Recent Supreme Court and CTA Tax Decisions

RECENT DECISIONS OF THE
SUPREME COURT AND

THE COURT OF TAX APPEALS
Tax Forum 2016
Dusit Thani Hotel, Maka2 City
March 7, 2016
1:00 5:00 pm
ATTY. PIERRE MARTIN D. REYES

Senior Associate, Du-Baladad and
Associates (BDB Law)
SUPREME COURT DECISIONS

TAX LEGAL CONSULTING
INCOME TAX

The obligation of the payor/employer to deduct and

withhold the related withholding tax arises at the

time
the income was paid or accrued or recorded
as expense in the payors/employers books,
whichever comes first

One of the issues is whether ING Bank is liable for deficiency

withholding tax on accrued bonuses for the taxable years 1996
and 1997.
The accrued bonuses were recorded in ING Banks books as
expenses for taxable years 1996 and 1997, although no
withholding of tax was effected.
ING Bank asserts that the liability of the employer to withhold
the tax does not arise until such bonus is actually distributed.
Since the supposed bonuses were not distributed to the
officers and employees in 1996 and 1997 but were distributed
in the succeeding year when the amounts of the bonuses were
finally determined, ING Bank asserts that its duty as employer
to withhold the tax during these taxable years did not arise.
The Supreme Court ruled that ING bank is liable for the
withholding tax on the bonuses since it claimed the same as
expenses in the year they were accrued.
Under Section 72 (now Section 79) of the Tax Code, an
employer is required to deduct and pay the income tax on
compensation paid to its employees, either actually or
constructively.
Under Section 39 (now Section 35), deductions from gross
income are taken for the taxable year in which paid or
accrued or paid or incurred is dependent upon the method of
accounting income and expenses adopted by the taxpayer. If
the taxpayer is on cash basis, the expense is deductible in the
year it was paid, regardless of the year it was incurred. If he is
on the accrual method, he can deduct the expense upon
accrual thereof.
An expense is accrued and deducted for tax purposes when

(1) the obligation to pay is already fixed; (2) the amount can be
determined with reasonable accuracy; and (3) it is already
knowable or the taxpayer can reasonably be expected to have
known at the closing of its books for the taxable year.
Section 29(j) (now Section 34(K) provides that, as a condition
for deductibility of an expense, the tax required to be withheld
on the amount paid or payable must be shown to have been
remitted to the BIR by the withholding agent.
Reconciling the above provisions, the Supreme Court held that
the obligation of the payor/employer to deduct and withhold the
related withholding tax arises at the time the income was paid
or accrued or recorded as an expense in the payors/
employers books, whichever comes first. (ING Bank v.
Commissioner of Internal Revenue, G.R. No. 167679, July 22, 2015)

In claims for excess and unutilized creditable
withholding tax, there is no basis in law or
jurisprudence to say that the BIR Form No. 2307 is
the only evidence to prove that the taxpayer did
not use the claimed creditable withholding tax to
pay for his/its tax liabilities

PNB offered as evidence the Income Tax to show that the

excess withholding tax payments were not used to settle its tax
liabilities.
The CTA denied the Motion for Reconsideration and insisted
that, to sufficiently prove that there was no utilization of the
creditable taxes withheld, PNB should have likewise presented
the Certificate of Creditable Tax Withheld at Source (BIR
Forms No. 2307)
Supreme Court ruled that PNBs submitted evidence
sufficiently showed the non-utilization of the taxes withheld
subject of the refund.
In claims for excess and unutilized creditable withholding tax,
the submission of BIR Forms 2307 is to prove the fact of
withholding of the excess creditable withholding tax being
claimed for refund.
The probative value of BIR Form 2307, which is basically a

statement showing the amount paid for the subject transaction
and the amount of tax withheld therefrom, is to establish only
the fact of withholding of the claimed creditable withholding
tax. There is nothing in BIR Form No. 2307 which would
establish either utilization or non-utilization, as the case may
be, of the creditable withholding tax.
PNB was able to establish, through the evidence it presented,
the non-use of the claimed creditable withholding taxes to
settle its tax liabilities, to reiterate: (1) Audited Financial
Statements; (2) ITR; (3) the testimony of accountant; and (4)
the Withholding Tax Remittance Returns (BIR Form 1606).
(Philippine National Bank v. Commissioner of Internal Revenue, G.R. No.
206019, March 18, 2015)
VALUE-ADDED TAX

Rules on the determination of the

prescriptive period for filing a tax refund or
credit of unutilized input VAT

1. An administrative claim must be filed with the CIR within

two years after the close of the taxable quarter when
the zero-rated or effectively zero-rated sales were
made.
2. The CIR has 120 days from the date of submission of
complete documents in support of the administrative
claim within which to decide whether to grant a refund or
issue a tax credit certificate. The 120-day period may
extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of
the two-year period. If the 120-day period expires without
any decision from the CIR, then the administrative claim
may be considered to be denied by inaction.
3. A judicial claim must be filed with the CTA within 30 days

from the receipt of the CIRs decision denying the
administrative claim or from the expiration of the 120day period without any action from the CIR.
4. All taxpayers, however, can rely on BIR Ruling No.

DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, as an exception to the
mandatory and jurisdictional 120+30 day periods.
(Cargill Philippines, Inc. v. CIR, G.R. No. 203774, March 11, 2015;
Commissioner of Internal Revenue v. Air Liquide, G.R. No. 210646,
July 29, 2015; Commissioner of Internal Revenue v. Toledo Power
Company, G.R. No. 195175 & 199645, August 10, 2015;
Commissioner of Internal Revenue v. Toledo Power Company, G.R.
No. 196415 & 196451, December 2, 2015; Commissioner of Internal
Revenue v. Mirant Pagbilao Corporation, G.R. No. 180434, January
20, 2016.
The 120-day period in a VAT refund is to be

reckoned from the filing of the administrative

claim,
not from the completion of supporting
documents after the filing of the administrative
claim.

Taxpayer filed its administrative claim for the refund of excess

and unused input VAT for the 2nd quarter of taxable year 2008
on 28 December 2009. Counting 120+30 days, the taxpayer
should have elevated the same to the CTA on 27 May 2010.
The judicial claim was belatedly filed on 6 July 2010.
Taxpayer argues that it filed its complete documents on 20
September 2010 and thus the 120-day period should be then
counted from the date.
The Supreme Court disagreed. To allow petitioners allegations
to prevail would set a dangerous precedent, as the reckoning
period for the 120 days would be at the mercy of taxpayers.
They will then submit complete supporting documents even
after the two-year prescriptive period for filing an administrative
claim has lapsed. This is obviously not the intention of the law.
The burden of proving en2tlement to a tax refund is on the

taxpayer. It is logical to assume that in order to discharge this
burden, the law intends the ling of an applica2on for a refund to
necessarily include the ling of complete suppor2ng documents to
prove en2tlement for the refund. Otherwise, the mere ling of an
applica2on without any suppor2ng document would be as good as
ling a mere scrap of paper.
Peculiar to this case is that prior to the alleged comple2on of its
suppor2ng documents, the taxpayer had already led its judicial
claim with the CTA.
Assuming arguendo that the 120-day period should commence to
run only upon receipt of the complete documents or from 20
September 2010, the judicial claim must s2ll fail. 2me, the period for
ling an administra2ve applica2on for a refund would have already
prescribed on 30 June 2010. (Hedcor, Inc. v. Commissioner of Internal
Revenue, G.R. No. 207575, July 15, 2015)

