You are on page 1of 74

Possibilities in Taxation

for the 2016 Bar Examinations
and Beyond

Project Phoenix 2016
Atty. Roberto Belarmino Lock
General Principles
Constitutional Limitations:

1. No law impairing the obligation of contracts shall be passed. (Sec. 10
Art III of the Constitution);

2. xxx. No franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the
common good so requires (Sec. 11 Art XII of the Constitution);
General Principles
Constitutional Limitations:

1. A subsequent law which repeals a tax exemption enjoyed in a prior law
(franchise) does not violate the non-impairment of contracts clause under
the Constitution.
2. Contractual tax exemptions are not to be confused with tax exemptions
granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution.
3. Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are those
agreed to by the taxing authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by them under
enabling laws in which the government, acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity. (Manila Electric
Company vs. Province of Laguna, GR No. 131359 dated May 5, 1999)
General Principles
Constitutional Limitations:

The Amusement Tax Reward system granted to “graded films” under Secs. 13
and 14 of RA No. 9167 violates the local fiscal autonomy provision under the
Sec. 5 Art. X of the Constitution which provides that: “Each local government
unit shall have the power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local

It also violates Sec. 130(d) of the LGC which provides that “The revenue
collected xxx shall inure solely to the benefit of, and be subject to the
disposition by, the local government unit levying the tax, fee, charge or
other imposition unless otherwise specifically provided herein x x x. (Film
Development Council of the Philippines vs. Colon Heritage Realty Corporation,
GR No. 203754 dated June 16, 2015)
General Principles
Constitutional Limitations:

1. The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely
by virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution. Under the latter, the
exercise of the power may be subject to such guidelines and limitations as the
Congress may provide which, however, must be consistent with the basic
policy of local autonomy. (Mactan Cebu vs. Marcos, GR No. 120082, Sept. 11,
2. Prefatorily, it might be well to recall that local governments do not have
the inherent power to tax except to the extent that such power might be
delegated to them either by the basic law or by statute. Presently, under
Article X of the 1987 Constitution, a general delegation of that power has
been given in favor of local government units. (Manila Electric Company vs.
Province of Laguna, GR No. 131359 dated May 5, 1999)
General Principles
Double Taxation:

Sec. 143 of the LGC on business tax:

a) Manufacturers;
b) Wholesalers, Distributors and Dealers;
c) Exporters, Manufacturers, Wholesalers, Distributors of Non essential
d) Retailers;
e) Contractors;
f) Banks;
g) Peddlers
h) “Catch all provision.” –on any business, not otherwise specified in the
preceding paragraphs
General Principles
Double Taxation:

There is prohibited double taxation if a manufacturer and seller of soft
drinks is held liable for two (2) local business tax(es) on the same
activity under a particular tax ordinance. One as a manufacturer and
another as a business subject to excise tax.

Sec. 143(h) of the Local Government Code provides: “on any business,
not otherwise specified in the preceding paragraphs.” (City of Manila
vs. Coca-Cola Bottlers Philippines, GR No. 181845 dated August 4,
General Principles

Tax Treaties:

The obligation to comply with a tax treaty must take precedence over
the objective of the BIR’s requirement of a prior treaty relief
application to avail of the lower tax treaty rate. (Deutsche Bank AG
Manila Branch vs. CIR, GR No. 188550 dated August 19, 2013; CBK
Power Company Limited vs. CIR, GR No. 193383-84 dated January 14,
General Principles
Taxes vs. Fees:

An ordinance imposing fees based on project cost whose purpose is to
regulate certain construction activities of the identified special
projects, which includes "cell sites" or telecommunications towers, is
not a tax because the fees imposed in the said ordinance are primarily
regulatory in nature, and not primarily revenue-raising. (Smart vs.
Municipality of Malvar, Batangas, GR No. 204429 dated February 18,
General Principles
Section 246. Non-Retroactivity of Rulings. - Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be
given retroactive application if the revocation, modification or reversal
will be prejudicial to the taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material
facts from his return or any document required of him by the
Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which
the ruling is based; or
(c) Where the taxpayer acted in bad faith.
General Principles
Doctrines on Non-retroactivity of Rulings Rule:

1. In order for Sec. 246 to apply, the ruling must be issued to the
taxpayer invoking the same. (CIR vs. Filinvest Development
Corporation, GR No. 163653 dated July 19, 2011)

2. But, if the ruling issued is a general interpretative rule, all taxpayers
may rely on the ruling and invoke Sec. 246, if proper.

