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“PRiMUS CUT AND PASTE: The BAR STAR NOTES”

in

areas from where Bar questions may be sourced. The questions shown in these Notes may or may not be exactly worded in the actual Bar questions. The reader is advised to take note of the areas marked with stars: If pressed for time, the reader should read only the items marked  and . These areas represent 80% to   90% of the sources of questions that would probably be given in the 2009 Bar exams. The reader should merely browse the areas marked  and the unmarked areas because they represent only 10% to 20% of the areas from where questions may probably be sourced this year. WARNING: These materials are copyrighted and/or based on the writer’s books on Taxation and future revisions. It is prohibited to reproduce any part of these Notes in any form or any means, electronic or mechanical, including photocopying without the written permission of the author. These materials are authorized for the use only of Bar reviewees the author has personally authorized. Unauthorized users shall not be prosecuted but SHALL BE SUBJECT TO THE LAW OF KARMA SUCH THAT THEY WILL NEVER PASS THE BAR OR WOULD BE UNHAPPY IN LIFE for stealing the intellectual property of the author. Only copies with the signature of Prof. Domondon, or his authorized representative and the corresponding number on this page are considered authorized copies. Holders of authorized copies are requested not to lend their copies for reproduction through Xerox or otherwise.

With selected Supreme Court decisions up to May 10, 2009 VER: 09.05.12

TAXATI0N
by

ABELARDO T. DOMONDON
How to use the Notes: These Notes in the form of textual materials and representative review questions were specially prepared by Prof. Domondon for the exclusive use of Bar Candidates who attended his 2009 lectures on Taxation, and others he has personally authorized. The purpose of these Notes is to test the candidate’s ability to answer probable questions that may be asked in the September 33, 2009 Bar Examinations in Taxation. The last version to be released is Ver. 09.08.17 which may substantially alter the contents of this Ver. 09.05.12 Be sure to secure the last version to replace this version. DO NOT MEMORIZE the suggested answers. Some of the answers were purposely made to be lengthy in order to serve as explanatory devices. This is so because you do not have time anymore to refer back to your review materials. The materials are arranged in accordance with the bar examination coverage. The actual bar questions may not be so arranged. Likewise, these Notes are only indicative of the

GENERAL PRINCIPLES OF TAXATION
TAXATION, IN GENERAL

Why are tax laws construed strictly against the State and liberally in favor of the State ?
SUGGESTED ANSWER: In case of doubt, tax laws must be construed strictly against the State and liberally in favor of the taxpayer because taxes, as burdens which must be endured by the taxpayer, should not be presumed to go beyond what the law expressly and clearly declares. (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99)

1. 

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make an exemption ought to be expressed in clear and unambiguous terms. (Quezon City, supra citing Agpalo, R.E., Statutory
Construction, 2003 ed., p. 302)

5. What is the effect of a BIR reversal of a previous ruling interpreting a law as exempting a taxpayer ?
SUGGESTED ANSWER: A reversal of a BIR ruling favorable to a taxpayer would not necessarily create a perpetual exemption in his favor, for after all the government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99)

2. Why are tax exemptions are strictly construed against the taxpayer and liberally in favor of the State ?
SUGGESTED ANSWER: continued existence of the State. Taxes are necessary for the

3.

Strict interpretation of tax exemption laws.

6. Why is imprescriptible ?

the

right

to

collect

taxes

Taxes are what civilized people pay for civilized society. They are the lifeblood of the nation. Thus, statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G.
R. No. 166408, October 6, 2008 citing Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA 667, 680) The burden of proof rests upon the party claiming the

SUGGESTED ANSWER: a. As a general rule, revenue laws are not intended to be

liberally construed, and exemptions are not given retroactive application, considering that taxes are the lifeblood of the government and in Holmes’ memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented. (Commissioner of Internal Revenue v. Acosta, etc.,G. R. No. 154068, August 3, 2007)
However, statutes may provide for prescriptive periods for the collection of particular kinds of taxes.

exemption to prove that it is in fact covered by the exemption so claimed. (Quezon City, supra citing Agpalo, R.E., Statutory Construction,
2003 ed., p. 301)

b. Tax laws, unlike remedial laws, are not to be applied retroactively. Revenue laws are substantive laws and their application must not be equated with remedial laws. (Acosta, supra)

4. Rationale for strict interpretation of tax exemption laws. The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to minimize differential treatment and foster impartiality, fairness and equality of treatment among taxpayers. (Quezon City, et al., v. ABSCBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008) He who claims an exemption from his share of common burden must justify his claim that the legislature intended to exempt him by unmistakable terms. For exemptions from taxation are not favored in law, nor are they presumed. They must be expressed in the clearest and most unambiguous language and not left to mere implications. It has been held that “exemptions are never presumed the burden is on the claimant to establish clearly his right to exemption and cannot be made out of inference or implications but must be laid beyond reasonable doubt. In other words, since taxation is the rule and exemption the exception, the intention to

7. It is said that taxes are the lifeblood of the government and any delay in its collection would impair the rendition of government services. May the collection of taxes be restrained by a court ?
SUGGESTED ANSWER: As a general rule, “No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge.” (Sec. 218, NIRC) However, the Court of Tax Appeals is empowered to enjoin the collection of taxes through administrative remedies when collection could jeopardize the interest of the government or taxpayer. (Sec. 11, Rep. Act No. 1125)

8. What are the grounds and procedure for  suspension of collection of taxes ?
SUGGESTED ANSWER: Where the collection of the amount of the taxpayer’s liability, sought by means of a demand for payment, by levy, distraint or sale of property of the taxpayer, or by whatever

means, as provided under existing laws, may jeopardize the interest of the government or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with the Court of Tax Appeals. The motion for suspension of the collection of the tax may be filed together with the petition for review or with the answer, or in a separate motion filed by the interested party at any stage of the proceedings. (Sec. 3, Rule 10, RRCTA effective December 15, 2005) 9. Explain the sumptuary purpose of taxation. SUGGESTED ANSWER: The sumptuary purpose of taxation is to promote the general welfare and to protect the health, safety or morals of the inhabitants. It is in the joint exercise of the power of taxation and police power where regulatory taxes are collected. Taxation may be made the implement of the state’s police power. The motivation behind many taxation measures is the implementation of police power goals. [Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005 citing Lutz v. Araneta, 98 Phil. 148, 152 (1955); in turn citing Great Atl. & Pac. Tea Co. v. Grosjean, 302 U.S. 412; U.S. v. Biutler, 297 U.S. 1; McCulloch v. Maryland, 4 Wheaton 316] The reader should note that the August 3, 2005 Southern Cross case is the decision on the motion for reconsideration of the July 8, 2004 Southern Cross decision. The so-called “sin taxes” on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of these potentially harmful products. (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005) 10. Explain the compensatory purpose of taxation. SUGGESTED ANSWER: The compensatory purpose of taxation is to implement the social justice provisions of the constitution through the progressive system of taxation, which would result to equal distribution of wealth, etc. Progressive income taxes alleviate the margin between rich and poor. (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005)

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a. PURPOSE: A tax is imposed for revenue purposes WHILE a license fee is imposed for regulatory purposes. (Unless it is a joint exercise of both the police power and the power of taxation) b. BASIS: A tax is imposed under the power of taxation WHILE a license fee is imposed under police power. c. AMOUNT: There is no limit as to the amount of a tax WHILE the amount of license fee that could be collected is limited to the cost of the license and the expenses of police surveillance and regulation. d. TIME OF PAYMENT: Taxes are normally paid after the start of a business WHILE a license fee before the commencement of business. e. EFFECT OF NON-PAYMENT: Failure to pay a tax does not make the business illegal WHILE failure to pay a license fee makes the business illegal. f. SURRENDER: Taxes being the lifeblood of the state, cannot be surrendered except for lawful consideration WHILE a license fee may be surrendered with or without consideration. 12. Distinguish taxation from police power. SUGGESTED ANSSWER: Taxation is distinguishable from police power as to the means employed to implement these public goals. Those doctrines that are unique to taxation arose from peculiar considerations such as those especially punitive effects (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005 citing U. S. Chief Marshall who once said, the power to tax involves the power to destroy, McCulloch v. Maryland, 4 Wheaton 316, cited in Sison v. Ancheta, G. R. No. L – 59431, July 25, 130 SCRA 654) and the belief that taxes are lifeblood of the state. (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005 citing “[T]axes being the lifeblood of the government, their prompt and certain availability is of the essence.” Sison v. Ancheta, id., citing Vera v. Fernandez, G. R. No. L-31364, March 30, 1979, 89 SCRA 199] These considerations necessitated the evolution of taxation as a distinct legal concept from police power. (Southern Cross Cement Corporation, supra) If the question asks for an enumeration of the distinctions between the power of taxation and police power, the candidate should reformulate no. 17 above.

11. What are the distinctions between a tax and a license fee ?
SUGGESTED ANSWER: between a tax and a license fee: The following are the distinctions

 13.
Act ?

What is the purpose of the Sugar Adjustment

SUGGESTED ANSWER: The Sugar Adjustment Act which increased existing taxes on sugar was enacted to stabilize the sugar industry to prepare it for the loss of its quota in the U.S. market was levied for a regulatory purpose to protect and promote the sugar industry which is also for a public purpose. (Lutz v. Araneta, 98 Phil. 148) The Philsugin fund, an imposition on sugar, to raise funds to conduct research for the improvement of the sugar industry, is for the purpose of stabilizing the sugar industry which one of the pillars of the Philippine economy which affects the welfare of the State. The levy is not so much an exercise of the power of taxation, nor the imposition of a special levy, but the exercise of police power which is for the general welfare of the entire country, therefore for a public purpose. (Republic v. Bacolod-Murcia Co., et al., G.R. No. L-19824, July 9, 1966)

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Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005) Establishments granting the 20% senior citizens discount may claim the discounts granted to senior citizens as tax deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended. [M.E. Holding Corporation v. Court of Appeals, et al., G.R. No. 160193, March 3, 2008 citing Expanded Senior Citizens Act of 2003, Sec. 4 (a)]

14. Section 40 (g) of the Public Service Act authorizes the collection of “x x x fees as reimbursement of its expenses in the authorization, supervision and/or regulation of the public services: x x x g) For each permit, authorizing the increase in equipment, the installation of new units or authorizing the increase of capacity, or the extension of means or general extensions in the services, twenty centavos for each one hundred pesos or fraction of the additional capital necessary to carry out the permit.” (paraphrasing supplied) Is the imposition a tax measure ? Explain.
SUGGESTED ANSWER: No. It is not a tax measure but a simple regulatory provision for the collection of fees imposed pursuant to the exercise of the State’s police power. A tax is imposed under the taxing power of government principally for the purpose of raising revenues. The law in question, however, merely authorizes and requires the collection of fees for the reimbursement of the Commission’s expenses in the authorization, supervision and/or regulation of public services. (Republic, etc., v. International Communications Corporation (ICC), G. R. No. 141667, July 17, 2006)

16. What is purpose for the limitations on the power of taxation ?
SUGGESTED ANSWER: The inherent and constitutional limitations to the power of taxation are safeguards which would prevent abuse in the exercise of this otherwise unlimited and plenary power. The limitations also serve as a standard to measure the validity of a tax law or the act of a taxing authority. A violation of the limitations serves to invalidate a tax law or act in the exercise of the power to tax. INHERENT LIMITATIONS

  1. What are the inherent limitations on the power of taxation ?
SUGGESTED ANSWER: The inherent limitations are a. Public purpose. The revenues collected from taxation should be devoted to a public purpose. b. No improper delegation of legislative authority to tax. Only the legislature can exercise the power of taxes unless the same is delegated to some other governmental body by the constitution or through a law which does not violate any provision of the constitution. c. Territoriality. The taxing power should be exercised only within territorial boundaries of the taxing authority. d. Recognition of government exemptions; and e. Observance of the principle of comity. Comity is the respect accorded by nations to each other because they are equals. On the other hand taxation is an act of sovereign. Thus, the power should be imposed upon equals out of respect. Some authorities include no double taxation.

15. How may the power of taxation also be used to implement power of eminent domain ?
SUGGESTED ANSWER: Tax measures are but ”enforced contributions exacted on pain of penal sanctions” and “clearly imposed for public purpose.” In most recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth. (Commissioner of Internal

1994.. No. No. 167919.. et al. G. [Coconut Oil Refiners Association. there must be a showing that the issues raised are of transcendental importance which must be settled early. 232 SCRA 110) What are the requirements that must be met before taxpayers. (Commissioner of Internal Revenue v. Inc. (Justice Melo. Lista. SUGGESTED ANSWER: Taxpayers’ suit is a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation. 132527. February 14. 113375. (Ibid. d. Torres. For legislators. vs. G. What is meant by the term “material interest” ? SUGGESTED ANSWER: The term “interest” means a material interest. October 10. in turn citing Kilosbayan. No. etc.. The case should involve constitutional issues. dissenting in Kilosbayan. v. 138570. President Gloria Macapagal-Arroyo. but also that he has sustained or is in immediate. April 16. there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional. R. February 14. R. July 29. Public use is no longer confined to the traditional notion of use by the public but held synonymous with public interest. Inc. the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review.  What are the requisites for challenging constitutionality of law including a tax law ? SUGGESTED ANSWER: The party bringing suit must show “not only that the law or act is invalid. Jr. February 14. (Abaya v. 167919. (David. No. R. Ebdane. etc. What is the rationale for locus standi ? SUGGESTED ANSWER: The rationale for requiring a party who challenges the constitutionality of a statute to allege such a personal stake in the outcome of the controversy is “to ensure that a concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of different constitutional questions. For concerned citizens. R. etc.)direct injury as a result of the government act being challenged. concerned citizens and legislators may be accorded standing to sue ? SUGGESTED ANSWER: a.  7. 2000. No. Locus standi being merely a matter of  procedure. et al. an interest in issue affected by the decree..5 When are taxes considered as being for a public purpose ? SUGGESTED ANSWER: The tax revenues are for a public purpose if utilized for the benefit of the community in general. No. Guingona. v. (Abaya v. Give some examples. SUGGESTED ANSWER: The following are examples of instances where suits have been brought by parties who have not . such that the party has sustained or will sustain (Ibid. et al. Ebdane. May 5..R. May 3. No. For voters. G. et al. 153881. 2005 citing Bayan (Bagong Alyansang Makabayan) v. v.. 342 SCRA 449. Inc. 159647. An alternative meaning is that tax proceeds should be utilized only to attain the objectives of government. G. public benefit. No. March 24. 2006)   8. Central Luzon Drug Corporation. G. What is locus standi ? SUGGESTED ANSWER: Locus standi is “a right of appearance in a court of justice on a given question. there must be a claim that the official action complained of infringes upon their prerogatives as legislators. 167919. 4. b.. It calls for more than just a generalized grievance. as distinguished from mere interest in the question involved. Jr. or a mere incidental interest. G. A party need not be a party to the contract to challenge its validity. et al. 2003) 6. c. 171396. or imminent danger of sustaining some direct injury as a result of its enforcement and not merely that he suffers thereby in some indefinite way. 2005) 2.” (Abaya v. Zamora. there must be a showing of obvious interest in the validity of the election law in question. Ebdane.. G. When may locus standi be brushed aside ? SUGGESTED ANSWER: In cases of paramount importance where serious constitutional questions are involved. 232 SCRA 110] 3. G.. Define a taxpayer’s suit. and public convenience..” (Soriano III v. public welfare. R.. R. G. 2007) 9. 2007) It is a party’s personal and substantial interest in the case.) 5. R. R. 2007) 10. For taxpayers. e. have been waived in certain instances where a party who is not personally injured may be allowed to bring suit. Guingona. No.

. G. (ABAKADA Guro Party List. etc. This time the Presidential Proclamation would be invalid as the statutory tax exempt privilege was granted only to the Subic Special Economic Zone and not to John Hay or Clark. PHILIPPINE CONSTITUTIONAL LAW. 167919. July 29. February 14.. Taxpayer’s suits to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of the law. etc. etc. Isagani. No. [ABAKADA Guro Party List. No. 166715. capital and equipment.. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed. v. Joaquin.have been personally injured by the operation of a law or any other government act but by concerned citizens. R. v. et al. et al. etc. 7227 mentions only raw materials. Torres. financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments. No.. R. The concept of inclusio unius est exclusio alterius does not find application because the phrase “tax and duty-free importations of raw materials. Inc.. (Abaya v.R. 1996 edition. Purisima. et al. the legislative intent is that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance 11-A. that only “raw material. citing Cruz v. An actual case or controversy involves a conflict of legal rights. v. Vitug. separate opinion] . G. et al. G. etc. Lim. R.. b. 2005) Would your answer be the same if a Presidential Proclamation allowed for the limited withdrawal from the Clark Special Economic Zone or the John Hay Economic Zone of consumer goods tax and duty-free ? ` SUGGESTED ANSWER: The answer would not be the same. Nature of actual case or controversy.) 11. 2008 citing Bernas. commercial.. taxpayers or voters who actually sue in the public interest: a. R. August 14. 23) 11-B. Ebdane. capital and equipment” was merely cited as an example of incentives that the SSEZ is authorized to grant.. 2007) 6 with Philippine law. 2008 citing Cruz. 166715. G.. It must be remembered that in construing statutes. J. G. 132527. etc. or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. 414 SCRA 356) Furthermore. supra. This is in line with the policy enunciated in the law that “the Subic Special Economic Zone shall be developed into a self-sustaining. Act No. G. an assertion of opposite legal claims susceptible of judicial adjudication. Criteria of being ripe for judicial determination. (Coconut Oil Refiners Association. et al... SUGGESTED ANSWER: The objections should not be given credence.. (ABAKADA Guro Party List. R. Secretary of Environment and Natural Resources.” (Ibid. Thus. (Coconut Oil Refiners Association.. A closely related requirement is ripeness. v. 2005 citing John Hay People’s Alternative Coalition. the proper course is to start out and follow the true intent of the Legislature and to adopt that sense which harmonizes best with the context and promotes to the fullest manner the policy and objects of the Legislature. etc. This is so because the Constitution mandates that no law granting tax exemption shall be passed without the concurrence of a majority of all the members of Congress... that is. Torres. this does not necessarily mean that the tax and duty free buying privilege is limited to these types of articles to the exclusion of consumer goods. 904 (2000). The petitioners impugn the validity of the establishment of tax and duty-free shops within the Subic Special Economic Zone (SSEZ) and the removal of consumer goods and items from the zones without payment of corresponding duties and taxes for the reason that this constitute executive legislation in violation of the rule on separation of powers. v.. the law is very clear that the “exportation or removal of goods from the territory of the Subic Special Economic Zone to other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines. 848-849) Thus. It is legal to setup duly authorized duty-free shops in the SSEZ to sell tax and duty-free consumer items in the Secured Area. or that public money is being deflected to any improper purpose. the petitioner must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision of the Court. No. capital and equipment” should be allowed the privilege.. Inc. Rule on the objections and reason out your answer briefly. 132527.. to be ripe for judicial adjudication. etc. THE 1987 CONSTITUTION OF THE REPUBLIC OF THE PHILIPPINES: A COMMENTARY. Purisima.. etc. 1995 edition. July 29. No. et al. et al.. in line with its being a free port zone... 400 Phil. v. 2003.” While it is true that Section 12 (b) of Rep. August 14. No. 119775. industrial. p. etc. et al. Purisima. October 24. pp. the question must be ripe for adjudication. And a constitutional question is ripe for adjudication when the governmental act being challenged has a direct adverse effect on the individual challenging it . etc.

The situs of income taxation is determined by the nationality. Situs of taxation is the place or the authority that has the power to collect taxes. This is constitutionally permissible. upon the recommendation of the Secretary of Finance. G. 2005 and companion cases citing various cases]] 13. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done. Ermita. R. G. This notwithstanding. In this case. v. etc. No. The President cannot set aside the findings of the Secretary of Finance.) v. 17. et al. 15. v. etc. 445 SCRA 1) determine and declare the even upon which its expressed will takes place.. Inc. Constitutionality of law is exception to the doctrine of “ripe for judicial determination”. No. etc. G. Purisima. 546 (1997)] The VAT law provides that. etc. [ABAKADA Guro Party List. Thus. (ABAKADA Guro Party List. [Abakada Guro Party List (etc. 168056. “(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%). 14.. raise the rate of valueadded tax to twelve percent (12%) after any of the following conditions have been satisfied.. and what is the scope of his authority. 2008 citing Tañada v.. the President. The situs of real property taxes is the place where the property is located because it is that place that gives protection. residence of the taxpayer and source of income. shall. it becomes not only the right but in fact the duty of the judiciary to settle the dispute.. who must do it. 127882. aside from the general claim that the dispute has ripened into a judicial controversy by the mere enactment of the law even without any further overt act. No. In theory. 01 December 2004. 338 Phil. public interest requires the resolution of the constitutional issues raised by petitioners. who is not under the conditions acting as the execute alter ego or subordinate.” Was there an invalid delegation of legislative power ? SUGGESTED ANSWER: No. 19.. It is premised upon the symbiotic relation between the taxpayer and the State. hence it is only within that territory that it could demand support in the form of taxes. The situs of taxation of tangible personal property is the place where the owner is located because it is that place that gives protection to the owner which protection extends to the tangible personal property. irrespective where the shares of stock of such domestic corporation is located. There is no undue delegation of legislative power but only of the discretion as to the execution of the law..7 11-C. . 16. (ABAKADA Guro Party List. R. etc. 20. R. the dividends earned from domestic corporations are considered as income from within. effective January 1. August 14. Personal injury must be shown for judicial controversy to be ripe for judicial determination. Thus. where petitioners fail either to assert any specific and concrete legal claim or to demonstrate any direct adverse effect of the law on them or are unable to show a personal stake in the outcome of this case or an injury to themselves their petition is procedurally infirm.R. G. it is only within a state’s territorial boundaries that a state could give protection. etc. The situs of excise taxes is the place where the privilege is exercised because it is that place that gives protection. v. Purisima. to 12. et al. The applicable concept is lex situs or lex rei sitae. Please refer to general principles of income taxation under income taxation. Intangible personal property may have obtained a business situs in a particular place even if located elsewhere. September 1. Ramos.  . 166715. August 14.. The applicable concept is mobilia sequuntur personam.. In the above case the Secretary of Finance becomes merely the agent of the legislative department. supra) 11-D. The grave nature of their allegations tends to cast a cloud on the presumption of constitutionality in favor of the law. et al. 166715. The power to tax should be exercised only within the territorial boundaries of the taxing authority. 18. 2008 citing La Bugal-B’Laan Tribal Association. Angara. And where an action of the legislative branch is alleged to have infringed the Constitution. No. The place that gives protection is the place that has the right to demand that it be supported in the form of taxes so it could continually give protection. 2006.

The local company withheld the amount of P107. The ”sale of tickets” in the Philippines is the activity that determines whether such income is taxable in the Philippines. 579. NIRC of 1997] AND NOT TO incomes of non-resident foreign corporations that are taxed on the gross income. and the same took place in the Philippines.21. 25. activity or service that produced the income. [Sec. or the place where the contract for service is entered into. the flow of wealth proceeded from and occurred. enjoying the protection accorded by the Philippine Government. upon which the reinsurance premiums and indemnity were based. Are the reinsurance premiums subject to Philippine income taxation ? SUGGESTED ANSWER: Yes because the undertaking of the foreign insurance company to indemnify the local insurance company is the activity that produced the income. the flow of wealth should share the burden of supporting the government. such power being inherently legislative. (Commissioner of Internal Revenue v. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. it is the place where the labor or service was performed that determines the source of the income. Is BOAC subject to income taxes on the sale of the tickets ? SUGGESTED ANSWER: Yes.. v. With respect to rendition of labor or personal service. The foreign reinsurer does not have an office. 8 22. were all situated in the Philippines. 2 23.000 from her sales commission and remitted the same to the BIR. The above Baier-Nickel case discussed the import of the landmark cases (Howden and BOAC) involving sources of income for tax purposes both of which may be dangerous for Bar purposes: The reinsurance premiums remitted to the foreign reinsurer had for their source the undertaking to indemnify the local insurer against liability. based on the principle that taxes are a grant of the people who are taxed. 28 (B) (1)]    4. within the Philippine territory. 167274- . neither does it do business in the Philippines. relating to the carriage of passengers and cargo between two points. 2006) NOTE AND COMMENTS: In the above case. In consideration of such protection. the Supreme Court reiterated the rule that “source of income” relates to the property. Is her contention correct ? SUGGESTED ANSWER: Yes. (Commissioner of Internal Revenue v. a foreign airline company which does not maintain any flight to and from the Philippines sold air tickets in the Philippines. G. through a general sales agent. 13 SCRA 601 (1965) cited in Baier-Nickel) BOAC. Ltd. The important factor which determines the source of income of personal services is not the residence of the payor. The situs of transfer taxes. The reinsured. 28 (A) (3) (a). The situs of the source of payments is the Philippines. Since the activity of securing the sales were in Germany. Said undertaking is the activity that produced there insurance premiums. Baier-Nickel. Fortune Tobacco Corporation. is determined by the nationality and residence of the taxpayer and the place where the property is located. Please refer to estate and donor’s taxes. and where the people have laid the power. No improper delegation of legislative authority to tax. A domestic insurance company decided to reinsure with a foreign reinsurer the risks it has undertaken with its local clients. but the place where the services were actually performed. such as estate and donor’s taxes. 121 Phil. (Commissioner of Internal Revenue v. Collector of Internal Revenue. R. G. Nos. or the place of payment. 153793. She filed a claim for refund alleging that her sales commission is not taxable because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines. (Alexander Howden & Co. there it must remain and be exercised. 149 SCRA 395 cited in Bauer-Nickel) NOTES AND COMMENTS: The concept of imposition of the gross Philippine billings that taxes only flights that originate from the Philippines apply only to resident foreign corporations doing business in the Philippines [Sec. and the grant must be made by the immediate representatives of the people. R. the liabilities insured and the risk originally undertaken by the local insurance company. The power to tax is inherent in the State. both outside the Philippines. No. August 29.  Juliane a non-resident alien appointed as a commission agent by a domestic corporation with a sales commission of 10% all sales actually concluded and collected through her efforts. The source of income which is taxable is that “activity” which produced the income. then the income did not originate from sources from within the Philippines. British Overseas Airways Corporation (BOAC).

Rizal. The Supreme Court ruled as invalid RMO 4-87 which had construed the amnesty coverage under E. The Commissioner anchored the imposition on the definition of lending investors provided in the 1977 Tax Code which. imposing a 5% lending investor’s tax under the 1977 Tax Code.O.. as well as the clarificatory Revenue Memorandum Circular (RMC) 43-91. changing the prescriptive period of two years to ten years for claims of excess quarterly income tax payments. striking down the revenue regulation. 372. 456 SCRA 414) . July 21.R. Michel J.. 1052 (1996)] An administrative agency d.A. Court of Appeals. 634. Central Luzon Drug Corporation. p. Commissioner Jose Ong issued Revenue Memorandum Order (RMO) No. Central Bank of the Philippines. G. [Ibid. 3rd Ed. 453 Phil. a. (Ibid. was broad enough to include pawnshop operators.O. 108358. No. 20 January 1995. Reyes. 167274-75. No.R. 361 Phil. (Ibid. The Court. 198 SCRA 82. that Congress never intended to treat pawnshops in the same way as lending investors. and it cannot engraft additional requirements not contemplated by the legislature.A. 159647. 333 SCRA 777. Municipality of Pililla. held that an administrative agency issuing regulations may not enlarge. Commissioner of Internal Revenue. No. 12-85 which was based on the old provision of the law. 19 June 2000. Lhuillier Pawnshop. 3 June 1991.) No. G. Court of Appeals. G. Their interpretation muddled up the intent of Congress to grant a mere discount privilege and not a sales discount. 162 SCRA 628. 2008) Executive Order (E. G. 1043 (2003).” (Ibid. Fortune Tobacco Corporation. Revenue Regulation No. 88.. as increased by 12%—a situation not supported by the plain wording of Section 145 of the Tax Code.R. stressing that “administrative issuances must not override. However. but must remain consistent with the law they intend to carry out.. v. 310 Phil. R.. The Supreme Court resolved in the negative. 480 SCRA 382 in turn citing Philippine Petroleum Corp. R. Fortune Tobacco Corporation. at 1052 in turn citing Commissioner of Internal Revenue v. Philippine Bank of Communications v. 456 SCRA 414) f. a. No. The Court held that in case of discrepancy between the law as amended and the implementing regulation based on the old law. By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1 January 2000. It cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute. No. 327 Phil. Home Development Mutual Fund. 159647. 15 April 2005. alter or restrict the provisions of the law it administers. 7432 provides. [Ibid.) No.. 916 (1999)] c. Mabanta.. (Ibid.R. citing Commissioner of Internal Revenue v. according to him. Nos. The rule-making power must be confined to details for regulating the mode or proceedings in order to carry into effect the law as it has been enacted. Nos. Central Luzon Drug Corporation. And so the Court affirmed the invalidity of the challenged circulars. 159694. v. likewise citing Shell Philippines. 131082. 1047. TAX PRINCIPLE AND REMEDIES. 17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax under paragraph C. supplant or modify the law. 15 April 2005. July 21. 27 June 1988) e. Instances where the national revenue officers had ventured in the area of unauthorized administrative legislation. the former necessarily prevails. and that the particularly involved section of the Tax Code explicitly subjected lending investors and dealers in securities only to percentage tax. 240 SCRA 368.. Commissioner of Internal Revenue v. Inc. G. Commissioner of Internal Revenue v. 786) b. rather it legislated guidelines contrary to the statute passed by Congress. (Commissioner of Internal Revenue v. No. CA. Commissioner of Internal Revenue v. She was merely notified of the findings by the Commissioner. Respondent was not informed in writing of the law and the facts on which the assessment of estate taxes was made pursuant to Section 228 of the 1997 Tax Code. 13) 9 26. The Court nullified the circular. G. p. 2008 citing COOLEY TAXATION.. 2008 citing Landbank of the Philippines v. 27 January 2006. July 21. Buenaventura. 41 (1986) to include only assessments issued by the BIR after the promulgation of the executive order on 22 August 1986 and not assessments made to that date. 8424. the Court noted that pawnshops and lending investors were subjected to different tax treatments under the Tax Code prior to its amendment by the executive order. 15-91. [Commissioner of Internal Revenue v. The law must still be followed. The then acting Commissioner issued RMC 7-85.75. et al. G. who had simply relied upon the old provisions of the law and Revenue Regulation No. ruling that the BIR did not simply interpret the law. 43 cited in DIMAAMPAO. on pawnshops.R. Commissioner of Internal Revenue v. Sayoc & De los Angeles v. Romulo. alter or restrict the provisions of the law it administers. as amended by issuing regulations may not enlarge. The tax authorities gave the term “tax credit” in Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly disparate from what R. No. 167274-75. Inc. 273. sub-paragraph (1)(4). even though the existing tax regulation at that time provided for a different procedure. as amended by Republic Act (R. 392 (1995)] 27. and it cannot engraft additional requirements not contemplated by the legislature. thereby creating a clear inconsistency with the provision of Section 230 of the 1977 Tax Code.

it must be given its literal meaning and applied without attempted interpretation. Fortune Tobacco Corporation. plain and free from ambiguity. h. n. to levy taxes. directly and exclusively used for religious. Automatic release of local government's just share in national taxes. 3) Printed copies in final form distributed three (3) days before passage. directly and exclusively for educational purposes subject to conditions prescribed by law. Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved in favor of the basic law. The Supreme Court's power to review judgments or orders of lower courts in all cases involving the legality of any tax. but the veto shall not affect the item or items to which he does not object. G. g. d. commutations and pardons and remittal of fines and forfeiture after conviction by final judgment. Tax exemption of all revenues and assets of proprietary or cooperative educational institutions subject to limitations provided by law including restrictions on dividends and provisions for reinvestment of profits. p. and all lands. endowments. Tax exemption of charitable institutions. No use of public money or property for religious purposes except if priest is assigned to the armed forces. Equal protection clause. . h. July 21. charitable or educational purposes. revenue or tariff bills shall originate exclusively in the House of Representatives. churches. Tax exemption of all revenues and assets of non-stock. g. (Ibid. Nos. but the Senate may propose and concur with amendments. assessment or toll or the legality of any penalty imposed in relation to the above. 327 Phil. tonnage and wharfage dues: 1) Delegation by Congress 2) through a law 3) subject to Congressional limits and restrictions 4) within the framework of national development program. donations or contributions used actually. Freedom of the press. R. buildings and improvements of all kinds actually. impose. parsonages and convents appurtenant thereto. 2. 2008 citing Landbank of the Philippines v. 2) Three (3) readings on three separate days. d. Religious freedom. k. mosques. All appropriation. Law-making process: 1) Bill should embrace only one subject expressed in the title thereof. Taxation shall be uniform and equitable. What are the constitutional limitations on the power of taxation ? SUGGESTED ANSWER: The general or indirect constitutional limitations as well as the specific or direct constitutional limitations. l. b.  the specific or direct SUGGESTED ANSWER: a. Money collected on tax levied for a special purpose to be used only for such purpose. What are the general or indirect constitutional  limitations on the power of taxation ? SUGGESTED ANSWER: The general or indirect constitutional limitations are the following: a. No taking of private property without just compensation. Non-impairment clause. Court of Appeals. Due process clause. revenue. Delegated power of the President to impose tariff rates. Authority of local government units to create their own sources of revenue. No tax exemption without the concurrence of majority vote of all members of Congress. 1052 (1996)] 10 CONSTITUTIONAL LIMITATIONS 1. Congress shall evolve a progressive system of taxation.) b. What are constitutional limitation ? 3. m. No imprisonment for non-payment of a poll tax. e. The President shall have the power to veto any particular item or items in an appropriation. to general funds. import and export quotas. Presidential power to grant reprieves. 167274-75.The “plain meaning rule” or verba legis in statutory construction should be applied such that where the words of a statute are clear. c. c. o. non-profit educational institutions used actually. 1047. balance if any. penal institutions. or tariff bill. f. government orphanage or leprosarium. f. b. i. directly and exclusively for educational purposes. [Commissioner of Internal Revenue v. j. Tax exemption of grants. e. fees and other charges subject to guidelines and limitations imposed by Congress consistent with the basic policy of local autonomy.

legislative classification may in many cases properly rest on narrow distinctions.R. v. if the investigating prosecutor is already satisfied that he can reasonably determine the existence of probable cause based on the parties’ evidence thus presented. Hence. 1999) 4-A. [ABAKADA Guro Party List. and legislation is addressed to evils as they may appear. Purisima. G. No denial of due process when the respondent is given the opportunity to file affidavits and other pleadings during the preliminary investigation. R. 7227. Its sole purpose is to determine whether a crime has been committed and whether the respondent therein is probably guilty of the crime. et al. et al. 2008] 4-C. G. 127410. State has discretion to make the classification. etc. 81-82) 4-B. so that it goes without saying that the mere fact of inequality in no manner determines the matter of constitutionality. It merely requires that all persons shall be treated alike. 480 SCRA 71. is the grouping of things in speculation or practice because they agree with one another in certain particulars. R. Court of Appeals. Purisima. Hence. No. R. G. 166715. (Tiu. It is intended to eliminate discrimination and oppression based on inequality.. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class. 127410. that they committed identical acts for which they were charged with the violation of the same provisions of the NIRC. Court of Appeals. In addition. 2008 citing Himagan v. to retailers inside the SSEZ without granting the same to those outside the SSEZ. (b) be germane to the purpose of the law. G. Is there a violation of the equal protection clause ? . Equal protection of the law clause is subject to reasonable classification. People.. etc. It is not a trial of the case on the merits.. (Santos v. under like circumstances and conditions. as in the other departments of knowledge or practice. No.  The law grant of tax and duty-free status under Rep. et al. 2008 citing De Ocampo v. A respondent cannot claim denial of due process when she was given the opportunity to file her affidavits and other pleadings and submit evidence before the DOJ during the preliminary investigation of her case and before the Information was filed against her. Secretary of Justice. January 20. In the exercise of its power to make classifications for the purpose of enacting laws over matters within its jurisdiction. must (a) rest on substantial distinctions. The equal protection of the laws clause of the Constitution allows classification. et al. et al. No. etc. Classification in law. R. 4. Equal protection does not demand absolute equality. Act No. supra) 5. (Santos. v. 147932. Neither is it necessary that the classification be made with mathematical nicety. People. No. 7 October 1994.. Due process is merely an opportunity to be heard. People. 551. A law is not invalid because of simple inequality.. The very idea of classification is that of inequality. that it must not be limited to existing conditions only. 173176. No. If the groupings are characterized by substantial distinctions that make real differences. August 14. for the equal protection guaranty does not preclude the legislature from recognizing degrees of evil or harm. Recognizing the existence of real differences among men.R.. [ABAKADA Guro Party List. the state is recognized as enjoying a wide range of discretion. (c) not be limited to existing conditions only. All that is required of a valid classification is that it be reasonable. 113811.yet. (Tiu.R. It is not the occasion for the full and exhaustive display of the parties’ evidence.. G. It is not necessary that the classification be based on scientific or marked differences of things or in their relation. et al. and (d) apply equally to all members of the same class. G.. v. No. to be valid. August 14. et al. and that it must apply equally to each member of the class. No.R. 166715. preliminary investigation conducted by the DOJ is merely inquisitorial. v. (Santos v. August 26. G. The equal protection clause exists to prevent undue favor or privilege. 25 January 2006. August 26. January 20. 237 SCRA 538. i.e. one class may be treated and regulated differently from another. both as to the privileges conferred and liabilities enforced. and that they presented similar arguments and evidence in their defense .. the equal protection clause does not demand absolute equality. they were treated differently. that it must be germane to the purpose of the law. 173176.R. 2008] It is imperative to duly establish that the one invoking equal protection and the person to which she is being compared were indeed similarly situated. G. 1999)  6. No.11 3-A.  What are the requisites for the validity of a classification ? SUGGESTED ANSWER: Classification. he may terminate the proceedings and resolve the case.. etc. G. No.. This Court has held that the standard is satisfied if the classification or distinction is based on a reasonable foundation or rational basis and is not palpably arbitrary. which means that the classification should be based on substantial distinctions which make for real differences. et al.

