Tax 2 Prefi Transcript Reduced Font

Taxation II - Atty.
Kim Aranas SMLP | SDB | KDA | AC | JT

A.Y 2018 - 2019 (Prefinals Coverage)
October 10, 2018
A: These transactions are divided into two so you have zero rated sale of goods or properties and zero-rated sale of service. Again recall we differen-
tiated before a VATABLE sale from a VAT zero rated sale and from a VAT-exempt sale. We say that it is zero rated because the output VAT is pegged
at 0%. The advantage if you are considered as a VAT zero rated transaction is that you can claim input vat for the vat passed to you by your suppliers.
On the other hand if VAT exempt transaction ka, simple no output and no input. The vat passed by your suppliers will just form part of your cost of
purchases or expenses.
We go to VAT zero rated transactions for the sale of goods. Here, we will discuss side by side with the NIRC and with the amendments in TRAIN
because in the latter there are zero-rated transactions na masubject na to 12% VAT but conditional (condition: upon the implementation of the
Enhanced VAT Refund System). This year, wala pa man ang Enhanced Vat Refund so these affected transactions are still considered as VAT zero rated.
By that time maimplement na siya which is next year, 12% VAT na na.
So what are these zero-rated transactions in the sale of goods.
(1) The sale and actual shipment of goods from the Philippines to a foreign country irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equiv-
alent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
⁃This is what we call as actual export since they actually went out of the country. Following the destination principle and the cross border
doctrine, having gone out of the country, should not be subject to VAT. (naay VAT pero 0% man so mura gihapon ug wala)
⁃This is to encourage exporters to stay here in the Philippines and also they have to register sa VAT
⁃What if I am an actual exporter but I am not registered sa VAT?DIdto ka musud sa VAT exempt transactions.
⁃Before one can fall in any of these transactions, YOU MUST be a VAT-registered entity
⁃Another important requisite is that the payment must be in an acceptable foreign currency duly accounted for by the rules of BSP (pasabot
kana na foreign currency accepted sa banks here since what is usually involved are bank to bank transfers)
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
⁃Naa gihapon diri ang requirement na payment must be in a foreign currency duly accounted for by the rules of BSP but the difference lang
is kani, wala actually nigawas sa Philippines (constructive export; did not go out of the country but still subject to 0% VAT)
⁃ultimately these goods will go out of the country since this is limited lang to raw materials or packaging materials which will all form part
of the finished output to be exported.
⁃kinsa ang buyer? Dapat non-resident pero the delivery would not be to the non-resident but to a resident export oriented enterprise
usually located sa Mactan Economic Zone in Cebu.
⁃Example: eyeglasses to be exported in Japan and then I am the supplier of the raw materials of the glass used in the product and my
contract with the buyer which is a Japanese corporation. Usually ang mahitabo man gud ana class kung PEZA locator, naa diri ilang manufacturing
but ang parent foreign company nila which is just for marketing/sales, so mao na if nakacontract nako is the parent-foreign company, ngadto nako
ideliver sa ilang subsidiary here who will do the manufacturing. In that case, the delivery happened in the Phils. but since the raw materials form part
of the products to be shipped in Japan then extended ang zero percent VAT incentive.
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual
production;
⁃Same with Number 2 but the difference is that the buyer nimo diri is the export oriented enterprise wherein the requisite is that the export
sale must exceed 70% of the total annual production.
⁃Ang kacontract nimo is somewhere within the Philippines and the delivery is also here in the Phils but because of this export-oriented
enterprise, enterprises are usually located in Special Economic or Free port zones which are considered by fiction of law as foreign territories then it
is considered ghapon as effectively zero rated (constructive export).
⁃Kaning Nos. 2&3, once the Enhanced Vat System will be implemented, bawion na sa government ang kana na incentive na zero rated.
Magpass na ang Nos. 2&3 ug VAT by then. And then ang gipasahan nako na export-oriented enterprise ug 12% will just claim the 12% as refund or
credit with the BIR.
(4) Those considered export sales under Executive Order NO. 226, otherwise known as the "Omnibus Investment Code of 1987", and other special
laws; and
1
Taxation II - Atty. Kim Aranas SMLP | SDB | KDA | AC | JT
⁃I’ve been mentioning about PEZA (an IPA “investment promotion agencies”) There are many IPAs but ang pinakacommon is PEZA or BOI
which is what referred to here in this provision.
⁃What is the purpose of IPAs? To lure in investors by giving them incentives. For Peza among the other incentives, ang income tax holdiay
which is 4 years if non-pioneer, 6 years if pioneer and could go up to max of 8 years. They also have 5% tax in lieu of all taxes including the VAT.
⁃The BOI on the otherhand, walay 5% in lieu, income tax holiday ra ang iya incentive which is the same 4 or 6 years.
⁃So makaingon ta ngadto na lang kos PEZA kay daghan incentives…but no kay ang mga naa sa PEZA export oriented enterprise dapat ang
customer nimo naa abroad. SO if you operate domestically you cannot be registered with PEZA but you can with BOI.
⁃If export ko sir, 100% naa koy option na BOI or PEZA? YES because si BOI also caters export enterprises. Good thing kung BOI ka no
restriction kung asa ka located, bisan asa ka unlike PEZA na naay specific zones jd which can be expensive.
⁃Same story, so if export enterprise ka nganhi under BOI, constructive export, pwede ka masubject to 12% if maimplement na ang Enhanced
VAT system. Way problema sa actual export na nigawas sa Phils.
⁃So Nos. 2,3,4 mao nay maaffect sa enhanced VAT system.
(5) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations.
⁃Kani siya from the Philippines, the operator of the shipping or airline will go directly outside the country. Mudock lang diri to buy goods
and supplies and then goes out again walay route within the Philippines. Or mukuha ug passengers diri sa Phils. but mugawas ra sad sa country.
⁃Example Qatar Airways diba wala silay domestic operations so they are operating international air transport
⁃So they can be subject to 0% VAT provided they are VAT registered
⁃Take Note in one BIR Ruling, the hotel accommodations, the food, the supplies given to the pilots and stewardess is not included in the
VAT zero rated sale of goods and services. Like example magpahuway ang pilots sa Marco Polo Hotel ang services ni Marco Polo pwede pa subject to
VAT? In that ruling dili siya mufall as VAT zero rated sale kay not in the sale or purchase of goods, supplies, equipment and fuel for international
transport operation.
October 12, 2018
Zero-rated Transactions (Sale of goods) under TRAIN

