TAX 2 NOTES

HOUSE RULES
• If absent, you can be called
• If mag-aabsent ka and may serious reason, email ma’am
• Hindi sequential yung pagtanong ni ma’am
o Pwedeng Sec. 84-97 yung coverage for the day, pero patalon-talon si ma’am
across those provisions

WEEK 1

What’s the nature of transfer tax?

• Imposed on the PRIVILEGE of transferring property
• Such transfer must have been WITHOUT CONSIDERATION

What are the 2 kinds of transfer tax?

• Estate Tax
o Imposed on transfer due to one’s death
o Transfer takes effect at the time of death of the giver
• Donor Tax
o Imposed on transfer made during the life of the donor
o Transfer takes effect during the lifetime of the giver
• BOTH TRANSFERS MUST BE WITHOUT CONSIDERATION

Distinguish Transfer Taxes from Business Taxes

• Transfer Tax is imposed on a PRIVILEGE
• Business Tax is imposed upon a PERSON engaged in trade or business or in the exercise
of a profession

What is the tax rate for Estate Tax?

• 6% based on the value of the net estate (Sec. 84)

What is the tax rate for Donor’s Tax?

• Also 6%

If both transfer taxes are 6%, then why is it important to know if the property is
subject to Estate Tax or Donor’s Tax?

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 • Because the 6% will be based on different things
• In Estate Tax
o To arrive to net estate, there are some deductions allowed
• In Donor’s Tax
o There is an exemption
▪ Gifts up to 250k are exempted

DONOR’S TAX

When does Estate Tax Accrue?

• It accrues at the time of death of the decedent
• It only accrues once
o Unlike Donor’s Tax which accrues on a yearly basis
• Inheritance Taxation is governed by the statute in force at the time of the death of the
decedent (Lorenzo v. Posadas)

Value of Gross Estate

• Equivalent to value at the time of death (Sec. 85)
• For properties, it depends on the BIR Zonal value or the FMV in the tax declaration,
whichever is higher (Sec. 88(B))

What are included in the Gross Estate?

• In general, Real Property, Tangible Personal Property, and Intangible Personal Property
• Under Sec. 85
o (1) decedent’s interest;
o (2) transfer in contemplation of death;
o (3) revocable transfer;
o (4) property passing under general power of appointment;
o (5) proceeds of life insurance;
o (6) prior interests;
o (7) transfer for insufficient consideration; and
o (8) capital of the surviving spouse.
▪ This is NOT part of the estate

It’s important to know if the decedent is a resident or citizen or not

• Resident or Citizen
o All property
• Non-resident Alien
o Property situated in the PH only

What does date of death rule mean?

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 • Taxation is governed by the statute in force at the time of death of the decedent
• Valuation is based on the value of the property at the time of death of the decedent.
o Subsequent appreciations or depreciation is not considered

Alejandro v. Geraldez
• If the donation is made in contemplation of the donor's death, which means that that the
full or naked ownership of the donated properties will pass to the donee only because of
the donor's death, then it is a donation mortis causa which should be embodied in a last
will and testament.
• If the donation takes effect during the donor's lifetime or independently of the donor's
death, then it is a donation inter vivos.

Gestopa v. CA
• The Supreme Court held that it was a donation inter vivos for the following reasons: (1)
the granting clause of the deed showed that Diego donated the properties out of love and
affection for Mercedes; (2) the reservation clause in respect of the lifetime usufruct
indicated that Diego intended to transfer the naked ownership over the properties; (3)
Diego reserved sufficient properties for his maintenance in accordance with his standing
in society; and (4) Mercedes accepted the donation.

What does revocable transfer mean?

• Donor reserved the right to revoke the donation during his lifetime

In a revocable transfer, what if the beneficiary was not able to revoke before
dying?
• Doesn’t matter if the revocation wasn’t done / the right wasn’t actually exercised
• What matters is that the right existed

What’s the rule for proceeds of life insurance policy?

• Proceeds of life insurance under a policy: (1) taken out by the decedent upon his own life; (2)
where the beneficiary of which is his estate; or (3) where the designation of the beneficiary is
revocable, are to be included in the gross estate.
• Income Tax Rule
o Whether designation is revocable or irrevocable, it does not form part of the gross income
of the beneficiary
• Estate Tax Rule
o If the designation of the beneficiary is irrevocable, this shows that the decedent no longer
retained any interest upon his death
▪ The proceeds are not part of the assets of the decedent
▪ Not part of computation of estate tax
o If the designation is revocable,
▪ The proceeds are still part of the assets of the decedent
▪ Part of computation of estate tax

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What are the deductions allowed from the Estate? (Sec. 86)

• These need to be deducted to get to the Net Estate which will be taxed at 6%

a) Standard Deductions
• This amount depends on if you are a citizen / resident, or nonresident + non-citizen
• Resident or citizen
o 5M
• Nonresident + non-citizen
o 500k

b) Claims against the Estate

• In general, claims against the estate may arise out of: (1) contract; (2) tort; or (3) operation of law.
• The requisites for deductibility of claims against the estate are:
o (1) liability represents a personal obligation of the deceased existing at the time of his
death;
o (2) liability was contracted in good faith and for adequate and full consideration in money
or money’s worth;
o (3) claim must be a debt or claim which is valid in law and enforceable in court; and
o (4) the indebtedness must not have been condoned by the creditor or the action to collect
from the decedent must not have prescribed

Requirements to Substantiate the Claim

• In case of a simple loan:
o (1) debt instrument must be duly notarized at the time the debt was incurred;
o (2) duly notarized certification from the creditor as to the balance;
o (3) proof of capacity of the lender or creditor to lend; and

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 o (4) proof of disposition of proceeds of loan from the executor or administrator if
loan was contracted 3 years before the death.
• If the unpaid obligation arose from a purchase of goods or services:
o (1) pertinent documents evidencing the purchase of goods or services;
o (2) duly notarized certification from the creditor as to balance;
o (3) certified true copy of the latest audited balance sheet of the creditor with the
detailed schedule of its receivable showing unpaid balance of the decedent
debtor.

If the loan obligation was contracted 3 years prior to the death of the decedent,
what’s the extra requirement needed?
• Proof of the disposition of the proceeds of the loan which will come from the executor or
administrator
• Why do you need this extra requirement?
o Baka mascam

c) Claims against insolvent person

• This is a claim which the decedent has against an insolvent person
• The value of the decedent’s interest must have been included in the gross value of the
estate
• What’s the diff between resident / citizen and nr+nc?
o Tax everything v. only part here in the PH

d) Unpaid Mortgages and Losses

• Value or property subject to mortgage must have been included in gross estate
• Also includes losses incurred which have not been compensated by insurance

e) Property Previously Taxed (Vanishing Deductions)

• There was property transferred to the current decedent within 5 years prior to his death
o The property must have been transferred to him by a previous decedent, or as a
gift
• The value to be deducted depends on when the property was transferred to the current
decedent

f) Transfers for Public Use

• Transferred for the use of the gov’t or political subdivision, for an exclusively public
purpose

g) Family Home
• Deduction is up to the FMV of the family home of 10M, whichever is lower

h) Amount received under RA 4917

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 • Retirement benefits of employees of private firms pursuant to a reasonable private
benefit plan
• The retirement amount must be included in the gross estate

C) SHARE IN THE CONJUGAL PROPERTY

Why is the value of the estate set at the time of death?

• Because according to the Civil Code, it’s death that opens succession and the rights to the
succession are transmitted at the moment of death

When you have real property, what do you first look at?
• Look at the Title
• How do you know if the property is exclusive or conjugal?
o If the property is conjugal, nakasulat sa title: Spouses Niccolo Rabago and Mrs.
Rabago
▪ If nakasulat to, you can presume that the property is conjugal
• What is the basis of the value of the property?
o The FMV as determined by the CIR
▪ This is based on the Zonal Valuation as enunciated by Secretary of Finance
• What if it says Niccolo Rabago married to Tralu? Is that conjugal or exclusive?
o Exclusive
o “Married to” is a statement of STATUS, not ownership
▪ Sinabi mo lang na kasal siya.
o If nakasulat to, you can presume that the property is conjugal
▪ But it’s only a presumption
o Look at the source document which says when the property was acquired (e.g.
Deed of Sale)
▪ If the property was actually bought while the spouse was married, then it’s
exclusive, even if the Title only says “Married to”
o MAIN POINT: Always check other documents to see if the property is exclusive or
conjugal. It’s possible na mali lang yung nakalagay sa Title
• For shares of stock, what’s the basis of the valuation?
o If the stock is listed, 30 day average of the share on the PSE
o If the stock is not listed, book value for common shares or par value for preferred
shares
• What if car?
o You can look at cars of similar nature and look at their prices
▪ Just check online

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 • Just fill in the blanks
• In item 39
o Once you get NET ESTATE, you deduct the share of the surviving spouse in the
conjugal property
o 36-B divided by 2
▪ You get the conjugal property, then divide it by 2 to get the share of one
spouse
▪ You don’t divide the exclusive property by 2

For Standard Deductions do you need to prove anything?

• No

If the value of the house is not 10M, what value do you put in 37B?
• You put the FMV of the house

How do you prove that the residence you are claiming is the Family Home is
actually the Family Home?
• Normally, the best proof for this is to get a Barangay Certification saying that a place is
the decedent’s Family Home
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What if presumptive death? How do you determine the date of death for
purposes of valuation?
• Yung date ba na feeling mo nawala, or yung date na cinonfirm ng Court?
o Think about it. Even sir doesn’t know

Do you need to give notice of the decedent’s death to the BIR?

• No
• Sec. 89 of the NIRC which previously required it has been repealed

What is the rule of reciprocity with respect to Tax Credit for Estate Taxes paid to
a Foreign Country under Sec. 86 (D)?
• For the Tax Credit to be applicable to the foreigner, that person’s country must allow a
similar Tax Credit deduction in respect of property owned by Filipinos there
• Reciprocity must be total. If any of the two states or countries collects or imposes and
does not exempt any transfer, death, legacy, or succession tax of any transfer, reciprocity
does not apply. (CIR v Fisher)

What does it mean when we say that the tax credit is proportional?
• This means there is a limit to the tax you paid in a foreign country which you can credit to
the tax you have to pay in the PH
• Formula

o
o E.g. If half your property is in the US, then you can only credit at most half of the
tax due in the PH
• Between the Tax you paid to the foreign country and the Tax Credit Limit, you pay
whichever is lower

When do you file an Estate Tax Return?

• Sec. 90 (B)
o Within 1 year of the death of the decedent
• Can this period be extended?
o Yes
• Sec. 90 (C)
o In meritorious cases, a reasonable extension not exceeding 30 days can be granted

Where do you file an Estate Tax Return?

Sec. 90 (D)

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 • The Estate Tax Return shall be filed with an authorized agent bank, or Revenue District
Officer, Collection Officer, or duly authorized Treasurer of the city or municipality in which
the decedent was domiciled at the time of his death
• If there be no legal residence in the Philippines, then with the Office of the Commissioner
of Internal Revenue

When should the Estate Tax actually be paid?

• Sec. 91 (A)
o At the time the return is filed by the executor, administrator or the heirs.

Can an extension be granted for the time for payment of Estate Tax?
• Yes
• Sec. 91 (B)
o When the Commissioner finds that the payment on the due date of the estate tax
or of any part thereof would impose undue hardship upon the estate or any of the
heirs, he may extend the time for payment of such tax or any part thereof not to
exceed five (5) years, in case the estate is settled through the courts, or two (2)
years in case the estate is settled extrajudicially.
• If you avail of the extension due to hardship
o You are subject to interest, but not to surcharge
Filing a return is different from paying taxes
• It’s possible to file a tax return in advance
• Even though it says that you have to pay at the time the tax return is filed, if you file early,
you just have to make sure that you pay within the 1 year allowed for the filing of tax
return

When a married couple dies, you deduct the conjugal share of the surviving
spouse. After this the SS is still left with her hereditary share in the net (gross
estate - share of spouse - deductions). Should the spouse waive her hereditary
share in favor of the children?
• Normally, we advise spouse to waive her share because if she doesn’t, when she dies,
that same share gets taxed twice
o You have to pay estate tax once for the transfer from the deceased spouse to the
SS
o Then you have to pay again for the transfer from the SS when she dies to the
children
• However, if you waive the share, you avoid this second taxation since the share goes
directly to the children

There are three pieces of property which the SS wants to waive in favor of her 3
children. She wants to designate which piece of property goes to who. Can she
do this? What is the tax implication?

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 • Yes, the waiver can be made in favor of a specific person
• However, if the SS does this, the transfer will then be subject to donor’s tax
• If the SS does not designate which property goes to who and just makes a general waiver,
then there is no donor’s tax

If the estate of the decedent includes cash, can the heirs withdraw this?
• They can only withdraw after the estate tax has been paid
• However, TRAIN made a change (Sec. 97)
o You can withdraw from the bank ever before estate taxes are paid, but it will be
subject to a final withholding tax of 6%
• Is the 6% withholding tax deductible from the estate?
o We learned in tax 1 that if a tax is final, it’s not deductible
o But if you look at the regulations of BIR, though the law states that the 6% is a final
withholding tax, if the value of the cash or bank deposit is included in the gross
estate, then the amount withheld is deductible
• Sir thinks that in 2019, there were problems with people settling estate wherein they
would withdraw money
o When you settle extrajudicially, you have a 15M automatic deduction (Standard
Deduction + Family Home)
• Before this regulation, the advise was to go through the extrajudicial process
o Kasi, if you withdraw from the bank directly (as allowed under TRAIN) you don’t
have the benefit of the 15M deduction
o If the estate is less than 15M and you withdrew the amount, lugi ka
▪ I don’t get why lugi ka
• Tax authorities recognized that there was a problem
o There was undue hardship for estates less than 15M
o However, you will really have to withdraw money to pay for the estate tax
• So what BIR did was that:
o Though it’s denominated as final, the amount withheld can be deducted, basta
sinama mo yung amount of cash sa gross estate
• Sir was referring to RR 8-2019

DONOR’S TAX
How would you distinguish Donor’s Tax and Estate Tax?
• Donor
o Tax on gratuitous transfers made between two or more persons who are living at
the time of the transfer
• Estate
o Tax on transfers made after a person dies

When is the gift taxed?

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 • Estate tax is due at the time of death, but you are allowed a certain period of time within
which to pay it
o What’s the period for paying estate tax?
▪ Within one year from death of decedent
▪ But there are exceptions
• When is donor’s tax imposed?
o When the transfer is completed
• When is the transfer completed according to Civil Law?
o When the transfer is accepted by the donee

What is the Tax Rate of Donor’s Tax and Estate Tax?

• 6% for both
• If they’re both 6%, it doesn’t seem matter if it will be effective at the time of death or
time of acceptance during the lifetime of the donee and donor

Aside from the fact that estate tax is due at the time of death, with regard to
Donor’s Tax, what is the difference of the two?
• For Donor’s Tax, there is an exemption for gifts until 250,000
o Sec. 99 (A)
▪ The tax for each calendar year shall be six percent (6%) computed on the
basis of the total gifts in excess of Two hundred fifty thousand pesos
(P250,000) exempt gift made during the calendar year.
o There is no such exemption for Estate Tax
• The law applicable is different
o For Donor’s Tax
▪ Apply law at time of acceptance
o For Estate Tax
▪ Apply law at time of death
• Only Estate Tax has deductions
• You apply the 6% tax on different things
o For Donor’s Tax, it’s on the net gifts
o For Estate Tax, it’s on the net estate
• Ma’am’s Answer
o The amount subject to Donor’s Tax is cumulative per year
▪ E.g. Lily donated 1M to Lirene last year. This year, Lily donated 2M to Lirene
in January and 1.5M in February.
▪ What do you consider when computing Donor’s Tax this year?
• You only consider the Jan and Feb donations since Donor’s Tax is
cumulative per year
• It’s from this 3.5M that you deduct the 250k exemption
o Donor’s Tax is based on the net gifts
▪ Net gifts is gross gifts – allowable deductions

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How do you determine the value of the gross gift?
• FMV of the donated property at the time of donation

What factors affect the determination of the gross gift?

• Citizenship, Location of Property Donated

Donation Inter Vivos v. Donation Mortis Causa

Alejandro v. Geraldez
• WON it was Donation Inter Vivos or Donation Mortis Causa
o Inter Vivos
• If the donation is made in contemplation of the donor’s death (meaning the full/naked
ownership of the donated properties will pass only because of the donor’s death), then it
is at that time the donation takes effect
• But if the donation takes effect during the donor’s lifetime or independently of the
donor’s death (full/naked ownership passes during the donor’s lifetime), then the
donation is inter vivos

Bonsato v. CA
• If the donation is made in contemplation of the donor’s death, meaning the full or naked
ownership of the donated properties will pass to the donee only because of the donor’s
death, then it is a donation mortis causa which should be embodied in a last will &
testament
• If donation takes effect during lifetime, then it is donation inter vivos
• Another characteristic of a donation mortis causa is that the transfer should be revocable
by the transferor at will
o Here, the transfer was irrevocable, so it was held to be a donation inter vivos

Castro v. CA
• Here, there was a donation inter vivos
• In this case, the terms of the donation show that the donor intended and did dispose of
her properties irrevocably in favor of the donee
o The only condition was that the donee would not have right to the fruits during
the donor’s lifetime

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Austria-Magat v. CA
• Here, there was a donation inter vivos
• Here, what happened was that the donor provided that during her lifetime, she would
enjoy the right of possession over the property
o But the naked title of ownership has been passed on to the donees
o Upon the donor’s death, the donees would get all the rights of ownership over the
same including the right to use and possess the same

Renunciation of the Spouse of their share as an heir of the other spouse (Not the
conjugal share)
• If general renunciation, there is no taxable event for which Donor’s Tax has to be paid
• If the renunciation is to a specific heir, then Donor’s Tax has to be paid

Donor’s Tax v. Compensation for Services

• Andrea has a lot of Instagram followers
o Canon gives Andrea a camera
o Is this subject to Donor’s Tax or Income Tax?
▪ Income Tax
• In determining WON the transaction is subject to Donor’s Tax, what’s one of the key
elements you should consider?
o 1) What was the intention of the donor in giving the property?
▪ If it’s a donation, there is nothing expected in return
▪ However, intention is hard to prove
o As the Donee, you have to be careful when receiving gifts. BIR might construe it
as a form of payment for services for which you will need to pay Income Tax
(instead of the Donor being the one to pay Donor’s Tax)
o 2) What are the surrounding circumstances of the donee?
▪ For Heidilyn Diaz, she received a lot of gifts when she won gold in the
Olympics
▪ This could very well have triggered Income Tax
• Situation: Heidilyn appeared in a Toyota ad in 2023. She also happened to receive a car
when she won the Olympics in 2021. BIR is arguing that the car must have been the
compensation for her appearing in the ad. What would you argue as the lawyer?
o Donor’s Tax is cumulative for the year
o Since 2 years had already passed, then it’s unlikely that the car was the
compensation for the future event
o You can’t say the car is compensation for something 2 years later

Transfers for Insufficient Consideration

• What’s the rule on transfers for insufficient consideration?
o Sec. 100

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 ▪ Where property, other than real property referred to in Section 24(D), is
transferred for less than an adequate and full consideration in money or
money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of
the tax imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year.
▪ Provided, however, That a sale, exchange, or other transfer of property
made in the ordinary course of business (a transaction which is a bona fide,
at arm’s length, free from any donative intent), will be considered as made
for an adequate and full consideration in money or money’s worth

True or False: Is this applicable to all transfers?

