nor the amount thereof, and it
WON the CTA EN BANC erred in granting respondent's claim for 8. Before the expiration of the period set on the previously
may simply state "all internal revenue taxes" considering that
refund despite its failure to substantiate its claim by suf icient executed waiver, the period earlier set may be extended by
documentary proof. during the assessment stage, the CIR or her duly authorized
subsequent written waiver made in accordance with this Order.
representative is still in the process of examining and
NO. Jurisprudence laid down the basic requirements in order for a determining the tax liability of the taxpayer. CIR v. Kudos Metal 2010
taxpayer to claim tax credit or refund of creditable withholding tax,
3. Since the taxpayer is the applicant and the executor of the Section 222 (b) of the NIRC provides that the period to assess and
thus:
extension of the period of limitation for its bene it in order to collect taxes may only be extended upon a written agreement
1) The claim must be iled with the CIR within the two-year submit the required documents and accounting records, the between the CIR and the taxpayer executed before the expiration of the
period from the date of payment of the tax, as prescribed three-year period.
taxpayer is charged with the burden of ensuring that the
under Section 229 of the NIRC of 1997; waivers of statute of limitation are validly executed by its A perusal of the waivers executed by respondent's accountant reveals
2) The fact of withholding is established by a copy of a
authorized representative, The authority of the taxpayer's the following in irmities:
statement duly issued by the payor to the payee showing the
representative who participated in the conduct of audit or
amount paid and the amount of tax withheld; and 1. The waivers were executed without the notarized written
3) It must be shown on the return of the recipient that the investigation shall not be thereafter contested to invalidate the
authority of Pasco to sign the waiver in behalf of respondent.
income received was declared as part of the gross income. waiver.
2. The waivers failed to indicate the date of acceptance.
4. The waiver may be notarized. However, it is suf icient that the
Guidelines for the Execution of Waivers form the Defense of 3. The fact of receipt by the respondent of its ile copy was not
waiver is in writing as speci ically provided by the NIRC, as indicated in the original copies of the waivers.
Prescription
amended.
See RMO No. 14-2016 Due to the defects in the waivers, the period to assess or collect taxes
5. Considering that the waiver is a voluntary act of the taxpayer,
was not extended. Consequently, the assessments were issued by the
1. The waiver may be, but not necessarily, in the form prescribed the waiver shall take legal effect and be binding on the taxpayer BIR beyond the three-year period and are void.
by RMO No. 20-90 or RDAO No. 05-01. The taxpayer's failure to upon its execution thereof.
follow the aforesaid forms does not invalidate the executed CIR v. Next Mobile 2015 reiterated in
6. lt shall be the duty of the taxpayer to submit its duly executed
waiver, for as long as the following are complied with: Asian Transmission Corp v. CIR 2018
waiver to the CIR or of icials previously designated in existing
a) The Waiver of the Statute of Limitations under Section issuances or the concerned revenue district of icer or group The de iciencies of the Waivers in this case are the same as the
222 (b) and (d) shall be executed before the expiration supervisor as designated in the Letter Of defects of the waiver in Kudos. In the instant case, the CTA found the
of the period to assess or to collect taxes. The date of Authority/Memorandum of Assignment who shall then Waivers because of the following laws:
execution shall be speci ically indicated in the waiver. indicate acceptance by signing the same. Such waiver shall be 1) they were executed without a notarized board authority;
executed and duly accepted prior to the expiration of the period 2) the dates of acceptance by the BIR were not indicated
b) The waiver shall be signed by the taxpayer himself or
to assess or to collect. The taxpayer shall have the duty to therein; and
his duly authorized representative. ln the case of a
retain a copy of the accepted waiver. 3) the fact of receipt by respondent of its copy of the Second
corporation, the waiver must be signed by any of its
responsible of icials; 7. Note that there shall only be two (2) material dates that need to Waiver was not indicated on the face of the original Second
be present on the waiver: Waiver.
c) The expiry date of the period agreed upon to
assess/collect the tax after the regular three-year a) The date of execution of the waiver by the taxpayer or To be sure, both parties in this case are at fault.
period of prescription should be indicated; its authorized representative; and
Here, respondent, through Sarmiento, executed ive Waivers in favor

lOMoARcPSD|4853470
of petitioner. However, her authority to sign these Waivers was not the said case arose from the taxpayer's act of payment and not on the insigni icant portion of the assessment cannot be deemed an
presented upon their submission to the BIR. In fact, later on, her reduction in the amount of the assessed taxes. RCBC's partial admission or recognition of the validity of the waivers.
authority to sign was questioned by respondent itself, the very same payment of the revised assessments effectively belied its insistence
entity that caused her to sign such in the irst place. Thus, it is clear that the waivers are invalid and the assessments were issued beyond CIR v. La Flor Dela Isabela, Inc. 2019
that respondent violated RMO No. 20-90 which states that in case of a the prescriptive period.
corporate taxpayer, the waiver must be signed by its responsible The Court does not agree with the CIR that withholding tax
Here, as no such payment was made by STI, mere reduction of the assessments are merely an imposition of a penalty on the
of icials and RDAO 01-05 which requires the presentation of a amount of the assessment because of a request for reinvestigation
written and notarized authority to the BIR. withholding agent, and thus, outside the coverage of Section 203 of
should not bar it from raising the defense of prescription. the NIRC. Withholding taxes do not cease to become income
Similarly, the BIR violated its own rules and was careless in taxes just because it is collected and paid by the withholding
CIR v. Transitions Philippines Optical, Inc. 2017 Leonen, J agent.
performing its functions with respect to these Waivers. It is very
clear that under RDAO 05-01 it is the duty of the authorized revenue Estoppel applies against a taxpayer who did not only raise at the
of icial Thus, withholding tax assessments such as EWT and WTC clearly
earliest opportunity its representative's lack of authority to execute
contemplate de iciency internal revenue taxes. Their aim is to collect
1. To ensure that the waiver is duly accomplished and signed two (2) waivers of defense of prescription, but was also accorded,
unpaid income taxes and not merely to impose a penalty on the
by the taxpayer or his authorized representative before through these waivers, more time to comply with the audit
withholding agent for its failure to comply with its statutory duty.
af ixing his signature to signify acceptance of the same. requirements of the BIR. Nonetheless, a tax assessment served
beyond the extended period is void. In CIR v. Systems Technology Institute, Inc., the Court had ruled that
2. In case the authority is delegated by the taxpayer to a
representative, the concerned revenue of icial shall see to it Respondent's acts also show its implied admission of the validity of waivers extending the prescriptive period of tax assessments must be
that such delegation is in writing and duly notarized. the waivers. compliant with RMO No. 20-90 and must indicate the nature and
First, respondent never raised the invalidity of the Waivers at the amount of the tax due.
3. The waiver should not be accepted by the concerned BIR
of ice and of icial unless duly notarized. earliest opportunity, either in its Protest to the PAN, Protest to the
In the present case, the September 3, 2008, February 16, 2009 and
FAN, or Supplemental Protest to the FAN.
December 2, 2009 Waivers failed to indicate the speci ic tax
Vis-a-vis the ive Waivers it received from respondent, the BIR has Second, respondent does not dispute petitioner's assertion that involved and the exact amount of the tax to be assessed or
failed, for ive times, to perform its duties in relation thereto. respondent repeatedly failed to comply with petitioner's notices, collected. Clearly, the Waivers did not effectively extend the
directing it to submit its books of accounts and related records for prescriptive period under Section 203 on account of their invalidity.
The general rule is that when a waiver does not comply with the
examination by the BIR. The issue on whether the CTA was correct in not admitting them as
requisites for its validity speci ied under RMO No. 20-90 and RDAO
01-05, it is invalid and ineffective to extend the prescriptive period to Thus, having bene ited from the Waivers executed at its instance, evidence becomes immaterial since even if they were properly
assess taxes. However, due to its peculiar circumstances, We shall respondent is estopped from claiming that they were invalid and that offered or considered by the CTA, the same conclusion would be
treat this case as an exception to this rule and ind the Waivers valid. prescription had set in. reached — the assessments had prescribed as there was no valid
waiver.
It is true that petitioner was also at fault here because it was careless CIR v. Avon Products Manufacturing 2018 Leonen, J
in complying with the requirements of RMO No. 20-90 and RDAO c. Administrative remedies
01-05. Nevertheless, petitioner's negligence may be addressed by The estoppel upheld in the RCBC case arose from
i. Tax lien
enforcing the provisions imposing administrative liabilities upon the a) the bene it obtained by the taxpayer from its execution of the
of icers responsible for these errors. The BIR's right to assess and waiver, in the form of a drastic reduction of the de iciency ➔ A legal claim or charge on property as security for the payment
collect taxes should not be jeopardized merely because of the taxes, and of tax due.
mistakes and lapses of its of icers, especially in cases like this b) the taxpayer's payment of a portion of the reduced tax
where the taxpayer is obviously in bad faith. assessment. ➔ Attaches from the time when the assessment was made by the
Commissioner until paid, with interests, penalties, and costs
Here, Avon did not receive any bene it from the waivers. On the
CIR v. Systems Technology, Inc. 2017 that may accrue in addition thereto upon all property and rights
contrary, there was even a drastic increase in the assessed de iciency
RCBC is not on all fours with the instant case. The estoppel upheld in taxes when the Commissioner increased the alleged sales to property belonging to the taxpayer.
discrepancy. Under these circumstances, Avon's payment of an