1. Sale and actual shipment of goods from the Philippines to a foreign country;
2. Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in
manufacturing, processing or repacking in the Philippines in acceptable foreign currency and in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);
3. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production;
4. Those considered export sales under Executive Order No. 226, otherwise known as the “Omnibus Investment Code of 1987”, and other special
laws; and
5. Sale of goods, supplies, equipment and fuel to persons engaged in international air transport operations: Provided, that the goods, supplies,
equipment and fuel shall be used for international shipping or air transport operations.
▪ There must be actual delivery
▪ In acceptable foreign currency
▪ For 2-4, will be subject to 12% VAT upon implementation of enhanced VAT refund system
For zero-rated sale of goods or properties, of the 5 here, the 2nd-4th types will be subjected to 12% VAT as soon as the enhanced VAT refund system
will be implemented. Things that you have to remember also, automatic not subject to VAT if it is actual export. But if it is constructive or indirect
export, if we base it on the existing law, it is subject to 0% VAT pa, but then again it may be subject to 12% VAT. Well, this is just to highlight on the
constructive export the first time – again wa nigawas actually sa Philippines ang property. So what happens is that you have a non-resident buyer but
it will be delivered to a local resident export-oriented enterprise.
Definition again of an export-oriented enterprise, ang export sales niya must exceed 70% of its total annual production during the year. But then
again, under the 2nd package of the Comprehensive Tax Reform Program, they are proposing to increase that to 90%.
The 3rd type pertains to sale of raw materials and packaging materials. Again, wala ni nigawas sa Philippines but since it will form part of the finished
goods or output na i-export ni export-oriented enterprise, then currently, it is subject to 0% VAT. But again, once the enhanced VAT refund system
will be implemented, it will be subject to 12% VAT. In this case, however, there is no requirement for payment of acceptable foreign currency,
primarily because the buyer is domestic or located here in the Phils.
2
Then you have those considered export sales under the Omnibus Investments Code or the BOI. Same for the first 2. Currently, it is subject to 0 % VAT
but then again it may be subject to 12% VAT once the enhanced VAT refund system will be implemented.
Zero-rated transactions (Sale of goods)
BEFORE TRAIN
1. Sale of raw materials or packaging materials to a nonres- Same rules, provided that the transaction will be subject to
ident buyer for delivery to a resident local export- ori- 12%, value added tax and no longer export sales subject to 0%
ented enterprise to be used in manufacturing, pro- upon satisfaction of the enhanced VAT refund system.
cessing, packing or repacking in the Philippines in ac-
ceptable foreign currency and in accordance with the
rules of the BSP
2. Sale of raw materials or packaging materials to export- Same rules, provided that the transaction will be subject to
oriented enterprise whose export sales exceed 70% of 12% value added tax and no longer export sales subject to 0%
total annual production upon satisfaction of the enhanced VAT refund system.
3. Those considered export sales under Executive Order Same rules, provided that the transaction will be subject to
No. 226, otherwise known as the “Omnibus Investment 12% value added tax and no longer export sales subject to 0%
Code of 1987”, and other special laws upon satisfaction of the enhanced VAT refund system.
4. Sale of goods, supplies, equipment and fuel to persons …Provided, that the goods, supplies, equipment and fuel shall
engaged in international air transport operations be used for international shipping or air transport opera-
tions.
We move on to VAT zero-rated sale of service. So again duha, goods or properties then service or the labor aspect.
There are around 7 provisions in the Tax Code which is subject to 0% VAT currently. However, around 2 of these will be subject to 12% VAT once the
enhanced VAT refund system is implemented.
Zero-rated transactions (Sale of services) under TRAIN
1. Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported
If you notice, mao ni ang labor aspect sa kadto bitaw sale of RM or PM na gi deliver diri sa Phils. The point is diin gi-render ang service? Diri sa
Phils. Walay actual export of service. So mao to na currently 0% but currently moving na isubject na sya to 12% VAT.
2. Services rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who
is outside the Philippines when the services are performed
Zero-rated gihapon ni sya. Ang customer nimu is somebody who is located outside of the country or non-resident of the country. You’re rendering
service for that particular entity. The payment must be in acceptable foreign currency gihapon.
3. Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country
It must be a direct trip from the Phils. going abroad. It must not stop here in any local ports. This one is on the transportation service.
4. Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use
thereof: Provided, that the goods, supplies, equipment and fuel shall be exclusively used for international shipping or air transport operations
This is the labor aspect gihapon for the sale of goods, supplies, equipment and fuel to those engaged in international shipping or international air-
transport operations.
5. Services performed by subcontractors and/or contractors in contractors in processing, converting, or manufacturing goods for an enterprise
whose export sales exceed 70% of total annual production
3
Mao sad ni ang labor aspect sa 3rd, sale of RM or PM to export-oriented enterprise. So, same reasoning as mentioned earlier. Since the service is
rendered here in the Phils., we can take it away without violating the cross-border doctrine kay wa man nah nigawas sa border sa Phils. Mao nang
under the TRAIN Law, they will subject it to 12% VAT once the enhanced VAT refund system will be implemented.
6. Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory
effectively subjects to the supply of such services to 0% rate
This is more on special agreements or treaties to which the Philippines enters into
7. Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal,
ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.
If it is a renewable source and you register for VAT purposes, then that is also considered subject to 0% VAT.
▪ For 1-3, services are rendered outside the country and must be in acceptable foreign currency
▪ 1 & 5 will be subject to 12% VAT upon implementation of enhanced VAT refund system
This is not the codal provision verbatim ha? It is just lifted on that para ma-mubo pud. Para ma-sud sa square.
BEFORE TRAIN
1. Processing, manufacturing or repacking goods for Same rules, provided that the transaction will be subject
other persons doing business outside the Philip- to 12% value added tax and no longer export sales sub-
pines which goods are subsequently exported in ac- ject to 0% upon satisfaction of the enhanced VAT refund
ceptable foreign currency and in accordance with system.
the rules of BSP
2. Those considered export sales under Executive Or- Same rules, provided that the transaction will be subject
der No. 226, otherwise known as the “Omnibus In- to 12% value added tax and no longer export sales sub-
vestment Code of 1987”, and other special laws ject to 0% upon satisfaction of the enhanced VAT refund
system.
3. Services rendered to persons engaged in interna- …Provided, that the goods, supplies, equipment and fuel
tional shipping or international air transport opera- shall be used for international shipping or air transport
tions, including lease of property for use thereof operations.
Anyhow, this is on the sale of goods, supplies, equipment and even to those engaged in international shipping or international air transport operation.
As what we’ve discussed, from docking in the Philippine port to get the goods, supplies, fuel and equipment, it must go out directly to an international
port. And it must be used for the shipping or transport operation purposes.
For the service aspect, zero-rated transactions or zero-rated sale of service, mao lang ni. First is local resident seller exports or sells it to a non-
resident buyer involved in processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are
subsequently exported in acceptable foreign currency and in accordance with the rules of BSP – it may be subject to 12% VAT ha. Same is true for
those rendered to export-oriented enterprise.
And sa service aspect sa engaged in international shipping or international air transport operations, zero-rated gihapon to. Ang gidugang lang sa
TRAIN is that the goods, supplies, equipment and fuel shall be used for international shipping or air transport operations. So, the services portion
should be for the international shipping or air transport operations. You might ask na sir unsa man ang service aspect? Because the sale of goods or
properties, klaru man – goods, supplies, equipment and fuel. But here, services. So unsa man ang services na irender nimu? If it is a foreign vessel na
mudock sa Philippines, diba di man nah sila kadiretso ug dock lang sa port? Ang tawag ana is tagging. I-tag nah sila. Kanang naay harbor pilot. And
usually, mu-contact nah sila ug domestic company here for providing tagging or docking services. Mao may mu-drive padung sa port. So basically,
that is the service aspect there. Tagging, docking and ferry services. So mao nah ang gina-describe nila na service aspect. So, these types of services
fall under this provision. Pwede sya ma-subject to 0% VAT, provided, the one rendering the service is a VAT-registered person or entity.
There’s no apparent need to memorize all these kay usually, application ang question – if this is zero-rated or vat-exempt or vatable? But what came
out in previous bar exams is a question asking for a distinction between those transactions which are automatically zero-rated or effectively zero-
rated.
Automatic 0-rating vs. Effective 0-rating
Zero-rated Effectively zero-rated
4
Refer to export sale of goods of services Refer to sale of goods or services to persons or enti-
ties whose exemption under special laws or interna-
Tax is at 0% tional agreements to which the Philippines is a signa-
tory.
The seller charges no output tax but can claim a re-
fund of or a tax credit certificate for the VAT previ- The seller who charges zero output tax on such trans-
ously charged by suppliers. actions can also claim a refund or tax credit certificate
for the VAT previously charged by suppliers.
Automatic zero rating generally applies to ACTUAL Effective zero rating applies to INDIRECT or CON-
exports. STRUCTIVE export sales i.e. sale to export-oriented
enterprise.
Just remember, when it comes to automatic zero-rating, this refers to the actual export sale. In short kay actual from the Philippines man, it must go
out of the country. And it is termed automatic because you don’t need to get a ruling or any certification from the BIR because of the fact that it
actually went out of the country. Now if it is automatically zero-rated, same as what we’ve discussed before, the seller will not charge VAT because
it is subject to 0% VAT but the seller can claim for refund or credit of input VAT for the VAT previously charged by suppliers. Effectively zero-rated,
on the other hand, ‘effectively’, meaning to say the zero-rating is made effective or granted under the law which is why ang ground nila, kay gi-grant
man nah under the law, not under the basic principle of cross-border doctrine, so we can take it out because the effective zero-rating refers to goods
or services to persons or entities whose exemption is under a special law or an international agreement to which the Philippines is a signatory. Same
effect actually in the 2 kay zero-rated man so ang icharge would be 0% VAT but VAT sales invoice or VAT OR gihapon ang iissue but didto lang niya sa
portion na VAT zero-rated sale ibutang ang figure, not under VATable sale, and the seller can still ask for the refund or credit for the input VAT portion.
The effective zero-rating is more related to what we call as constructive exports – kadto bitaw exports na walay actual export, diri ra sud sa Philippines
nahitabu, from a customs territory to economic zone territory or those sales happening within the economic zone.
ENHANCED VAT REFUND SYSTEM