In claims for VAT refund that were filed before June

14, 2014, the 120 day period shall be counted not

from
the filing of the administrative claim but from
the submission of complete documents as
determined by the taxpayer
Claims filed prior to June 14, 2014 (RMC 49-2003

prevailing rule)
1. The CIR has 120 days from the date of submission of

complete documents to decide a claim for tax credit or
refund. Citing RMC No. 49-2003, from the date an
administrative claim for excess unutilized VAT is filed, a
taxpayer has 30 days within which to submit the
documentary requirements sufficient to support his claim.
2. If in the course of the investigation and processing of the
claim, additional documents are required for the proper
determination of the legitimacy of the claim, the taxpayerclaimants shall submit such documents within thirty (30)
days from request of the investigating/processing office.
Notice, by way of a request from the tax collection
authority to produce the complete documents in these
cases, is essential.
3. Then, upon filing by the taxpayer of his complete

documents to support his application, or expiration of the
period given, the BIR has 120 days within which to decide
the claim for tax credit or refund.
4. Should the taxpayer, on the date of filing, manifest that he
no longer wishes to submit any other additional
documents to complete his administrative claim, the 120day period allowed to the BIR begins to run from the date
of filing.
5. In all cases, whatever documents a taxpayer intends to
file to support his claim must be completed within the 2year period under Section 112(A) of the NIRC.
6. The 30-day period from denial of the claim or from the
expiration of the 120-day period within which to appeal
the denial or inaction of the BIR to the CTA must be
respected.
June 14, 2014 to present (RMC 54-2014 prevailing rule)
1. As it now stands, RMC 54-2014 dated June 11, 2014

mandates that the application for VAT refund/tax credit
must be accompanied by complete supporting
documents.
2. Under the current rule, the reckoning of the 120-day
period has been withdrawn from the taxpayer by RMC
54-2014, since it requires him at the time he files his claim
to complete his supporting documents and attest that he
will no longer submit any other document to prove his
claim. Further, the taxpayer is barred from submitting
additional documents after he has filed his administrative
claim. Thus, the 120-day has to be counted from the filing
of the administrative claim. (Pilipinas Total Gas v.
Commissioner of Internal Revenue, G.R. No. 207112, December 8,
2015)
The failure of the taxpayer to submit all

relevant documents set out in RMO No.
53-98 is not fatal to its claim for refund or
tax credit of unutilized input VAT

The CIRs reliance on RMO 53-98 is misplaced. There is

nothing in Section 112 of the NIRC, RR 3-88 or RMO 53-98
itself that requires submission of the complete documents
enumerated in RMO 53-98 for a grant of a refund or credit of
input VAT. The subject of RMO 53-98 states that it is a
Checklist of Documents to be Submitted by a Taxpayer upon
Audit of his Tax Liabilities x x x.
Even assuming that RMO 53-98 applies, it specifically states
that some documents are required to be submitted by the
taxpayer if applicable. If the taxpayer indeed failed to submit
the complete documents in support of its application, the CIR
could have informed the taxpayer of its failure. In this case, the
CIR did not inform the taxpayer of the document it failed to
submit, even up to the present petition. (Commissioner of Internal
Revenue v. Toledo Power Company, G.R. No. 196415 & 196451, December
2, 2015; Pilipinas Total Gas v. Commissioner of Internal Revenue, G.R.
No. 207112, December 8, 2015)
For purposes of determining when the

supporting documents have been
completed it is the taxpayer who
ultimately determines when complete
documents have been submitted for the
purpose of commencing and continuing the
running of the 120-day period.

To allow the CIR to determine the completeness of the

documents submitted and, thus, dictate the running of the 120day period, would undermine these objectives, as it would
provide the CIR the unbridled power to indefinitely delay the
administrative claim, which would ultimately prevent the filing
of a judicial claim with the CTA.
Whether these documents are actually complete as required
by law is for the CIR and the courts to determine.
The benefit given to the taxpayer to determine when it should
complete its submission of documents is not unbridled.
Under RMC No. 49-2003, if in the course of the investigation
and processing of the claim, additional documents are required
for the proper determination of the legitimacy of the claim, the
taxpayer-claimants shall submit such documents within thirty
(30) days from request of the investigating/processing office.
Under Section 112(A) of the NIRC, a taxpayer has two (2)

years, after the close of the taxable quarter when the sales
were made, to apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such
sales. Thus, before the adminstrative claim is barred by
prescription, the taxpayer must be able to submit his complete
documents in support of the application filed. (Pilipinas Total Gas
v. Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015)

A distinction must, thus, be made between

administrative cases appealed due to
inaction and those dismissed at the
administrative level due to the failure of the
taxpayer to submit supporting documents

If the administrative claim

was dismissed by the CIR
due to the taxpayers
failure to submit complete
documents despite notice/
request
If the judicial claim is an

appeal of an unsuccessful
administrative claim
If the judicial claim is an

appeal due to inaction of
the BIR
The judicial claim before the

CTA would be dismissible,
not for lack of jurisdiction, but
for the taxpayers failure to
substantiate the claim at the
administrative level.
The taxpayer has to

convince the CTA that the
CIR had no reason to deny
its claim. It, thus, becomes
imperative for the taxpayer to
show the CTA that not only is
he entitled under substantive
law to his claim for refund or
tax credit, but also that he
satisfied all the documentary
and evidentiary requirements
for an administrative claim.
The CTA may give credence

to all evidence presented by
the taxpayer, including those
that may not have been
submitted to the CIR as the
case is being essentially
decided in the first instance.
The taxpayer must prove
every minute aspect of its
case by presenting and
formally offering its evidence
to the CTA, which must
necessarily include whatever
is required for the
administrative
TAX LEGAL claim
CONSULTING
Thus, in case of claims dismissed at the administrative level

due to the failure of the taxpayer to submit supporting
documents, it is, thus, crucial for a taxpayer in a judicial claim
for refund or tax credit to show that its administrative claim
should have been granted in the first place.
Consequently, a taxpayer cannot cure its failure to submit a
document requested by the BIR at the administrative level by
filing the said document before the CTA. (Pilipinas Total Gas v.
Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015)

The absence and non-printing of the word

zero-rated in the taxpayers invoices is
fatal to the claim for refund or tax credit of
unutilized input VAT

An applicant for a claim for tax refund or tax credit must

not only prove entitlement to the claim but also
compliance with all the documentary and evidentiary
requirements
A claim for the refund of creditable input taxes must be
evidenced by a VAT invoice or official receipt in
accordance with the invoicing requirements.
The failure to indicate the words zero-rated on the

invoices and receipts issued by a taxpayer would result
in the denial of the claim for refund or tax credit. (Eastern
Telecommunica/ons Philippines v. Commissioner of Internal Revenue, G.R. No.
183531, March 25, 2015)
DOCUMENTARY STAMP TAX

The transfer of real property to a surviving

corporation pursuant to a merger is not
subject to Documentary Stamp Tax (DST)

The BIR argues that DST is levied on the exercise of the privilege to
convey real property regardless of the manner of conveyance .
The Supreme Court ruled that the taxpayer is not liable for DST as
the transfer of real properties from the absorbed corporations to
respondent was pursuant to a merger.
Section 196 of the NIRC does not include the transfer of real
property from one corporation to another pursuant to a merger. It
pertains only to sale transactions where real property is conveyed to
a purchaser for a consideration. The phrase granted, assigned,
transferred or otherwise conveyed is qualified by the word sold
which means that documentary stamp tax under Section 196 is
imposed on the transfer of realty by way of sale and does not apply
to all conveyances of real property.
In a merger, the real properties are not deemed sold to the

surviving corporation and the latter could not be considered as
purchaser of realty since the real properties subject of the merger
were merely absorbed by the surviving corporation by operation of
law and these properties are deemed automatically transferred to
and vested in the surviving corporation without further act or deed.
Therefore, the transfer of real properties to the surviving corporation
in pursuance of a merger is not subject to documentary stamp tax.
(Commissioner of Internal Revenue v. La Tondena Distillers, G.R. No. 175188,
July 15, 2015)
EXCISE TAX

Petroleum companies are entitled to refund

or credit of excise taxes erroneously paid
on its purchase of petroleum products sold
to ecozone enterprises

Chevron sold and delivered petroleum products to Clark

Development Corporation (CDC). Chevron did not pass on to CDC
the excise taxes paid on the importation of petroleum products.
Hence, it filed a claim for tax refund.
The Supreme Court held that Chevron is entitled to refund based on
Section 135(c) of the NIRC. Section 135(c) provides that petroleum
products sold to entities which are by law exempt from direct
and indirect taxes are exempt from excise tax.
CDC has been exempt from paying direct and indirect taxes
pursuant to the Special Economic Zone Act of 1995.
Excise Tax imposed on petroleum products is a tax on property.