lOMoARcPSD|4853470
himself to preserve the same intact and unaltered and not

➔ Shall not be valid against any mortgagee, purchaser or judgment iii. Forfeiture of real property
to dispose of the same without the express authority of the
creditor until notice of such lien shall be iled by the
CIR. It is thus a preventive remedy. In case
Commissioner in the of ice of the Register of Deeds of the
province or city where the property of the taxpayer is situated Levy upon real property and interest in rights to real property; 1. there is no bidder for real property exposed for sale or
or located. Garnishment is a warning to a person in whose hands the effects 2. if the highest bid is for an amount insuf icient to pay the taxes,
➔ The claim of the government for unpaid taxes may only be of another are attached, not to pay the money or deliver the penalties and costs,
defeated by claims of unpaid wages if the employer-taxpayer is property or allow the withdrawal of deposits of the defendant in his
the Internal Revenue Of icer conducting the sale shall declare the
bankrupt or under liquidation at the time the warrants of hands.
property forfeited to the Government in satisfaction of the claim in
distraint and levy were issued. The BIR is authorized to issue a warrant of garnishment despite question.
➔ CIR v. Pineda. BIR may collect the de iciency tax due from one the pendency of a protest.
Within one (1) year from the date of such forfeiture, the taxpayer,
heir only or from all the heirs in proportion to their inheritance It is an administrative remedy allowed by law to enforce a tax or any one for him, may redeem said property.
received. The liability, however, shall not exceed the amount of liability. Bank accounts shall be garnished by serving a warrant
the heir’s share. The reason is that the government has a lien on iv. Suspension of business operation
of garnishment upon the taxpayer and upon the president,
the property received by the heir from the estate for unpaid manager, treasurer, or other responsible of icer of the bank. The CIR is empowered to suspend the business operations and
income taxes for which said estate was liable. (§208, NIRC) temporarily close the business establishment of any person for any
ii. Distraint and levy The remedy by distraint of personal property and levy on realty of the following violations:
may be repeated if necessary until the full amount due, including a) In the case of a VAT-registered Person. —
Distraint of goods, chattels, or effects, and other personal
all expenses, is collected.
property of whatever character, including stocks and other 1) Failure to issue receipts or invoices;
securities, debts, credits, bank accounts and interest in and rights to Redemption of property sold — Within one (1) year from the
date of sale, the delinquent taxpayer, or any one for him, shall have 2) Failure to ile a VAT return as required under Section
personal property.
the right of paying to the Revenue District Of icer the amount of the 114; or
a) Actual — seizure and taking possession of personal
public taxes, penalties, and interest thereon from the date of 3) Understatement of taxable sales or receipts by thirty
property of taxpayer.
delinquency to the date of sale, together with interest on said percent (30%) or more of his correct taxable sales or
b) Constructive — CIR may place under constructive purchase price at the rate of ifteen percent (15%) per annum receipts for the taxable quarter.
distraint the property of a delinquent taxpayer or ANY from the date of purchase to the date of redemption.
taxpayer who, in his opinion, b) Failure of any Person to Register as Required under Section
The owner shall not be deprived of the possession of the said
236.
i) is retiring from any business subject to tax, or property and shall be entitled to the rents and other income thereof
ii) is intending to leave the Philippines or to remove until the expiration of the time allowed for its redemption. The temporary closure of the establishment shall be for the
duration of not less than ive (5) days and shall be lifted only
his property therefrom or Marcos II v. CA. The BIR is authorized to collect estate tax
upon compliance with whatever requirements prescribed by the
iii) to hide or conceal his property or de iciency through the summary remedy of levying upon and sale
CIR in the closure order. (Sec 115)
of real properties of a decedent, without the cognition and authority
iv) to perform any act tending to obstruct the
of the court sitting in probate over the supposed will of the v. Judicial remedies
proceedings for collecting the tax due or which
deceased, because the collection of estate tax is executive in
may be due from him. Civil actions
character. As such, the estate tax is EXEMPTED from the
This is done by requiring the taxpayer or any person application of the statute of non-claims. 1) Civil case for collection of sum of money
having possession or control of the personal property to
a) Below P300K — MTC;
sign a receipt covering the property distrained and obligate
lOMoARcPSD|4853470
b) P300K - P999,999 — RTC; Prescription shall begin to run Medical Group” after his preliminary investigation and arraignment
deprives him of the right to question the existence of this “entity.”
c) P1M or more — CTA. 1. from the day of the commission of the violation of the law, and
2. if the same be not known at the time, from the discovery The petitioner however has not drawn our attention to any of his
Here, the Republic is the party plaintiff.
thereof and the institution of judicial proceedings for its related operations that actually possesses its own juridical
2) Filing an answer to the petition for review iled by the taxpayer investigation and punishment. personality.
with the CTA.
The prescription shall be interrupted when proceedings are instituted Lucas G. Adamson, et al. v. CA
Here, the CIR is the respondent, not the Republic. against the guilty persons and shall begin to run again if the proceedings
An assessment contains not only a computation of tax liabilities, but
When collectibility of tax liability arises are dismissed for reasons not constituting jeopardy.
also a demand for payment within a prescribed period. It also
1) Self-assessed tax shown in the return was not paid within th The term of prescription shall not run when the offender is absent signals the time when penalties and interests begin to accrue against
from the Philippines. the taxpayer. To enable the taxpayer to determine his remedies
date prescribed by law;
thereon, due process requires that it must be served on and received
2) Final assessment is not protested administratively within 30 Dr. Joel C. Mendoza v. People and CTA 2014 by the taxpayer. Accordingly, an af idavit, which was executed by
days from date of receipt; revenue of icers stating the tax liabilities of a taxpayer and attached to
In the present case, the amendments sought by the prosecution
a criminal complaint for tax evasion, cannot be deemed an
pertains to (i) the alleged change in the date in the commission of the
3) Non-compliance with the condition laid in the approval of assessment that can be questioned before the CTA.
crime from 2001 to 2002; (ii) the addition of the phrase “doing
protest; business under the name and style of Mendez Medical Group;” (iii) The issuance of an assessment is vital in determining the period of
4) Failure to ile a timely appeal to the CTA on the inal decision of the change and/or addition of the branches of petitioner’s operation; limitation regarding its proper issuance and the period within which
the CIR or his authorized representative on the disputed and (iv) the addition of the phrase “for income earned.” We cannot to protest it.
see how these amendments would adversely affect any
assessment.
substantial right of the petitioner as accused. ➔ Section 203 of the NIRC provides that internal revenue taxes
When to go to court to collect tax liability? must be assessed within three years from the last day within
That the actual date of the commission of the offense pertains to the which to ile the return.
➔ FIVE (5) YEARS from the date of assessment. year 2002 is only consistent with the allegation in the information on ➔ Section 222, on the other hand, speci ies a period of ten
the taxable year it covers, i.e., for the taxable year 2001. Since the
➔ Republic v. Lim Tian Teng Sons instructs that the CIR is not years in case a fraudulent return with intent to evade was
information alleges that petitioner failed to ile his income tax return submitted or in case of failure to ile a return.
required to rule irst on the taxpayer’s request for for the taxable year 2001, then the offense could only possibly be ➔ Also, Section 228 of the same law states that said
reinvestigation before he can go to court for the purpose of committed when petitioner failed to ile his income tax return before assessment may be protested only within thirty days from
collecting the tax assessed. This is indicative of his decision the due date of iling, which is on April of the succeeding year, 2002. receipt thereof.
against reinvestigation and should prompt the taxpayer to ile
an appeal to the CTA. Since the petitioner operates as a sole proprietor from taxable years Necessarily, the taxpayer must be certain that a speci ic document
2001 to 2003, the petitioner should have iled a consolidated return constitutes an assessment.
Criminal actions in his principal place of business, regardless of the number and
location of his other branches. Consequently, we cannot but agree In the present case, the revenue of icers' Af idavit merely contained a
Two common crimes under NIRC: with the CTA that the change and/or addition of the branches of the computation of respondents' tax liability. It did not state a demand or
1) Attempt to evade or defeat tax; petitioner’s operation in the information does not constitute a period for payment. Worse, it was addressed to the justice
substantial amendment because it does not change the secretary, not to the taxpayers.
2) Failure to ile return, supply correct and accurate information, prosecution’s theory that the petitioner failed to ile his income
pay tax, withhold and remit tax, and refund excess taxes tax return. Section 222 states that an assessment is not necessary before a
withheld on compensation. criminal charge can be iled. This is the general rule. Private
We also reject for lack of merit petitioner’s claim that the inclusion of respondents failed to show that they are entitled to an exception.
All violations of any provision shall prescribe after ive (5) years. the phrase “doing business under the name and style of Mendez Moreover, the criminal charge need only be supported by a prima
lOMoARcPSD|4853470
facie showing of failure to ile a required return. This fact need not be tax. The perpetration of the crime is grounded upon knowledge on 3) The failure to make or ile the return was willful.
proven by an assessment. It must be stressed that a criminal the part of the taxpayer that he has made an inaccurate return, and the
complaint is instituted not to demand payment, but to penalize the government's failure to discover the error and promptly to assess has Failure to Supply Correct Information
taxpayer for violation of the Tax Code. no connections with the commission of the crime. 1) The accused is a person required to pay any tax, make a return,
keep any record, OR supply correct and accurate information;
The irst issue is whether the Commissioner's recommendation letter Tax Evasion
addressed to the Secretary of the DOJ recommending the iling of 2) The accused failed to supply correct and accurate information
criminal complaints against AMC and the aforecited persons for To establish the existence of fraud, the following requisites must be
at the time or times required by law or rules and regulations;
fraudulent returns and tax evasion can be considered as a formal present and established by competent evidence:
and
assessment of private respondents' tax liability.
1) The end to be achieved — the aim is to pay an amount of tax
3) Such failure to supply information is willful.
NO. Even a cursory perusal of the said letter would reveal three key that is less than that known by the taxpayer to be legally due;
points: Important points
2) The accompanying state of mind — described as being evil,
in bad faith, deliberate and not accident, or willful; and 1) The GR is that an assessment is NOT necessary before a
1. It was not addressed to the taxpayers.
criminal charge can be iled.
2. There was no demand made on the taxpayers to pay the tax 3) The overt act done or scheme used by the taxpayer — must
liability, nor a period for payment set therein. be tinged with some element of deceit, misrepresentation, 2) The charge need only be proved by a prima facie showing of
3. The letter was never mailed or sent to the taxpayers by the trick, device, concealment, or dishonesty. failure to ile a required tax return and such fact need not be
Commissioner. proved by an assessment. CIR v. Pascor Realty.
CIR v. The Estate of Benigno P. Toda, Jr., et al., supra
In ine, the said recommendation letter served merely as the prima 3) In the case of associations, partnerships or corporations, the
Tax avoidance is the tax saving device within the means sanctioned
facie basis for iling criminal informations. penalty shall be imposed on the partner, president, general
by law. This method should be used by the taxpayer in good faith and
at arms length. Tax evasion, on the other hand, is a scheme used manager, branch manager, treasurer, of icer-in-charge, and the
The next issue is whether the iling of the criminal complaints employees responsible for the violation.
outside of those lawful means and when availed of, it usually
against the private respondents by the DOJ is premature for lack of a
subjects the taxpayer to further or additional civil or criminal d. No injunction rule; exceptions
formal assessment.
liabilities.
NO. When fraudulent tax returns are involved as in the cases at bar, a No court shall have the authority to grant an injunction to restrain
Tax evasion connotes the integration of three factors: the collection of any national internal revenue tax, fee or charge
proceeding in court after the collection of such tax may be begun
without assessment. Here, the private respondents had already iled 1) the end to be achieved, i.e., the payment of less than that imposed by the NIRC. (Sec 218)
the capital gains tax return and the VAT returns, and paid the taxes known by the taxpayer to be legally due, or the non-payment
EXC There is a pending case iled in the CTA to enjoin the
they have declared due therefrom. Upon investigation of the of tax when it is shown that a tax is due;
collection of tax. The following conditions concur:
examiners of the BIR, there was a preliminary inding of gross 2) an accompanying state of mind which is described as
discrepancy. being “evil,” in “bad faith,” “willful,”or “deliberate and not 1) There is an appeal to the CTA;
accidental”; and
Thus, the applicability of Ungab v. Cusi is evident to the cases at bar. 2) In the opinion of the court, the collection by the
3) a course of action or failure of action which is unlawful.
In this seminal case, this Court ruled that there was no need for government may jeopardize the interest of the government
precise computation and formal assessment in order for criminal and/or the taxpayer; and
Non- iling of Tax Return
complaints to be iled against him.
1) The accused is a person required to make or ile a return; 3) Taxpayer either to deposit the amount claimed or to ile a
An assessment of a de iciency is not necessary to a criminal surety bond of not more than double the amount.
prosecution for willful attempt to defeat and evade the income 2) The accused failed to make or ile the return at the time
tax. A crime is complete when the violator has knowingly and required by law; and However, the bond requirement may be dispensed with at
willfully iled a fraudulent return, with intent to evade and defeat the the sound discretion of the court, or whenever the method
lOMoARcPSD|4853470
employed by the CIR in the collection of tax is not