Supreme Court validated a law which awards to officers of the customs as well as other parties an amount not exceeding one-half of the net proceeds of forfeitures in violation of the laws against smuggling. No. In furtherance of such objective.. to the establishments within the zone to attract and encourage foreign and local investors. (Coconut Oil Refiners Association." (Commissioner of Internal Revenue. No. v. Public service is its own reward. Inc. industry. August 14. Angara. etc. R. Congress deemed it necessary to extend economic incentives. it does not prohibit them either. Public service is its own reward.. etc. employees of the BIR and the BOC may by law be entitled to a reward when. 2008 citing United States v.. 277 SCRA 617) 10-A. et al. [ABAKADA Guro Party List. it recognizes and reinforces dedication .S. [ABAKADA Guro Party List.. and it has been repeatedly held that. 127410. Torres. January 20.SUGGESTED ANSWER: There is no violation of equal protection because there exists a valid classification as shown below: a. c.. Court of Appeals. b. 1997. Inc. G. etc. public officers may by law be rewarded for exemplary and exceptional performance. 166 (1868)] In the same vein. 9. Purisima.. "inequalities which result from a singling out of one particular class of taxation.. as a consequence of their zeal in the enforcement of tax and customs laws. 10. 74 U.. public officers may by law be rewarded for exemplary and exceptional performance. both in privileges granted and in obligations required. No.” being in like circumstances or contributing directly to the achievement of the end purposes of the law. 272 SCRA 18) The offer of a portion of such penalties to the collectors is to stimulate and reward their zeal and industry in detecting fraudulent attempts to evade payment of duties and taxes.S. Uniformity may have a restrictive meaning different from equality and equal protection. etc. A system of incentives for exceeding the set expectations of a public office is not anathema to the concept of public accountability. 132527.. The mere fact that the law authorizes the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground. 118295. Those outside of the SSEZ maintain their business within Philippine customs territory while those within the SSEZ operate within the socalled “separate customs territory. it allows an exchange on the basis of equality and reciprocity. v. 2005 citing Tiu.. R. etc. or exemption.” As ruled in Tiu. It would mean then that the same rate shall be imposed for the same subjects and objects within the territorial boundaries of a taxing authority. Act No. services and investments into the country.. The law providing financial rewards to tax collectors is constitutional. Nevertheless. et al.R. 173 U. in terms of a complete package of tax incentives and other benefits. As held in Tiu. July 29.” To grant the same privileges would clearly defeat the statue’s intent to carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is maintained. A system of incentives for exceeding the set expectations of a public office is not anathema to the concept of public accountability. 301 SCRA 278) 12 8. In fact. United States. et al. Torres. G. v. They are all similarly treated. inasmuch as the law envisioned the former military reservation to ultimately develop into a self-sustaining investment center. infringe no constitutional limitation. It is inherent in the power to tax that the State be free to select the subjects of taxation. R. the individuals and businesses within the “secured area. 2005 citing Tanada v. 166715. it recognizes and reinforces dedication to duty. 132527. While the Constitution does not encourage the unlimited entry of foreign goods. they exceed their revenue targets. 381 (1899)]   7.. Nevertheless. et al. In fact. No. d.. et al. frowning only in foreign competition that is unfair. Santos. the real concern of the law is to convert the lands formerly occupied by the US military bases into economic or industrial areas. Is the statutory grant of tax and duty-free importation into the Subic Special Economic Zone violative the “preferential use” concept of the Constitution ? SUGGESTED ANSWER: No. G. Significant distinctions exist between the two groups.. The U. The classification is germane to the purpose of Rep. etc. et al.. the terms would mean that all subjects and objects of taxation which are similarly situated shall be subject to the same burdens and granted the same privileges without any discrimination whatsoever. et al. et al.S. Equality and uniformity of taxation may mean the same as equal protection. The classification applies equally to all retailers found within the “secured area. In such a case. G.. v. No. The classification is not limited to the existing conditions when the law was promulgated but to future conditions as well. In fact. G. (Coconut Oil Refiners Association. v. efficiency and loyalty to public service of deserving government personnel. 1999. supra citing Dorsheimer v.. Matthews. July 29. etc. 7227. et al. R. May 2. are not categorized further..

an erroneous or mistaken performance of the statutory duty. and employees of the [BIR] and the [BOC] who violate this Act or who are guilty of negligence.. 166715.. 8. No. When things or persons are different in fact or circumstance. the incentives and/or sanctions provided in the law should logically pertain to the said agencies. It guarantees equality. R. 166715. negligence. Where the official action purports to be in conformity to the statutory classification. efficiency and loyalty to public service of deserving government personnel. et al.. 31. supra) 13 10-B. It does not prohibit legislation which is limited either in the object to which it is directed or by the territory within which it is to operate. not identity of rights. a requirement. The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws upon all citizens of the [S]tate. or it may only be shown by extrinsic evidence showing a discriminatory design over another not to be inferred from the action itself. resulting in its unequal application to those who are entitled to be treated alike.. its expressed public policy is the optimization of the revenue-generation capability and collection of the BIR and the BOC. 173176. they may be treated in law differently. (ABAKADA Guro Party List. Purisima. [ABAKADA Guro Party List. industry. 54-56 (2001)] 10-E. (ABAKADA Guro Party List. woman and child should be affected alike by a statute. The unlawful administration by officers of a statute fair on its face. such substantial distinction is germane and intimately related to the purpose of the law. This may appear on the face of the action taken with respect to a particular class or person. No. The rewards law to tax collectors does not violate equal protection. 403 Phil. by itself. 2008 citing People v. abuse. Dela Piedra. G. et al. There is no denial of equal protection where the prosecution exercises its discretion in determining probable cause. [Santos v. etc. although a violation of the statute. The equal protection clause does not forbid discrimination as to things that are different. Equality of operation of statutes does not mean indiscriminate operation on persons merely as such. is not without more a denial of the equal protection of the laws. Examiners and Employees of the BIR and the BOC.” The Attrition Act of 2005 RA 9335 establishes safeguards to ensure that the reward will not be claimed if it will be either the fruit of “bounty hunting or mercenary activity” or the product of the irregular performance of official duties. the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection. 2008] 10-D. Both the BIR and the BOC are bureaus under the DOF. a classification that has a reasonable foundation or rational basis and not arbitrary. Liability of Officials. G. No. Moreover. v. etc. 2008) The equal protection clause recognizes a valid classification.1[22] With respect to RA 9335. fees and charges. Purisima. therefore. Rewards law establishes safeguards to ensure that the reward system will not create “bounty hunters. The prosecution of one guilty person while others equally guilty are not prosecuted. August 26. however. abuses or acts of malfeasance or misfeasance or fail to exercise extraordinary diligence in the performance of their duties shall be held liable for any loss or injury suffered by any business establishment or taxpayer as a result of such violation. But a discriminatory purpose is not presumed. The Constitution does not require that things which are different in fact be treated in law as though they were the same. that is. the law concerns only the BIR and the BOC because they have the common distinct primary function of generating revenues for the national government through the collection of taxes. v..generation capability and collection of the BIR and the BOC. People. it is equality among equals.to duty. Since the subject of the law is the revenue. et al. – The officials. is not. The discretion of who to prosecute depends on the prosecution’s sound assessment whether the evidence before it 1 . G. malfeasance. is not a denial of equal protection unless there is shown to be present in it an element of intentional or purposeful discrimination. etc. supra)] 10-C. It is not. August 14. etc. R. there must be a showing of “clear and intentional discrimination. examiners. R.. that every man. a denial of the equal protection of the laws. Indubitably. [ABAKADA Guro Party List. in order to avoid the constitutional prohibition against inequality. Equality guaranteed under the equal protection clause is equality under the same conditions and among persons similarly situated.. They principally perform the special function of being the instrumentalities through which the State exercises one of its great inherent functions – taxation. but on persons according to the circumstances surrounding them. August 14. not similarity of treatment of persons who are classified based on substantial differences in relation to the object to be accomplished. Hence. One of these precautionary measures is embodied in Section 8 of the law: SEC. misfeasance or failure to exercise extraordinary diligence. etc. customs duties. etc.

2001. Reyes. March 25. No. R. (City Government of San Pablo. the taxing power of local governments must be deemed to exist although Congress may provide statutory limitations and guidelines in order to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. R. G. People. 143867. While all persons accused of crime are to be treated on a basis of equality before the law. et al. A lawful tax on a new subject. to impose and collect a local franchise tax because the Local Government has withdrawn all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them. Protection of the law will be extended to all persons equally in the pursuit of their lawful occupations. No. the Local Government Code has withdrawn tax exemptions or incentives theretofore enjoyed by certain entities. v. et al. within the meaning of the constitution. 173176. Under the now prevailing Constitution.R. et al. and this presumption can be overcome only by proof to the contrary. G. such a license fee. et al. et al.R. 2008) 14 additional burdens upon one class and release the burdens of another. August 26. still the tax must be paid unless prohibited by the constitution.. 11.. R. No. October 6. v. The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others.. et al. R. when applied to a religious sect is actually imposed as a condition for the free exercise of religion. August 26. for instance. Is this valid or violative of the constitutionally guaranteed freedom of religion ? SUGGESTED ANSWER: It is not valid because it violates the constitutionally guaranteed freedom of religion. Equal protection should not be used to protect commission of crime. 2008. No. as it may increase the debt of one person and lessen the security of another. et al. August 22. (Santos v. March 25. Inc. upheld the authority of the City of Davao. 173176. 1999) 10-F. et al. City of Davao. The franchise tax is a percentage tax imposed only on franchise holders. G. while a Zamboangueña.. (Tolentino v. ABSCBN Broadcasting Corporation. The remedy for unequal enforcement of the law in such instances does not lie in the exoneration of the guilty at the expense of society x x x. G. 2008) 13-A. (Quezon City. v. G. was not. Secretary of Finance. it does not follow that they are to be protected in the commission of crime. It is imposed under Section 119 of the Tax Code and is a direct liability of the franchise grantee. but no person has the right to demand protection of the law in the commission of a crime. 166408. Indicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units. 127708. G.. Likewise. (Santos v. A license fee “restrains in advance those constitutional liberties of press and religion and inevitably tends to suppress their exercise. Even though such taxation may affect particular contracts. and companion cases.. is insufficient to support a conclusion that the prosecution officers acted in denial of the equal protection of the laws. v. or an increased tax on an old one. was charged with the commission of a crime.. a local government unit. Reyes. Laguna. Laguna. The presumption is that the prosecuting officers regularly performed their duties. No. [i]f the failure of prosecutors to enforce the criminal laws as to some persons should be converted into a defense for others charged with crime. et al. the result would be that the trial of the district attorney for nonfeasance would become an issue in the trial of many persons charged with heinous crimes and the enforcement of law would suffer a complete breakdown.. (City Government of San Pablo.) 14. etc. Philippine Long Distance Telephone Company. As a license fee is fixed in amount and unrelated to the receipts of the taxpayer. nor can it be said that it impairs the obligations of any existing contract in its true and legal sense.. 127708.can justify a reasonable belief that a person has committed an offense. or may impose . 1999) 15. It would be unconscionable. where there is neither a grant nor prohibition by statute.” 12. does not interfere with a contract or impairs its obligation. The mere allegation a Cebuana. A fixed annual license fee on those engaged in the business of general enterprise was also imposed on the sale of bibles by a religious sect. not by mere speculation. notwithstanding “any exemption granted by any law or other special law” to impose a tax on businesses enjoying a franchise. to excuse a defendant guilty of murder because others have murdered with impunity. No. People. There must be evidence to overcome this presumption. The Local Government Code explicitly authorizes provinces and cities. 235 SCRA 630) 13. Franchise tax is a direct tax.

October 6. v.R. “What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. et al. 166408. v. No. 2006. et al. Marcos. While the system of local government taxation has changed with the onset of the 1987 Constitution. September 11. et al. 484 SCRA 16) “Indeed. each local government unit will have its fair share of available resources. 2006. section 5 of the 1987 Constitution. It is understood. in interpreting statutory provisions on municipal fiscal powers. March 6. 2006. R. Inc. SUGGESTED ANSWER: “Paradigm shift” from exclusive Congressional power to direct grant of taxing power to local legislative bodies. ABS-CBN Broadcasting Corporation. 149110. v. G. No. the resources of the national government will be unduly disturbed. No. while local government units are being strengthened and made more autonomous. et al. The taxing power of local governments is limited in the sense that Congress can enact legislation granting tax exemptions. October 6. ABS-CBN Broadcasting Corporation. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. (Manila Electric Company v. It must be noted that Section 137 of the LGC does not prohibit grant of future exemptions. No. pursuant to a declared national policy. R. c. local taxation will be fair. (Quezon City. and companion case. Batangas City..R. G.. Bayan Telecommunications. fees and other charges pursuant to Article X..” The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations. 2008 citing City Government of Quezon City. Congress has the inherent power to tax. Reconciliation of the local government’s authority to tax and the Congressional general taxing power. R. the power of local government units to tax is still limited. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers. no longer merely be virtue of a valid delegation as before. 162015. Further amplification by Bernas of the local government’s power to tax. v. v.. v. the constitutional objective obviously is to ensure that. October 6. Bayan Telecommunications. Henceforth. b. 162015. 2008 citing City Government of Quezon City..Explain the concept of the “paradigm shift” in local government taxation. 131359. the City or a province may impose a franchise tax. March 6. (Batangas Power Corporation v. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. 120082. Article X of the Constitution. to tax is prescribed by Section 151 in relation to Section 137 of the LGC which expressly provides that notwithstanding any exemption granted by any law or other special law. must not be confiscatory. April 28. 166408. such as provinces and cities for example Quezon City. While the power to tax by local governments may be exercised by local legislative bodies. No. the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons. G. doubts will be resolved in favor of municipal corporations. City of Cabanatuan. that taxes imposed by local government must be for a public purpose. May 5. the basic doctrine on local taxation remains essentially the same. doubts must be resolved in . Inc. No. however. “the power to tax is [still] primarily vested in the Congress.R. uniform within a locality. G. uniform and just. and must be within the jurisdiction of the local unit to pass. No. but pursuant to direct authority conferred by Section 5. 2008 citing City Government of Quezon City. No.R. Bayan Telecommunications.. et al. R. 484 SCRA 169) 17-C. The power to tax is no longer vested exclusively on Congress. Province of Laguna. They no longer have to wait for a statutory grant of these powers. G. G. v. ABS-CBN Broadcasting Corporation. G. 1996. 162015. 2003) 17. R. which includes the power to grant tax exemptions. 152675. et al. et al. the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions. the legislature must still see to it that: a. 1999)  16. 2004 citing National Power Corporation v. Inc. March 6.. G. On the other hand. Taxing power of the local government is limited. these limitations must be “consistent with the basic policy of local autonomy. 166408. 17-A. local legislative bodies are now given direct authority to levy taxes.  15 17-B. No. et al. The fundamental law did not intend the direct grant to local government units to be absolute and unconditional.” (Quezon City.R. G. G. April 9. Moreover.” (Quezon City. the power of local governments. 484 SCRA 169 in turn referring to Mactan Cebu International Airport Authority. and d. 261 SCRA 667. 680) The Supreme Court in a series of cases has sustained the power of Congress to grant tax exemptions over and above the power of the local government’s delegated power to tax. No.

v. the uncertainty in the “in lieu of all taxes” provision should be construed against ABS-CBN. No. City of Davao. No.” (Underscoring supplied) there was no intention for it to operate as a blanket tax exemption to all telecommunications entities. “Any advantage. or may hereafter be granted. The "in lieu of all taxes" clause does not apply to local taxes. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers. R. Inc. referring to Philippine Long Distance Telephone Company. This is practically the same holding in an earlier case involving another telecommunications company. That the foregoing shall neither apply to nor affect provisions of telecommunications franchises 19-B. (1987 CONSTITUTION. (Quezon City. City of Davao. Tax exemptions in franchises are always subject to withdrawal. et al. 2001) 16 concerning territory covered by the franchise. it was held that said provisions cannot be considered as extending its application to franchises such as that of PLDT. etc. Inc. Verily.. (PLDT) vs. Secretary of Finance. v. “In lieu of all taxes in the franchise of ABSCBN does not exempt it from local franchise taxes. No. August 22. R. etc. doubts must be resolved in favor of municipal corporations. R. shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided. The City of Davao. In truth.. exemption. 685. Whether the “in lieu of all taxes provision” would include exemption from local tax is not unequivocal.. R. Sec. 155491. 143867. imposed under the National Internal Revenue Code. etc. City of Davao] 18.. For not only are existing laws read into contracts in order to fix obligations as between parties. September 16. August 22. favor.. Carpio in a similar case involving a demand for exemption from local franchise taxes: [T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes.favor of municipal corporations. through the exercise of prophetic discernment. etc. 115455. The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others) 19. September 16. The City of Davao. G. Smart’s franchise was granted with the express condition that it is subject to amendment. No.” The “in lieu of all taxes” provision in the franchise of ABS-CBN does not expressly provide what kind of taxes ABS-CBN is exempted from. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxation. however. Inc. Indeed. et al. 155491. the life span of the franchise. but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. As appropriately pointed out in the separate opinion of Justice Antonio T. v. It is not clear whether the exemption would include both local. Moreover.. G. The proviso in the first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal . The “in lieu of all taxes” clause applies only to national internal revenue taxes and not to local taxes. G. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society.” [Ibid. The right to exemption from local franchise tax must be clearly established and cannot be made out of inference or implications but must be laid beyond reasonable doubt. 1994. Smart Communications. et al. other than income tax. or repeal. et al. 143867. et al. 2008 citing Tolentino v. privilege. 11) It is enough to say that the parties to a contract cannot. 235 SCRA 630. August 25. the grant of taxing powers to local government units under the Local Government Code does not affect the power of Congress to grant exemptions to certain persons. city or provincial. G.. The withdrawal of a tax exemption should not be construed as prohibiting future grants of exemption from all taxes. or immunity granted under existing franchises. pursuant to a declared national policy. Smart Communications. ABS-CBN has the burden to prove that it is in fact covered by the exemption so claimed but has failed to do so. 2008. The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others. v.. (Philippine Long Distance Telephone Company. the Contract Clause has never been thought as a limitation on the exercise of the State’s power of taxation save only where a tax exemption has been granted for a valid consideration. No. G. or the type of service authorized by the franchise. 166408. 2008. R. Inc. No. whether municipal. ABS-CBN Broadcasting Corporation. XII. “In lieu of all taxes” refers to national internal revenue taxes and not to local taxes. fetter the exercise of the taxing power of the State.. (Philippine Long Distance Telephone Company. Inc. v.. G. and national tax. alteration. R. October 6. Art. When Congress approved a provision that. 2001) 19-A..) 18-A..

. Congress could have used the language in Section 9(b) of Clavecilla's old franchise. this means taxing the same subject or object twice during the same taxable period. v. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local taxes. the "in lieu of all taxes" clause does not apply to income tax." Also. under the rule on strict construction of tax exemptions. G. R. No. (Quezon City. The impression was that these entities were subject to 10% VAT but not to franchise tax..) 20. It cannot apply when what is paid is a tax other than a franchise tax. The only interpretation. Congress used the "in lieu of all taxes" clause only in reference to national internal revenue taxes. under the same law.. 2005. G. At the time of the enactment of its franchise on May 3. On January 1. from which the grantee is hereby expressly exempted. R.000. Even with respect to national internal revenue taxes.000. Subsequently.) 19-C. 8241 took effect on January 1. On January 1. the same paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue.00 were granted the option to choose between paying 3% national franchise tax or 10% VAT On the other hand. x x x. No. 155491. 2008. Indirect duplicate taxation is not anathematized by the above constitutional limitations. 8424 was passed confirming the 10% VAT liability of radio and/or television companies with yearly gross receipts exceeding P10. Radio and/or television companies whose annual gross receipts do not exceed P10. radio and/or television companies with yearly gross receipts exceeding P10. it may mean direct duplicate taxation.00 were subject to 10% VAT. If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes. Smart Communications. as follows: x x x in lieu of any and all taxes of any kind. No. Inc. v. 166408. The City of Davao.A. In its particular sense. Congress did not expressly exempt Smart from local taxes. et al. the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code. 2006. 2008 citing Philippine Long Distance Telephone Company.. 1995. Historical background on why ABS-CBN is subject to VAT and not to the franchise tax. etc.000. is that the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to local taxes. R. 1996.00).Revenue Code. v. September 16. 9337 was subsequently enacted and became effective on July 1. etc. broadcasting stations and other franchise grantees” were omitted from the list of entities subject to franchise tax. 166408. G. G. The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others. 2006 to February 1. The clause “in lieu of all taxes” does not pertain to VAT or any other tax. [Smart Communications. Inc. The said law further amended the NIRC by increasing the rate of VAT to 12%. (Quezon City. ABSCBN Broadcasting Corporation. as amended. otherwise known as the Expanded Value Added Tax Law. It does not have the option to choose between the payment of franchise tax or VAT since it is a broadcasting company with yearly gross receipts exceeding Ten Million Pesos (P10.000. R. City of Davao. the “in lieu of all taxes” clause has now become functus officio.000. et al. Since the franchise tax on the broadcasting companies with yearly gross receipts exceeding ten million pesos has been abolished. In consonance with the above survey of pertinent laws on the matter. This is practically the same holding in an earlier case involving another telecommunications company. October 6." Nothing is mentioned in Section 9 about local taxes. Congress would have expressly mentioned the exemption from municipal and provincial taxes. 1997 containing more amendments to the NIRC. R. September 16. municipal. ABS-CBN is subject to the payment of VAT." Moreover. 1998.000. established or collected by any authority whatsoever. 2008. The effectivity of the imposition of the 12% VAT was later moved from January 1. provincial or national. nature or description levied.00.. took effect and subjected to VAT those services rendered by radio and/or broadcasting stations. ABS-CBN Broadcasting Corporation. 155491. R. rendered inoperative.A. 594 (2003)] 17 19-D. No.000. which is prohibited under the constitution because it violates the concept of equal protection. et al. Double taxation in its generic sense.A. No.. ABS-CBN was subject to 3% franchise tax under Section 117(b) of the 1977 National Internal Revenue Code (NIRC). 2008. (Emphasis supplied). The “in lieu of all taxes” clause in the franchise of ABS-CBN has become functus officio with the abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding Ten Million Pesos. The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others. 7716. Inc. uniformity and equitableness of taxation. v. v. 447 Phil. pursuant to Section 102 of the NIRC. The City of Davao. No. R.A. R. 571. No. However. October 6. . “telephone and/or telegraph systems. et al. Notably. No.000.

Tax credit generally refers to an amount that is subtracted directly from one’s total tax liability. Tax treaties which exempts foreign nationals from local taxation and local nationals from foreign taxation under the principle of reciprocity. The presence of the 2nd element. because it would violate the equal protection clause of the constitution. there is no violation of the equal protection clause because all subjects and objects that are similarly situated are subject to the same burdens and granted the same privileges without any discrimination whatsoever. Johnson and Son. NOTES AND COMMENTS: a.. (Commissioner of Internal Revenue v. (Commissioner of Internal Revenue v. etc. hence violative of the equal protection clause. 127105. results to discrimination among subjects and objects that are similarly situated. G. and including the amendments introduced only by Senate Bill No. inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax.  taxation ? 18 What are the elements of direct duplicate c. No. this would be known as international juridical double taxation which is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical grounds. 159647. April 15. Presence of the 2nd element violates the equal protection clause. 1950 regarding other kinds of taxes in addition to the valueadded tax..  The petitioners allege that the R-VAT law is 27. 22. taxing the same subject or object twice.C. If only the 1st element is present. or an amount that is allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due. G.R. Inc. SUGGESTED ANSWER: No. 2005)  24. R. there was a violation of the constitutional mandate that revenue bills shall originate exclusively from the House of Representatives. There was no grave abuse of discretion because all the changes and modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation. A tax deduction is defined as a subtraction fro income for tax purposes. The Bicameral Conference Committee merely exercised the judicially recognized long-standing legislative practice of giving said conference committee ample latitude for compromising differences .. Central Luzon Drug Corporation. 1999) 25. taxing all of the subjects and objects for the first time. Allowing foreign taxes as a deduction from gross income. A tax credit reduces the tax due. Double taxation a valid defense against the legality of a tax measure if the double taxation is direct duplicate taxation. by the same taxing authority. (Commissioner of Internal Revenue v. Same 1) Subject or object is taxed twice 2) by the same taxing authority 3) for the same taxing purpose 4) during the same taxable period b. Central Luzon Drug Corporation. If any of the elements are absent then there is indirect duplicate taxation which is not prohibited by the constitution. June 25. or a deduction from what is owned. No. April 15. SUGGESTED ANSWER: a. Taxing all of the subjects or objects for the first time without taxing all of them for the second time. 2005) 26. including –whenever applicable – the income tax that is determined after applying the corresponding tax rates to taxable income. constitutional because the Bicameral Conference Committed has exceeded its authority in including provisions which were never included in the versions of both the House and Senate such as inserting the stand-by authority to the President to increase the VAT from 10% to 12%. 159647. Thus. b. G. A tax deduction reduces the income that is subject to tax in order to arrive at taxable income. Are the contentions of such weight as to constitute grave abuse of discretion which may invalidate the law ? Explain briefly. 23. et al. S. R. deleting entirely the no pass-on provisions found in both the House and Senate Bills. 21. No. When an item of income is taxed in the Philippines and the same income is taxed in another country. without taxing all for the second time. Tax credits where foreign taxes are allowed as deductions from local taxes that are due to be paid. What are the methods for avoiding double  taxation (indirect duplicate taxation) ? SUGGESTED ANSWER: The following are the methods of avoiding double taxation: a. an allowance against the tax itself.

235SCRA 630] 19 Revenue. OTHER CONCEPTS 1. Toda.” or ”deliberate and not accidental”. February 10.. Tolentino v. a freedom from a charge or burden to which others are subjected. [Abakada Guro Party List (etc. R.. No. NOTES AND COMMENTS: a. . Otherwise. Court of Appeals.. 1993.) v. No. 1-A. 423 Phil. 2005 and companion cases citing Tolentino v. (Commissioner of Internal Revenue v. Revenues and assets of proprietary educational institutions. other the exemptions granted to cooperatives. The mandate to Congress is not to prescribe but to evolve a progressive system of taxation. No. R.. August 25. et al. The grant of a tax amnesty. Sales taxes are also regressive.. A tax amnesty. 2004) 28. 36 NE 365) b. 2005 and companion cases citing Philippine Judges Association v. et al. No. Jr. 102967. Tax evasion connotes the integration of three factors: 1) the end to be achieved. Define tax avoidance and tax evasion. et al. The VAT does not violate the progressive system of taxation. [Abakada Guro Party List (etc.) v. SUGGESTED ANSWER: No. Ermita. G. Do you agree ? Explain your answer. The purpose of tax amnesty is to a. 1994. G. The VAT is assailed as being regressive and therefore violative of the mandate to evolve a progressive system of taxation. et al. similar to a tax exemption. Ermita. Jr. G.. etc. G. September 15. Tax avoidance is legal while tax evasion is illegal. 227 SCRA 703.. September 1. Pardo. It partakes of an absolute waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. much like a tax exemption. R. There is no law at the present which grants exemptions. (Banas. SUGGESTED ANSWER: a. R. R. 874 (2001). November 11. (Florer v. G. 2) an accompanying state of mind which is described as being “evil” on “bad faith. No. Marubeni Corp. G. No.between the Senate and the House. All revenues and assets of non-stock. Commissioner of Internal  4. G. No. may be entitled to exemptions subject to limitations provided by law including restrictions on dividends and provisions for reinvestments. 862. etc. 170574. R. G. etc. and to b. et al. give the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. 168056. v. v.R. 1988) WHILE a tax exemption is an immunity from civil liability only. No. non-profit educational institutions that are actually. . Tax amnesty applies only to past tax periods. 115455. the payment of less than that known by the taxpayer to be legally due.e. would have been prohibited with the proclamation of the constitutional provision. It is an immunity or privilege. Secretary of Finance. 168056. give tax evaders who wish to relent a chance to start a clean slate.R. etc.. The Estate of Benigno P. i. Distinguish tax amnesty from tax exemption. sales taxes which perhaps are the oldest form of indirect taxes. including those which are cooperatively owned. 2009 citing Commissioner of Internal Revenue v. 3. or the nonpayment of tax when it is shown that a tax is due. .. August 25. supra) WHILE tax exemption has prospective application. Tax amnesty is an immunity from all criminal. 115455. 137 Ind. SUGGESTED ANSWER: a. January 30. directly and exclusively used for educational purposes shall be exempt from taxation. Secretary of Finance.. civil and administrative liabilities arising from nonpayment of taxes (People v. R.  Distinguish between the tax avoidance and tax evasion. 235 SCRA 630] 29. G. 147188. and 3) a course of action or failure of action which is unlawful. (Philippine Banking Corporation. must be construed strictly against the taxpayer and liberally in favor of the taxing authority.. Castaneda. 2000) 2. 1994. is never favored nor presumed in law. What is a tax amnesty ? SUGGESTED ANSWER: A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or a tax law. Sheridan. L-46881. hence of retroactive application (Castaneda.. September 14. 30. 105371. September 1. SUGGESTED ANSWER: Tax avoidance is the use of legally permissible means to reduce the tax while tax evasion is the use of illegal means to escape the payment of taxes.” “willful. No. 28.

without transferring the burden to someone else.) v. fees or levies. shall inure to the benefit of and extend to corporation(s). to the making and enforcing of which the personal consent of the individual taxpayer is not required. (Commissioner of Internal Revenue v. Inc. transfer taxes. or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino (s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. 5. it billed PAGCOR for the cost of the food and beverages consumed by the PAGCOR’s patrons as well as the lease of the premises plus the VAT on these items. R. and residence taxes. The law is clear that the exemption extends the exemption to entities or individuals dealing with PAGCOR. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in. Jr. Examples are individual and corporate income taxes. G. 4 SCRA 622) c. July 6. Ebdane. Court of Appeals. in consequence of Articles 1278 and 1279 of the Civil Code.. No. to the buyer. income. The main difference between direct taxes and indirect taxes is that the burden of direct taxes could not be shifted by the taxpayer to another while the burden of indirect taxes could be shifted to another person. June 8. etc. G. No. G. 223 SCRA 217) 10. No.” (emphasis supplied) The BIR denied the claim on the ground that PAGCOR is exempt only from direct taxes and not from indirect taxes so Acesite may not avail of the exemption. 88291. G. (Republic v. Acesite cites the tax exemption grant in PAGCOR’s franchise as follows: “The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax. Garlitos. 9. in order to avoid legal implications. In case of a tax overpayment. Compensation takes place by operation of law. v. v. 8 SCRA 443) 7. No. and in the following case of Silkair (Singapore) PTE. Commissioner of Internal Revenue.. the seller. b. 134114. et al. (Abakada Guro Party List (etc. et al. agency (cies). Unless shown otherwise. What are the reasons why national taxes cannot be the subject of compensation and set-off with debts ? SUGGESTED ANSWER: a. Tax evasion warrants the imposition of civil. PAGCOR paid Acesite minus the VAT claiming exemption while Acesite. . February 6. The above holding should be differentiated from Philippine Acetylene Co.b. v. where the tax exemption did not flow to private entities. (Caltex Philippines. administrative and criminal penalties while tax avoidance does not. The objective of tax avoidance in most instances is merely to reduce the tax that is due while is tax evasion the object is to entirely escape the payment of taxes. G. Acesite (Philippines) Hotel Corporation. Commission on Audit. such the burden value-added taxes being shifted or transferred by the taxpayer. citing Maceda v.  But note Nestle Phil. 1993. Ermita. Taxes are not contractual obligations but arise out of a duty to. 167919. where the BIR’s obligation to refund or set-off arises from the moment the tax was paid under the principle of solutio indebeti. Mambulao Lumber Co. February 14. 147295. association (s).R. the disputable presumption of regularity of performance of duty lies in favor of the Collector of Customs. c. (Domingo v. (Commissioner of Internal Revenue v. As the law is worded the exemption flows to Acesite. 2008. 2007) NOTES AND COMMENTS: a. February 16. 173594. Inc. and that the debts are both due and demandable.. Commissioner of Internal Revenue. The government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is no such debt.R. 11. as well as any form of charges.. demand. 756) 6. No. 2007). 172 SRCA 364) 20 168056. Macaraig. and are the positive acts of government. September 1. R.R. Ltd. 20 SCRA 1056. Acesite is the owner and operator of restaurant which caters to the patrons of a casino operated by PAGCOR within its premises. G. or otherwise. 8. No. R. 208 SCRA 726.. Is this correct ? SUGGESTED ANSWER: No.. paid the P30 million tax and applied for a refund on the ground of solutio indebeti. 2001 which held that in order for the rule on solutio indebeti to apply it is an essential condition that the petitioner must first show that its payment of the customs duties was in excess of what was required by the law at the time the subject 16 importations of milk and milk products were made. v. Esso Standard Eastern. where the local government and the taxpayer are in their own right reciprocally debtors and creditors of each other. contract or judgment as is allowed to be set-off. 2005 and companion cases. (cited in Abaya v. The lifeblood theory.