• False
• For it to fall under Sec. 100, what kind of transfer must it be?
o 1) Transfer must be for less than the adequate and full consideration
o 2) Such transfer was effective during the transferor’s life time
o 3) Other than real property in Section 24 (d), i.e. the property was not subject to
final capital gains tax (capital asset).
• What’s so special about the taxable base of property in Sec. 24 (d) ?
o The taxable base is either the gross selling price or FMV, whichever is higher
o Pag hindi inexclude, you will be taxed twice
▪ You already have 6% on the FMV, and 6% on the difference (between the
FMV and the less than adequate selling price)

Are there exceptions to Sec. 100?

• Yes
• A transaction which is a bona fide, at arm’s length, free from any donative intent
o This exception was introduced by the TRAIN law

VALUE-ADDED TAX
• Paid by pretty much anybody

What is the nature of VAT?

• It is an indirect tax
• It is a tax on consumption

CIR v. Seagate
• VAT is a tax on consumption and it uses the tax credit method in taxation. To elucidate, if
at the end of a taxable quarter the output taxes charged by a seller are equal to the input
taxes passed on by the suppliers, no payment is required. It is when the output taxes
exceed the input taxes that the excess has to be paid. If, however, the input taxes exceed
the output taxes, the excess shall be carried over to the succeeding quarter or quarters.

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 Should the input taxes result from zero-rated or effectively zero-rated transactions or
from the acquisition of capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer or credited against other internal revenue taxes.”
• Consumption
o Use of the thing subject of the transaction in a way that exhausts it
o It’s not based on local parlance meaning kinain
o It means using or utilizing the product
• What does indirect tax mean?
o There’s a need to distinguish between tax burden and tax liability
▪ The seller is the one liable for the tax
• He is the statutory taxpayer
▪ He is given the option of passing the tax burden to the buyer
o When you’re talking of income tax, the liability is with the one with income
▪ The burden of paying Income Tax cannot be shifted to someone else
• Tax Credit Method
o It’s invoice based
o The seller will give an invoice to buyer which indicates the Output Tax.
o This will be regarded by the buyer as their Input Tax
o They (the buyer) can offset this with the Output Tax that they have to pay

Output Tax v. Input Tax

• What is Output Tax?
o The VAT that is passed on by the seller to the buyer when there is a sale
• What is Input Tax?
o The VAT incurred by the buyer on the purchase of a good or property
• What’s the relationship between the two?
o In one transaction, there’s two perspectives
▪ The Output Tax of the Seller is the same as the Input Tax of the Buyer

CIR v. Benguet
• If IT = OT
o No amount needs to be paid
• If OT > IT
o Pay the excess to the government
• If IT > OT
o Excess shall carry over to the next quarter
• E.g. One person produces goods. Yung binayad na 12% ni buyer, ireremit ni seller sa
government
o How can the buyer recover the 12% he paid to the seller?
▪ 1. By passing on the Output VAT to his own buyers
▪ 2. If the input tax is attributable to zero-rated sales, by filing a clrim for
refund or tax credit
• At the end of the day, who pays for the VAT?

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 o The final consumer in the chain
o This is why it’s a consumption tax
o At the end of the day, the person who foots the bill is the consumer

What does invoice-based mean?

• When seller sells, he will issue an invoice to the buyer which says the transaction and the
portion of it which is Output Tax
• Ma’am: In essence, there must be an invoice to prove that VAT was paid / included in the
price paid by the buyer
o Without the invoice, kahit anong sabihin mo, BIR won’t believe that VAT was paid

VAT is a chain
• The same VAT is the output of one and the input of another

• E.g. A sells a TV worth 100 pesos to B. (Exclusive of VAT)

o A’s Output Tax is 12 (Because VAT is 12% and you get 12% of 100). His Input Tax is
0. (Since A is at the start of the chain)
▪ A will add the 12% VAT to his initial selling price of 100
▪ So the final selling price will be 112
o 12 – 0 = 12
o A’s VAT due is 12 pesos
• B buys the TV for 112. B resells the TV for 150 pesos to C. (Exclusive of VAT)
o B’s Output Tax is 18 (12% of 150) . His Input Tax is 12 (This was the Output Tax of
A)
o 18 – 12 = 6
▪ Binabawas ni B yung part ng VAT na binayaran na ni A
o After offsetting the B’s Output Tax and Input Tax, B’s VAT due is 6.
o After adding the 18 output VAT to the selling price of 150, B’s selling price is 168
o Why is it called VALUE ADDED Tax?
▪ A initially wanted to sell to B for 100 before VAT. B initially wanted to sell
to C for 150 before VAT
▪ B added 50 pesos to the amount that A wanted. This is the VALUE ADDED.
▪ You tax this 50 pesos by 12% to get to the 6 pesos VAT due of B
• C buys the TV for 168. C resells it for 175 to D. (Exclusive of VAT)
o C’s Output Tax is 21 (12% of 175) . His Input Tax is 18 (This was the Output Tax of
B)
o 21 – 18 = 3

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 ▪ Binabawas ni C yung part ng VAT na binayaran na ni A and B
o After offsetting the C’s Output Tax and Input Tax, C’s VAT due is 3.
o After adding the 21 output VAT to the selling price of 175, B’s selling price is 196.
o Why is it called VALUE ADDED Tax?
▪ B initially wanted to sell to C for 150 before VAT. C initially wanted to sell
to D for 175 before VAT
▪ C added 50 pesos to the amount that B wanted. This is the VALUE ADDED.
▪ You tax this 25 pesos by 12% to get to the 3 pesos VAT due of C
• D buys the TV for 196.
o It’s the end user that ends up footing the final bill in the Output VAT
o Cause the end user had to pay the extra 21 pesos Output VAT in the final sale, but
had no Input VAT to offset it
▪ He has to pay the full 12% VAT on the 175 selling price with nothing to
offset it with
o D, the final consumer, has the tax burden
o But D has no tax liability, kaya 0 yung VAT due niya
o My understanding
▪ Wala siyang Output Tax si D kasi wala na siyang bebentahan since final
consumer na siya.
▪ Walang Input Tax si D kasi wala naman siyang Output Tax to offset this
against.
• Remember that Input Tax is a benefit which is given so that you can
deduct it from Output Tax
• So if walang Output Tax, then you won’t be given this benefit
• VAT due of A + VAT due of B + VAT due of C = 21
o 12 + 6 + 3 = 21
o At the end of the day, the government gets 21 pesos
o And this 21 pesos is shouldered by D, the end consumer
• Output Tax
o What you have to pay the government
• Input Tax
o A benefit given to the buyer which he can deduct from the Output Tax na binayad
niya
• My Question: In the sale from C to D, C charged an extra 21 pesos. Of this 21 pesos, he
had to use 3 pesos to pay VAT due. What happens to the extra 18 pesos?
o The extra 18 pesos he charged D will be used to offset the 18 pesos that C had to
pay when he bought the TV from B (Yung Output Tax ni B that he passed on to C)

VAT is Sections 105-115!!!

VAT Rate
• GR: 12%
• Zero-Rated

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 o While it is VATable, the rate is zero
o If you are asked, is a zero-rated transaction a transaction that is VATable?
▪ Yes, but the rate is zero
• VAT-exempt
o There’s not VAT to talk about

What are the different kinds of VAT? When is the VAT applicable?
• Applicable to goods, when you do an importation, and when you render services
o Practically lahat
• Sec. 105
o Any person who, in the course of trade or business, sells barters, exchanges, leases
goods or properties, renders services, and any person who imports goods shall be
subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

E.g. There’s a transaction. We talk about the output and input tax. Let’s go to the
explanation of who is really liable, and who carries the burden.
• In income tax:
o Person liable: Person who made the income
o Person burdened: Person who made the income
o Both the liability and burden belong to the same person and it can’t be shifted

Types of VAT
• I. Classifications based on the type of transaction
o (1) sale of goods,
o (2) rendering of services, or
o (3) importation
▪ There are different rules depending on if sale of goods, rendering of
services, or importation
o These are all VATable transactions in general
• II. Classifications based on tax that is involved
o (1) VATable
o (2) Zero-rated
▪ (a) Effectively zero-rated
▪ (b) Zero-rated
o (3) VAT-exempt
o The law provides classifications on whether the 3 types of transactions will be fully
VATable, Zero-rated (This transaction is still VATable), or Vat-Exempt
▪ Zero-rated transactions are important later on for refunds
• Relevant Provisions

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 o

Contex Corporation v. CIR

• See GNotes for explanation of tax liability v. tax burden
• Doctrine
o In indirect taxation, there is a need to distinguish between the liability for the tax
and the burden of the tax.
o As earlier pointed out, the amount of tax paid may be shifted or passed on by the
seller to the buyer. What is transferred in such instances is not the liability for the
tax, but the tax burden. In adding or including the VAT due to the selling price, the
seller remains the person primarily and legally liable for the payment of the tax.
What is shifted only to the intermediate buyer and ultimately to the final
purchaser is the burden of the tax.
o Stated differently, a seller who is directly and legally liable for payment of an
indirect tax, such as the VAT on goods or services is not necessarily the person
who ultimately bears the burden of the same tax. It is the final purchaser or
consumer of such goods or services who, although not directly and legally liable
for the payment thereof, ultimately bears the burden of the tax.”
• Sir: This emphasizes the concept of passing on the burden
o This is important when we discuss remedies
o It is ultimately the person who is VAT liable who has the course of action to claim
a refund

What does “in the course of trade or business” mean?

Review: Capital and Ordinary Assets

• NIRC Sec. 39 (A) (1)
o (1) Capital Assets. – The term ‘capital assets’ means property held by the taxpayer
(whether or not connected with his trade or business), but does not include stock
in trade of the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year
or property held by the taxpayer primarily for sale to customers in the ordinary
course of his trade or business, or property used in the trade or business, of a
character which is subject to the allowance for depreciation provided in
Subsection (F) of Section 34; or real property used in trade or business of the
taxpayer.
• If it’s not a capital asset, it’s an ordinary asset

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CIR v. Magsaysay Lines
• Here, Magsaysay Lines sold vessels
• Court held that the sale was not VATable
o It held that the sale was not in the course of trade or business of Magsaysay Lines
o The sale was involuntary due to privatization
▪ The vessels were transferred to a government entity, the National
Development Corporation
• What was Magsaysay’s business?
o It was a shipping corporation
• What was the main consideration that the Court took into account to say that the sale of
the ships was not subject to VAT?
o Magsaysay Lines was not in the business of selling ships
• Why did Magsaysay sell the vessels?
o It was required to sell the vessels to the government because of the required
privatization
• Sir:
o GR:
▪ Pursuant to Tax 1, a ship is an ordinary asset
▪ If you sell an ordinary asset, aside from regular corporate income tax, it’s
also subject to VAT
o Exception: Magsaysay Case
▪ It was an involuntary sale. They didn’t want to sell the vessels but there
was a privatization program by the government
▪ SC was saying: Di naman niya ginusto yan eh. So it shouldn’t be subject to
VAT.
• That the transaction was not “In the course of trade or business” is a common claim of
taxpayers so that they won’t have to pay VAT
o Zero-rated transactions and VAT-exempt transactions have a list in the law
o So if the transaction in question is not in those lists, then you try to show that it
was not made “In the course of trade or business”
• If you look at Magsaysay, you would think that it’s outside the coverage of VAT because
it’s an isolated transaction
o But what made it outside the coverage was the fact that it was an INVOLUNTARY
TRANSACTION
o The fact that it was an involuntary transaction also made it an isolated transaction
o But ultimately, what made it outside the coverage of VAT was that it was an
INVOLUNTARY TRANSACTION
▪ There are some transactions that are isolated but are VATable

If a Board Director receives per diem, is it subject to VAT?

• When he sits on the Board, is the Director himself (not the Corporation) acting in the
course of trade or business?
o No

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 o It’s not a trade or business to be a Director to begin with
o The Director is only sitting on the Board in representation of the shareholders
• So is it VATable?
o No

Mindanao Geothermal II v. CIR

• Sale of Nissan Patrol Car
• Even if it’s not an isolated transaction, doesn’t automatically mean it’s not subject to VAT
o It can still be in considered “in the course of trade or business”
o The sale of the Nissan Patrol falls under “transactions incidental thereto”
• Relating to Magsaysay
o It was a voluntary sale
• What’s special about the car?
o Prior to the sale, the Nissan Patrol was part of Mindanao II's property, plant, and
equipment.
o It was used in business
▪ It was an ordinary asset
• Sir: Always ask yourself: Is the asset ordinary or capital?
o Assets that are ordinary, if it’s disposed of in the future, it’s usually VATable
o With capital assets, presumption is that it’s not VATable since it’s not in the course
of trade or business

CIR v. CA, COMASERCO

• Sec 105 clarifies that even a non-stock, non-profit organization, or government entity is
liable to pay VAT on the sale of goods and services
• Lessons
o 1. Regardless of there was profit or not, as long as an entity provides services for
a fee, it’s subject to VAT
▪ Profit is NOT an element in determining if a transaction is VATable
o 2. Even if it’s a non-stock non-profit corporation, it’s still liable to pay VAT
▪ They are exempt from income tax, but not from VAT

When a client asks you WON subject to tax:

• Ask yourself
o Is it subject to income tax?
o Is it subject to a business tax?
▪ VAT or Percentage Tax
o Is it subject to documentary stamp tax?

Random Important Circulars

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Recap: 2 main lessons for today
• “In course of trade or business”
o If dealing with goods
▪ If ordinary asset, normally VATable
▪ If you don’t want it to be subject to VAT
• Then you want to show that it’s VAT-exempt or Zero-rated
• If it’s not there, then you’ll have to show that it’s not in the course
of trade or business
• This is usually the point of contention in cases. Always look at the
facts to resolve this issue.
o Exception: Magsaysay
▪ Involuntary sale, you would not have done it, so it’s not VATable
▪ Even if you can argue that the ship was an ordinary asset (Since needed for
the shipping business of Magsaysay), it was not VATable since the sale was
involuntary
o In the course of trade or business includes transactions incidental thereto
• You don’t need to earn money from the transaction for it to be VATable

Key Elements of VAT

• These 3 elements should be present for the transaction to be VATable
o When reading the cases, you need to determine is the issue element 1 or 2?
▪ Is the petitioner arguing that the transaction was not in the course of trade
or business?
▪ Is the petitioner arguing that the transaction was not a sale of good or
service?

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 • 1. In the course of trade or business
• 2. Sale of good or service
• 3. Taxable Base

CIR v. CA, COMASERCO

• The issue here is WON the transaction is in the course of trade or business
• COMASERCO was arguing that they are non-stock non-profit and not there to make
money. Thus, the transaction according to them was not in the course of trade or
business.
• What is the reason the Court said that even if you don’t make profit, you’re still in the
course of trade or business?
o COMASERCO was an affiliate of Philam. It performed collection, consultative and
other technical services, including functioning as an internal auditor, of Philamlife
and its other affiliates.
o Normally, if you hire an internal auditor, you pay him and there’s VAT
o That’s why the Court concluded they were in trade or business: Because of what
they were specifically doing.

What comprises a sale of goods or sale of services?

CIR v. Sony
• Sony International Singapore (SIS) gave a subsidy to Sony PH
• CIR is alleging that Sony PH did services for SIS which is why it was given that subsidy. CIR
was arguing that the subsidy was actually payment
• Who was allegedly doing services for which VAT had to be paid?
o Sony PH
• Is this an input VAT or output VAT issue?
o Input
o (Isn’t this output VAT?)
• Ruling
o That there must be a sale, exchange, or barter of goods or properties before any
VAT may be levied
o Certainly there was no such sale, barter, or exchange in the subsidy given by SIS
to Sony
▪ It was but a dole out by SIS and not in payment for goods or properties
sold, bartered or exchanged by Sony
o Thus, no VAT due

ANC v. BIR (Not in Gnotes)

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 • This reinforces what was held in the Sony Case

BIR v. First E-Bank

• Both element 1 and 2 aren’t present

• For you to be engaged in trade or business
o Condo Corporations are not created for business
o It’s created because it’s required by law
▪ It’s supposed to own and manage the condominium common facilities
• If the Condominium Corporation renders services not just for condo owners but also for
other people, will that be subject to VAT?