b. Surcharge imposition was unjust and excessive considering that: 1) petitioner
sanctioned by law. paid the tax due just one day after the deadline; 2) such belated iling
There shall be imposed, in addition to the tax required to be paid, a
4. Civil penalties was due to circumstances beyond petitioner's control; and 3)
penalty equivalent to twenty- ive percent (25%) of the petitioner acted in good faith.
a. Delinquency interest vs. deficiency interest amount due, in the following cases:
The CTA En Banc, citing the CIR's April 3, 2014 Letter, found that there
In General. — There shall be assessed and collected on any unpaid 1) Failure to ile any return and pay the tax due thereon on
was no advice on eFPS unavailability on November 29, 2011 and the
amount of tax, interest at the rate of double the legal interest rate the date prescribed; or delay could have been easily avoided had petitioner undertook to ile
(12%) for loans or forbearance of any money in the absence of an 2) Unless otherwise authorized by the CIR, iling a return with its ITR earlier or before the deadline. Moreover, the CTA En Banc
express stipulation as set by the BSP from the date prescribed for an internal revenue of icer other than those with whom the ruled that the surcharge was not unjust nor excessive.
payment until the amount is fully paid: return is required to be iled; or In the present case, the Court inds no abuse of authority on the part
Provided, That in no case shall the de iciency and the 3) Failure to pay the de iciency tax within the time of the CTA. Verily, the indings of the CTA, supported as they are by
delinquency interest be imposed simultaneously. prescribed for its payment in the notice of assessment; or logic and law, carry great weight in the proper interpretation of what
constitutes as "circumstances beyond control." Undeniably, a
De iciency Interest. — Any de iciency in the tax due shall be 4) Failure to pay the full or part of the amount of tax shown technical malfunction is not a situation too bleak so as to render
subject to the 12% interest, which interest shall be assessed and on any return required to be iled, or the full amount of tax petitioner completely without recourse. As correctly observed by the
collected from the date prescribed for its payment until the full due for which no return is required to be iled, on or before CTA, petitioner would not incur delay in the iling of its ITR if only it
payment thereof, or upon issuance of a notice and demand by the the date prescribed for its payment. iled the same before the deadline and not at the 11th hour or on the
last day of iling.
CIR, whichever comes earlier. The penalty to be imposed shall be ifty percent (50%) of the tax
Delinquency Interest. — In case of failure to pay: or of the de iciency tax, in case any payment has been made on the Further, the Court agrees that the surcharge imposed upon petitioner
basis of such return before the discovery of the falsity or fraud: was not unjust or excessive pursuant to Section 248(A)(1) of the
1) The amount of the tax due on any return to be iled, or 1997 NIRC which provides for the imposition of a penalty equivalent
1) In case of willful neglect to ile the return within the
to 25% of the amount due for failure to timely ile any return and pay
2) The amount of the tax due for which no return is required, period prescribed by this Code or by rules and regulations, the tax due thereon. Dura lex sed lex.
or or
3) A de iciency tax, or any surcharge or interest thereon on 2) In case a false or fraudulent return is willfully made. c. Compromise Penalty
the due date appearing in the notice and demand of the CIR, A substantial under-declaration of taxable sales, receipts or COMPROMISE PENALTY COMPROMISE
there shall be assessed and collected on the unpaid amount, interest income, or a substantial overstatement of deductions, shall
at the rate of 12% until the amount is fully paid, which interest constitute prima facie evidence of a false or fraudulent return. An amount paid by a taxpayer to
shall form part of the tax. compromise a tax violation that Amount paid to settle civil
Failure to report sales, receipts or income in an amount exceeding
he has committed, which may be liability for tax assessed by the
Interest on Extended Payment. — If any person required to pay thirty percent (30%) of that declared per return, and a claim of the subject of criminal government.
the tax is quali ied and elects to pay the tax on installment, but deductions in an amount exceeding (30%) of actual deductions, prosecution.
fails to pay the tax or any installment hereof, or any part of such shall render the taxpayer liable for substantial under-declaration of
amount or installment on or before the date prescribed for its sales, receipts or income or for overstatement of deductions, as The basis is the gross sales or
The basis of the amount paid is
mentioned herein. receipts during the year or the tax
payment, or where the CIR has authorized an extension of time the basic tax assessed.
due.
within which to pay a tax or a de iciency tax or any part thereof, Qatar Airways Company with Limited Liability v. CIR 2020
there shall be assessed and collected interest at the rate of 12% on The amount set is based on the There is a minimum amount
the tax or de iciency tax or any part thereof unpaid from the date of Petitioner paid except for the surcharge. It sent a letter to the CIR nature of the tax violation and the prescribed depending on the
requesting for its abatement or cancellation on the ground that its minimum amount is not less ground.
notice and demand until it is paid.
lOMoARcPSD|4853470
than P1K. d) The revenue collected pursuant to the provisions of this Code LGUs shall have the authority to adjust the tax rates as
shall inure solely to the bene it of, and be subject to the prescribed herein
➔ Requires consent of the taxpayer and a validly entered disposition by, the LGU levying the tax, fee, charge or other
compromise agreement between the taxpayer and CIR. a) not oftener than once every ive (5) years,
imposition unless otherwise speci ically provided herein; and
b) but in no case shall such adjustment exceed ten
d. Fraud penalty e) Each local government unit shall, as far as practicable, evolve a
percent (10%) of the rates ixed under the LGC.
progressive system of taxation.
A taxpayer who iles a false return is liable to pay the fraud penalty f. Residual taxing power of local governments
of 50% of the tax due from him or of the de iciency tax in case 2. Nature and source of taxing power
payment has been made on the basis of the return iled before the A local government unit may exercise its residual power to tax
a. Grant of local taxing power under the LGC when there is neither a grant nor a prohibition by statute; or
discovery of the falsity or fraud.
Each local government unit shall exercise its power to create its when such taxes, fees, or charges are not otherwise speci ically
own sources of revenue and to levy taxes, fees, and charges enumerated in the Local Government Code, NIRC, as amended,
Local Taxation subject to the provisions herein, consistent with the basic or other applicable laws.
policy of local autonomy. Such taxes, fees, and charges shall 3. Scope of taxing power
A. LOCAL GOVERNMENT TAXATION accrue exclusively to the local government units. (Sec 129 LGC)
1) Each LGU shall exercise its power
1. Fundamental principles b. Authority to prescribe penalties for tax violations
a) to create its own sources of revenue and
Each local government unit shall have the power to create its own The sanggunian may impose a surcharge not exceeding
sources of revenues and to levy taxes, fees and charges subject to twenty- ive (25%) of the amount of taxes, fees or charges not b) to levy taxes, fees, and charges subject to the
such guidelines and limitations as the Congress may provide, paid on time and an interest at the rate not exceeding two provisions herein, consistent with the basic policy of
consistent with the basic policy of local autonomy. Such taxes, fees, percent (2%) per month of the unpaid taxes, fees or charges local autonomy.
and charges shall accrue exclusively to the local governments. (Sec including surcharges, until such amount is fully paid but in no Such taxes, fees, and charges shall accrue exclusively to it.
5 Art X, 1987 Constitution) case shall the total thirty-six (36) months.
2) LGUs may exercise the power to levy taxes, fees or charges on
The following fundamental principles shall govern the exercise of the c. Authority to grant local tax exemptions any base or subject not otherwise speci ically enumerated
taxing and other revenue-raising powers of LGUs: LGUs may, through ordinances duly approved, grant tax herein or taxed under the provisions of the NIRC:
a) Taxation shall be uniform in each LGU; exemptions, incentives or reliefs under such terms and Provided, That the taxes, fees, or charges shall not be unjust,
conditions as they may deem necessary. excessive, oppressive, con iscatory or contrary to declared
b) Taxes, fees, charges and other impositions shall:
d. Withdrawal of exemptions national policy:
1) be equitable and based as far as practicable on the
taxpayer's ability to pay; Unless otherwise provided in the LGC, tax exemptions or Provided, further, That the ordinance levying such taxes, fees or
incentives granted to, or presently enjoyed by all persons, charges shall not be enacted without any prior public hearing
2) be levied and collected only for public purposes; conducted for the purpose.
whether natural or juridical, including government-owned or
3) not be unjust, excessive, oppressive, or con iscatory; controlled corporations, except local water districts, 3) Any question on the constitutionality or legality of tax
cooperatives duly registered under R.A. No. 6938, non-stock ordinances or revenue measures may be raised on appeal
4) not be contrary to law, public policy, national
and non-pro it hospitals and educational institutions, are within thirty (30) days from the effectivity thereof to the
economic policy, or in the restraint of trade;
hereby withdrawn upon the effectivity of the LGC. Secretary of Justice who shall render a decision within sixty
c) The collection of local taxes, fees, charges and other
e. Authority to adjust local tax rates (60) days from the date of receipt of the appeal.
impositions shall in no case be let to any private person;
lOMoARcPSD|4853470
4) The power to impose a tax, fee, or charge or to generate revenue Every Delivery Truck or than Php any vehicle assemblers, repackers, schedule for the preceding
under the LGC shall be exercised by the sanggunian of the Van of Manufacturers or 500.00 processors of any article calendar year
Producers, Wholesalers of commerce of whatever
LGU concerned through an appropriate ordinance.
of, Dealers, or Retailers kind or nature
4. Specific taxing power of LGUs in, Certain Products
wholesalers, distributors,
gross sales or receipts
Province ● Professional Tax is paid where the taxpayer or dealers in any article See
for the preceding
of commerce of whatever schedule
TAX RATE BASE a) practices his profession or calendar year
kind or nature
the total consideration b) where he maintains his principal of ice in case he
exporters, and on
involved in the practices his profession in several places. a rate not exceeding one-half (½) of
Transfer of Real not more manufacturers , millers,
acquisition of the the rates prescribed under
Property Ownership than 0.5% Pelizloy Realty v. Province of Benguet 2013 Leonen, J producers, wholesalers of
property or of the fair subsection (a), (b) and (d)
essential commodities
market value ‘Other places of amusement’ must be interpreted in light of the
typifying characteristic of being venues “where one seeks admission gross annual receipts for the preceding
gross annual receipts to entertain oneself by seeing or viewing the show or calendar year
Business of Printing not more
for the preceding performances” or being venues primarily used to stage spectacles
and Publication than 0.5% retailers
calendar year. or hold public shows, exhibitions, performances, and other events 2% P400K or less
meant to be viewed by an audience.
- In the case of a Not more 1% More than P400K
Thus, resorts, swimming pools, bath houses, hot springs and tourist
newly started than 1/20 of capital investment
spots do not belong to the same category or class as theaters,
business 1% gross sales or receipts
cinemas, concert halls, circuses, and boxing stadia. It follows that contractors and other See
they cannot be considered as among the ‘other places of amusement’ for the preceding
gross annual receipts independent contractors schedule
contemplated by Section 140 of the LGC and which may properly be calendar year
for the preceding
not more calendar year based on subject to amusement taxes.
Franchise Tax banks and other inancial not more gross receipts of the
than 0.5% the incoming receipt, or institutions than 0.5% preceding calendar year
realized, within its Alta Vista Golf and Country Club v. City of Cebu 2016
territorial jurisdiction. In light of Pelizloy Realty, a golf course cannot be considered a place peddlers engaged in the Not more
of amusement. As petitioner asserted, people do not enter a golf sale of any merchandise than Php Per peddler annually
- In the case of a Not more course to see or view a show or performance. Petitioner also, as or article of commerce 50.00
newly started than 1/20 of capital investment proprietor or operator of the golf course, does not actively display,
business 1% stage, or present a show or performance. People go to a golf course to gross sales or receipts
any business, not Not more
engage themselves in a physical sport activity. of the preceding
Sand, Gravel and Other Not more fair market value in the otherwise speci ied than 2%
calendar year.
Quarry Resources than 10% locality per cubic meter Municipalities
Essential Commodities
Professional Tax Not more than Php 300.00 May levy taxes, fees, and charges not otherwise levied by provinces.
1) Rice and corn;
Not more gross receipts from TAX RATE BASE
Amusement Tax 2) Wheat or cassava lour, meat, dairy products, locally
than 10% admission fees
Tax on Business manufactured, processed or preserved food, sugar, salt and
Annual Fixed Tax For Not more for every truck, van or other agricultural, marine, and fresh water products, whether in
manufacturers, See gross sales or receipts their original state or not;
lOMoARcPSD|4853470
3) Cooking oil and cooking gas; Barangays SMC shares as well as any resulting dividends or increments from
said shares are owned by the National Government and shall be used
4) Laundry soap, detergents, and medicine; a) Taxes — On stores or retailers with ixed business only for the bene it of the coconut farmers and for the development of
establishments with gross sales of receipts of the preceding the coconut industry. Thus, RAVI's management of the dividends
5) Agricultural implements. equipment and post-harvest facilities,
calendar year of from the SMC preferred shares, including placing the same in a trust
fertilizers, pesticides, insecticides, herbicides and other farm
account yielding interest, is not tantamount to doing business
inputs; i) P50K or less, in the case of cities and
whether as a bank or other inancial institution, i.e., an NBFI, but
6) Poultry feeds and other animal feeds; ii) P30K or less, in the case of municipalities, rather an activity that is essential to its nature as a CIIF holding
company.
7) School supplies; and at a rate not exceeding one percent (1%) on such
gross sales or receipts. City of Davao v. AP Holdings 2020
8) Cement.
b) Service Fees or Charges. — Barangays may collect reasonable As a CIIF holding company, is APHI liable to pay local business taxes
"Contractor" includes persons, natural or juridical, whose activity
fees or charges for services rendered in connection with the on its dividend earnings from its SMC preferred shares?
consists essentially of the sale of all kinds of services for a fee,
regulations or the use of barangay-owned properties or service
regardless of whether or not the performance of the service calls for the NO. In the recent case of City of Davao, et al. v. Randy Allied Ventures,
facilities such as palay, copra, or tobacco dryers.
exercise or use of the physical or mental faculties of such contractor or Inc. (RAVI), the Court ordained that RAVI, a CIIF holding company like
his employees. c) Barangay Clearance. — No city or municipality may issue APHI, was exclusively established to own and hold SMC shares of
any license or permit for any business or activity unless a stock. As such, it is not liable to pay local business taxes on the
Thus, a holding company cannot be assessed as a contractor.
clearance is irst obtained from the barangay where such dividends earned from its SMC preferred shares as the same shares
City of Pasig v. Meralco 2018 business or activity is located or conducted. are government assets owned by the national government for the
bene it of the coconut industry.
Under the LGC of 1991, a municipality is bereft of authority to levy For such clearance, the sangguniang barangay may impose a
and impose franchise tax on franchise holders within its territorial reasonable fee. In order to be considered as an NBFI under the NIRC, banking laws,
jurisdiction. That authority belongs to provinces and cities only. A and pertinent regulations, the following must concur:
franchise tax levied by a municipality is, thus, null and void. The d) Other fees and Charges. — The barangay may levy
1. The person or entity is authorized by the BSP to perform
nullity is not cured by the subsequent conversion of the reasonable fees and charges: quasi-banking functions;
municipality into a city.
1) On commercial breeding of ighting cocks, cock ights 2. The principal functions of said person or entity include the
Cities and cockpits; lending, investing or placement of funds or evidences of
indebtedness or equity deposited to them, acquired by them,
● The city may levy the taxes, fees, and charges which the 2) On places of recreation which charge admission fees; or otherwise coursed through them, either for their own
province or municipality may impose: and account or for the account of others; and
3) On billboards, signboards, neon signs, and outdoor 3. The person or entity must perform any of the following
Provided, however, That the taxes, fees and charges levied and
advertisements. functions on a regular and recurring, not on an isolated
collected by highly urbanized and independent
basis, to wit:
component cities shall accrue to them. City of Davao v. Randy Allied Ventures 2019 a. Receive funds from one (1) group of persons,
● The rates of taxes that the city may levy may exceed the WON RAVI is an NBFI subject to LBT under Section 143 (f) of the irrespective of number, through traditional
maximum rates allowed for the province or municipality by LGC. deposits, or issuance of debt or equity securities;
not more than ifty percent (50%) and make available/lend these funds to another
NO. RAVI is a CIIF holding company. The SMC preferred shares held person or entity, and in the process acquire debt or
except the rates of professional and amusement taxes. by it are considered government assets owned by the National equity securities;
Government for the coconut industry. As held in the same case, these b. Use principally the funds received for acquiring
lOMoARcPSD|4853470
tax, be considered as part of the gross receipts or earnings of

