ARAULLO UNIVERSITY

CABANATUAN CITY
NUEVA ECIJA

TAXATION II OUTLINE

I. REVIEW OF THE GENERAL PRINCIPLES

II. TRANSFER TAXATION

A. Transfer Taxation: Its general concepts

B. Kinds of transfer Taxes
C. Kinds of transfers subject to transfer taxes

A. ESTATE TAXATION
1. Nature of estate tax

2. Reasons/doctrines supporting the imposition of estate tax

a. Benefits-received principle
b. Ability to pay principle
c. State Partnership principle
d. Redistribution of wealth principle
e. Back-tax theory

3. The Gross Estate

a. What comprise the gross estate?
b. Kinds of decedent for estate tax purposes
c. Inclusions in the gross estate
i. Decedents Interest
ii. Transfer in Contemplation of Death
Cases: Vidal Roces v. Posadas (58 Phil. 108); Dizon vs. Posadas
(57 Phil. 465)
iii. Revocable Transfer
iv. Property Passing Under General Power of Appointment
v. Proceeds of Life Insurance
vi. Prior Interest
vii. Transfers for Insufficient Consideration
viii. Capital of Surviving Spouse

d. Exclusions in the gross estate

i. The merger of the usufruct in the owner of the naked title
ii. The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary
iii. The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with thedesire of the
predecessor
iv. Transfers to social welfare, cultural and charitable institutions

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 4. The Net Estate and the Deductions from the Gross Estate (Section 86)
a. Expenses, Losses, Indebtedness, Taxes
i. Funeral Expenses
ii. Judicial Expenses
1. CIR v CA and Pajonar, GR No. 123206, 22 March 2000
iii. Claims against the estate
iv. Claims against insolvent persons
v. Unpaid mortgage indebtedness
1. Accommodated Loans
b. Vanishing deductions
c. Transfer for public use
d. Family Home
e. Standard deduction
f. Medical expenses
g. Amount received by heirs under Republic Act No. 4917
h. Tax treatment of share in conjugal or community property
i. Tax credits

5. Valuation

6. Administrative Provisions
a. Filing of notice of death
b. Filing of estate tax return
c. Payment of tax

7. Provisions safeguarding the interest of the government in the collection of

estate tax (sections 94-97)
a. Relevant cases:
i. Marcos II v. CA, G.R. No. 120880, June 5, 1997
ii. CIR v Pineda, G.R. No. L-22734, September 15, 1967
iii. Lorenzo v. Posadas, G.R. No. 43082, June 18, 1937

B. DONORS TAX

1. Nature of gift tax

2. Concept of gifts subject to gift taxes (Section 98)

a. Direct gifts
b. Indirect gifts
i. Condonation of indebtedness
ii. Transfers for insufficient consideration
iii. Waivers
iv. Renunciation of Inheritance

3. Factors that affect liability for gift taxes

a. Relationship of the donor and the done (section 99)

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4. Deductions/Exemptions from the gift tax (section 101)

5. Tax treatment of properties transferred for less than full or adequate

consideration (Section 100)
a. In general
b. Real Properties classified as capital asset

6. Tax treatment of political contributions

a. Case in point: Abello, et. Al. v. CIR, GR No. 120721, 23 February
2005
b. Rev-2009, 22 October 2009 re Creditable Witholding Tax

7. Valuation

8. Administrative Provisions

a. Filing of notice of donation

b. Filing of donors tax return
c. Payment of tax

III. VALUE ADDED TAXATION

1. Nature of Value Added Tax

a. Kapatiran v. Tan, G.R. No. L-81311, June 30, 1988
b. Tolentino v. Secretary of Finance, G.R. No. 115455, August 25, 1994
(Original Decision) and G.R. No. 115455, October 30, 1995 (Motion for
Reconsideration)
c. ABAKADA Guro Party List v. Ermita G.R. No. 168056, 1 September
2005

2. VAT as an indirect tax

a. Distinctions between direct and indirect tax
b. Specific characteristics of an indirect tax
i. Imposed on the seller/lessor/importer/service provider
1. CIR v. Magsaysay Lines, GR No. 146984, 28 July
2006
ii. Not a tax on the buyer/lessee/service availer
1. Philippine Acetylene v. CIR, 17 August 1967
2. CIR v. American Rubber, 29 November 1966
3. CIR v. John Gotamco and Sons, 27 February 1987