▪ Grants refunds of creditable input tax within 90 days from the filing of the VAT refund application with the BIR.
▪ The DOF shall establish a VAT refund center in the BIR & BOC that will handle the processing and granting of cash refunds of creditable
input tax.
▪ All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019.
Period within which refund of input taxes shall be made (Before TRAIN)
For applications filed before January 1, 2018 in relation RMC 54-2014
Within 2 years Decision:

After close of TQ Approval/Denial
Within 120 days Within 30 days

VAT Refund Inaction deemed denial
Application Taxpayer may appeal
decision on denial to CTA
Period within which refund of input taxes shall be made (TRAIN)

For applications filed starting January 1, 2018 in relation RMC 54-2014
Within 2 years Decision: - Approval

After close of TQ - Denial: in case of partial/full denial, CIR must
state in writing the legal and factual basis
Within 90 days Within 30 days

VAT Refund Inaction: Agent or employee
Application punishable under the code Taxpayer may appeal
decision on denial to CTA
Unsa na Section sa Tax Code ang tan-awn ani? Ang Sec. 112 of the NIRC, as amended by the TRAIN Law. The enhanced VAT refund system tells us
that refunds of creditable input tax will now be made within 90 days from the filing of the VAT refund application with the BIR. This is the meat of
the provision under the TRAIN Law. Before, naa bay concept of refund? Yes, but the period of refunding the excess input tax is not 90 days but 120
days. So under the TRAIN Law, they reduced it by around 30 days.
5
When we say excess input, pasabot, ang input VAT nimu is higher than your output VAT. Kanus-a gale nah mahitabu na ang input VAT nimu is higher
than your output? - If you are a VAT-registered person engaged in a VAT zero-rated transaction. Mao jud nah ang una na iprove nimu, na VAT-reg ka
nya ang transaction na gi-enter nimu falls under any of the VAT zero-rated transaction.
Before TRAIN Law, makakuha ka ug refund sa excess input over output nimu if you file for refund within 2 years after the close of the taxable quarter
when the sales transaction happened. There will be 120 days for the CIR to decide on that claim for refund. In practice, mas taas pa. It can go to 1-3
years to the point na ang uban, i-assign nalang nila ila right to claim for the refund or tax credit certificate (TCC) man nah if di sila ganahan mag-
baligya. So 120 days, the decision could either be approval or denial. But the problem nganhi man gud before the amendment by TRAIN, kung di mu-
act si CIR within 120 days from the complete submission of the document. Mao tong mu-extend ug 1-2 yrs kay naa pay additional documents na last
minute pangayuon. So, dili deemed complete ang gi-submit nimu, so di pa ka kacount sa 120 days. Now, upon the complete submission of the
documents, within 120 days, dili sad mandated si CIR to give a decision whether favorable or not. Pwede inaction on the part of the BIR, di lang
tagdun and it is deemed already as denial. So deemed denial man, within 30 days from the lapse of the 120-day period, you must appeal na to the
CTA. Diri nahitabu na daghan ang ma-deny ig appeal na sa CTA kay ni-lapse na ang 120 days. In the first place, wa may klaru si CIR kung gi-deny na ba
to niya or complete na ba to or unsa. Naa say uban na denied kay wa pa ni-lapse ang 120 day-period, ni appeal na didto sa CTA kay naniguro na
because the 2-year period, although i-discuss ni natu under the NIRC remedies, covers the administrative action only. Duha man gud ni ka sections
when it comes to refund nya 2 years gihapon ang period. Di pa man tah ni naku i-discuss but anyhow, you have Sec. 112 – refund of excess input but
not because of erroneous tax. Nilapas lang jud ang input nimu over output. The other section is Sec. 229, NIRC which also talks of refund of excess
tax, not necessarily input tax, but that presupposes erroneous collection of tax. Meaing to say ang liability nimu 1M lang, ang gi-collect ni BIR sa imu
kay 1.5M so magparefund kas .5M, not under Sec. 112 kay input vat excess ato gihisgutan dinhi, but under Sec. 229. Now both periods, ang naka-
lami is same na within a period of 2 yrs. Ang nakalahi nila is ang 2 yrs sa 112 covers only the admin part. Ang sa Sec 229 covers both admin and judicial
or actions before the CTA. Mao to na there are many confusions before na ang gi-follow sa uban inig pa-refund sa excess input VAT, instead of
following Sec. 112, ang gi-follow nila Sec. 229 na magdali2x sila ug appeal to the CTA kay mu-lapse na ang 2-yr period when in fact it should not be
the case because the excess there in 112 is excess input VAT over the output. Sec 229 can also dwell with excess but not input VAT but excess tax.
This presupposes that there is error on the part of the BIR while the other has no error to speak of kay nilapas ra man simply ang input nimu over
output. So, 120 pero again madugay within 30 days kay di compelled si CIR to render a decision.
So mao nah gitawag nila na ‘enhanced’ VAT refund system. Same gihapon 2 years after the taxable quarter but the difference is that from the filing
of the VAT refund application, 90 days nalang ang hulaton nimu na naay decision on the part of the BIR. As what I’ve mentioned earlier, in the
previous provision, pwede ra to dili i-act ni BIR, na wala ra syay irender na decision. Muhuwat ra ka na mu-lapse ang 120-day period. But now, under
the Enhanced VAT Refund System, the CIR through its authorized representative must render a decision whether to approve or to deny, not just
implied denial. Sa previous provision kay implied denial man to kay way gi-issue within 120 days. It must be express denial. So, if it will be denied by