3. Section 246 is not limited to a reversal only by the Commissioner
because this Section expressly states, "Any revocation, modification or
reversal" without specifying who made the revocation, modification or
reversal. Hence, a reversal by the Supreme Court is covered under
Section 246. (CIR vs. San Roque, GR No. 187485 dated February 12,
Income Tax
Deposit Substitutes:

Under Sec. 22(Y) of the NIRC, the term ‘deposit substitutes’ shall mean
an alternative form of obtaining funds from the public (the term
“public” means borrowing from twenty (20) or more individual or
corporate lenders at any one time) xxx.
Income Tax
Deposit Substitutes:

1. A BIR ruling stating that all government bonds regardless of the number
of lenders/purchasers are deposit substitutes is invalid because it disregards
the 20 lender rule;
2. A BIR ruling stating that the 20 lender rule is determined only at the time
of origination is invalid. The phrase “at any one time” for purposes of
determining the 20 lender rule would mean every transaction executed in the
primary or secondary market in connection with the purchase or sale of
3. If the debt instrument has 20 or more lenders, the interest income or
discount is generally subject to the 20% Final Withholding Tax; and,
4. If the debt instrument has 19 or less lenders, the interest income or
discount forms part of gross income and is subject to regular income tax.
(BDO vs. Republic, GR No. 198756 dated January 13, 2015)
Income Tax
Capital Gains Tax:

1. Sale of machineries by a corporation is not subject to the 6%
capital gains tax. Rather, the gain forms part of gross income and is
subject to the regular corporate income tax. (SMI-ED Philippines
Technology Corporation, Inc. vs. CIR, GR No. 175410 dated November
12, 2014)
2. In expropriation proceedings, as a rule, the government cannot be
compelled to pay the 6% capital gains tax. It is a tax on the seller’s gain
and it is the seller, not the buyer, who generally would shoulder the
tax. (Republic vs. Soriano, GR No. 21166 dated February 25, 2015)
Income Tax
Laws and Regulations:

1. Tax Exempt threshold increased to P82,000.00 covering 13th Month
Pay, Christmas Bonus and other benefits received by employees. (RA
No. 10653);
2. Benefits received by an employee by virtue of a collective
bargaining agreement (“CBA”) and productivity incentive schemes
provided that the total annual monetary value received from both CBA
and productivity incentive schemes combined do not exceed ten
thousand pesos (Php10,000.00) per employee per taxable year are
considered De Minimis Benefits. (RR No. 1-2015 dated January 5, 2015)
3. Take note of the tax benefits under the Private Equity and
Retirement Account Act of 2008 (RA 9505 dated August 22, 2008)
Income Tax

1. Personal Equity and Retirement Account (PERA) - refers to the voluntary
retirement account established by and for the exclusive use and benefit of the
Contributor for the purpose of being invested solely in PERA investment
products in the Philippines. The Contributor shall retain the ownership,
whether legal or beneficial, of funds placed therein, including all earnings of
such funds;
2. Contributions – Maximum of five (5) PERA accounts:
a. P100,000.00 for each individual per calendar year;
b. P200,000 for Overseas Filipinos (“OF”) per calendar year;
c. Employers to their Employees’ PERA;
Income Tax

3. Tax Implications/Benefits:
a) 5% income tax credit based on aggregate contributions made in a
calendar year;
b) 5% NIRC tax credit based on aggregate contributions made in a
calendar year for OFs. Cannot be refunded;
c) Employers’ contributions – (i) deduction from gross income; (ii)
exempt from income, withholding and fringe benefits tax; (iii) not
entitled 5% tax credit.
d) Investment income is exempt from income and withholding tax;
e) Distribution of upon retirement (55 yrs. of age with at least 5 years
contribution) or Death shall be exempt from tax; and,
f) Early withdrawal Penalty – payment or recovery of tax benefits
previously availed.
Income Tax

1. Loss on Auction Sale – show proof of proceeds and cost;
2. Expenses - (a) the expenses must be ordinary and necessary; (b)
they must have been paid or incurred during the taxable year; (c) they
must have been paid or incurred in carrying on the trade or business of
the taxpayer; and (d) they must be supported by receipts, records or
other pertinent papers.
3. Loss on fire and theft – File sworn declaration of loss with the BIR
within forty-five (45) days from date of occurrence. (H. Tambunting
Pawnshop, Inc. vs. CIR, GR No. 173373 dated July 29, 2013)
Income Tax
Estates and Trusts:

Gen Rule: Sec. 60(A) - income of any kind of property held in trust is subject
to income tax.
Exception: Sec. 60(B) – income of an employee's trust is exempt from income
tax subject to the following conditions:
1) Contributions are made to the trust by such employer, or employees,
or both for the purpose of distributing to such employees the earnings
and principal of the fund accumulated by the trust in accordance with
such plan; and
2) Under the trust instrument it is impossible, at any time prior to the
satisfaction of all liabilities with respect to employees under the trust, for
any part of the corpus or income to be (within the taxable year or
thereafter) used for, or diverted to, purposes other than for the exclusive
benefit of his employees.
Income Tax
Estates and Trusts:

Exception to the Exception: Sec. 60 (B) - subjects to income tax, in the
year in which so distributed, any amount actually distributed to any
employee or distributee to the extent that it exceeds the amount
contributed by such employee or distributee. However, separation or
retirement benefits may be exempt under Sec. 32(B)(6)(a) of the Tax
Code. (Revenue Memorandum Circular No. 039-14 dated May 12,