3. Specific characteristics of Value Added Tax

a. Consumption based tax
i. Destination Principle
ii. Cross-border Doctrine
b. Tax Credit Mechanism
i. Input Tax
ii. Output VAT
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 4. Transactions subject to VAT

5. Rates of VAT
a. Ordinary
b. Exempt Transactions
c. Zero-Rated Transactions
d. Effectively Zero-Rated Transactions
1. Contex v. CIR, G.R. No. 151135, July 2, 2004
2. CIR v. Seagate Technology (Phils.), G.R No. 153866, 11 February
2005
3. CIR v. Acesite Hotel Corporation, 16 February 2007

6. Transactions Deemed Sale

a. CIR v. Magsaysay Lines, GR No. 146984, 28 July 2006

7. Transitional Input Tax

a. Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue, GR. Nos. 158885 & 170680, April 2, 2009

8. Presumptive Input Tax

9. Compliance Requirements

IV. INTERNAL REVENUE TAX ADMINISTRATION,

ENFORCEMENT & REMEDIES

A. Tax Administration: Its general concepts

B. Government agencies involved in tax administration

C. Extent of Congresss Power re Tax Administration

a. ABAKADA Guro Party List v. Purisima, GR No. 166715, 14 August
2008
b. British American Tobacco v. Camacho, GR No. No. 163583, 20 August
2008

D. The Bureau of Internal Revenue

a. Composition and Functions (Section 3, NIRC)
b. Powers and Duties
i. In General (Section 2)
ii. Specific
1. Interpret tax laws and decide cases (Sec 4)
a. BIR Issuances and the rules relevant thereto
i. Section 246, NIRC
ii. CIR v. Rurroughs, 19 June 1986
iii. CIR v. CA and Fortune, 29 August 1996
iv. PB Com v. CIR, 28 January 1999
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 b. Cases that may be decided by the CIR
i. CIR v. Leal, 18 November 2002

2. Examination of books of accounts, etc (Sec 5)

a. Requirement of issuance of a letter of authority
b. Third-party verification rule
c. Inquiry into bank deposits (Sec 6 F)
d. Summon persons, take testimony

3. Power to assess and prescribe requirements for tax

administration
a. Power to examine returns (Sec 6A)
i. Amendment of returns
ii. Rule on confidentiality of tax returns and the
exceptions thereto (Sections 71 and 270)
1. BIR v. Ombudsman, 11 April 2002
b. Power to make a return (Sec 6B)
i. Best evidence obtainable rule
1. CIR v Hantex Trading, GR No. 136975,
31 March 2005
2. CIR v. Embroidery and Garment
Industries, GR No. 96262, 22 March 1999
c. Power to conduct inventory taking, surveillance, and to
issue presumptive gross sales/receipts (Sec 6C)
d. Termination of tax period (Sec 6D)
e. Fixing of real property values (Sec 6E)
f. Accredit tax agents (Sec 6G)
g. Power to prescribe procedural/documentary
requirements
i. E.g. E-Filing, Substituted Filing
ii. Net Worth Method
h. Power to delegate (Sec 7)
i. Non-delegable powers in relation to Section 16
1. Republic v. Hizon, 13 December 1999
i. Enforcement of Police Powers (Sec 15)
j. Authority to Abate and Compromise Tax Liabilities
(Sec 6F (2), 204 in relation to Rev. Regs. 30-2002 as amended
by RR No. 8-2004);
1. PNOC v. Court of Appeals, G.R. No.
109976, April 26, 2005
2. People v. Tan, G.R. No. 152532, 16
August 2005