various types of debt or equity securities; 6. Community tax
said corporation.
c. Borrow against, or lend on, or buy or sell debt or
1) Cities or municipalities may levy a community tax.
equity securities. 4) Exemptions. — The following are exempt from the community
2) Individuals Liable to Community Tax. — Every inhabitant of tax:
APHI cannot be considered as a non-bank inancial intermediary
the Philippines
since its investment and placement of funds are not done in a regular 1) Diplomatic and consular representatives; and
or recurring manner for the purpose of earning pro it. Rather, its a) eighteen (18) years of age or over
2) Transient visitors when their stay in the Philippines
management of dividends from the SMC shares is only in furtherance
of its purpose as a CIIF holding company for the bene it of the b) who has been regularly employed on a wage or salary does not exceed three (3) months.
Republic. basis for at least thirty (30) consecutive working days
7. Common limitations on the taxing powers of LGUs
during any calendar year, or
All told, the City of Davao acted beyond its taxing authority when it Unless otherwise provided herein, the exercise of the taxing powers of
imposed the questioned business tax on APHI. c) who is engaged in business or occupation, or
provinces, cities, municipalities, and barangays shall not extend to the
d) who owns real property with an aggregate assessed levy of the following:
5. Common revenue raising powers value of P1K or more, or
a) Income tax,
a) Service Fees and Charges. — LGUs may impose and collect e) who is required by law to ile an income tax return
such reasonable fees and charges for services rendered. except when levied on banks and other inancial institutions;
shall pay an annual additional tax of P5.00 and an annual
b) Public Utility Charges. — LGUs may ix the rates for the b) Documentary stamp tax;
additional tax of P1.00 for every P1K of income regardless of
operation of public utilities owned, operated and maintained whether from business, exercise of profession or from property c) Taxes on estates, inheritance, gifts, legacies and other
by them within their jurisdiction. which in no case shall exceed P5K. acquisitions mortis causa,
c) Toll Fees or Charges. — The sanggunian concerned may 3) Juridical Persons Liable to Community Tax. — Every except as otherwise provided herein;
prescribe the terms and conditions and ix the rates for the corporation no matter how created or organized, whether
imposition of toll fees or charges for the use of any public road, d) Customs duties, registration fees of vessel and wharfage on
domestic or resident foreign, engaged in or doing business in
pier, or wharf, waterway, bridge, ferry or telecommunication wharves, tonnage dues, and all other kinds of customs fees,
the Philippines shall pay an annual community tax of P500.00
system funded and constructed by the local government unit charges and dues
and an annual additional tax, which, in no case, shall exceed
concerned: P10K in accordance with the following schedule: except wharfage on wharves constructed and maintained by
Provided, That no such toll fees or charges shall be collected the LGU concerned;
1) For every P5K worth of real property in the
from Philippines owned by it during the preceding year e) Taxes, fees, and charges and other impositions upon goods
1. of icers and enlisted men of the AFP and members of based on the valuation used for the payment of real carried into or out of, or passing through, the territorial
the PNP on mission, property tax under existing laws, found in the jurisdictions of local government units in the guise of charges
assessment rolls of the city or municipality where the for wharfage, tolls for bridges or otherwise, or other taxes,
2. post of ice personnel delivering mail, fees, or charges in any form whatsoever upon such goods or
real property is situated - Two pesos (P2.00); and
3. physically-handicapped, and disabled, and merchandise;
2) For every P5K of gross receipts or earnings derived by
4. citizens who are sixty- ive (65) years or older. it from its business in the Philippines during the "Wharfage" means a fee assessed against the cargo of a vessel
preceding year - Two pesos (P2.00). engaged in foreign or domestic trade based on quantity, weight,
When public safety and welfare so requires, the sanggunian
or measure received and/or discharged by vessel.
concerned may discontinue the collection of the tolls, and The dividends received by a corporation from another
thereafter the said facility shall be free and open for public use. corporation however shall, for the purpose of the additional
lOMoARcPSD|4853470
6810 and R.A. No. 6938 otherwise known as the "Cooperative