Section 135 should be construed as an exemption on the petroleum
products on which the excise tax was levied upon.
It is the statutory taxpayer, not the party who only bears the
economic burden, who is entitled to claim the tax refund or tax
credit. However, this rule does not apply where the law grants the
party (to whom the economic burden of the tax is shifted) an
exemption from both direct and indirect taxes. Such party may
claim the refund or tax credit even if it is not the statutory taxpayer.
The general rule applied in the case because Chevron did not pass
on the excise taxes. (Chevron Philippines v. Commissioner of Internal Revenue, G.R.
No. 210836, September 1, 2015)
Petroleum companies are entitled to refund or

credit of excise taxes erroneously paid on its

purchase
of petroleum products sold to
international carriers

Pilipinas Shell sold and delivered petroleum products to various

international carriers and Philippines or foreign registry for their use
outside the Philippines, net of excise tax. Hence, it filed claims for
the refund or credit of the excise taxes paid.
The Supreme Court granted Shells claim as its petroleum products
are exempt from excise tax under Section 135(a) of the NIRC.
The Court applied its ruling in Commissioner of Internal Revenue v.
Pilipinas Shell Petroleum Corporation, G.R. No. 188497, February
19, 2014 (which reversed the earlier April 25, 2012 decision)
Section 135(a) of the NIRC provides that petroleum products sold to
international carriers of Philippine or foreign registry on their use or
consumption outside the Philippines are exempt from excise tax.
(Commissioner of Internal Revenue v. Pilipinas Shell, G.R. No. 180402, February
10, 2016)
TAX REMEDIES

A waiver of the statute of limitations that

does not comply with the requisites for its
validity specified under RMO No. 20-90 and
RDAO 01-05 is generally invalid, but may
still be valid due to peculiar circumstances
5 waivers were executed. The CTA found the following defects: (1)
they were executed without a notarized board authority; (2) the
dates of acceptance by the BIR were not indicated therein; and (3)
the fact of receipt by respondent of its copy of the Second Waiver
was not indicated on the face of the original Second Waiver.
The Supreme Court ruled that the general rule is that a waiver of the
statute of limitations that does not comply with the requisites for its
validity specified under RMO No. 20-90 and RDAO 01-05 is
generally invalid and ineffective to extend the prescriptive period to
assess taxes. However, due to peculiar circumstances and as
exception to the general rule, the supposedly invalid waivers may be
considered valid for the following reasons:
1. If the parties are in pari delicto or in equal fault and thus they shall
have no action against each other. Taxpayer violated violated RMO
No. 20-90 which states that in case of a corporate taxpayer, the
waiver must be signed by its responsible officials and RDAO 01-05
which requires the presentation of a written and notarized authority
to the BIR. Similarly, BIR violates its own rules when it did not
ensure that the waiver is duly signed by an authorized
representative and by not ensuring that the delegation of authority
is in writing and duly notarized.
2. Parties who do not come to Court with clean hands cannot be
allowed to benefit from their own wrongdoing. Taxpayer should not
be allowed to benefit from the flaws in its own waivers and
successfully insist on their invalidity in order to evade its
responsibility to pay taxes.
3. Taxpayer is estopped from questioning the validity of its waivers.

The taxpayer executed 5 waivers and delivered them to the BIR
and did not raise any objection against their validity until the BIR
assessed taxes against it.
In its Letter Protest to the BIR,
respondent did not even question the validity of the Waivers or call
attention to their alleged defects.
4. The Court cannot tolerate a highly suspicious situation. In this
case, after the taxpayer voluntarily executing the waivers, insisted
on their invalidity by raising the very same defects it caused. On
the other hand, the BIR miserably failed to exact from the taxpayer
compliance with its rules. The BIRs negligence in the compliance
of its duties was so gross such that it seemed that it consented to
the mistakes in the waivers. Such a situation is dangerous and
open to abuse by unscrupulous taxpayers who intend to escape
their responsibility to pay taxes by mere expedient of hiding behind
technicalities.
The Supreme Court said that while the BIR was also at fault here
because it was careless in complying with the requirements of RMO
No. 20-90 and RDAO 01-05, such negligence may be addressed by
enforcing the provisions imposing administrative liabilities upon the
officers responsible for these errors. The BIR's right to assess and
collect taxes should not be jeopardized merely because of the
mistakes and lapses of its officers, especially in cases like this
where the taxpayer is obviously in bad faith. (Commissioner of Internal
Revenue v. Next Mobile, G.R. No. 212825, December 7, 2015)
The courts have no assessment powers,

and therefore, cannot issue assessments
against taxpayers

Taxpayers sale of electricity was found to be not zero-rated for

failure to present the Certificate of Compliance from the ERC.
The BIR sought to have the Supreme Court impose the
deficiency VAT on said sales.
The Supreme Court ruled, citing the recent case of SMI-ED
Philippines v. Commissioner of Internal Revenue, G.R. No.
175410, November 12, 2014, offsetting is allowed if there is a
need for the court to determine if a taxpayer claiming refund of
erroneously paid taxes is more properly liable for taxes other
than that paid. The determination of the proper category of tax
that should have been paid is not an assessment but is an
incidental issue that must be resolved in order to determine
whether there should be a refund.
While offsetting is allowed, the BIR can no longer assess the
taxpayer for deficiency taxes in excess of the amount claimed
for refund if prescription has already set in.
Offsetting of taxes is allowed only if the determination of the

taxpayers liability is intertwined with the resolution of the claim
for tax refund of erroneously or illegally collected taxes under
Section 229 of the NIRC.
In this case, the taxpayer filed a claim for tax refund or credit
under Section 112 of the NIRC, where the issue to be resolved
is whether TPC is entitled to a refund or credit of its unutilized
input VAT for the taxable year 2002. And since it is not a claim
for refund under Section 229 of the NIRC, the correctness of
TPCs VAT returns is not an issue. Thus, there is no need for
the court to determine whether TPC is liable for deficiency VAT.
(Commissioner of Internal Revenue v. Toledo Power Company, G.R. No.

196415 & 196451, December 2, 2015)

LOCAL TAXATION

LGUs do not have the power to impose taxes on

persons or entities engaged in the business of

manufacturing
and distribution of petroleum
products

The Batangas City Government denied Shells protest

and declared that the City Government has the power to
withhold the issuance of the Mayors permit for failure of
Shell to pay business tax.
Among the common limitations on the taxing powers of
LGUs provided under Section 133 of the LGC: Excise
taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or
charges on petroleum products
The prohibition with respect to petroleum products
extends not only to excise taxes thereon, but all taxes,
fees or charges.
The taxpayer shall have thirty (30) days from the receipt of
the denial of the protest or from the lapse of the sixty

(60)-day period prescribed herein within which to appeal
with the court of competent jurisdicBon otherwise the
assessment becomes conclusive and unappealable