E. The rule on estoppel in relation to tax administration

a. Against the government
b. Against the taxpayer

F. Assessments and its governing principles

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 a. Definition
b. What constitutes an assessment
i. CIR v. Enron Subic Power Corporation, GR No. 166387, 19 January
2009
ii. CIR v. Pascor Realty, 29 June 1999
iii. CIR v. Reyes, GR No. 159694, January27, 2006

c. Kinds of Assessment

d. Statute of Limitation on Assessment of Internal Revenue Taxes (Sections

203, 222, NIRC)
i. RMO 20-90, Philippine Journalist Inc., v. CIR, GR No. 15712,
62852, 16 December 2004
ii. CIR v. CA and Carnation, G.R No. 115712, 25 February 1999, 303
SCRA 614

e. Instances where the running of the prescriptive period is suspended

(Section 223)
i. Republic v. Hizon, 13 December 1999
ii. BPI v. CIR, GR No. 139736, 17 October 2005
iii. BPI v. CIR, GR No. 174942, 7 March 2008

f. Procedure in the process of assessment (Section 228)

i. Estate of the Late Juliana Diez Vda. De Gabriel v. CIR, GR No.
155541, January 27, 2004
ii. CIR v. Reyes, GR No. 159694, January 27, 2006
iii. PNOC v Court of Appeals, GR No. 109976, April 26, 2005
iv. CIR v. Menguito, GR No. 16750, 17 September 2008

g. Instances when pre-assessment is not required (Section 228)

h. Governing principles concerning assessment

i. When do we reckon the period when assessment was made?

j. Is assessment necessary before a taxpayer could be prosecuted for

violation of theNIRC?
i. Ungab v. Cusi, May 30, 1980
ii. CIR v. CA, GR No. 119322, 4 June 1996
iii. CIR v. Pascor Realty, 29 June 1999

k. Are the procedures outlined in Section 228 of the NIRC retroactive?

i. CIR v. Reyes, GR No. 159694

V. TAX REMEDIES

A. Tax Remedies: Its general concepts

a. Importance
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 b. Classification (overview)
1. Remedies in favor of the taxpayer
2. Remedies available to the government
c. Applicability of the Doctrine of Exhaustion of Administrative
Remedies

B. Remedies available to taxpayers

a. Before Payment
1. Protest (Section 228, NIRC)
a. Requirements of a valid protest Rev. Regs. 12-85
b. Effect of a protest on the period to collect deficiency
taxes- Cases: CIR v. Wyeth Suaco Laboratories, GR No.
76281, 30 September 1991 and CIR v. Atlas
Consolidated Mining, GR Nos. 31230-32, 14 February
2000
c. Failure of the BIR to act within the 180-day period-
Cases: Lascona v. CIR, CTA Case 5777, 4 January 2000
vis--vis Section 7 (2), RA 9282 and the Revised Rules
of Procedure of the CTA, AM No. 05-11-07- CTA
d. Administrative actions taken during the 180-day
period- Compare: CIR v. Union Shipping, G.R. No.
66160, 21 May 1990, 185 SCRA 548 and CIR v. Isabela
Cultural Corporation, GR No. 135210, 11 July 2001
e. Effect of a protest filed out of time- Protectors
Services v. CA, GR No. 118176, 12 April 2000
f. Remedies from a denial of the protest
i. Motion for Reconsideration (BIR Appellate
Division)
ii. Appeal to the Court of Tax Appeals (RA 1125,
as amended by RA9282)