Act No. An exemption from “all taxes” excludes indirect taxes. an indirect tax is the statutory taxpayer. So also. Inc. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. among others.. it must not be enlarged by construction. Presidential Decree No. Subsequently. July 29. Jr. 197 SCRA 771. [Philippine Acetylene Co. 140230. like NPC’s charter. 1991. 6395 enumerated the details covered by NPC’s exemption. viz: It may be so that in Maceda vs. (Silkair (Singapore) PTE.  Rep. G.. made even more specific the details of the exemption of NPC to cover. Jr. May 31. G. duties[.R. G.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. Ltd. 938 [NPC’s amended charter] amended the tax exemption by simplifying the same law in general terms. the Commissioner of Internal Revenue is only authorized to inquire into the bank deposits of: . 317-318) The NIRC provides that the excise tax should be paid by the manufacturer or producer before removal of domestic products from place of production. Act No. In Commissioner of Internal Revenue v.. without a clear showing of legislative intent. As exceptions to Rep. Thus. v. unless the exempting statute. Macaraig. No. 1991. Silkair likewise argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption “from the same customs duties. 197 SCRA 771. 478 SCRA 61 the Supreme Court clarified the ruling in Maceda v. the Court held that an exemption from “all taxes” granted to the National Power Corporation (NPC) under its charter includes both direct and indirect taxes. Even if Petron Corporation passed on to Silkair the burden of the tax. 1405. Ltd. Silkair further anchors its claim on Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore).R. v. purchased aviation gas from Petron Corporation. SUGGESTED ANSWER: Silkair is not entitled to tax refund or credit for the following reasons: a. 88291. No. and if an exemption is found to exist. Commissioner of Internal Revenue.. the Bank Deposits Secrecy Law prohibits inquiry into bank deposits. 173594. is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. or seek a refund of. 465 SCRA 308. The proper party to question. The amendment under Republic Act No.D. Macaraig. It now claims for refund or tax credit for the excise taxes it paid claiming that it is exempt from the payment of excise taxes under the provisions of Sec. Macaraig. Jr.. February 6. Jr. No. be construed as including indirect taxes. is so couched as to include indirect tax from the exemption. 2005. Silkair could not seek refuge under Maceda v. The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot. 380. the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.R.R. 2005. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Act No. 154028.] fees…” The use of the phrase “all forms” of taxes demonstrates the intention of the law to give NPC all the tax exemptions it has been enjoying before. both direct and indirect taxes on all petroleum products used in its operation. 135 of the NIRC of 1997. 127 Phil. 9337. No. an international carrier. 2008) NATIONAL INTERNAL REVENUE CODE ORGANIZATION AND FUNCTIONS INTERNAL REVENUE OF THE BUREAU OF  1. Petron Corporation.. 1405. G. inspection fees and other duties or taxes imposed in the territory of the first Contracting Party. G. the tax exemption of PAGCOR has already been withdrawn by Rep. 470 (1967)] b. It succinctly exempts NPC from “all forms of taxes. December 15.  Silkair (Singapore) PTE. (Philippine Geothermal. 88291. It invokes Maceda v. May 31.b.. Macaraig. Commissioner of Internal Revenue. Commissioner of Internal Revenue. The excise tax on aviation fuel is an indirect tax.R.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. which it uses for its operations. P. 21  12. Inc. v. Is Silkair entitled to the tax refund or credit it seeks ? Reason out your answer. No. not Silkair. 461. Philippine Long Distance Telephone Company.

associations. geothermal. (Elements of the Law of Partnership by Floyd R.. There is no contribution or investment of additional capital to increase or expand the inherited properties. 108576. no matter how created or organized. coal. Jr. Fortune Tobacco Corporation. Court of Appeals. pp. joint accounts (cuentas en participacion).) c. 5 (F). cited in Pascual v. Certain business organizations do not fall under the category of “corporations” under the Tax Code. et al. to ensure an equitable distribution of the tax burden and to simplify tax administration by classifying cigarettes. 14. [1st sentence. Purpose of shift from ad valorem system to specific tax system in taxation of cigarettes. 83.. b. and b. 166 SCRA 560) 6. (Commissioner of Internal Revenue v. are not thereby rendered partners. 102 Phil. (Spurlock v. (Commissioner of Internal Revenue v. Commissioner of Internal Revenue. 224-225) TAX ON INCOME 1. 2008 citing Record of the Senate. any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability. or venture is carried on. BIRC of 1997] 22 4. or insurance companies.W. but who severally retain the title to their respective contribution. a decedent to determine his gross estate. the Supreme Court held citing Mertens that the term partnership includes a syndicate. They have no common stock capital. January 20. G. G. are among themselves as to the management and use of such property and the application of the proceeds therefrom. 167274-75. The Tax Code has included under the term “corporation” partnerships. The common ownership of property does not itself create a partnership between the owners. 1999) . though they may use it for purpose of making gains. Persons who contribute property or funds to a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution. 24 now Sec.. 7. and they may. without becoming partners. whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. shall be treated as the income of an unregistered partnership to be taxable as a corporation because of the clear intention of the brothers to join together in a venture for making money out of rentals. Sec. 22 (B). into high. among others. 167274-75. from labor or from both combined. Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code. July 21. Collector. A taxpayer who authorizes the Commissioner to inquire into his bank deposits. Wilson. 363. G. R. General professional partnerships. 2008) 3. Purpose of the NIRC of 1997. [Sec. Fortune Tobacco Corporation. For example. 3. 166 SCRA 560) 5. NIRC of 1997] c. Commissioner of Internal Revenue. group.a. joint venture or other unincorporated organization. (Commissioner of Internal Revenue v. financial operation. Income is gain derived and severed from capital. 74 cited in Pascual v. and no community of interest as principal proprietors in the business itself from which the proceeds were derived. 2. In Evangelista v. through or by means of which any business. App. and other energy operations. The sharing of gross returns does not of itself establish a partnership. R. The income from the rental of the house. Nos. 160 No. v. 2nd Ed.. pool. pursuant to an operation or consortium agreement under a service contract with the Government. The shift from the ad valorem system to the specific tax system is likewise meant to promote fair competition among the players in the industries concerned.  Co-heirs who own inherited properties which produce income should not automatically be considered as partners of an unregistered corporation subject to income tax for the following reasons: a. Nos. 139 SCRA 436) b. include: a. 140. Joint venture or consortium formed for the purpose of undertaking construction projects engaging in petroleum. 24 (B) of the NIRC of 1997] 2. Commissioner of Internal Revenue.R. Sec. medium and low-priced based on their net retail price and accordingly graduating tax rates. joint-stock companies. p. (Obillos. to tax a stock dividend would be to tax a capital increase rather than the income. bought from the earnings of co-owned properties. and therefore not subject to tax as corporations. No. July 21. (Ibid. 142 S. merely continuing the dedication of the property to the use to which it had been put by their forebears. There must be an unmistakable intention to form a partnership or joint venture. Mechem. [Sec.

Regs. 11. b. v.  22. A non-resident alien. authorized for such types of income by the Tax Code or other special laws. Jr. 331) 17. is taxable only on income derived from sources within the Philippines. if any. Simmons Gin Co.  What are considered as de minimis benefits not subject to withholding tax on compensation income of both managerial and rank and file employees ? . (Sec. That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker. (Sec. 23    8.. e. NIRC] He is allowed to avail of the itemized deductions including the personal and additional exemptions subject to the rule on reciprocity. 2) 15. less the deductions and/or personal and additional exemptions. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. The cancellation and forgiveness of indebtedness may amount to (a) payment of income. who has stayed in the Philippines for an aggregate period of more than 180 days during any calendar year. Compensation income is considered as having been earned in the place where the service was rendered and not considered as sourced from the place of origin of the money. d. Rev. An insolvent debtor does not realize taxable income from the cancellation or forgiveness. whether resident or not of the Philippines. del Rosario.. del Rosario. (Lakeland Grocery Co. 25 (A) (1). or to a (c) capital transaction depending upon the circumstances. c. Jr.. 14. the transaction has the effect of payment of a dividend. NIRC of 1997) 9. No. The insolvent debtor realizes income resulting from the cancellation or forgiveness of indebtedness when he becomes solvent. Payment for services. 43 Fd 327 CCA 10th) 12. An alien individual. Consequently. 50. 23. f. Under the National Internal Revenue Code the global system is applicable to taxable corporations and the schedular to individuals. (Sec. The Global system of income taxation is a system employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of the individual. The term taxable income means the pertinent items of gross income specified in the Tax Code. [Sec. it is income to the extent of the amount realized by the debtor as compensation for his services. NIRC of 1997) 19. If a corporation to which a stockholder is indebted forgives the debt. other than compensation income. shall be considered as a non-resident alien doing business in the Philippines.8. If a creditor merely desires to benefit a debtor and without any consideration therefor cancels the amount of the debt it is a gift from the creditor to the debtor and need not be included in the latter’s income. in consideration thereof. is considered as having been earned at the place where the activity or service was performed. 20. is taxable only on income derived from sources within the Philippines. 331) 16. (Commissioner v. A foreign corporation. 237 SCRA 324. 31. cancels the debt. (b) gift.. 1 What are general principles of income taxation in the Philippines OR the situs of income taxation in the Philippines OR the source rule of income taxation as applied in the Philippines ? SUGGESTED ANSWER: a. whether engaged or not in trade or business in the Philippines. 237 SCRA 324. 21. The Schedular system of income taxation is a system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer. (Tan v. he shall be subject to income tax on his income derived from sources from within the Philippines. If an individual performs services for a creditor who. An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income from sources within the Philippines: Provided. A domestic corporation is taxable on all income derived from sources within and without the Philippines. 10. Commissioner 36 BTA (F) 289) 13. A nonresident citizen is taxable only on income derived from sources within the Philippines. (Tan v.

that any amount given by the employer as benefits to its employees. Regs. USVA benefits. SSS benefits and GSIS benefits.00 per employee per semester or P125 per month. 61.00 per annum. 8-2000] 23. or at maturity of the term mentioned in the contract..000. the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30. Amounts received for beyond control separation. further. d. devise. for length of service or safety achievement.000. and an example of a deduction are losses. due to the following reasons: (1) It is exempted by the fundamental law. rice per month amounting to not more than P1.00 or one (1) sack of 50-kg. [Sec. or similar items given to employees under special circumstances. e.000 per employee per annum. or upon surrender of the contract. through accident or health insurance or Workmen’s Compensation Acts as compensation for personal injuries or sickness.g. The recipient is no longer required to include the income subjected to a final tax as part of his gross income in his income tax return. g. f. and j. whether classified as de minimis benefits or fringe benefits. d. shall constitute as deductible expense upon such employer. plus the amounts of any damages received on whether by suit or agreement on account of such injuries or sickness.1 (A) (3). Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage.g.00 received by an employee under an established written plan which does not discriminate in favor of highly paid employees.78. 2) WHILE deductions are the amounts which the law allows to be subtracted from gross income in order to arrive at net income. Exclusions pertain to the computation of gross income WHILE deductions pertain to the computation of net income. c. etc. The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30. Regs. Income subject to “final tax” refers to an income collected through the withholding tax system. or descent.00. Flowers. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year. b. i. Rice subsidy of P1. provided. Retirement received from reasonable private benefit plan after compliance with certain conditions. f. No. and (3) It does not come within the definition of income (Sec.00 ceiling. Foreign social security. Laundry allowance not exceeding P300 per month. Amounts received. with an annual monetary value not exceeding P10. if the employer pays more than the ceiling prescribed by these regulations. What are the conditions for excluding retirement benefits from gross income. Exclusions are something received or earned by the taxpayer which do not form part of gross income WHILE deductions are something spent or paid in earning gross income. 7641. Gifts given during Christmas and major anniversary celebrations not exceeding P5. books. bequest. Retirement benefits received under Republic Act No. which must be in the form of a tangible persona property other than cash or gift certificate. The payor of the income withholds the tax and remits it to the government as a final settlement of the income tax as a final settlement of the income tax due on said income.000. Value of property acquired by gift.00 per annum. c.  What are excluded from gross income ? SUGGESTED ANSWER: a. h. e. marriage.   26. SUGGESTED ANSWER: a. Rev.000. Uniforms and clothing allowance not exceeding P3. c. etc. e. However. pensions.000 ceiling of “other benefits” provided under Section 32 (B)(7)(e) of the Code. Actual yearly medical benefits not exceeding P10. An example of an exclusion from gross income are life insurance proceeds. hence taxexempt ? SUGGESTED ANSWER: . e. Exclusions from gross income refer to a flow of wealth to the taxpayer which are not treated as part of gross income for purposes of computing the taxpayer’s taxable income. Regs. 2-98 as amended by Rev. 24  24. on account of illness. Rev. Medical cash allowance to dependents of employees not exceeding P750. (2) It is exempted by statute. 2. birth of a baby.000. retirement gratuities. No.SUGGESTED ANSWER: a. endowment or annuity contracts either during the term. fruits. b. Employees achievement awards.000.  25. Amounts received by the insured as a return of premiums paid by him under life insurance. Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured whether in a single sum or otherwise. b.  Distinguish exclusions from deductions. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines.

Resident citizens. Resident citizens. From the employer c. Domestic corporations. 32 (B) (6) (a). estates and trusts may also deduct this expense. resident alien individuals and nonresident alien individuals who are engaged in trade and business. g. Regs. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. employee or by his heirs. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. ascertained to be worthless and charged off within the taxable year. on their gross incomes other from compensation income are allowed to deduct these expenses. NIRC of 1997] The retiring official or employee should not have previously availed of the privilege under the retirement plan of the same or another employer. b. The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession.   Bad debts due to the taxpayer. whether individual or corporate. No. embezzlement. theft or  d.78 (B) (1). Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. business or professional expenses. 2-98]  27. 2) Not less than fifty (50) years of age at time of retirement. Depletion or deduction arising from the exhaustion of a non-replaceable asset.a. Any amount received by an official.. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Ordinary and necessary trade. Rev. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Retirement benefits received under Republic Act No. on their gross incomes other from compensation income are allowed to deduct these expenses. redundancy and cessation of business. No. on their gross incomes other from compensation income are allowed to deduct these expenses. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. hence tax-exempt ? SUGGESTED ANSWER: a. 3) Availed of the benefit of exclusion only once. Sec. estates and trusts may also deduct this expense. wear and tear (including reasonable allowance for obsolescence) of property used in trade or business. Domestic corporations. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Retiring official or employee 1) In the service of the same employer for at least ten (10) years. connected with profession. not sustained between related parties. Domestic corporations. sickness or other physical disability. f. [Sec.78 (B). in accordance with the employer’s reasonable private benefit plan approved by the BIR. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Regs. Rev. (1) (b). 2. resident alien individuals and nonresident alien individuals who are engaged in trade and business.. usually a natural resource. As a consequence of separation of such official or employee from the service of the employer because of 1) Death. or 2) For any cause beyond the control of said official or employee [Sec. and net operating losses. estates and trusts may also deduct this expense. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. 7641 and those received by officials and employees of private firms. Resident citizens. What are the Itemized deductions from gross income and who may avail of them ? a. Resident citizens. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. trade or business. 2. NIRC of 1997]. trade or business.  28. 2-98] 25 What kind of separation (retirement) pay is excluded from gross income. Depreciation or a reasonable allowance for the exhaustion. c. Domestic corporations. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. estates and trusts may also deduct this expense. [1 st par. on their gross incomes other from compensation income are allowed to deduct these expenses. actually e. . [1st par. b. 32 (B) (6) (b). estates and trusts may also deduct this expense. on their gross incomes other from compensation income are allowed to deduct these expenses. Sec. such as retrenchment. Domestic corporations. b. Taxes paid or incurred within the taxable year in connection with the taxpayer’s profession. losses from casualty. Resident citizens.   Ordinary losses. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

business or profession. Distinguish ordinary expenses from capital  expenditures. on their gross incomes other from compensation income are allowed to deduct these expenses. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Resident  h. Insurance premiums for health and hospitalization. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Personal and additional exemptions. Ordinary expenses are usually incurred during a taxable year and benefits such taxable year. kickbacks or other illegal expenditures b.  What are the requisites for the deductibility of ordinary and necessary trade. Nonresident citizens on their gross incomes from within may also deduct this expense.  What are the requisites deductibility of business expenses ? for the SUGGESTED ANSWER: The following are the requisites for deductibility of business expenses: a.  31. Domestic corporations. not deducted as expenses and chargeable to capital account but not chargeable to property of a character which is subject to depreciation or depletion. k. Necessary expenses are those which are appropriate or helpful to the business. SUGGESTED ANSWER: Ordinary expenses are those which are common to incur in the trade or business of the taxpayer WHILE capital expenditures are those incurred to improve assets and benefits for more than one taxable year. resident alien individuals and nonresident alien individuals who are engaged in trade and business. resident alien individuals and nonresident alien individuals who are engaged in trade and business. j.  30. Compliance with the substantiation test. on their gross incomes other from compensation income are allowed to deduct these expenses. resident alien individuals and nonresident alien individuals who are engaged in trade and business. estates and trusts may also deduct this expense. Proof by evidence or records of the deductions allowed by law including compliance with the business test.Resident citizens. i. Domestic corporations. Resident citizens. Resident citizens. estates and trusts may also deduct this expense. Domestic corporations. Nonresident alien individuals engaged in trade or business in the Philippines are allowed to deduct these exemptions under reciprocity. like expenses paid for legal and auditing services ? SUGGESTED ANSWER: . Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. 4) Must not be bribes. on their gross incomes other from compensation income are allowed to deduct these expenses. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Nonresident citizens and nonresident alien individual 26 engaged in trade or business in the Philippine on their gross incomes from within may also deduct these premiums. on their gross incomes other from compensation income are allowed to deduct these expenses. 2) Must be paid or incurred within the taxable year. Resident citizens.  29. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct these premiums. or professional expenses. 3) Must be paid or incurred in carrying on a trade or business. Research and development expenditures treated as deferred expenses paid or incurred by the taxpayer in connection with his trade. business. l. Domestic corporations. on their gross incomes other from compensation income are allowed to deduct these expenses. estates and trusts may also deduct this expense. citizens. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Resident citizens. estates and trusts may also deduct this expense. Compliance with the business test: 1) Must be ordinary and necessary. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Contributions to pension trusts.   Charitable and other contributions. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. and resident alien on their gross incomes and from compensation income are allowed to deduct these premiums.

In 2005 XYZ Law Firm and ABC Auditing Firm rendered various services which were billed by these firms only during the following year 2006. Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions. there was already an obligation to pay them. where there is created an enforceable liability. G. except rank and file employees. (Commissioner of Internal Revenue v. 2007) NOTES AND COMMENTS: a.) c. R. f.a. the test is satisfied where a computation may be unknown. TMG Corporation is issuing the accrual method of accounting. Isabela cultural Corporation. No. February 12. February 12. 3-98] What is meant by “fringe benefit” for purposes of taxation ? SUGGESTED ANSWER: For purposes of taxation. Amounts of income accrue where the right to receive them becomes fixed.. b. d. No. Expense account. Household personnel. only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. Sec. c. are incurred when fixed and determinable in nature without regard to indeterminacy merely of time of payment. 2007) d. dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations. G. The all-events test is satisfied where computation remains uncertain. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. but is not as much as unknowable. TMG should have deducted the professional and legal fees in the year they were incurred in 2005 and not in 2006 because at the time the services were rendered in 2005. (Commissioner of Internal Revenue v. driver and others. Regs. Since the bills for legal and auditing services were received only in 2006 and paid in the same year. It is also referred to as the “cash receipts and disbursements method” because both the receipt and disbursements are considered. if its basis is unchangeable. such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction. at the closing of its books for the taxable year. 172231. No. 172231. Expenses for foreign travel. Recognition of income and expenses under the accrual method of accounting. Isabela cultural Corporation. 2007) The two (2) principal accounting methods for recognition of income are the (a) accrual method. [1st par. 2007) The accrual of income and expense is permitted when the allevents test has been met. 172231.33 (A). Isabela Cultural Corporation. (Commissioner of Internal Revenue v. Membership fees. such as but not limited to: a.  . it must be supported by receipts. Rev. records or other pertinent papers. (Commissioner of Internal Revenue v. R. February 12. No. No. R. and the (b) cash method. granted or paid by the employer to the employee. The amount of liability does not have to be determined exactly. The BIR disallowed the deduction ? Who is correct. such as maid. This test requires: 1) fixing of a right to income or liability to pay. G. The test does not demand that the amount of such income or liability be known absolutely. Vehicle of any kind.  34. or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). February 12. Liabilities. b. Holiday and vacation expenses. (Ibid. 172231. Housing. 172231. service. income is recognized only upon actual receipt of the cash payment but no deductions are allowed from the cash income unless actually disbursed through an actual payment in cash. or could reasonably be expected to have known. 2007) 27   32. and 2) the availability of the reasonable accurate determination of such income or liability. g. c. fringe benefit means any good. h. All-events test. SUGGESTED ANSWER: The BIR is correct. Thus. b. Accrual method of accounting presents largely a question of fact. G. it must be determined with “reasonable accuracy” implies something less than an exact or completely accurate amount. 33.. G. Under the cash method income is to be construed as income for tax purposes only upon actual receipt of the cash payment. TMG deducted the same from its 2006 gross income. Isabela cultural Corporation. Isabela cultural Corporation. The fringe benefits tax is a final withholding tax imposed on the grossed-up monetary value of fringe benefits furnished. The propriety of an accrual must be judged by the fact that a taxpayer knew. February 12. it must have been paid or incurred during the taxable year dependent upon the method of accounting upon the basis of which the net income is computed. the expense must be ordinary and necessary. R. e. 2. No. TMG or BIR ? Explain.. (Commissioner of Internal Revenue v. R. within the taxable year.

256 SCRA 667] g. [Sec. There must be an existing indebtedness due to the taxpayer which must be valid and legally demandable.i. No. the conditions under which such shares are issued and dividends or “interests” paid thereon are not allowed as deductions from the gross income of corporations. [Sec. The family of an individual shall include only his brothers and sisters (whether by the whole or half-blood). 3. Members of the same family. and j. (Revenue Memorandum Circular No. 33 (B). d. 2-98 as amended by Rev. 103. Must have been reported as receivables in the income tax return of the current or prior years. or b. Rev. Rev. or efficiency of his employees. No. 34 (E) (1). Two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned. et al. and e. 32(A).  Who are related parties ? SUGGESTED ANSWER: The following are related parties: a. 2. or necessary to the trade. b. by or for the same individual. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. . by or for such individual. No. whether granted under a collective bargaining agreement or not.. [Sec. The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year. The debts are uncollectible despite diligent effort exerted by the taxpayer. Rev. NIRC of 1997]  40. They are not considered as compensation subject to income tax and consequently to withholding tax. 2) : 36. if such facilities are offered or furnished by the employer merely as a means of promoting the health. 2. The same must be connected with the taxpayer’s trade. and lineal descendants. 17-71) 38. The fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust. spouse.33 (C). or so-called “courtesy discounts” on purchases). Sec. 3-98] c. directly or indirectly. Sec. f. 5-99 reiterated in Rev. furnished or offered by an employer to his employees. Philippine Refining Corporation v.33 (B). in whole or in part.78. 36 (B). ancestors. Regs. insurance and hospitalization benefit plans. Regs. c. Court of Appeals. or f. Benefits given to the rank and file employees. Fringe benefits that are not subject to the fringe benefits tax: a. Rev.. (Sec. 5-99)  41. goodwill. Educational assistance to the employee or his dependents. A fiduciary of a trust and a beneficiary of such. [1st par. 8-2000]  Preferred shares are considered capital regardless of 37. Fringe benefits which are authorized and exempted from income tax under the Tax Code or under any special law. d. 3-98] 35. No.a.  What is the “tax benefit” rule ? SUGGESTED ANSWER: The “tax benefit rule” posits that the recovery of bad debts previously allowed as deduction in the preceding year or years shall be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction. Sec. Sec. Contributions of the employer for the benefit of the employee to retirement. business or practice of profession. Bad debts are those which result from the worthlessness or uncollectibility. Regs.33 (A). e. Regs. A grantor and a fiduciary of any trust. b. 1st par. 3-98] 28  39. When the fringe benefit is required by the nature of. Regs. The same must not be sustained in a transaction entered into between related parties. Regs. Sec. 2. Regs. directly or indirectly. 32 (C). medical services. Regs. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue. of amounts due the taxpayer by others. When the fringe benefit is for the convenience or advantage of the employer. and f. De minimis benefits are facilities and  privileges (such as entertainment. arising from money lent or from uncollectible amounts of income from goods sold or services rendered. [Sec. No. 2. 25-2002. No. 1st par. An individual and a corporation more than fifty percent (50%) in value of the outstanding stock of which is owned. Rev. business or profession of the employer. What are the requisites for valid deduction of  bad debts from gross income ? SUGGESTED ANSWER: a. contentment. or e. NIRC of 1997. Regs. Rev. [Sec. 2. Rev. (Sec.1 (A) (3). NIRC of 1997.. NIRC of 1997. c. NIRC of 1997.. No. d. The debt must be actually ascertained to be worthless and uncollectible during the taxable year.

Rev. 39 (A) (1).42. 5-99) 44. Declining balance method. b. “Real property. The term is also applied to amortization of the value of intangible assets the use of which in the trade or business is definitely limited in duration. townhouse or apartment. Automobiles not used in trade and business. (Sec. Regs. and therefore considered as capital asset. [Pansacola v. No. November 16. No. d. Rev. No. NIRC of 1997. What are personal and additional exemptions ? SUGGESTED ANSWER: These are the theoretical persona. 3rd par. 5-99) 43. 7-2003] Examples of capital assets: a. Regs. and which are not included among the real properties considered as ordinary assets.” (last sentence.. Rafferty and Concepcion. R.  . 38 Phil. objects of arts which are not used in trade or business. 72003) 47-A. 2) Hours of productive use. No. G. Rev. Inherited large tracts of agricultural land which were subdivided pursuant to the government mandate under land reform. or condominium unit. (Roxas v. Regs. 2. Regs. [Sec. 45. c.e. Sec. 7-2003) h. No. Jewelry not used for trade and business. such as a corporation included in the enumeration of Section 30 of the Code. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. 1968) g. If in the year the taxpayer claimed deduction of bad debts written-off. and 4) Sinking fund method. or c. 159991. living and family expenses of an individual allowed to be deducted from the gross or net income of an individual taxpayer. or b. 3) Revaluation method. 4. Property used in the trade or business.b. and d. 4. Paintings. Rev. 2. and as validated from the existing available records of the Bureau of Internal Revenue. Court of Tax Appeals. whether single detached. he realized a reduction of the income tax due from him on account of the said deduction. Residential houses and lands owned and used as such.a. They are fixed amounts in the sense that the amounts have been predetermined by our lawmakers and until our lawmakers make new adjustments on these personal exemptions. 418 (1918)] 29 47. Stock in trade of the taxpayer. 2006 citing Madrigal and Paterno v. taking into account the personal status and additional qualified dependents of the taxpayer. 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. numbering and arrangement supplied.. Regs. Sec. 7-2003) The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business).a. Capital assets shall refer to all real properties held  by a taxpayer. Any other method prescribed by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue: 1) Apportionment to units of production. BUT DOES NOT INCLUDE: a. “Real property used by an exempt corporation in its exempt operations. 3. Rev..b. April 26. shall not be considered used for business purposes. e. The methods of depreciation are the following: a. or real property used in the trade or business of the taxpayer. (Sec. 46. the amounts allowed to be deducted by a taxpayer are fixed as predetermined by Congress. L-25043. Stock and securities held by taxpayers other than dealers in securities. whether or not connected with his trade or business. Depreciation is the gradual diminution in the useful value of tangible property resulting from ordinary wear and tear and from normal obsolescence. Rev. not used in trade or business as evidenced by a certification from the Barangay Chairman or from the head of administration. shall be treated as capital asset. Sec. These are arbitrary amounts which have been calculated by our lawmakers to be roughly equivalent to the minimum of subsistence. Commissioner of Internal Revenue. Straight line method. capitalized words. f. b. 3. or d. (Sec. his subsequent recovery thereof from his debtor shall be treated as a receipt of realized taxable income. townhouse. c. owned by an individual engaged in business. hence. If the said taxpayer did not benefit from the deduction of the said bad debt written-off because it did not result to any reduction of his income tax in the year of such deduction (i. of a character which is subject to the allowance for depreciation. Regs. in case of condominium unit. etc.” (last par. not treated as receipt of realized taxable income. then his subsequent recovery thereof shall be treated as a mere recovery or a return of capital. where the result of his business operation was a net loss even without deduction of the bad debts written-off). 414. Sum of years digits method. sculptures. stamp collections. then sold to tenants.

Real property received as dividend by stockholders who are not engaged in the real estate business and who not subsequently use such real property in trade or business shall be treated as capital assets in the hands of the recipient even if the corporation which declared the real property dividend is engaged in real estate business. trailers and trucks of a hauling company. even if not engaged in real estate business. no capital gains tax shall be imposed because no capital gains has been derived 50. buildings and/or improvements). Rev.. 24 (D) (1). “Sale. Regs. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.’ (Sec. including pacto de retro sales and other forms of conditional sales. The property forms part of the stock in trade of the owner. Real property transferred through succession or donation to the heir or donee who is not engaged in the real estate business with respect to the real property inherited or donated. The tractors. The tax is “imposed upon capital gains  presumed to have been realized from the sale. (Gutierrez v. managing. c. and the heir was not a stranger to the real estate business. or other disposition of real property located in the Philippines.. concrete gutters. The machinery and equipment of a manufacturing concern subject to depreciation. sales made with frequency and continuity. 2. Stock in trade of a taxpayer or other real property of a kind which would properly be included in the inventory of a taxpayer if on hand at the close of the taxable year. exchange. b. 72003)  51. and who does not subsequently use such property in trade or business. drainage and lighting systems converts the property to an ordinary asset. et al.e. Tax treatment of real properties that have  been transferred. will use in business the property received in the exchange. (Tuazon. The condominium building owned by a realty company the units of which are for rent or for sale. hence an ordinary asset.   49. 2.. No. Real property used in trade or business of the taxpayer. annual sales income from the sales was considerable. e. v.. 7-2003 has defined real property as having “the same meaning attributed to that term under Article 415 of Republic Act No. shall be considered as a capital asset in the hands of the heir or donee.f. or b. or to a taxpayer who. 58 SCRA 170) f. (Sec. numbering and arrangement supplied] d. No. the employment of an attorney-in-fact for the purpose of developing. c. Real property used in trade or business (i. glue. varnish. 144 SCRA at p. This is so. as the owner is now engaged in the business of subdividing real estate. Gonzales v. The wood. Regs. The real property received in an exchange shall be treated as ordinary asset in the hands of the transferee in the case of a taxfree exchange by taxpayer not engaged in real estate business to a taxpayer who is engaged in real estate business. or d. in a foreclosure of mortgage sale of real property. No. c. 713. The classification of such . Inherited agricultural property improved by introduction of good roads. paint. 861) 53. d. (Sec. exchange. 7-2003)  52. (Calasanz v. administering and selling the lots. Inherited parcels of land of substantial areas located in the heart of Metro Manila. nails. 24 (D) (1`). or other disposition. 672) property in the hands of the buyer/transferee shall be determined in accordance with the following rules: a. Court of Tax Appeals. 7-2003) 48. Jr. namely: a. b. 386. Real properties classified as capital or ordinary asset in the hands of the seller/transferor may change their character in the hands of the buyer/transferee. Examples of ordinary assets hence not  capital assets: a. Rev. etc. which are the raw materials of a furniture factory. which were subdivided into smaller lots then sold on installment basis after introducing comparatively valuable improvements not for the purpose of simply liquidating the estate but to make them more saleable . 3. 121 Phil. Transactions covered by the presumed  capital gains tax on real property: a. Commissioner of Internal Revenue.c. or c.” [Sec. of a character which is subject to the allowance for depreciation. 101 Phil. b. classified as capital assets.30 Ordinary assets shall refer to all real properties specifically excluded from the definition of capital assets. otherwise known as the ‘Civil Code of the Philippines. Lingad. NIRC of 1997] Revenue Regulations No. Rev. In case the mortgagor exercises his right of redemption within one (1) year from the issuance of the certificate of sale. or other disposition” includes taking by the government through condemnation proceedings. exchange. Court of Tax Appeals. Regs. b. [Sec. et al. sale. NIRC of 1997.

4-99] 31 1) Citizen. by including the proceeds as part of gross income to be subjected to the allowable deductions and/or personal and additional exemptions. both of the NIRC of 1997]. A final withholding tax (FWT) of 20% on passive income is collected from the interest income of banks. Thus. 25 (B) in relation to Sec. or b. Excepted from the payment of the presumed  capital gains tax are those presumed to have been realized from the disposition by natural persons of their principal place of residence a. if any. entire. b. Regs. the proceeds of which is fully utilized in acquiring or constructing a new principal residence. 24 (A) (1). . both of the NIRC of 1997] It does not matter whether there was an actual gain or loss because the tax is a “presumed” capital gains tax. the presumed capital gains tax shall be imposed. c. of individual taxpayers (not  corporate). Rev. and shall be paid within thirty (30) days from the expiration of the said one-year redemption period. NIRC of 1997]. Holding period not applied to the taxation of the presumed capital gains derived from the sale of real property considered as capital assets. NIRC of 1997] 60. XYZ Bank now claims that the GRT should be computed after deducting the 20% passive income tax on the ground that the monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts. it should not be included in the gross receipts subject to tax. [Sec. [Sec. total. an estate or trust (Ibid. 4-99] 54.). NIRC of 1997]  55. [Sec. Resolve the issue of whether the 20% FWT on the bank’s passive income form part of the taxable gross receipts for the purpose of computing the 5% GRT. 3) Nonresident alien engaged in trade or business in the Philippines [Sec. whether resident or not [Ibid. Rev. as amended by Act No.” Thus. 3 (1). 4118. 6 (E). then the bank has not received the same. 24 (D) (1). the BIR Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption. 2) Resident alien [Ibid. SUGGESTED ANSWER: No. 24 (D) (1).  57. an individual [Sec. a domestic corporation. based on the bid price of the highest bidder but only upon the expiration of the one year period of redemption provided for under Sec. the current fair market value as determined below: 1) the fair market value or real properties located in each zone or area as determined by the Commissioner of Internal Revenue after consultation with competent appraisers both from the private and public sectors. It is defined as “whole. To impose the GRT without deducting the 20% would be double taxation. the said tax exemption can only be availed of once every ten (10) years. It is the transaction that is taxed not the gain. 25 (A) (3) in relation to Sec. in relation to Sec.  59. 56.]. or 2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. gross selling price. It also contends that since the 20% was withheld at source and is paid directly to the government. within eighteen (18) calendar months from the date of sale or disposition c. [Sec. In case of non-redemption of the property sold upon a foreclosure of mortgage sale.by the mortgagor and no sale or transfer of real property was realized. both of the NIRC of 1997]. 24 (D) (1). and d. 6 of Act No. without deduction. classified as a capital asset. It likewise has to pay a 5% gross receipts tax (GRT) on gross receipts which includes their passive income. both of the NIRC of 1997] 58. classified as capital assets.]. both of the NIRC of 1997] or the final presumed capital gains tax of six percent (6%). [Sec. at the option of the taxpayer. 24 (D) (2). Regs. 3135. The seller of the real property. 24 (D) (1) in relation to Sec. pays the presumed capital gains tax whether: a. No. then to the schedular tax [Sec. b. 24 (D) (1). 6 (E). The basis for the final presumed capital gains  tax of six per cent (6%) is whichever is the higher of the a. The tax liability. on gains from sales or other dispositions of real property. The word “gross” must be used in its plain and ordinary meaning. to the government or any of its political subdivisions or agencies or to government owned or controlled corporations shall be determined. the 20% should not be deducted for purposes of computing the 5% gross receipts tax. 27 (D) (5). 24 (D) (1) in relation to Sec. 3 (2). No. 4) Nonresident alien not engaged in trade or business in the Philippines [Sec. [Sec.