the CIR, it can either be partial or full denial, but in such case, the CIR must state in writing the legal and factual basis for the denial. When we say
legal and factual basis, there has to have a provision in the law in relation to the application or claim for refund of taxpayer. Dili nah pwede nga
muingon lang sila na ‘denied for lack of legal basis or for lack of merit.’ Ang nahitabu man sad gud ron is if magpa-refund ka, everything goes to the
central office because it will be processed by a particular division in the central office. In the enhanced VAT refund system, kung magpa-refund ka,
muadto nalang kas RDO because they will establish a refund center in every RDO. Mao nah kung mangutana mu if applicable na ba nah ron, dili pa
because in the first place, they are still hiring personnel who can sit as processing officer for the refund. And it is quite a risky position because diba
kinahanglan mu-decide siya either mu-approve or mu-deny. Kung i-deny niya, dapat naay proper reasons. What if di sya ka-render ug decision within
a period of 90 days from complete submission? In the TRAIN Law, there is a provision that an inaction of the agent or employee is punishable by
administrative action under the court which is not present in the previous provision. So, simple lang, ang buhaton nimu naay checklist si BIR,
kumpletuhon nimu ang checklist, isubmit nimu ni examiner or ni processor for the refund and then in 90 days, there has to have a decision. If walay
decision, di na ka magkara2x muadto sa CTA. Ang buhaton nimu, file-an nimu admin complaint si officer, siyay mag nganga ngadto. So at least, good
on your part kay hasul baya kung mag-appeal ka to the CTA. You have to prepare your memorandum, mahasul na ka. Sya pa tong naghayang2x kay
wa ni-act, ikaw pa tong magdagan2x didto sa CTA kay mu-lapse nang period. So, this time around, they made it more practical. Mao nang niingon sila
na medyo nindut lage ning enhanced VAT refund system kay diba ang gi-mention naku ninyo, ang issue sa PEZA companies na temporarily mag-
charge ug 12% VAT and then eventually, magparefund ra sad sila ug 12% VAT. So it’s like unsa man gitaguan nila ang minillion nila na kwarta for a
period of 90 days and then kuhaon ra sad nila after, and then they can use it productively for operation purposes? Mao man nang sentiment ni PEZA
companies na what’s the point man na ako, non-resident buyer ko, pabayaron ko nimu ug VAT pero muingon ka na refundan ra gihapon ko nimu,
nganu di naman lang ko nimu i-exempt diretso? Minillion gud nah. 90 days is no joke if production ka or manufacturing company ka. So, although the
BIR sad said na para sad daw di na sila mahasul to determine kung zero-rated or subject to 12% VAT ba. Pero anyhow, they are the lawmakers.
As what I’ve mentioned, the DOF shall establish a VAT refund center in the BIR and the BOC because we very well know the BOC collects VAT also.
That will handle the processing and granting of cash refunds of creditable input tax. Again, this presupposes dili erroneous, ni exceed lang ang input
sa output nimu. So ang gina-float nila na image is kadtong ako gimention na pareha sa Singapore daw na refund center na you will just present,
although mas sayun lang jud to ila kay resibo lang but we’ve seen the initial checklist for the refund, ni-‘yayay’ na pud ang mga PEZA companies kay
taas kaayo ang checklist, di ra sya simple filling up of a form and then submitting the sales invoice. Naay mga contract, tax returns, etc. Medyo daghan
and I don’t know how they will make it simpler. And to make it more attractive pa gyud, ni-promise si BIR that all pending VAT refund claims as of
Dec. 31, 2017 shall be fully paid in cash by Dec. 31, 2019. Niingon man sad ang mga companies na oh, nag-promise mu na 90 days, nya tig 2-3 yrs
man gale ang existing claim for refund. So ingon sila na sige, let’s move forward 90 days unya kanang inyo tag 2-3yrs, refundan nah namu tanan in
cash by Dec. 31, 2019. Let’s see unsaon ni pag-implement. Imagine, full payment in cash. Ang pinaka-common man gud na way of refund as of now
6
is the so-called TCC. Kung naa kay excess karon, pwede re ka mukuha ug certificate nya if naa kay liability the following period, iapply to nimu. In that
case, walay cash na gipagawas si government.
On the side of the BIR, it will give additional collection. Imagine, 90 days nya di man nah diretso na pagkahuman sa transaction, parefundan dayun
nimu ugma. But I have to make claim for the refund within 2 years. So, makagamit nas government sa kwarta para diri para didto. Ako nuon na
affected, ni-claim pa ko, di pa naku magamit. What if after 1 yr pa ko nakapa-refund, ang inflation for that year will greatly affect the time value of
my money.
A portion of the VAT refund system is naa silay trust fund. A trust fund will be set aside for all refund claims. Mao nang promise nila is to pay in cash
rather than issuance of TCC. Pero actually, ni-explain si Congressman Cua, kanang sa Committee on Ways and Means because the original proposal
jud of the DOF, wala nay refund. I-subject na sila entirely to 12% VAT and again, ang ground ni DOF (sakto sad baya si DOF) is that we will not be
violating the cross-border doctrine or the destination principle kay everything is rendered here in the Philippines. Even if you say there’s a zone there,
even if a foreign territory is created by fiction of law, but precisely it’s by fiction of law, so basically, we can just change the law. Mao na ang position
initially ni DOF but then many violent reactions from stakeholders so gi-introduce balik ang refund. The BIR wanted to stick with the 120 of the same
provision but then again, heavily criticized. So, they have now the enhanced VAT refund system.
So we move on to VAT-exempt transactions.
VAT-EXEMPT TRANSACTIONS OR PERSONS