On January 15, 2007, CBC protested, thru a Letter, the imposition of

business tax under Section 21 of the Manila Revenue Code on the
ground that it constitutes double taxation. The City Treasurer
acknowledged receipt of the letter but said the she will await the
formal protest. On March 27, 2007, CBC wrote a letter-reply
reiterating that CBC already protested. On April 17, 2007, CBC filed
a Petition for Review with RTC. On appeal, the CTA ruled that CBC
belatedly filed its petition with RTC by 1 day.
CBC countered it timely filed now claiming that reckoning point
should be from March 27, 2007
The Supreme Court ruled that the period within which the City
Treasurer must act on the protest, and the consequent period to
appeal a denial due to inaction, should be reckoned from January
15, 2007, the date CBC filed its protest, and not March 27, 2007.
Section 195 of the Local Government Code states that the taxpayer
shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty (60)-day period prescribed
herein within which to appeal with the court of competent jurisdiction
otherwise the assessment becomes conclusive and unappealable.
At any rate, the RTC has no jurisdiction. Following R.A. No. 9282,
the authority to exercise either original or appellate jurisdiction over
local tax cases depended on the amount of the claim. In cases
where the amount sought to be refunded is below the jurisdictional
amount of the RTC, the Metropolitan, Municipal, and Municipal
Circuit Trial Courts have jurisdiction. RTC has jurisdiction if amount
does not exceed P200,000 (P400,000 in Metro Manila); MTC if
amount does not exceed P100,000 (P200,000 in Metro Manila).
Amount here is P154,398.50 and, thus, MTC has jurisdiction (China
Banking Corporation v. City Treasurer of Manila, G.R. No. 204117, July 1, 2015)
TARIFF AND CUSTOMS DUTIES

Distinction between unlawful importation under

Section 3601 of the Tariff and Customs Code

(TCCP)
and various fraudulent practices against
customs revenue under Section 3602 of the TCCP

Unlawful Importation (Outright

smuggling)
Fraudulent Practices
(Technical Smuggling)
Goods and articles of commerce are

brought into the country without the
required importation documents, or are
disposed of in the local market without
having been cleared by the BOC or other
authorized government agencies, to
evade the payment of correct taxes,
duties and other charges. Such goods
and articles do not undergo the
processing and clearing procedures at
the BOC, and are not declared through
submission of import documents, such
as the import entry and internal revenue
declaration.
Goods and articles are brought into the

country through fraudulent, falsified or
erroneous declarations, to substantially
reduce, if not totally avoid, the payment
of correct taxes, duties and other
charges. Such goods and articles pass
through the BOC, but the processing and
clearing procedures are attended by
fraudulent acts in order to evade the
payment of correct taxes, duties, and
other charges. Often committed by
means of misclassification of the nature,
quality or value of goods and articles,
undervaluation in terms of their price,
quality or weight, and misdeclaration of
their kind.
(Bureau of Customs v. Hon. Devanadera, G.R. No. 193253,

September 8, 2015)
JUDICIAL REMEDIES AND CTA

JURISDICTION

The proper remedy to assail a Revenue Regulation

is a special civil action for declaratory relief under

Rule
63 of the Rules of Court filed with the
Regional Trial Court, not a special civil action for
certiorari under Rule 65

Taxpayer filed with the Supreme Court a petition for certiorari

assailing RR No. 2-2012, which imposes VAT and excise tax on the
importation of petroleum products from abroad into the Freeport or
economic zones.
The Supreme Court dismissed the petition for being an improper
remedy.
A petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure, as amended, is a special civil action that may be invoked
only against a tribunal,board, or officer exercising judicial or quasijudicial functions.
RR 2-2012 was issued in the exercise of the quasi-legislative or
rule-making powers of the Secretary of Finance, and not judicial or
quasi-judicial functions. Being quasi-legislative in nature, RR 2-2012
is outside the scope of a petition for certiorari.
The proper remedy is one for declaratory relief over which the
Supreme Court has only appellate, not original jurisdiction.
Under Rule 63 of the Rules of Court, the special civil ac2on of
declaratory relief falls under the exclusive jurisdic2on of the Regional Trial
Courts.
Although the Supreme Court, the Court of Appeals and the Regional
Trial Courts have concurrent jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, habeas corpus and
injunction, such concurrence does not give the taxpayer unrestricted
freedom of choice of court forum. (Clark Investors and Locators
Association v. Secretary of Finance, G.R. No. 200670, July 6, 2015)
The CTA is a court of special jurisdiction, with

power to review by appeal decisions involving tax

disputes
rendered by either the CIR or the COC.
Conversely, it has no jurisdiction to determine the
validity of a ruling issued by the CIR or the COC in
the exercise of their quasi-legislative powers to
interpret tax laws
Petron imported alkylate, a blending component, and paid VAT.

Based on the Final Computation, the said importation was subjected
to excise taxes pursuant to CMC No. 164-2012 which states that
alkylate is a product of distillation and is thus subject to excise tax
Petron filed a Petition for Review with the CTA.
The BIR questioned the jurisdiction of the CTA. The BIR argued that
the interpretation in CMC No. 164-2012 is an exercise of quasilegislative function, which is reviewable by the Secretary of Finance
and then appealable to the Office of President and ultimately to the
regular courts.
The Supreme Court ruled that the CTA has no jurisdiction to
determine the validity of a ruling issued by the CIR or the COC in the
exercise of their quasi-legislative powers to interpret tax laws.
The phrase "other matters arising under this Code," as stated in the
second paragraph of Section 4 of the NIRC, should be understood
as pertaining to those matters directly related to the preceding
phrase "disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto" and
must therefore not be taken in isolation to invoke the jurisdiction of
the CTA.
In other words, the subject phrase should be used only in reference
to cases that are, to begin with, subject to the exclusive appellate
jurisdiction of the CTA, i.e., those controversies over which the CIR
had exercised her quasi-judicial functions or her power to decide
disputed assessments, refunds or internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, not to those
that involved the CIR's exercise of quasi-legislative powers.
Also, Petron prematurely invoked the jurisdiction of the CTA. Under

Section 7 of RA 1125, as amended by RA 9282, what is appealable
to the CTA is the decision of the COC over a customs collector's
adverse ruling on a taxpayer's protest.
It should be stressed that the CTA has no jurisdiction to review by
appeal, decisions of the customs collector. A party adversely
affected by a ruling or decision of the customs collector may protest
such ruling or decision upon payment of the amount due and, if
aggrieved by the action of the customs collector on the matter under
protest, may have the same reviewed by the COC. It is only after the
COC shall have made an adverse ruling on the matter may the
aggrieved party file an appeal to the CTA. (Commissioner of Internal
Revenue v. Court of Tax Appeals and Petron Corporation, G.R. No. 207843, July
15, 2015)
The CTA en banc has jurisdiction over final

orders or judgments but not over
interlocutory orders issued by the CTA in
division.

Petitioners counsel failed to appear in the Pre-Trial Conference and

thus the Respondent moved to have Petitioner declared in default.
The same was granted. Petitioner filed a Motion to Lift Order of
Default. CTA denied the Motion. CBK then filed a Motion for
Reconsideration, which was also denied. Petitioner then filed a
Petition for Certiorari with Supreme Court.
The Court ruled that the CTA en banc has jurisdiction over final
order or judgment but not over interlocutory orders issued by the
CTA in division.
A final judgment or order is one that finally disposes of a case,
leaving nothing more to be done by the Court in respect thereto
while an order that does not finally dispose of the case is
interlocutory. An interlocutory order may not be questioned on
appeal.
The CTA in Division Order granting the respondent's motion to

declare petitioner as in default and allowing respondent to present
its evidence ex parte, is an interlocutory order as it did not finally
dispose of the case on the merits but will proceed for the reception
of the former's evidence to determine its entitlement to its judicial
claim for tax credit certificates.
Note, however, that Petitioner was allowed by the Court, in the
interest of justice, to present her claims on the merits. The Court
noted that there was no intention to delay the case since Petitioner
filed its Pre-Trial Brief (Commissioner of Internal Revenue v. Court of Tax
Appeals and CBK Power, G.R. No. 203054-55, July 29, 2015)
Original jurisdicBon over a peBBon for cer/orari

assailing a DOJ resoluBon in a preliminary
invesBgaBon involving tax and tari oenses is
now with the CTA, not the Court of Appeals
The elementary rule is that the CA has jurisdiction to review the

resolution of the DOJ through a petition for certiorari under Rule 65
of the Rules of Court on the ground that the Secretary of Justice
committed grave abuse of his discretion amounting to excess or lack
of jurisdiction. However, with the enactment of Republic Act (RA) No.
9282 expanding the CTAs jurisdiction, it is no longer clear which
between the CA and the CTA has jurisdiction to review through a
petition for certiorari the DOJ resolution in preliminary investigations
involving tax and tariff offenses.
The Supreme Court declared that the Court of Appeals original
jurisdiction over a petition for certiorari assailing the DOJ resolution
in a preliminary investigation involving tax and tariff offenses was
necessarily transferred to the CTA pursuant to Section 7 of RA No.
9282, amending R.A. No. 1125. (Bureau of Customs v. Hon. Devanadera,
G.R. No. 193253, September 8, 2015)
SIGNIFICANT DECISIONS OF THE