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 o Element 1
▪ For condo owners, the Condo Corp is rendering the service because it’s
required by law. It’s not doing it as a commercial business.
▪ For non-condo owners, it’s no longer required to render them service by
law. The Condo Corp is doing this as part of a commercial business.
o Element 2
▪ It’s rendering a service because the Condo Corp isn’t required to do this
for the non-condo owners. They’re doing so for a fee.
• There’s an exchange happening. Fee for a service
• As opposed to if for condo-owner, where no fee for that service in
particular is being paid. It’s simply part of normal admin matters
that the Condo Corp has to manage.

If the question is: Is it VATable?

• Check if VAT-exempt or Zero-rated
• If not in list, then check if compliant with element 1 and 2
o If it is, then VATable
o If not, then not VATable

VAT rating v. Zero-rating

CIR v. Benguet
• In transactions taxed at a 10% rate, when at the end of any given taxable quarter the
output VAT exceeds the input VAT, the excess shall be paid to the government; when the
input VAT exceeds the output VAT, the excess would be carried over to VAT liabilities for
the succeeding quarter or quarters.
• On the other hand, transactions which are taxed at zero-rate do not result in any output
tax. Input VAT attributable to zero-rated sales could be refunded or credited against other
internal revenue taxes at the option of the taxpayer.

Between VATable and Zero-Rated, what’s the key difference with respect to
treatment of input VAT?
• VATable
o Can be carried over to succeeding quarters
• Zero-rate
o Input VAT can be refunded or credited against other internal revenues
• Illustration

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 o

VAT zero-rating v. VAT exemption

Contex v. CIR

• With respect to output VAT, same effect

o You won’t have to pay output tax either way
• Different effect with respect to input VAT
o Zero-rated
▪ Seller may use input tax for tax credit or refund
o Vat exemption
▪ Seller not allowed any tax credit on VAT (input) previously paid

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Is is better to be VAT-exempt or Zero-rated?
• Better to be zero-rated if you have a lot of input VAT
o So you can claim it
o Zero-rated
▪ You can still use your input tax for tax refund
o Vat-exempt
▪ You can’t use the input tax at all
• But you still need to consider if you have a lot of input VAT
o If you have a lot of transactions subject to VAT, then you would prefer to be zero-
rated
o But if your business barely gets input VAT, then better to be VAT-exempt
▪ Cause you don’t miss out on anything since you don’t have input VAT to
use anyway

CIR v. Toyo

• For VAT zero-rated

o You are required by law to register as a VAT payer
• For VAT exempt
o Registration is optional
• What happens if you’re VAT exempt and you register?
o Then you become VATable
• What would cause you to register as a VAT payer if you’re tax exempt?
o Look at your input VAT
o If marami kang input VAT
o Sec. 109 CC (VAT Exemptions)
▪ (CC) Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding paragraphs, the
gross annual sales and/or receipts do not exceed the amount of Three
million pesos (P3,000,000.00).
o But if you don’t make the 3M and you’re exempt from VAT, you have to pay 3%
percentage tax

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 ▪ Yes, the percentage tax is lower, but it’s possible for Output VAT – Input
VAT to be less than 3%
o If the difference is less than 3%, then better to register so you end up paying less
o If the difference is more than 3%, then don’t register na so you just pay the lower
3%

CIR v. Seagate

• [In] zero rating, there is total relief for the purchaser from the burden of the tax.
o It’s total cause wala talagang pinapass on sa purchaser
o Di mo na kailangan magbayad ng output tax, kuha mo pa yung benefits ng input
tax
• But in an exemption there is only partial relief, because the purchaser is not allowed any
tax refund of or credit for input taxes paid.”
o Di mo nga kailangan magbayad ng output tax, pero di mo rin naman makukuha
yung benefits ng input tax

VAT zero-rated v. Effectively zero-rated

CIR v. Seagate
• Zero-rated transactions
o Refer to export sale of goods and supply of services
o Sir: It is zero-rated because the transaction itself is zero-rated
▪ There’s a provision of law that says it’s zero rated
o Here, we don’t care who the purchaser is
• Effectively zero-rated transactions
o Refer to the sale of goods or supply of services to persons or entities whose
exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such transactions to a zero-rate
o Sir: It is zero-rated because of the circumstances of the purchaser
o Here, we care about who the purchaser is
• But the effect of both is the same
o No output tax

For whose benefit is the automatic zero-rating?

• Zero-rated
o Seller benefits more

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 o Seller is not liable for VAT and he’s able to claim the input VAT attributable to that
sale
• Effectively zero-rated
o Buyer benefits more
o Seller gets the same benefits above
o But it’s there so that the burden of tax isn’t passed on to the purchaser
▪ Iba yung purpose

What is the VAT Rate and Taxable Base for Sale of Goods
• VAT Rate: 12%
• Taxable Base: Gross Selling Price
o Means the total amount of money or its equivalent which the purchaser pays or
is obligated to pay to the seller in consideration of the sale
o Excludes the VAT
o Review from Tax 1: When you compute withholding tax, you remove the VAT
▪ When BIR gives you an assessment, check to see if you have the same
Taxable Base
▪ Because sometimes, BIR includes VAT pa in their Taxable Base for
withholding tax
o Gross Selling Price of Goods is different from Gross Selling Price of Services
▪ We will discuss more in Sec. 108

What is an export sale of goods? What are all the enumerations telling you?
• In simple terms, you’re selling goods outside the PH
o Or you’re selling to people who will sell outside the PH
o Or you’re selling to people who have incentives / whose business have exemptions
• Why did Congress make export sales zero-rated?
o Because of the cross-border doctrine

Cross-Border Doctrine (CIR v. Toshiba)

• Cross-Border Doctrine
o No VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority. Hence,
actual export of goods and services from the Philippines to a foreign country must
be free of VAT; while those destined for use or consumption within the Philippines
shall be imposed with ten percent (10%) [now 12%] VAT.
• Why are these transactions zero-rated by Congress?
o Zero-rating of export sales primarily intends to benefit the exporter (i.e., the
supplier from the Customs Territory), who is directly and legally liable for the VAT,
making it internationally competitive by allowing it to credit/refund the input VAT
attributable to its export sales.
o Sir: At the end of the day, when there is VAT, it’s the end user that bears the
burden

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 ▪ But at the end of the day, these exporters are NOT selling to end-
consumers
▪ They’re selling to retailers / international distributors
▪ E.g. In Toshiba’s case, they were selling parts to clients abroad like HP
▪ The intermediary company purchasing from the PH will not be able to
claim input VAT because they will not be selling in the PH
• So dehado yung intermediary company
• They will end up bearing the burden of the VAT instead of the end-
user if we don’t zero-rate the transactions

Toshiba and Intel Cases

• For export sales, normally the issues involved are
o You need to prove that you have actual exports
▪ Intel Case demonstrates the pieces of evidence needed to show this
• “Unlike in the substantiation of input VAT, which can only be done
through the submission of domestic sales invoices, there are other
documents to show the fact of export sales such as export
declarations, inward remittances and airway bills.”

Atlas Consolidated Mining

• This is an input VAT issue
• BIR was saying that you could only claim input VAT up to the extent
o Kung ang export sales ng export-oriented entity is only 70%, then the
corresponding 70% of the input tax lang yung pwede i-claim
• But SC held that there should be no allocation
o As long as export-oriented yung binebentahan, then the entire input vat can be
claimed

Panasonic v. CIR
• For practicing lawyers:
o When it comes to VAT, especially input VAT refund, the BIR is very strict now with
the rules on invoicing
• The VAT is a tax on consumption, an indirect tax that the provider of goods or services
may pass on to his customers. Under the VAT method of taxation, which is invoice-based,
an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its
purchases, inputs and imports
• If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer
but it fails to comply with the invoicing requirements in the issuance of sales invoices (e.g.,
failure to indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be
denied considering that the invoice it is issuing to its customers does not depict its being
a VAT-registered taxpayer whose sales are classified as zero-rated sales.

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“Provided, That subparagraphs (3), (4), and (5) hereof shall be subject to the twelve percent (12%)
value-added tax and no longer be considered export sales subject to zero percent (0%) VAT rate
upon satisfaction of the following conditions:

(1) The successful establishment and implementation of an enhanced VAT refund system that
grants refunds of creditable input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the effectivity of item no. 1, all
applications filed from January 1, 2018 shall be processed and must be decided within ninety (90)
days from the filing of the VAT refund application; and

(2) All pending VAT refund claims as of December 21, 2017 shall be fully paid in cash by December
31, 2019.”
• This basically says as long as the BIR is able to grant refunds, di na zero-rated yung sales
sa 3, 4, and 5
• Why is this the case? What makes 3, 4, and 5 different from 1?
o Before nung di pa zero-rated, pag nagbenta sila, wala silang ibabangga na output
VAT sa input VAT
▪ Also, mabagal maggrant ng refund yung BIR. More than 90 days.
o Para simple lang yung VAT system, wala na lang ipapass na VAT sa inyo para
there’s nothing to refund
• But now, BIR says kaya nila maggrant ng refunds within 90 days.
o So pinasa na lang ng BIR yung burden. Magrefund na lang yung companies.
• So now, 3, 4, and 5 are pretty much no longer effectively zero-rated
• In essence, the only effectively zero-rated transactions in Sec. 106 A (2) (a) are 1 and 6

Sec. 106
• Don’t forget Sec. 106 A (2) (b)
o These are not part of export sales
o This is for cases wherein you sell to a PEZA zone
▪ This is the reason why zero-rated yung sales sa kanila

Sec. 106 B: Transactions Deemed Sale

• Not really a sale, but they are viewed as sales in the eyes of the law

San Roque Power Corporation v. CIR

• San Roque sold electricity to NAPOCOR
• The transaction described in the present case was not a commercial sale
• Sec. 106(B) which deals with imposition of the VAT does not limit the term “sale” to
commercial sales
o It does not limit term “sale” to commercial sales, rather it extends the term to
transactions that are deemed sale
• When the term sale is made to include certain transactions for purpose of imposing tax,
these same transactions should be included in the term sale

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 • The fact that the electricity was not transferred through a commercial sale or in the
normal course of business does not deflect from the fact that such transaction is deemed
as a sale under the law.
o It fell under Sec. 106 (B) (1)

E.g. Parents of Brian are in the Business of Leasing Property. Then they decide to
just donate to Brian (To escape VAT).
• Looking at the transaction deemed sale provision, it’s still subject to VAT because you’re
moving an ordinary asset
• It falls under 1

Sec. 107: Value-Added Tax on Importation of Goods

• What’s the only thing you need to know?
o All importations are subject to 12% of VAT, whether in the course of business or
not
o This is unlike the rule in sale of goods and services wherein there is only VAT if it
was done in the course of trade or business
• What’s an exemption?
o Sir: If you have de minimis importations (less than 10k in value), then no VAT
▪ Not in Sec. 107 itself
• So in Amazon
o You can break down your importations para less than 10k so no VAT
o But be aware kasi baka sobrang mahal ng multiple delivery charges

Sec. 108: Value-Added Tax on sale of Services and Use or Lease of Properties
• Taxable Base: Gross Receipts derived from the sale or exchange of services
• What’s the different between when you pay VAT for sale of goods and sale of services?
o Sale of Goods
▪ Based on sales invoice
▪ Whenever there is a sale, regardless of if cash was received or not, you (the
seller) pay VAT
o Sale of Services
▪ Based on receipt
▪ When seller receives cash, that’s the only time you (the seller) pay VAT

Quezon City v. ABSCBN

• Section 119 of the Tax Code imposes a percentage tax, in the form of a 3% franchise tax,
on radio and television broadcasting companies whose annual gross receipts do not
exceed Php 10 million.
o Such franchise holders, however, has the option of paying 3% franchise tax or 12%
VAT.
• On the other hand, radio and television broadcasting companies whose annual gross
receipts exceed Php 10 million are governed by Section 108 of the 1997 Tax Code. They

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 are liable to pay VAT, and do not have the option to choose between paying franchise tax
or VAT.
• ABS-CBN, being a broadcasting company with yearly gross receipts exceeding Php 10
million, was found liable to pay VAT.

CIR v. SM Prime
• W/N the gross receipts derived by operators of proprietor of cinema/theater houses from
admission tickets are subject to VAT
o No
• The enumeration of services subject to VAT under Sec 108 of the NIRC is not exhaustive
o The list under said section is not a list of sale or exchange of services subject to
VAT but is an enumeration by way of example only
• Even assuming that it is a listing, law provides that the lease of motion picture films, tapes,
and discs is included
o This is not the same as showing or exhibition of motion pictures or films which is
done by SM Prime
• Exhibition is an act to show or display, while lease is defined as a contract by which one
owning property grants to another the right to possess, use, and enjoy it on specified
period of time for periodic payment of a stipulated price
• Since the activity of showing is not included in the enumeration, it is incumbent upon the
court to determine whether such activity falls under the phrase similar services
o Legislature never intended operators or proprietors of cinema/theater houses to
be covered by VAT

Sonza v. ABSCBN
• SC differentiated between services rendered pursuant to an employer-employee
relationship and services rendered by an independent contractor pursuant to a
contractual relationship
• Subsumed under the latter, professionals such as talent and TV and radio broadcasters
are liable to pay VAT

What is the destination principle?

• As a general rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the country where
they are consumed.
• How different is this from cross-border?
o They’re the same

CIR v. American Express

• General Rule: The VAT system uses the destination principle as basis for the jurisdictional
reach of the tax
o Goods and services are taxed only in the country where they are consumed
o Thus, exports are zero-rated while imports are taxed

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 • However, the law provides for an exception to the destination principle
• For the supply of services to be zero-rated as an exception, the law requires:
o The service to be performed in the Philippines
o The service falls under any of the categories in Sec 102(b) (Now Sec. 108) of the
Tax Code
o It be paid in acceptable foreign currency accounted for in accordance with BSP
rules and regulations
• These are met by AMEX-PH
o It is a VAT-registered person that facilitates collection and payment of receivables
belonging to its non-resident foreign client, for which is gets paid in acceptable
foreign currency inwardly remitted and accounted for in conformity with BSP rules
and regulations
o It also falls under the 2nd category founds in Sec 102(b) because it is a service other
than processing, manufacturing, or repacking of goods
o Therefore, it should be zero-rated

CIR v. Placer Dome

• For supply of service to be zero-rated as an exception, the law requires that:
o First, the service be performed in the Philippines
o Second, the service fall under any of the categories in Sec 102(B) of the Tax Code
o Third, it be paid in acceptable foreign currency accounted for in accordance with
BSP rules and regulations
• The service rendered by respondent is clearly different from the product that arises from
the rendition of such service
• By way of exception, the law allows zero percent VAT rate for services performed in the
Philippines paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BSP

CIR v. Burmeister
• W/N Burmeister’s transactions were subject to zero-rating under Sec 108(B)(2) of the Tax
Code and hence entitled to refund
o No
• The Supreme Court denied Burmeister’s claim on the ground that Section 108(B)(2) of the
1997 Tax Code additionally required that the payer-recipient of the services must be
doing business outside the Philippines.
o This requirement is in addition to the 3 requirements in the prior 2 cases
• “The Tax Code not only requires that the services be other than ‘processing,
manufacturing or repacking of goods’ and that payment for such services be in acceptable
foreign currency accounted for in accordance with BSP rules. Another essential condition
for qualification to zero-rating under Section 102(b)(2) is that the recipient of such
services is doing business outside the Philippines. While this requirement is not expressly
stated in the second paragraph of Section 102(b), this is clearly provided in the first
paragraph of Section 102(b) where the listed services must be ‘for other persons doing

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 business outside the Philippines.’ The phrase “for other persons doing business outside
the Philippines” not only refers to the services enumerated in the first paragraph of
Section 102(b), but also pertains to the general term “services” appearing in the second
paragraph of Section 102(b). In short, services other than processing, manufacturing, or
repacking of goods must likewise be performed for persons doing business outside the
Philippines.”
• In this case, since the payer-recipient is the Consortium, which is a joint venture doing
business in the PH, not all requisites are present

CIR v. Acesite
• W/N 0% VAT rate legally applies to Acesite who was leasing out to PAGCOR
o Yes
• PAGCOR is undeniably exempt from payment of indirect taxes pursuant to its charter,
which is PD 1869. Although the law does not specifically mention PAGCOR’s exemption
from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law
exempts from taxes persons or entities contracting with PAGCOR in casino operations.
• Taking it further, the law grants tax exemption to persons dealing with PAGCOR in casino
operations.
o The conclusion is that PAGCOR is not liable for the P30 million VAT and neither is
Acesite as the latter is effectively subject to zero percent rate under RA 8242.
• The VAT exemption extends to Acesite by operation of law.

San Roque Power Corporation v. CIR

• Zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as
petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of
indirect tax so as to encourage the development of particular industries
• Effective zero-rating was intended to relieve the exempt entity from being burdened with
the indirect tax which is or which will be shifted to it had there been no exemption.
• In this case, petitioner is being exempted from paying VAT on its purchases to relieve NPC
of the burden of additional costs that petitioner may shift to NPC by adding to the cost of
the electricity sold to the latter.”

Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject to the twelve percent
(12%) value-added tax and no longer be subject to zero percent (0%) VAT rate upon satisfaction
of the following conditions:

(1) The successful establishment and implementation of an enhanced VAT refund system that
grants refunds of creditable input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the effectivity of item no. 1, all
applications filed from January 1, 2018 shall be processed and must be decided within ninety (90)
days from the filing of the VAT refund application; and

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(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December
31, 2019.
• This is similar to the provision in export sale of goods

VAT Exemptions
• What’s does it mean when a transaction is exempt?
o When something is exempt, what does it mean?
▪ You comply with the requisites to be VATable but because of the law,
you’re exempted
o There’s a difference when a transaction is excluded from VAT and exempt from
VAT
▪ When you say exempt, you’re admitting that if not for the enumeration in
Sec. 109, the transaction would be subject to VAT
• You have the burden of proving that you are under the exemption
▪ When you say you’re excluded, you’re saying that you don’t meet the
requisites for the transaction to be VATable
• It is the burden of the state to prove that you’re covered by VAT

Exempt Transaction v. Exempt Party

• An exempt transaction, on the one hand, involves goods or services which, by their
nature, are specifically listed in and expressly exempted from the VAT under the Tax Code,
without regard to the tax status -- VAT-exempt or not -- of the party to the transaction.
Indeed, such transaction is not subject to the VAT, but the seller is not allowed any tax
refund of or credit for any input taxes paid.
• An exempt party, on the other hand, is a person or entity granted VAT exemption under
the Tax Code, a special law or an international agreement to which the Philippines is a
signatory, and by virtue of which its taxable transactions become exempt from the VAT.
Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for
input taxes paid, depending on its registration as a VAT or non-VAT taxpayer.

Misamis Oriental
• As the government agency charged with the enforcement of the law, the opinion of the
CIR, in the absence of any showing that it is plainly wrong, is entitled to great weight.
• It’s classification of copra as non-food prevails over the Bureau of Food and Drugs’
classification of copra as food

CIR v. Philhealth
• Sec 109 of the NIRC exempts taxpayers engaged in the performance of medical, dental,
hospital, and veterinary services from VAT
• But in Phil Health’s letter, it was shown that it provides medical service only between their
members and their accredited hospitals
o It only provides for the provision of pre-need health care services

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 o It contracts the services of medical practitioners and establishments for their
members in the delivery of health services
• Thus, Phil Health does not fall under the exemptions provided in Sec 109, but merely
arranges for such, making it not VAT-exempt

Sec. 109 (1) (A)

(A) Sale or importation of agricultural and marine food products in their original state, livestock
and poultry of or king generally used as, or yielding or producing foods for human consumption;
and breeding stock and genetic materials therefor.

Products classified under this paragraph shall be considered in their original state even if they
have undergone the simple processes of preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn
grits, raw cane sugar and molasses, ordinary salt and copra shall be considered in their original
state;
• The goods should be in their original state
• What if the product is sashimi? Is it in its original state, considering that it’s sliced up
already?

Sec. 109 (1) (B)

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals generally considered as pets);
• This talks about the feed used for these industries

Sec. 109 (1) (C)

(C) Importation of personal and household effects belonging to the residents of the Philippines
returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided,
That such goods are exempt from customs duties under the Tariff and Customs Code of the
Philippines;
• Who benefits from these usually?
o OFWs

Sec. 109 (1) (D)

(D) Importation of professional instruments and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and personal and household effects belonging
to persons coming to settle in the Philippines or Filipinos or their families and descendants who
are now residents or citizens of other countries, such parties hereinafter referred to as overseas
Filipinos, in quantities and of the class suitable to the profession, rank or position of the persons
importing said items, for their own use and not for barter or sale, accompanying such persons,
or arriving within a reasonable time: Provided, That the Bureau of Customs may, upon the
production of satisfactory evidence that such persons are actually coming to settle in the

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Philippines and the goods are brought from their former place of abode, exempt such goods from
payment of duties and taxes: Provided, further, That the vehicles, vessels, aircrafts, machineries
and other similar goods for use in manufacture, shall not fall within this classification and shall
therefore be subject to duties, taxes and other charges;
• The imported items here bust be for own use, not for sale

Sec. 109 (1) (CC)

• If total sales are 3M are you liable for percentage tax?
o Yes
o But you’re exempt from VAT

May kabangga yung CC. May relation siya to TRAIN, which introduced the 8%
taxation for individuals
• Individuals earning less than a certain amount may take 8% tax on their gross income (?)
o This 8% takes the place of income tax and percentage tax

(E) Services subject to percentage tax under Title V;

(F) Services by agricultural contract growers and milling for others of palay into rice, corn into
grits and sugar cane into raw sugar;

(G) Medical, dental, hospital and veterinary services except those rendered by professionals;
• “Except those rendered by professionals”
o This refers to the charges of the doctors which serve as their professional fees
• What is exempted?
o Yung mga hospital fees pag nagpalab ka
o Emergency room fees, Operating room fees, etc.

(H) Educational services rendered by private educational institutions, duly accredited by the
Department of Education(DepED), the Commission on Higher Education (CHED), the Technical
Education and Skills Development Authority (TESDA) and those rendered by government
educational institutions; [55]
• More of the tuition fees
• What if non-stock non-profit private educational institution?
• Remember De La Salle Case from Consti
o If non-stock non-profit
▪ As long as all your revenues are USED for educational purposes, then it’s
exempt from tax
▪ Your VAT exemption does not come from just Sec. 109 (H)
• If you only cite Sec. 109 (H) it only covers revenue
• But what if the school also has ancillary services (Leases out
canteen, bookstore etc.)
▪ Also cite the Constitution to cover the ancillary services

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(I) Services rendered by individuals pursuant to an employer-employee relationship;
• If there’s no EER, then transaction is not exempt from VAT (Sonza v. ABSCBN)

(J) Services rendered by regional or area headquarters established in the Philippines by

multinational corporations which act as supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive
income from the Philippines;

(K) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree No. 529; [55]
• PD 529 is about Petroleum Exploration
• PAGCOR v. CIR
o The Supreme Court held that PAGCOR was exempt from payment of VAT. It cited,
among others, the VAT exemption of PAGCOR’s transactions by virtue of its
charter (PD No. 1869 and all amendments thereto) in relation to Section 109(K) of
the 1997 Tax Code
• Does K talk about output or input VAT?
o Output ata?
o If the entity has exempt transactions under K, normally yung supplier, zero-rated
yung VAT
o This is was was done with the Acesite case which involved PAGCOR leasing
Acesite’s property
• Remember that VAT Exempt and Zero-Rated are two different concepts
o Vat EXEMPT: No input and output VAT
o Zero-Rated: Yes input but no output VAT

(L) Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority to their members as well as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;
• Agricultural cooperative must be duly registered with CDA to get the exemption

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered
with the Cooperative Development Authority;
• The cooperative must be duly registered with the CDA to get the exemption

(N) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the
Cooperative Development Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate
capital and net surplus ratably distributed among the members;
• The cooperative must be duly registered with the CDA to get the exemption

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(O) Export sales by persons who are not VAT-registered;
• Why are they VAT-exempt?
o This considers the scenario where the entity engaged in export sales are not VAT
registered
o If VAT registered kasi, zero-rated yung transaction
▪ We want the non-VAT registered people to get this same benefit

(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business or real property utilized for low-cost and socialized housing as defined
by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992,
and other related laws, residential lot valued at One million pesos (P1,500,000) and below, house
and lot, and other residential dwellings valued at Two million five hundred thousand pesos
(P2,500,000) and below: Provided, That beginning January 1, 2021, the VAT exemption shall only
apply to sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business, sale of real property utilized for socialized housing as
defined by Republic Act No. 7279, sale of house and lot, and other residential dwellings with the
selling price of not more than Two million pesos (P2,000,000):[95] Provided, further, That every
three (3) years thereafter, the amount herein stated shall be adjusted to its present value using
the Consumer Price Index, as published by the Philippine Statistics Authority (PSA); [98] [99]
• This section is an enumeration
• It’s a NOT a list of conditions that must be complied with to get the exemption
• When you sell your own house, you’re not liable for VAT
o This is because you fall under the first part
▪ Sale of real properties not primarily held for sale to customers
▪ Doesn’t matter even if the selling price is above 2.5M because that’s a
different exemption

(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos
(₱15,000); [100]

(R) Sale, importation, printing or publication of books, and any newspaper, magazine, journal,
review bulletin, or any such educational reading material covered by the UNESCO Agreement on
the Importation of Educational, Scientific and Cultural Materials, including the digital or
electronic format thereof: Provided, That the materials enumerated herein are not devoted
principally to the publication of paid advertisements;
• Digital format is covered

(S) Transport of passengers by international carriers;[95]

(T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international transport operations;

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(U) Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations: Provided, That the fuel, goods, and supplies shall be used for international
shipping or air transport operations; [95]

(V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and
other non-bank financial intermediaries;
• Why are they exempt from VAT?
o They’re already paying percentage tax / business tax

(W) Sale or lease of goods and services to senior citizens and persons with disability, as provided
under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act
Expanding the Benefits and Privileges of Persons With Disability), respectively; [95]
• This is the most abused
• Some people who are not really PWDs can get the cards easily

(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended; [95]
• These are the tax-free exchanges of property
o E.g. Merger and Consolidation

(Y) Associations dues, membership fees, and other assessments and charges collected by
homeowners’ associations and condominium corporations; [95]
• Sir: If you read the convo cases, the SC said that there is no sale of services in condos.
They are mandated by law to maintain
o So SC was saying that these are not VATable transactions
• But because Congress inserted Y as an exemption, it appears they’re superseding what SC
said
o There’s really a sale of services, we’ll just exempt it

(Z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);[101]

(AA) Sale of or importation of prescription drugs and medicines for: [102]

(i) Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and [103]

(ii) Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021. [104]

Provided, That the DOH shall issue a list of approved drugs and medicines for this purpose within
sixty (60) days from the effectivity of this Act; and [105]

(BB) Sale or importation of the following beginning January 1, 2021 to December 31, 2023: [106]

(i) Capital equipment, its spare parts and raw materials, necessary for the production of personal
protective equipment components such as coveralls, gown, surgical cap, surgical mask, N-95

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mask, scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes, and shoe
covers, for COVID-19 prevention; and [106]

(ii) All drugs, vaccines and medical devices specifically prescribed and directly used for the
treatment of COVID-19; and [106]

(iii) Drugs for the treatment of COVID-19 approved by the Food and Drug Administration (FDA)
for use in clinical trials, including raw materials directly necessary for the production of such
drugs: Provided, That the Department of Trade and Industry (DTI) shall certify that such
equipment, spare parts or raw materials for importation are not locally available or insufficient
in quantity, or not in accordance with the quality or specification required: Provided, further,
That for item (ii), within sixty (60) days from the effectivity of this Act, and every three (3) months
thereafter, the Department of Health (DOH) shall issue a list of prescription drugs and medical
devices covered by this provision: Provided, finally, That the exemption claimed under this
subsection shall be subject to post audit by the Bureau of Internal Revenue or the Bureau of
Customs as may be applicable. [106]

(CC) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of Three million pesos (P3,000,000.00). [107]

When are you supposed to pay VAT?

• Quarterly
• When’s the deadline?
o Sec. 114 (A)
▪ (A) In General. - Every person liable to pay the value-added tax imposed
under this Title shall file a quarterly return of the amount of his gross sales
or receipts within twenty-five (25) days following the close of each taxable
quarter prescribed for each taxpayer: Provided, however, That VAT-
registered persons shall pay the value-added tax on a monthly basis:
Provided, finally, That beginning January 1, 2023, the filing and payment
required under this Subsection shall be done within twenty-five (25) days
following the close of each taxable quarter.

VAT Refund and Tax Remedies

If you’re exempt from VAT, are you automatically exempt from business tax?
• No
• When do you have to pay business tax even though you’re VAT exempt?
o Sec. 109 (CC)
▪ When your gross annual sales don’t exceed 3M

4 kinds of Tax
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 • Business
• VAT
• Excise
• DST

If you’re a VAT exempt entity, can you opt to pay for VAT?
• Yes, if they register
• What do you consider when registering?
o If you have a lot of input tax

INPUT TAX CREDIT

• VAT-registered entities have this benefit
• You use this to offset output tax

Sec. 110: Important Provisions

• Substantiated by VAT invoice / receipt
• What are the sources of input VAT?
o Purchase of Goods
▪ Proof needed: Invoice
o Importation of Goods
o Purchase of Services
▪ Proof needed: Receipt
• Invoice v. Receipt
o In sale of goods, it’s invoice that is the source of input VAT
o In sale of services, it’s receipt that is the source of input VAT
o Seller’s proof that it entered into transaction v. Buyer’s proof that it paid

A (1)
• Talks about the proof needed

(A) (2)
• This talks about the rule on crediting
o One is to one except if subject to depreciation
o But the depreciation proviso is n/a na
• “Provided…”
o Talks about goods subject to depreciation
o If the aggregate amount for that particular period is more than 1M, then the input
tax attributable to the purchases should be allocated / spread over 60 months
o ^This talks about the exception when claiming input VAT
o But the exception is n/a as of Dec. 31, 2021
▪ So if you purchase a car, you can claim the whole input VAT na for whole
quarter

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 • What’s the general rule?
o You already claim the input VAT at the end of the taxable quarter
o Must be claimed within 2 years of the end of the taxable quarter

(A) (3)
• This talks about mixed transactions
• (a)
o For the transactions which you can directly trace to something that was subject to
VAT, then you credit it one is to one
o E.g. If you know that the antenna of the tv you’re manufacturing was subject to
VAT, then you can credit input VAT against that
• (b)
o This is when your expenses are mixed and you can’t directly attribute the input
VAT to a single transaction
o If 50 pesos output tax from tv business and 50 pesos gross income from agriculture
business and input VAT of 12 pesos
▪ Attribute 6 pesos to tv business
• Do normal tax crediting
▪ What about the 6 pesos from agriculture business?
• The agri business is VAT exempt
o So there is no output tax na pwedeng ibangga sa input tax
• Instead, you claim input tax as an expense na ibabangga sa gross
income

What if you have excess input VAT?

• Carry it over to the next quarter
• Is there a limit to when you can carry it over?
o No, it just keeps carrying over
o Sec. 110 (B)

Sec. 110 (C)

• Talks about how to compute the creditable input tax

CIR v. Benguet
INPUT TAX
Represents actual payments, costs, and
expenses incurred by a VAT-registered
taxpayer in connection with his purchase of
goods and services
OUTPUT TAX
When that person or entity sells his/its
products or services, the VAT-registered
taxpayer generally becomes liable for 10% of
the selling price as output tax

VAT paid by a VAT-registered person/entity in Hence, output tax is the VAT on the sale of
the course of its trade or business on the taxable goods or services by any person
importation of goods or local purchases of

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 goods or services from a VAT-registered registered or required to register under Sec
person 107
• Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and services
may recover its input VAT costs by passing on said costs as output VAT to its buyers of
goods and services but it cannot claim the same as refund or tax credit
o While taxpayer subject to 0% on its sales of goods and services may only recover
its input VAT costs by filing a refund or tax credit with the BIR
• Here respondent suffered prejudice when its consummated sales of gold were taken out
of the zero-rated category

What do you do with excess input VAT?

• Carry it over to the next quarter
• Is there an exception with the carry over rule?
o It still has to comply with Sec. 112

Sec. 112
• Why did Congress insert Sec. 112 (A)
o Zero-rated transactions will never generate output VAT
o Wala kang mababangga sa input VAT naincur mo
o So to make you whole, law just allows you to refund
o This talks about refunds of INPUT VAT!!!
▪ Iba pa yung provision for refund or output VAT

Sec. 112: Important Provisions

(A)
• There’s a prescriptive period of 2 years from the close of the taxable quarter to claim a
refund
• Elements before you can claim a refund under this provision
o 1. You are engaged in a zero-rated or effectively zero-rated transaction
o 2. Refund claimed within 2 years of close of taxable quarter when sale was made
▪ What should be filed?
• The administrative claim

Atlas v. CIR
• There was confusion, when do you count the 2-year period?
• 2 years should be reckoned from the FILING OF THE QUARTERLY RETURN
o If the close of the period is March 31, then you have to file the quarterly return on
April 25
o You count from April 25

CIR v. Mirant
• You count from close of taxable quarter when the relevant sales were made
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 o You count from March 31

What’s controlling?
• CIR v. Mirant doctrine

Aichi Case and CIR v. San Roque

• There are 2 agencies involved in VAT refunds. What are they?
o BIR and CTA
• When you talk of administrative claim, you file it with BIR
• When you talk of judicial claim, you file it before the CTA
• What is the period to file a claim for an administrative claim before BIR
o Within 2 years from end of taxable quarter when the relevant sales were made
o BIR must decide on WON to grant the refund within 90 days
o If there was a decision not in favor of the person, the person has 30 days from
receipt of the decision within which to go to court

Situation
• You filed the administrative claim 2 months before the end of the 2 years
• If you wait for the BIR to decide within 90 days, lalampas sa 2 years. What will you do?
Can you go to the court even though you have not received any decision from the BIR,
simply because the 2-year period is about to expire?
o No
o Why not?
▪ Because the 90 + 30 days (120 + 30 dati) is mandatory and jurisdictional
(Verify and read)
▪ The 120-day period may extend beyond the two-year prescriptive period,
as long as the administrative claim is filed within the two-year prescriptive
period. However, San Roque’s fatal mistake is that it did not wait for the
Commissioner to decide within the 120-day period

Read CIR v. San Roque for summary of problems we’ve encountered over the
years and the changing rules

What was the situation before?

• Dati, lawyers were abusive
• File admin claim on March 30
• File judicial claim on March 31

Know the difference of administrative and judicial claim

What is the meaning of the 2-year prescriptive period for refund?
What’s the relevance of the 90 days?

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What’s the relevance of the 30 days?

Aichi, Atlas, San Roque

• Check Sabio’s presentation

Is it still 120 days?

• It’s now 90 days for BIR to decide on the administrative claim

The 90 day period, when do you count it from?