This is a good provision because the VAT-exempt transactions or persons simply means that you will not be subject to VAT. It can either be a VAT-
exempt transaction or VAT-exempt person. This VAT-exempt transaction is the produce, the properties mismo ang dili subject to VAT. When we say
person, it’s the entity selling that particular goods or properties ang exempted from VAT. So duha ang tan-awn natu. Dili automatic na VAT-exempt
goods nah siya, automatic exempt jud nah siya kay tan-awn sad nimu ang entity or person selling it. If the entity or person selling it voluntarily
registered under the VAT system, then subject na nah to 12% VAT. Kadto bitaw ako giingon na if it’s marine food product in its original state, that’s
a VAT-exempt transaction but you have to look at kinsa sad ang person or entity na nagbaligya ana. Kay if ang nagbaligya ana, for example Rustans,
na gi-register na nah voluntarily under the VAT system, then that becomes VATable.
What are some examples of VAT-exempt persons? Pinaka-common na example are non-stock non-profit educational institutions or government
educational institutions.
What is the difference between a VAT-exempt and a zero-rated transaction?
0% EXEMPT
1. Registration Yes No
2. Pass-on/shifting No No
3. Claim for input VAT on

Yes No
purchases
4. Relief on the Taxpayer Total Partial
When it comes to registration under the VAT system, there is no requirement for you to register if you are an exempt person or if you are engaged
in an exempt transaction. But if zero-rated, we said it is a primary requirement.
Pass-on or shifting, there is no output VAT because 0% VAT ang gi pass on nimu, but in exempt, there is no VAT to speak of.
Claim for input, you can claim the entire input VAT passed on to you by your supplier in a zero-rated transaction. Exempt, no input. That is why when
it comes to the relief of the taxpayer, for 0% VAT transaction, total relief kay input will be deducted from output. Now if input is greater than output,
then refund or credit. Exempt, on the other hand, is only partial because here, we use the cost deduction method. In 0%, we use the tax credit
method. So, sa cost deduction method, ang tax savings nimu, ang benefit nimu, basically it will only be up to the extent of your liability tax rate nimu.
So, 30% if it is subject to 30%.
Illustration
ABC Corporation, a VAT-registered entity, sold fuel to DEF Corporation, a corporation engaged in international shipping but not VAT-registered.
Inadvertently, ABC Corporation shifted 12% VAT to DEF which was paid by the latter. Thereafter, ABC remitted the 12% VAT collected to the BIR. May
DEF Corporation claim for VAT input refund on the 12% VAT passed to it considering that it is a VAT-exempt entity?
Again, no specification kung unsa ang basis niya sa refund. As what we’ve discussed a while ago, 2 sections ang pwede basis nimu for the refund. It
could be refund under Sec. 112 (excess input over output) or it could be refund under Sex. 229 (due to error). But if you look at it, either Sec. 112 or
7
229, obviously DEF Corporation does not have personality to claim for the refund of the input VAT. Why? Because 1, di sya VAT-registered. So bisan
under Sec. 112, dili nah pwede kay this presupposes na VAT-registered entity ka and you are engaged in a zero-rated transaction. 2, under 229, kung
muingon ka na error nah siya or sobra nah siya, still, di sya maka-claim kay this is VAT and what is the nature of VAT? Diba it is an indirect tax. When
it comes to indirect tax, ang primarily liable or ang statutory taxpayer is the seller. The use of identifying the statutory taxpayer is to know kung kinsay
maka-claim ug refund. In this case, even if DEF bears the burden of paying the VAT, but di sya ang statutory taxpayer. Wa syay personality. So proper
way, ABC Corp will claim the refund and it will in turn refund it to DEF Corp.
Features of a VAT-Exempt Transaction

1. Not included in ascertaining the general threshold;
Pila to ang threshold? 3M. for example, si taxpayer naay business na nag-operate ug jeepney. So during the year, sa jeepney operation niya, ang gross
receipts is 1M. At the same time, the same taxpayer is into restaurant business. Iya gross receipts diri is 2M. At the same time, into consultancy
gihapon siya. To ascertain on whether ni-exceed siya sa threshold, don’t include the gross receipts from jeepney operations kay this is an exempt
transaction. This is subject to OPT. When it comes to the 3M threshold, ang iapil lang kay kadtong from restaurant and consultancy. In this case, wa
niya na-meet ang threshold kay exactly 3M ra man sya, wa ni-exceed. Of course, you are not liable to VAT or 3% OPT but for this one, we will mention
lang transactions because there are some exempt transactions na dili subject to VAT but subject to 3% OPT. But as a rule, there will be no business
tax if it is an exempt transaction.
2. Not liable for VAT or 3% OPT;
3. No billing of output tax on every VAT exempt transaction
There will be no billing of output tax on every exempt transaction. As what we’ve discussed a while ago, wa kay 12% VAT na gipasa.
VAT Exempt Transaction (Section 109, NIRC)