Income from the sale of a real property which came from an
investment made by an Employees’ Trust Fund is exempt from income
and withholding tax pursuant to Sec. 60(B) of the Tax Code. (Miguel J.
Ossorio Pension Foundation, Inc. vs. CA, GR No. 162175 dated June 28,
Estate Tax

1. In determining the dedutible claims against the estate, we follow
the death-of death valuation principle. Post death developments are
not considered. (Dizon vs. CTA, GR No. 140944 dated April 30, 2008)
2. Allowable judicial expenses are expenses of administration. All
expenses "essential to the collection of the assets, payment of debts
or the distribution of the property to the persons entitled to it." In
other words, the expenses must be essential to the proper settlement
of the estate. (CIR vs. CA and Pajonar, GR No. 123206 dated March 22,
3. Two (2) ways of recovering a tax liability from the decedent or his
estate: (a) Enforcement of Tax Lien under Sec. 219 of the Tax Code; or,
(b) Go after all the heirs proportionately. (CIR vs. Pineda, GR No. L-
22734 dated September 15, 1967)
Donor’s Tax
Section 100. Transfer for Less Than Adequate and full Consideration. -
Where property, other than real property referred to in Section 24(D),
is transferred for less than an adequate and full consideration in
money or money's worth, then the amount by which the fair market
value of the property exceeded the value of the consideration shall, for
the purpose of the tax imposed by this Chapter, be deemed a gift, and
shall be included in computing the amount of gifts made during the
calendar year.


Fair Market Value - Consideration = Deemed Donation
Donor’s Tax

Absence of donative intent, if that be the case, does not exempt the
sale of stock transaction from donor’s tax since Sec. 100 of the NIRC
categorically states that the amount by which the fair market value of
the property exceeded the value of the consideration shall be deemed
a gift. Thus, even if there is no actual donation, the difference in price
is considered a donation by fiction of law. (Philamlife vs. SOF, GR No.
210987 dated November 24, 2014)
Donor’s Tax
Political Contributions: (RA 7166, RR No. 07-11 and RMC 30-2016)

1. A political contribution is a donation for tax purposes;
2. Any contribution in cash or in kind to any candidate or political party
or coalition of parties for campaign purposes, duly reported to the
Commission shall not be subject to the payment of any gift tax.
3. Unutilized/excess campaign funds, that is, campaign contributions
net of the candidate’s campaign expenditures, shall be considered as
subject to income tax. (may be returned to donor to avoid income tax)
Donor’s Tax
Political Contributions: (RA 7166, RR No. 07-11 and RMC 30-2016)

4. Failure to submit statement of expenditures to the COMELEC
subjects the entire contributions to income tax. Since, the candidate will
be precluded from claiming expenditures as deductions from his
campaign contributions.
5. Political contributions which are not utilized during the campaign
period are subject to Donor’s tax.
6. Political contributions made by a corporation is subject to donor’s
Value-added Tax
Persons Liable for VAT (Sec. 105):

1. The sale of services on a reimbursement-on/of-cost basis is subject
to VAT. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT; (CIR vs. CA
and COMASERCO, GR No. 125355 dated March 30, 2000)

2. A dole out or subsidy by a Parent Company on the advertising
expenses incurred by its Subsidiary, while subject to income tax, is not
subject to VAT. There was no service rendered by the Subsidiary to the
Parent Company; (CIR vs. Sony Philippines, Inc., GR No. 178697 dated
November 17, 2010)
Value-added Tax
VAT Refund under Sec. 112:

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-
year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is
the close of the taxable quarter when the relevant sales were made.
(San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8
June 2007 to 12 September 2008 (Mirant). Atlas states that the two-
year prescriptive period for filing a claim for tax refund or credit of
unutilized input VAT payments should be counted from the date of
filing of the VAT return and payment of the tax. (San Roque)
Value-added Tax
VAT Refund under Sec. 112:

B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the
judicial claim within thirty days after the Commissioner denies the
claim within the 120-day period, or (2) file the judicial claim within
thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or
inaction on the part of the CIR.
3. As a general rule, the 30-day period to appeal is both mandatory
and jurisdictional. (Aichi and San Roque)
Value-added Tax
VAT Refund under Sec. 112:

B. 120+30 Day Period

4. As an exception to the general rule, premature filing is allowed only if filed
between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-
489-03 was still in force. (San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489-03 was in force. (San Roque) [Mindanao II Geothermal
Partnership vs. CIR GR No. 191498 dated January 15, 2014]

6. Starting June 11, 2014 pursuant to RMC 54-2014, the 120-day period starts
to run from the date of filing of the administrative claim for refund. (Pilipinas
Total Gas, Inc. vs. CIR, GR No. 207112 dated December 8, 2015)
Value-added Tax
VAT Refund under Sec. 112:

The unutilized creditable input tax related to zero-rated sales cannot
be claimed as a deduction for income tax purposes. Unutilized
creditable input tax related to zero-rated sales can only be recovered
through the application for refund or tax credit. Nowhere in the Tax
Code can we find a specific provision expressly providing for another
mode for recovering unapplied input taxes, particularly that unapplied
input taxes may be treated outright as deductible expense for income
tax purposes (RMC No. 57-2013 dated August 23, 2013).
Value-added Tax
Other matters:

1. An approved prior application for zero-rating with the BIR necessary
is not necessary in order for the transaction to be considered
effectively zero rated. The important requirement is VAT-registration.
The BIR regulations additionally requiring an approved prior
application for effective zero rating cannot prevail over the clear VAT
nature of respondent’s transactions. The scope of such regulations is
not "within the statutory authority x x x granted by the legislature.” To
allow the additional requirement is to give unfettered discretion to
those officials or agents who, without fluid consideration, are bent on
denying a valid application. (CIR vs. Seagate Technology (Philippines),
GR No. 153886 dated February 11, 2005)
Value-added Tax
Other matters:

1. Transport of passengers are now exempt from VAT (Sec. 109S)
under RA 10378 dated March 7, 2013.
2. New Thresholds effective January 1, 2012:

Section Amount in Pesos 2005 Adjusted Threshold Amounts
109 (P) 1,500,000 1,919,500
109 (P) 2,500,000 3,199,200
109 (Q) 10,000 12,800
109 (V) (now W) 1,500,000 1,919,500
General Provisions on Assessment and Collection:

1. Taxpayer cannot be assessed for taxes outside the period covered
by the Letter of Authority. (CIR vs. Sony Philippines, Inc., GR No.
178697 dated November 17, 2010)
2. Consent of the taxpayer is not necessary in submission of
documents which shall form part as basis of assessment. (Fitness By
Design, Inc. vs. CIR, GR No. 177982 dated October 17, 2008)
3. Use of the expenditure method is valid in determining a taxpayer’s
income for income tax purposes. When the amount of the money that
a taxpayer spends during a given year exceeds his reported or declared
income and the source of such money is unexplained, it may be
inferred that such expenditures represent unreported or undeclared
income. (BIR vs. CA, GR No. 197590 dated November 24, 2014)
Sec. 223 cases:

1. Mere appeal to the CTA, in order to contest the validity of an
assessment, does not suspend the prescriptive period to collect. (CIR
vs. United Salvage Towage (Phils.), Inc., GR No. 197515 dated July 4,
2. In case there is failure to notify the BIR in writing relative to a
taxpayer’s change in address, in order for the prescriptive period under
Sec. 223 to be suspended, the BIR must be unaware of the
whereabouts of the taxpayer. (CIR vs. BASF Coating + Inks Phils., GR
No. 198677 dated November 26, 2014)
Requisites of a valid waiver:

a) The waiver must be in the proper form prescribed by RMO 20-90.
The phrase "but not after ______ 19 ___", which indicates the expiry
date of the period agreed upon to assess/collect the tax after the
regular three-year period of prescription, should be filled up; - Not
necessarily in the form prescribed by RMO 20-90 as amended by
RDAO 05-01. Expiry date still necessary.
Requisites of a valid waiver:

b) The waiver must be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials. In case the authority
is delegated by the taxpayer to a representative, such delegation
should be in writing and duly notarized; - Proof of authority not
necessary. The taxpayer has the burden to ensure that the waiver is
validly executed by its authorized representative. The waiver cannot
thereafter be invalidated on the ground that the taxpayer’s
representative who participated in the conduct of the audit is not
authorized to sign the waiver.

c) The waiver should be duly notarized; - Notarization is optional.

d) The CIR or the revenue official authorized by him must sign the
waiver indicating that the BIR has accepted and agreed to the waiver.
The date of such acceptance by the BIR should be indicated. However,
before signing the waiver, the CIR or the revenue official authorized by
him must make sure that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly authorized
representative; - Group supervisor in the LOA may now sign the
waiver. Date of Acceptance need not be indicated.
e) Both the date of execution by the taxpayer and date of acceptance
by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed; and,

f) The waiver must be executed in three copies, the original copy to be
attached to the docket of the case, the second copy for the taxpayer
and the third copy for the Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy must be indicated in the
original copy to show that the taxpayer was notified of the acceptance
of the BIR and the perfection of the agreement. – No longer a
requirement. Now, the taxpayer shall have the duty to retain a copy
of the accepted waiver. (CIR vs. Stanley Works (Phils.) Incorporated, GR
No. 187859 dated December 3, 2014) With updates under RMO No.
14-2016 dated April 4, 2016.
Waiver Cases:

1. The waiver of the statute of limitations is not a waiver of the right
to invoke the defense of prescription. It is an agreement between the
taxpayer and the BIR that the period to issue an assessment and
collect the taxes due is extended to a date certain. (Philippine
Journalists, Inc. vs. CIR, GR No. 162852 dated December 16, 2004)
2. Doctrine of Estoppel not applicable, as a rule, to validate a
defective waiver. (CIR vs. Kudos Metal, GR No. 178087 dated May 5,
Waiver Cases:

3. However, the Doctrine of Estoppel was applied to validate a defective
waiver in the following cases:
a) Partial payment of an assessment which is covered by a defective
waiver. (RCBC vs. CIR, GR No. 170257 dated September 7, 2011)
b) When the application of estoppel would promote the administration
of the law, prevent injustice and avert the accomplishment of a wrong
and undue advantage. In this case, the taxpayer executed five Waivers
and delivered them to the BIR, one after the other. It allowed the BIR to
rely on them and did not raise any objection against their validity until the
BIR assessed taxes and penalties against it. Moreover, the application of
estoppel is necessary to prevent the undue injury that the government
would suffer because of the cancellation of petitioner's assessment of
respondent's tax liabilities. (CIR vs. Next Mobile, Inc., GR No. 212825
dated December 7, 2015)
Sec. 228 Doctrines:

1. Failure to submit relevant supporting documents during the 60-
day period does not render the assessment final and executory. The
BIR cannot demand what type of supporting documents should be
submitted. Otherwise, a taxpayer will be at the mercy of the BIR,
which may require the production of documents that a taxpayer
cannot submit. (CIR vs. First Express Pawnshop, GR Nos. 172045-46
dated June 16, 2009)
2. The 60-day period to submit documents only applies to a request
for reinvestigation. (RR No. 18-2013 dated November 28, 2013)
3. Administrative appeal with the Commissioner is allowed if the
Final Decision on the Disputed Assessment (“FDDA”) is signed by the
CIR’s duly authorized representative. It is in the form of a request for
reconsideration only. (RR No. 18-2013 dated November 28, 2013)
Sec. 228 Doctrines:

4. The term “the assessment shall become final” in relation to the 60-
day period shall mean that the taxpayer is barred from disputing the
correctness of the issued assessment by introduction of newly
discovered or additional evidence, and the FDDA shall consequently be
denied (issued). (RR No. 18-2013 dated November 28, 2013)
Refunds in General:

1. The period to file a claim for refund under Sec. 229 is two (2) years
counted from the date of payment regardless of any supervening
event and not from the date of discovery of the erroneous payment.

2. In the case of erroneously paid withholding taxes, the six (6) year
prescriptive period under Art. 1145 of the Civil Code on solutio indebiti
is not applicable because the first requisite of solutio indebiti is not
present, i.e., payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who
received the payment. Also, the provisions of the Tax Code, being a
special law prevails over the provisions of the Civil Code, being a
general law. (CIR vs. Meralco, GR No. 181459 dated June 9, 2014)
Refunds in General:

3. In claims for refund, the CTA may determine whether there are
taxes that should have been paid in lieu of the taxes paid. Determining
the proper category of tax that should have been paid is not an
assessment. It is incidental to determining whether there should be a

4. Any liability in excess of the refundable amount, however, may not
be collected in a case involving solely the issue of the taxpayer’s
entitlement to refund. (SMI-ED Technology Corporation, Inc. vs. CIR, GR
No. 175410 dated November 12, 2014)
Refunds in General:

5. In indirect taxation, as a general rule, it is the statutory taxpayer
who is the proper party to file a claim for refund. However, if the law
confers an exemption from both direct or indirect taxes, a claimant is
entitled to a tax refund even if it only bears the economic burden of
the applicable tax. (CIR vs. Philippine Associated Smelting and Refining
Corporation, GR No. 186223 dated October 1, 2014).

6. If the employee alleges that the employer over-withheld and over-
remitted withholding tax on compensation income, the employee has
no cause of action for a tax refund against the employer. The claim for
refund should be filed with the BIR. (Honda Cars Philippines, Inc. vs.
Honda Cars Technical Specialist Supervisors Union, GR No. 204142
dated November 19, 2014)
Refund of Creditable Withholding Tax:

1. Requisites of claim for refund of excess Creditable Withholding Tax
(“CWT”): (a) The claim must be filed with the CIR within the two-year period
from the date of payment of the tax; (b) It must be shown on the return that
the income received was declared as part of the gross income; and, (c) The
fact of withholding must be established by a copy of a statement (BIR Form
2307) duly issued by the payor to the payee showing the amount paid and the
amount of the tax withheld. (CIR vs. Far East Bank, GR No. 173854 dated
March 15, 2010).