COURT OF APPEALS

INCOME TAX

The costs deducBble to PEZA-registered enBBes

are not limited to those enumerated in the PEZA
Rules and RegulaBons.
The list of direct cost under RR No. 11-05 is not all-inclusive and
intended merely as a guide in determining the items that may be
considered for income tax deduction purposes.
The criteria in determining whether the item of cost or expense
should be part of direct cost is the direct relation of such item in the
rendition of the PEZA-registered services. If the item of cost or
expense can be directly attributed in providing the PEZA-registered
services, then it should be treated as direct cost.
RR 11-05 provides that the following direct costs are included in the
allowable deductions to arrive at gross income earned xxx. The use
of the word included shows that the list it not meant to be exclusive
(Netherlands) B.V. Philippine Branch vs. Commissioner of Internal Revenue,
CTA Case Nos. 8421 and 6561, May 21, 2015; Commissioner of Internal Revenue
v. East Asia Utilities Corporation, CTA Case EB No. 1207, February 3, 2016)
Improperly accumulated earnings tax do not

apply to PEZA enterprises, without further
qualicaBon as to whether it availed of the ITH of
the special tax regime of 5%
While the improperly accumulated earnings tax, as a rule, is

imposable on domestic corporations, the said tax may not be
imposed on the specifically enumerated corporations under Section
29(8)(2) of the NIRC of 1997 and Section 4 (a) to o(g) of RR No. 0201, one of which class includes "(e)nterprises duly registered with
the Philippine Economic Zone Authority (PEZA) under R.A. 7916".
As regards enterprises duly registered with the Philippine Economic
Zone Authority (PEZA) under R.A. 7916, as among those falling
within the exceptions on the imposition of improperly accumulated
earnings tax, it is noted said Section 4(g) of RR No. 02- 01 does not
qualify whether or not the said corporation or enterprise enjoys an
ITH or the special tax regime at the rate of 5% on its registered
activities. (Commissioner of Internal Revenue v. Yumex Philippines, CTA EB
No. 1139, August 11, 2015)
VALUE-ADDED TAX

The fact of withholding of VAT on payments for

the use or lease of properBes or property rights to
nonresident foreign persons is an indicaBon of
doing business in the Philippines
The taxpayer entered into an agreement with a non-resident entity

where the former shall distribute the latters software products. The
non-resident entity shall pay distribution fees to the taxpayer. In
another agreement, the non-resident entity granted the taxpayer the
right to grant to subscribers, non-exclusive, non-transferable
licenses, or access rights to the non-residents software products.
The taxpayer shall then pay to the non-resident entity software
payments (royalties).
The taxpayer filed a claim for refund of unutilized input taxes
attributable to its sale of services to a non-resident entity.
The CTA ruled that that taxpayer failed to meet the third requisite
requisite for a zero-rated sale of service under Section 108(B)(2) in
that the recipient of the service must be doing business outside the
Philippines.
The CTA held that since based on the monthly VAT remittance
returns, the taxpayer withholds VAT from the non-resident entity, the
latter is doing business in the Philippines. (Amadeus Marketing
Philippines vs. Commissioner of Internal Revenue, CTA Case No. 8628, January
25, 2016)
Filing of BIR Form No. 1914 is sufficient

compliance with the requirement for filing
an administrative refund claim
The BIR argued the taxpayer is not entitled to the refund since it
only submitted BIR Form No. 1914 (Application for Tax Credits/
Refunds Form). According to the BIR, there must be a written claim
categorically demanding recovery of taxes.
According to the Court, Section 112(A) of the NIRC does not require
a specific form for refund. BIR Form No. 1914 filed by the taxpayer
showing among others, the name of the taxpayer, the amount being
claimed for refund, tax type, period covered, reason for filing the
claim, printed name and signature of taxpayers representatives and
the receiving stamps constitute sufficient compliance because the
taxpayers intention to effect a claim for refund is clearly indicated
therein. (Phil. Gold Processing & Rening Corp. v. Commissioner of Internal Revenue, CTA
Case No. 8669, March 26, 2015)
DONORS TAX

Liability to pay donor's tax is with the donor

and not with the donee.
Toenec Japan infused additional paid-in capital in the amount of

P30,000,000.00 to Toenec Philippines. Teonec Philippines was
assessed for the payment of deficiency donors tax relative to the
capital infusion.
Since Toenec Philippines is the entity that received the
P30,000,000.00 cash, it is considered as the donee. The CTA then
ruled that, consequently, as the donee, Teonec Philippines is not
liable to pay donor's tax, pursuant to Section 98 of the NIRC of
1997, as amended. The liability to pay donor's tax is not
transferable. The burden to pay the donor's tax is imposed upon the
donor and not upon the donee.
Note that whether infusion of additional paid-in capital is a donation
was no longer addressed by the CTA. (Toenec vs. CIR, CTA Case No.
8653, January 28, 2016)
TAX REMEDIES

Deficiency Interest may be imposed only on

income tax, donors tax and estate tax
Section 249 of the NIRC of 1997 reads:

"SEC. 249. Interest.
(A) In General. - There shall be assessed and collected on any unpaid
amount of
tax, interest at the rate of twenty percent (20%) per annum,
or such higher rate
as may be prescribed by the rules and regulations,
from the date prescribed for
its payment until the amount is fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is
defined in
this Code, shall be subject to the interest prescribed in Subsection (A) hereof,
which interest shall be assessed and collected from the date prescribed for its
payment until the full payment thereof.
(C) Delinquency Interest. - In case of failure to pay:
XXX XXX XXX
(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate prescribed
in Subsection (A) hereof until the amount is fully paid, which interest shall
form part of the tax." (Emphases supplied)
Based on the foregoing Section 249(B), the "Deficiency Interest"

shall be imposed on [a]ny deficiency in the tax due, as term is
defined in this Code", i.e., as the term "deficiency" is defined in the
NIRC of 1997.
There are only three (3) instances where it defines the term
"deficiency", and this relates only and respectively to three (3) types
of internal revenue taxes, namely, income tax, estate tax, and
donor's tax, pursuant to Sections 56(8), 93 and 104
Thus, the deficiency interest under Section 249(8) should be applied
only whenever there is a deficiency income tax, a deficiency estate
tax, and a deficiency donor's tax. For this reason, in this case, with
the exception of the deficiency income tax, no deficiency under
Section 249(8) should be imposed on the deficiency VAT, deficiency
EWT, and deficiency WTC (Liquigaz Philippines Corporation v.
Commissioner of Internal Revenue, CTA EB No. 1117 & CTA EB No. 1119,
September 21, 2015; Ace/Saatchi & Saatchi Advertising, Inc. v. Commissioner of
Internal Revenue, CTA Case No. 8439, December 9, 2015)
Based on the foregoing Section 249(B), the "Deficiency Interest"

shall be imposed on [a]ny deficiency in the tax due, as term is
defined in this Code", i.e., as the term "deficiency" is defined in the
NIRC of 1997.
There are only three (3) instances where it defines the term
"deficiency", and this relates only and respectively to three (3) types
of internal revenue taxes, namely, income tax, estate tax, and
donor's tax, pursuant to Sections 56(8), 93 and 104
Thus, the deficiency interest under Section 249(8) should be applied
only whenever there is a deficiency income tax, a deficiency estate
tax, and a deficiency donor's tax. For this reason, in this case, with
the exception of the deficiency income tax, no deficiency under
Section 249(8) should be imposed on the deficiency VAT, deficiency
EWT, and deficiency WTC (Liquigaz Philippines Corporation v.
Commissioner of Internal Revenue, CTA EB No. 1117 & CTA EB No. 1119,
September 21, 2015; Ace/Saatchi & Saatchi Advertising, Inc. v. Commissioner of
Internal Revenue, CTA Case No. 8439, December 9, 2015)
Note, however, that in a recent case, the 20% deficiency interest

was imposed on (1) withholding tax on compensation; (2) expanded
withholding tax; and (3) fringe benefit tax (Lourdes College v.
Commissioner of Internal Revenue, CTA EB No. 1164, February 2, 2016)
Deficiency interest extends only up to the

time when the taxpayer is required to pay
the assessed after being informed thereof
while delinquency interest shall commence
from the time when the concerned taxpayer
failed to pay the assessed tax within the
time allowed as stated in the formal letter of
demand