Salient Points
(A) White/Refined Sugar – VAT; only raw cane sugar, molasses are exempt;
▪ Rice is exempt in whatever form
▪ FDRBS3
▪ Dried Fish, Copra – exempt
(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into
raw sugar.
1. Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding
or producing foods for human consumption; and breeding stock and genetic materials therefor.
Wa ni siya na-amend in the TRAIN Law. The amendment in the TRAIN Law starts in Sec. 109 (d). Unsa na transactions ang exempted from VAT?
First is the sale or importation of marine food products in their original state; second is sale or importation of agricultural food products in their
original state; and third, you have sale or importation of livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption or breeding purposes. So basically, kana 3. In addition to that, gibutang sad dinha unsa ang exempted like kanang raw
cane sugar which basically pertains to molasses, exempted. But the white refined sugar is not anymore considered as exempted from VAT or
rice in whatever form is also exempted. What do we mean by rice ‘in whatever form’? It refers to either massed or hand massed (di ko sure
aning mga form of rice). It is the husked or unhusked rice. Even if these marine or agricultural food products undergo a simple process, they are
still considered in their original state. When we say simple crosses, they must undergo the process of so-called freezing, drying, broiling, roast-
ing, salting, smoking and stripping. You can use the mnemonic FDRBS3. Kelangan ni imemorize kay kung naay mugawas sa bar exam, situational.
Tagsa2x-on natu. Kung muingon kag freezing, of course we very well know what’s meant by freezing diba. So let’s say for example, frozen meat.
Although gihiwa na nah, it’s just simple process so considered gihapon in its original state because freezing man lang. Drying, say for example
dried fish or buwad diba. That is considered in its original state. But take note if muingon kag dried mango, it is no longer considered as a simple
process of drying because as ruled by the BIR, once the marine or agricultural or livestock food product undergoes drying but anti-oxidants or
preservatives are being added to prolong the shelf life of that particular product, it’s not anymore simple process lang of supplying. In that case,
chemical process na kay naa namay anti-oxidants or preservatives. Broiling is not the same as boiling. If you say broiling, you use high heat for
a short time. The source of the heat is all-surround, top and bottom. If it is roasting, you use low heat for a long time and the source of heat is
only from the bottom (roasted chicken). Then you have salting like salted fish and basta salted, ginamos diba. Then you have smoking like
smoked ham, smoked bacon, smoked salmon, tinapa diba. Dili musud ang steamed diri ha. Stripping, for example chicken, kanang deboned
bangus. In one BIR ruling, it was declared that considered under stripping gihapon nah.
Take note the means of wrapping the product will not affect, still considered in its original state. Diba if you notice if muadto kas Galleria or sa
Rustans, they have this so-called shrink wrap vegetables or shrink wrap na fruits. So that shrink or vacuum or tetra packing, it will not affect the
state ni marine or agricultural food product. They are still considered in their own original state so long as wa sila ni undergo sa chemical
process.
8
The first exemption pertains to the product mismo. Useless kung gi-exempt lang nimu ang finished product or finished output but the labor or
service portion is not exempted from VAT kay mupatong man sad to. For example, sa rice, naa man tay gitawag na tig-galing or millers. Kung di
to nimu i-exempt, mapatungan gihapon so musaka ang price. Which is why Sec. 109 (f) also exempts the services rendered by agricultural
contract growers, milling for others palay into rice, corn into grits, and sugarcane into raw sugar. So pag-prepare ana, service aspect is also
exempted from VAT.
Illustration
Berna imported boars (Landrace) and swine (Yorkshire) for breeding purposes. She also imported horses (thoroughbred broodmares) for
sports/racing. Are the importations subject to VAT?
Boars and swines importation – exempt from VAT; the importation of horses is taxable because such animals are not generally used as or yielding or
producing food for human consumption (BIR Ruling 039-91).
These are livestock. There are 2 conditions in order to exempt livestock. Ang kadtong original state, applicable ras marine or agricultural food product.
For the livestock, lahi iya conditions to be exempt from VAT. One is that it must be for breeding or genetic purposes and second, it must be for human
consumption.
In a BIR ruling, the BIR declared that the boars and the swine imported are exempted from VAT but the importation of the horses are considered
taxable because they are not for human consumption nor for breeding purposes.
October 17, 2018
You call it automatic zero- rated transaction, if you do not need to get a BIR certification or BIR ruling that that transaction is zero rated.
It is effectively zero rated, there is a requirement that you need to get a BIR certification or BIR ruling. Otherwise, if you fail to get a BIR ruling, then
there is a tendency that the BIR will treat it no zero rated but exempt transaction lang.
For VAT exempt transaction we discussed A pa no in which the VAT exmept sale, there are three transactions under A:
 Exempt sale of agricultural food product on its original state
 Exempt sale of marine food product in its original state
 Sale of livestock or poultry for two purpose for genetics or breeding purposes and for human consumption.
We’ve discussed last meeting that when it comes to original state the product must undergo a simple process. Included in the definition of simple
process is the FDBRS3
F- Freezing
D- Drying
B- Broiling
R-Roasting
S- Salting
S- Smoking
S- Stripping
In relation to Sec 109 A since under 109 A what is exempted here is the product of course we have to exempt also the labor aspect or the service
aspect which is why under letter F of Section 109, services rendered by agricultural contract growers or millers for others milling palay into rice, sugar
cane into raw sugar is also exempted from VAT.
B. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally
produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets).
How many products are exempted?

You have three products exempted.
 Fertilizers
 Seeds, seedlings and fingerlings (mao ni sila ang small fish)
 Fish, prawn, livestock and poultry feeds- here it is not the fish, prawn or livestock that is exempted but is it the feeds that you are feeding
to your fish, prawns and livestock. Because the fish, prawn and livestock is already exempted under Sec109A.
Sa 109A ang gi exempt nato is some sort of the finished output, the marine food product, agricultural food product. Sa 109F is the service aspect and
sa B why do we have to expect these fertilizers, seeds, feeds?
If the product is exempted and the service is exempted, then the necessary feeds or fertilizer to produce the marine or agricultural food product
should also be exempted. Because these marine and agricultural food products they will be used for human consumption.
But if it is specialty feeds it is not exempted because in the end the product for which it is used is not for human consumption.
9
What is the definition of a specialty feed?

S: I think it is made specially for a specific animal or a specific purpose.
A: The specialty feed, you feed it to the animal which you do not eat or consume. It is provided there in B that specialty feeds kay gikaon ni race
horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets. So the feeds of your dogs or cats do not fall under
the exemption.
Aside from fertilizer, seeds, seedlings, fingerlings and feeds included sad is the ingredients sa exemption. Now that ingredient does that refer to the
ingredients in the manufacture of fertilizer and at the same time the manufacture of feeds?
S: It only pertains to finished feeds.
Why do you say so?

S: Because it promotes the intent of the law to correlate it to 109A because if we include it with fertilizers then it won’t result to a situation where
the finished product or the thing that you feed or the fertilizer that you manufacture will be like in A.
A; The reason first is the way the law is constructed. If you look at it after the word fertilizer there is semi colon then the seeds, seedling, fingerlings
another semi colon, then you have feeds including ingredients that is another semi colon. So if you look at it the ingredients covers only the feed.
The ingredients man gud sa feeds, this actually became a problem in the implementation phase because most of the ingredients in the manufacture
of feeds may also be consumed by human, like feed sa baboy. Usually ang feeds ana ang component ana is edible sad sa human, it can also be a meat
ang kanang raw material.
There was a situation at the time of Henares nga ang importation naga import ang i declare nila ingredients for the manufacture of feeds but inig
abot sa Pilipinas they don't use it to manufacture feeds instead they sell it. Which is why Henares included in the regulation nga other than declaring
it as an ingredient for the manufacture of feeds there must be a certification also from the FDA that the particular ingredient is not fit for human
consumption because ang nahitabo mao to gibaligya so there was technical smuggling because it went through the BOC they paid , the duties and
taxes but they did not declare it properly.
C. Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and non resident citizens
coming to resettle here in the Philippines: provided, that such goods are exempt from customs duties under Tariff and customs code of the
Philippines.
What is exempted here?

S: It is the personal and household effects
Is it for commercial purpose?
S: It must be for the personal use of the citizen coming to resettle here in the Philippines.
A: It must for the personal use of the citizen and when we say citizen limited lang to Filipino Citizen, either resident or non-resident.
What if I am a foreigner and i ask you since I’m planning to settle here in the Philippines and I'll be bringing with me my household effects and
household belonging. May I be exempted from value added tax?
S: If under section 109 C it will not be exempted.
Why?
S: Because it is only restricted for citizens, either resident or non-resident
Is there any other way I can be exempted?
S: If he falls under the conditions of letter D
D. Importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and
personal and household effects belonging to persons coming to settle in the Philippines or Filipinos and their families and descendants who are
now residents or citizens of other countries, such parties hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the
professions, rank or position of the persons importing said items for their own use and not for barter or sale, accompanying such persons, or
arriving within reasonable time: Provided, that the Bureau of Customs may, upon the production of satisfactory evidence that such persons are
actually coming to settle in the Philippines and the goods from payment of duties and taxes; provided further, that vehicles, vessels, aircrafts,
machineries, and other similar goods for use in manufacture shall not fall within this classification and shall therefore be subject to duties, taxes
and other charges
So how may I be exempted?