On June 23. otherwise there would be no interest from where the 20% tax may be withheld from. Since the two are different there is no double taxation. Citytrust Investment Phils. 1) FWT is an income tax under Title II of the Code (Tax on Income) while GRT is a percentage tax under Title V of the Tax Code.. 108 Phil. bartered or imported. Manila Jockey Club. [Sec. whichever comes later. 2006 and companion case) NOTES AND COMMENTS: a. The Supreme Court rules that the gross receipts of Manila Jockey Club should not include the 5½% because although delivered to the Club. There is no double taxation because there are two kinds of taxes. The MCIT and when should be imposed and the four (4) year grace period. MBC filed a petition for review with the CTA. It sought the BIR’s ruling on whether it is entitled to the four (4) year grace period for paying on the basis of MCIT reckoned from 1999. 27 (E) (1). No. 2006 and companion case) b. Thus. 6. BIR then ruled that cessation of business activities as a result of being placed under involuntary receivership may be an economic reason for suspending the imposition of the MCIT. 139786.. September 27. Inc. the 20% FWT which is an income tax and the 5% GRT which is a percentage tax. 2006) NOTES AND COMMENTS: a... There are distinctions between the 20% FWT on interest income and the 5% GRT on banks. Manila Jockey does not apply because what happened there was earmarking and not withholding. R. as defined herein. No. Manila Jockey Club paid amusement taxes on its commission in the total amount of bets called wager funds and did not include the 5½% of the fund which went to the Board on Races and to the owners of horses and jockeys. it ceased operations that year by reason of insolvency and its assets and liabilities were placed under the charge of a government-appointed receiver. Should the refund be granted ? SUGGESTED ANSWER: Yes. 2) Percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold. the withholding agent being merely a conduit in the collection process. 1998 as it did not close its business operations in 1987 but merely suspended the same. As a result of the ruling MBC filed an application for refund of the P33 million. (Sec. “A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year. MBC is entitled to the grace period of four years from June 23. Inc. the corporate existence was never affected. 1987. Inc. There is prior to the withholding a constructive receipt of the interest. R. (Commissioner of Internal Revenue v. Commissioner of Internal Revenue v. The CTA denied the petition on the ground that MBC is not a newly organized corporation. Citytrust Investment Phils. or of the gross receipts or earnings derived by any person engaged in the sale of services while an income tax is a national tax imposed on the net or gross income realized in a taxable year. beginning on the fourth taxable year immediately following the . amounts withheld form part of gross receipts because there are in constructive possession and not subject to any reservation. 821 (1960) is different from Commissioner of Internal Revenue v. 2006 and companion case) 32 61. On May 22. 1999 when it was authorized by the BSP to operate as a thrift bank before the MCIT should be applied to it. Even if placed under receivership. (Manila Banking Corporation v. is hereby imposed on a corporation taxable under this Title. No. 2006 and companion case.. September 27. Citytrust Investment Phils. It filed its tax return for the year 1999 paying the amount of P33 million computed in accordance with the minimum corporate income tax (MCIT). G. NIRC of 1997] The date of commencement of operations of a thrift bank is the date it was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board. 4-95) Clearly then. it falls under the category of an existing corporation recommencing its banking operations. R.. G. Citytrust Investment Phils. (Commissioner of Internal Revenue v. Commissioner of Internal Revenue. G. Earmarking is not the same as withholding. On the contrary. R.. No. (Commissioner of Internal Revenue v. Rev. Due to the BIR’s inaction. MBC was incorporated in 1961 and engaged in commercial banking operations since 1987. The MCIT shall be imposed beginning in the fourth taxable year immediately following the year in which the corporation commenced its business operations. 3) Income tax is subject to withholding while percentage is not. although delivered or received. R. G. September 27. No. G. such money has been especially earmarked by law or regulation for other persons.. the BSP authorized MBC to operate as a thrift bank. 139786. In 2000. Inc. In a volte facie the BIR now maintains that MBC should pay the MCIT beginning January 1. 168118. 139786. 139786. August 26. Amounts earmarked do not form part of gross receipts because these are by law or regulation reserved for some person other than the taxpayer. No.Receipt may either be actual or constructive. 1999. Regs. September 27.

NIRC of 1997] b. to the extent of the interest therein of the decedent at the time of his death. No. c. to designate the person who shall possess or enjoy the property or the income therefrom. 2006 did not apply Rev. Regs. either alone or in conjunction with any person. Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning January 1. situated in the  2. (Manila Banking Corporation v. 9-98 because Rev. R. Expenses. The gross estate for purposes of estate taxation of non-resident aliens includes the value at the time of his death of all the real property situated in the Philippines. the lawmaking body saw the need to provide a grace period of four years from their registration before they pay their minimum corporate income tax. Regs. 2006) 33 Philippines. Corporations still starting their business operations have to stabilize their venture in order to obtain a stronghold in the industry. 4917. NIRC of 1997] ESTATE TAXES The gross estate for purposes of estate taxation of Filipino citizens. g. or as a settlement tribunal over the estate of the deceased is not a mandatory requirement for the collection of the estate. Property previously taxed. R. Not every inter-vivos transfer in anticipation of death is considered “transfer in contemplation of death” for purposes of determining the property to be included in the gross estate of a decedent. Thus. 3.000. The probate court is determining issues which are not against the property of the decedent.) c. Period when a corporation becomes subject to the MCIT. b. Regs. has in the property formerly held by the decedent.  The approval of the court sitting in probate. but is against the interest or property right which the heir. 168118. Commissioner of Internal Revenue.” [Sec. or a claim against the estate as such. Medical expenses not exceeding P500. to the extent of the interest existing therein of the decedent at the time of his death. in order to allow new corporations to grow and develop at the initial stages of their operations. personal property whether tangible. G.year in which such corporation commenced its business operations. Amount of exempt retirement received by the heirs under Rep. or the right to the income from the property. 27 (E) (1). claims.  . indebtedness and taxes. whether residents or nonresidents and resident alien includes the value at the time of his death of all his real property. e. The Family Home up to a value not exceeding P1 million. 5.” [Sec. There is no transfer in contemplation of death if there is no showing the transferor “retained for his life or for any period which does not in fact end before his death: (1) the possession or enjoyment of. in contemplation of or intended to take effect in possession or enjoyment at or after death” [Sec. 4-95 specifically refers to thrift banks. No. It is clear that the properties are not transferred in contemplation of or intended to take effect in possession or enjoyment at or after death. x x x” (Rev. wherever situated. intangible or mixed. Standard deduction of P1 million.   7. or (2) the right. G. No. No. Net share of the surviving spouse in the conjugal partnership. f. August 26. devisee. It does not come as a surprise then when many companies reported losses in their initial years of operations. 9-98) Manila Banking Corporation v. 1998. Transfers for public use. h. whether tangible. August 26. losses. The intent of Congress relative to the MCIT is to grant a four (43) – year suspension of tax payment to newly organized corporations. Act Mo. Items deductible from the gross estate of a resident or nonresident Filipino decedent or resident alien decedent: a.  1. legatee. 85 (B). when the minimum corporate income tax is greater than the tax computed under Subsection (A) of this section for the taxable year. “(5) Specific rules for determining the period when a corporation becomes subject to the MCIT (minimum corporate income tax) For purposes of the MCIT. by trust or otherwise. Commissioner of Internal Revenue. No.00. wherever situated. the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR). personal property. 4. d. To be considered a “transfer in contemplation of death” “the decedent has at any time made a transfer. NIRC of 1997]. 85 (B). 168118. 6. Purpose of the four (4) year grace period. intangible or mixed. etc.

 A died leaving as his only heirs. if a mortgaged property is transferred as a gift. are considered as strangers. sister (whether by whole or half-blood). Accordingly. The tax assessment having become final. including the surviving spouse.The notices of levy were regularly issued within the prescriptive period. (last par. what is meant by “net gifts ?” SUGGESTED ANSWER: The net economic benefit from the transfer that accrues to the donee. 273 SCRA 47) 34 SUGGESTED ANSWER: The market value of the personal property at the time of the gift shall be considered the amount of the gift. No. but imposing upon the donee the obligation to pay the mortgage liability. 11. How are gifts of personal property to be valued for donor’s tax purposes ?   8. Sec. as in the case B. 3. No. Regs. Sec. et al. (4th par. NIRC of 1997) 6. (Marcos.2-2003) b. 11. This is so because the renunciation was specifically and categorically done in favor of X and identified heir to the exclusion or disadvantage of Y and Z. X. and three minor children. SUGGESTED ANSWER: No. II v.. she renounced her hereditary share in the estate. spouse B. However. a.. Is the renunciation subject to donor’s tax ? Explain. 2-2003) This is so because the general renunciation by B was not specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate.  2. Relative by consanguinity in the collateral line within the fourth degree of relationship. 2-2003) 5. the other co-heirs in the hereditary estate. (4th par. Regs. The general renunciation by an heir. his surviving 7. SUGGESTED ANSWER: My answer would be different. 99 (A). Rev. 11. SUGGESTED ANSWER: . Supposing that instead of a general renunciation. NIRC of 1997] 4. of her share in the hereditary estate left by the decedent is not subject to donor’s tax. Give some donations that are exempt from donor’s tax. Sec.No. [Sec. 88 (B) both of the NIRC of 1997] DONOR’S TAXES  1. the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. would your answer be the same ? Explain. (Sec. What is the donor’s tax rate if the donee is a  stranger ? SUGGESTED ANSWER: When the donee or beneficiary is a stranger. [Sec. in relation to Sec. irrespective of the degree. Regs. Y and Z. What is the valuation of donated real property for donor’s tax purposes ? SUGGESTED ANSWER: The real property shall be appraised at its fair market value as of the time of the gift.” [Sec. 102. Since B does not want to participate in the distribution of the estate.. ancestor and lineal descendant. the appraised value of the real property at the time of the gift shall be whichever is the higher of: a. What is the tax base for donations ? SUGGESTED ANSWER: The net gifts made during the calendar year. B renounced her hereditary share in A’s estate to X who is a special child. Rev. Rev. spouse. then the net gift is measured by deducting from the fair market value of the property the amount of the mortgage assumed. executory and enforceable. 102. Brother. the same can no longer be contested by means of a disguised protest.. or b.  stranger ? a: For purposes of the donor’s tax who is a SUGGESTED ANSWER: A stranger is a is person who is not a. 99 (B). For purposes of the donor’s tax. the tax payable by the donor shall be 30% of the net gifts. Court of Appeals. NIRC of 1997] NOTES AND COMMENTS: All relatives by affinity. the fair market value as determined by the Commissioner of Internal Revenue (zonal valuation) or b. The renunciation in favor of X would be subject to donor’s tax.

NIRC of 1997] made by a resident or non resident. G. Define value-added tax (VAT). Gifts made by residents or non-residents to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit.  A sold to B and P7 million Jaguar for only P4 million. Sec. If he donated the P200. would you issue a tax assessment on the transaction ? Explain your answer briefly. and shall be included in computing the amount of gifts made during the calendar year. its main object is the transaction itself or. That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. Act No. The transaction. Sec. Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by residents who are parents to each of their legitimate.000. What is the nature of VAT ? SUGGESTED ANSWER: Donation or gift splitting is spreading the gift over numerous calendar years in order to avail of lower donor’s taxes. The proper VAT on the sale was paid. or adopted children to the extent of the first ten thousand pesos (P10. The donation by a resident or non-resident of a prize to an athlete in an international sports tournament held abroad and sanctioned by the national sports association is exempt from donor’s tax (Sec.000.00). recognized natural.00 on January 1. then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift. 1. his first cousin.00 in 2008 the first P100. 11. directly liable for its payment. February 11. As such. Seagate Technology (Philippines). religious.. However.000. donating P100. NIRC of 1997. foundation.000. b. Rev. Title IV.00 to Miklos. 153866. Code.9) d. which should have been subject to tax was made by non-resident aliens and took place outside of the Philippines. other than real property that has been subjected to the final capital gains tax. more concretely. however. trust or philanthropic organization or research institution or organization: Provided. (5th par. Regs. 2005 citing various authorities} As an indirect tax on services. R. [Sec. In 2008 Leon was thinking of donating a P200. e. 36.000. Where property. 2009 the transaction would be exempt from donor’s tax. Gifts made by residents or non residents in favor of an educational and/or charitable. cultural or social welfare corporation. Leon would be enjoying the exemption for the first P100. The P200. 101 (A).000. it should be understood not in the context of the person or entity that is primarily. What is the concept of donation or gift splitting 2. institution. Gifts made by non-resident aliens outside of the Philippines to Philippine residents are exempt from donor’s taxes because taxation is basically territorial.000. Political contributions made by a resident or non-resident individual if registered with the COMELEC irrespective of whether donated to a political party or individual. SUGGESTED ANSWER: A tax which is imposed only on the increase in the worth. merit or importance of goods. numbering and arrangement supplied] g.000 would be exempt and the remaining P50. f. The first P100. 10. This is so even if the donation is separated only by two days because the basis is the calendar year.00 net donation during a calendar year is exempt from donor’s tax [Sec. the performance of all kinds of services conducted in the course of trade or business in the .  9. properties or services. No. 35 If Leon spreads the P200. 2-2003) VALUE-ADDED TAXES (VAT)  1. 99 (A). (Corp.00 is the totality of the net gifts for 2008. 7549) c.000 donation over two (2) calendar years.  ? Illustrate.000. [Commissioner of Internal Revenue v. but in terms of its nature as a tax on consumption. is transferred for less than an adequate and full consideration in money or money’s worth. transferee or lessee of the goods. No. and not on the total value of the goods or services being sold or rendered.000. If you are the BIR examiner assigned to review the sale. properties or services.00 would be subject to donor’s tax SUGGESTED ANSWSER: VAT is an indirect tax that may be shifted or passed on to the buyer.00 net gifts for each calendar year.00 on December 30. the Corporation Code prohibits corporations from making political contributions. Rep. or to any political subdivisions of the said Government. SUGGESTED ANSWER: Donor’s taxes would be due on the insufficiency of consideration. 2008 and the remaining P100.a.

The tax base of the VAT is limited only to the value added to such goods. What are the various VAT methods and systems ? SUGGESTED ANSWER: a. R. and not exempt under the Tax Code. properties. or services by the seller.. R. American Express International. 164365. 4. Ermita. ABS-CBN Broadcasting Corporation. The VAT is a tax on consumption. paraphrasing supplied) 6. goods or properties. transferor or lessor. of Internal Revenue v. Further. 153866.R. June 8. inputs and imports. the VAT is an indirect tax and can be passed on to the buyer. 16-2005." For example the services rendered by a local firm to its foreign client are performed or successfully completed upon its sending to a foreign client the drafts and bills it has gathered from service establishments here. an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases. et al. September 1. whether an individual or corporation and whether or not made in the course of his trade or business." Applied to services. Seagate Technology (Philippines).) v. 152609. sells. Seagate Technology (Philippines). 29 June 2005. 168056. 2005 citing various 4. June 29.. barters. the purchase transaction is not exempt. G. the importer. (Philipppine Branch). 1) Sells.  What is the effect on exemptions of VAT being an indirect tax ? Reason out and illustrate your answer. any person who imports goods xxx However. are therefore also consumed in the Philippines. exchanges. G. (Quezon City. These services must be regularly conducted in this country. G. No. It is also levied on every importation of goods whether or not in the course of trade or business. who in the course of trade or business. (Rev. This method relies on invoices. 2005 and companion cases citing Deoferio. The purchaser is subject to VAT because the VAT is merely added as part of the purchase price and not as a tax because the burden is merely shifted. Such facilitation service has no physical existence.Sec. or 2) renders services. No. Explain the meaning of consumption as used under the VAT system. Cost deduction method. No. Regs. 2005) Illustration: A VAT exempt seller sells to a non-VAT exempt purchaser. 2008) 36 goods. February 11.. or any international agreement. G. Who are liable for the value-added tax ? 3. yet takes place upon rendition.Philippines. etc. there can only be a "predetermined end of a course" when determining the service "location or position x x x for legal purposes. barters. the amount of which may be shifted or passed on by the seller to the purchaser of the goods. shall be liable to VAT xxx. American Express G. R. in the Philippines. Jr. 166408. SUGGESTED ANSWER: a. R. properties or services. Its services. No. usually resulting in the performer's release from any past or future liability x x x" Unlike . (Ibid. in the course of his trade or business. et al. No. exchanges or leases goods or properties. 2005 citing various cases and authorities) VAT is a percentage tax imposed on any person whether or not a franchise grantee.) b. V. SUGGESTED ANSWER: Consumption is "the use of a thing in a way that thereby exhausts it. No. The seller is still exempt because it could pass on the burden of paying the tax to the purchaser. Give an example. leases. but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers. and b. R. Any person who. 153866. No. G.C. in the case of importation of taxable goods. services cannot be physically used in or bound for a specific place when their destination is determined. [Commissioner of Internal Revenue v.. [Commissioner of Internal Revenue v. REASON: The VAT is a tax on consumption. This is a single-stage tax which is payable only by the original sellers. No. 2007]  5. 462 SCRA 197 cited in Commissioner of Internal Revenue v. A. V. October 6. and therefore upon consumption. R. renders services.” for a valuable consideration. having been performed in the Philippines. Placer Dome Technical Services (Phils. undertaken in “pursuit of a commercial or an economic activity. other special laws. the term means the performance or "successful completion of a contractual duty. 152609. Inc. and Mamalateo. v.105-1. [Abakada Guro Party List (etc.). [Commissioner of Internal Revenue v. SUGGESTED ANSWER: If a special law merely exempts a party as a seller from its direct liability for payment of the VAT. The Value Added Tax in the Philippines (First Edition 2000)] This was subsequently modified and a mixture of “cost deduction method” and “tax credit method” was used to determine the valueadded tax payable. Tax credit method. (Commissioner. Inc. G. Instead. February 11.

cases and authorities; Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases) If at the end of a taxable period, 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. Should the input taxes result from zero-rated or effectively zero-rated transactions or from acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. [Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11, 2005 citing various cases and authorities]

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SUGGESTED ANSWER: Yes because it is a mere creation of law. Prior to the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable from the taxes payable. With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can limit. It should be stressed that a person has no vested right in statutory privileges. (ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207, October 15, 2005, and companion cases, on the motion for reconsideration)

7. The VAT being imposed on the increase in worth merit or improvement of the goods or services. How is this done ?
SUGGESTED ANSWER: The VAT utilizes the concept of the output and input taxes.

12. What is the concept of transitional input tax credits on beginning inventories ?
SUGGESTED ANSWER: Taxpayers who become VATregistered persons upon exceeding the minimum turnover of P1,500,000.00 in any 12-month period, or who voluntarily register even if their turnover does not exceed P1,500,000.00 (except franchise grantees of radio and television broadcasting whose threshold is P10,000,000.00) shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration, on the following: a. goods purchased for resale in their present condition; b. materials purchased for further processing, but which have not yet undergone processing; c. goods which have been manufactured by the taxpayer; d. goods in process for sale; or e. goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person. [Rev. Regs. No. 16-2005, Sec.4.111-1, (a), 1st par., arrangement and numbering supplied]

8.

Define output tax.

SUGGESTED ANSWER: The value-added tax due on the sale or lease or taxable goods, properties or services by any VATregistered person.

9.

Define input tax.

SUGGESTED ANSWER: The VAT due on or paid by a VATregistered person on importation of good or local purchases of goods or services, including lease or use of properties, in the course of his trade or business. (Rev. Regs. No. 4.110-1, 1st par.)

10.

What are included in the input tax.

SUGGESTED ANSWER: It shall also include: a. the transitional input tax and b. the presumptive input tax xxx. It includes c. input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. (Rev. Regs. No. 4.110-1, 1st par., 2nd sentence,. And 2nd par., paraphrasing, arrangement and numbering supplied )

14. credits ?

What is the concept of presumptive input tax

11. May the right to credit the input tax be limited by legislation ?

SUGGESTED ANSWER: Persons or firms engaged in the processing of sardines, mackerel, and milk, and in manufacturing refined sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.

As used in this paragraph, the term processing shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. [Rev. Regs. No. 16-2005, Sec.4.111-1, (b)]

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15. Does the VAT registration fee violate religious freedom ?
SUGGESTED ANSWSER: The VAT registration fee imposed on non-VAT enterprises which includes among others, religious sects which sells and distributes religious literature is not violative of religious freedom, although a fixed amount is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. The registration fee is thus more of an administrative fee, one not imposed on the exercise of a privilege, much less a constitutional right. (Tolentino v. Secretary of Finance, et al., and companion cases, 235 SCRA 630)

16.  Explain the proper interpretation of the term “In the Course of Trade or Business. SUGGESTED ANSWSER: VAT is not a singularminded tax on every transactional level. Its assessment bears direct relevance to the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business. (Commissioner of Internal Revenue v. Magsaysay Lines, Inc., et al., G. R. No. 146984, July 28, 2006)

the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels. The vessels were constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC. The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels." Magsaysay Lines, Inc., offered to buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong . The bid was approved by the Committee on Privatization, and a Notice of Award was issued to Magsaysay Lines. Is the sale subject to VAT ?
SUGGESTED ANSWER: No. The sale is not subject to VAT. In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the term "carrying on business" does not mean the performance of a single disconnected act, but means conducting, prosecuting and continuing business by performing progressively all the acts normally incident thereof; while "doing business" conveys the idea of business being done, not from time to time, but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p. 608-9 (1988)]. "Course of business" is what is usually done in the management of trade or business. [Idmi v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)]. What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing business" connotes regularity of activity. In the instant case, the sale was an isolated transaction. The sale which was involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property. (Commissioner of Internal Revenue v. Magsaysay Lines, Inc., et al., G. R. No. 146984, July 28, 2006)

16-A. Pursuant to a government program of privatization, NDC, a VAT-registered entity created for the purpose of selling real property, decided to sell to private enterprise all of its shares in its wholly-owned subsidiary

Under the Value Added Tax (VAT), the tax is imposed on sales, barter, or exchange or goods and services. The VAT is also imposed on certain transactions “deemed sales.” What are these so-called transactions “deemed sales “ ?
SUGGESTED ANSWER: a. Transfer, use or consumption not in the course of business or properties originally intended for sale or for use in the course of business. xxx Distribution or transfer to: 1) Shareholders or investors as share in the profits of the VAT- registered person; xxx or 2) Creditors in payment of debt or obligation c. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned. Consigned goods returned by the consignee within the 60-day period are not deemed sold. d. Retirement from or cessation of business, with respect to all goods on hand, 1) whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement, or cessation, 2) whether or not the business is continued by the new owner or successor. xxx [Rev. Regs. No. 16-2005, Sec. 4.106-7, paraphrasing, arrangement and numbering supplied] b.

17. 

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business of the seller shall be subject to VAT. (Rev. Regs. No. 162005, Sec. 4.106-3, 1st par.) Thus, capital transactions of individuals are not subject to VAT. Only real estate dealers are subject to VAT.

20. On Jan. 10, 2008, X, a domestic corporation engaged in the real estate business, sold a building for P10,000,000.00. Is the sale subject to the value-added tax (VAT)? If so, how much? Explain.
SUGGESTED ANSWER: Yes. 12% on the gross selling price because the sale was made in the ordinary course of trade of business of X, a domestic corporation engaged in the real estate business.

21. VAT ?

What sale of real property exempt from

18. What transactions considered retirement or cessation of business “deemed sale” subject to VAT ?
SUGGESTED ANSWER: a. Change of ownership of the business. There is change in the ownership of the business where a single proprietorship incorporates; or 1) the proprietor of a single proprietorship sells his entire business. b. Dissolution of a partnership and creation of a new partnership which takes over the business. [Rev. Regs. No. 162005, Sec. 4.106-7 (a), (4) paraphrasing, arrangement and numbering supplied]

19. to VAT ?

What sale of or lease of real properties subject

SUGGESTED ANSWER: Sale of real properties primarily for sale to customers or held for lease in the ordinary course of trade or

SUGGESTED ANSWER: The following sales of real properties are exempt from VAT, namely: a. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business; b. Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known as the “Urban and Development Housing Act of 1992” and other related laws, such as RA No. 7835 and RA No. 8763. xxx xxx xxx c. Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. xxx xxx xxx d. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot and other residential dwellings valued at Two Million Give Hundred Thousand Pesos (P2,500,000.00) and below where the instrument of sale/transfer/disposition was executed on or after November 1, 2005, provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO); provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year. If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the

aggregate value of the lots do not exceed P1,500,000.00. Adjacent residential lots, although covered by separate titles and/or separate tax declarations, when sold or disposed of to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot. [Rev. Regs. No. 4.109-1 (B), (p), paraphrasing and numbering supplied]

40

22. What is the VAT on services and lease of properties ?
SUGGESTED ANSWER: a. There shall be levied, assessed, and collected, b. a value-added tax equivalent to ten percent (10%) of gross receipts c. derived from the sale or exchange of services, 1) including the use or lease of properties. d. Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: 1) Value-added tax collection as a percentage of Gross Domestic product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or 2) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). [NIRC of 1997, Sec. 108 (A), as amended by R.A. No. 9337, arrangement and numbering supplied]

j. lending investors; k. transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; l. common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; m. sales of electricity by generation companies, transmission, and/or distribution companies; n. franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities; o. non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and p. similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. [NIRC of 1997, Sec. 108 (A), as amended by R.A. No. 9337; Rev. Regs. No. 16-2005, Sec. 4,108-2, 1st par., arrangement and numbering supplied]

23. “Sale or exchange of services”, defined.
The term “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, whether in kind or in cash, including those performed or rendered by the following: a. construction and service contractors; b. stock, real estate, commercial, customs and immigration brokers; c. lessors of property, whether personal or real; d. persons engaged in warehousing services e. lessors or distributors of cinematographic films; f. persons engaged in milling, processing, manufacturing or repacking goods for others; g. proprietors, operators or keepers of hotels, motels, rest-houses, pension houses, inns, resorts; theaters, and movie houses; h. proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; i. dealers in securities;

24. X Corporation rendered technical services through its “work engineers” to PNB and SSS in the construction of their buildings. The “work engineers” acted as overseers of X Corporation, rendering their professional services as employees of X corporation. Should X Corporation be subjected to VAT or should it be subjected to tax on the professional services of those employees themselves? Decide the case with reason.
SUGGESTED ANSWER: X Corporation is subject to VAT.

25. Also included in the phrase “sale or exchange of services.
a. The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; b. The lease or the use of, or the right to use any industrial, commercial or scientific equipment;

However. television. January 17.  VAT ? What is the destination principle the set at zero. ed. Regs. R. Regs. The seller of such transactions charges no output tax. The Fundamentals of Taxation (12th ed. No. 1st par. satellite transmission and cable television time. p. The supply of technical advice. February 11. Regulations No. Jr. 895. (Rev. h. "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP].) p. d. the input tax on the purchases of goods. 16-2005. supra citing De Leon. such rate obviously results in no tax chargeable against the purchaser. while imports are taxed. Black’s Law Dictionary (8th ed. v. 2nd par. 33].. Jr. 1999). or right as is mentioned in subparagraph (2) hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof. Situs of taxation of zero-rated VAT services such as facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines. R. R. American Express International. 2005] Under a zero-rating scheme. because the seller is entitled to recover. p. technical.) 27. properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev. This is so because the law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. The lease of motion picture films.  Concept of VAT zero-rating. 2005 citing various cases) SUGGESTED ANSWER: As a general rule. The tax rate is 29. per Malcolm. 93] Performed in the Philippines. When applied to the tax base. supra citing Garner (ed. 900. The place where the service is rendered determines the jurisdiction (Commissioner of Internal Revenue v. and Mamalateo. but can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. much less is the place where the output of the service will be further or ultimately used. No. and Mamalateo. A zero-rated sale of goods or properties by a sale by a VATregistered person is a taxable transaction for VAT purposes but the sale does not result in any output tax. Goods and services are taxed only in the country where they are consumed. or the installation or operation of any brand. film tapes and discs. (Philippine Branch). Collector of Internal Revenue. The Value Added Tax in the Philippines (2000). p. industrial or commercial knowledge or information.” Manila Gas Corp. exports are zero-rated. (Rev.  principle ? Is there any exception to the destination SUGGESTED ANSWER: Yes. supra citing Deoferio. The Value Added Tax in the Philippines (2000). 152609. The tax paid or withheld is not deducted from the tax base. of Internal Revenue v. Inc. the sale or exchange of a particular service is completely freed from the VAT.c. assistance or services rendered in connection with technical management or administration of any scientific. supra citing Deoferio. The Law on Taxation (1966 rev.) to impose the VAT [Commissioner. American Express International. (Commissioner." . for the State necessarily has to have a “substantial connection” [Commissioner. The supply of scientific. No. G. g. the tax that is included in the cost of purchases attributable to the sale or exchange. 62 Phil.) 41 28. The law clearly provides for an exception to the destination principle. Sec. 1936. [Commissioner of Internal Revenue v. p. Inc. The lease or the use of or the right to use radio. 4. (Commissioner. industrial or commercial undertaking. No. (Philipppine Branch). June 29.  Zero-rated Sales of Goods or Properties .108-2. 3] The place of payment is immaterial [Commissioner. 2005 citing “[N]o state may tax anything not within its jurisdiction without violating the due process clause of the [C]constitution. G. 93]. that is. for a zero percent VAT rate for services that are performed in the Philippines. machinery or other apparatus purchased from such non-resident person. 1998). supra citing Alejandro. 152609. Seagate Technology (Philippines). or e. No. 30. 153866. June 29. project of scheme. f. the service is necessarily subject to its jurisdiction [Commissioner. J. by way of a refund or as an input tax credit. The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to. venture. 16-2005. 1503] to it in order to enforce a zero rate. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property. in chief). supra) 26. the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. [Commissioner. Thus. 16-2005.. G.

Regs. Zero rating is primarily intended to be enjoyed by the seller.. [Commissioner of Internal Revenue v. considered export-sale. Persons engaged in transactions which are zero rated being subject to VAT are required to register WHILE registration is optional for VAT-exempt persons. Hence. 149671. the input tax on purchases of goods. 16-2005. Sec. it is deemed a separate customs territory and is regarded in law as foreign soil. industrial. August 9. Toshiba Information Equipment (Phils. 16-2005. 2005) 35. b. 153204. defined. G. as follows: a. words in italics supplied) 33. b..  Service performed by American Express in facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines in behalf of its Hong-Kong based client is subject to VAT but zero-rated.The Philippine VAT system adheres to the Cross Border Doctrine. 150154. However. 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. No. Sec. hence. No. banking. A zero-rated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes. 2005] The “Cross Border Doctrine” is also known as the destination principle. The input tax on the purchases of a VAT registered person who has zero-rated sales may be allowed as tax credits or refunded WHILE the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt. Export sales. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. July 21. Sec.). 38. those destined for use or consumption within the Philippines shall be imposed the twelve percent (12%) VAT. Manila Mining Corporation. but shall not result in any output tax. according to which. while. . As export sales. (Commissioner of Internal Revenue v.106-5. paraphrasing supplied) 34. 42 (Commissioner of Internal Revenue v. No. free trade zones and tourist/recreational centers. tourist. A zero-rated sale is a taxable transaction but does not result in an output tax WHILE an exempt transaction is not subject to the output tax.. 2006 citing various authorities) 32. No. Sales to persons or entities demed tax-exempt under special law or international agreement. No. August 9. 224. 2nd par. Sales to ecozone. commercial. Rationale for zero-rating of exports. Inc. actual or constructive export of goods and services from the Philippines to a foreign country must be zero-rated for VAT. Toshiba Information Equipment (Phils. R.. investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. No. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory. Inc. It regularly renders in the Philippines the service of facilitating the collection and payment of receivables belonging to a foreign company that is a clearly separate and distinct entity.108-5 (a). G. G. G. 150154. Regs. “Ecozone”. the sale of gold to the Central Bank is zero-rated. Sekisui Jushi Philippines. (Rev. These sales are zero-rated or subject to a tax rate of zero percent. [Rev. No. Inc. Notably. 4. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: a. such as PEZA. Sale of gold to the Central Bank considered as export sales .  Zero-rated exempt transactions: sale distinguished from a. [Commissioner of Internal Revenue v. An ECOZONE may contain any or all of the following: industrial estates (IEs). which charges no output VAT but can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers. Foreign currency denominated sale. recreational. Zero-rated sale of service. defined. 4. An ECOZONE or a Special Economic Zone has been described as – [S]elected areas with highly developed or which have the potential to be developed into agro-industrial. This is so because it meets all the requirements for VAT imposition.R. Regs. R. R. 16-2005. export processing zones (EPZs).. Considered export sales under Executive Order No. 31. no tax is chargeable to it as purchaser. and d. c. while an ecozone is geographically within the Philippines. c. 36. 2005] 37. Zero-rated sales by VAT-registered persons. properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev..). August 31.

Burmeister and Wain Scandinavian Contractor Mindanao. For this service. BWSCMI applied for a refund of the output VAT it paid. it filed the proper VAT returns showing zero rating. The BIR could not change the law. 1995 ruling the BIR declared that BWSCMI may choose to register as a VAT persons subject to VAT at zero rate.  A foreign Consortium composed of BWSC-Denmark. On December 29. Regs. June 29. It is paid for in acceptable foreign currency of the Bangko Sentral ng Pilipinas. On January 7. The services are performed or successfully completed upon send to its foreign clients the drafts and bills it has gathered from service establishments here. it definitely receives consideration in foreign currency that is accounted for in conformity with law. 152609. BWSCMI paid 10% output VAT for the period April-December 1996. and Misui and Co. No. and c. BWSCMI was established as the subcontractor to perform the actual work in the Philippines. (Commissioner of Internal Revenue v. However. and BIR Revenue Regulations that alter the legal requirements for zero-rating are ultra vires and invalid. (Commissioner. June 29. G. d. Inc. among which are the following: a. American Express International. 1996. 2005) acceptable foreign exchange and accounted for in accordance with the rules and regulations of the BSP. for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in accordance with BSP rules . R. SUGGESTED ANSWER: Yes. fortuitous. (Commissioner. (Philipppine Branch). BWSCMI is not zero rated and is subject to the 10% VAT. The services are within the categories provided for under the Tax Code. Burmeister and Wain Scandinavian Contractor Mindanao. (Philipppine Branch). Inc. It is rendering service for the Consortium which is not doing business in the Philippines. of Internal Revenue v. 153205. G. R. The service is performed in the Philippines. (Hongkong Branch)]. Inc. on a significant scale with a reasonable degree of frequency. American Express International. Ltd. BWSCMI provides services to the Consortium which by virtue of its contract with NAPOCOR is doing business within the Philippines. It is not an entity exempt under any of our laws or international agreements. a. The VAT system uses the destination principle which posits that the goods and services are taxed only in the country where they are consumed. While the service performed by American Express is subject to VAT it is zero-rated. BWSCMI was able to obtain a Ruling from the BIR reconfirming that it is subject to VAT at zero-rating. Do not confuse the BWSCMI case with the American Express case. January 22. Thus. No. (Philippine Branch)] is a VAT-registered person that facilitates the collection and payment of receivables belonging to its non-resident foreign client [American Express International. 2007) b. 1997. Mitsui Engineering and Shipbuilding Ltd. R. b. Through a February 14.. American Express International. Is BWSCMI subject to the 10% VAT or is it zero rated ? SUGGESTED ANSWER: Yes. Inc. carried on over a sustained period of time.. American Express renders assistance to its foreign clients by receiving the bills of service establishments located in the country and forwarding them to their clients abroad. The Consortium paid BWSCMI in NOTES AND COMMENTS: a. and not at random. (Commissioner of Internal Revenue v. 5-96. through the Voluntary Assessment Program (VAP). its services are exempt from the destination principle and are zero-rated. 152609. supra) 40. of Internal Revenue v. 1999. Zerorating finds application only where the recipient of the services are other persons doing business outside of the Philippines. or attenuated. For 1996. Inc. having been performed in the Philippines are therefore also consumed in the Philippines. Could it obtain a refund of the VAT it paid through the VAP ? Explain. believing that it is covered by Rev.. Inc. Its services. dated February 20. c. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the non-retroactivity of the prejudicial revocation of the BIR Rulings which held that it’s services are subject to 0% VAT and which BWSCMI invoked in applying for refund of the output VAT. G. which entered into a contract with NAPOCOR for the operation and maintenance of two power barges appointed BWSCDenmark as its coordination manager.b.. the law itself provides for clear exceptions under which the supply of services shall be zero-rated. No. Such service is commercial in nature. 2005) 43 39. On this basis..