• Sec. 112(C)
o Period within which Refund or Tax Credit of Input Taxes Shall Be Made. - In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within NINETY (90) days from the date of submission of THE
OFFICIAL RECEIPTS OR INVOICES AND OTHER DOCUMENTS in support of the
application filed in accordance with subsections (A) AND (B) hereof; PROVIDED ,
THAT SHOULD THE COMMISSIONER FIND THAT THE GRANT OF REFUND IS NOT
PROPER, THE COMMISSIONER MUST STATE IN WRITING THE LEGAL AND FACTUAL
BASIS FOR THE DENIAL.
o In short, you count it from the date of filing of the documents, NOT when the
administrative claim was filed
o But in practice, you need all documents din naman to file an administrative claim
• Sec. 112 (C)
o In case of full or partial denial of the claim for tax refund the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim,
appeal the decision with the Court of Tax Appeals; PROVIDED , HOWEVER, THAT
FAILURE ON THE PART OF ANY OFFICIAL, AGENT, OR EMPLOYEE OF THE BIR TO
ACT ON THE APPLICATION WITHIN THE NINETY (90)-DAY PERIOD SHALL BE
PUNISHABLE UNDER SECTION 269 OF THIS CODE.
o What happens if BIR didn’t act on it? Can you still appeal to CTA?
▪ NIRC is not explicit on the effect
▪ But in practice, BIR usually acts na naman on the application

Sec. 113
• Invoice
o For Sales
o MEMORIZE THE INVOICE REQUIREMENTS
▪ These must be present for you to be able to claim input VAT refund
• Receipt
o For Lease or Services
o MEMORIZE THE RECEIPT REQUIREMENTS

What if a VAT exempt seller issues a VAT receipt? Will the seller be liable for VAT?

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 • Yes
• Because of this provision, companies usually have two sets of invoices / receipts
o One for their VATable transactions
o One for their VAT-exempt transactions
• Sec. 113 D (1)
o (D) Consequence of Issuing Erroneous VAT Invoice or VAT Official Receipt.-
o (1) If a person who is not a VAT-registered person issues an invoice or receipt
showing his Taxpayer Identification Number (TIN), followed by the word “VAT”;
▪ (a) The issuer shall, in addition to any liability to other percentage taxes,
be liable to:
• (i) The tax imposed in Section 106 or 108 without the benefit of any
input tax credit; and
• (ii) A 50% surcharge under Section 248(B) of this Code;
▪ (b) The VAT shall, if the other requisite information required under
Subsection (B) hereof is shown on the invoice or receipt, be recognized as
an input tax credit to the purchaser under Section 110 of this Code.
o (2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-
exempt transaction, but fails to display prominently on the invoice or receipt the
term ‘VAT exempt sale,’ the issuer shall be liable to account for the tax imposed
in section 106 or 108 as if Section 109 did not apply.
• What’s the effect on the purchaser if mali yung invoicing ng VAT-exempt seller?
o Purchaser gets input tax credit if all the other requirements in B are present

If the seller of goods / services issues a receipt for a zero-rated transaction and
forgets to stamp “zero-rated”, what is the effect on the seller?
• Buyer won’t be able to get input VAT (according to Sabio)
o Why not?
• Seller will not have to pay 12% output VAT
o There’s a CTA case that said
▪ Sec. D (2) does not talk about zero-rated stamping. It only talks about vat-
exempt stamping.
o But no SC ruling yet
• There’s no provision in the law that the transaction becomes VATable
o The provision only says the transaction will be VATable if you failed to stamp VAT-
exempt

Sir: SC will always insist verba legis when it’s in favor of the State, but not when
it’s in favor of the taxpayer
• But it should be the other way around

Sec. 114 (C)

• Witholding VAT

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 • Applies in 2 situations
o Buyer is a non-resident foreign entity
o Buyer is government
• Normally, when you buy, you pay for VAT, but seller is the one that remits to gov’t
• But under this, the gov’t will already withhold the VAT from their payment to the seller
• The entity that sold to the gov’t then gets input VAT from that transaction
o From Anne: Pag irereport mo kasi yung yung output VAT mo sa BIR, at gross sya.
So since parang inadvance mo yung 5% thru gov’t, pwede mong icredit yung
winithhold ng gov’t

Sec. 115
• Oplan Kandado
• BIR will close your business if you violate this provision

PRE-MT WRAP UP
When analyzing a question that deals with VAT, what is the first thing you need
to determine?
• Is the question an Output VAT or Input VAT issue?
o Determine this right away
o Magkaiba yung remedies sa Output VAT and Input Vat

If the question is: Is the transaction subject to VAT, what are the 2 elements you
should look at?
• 1) Was the transaction done in the course of trade or business?
• 2) What is the type of transaction? Does it fall under the kinds of VATable transactions in
the Tax Code?
o Sale of goods
o Sale of services
o Importation
• Are the 2 elements absolute for all kinds of VATable transactions?
o No
o For importation, it’s not necessary that the transaction is in the course of trade or
business
▪ As long as it’s importation, it’s subject to VAT (subject to exceptions in the
Custom Code)
• 3) What is the Taxable Base?

Zero-Rated v. VAT Exempt

• Kinds of Transaction
o Zero-Rated
▪ More of Export Sales
o VAT Exempt

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 ▪ Those listed in the Tax Code as VAT Exempt
• VAT Treatment
o Zero-Rated
▪ No Output VAT
▪ Gets Input VAT
▪ TP can get tax refund or a tax credit certificate
o VAT Exempt
▪ No Output VAT
▪ No Input VAT
• Sir: This is purely memory work
o Sa exams, KNOW THE ENUMERATION. MEMORIZE THE ZERO-RATED AND VAT
EXEMPT TRANSACTIONS. NO WAY AROUND IT.

If it’s a VAT exempt transaction, does not mean you don’t pay business tax as
well?
• No
• If your sales are less than 3M and you’re VAT exempt, you’re subject to percentage tax
o 3% percentage tax
o Don’t forget the last part of VAT Exempt Transactions provision
• If the question is: Are you liable for Business Tax?
o (MIDTERM ALERT) It’s possible for the answer to be yes! Look if naabot yung 3M
threshold

REMEDIES
• If the person also gets Output VAT, then just cancel out the Output VAT with Input VAT
o If Output VAT > Input VAT, pay the excess
o If Input VAT > Output VAT, carry over excess to the succeeding quarters
• If TP is VAT-Exempt, what happens to the Input VAT?
o You treat it as an expense
o You deduct it from gross income

REMEDIES for Zero-Rated of Effectively Zero-Rated Transaction

• Sec. 112
o Unutilized input VAT in relation to the zero-rated transactions becomes subject to
Tax Refund or Tax Credit Certificate
o Refund must be filed within 2 years from close of Taxable Quarter
▪ (MIDTERM ALERT) Taxable Quarters end on March 31, June 30, September
30, December 31
▪ BARE IN MIND THE LEAP YEAR

When is VAT due? When are you required by law to pay VAT? When is the excess
Output VAT due?

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 • Quarterly basis
• It’s due 25 days after the close of the Taxable Quarter
o (MIDTERM ALERT) These are April 25, July 25, October 25, and January 25 the
following year
o Keep in mind the 4 dates of when Output Tax is due
▪ When we go to to the Remedies portion for erroneously or illegally
collected taxes, this is the start of the prescriptive period to claim a refund
for that

What do you need to file within the 2 year period after the close of the Taxable
Quarter? Is it the admin claim or judicial claim?
• The Administrative Claim
• After you file the Admin Claim, what happens?
o Wait for the BIR to act on the claim within 90 days
• Within 30 days after the BIR’s ruling, you can file an appeal if the claim was denied

Must you file the judicial claim within the 2-year period?
• No
• Only the administrative claim must be filed within the 2-year period
• It’s possible to file the judicial claim to be filed beyond the 2-year period if BIR takes long
to rule on the Admin Claim

When does the 90-day period start?

• When the TP files the request with the BIR AND includes the supporting documents

Who determines if the supporting documents are complete?

• The taxpayer! Not the BIR
• It’s your decision WON tyour documents are complete. You can’t leave it to BIR because
forever kang maghihintay for the 90 days.

On the invoicing requirements, what do we need to remember?

• The person issuing the invoice / official receipt must indicate that they are VAT-registered
• Invoice / OR must include the total amount that the purchaser must pay the seller
o The document must show a breakdown
o Hiwalay dapat yung taxable base and VAT amount
• If Zero-Rated or VAT-Exempt, then those words must appear in the Invoice / OR

Why is it important to indicate in the Invoice / OR that the transaction is VAT-

Exempt?
• If those words are not indicated, then the transaction will be treated like a VATable
transaction

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 • The TP issuing the invoice / OR is liable to pay the Output VAT, surcharge, and other
percentage taxes

What if you failed to indicate Zero-Rated in the Invoice / Receipt?

• You can’t claim refund for unutilized input VAT (Panasonic Case)
• But will the seller be liable for VAT?
o No (Unlike when you forget to incidate VAT Exempt)
o Tax Code doesn’t say the consequence if you don’t put Zero-Rated

What if may leap year?

• 25 days after the close of the Taxable Quarter
o Close of Quarter is either 31 or 30
o You just add 25 days after 31 or 30
• But things can get confusing if you have to file the Judicial Claim 30 days later
o E.g. Admin Claim decision given out on Feb 27 on a leap year
o In counting 30 days, remember that Feb has a 29th day on leap years!
o So in effect, 30 days later in March will end up being 1 number earlier

POST-MIDTERMS

TAX REMEDIES

What is a remedy in general?

• Means of enforcing a right or preventing or redressing a wrong

For purposes of taxation, what’s the nature of these remedies

• Used by the Government
o To collect and assess tax from TP
• Used by TP
o To contest and refuse to pay the tax assessed

There are 2 sides for remedies

• Those available to the Government
• Those available to the TP

REMEDIES AVAILABLE TO THE GOVERNMENT

What does an administrative remedy mean for the Government?

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 • The government through BIR can make certain assertions to collect taxes without aid from
the court
• By itself, the BIR has administrative power to enforce and collect taxes
o No need to go to court

What are the administrative remedies available to the Government?

• Make deficiency assessments within 3 years or 10 years, as the case may be
• To enforce deficiency assessments and collect taxes within 5 years
o Means of enforcing deficiency assessments:
▪ Distraint of personal property
▪ Levy of real property
▪ Enforcement of tax liens
▪ Pursuit of judicial proceeding to collect
▪ Enforcement or forfeiture of property
▪ Enforcement of statutory penal provisions
▪ Compromise, abatement, or cancellation of taxes
▪ Suspension of business operations

Making v. Enforcing of Deficiency Assessment

• The former is the determination if there is indeed a tax deficiency in the tax return filed
• The latter means if there is indeed a tax deficiency, then this deficiency can be enforced
against the TP

Does the BIR have to go to Court to enforce a tax deficiency?

• No

In practice, BIR most often does distraint of personal property

• Included here is garnishment

What are the judicial remedies available to the Government?

• File a civil case
• File a criminal case

REMEDIES AVAILABLE TO THE GOVERNMENT

What are the administrative remedies available to the TP?

• Protest assessment
• Compromise
• Redeem property after sale at public auction
• File claim for tax refund or credit

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What are the judicial remedies available to the TP?
• File an ordinary civil action
• For refunds and protest of deficiency tax assessment, to file petition before the CTA

The most important remedy that a TP usually makes an assertion on is the protest
• The first thing that the government does is to make an assessment
o There are multiple steps involved here
▪ Issuance of letter of authority to audit
▪ Preliminary Assessment Notice
o As early on as this, the TP can already file a protest
• The Government will then issue a Final Assessment Notice
o The TP can also file a protest here

On the part of the government, the agency involved in the assessment is BIR
• So we need to understand, what can the BIR do?

What are the powers of the BIR? (Sec. 2 NIRC)

1. To assess and collect all internal revenue taxes, fees, and charges
2. To enforce all forfeiture, penalties, and fines connected with the assessment and
collection of all internal revenue taxes, fees, and charges
3. To execute judgments in all cases decided in favor of BIR by the CTA and the ordinary
courts
4. To effect and administer the supervisory and police power conferred to BIR by the Tax
Code

What is an assessment?
• A notice to the TP which states that the amount therein is due
• Also serves as a demand for payment thereof

There are several kinds of assessments

• Self-Assessment
o Taxpayers are required to file tax returns containing a self-assessment of their
income earned, which may be subject to tax
• Deficiency Assessment
o If, after conduct of audit or investigation of the tax return filed by the taxpayer or
BIR, thru the authorized revenue officer, finds that the tax return contains:
▪ Under-declaration of income
▪ Over-declaration of expenses
▪ Taxpayer did not file return at all
• Jeopardy Assessment
o Tax assessment made by an authorized Revenue Officer without the benefit of a
complete or partial audit, when Revenue Officer believes that the assessment and

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 the collection of tax will be jeopardized by the delay caused by the taxpayer’s
failure to:
▪ Comply with audit and investigation requirements
▪ Substantiate any or all claims, deductions, or credits in his or her return
• Disputed Assessment
o When a deficiency assessment made by BIR is contested by the taxpayer and the
latter asks the BIR for reconsideration or reinvestigation or cancellation of the
deficiency assessment, such becomes a disputed assessment

Deficiency Assessment v. Disputed Assessment

• Deficiency Assessment
o Arrived at by BIR following an audit or investigation
o Made by BIR if it finds the 3 things above
• Disputed Assessment
o Arises when the TP contests the deficiency assessment of the BIR

Deficiency Assessment v. Jeopardy Assessment

• Deficiency Assessment
o There is a full audit and the BIR makes an assessment
• Jeopardy Assessment
o There is no full audit, since there was already delay on the part of the TP due to
the 2 reasons above, yet the BIR still makes an assessment

Why would there be a situation of jeopardy assessment?

• The TP was refused to provide or was delayed in providing the documents needed, so a
full audit cannot be done
• Why would the BIR resort to a jeopardy assessment?
• Ma’am: The TP definitely has the right to a full audit
o Before the BIR comes up with a final assessment, it has to go through the whole
process
• At some point, the TP cannot say “I was not given the opportunity”
o This is when due to the delay caused by the TP, magpreprescribe na yung period
within which the government can assess
o The 3-year period is the period within which the government must conduct an
audit to check the propriety of the tax return
▪ Before the end of the 3-year period, BIR must issue a final assessment
notice
o But sometimes, the TP doesn’t what to show its books or sign a waiver of the
period of prescription
▪ So hindi matatapos yung audit within the 3-year prescriptive period
o When this happens, the BIR will have no choice but to issue a jeopardy assignment

What is a disputed assessment?

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 • BIR issued a deficiency assessment, and the TP questions this assessment by the BIR
• What is the significance of a disputed assessment as distinguished from a deficiency
assessment / jeopardy assessment? What is the important part in its definition?
o The disputed assessment is the one that you are going to bring to the court
• When you say deficiency assessment, there is no protest by the TP yet
o This is just a finding by the BIR after a full audit of the return of the TP
• Once the TP has protested against the deficiency assessment, it goes through a certain
process. When the TP protests that final notice assessment, that’s when you get a
disputed assessment
o The amount in this disputed assessment is the amount that you will bring with the
court
▪ You file a petition for review with the court
• If hindi disputed assessment yung dinala mo sa court, the court can dismiss the case for
being premature

Sec. 5 NIRC
• Concerns the INVESTIGATIVE POWERS of the Commissioner
• BIR can do these even without a Letter of Authority
o Normally kasi, before CIR does things, it needs an LOA
o But even without an LOA, BIR can do some things in the back without the person
being assessed knowing
• Sec. 5 (b)
o Third-party matching letters
▪ BIR writes a letter to confirm if certain transactions really happened
o Some lawyers might say, wala naman kayong LOA to ask for this
o But because of this section, BIR can ask for this data even without an LOA
• Sec. 5 (c)
o Authority of the Bureau to issue a subpoena duces tecum
▪ Subpoena to produce documentary evidence
• Sec. 5 (e)
o This pertains to the tax-mapping power of the BIR
o Usually, BIR comes up with a list of all the taxpayers in a district
▪ Revenue district head gives instruction to examiners
• Check if these businesses are registered with BIR, have receipts,
books of account are in the office
▪ The technical-term for this is tax-mapping
o E.g. If you go to Jollibee, on the left or right side of the counter, you will see things
posted on their wall
▪ Mayor’s Permit
▪ Sanitary Permit
▪ BIR Certificate of Registration
▪ Form 0605
• Annual Registration Fee

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 o When BIR does tax-mapping, they checks 2 things
▪ Is your business registered? Where is your latest annual registration fee?
▪ They also look at your books of account if you’re registered
▪ They also look at your receipts

Summary of powers
1. Examine any documents such as books, papers, records, or any other data relative to the
inquiry
2. Obtain from third parties, including Government agencies, transaction records of a
taxpayer
3. Summon any person to determine tax liability
4. Take the testimony of any person relative to a tax inquiry
5. Cause revenue officers to make a canvass of tax liabilities

Purposes of the powers of the CIR

1. Assessing correctness of taxpayer’s return
2. Making a return when none is filed
3. Determining the liability of any person for any internal revenue tax
4. Collecting any tax liability
5. Evaluating tax compliance

Sec. 6 NIRC
• Concerns the ASSESSMENT POWERS of the Commissioner
• Sec. 6 (a)
o Authorizes the CIR audit examine your returns and assess and impose taxes
o Authorizes CIR to make an assessment even if the taxpayer fails to file a return
o Allows the taxpayer to modify, change, or amend the return they filed
▪ Provided, no NOTICE of audit or investigation has been served on the
taxpayer
• BIR must not have issued an LOA yet
▪ Sir: When you file your return, hindi touch move yun
• But depending on what you modify, you may be subject to
penalties or interest
o What’s the most important part of this provision?
▪ BIR as an institution has the authority to assess and investigate you
▪ But is it automatic / motu proprio?
• No
▪ “May authorize”
• Thus, BIR must authorize the conduct of an examination
• This is what will let the taxpayer know that the BIR agent can audit
them
▪ LOA is the document that authorizes the BIR to audit a taxpayer
• Sec. 6 (b)