S: It is considered a VAT exempt transaction if it is an importation among other of household effects of any person without distinction.
But it mentions overseas Filipino, does it only apply to Filipinos?
S: the overseas Filipino there was mentioned because they became a citizen of another country so in that sense they are also considered foreigners.
So it not only limited to foreigners but also to Filipinos who became foreigners.
So what is the exact provision?
10
S: "wearing apparel, domestic animals, and personal and household effects belonging to persons coming to settle in the Philippines"
A: Because that line did not qualify whether Filipino or alien.
Is there a specific period of time for me because I cannot bring all my household effects with me, some of it ma pa cargo pa. So is there a required
period for that?
S: It just says "arriving within reasonable time":
Isn’t it 90 days before my arrival and 90 days after my arrival?
S: It was a provision in the NIRC before it was amended and because it was amended so the 90 day period could not apply.
A: Before it was specific na it must arrive 90 days before or after the date of arrival of the foreigner. But it was changed to arriving within reasonable
time. There are many instances na ma delay. So within reasonable time is more open to explanation.
What do I need to present to the customs in order to convince them that i have the intention of settling here in the Philippines?
S: You must produce satisfactory evidence that you are intending to settle here.
If you say satisfactory evidence, what could it be?
S: It is upon the satisfaction of the commissioner upon the production of maybe sir if the foreigner applied for a visa
A: The proof there is first the declaration. More than that the best thing you can present is the visa that you intend to settle here that you are not
just on a tourist visa.
As a foreigner can I bring with me my car from the US and transport here?
S: You can but it will already be subject to VAT because it is provided as an exception.
What are the exceptions?
S: That vehicles, vessels, aircrafts, machineries, and other similar goods for use in manufacture shall not fall within this classification.
A: Unless I pay VAT I cannot bring the car.
Another amendment introduced in the TRAIN law is those classified as vessel vehicle machinery is not covered by that particular exemption.
Illustration:
Organico poultry supply imports potassium nitrate or fertilizers from China. They sell the imported fertilizers to local dealers in the market (di ma-
dungod) importations on the sale of the fertilizers subject to VAT?
S: No because the importation of fertilizers falls within the exception.
How about the sale of the fertilizers to the local market?

S: Still the sale of the fertilizer would be exempt.
Exempt under what provision?
S: it would be under section 109b.
How about if it is importing raw materials for the use of production of fertilizer?
S: It would not be VAT exempt since what is VAT exempt is the raw materials to be used for the production of feeds and not for the production of
fertilizers. Because when it comes to fertilizers, what is exempted is the sale or importation of the fertilizer.
A: In one case which reached the BIR for a ruling it involves the importation of an ingredient for the manufacture of a fertilizer, the ruling back then
was that it was not VAT exempt and it still applies because section 109B is not amended.
Again in section 109D it does not only cover Filipinos but also alien individuals basta they come here to settle and the household effects and personal
belongings arrives here within reasonable time.
E. Services subject to percentage tax under Title V

Why?
S: Because they are covered by a different provision percentage tax of 3% whereas to VAT there 0 or 12.
What are the examples of these services?
S: Under title V one of the examples is that amusement taxes or transportation subject to OPT.
A: As what we've discussed VAT is also a percentage tax. Mao na under title V ang gi term ana is other percentage tax. So since both of them are
business taxes they cannot be implemented at the same time. Take note however that these refers to services specifically enumerated and indicated
from section 117 onwards in the NIRC under the percentage tax.
G. Medical, dental, hospital and veterinary services except those rendered by professionals.
First we go to the exception, if the medical, dental, and veterinary services are rendered by a professional it may now be subject to value added tax
or vat, it is not exempted.
Unsa may kalainan sa rendered by professional?
You can say that it is rendered by professional if it is being rendered in a clinic of a doctor or a clinic of a veterinarian. Once you pay you are given an
official receipt under the name of the doctor.
Actually this exception is the reason during the time of Henares nga she audited doctors and lawyers during that time. Gi audit jud niya ang mga
doctor if nag register na ba under the VAT system.
11
When we say services exempted from the VAT, we are referring to the services included in your hospital bill.
Example: you are a patient you go directly to medical arts going to the clinic of a doctor for consultation then gi bill ka sa doctor. Basically pwede ka
ma subject to VAT because that is not a VAT exempt transaction. The service there is deemed rendered by a professional.
But it would be a different story if miadto ka sa Chiong Hua na admit ka sa Chong Hua basically naay doctors mag rounds ana so of course you have
to pay professional fee to that doctor but the professional fee of the doctor must be indicated in the OR. So the PF indicated in the OR together with
diagnostics results like X ray that is VAT exempt because that falls under medical and hospital services.
What if nagpa OPD (out-patient) ko?

Still you pay a bill and such bill still falls under the exemption because in the OR it is under the name of the hospital.
Issue in connection to this is the VAT on sales of hospital pharmacy. When it comes to hospital pharmacy they are selling their medicines not only to
the patients but they are selling to out-patients, so what is the rule?
The rule is if the sale of drugs is to in patients of the hospital, like the sale is billed in the hospital bill that is exempt because that is considered part
of the hospital service. But if the sale of drugs by the hospital pharmacy is given to outpatients, like it is not in the OR of the hospital but in the OR of
the pharmacy it may be subject to VAT. It is maybe because we have to check also if ni exceed ba siya sa threshold because if wala then 3% OPT.
(Doctor and lawyer daw bagay. Relationship guru na si sir)
Other than the hospital service, what's the rule when it comes to diagnostics services, like X-ray, laboratory?
If the bill for the diagnostic services is included in the hospital bill or the OR then that is exempted from VAT. But if it is rendered by an independent
professional or consultant then it is not covered under the exemption.
What if it is a bill from High Precision, does it fall under hospital services exempted from VAT?
The answer is yes because it is considered a medical service. It would be a different story kung specific doctor ang nag examine sa imuha.
For veterinary services they also have hospital facilities so if you admit it in the hospital facility in the veterinary services then that falls under the
exempt from VAT.
Ang F wala na nato na gi discuss kay na discuss na nato sa A.
H. Educational services rendered by private educational institutions, duly accredited by the department of education, the commission on Higher
Education, the technical education skills development authority and those rendered by government educational institutions
If you noticed from the start of section 109 up to now mabanatyan nimo is ang gi exempt from VAT are the basic needs of us from food and now to
education and medication sonin this case, exempted from vat are educational services without qualification whether non stock ba na or proprietary
ba na so long as there is proper accreditation issued by the DepEd, CHED, or TESDA. So as it is kanang tuition fee ninyo dapat wala nai additional VAT.
I. Services rendered by individuals pursuant to an employeremployee relationship