That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines. prawns. What transactions are from VAT ? SUGGESTED ANSWER: (Subject to the election by a VATregistered person not to be subject to the value-added tax). raw cane sugar and molasses.). roasting. a. [Rev. fish. a special law or an international agreement to which the Philippines is a signatory. on the other hand. including those using advanced technological means of packaging. and other similar packaging methods. An exempt transaction shall not be the subject of any billing for output VAT but it shall not also be allowed any input tax credits WHILE an exempt party being zero-rated is allowed to claim input tax credits. race horses. Sugar whose content of sucrose by weight. VAT-exempt transactions distinguished from VAT-exempt entities. zoo animals and other animals generally considered as pets. The person making the exempt sale of goods. trout. and verified by the Sugar Regulatory Administration. seedlings and fingerlings. vacuum packing. Bagasse is not included in the exemption provided for under this section. Meat. such as. sheep. fighting cocks. fighting cocks. or yielding or producing foods for human consumption.not subject to VAT (output tax) and 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. January 22. R. VAT-Exempt transactions. and personal household effects (except any vehicle. goats and rabbits. vessel. 43. Sec. identifies the same to be of a polarimeter reading of 99. livestock and poultry of a kind generally used as. is a person or entity granted VAT exemption under the Tax Code. The sale of goods or properties and/or services and the use or lease of properties that is b.5o and above. drying. defined. ducks. tetra-pack. and by virtue of which its taxable transactions become exempt from VAT. No. has a polarimeter reading of 99. Inc. wearing apparel. (Commissioner of Internal Revenue v.and regulations. zoo animals and other animals generally considered as pets). fruit. Regs. [Commissioner of Internal Revenue v. seeds.. a. R. mussels and clams. prawn. bulls and calves. domestic animals. such as freezing. No. “Specialty feeds” refers to non-agricultural feeds or food for race horses.5o and above. ordinary salt. properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. in the dry state. Livestock shall include cows.109-1 (A). aquarium fish. Inc. lobster. including ingredients. pigs. 2005] b. livestock and poultry feeds. eels. machinery. on the one hand. used in the manufacture of finished feeds (except specialty feeds for race horses. G. vegetables and other agricultural and marine food 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. without regard to the tax status – VAT-exempt or not – of the party to the transaction. (B) Sale or importation of fertilizers. aquarium fish. Marine food products shall include fish and crustaceans. broiling. 2007) 44 41.5o and above are presumed to be refined sugar. 150154. whether locally produced or imported. Polished and/or husked rice. Burmeister and Wain Scandinavian Contractor Mindanao. zoo animals and other animals generally considered as pets. involves goods or services which. other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the . 4. or (3) product of a production line of a sugar mill accredited by the BIR to be producing sugar with polarimeter reading of 99. are specifically listed in and expressly exempted from the VAT under the Tax Code. Toshiba Information Equipment (Phils. smoking or stripping. Cane sugar produced from the following shall be presumed. Livestock or poultry does not include fighting cocks. and copra shall be considered in their original state. the seller is not allowed any tax credit on VAT (input tax) purchases.. to be refined sugar: (1) product of a refining process. but not limited to. An exempt transaction. such as shrink wrapping in plastics. oysters. corn grits. G. aircraft. fish. An exempt party. 153205. geese and turkey. and breeding stock and genetic materials therefor. and for which the quedanissued therefor. (2) products of a sugar refinery. No. the following shall be exempt from VAT: (A) Sale or importation of agricultural and marine food products in their original state. Poultry shall include fowls. by their nature. salting. 16-2005. (D) Importation of professional instruments and implements. shrimps. August 9. arrangement and numbering supplied] 42. for internal revenue purposes.

marine or miscellaneous insurance agents of foreign insurance companies. livestock or other agricultural and marine food products in their original state. including spare parts thereof. (G) Medical. (J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory. 109 (1) of the Tax Code. 119) (5) Service rendered for overseas dispatch message or conversation originating from the Philippines. other than the transactions mentioned in paragraphs (A) to (U) of Sec. lessees or operators of cockpits. “Educational services” shall refer to academic. 529 – Petroleum Exploration Concessionaires under the Petroleum Act of 1949. (Sec. accompanying such persons. and (9) Receipts on sale. (E) Services subject to percentage tax under Title V of the Tax Code. (Sec. and. review classes and other similar services rendered by persons who are not accredited by the DepED. 116. for their own use and not for sale. dental. as enumerated below: (1) Sale or lease of goods or properties or the performance of services of non-VAT-registered persons. non-electric and non-credit cooperatives duly registered with the Cooperative Development . barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering. Tax Code) (2) Services rendered by domestic common carriers by land for the transport of passengers and keepers of garages.500. (H) Educational services rendered by private educational institutions. (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. If the hospital or clinic operates a pharmacy or drug store. (Sec. That not later than January 31. the CHED and TESDA and those rendered by government educational institutions and it does not include seminars. to non-members. subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines. 120) (6) Services rendered by any person. (Sc. corn into grits and sugar cane into raw sugar. (Sec. the Technical Education And Skills Development Authority (TESDA) and those rendered by government educational institutions. (Sec. their importation of direct farm inputs. 124) (8) Services of proprietors.00) and by franchises of gas and water utilities. in-service training.000. 2009 and every three (3) years thereafter. (Sec.000. 127) 45 (F) Services by agricultural contract growers and milling for others of palay into rice. duly accredited by the Department of Education (DEPED). upon the production of evidence satisfactory to the Commissioner of Internal Revenue. 117) (3) Services rendered by international air/shipping carriers. night or day clubs. (M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the Cooperative Development Authority. (I) Services rendered by individuals pursuant to an employer-employee relationship. communications and coordinating centers for their affiliates. (Sec. to be used directly and exclusively in the production and/or processing of their produce. the sale of drugs and medicine is subject to VAT. the Commission on Higher Education (CHED). as published by the National Statistics Office (NSO).000. that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide. the annual sales and/or receipts of which does not exceed the amount of One Million Five Hundred thousand Pesos (P1. cabarets. 123) (7) Services rendered by fire. (L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members as well as sale of their produce.00). jai-Alai and race tracks. (N) Sales by non-agricultural. company or corporation (except purely cooperative companies or associations ) doing life insurance business of any sort in the Philippines. the CHED and/or the TESDA. or arriving within ninety (90) days before or after their arrival. whether in its original state or processed form. (Sec. Laboratory services are exempted. except those under Presidential Decree No. 118) (4) Service rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10.Philippines. barter or exchange. boxing exhibitions professional basketball games. Provided. “Agricultural contract growers” refers to those persons producing for others poultry. the amount herein stated shall be adjusted to its present value using the Consumer Price Index. hospital and veterinary services except those rendered by professionals. 125). technical or vocational education provided by private educational institutions duly accredited by the DepED. machineries and equipment.

also derives revenue from other lines of business which are otherwise subject to VAT. No.500. Sec. However. That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15. 2009 and every three (3) years thereafter. and other related laws. (S) Sale. 7835 and RA No. words in italics from Rev. Provided. aside from the practice ofhis profession. Is the importation of books and magazines subject to the 10% VAT? Explain. including spare parts thereof. (O) Export sales by persons who are not VAT-registered. SUGGESTED ANSWER: No. and (V)  Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs. 2009 and every three (3) years thereafter. 45. printing or publication of books and any newspaper. review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements. if a profesional. Provided. That not later than January 31. otherwise known as the Urban Development and Housing Act of 1992. (R) Sale. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO). Regs. 7279. the VAT-exempt sales shall to be icluded in determining the threshold. No. house and lot. magazine. [NIRC of 1997.Authority: Provided. as amended by R. the age limit is five (5) years old.000. Provided. goods and supplies shall be subject to 10% VAT (now 12%). the age limit is fifteen years (15) years old. Sale. .000) Provided. For purposes of the threshold of P1. as published by the National Statistics Office (NSO). non-bank financial intermediaries performing quasi-banking functions. 4. the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1. equipment and spare parts thereof for domestic or international transport operations. Importation by non-agricultural. A. to be used by them are subject to VAT. (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO). printing or publication of books and any newspaper. goods or supplies is used for purposes other than that mentioned in this paragraph. That not later than January 31. importation or lease of passenger or cargo vessels and aircraft. (U) Services of banks. finally. X is engaged in the importation and sale of books and magazines. importation. goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines. and (iii) For high-speed passenger cars.500. residential lot valued at One million five hundred thousand pesos (P 1.00.” 46 (T) Importation of fuel. For instance. including engine. That not later than January 31. words in parentheses supplied] 44.000): Provided. and other non-bank financial intermediaries. including engine and spare parts of said vessels. 8765. that the said fuel. 9337. magazine. further. as follows: (i) for passenger and/or cargo vessels.000) and below.000) and regardless of the aggregate capital and net surplus ratably distributed among the members. that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of one hundred fifty (150) tons and above. the age limit is ten (10) years old. (ii) for tankers. that exemption shall be subject to the provisions of section 4 of Republic Act No. (Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P 10. such portion of fuel. the amounts herein stated shall be adjusted to their present values using the Consumer Price Index. that the vessels be imported shall comply with the age limit requirement. or real property utilized for low-cost and socialized housing as defined by Republic Act No. non-electric and non-credit cooperatives of machineries and equipment. Provided. the same shall be combined for purposes of determining whether the threshold has been exceeded. and other residential dwellings valued at Two million five hundred thousand pesos (P 2. further.500. goods and supplies by persons engaged in international shipping or air transport operations. the aggregation rule for each taxpayer shall apply.000) and below: Provided.500. such as RA No. Thus. the husband and wife shall be cnsidered separate taxpayers. 16-2005. Is there any tax to be paid by persons exempt from VAT ? SUGGESTED ANSWER: Yes. 109 (1). that if any portion of such fuel. otherwise known as “The Domestic Shipping Development Act of 2004. 2009 and every three (3) years thereafter. provided. at the time of acquisition counted from the date of the vessel’s original commissioning. importation. 9295. Sec. review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements.109-1 (B).

(Rev. b. A corporation files its income tax return and pays its income tax four (4) times during a single taxable year. An individual who is not required to file an income tax return may nevertheless be required to file an information return. salaries. Thus. Quarterly returns are required to be filed for the first three quarters. 16-2005. but where it is impracticable for the spouses to file one return. Provided. That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return: Provided. 4. NIRC of 1997] 6. arrangement. and d. b. That an individual whose pure compensation income derived from sources within the Philippines exceeds Sixty thousand pesos (P60. the taxpayer does not have to raise large sums of money in order to pay the tax. It also eases hardships on the part of individuals who are required to make this four time return. Individuals who are not required to file an income tax return. until controverted by competent evidence. 9504 are not incouded. are competent evidence. NIRC of 1997] 4. but not limited to fees.000. on a quarterly basis thereby increasing government liquidity. Act No. that cooperatives shall be exempt from the three (3%) gross receipts tax herein imposed. Regs. [Sec.. An individual who is exempt from income tax pursuant to the provisions of the NIRC of 1997. c. (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs. Every alien residing in the Philippines on income derived from sources within the Philippines. The purpose of the above four (4) times a year requirement is to make available sufficient funds to meet the budgetary requirements. Provided. Every Filipino citizen residing outside the Philippines on his income from sources within the Philippines. An individual earning from the practice of his profession or who engages in trade or business files his income tax return and pays his income tax four (4) times during a single taxable year. No. 51 (A) (1). the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO). Income tax returns being public documents. (Ropali Trading v.500.000): Provided. each spouse may file a separate return of income but the returns so filed shall be consolidated by the Bureau for purposes of verification. Individuals required to file an income tax return. Sec. 51 (A) (2). 317) 2. a. further. 296 SCRA 309. general or special.” [Section 51 (D) of the NIRC of 1997] 3. NLRC. be it calendar or fiscal. and other laws. from the payment of VAT and b. c.a. who do not derive income purely from compensation shall file a return for the taxable year to include the income of both spouses. shall also file an income tax return. An individual whose sole income has been subject to final withholding tax.00). 5. and similar items. who is not a VAT-registered person c. resident or non-resident aliens. whose sales or receipts are exempt under Sec. 109 (1) (V) of the Tax Code. An individual with respect to pure compensation income for services in whatever form paid. [Sec. NIRC of 1997] NOTES AND COMMENTS: Amendments under Rep. whether citizens. commissions. 8. then a final adjustment return is filed covering the total taxable income for the whole taxable year. That not later than January 31. 2009 and every three (3) years thereafter. An individual whose gross income does not exceed his total personal and additional exemptions for dependents. “Married individuals. then an annual income tax return is filed covering the total taxable income for the whole of the previous calendar year. That a citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippines shall file an income tax return regardless of the amount of gross income. the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1. . [Sec. 51 (A) (3). a. including. the income tax on which has been correctly withheld. Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines. et al. d. Every Filipino citizen residing in the Philippines. wages. shall pay a tax equivalent to three percent (3%) of his gross monthly sales or receipts. numbering and words in italics supplied) 47 RETURNS AND WITHHOLDING 1. Quarterly returns are required to be filed for the first three quarters.116-1. 7. Provided. derived from sources within the Philippines. are prima facie correct with respect to the entries therein. Any person.

The payee is not required to file an income tax return for the particular income.5. Regs.. Sec. Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income due from the payee on the said income. 11. 16. 2-98] 15. Court of Appeals. Under the withholding tax system. The income recipient is still required to file an income tax return and/or pay the difference between the tax withheld and the tax due on the income. “A’ erroneously withheld the amount of 15% from the selling price of books authored by “W” when the correct rate should have been 10% only. Regs. the withholding agent is not a taxpayer because he is made to pay the tax where he fails to withhold as a penalty and not that the tax is due from him. 118498 & 124377. 108576. The two kinds of creditable withholding taxes are (a) taxes withheld on income payments covered by the expanded withholding tax. [1st sentence. (Commissioner of Internal Revenue v. or municipal governments. 2) Corporations registered with the Board of Investments and enjoying exemptions from income under the Omnibus Investment Code of 1997. National Government and its instrumentalities including provincial. in case of his failure to withhold the tax or in case of under withholding. Sec. Under the creditable withholding tax system. taxes imposed or prescribed by the NIRC of 1997 are to be deducted and withheld by the payors from payments made to payees for the former to pay directly to the Bureau of Internal Revenue. of the Tax Code. like the SSS. A withholding agent is explicitly made personally liable under the Tax Code for the payment of the tax required to be withheld. No. January 20. 2-98) 17. Regs. 2. the deficiency tax shall be collected from the payor withholding agent. May “A” properly apply for the refund ? Explain. 14. However.. taxes withheld on certain income payments are intended to equal or at least approximate the tax due from the payee on the said income. 1st par.. 30. the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. [1st and 2nd sentences. et al. general or special. such as but not limited to the following: 1) Sales of real property by a corporation which is registered with and certified by the HLURB or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180. city. 1999) The system facilitates tax collection. 383-386).48 9. No. It is also known as collection of the tax at source. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law. No. NOTES AND COMMENTS: a. INTERESTS AND SURCHARGES .00 in Metro Manila and other highly urbanized areas and P150. the Anscor case) PENALTIES.000.R.00 in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB. in order to compel the withholding agent to withhold the tax under any and all circumstances. 10. Procter & Gamble Philippine Manufacturing Corporation.57 (A). An individual earning purely compensation income files only one annual income tax return covering the total taxable compensation income for the whole of the previous calendar year. (Sec. 57. et al. and 2) creditable withholding tax. GSIS. (Filipinas Synthetic Fiber Corporation v. b. etc. Rev. 12. the withholding agent is a taxpayer because if he does not pay the tax shall be collected from him. For tax amnesty purposes. Nos. 204 SCRA 377. In effect. G. 257(B). 13. No. and (b) taxes withheld on compensation income. The two (2) types of withholding at source are the 1) final withholding tax. G.000.R. SUGGESTED ANSWER: Yes. the PCSO.. “A” applied for a refund of the excess withholding of 5%. Rev. income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subject to a withholding tax. In applications for refund. Thus. 3) Corporations exempt from income tax under Sec. Payments to the following are exempt from the requirement of withholding or when no withholding taxes required: a. October 12. 1999. (Commissioner of Internal Revenue v. Since “W” is out of the country. 298] The liability for payment of the tax rests primarily on the payor or the withholding agent. Court of Appeals. Rev.

The Court of Tax Appeals is the special tax court created under Republic Act No. Deficiency interest. 56 (B) (1). 248 (A). [Sec. July 27. The interest assessed and collected on the unpaid amount until fully paid where there is failure on the part of the taxpayer to pay the amount die on any return required to be filed. in view of the backlog of civil. [Sec. Inc. SUGGESTED ANSWER: Deficiency income tax is the amount by which the tax imposed under the NIRC of 1997 exceeds the amount shown as the tax due by the taxpayer upon his return. Lhuillier Pawnshop. Delinquency interest. Commissioner of Internal Revenue. in the same manner. To have a body with special knowledge which ordinary Judges of the then Courts of First Instance (now RTCs). R. 249 (A) (B). No. v. Define deficiency income tax. the taxpayer not invokes good faith with the BIR countering by saying that good faith is not a valid defense for violation of a special law. and cadastral cases accumulating in the dockets of such courts. G. [Sec. (Michel J. et al. 101 Phil. et al. or any surcharge or interest thereon. NIRC of 1997] 5. and b. The intention of the law is to discourage delay in the payment of taxes due to the State and in this sense the surcharge and interest charged are not penal but compensatory in nature – they are compensation to the State for the delay in payment.. [Sec. or the amount of the tax due for which no return is required. 1125. the 25% surcharge for late filing or late payment [Sec. To prevent delay in the disposition of tax cases by the then Courts of First Instance (now RTCs).249 (c). Compromise penalty... 137002.. also known as the civil penalties. 1125. 209. Was it proper to impose delinquency interest despite the reduction of the assessment ? Why ? SUGGESTED ANSWER: Yes. are sufficient justification to delete the imposition of surcharges. The amount agreed upon between the taxpayer and the Government to be paid as a penalty in cases of a compromise.248 (A). defined. Commissioner of Internal Revenue. CREATING THE COURT OF TAX APPEALS INCLUDING JURISDICTION OF THE CTA. The interest assessed and collected on any unpaid amount of tax at the rate of 20% per annum or such higher rate as may be prescribed by regulations. 8. They are in the nature of penalties and shall be collected at the same time. 2. (Bank of the Philippine Islands v. [Sec. G. from the date prescribed for payment until the amount is fully paid. thus providing for an adequate remedy for a speedy determination of tax cases. NIRC of 1997] 6. 248 (B). and is composed of a Presiding Justice and eight (8) Associate Justices. Ibid. R. 931) . v. as amended. Why was the Court of Tax Appeals created ? SUGGESTED ANSWER: a. 102 Phil. the taxpayer was not able to pay his taxes on time. NIRC of 1997] 4. on the date appearing in the notice and demand by the Commissioner of Internal Revenue. CTA. NIRC of 1997] (also known as the delinquency surcharge). the 50% willful neglect or fraud surcharge. are the amounts imposed in addition to the tax required. et al. are not likely to possess. defined. 166786. (Ursal v.1. or for the concomitant tuse of the funds by the taxpayer beyond the date he is supposed to have paid them to the 49 State. Lacsamana. criminal. Furthermore. After resolving the issues the BIR Commissioner reduced the assessment. and b.] 3. AS AMENDED 1. defined. 2006) REPUBLIC ACT NO. etc. No. What are the two (2) kinds of civil penalties ? SUGGESTED ANSWER: a. As a result of divergent rulings on whether it is subject to tax or not. 2006) 7. Who is correct ? ANSWER: The taxpayer is correct. NIRC of 1997] 2. The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax. and as part of the tax. organized into three (3) divisions. the BIR further raises the defense that the government is not bound by the errors of its agents. Court of Tax Appeals. September 11. or a deficiency tax. Imposed surcharges and interests for such delay. What are surtaxes or surcharges ? SUGGESTED ANSWER: Surtaxes or surcharges.

otherwise. the taxpayer should apply for the issuance of a writ of preliminary injunction to enjoin the BIR from collecting the tax subject of the appeal. G. March 16. if the 30 days is within the 2 years. Where the taxpayer is a corporation the two year  prescriptive period from “date of payment” for refund of income taxes should be the date when the corporation filed its final adjustment return not on the date when the taxes were paid on a quarterly basis. b. The legal remedy under the NIRC of 1997 at the judicial level with respect to refund or recovery of tax erroneously or illegally collected. is the filing of a suit or proceeding with the Court of Tax Appeals a. the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision.A. which is reflective of the results of the operations of a business enterprise. or b.. is to file a claim for refund or credit with the Commissioner of Internal Revenue.) 5. covering the whole year. Court of Tax Appeals. What is the legal remedy under the NIRC of 1997 at  the judicial level with respect to refund or recovery of tax erroneously or illegally collected ? SUGGESTED ANSWER. 11. despite the absence of a decision. the taxpayer should file an appeal. collection. c. 228 (e). et al. Within sixty (60) days from the filing of the protest. Sec. (Sec. is not acted upon within one hundred eighty (180) days from submission of documents. No.. R. The two (2) year period and the thirty (30) day period  should be applied on a whichever comes first basis. No.. or b. Ibid. or from the lapse of the one hundred eighty (180) – day period. v. 229. 229. the decision shall become final. et al. and extendible for justifiable reasons for thirty (30) days only. is filed that the taxpayer will be able to ascertain whether a tax is . The legal remedies under the NIRC of 1997 available  to an aggrieved taxpayer at the administrative level with respect to assessment of internal revenue taxes are the following: a. A decision of a division of the Court of Tax Appeals adverse to the taxpayer or the government may be the subject of a motion for reconsideration or new trial. a denial of which is appealable to the Court of Tax Appeals en banc by means of a petition for review. NIRC of 1997).3... NIRC of 1997) 4. e. 1999) Generally speaking it is the Final Adjustment Return. 1989. 7. Upon receipt of a pre-assessment notice. Thus. within thirty (30) days from receipt of the denial by the Commissioner of the application for refund or credit. executory and demandable. Sec. Commissioner of Internal Revenue. refund of internal revenue taxes. G. The legal remedy under the NIRC of 1997 available to an aggrieved taxpayer at the administrative level with respect to refund or recovery of tax erroneously or illegally collected. The remedies may also be classified into the administrative or the judicial remedies. the taxpayer shall respond to the same within fifteen (15) days from receipt which is the period provided for by implementing rules and regulations. The legal remedies under the NIRC of 1997 available  to an aggrieved taxpayer at the judicial level with respect to assessment of internal revenue taxes: a. (1st par. in which amounts of the gross receipts and deductions have been audited and adjusted. NIRC of 1997] d. R. 82618. assessment.R. Sec. [3rd par. the 30 days applies. unrep. if the 2 year period is about to lapse but there is no decision yet by the Commissioner which would trigger the 30-day period. (4th par. 50 f. 1125) 8. before the expiration of two (2) years from the date of payment of the tax regardless of any supervening cause that may arise after payment (2nd par. No. 6.) 9. Sec. NIRC of 1997] b. On appeal. (Philippine Bank of Communications v. The legal remedies under the NIRC of 1997 and other laws available to an aggrieved taxpayer may be classified into the tax remedies with respect to: a. 112024. c.. 228 (e). It is only when the return. and c. otherwise the assessment shall become final. etc. January 28. the taxpayer shall protest administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. (Commissioners.. [last par. all relevant supporting documents shall be submitted. Upon the issuance of an assessment notice. A decision of the Court of Tax Appeals en banc adverse to the taxpayer or the government may be appealed to the Supreme Court through a petition for review on certiorari filed with fifteen (15) days from notice. If the protest is denied in whole or in part.

. and if denied appeal the same to the Court of Tax Appeals. If the examiner is satisfied that the tax return is truly reflective of the taxable transaction and all taxes have been paid. If the taxpayer ignores the invitation to the informal conference. c.. then the process is again ended. or if the examiner is not satisfied with taxpayer’s explanation. If the protest was not seasonably filed the assessment becomes final and collectible and the Bureau of Internal Revenue could use its administrative and judicial remedies in collecting the tax. the denial of the Commissioner or the inaction of the Commissioner would result to the notice of assessment becoming final and collectible and the BIR could then utilize its administrative and judicial remedies to collect the tax. or from the lapse of the one hundred eighty (180-) day period. 2001) 51  10. a. Once an assessment has become final and collectible. Thus. the process ends. h. and he believes that proper taxes should be assessed. a denial of which is appealable to the Court of Tax Appeals en banc by means of a petition for review. if the examiner is not satisfied that the tax return is truly reflective of the taxable transaction and that the taxes have not been fully paid. e. or is not acted upon within one hundred eighty (180) days from the submission of documents. has a period of twelve (12) months from submission of the case for decision within which to decide. g. a Notice of Informal Conference is issued inviting the taxpayer to explain why he should not be subject to additional taxes. the process is again ended. must show the error of the Bureau of Internal Revenue and the correct computations supported by a statement of facts. The notice of assessment must be issued within the prescriptive period and must contain the facts. Outline of tax remedies of a taxpayer and the  government relative to ASSESSMENT of internal revenue taxes. f. the taxpayer could not pay the tax. i. If the taxpayer ignores the pre-assessment notice by not responding or his explanations are not accepted by the Commissioner. law and jurisprudence relied upon by the Commissioner. If the taxpayer fails to so appeal. Commissioner of Internal Revenue. The running of the above prescriptive periods may however be suspended under certain instances. If the decision of the Court of Tax Appeals en banc affirms the denial of the protest by the Commissioner or the assessment in . The notice of assessment must be issued by the Commissioner to the taxpayer within a period of three (3) years from the time the tax return was filed or should have been filed whichever is the later of the two events. If the protest is denied in whole or in part. and the law and jurisprudence relied upon by the taxpayer. all relevant supporting documents shall be submitted. then a notice of assessment and a letter of demand is issued. 144653. then the Commissioner has a period of ten (10) years from discovery of the failure to file a tax return or from discovery of the fraud within which to issue an assessment notice. The Court of Tax Appeals.still due or refund can be claimed based on the adjusted and audited figures. The pre-assessment notice requires the taxpayer to explain within fifteen (15) days from receipt why no notice of assessment and letter of demand for additional taxes should be directed to him. If the taxpayer attends the informal conference and the examiner is satisfied with the explanation of the taxpayer. not even the BIR Commissioner could change the same.R. with an application for the issuance of a writ of preliminary injunction to enjoin the BIR from collecting the tax subject of the appeal. August 28. To be valid the administrative protest must be filed within the prescriptive period. No. the Commissioner of Internal Revenue or his duly authorized representative shall then notify the taxpayer of the findings in the form of a pre-assessment notice. d. Otherwise it would not be valid. A decision of a division of the Court of Tax Appeals adverse to the taxpayer or the government may be the subject of a motion for reconsideration or new trial. If the Commissioner is satisfied with the explanation of the taxpayer. The taxpayer should then file an administrative protest by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment notice. G. otherwise the assessment shall become final and collectible and the BIR could use its administrative and judicial remedies to collect the tax. (Bank of the Philippine Islands v. j. However. A Letter of Authority is issued authorizing BIR examiner to audit or examine the tax return and determines whether the full and complete taxes have been paid. the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the adverse decision. Where the taxpayer did not file a tax return or where the tax return filed is false or fraudulent. Within sixty (60) days from filing of the protest. then apply for a refund. b. The taxpayer files his tax return. There is no need to pay under protest. The taxpayer could not immediately interpose an appeal to the Court of Tax Appeals because there is no decision yet of the Commissioner that could be the subject of a review.

G. fees or other money charges. refunds or internal revenue taxes. See Commissioner of Internal Revenue v. No. 2007. in relation thereto. The BIR could then use its administrative and judicial remedies to collect the tax. Therefore. detention or release of property affected. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments. forfeitures or other penalties in relation thereto. March 116. a petitioner has to convince the appellate court that the quasi-judicial agency a quo did not have any reason to deny its claims. a petitioner should prove every minute aspect of its case by presenting. formally offering and submitting its evidence to the CTA. as in every appeal or petition for review. 145526. or jurisprudence on which the assessment is based. What is the nature of proceedings before the Court of Tax Appeals ? SUGGESTED ANSWER: First. Decisions. Commissioner of Internal Revenue. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. 11 February 2005. refunds of internal revenue taxes. Seagate Technology (Philippines) G. the formal letter of demand and assessment notice shall be void. by words too plain to be mistaken. . if appellate EN BANC) 4. as herein provided: 1. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code. but rather an appeal by way of petition for review of a previous. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts. or other matter arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. rules and regulations. in which case the inaction shall be deemed a denial. otherwise. that the legislature intended to entitle them to such claims. Requisites for Formal Letter of Demand and  Assessment Notice. Thus. (EN BANC) 6. 153866. Thus. (Atlas Consolidated Mining and Development Corporation v. 451 SCRA 132) 12. the decision of the Court of Tax Appeals would become final and this has the effect of making the assessment also final and collectible. where the National Internal Revenue Code provides a specific period of action. a judicial claim for refund or tax credit in the CTA is by no means an original action. If the taxpayer does not so appeal. What is the burden of taxpayers seeking tax refunds or credits ? SUGGESTED ANSWER: It has always been the rule that those seeking tax refunds or credits bear the burden of proving the factual basis of their claims and of showing. (If original DIVISION. March 16. Commissioner of Internal Revenue. fines.case of failure by the Commissioner to decide the taxpayer must file a petition for review on certiorari with the Supreme Court within fifteen (15) days from notice of the judgment on questions of law. R. the taxpayer should interpose a petition for review with the CTA – DIVISION) 3. (DIVISION) 5. if the prescriptive period of two years is about to expire. What is the jurisdiction of the Court of Tax  Appeals ? SUGGESTED ANSWER: “a. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments. 2007)  11. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. (DIVISION) 2. part of the evidence to be submitted to the CTA must necessarily include whatever is required for the successful 13. (Atlas Consolidated Mining and Development Corporation v. 11-A. the law. Exclusive appellate jurisdiction to review by appeal. Second. An extension of thirty (30) days may for justifiable reasons be granted. or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue’. (The inaction on refunds in two years from the time tax was paid. No. or other matters arising under the Customs Law or other laws administered by the Bureau of Customs. 52 prosecution of an administrative claim.. fees or other charges. cases filed in the CTA are litigated de novo. unsuccessful administrative claim. Decisions of the Commissioner of Customs in cases involving liability for customs duties. Since it is crucial for a petitioner in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place. penalties in relation thereto. No. G. orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction. R. The same shall be sent to the taxpayer only by registered mail or by personal delivery. fees or other charges. seizure. R. penalties. 145526.

and it cannot depart therefrom. is not a totally new remedy. G. Over appeals from judgments. No. et al.000. 9282. principles. August 26. No. respectively. August 26. 8800. or orders of the Regional Trial Courts in tax collection cases originally decided by them. as amended. in their respective territorial jurisdiction. is less than One million pesos (P1. b. No. c. R. unique to the CTA. resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts. where either party may appeal the decision to impose or not to impose said duties. Said provision. Rule 41 of the Revised Rules of Court. rules. explicitly states that no appeal may be taken from an interlocutory order. commodity or article. governing appeals from the Regional Trial Courts (RTCs) to the Court of Appeals. No.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. however. and jointly determined in the same proceeding by the CTA. Jurisdiction over cases involving criminal offenses as herein provided: 1. resolution. and safeguard measures under Republic Act No. as amended by R. in case of nonagricultural product. doctrines. in their respective jurisdiction. the CTA merely adopts the procedure for petitions for review and appeals long established and practiced in other Philippine courts. According to Section 1. Accordingly. Decisions of the Secretary of Trade and Industry. with a special application or use therein. or order of the CTA Division.000) shall be tried by the proper Municipal Trial Court. Over petitions for review of the judgments.(This has reference to forfeiture cases where the decision is to release the seized articles – DIVISION) 7. et al. and no right to reserve the filing of such civil action separately from the civil action will be recognized. People. 1125. 2008) 13-A. resolutions or orders of the Regional Trial Courts in tax cases originally decided by them. Municipal Trial Courts and Municipal Circuit Trial Courts. b) Over petitions for review of the judgments. R. That collection 53 cases where the principal amount of taxes and fees. an appeal may be taken only from a judgment or final order that completely disposes of the case or of a matter therein when declared by the Rules to be appealable. resolutions. (Santos v.000. of the Tariff and Customs Code. 2. A. 1125. the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action. thus. To the contrary. emphasis and words in parentheses supplied) The petition for review to be filed with the CTA en banc as the mode for appealing a decision.000. 2. commodity or article. Metropolitan Trial Court and Regional Trial Court.” (Sec. Jurisdiction over tax collection cases: 1. in their respective territorial jurisdiction. charges and penalties: Provided. 2008) . and the Secretary of Agriculture in the case of agricultural product. A. G. Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. Exclusive appellate jurisdiction in tax collection cases: a. fees. Exclusive original jurisdiction over all criminal cases arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided. involving dumping and countervailing duties under Section 301 and 302. resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts. 173176. the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with. 7. under Section 18 of Republic Act No. (Santos v. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes. exclusive of charges and penalties. People. General rule: The denial of a motion to quash is an interlocutory order which is not the proper subject of an appeal or a petition for certiorari. R. and precedents laid down in jurisprudence by this Court as regards petitions for review and appeals in courts of general jurisdiction should likewise bind the CTA. claimed is less than One million pesos (P1. 173176. Any provision of law or the Rules of Court to the contrary notwithstanding. exclusive of charges and penalties claimed. Exclusive appellate jurisdiction in criminal offenses: a) Over appeals from the judgments. however. That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees. (DIVISION) b.

7227 which provides that “exportation or removal of goods from the territory of the [SSEZ] to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.” They also claim that the challenge on the authority of the CIR to issue the RMCs does not fall within the jurisdiction of the Court of Tax Appeals (CTA). the Commissioner of Internal Revenue issued Revenue Memorandum Circular (RMC) No. This was later amended by RMC No.] No.” Subsequently. 1-95.A. 1995.” which provided for the tax treatments on the transactions involved in the importation of motor vehicles through the SSEFZ and other legislated Freeport zones and subsequent sale thereof through public auction. October 16. 12-97 and 16-99 dated January 24.A. 1997 and September 27. Consequently. 12-97 was issued providing for the “Regulations Implementing Sections 12(c) and 15 of [R. then jurisdiction vests upon the CTA or the lower courts depending on the amount of the tax. Interpreting the provisions of Republic Act No. and Unconstitutional [RMC] No. No. G. Rev. the then Secretary of Finance. 9282.” On September 27. [R. with the civil jurisdiction being cognizable by the CTA or the lower courts depending on the amount. etc. They do “do not challenge the rate. No. [o]therwise known as the Bases Conversion and Development Act of 1992. In the case at bar. This is so because. Ultra Vires. 104 of the Revised Penal Code does not cover taxes. 31-2003 setting the “Uniform Guidelines on the Taxation of Imported Motor Vehicles through the Subic Free Port Zone and Other Freeport Zones that are Sold at Public Auction. Republic.] No. the assailed revenue regulations and revenue memorandum circulars are actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public auction within the SSEZ to implement Section 12 of R.A. 3019 cases. respectively. 32-2003 dated June 5. If it is a criminal case cognizable by the Sandiganbayan. 16-99 was issued “Amending [RR] No. and not before the Sandiganbayan in Rep. John Hay. 1999. 7227. to declare Void. The power to decide disputed assessments. Act No. 1-95. then this court retains jurisdiction. 2003. subject to review by the Secretary of Finance. void and against the provisions of [R.” They were issued pursuant to the power of the CIR under Section 4 of the National Internal Revenue Code. 7227 and Sections 24(b) and (c) of [R. the Supreme Court said that tax collection cases may be tried separately. 8249.  15. and other related Rules and Regulations to Implement the Provisions of paragraphs (b) and (c) of Section 12 of [R. 2003. No. It is the Court of Tax Appeals that has exclusive jurisdiction. 31-2003 dated June 3. providing the “Rules and Regulations to Implement the Tax Incentives Provisions Under Paragraphs (b) and (c) of Section 12. Act No. or other matters arising under this Code or other laws or . viz: Section 4. 2003 and [RMC] No.A. No.. Applicability of Proton Pilipinas Corporation vs. the Supreme Court ruled that on the tax collection case the RTC would have jurisdiction. rather they challenge the authority of the respondent Commissioner to impose and collect the said taxes. through the recommendation of the then Commissioner of Internal Revenue issued Revenue Regulations [Rev. 3019 is silent on the definition of civil liability and the application of Art. The case was decided on factual antecedents before R. the prohibition of reservation of the criminal aspect.] No. Act.A. Reg. penalties imposed in relation thereto. fees or other charges. Rep. 1995. No. 32-2003. refunds of internal revenue taxes. Rev. If the issue is a purely tax case. R. No.The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner. Does the RTC have jurisdiction ? SUGGESTED ANSWER: No. They contended that jurisdiction over the case at bar properly pertains to the regular courts as this is “an action to declare as unconstitutional.  On January 24. Nos. 1-95.54 14. August 7. Poro Point Special Economic Zones and other Special Economic Zones under PEZA. 9282 which grants criminal jurisdiction to the Court of Tax Appeals if the value of the tax is P1 million or more. Rev.] No.] 7227” the RMCs issued by the CIR. Asia International Auctioneers and others filed a complaint before the RTC of Olongapo City. 7227. 165027. Interpretation by the author in the light of Rep.A.” On June 3.-. even if it involves cases cognizable by the Sandiganbayan. as amended. structure or figures of the imposed taxes. Reg. 7916 Allocating Two Percent (2%) of the Gross Income Earned by All Businesses and Enterprises Within the Subic.] No. 2006. 1999. A. Clark. which provides that the civil action for recovery of civil liability should be jointly determined in the criminal proceeding by the Sandiganbayan or appropriate courts. otherwise known as the ‘Bases Conversion and Development Act of 1992’ Relative to the Tax Incentives Granted to Enterprises Registered in the Subic Special Economic and Freeport Zone. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. Reg. Reg.