Tax Code Provision
CTA Ruling (based on illustrations in

RR 12-99)
Deficiency interest shall apply from The imposition of deficiency interest

the date prescribed for its payment under Section 248(B) extends only
until the full payment thereof.
up to the time when the taxpayer is
required to pay the assessed after
being informed thereof
Delinquency interest shall apply until
the amount is fully paid in case of:
(1) Failure to pay the amount of tax
due on any return required to be filed;
(2) Failure to pay the amount of tax
due for which no return is required; or
(3) Failure to pay a deficiency tax or
surcharge or interest thereon on
the due date appearing on the
notice and demand of the CIR.
The imposition of the delinquency

interest under Section 249(8) shall
commence from the time when the
concerned taxpayer failed to pay
the assessed tax within the time
allowed as stated in the formal
letter of demand
In other words, under this interpretation, the deficiency interest

would not accrue at the same that the delinquency interest begins to
accrue and therefore avoiding a 40% interest rate per annum.
(Liquigaz Philippines Corporation v. Commissioner of Internal Revenue, CTA EB
No. 1117 & CTA EB No. 1119, September 21, 2015)
There must first be a grant of letter of

authority before an officer can conduct an
examination or issue an assessment.
Taxpayer was issued an assessment by the Bureau of Internal

Revenue, which was elevated to the CTA by the taxpayer. Upon the
cross examination of the revenue officer by the taxpayers counsel,
the examiner admitted that there was no letter of authority (LOA)
issued by the BIR for the examination of the taxpayer that gave rise
to the issuance of the assessment.
The Court agreed with the taxpayer. Section 13 of the National
Internal Revenue Code of 1997 requires the issuance of LOA. Thus,
the assessment in the instant case is void having been issued
without LOA. (Cebu Mitsumi, Inc. vs. Commissioner of Internal Revenue, CTA
Case No. 8531, May 21, 2015)
A letter of authority and the resulting

assessment issued by the region to a
taxpayer who was transferred from the
region to the jurisdiction of the LTS is not
valid.
Taxpayer was informed that it was transferred from the jurisdiction of

the region to the large taxpayers service.
On March 7, 2007, the region issued a letter of authority (LOA)
authorizing its revenue examiners to examine taxpayers books of
accounts and other accounting records for all internal revenue taxes
for the period June 1, 2005 to May 31, 2006.
Taxpayer was informed that since it falls under the jurisdiction of the
LTS, all LOAs/Tax Verification Notices/Letter Notices issued/to be
issued after December 30, 2006 shall be issued by the LTS.
Pursuant to the LOA issued on March 7, 2007 by the region,
taxpayer was issued an assessment for deficiency taxes.
The CTA ruled that the LOA issued on March 7, 2007 did not have any
force and eect having been issued when taxpayer was already
transferred to the jurisdic2on of the LTS. Thus, when the region
proceeded with its assessment, it did so without the necessary authority.
(University of Santo Tomas Hospital, Inc. vs. Commissioner of Internal
Revenue, CTA Case No. 8292, March 2, 2015)
T h e M e m o r a n d u m R e f e r r a l ( M R ) o r
Memorandum of Assignment (MOA) must be
signed by the Regional Director.
When the conduct of an investigation/audit of a taxpayer is

transferred or reassigned, the BIR issues a document called a
Memorandum Referral (MR) or Memorandum of Assignment (MOA)
which would state that the entire docket, relative to the investigation
of the taxpayer, has been referred to a new Revenue Officer.
The MRs and MOAs are normally signed by Revenue District
Officers. Revenue Officers invoke the same as their authority to
conduct an audit or investigation of cases reassigned to them.
The CTA ruled that a MR/MOA must be signed by the Regional
Director, and not the Revenue District Officer. A MR/MOA signed
only by the Regional Director is a contravention of the Tax Code
which specifically provides that the authority of a Revenue Officer
must be signed by the Revenue Regional Director. (Strawberry
Corporation v. Commissioner of Internal Revenue, CTA Case No. 8569, January
7, 2016)
The ONETT ComputaBon Sheet is not the

assessment contemplated under SecBon 228 of
the NIRC of 1997, as amended, that would require
a protest
An assessment informs the taxpayer that he or she has tax

liabilities. Likewise, an assessment contains not only a computation
of tax liabilities, but also a demand for payment within a prescribed
period".
The ONETT Computation Sheet states the computation of tax
liabilities which a taxpayer is required to pay. However, it does not
formally inform petitioner of its tax liabilities and there is no formal
demand to pay the same.
Therefore, the ONETT Computation Sheet is not the assessment
contemplated under Section 228 of the NIRC of 1997, as amended,
that would require a protest from the taxpayer. (Land Bank of the
Philippines v. Commissioner of Internal Revenue, CTA No. 8684, January 21,
2016)
It is a requirement of due process that not only a

Formal Le`er of Demand be sent to a taxpayer
but it must include an assessment noBce
The rules provide that: The formal letter of demand and

assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment
of the taxpayer's deficiency tax or taxes shall state the facts, the law,
rules and regulations, or jurisprudence on which the assessment is
based, otherwise, the formal letter of demand and assessment
notice shall be void.
An assessment notice is "notice to the effect that the amount therein
stated is due as tax and a demand for payment thereof."
In the said case, the CTA found that the statements in the FLD and
attached Details of Discrepancies do not amount to an assessment
notice as there was no mention of a definite time when payment was
due and demandable. Since there was no demand to pay within a
specified period of time to be found in the FLD and the attached
Details of Discrepancies, the issuance of the same did not amount
to a FAN. (Derek Arthur P. Ramsay vs. Commissioner of Internal Revenue,
CTA Case No. 8456, September 17, 2015)
The issuance of a Formal Letter of Demand

and Assessment Notices before the lapse
of the 15-day period for the taxpayer to
respond to the Preliminary Assessment
Notice does not violate the due process
requirement
The CTA has held that failure to observe the 15-day period shall
render the assessment void (Commissioner of Internal Revenue v.
Hermano (San) Miguel Febres, CTA EB Case No. 1151, February 17, 2015;
Polymer Products v. Commissioner of Internal Revenue, CTA EB Case No. 8299,
January 30, 2015)
In one case, the CTA held that the issuance of the FLD and
Assessment Notices before the lapse of the 15-day period does not
violate the due process requirement under the law. This must be so
because the essence of due process in administrative proceedings
is the opportunity to explain ones side or seek a reconsideration of
the action or ruling complained of. In this case, the taxpayer was
given ample opportunity to explain its side or to contest the PAN and
the FLD. (Merial Philippines, Inc. vs. Commissioner of Internal Revenue, CTA
Case No. 8370, May 13, 2015)
In a more recent case, the CTA held that fairness was ignored by the
BIR when it did not provide an opportunity on the part of the
taxpayer to contest the issued PAN within the 15-day period. For
lack of said opportunity, there was a violation of respondent's right to
due process. (Commissioner of Internal Revenue v. Yumex Philippines, CTA
EB No. 1139, August 11, 2015)
Issuance of final decision on disputed