f) Taxes, fees or charges on agricultural and aquatic products Considering that exemption from payment of regulatory fees was not
Code of the Philippines" respectively; and among those “incentives” granted to petitioner under R.A. No. 6055,
when sold by marginal farmers or ishermen;
o) Taxes, fees or charges of any kind on the National there is no such incentive that is retained under the LGC of 1991.
"Marginal Farmer or Fisherman" refers to an individual Thus, petitioner is liable to pay the subject building permit and
Government, its agencies and instrumentalities, and LGUs.
engaged in subsistence farming or ishing which shall be related fees.
limited to the sale, barter or exchange of agricultural or marine Batangas City, et al. v. Pilipinas Shell 2015
products produced by himself and his immediate family. 8. Requirements for a valid tax ordinance
WON an LGU is empowered under the LGC to impose business taxes
g) Taxes on business enterprises certi ied to by the Board of on persons or entities engaged in the business of manufacturing 1) It must not contravene the Constitution or any statute;
Investments as pioneer or non-pioneer for a period of six (6) and distribution of petroleum products.
2) It must not be unfair or oppressive;
and four (4) years, respectively from the date of registration;
NO. Although the power to tax is inherent in the State, the same is not
3) It must not be partial or discriminatory;
h) true for LGUs because although the mandate to impose taxes granted
to LGUs is categorical and long established in the 1987 Philippine 4) It must not prohibit but may regulate trade;
(i) Excise taxes on articles enumerated under the NIRC, as Constitution, the same is not all encompassing as it is subject to
amended, and limitations as explicitly stated in Section 5, Article X of the 1987 5) It must be general and consistent with public policy; and
Constitution.
(ii) Taxes, fees or charges on petroleum products; 6) It must not be unreasonable.
NB: ALL types of taxes on petroleum are prohibited. Section 133(h) of the LGC clearly speci ies the two kinds of taxes 9. Taxpayer's remedies
which cannot be imposed by LGUs:
i) Percentage or VAT (VAT) on sales, barters or exchanges or a. Protest
similar transactions on goods or services 1) excise taxes on articles enumerated under the NIRC, as
amended; and When the local treasurer or his duly authorized representative
except as otherwise provided herein; 2) taxes, fees or charges on petroleum products. inds that correct taxes, fees, or charges have not been paid, he shall
j) Taxes on the gross receipts of transportation contractors and issue a notice of assessment stating the nature of the tax, fee, or
Indisputably, the power of LGUs to impose business taxes derives charge, the amount of de iciency, the surcharges, interests and
persons engaged in the transportation of passengers or freight from Section 143 of the LGC. However, the same is subject to the
by hire and common carriers by air, land or water, penalties.
explicit statutory impediment provided for under Section 133(h) of
the same Code which prohibits LGUs from imposing "taxes, fees or Within sixty (60) days from the receipt of the notice of
except as provided in this Code;
charges on petroleum products." It can, therefore, be deduced that
assessment, the taxpayer may ile a written protest with the local
k) Taxes on premiums paid by way or reinsurance or although petroleum products are subject to excise tax, the
same is speci ically excluded from the broad power granted to treasurer contesting the assessment; otherwise, the assessment
retrocession;
LGUs under Section 143(h) of the LGC to impose business taxes. shall become inal and executory.
l) Taxes, fees or charges for the registration of motor vehicles
The local treasurer shall decide the protest within sixty (60) days
and for the issuance of all kinds of licenses or permits for the Additionally, Section 133(h) of the LGC makes plain that the
prohibition with respect to petroleum products extends not only to from the time of its iling. If the local treasurer inds the protest to
driving thereof,
excise taxes thereon, but all "taxes, fees or charges." be wholly or partly meritorious, he shall issue a notice cancelling
except tricycles; wholly or partially the assessment. However, if the local treasurer
Article 232(h) of the Implementing Rules and Regulations (IRR) of inds the assessment to be wholly or partly correct, he shall deny
m) Taxes, fees, or other charges on Philippine products actually the LGC provides that businesses engaged in the production, the protest wholly or partly with notice to the taxpayer.
exported, manufacture, re ining, distribution or sale of oil, gasoline, and other
petroleum products, shall not be subject to any local tax imposed by The taxpayer shall have thirty (30) days
except as otherwise provided herein;
Article 232.
n) Taxes, fees, or charges, on Countryside and Barangay Business a) from the receipt of the denial of the protest or
Enterprises and cooperatives duly registered under R.A. No. Angeles University Foundation v. City of Angeles 2012
lOMoARcPSD|4853470
b) from the lapse of the sixty (60) day period prescribed 5. Within thirty (30) days after receipt of the decision or the lapse
herein of the sixty-day period without the SOJ acting upon the appeal, 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
the aggrieved party may ile appropriate proceedings with a
within which to appeal with the court of competent jurisdiction receipt of the notice of assessment; otherwise, the assessment shall
court of competent jurisdiction.
otherwise the assessment becomes conclusive and unappealable. become inal and conclusive. Additionally, the subsequent court
City Treasurer of Manila v. Philippine Beverage Partners 2019 action must be initiated within thirty (30) days from denial or
NB: Note that this does not require payment under protest unlike inaction by the local treasurer; otherwise, the assessment becomes
that in RPTs. However, non-payment of local business tax may WON a taxpayer who protested an assessment may later on conclusive and unappealable.
make the business illegal since a mayor’s permit may not then be institute a judicial action for refund.
issued. Better just pay under protest. Simply put, there are two conditions that must be satis ied in order to
YES. Petitioner contends that the assessment against respondent successfully prosecute an action for refund in case the taxpayer had
b. Refund became inal and executory when the latter effectively abandoned its received an assessment.
protest and instead sued in court for the refund of the assessed taxes
No case or proceeding shall be maintained in any court for the One, pay the tax and administratively assail within 60 days the
and charges.
recovery of any tax, fee, or charge erroneously or illegally collected assessment before the local treasurer, whether in a letter-protest
until a written claim for refund or credit has been iled with the The Court has settled in Cosmos that a taxpayer facing an assessment or in a claim for refund.
local treasurer. issued by the local treasurer may protest it and alternatively:
Two, bring an action in court within thirty (30) days from
No case or proceeding shall be entertained in any court after the 1) appeal the assessment in court, or decision or inaction by the local treasurer, whether such action is
expiration of two (2) years 2) pay the tax, and thereafter, seek a refund. denominated as an appeal from assessment and/or claim for
refund of erroneously or illegally collected tax.
a) from the date of the payment of such tax, fee, or charge, or Where an assessment is to be protested or disputed, the taxpayer may
proceed WON the alleged de iciency taxes of respondent may be used to offset
b) from the date the taxpayer is entitled to a refund or credit.
its claim for refund.
(a) without payment, or
c. Action before the Secretary of Justice
NO. The issuance of a notice of assessment is mandatory before the
Section 187. Procedure for Approval and Effectivity of Tax, the taxpayer's procedural remedy is governed strictly by local treasurer may collect de iciency taxes from the taxpayer. The
Ordinances and Revenue Measures; Mandatory Public Hearings. Section 195. That is, in case of whole or partial denial of the notice of assessment is not only a requirement of due process but it
protest, or inaction by the local treasurer, the taxpayer's only also stands as the irst instance the taxpayer is of icially made aware
— The procedure for approval of local tax ordinances and revenue
recourse is to appeal the assessment with the court of of the pending tax liability. The local treasurer cannot simply collect
measures shall be in accordance with the provisions of this Code: competent jurisdiction. The appeal before the court does not de iciency taxes for a different taxing period by raising it as a defense
1. Public hearings shall be conducted for the purpose prior to the seek a refund but only questions the validity or correctness in an action for refund of erroneously or illegally collected taxes.
enactment thereof. of the assessment
(b) with payment of the assessed tax, fee or charge. 10. Assessment and collection of local taxes
2. Any question on the constitutionality or legality of tax
ordinances or revenue measures may be raised on appeal a. Situs
the taxpayer may thereafter maintain an action in court
within thirty (30) days from the effectivity thereof to the questioning the validity and correctness of the assessment a) For purposes of collection of the taxes under Section 143 of
Secretary of Justice. (Section 195, LGC) and at the same time seeking a refund of this Code, manufacturers, assemblers, repackers, brewers,
3. The SOJ shall render a decision within sixty (60) days from the taxes. In truth, it would be illogical for the taxpayer to
distillers, recti iers and compounders of liquor, distilled spirits
only seek a reversal of the assessment without praying for
the date of receipt of the appeal. and wines, millers, producers, exporters, wholesalers,
the refund of taxes. Once the assessment is set aside by the
court, it follows as a matter of course that all taxes paid distributors, dealers, contractors, banks and other inancial
4. Such appeal shall NOT have the effect of suspending the
under the erroneous or invalid assessment are refunded to institutions, and other businesses, maintaining or operating
effectivity of the ordinance and the accrual and payment of the
the taxpayer. branch or sales outlet elsewhere shall record the sale in the
tax, fee, or charge levied therein.
lOMoARcPSD|4853470
branch or sales outlet making the sale or transaction, and appropriate administrative or judicial action, not only upon any
e) The foregoing sales allocation shall be applied irrespective of
the tax thereon shall accrue and shall be paid to the property or rights therein which may be subject to the lien but
whether or not sales are made in the locality where the factory,
municipality where such branch or sales outlet is located. also upon property used in business, occupation, practice of
project of ice, plant, or plantation is located.
profession or calling, or exercise of privilege with respect to
In cases where there is no such branch or sales outlet in the
The City of Makati v. The Municipality of Bakun and Luzon Hydro which the lien is imposed.
city or municipality where the sale or transaction is made, the
Corporation 2020
sale shall be duly recorded in the principal of ice and the taxes The lien may only be extinguished upon full payment of the
due shall accrue and shall be paid to such city or municipality. WON LHC's Makati of ice was a project of ice or a mere delinquent local taxes fees and charges including related
administrative of ice, in order to determine whether or not it had a surcharges and interest.
b) The following sales allocation shall apply to manufacturers, right to participate in the 70% portion of LHC's business tax.
assemblers, contractors, producers, and exporters with 2) Distraint and Levy. — By administrative action thru distraint
factories, project of ices, plants, and plantations in the Mere Administrative Of ice NOT entitled to a share of the 70%. of goods, chattels, or effects, and other personal property of
pursuit of their business: whatever character, including stocks and other securities,
A project of ice has been de ined as "equivalent to the factory of a
manufacturer." debts, credits, bank accounts, and interest in and rights to
1) Thirty percent (30%) of all sales recorded in the
personal property, and by levy upon real property and interest
principal of ice shall be taxable by the city or
The subject tax is a tax on business, particularly one that is expressly in or rights to real property.
municipality where the principal of ice is located; imposed on gross sales recorded. For this reason, it was relevant to
and the CTA's discussion to consider that invoices or records of all sales The remedies by distraint and levy may be repeated if
are not handled by LHC's Makati of ice, nor does it operate any aspect necessary until the full amount due, including all expenses, is
2) Seventy percent (70%) of all sales recorded in the
or primary purpose of LHC as provided in its Articles of collected.
principal of ice shall be taxable by the city or Incorporation.
municipality where the factory, project of ice, plant, 3) Judicial action. — The LGU concerned may enforce the
or plantation is located. The rules on tax allocation in relation to tax situs under Sec. 150 of collection of delinquent taxes, fees, charges or other revenues
R.A. No. 7160 come into play when a business subject to it does not by civil action in any court of competent jurisdiction. The civil
c) In case of a plantation located at a place other than the place operate a branch or sales of ice outside of its principal of ice where action shall be iled by the local treasurer within the period
where the factory is located, said seventy percent (70%) shall all sales are recorded, but has a factory, project of ice, plant, or prescribed in Section 194.
be divided as follows: plantation situated in different localities, whether or not sales are
made in these localities. NPC v. City of Cabanatuan 2014 Leonen, J
1) Sixty percent (60%) to the city or municipality where
the factory is located; and Thus, even if no sales were recorded or undertaken at LHC's Makati Section 168 of the LGC categorically provides that the LGU may
of ice, Makati would have been entitled to share with LHC's power impose a surcharge not exceeding 25% of the amount of taxes, fees,
2) Forty percent (40%) to the city or municipality plant sites in the 70% portion of the business tax if it could be shown or charges not paid on time.
where the plantation is located. that the Makati of ice was a project of ice of LHC akin to a factory. The The surcharge is a civil penalty imposed once for late payment of a
enumeration itself - factory, project of ice, plant, or plantation — tax. Contrast this with the succeeding provisions on interest, which
d) In cases where a manufacturer, assembler, producer, exporter or
reveals the character of the of ice contemplated by the provision. was imposable at the rate not exceeding 2% per month of the unpaid
contractor has two (2) or more factories, project of ices, plants, These are of ices directly involved in production or operations; taxes until fully paid. The fact that the interest charge is made
or plantations located in different localities, the seventy hence, the inescapable conclusion that LHC's Makati of ice was a proportionate to the period of delay, whereas the surcharge is not,
percent (70%) sales allocation shall be prorated among the mere administrative of ice. clearly reveals the legislative intent for the different modes in their
localities where the factories, project of ices, plants, and application.
plantations are located in proportion to their respective b. Remedies of LGUs
volumes of production during the period for which the tax is Section 191. Authority of LGUs to Adjust Rates of Tax
1) Local Government's Lien. — Local taxes, fees, charges and
due. Ordinances. — LGUs shall have the authority to adjust the tax rates
other revenues constitute a lien, superior to all liens, charges
as prescribed herein not oftener than once every ive (5) years,
or encumbrances in favor of any person, enforceable by
lOMoARcPSD|4853470
but in no case shall such adjustment exceed ten percent (10%) of