477 SCRA 205. 135210. The decisions of the Commission under “other matter” refers to the quasi-judicial decisions and not to the quasi-legislative powers of the Commissioner. No. regularity. Asia International Auctioneers. R. v.. 4) Of greater import. A letter of the BIR Commissioner reiterating to a taxpayer his previous demand to pay an assessment is considered a denial of the request for reconsideration or protest and is appealable to the Court of Tax Appeals. R. (Commissioner of Internal Revenue v.R. Inc. SUGGESTED ANSWER: a. the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Final notice before seizure considered as commissioner’s decision of taxpayer’s request for reconsideration who received no other response. Court of Tax Appeals. et al. 28 June 1974. 148380. R. G. No. Court of Tax Appeals. 1) It would obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment – and. July 11. and orderliness in administrative action. Bank of the Philippines Islands. etc. Bank of the Philippines Islands. 57 SCRA 523) NOTES AND COMMENTS: a.. No. G.. Commissioner of Internal Revenue. 185 SCRA 547) c. 211-212. 28 June 1974. Inc. R. On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment. v. Inc. April 17. Cite acts of BIR Commissioner that may be  considered as denial of a protest which serve as basis for appeal to the Court of Tax Appeals. 57 SCRA 523)  17. No. G. (Commissioner of Internal Revenue v. April 17. G. (Commissioner of Internal Revenue v. December 18. Isabela Cultural Corporation. No. (as amended by the NIRC of 1997. (Commissioner of Internal Revenue v. subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. No. 57 SCRA 523) d. The letter itself clearly stated that the taxpayer was being given “this LAST OPPORTUNITY” to pay. 103445. Filing by the BIR of a civil suit for collection of the deficiency tax is considered a denial of the request for reconsideration. Inc. Jr.portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner. L-254289. 55 16. G. Court of Tax Appeals. Without needless difficulty. this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and define decision thereon in the first instance.. 2007) NOTES AND COMMENTS: The author disputes this doctrine. A BIR demand letter sent to the taxpayer after his protest of the assessment notice is considered as the final decision of the Commissioner on the protest. emphases supplied... the collection of the amount demanded as taxes – by repeated requests for recomputation and reconsideration.. The very title expressly indicated that it was a final notice prior to seizure of property. L-254289. Union Shipping Corporation. G. R. Inc. 148380.  What is the characteristic of a BIR denial of a protest such as would enable the taxpayer to appeal the same to the Court of Tax Appeals ? SUGGESTED ANSWER: The Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment. Reasons for the rule requiring CIR’s unequivocal language on his action on the protest. 70 SCRA 204) e. citing Surigao Electric Co. Commissioner of Internal Revenue v. the taxpayer would be able to determine when his right to appeal to the tax court accrues. R. Ayala Securities Corporation. 211-212. . No. its properties would be subjected to distraint and levy. 134062. v. Commissioner of Internal Revenue. (Surigao Electric Co. 2007 citing Oceanic Wireless Network. et al. 2007 citing Oceanic Wireless Network. consequently. Union Shipping Corporation. 477 SCRA 205. 3) This would also deter the Commissioner of Internal Revenue from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. . G.. Parayno. 9 December 2005. . citing Surigao Electric Co. otherwise. No. An indication to the taxpayer by the Commissioner “in clear and unequivocal language” of his final denial not the issuance of the warrant of distraint and levy. R.v. 2) On the part of the Commissioner of Internal Revenue. v.. 185 SCRA 547) b. 2001 held that not only is the Notice the only response received: its content and tenor supports the theory that it was the CIR’s final act regarding the request for reconsideration. (Commissioner v. What is the subject of the appeal is the final decision not the warrant of distraint.. v. 9 December 2005. 134062. G. etc et al. this rule of conduct would meet a pressing need for fair play. Inc.

. et al. G. city or municipal treasurer or the Secretary of Finance. It would make matters more exasperating for the taxpayer if the doors of justice would be closed for such a relief until after the Commissioner. 18-A. and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided. b. SUGGESTED ANSWER: The taxpayer should appeal. (Sec. No. given his go signal. there must always be a decision of the Commissioner of Internal Revenue or Commissioner of Customs before the Court of Tax Appeals. the Secretary of Trade and Industry and Secretary of Agriculture. provincial. the taxpayer has a period of 30 days from the expiration of the 180 day period within which to appeal to the Court of Tax Appeals. unrep.1. Rule 10. Where the Commissioner has not acted on an application for refund or credit and the two year period from the time of payment is about to expire.) Instances where the Court of Tax Appeals would have jurisdiction even if there is no decision of the Commissioner of Customs: a.   21. It is disheartening enough to a taxpayer to be kept waiting for an indefinite period for the ruling. the petition would be dismissed for lack of jurisdiction unless the case falls under any of the following exceptions. That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the Instances where the Court of Tax Appeals would have jurisdiction even if there is no decision yet by the Commissioner of Internal Revenue: a. v. July 11. by way of a petition for review. 185 SCRA 547) Furthermore. 3. 2001) b. in which case the same shall not be considered a decision on the disputed assessment. Decisions of the Secretary of Trade and Industry or the Secretary of Agriculture in anti-dumping and countervailing duty cases are appealable to the Court of Tax Appeals within thirty (30) days from receipt of such decisions. 82618. Regs. the decision shall be void.  20. the applicable law. would have jurisdiction. levy.” (Sec. The actual issuance of a warrant of distraint and levy in certain cases cannot be considered a final decision on a disputed assessment. If there is no such decision. (Commissioner of Customs. NIRC of 1997. however. as the case may be shall suspend the payment. To be a valid decision on a disputed assessment. the decision of the Commissioner or his duly authorized representative shall (a) state the facts. NIRC) “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. As counsel what advice shall you give the taxpayer. or jurisprudence on which such decision is based. Commissioner of 19. and (b) that the same is his final decision. 1989. 135210. Union Shipping Corp. Isabela Cultural Corporation.. As a general rule. fee or charge. Court of Tax Appeals.  Internal Revenue v.. Sec. No. otherwise.  18. “No court shall have the  authority to grant an injunction to restrain the collection of any national internal revenue tax. distraint. to the Court of Tax Appeals not on the ground of the denial of the protest but on other matter arising under the provisions of the National Internal Revenue Code. a motion for the suspension of the collection of the tax may be filed together with the petition for review (Sec. 12-99) These conditions are not complied with by the mere issuance of a warrant of distraint and levy. In case of automatic review by the Secretary of Finance of a decision of a Collector of Customs acting favorably upon a customs protest. 2005) because the collection of the tax may jeopardize the interest of the taxpayer. would have. rules and regulations. (Commissioner of Internal Revenue v.  . Rev. 218. et al.R. RRCTA effective December 15. During the pendency of the protest the CIR issued a warrant of distraint and levy to collect the taxes subject of the protest. (last par.56 The taxpayer seasonably protested the assessment issued by the Commissioner of Internal Revenue. March 16. Explain briefly your answer. G. at his personal convenience. c. 228 (e). In case of automatic review by the Secretary of Finance in seizure or forfeiture cases where the value of the importation exceeds P5 million or where the decision of the Collector of Customs which fully or partially releases the shipment seized is affirmed by the Commissioner of Customs.6. Where the Commissioner has not acted on the disputed assessment after a period of 180 days from submission of complete supporting documents.. the taxpayer has to file his appeal with the Court of Tax Appeals before the expiration of two years from the time the tax was paid.R. As a general rule. 3.

158540. Hantex Trading Co. if necessary. G. Inc. paper.. as amended by Sec. 22. Inc.” (sic. 2005 citing De Leon. No. or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard measures. the Commissioner of Internal Revenue investigates ”any circumstance which led him to believe that the taxpayer had taxable income larger than that reported. July 8. the rule does not apply where the estimation is arrived at arbitrarily and capriciously. R. 105 U. Sec. 319 U. Hantex Trading Co.. traders’ and brokers’ accounts and books and the taxpayer’s books of accounts.” (Commissioner of Internal Revenue v.. Inc. The Philippine Cement Manufacturers Corp. 6 (B).9. data.. G. 11. Hantex Trading Co. CA . Hantex Trading Co.) Purpose of the “best evidence obtainable” rule under Sec.” (Sec.R. Rindskopf. Rep. citing United States v. Commissioner. Approximation in the calculation of taxes due is justified. March 31. the Commissioner may look to other sources of information to establish income made by the taxpayer during the years in question. It places no limit or condition on the type or form of the medium by which the record subject of the order of the BIR is kept.S. General rule: “The rule is that in the absence of accounting records of a taxpayer. Hantex Trading Co. R. 287 F. in turn citing Kenney v. G. SP No. Necessarily. secondary evidence must be adduced. should not be enjoined notwithstanding any timely appeal of the imposition. Inc. Meaning of "best evidence obtainable" under Sec. (Hantex Trading Co. He may take the sworn testimony of the taxpayer.G. If it could not be produced. No. 6 (B) of the NIRC of 1997 allows the BIR to make or amend a tax return from his own knowledge or obtained through testimony or otherwise. v. March 31. “The purpose of the law is to enable the BIR to get at the taxpayer’s records in whatever form they may be kept. this inquiry would have to be outside of the books because they supported the return as filed. Guetersloh. No.. [Commissioner of Internal Revenue v. his tax liability may be determined by estimation. Act No. R. Inc. The secondary evidence referred to are those that may be adduced using the general methods for reconstructing a taxpayer’s income or the indirect approach to tax investigation.” (Commissioner of Internal Revenue v. Inc. such as the SEC. citing Campbell. R.. The existence of unreported income may be shown by any particular proof that is available in the circumstances of the particular situation. 2005 citing United States v. and record. Commissioner v. p.418 (1881)] 23. 2005) 24. v. 136975. Act No. Thus. 6 (B). Rep. No. NIRC of 1997. The Commissioner is not bound to follow any set of patterns. Hantex Trading Co. a peremptory judicial act which is traditionally frowned upon unless there is a clear statutory basis for it. NIRC of 1997.S. September 30.. 47172.. including their gross profit and net profit sales. et al. 1125. This so because the Safeguard Measures Act states that the filing of a petition for review before the CTA does not stop. 136975.S. This means that the original documents must be produced. he may take the testimony of third parties. 111 F. The “best evidence” envisaged in Section 16 of the 1977 NIRC [now Sec. record.. the Central Bank of the Philippines...” (Ibid. 2004 for it would be tantamount to enjoining the collection of taxes. a “U. document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income. appellate court declared that where the records of the taxpayer are manifestly inaccurate and incomplete. 1998) NOTES AND COMMENTS: a. Jr.” [Commissioner of Internal Revenue v. the accounting records of other taxpayers engaged in the same line of business. (Ibid. 136975.NIRC of 1997] “includes the corporate and accounting 57 records of the taxpayer who is the subject of the assessment process. suspend. The petitioner (Commissioner of Internal Revenue) is not required to compute such tax liabilities with mathematical exactness. 37) “Such evidence also includes data.2d 374) .” [Commissioner of Internal Revenue v. 9282 ) The Supreme Court may enjoin the collection of taxes under its general judicial power but it should be apparent that the source of the power is not statutory but constitutional.2d 878 (1961)] Citing its ruling in a previous case. Commissioner of Internal Revenue. The Supreme Court did not grant the provisional remedy prayed for in Southern Cross Cement Corporation v. The National Internal Revenue Code Annotated. despite the availability of judicial review. 1233 (1943)] “However. he may examine and subpoena. March 31. G. Inc. Evident is the clear legislative intent that the imposition of safeguard measures.. the Bureau of Customs. Johnson. and the “Tariff and Customs Commission. To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. document and information secured from government offices or agencies.proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.. 6 (B). supra) “The law allows the BIR access to all relevant or material records or data in the person of the taxpayer.

It is part of the due process rights of a taxpayer. (Sec. 128315. 68-74) 26. or from any office or officer of the national and local governments. public or private to supply information to the BIR. 1999) For internal revenue taxation assessment as laying a tax. and for him to explain why he should not be the subject of an assessment notice. such as. For real property taxation. . (Commissioner of Internal Revenue v. When the excess tax due on excisable articles has not been paid. (f) Third party information or access to records method. NIRC of 1997) 29. When a taxpayer 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 table year. and their members. may have more than one meaning. joint ventures or consortia and registered partnerships. Instances where a pre-assessment notice is  not required before a notice of assessment is sent to the taxpayer. has been sold. G. (e) Unit and value method. capital equipment. G. The word assessment when used in connection with taxation. the BIR could not issue an assessment notice without first issuing a pre-assessment notice because it is part of the due process rights of a taxpayer to be given notice in the form of a pre-assessment notice. It is sometimes called a special assessment or a special levy. The BIR may require third parties. et al. June 29. When an article locally purchased or imported by an exempt person. Pascor Realty and Development Corporation. (Commissioner of Internal Revenue v. but not limited to vehicles. (c) Bank deposit method. et al.. An assessment is a notice duly sent to the  taxpayer which is deemed made only when the BIR releases. any information such as. 128315. trade or transferred to non-exempt persons.. “obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. NIRC of 1997) 27. June 29. 1999)  30. mutual fund companies. It is a tax that  28.R. costs and volume of production. 1999) 31. (Chapter XIII.. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. insurance companies. or d. A pre-assessment notice is a letter sent by the Bureau of Internal Revenue to a taxpayer asking him to explain within a period of fifteen (15) days from receipt why he should not be the subject of an assessment notice. receipts or sales and gross incomes of taxpayers.R. What is a self-assessed tax ? SUGGESTED ANSWER: A tax that the taxpayer himself assesses or computes and pays to the taxing authority. (d) Cash expenditure method. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay.. More commonly the word “assessment” means the official valuation of a taxpayer’s property for purpose of taxation.25. and thus. pp. associations. 58 a. G. mails or sends such notice to the taxpayer . No. or c. government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or –controlled corporations. 228. and financial statements of corporations. or e. Pascor Realty and Development Corporation. The above definition of assessment finds application under tariff and customs taxation as well as local government taxation. regional operating headquarters or multinational companies. No. (b) Net worth method. 128315. June 29. Third party information or access to records method.R. Pascor Realty and Development Corporation. joint accounts. or b. (g) Surveillance and assessment method. As a general rule. et al. 5 (B). The following are the general methods developed by the Bureau of Internal Revenue for reconstructing a taxpayer’s income where the records do not show the true income or where no return was filed or what was filed was a false and fraudulent return (a) Percentage method. No. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. xxx” [Sec. but not limited to. Indirect Approach to Investigation. machineries and spare parts. (Commissioner of Internal Revenue v. addresses. there may be a special meaning to the burdens that are imposed upon real properties that have been benefited by a public works expenditure of a local government. and the names . Handbook on Audit Procedures and Techniques – Volume I.

Under the old law Sec. “The taxpayer shall be informed in writing of the law and the facts on which the 59 assessment is made. The annual income tax becomes due and payable without need of any prior assessment by the BIR. Goodrich Phils. investigation or assessment.. v.F. R. G. No. ten years from discovery of the failure to file the tax return or discovery of falsity or fraud in the return [Sec. No. 267] A clear example of a self-assessed tax is the annual income tax. B. Philippine Journalists. et al. 104171. but to take advantage of every opportunity to molest peaceful. Ulep. otherwise the assessment shall be void” is an amendment to Sec. Of course. 228) which took effect only on January 1. R. 2005 and companion case citing Tupaz v. April 17. (now Sime Darby International Tire Co. within the period agreed upon between the government and the taxpayer where there is a waiver of the prescriptive period for assessment (Sec. and after such investigation to issue the tax assessment that creates the tax liability. Who is correct ? SUGGESTED ANSWER: The BIR is correct. April 26. 222 (a). R. Carpio in Philippine National Oil Company v. 270. Inc.. [Commissioner of Internal Revenue v. R. 303 SCRA 546. No. The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens. For the purpose of safeguarding taxpayers from any unreasonable examination. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents.  34. The pay-as-you-file system is a self-assessing tax return. G. Commissioner of Internal Revenue. Court of Appeals. (Dissent of J. et al. 1998 upon the effectivity of the Tax Reform Act of 1997. No. On October 28. 162852. 109976. et al. NIRC of 1997) . Carpio in Philippine National Oil Company v.  Purpose of period of limitations in taxation. 1988 taxpayer bank received a notice of assessment from the BIR informing it that deficiency taxes are due from the said taxpayer bank without any findings of law or fact but supported only with a computation. if the taxing authority is first required to investigate. February 24. not to determine the latter’s real liability. 33.” The taxpayer bank insists that the assessment was not valid. 1999. However. On December 10. 1988. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about . [Dissent of J. April 26. Commissioner of Internal Revenue.. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. 2008] b. our tax law provides a statute of limitations in the collection of taxes. What are the prescriptive periods for making assessments of internal revenue taxes ? SUGGESTED ANSWER: a.). hence the tax is sue and collectible. or c. to the Government because tax officers would be obliged to act promptly in the making of assessment. NIRC of 1997). as well as their assessments. R. 2004.self-assessed by the taxpayer without the intervention of an assessment by the tax authority to create the tax liability.R. The taxpayer’s liability for the income tax does not depend on whether or not the BIR conducts such subsequent investigation or audit. then the tax is no longer self-assessed. it is enough merely that the BIR Commissioner shall “notify the taxpayer of his findings The taxpayer bank counsel’s December 10. 1997. Bank of Philippine Islands. BIR took the opposite view contending further that there was no seasonable protest. Inc. March 7. 1st edition. 222 (b). The BIR may or may not investigate or audit the annual income tax return filed by the taxpayer. 203. p. whichever is later (Sec. (Commissioner of Internal Revenue v. 1988. the taxpayer bank counsel filed a letter that “as soon as this is explained and clarified in a proper notice of assessment. Internal revenue taxes are self-assessing. we shall inform you of the taxpayer’s decision on whether to pay or protest the assessment. and pays the tax as he files the return. law-abiding citizens.. Three (3) years from the last day within which to file a return or when the return was actually filed.. Court of Appeals. Tax Law and Jurisprudence. and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers. G. G. which the taxpayer himself computes and pays without the intervention of any assessment by the BIR. Inc. The Tax Code follows the pay-as-you-file system of taxation under which the taxpayer computes his own tax liability. The CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. 2007) NOTES AND COMMENTS: The statement. 2005 and companion case) 32. 316 SCRA 118 (1999) in turn citing Vitug and Acosta. 1988 letter is not a seasonable protest because it was filed thirty (30) days after receipt of the assessment on October 28. 270 (now renumbered to Sec. No. 134062. G. 109976. NIRC of 1997). prepares the return.]. 174942. No. December 16. G.

de Gabriel v. her business affairs were managed by the Philippine Trust Company (Philtrust). 108 Phil. v. 1999. Inc. 6-2000] 37. December 16. [Philippine Journalists. Regs. 104171. Inc. Rev. Reason: for the purpose of safeguarding taxpayers from an unreasonable examination. should be liberally construed in order to afford such protection. filed her Income Tax Return for 2000. 1108. Inc (now Sime Darby International Tire Co. B. or credits claimed in his return. Commissioner of Internal Revenue. Goodrich Phils.. 303 SCRA 546] The prescriptive period was precisely intended to give the taxpayers peace of mind. 2001.. 162852. or the waiver of the notice requirement for such assessments. February 24. 3. 2005. the BIR filed with the estate court a motion for allowance of claim. No. B. . 1999) 36. 2005. our tax laws provide a statute of limitation on the collection of taxes. 174942. Inc. the BIR Commissioner issued warrants of distraint and levy to enforce collection of the deficiency income tax liability which was served on Juliana’s heir. G. January 27. This was denied by the court who appointed one of the heirs as Special Administrator. 3. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will not longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. What are the requirements for the validity of  a formal letter of demand and assessment notice ? SUGGESTED ANSWER: a.R. 2008] 35. No. 104171. G. 155541. On the other hand the BIR made the submission that both the issuance of the assessment notice and the motion were all properly made on Philtrust.1 (a). G. On May 22. G. R. 2004 with note to see Republic v. Thus. 1108) Laws on prescription should be liberally construed in favor of the taxpayer. being a remedial measure. After an investigation by the BIR of the decedent’s income tax liability.Two days after her death. Commissioner of Internal Revenue. A “jeopardy assessment” is a delinquency tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer. Ablaza.. et al. Furthermore the lapse of the 30-day period within which to protest made the assessment final.F. Rev. the exceptions to the law on prescription should perforce be strictly construed. During Juliana’s lifetime. Inc. 2004)  38. (Estate of the late Juliana Diez Vda. 162852. or to substantiate all or any of the deductions. 2004 citing Commissioner of Internal Revenue v.F. On June 18. On November 22. February 24. Commissioner of Internal Revenue. G. 1105. SUGGESTED ANSWER: I would rule in favor of the heir. Philtrust. cited in Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v.the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. [Republic of the Philippines v. Regs. 6-2000) Jeopardy assessment is an indication of the doubtful validity of the assessment. (Commissioner of Internal Revenue v. She died on April 3. 2001. There was no proper service of the notice of assessment because the death of Juliana automatically severed the legal relationship of principal and agent between her and Philtrust. As a corollary. Commissioner of Internal Revenue. The severed relationship could not be revived on the mere fact that Philtrust filed her Tax Return two days after her death. No. Philtrust filed a verified petition with the RTC for appointment as Special Administrator. Philtrust’s motion for reconsideration was denied.. No. 108 Phil. exemptions. March 7. it sent. G. No response was made neither was the BIR advised that Juliana already died. (Philippine Journalists. [Sec. The heir claimed that there was no proper service of the notice of assessment and that the filing of the motion was time-barred. on November 18. Philtrust’s failure to file a notice of death subjects it to penal sanctions which do not include the indefinite tolling of the prescriptive period for making deficiency tax assessments. without indicating that Juliana died. 2003. hence it may be subject to a compromise.. R. No. the law on prescription. Rule on the conflicting claims of the parties.). who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer’s failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records.. investigation or assessment.R. executory and uncontestable and not time barred. a demand letter and a Notice of Assessment to Juliana c/o Philtrust at the latter’s address which was stated in the 1998 Income Tax Return. 1105. [Sec. No. through its 60 Trust Officer. R.. Ablaza. No. December 16. There must have been previously issued a preassessment notice until excepted. et al. v.1 (a). No. Goodrich Phils.R.

the determination of the tax due is without rational basis. et al. Court of Appeals. 18 August 1988. Ed. March 31. NIRC of 1997 which provides for the suspension of the prescriptive period:  42.” (Commissioner of Internal Revenue v. February 25. otherwise. Hantex Trading Co. 223. 428 US 433 (1976)] In such a situation. citations omitted) 40... When the taxpayer could not be located in the address given by him in the return filed upon which the tax is being assessed or collected.. Hantex Trading Co.  43. 2d 698 (1959)] “Hence. No.. [Commissioner of Internal Revenue v. thus a unilateral waiver on the part of the taxpayer does not suspend the prescriptive period. or jurisprudence on which the assessment is based. March 31. No. 2007 citing Sy Po v. or beginning distraint. Court of Appeals ruling. are required for a waiver of the prescriptive period. 1999 (Carnation case)] 44.) 61 Janis. Give instances where prima facie correctness of a tax assessment does not apply. When the taxpayer requests for and is granted a reinvestigation by the commissioner.4. G. G. and c. Court of Appeals. supra] What are the instances that suspends the running of the prescriptive periods (Statute of Limitations) within which to make an assessment and the beginning of distraint or levy or of a proceeding in court for the collection. “the determination of the Commissioner contained in a deficiency notice disappears. R. Inc. or levy or proceeding in court and for sixty (60) days thereafter.R. 173 SCRA 397) c.. 3. 1973) d. 482 F. NOTES AND COMMENTS: The holding in Commissioner of Internal Revenue v. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts.. All presumptions are in favor of the correctness of tax assessments. 1999 (Carnation case) that the waiver of the period for assessment must be in writing and have the written consent of the BIR Commissioner is still doctrinal because of the provisions of Sec. Lifeblood theory b.R.” [Commissioner of Internal Revenue. 2d 1046 (1976). When the taxpayer is out of the Philippines. G. Presumption of regularity (Commissioner of Internal Revenue v. April 17. (Ibid. The desirability of bolstering the record-keeping requirements of the NIRC.. What is the presumption that flows from a taxpayer’s failure to protest an assessment ? SUGGESTED ANSWER: “Tax assessments by tax examiners are presumed correct and made in good faith. G. 136975.  41. 164 SCRA 524. Bank of Philippine Islands. and e. 115712. the formal letter of demand and assessment notice shall be void. The certiorari was denied by the United States Supreme Court on November 19. (Commissioner of Internal Revenue v. the determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence. When the Commissioner is prohibited from making the assessment. In the absence of proof of any irregularities in the performance of duties. No. What are the reasons for presumption of correctness of assessments ? SUGGESTED ANSWER: a.. Commissioner of Internal Revenue. February 25. No. R. R. (Sec. and no property could be located. supra citing a U. Court of Appeals. No. 136975.e. R. Inc. Inc. Where the BIR has come out with a “naked assessment” i. Rexach. or a member of his household with sufficient discretion. The taxpayer has the duty to prove otherwise. 266 F.b. 2005 citing United States v. Regs. d. SUGGESTED ANSWER: The “prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation. Tuazon. 115712. 2005) in the performance of public functions. No. 49 L. an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. his authorized representative. in respect of any tax deficiencies? SUGGESTED ANSWER: a.” [Commissioner of Internal Revenue.  The signatures of both the Commissioner and the taxpayer.1. The act of requesting a reinvestigation alone does not suspend the running of the prescriptive period. in Clark and Clark v. It must have been issued prior to the prescriptive period. The request . When the warrant of distraint and levy is duly served upon the taxpayer. meaning it is arbitrary and capricious. rules and regulations. G. the law. b. 530. c. Rev. 134062. et al. No.S. without any foundation character. The likelihood that the taxpayer will have access to the relevant information [Commissioner of Internal Revenue. 12-99) 39. L-81446..2d 10 (1973).” [Commissioner of Internal Revenue v. G. supra citing United States v.

It may involve both a question of fact or of law or both. Philippine Journalists. 2008] 45. 115712. thus invalidating the assessments issued by the BIR. On March 16. David. R. 7 (a) (1). as so required. Philippine Journalists. No. b. G. During the September 22. PJI. G. 1999 and on November 26. it will prosper. through a follow-up letter. A. A. 2004 citing Panrtoja v. PJI’s Comptroller executed a waiver of statute of limitations provided for under sections 223 and 224 of the NIRC. a Final Notice Before Seizure was issued giving PJI 10 days from receipt within which to pay. Finally. PJI was not furnished a copy of the waiver. No. 1994 showed deficiency VAT. c. No. 9282) Thus it was previously ruled that the CTA had jurisdiction to act on a petition to invalidate and annul the distraint orders of the Commissioner. Commissioner of Internal Revenue. Request for reconsideration which refers to a plea for reevaluation of an assessment on the basis of existing records without need of additional evidence. Request for reinvestigation which refers to a plea for reevaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in  46. In the same manner. J. Inc. On March 28. 162852. Inc. The Waiver of the Statute of Limitations is not valid because it did not specify a definite agreed date between the BIR and PJI. Court of Appeals. 33-1-000757-94. 1998. 303 SCRA 614) b. 2004) What are the two ways of protesting an assessment notice for an internal revenue tax ? Alternatively. 1997 informal conference with the Revenue District Officer. 174942. within which the former may assess and collect revenue taxes. v. 1998. Does the CTA have jurisdiction over the appeal ? b. Consequently. December 16. 33-1-000757-94 issued on December 9. the BIR issued a Pre-Assessment Notice which was followed by Assessment/Demand No. 1994 to December 31. The waiver document is incomplete and defective and thus the three-year prescriptive period within which to assess was not tolled or extended and continued to run until April 17. 1994 which showed a net income of P30 million and the tax due as P10 million. Was the Waiver of the Statute of Limitations valid ? c. 162852. The following issues are for resolution in the appeal: a. 1998 was invalid because it was issued beyond the three (3) year period. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. The Supreme Court declared that the burden of proof that the request for reinvestigation had been actually granted shall be on the Commissioner of Internal Revenue. 2000 is also null and void for having been issued pursuant to an invalid assessment. and not the Commissioner. as amended by R. December 16. R. R. 25 February 1999. 1999. (PJI) filed its Annual Income Tax Return for the calendar year ended December 31. inclusive of interest and compromise penalty.. This is so because the CTA has exclusive appellate jurisdiction to review by appeal decisions of the Commissioner of Internal Revenue in cases involving “other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue.for reinvestigation must be granted by the CIR. citing Commissioner of Internal Revenue v. the Warrant of Distraint and/or Levy which PJI received on March 28. 1125. No. On October 5. PJI received the final notice on November 24. March 7. Commissioner of Internal Revenue.33-1-000757-94 stating a total deficiency taxes in the amount of P111 million for income tax. what are the two types of protests ? Explain briefly. v. No. SUGGESTED ANSWER: Yes. 1 SCRA 608 (1961)] Likewise upheld by the Supreme Court was the decision of the CTA declaring several waivers executed by the taxpayer as null and void. The CTA has jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of 62 the Statute of Limitations was validly effected. No. R. An examination of PJI’s books of account and other accounting records for the period January 1. [YnaresSantiago. 197. 2000 PJI received a Warrant of Distraint and/or Levy. Income Tax and Withholding Tax in the total amount of P1`27 million. 1999 PJI asked that it be clarified on how the tax liability of P111 million was arrived at and requested for an extension of 30 days from receipt of the clarification within which to reply. Such grant may be expressed in its communications with the taxpayer or implied from the action of the Commissioner or his authorized representative in response to the request for reinvestigation. G. Assessment/Demand No. Were the Assessment/Demand and the Warrant of Distraint and/or Levy valid ? Will the appeal prosper? Explain briefly your answer. the waiver is also defective from the government side because it was signed only by a revenue district officer. PJI then appealed to the CTA. Furthermore. (Philippine Journalists. Commissioner of Internal Revenue.  . Inc. On November 10. the BIR sent to PJI a Preliminary Collection Letter to pay the assessment within 10 days from receipt. (Ibid. R. G. asserted it never received Assessment/Demand No.” [Sec.1999. VAT and expanded withholding taxes. SUGGESTED ANSWER: a. 111 Phil. a.

b. Commissioner of Internal Revenue. Revenue District Offices. 138485. 2) If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts. G.. the time employed in reinvestigation should be deducted from the total period of limitation. sought by means of a demand for payment. 578. 2005) with the Court of Tax Appeals.  by making reciprocal concessions. It may also involve a question of fact or law or both. 568-569 (1963)] Undoubtedly. (Sec. Legal Service. an interested party may file a motion for the suspension of the collection of the tax liability (Sec. 12-85) 63  47. Philippine Global Communication. What is the procedure for suspension of collection of taxes ? SUGGESTED ANSWER: Where the collection of the amount of the taxpayer’s liability. rules and regulations.5. 271. a reinvestigation.. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices. 2028. Commissioner of Internal Revenue. R. 2006 citing Sec. Rev. Sec. [4th par. 167146. be the subject matter of compromise settlement: a. The taxpayer must not only show the errors of the Bureau of Internal Revenue but also the correct computation through 1) A statement of the facts. 2001)  50-A. et al. de San Agustin. No. 473 SCRA 205. Civil Code) A compromise penalty could not be imposed by the BIR. Philippine Global Communication. 3. 223. may jeopardize the interest of the government or the taxpayer. 167146. this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax. (Sec. as provided under existing laws. October 31. upon taxpayer’s compliance with the basis for compromise. if the taxpayer did not agree. October 31. mutual in essence requires agreement. The motion for suspension of the collection of the tax may be filed together with the petition for review or with the answer. 575. NIRC of 1997] 49. October 31. 230231) undisputed issue or issues. Within sixty (60) days from filing of the protest. (Commissioner of Internal Revenue v. (Commissioner of Internal Revenue v. supra citing Republic v. RRCTA effective December 15. Lopez.   50. the applicable law. R. will take more time than a reconsideration of a tax assessment which will be limited to the evidence already at hand. 228 (e). by its nature. that suspends the running of the statute of limitations for collection of the tax. Large Taxpayer Service (LTS). No. Rule 10. 2006 citing Bank of Philippine Islands v. Philippine Global Communication. 117 Phil. 12-99) c. 17 October 2005. or in a separate motion filed by the interested party at any stage of the proceedings. NIRC of 1997). NIRC of 1997) When a taxpayer demands a reinvestigation. (Art. 1. 167146. . the same shall be considered  48.  compromise ? What tax cases may be the subject of a SUGGESTED ANSWER: The following cases may.  What is that type of protest that suspends the running of the statute of limitations for the beginning of distraint or levy or a proceeding in court for collection ? Why ? SUGGESTED ANSWER: It is that type of protest “when the taxpayer requests for a reinvestigation which is granted by the Commissioner” (Sec. rules and regulations. A compromise being. 2006 citing Rev. G. A compromise is a contract whereby the parties. v. 7 SCRA 566. distraint or sale of property of the taxpayer.the investigation. Inc. The payment made under protest could only signify that there was no agreement that had effectively been reached between the parties. or jurisprudence on which the taxpayer’s protest is based. G. September 10. No. Regs. avoid a litigation or put an end to one already commenced. R.. the applicable law. R. Delinquent accounts. the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto. the taxpayer shall submit all relevant supporting documents. Inc. or by whatever means. by levy. Regs. 223. No. Rule 10. [Commissioner of Internal Revenue. 2005) What are the requirements for the validity of a taxpayer’s protest ? SUGGESTED ANSWER: a. while the latter cannot. (Vda. Enforcement Service and other offices in the National Office. Inc. No. in which case. Collection Service. which entails the reception and evaluation of additional evidence. RRCTA effective December 15. (Commissioner of Internal Revenue v. It must be filed within the reglementary period of thirty (30) days from receipt of the notice of assessment. 139736.. G. or jurisprudence in support of his protest against some of the several issues on which the assessment is based. b.1. 3.. No. R. G. now Sec.

Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. and the settlement offered is not less than the prescribed percentages. 302002) 64 In instances where the Commissioner is not authorized. or b. or those involving criminal tax fraud. internal revenue taxes shall be assessed SUGGESTED ANSWER: a. On the other hand. Collection upon a false or fraudulent return or no return without assessment. within a period of ten (10) years from discovery of the falsity. 30-2002) The Commissioner may compromise the payment of any internal revenue tax when: a. 2. c. 222 (c). NIRC of 1997]  52. 222 (a). 222 (d).” [Sec. Rev. in relation to Secs. the compromise shall be subject to the approval of the Evaluation Board composed of the Commissioner and the four (4) Deputy Commissioners. 2. fraud or omission “may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. Regs. NIRC of 1997. d.” [Sec. Rev. 222 (b) and 203. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax provided that the minimum compromise entered into is equivalent to ten percent (10%) of the basic assessed tax In the above instances the Commissioner is allowed to enter into a compromise only if the basic tax involved does not exceed One million pesos (P1. or any extensions before the expiration of the period agreed upon. d. In case of a false or fraudulent return with the intent to evade tax or of failure to file a return. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. Criminal violations already filed in court. What is the prescriptive period for collecting internal revenue taxes ? SUGGESTED ANSWER: There are four (4) prescriptive periods for the collection of an internal revenue tax: a. the tax “may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) year period. emphasis supplied) c.. e. Collection upon a return that is not false or fraudulent. Any internal revenue tax which has been assessed (because the return is false or fraudulent with intent to evade tax or of failure to fail a return). fraud or omission. [Sec. A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is equivalent to forty percent (40%) of the basic tax. Regs. 222 (a) NIRC of 1997. Where a tax has been assessed with the period agreed upon between the Commissioner and the taxpayer in writing (which should initially be within three (3) years from the time the return was filed or should have been filed).00). The administration and collection costs involved do not justify the collection of the amount due.000. [Sec. Withholding tax cases unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold.” [Sec. Civil tax cases being disputed before the courts. or where the assessment is not an extended assessment.000. other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis. and g.  . NIRC of 1997) b.c. Delinquent accounts with duly approved schedule of installment payments. No. 204 (B). NIRC of 1997] 54. in relation to Sec. Collection upon an extended assessment. emphasis supplied) d. b. No. at any time within ten (10) years after the discovery of the falsity. 204 (A). confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative. (Sec. Collection upon a false or fraudulent return or no return with assessment. The Commissioner of Internal Revenue is  authorized to abate or cancel a tax liability.  compromise ? What tax cases could not be the subject of  53.  51. The tax or any portion thereof appears to be unjustly or excessively assessed. e. when: a. “a proceeding in court for the collection of such tax may be filed without assessment. or b. Collection cases filed in courts. “Except as provided in Section 222. Cases which become final and executory after final judgment of a court where compromise is requested on the ground of doubtful validity of the assessment. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. f. other than those already filed in court. (Sec. Criminal tax fraud cases. Criminal violations.