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 o Best Evidence Obtainable Rule
o Allows BIR to use the best evidence obtainable to make an assessment in case BIR
can’t get a copy of the required documents or is given a false or fraudulent copy
of the document
o Can BIR say that the reason they were unable to assess you within the prescriptive
period is because of failure to check your books?
▪ No
▪ Because NIRC authorizes BIR to just check the best evidence obtainable
• Sec. 6 (c)
o Authorizes BIR to conduct inventory and surveillance and to prescribe
presumptive gross sales and receipts
o The technical term here is Mission Order
▪ When BIR wants to do surveillance, it issues these Mission Orders
▪ It enumerates what BIR will do (e.g. Do surveillance, conduct inventory-
taking)
▪ Most of the time, BIR does 2 things
• Open Surveillance
o They will sit in front of your office / store and count
o E.g. For doctors, they will check how many entered your
office and ask if you issued receipts.
o E.g. For restaurants, they will look at your returns. If you
had 100 sales for the day, they extrapolate using that.
• Benchmarking
o BIR will say it seems you’re underpaying your taxes since
based on the data, the gross profit ratio of similar
businesses is x%. You are below that.
o What are the 3 things you can do to do surveillance? (From book)
▪ Inventory-taking = stock-taking at any time during the taxable year which
consists of the verification of the actual volume, number or level or
inventory or stock so as to ascertain the flow or average trend of business
transactions for purposes of determining the correct internal revenue tax
liabilities
▪ Open surveillance = monitoring of sales or receipts of a taxpayer thru the
assignment of Revenue Officers to the business establishment if there is
reason to believe that the taxpayer is not declaring his correct income,
sales, or receipts for tax purposes
▪ Benchmarking of taxpayers = process of setting a standard to determine
the performance level of taxpayers in a given line of industry or sector; the
ratios of net VAT due and income tax due in relation to gross
sales/receipts, vis-à-vis profit margin rate is to be used for purpose of
setting the industry standard for taxpayer’s compliance
• Sec. 6 (d)
o Sir hasn’t seen this in practice
• Sec. 6 (e)
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 o Authorizes CIR to prescribe property values
o Dividing different areas to determine the fair market value of real property which
will be used as the basis for taxing that property
o Why did Congress give BIR the power to prescribe these values? Why not just rely
on the public?
▪ Normal taxpayers would want to undervalue their property so they pay
lower tax
• Sec. 6 (f)
o E.g. BIR writes to Bank Manager: “We heard Ms. A has millions of dollars in her
bank account.”
o Is the Bank Secrecy Law overwritten by this provision?
▪ No
o What will you write in the Bank Manager’s reply-letter?
▪ NIRC only allows BIR to inquire into bank deposit accounts in 3 instances
• A decedent to determine his gross estate
• A taxpayer who has filed an application to compromise payment of
tax liability by reason of financial incapacity
• A taxpayer subject of a request for supply of tax information from
a foreign tax authority or international convention or agreement
on tax matters to which the Philippines is a signatory or a party of
▪ The inquiry in this case doesn’t fall under these 3 instances

CIR’s assessment powers:

1. Examine returns and determine the tax due
2. Assess the proper tax of a taxpayer on the basis of “best evidence obtainable” under
certain conditions
3. Conduct inventory and surveillance and to prescribe presumptive gross sales and receipts
4. Terminate taxable periods
5. Prescribe real property values
6. Inquire into the bank deposits and other related information held by financial institutions
7. Authorize accreditation and registration of tax agents
8. Prescribe additional procedural or documentary requirements

CIR v. Aquafresh
• Here, CIR reclassified land from residential to commercial and assessed higher taxes
based on that reclassification
• CIR was arguing na no need to consult with public and private appraisers if only a
reclassification was done
• SC said that consultation is still needed
o While the CIR has the authority to prescribe real property values and divide the
Philippines into zones, the law is clear that the same has to be done upon
consultation with competent appraisers both from the public and private sectors.

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 o Petitioner, thus, cannot unilaterally change the zonal valuation of such properties
to "commercial" without first conducting a reevaluation of the zonal values as
mandated under Section 6(E) of the NIRC.
• Sir: What’s important about this case?
o Aquafresh also identified an instance in which the BIR may assess deficiency CGT
and DST following sale of real property on the basis of predominant use of
property, rather than on schedule of assessed values previously published
o Even if it’s actually commercial, if the area is predominantly residential, then you
should be assessed as residential
o In this case, the entire barangay where the property was located was
predominantly residential
• What’s so special about the valuations in this case? What did they say?
o It bears to stress that ALL the properties in Barrio Banica were classified as
residential, under the 1995 Revised Zonal Values of Real Properties
o You don’t use the predominant concept without looking at the actual zonal
valuation chart of BIR!
o Here, the BIR and DOF already classified everybody in that Barangay as residential
▪ So kahit commercial establishment yan, since residential yung area, then
residential din yung establishment for taxation purposes
• It’s as if SC was saying, “Hoy BIR, ayusin niyo yung pagclassify”
o If you said the whole barangay is residential, then you will be bound by what you
said
o Touch move yung BIR in this case
• That’s why nowadays, sa BIR Zonal values, may catch-all classification
o E.g. “All Other Streets = Commercial”
• End point: BIR is bound by its classifications in the Zonal Value Chart

FLOWCHART OF ASSESSMENT PROCESS

• Sec. 5 v. Sec. 6
o In Sec. 6, parang may predisposition na yung BIR that we will assess you. So they
need an LOA
o But if the BIR just wants to investigate you, then that’s part of the investigatory
powers under Sec. 5, which doesn’t need an LOA

1. Letter of Authority
• Not needed at all times
o No need when BIR wants to investigate you
o Only comes into play if BIR will assess you
• What’s the effect if there is no LOA?
o Then you can’t audit and assess the taxpayer
o But if BIR wants to investigate (in general, such as under Sec. 5), then no need for
LOA

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What are the key matters you should check in an LOA?
• A) Sir highlighted this: LOA should name the Revenue Officer that you’re supposed to
talk to
o Assessment is valid only when: (1) there is a grant of authority given to the
revenue officer, and (2) the authorized revenue officer must not go beyond the
authority given.
• B) Should be served within 30 days
o Otherwise, void
o Taxpayer may refuse the service of LOA if served beyond 30-day period except
when LOA is revalidated
• C) ONLY 1 LOA should be issued for each taxable year under audit to include specific
internal revenue tax liabilities.
o One LOA per tax type
• D) If the audit of a taxpayer shall include more than one taxable period, the other periods
or years shall be specifically indicated in the LOAs
o One LOA per taxable period

RE: B
If there’s a defect in the LOA, should you bring it up? What should you do? (E.g.
LOA was served beyond the 30-day period)
• Taxpayer may refuse the service of LOA if served beyond 30-day period except when LOA
is revalidated

(Wisdom question) The LOA is void. You know it’s expired. Should you raise it
now?
• No
• An assessment preceding from a void LOA is void. The whole process becomes void.
• If you tell BIR as early as now that you won’t receive the LOA because it’s beyond 30 days
na, then they’ll just issue a new one
o Keep the defense of a void LOA in your back pocket
• When there’s a deficiency in the LOA, as much as possible, don’t bring it up
o Because BIR would have the opportunity to correct it
o Just bring it up later on so you can say that the assessment is void
• What can BIR do? (No SC case yet)
o BIR can argue that the procedural lapse has been cured through the taxpayer’s
participation in the assessment proceedings

RE: C
What if there’s an LOA for income tax and an LOA for VAT? Is that valid?
• Yes
• The taxes being assessed are different
• There can be one LOA per tax type

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 o BIR can issue separate LOAs if they want to audit for different purposes
▪ E.g. One LOA for VAT purposes, One LOA for income taxes

RE: D
CIR v. De La Salle
• On provision prohibiting issuance of L/As covering “unverified prior years” (see Sec C of
RMO 43-90), SC said that what the provision prohibits is the practice of issuing LOAs
covering audit of unverified prior years
o If a taxpayer is audited for more than one taxable year, the BIR must specify each
taxable year or taxable period on separate LOAs
o In short, one LOA per taxable period
• SC voided the “unverified prior years” portion of the assessment
o This is for the years which were not specified
• However, not the entire LOA was voided
o The LOA was still valid with respect to the year that was specified

If during the audit, the BIR changes its examiner, must a new LOA be issued?
• Yes
• Because the LOA authorizes a specific person only

Sample Letter of Authority and Possible Issues

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 • Here, the 30 days is reckoned from the Jan. 14, 2021 Date of Issuance
• RO – Revenue Officer / GS - Supervisor
o These are the revenue officers authorized by the LOA
• Pag yung supervisor nag-iba and hindi nag-issue nang bagong LOA, void ba yung old LOA?
o No SC case yet

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 o But for sir, it’s void
▪ If 2 of them are authorized (RO and GS), and nag-iba yung isa, void yung
LOA
• “OF REGULAR LT AUDIT DIVISION”
o LOA must be issued by someone who has jurisdiction over you
• “ALL INTERNAL REVENUE TAXES”
o One LOA per tax type
o Shows the tax type whose assessment is authorized by the LOA
• “for the period…”
o One LOA per taxable period
o Shows the taxable period whose assessment is authorized by the LOA

Letter Notice
• Notification given to a taxpayer notifying him of discrepancy in the form of underdeclared
sales and over-claimed purchases
• Are you obligated to pay tax based on LN?
o No
o It’s only to notify the TP of any discrepancies
• Is an LN valid?
o Yes,
• What is it valid for?
o For notification purposes only
▪ To notify that BIR found discrepancies
o When you receive this, you cannot no longer amend the return you filed
• Can the LN be the basis for a PAN or FAN? Can it ripen into a valid assessment?
o No
o Separate LOA has to be issued

Medicard v. CIR
Letter of Authority (LOA)
Authority given to the appropriate
revenue officer assigned to perform
assessment functions
Letter Notice (LN)
Not found in the NIRC and is only for the
purpose of notifying the taxpayer that a
discrepancy is found

Empowers or enables said revenue officer As opposed to a LOA which is valid for only
to examine books of account and other 30 days, a LN has no such limitation
accounting records of a taxpayer for
purpose of collecting correct amount of
tax

Premised on fact that the examination of a

taxpayer who already filed a return is a
power that belongs only to the CIR himself

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 or his duly authorized representatives thru
a LOA
• LN is entirely different and serves a different purpose other than a LOA
• Due process demands, as recognized, that after a LN has served its purpose, the revenue
officer should have properly secured an LOA before proceeding with the further
examination and assessment of petitioner
• What does this case tell us?
o You can’t substitute a Letter Notice for an LOA
▪ The LOA is what you need to assess the taxpayer
o If BIR wants to assess a TP, after the issuance of an LN, it must issue an LOA

Procedure
• BIR sends Letter Notices
• If you don’t respond, they file a subpoena asking you to present documents
• If you don’t respond to the subpoena duces tecum, they can file a criminal case against
you
• What if you fail to submit a document when the BIR issued a subpoena because you don’t
have it? Can the BIR file a criminal case against you?
o There’s a specific provision in the Tax Code that if you don’t comply with a
subpoena duces tecum, BIR can file a criminal case
o It’s a different case when there’s impossibility to comply
▪ E.g. BIR is asking for import documents, but you don’t have import
documents cause you’re a domestic company. Thus, you can’t present the
document
• So when a criminal case is filed against your client, possible defense is
o Check what documents BIR is asking for
o Check if your client actually has those documents
▪ If they don’t, then you can argue that you can’t produce those documents
because your client’s business does not have those documents

What was previously a Notice of Informal Conference is now called a Notice of

Discrepancy
• BIR tells you you were investigated and these are there findings
• Conference should be held within 5 days of receipt
• But you have 30 days from receipt to file a Position Paper
o You can submit it before or after the meeting with BIR
• If you agree with the findings of BIR
o Then audit gets terminated
• What happens during this meeting?
o You explain your position
o If BIR agrees with you, they can issue an amended notice of discrepancy and pay
o If you don’t agree with BIR
▪ BIR will issue a PAN

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Preliminary Assessment Notice
• After the audit is conducted within the 120-day period and it is determined that there
exists sufficient basis to assess the taxpayer for any deficiency taxes, a PAN is issued by
the BIR
• BIR issues the PAN which indicates the findings of the audit
• The PAN must be in writing and shall show in detail the facts and the law, rules and
regulations, or jurisprudence on which the assessment is based
o Otherwise, it is void
• The issuance of the PAN to the taxpayer is part of due process requirement, the absence
of which renders any subsequent assessment null and void
• Is it required in all instances?
o No
INSTANCES WHEN PAN IS NOT REQUIRED: (Sec. 228)
1) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer
2) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent
3) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year
4) When the excise tax due on excisable articles has not been paid
5) When goods, for example, vehicles, capital equipment, machineries, imported by tax-
exempt person are sold to a taxable person/entity

What are the things we need to remember about PAN?

• PAN must be in writing
• PAN must contain the computation and the facts, law, and jurisprudence on which the
assessment is based
o PAN must contain factual and legal basis
• What’s the effect if no basis?
o PAN is null and void
• How many days to respond?
o Taxpayer is given 15 days from receipt of PAN to respond thru a Reply
• Is this extendible?
o No
• What’s effect of failure to reply?
o TP will be in default
o BIR will then issue a Formal Letter of Demand
• Is the concept of default here the same as in Remedial Law?
o No
• What does this default actually mean?
o Under Remedial Law, if you are in default, you can no longer present evidence

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 o But under NIRC, tou can still present your side later on during the protest to the FAN

If BIR issues an absurd assessment in a PAN (e.g. You have income of 100M as a
law student), or the issues in the PAN are so easily defensible, will you protest or
ignore it?
• Ignore it so BIR will issue the FAN
• Then challenge the FAN before CTA
• Don’t bring out all your guns
o If you come out strong in the PAN, then BIR can still change its theory
o BIR can still change its findings and strategy at the PAN stage
• So if madaling i-counter yung PAN, then hold off stating your defense

If the BIR receives a reply to the PAN, what should it do?

• It can issue FAN

Does BIR have to wait for reply before issuing FAN?

• Generally, yes
• But there’s an exception in jurisprudence
o See International Exchange Bank v. CIR Gabo Digest
▪ Firstly, a notice for informal conference was issued to petitioner on Nov
16, 1999 and in compliance with such notice, petitioner’s representatives
met with respondent’s Special Team
• Purpose of such informal conference is to afford the taxpayer with
an opportunity to present his side
▪ Secondly, while petitioner was not able to file its reply to the pre-
assessment notice, it was given the opportunity to protest the notices as
it even requested for re-investigation
• The amounts of deficiency taxes specified in the PAN are similar to
those stated in the assessment notices
• Thus, petitioner’s contention that it was denied due process is
devoid of factual and legal bases
• Sir: Looking at Sec. 228, NIRC doesn’t require you to reply to PAN
o So this can be used to argue that not waiting for the 15-day period to reply to
expire before issuing FAN is not a violation of due process

When you pay the PAN, don’t forget to submit proofs of payment to BIR so they
can easily terminate the case

Formal Letter of Demand (FLD) and/or Final Assessment Notice (FAN)

BIR, thru the CIR or his authorized representative, issues a FLD/FAN, which is a formal letter of
demand for payment of deficiency taxes of a taxpayer in the ff. instances:

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 1) Taxpayer who fails to respond to a PAN within 15 days from receipt of PAN
2) Taxpayer whose reply is without merit

Requisites for a valid FAN/FLD (RR No. 12-99, as amended by RR No. 18-2013)
1) BIR, thru the CIR or its authorized representative, shall issue the FAN/FLD
2) The FAN/FLD shall demand the payment of the taxpayer’s deficiency taxes stating the
facts, law, rules and regulations or jurisprudence on which the assessment is based
3) If the FAN/FLD does not state the facts, law, rules, regulations, or jurisprudence on which
the assessment is based, the assessment shall be void

Taxpayer’s remedies in response to FAN/FLD

• Taxpayer may file a protest against the FLD/FAN within 30 days from receipt of the
FAN/FLD thru a request for reconsideration or request for investigation
Request for Reconsideration An appeal to re-evaluate the assessment on the basis of
existing records, without need for the production of
additional supporting documents

May raise a question of fact, or law, or both

Request for Reinvestigation
NOTE: The 60-day period does not apply for requests for
reconsideration
An appeal to re-evaluate the assessment on the basis of
newly discovered evidence, which may involve a question of
fact, law, or both

Taxpayer shall submit all relevant supporting documents

within 60 days from filing of protest; otherwise, the
assessment shall become final (last sentence of 4th par of Sec
228)

Which is better to file as a protest?

• Reasons for Request for Reinvestigation
o You get to present new evidence
▪ If reconsideration lang, then BIR will just use the same evidence it used in
the initial assessment, so it’s less likely to change its decision
• Reasons for Request for Reconsideration
o Prescriptive Period
▪ However, a reinvestigation tolls the prescriptive period. So it may be better
to file a request for reconsideration instead if you want the action to
prescribe.

Why must there be a categorical demand on the BIR in the FLD / FAN?

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 • It signals the time when penalties and interests begin to accrue against the taxpayer, and
enables the taxpayer to determine his remedies

Upon receipt of FAN, how many days to protest?

• 30 days from receipt of FAN
• What if TP doesn’t protest within 30 days?
o The FAN becomes final tax and executory
• Does that mean that the TP is absolutely prohibited or cannot challenge the FAN
anymore?
o GR: Yes
o Exception
▪ We will learn in later chapters that there is one remedy still available to
the TP

What are the 2 methods of protesting a FAN?

• Request for Reinvestigation
o Basis for reevaluation is existing records
• Request for Reconsideration
o Basis for reevaluation is newly-discovered evidence

Why is it important that a reinvestigation is granted?