ordinances is 20 years, Ordinance No. 7807 having been enacted in 3) The taxpayer is out of the country or otherwise cannot
the rates ixed under this Code. 1993, and Ordinance No. 8331 in 2013. However, this does not justify be located.
Mindanao Shopping Destination Corp v. Duterte 2017 En Banc the accumulation of allowable increases and then their subsequent
one-time imposition. The option to increase the tax rates under the
Section 191 of the LGC presupposes that the following requirements LGC arises every ive (5) years reckoned from the enactment of the B. REAL PROPERTY TAXATION
are present for it to apply, to wit: ordinance sought to be adjusted.
1) there is a tax ordinance that already imposes a tax in In the event that the LGU fails to make such adjustment within the 1. Fundamental principles
accordance with the provisions of the LGC; and ive (5)-year period, the option to increase the prevailing ordinance The appraisal, assessment, levy and collection of real property tax shall
2) there is a second tax ordinance that made adjustment on the remains open until such right is exercised, at which point, the ive
be guided by the following fundamental principles:
tax rate ixed by the irst tax ordinance. (5)-year period of limitation starts to run again.
On the other hand, were the LGU decides to make such adjustment, a) Real property shall be appraised at its current and fair
Section 191 has no bearing in the instant case because what actually
took place in the questioned Ordinance was the correction of an the basis for the increase would be the prevailing tax rate. market value;
erroneous classi ication, and not, an upward adjustment or increase b) Real property shall be classi ied for assessment purposes on
of tax rates. The fact that there occurred an increase in payment due c. Prescriptive period
the basis of its actual use;
to the reclassi ication is of no moment, because:
i. Local taxes, fees, or charges shall be assessed within ive (5) Even if the user is not the owner.
1) reclassi ication is not prohibited;
years from the date they became due. No action for the
2) reclassi ication was made to effect a correction; and c) Real property shall be assessed on the basis of a uniform
collection of such taxes, fees, or charges, whether
classi ication within each local government unit;
3) the taxes imposed upon the reclassi ied taxpayers, was not administrative or judicial, shall be instituted after the
amended or increased from that stated in the LGC. expiration of such period. d) The appraisal, assessment, levy and collection of real property
However, while Davao City may rectify and amend their old tax tax shall not be let to any private person; and
ii. In case of fraud or intent to evade the payment of taxes, fees, or
ordinance in order to give full implementation of the LGC, it, e) The appraisal and assessment of real property shall be
however, cannot impose a straight 1.25% at its initial charges, the same may be assessed within ten (10) years
equitable.
implementation of the LGC in so far as retailers are concerned. Davao from discovery of the fraud or intent to evade payment.
City should, at the very least, start with 1% (the minimum tax rate) 2. Nature
as provided under Section 143(d) of the LGC. While Davao City iii. Local taxes, fees, or charges may be collected within ive (5)
cannot be faulted in failing to immediately implement the LGC, years from the date of assessment by administrative or ➔ A tax on property.
petitioners cannot likewise be unjustly prejudiced by its initial judicial action. No such action shall be instituted after the
➔ A NATIONAL tax, not a local tax.
implementation of the LGC. expiration of said period.
Considering that 11 years had already elapsed from its implementing 3. Imposition
iv. The running of the periods of prescription provided in the
in 2006, Davao City could adjust its tax rate twice now which will
make its adjusted tax rate for retailers pegged at 1.2%, in accordance preceding paragraphs shall be suspended for the time during
which: Provinces, Cities, and Municipality WITHIN Metro
with Section 191 of the LGC. To clarify, from 2006-2011 ( irst 5 Authority
Manila
years), the initial tax rate should start with 1%; from 2011-2016 1) The treasurer is legally prevented from making the
(next 5 years) - 1.1%, thus, for the years 2017-2021, the tax Subject Land, Building, Machinery, Improvement
assessment of collection;
adjustment is 1.21%. However, for this purpose, Davao City should
pass an ordinance to give effect to the above-discussed tax 2) The taxpayer requests for a reinvestigation and executes a Basic — 1% for Provinces;
adjustments. waiver in writing before expiration of the period within Tax Rate — 2% for Cities and Muni in MM
which to assess or collect; and Special Educational Fund — 1%
De Lima v. City of Manila 2018
The Court is mindful that the interval of time between the two Tax Base Assessed Value
lOMoARcPSD|4853470
𝐴𝑠𝑠𝑒𝑠𝑠𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝐹𝑎𝑖𝑟 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 × 𝐴𝑠𝑠𝑒𝑠𝑠𝑚𝑒𝑛𝑡 𝐿𝑒𝑣𝑒𝑙 Idle Lands Exempt from Tax. — by reason of
b) the local water districts and GOCCs claiming exemption
NPC v. Province of Pangasinan 2019 a. force majeure,
must be engaged in
b. civil disturbance,
Whether the subject machinery and equipment are exempted from i) the supply and distribution of water and/or
RPT under Section 234(c) or Section 234(e) of R.A. 7160; whether the c. natural calamity or
same can be considered as a special class of real property under ii) the generation and transmission of electric power. d. any cause or circumstance which physically or legally
Section 216 of the same Act for a lower assessment of real property
tax; or whether NPC is entitled to the depreciation allowance under Likewise, to successfully claim for differential treatment or a prevents the owner of the property or person having
Section 225 thereof - all boil down to the pivotal issue of whether lower assessment level under Section 216, in relation to Section legal interest therein from improving, utilizing or
NPC has legal personality and interest to claim for such 218 of the same Act, the claimant must prove that the subject lands, cultivating the same.
exemptions and privileges. buildings, and other improvements are
3. Special Levy by LGUs. — A province, city or municipality
The Court has concluded that the tax exemptions and privileges a) actually, directly, and exclusively used for hospitals, may impose a special levy on the lands comprised within its
claimed by NPC cannot be recognized since it is not the actual, cultural, or scienti ic purposes; OR territorial jurisdiction specially bene ited by public works
direct, and exclusive user of the facilities, machinery and projects or improvements funded by the local government unit
equipment subject of the cases. b) owned and used by local water districts and GOCCs concerned:
rendering essential public services in the supply and
Indeed, real property tax liability rests on the owner of the property distribution of water and/or generation and transmission of The special levy shall not exceed sixty percent (60%) of
or on the person with the bene icial use thereof such as taxes on electric power. the actual cost of such projects and improvements,
government property leased to private persons or when tax including the costs of acquiring land and such other real
assessment is made on the basis of the actual use of the property. a. Power to levy property in connection therewith.
In this case, however, NPC is neither the owner nor the possessor or A province or city or a municipality within the Metropolitan It shall not apply to lands exempt from basic real property tax
bene icial user of the subject facilities. Hence, it cannot be considered Manila Area may levy an annual ad valorem tax on real property such and the remainder of the land portions of which have been
to have any legal interest in the subject property to clothe it with the as land, building, machinery, and other improvement not speci ically donated to the local government unit concerned for the
personality to question the assessment and claim for exemptions and exempted. construction of such projects or improvements.
privileges.
a) In the case of a province, at the rate not exceeding one percent
b. Exemption from real property tax
Until the transfer of the project to NPC, it does not have anything to do (1%) of the assessed value of real property; and
with the use and operation of the power plant. The direct, actual, Section 234 of the LGC provides for the exemptions from payment of
b) In the case of a city or a municipality within the
exclusive, and bene icial owner and user of the power station, real property taxes and withdraws previous exemptions therefrom
machineries, and equipment certainly pertains to Mirant. NPC, Metropolitan Manila Area, at the rate not exceeding two granted to natural and juridical persons, including GOCCs, except as
therefore, has no legal personality to question on the assessment percent (2%) of the assessed value of real property. provided therein.
or claim for exemption and privileges with regard to the tax liability
Special levies These exemptions are based on the ownership, character, and use of
attached to the subject properties.
1. Additional Levy on Real Property for the Special Education the property. Thus:
The provisions invoked by NPC for entitlement to exemption and
Fund. — Annual tax of one percent (1%) on the assessed a) Ownership Exemptions. Exemptions from real property taxes
privilege are clear and unambiguous. To successfully claim
exemption under Section 234(c) of R.A. No. 7160, the claimant value of real property which shall be in addition to the basic on the basis of ownership are real properties owned by:
must prove that real property tax.
1) the Republic,
2. Additional Ad Valorem Tax on Idle Lands. — Annual tax on
a) the machinery and equipment are actually, directly and 2) a province,
exclusively used by local water districts and GOCCs; and idle lands at the rate not exceeding ive percent (5%) of the
assessed value of the property which shall be in addition to the 3) a city,
basic real property tax.
lOMoARcPSD|4853470
4) a municipality, there is a need to determine whether UP's property is used for ii) cultural, or
educational purposes or in support thereof before the property
5) a barangay, and may be subjected to real property tax. iii) scienti ic purposes, and
6) registered cooperatives. b) those owned and used by
The Contract of Lease between UP and ALI shows that the
b) Character Exemptions. Exempted from real property taxes on development of the subject land is clearly for an educational purpose, i) local water districts, and
the basis of their character are: or at the very least, in support of an educational purpose.
ii) GOCCs rendering essential public services in
1) charitable institutions, Considering that the subject land and the revenue derived from the
1) the supply and distribution of water and/or
lease thereof are used by UP for educational purposes and in support
2) houses and temples of prayer like churches, of its educational purposes, UP should not be assessed, and 2) generation and transmission of electric
parsonages or convents appurtenant thereto, mosques, should not be made liable for RPT on the land subject of this case. power.
and
Under RA 9500, this tax exemption, however, applies only to "assets b. Assessment based on actual use
3) non-pro it or religious cemeteries. of UP," referring to assets owned by UP. The improvements are not
"assets" owned by UP; and thus, UP's tax exemption under RA 9500 Real property shall be classi ied, valued and assessed on the basis
c) Usage exemptions. Exempted from real property taxes on the
does not extend to these improvements during the term of the lease. of its actual use regardless of where located, whoever owns it, and
basis of the actual, direct and exclusive use to which they are
whoever uses it. (Sec 217 LGC)
devoted are:
4. Appraisal and assessment
Zero level assessment. Applies to residential land assessed at not
1) all lands, buildings and improvements which are
a. Classes of real property more than P175K.
actually directly and exclusively used for religious,
charitable or educational purposes; 1) Residential. — land principally devoted to habitation. The provincial, city or municipal assessor shall undertake a general
revision of real property assessments within two (2) years after the
2) all machineries and equipment actually, directly and 2) Agricultural. — land devoted principally to the planting of
effectivity of this Code and every three (3) years thereafter.
exclusively used by local water districts or by trees, raising of crops, livestock and poultry, dairying, salt
government-owned or controlled corporations making, inland ishing and similar aquacultural activities, and 5. Collection
engaged in the supply and distribution of water and/or other agricultural activities;
a. Date of accrual
generation and transmission of electric power; and
3) Commercial. — land devoted principally for the object of
The real property tax for any year shall accrue on the irst day of
3) all machinery and equipment used for pollution pro it.
January and from that date it shall constitute a lien on the property
control and environmental protection.
4) Industrial. — land devoted principally to industrial activity as which shall be superior to any other lien, mortgage, or
UP v. City Treasurer of QC 2019 capital investment. encumbrance of any kind whatsoever, and shall be extinguished
only upon the payment of the delinquent tax.
WON UP is liable for RPT imposed on the subject property leased to 5) Mineral. — lands in which minerals, metallic or non-metallic,
Ayala Land. exist in suf icient quantity or grade to justify the necessary b. Periods to collect
expenditures to extract and utilize such materials.
NO. Generally, when bene icial use of a real property owned by a GR: 5 years from the due date.
government instrumentality is granted to a taxable person, then the 6) Timberland or
EXC: If there is fraud, 10 years.
taxable person is NOT exempted from paying real property tax on
such property. 7) Special. All lands, buildings, and other improvements thereon
Suspended when
a) actually, directly and exclusively used for 1) The local treasurer is legally prevented from collecting the
RA 9500, however, gave a speci ic tax exemption to UP which covers
the land subject of the present case. After the passage of said law, i) hospitals, tax;
lOMoARcPSD|4853470
2) The owner of the property or the person having legal interest and Ultimate properties which are now owned by respondent. To do
therein requests for reinvestigation and executes a waiver in These condition precedents were required by law in order to so would effectively make respondent liable for the payment of real
writing before the expiration of the period within which to guarantee the payment of the de iciency taxes assessed against the property taxes due on the Maxon property for the years 2000-2013
taxpayer, if and when the case is inally decided against the said and on the Ultimate properties for the years 1997-2013 when it did
collect; and
taxpayer. not yet own or had actual or bene icial use of the properties.
3) The owner of the property or the person having legal interest
therein is out of the country or otherwise cannot be located. The requirement of the bond as a condition precedent to the Parenthetically, respondent is exempt from paying real property
issuance of the writ of injunction applies only in cases where the taxes over the Maxon and Ultimate properties from the time it had
c. Remedies of LGUs processes by which the collection sought to be made by means acquired ownership and/or actual or bene icial use of the properties
thereof are carried out in consonance with the law for such cases pursuant to Section 24 of RA 7916, as amended by RA 8748.
Administrative
provided and NOT when said processes are obviously in violation of
1) Lien (Sec 257) the law to the extreme that they have to be suspended for jeopardizing As correctly ruled by the CA, there is nothing in Section 24 which
the interests of taxpayer. requires prior concurrence from the local government unit before
superior to all liens, charges or encumbrances in favor of any respondent can avail itself of the exemption provided under the law.
person, irrespective of the owner or possessor thereof, Verily, since the method employed by the respondent City in In fact, under Section 35 of RA No. 7916, the only requirement for
enforceable by administrative or judicial action, and may only collecting the realty taxes due - through the warrant of levy and business enterprises within a designated ECOZONE to avail
be extinguished upon payment of the tax and the related the eventual public auction of a property of public dominion - is not themselves of all incentives and bene its provided for under RA 7916
sanctioned by law, then it is NO longer necessary for the is to register with the PEZA. This requirement was satis ied by
interests and expenses.
petitioner to ile a surety bond as a condition precedent to respondent.
2) Distraint (Sec 254) suspend the tax collection.
PEZA issued Memorandum Circular No. 2004-024 which provides in
Personal property may be distrained to effect payment. Indeed, the Republic of the Philippines need not give this security as part that "PEZA-registered economic zone enterprises availing of the
it is presumed to be always solvent and able to meet its obligations. 5% [gross income tax] incentive are exempted from payment of all
3) Levy (Sec 258)
Thus, the petitioner, being an agent of the national government, national and local taxes, except real property tax on land owned by
After the expiration of the time required to pay the basic real is NOT required to put up a bond because to do so would be to developers."
property tax or any other tax levied under this Title, real indirectly require the state to submit such bond.
property subject to such tax may be levied upon through the In this case, there is nothing to indicate that respondent is a
Provincial Government of Cavite and Provincial Treasurer of developer. Thus, considering RA 7916, as amended, its IRR, and
issuance of a warrant on or before, or simultaneously with, the
Cavite v. CQM Management, Inc 2020 Memorandum Circular No. 2004-024, it is evident that save for the
institution of the civil action for the collection of the payment of 5% gross income tax, respondent is exempt from the
delinquent tax. The Provincial Government of Cavite and the Provincial Treasurer of payment of national and local taxes including real property tax on the
Cavite were enjoined by the CA from conducting a tax delinquency Maxon and Ultimate Properties.
Judicial. Civil action to be iled by the local treasurer. sale of the real properties of CQM Management, Inc.
Privatization and Management Of ice v. CTA 2019 6. Taxpayer's remedies
In National Power Corp. v. Province of Quezon, et al., the Court
WON petitioner, as an agency of the government, is exempt from explained that the liability for taxes generally rests on the owner of a. Contesting an assessment
posting a surety bond as a condition to the suspension of collection of the real property at the time the tax accrues as a necessary
real property tax. repercussion of exclusive dominion. However, personal liability for 1) Pay under Protest;
real property taxes may also expressly rest on the entity with the
2) File protest with Local treasurer within 30 days from payment;
YES. The CTA may order the suspension of the collection of taxes, bene icial use of the real property. In either case, the unpaid tax
provided that the taxpayer either: attaches to the property and is chargeable against the taxable 3) Appeal to LBAA 60 days from receipt of decision of local
person who had actual or bene icial use and possession of it treasurer who is granted 60 days to decide.
1) deposits the amount claimed; or regardless of whether or not he is the owner.
2) iles a surety bond for not more than double the amount. 4) Appeal to CBAA 30 days from receipt of decision;
Here, petitioners cannot conduct a tax delinquency sale of the Maxon
lOMoARcPSD|4853470
involving criminal offenses arising from violations of the