Under the principle of solutio indebiti provided in Art. N. NIRC of 1997. v. Commissioner of Internal Revenue supra citing Citibank. It is clear therefore that neither Sec. March 7. 1) No assessment was made upon a false or fraudulent return or omission to file a return. as for the instance in a case where he is not aware of an existing exemption in his favor at the time the payment was made. 473 SCRA 205. Mathay. G. shall enrich oneself at the expense of another. No. not even the state. Resort should therefore be made to the three (3) year period referred to in Sec. and 3) an extended assessment issued within a period agreed upon by the Commissioner and the taxpayer. Court of Appeals. State Land Investment Corporation v. mailed or sent to the taxpayer. 269 of the NIRC. should not be misused by the government to keep money not belonging to it.) 56.within three (3) years after the last day prescribed by law for the filing of the return. For purposes of this Section. emphasis supplied) When the BIR validly issues an assessment within the three (3)-year period. (Commissioner of Internal Revenue v. Commissioner of Internal Revenue.R. Both the former Sec. 269 (c). reads “Any internal revenue tax which has been assessed within the period of limitation aboveprescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. v. No. Such payment is held to be not voluntary and therefore. That in case where a return is filed beyond the period prescribed by law. also entitled “Exceptions as to the period of limitation of assessment and collection of taxes. 2008 citing BPI v.” Said Sec. NIRC of 1977 and Sec. Provided. G. R. 222 of the NIRC is clear that it covers only three scenarios only. No. No. the three (3) year period shall be computed from the day the return was filed. 269 provide for an instance where the assessment was made upon a “regular return” or one that is not false or fraudulent. 330 SCRA 507.R. 2007) NOTES AND COMMENTS: Technicalities and legalisms. or court proceeding. January 18. simple justice requires the speedy refund of the wrongly held taxes. 89 SCRA 586 (1979). can be recovered or refunded. February 16. Commissioner of Internal Revenue. entitled “Exceptions as to the period of limitation of assessment and collection of taxes. 222 nor the former Sec. 2008 citing BPI-Family Savings Bank. 280 SCRA 459. A. 17 October 2005. 269. 222. 222223) NOTES AND COMMENTS: a. State Land Investment Corporation v. Inc. No.” and thus. What are the reasons for requiring the filing of an administrative application for refund or credit with the BSUGGESTED . a return filed before the last day prescribed by law for the filing thereof shall be considered filed on such last day. Acesite (Philippines) Hotel Corporation.R. October 10.” A perusal of Sec. it has the obligation to return it. 2000. 203. it has another three (3) years within which to collect the tax due by distraint. The same scenarios are those referred to in the former Sec. Sr. v. It is an ancient principle that no one. April 12. Inc. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. (Ibid. and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. Civil Code. Indeed. 147295. and it was unduly delivered through mistake. the obligation to return it arises. G. R. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released. 139736. 107434. 122480. thereby enriching itself at the expense of its law-abiding citizens. 1997. in turn citing Ramie Textiles. levy. 203 of the NIRC of 1997 which reads. 2154. or that there was an agreement to extend the period for assessment. “If something is received when there is no right to demand it.” It is clear that in enacting Sec. R. No. however exalted.222 of NIRC of 1997 do not refer to a “regular return. What is solutio indebeti as applied to tax cases ? SUGGESTED ANSWER: This is erroneous payment of taxes and occurs when the taxpayer pays under a mistake of fact. G.” The BIR received something “when there [was] no right to demand it. “Except as provided in Section 222. 269 which provided for a prescriptive period for collection of three (3) years. 174942. Court of Appeals and Commissioner of Internal Revenue. 2) an assessment was made upon a false or fraudulent return or omission to file a return. and no proceeding in court without assessment for the collection of such taxes x x x “ (paraphrasing and emphasis supplied) 55. G. 171956.. Commissioner of Internal Revenue.” (Sec. G.” the NIRC of 1997 has eliminated sub-paragraph c of the former Sec. internal revenue taxes shall be assessed 65 within three (3) years after the last day prescribed by law for the filing of the return.

for the Commissioner would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment and require him to file a claim for a refund of the taxes paid as a condition precedent to his right to appeal. Inc. Court of Tax Appeals. 14 SCRA 79) b. Commissioner of Internal Revenue. Collector of Internal Revenue. et al. or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. If the option to carry over the excess credit is exercised. (Philippine Bank of Communications v. et al. such election is not final. 361 Phil. 1950) 57. the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. No. To notify the Government that such taxes have been questioned and the notice should be borne in mind in estimating the revenue available for expenditures. July 28. would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case. To ease the administration of tax collection. is given to the taxpayer. these remedies are in the alternative and the choice of one precludes the other. 58. Court of Appeals. 176290.. etc. (Gonzales v. G. 2004) What is the “irrevocability rule” in claims for refund and what is the rationale behind this ? SUGGESTED ANSWER: A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. [Systra Philippines. is necessary for the following reasons:  56.. G. January 28. 69 of the 1977 NIRC (now Sec. 2001 citing Roman Catholic Archbishop of Cebu v. Prior verification and approval by the Commissioner of Internal Revenue is required. Commissioner of Internal Revenue. which is not premised upon a disputed assessment. The phrase “such 59. G. No. (Paseo Realty & Development Corporation v. 119286. G. de San Agustin. shall either (a) be refunded to the corporation. 76 or have its excess taxes applied as tax credit for the succeeding taxable year. In exercising its option.  . There is no need for a prior application for refund or credit. v. Is there any exception ? SUGGESTED ANSWER: Yes.R.. 138485. September 21.R. Commissioner of Internal Revenue. G. The choice. 916 (1999)] This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. L3028. 4 SCRA 279) NOTE: Reconciliation between above two numbers (56 and 57). 229 of the NIRC of 1997 is required where the case filed before the CTA is a refund case.R. whether to claim for refund under Sec. the same shall be irrevocable for that taxable period. Collector.. September 10. R. et al. should not be interpreted as to result in absurdities.The filing of an administrative claim for refund with the BIR. 1999) NOTES AND COMMENTS: a. (Bermejo v. if the refund is merely a consequence of the resolution of the BIR’s denial of a protested assessment. Neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer.. To afford the Commissioner an opportunity to correct his errors or that of subordinate officers. 2007 citing Philippine Bank of Communications v. 76 of the NIRC of 1997) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return.  66 a. these remedies are in the alternative and the choice of one precludes the other. The failure to first file a written claim for refund or credit is not fatal to a petition for review involving a disputed assessment where an assessment was disputed but the protest was denied by the Bureau of Internal Revenue. As a general rule the filing of an application for  refund or credit with the Bureau of Internal Revenue is an administrative precondition before a suit may be filed with the Court of Tax Appeals. (vda. No. October 13. Since the Bank has chosen the tax credit approach it cannot anymore avail of the tax refund. The law. Commissioner of Internal Revenue. What is the nature of the taxpayer’s remedy of either to ask for a refund of excess tax payments or to apply the same in payment of succeeding taxable periods’ taxes ? SUGGESTED ANSWER: Sec. v. It does not confer an absolute right on the part of the taxpayer to avail of the tax credit scheme if it so chooses. before filing a case with the Court of Tax Appeals. To facilitate tax collection. The availment of the remedy of tax credit is not absolute and mandatory. 112024. R.. No. No. An application for refund or credit under Sec.

In early April 1999 XYZ Bank advanced the amount of P180 million to the BIR its income tax payment for the bank’s 1999 operations in response for the government’s call to generate more revenues for national development. or of any sum alleged to have excessively or in any manner wrongfully collected.R. In such a case. G. 229 of the NIRC of 1997. R. R. May 29. a credit balance in the amount of P73 million remain which was carried over for the years 2000 to 2004 but was not availed of because XYZ incurred losses during the period. does Systra lose the unapplied tax credits ? Explain briefly your answer.” Despite the denial of its claim for refund. what happens to the unapplied credits ? SUGGESTED ANSWER: Where. Has the claim prescribed ? Explain briefly your answer. 229 of the NIRC of 1997. 105208. 1999 XYZ requested for the issuance of a Tax Credit Certificate (TCC) to be utilized against future tax obligations of the bank. 477 SCRA 761) Supposing in the above problem that Systra permanent ceased operations. actually or constructively. wrongful or illegal payment of tax within the meaning of Sec. May its refund be granted ? If the refund is denied. Philippine National Bank.R. 23. particularly its statute of limitations component. G. as couched. 156637/162004. By the end of 1999. The Philippine Life Insurance Co. 60-A. the tax due for the next taxable year is lower than excess tax credits. v. September 21. 176290. 14 December 2005. Once the carry over option was made. 2007) 67 NOTES AND COMMENTS: The holding in State Land Investment Corporation v. It now applies for a refund of the unapplied tax credits. October 25. No. SUGGESTED ANSWER: The claim has not prescribed. Systra does not lose the unapplied tax credits. Commissioner of Internal Revenue. v. or of any penalty claimed to have been collected without authority. 229 of the Tax Code. et al. 2005 citing Commissioner of Internal Revenue v. the remaining tax credits can no longer be carried over and the irrevocability rule ceases to apply. it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized Under Section 76 of the Tax Code. Inc.. 1999 and May 14. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund. SUGGESTED ANSWER: Systra’s claim for refund should be denied. p.. Sec. G. No. Seventh Edition. This is so because it interpreted the provisions of then Sec. v. Inc. a claim for refund of such excess credits can no longer be made. supra) . 2005 PNB reiterated its request for the issuance of a TCC for the P73 million balance. However. Petitioner may claim and carry it over in the succeeding taxable years. Hector. Commissioner of Internal Revenue. In the year 2000 Systra derived excess tax credits and exercised the option to carry them over as tax credits for the next taxable year. Commissioner of Internal Revenue. which did not provide for the “irrevocability rule” now contained in Sec. (Systra Philippines. No. The BIR rejected the request on the ground of among others prescription having been applied for beyond the two-year reglementary period for filing claims for refund as set forth in Sec.option shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. An availment of tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period. Cessante ratione legis. supra citing De Leon. January 18. 76 of the NIRC of 1997. Inc. (Footnote no. G. 1995) Absent any specific provision in the Tax Code or special laws. THE NATIONAL INTERNAL REVENUE CODE. September 21. The excess credits will only be applied “against income tax due for the taxable quarters of the succeeding taxable years. Systra Philippines. Inc. (Commissioner of Internal Revenue v. is in context intended to apply to suits for any national internal revenue tax “alleged to have been erroneously or illegally assessed or collected. 176290. In separate letters dated April 19 and 29. G. creditable against future income tax liabilities until fully utilized. it may then be allowed to claim the refund of the remaining tax credits. Commissioner of Internal Revenue. 2000..” Analyzing the underlying reason behind the advance payment (to help the government) made by XYZ it would be improper to treat the same as erroneous. The amount will not be forfeited in favor of the government but will remain in the taxpayer’s account. 171956. 2007 citing Philam Asset Management. 161997. Philippine National Bank. 69 of the NIRC.R. (Systra Philippines. (Commissioner of Internal Revenue v. G. On July 28. cessat ipse lex. No. R. 430) 60. the corporation permanently ceases its operations before full utilization of the tax credits it opted to carry over.. that period would be ten (10) years under Article 1144 of the Civil Code. No. 2008 that the taxpayer is entitled to a refund because during the succeeding year there was no tax due against which the excess tax credits may be applied is not doctrinal. Nos.

ABC Bank filed with the BIR an application for a tax credit/refund for alleged excess payments of its gross receipts tax (GRT) for the 3rd and 4th quarters of 2003 and the entire 2004 amounting to P14 million. to be considered on condition that: (1) evidence must have been identified by testimony duly recorded and (2) it must have been incorporated in the records of the case. The claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of the payment of the tax. not formally offered. Court of Tax Appeals. Court of Appeals.  What are the three (3) conditions for the grant of a claim for refund of creditable withholding tax ? SUGGESTED ANSWER: a. G. 204 [C]. et al. 34102. 204. CA-G. v. (Ibid. c. 2005 to comply with the two-year reglementary period and avoid the prescription of its action. September 1. NIRC of 1997). G. Since no action was taken by the Commissioner on its claim. 228. Commissioner of Internal Revenue. b. despite the failure to present the tax return. thus clearly implying that the prior decision of the Commissioner is necessary to take cognizance of the case. The doctrine that delay of the Commissioner in rendering decision does not extend the peremptory period fixed by the statute. 232. are construed strictly against the taxpayer. among others. NIRC of 1997).) 64. 326 SCRA 641 (2000). 719.. et al. etc. like tax exemptions. (Commissioner of Customs v. NIRC (now Sec. No. R. 119286. Johnston Lumber Co. the CTA rendered a decision denying the claim for ABC’s failure to file its formal offer of evidence in the CTA. (Commissioner of Internal Revenue v. Tax refunds. The taxpayer must present convincing evidence to substantiate a claim for refund. 106611. ABC Bank now seeks refuge in Onate v. NIRC of 1997). R. 144440. No. because other evidence was presented to prove that the overpaid taxes were not applied. Collector of Internal Revenue.R. 1994. The positive requirement of Section 230 NIRC (now Sec.e. G. 151) 63. September 9. (Commissioner of Internal Revenue v. while a tax credit involves the application of the reimbursable amount against any sum that may be due and collectible from the taxpayer. Bank of Philippine Islands. Is ABC correct ? SUGGESTED ANSWER: No. July 21. 149589. The grant of a refund is founded on the assumption that the tax return is valid. Philippine Phosphate Fertilizer Corporation. A simultaneous filing of the application with the BIR for refund/credit and the institution of the court suit with the CTA is allowed. 107 Phil. R. NIRC of 1997). (Commissioner of Customs v. 229. 250 SCRA 283 (1995) where the Supreme Court allowed evidence. REASONS: a. 386 Phil. G. 101 Phil. an option not proximately available if the taxpayer chooses instead to receive a tax credit. and for filing suit in court under Sec. par. No. Court of Appeals. SUGGESTED ANSWER: There are unmistakable formal and practical differences between the two modes. it is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. No. 2006) 62.. Philippine Phosphate Fertilizer Corporation. 2007. No. September 15. G. Only July 30. Court of Appeals. NIRC (now Sec. A tax refund s in the nature of a tax exemption which must be construed strictissimi juris against the taxpayer. to invest for profit the returned sum. that the facts stated therein are true and correct. SP No. et al. refund was granted. 230. 234 SCRA 348) Without the tax return it would be virtually impossible to determine whether the proper taxes have been assessed and paid. Formally. (Paseo Realty & Development Corporation v. which fixed the period (thirty days from receipt of decision) for appealing to the court. On the practical side. the taxpayer to whom the tax is refunded would have the option. There is no need to wait for a BIR denial. b. a tax refund requires a physical return of the sum erroneously paid by the taxpayer. September 1. i. 2004) NOTES AND COMMENTS: It may be that there is no essential difference between a tax refund and a tax credit since both are moves of recovering taxes erroneously or illegally paid to the government. ABC filed a case with the CTA on October 18. 229 (now Sec. and . R. 2004) However. Discuss the difference between tax refund and tax  credit. 144440. unlike in protests of assessments under Sec. CTA. in BPI-Family Savings Bank v.. 2004)  65. 229. 1994. After all. R. Without any documentary evidenced on record.68 61. 320 Phil. It is shown on the return of the recipient that the income payment received was declared as part of the gross income. 344. Gibbs v. 3. (Far East Bank & Trust Company v. The law fixed the same period two years for filing a claim for refund with the Commissioner under Sec. ABC failed to discharge the burden of proving its right to a tax credit/tax refund. October 13.

etc. that is. No. R. but on a whole range of accounts which do not enjoy the same broad exemption as employees’ trusts. 422 SCRA 459) b. gratuity. No. Commissioner of Internal Revenue. but also the correct amount that should be refunded. bank deposits. Extent of exemption. Court of Appeals. et al. etc. etc. or both. 2006) 67. wherein contributions are made by such employer for the officials or employees. must emanate from the payor itself. there is cause to deny the refund. 2007) NOTES AND COMMENTS: a. is that the amount sought to be refunded to the bank-trustee corresponds to the tax withheld on the interest income earned from the exempt employees’ trust. 1. et al. May 2. (Far East Bank Trust and Company. “Any provision of law to the contrary notwithstanding. Employees’ trust fund. May 2. v. for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated. An employees’ trust fund is a trust established by an employer to provide retirement. Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person claiming the exemption.. G. R. Commission on Audit. Act 4917) A tax-exempt employees’ trust fund is referred to under the NIRC of 1997 as a “reasonable private retirement plan. March 27. No. et al. G. R.. R. any purpose other than for the exclusive benefit of the said officials or employees. in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to amendment.  What are the requisites for the refund of illegally deducted taxes from the income of an employees’ trust fund ? SUGGESTED ANSWER: What has to be established. stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees. Instead of presenting separate accounts for . Income of employees’ trust is tax exempt. May 2. Commissioner of Internal Revenue. The burden in proving the claim for refund necessarily falls on the taxpayer. whether individual or corporate. No. in the ordinary course of its banking business. levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or that arising from liability imposed in a criminal action’ x x x “ (Sec.. (Far East Bank Trust and Company. as a matter of evidence. et al. because the source of the interest income does not have any effect on the exemption enjoyed by employee’s trusts. G.” [Sec. the amount of the tax withheld and the nature of the tax paid. Proof of fact of withholding. Court of Appeals. A bank-trustee of employee trusts filed an application for the refund of taxes withheld on the interest incomes of the investments made of the funds of the employees’ trusts. pension. 155682. The fact of withholding is established by a copy of a statement duly issued by the payee showing the amount paid and the amount of tax withheld therefrom.. the fact of withholding. earns interest income not only from its investments of employees’ trusts. the retirement benefits received by official and employees of private firms. or allow it only to the extent of the sum that is actually proven as due. No. (Far East Bank Trust and Company. as amended) The document which may be accepted as evidence of the third condition. G. (Development Bank of the Philippines v. or be diverted to. specially if the bank trustee. et al.. Commissioner of Internal Revenue. 138919..c. The need to be determinate is important. v.. and not merely from the payee. (Banco Filipino Savings and Mortgage Bank v. “Sec. What should be established by a taxpayer for the grant of a tax refund ? Why ? SUGGESTED ANSWER: A taxpayer needs to establish not only that the refund is justified under the law. Claim for tax credit or refund.it is a separate taxable entity established for the exclusive benefit of the employees. 138919. 138919. 2006) NOTES AND COMMENTS: a. v. (Banco Filipino Savings and Mortgage Bank v. . Rep. No. 6-85. and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for.. 10. defined. the income payment basis of the tax withheld. Regs. – (a) Claims for Tax Credit or Refund of Income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom xxx” (Rev. 2006)  66. 155682. The tax exemption enjoyed by employees’ trust is absolute irrespective of the nature of the tax. 2007) 69 65-A. If the latter requisite cannot be ascertained with particularity. which means “a pension. other deposit substitute instruments and government security. 32 (B) (6 ) (a). and must indicate the name of the payor. NIRC of 1997] c. R. G. It does not apply only to the tax on interest income from money market placements. March 27. or other benefits to employees .

Such summary and certification must properly be identified by a competent witness from the accounting firm. at 11.interest incomes made of these investments. but also the correct amount that should be refunded. 0018064 NA dated June 27. 2006) The amounts that are the exempt earnings of the employee’s trust has not been shown as they have been commingled with the interest income of the other clients of the bank-trustee. . Upon the effectivity of Executive Order No. The method of individual presentation of each and every receipt or invoice or other documents for marking. No. et al. The burden in proving the amount to be refunded necessarily falls on the bank-trustee. It is enough that the receipts.649.838. respondent filed on April 6. 68. Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption. However. For the last quarter ending December 31. v. deficiency franchise tax in the amount of P2.340..931.729 representing overpaid income taxes for the years 1987 and 1988. but only P77. 138919.R. however.812 was applied as tax credit for the succeeding taxable year 1988. etc. A necessary consequence of the special exemption enjoyed alone by employees’ trusts would be a necessary segregation in the accounting of such income.902. the bank-trustee instead presented witness to establish that it would next to impossible to single out the specific transactions involving the employees’ trust funds from the totality of all interest income from its total investments. an investigation was conducted by Revenue Officer Frederick Capitan which showed that respondent was liable for “1.2[3] had been paying a 2% franchise tax based on its gross receipts.741. 1990 a letter-claim for refund or credit in the amount of P107. 4159 and Presidential Decree No. The bank-trustee needs to establish not only that the refund is justified under the law (which is so because incomes of employees’ trusts are tax exempt).897. Acting on a yearly routinary Letter of Authority No. CTA Circular No.729. On the above basis will the application for refund prosper ? SUGGESTED ANSWER: No. and there is an apparent failure to do so. 1989.” (Emphasis supplied) 69. identification and comparison with the originals thereof need not be done before the Court or the Commissioner anymore after the introduction of the 70 summary and CPA certification. deficiency income tax in the amount of P2. etc. and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers. It protested the payment of the alleged deficiency income tax and claimed as 2 [3] Id. Petitioner not having acted on its request. invoices and other documents covering the said accounts or payments must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and verify the correctness of the summary and CPA certification.” On April 17.335.. invoices or documents should be ready for verification and comparison in case doubt on the authenticity of the particular documents presented is raised during the hearing of the case. the originals of the said receipts. earned from those trusts from that earned by the other clients of the bank-trustee. respondent became subject to the payment of regular corporate income tax. The application for refund will not prosper. reads: “1.335.838. respondent filed on April 15. CTA Circular No. 195. G. Respondent thus filed on March 30. dates and amounts covered by the invoices or receipts. in lieu of all other taxes and assessments of whatever nature.. 2.84. May 2. and 2. 1-95 clearly requires that photocopies of the receipts or invoices must be pre-marked and submitted to the CTA to verify the correctness of the summary listing and the CPA certification. 1990 a judicial claim for refund or credit with the Court of Tax Appeals. It is gathered that respondent paid the deficiency franchise tax in the amount of P2. Commissioner. directing the investigation of tax liabilities of respondent for taxable year 1987. 72 on February 10. 1988 its tentative income tax reflecting a refundable amount of P101. Manila Electric Company a grantee of a legislative franchise under Act No. 1987. issued on 25 January 1995. respondent filed an amended final corporate Income Tax Return ending December 31. 1988 reflecting a refundable amount of P107. 1987. 551.649. as amended by Republic Act No. interest or otherwise. 1988 issued by petitioner.52.84. 484. (Far East Bank and Trust Company.

“AntiDumping Act of 1999. No. 32-76 dated June 11. or in the alternative for the BIR to issue a tax credit. et al. Thus. 2007) 71 SUGGESTED ANSWER: Importation is deemed terminated upon payment of the duties. The special customs duties under the Tariff and Customs Code (TCCP) are the anti-dumping duty. 4. v. the discriminatory duty. Court of Appeals.  TARIFF AND CUSTOMS LAWS ORGANIZATION AND FUNCTIONS INTERNAL REVENUE OF THE BUREAU OF TARIFF AND CUSTOMS CODE  1. July 6.R. When does importation begin.” After such checking. which implements the constitutionally delegated power to the Congress to further delegate to the President of the Philippines. Dumping duty is an additional special duty  amounting to the difference between the export price and the normal value of such product. or exported to. (Sec. When is importation deemed terminated and why is it important to know whether importation has already ended?  2. Customs duties defined. Manila Electric Company. or secured to be paid. 1976) the refund or tax credit is granted. among others. the countervailing duty. The flexible tariff clause is a provision in the Tariff and Customs Code. a foreign country.   7. Special customs duties are additional import duties imposed on specific kinds of imported articles under certain conditions.729 claim for refund. now Sec. (Sec. 6. Act No. if the sum of the quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable income of that year as shown in its final adjustment return. the corporation has the option to either: (a) pay the excess tax still due. The Court of Tax Appeals granted the P107. October 10.649. taxes and other charges due upon the agencies. and why is it  important to know whether importation has already begun or not ? SUGGESTED ANSWER: Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein.. 1202. the Bureau of Customs obtains jurisdiction over imported articles only after importation has begun. TCC. TCCP) The Bureau of Customs loses jurisdiction to enforce the TCCP and to make seizures and forfeitures after importation is deemed terminated. provided that. 134114. the tariff or tax assessed upon merchandise imported from. and the marking duty. 121666. (Commissioner of Internal Revenue v. G. in the interest of national economy. commodity or article (Sec. until they have legally left the jurisdiction of the customs. Is the Court of Tax Appeals correct ? SUGGESTED ANSWER: Yes. G. 301 (s) (1). reduce or remove existing protective rates of import duty. Customs duties is the name given to taxes on the importation and exportation of commodities. Section 69 of the National Internal Revenue Code of 1986. commodity or article of commerce into the Philippines at less than its . as amended by Rep. TCCP) The jurisdiction of the Bureau of Customs to enforce the provisions of the TCCP including seizure and forfeiture also begins from the beginning of importation. general welfare and/or national security upon recommendation of the NEDA (a) to increase. The returns submitted are “merely pre-audited which consist mainly of checking mathematical accuracy of the figures in the return. or (b) be refunded the excess amount paid. (Nestle Phils. 8752. 76 provides.” (Revenue Memorandum Order No. the increase should not be higher than 100% ad valorem. The special customs duties are imposed for the protection of consumers and manufacturers. as well as Philippine products.”) imposed on the importation of a product. taxes and other charges. No. R. at the port of entry and the legal permit for withdrawal shall have been granted.  3. and (c) to impose additional duty on all imports not exceeding 10% ad valorem. and under the Safeguard Measures Act (SMA) additional tariffs as safeguard measures. the purpose of which being to “insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes. (b) to establish import quota or to ban imports of any commodity. 2001) 5. In case the articles are free of duties.an alternative remedy the deduction thereof from its claim for refund or credit. 1202.

taxes and charges imposed by law on the imported product. the Tariff Commission. 8751) 15. (Sec. [Sec. commodity. and such exportation is causing or is threatening to cause material injury to a domestic industry. “Anti-Dumping Act of 1999”] 11. [Sec. “Anti-Dumping Act of 1999”) 16. “Anti-Dumping Act of 1999”] Thus. as amended by Rep. The imposing authority for the anti-dumping duty is the Secretary of Trade and Industry in the case of nonagricultural product. TCC. and other 14. as amended by Rep. in a . “Anti-Dumping Act of 1999”) The anti-dumping duty shall be equal to the margin of dumping on such product. “Anti-Dumping Act of 1999”) 13. 301 (a). Act No. 8752. R. TCCP as amended by Section 1. commodity or article. 12. Where a product. 8752. manufacture or exportation of such product commodity or article. 8752. The countervailing duty is equivalent to the value of the specific subsidy. TCC. Act No. 302. [Sec. Even when all the requirements for the imposition have been fulfilled. any kind or form of specific subsidy upon the production. in addition to ordinary duties. or article in the ordinary course of trade when destined for consumption in the country of export. Even when all the requirements for the imposition have been fulfilled. or materially retards the establishment of a domestic industry producing the like product. TCC. TCC. Act No. Act No. the effect of imposing an anti-dumping duty on the welfare of the consumers and/or the general public. the cabinet secretaries could not contravene the recommendation of the Tariff Commission. 301 (a). or article or the Secretary of Agriculture. Act No. TCC. and the importation of such subsidized product.  17. as amended by Rep. (Sec. commodity. the decision on whether or not to impose a definitive antidumping duty remains the prerogative of the Tariff Commission. after formal investigation and affirmative finding of the Tariff Commission. as amended by Rep. not marked in any official language in the Philippines. [Sec. No. as amended by Rep. or materially retarding the establishment of a domestic industry producing the like product. In the determination of whether to impose the antidumping duty. Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product. 301 (a). “Anti-Dumping Act of 1999”] 9. [Sec. 301 (s) (1).normal value when destined for domestic consumption in the exporting country which is causing or is threatening to cause material injury to a domestic industry. as amended by Rep. (Sec. 8752. TCC. Act No. or article has caused or threatens to cause material injury to a domestic industry or has materially retarded the growth or prevents the establishment of a domestic industry. commodity or article of commerce is exported into the Philippines at a price less than its normal value when destined for domestic consumption in the exporting country. Act No. TCC. They could not impose the anti-dumping duty or any special customs duty without the favorable recommendation of the Tariff Commission. or article or the Secretary of Agriculture. 301 (a). (Sec.A. The amount of anti-dumping duty that may be imposed is the difference between the export price and the normal value of such product. commodity or article. 8752. commodity or article. as amended by Rep. Marking duties are the additional customs duties  imposed on foreign articles (or its containers if the article itself cannot be marked). 8752. 301 (a). commodity. in the case of agricultural product. “Anti-Dumping Act of 1999”] 10. The imposing authority for the countervailing duties is the Secretary of Trade and Industry in the case of nonagricultural product. 301 (s) (5). 301 (s) (3 ). b. Act No. the decision on whether or not to impose a definitive anti-dumping duty remains the prerogative of the Tariff Commission.  When is the anti-dumping duty imposed ? SUGGESTED ANSWER: The anti-dumping duty is imposed a. as amended by Rep. after formal investigation and affirmative finding of the Tariff Commission. 8752. commodity or article thereafter imported to the Philippines under similar circumstances. “Anti-Dumping Act of 1999”] 72 related local industries. commodity. in the case of agricultural product. What are countervailing duties and when are  they imposed ? SUGGESTED ANSWER: Countervailing duties are additional customs duties imposed on any product.  8. commodity or article of commerce which is granted directly or indirectly by the government in the country of origin or exportation. commodity or article. TCC. 8752. may consider among others.

the following alternative methods should be used one after the other: a. 158540. tonnage. exaction. fee. The above transaction value is the primary method  of determining dutiable value. Transaction value of identical goods b. et al. directly or indirectly. who upon receipt of such claim. Imposing authority for safeguard measures.. Safeguard measures are emergency measures. or imported in a vessel. Fallback method 27. by or in respect to any customs. to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them. Computed method e. No. 9135)  26. TCC) 28. G. Freight. 2004) The DTI Secretary cannot impose the safeguard measures if the Tariff Commission does not favorably recommend its imposition. shall certify the same to the Commissioner of Customs with his recommendation together with all necessary papers and documents. indelibly and permanently in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin.  20. TCC as amended by Sec. Transaction value of similar goods c. regulation. in such manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country. commodity. directly or indirectly. restriction or prohibition. charge. import quotas or banning of imports. upon the disposition or transportation in transit through or re-exportation from such country of any article wholly or in part the growth or product of the Philippines. The CTA is vested with jurisdiction to review decisions of the Secretary of Trade and Industry imposing safeguard measures as provided under Rep. (Southern Cross Cement Corporation v.. Safeguards measures that may be Additional tariffs. Act No. a. imposed. after formal investigation and affirmative finding of the Tariff Commission. and c.conspicuous place as legibly. and may include the following: a. The Commissioner of Customs imposes the marking duty. 19. condition. July 8. R. regulation or limitation which is not equally enforced upon like articles of every foreign country. How and to whom should claims for refund of customs duties be made ? SUGGESTED ANSWER: All claims for refund of duties shall be made in writing and forwarded to the Collector of Customs to whom such duties are paid. The basis of dutiable value of merchandise that is  subject to ad valorem customs duties the transaction value. including tariffs. The marking duty is equivalent to five percent (5%) ad valorem. 8800 the Safeguard Measures Act (SMA). Upon receipt by the Commissioner of such certified claim he shall cause the same to be paid if found correct. 21. (Sec. (Sec. the documents filed at the Customs house. 18. by law or administrative regulation or practice. or port duty. which shall be the price actually paid or payable for the goods when sold for export to the Philippines. Act No. If the transaction value of the imported article could not be determined using the above.  25. 73 24. The President of the Philippines imposes the discriminatory duties. Cost of containers and packing. 201. b. Law ? SUGGESTED ANSWER: It has a triple meaning. any unreasonable charge. or discriminates against the commerce of the Philippines.  . and if found to be correct and in accordance with law. classification. in the case of agricultural product. A discriminatory duty is a new and additional  customs duty imposed upon articles wholly or in part the growth or product of. 1708. The Philippine Cement Manufacturers Corp. The imposing authority for the countervailing duties is the Secretary of Trade and Industry in the case of non-agricultural product. commodity or article. or article or the Secretary of Agriculture. Insurance. exaction. the submission and acceptance of the documents. b. of any foreign country which imposes. and What is mean by the term “entry” in Customs  22. Rep. Deductive method d. 1. adjusted by adding certain cost elements to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods. 23. shall verify the same by the records of his Office.

74 however. (Jardeleza v. the defendant is shown to have possession of the article in question. Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein. and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. et al. Importation consists of bringing an article into the country from the outside.c. February 6. 3601. and she submitted her “Customs Baggage Declaration Form” which she accomplished and signed with nothing or written on the space for items to be declared. R. G.R. (Jardeleza v. Indeed the second paragraph of Sec. No. February 6. prohibition or mandamus. People. G. 3601 does not define a crime. She now appeals claiming that lower court erred n convicting her under Sec. fraudulently imports or brings into the country any article contrary to law. Ogario. G. b. People. 2505 provides that nothing shall prevent the bringing of a criminal action against the offender for smuggling under Section 3601.” of which she was acquitted. knowing the same to have been imported contrary to law. or c. How is smuggling committed ? SUGGESTED ANSWER: Smuggling is committed by any person who: a. Sec. No. Entry through a custom house is not the essence of the act. R. 165265. No. No. Importation is complete when the taxable. 138081. People. (De la Fuente v. She was then convicted of violating of Sec. March 20. et al.” (last par. 2505 of the TCCP (Failure to declare baggage). In the absence of a bona fide intent to make entry and pay duties when the prohibited article enters the Philippine territory. Payment is not a defense in smuggling. 2006 citing Rodriguez v.. RTCs are precluded from assuming cognizance over such matters even through petitions of certiorari. concealment or sale of such goods after importation. (Jardeleza v. No. sells or in any manner facilitates the transportation. inter alia.. Such administrative penalties are independent of the criminal liability for smuggling that may be imposed under Sec.R. 3601. Upon her arrival she was asked whether she has anything to declare. 1995. 120 SCRA 455) . G. 2505 “Failure to Declare Baggage. When her hanger bag was examined some pieces of jewelry were found concealed within the lining of said bag. receives. unless the defendant shall explain the possession to the satisfaction of the court: Provided. She answered none. and other provisions of the TCC which can only be determined after the appropriate criminal proceedings. “When upon trial for violation of this section. Sec. dutiable commodity is brought within the limits of the port of entry. 2006) 29-A. et al. 2006) 29. 165265. 248 SCRA 288. v. 2000) What is the rationale for this doctrine ? SUGGESTED ANSWER: a. Regional Trial Courts have no jurisdiction to replevin a property which is subject to seizure and forfeiture proceedings for violation of the Tariff and Customs Code otherwise. assists in so doing any article contrary to law. and the administrative penalties that such person must pay for the release of such goods if not imported contrary to law. TCC) 30. 2006)   The Collector of Customs sitting in seizure  31. 165265. People. actions for forfeiture of property for violation of the Customs laws could easily be undermined by the simple device of replevin. September 18. February 6. prescinding from the outcome in any administrative case that may have been filed and disposed of by the customs authorities. 3601 of the Tariff and Customs Code for unlawful importation which penalizes any person who shall fraudulently import or bring into the Philippines any article contrary to law.R. the administrative remedies which can be resorted to by the Bureau of Customs when seizing dutiable articles found the baggage of any person arriving in the Philippines which is not included in the accomplished baggage declaration submitted to the customs authorities. Customs declaration forms or customs entry forms required to be accomplished by passengers of incoming vessels or passenger planes as envisaged under Sec. 296) NOTES AND COMMENTS: a. G. 115218. It merely provides. No. 165265. Is she correct ? SUGGESTED ANSWER: No. (Jardeleza v. G. When unlawful importation is complete. A flight stewardess arrived from Singapore. De Veyra. conceals. (The Bureau of Customs. possession shall be deemed sufficient evidence to authorize conviction. That payment of the tax due after apprehension shall not constitute a valid defense in any prosecution under this section. buys. February 6. 3601 when the facts alleged both in the information and those shown by the prosecution constitute the offense under Sec..R. Court of Appeals. b..