assessment before the lapse of a 60-day
period from the filing of the protest
deprives the taxpayer of due process
Taxpayer filed its letter-protest on December 20, 2011 contesting the

validity of the formal letter of demand issued by the BIR on
November 9, 2011. Thirty-five days thereafter or on January 25,
2012, the BIR issued the final decision on disputed assessment
(FDDA).
The CTA ruled that the issuance of the FDDA before the expiration
of the 60-day period is premature. It is the BIRs duty to remain
passive until the lapse of the 60-day period. Failure to observe the
same, the BIR has violated taxpayers right to due process, thus
rendering the assessments null and void. (Ayala Hotels, Inc. vs.
Commissioner of Internal Revenue, CTA Case No. 8438, March 31, 2015)
Note, however, that the CTA has held in another case that despite
the finding that the FDDA is void on the ground of failure to observe
due process requirement, the same does not result to the automatic
declaration that the assessments subject of the FDDA are likewise
void. Prematurity in the issuance of FDDA on the ground of failure to
observe due process requirement is not one of the grounds provided
by law, rules and jurisprudence when an assessment may be
considered void. (AB Capital and Investment Corporation vs. Commissioner
of Internal Revenue, CTA Case No. 8411, April 30, 2015)
When a decision of a duly authorized

representative of the Commissioner is
appealed to the latter, the running of the
180-day period should still be counted from
the date when taxpayer submitted relevant
supporting documents in support of its
protest.
Section 228 of the NIRC of 1997 provides only one 180-day period
for the Commissioner or his authorized representative to decide a
protest. RR No. 12-99, which implements the provision, does not
provide for a fresh 180-day period for the Commissioner to decide
the appealed decision of her authorized representative.
In this case, taxpayer submitted all the relevant documents on
March 19, 2009. From said date, the Commissioner of his duly
authorized representative had 180 days or until September 15, 2009
to decide the protest. Since the Regional Director issued a decision
partially granting the protest, for which taxpayer elevated its protest
to the Commissioner on August 29, 2009, the Commissioner had
only the remaining 18 days of the 180-day period or until September
15, 2009, within which to decide the protest. From September 15,
2009, taxpayer had until October 15, 2009 to appeal to the CTA.
Section 228 of the NIRC of 1997 provides only one 180-day period
for the Commissioner or his authorized representative to decide a
protest. RR No. 12-99, which implements the provision, does not
provide for a fresh 180-day period for the Commissioner to decide
the appealed decision of her authorized representative.
In this case, taxpayer submitted all the relevant documents on
March 19, 2009. From said date, the Commissioner of his duly
authorized representative had 180 days or until September 15, 2009
to decide the protest. Since the Regional Director issued a decision
partially granting the protest, for which taxpayer elevated its protest
to the Commissioner on August 29, 2009, the Commissioner had
only the remaining 18 days of the 180-day period or until September
15, 2009, within which to decide the protest. From September 15,
2009, taxpayer had until October 15, 2009 to appeal to the CTA.
However, instead of appealing, taxpayer submitted additional

documents on October 15, 2009 and counted another 180-day
period from October 15, 2009 or until April 23, 2010 for the
Commissioner to decide its appeal. The appeal filed within thirty
days thereafter (specifically filed on May 13, 2010) was filed out of
time. (Commissioner of Internal Revenue vs. Sarangani Resources
Corporation, CTA EB No. 1098, April 29, 2015)
A letter issued by the Revenue District

Officer following a re-investigation after a
protest is filed by a taxpayer may be
considered a final decision, appealable to
the CTA, depending on its tenor.
The taxpayer received a letter, dated September 19, 2011, signed by

the RDO, stating that: After considering your protest and its
supporting documents, the following findings still stand. xxx xxx
The CTA ruled that there is no doubt that the September 19, 2011
letter is the denial of the protest. A power to assess may be
delegated to an RDO, hence a letter issued by an RDO may also
constitute a final decision which is ripe for appeal to the CTA. (Jumbo
East Realty, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8380,
March 16, 2015)
A final letter of demand and a letter by the Revenue District Officer

does not constitute final decision appealable to the CTA absent the
words decision and appeal. (Brixton Investment Corpora/on vs.
Commissioner of Internal Revenue, CTA EB No. 1099, April 05, 2015)
The Oplan Kandado 48-hour Notice and the

5-day VAT Compliance Notice must indicate
the factual basis of the results of the
surveillance
Other than a statement that the result of the surveillance resulted in

a VAT liability, the basis thereof must likewise be disclosed.
Absent any explanation regarding the factual basis of the results of
the surveillance, the taxpayer cannot be deemed to be sufficiently
informed about the basis for the assessment of the VAT liability, in
order to adequately respond to or specifically refute the computed
VAT liability. (Commissioner of Internal Revenue v. Elric Auxiliary Services,
Inc., CTA EB No. 1174, March 3, 2016)
An application for refund of erroneously

paid tax invoking exemption pursuant to a
tax treaty may be filed with the International
Tax Affairs Division of the BIR
Taxpayer (a Singapore entity) was a shareholder of Maynilad Water

Services, Inc. (Maynilad). Taxpayer sold the share to a Philippine
entity. It then applied for a tax treaty relief, invoking that the sale is
exempt from capital gains tax (CGT) pursuant to the provisions of
the Philippines Singapore tax treaty. But in order to secure a
Certificate Authorizing Registration from the Bureau of Internal
Revenue, it paid the CGT. Taxpayer then later filed a claim for refund
of the CGT payment through the International Tax Affairs Division
(ITAD) of the BIR.
The BIR, argued, among others, that the taxpayer did not properly
file an administrative claim for refund. According to the BIR, ITAD is
not given authority to receive or process application and/or claims
for tax refund/credit certificates.
The CTA disagreed. ITAD is the office of the BIR tasked to process
claims for tax refund arising from the application of tax treaty
provisions. (Commissioner of Internal Revenue vs. LAWL Pte Ltd., CTA EB No.
1118, May 12, 2015)
Input taxes not declared in the VAT returns

cannot be credited against output taxes.
Taxpayer made an overpayement of output taxes due to its failure to

declare some of its input taxes in its VAT returns. It would have paid
lesser net output taxes equivalent to the undeclared input taxes. For
this reason, taxpayer filed for a refund of the erroneously paid output
taxes under Section 204 and 229 of the 1997 Tax Code.
The refund claim was denied on the ground that the input taxes
were not reported in the VAT returns. Input taxes should be declared
in the VAT returns so that they can be credited against output taxes.
Hence, they could not be claimed as credit or offset against output
taxes. As the input taxes could not be claimed as credit against
output taxes, there could be no overpayment or erroneous payment
of output taxes. (Coca-Cola Bottlers Philippines, Inc. v. Commissioner of
Internal Revenue, CTA EB Case No. 1061, April 10, 2015)
LOCAL TAXATION

A holding company is not subject to local

business tax on dividend income.
The taxpayer was assessed by the City Treasurer of Makati for

deficiency local business tax on dividend income. The taxpayer
protested the assessment, arguing that as a holding company it is not
liable to business tax on dividend income.
Section 143 of the Local Government Code (LGC) is the law on local
business taxes. Section (f) thereof expressly allows local taxation on
banks and other financial institutions on their income from dividends,
based on gross receipts of the preceding year. Section 131(e) of the
LGC defines banks and other financial institutions to include non-bank
financial intermediaries, lending investors, finance and investment
companies, pawnshops, money shops, insurance companies, stock
markets, stock brokers and dealers in securities and foreign exchange,
as defined under applicable laws, or rules and regulations thereunder.
This enumeration appears to be exclusive of other entities. Nowhere in
the entirety of Section 131 is a holding company mentioned. (Michigan
Holdings, Inc. v. The City Treasurer of Makati City, CTA EB No. 1093, June 17,
2015)
JUDICIAL REMEDIES AND CTA

JURISDICTION

The CTA has no jurisdiction over cases

decided by the RTC involving petitions for
injunction to restrain the collection of
national internal revenue taxes.
The BIR issued an adverse ruling, which was upheld by the