5) Appeal to CTA En banc 30 days from receipt of decision via A. JURISDICTION OF THE CTA
NIRC or the TCC and other laws administered by the BIR or
Rule 43;
En Banc BOC;
6) Supreme Court 15 days from receipt of decision via Rule 45.
The Court en banc shall exercise exclusive appellate jurisdiction to g) Decisions, resolutions or orders on motions for
b. Contesting a valuation of real property reconsideration or new trial of the Court in Division in the
review by appeal the following:
1) Contest to the LBAA 60 days from receipt of Notice of exercise of its exclusive appellate jurisdiction over criminal
a) Decisions or resolutions on motions for reconsideration or offenses mentioned in the preceding subparagraph; and
Assessment;
new trial of the Court in Divisions in the exercise of its
NO need to pay under protest. exclusive appellate jurisdiction over: h) Decisions, resolutions or orders of the RTCs in the exercise of
their appellate jurisdiction over criminal offenses mentioned
LBAA has 120 days to decide. 1) Cases arising from administrative agencies – BIR, in subparagraph (f).
BOC, DOF, DTI, DA;
2) CBAA — SC, same procedure. In Division
2) Local tax cases decided by the RTCs in the exercise of
c. Compromising real property tax assessment
their original jurisdiction; and The Court in Divisions shall exercise:
Condonation or Reduction of Real Property Tax and Interest.
3) Tax collection cases decided by the RTCs in the a) Exclusive original or appellate jurisdiction to review by
— In case of
exercise of their original jurisdiction involving inal appeal the following:
1. a general failure of crops or and executory assessments for taxes, fees, charges and 1) Decisions of the CIR in cases involving disputed
2. substantial decrease in the price of agricultural or penalties, where the principal amount of taxes and assessments, refunds of internal revenue taxes, fees or
agribased products, or penalties claimed is less than one million pesos; other charges, penalties in relation thereto, or other
3. calamity
b) Decisions, resolutions or orders of the RTCs in local tax cases matters arising under the NIRC or other laws
in any province, city or municipality, the sanggunian concerned, by decided or resolved by them in the exercise of their appellate administered by the BIR;
ordinance passed prior to the irst (1st) day of January of any year jurisdiction; 2) Inaction by the CIR in cases involving disputed
and upon recommendation of the Local Disaster Coordinating
c) Decisions, resolutions or orders of the RTCs in tax collection assessments, refunds of internal revenue taxes, fees or
Council, may condone or reduce, wholly or partially, the taxes and
cases decided or resolved by them in the exercise of their other charges, penalties in relation thereto, or other
interest thereon for the succeeding year or years in the city or
appellate jurisdiction; matters arising under the NIRC or other laws
municipality affected by the calamity. (Sec 276)
administered by the BIR, where the NaIRC or other
d) Decisions, resolutions or orders on motions for
Condonation or Reduction of Tax by the President of the applicable law provides a speci ic period for action:
reconsideration or new trial of the Court in Division in the
Philippines. — The President of the Philippines may, when Provided, that in case of disputed assessments, the
exercise of its exclusive original jurisdiction over tax
public interest so requires, condone or reduce the real collection cases; inaction of the CIR within the one hundred eighty
property tax and interest for any year in any province or city or a day-period under Section 228 of the NIRC shall be
municipality within the Metropolitan Manila Area. (Sec 277 LGC) e) Decisions of the Central Board of Assessment Appeals
deemed a denial for purposes of allowing the taxpayer
(CBAA) in the exercise of its appellate jurisdiction over cases
to appeal his case to the Court and does not
involving the assessment and taxation of real property
necessarily constitute a formal decision of the CIR on
Judicial Remedies originally decided by the provincial or city board of
the tax case;
assessment appeals;
Provided, further, that should the taxpayer opt to await
f) Decisions, resolutions or orders on motions for
the inal decision of the CIR on the disputed
reconsideration or new trial of the Court in Division in the
assessments beyond the one hundred eighty
exercise of its exclusive original jurisdiction over cases
lOMoARcPSD|4853470
day-period abovementioned, the taxpayer may appeal principal amount of taxes and fees, exclusive of
CIR v. Hambrecht & Quist Philippines 2010
such inal decision to the Court under Section 3(a), charges and penalties, claimed is P1M or more; and
Rule 8 of these Rules; and The appellate jurisdiction of the CTA is not limited to cases which
2) Appellate jurisdiction over appeals from the involve decisions of the CIR on matters relating to assessments or
Provided, still further, that in the case of claims for judgments, resolutions or orders of the RTCs in their refunds. The second part of the provision covers other cases that
refund of taxes erroneously or illegally collected, original jurisdiction in criminal offenses arising from arise out of the NIRC or related laws administered by the BIR.
the taxpayer must ile a petition for review with the violations of the NIRC or TCC and other laws
Court prior to the expiration of the two-year period administered by the BIR or the BOC, where the In the case at bar, the issue at hand is whether or not the BIR's right
to collect taxes had already prescribed and that is a subject matter
under Section 229 of the NIRC; principal amount of taxes and fees, exclusive of
falling under Section 223(c) of the 1986 NIRC, the law applicable at
charges and penalties, claimed is less than P1M or
3) Decisions, resolutions or orders of the RTCs in local the time the disputed assessment was made.
where there is no speci ied amount claimed;
tax cases decided or resolved by them in the exercise
Thus, the issue of prescription of the BIR's right to collect taxes may
of their original jurisdiction; c) Exclusive jurisdiction over tax collection cases, to wit:
be considered as covered by the term "other matters" over which
4) Decisions of the Commissioner of Customs in cases 1) Original jurisdiction in tax collection cases involving the CTA has appellate jurisdiction.
involving liability for customs duties, fees or other inal and executory assessments for taxes, fees,
To be sure, the fact that an assessment has become inal for failure of
money charges, seizure, detention or release of charges and penalties, where the principal amount of
the taxpayer to ile a protest within the time allowed only means that
property affected, ines, forfeitures of other penalties taxes and fees, exclusive of charges and penalties, the validity or correctness of the assessment may no longer be
in relation thereto, or other matters arising under the claimed is P1M or more; and questioned on appeal. However, the validity of the assessment itself
Customs Law or other laws administered by the BOC; is a separate and distinct issue from the issue of whether the right of
2) Appellate jurisdiction over appeals from the
the CIR to collect the validly assessed tax has prescribed. This issue
5) Decisions of the Secretary of Finance on customs judgments, resolutions or orders of the RTCs in tax
of prescription, being a matter provided for by the NIRC, is well
cases elevated to him automatically for review from collection cases originally decided by them within within the jurisdiction of the CTA to decide.
decisions of the Commissioner of Customs adverse to their respective territorial jurisdiction.
the Government under Section 2315 of the Tariff and NPC v. Municipal Govt. of Navotas, et al. 2014
Customs Code; and Lucas G. Adamson, et al. v. CA
WON the CTA Second Division has jurisdiction to review the decision
6) Decisions of the Secretary of Trade and Industry, in the Whether the CTA has no jurisdiction to take cognizance of both the
of the RTC which concerns a petition for declaratory relief involving
case of non-agricultural product, commodity or criminal and civil cases here at bar.
real property taxes.
article, and the Secretary of Agriculture, in the case of NO. Under Republic Act No. 1125 as amended, the rulings of the
agricultural product, commodity or article, involving YES. Indeed, the CTA, sitting as Division, has jurisdiction to review
Commissioner are appealable to the CTA. The power to decide
dumping and countervailing duties under Section 301 by appeal the decisions, rulings and resolutions of the RTC over local
disputed assessments, refunds of internal revenue taxes, fees or other
and 302, respectively, of the Tariff and Customs Code, tax cases, which includes real property taxes. This is evident from a
charges, penalties imposed in relation thereto, or other matters
perusal of the Local Government Code (LGC) which includes the
and safeguard measures under Republic Act No. 8800, arising under this Code or other laws or portions thereof
matter of Real Property Taxation under one of its main chapters.
where either party may appeal the decision to impose administered by the BIR is vested in the Commissioner, subject to the
Indubitably, the power to impose real property tax is in line with the
or not to impose said duties; exclusive appellate jurisdiction of the CTA.
power vested in the local governments to create their own revenue
b) Exclusive jurisdiction over cases involving criminal offenses, The jurisdiction of the CTA to entertain an appeal only from a inal sources, within the limitations set forth by law. As such, the
decision or assessment of the Commissioner, or in cases where the collection of real property taxes is conferred with the local treasurer
to wit:
Commissioner has not acted within the period prescribed by the rather than the BIR.
1) Original jurisdiction over all criminal offenses NIRC have not been changed. In the cases at bar, the Commissioner
The general meaning of “local taxes” should be adopted in relation to
arising from violations of the NIRC or TCC and other has not issued an assessment of the tax liability of private
Paragraph (a)(3) of Section 7 of R.A. 9282, which necessarily
laws administered by the BIR or the BOC, where the respondents.
lOMoARcPSD|4853470
includes real property taxes. review by the Secretary under Sec. 4 of the NIRC, and that of
the Secretary to the CA via Rule 43; WON the First Division of the CTA has jurisdiction to entertain V.Y.
As correctly pointed out by petitioner, when the legality or validity of 2. Respondents: The ruling of the Commissioner is subject to Domingo's petition for review.
the assessment is in question, and not its reasonableness or review by the Secretary under Sec. 4 of the NIRC, and that of
correctness, appeals to the LBAA, and subsequently to the CBAA, the Secretary to the Of ice of the President before appealing NO. From provisions of the law, a protesting taxpayer like V.Y.
pursuant to Sections 226 and 229 of the LGC, are NOT necessary. to the CA via a Rule 43 petition; and Domingo has only three options to dispute an assessment:
Stated differently, in the event that the taxpayer questions the 3. CA: The ruling of the Commissioner is subject to review by
authority and power of the assessor to impose the assessment, 1. If the protest is wholly or partially denied by the CIR or his
the CTA.
and of the treasurer to collect the real property tax, resort to authorized representative, then the taxpayer may appeal to
judicial action may prosper. Sec. 4 of the NIRC readily provides that the Commissioner’s power to the CTA within 30 days from receipt of the whole or partial
interpret the provisions of this Code and other tax laws is subject to denial of the protest;
In the case at bar, the claim of petitioner essentially questions the review by the Secretary of Finance. The issue that now arises is this 2. If the protest is wholly or partially denied by the CIR's
very authority and power of the Municipal Assessor to impose the — where does one seek immediate recourse from the adverse ruling authorized representative, then the taxpayer may appeal to
assessment and of the Municipal Treasurer to collect the real of the Secretary of Finance in its exercise of its power of review under the CIR within 30 days from receipt of the whole or partial
property tax with respect to the machineries and equipment located Sec. 4? denial of the protest;
in the Navotas I and II power plants. Certainly, it does not pertain to 3. If the CIR or his authorized representative failed to act upon
the correctness of the amounts assessed but attacks the validity of Admittedly, there is no provision in law that expressly provides the protest within 180 days from submission of the required
the assessment of the taxes itself. where exactly the ruling of the Secretary of Finance under the supporting documents, then the taxpayer may appeal to the
adverted NIRC provision is appealable to. However, We ind that Sec. CTA within 30 days from the lapse of the 180-day period.
In ine, if a taxpayer is not satis ied with the decision of the CBAA or 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the
the RTC, as the case may be, the taxpayer may ile, within thirty (30) law as it vests the CTA, albeit impliedly, with jurisdiction over the CA In this case, records show that on August 11, 2011, V.Y. Domingo
days from receipt of the assailed decision, a petition for review with petition as “other matters” arising under the NIRC or other laws received the PCL issued by petitioner CIR informing it of Assessment
the CTA pursuant to Section 7(a) of R.A. 9282. In cases where the administered by the BIR. Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 dated November 18,
question involves the amount of the tax or the correctness 2010. On September 12, 2011, the former sent a letter request to the
thereof, the appeal will be pursuant to Section 7(a)(5) of R.A. 9282. Even though the provision suggests that it only covers rulings of the BIR requesting for certi ied true copies of the said Assessment
When the appeal comes from a judicial remedy which questions the Commissioner, We hold that it is, nonetheless, suf icient enough to Notices.
authority of the local government to impose the tax, Section 7(a)(3) include appeals from the Secretary’s review under Sec. 4 of the NIRC.
of R.A. 9282 applies. Thereafter, such decision, ruling or resolution However, instead of iling an administrative protest against the
may be further reviewed by the CTA En Banc pursuant to Section 2, In the recent case of City of Manila v. Grecia-Cuerdo, the Court en assessment notice within thirty (30) days from its receipt of the
Rule 4 of the Revised Rules of the CTA. banc has ruled that the CTA now has the power of certiorari in requested copies of the Assessment Notices on September 15, 2011,
cases within its appellate jurisdiction. V.Y. Domingo elected to ile its petition for review before the CTA
Thus, the CTA En Banc erred in dismissing the petition for review en First Division on September 16, 2011, ratiocinating that the issuance
banc, and af irming the CTA Second Division’s position that the RTC Guided by the doctrinal teaching in resolving the case at bar, the fact of the PCL and the alleged inality of the terms used for demanding
has no jurisdiction over the instant case for failure of petitioner to that the CA petition not only contested the applicability of Sec. 100 of payment therein proved that its Request for Re-evaluation/
exhaust administrative remedies which resulted in the inality of the the NIRC over the sales transaction but likewise questioned the Re-investigation and Reconsideration had been denied by the CIR.
assessment. validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest
the CTA of its jurisdiction over the controversy, contrary to That V.Y. Domingo believed that the PCL "undeniably shows" the
Philamlife v. Sec. of Finance and CIR 2014 petitioner’s arguments. intention of the CIR to make it as its inal "decision" did not give it
cause of action to disregard the procedure set forth by the law in
Three different, if not con licting, positions as indicated below have CIR v. V.Y. Domingo Jewellers, Inc. 2019 protesting tax assessments and act prematurely by iling a petition
been advanced by the parties and by the CA as the proper remedy for review before the courts. The word "decisions" in the
open for assailing respondents’ rulings: Respondent iled a petition for review with the CTA on the basis of aforementioned provision of R.A. No. 9282 has been
the PCL issued by the CIR, without iling a protest. There was even no interpreted to mean the decisions of the CIR on the protest of
1. Petitioners: The ruling of the Commissioner is subject to assessment conducted yet as what was issued was a Preliminary the taxpayer against the assessments. De initely, said word does
Collection Letter.
lOMoARcPSD|4853470
premiums thereon in addition to the premiums of bond that