2. Compromise

b. After Payment
1. Refund (Section 229, NIRC)
a. Must be strictly construed against the taxpayer-
Case: Citibank, NA v. Court of Appeals, GR
No. 107434, 10 October 1997, 280 SCRA 459;
FEBTC v. CIR, GR No. 138919, 02 May 2006
b. Grounds for filing a claim for refund (See
Section 229, See also: Engtek Phils v. CIR,
CTA Case No. 66 44, 26 January 2005)
c. Period within which to file a claim for refund
i. General Rule is two years from the date of
payment- Cases: ACCRA Investments
Corporation v. Court of Appeals, GR No.
96322, 20 December 1991; CIR v. TMX
Sales, 15 January 1992; CIR v. PhilAm Life,
29 May 1995; CIR v. CA and BPI, GR
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 No.117254, 21 January 1999; CIR v. PNB,
GR No. 161997, 25 October 2005 (exeption
to the 2-year period); CIR v. Primetown
Property Group, GR No. 162155, 28 August
2007).
ii. In case of amended Returns
iii. In case of taxpayers contemplating
dissolutions- Case: BPI v. 28 August 2001;
See also: Sections 52(c) and 56 (a)
d. Who has the personality to file a claim for
refund? Cases- CIR v. Procter and Gamble, GR
No. 66838, 2 December 1991; CIR v. CA, 20
January 1999; Silkair v. CIR, GR Nos. 171383
& 172379, 14 November 2008
e. Is setting-off of taxes against a pending claim
for refund allowed? The doctrine of equitable
recoupment- Case: Philex Mining Corp. v. CIR,
GR No. 125704, 28 August 1998
f. Is automatic application of excess tax credits
allowed? (Sec. 76)- Please see Calamba Steel v.
CIR, GR No. 176290, 21 September 2007; CIR
v. BPI, GR No. 178490, 07 July2009
(Irrevocability Rule)
g. Effect of existing tax liability on a pending
claim for refund- Case: CIR v. CA and
Citytrust, GR No. 106611, 21 July 1994
h. Period of validity of a tax refund/credit (Sec.
230, NIRC)
i.Returns are not actionable documents for
purposes of the rules on civil procedure and
evidence (See. Aguilar v. CIR, CA Case
dated 30 March 1990)
i. Refund and Protest are mutually exclusive
remedies- Case: Vda. De San Agustin v. CIR,
10 September 2001
j. Is the taxpayer entitled to claim interest on the
refunded tax? (Sec. 79 (c) 2, NIRC)
c. Other Remedies
1. Action to Contest Forfeiture of Chattel (Sec. 231)
2. Redemption of Property Sold (Sec. 214)

C. Remedies Available to the government

a. No injunction to restrain collection of taxes (Sec. 218, NIRC)
b. Period within which the government could collect (Sections 203,
222, NIRC) Cases: Republic v. Hizon, GR No. 130430, 13 December
1999; CIR vs. Javier Jr., GR No. 78953, 31 July 1991 (199 SCRA
825); PNOC v.CA, GR No. 109976, 26 April 2005; BPI v. CIR, GR
No. 174942, 7 March 2008.
c. Overview of Remedies (Section 205)
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 1. Tax Lien (Section 219, NIRC)
a. CIR v. NLRC, GR No. 74965, 9 November 1994
2. Compromise
3. Distraint and/or Levy
4. Civil Action
5. Criminal Action
6. Forfeiture
7. Suspension of business operations
8. Enforcement of Administrative Fines
d. Administrative Remedies in Detail (Sections 206-217, NIRC)
1. Distraint
a. Actual
b. Constructive
2. Levy
3. Garnishment
e. Judicial Remedies in Detail (Section 220, NIRC)
1. Period within which the action may be filed
a.) Civil Cases (Sections 203, 222 NIRC)
b.) Criminal Cases (See: Title X, NIRC; Section 281, NIRC)
2. Where should these cases be filed?
a.) Criminal Cases (See the imposable penalty vis--vis the
jurisdiction of courts)
b.) Civil Cases (Consider the amount of Tax sought to be collected
vis--vis the jurisdiction of courts, together with the provisions of
RA9282)
c.) Cases:
a. Republic v. Hizon, GR No. 130430, 13 December 1999 (re
approval of filing of civil and criminal action)
b.) CIR v. La Suerte Cigar, G.R. No. 144942, 4 July 2002
(Re participation of the Office of the Solicitor General)
c.) PNOC v. Court of Appeals, G.R. No. 109976, April 26, 2005
d.) Lim v. CA, GR Nos. 48134-37, 18 October 1990, 190 SCRA 616
(re prescriptions of criminal actions, Section 281 NIRC)
e. Marcos II v. CA, GR No. 12088, 5 June 1997 (re enforcement of
tax liability during pendency of probate proceedings)
f.) Judy Anne Santos v. People, GR No. 173176, 26 August 2008

F. Effects of failure to pay the tax on time: Additions to the tax (Chapter I, Title X
NIRC)

1. Surcharges
a.) Ordinary (Section 248A, NIRC)
i. Failure to pay tax on time as required by the tax code or the regulations
ii. Failure topay the deficiency tax within the time fixed in the notice
iii. Filing of the return to the wrong office
b.) Fraud Penalty (Section 248B, NIRC)
i. CIR v. Javier., GR No. 78953, 31 July 1991 (199 SCRA 825)
c.) Imposition of surcharge is mandatory