2. Actual remittance of CWT need not be proven. Under the Tax Code, it is
the payor-withholding agent, and not the payee-refund claimant, who is
vested with the responsibility of withholding and remitting income taxes. BIR
Form 2307 may be presented before the CTA. Cases filed in the CTA are
litigated de novo. (CIR vs. PNB, GR No. 180290 dated September 29, 2014)
Refund of Creditable Withholding Tax:

3. In refunds of erroneously paid CWT, while perhaps it may be
necessary to prove that the taxpayer did not use the claimed
creditable withholding tax to pay for his/its tax liabilities, there is no
basis in law or jurisprudence to say that BIR Form No. 2307 is the only
evidence that may be adduced to prove such non-use. (PNB vs. CIR, GR
No. 206016 dated March 18, 2015)
Irrevocability Rule:

Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable income of that year,
the corporation shall either:

(A)Pay the balance of tax still due; or
(B)Carry-over the excess credit; or
(C)Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return
may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor.
Irrevocability Rule:

1. The phrase "for that taxable period" merely identifies the excess income
tax, subject of the option, by referring to the taxable period when it was
acquired by the taxpayer.

2. The Court of Appeals mistakenly understood the phrase "for that taxable
period" as a prescriptive period for the irrevocability rule. This would mean
that since the tax credit in this case was acquired in 1998, and BPI opted to
carry it over to 1999, then the irrevocability of the option to carry over
expired by the end of 1999, leaving BPI free to again take another option as
regards its 1998 excess income tax credit. This construal effectively renders
nugatory the irrevocability rule. The evident intent of the legislature, in
adding the last sentence to Section 76 of the NIRC of 1997, is to keep the
taxpayer from flip-flopping on its options, and avoid confusion and
complication as regards said taxpayer's excess tax credit. The interpretation of
the Court of Appeals only delays the flip-flopping to the end of each
succeeding taxable period.
Irrevocability Rule:

3. There would be no unjust enrichment in the event of denial of the claim
for refund, because there would be no forfeiture of any amount in favor of
the government. The amount being claimed as a refund would remain in
the account of the taxpayer until utilized in succeeding taxable years, as
provided in Section 76 of the NIRC of 1997. (CIR vs. BPI, GR No. 178490
dated July 7, 2009)
4. Presentation of Quarterly Income Tax Return of the succeeding taxable
year is not necessary to prove non-carry over. What Section 76 requires,
just like in all civil cases, is to prove the prima facie entitlement to a claim,
including the fact of not having carried over the excess credits to the
subsequent quarters or taxable year. It does not say that to prove such a
fact, succeeding quarterly ITRs are absolutely needed. (Winebrenner &
Inigo Insurance Brokers, Inc. vs. CIR, GR No. 206526 dated January 28,
Irrevocability Rule:

5. Where, however, the corporation permanently ceases its operations
before full utilization of the tax credits it opted to carry over, it may
then be allowed to claim the refund of the remaining tax credits. In
such a case, the remaining tax credits can no longer be carried over
and the irrevocability rule ceases to apply. (Systra Phils. Inc. vs. CIR (GR
No. 176290, September 21, 2007)
Court of Tax Appeals:

1. Cases under “other matters” arising under the NIRC or other laws
administered by the BIR:
a) Whether or not the BIR was able to collect the deficiency tax
within the 5 year period under Sec. 222(c). (CIR vs. Hambrecht & Quist
Philippines, Inc., GR No. 169225 November 17, 2010)
b) Validity of a waiver of the statute of limitations. (Philippine
Journalists, Inc. vs. CIR, GR No. 162852 dated December 16, 2004)
c) Whether or not the CIR may be compelled to issue an assessment.
(Meralco Securities Corporation, Inc. vs. Savellano, GR No. L-36181
dated October 23, 1982)
d) Unfavorable BIR Rulings/Decision of the SOF on appeals of BIR
Rulings. (Philamlife vs. SOF, GR No. 210987 dated November 24, 2014)
Court of Tax Appeals:

2. No decision of the CTA division may be elevated to the Supreme
Court under Rule 45 of the 1997 Rules of Civil Procedure without
passing through the CTA en banc. (Duty Free Phils. vs. BIR, GR No.
197228 dated October 8, 2014)
Local Taxation
Common Limitations:

Unless otherwise provided under the Local Government Code, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves,
tonnage dues, and all other kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained by the local government
unit concerned;
Local Taxation
Common Limitations:

(e) Taxes, fees, and charges and other impositions upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government
units in the guise of charges for wharfage, tolls for bridges or otherwise, or
other taxes, fees, or charges in any form whatsoever upon such goods or
(f) Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively
from the date of registration;
(h) Excise taxes on articles enumerated under the national Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products;
Local Taxation
Common Limitations:

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided
(j) Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way or reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except
(m) Taxes, fees, or other charges on Philippine products actually exported,
except as otherwise provided herein;
Local Taxation
Common Limitations:

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises
and cooperatives duly registered under R.A. No. 6810 and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known
as the "Cooperative Code of the Philippines" respectively; and,
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units. (Sec. 133 LGC)
Local Taxation
Common Limitations:

1. An LGU cannot impose business tax on petroleum products under Sec.
133(h) of the LGC. (Petron Corp. Vs. Mayor Tobias Tiangco – GR No. 158881,
April 16, 2008)
2. An LGU cannot impose business tax on common carriers under Sec.
133(j) of the LGC and Sec. 117 of the NIRC. (City of Manila vs. Colet, GR No.
120051 etc. dated December 10, 2014)
3. By express mandate of the LGC, LGUs cannot impose any kind of tax on
national government instrumentalities like the MIAA [Sec. 133(o)]. The taxing
powers of local governments do not extend to the national government, its
agencies and instrumentalities, "[u]nless otherwise provided in this Code" as
stated in the saving clause of Section 133. The saving clause refers to Section
234(a) on the exception to the exemption from real estate tax of real property
owned by the Republic. (MIAA vs. CA, GR No. 155640 dated July 20, 2006)
Local Taxation
Common Limitations:

4. An LGU cannot impose percentage tax subject to certain exceptions.
One exception is Amusement Tax which is considered a percentage tax.
(Pelizloy Realty Corp., vs. Province of Benguet, GR No. 183137, April 10,
5. A 10% tax based on taxable income imposed on lessors of poles
levied by an LGU is not an income tax but a form of business tax.
(Cagayan Electric Power and Light Co., Inc., vs. City of Cagayan de Oro,
GR No. 191761, November 14, 2012).
Local Taxation
Business Tax:

1. Condominium Corporations are not subject to business tax. They are
not engaged in business. (Yamane vs. BA Lepanto – GR No 154992,
October 25, 2005)
2. Business taxes paid in the current year, although computed based
on the previous year’s gross sales or gross receipts, represent business
taxes for the privilege of engaging in business for the current year. It is
paid at the beginning of the year as a fee to allow the business to
operate for the rest of the year. It is deemed a prerequisite to the
conduct of business. (Mobil Phils. vs. City Treasurer of Makati City, GR
No. 154092 dated July 14, 2005)
Local Taxation
Amusement Tax:

1. Under Sec. 140 of the LGC, the Amusement Tax may be imposed
on proprietors, lessees, or operators of theaters, cinemas, concert
halls, circuses, boxing stadia, and other places of amusement.
2. Sec. 131 (c) defines "Amusement Places“ as to include theaters,
cinemas, concert halls, circuses and other places of amusement where
one seeks admission to entertain oneself by seeing or viewing the
show or performances.
Local Taxation
Amusement Tax:

3. Criteria of Amusement Places in PBA vs. CA – “artistic expression”
has been modified by the LGC.
4. Resorts, swimming pools, bath houses, hot springs and tourist spots
do not belong to the same category or class as theaters, cinemas,
concert halls, circuses, and boxing stadia. It follows that they cannot be
considered as among the “other places of amusement” contemplated
by Section 140 of the LGC and which may properly be subject to
amusement taxes. (Pelizloy Realty Corp., vs. Province of Benguet, GR
No. 183137, April 10, 2013)
Local Taxation

1. Section 187 of the LGC which outlines the procedure for questioning
the constitutionality of a tax ordinance, is inapplicable, if what is
imposed by the ordinance is a mere regulatory fee and not a local tax.
(Smart vs. Municipality of Malvar, Batangas, GR No. 204429 dated
February 18, 2014.)
2. The Regional Trial Court, in deciding an appeal taken from a denial
of a protest by a local treasurer under Section 195 of the Local
Government Code, exercises "original jurisdiction”. (Yamane vs. BA
Lepanto – GR No 154992, October 25, 2005)
Real Property Taxation
General Principles/Assessment of Real Property Tax:

1. In determining whether machinery is real property subject to real
property tax, the definition and requirements under the Local
Government Code (not the Civil Code) are controlling. (Meralco vs. The
City Assessor and City Treasurer of Lucena City, GR No. 166102 dated
August 5, 2015)

2. The medical arts center/building (doctors’ clinics) is an integral part
of the hospital and is therefore entitled to the 10% special assessment
rate. The medical arts center being hundred meters away from the
CHH main building, does not denigrate from its being an integral part
of the latter. (City Assessor of Cebu City vs. Association de Benevola de
Cebu – GR No. 152904, June 8, 2007)
Real Property Taxation
General Principles/Assessment of Real Property Tax:

3. An ordinance stating that the real property tax is to be based on the
actual amount in the deed of conveyance or zonal value which ever is
higher is void. It violates the following provisions of the LGC: (i) Sec.
220(c); and, (ii) Secs. 198(a)(b) and (d). (Allied Banking Corporation vs.
City Government of Quezon City, GR No. 154126 dated October 11,

4. A notice of collection is not a notice of assessment. Failure to
comply with the requirements on the issuance of an assessment under
Sec. 223 of the LGC are attempts at deprivation of property without
due process of law and, therefore, renders the assessment null and
void. (Meralco vs. The City Assessor and City Treasurer of Lucena City,
GR No. 166102 dated August 5, 2015)
Real Property Taxation
Doctrines under Sec. 234:

1. To successfully claim exemption under Section 234(c) of the LGC, the
claimant must prove two elements: (a) the machineries and equipment
are actually, directly, and exclusively used by local water districts and
government-owned or controlled corporations; and (b) the local water
districts and government-owned and controlled corporations claiming
exemption must be engaged in the supply and distribution of water
and/or the generation and transmission of electric power. (NPC vs.
Province of Quezon, GR No. 171586 dated July 15, 2009)
2. In order to be exempt from execution sales, the property owned by
the government must be considered property of public dominion. (City of
Pasig vs. Republic, GR No. 185023 dated August 24, 2011)
Real Property Taxation
Doctrines under Sec. 234:

3. Under the beneficial use doctrine, the unpaid tax attaches to the
property and is chargeable against the taxable person who had actual
or beneficial use and possession of it regardless of whether or not he is
the owner. Thus, the beneficial user or the taxable entity having
beneficial use of the leased property is the one who should pay the
real property tax. (GSIS vs. City of Manila, GR No. 186242 dated
December 23, 2009)
Real Property Taxation
Doctrines under Sec. 234:

4. PEZA’s real properties are exempt from real estate tax for the
following reasons: (a) PEZA is an instrumentality of the National
Government in relation to Sec. 133 (o) of the LGC which provides that
the taxing power of LGUs shall not extend to: taxes, fees or charges of
any kind on the National Government, its agencies and
instrumentalities, and local government units; and, (b) Real properties
under PEZA’s title are owned by the Republic of the Philippines. The
properties sought to be taxed are located in publicly owned economic
zones. These economic zones are property of public dominion under
Art. 420 of the Civil Code. (City of Lapu-Lapu vs. PEZA, GR No. 184203
dated November 26, 2014)
Real Property Taxation

1. If the taxpayer/real property owner questions the excessiveness or
reasonableness of the assessment, Section 252 directs that the taxpayer
should first pay the tax due before his protest can be entertained. (Olivarez
vs. Marquez 438 SCRA 679). On the other hand, if what is questioned is the
validity or legality of the assessment payment under protest is not necessary.
(NPC vs. Municipal Government of Navotas, GR No. 192300 dated November
24, 2014)
2. Remedies if an assessment has already been issued:
a) Erroneous Assessment – Payment Under Protest – LBAA – CBAA – CTA
En Banc – SC;
b) Illegal Assessment – RTC (injunction) – CTA Division – CTA En Banc –
SC. Petition for declaratory relief is not the proper remedy.
Real Property Taxation

3. Other Scenarios:
a) Notice of Delinquency - RTC (injunction) – CTA Division – CTA En
Banc – SC.
b) Already sold at auction – RTC (Sec. 267 – Action Assailing
Validity of Sale) CTA Division – CTA En Banc – SC. (City of Lapu-
Lapu vs. PEZA, GR No. 184203 dated November 26, 2014)
Real Property Taxation

4. Actual cases on “illegal assessments”:

a. If the taxpayer questions the authority of the assessor to make the
assessment and collect the tax. (Ty vs. Trampe)
b. If the issue is who should pay the tax? (Estate of Concordia Lim vs.
City of Manila)
c. Amount of protest to be paid is huge and the properties were already
levied and to be auctioned-off. In this sense, appeal to the LBAA is not
a plain, adequate and speedy remedy. (City Government of Quezon
City vs. Bayan Telecommunications)
d. Claim of exemption under a BOT contract in relation to Sec. 234(C)
(NPC vs. Navotas). But compare with NPC vs. Quezon.

5. Section 226 of the LGC lists down the two entities vested with the
personality to contest an assessment: (1) the owner and, (2) the
person with legal interest in the property. A person legally burdened
with the obligation to pay for the tax imposed on a property has legal
interest in the property and the personality to protest a tax
assessment on the property.

Contractual stipulation to assume payment of the real property tax
does not clothe the party legal interest for purposes of contesting an
assessment. Corollary thereto, the local government units can neither
be compelled to recognize the protest of a tax assessment from an
entity against whom it cannot enforce the tax liability. (NPC vs.
Province of Quezon, GR No. 171586 dated July 15, 2009)
6. A motion for reconsideration of the Provincial Assessor’s decision is
a remedy not sanctioned by law. (Fels Energy, Inc. vs. Province of
Batangas, GR No. 168557, February 16, 2007)

7. Protest is not a requirement in order that a taxpayer who paid
under a mistaken belief that it is required by law, may claim for a
refund. (Ramie Textile vs. Mathay - 89 SCRA 586)

8. Mandamus does not lie to compel the treasurer to recognize a tax
exemption claimed by a taxpayer. Availment of the remedies under
Sec. 226 is necessary. (Systems Plus Computer College of Caloocan vs.
Local Government of Caloocan, GR No. 146382 dated August 7, 2003)
10. Posting of surety bond (instead of payment in cash), may be
considered substantial compliance with Section 252 of the LGC for the
said bond already guarantees the payment to the alleged real property
tax. (Meralco vs. The City Assessor and City Treasurer of Lucena City,
GR No. 166102 dated August 5, 2015)