not signify the assessment itself. Where a taxpayer questions an b. Suspension of collection of taxes
assessment and asks the Collector to reconsider or cancel the same may be required under the LGC.
because he (the taxpayer) believes he is not liable therefor, the GR: No appeal taken to the Court shall suspend the
2. Civil cases payment, levy, distraint, or sale of any property of the
assessment becomes a "disputed assessment" that the Collector must
decide, and the taxpayer can appeal to the CTA only upon receipt of a. Mode and effect of appeal taxpayer for the satisfaction of his tax liability;
the decision of the Collector on the disputed assessment.
Review of cases in the Court en banc. — In cases falling EXC: Where the collection of the amount of the taxpayer’s
Evidently, V.Y. Domingo's immediate recourse to the CTA First under the exclusive appellate jurisdiction of the Court en banc, liability, sought by means of a demand for payment,
Division was in violation of the doctrine of exhaustion of the petition for review of a decision or resolution of the Court by levy, distraint or sale of any property of the
administrative remedies. in Division must be preceded by the iling of a timely taxpayer, or by whatever means, as provided under
motion for reconsideration or new trial with the Division. existing laws, may jeopardize the interest of the
B. PROCEDURE Government or the taxpayer, an interested party
a) An appeal from a decision or ruling or the inaction of
may ile a motion for the suspension of the
1. Filing of an action for collection of taxes
i) the CIR on disputed assessments or claim for collection of the tax liability.
a. Internal revenue taxes refund of internal revenue taxes erroneously
The motion may be iled
or illegally collected,
The civil remedies for the collection of internal revenue taxes,
a) together with the petition for review or
fees or charges, and any increment thereto resulting from ii) the decision or ruling of the Commissioner of
delinquency shall be: Customs, the Secretary of Finance, the b) with the answer, or
Secretary of Trade & Industry, the Secretary of c) in a separate motion iled by the interested party at
a) By distraint of goods, chattels, or effects, and other
Agriculture, and any stage of the proceedings.
personal property of whatever character, including
stocks and other securities, debts, credits, bank iii) the Regional Trial Court The adverse party shall, within ive days after receipt of a copy
accounts and interest in and rights to personal of the motion, ile an opposition thereto, if any.
in the exercise of their original jurisdiction,
property, and by levy upon real property and interest
in rights to real property; and shall be taken to the Court by iling before it a c. Injunction not available to restrain collection
petition for review as provided in Rule 42 3. Criminal cases
b) By civil or criminal action.
of the Rules of Court. The Court in Division
Either of these remedies or both simultaneously may be shall act on the appeal. a. Institution and prosecution of criminal action
pursued in the discretion of the authorities charged with the
b) An appeal from a decision or resolution of the Court in All criminal actions before the Court in Division in the exercise
collection of such taxes.
Division on a motion for reconsideration or new trial of its original jurisdiction shall be instituted by the iling of an
b. Local taxes shall be taken to the Court by petition for review as information in the name of the People of the Philippines.
All local taxes, fees, and charges shall be collected by the provided in Rule 43 of the Rules of Court. The Court In criminal actions involving violations of the NIRC and other
provincial, city, municipal, or barangay treasurer, or their duly en banc shall act on the appeal. laws enforced by the BIR, the CIR must approve their iling.
authorized deputies. c) An appeal from a decision or ruling of the CBAA or the In criminal actions involving violations of the TCC and other
The provincial, city or municipal treasurer may designate the RTC in the exercise of their appellate jurisdiction laws enforced by the BOC, the Commissioner of Customs must
barangay treasurer as his deputy to collect local taxes, fees, or shall be taken to the Court by iling before it a petition approve their iling.
charges. In case a bond is required for the purpose, the for review as provided in Rule 43 of the Rules of
The institution of the criminal action shall interrupt the
provincial, city or municipal government shall pay the Court. The Court en banc shall act on the appeal.
running of the period of prescription.
lOMoARcPSD|4853470
of a copy of the decision or inal order appealed from. The

All criminal actions shall be conducted and prosecuted under
Court en banc shall act on the appeal.
the direction and control of the public prosecutor. In criminal
actions involving violation of the NIRC or other laws enforced 4. Appeal to the CTA en banc
by the BIR, and violations of the TCC or other laws enforced by
The review of criminal cases in the Court en banc or in Division
the BOC, the prosecution may be conducted by their respective
shall be governed by the applicable provisions of Rule 124 of the
duly deputized legal of icers.
Rules of Court.
b. Institution of civil action in criminal action
5. Petition for Review on Certiorari to the Supreme Court
In cases within the jurisdiction of the Court, the criminal action
and the corresponding civil action for the recovery of civil A party adversely affected by a decision or ruling of the Court en
liability for taxes and penalties shall be deemed jointly banc may appeal therefrom by iling with the Supreme Court a
instituted in the same proceeding. The iling of the criminal veri ied petition for review on certiorari within ifteen days from
action shall necessarily carry with it the iling of the civil receipt of a copy of the decision or resolution, as provided in Rule
action. No right to reserve the iling of such civil action 45 of the Rules of Court.
separately from the criminal action shall be allowed or
If such party has iled a motion for reconsideration or for new trial,
recognized.
the period herein ixed shall run from the party’s receipt of a copy
c. Period to appeal of the resolution denying the motion for reconsideration or for new
a) An appeal to the Court in criminal cases decided by a RTC trial.
in the exercise of its original jurisdiction shall be taken by Effect of appeal. — The motion for reconsideration or for new trial
iling a notice of appeal pursuant to Sections 3(a) and 6, iled before the Court shall be deemed abandoned if, during its
Rule 122 of the Rules of Court within ifteen days from pendency, the movant shall appeal to the Supreme Court.
receipt of a copy of the decision or inal order with the
court which rendered the inal judgment or order appealed
from and by serving a copy upon the adverse party. The
Court in Division shall act on the appeal.
b) An appeal to the Court en banc in criminal cases decided
by the Court in Division shall be taken by iling a petition
for review as provided in Rule 43 of the Rules of Court
within ifteen days from receipt of a copy of the decision
or resolution appealed from. The Court may, for good
cause, extend the time for iling of the petition for review
for an additional period not exceeding ifteen days.
c) An appeal to the Court in criminal cases decided by the
RTCs in the exercise of their appellate jurisdiction shall
be taken by iling a petition for review as provided in Rule
43 of the Rules of Court within ifteen days from receipt

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Juris Doctorate (University of Bohol)

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Compiled by Rehne Gibb N. Larena | University of San Carlos

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d. International comity; on its governmental functions; Requisites of a Valid Taxpayer’s Suit

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plaintiff. c. Transfer tax

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4. Citizenship of the taxpayer;

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➔ Allowed because they are imposed by different taxing

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income from sources within the Philippines but is exempt from

2. Direct; a) A citizen of the Philippines residing therein is taxable on all

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e. Situs of Income 8) Annuities;

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In Kind: 7. Expense for Foreign Travel 4. Granted to rank and ile.

ER purchases house on 5% of Case Monetary Value

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