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 2. Interest (Section 249, NIRC)
a. In General
b. Deficiency Interest
c. Delinquency Interest
d. On extended Payments
3. Compromise Penalties
4. Effect of failure to file information returns (Section 250, NIRC)

VI. LOCAL TAXATION

A. Local Taxation: Its general concepts

a. Nature of the local taxing power
1. Constitutional provision (Section 5, Article X)
2. A delegated power?
a.) City of San Pablo, Laguna v. Reyes, 25 March 1999
b.) Meralco v. Province of Laguna, 5 May 1999
c.) Mactan Cebu International Airport Authority v. Marcos, 11
September 1996
d.) NAPOCOR v. City of Cabanatuan, 9 April 2003
3. Extent of the power of Congress in local taxation
a. City Government of Quezon City v. Bayantel, G.R. No. 162015,
March 6,2006
4. Residual Power to tax (Section 186, LGC)
b. Fundamental principles on the exercise of the local taxing power (Section
130, LGC)
c. Exercise of local taxing power

B. Common Limitations on the exercise of the local taxing power and the
principle of preemption/exclusionary rule (Section 133, LGC)
a.) The principle of preemption
b.) Cases:
1. Province of Bulacan v. Court of Appeal, 27 November 1998
2. First Philippine Industrial Corporation v. CA, G.R. No. 125948,
December 29, 1998 (Section133j; Local Tax on Common Carriers)
3. Palma Development Corporation v. Municipality of Malangas, GR
No. 152492,16 October 2003 (Section 133e)
4. Batangas Power Corporation v. Batangas City, GR No. 152675, 28
April 2004 (Section 133g)
5. MIAA v. CA and Paranaque, GR No. 155650, 20 July 2006 (Section
133 o)
6. LTO v City of Butuan, 20 January 2000(re Section 133 (l)
7. Philreca v. DILG, 10 June 2003 (re Section 133 n)
8. Petron Corporation v. Tiangco, GR No. 158881, 16 April 2008
(petroleum Products)

C. Specific Taxing Powers of Local Government Units

a.) Provinces

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 1. Scope of the taxing power (Section 134 vis--vis Sections 142 and
186, LGC)

D.) Remedies in Local Taxation

a.) Remedies of the Government
i. Administrative
1. Local governments lien
2. Assessment by local treasurer (Section 194, LGC)
3. Distraint (Section 175, LGC)
4. Levy (Section 176, LGC)
a. Properties exempt from distraint and levy
ii. Judicial
1. Period within which to collect (Section 194, LGC)
iii. Other Provisions
1. Accrual of the tax (Section166, LGC)
2. Time of Payment (Section 167, LGC)
3. Surcharges, Interests and Penalties
b. Remedies of the Taxpayer
i. Administrative
1. Appeal to the Secretary of Justice re newly enacted tax ordinance (Section 187,
LGC)
a. Drilon v. Lim, 4 August 1994
b. Jardine Davies v. Judge Aliposa, 27 February 2003
2. Protest of the Assessment (Section 195, LGC)
a. Yamane v. BA Lepanto Condominium Corporation, G.R. No. 154993, 25
October 2005 re denial of protest
3. Claim for refund (Section196, LGC)
4. Remedies from a denial of the protest and refund
ii. Judicial