• It would suspend the running of the prescriptive period of BIR to collect if it is granted
• If BIR doesn’t grant it, the prescriptive priod is not tolled

2 Prescriptive Periods
• Prescriptive Period for Assessment of Tax Liability
o 3 years from filing of return
▪ In case there is an amended return and the deficiency assessment is
substantially different from the original return, the prescriptive period
shall be counted from the filing of the amended return
o 10 years in case of false or fraudulent assessment with intent to evade tax there
or there is no return filed
• Prescriptive Period to Collect of BIR
o 5 years from final assessment
o 10 years if without assessment in case of false or fraudulent returns with intent to
evade taxes or failure to file a return

What date do you look at to know if the Prescriptive Period for Assessment was
complied with?
• Look at the “Date Issued” of the Assessment Notice

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If the assessment for Income Tax was issued on April 15, but it was received April
17, is the assessment prescribed? (Note that Income Tax Returns are filed on April
15)
• No
• Even if the assessment was received beyond the prescriptive period, as long as the
assessment was issued within the prescriptive period, then it is valid
• For purposes of the 3 year prescriptive period, it’s always the “Date Issued” that’s looked
at
• But it can be abused. If mapreprescriban na si BIR, they can:
o Allege that there was falsity or fraud in your return para 10 years na yung
prescriptive period, or
o Make a false “Date Issued” within the prescriptive period
▪ The TP won’t know of this falsity unless they really check BIR records

Who has the burden of proof to show there was receipt of the assessment?
• BIR
• If TP says he didn’t receive the assessment, does he need to show proof?
o No
o Burden is solely with BIR
o So as TP, you can just deny receipt. BIR will then have to show that you actually
received.
• If TP did not personally receive the assessment, BIR generally has difficulty in proving
receipt by mail
o But don’t lie naman if you really received the assessment

Remember that the 60-day period for submitting supporting documents is from
the filing of Request for Reinvestigation
• It’s not counted from the granting of the Reinvestigation

2 possible outcomes of Protest (Review)

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 • Nuances of FDDA
o If it’s only the authorized representative that acted on the Protest, then you can
administratively appeal with the CIR
o But if it’s the CIR that acted on the Protest, then there is no more administrative
appeal. You go straight to CTA.
• If there was inaction by the CIR representative, you can’t do admin appeal to CIR.
o You appeal to CTA right away
o You can only do admin appeal with CIR if there was an FDDA.

Counting of 180 days

• In any case where the CIR’s duly authorized representative does not act upon a request
for reconsideration of the taxpayer’s protest within 180 days from the date of filing or
from date of submission of the taxpayer of the supplemental documents within 60 days
from filing of request for reinvestigation
o If there is request for reinvestigation, you count the 180 days after the 60 days for
filing of supplemental documents

Is it better to do an administrative appeal, or appeal to CTA?

• It’s better to bring up with CTA
• Why is this better than waiting for CIR or his representative to decide?
o BIR is prideful
o It won’t admit if it’s wrong

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CHAPTER 3
Summary of Prescriptive Periods under Tax Code
1. Period for assessment of tax liability
a. 3 years from filing of return
b. 10 years in case of false or fraudulent assessment with intent to evade tax there
or there is no return filed
2. Period for collection of taxes
a. 5 years from final assessment
b. 10 years if without assessment in case of false or fraudulent returns with intent to
evade taxes or failure to file a return
3. Period for filing of criminal action
a. 5 years from commission or discovery of the violation, whichever is later
4. Period for refund
a. 2 years from payment of tax or penalty

SEC. 222. Exceptions as to Period of Limitation of Assessment and

Collection of Taxes.
What are the exceptions to the normal prescriptive period?
• When there is false or fraudulent assessment / returns with intent to evade tax or when
there is no return filed

False v. Fraudulent Return

• False Return
o Return which contains deviations from the truth, whether such deviations are
intentional or not
• Fraudulent Return
o On the other hand, a fraudulent return is when there is intentional and deceitful
deviations made in the facts contained in the return

Sec. 222
• “With intent to evade tax”
o Does this phrase apply to false return or only to fraudulent return?
▪ One interpretation is it only applies to fraudulent returns
▪ If it’s false, meaning there is an inaccuracy in the return / deviation from
the truth, there’s no need to prove intent to evade for the 10-year
prescriptive period to apply
• Sir: But if we think like this, then technically, the prescriptive period
for everything is 10 years because why else would BIR assess you if
there is nothing false in your return

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 o This would be detrimental to the TP kasi hahaba yung
prescriptive period to collect ng BIR
▪ In practice, if BIR can’t prove intent to evade tax under a fraudulent return,
then they just say that the return was false instead so they can get the 10-
year prescriptive period
o The cases have been bouncing back and forth on WON “intent to evade” applies
to false returns as well
o But because of the rule that in case of doubt, it is state policy to side with TP, then
one interpretation is that intent to evade applies to false returns as well
▪ Because otherwise nga, then BIR would have a 10-year prescriptive period
for everything with no need to prove intent to evade

What’s the penalty if there is false return / non-filing of return?

• Sec. 248
o (B) In case of willful neglect to file the return within the period prescribed by this
Code or by rules and regulations, or in case a false or fraudulent return is willfully
made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the
deficiency tax, in case, any payment has been made on the basis of such return
before the discovery of the falsity or fraud: Provided, That a substantial under-
declaration of taxable sales, receipts or income, or a substantial overstatement of
deductions, as determined by the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of Finance, shall constitute prima
facie evidence of a false or fraudulent return: Provided, further, That failure to
report sales, receipts or income in an amount exceeding thirty percent (30%) of
that declared per return, and a claim of deductions in an amount exceeding (30%)
of actual deductions, shall render the taxpayer liable for substantial under-
declaration of sales, receipts or income or for overstatement of deductions, as
mentioned herein.

Is there a presumption of fraud in the NIRC?

• Sec 248 provides certain prima facie evidence to conclude that a return is false or
fraudulent
• Fraud may be alleged and proved when there is:
o 1. Intentional and substantial understatement of the sale of taxpayers by 30%
o 2. Intentional and substantial overstatement of deductions by 30%
• When it comes to sales, it is UNDERSTATEMENT that can make it fraudulent
o If it is overstatement of sales, that’s not fraudulent under Sec. 248
• When it comes to deductions, it is OVERSTATEMENT that can make it fraudulent
o If it is understatement of deductions, that’s not fraudulent under Sec. 248
• If either of the 2 things happen, then it will lower the taxable income of the TP, which is
fraudulent
o You have to tie things up and show that the overstatement / understatement
leads to a lower taxable income

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Are there any other exceptions to the statute of limitations to assessment or
collection of taxes?
• Waiver under Sec. 222 (b)

On waiver (Sec 222(b))

• Before expiration of the time or period prescribed in Sec 203 for assessment of tax, both
the CIR and the taxpayer can agree in writing to extend the period of the statute of
limitation
• The period so agreed upon may be further extended before the expiration of the period
previously agreed upon
REQUIREMENTS OF VALID WAIVER (RMO 20-90)
1) Waiver must be in the proper form prescribed by the BIR
2) Waiver must be signed by the taxpayer himself or his authorized representative; in case
of a corporation, the waiver must be signed by any of its responsible officials
3) Signature of the proper authority indicating that the BIR has accepted and agree to the
waiver; for tax cases involving 1 million and above, CIR himself must sign
4) Date of acceptance by the BIR should be indicated; both date of execution by taxpayer
and date of acceptance by the BIR should be before expiration of the period agreed
upon in case a subsequent agreement is executed
5) Waiver must be executed in 3 copies, the original to be attached to the docket, the 2nd
copy for the taxpayer, and the 3rd copy for the Office accepting the waiver
6) Waiver cannot cover taxes which had already prescribed
7) Executed waiver should be duly notarized
• When should the waiver be executed?
o Waiver shall be executed before expiration of the period to assess or collect taxes

If there are errors in execution of waiver

• General Rule: A defective waiver cannot extend the prescriptive period
o However, when the taxpayer is also guilty of causing defects in the waiver (bad
faith), the waiver executed shall still be considered valid and shall serve to extend
the period to collect/assess
▪ Remember that the waiver is beneficial for the BIR, so the TP normally
wouldn’t want this
• CIR v. Next Mobile
o Court held that the parties were in pari delicto
o You can’t just blame BIR cause even the TP was responsible for the erroneous
waiver
o Although the parties are in pari delicto, the Court may interfere and grant relief at
the expense of one of them, where public policy (lifeblood theory) requires its
intervention, even though the result may be that a benefit will be derived by one
party who is equally guilty as the other

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 o BIR’s right to assess and collect taxes should not be jeopardized merely because
of its mistakes and lapses of its officers, especially in cases like this when the
taxpayer is in bad faith
o Here, to uphold the validity of the Waivers would be consistent with the public
policy embodied in the principle that taxes are the lifeblood of the government,
and their prompt and certain availability is an imperious need
• Sir: Look at the wordings of the law. If you client is the TP, make sure your client is
compliant with the rules on his part. Para you don’t fall into a CIR v. Next Mobile situation.

The waiver of prescription is for the benefit of the BIR

• So it’s BIR that should be concerned that it’s validly executed
• But because of CIR v. Next Mobile, then the TP should now be concerned as well

What are the other instances when the statute of limitations is suspended? (Sec.
223)
SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of
Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of
distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days
thereafter; when the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the return
filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of the Statute of Limitations will not be
suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could
be located; and when the taxpayer is out of the Philippines.
• There are 5 instances in this codal
o Injunction
o Reinvestigation
o Cannot be located in the address
o No property could be located
o TP is out of the Philippines

CHAPTER 4

When is the BIR allowed to legally collect deficiency taxes

• When there is a valid assessment which has become final, executory, and demandable
• Does that mean that when you file an appeal with CTA, BIR is not allowed to collect?
• Two schools of thought
o 1. If you appeal to CTA, BIR can’t invoke its power to collect
▪ Bakit ka magcocollect, eh hindi pa final and executory yung decision?

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 o 2. But looking at the codal provisions on the modes of collection, the Code doesn’t
require that the case is final before BIR may collect
▪ Sec. 9 of RA 9282 also says: "No appeal taken to the CTA from the decision
of the Commissioner of Internal Revenue or the Commissioner of Customs
or the Regional Trial Court, provincial, city or municipal treasurer or the
Secretary of Finance, the Secretary of Trade and Industry and Secretary of
Agriculture, as the case may be shall suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the satisfaction of his tax
liability as provided by existing law.”
▪ Why would Congress provide for this statement if BIR is not allowed to
collect?
• Problem arises with respect to the issue of prescription
o BIR is mandated by law to collect within 5 years of the assessment
o The term “assessment” is reckoned from the issuance of the FAN. It tolls when
there is reinvestigation and is suspended if you get a suspension order from the
CTA.

How does the BIR collect?

• Distraint of Personal Property
o 2 Types of Distraint
▪ Actual
▪ Constructive
• A preventive measure
• TP is not yet liable for the payment of the tax, but constructive
distraint is used to prevent the dissipation of assets of the TP which
can be used to pay their tax liability
• Levy of Real Property
o Real property of the TP will be seized BIR
o If the TP does not pay their tax liability within a certain period, then BIR can sell
the real property to satisfy the claim of the gov’t against the TP

What does the BIR do in practice?

• When you receive FDDA, you have 30 days to appeal
• But because there is already a FAN, BIR initiates the summary modes of collection
o They don’t normally do it when there is a pending protest to the FAN
o But legally, pwede na silang magcollect, especially if you filed a request for
reconsideration
▪ This doesn’t toll the prescriptive period to collect

BIR has 2 objectives when collecting

• To meet their collection targets because they’re short in cash
• To avoid prescription
• So if BIR is collecting from your client

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 o You can just offer garnishment up to a certain amount
o Para BIR at least gets something, and you get them off your back for a short while
o If you’re appealing with CTA, don’t forget to amend your petition to ask for a
refund of the garnished amount in case you win

Just remember, pagnagarnish or natax lien yung assets ng client

• It’s hard to get them lifted
• Wag niyo paabutin sa ganyan
• So go straight to the collection division and talk to them to see if you can manage their
collection efforts

If the TP fails to protest the FAN, what are his other available remedies?
• Compromise

Sec. 204
The Commissioner may –
(A) Compromise the payment of any internal revenue tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.

The compromise settlement of any tax liability shall be subject to the following minimum
amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of
the basic assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic
assessed tax.

Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement
offered is less than the prescribed minimum rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be composed of the Commissioner and the four (4)
Deputy Commissioners.
• Remember that one tax type per assessment
• So these requirements must be present for each tax type if you want a compromise

A Compromise is similar to a protest

• You have to state in your request for compromise the basis for it
o E.g. State why there is doubt as to the validity of the assessment of the BIR

Assuming that the grounds to avail of compromise are not present, do you have
another remedy?
• Abatement
• Compromise v. Abatement
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 o Compromise is a mutual concession
▪ Consent of BIR and TP are needed
o Abatement is a mere deduction or diminishment of the tax liability
▪ Only consent of the BIR is needed
• Normally when you avail of abatement, usually yung pinapa-abate mo is yung interest,
penalty, surcharge. For the tax liability, yun yung cinocompromise.
• Pag compromise
o Dumadaan sa Evaluation Board (NEB)
• Pag abatement
o Hindi kailangan dumaan ng NEB

If you’re not able to protest the FAN, it becomes final and executory. You don’t
have money, so you don’t want to compromise kasi you’ll still have to pay a small
amount if you do. Your situation does not fall under those where abatement is
allowed. Do you have any other remedy?
• The last remedy you can do is that you can question the collection under the basic
principle that the spring cannot rise higher than the source
• If there’s no valid assessment, then there’s no valid collection
o A collection cannot spring from an invalid assessment
• This is when you invoke the “other matters” jurisdiction of the CTA
• If there are issues with the LOA, PAN, FAN, etc., then the assessment becomes invalid and
collection becomes invalid
o So study the docket to see if may hindi nasunod yung BIR
• In questioning the “other matters”, CTA usually requires you to file a petition within 30
days of the receipt of the warrant levy
• But if you look at the CTA provisions under law, parang wala naman talagang period of
when to file a case with the CTA

Tax Lien wins over all other claims if the lien is specific to a property involved in
a transaction that created that tax liability

Provision on Suspension
• Take not of Spouses Pacquiao case
o Important takeaway: Hindi absolutely required na magpost ka ng bond
▪ When you apply for a suspension order for the issuance of warrants of
distraint and/or levy and warrants of garnishment with the CTA, it’s
difficult because CTA will require you to post a bond
▪ The bonding companies that are accredited by the SC will require the TP
to post a collateral usually amounting to the tax liability
▪ So if malaki yung tax liability, malaki yung bond required
▪ But Pacquiao case said that posting of a bond is not mandatory

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CHAPTER 5
Why did Congress provide for refunds under the Tax Code?
• Based on the principle that no one can unjustly enrich themselves at the expense of
another
o This is in line with the Civil Law principle of solution indebiti

What’s the period to file for a refund?

• Within 2 years from the payment of the tax sought to be refunded
• Sir: Note that there are different tax types and they have different due dates
o Hindi lahat, April 15. Income Tax lang yun
o So when there’s a question on refund, always ask yourself, what tax type is this?
When is this tax type due?
o E.g. DST – monthly basis, VAT – quarterly basis, Final Withholding Tax – monthly
basis, Income Tax – annual basis

What are the taxes that can be refunded?

• p. 163 of book
o Taxes erroneously or illegally received by BIR
o Penalties imposed without authority
o Any sum alleged to have been excessively or in any manner wrongfully collected
o Value of internal revenue stamps when returned in good condition by the
purchaser
o Value of unused stamps rendered unfit for use upon proof of destruction, in the
discretion of the CIR
o Excess income tax credits against quarterly income taxes for the next taxable year
which were not used

In practice, BIR will come up with every excuse so as not to give you a Tax Credit
Certificate

Can you invoke Sec. 229 for refund of VAT?

• Yes, but only for VAT not covered by Sec. 112 of the NIRC
o Sec. 229 is for refunds of output VAT or input VAT not related to zero-rated or
effectively zero-rated sales
• Read alongside Sec. 112 of the NIRC
o What are you refunding in Sec. 112?
▪ Input VAT related to zero-rated or effectively zero-rated transactoins
• (FINALS ALERT) If there is a refund for VAT, ask yourself right away, are we talking about
input VAT or output VAT? Is it related to zero-rated or effectively zero-rated transactions?
o If input VAT related to zero-rated or effectively zero-rated transactions, then apply
Sec. 112
o Otherwise, apply Sec. 229

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When you say 2 years, you need to file the admin and judicial claim within the 2-
year period?
• Yes
• If I file the claim for admin refund 1 day before the 2-year period, can I file for the judicial
refund in the afternoon of the same day?
o Yes
• This is the big difference from Sec. 112
o In Sec. 112, you need to wait for the 90-day period for BIR to decide before going
up to CTA
o But in an erroneously or illegally collected tax subject to refund, the only
requirement is that the admin and judicial claim are filed within the 2-year period
o Just make sure na mauuna yung admin claim

Who can claim for tax refund?

• The taxpayer himself
• The statutory taxpayer
• The withholding agent
• But there’s an exception in the PAL case and Chevron case
o In those cases, SC held that the enumeration above should not apply to instances
where the law clearly grants the party to which the economic burden of the tax is
shifted an exemption from both direct and indirect taxes
o In such a case, such party who is exempted mut be allowed to claim the tax refund
or tax credit even it if is not considered as the statutory taxpayer under the law

(FINALS ALERT) Don’t forget the pp. 172-173 for the different reckoning points of
the 2-year period

Even if not discussed in class, it might still appear in finals. So read the book!

Sir will ask for current events so he might ask about Marcos
• If you are the lawyer for Marcos, do you have legal basis to file for compromise on the
ground of prescription
o Kasi baka hindi na valid yung claim against Marcos because of prescription (?)

Part VI: Judicial Remedies

What’s the jurisdiction of CTA Division?
• Pp. 224-226

What’s the jurisdiction of CTA En Banc?

• P. 223

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Sir’s Advice
• Everything decided by CTA division is appealable to CTA En Banc
• But when it comes to decisions of RTC, when RTC exericises its appellate jurisdiction, it
goes straight to En Banc
o This means the original case was filed with the MTC
• Decisions of the CBAA in the exercise of its appellate jurisdiction
o CBAA was exercising its appellate jurisdiction of the LBAA
o Usually, its jurisdiction is over real property tax cases

How many days to go to CTA division?