. Ogario. The importation is absolutely prohibited. . When the Bureau of Customs later became suspicious that the vessel’s real purpose in docking was to smuggle cargo into the country. Court of Tax appeals. even the courts must defer to this expertise. The doctrine of exclusive customs jurisdiction over customs cases to the exclusion of the RTCs is anchored upon the policy of placing no unnecessary hindrance on the government’s drive. as issues of ownership of goods in the custody of customs officials are within the power of the CTA to determine.R. et al. Court of Appeals. No. Court of Appeals. (Zuno v. the falsity of such declaration. seizure proceedings were instituted and subsequently two Warrants of Seizure and Detention were issued for the vessel and its cargo. The Tariff and Customs Code allows the Bureau of Customs to resort to the administrative remedy of seizure. exporter or consignee of any declaration or affidavit. to render effective and efficient the collection of import and export duties due the State. Where an administrative office has obtained a technical expertise in a specific subject. et al. 35. His remedy was not with the RTC but with the CTA. seizures and forfeitures of contraband without interference from the courts. 126634. 2000) 75 34. Jr. invoice. No. Court of Appeals. v.  goods: Requisites for forfeiture of imported a.. the Supreme Court clarified that the fraud contemplated by law must be actual and not constructive. etc. 2006) 33. an intention on the part of the importer/consignee to evade the payment of the duties due. not only to prevent smuggling and other frauds upon Customs. 58 SCRA 519. G. et al. and c.R. 1999) 37. It must be intentional.R. There is fraud.. v.. (Republic. letter or paper – all touching on the importation or exportation of merchandise. 36.  38.b. G. The issuance by regular courts of writs of preliminary injunction in seizure and forfeiture proceedings before the Bureau of Customs may arouse suspicion that the issuance or grant was for consideration other than the strict merits of the case. 138081. 111202-05. c. La Union for needed repairs. the vessel M/V ”Star Ace. January 25. In Aznar v. March 20.. Instances where there is no right of redemption of seized and forfeited articles: a. et al. but more importantly. The Court of Appeals. (The Bureau of Customs. and companion case. prohibition or mandamus. letter or paper. the Bureau of Customs has exclusive administrative jurisdiction to conduct searches. (Jao. G. 32. R. 2001) 39. The customs authorities do not have to prove to the satisfaction of the court that the articles on board a vessel were imported from abroad or are intended to be shipped abroad before they may exercise the power to effect customs searches. v. v. G. 43) d. et al. Nos. It could conduct searches and seizures without need of a judicial warrant except if the search is to be conducted in a dwelling place. 217 SCRA 298. ”coming from Singapore laden with cargo. willfully and deliberately done or resorted to in order to induce another to give up some right. or the wrongful making or delivery by the same person of any invoice. (Commissioner of Customs v. et al. which enables the government to carry out the functions it has been instituted to perform. Cabredo. 139050. The Tariff and Customs Code allows the Bureau of Customs to resort to the judicial remedy of filing an action in court when the imported articles could not anymore be found. Wrongful making by the owner. No. importer. “A” claiming to be the owner of a vessel which is the subject of customs warrant of seizure and detention sought the intercession of the RTC to restrain the Bureau of Customs from interfering with his property rights over the vessel.. Under the doctrine of primary jurisdiction.. 1989. seizures. b. affidavit. such as by enforcing the tax lien on the imported article when the imported articles could be found and be subject to seizure and forfeiture. 249 SCRA 35. reiterated in Farolan. The Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and trial courts are precluded from assuming cognizance over such matters even through petitions for certiorari. b. or arrests provided by law and continue with the administrative hearings. 402 SCRA 75 [2003]) e. Inc. et al.. January 31. The release of the property would be contrary to law. Would the suit prosper? SUGGESTED ANSWER: No. (Transglobe International. October 2. et al. entered the Port of San Fernando.. Court of Tax Appeals. v. On January 7. or c. consisting of deception.

fees. As such it is not a private corporation engaged in “business enjoying franchise” . 2006) NOTES AND COMMENTS: a. When Cesar has impleaded the vessel as a defendant to enforce his alleged maritime lien. in violation of the tariff and customs laws shall issue a warrant of seizure. 1. R.(Transglobe International. (Asian Terminals. an instrumentality of the National Government which is exempt from local taxation. et al. (Philippine Ports Authority v. Forfeiture of seized goods in the Bureau of Customs is in the nature of a proceeding in rem.R. then a search warrant should be issued by the regular courts not the Bureau of Customs.    A law which deprives local government units of . i. in the RTC. 111202-05. d. Would these suits prosper ? SUGGESTED ANSWER: No. Uniformity.. Title III. The progressivity principle must be observed. the trial court must have obtained either actual or constructive possession over it. without reference whatsoever to the character or conduct of the owner.. (Commissioner of Customs v. 1999) Forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner. as a defendant. by paying the taxes and other charges due them. This constitutional delegation may only be removed by a constitutional amendment. City of Iloilo. oppressive or confiscatory. There may be instances where no warrants issued by the Bureau of Customs or the regular courts is required. R.  3. Smuggled goods seized by virtue of a court warrant should be surrendered to the court that issued the warrant and not to the Bureau of Customs because the goods are in custodia legis. charges and other impositions shall be equitable and based on ability to pay. IN GENERAL The fundamental principles of local taxation are: a. Inures solely to the local government unit levying the tax. hence resulting in the need for these entities to share in the requirements of development. G. However. insistence that it is not subject to the payment of franchises taxes imposed by the Province of Isabela because all of its shares are owned by the Republic of the Philippines. 166901. 109791. No. national economic policy or in restraint of trade. Neither was accomplished by the RTC as the vessel was already in the possession of the Bureau of Customs. In this proceeding. CAO No. LOCAL GOVERNMENT TAXATION LOCAL GOVERNMENT TAXATION. 76 41. G. for public purposes. It is thus. b. 2 their power to tax would be unconstitutional. not unjust. 126634. it is in legal contemplation the property itself which commits the violation and is treated as the offender. Court of Appeals. fiscal or otherwise. Nos.e. directed against the res or imported goods and entails a determination of the legality of their importation. October 27. as in search and seizures of motor vehicles and vessels. c. public policy. . v. Inc. The issue is limited to whether the imported goods should be forfeited and disposed of in accordance with law for violation of the Tariff and Customs Code. v. Inc. 9-93) If the search and seizure is to be conducted in a dwelling place. 6. 2006 citing Transglobe) 40.Cesar does not own the vessel or any of its cargo but claimed a preferred maritime lien. The constitution has delegated to local governments the power to levy taxes. he brought an action in rem under the Code of Commerce under which the vessel may be attached and sold. Cesar then brought several cases in the RTC to enforce his lien. No. G. January 31. The Bureau of Customs having first obtained possession of the vessel and its goods has obtained jurisdiction to the exclusion of the trial courts. Court of Appeals. not contrary to law. January 25. July 14. The Collector of Customs upon probable cause that the articles are imported or exported. The primary reason for the withdrawal of tax exemption privileges granted to government owned and controlled corporations and all other units of government was that such privilege resulted to serious tax base erosion and distortions in the tax treatment of similarly situated enterprises. the basic operative fact is the actual or constructive possession of the res by the tribunal empowered by law to conduct the proceedings. e. G . No. et al. 2003)  National Power Corporation (NPC) is of the 4. (Sec. or are attempted to be imported or exported. The levy and collection shall not be let to any private person. excessive. Taxes. fees and other charges. Bautista-Ricafort.R. This means that to acquire jurisdiction over the vessel.

The PRC shall likewise require the professionals presentation of proof of payment before registration of professionals or renewal of their licenses. (Sec. Tax rate: In Accordance with a taxing ordinance which should not exceed P300. Requirements: Any individual or corporation employing  a person subject to professional tax shall require payment by that person of the tax on his profession before employment and annually thereafter. f. 238 (f). upheld the authority of the City of Davao. the number of the official receipt issued to him. 2001. a lawyer who is also a Certified Public Accountant (CPA) must pay the professional tax imposed on lawyers and that fixed for CPAs. What are the fundamental principles of real  property taxation ? . etc. 77 5. Date of payment: or on before January 31 or engaging in the profession. Exemption: Professionals exclusively employed in the government shall be exempt from payment. are subject to professional tax ? SUGGESTED ANSWER: The professionals subject to the professional tax are only those who have passed the bar examinations. October 25. d. Rule XXX.. which is defined under the Code as ”trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. Who are the professionals who. 154993.. irrespective of any local ordinance that seeks to declare otherwise. No. surveys and maps. prescriptions. receipts. No. and any profit that it derives is merely incidental. 228. BA Lepanto Condominium Corporation. 139. 143867. e. license or fee for the practice of such profession in any part of the Philippine professionals exclusively employed in the government. Inc. or any board or other examinations conducted by the Professional Regulation Commission (PRC). Transaction taxed: Exercise or practice of profession requiring government licensure examination. G. c. to impose and collect a local franchise tax because the Local Government Code has withdrawn all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them. Tax base: Reasonable classification by the sanggunian. Any person subject to the professional tax shall write in deeds. Rules and Regulations Implementing the Local Government Code of 1991]  X City issued a notice of assessment against ABC 8. as the case may be. The Condominium Corporation is a duly constituted condominium corporation in accordance with the Condominium Act which owns and holds title to the common and limited common areas of the condominium. if they are in  practice of their profession. b.” By its very nature a condominium corporation is not engaged in business. etc. Exception: Payment to one province or city no longer subject to any other national or local tax. if he is to practice both professions. August 22. Philippine Long Distance Telephone Company. Professional tax may be imposed by a province or  city but not by a municipality or barangay. Its membership comprises the unit owners and is authorized under its By-Laws to collect regular assessments from its members for operating expenses. hence it may not be subject to business taxes. 6. X City.00. v. 2005) REAL PROPERTY TAXATION 1. R.Is such contention meritorious ? SUGGESTED ANSWER: No. ABC Condominium Corporation insists that the X City Revenue Code and the Local Government Code do not contain provisions upon which the assessment could be based. (last par. [Sec. v. (Yamane . Resolve the controversy. reports. for example. Place of payment: Province or city where the professional practices his profession or where he maintains his principal office in case he practices his profession in several places.. Condominium corporations are generally exempt from local business taxation under the Local Government Code. City of Davao. books of account. R. the provincial or city treasurer or his duly authorized representative shall require from such professionals their current annual registration cards issued by competent authority before accepting payment of their professional tax for the current year. capital expenditures on the common areas and other special assessments as provided for in the Master Deed with ? Declaration of Restrictions of the Condominium. a. Condominium Corporation for unpaid business taxes. SUGGESTED ANSWER: ABC is correct. LGC) NOTE: For the purpose of collecting the tax. plans and designs. G. Rules and Regulations Implementing the Local Government Code of 1991) 7.. is authorized under the Local Government Code. et al. a local government unit. Art. to impose a tax on business.

appraisers. and b. 383 ) NOTE: In fixing the value of real property. and posted in at lease two (2) prominent places in the provincial capitol. (Allied Banking Corporation. c. city or municipality concerned or the posting in the provincial capitol or other places as required by law. (Figuerres v. et al. 2005 citing Local Assessment Regulations No. G. Appraisal at current and fair market value.  What are the approaches in estimating the fair market 4. municipal or barangay hall for a minimum of three (3) consecutive weeks. dealers. Manila v. Assessment on the basis of uniform classification. Sales Analysis Approach. October 11. brokers. the buyers need not be actual and existing purchasers. G. 154126. v. 119172. 1-92) 5. based on such data as materials and labor costs to reproduce a new replica of the improvement. [Allied Banking Corporation. assessment.SUGGESTED ANSWER: The fundamental principles of real property taxation are: a.. 127139. 327 (1991)]) Preparation of fair market values: a. etc. An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property. Income Capitalization Approach. City of Manila. (Allied Banking Corporation. b. notaries public. October 11. No. within ten (10) days of its approval. Court of Appeals. 44 Phil. bank officials.R. 1999) Who determines the fair market value of properties ? SUGGESTED ANSWER: The reasonable market value is determined by the assessor in the form of a schedule of fair market values. c. whichever is higher. NOTES AND COMMENTS: Real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated and classified for assessment purposes on the basis of its actual use. 196 SCRA 322. Quezon City Government. v. et al. 154126.R. 1999)  2. Quezon City Government. as evidenced by the certificate of payment of the capital gains tax issued therefore.. Transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale. transfer and conveyance. value of real property for real property tax purposes ? ANSWER: a. Quezon City Government. b. v. (Allied Banking Corporation. city. etc. Hence. et al. No. R. R. 2005 citing Reyes v.. No. No. The value of an income-producing property is no more than the return derived from it. 154126. et al. etc. Classification for assessment on the basis of actual use.. levy and collection shall not be let to a private person. Appraisal and assessment shall be equitable. R. (Lopez v.. Appraisal. and various sources stated under the Local Government Code. v. where available. Almanzor. et al. d. Reproduction cost approach is a formal approach used exclusively n appraising man-made improvements such as buildings and other structures. The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned. G. No. Quezon City passed an ordinance whereby the  “parcels of land sold. February 19. G. et al. The schedule of fair market values shall be published in a newspaper of general circulation in the province. G. No. October 11. March 25..” Is the proviso for the basis in determining the value for real property tax purposes valid ? . ceded.. 2005 citing Army and Navy Club. October 11. R.. The criterion established by the statute contemplates a hypothetical sale. Quezon City Government. cession. taking into consideration all uses to which the property is adopted and might in reason be applied. 154126. assessors have to consider all the circumstances and elements of value and must exercise prudent discretion in reaching conclusions.. G. e.. 2005) 78 Proposed fair market values of real property in a local government unit as well as the ordinance containing the schedule must be published in full for three (3) consecutive days in a newspaper of local circulation. The schedule is then enacted by the local sanggunian. Trinidad. The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the estimated fair market value to be included in the ordinance containing the schedule of fair market values.  3. etc. What is the fair market value of properties ? ANSWER: 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. The sales price paid in actual market transactions is considered by taking into account valid sales data accumulated from among the Registrar of Deeds.

R. Central Board of Assessment Appeals.. the real property tax burden should not be interpreted to include those beyond what the Code or the regulations expressly clearly state. The “consideration approach” in the ordinance is illegal since “the appraisal. 17 June 2003. 166865. the questioned proviso subjects the property to a higher assessment every time a sales transaction is made. assessment. and similar structures do not form part of the public roads since the former are constructed over the latter in such a way that the flow of vehicular traffic would not be impaired. The ordinance would result to real property assessments more than once every three (3) years and that is not the congressional intent as shown in the provisions of the Local Government Code and the regulations. G. et al. The proviso being contrary to public policy and for restraining trade is not valid for the following reasons: a. et al..” d. et al. The proviso would provide a chilling effect on real property owners or administrators to enter freely into contracts reflecting the increasing value of real properties in accordance with prevailing market conditions. etc. Real property owners would therefore postpone sales until after the lapse of the three (3) year period. levy and collection of real property tax shall not be let to any private person”. et al. R.SUGGESTED ANSWER: No. 2007 citing Heirs of Simplicio Santiago v.. (Caltex Phils. Even granting that the national government owns the carriageways and terminal stations.. e. it will also completely destroy the fundamental principle in real property taxation – that real property shall be classified. 127316. It mandates an exclusive rule in determining the fair market value and departs from the established procedures such as the sales analysis approach. v. Consequently. October 11. et al. An ordinance that contravenes any statute is ultra vires and void. 2000) c. 2005) 6. Central Board of Assessment Appeals. v.. but also the intention to contribute needed revenues to the government. The voluntary declaration of a piece of property for taxation purposes manifests not only one’s sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties. The invalidity is not cured by the prhase “whichever is higher” because an integral part of that system still permits valuing real property in disregard of its “actual use. What is the nature of a tax declaration ? SUGGESTED ANSWER: As a rule. G. The City of New York. they are good indicia of possession in the concept of owner. No. Underground tanks are essential to the conduct of the business of a gasoline station without which it would not be operational. The carriageways and terminals serve a function different from the public roads. G. SUGGESTED ANSWER: Personal property under the civil law may be considered as real property for purposes of taxes where the property is essential to the conduct of the business. they are not open to use by the general public hence not exempt from real property taxes. Inc. the property is not exempt because their beneficial use has been granted to LRTA a taxable entity. 404 SCRA 193. Allowing the parties to a private sale to dictate the fair market value of the property will dispense with the distinctions of actual use stated in the Local Government Code and in the regulations. 199 – 200)   Give examples of personal property under the . b. v. Such an act strengthens one’s bona fide claim of acquisition of ownership. Santiago. 114 SCRA 296) b. c. v. No. Furthermore. The Supreme Court of New York in Consolidated Edison Company of New York. a. et al. While the Local Government Code provides that the assessment of real property shall not be increased once every three (3) years. R. G. (Buenaventura. or if they do so within the said period they shall be compelled to dispose of the property at a price not exceeding the last prior conveyance in order to avoid a higher tax assessment.. (Light Rail Transit Authority v.. passenger terminals stations. 154126. whoever owns it. 7 civil law that may be considered as real property for purposes of taxes.. In the above two scenarios real property owners are effectively prevented from obtaining the best price possible for their properties and unduly hampers the equitable distribution of wealth. carriageways. 80 . and whoever uses it. October 12. March 2. tax declarations or realty tax payments of property are not conclusive evidence of ownership. the income capitalization approach and the reproduction approach provided under the rules implementing the statute. for no one in his right mind would be paying taxes for a property that is not in his actual or constructive possession. It unduly interferes with the duties statutorily placed upon the local assessor by completely dispensing with his analysis and discretion which the Local Government Code and the regulations require to be exercised. nevertheless. R. 151440.. Light Rail Transit (LRT) improvements such as buildings. (Allied 79 Banking Corporation. They constitute at least proof that the holder has a claim of title over the property. Quezon City Government. valued and assessed on the basis of its actual use regardless of where located. No. Heirs of Mariano E. Republic. No. Inc.

No. (Figuerres v. because what was reversed in the second motion for reconsideration was the garnishment of Meralco’s assets. (Reyes. R. and the accessory equipment mounted on the barges were subject to real property taxes. Court of Appeals. 1999) 12.) NOTES AND COMMENTS: While the above May 18.. the state or. lake or coast” are considered immovable property by destination being intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work.R.e. (Manila Electric Company v. Distraint of personal property. G.. For this reason the courts construe these provisions of statutes as mandatory. and as such their collection cannot be curtailed by injunction or any like action. v. et al. (Reyes. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. regardless of the present owner or possessor thereof. (Figuerres v. G. et al. No. the author submits that the above doctrine in the May 18. December 10. Court of Appeals. No. Inc.. Thus. 2d 1065 (1975) cited in FELS Energy. 118233.. (Manila Electric Company v. and its machinery gravely disabled. G. 2001 decision was set aside by the Supreme Court when it granted the petitioner’s second motion for reconsideration on June 29. 2004. otherwise. et al. under protest. No. Collection of real property tax through ordinary court action. May 18. G. et al. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. the local government unit. However this remedy is only one of the other 9. The remand to the lower court was for the resolution of whether or not an assessment was issued to Meralco. Barlis. involving the constitutionality or legality of tax ordinances where there are factual issues involved. No. 1999) 11. 2001) . do not cite the doctrine as emanating from the May 18.. 2001 decision is still valid. Moreover. February 16. Court of Appeals. are intended by their nature and object to remain at a fixed place on a river. 119172. the delinquent property upon which the tax lien attaches. the fuel oil barges which supplied fuel oil to the power plant barges. 168557. 114231. G.R. though floating. No. after the lapse of 60 days.. i. The restriction upon the power of courts to impeach tax assessment without a prior payment. Sale of delinquent real property. 2001) Thus. a period also of 30 days is allowed for an aggrieved party to go to court. May 18. Province of Batangas.R. but this still requires the taxpayer to adduce evidence to show that no public hearings ever took place. b. 114231. G.. Consequently. a party could already seek relief in court within 30 days from the lapse of the 60 day period. The concurrent and simultaneous remedies afforded local government units in enforcing collection of real property taxes: a. of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation.Misc. shall be crippled in dispensing the needed services to the people. Barlis. 8. and c. The author submits that the above ruling in the May 18. 80 NOTE: The above May 18. 2004. 2001 decision. 2007 and companion case. Public hearings are mandatory prior to approval of tax ordinance. (Ibid. et al. the trial court has no jurisdiction to entertain a petition for prohibition absent payment under protest of the tax assessed. No. The remedy of levy can be pursued by putting up for sale the real property subject of tax. 119172. v. G. December 10. v. within 30 days from effectivity thereof. 1999) Taxpayer files appeal to the Secretary of Justice. MERALCO the former owner/user of the property was required to pay the tax instead of the new owner NAPOCOR.R. et al. March 25. Article 415(9) of the Civil Code provides that “[d]ocks and structures which. But if the Secretary does not act thereon. in this case. 2001 decision but in the light of pronouncements of the Supreme Court in other cases.R.R.  Secretary of Justice can take cognizance of a case 10. 13. 1999) Public hearings are required to be conducted prior to the enactment of an ordinance imposing real property taxes. March 25. Court of Appeals. not on the basis of the May 18.. Unpaid realty taxes attach to the property and is  chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. 2001 decision is still valid. 118233. In case the Secretary decides the appeal. 2001 decision was set aside by the Supreme Court when it granted the petitioner’s second motion for reconsideration on June 29. held that barges on which were mounted gas turbine power plants designated to generate electrical power. To impose the real property tax on the subsequent owner which was neither the owner not the beneficial user of the property during the designated periods would not only be contrary to law but also unjust.

2004. Province of Batangas. SUGGESTED ANSWER: a. Rule on the conflicting contentions. v. The LGU could also avail of the remedy of distraint and levy of personal property subjecting any personal property of the taxpayer to execution. 168557. May 18. The author submits that the above ruling in the May 18. 2001 decision. with the electricity generated by FELS’ power barges. 2004. The City of New York. and then subsequently reduced upon the request of a property owner. the fuel oil barges which supplied fuel oil to the power plant barges.. 169 SCRA 789. Upon the other hand the Local Treasurer insists that the assessment has attained a state of finality hence the appeal to the LBAA should be dismissed. Abellera. G. R. 114231. To allow the procedure would indeed invite corruption in the system of appraisal and assessment. Province of Batangas. as well as the legal requirements for a tax delinquency sale. 114231. not on the basis of the May 18. and the accessory equipment mounted on the barges were subject to real property taxes. held that barges on which were mounted gas turbine power plants designated to generate electrical power. 2) The power barges are not real property subject to real property taxes. The reason behind the notice requirement is that tax sales are administrative proceedings which are in personam in nature. Such occasion for mischief must be prevented and excised from our system. lake or coast” are considered immovable property by destination being intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. 14. February 16. De Knecht. and in fact can conveniently take place. (Puzon v.A. Barlis. 2001 decision. et al. illicit trade-off cannot be avoided. 80 Misc. R. et al..R. Court of Appeals. The prescribed notices must be sent to comply with the requirements of due process.C. where it raised the following issues: 1) Since NPC is tax-exempt then FEL’s should also be tax-exempt because of its contract with NPC. G. I. FELS then received an assessment of real property taxes on its power barges from the Provincial Assessor of Batangas... v.236) 16. v. v. 2001) NOTE: The above May 18. 2) The Supreme Court of New York in Consolidated Edison Company of New York. et al. 2001 decision. Article 415(9) of the Civil Code provides that “[d]ocks and structures which. Inc. If filed a motion for reconsideration with the Provincial Assessor. 81 58.. are mandatory. et al. The contract also stated that NPC shall be responsible for all real estate taxes and assessments. Moreover. (Manila Electric Company v. 2d 1065 (1975) cited in FELS Energy. are intended by their nature and object to remain at a fixed place on a river. 2001 decision is still valid. do not cite the doctrine as emanating from the May 18. No. allusions of possible cover.. the covenant is between NPC and FELs and does not bind a third person not privy to the contract such as the Province of Batangas.. Honorable Sayo. 2007 and companion case. 2001 decision. All the contentions of FELS are without merit: 1) NPC is not the owner of the power barges nor the operator of the power barges. FELS elevated the matter to the Local Board of Assessment Appeals (LBAA).. et al. 168557. 2001 decision was set aside by the Supreme Court when it granted the petitioner’s second motion for reconsideration on June 29. Upon denial. The procedure do not allow a motion for reconsideration to be filed with the Provincial Assessor. Thus. No.remedies. (FELS Energy. in the light of pronouncements of the Supreme Court in other cases. No.R. it conveniently courts a graftprone situation where values of real property ay be initially set unreasonably high. Barlis. 2001 decision was set aside by the Supreme Court when it granted the petitioner’s second motion for reconsideration on June 29. May 18. February 16. The author submits that the above ruling in the May 18.  Notice and publication. Inc. No... 2007 and companion case. Inc. do not cite the doctrine as emanating from the May 18. 169 SCRA 314)  FELS Energy. 290 SCRA 223. The Treasurer is correct. b. had a contract to supply NPC 17. b. though floating. 795. 2001 decision is still valid. thus. a. Inc. 2001) NOTE: The above May 18. not on the basis of the May 18. (Manila Electric Company v. In the latter instance. in the light of pronouncements of the Supreme Court in other cases. the issuance of the warrants of garnishment over MERALCO’s bank deposits was not improper or irregular. Thus. De Asis v. (De Knecht. The tax exemption privilege granted to NPC cannot be extended to FELS. and the failure to comply therewith can invalidate the sale. v. G. citing Callanta . G.

within two (2) years from the date the taxpayer is entitled to such reduction or readjustment. a.” labeling the said review as an exercise of appellate jurisdiction is inappropriate since the denial of the protest is not the judgment or order of a lower court. c. the Supreme Court provided for the starting date of computing the two-year prescriptive period within which to file the claim with the Treasurer. Office of the Ombudsman. v. Quezon City Government. If the ground for the protest is unreasonableness of the amounts collected there is need to pay under protest and administrative remedies must be resorted to before recourse to the proper courts. Payment under protest not required. Is this correct ? SUGGESTED ANSWER: No. R. which is from finality of the Decision. a. No. et al. a municipality or a barangay upon real property specially benefited by a public works expenditure of the LGU to recover not more than 60% of such expenditure. 154126. The denial by the local treasurer of the protest would fall within the Regional Trial Court’s original jurisdiction. 285 SCRA 648) 18. as provided under the Local Government Code. (Yamane . The treasurer has a period of sixty (60) days from receipt of the protest within to decide. January 30. R. 1998. the review being the initial judicial cognizance of the matter. The Local Board of Assessment Appeals has 120 days from receipt of the appeal within which to decide. e. Despite the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is “to appeal with the court of competent jurisdiction. G. who must decide within sixty (60) days from receipt. The adverse decision of the Central Board of Assessment Appeals shall be appealed to the Court of Tax Appeals (En Banc) by means of a petition for review within thirty (30) days from receipt of the adverse decision. September 15. 115253-74. Payment under protest at the time of payment or within thirty (30) days thereafter. A taxpayer who has paid his real property taxes on the basis of the nullified ordinance now posits that the return of the real property tax erroneously collected and paid is a necessary consequence of the Supreme Court’s nullification of the ordinance and there is no need to claim for a refund. 22. 154993. claim must be directed to the local treasurer.v. 2005) c.. a municipality within the Metropolitan Manila Area. October 25. A special levy or special assessment is an imposition by a province. 19. g. G. Procedure for refund of real property taxes based on unreasonableness or excessiveness of amounts collected. If the ground for the protest is validity of the real property tax ordinance and not the unreasonableness of the amount collected the tax must be paid under protest. a city. 20. etc. d. 23. etc. The adverse decision of the Local Board of Assessment Appeals should be appealed within thirty (30) days from receipt to the Central Board of Assessment Appeals. f. (Allied Banking Corporation. G. A City Ordinance adopting a method of assessment was nullified by the Supreme Court. The decision of the CTA may be the subject of a motion for reconsideration or new trial after which an appeal may be interposed by means of a petition for review on certiorari directed to 82 the Supreme Court on pure questions of law within a period of fifteen (15) days from receipt extendible for a period of thirty (30) days. Within thirty (30) days from receipt of treasurer’s decision or if the treasurer does not decide. and the issue of legality may be raised to the proper courts on certiorari without need of exhausting administrative remedies. b. but of a local government official. d. Procedure for refund of real property taxes based on validity of the tax measure or solutio indebeti. The decision of the Court of Tax Appeals (Division) may be the subject of a review by the Court of Tax Appeals (en banc). city or in the case of a municipality within the Metro Manila Area the municipal treasurer. within thirty (30) days from the expiration of the sixty (60) period for the treasurer to decide. The decision of the Regional Trial Court should be appealed by means of a petition for review directed to the Court of Tax Appeals (Division). the taxpayer should file an appeal with the Local Board of Assessment Appeals. BA Lepanto Condominium Corporation. it must still be proven in the normal course and in accordance with the administrative procedure for obtaining a refund of real property taxes. The procedure to be followed is that shown below.. The amount of the claim being a factual matter. 2006) NOTE: In the above Allied Banking case. R. The entitlement to a tax refund does not necessarily call for the automatic payment of the sum claimed. Nos. protest being lodged to the provincial. . No. v. 21. b.

Solely is synonymous with exclusively. R. parsonages or convents appurtenant thereto. [Sec. R. mosques. 107 SCRA 105)   What is meant by “actual. As a general principle. et al. 83   Charitable institutions. (Lung Center of the Philippines v. G. et al. 1987 Constitution]   The constitutional tax exemptions refer only to  5. Charitable institutions. R. charitable and educational purposes. Court of Appeals. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted to a taxable person for a consideration or otherwise.. Reliance on past decisions would have sufficed were the words “actually” as well as :directly” are not added.. 3 buildings. and no money inures to the private benefit of the persons managing or operating the institution. and that the only constitutionally recognized exemption from taxation of revenues are those earned by non-profit. 2004 citing Justice Davide)   The 1935 Constitution stated that the lands. No. directly and exclusively used for educational purposes. Real property owned by duly registered cooperatives. Quezon City. Hernando. On the other hand. the portion of the land occupied by the hospital and portions of the hospital used for its patients. 2004) 27. So long as the money received is devoted or used altogether to the charitable object which it is intended to achieve. No. Quezon City. June 29. directly and exclusively used for religious.. June 29. There must be proof therefore of the actual and direct use to be exempt from taxation. 144104. No.. directly and exclusively used for religious.. June 29. buildings and improvements actually. Machinery and equipment used for pollution control and environmental protection. 2004)   What property are exempt from the payment of  9. directly and exclusively used. 2 real property that are actually. churches. non-profit cemeteries. (Lung Center of the Philippines v..” The change should not be ignored. 298 SCRA 83) The constitutional tax exemption covers property taxes only. 2 real property tax under the Local Government Code ? SUGGESTED ANSWER: a. buildings and improvements actually. G. or confined in the hospital. 144104. etc. No. and improvements are “used exclusively” but the present Constitution requires that the lands. 2004) 28. those exempted from real estate taxes are lands. Quezon City. etc. or receives subsidies from the government. The decision of the Court of Tax Appeals (en banc) may be the subject of a petition for review on certiorari on pure questions of law directed to the Supreme Court. and all lands. Quezon City. whether paying or non-paying. G. 144104. June 29. directly and exclusively used by local water districts. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitution and the law. a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients. R. e. churches and parsonages  4. G. direct and exclusive  6. . It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. et al. such as a hospital. d. June 29.. mosques. it is not exclusively used for the exempted purpose but is subject to taxation. 2 or convents appurtenant thereto. etc. 2 use” of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. What is exempted is not the institution itself.28 (3) Article VI. directly and exclusively used for religious. leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from real property taxes. b. Quezon City. charitable or educational purposes. 144104. etc. charitable or educational purposes.. (Lung Center of the Philippines v.. directly and exclusively used for religious. 144104. and all lands. R. et al. c. etc. and government owned and controlled corporations engaged in the supply and distribution of water and generation and transmission of electric power. G. are exempt from real property taxes. No. (Lung Center of the Philippines v. 2004 citing Province of Abra v..  1. et al. buildings and improvements are “actually. whether out-patient. If real property is used for one or more commercial purposes. non-stock educational institutions which are actually. (Lung Center of the Philippines v. buildings and improvements that are actually.. non-profit or religious cemeteries. et al. Portions of the land of a charitable institution. actually. (Commissioner of Internal Revenue v. charitable or educational purposes are exempt from taxation.e. Machineries and equipment..

This is so because the properties are already scheduled for auction sale. A City then enacted an ordinance in 1993 imposing a real property on all real properties located within the city limits. The company then filed a petition for the issuance of a writ of prohibition claiming exemption under its legislative franchise. after the effectivity of the Local Government Code on January 1.” [Sec. R. Furthermore one of the recognized exceptions to the rule on exhaustion is that if the issue is purely legal in character which is so in this case. 1992. 2006) 30. b. Administrative Code of 1987] It is an instrumentality exercising not only governmental but also corporate powers. v. police power authority. City of Pasay. No. 155650. G. Finally. usually through a charter. and buildings on the ground that the Local Government Code has withdrawn exemptions previously enjoyed by government-owned and controlled corporations. July 20. as other persons or corporations are now or hereafter may be required by law to pay. MIAA contends otherwise as it claims it is not a government owned or controlled corporation. (The City Government of Quezon City. and enjoying operational autonomy. The grant of taxing powers to local governments under the Constitution and the Local Government Code does not affect the power of Congress to grant tax exemptions. R.. It is instead an instrumentality of the government upon which the local governments are not allowed to levy taxes. 2009 citing Manila International Airport Authority v. It cited Mactan Cebu which stated that the taxing power of local government units is “no longer merely by virtue of a valid delegation as before. It exercises governmental powers of eminent domain. 1992. It is not a stock corporation because its capital is not divided into shares. Who is correct. its successors or assigns shall be liable to pay the same taxes on their real estate. If a question is asked then state it is a direct grant. SUGGESTED ANSWERS: a. G. The company’s properties are exempt from tax under its franchise. exclusive of this franchise. G. . directly and exclusively used in the pursuit of its franchise. Among properties covered are those owned by the company from which the City is now collecting P43 million. April 2. R.The Manila International Airport Authority (MIAA) was subject to real property taxes by the municipality of Paranaque on its airport lands. Inc. endowed with some if not all corporate powers.” Which is which.. b. et al. No. The subsequent piece of legislation which reiterated the phrase “exclusive of this franchise” found in the previous tax exemption grant to the company is an express and real intention on the part of Congress to once against remove from the LGC’s delegated taxing power. administering special funds. Bayan Telecommunications. (Manila International Airport Authority v. Introductory Provisions. neither is it a non-stock corporation because there are no members. et al. There is no need to exhaust administrative remedies as the appeal to the LBAA is not a speedy and adequate remedy within the law. An instrumentality “refers to any agency of the National Government. directly and exclusively used in the radio or telecommunications business. March 6. 162015.. The properties are exempt from taxation. and withdrawing all tax exemptions previously granted. The properties of the company were then scheduled by the City for sale at public auction. A telecommunications company was granted by Congress on July 20. 163072. delegated or direct grant ? The author submits that the weight of jurisprudence shows that it is a direct grant not a delegated power.. The City defended its position raising the following: a. 2 (10). There was no exhaustion of administrative remedies because the matter should have first been filed before the Local Board of Assessment Appeals. et al. 2006) NOTES AND COMMENTS: a. a legislative franchise with tax exemption privileges which partly reads. SUGGESTED ANSWER: MIAA is correct because it is not a government owned or controlled corporation but an instrumentality of the government that is exempt from taxation. Resolve the issues raised.” This provision existed in the company’s franchise prior to the effectivity of the Local Government Code. the airport lands and buildings are property owned by the government that are devoted to public use and are properties of the public domain. The term “exclusive of this franchise” is interpreted to mean properties actually. not integrated within the department framework vested with special functions or jurisdiction by law. Court of Appeals. Note the confusion in the decision. This term includes regulatory agencies chartered institutions and government-owned or controlled corporations. fees or other charges. “The grantee.  84 31. No. and levying of fees and charges. buildings and personal property. but pursuant to direct authority” but in the concluding portion referred to it as “the LGC’s delegated taxing power. all of the company’s properties that are actually.

171470. BPPC – the owner-manager-operator of the project – is the actual user of its machineries and equipment. No. not sufficient to support its claim for tax exemption. Consistent with the BOT concept and as implemented. at this stage of the BOT Agreement. G. R. and immediate.85 32. BPPC’s ownership and use of the machineries and equipment are actual. direct. Central Board of Assessment Appeals. while NAPOCOR’s is contingent and.. The owner operator of a BOT and not the ultimate owner is subject to real property taxes. January 30. et al. (National Power Corporation v. 2009) ADVANCE CONGRATULATIONS AND SEE YOU IN COURT .