Secretary of Finance, upon review. The taxpayer filed a Petition for
Review with the CTA. The BIR argued that the CTA has no
jurisdiction over the validity of the BIR Rulings. The same should
have been elevated to the Office of the President and eventually to
the regular courts.
The CTA explained that its jurisdiction is provided under Section 7(a)
(1) of Republic Act (RA) No. 1125, as amended by RA No. 928218,
which provides that the Court shall exercise exclusive appellate
jurisdiction to review by appeal decisions of the CIR in cases
involving
1. disputed assessments;
2. refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto; or
3. other matters arising under the NIRC or other laws
administered by the Bureau of Internal Revenue.
The CTA held that it has the authority to review the rulings or
opinions of the CIR which were issued to interpret the provisions of
the NIRC and other laws administered by the BIR as it falls under
the phrase "other matters" arising under the NIRC or other laws
administered by the BIR. (Delta Airlines v. Purisima and Henares, CTA EB
No. 1113, September 10, 2015)
The CTA has no jurisdiction over cases

decided by the RTC involving petitions for
injunction to restrain the collection of
national internal revenue taxes
Taxpayer filed a Petition for Injunction with the Regional Trial Court
(RTC) questioning the Warrant of Garnishment issued by the BIR to
enforce the collection of the taxpayers deficiency taxes. The RTC
dismissed the petition and denied the subsequent motion for
reconsideration on jurisdictional ground. This prompted the taxpayer
to file a Petition for Review with the CTA.
The CTA ruled that it had no jurisdiction to entertain the petition.
According to the Court, there is nothing in Section 7 of RA No. 1125,
as amended, as well as Sections 2 and 3 of the Revised Rules of
the CTA which give the CTA whether in Division or En Banc jurisdiction over cases decided by the RTC involving petitions for
injunction to restrain the collection of national internal revenue
taxes. (San Francisco Water District vs. The Bureau of Internal Revenue, CTA
EB No. 1107, June 30, 2015)
The CTA has jurisdiction to determine

whether or not a previously denied
application for abatement of surcharge
should be granted
Taxpayers application for abatement of surcharge was denied.

Taxpayer filed a Petition for Review with the CTA.
The CTA explained that its jurisdiction is provided under Section 7(a)
(1) of Republic Act (RA) No. 1125, as amended by RA No. 928218,
which provides that the Court shall exercise exclusive appellate
jurisdiction to review by appeal decisions of the CIR in cases
involving
Based on the said provision, the CTA has the power to determine
whether or not a taxpayers previously denied application for
abatement of surcharge should be granted, because such lies within
the jurisdiction of the Court. (Qatar Company v. Commissioner of Internal
Revenue, CTA Case No. 8916, January 22, 2016)
The CTA has jurisdiction to determine if the

48-Hour Notice and 5-Day VAT Compliance
Notice issued by the BIR under its Oplan
Kandado are valid
Taxpayer received a 48-Hour Notice, alleging that as a result of a

ten-day surveillance, the BIR has found the taxpayer liable for
alleged deficiency VAT. Taxpayer filed its explanation under oath.
Thereafter, taxpayer received the 5-day VCN, reiterating demand for
payment of the alleged deficiency VAT. Taxpayer sent a follow-up
letter requesting a response to their explanation under oath.
Taxpayer then received a letter-response from the BIR denying the
taxpayers plea. Taxpayer filed its Petition for Review with the CTA.
The BIR argued that there is no assessment in this case and the
issue is the BIRs Oplan Kandado pursuant to Section 115 "Power of
the Commissioner to Suspend the Business Operations of a
Taxpayer" as implemented by RMO No. 3-2009, which is purely an
administrative enforcement measure. Furthermore, BIR argues that
what can be elevated before the Court is the decision, ruling or
inaction of the CIR on disputed assessments.
The CTA ruled that its jurisdiction is not limited to a decision, ruling
or inaction of the CIR on disputed assessment.
The CTAs jurisdiction is provided under Section 7(a)(1) of Republic
Act (RA) No. 1125, as amended by RA No. 928218, which provides
that the Court shall exercise exclusive appellate jurisdiction to
review by appeal decisions of the CIR in cases involving
The "Oplan Kandado" through the 48- Hour Notice and 5-Day VAT
Compliance Notice pursuant to Section 115 "Power of the
Commissioner to Suspend the Business Operations of a Taxpayer"
of the National Internal Revenue Code (NIRC), as amended, and
implemented by RMO No. 3-2009, falls within the meaning of "other
matters arising under the National Internal Revenue Code.
(Commissioner of Internal Revenue v. Elric Auxiliary Services, Inc., CTA EB No.
1174, March 3, 2016)
The CTA has jurisdiction to determine the

validity of a Preliminary Collection Letter
(PCL)
The BIR argues that the CTA has no jurisdiction to decide on the
validity of the PCL because the same would be tantamount to
suspending the payment, levy, distraint, and/or sale of any property
of the taxpayer to satisfy its tax liability.
The CTA ruled that the determination of the validity of the PCL falls
within the exclusive appellate jurisdiction of the CTA in Division
under the term "other matters arising from the NIRC. (Commissioner of
Internal Revenue v. SVI Information Services, CTA EB No. 1149 March 3, 2016)

Recent Supreme Court and CTA Tax Decisions

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Recent Supreme Court and CTA Tax Decisions

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RECENT DECISIONS OF THE

SUPREME COURT AND

ATTY. PIERRE MARTIN D. REYES

SUPREME COURT DECISIONS

The obligation of the payor/employer to deduct and

One of the issues is whether ING Bank is liable for deficiency

TAX LEGAL CONSULTING

An expense is accrued and deducted for tax purposes when

PNB offered as evidence the Income Tax to show that the

The probative value of BIR Form 2307, which is basically a

TAX LEGAL CONSULTING

Rules on the determination of the

1. An administrative claim must be filed with the CIR within

TAX LEGAL CONSULTING

3. A judicial claim must be filed with the CTA within 30 days

4. All taxpayers, however, can rely on BIR Ruling No.

The 120-day period in a VAT refund is to be

Taxpayer filed its administrative claim for the refund of excess

TAX LEGAL CONSULTING

The burden of proving en2tlement to a tax refund is on the

Revenue, G.R. No. 207575, July 15, 2015)

In claims for VAT refund that were filed before June

TAX LEGAL CONSULTING

Claims filed prior to June 14, 2014 (RMC 49-2003

1. The CIR has 120 days from the date of submission of

TAX LEGAL CONSULTING

3. Then, upon filing by the taxpayer of his complete

June 14, 2014 to present (RMC 54-2014 prevailing rule)

1. As it now stands, RMC 54-2014 dated June 11, 2014

The failure of the taxpayer to submit all

TAX LEGAL CONSULTING

The CIRs reliance on RMO 53-98 is misplaced. There is

For purposes of determining when the

TAX LEGAL CONSULTING

To allow the CIR to determine the completeness of the

TAX LEGAL CONSULTING

Under Section 112(A) of the NIRC, a taxpayer has two (2)

A distinction must, thus, be made between

If the administrative claim

If the judicial claim is an

If the judicial claim is an

The judicial claim before the

The taxpayer has to

The CTA may give credence

Thus, in case of claims dismissed at the administrative level

Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015)

The absence and non-printing of the word

An applicant for a claim for tax refund or tax credit must

The failure to indicate the words zero-rated on the

DOCUMENTARY STAMP TAX

The transfer of real property to a surviving

TAX LEGAL CONSULTING

In a merger, the real properties are not deemed sold to the

TAX LEGAL CONSULTING

Petroleum companies are entitled to refund

Chevron sold and delivered petroleum products to Clark

TAX LEGAL CONSULTING

Excise Tax imposed on petroleum products is a tax on property.

TAX LEGAL CONSULTING

Petroleum companies are entitled to refund or

Pilipinas Shell sold and delivered petroleum products to various

TAX LEGAL CONSULTING

A waiver of the statute of limitations that