• For Civil Cases: 30 days from the decision / expiry (Rule 8 Sec. 3(a) of Revised Rules of
CTA)
• For CBAA cases: 30 days from decision (Rule 8 Sec. 3 (c))
• For Criminal Cases: 15 days from decision (Rule 9 Sec. 9 (a))
• Extensions can be granted (Rule 42 Sec. 1)

If the CTA division renders a judgment, what’s your remedy?

• You must file MR with CTA division
• Then file Petition for Review with CTA En Banc within 15 days of Division decision (Rule 8
Sec. 3(b) and Rule 9 (b) of Revised Rules of the CTA in Relation to Rule 43)

What’s your remedy for decision of CTA En Banc?

• You may file MR with CTA En Banc
• 15 days to Appeal with SC (Rule 45)

Is the MR in the CTA division mandatory?

• Yes
• If you don’t file an MR, what happens?
o The CTA division decision will become final and executory

Is the MR in the CTA En Banc mandatory?

• No
• So when should you choose to file an MR with CTA En Banc?
o We know that SC is not a trier of facts
o So if you’re gonna raise a factual matter, then file an MR

Challenging BIR issuances

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D2023
 • SOF is Secretary of Finance
• In practice, you don’t have to go to the SOF because most of the BIR issuances are signed
by the SOF. So it’s useless to appeal him.
• Latest Ruling is BDO v. Republic (2016)
o SC held that intention of RA 1125 is cause Congress wanted a specialized court to
handle tax cases
• Current Jurisprudence
o For exercise of quasi-legislative functions
▪ Go to SOF
▪ Then go to CTA
• But there’s still another school of thought that says
o File with RTC
• But mukhang settled na yung SC that jurisdiction is with CTA
o SC has now held that CTA has the power to issue injunctions
o So no more reason for you to file with RTC
▪ Before kasi, they would go to RTC kasi dun pwede humingi ng injunction

Can you bring up a constitutional defense before the CIR?

• SC held in a case
o You can challenge the constitutionality of a regulation in an assessment
o Because the CTA has jurisdiction over it

See BIR Ports Authority v. City of Davao

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D2023
 • Here, SC held that CTA can issue injunctive relief

Under Remedial Law, for you to be granted injunction, you must prove
irreparable injury. Do you need to prove that in CTA in order to ask for a
suspension?
• Most of the time, CTA equates injunction with a suspension order
• But if you look at CTA Rules, it uses the word suspension order
o So your contention should be that irreparable injury is not needed for a
suspension order
o Cause otherwise, pahihirapan mo lang yung sarili mo
• Irreparable injury is something that cannot be compensated with cash
o Pero in the CTA, everything is about money
o So mahirap iprove yung irreparable injury

What’s the basis of the bond when you go to CTA?

• (FINALS ALERT) Principal amount of the deficiency taxes only (The taxes in the
assessment)
o Excludes penalties, interest, and surcharges

If you fail to protest an assessment, is that the end for you?

• No
• What can you do?
o You QUESTION THE COLLECTION by indirectly saying that the assessment is void
o You can then invoke then “other matters” jurisdiction of the CTA

Must there be an assessment before a criminal case for tax evasion may be filed?
• No
• For criminal prosecution to proceed before assessment, there must be a prima facie
showing of a willful attempt to evade taxes
• But no need for an assessment

There are instances when a CBAA decision is appealed to CTA Division v. CTA En
Banc
• So always check if the CBAA exercised original or appellate jurisdiction
• If original
o File your petition with CTA Division
• If appellate
o File your petition with CTA En Banc
• Check the same thing for cases from the RTC

Read the cases that sir mentioned in the origs

Cholo Rabago
D2023
LOCAL GOVERNMENT
• We’ll be talking about the taxing power of LGUs

When we say LGUs, what part of the structure of the government are we talking
about?
• Provinces, Cities, Municipalities, and Barangays

Where do these LGUs draw their power to tax? What is the purpose of taxation?
• This power is derived from a Constitutional grant (This power was not merely delegated)
o Before, the power of the LGUs to tax was based on a law.
o But when the 1987 Constitution was enacted, it included provisions that granted
LGUs the power to tax
• What Constitutional provisions are these?
o Art. X Sec. 3 and Sec. 5
• You need Sec. 3 to give life to Sec. 5
o Sec. 5 says that the purpose why LGUs are given the power to create their own
sources of revenue is because it needed these for purposes of the policy of local
autonomy
o Sec. 3 tells us that Congress is supposed to enact an LGC, which is supposed to
provide for all the policies and rules in the creation of an LGU. Such LGU must be
given a certain degree of local autonomy.
o To support that concept of local autonomy as mandated by the Constitution, the
LGUs are given the power to tax and raise revenues

What do you mean by local fiscal autonomy?

• LGUs should have a certain degree of independence from the National Government
• For it to get independence, it should be given:
o The power to create its own sources of revenue and impose taxes
o The power to allocate its resources in accordance with its priorities
• It has to get this power from somewhere. It got it from the LGC.
o The principle of Local Autonomy and LGC exist because of Art. X Sec. 3
o Fiscal autonomy exists because of Art. X Sec. 5

Local Taxation in relation to National Taxation

• National Taxation is provided for in NIRC
o It covers everyone and everywhere
• In Local Taxation, we follow the principle of territoriality
o Why is it important to understand the jurisdiction of provinces, cities, and
municipalities in relation to local taxation? Why is it important to make a
distinction?

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D2023
 o According to the LGC, how would you group the kinds of taxes that provinces,
cities, and municipalities can impose?
o Is it possible for a province to impose the tax which has already been imposed by
the municipality?
o There are certain kinds of taxes that can only be imposed by one LGU but not the
other
o What ma’am was trying to drive at:
▪ The law divided the local government into provinces, cities, and
municipalities
▪ Para hindi mag-overlap, what the province can impose, hindi pwedeng
iimpose ng municipalities
▪ But cities can impose both what the municipality and province can impose
o The question is: What are the taxes that can be imposed by the province?
▪ If it’s not in the enumeration in the Code, they cannot impose it
▪ Same rule with municipalities: If it’s not in the enumeration in the Code,
they cannot impose it
o But for cities
▪ They have very broad taxing power
▪ It can impose both what the province and municipality can impose

MEMORIZE WHAT TAXES EACH LGU CAN IMPOSE

Sec. 130 of the LGC talks about the Fundamental Principles that ALL LGCs have to
adhere to

Sec. 133 of the LGC talks about the kinds of taxes that LGUs cannot impose
• E.g. We already pay income tax to the National Government. Thus, LGUs cannot impose
income tax.
• Remember all these kinds of taxes!

Local Taxing Authority of National Government v. Local Government (Sec. 132)

• National Government Setting: Congress passes a law from which taxes stem
o Pursuant to Consti, bills concerning tax should originate from the lower house
• Local Government Setting: Sanggunian passes a taxing ordinance from which taxes stem

What is the nature of the taxing power of the LGU as illustrated in Meralco v.
Province of Laguna?
• Here, the High Court explained the nature of the taxing power of local government units.
o Prior to the 1987 Constitution, the taxing power of LGUs was exercised under limited
statutory authority.
o Under the present Constitution, the taxing power of LGUs is deemed to exist, subject only
to specific exceptions that the law may prescribe.
• Constitution → LGC → Exercised by LGUs

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D2023
 o This is the flow of taxing power by LGUs
o It ultimately comes from the Constitution

Sec. 130 (c) says “The collection of local taxes, fees, charges and other impositions
shall in no case be let to any private person.” What does this mean? Why can
collection not be left to private persons? Why can’t the government hire a
collection agency?
• The government would be subject to more accountability, unlike a private person
o Mas maaasahan mo kung government magcocollect

Petron v. Tiangco
• The issue was whether under Section 133(h) of the 1991 LGC, the local government unit
concerned was prohibited from imposing not only excise tax, but any kind of tax, fee or
charge, on petroleum products.
• The Supreme Court held that the exercise of the taxing powers of LGUs does not extend
to the levy of all kinds of taxes, fees or charges on petroleum products. “The absence of
such a qualification leads to the conclusion that all sorts of taxes on petroleum products,
including business taxes, are prohibited by Section 133(h). Where the law does not
distinguish, we should not distinguish.”
• Only the first part of Sec. 133 (h) is qualified by “Excise”. The second part is not.
• In short, prohibited ang taxes of any kind on petroleum tax.
o Hindi lang excise tax yung prohibited
• What was the issue in this case? What did the Navotas government impose?
o Business tax on petroleum products
• Allowed or not?
o Not allowed
o Because LGUs cannot impose any kind of tax on petroleum products
• What happened in the end?
o The imposition of tax by Navotas was not upheld

The rule is that if the LGC doesn’t say you can impose a tax, then you can’t impose it

Provinces
• What kinds of tax can it impose?
o See Sec. 134-141 of LGC
• Sec. 135: Tax on Transfer of Real Property Ownership
o According to the LGC, how will the LGU ensure payment of this?
o Under the NIRC, when the seller sells real property, ano binabayaran mo?
▪ Capital Gains Tax and Documentary Stamp Tax
o You pay this para ma-issuehan ka ng ano?
▪ Certificate of Authority to Register (CAR)

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D2023
 o Pag meron ka nang CAR, ano yung assurance ng province na mababayaran yung
Tax on Transfer of Real Property Ownership?
▪ (b) says: (b) For this purpose, the Register of Deeds of the province concerned
shall, before registering any deed, require the presentation of the evidence of
payment of this tax.
o So if someone sells you land
▪ They should show you a CAR
▪ You must also show evidence of payment of taxes on transfer of real property
ownership to the Register of Deeds for them to register the property under your
name
• (FINALS ALERT) Sec. 138: Tax on Sand, Gravel, and Other Quarry Resources
o Sa bundok. Kumukuha ng quarry or sand para sa construction.
o Kahit sa private property ba, you’re supposed to pay this tax?
▪ No
▪ The provision covers only those extracted from public lands or from the beds of
seas, lakes, rivers, streams, creeks, and other public waters within its territorial
jurisdiction.
o The province collects this tax
▪ But then it has to give a certain portion to the municipality / barangay where the
property is located
• Sec. 139: Professional Tax
o You only need to pay this if you’re exercising a profession requiring government
examination
• Sec. 140: Amusement Tax
o There are different rules depending on what activity is being taxed
o PBA v. CA
▪ It’s the National Government which can tax the PBA, not the LGUs
o If you go to a restaurant where you can also play a console, is that subject to
amusement tax?
▪ No
o What’s the common denominator among the places enumerated in Sec. 140?
▪ They’re all places where you watch something
▪ They’re not places where you do something or participate in something
o What are the necessary elements to be taxable under Sec. 140?
▪ 1. It must be an amusement place
▪ 2. The place must charge an admission fee

Municipalities
Sec. 142

Sec. 151: Except as otherwise provided in this Code, the city, may levy the taxes,
fees, and charges which the province or municipality may impose

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D2023
 • Thus, a city may levy professional taxes
• If you already paid professional taxes to the city
o No more need to pay the province where the city is located
• But if you live in a municipality in a province
o Then you need to pay the province, not the municipality

Differences in Scopes
• Read the LGC to know the differences
• In general
o Whatever a province and municipality can charge, the city can as well
▪ This is the case if it’s a highly urbanized city
o The rule is different when it’s a component city

What’s the first thing you should consider when computing tax?
• The taxable base

For local business tax, what’s the taxable base?

• Gross sales and gross receipts
• What’s the difference between this and gross revenue?
o See Ericsson case (Not in Gnotes)

Situs Rules on Local Business Tax

• Depends on whether the TP has a branch or sales outlet in another jurisdiction
• Remember SPBUS
• FINALS ALERT: There will be one question in finals about this
o Know what “branch” means

What’s the procedure in challenging an ordinance?

• Within 30 days of effectivity of the ordinance, appeal to SOJ
o SOJ must decide within 60 days
• If SOJ decides or SOJ fails to render a decision within 60 days
o You can appeal such with the RTC
• After RTC
o Appeal with CTA Division
o Then MR
o Then appeal with CTA En Banc

Is a public hearing required for the effectivity of ordinances?

• Yes
• If LGU does not hold public hearing, what happens?
o According to the cases, the ordinance will be rendered null and void

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The 60-day period before the SOJ, is that mandatory?
• Yes
• So you must wait either 60 days or wait for the SOJ to decide
• If the SOJ does not decide within 60 days and you decide to wait for the decision, can you
still go up with RTC?
o No
o Upon the lapse of the 60-day period without SOJ rendering a decision, the TP
should already appeal to the RTC

If you want to challenge local business tax, does the TP have any other remedy
under the law?
• Protest the assessment with the treasurer
• Upon receipt of the assessment, within 60 days from that, you can protest with Treasurer
• Treasurer has 60 days to decide
• If treasurer renders a decision of fails to decide within 60 days
o Appeal to courts
o Which court depends on the amount of the claim
▪ Threshold amount is 2M (Check updated rules)
• Can you wait for the decision even after 60 days?
o No
o You have to appeal right away
o You can’t wait for the decision. You have to appeal upon the expiration of the 60-
day period

Are you required to pay under protest?

• No

What’s the other remedy?

• File a refund with the treasurer
• This happens when the TP has already paid the tax beforehand
• Must be filed within 2 years from when the tax was paid
• 60 days for the treasurer to decide
• If treasurer decides or fails to render a decision within 60 days
o Appeal to courts
• Cosmos Case compared to ICTSI Case
o Read these (Not in Gnotes)
o We discussed it in class

Between choosing a remedy between 195 and 196, what should be determined
first?
• ICTSI Case
• WON there was an assessment made

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D2023
 • What did J. Leonen say is important for one to say that an assessment was made?
o A notice of assessment must be delivered and it must contain the tax deficiency,
surcharges, interest, and penalties
o It must be signed by the local treasurer
• What’s the other document mentioned in the case?
o That document you receive in January
o It’s a statement of account that tells you of the taxes you will pay during the
coming taxable year

What’s the prescriptive period for protest?

• 5–5
• Not like the NIRC
• Sec. 194

When you file a claim for refund, can you file it one day before the expiry of the
2 year period?
• Yes
• Same as the refund rule in NIRC
• You can file the refund in the morning and the judicial remedy in the afternoon
o Command f the other “afternoon” discussion
• Sec. 196

REAL PROPERTY TAX

What is Real Property Tax?
• Sec. 198
o (b) Real property shall be classified for assessment purposes on the basis of its
actual use

Assessed Value v. Fair Market Value

• Sec. 199
o (h) "Assessed Value" is the fair market value of the real property multiplied by the
assessment level. It is synonymous to taxable value;
o (l) "Fair Market Value" is the price at which a property may be sold by a seller who
is not compelled to sell and bought by a buyer who is not compelled to buy;

READ CASE 27
• What’s the distinction between erroneous and illegal tax?

Who has the duty to declare the valuation of their properties?

• The owner of the property

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D2023
 • What’s the effect if you don’t declare?
o Local assessors would have to make a declaration on behalf of the owner of the
property
o The owner would then have to pay based on the assessment made by the local
assessors with the corresponding interest
• Is it better to declare the property or is it better to wait for the assessors to do it for you
o Better to do it yourself
o Why?
▪ The RPT to be paid by the owner would be less
▪ If you don’t declare, the local assessors will likely make an assessment that
is higher
• This is usually done for valuation of improvements
• What’s another reason why you should make the assessment yourself, in terms of
penalties? Remember the 10-year period.
o If you don’t declare and the city assessor does it for you, how many years back do
they compute the RPT?
▪ 10 years
o If the real property improvement is not something that has been in existence for
10 years, better for you to declare it
▪ Because it local assessors do it for you, they will impose the 10-year period
for assessing back taxes

What entities are exempt from RPT? What’s the exception to the rules?
• Beneficial Use Rule
o Even if the owner is exempt, if the actual user is not exempt, then there will be
RPT
• The exceptions are not based on the owner or user. It’s based on the actual use.

If you have problems with the manner the LGU is imposing RPT, what are your
remedies?
• 1) Pay first
• 2) TP has to cause the annotation of “Paid under protest”
• 3) Protest should be made in writing within 30 days of payment
• 4) Treasurer has 60 days to resolve the protest
• 5) If the treasurer denies the protest or after the lapse of the 60-day period, TP may
appeal to the LBAA within 60 days
• 6) TP may then appeal to the CBAA within 30 days

Can you wait for the decision after the expiry of the 60 days, or can you wait for
the decision of the treasurer?
• It’s mandatory
• You must appeal immediately when the 60-day period expires

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 • Sir:
o Sir looked at the cases. It’s not clear if the 60-day period is mandatory
o Look at the LBAA rules in their website
▪ If you look at their rules, it appears that the 60-day period is not mandatory
▪ You can wait for the decision

What if the TP doesn’t want to pay under protest? Is there another way for him
to contest?
• TP can post a surety bond

Can you go straight to RTC?

• No
• There must be exhaustion of administrative remedies
• But if you go courts, there’s no more need to pay under protest

City of Lapu-Lapu v. PEZA

• With this case, SC clarified the difference between an erroneous and illegal assessment
• Erroneous
o You recognize their authority to impose and assess RPT
o Pero mali yung value assessed
• Illegal
o Made without authority under the law

If your argument the the imposition of RPT is prescribed, is the remedy through
the Treasurer route or RTC route?
• In answering the question, determine first, are you arguing na walang authority siya, or
mali yung computation kasi prescribed na yung ilang years?
o Sir’s position: Illegal assessment siya
• But if the client has the money to pay under protest, then just go through the Treasurer
route

Not all LGUs have LBAAs

• Cities usually have CBAA agad

FINALS ALERT: SIR WILL ASK A QUESTION ABOUT PROCEDURE / APPEALS

Cholo Rabago
D2023