E. Grant of tax exemption by local government units (Section 282 (b), IRR)
a.) Tax Exemption v. Tax Incentive

REAL PROPERTY TAXATION

A. Governing Law
B. Nature of Real Property Taxes-National or Local?
C. Fundamental Principles (Section198 LGC)
D. Properties Covered
a.) Article 415, et seq, Civil Code
b.) Caltex v. CBAA, 31 May 1982
E. Properties Exempt
a. Section 234, LGC
b. Section 238, LGC
c. Constitutional Exemptions
d. Cases
i. MIAA v. Paranaque, GR No. 155650, 20 July 2006; MIAA v. Pasay
GR No. 163072, April 2, 2009
ii. Lung Center of the Philippines v. QC, 29 June 2004
ii. LRTA v. CBAA, 12
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F. May LGUs grant exemption?
G. Who are liable for Real Property Taxes
a. Ownership v. Use
b. Testate Estate of Concordia Lim v. Manila, 21 February 2000
H. Procedure in Real Property Taxation
a.) Lopez v. City of Manila, 19 February 1999
b.) Declaration of real properties- whose duty?
c.) Valuation by Assessors
Callanta v. Ombudsman, 30 January 1998
d.) Preparation of Schedule of Fair Market Values
e.) Enactment of a Real Property Tax Ordinance
i. Levy annual ad valorem tax
1. Scope of the LGUs taxing power (Sec. 232, LGC)
a.) Provinces- 1%; Cities, Municipalitiesin MM- 2%
b. SEF 1%; Idle land tax- 5%; Special Assessments
ii. Fix assessments levels
iii. Provide for appropriations
iv. Adopt Schedule of Fair Market Values
1. Fair Market Value and Assessed Value- Whats the difference?

I. Remedies in Local Taxation

a. Remedies of the Government
i. Administrative
1. Contents of Assessment
a.) Meralco v. Barlis, 2 February 2002
2. Who is entitled to the notice of assessment?
a.) Talusan v. Tayag, G.R. No. 133698, 4 April 2001
ii. Judicial
1. Period within which to collect
iii. Other Provisions
1. Accrual of the tax
2. Time of Payment
3. Surcharges, Interests and Penalties

b. Remedies of the Taxpayer

i. Administrative
1. Appeal to the Secretary of Justice re newly enacted tax ordinance (Section 187,
LGC)
a. Drilon v. Lim, 4 August 1994
b. Reyes v. Court of Appeals
c. Hagonoy Market Vendors Association v. Municipality of Hogonoy, Bulacan,
GR No. 137621. February 6, 2002
d. Ty v. Trampe, 1 December 1995

2.) Appeal to the Board of Assessment Appeals, (Section 226, 252, LGC)
a. Systems Plus Computer College v. Caloocan City, G.R. No. 146382, August 7,
2003
b.) Olivares v. Marquez, GR No. 155591, September 22, 2004

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3.) Protest of the Assessment (Section 226, 252, LGC)
a.) Cagayan Robina v. Court of Appeals, 12 October 2000
b.) Meralco v. Barlis, 18 May 2001
c.) Meralco v. Barlis, 2 February 2002

4.) Claim for Refund (Section 253, LGC)

a. Period

5. Remedies from a denial of the protest and refund

ii. Judicial
1.) Questioning tax sale: Aquino v. QC, GR No. 137534, 3 August 2006; NHA v.
Iloilo City, GR No. 172267, 20 August 2008

VII. TARRIFF AND CUSTOMS LAWS

A. Scope of Tariff and Customs Laws

B. Meaning of Tariff and Customs Duties
C. Governing Laws
D. Agency tasked with enforcement of Tariff and Customs Laws
a. Powers and Functions of the Bureau of Customs
E. What may be the subject of customs duties
F. Concept & Relevance of Importation
a.) When does importation begin
b.) When does importation end
G. Classification of Goods for Importation Purposes
i. Dutiable v. Duty-Free
ii. Prohibited
iii. Conditionally Free

H. Kinds of Customs Duties

a. Regular
b. Special

I. Valuation of Goods
a. Home Consumption Value
b. Transaction Value

J. Flexible Tariff
K. Cases that may be decided by the Bureau of Customs
a.) Customs Protest Cases
i. Procedure
ii. Case: Nestle Philippines v. Court of Appeals, GR No. 134114. July 6, 2001
iii. Concept of Automatic Review

b. Seizure and Forfeiture Cases

i. Proceeding in Rem
ii. Primary Jurisdiction
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iii. Search of Dwelling House
iv. Illustrative Cases: Mison v. Natividad, GR No. 82526, 11 September 1992;
Provident Tree Farms v. Batario, GR No. 92285, 28 March 1994; Zuno v. Cabredo,
A.M. No. RTJ-03-1779. April 30, 2003

-END-

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