Employment is not a business. Since it is not a business, it should not be subjected to business tax.
J. Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive
income from the Philippines;
This is exempted from VAT because this presuppose nga walai operations sa PH which generates income, pasabot wala siyay gross receipts here so
natural it is exempted from VAT.
K. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under
Presidential Decree No. 529;
When we say intl agreements, we are well aware we have treaties and double taxation agreements. Take note when it comes to intl treaties and
double taxation agreements, usually ang content ana pertains to what we call as business profit or relief on income taxation not much on business
taxation because usually as independent state dili na sila maghilabtanay how they run there internal business. Wala kaayoy content on vat exemption
or vat zero rating. Unsa unsa nga international agreement ang naai provision on vat exemption and vat zero rating? Agreements involving intl organ-
izations, lets say for example kanang mga united nations or mga asian development banks or intl rice research institute other than exempting them
from income tax there may also be provisions that they are exempted from vat.
12
Or under special laws, what are some of special laws that there is provision on exemption from vat? Pinaka common ang The Special Economic Zone
Act as a special law creating PEZA because if youre a PEZA registered enterprise one of your fiscal incentive is the 5% tax of your gross income earned
in lieu of all taxes including vat. As it is exempted ka from vat.
Except those under PD 529, what is this? This refers to petroleum operators concessionaires or subcontractors. As it is, if youre a petroleum explo-
ration operator, youre not anymore exempt from vat you are subject na to vat.
L. Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including
spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce;
Agricultural coop as a person is exempt from vat. There is only one requirement for you to be exempted, it must be duly registered with the CDA.
But implementation wise, the BIR, when you ask for a certificate of exemption from vat if youre a cooperative the BIR will not just settle that you
present your certificate of registration to the CDA, the bir will also ascertain if youre a member in good standing of the cda, and you become a
member in good standing if youre submitting annual reports to the cooperative development authority.
But when it comes to transaction entered into by an agricultural cooperative, there are how many transactions entered into by the agricultrual coop
na exempted?
1. Sales to members
o Are all types of sale to members of an agricultural coop exempted from vat?
Yes. Whether produce or non produce na ni agricultural coop is exempted from vat.
2. Sales to non-members
o It is exempted from vat only if produce ni agricultural coop. if non produce of the agricultural coop is being sold to non members
of the agricultural coop then it doesn’t fall unde that exemption.
Para dili malimtan, nganong dili man na exempted? You go back to the purpose why you establish a cooperative, you basically
exist for the sake and benefit of your members.
3. Importation of importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce.
M. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority;
Difference between a lending cooperative and a multipurpose cooperative?
Lending cooperative – basically for loan transactions, the proceeds are the interests.
Multi-purpose cooperative – they can make investments, engage in micro insurance, lease, marketing.
Sir, nganong kailangan man mi mukuha ug certificate of exemption from VAT? Di diay na automatic nga si client if mudeal sa amua automatic dili mi
nila chargean ug vat?
No, because the other party to the transaction needs to also submit proof to the BIR na wala na g chargean ug vat because youre a cooperative and
what is their proof? There is this certification coming from the bir.
N. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided,
That the share capital contribution of each member does not exceed Fifteen thousand pesos (₱15,000) and regardless of the aggregate capital
and net surplus ratably distributed among the members;
There are three cooperatives mentioned there.
What type of cooperative is subject na to vat? The electric cooperative.
For some other type of cooperative, non agricultural, non electric, non credit cooperative they can be exempted from vat.
Of all these types of coop, si electric coop ang subject to vat pursuant to the e-vat law.
O. Export sales by persons who are not VAT-registered;

Related ni sa vat zero rated sale of goods or properties because di ba ingon ta ngadto nga for you to be subject to zero percent vat, you must be vat
registered. Now if youre into export but you did not register for vat purposes, di gyapon ka subject to vat following the cross border doctrine. It is
just that dili 0% ang ma avail nimo, anhi ka masulod sa exempt from vat under letter O. this is basically a fallback provision.
P. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property
utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of
1992, and other related laws, residential lot valued at One million five hundred thousand pesos (₱1,500,000) and below, house and lot, and other
residential dwellings valued at Two million five hundred thousand pesos (₱2,500,000) and below: Provided, That beginning January 1, 2021, the
VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade
or business, sale of real property utilized for socialized housing as defined by Republic Act No. 7279, sale of house and lot, and other residential
13
dwellings with selling price of not more than Two million pesos (₱2,000,000): Provided, further, That every three (3) years thereafter, the amount
herein stated shall be adjusted to its present value using the Consumer Price Index, as published by the Philippine Statistics Authority (PSA);
What is the transaction being exempted here? Sale of real properties.
What are the specific instances when the sale of real properties may be exempted?
5 instances:
1. If real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business.
Basically, youre referring to a real property classified as a capital asset. But if capital asset, if you sell it as capital asset, you subject it to capital gain
tax. It is considered lang as one time transaction unless mu fall ka under habitual sale of real property. Since you subject it to capital gains tax dili
pwedi nga mag collect ug business tax at the same time so if CGP is being imposed there shouldn’t be 12% vat which is why exempted.
Now if the real property is classified as an ordinary asset, as a rule it is vatable or it may be subject to vat.
But there are how many instances for that real property classified as ordinary asset nga ma exempt from vat?
1. If you use the real property for socialized housing.
2. If you use the real property for low cost housing.
3. If youre selling residential lot not exceeding the threshold of 1.5M.
4. If youre selling residential house and lot and other dwelling not exceeding the threshold of 2.5M
Meaning of youre selling an industrial lot or a commercial lot considered as an ordinary asset, mu fall ka under the exempt transactions in letter P?
the answer is dili because ang g exempt lang kung ggamit nimo sa low cost socialized ug residential lot not exceeding 1.5 and residential lot not
exceeding 2.5.
We go first to socialized housing and low cost housing, what are these?
These are housing projects no, so we are talking here of subdivision.but take note, for it tobe considered a socialized housing or a low cost housing,
it must undergo the requirements under RA 7279, kinsa ang mudeclare nga that is a socialized housing or low cost housing? It is the housing and land
use regulatory board or the HLURB.
Mumatter ang pagqualify nimo as low cost or socialized housing ang pricing and area sa house and lot nga gibaligya.
Take note, subdivision. On the part of the developer, inventory na niya, primary held for sale na, ordinary asset. But because it is classified as socialized
or low cost housing it is exempted from vat.
If youre a subdivision magpa register ka sa BOI, mao na ang buhaton nimo income tax holiday wala kai income tax bayaran.
If you don’t want to pay vat, magpaclassify ka as socialized housing or lowcost housing, wala kay vat, wala kay income tax bayaran.
If di ka mufall aning socialized or low cost housing, income tax lang ka exempted pero pwedi ka ma subject to vat.
Mas barato si socialized housing (value of house and lot should not exceed 450k) kesa sa lowcost housing (in excess of 450k. Tier 1, 450k to 1.7M.
Tier 2, in excess of 1.7 to 3M).
Within that price range pwedi ka muapply for low cost housing or socialized housing.
So is the sale of real property utilized for socialized housing still exempt from vat? Yes.
Socialized housing, this is a housing program undertaken by the government or private sector for the underprivileged and homeless citizen.
Third way to exempt your real property classified as ordinary asset is that it must be a residential lot not exceeding the threshold of 1.5M.
For it to be considered residential, primary purpose fo buying it is to build a residential house.
This is disadvantageous to the real estate industry because if wala na nimo na register as low cost housing, youre selling it at lets say for example,
3M but not registered as low cost housing that is deemed as subject to vat. Take note, ang e subject nimo to vat is not the excess of the 2.5. the
entire contract price or selling price will be subjected to vat.
The best way to really know if exempted baka or dili is to ask for a BIR ruling which could take years.
Take note, effective january 1, 2021, the sale of house and lot and other residential dwelling, from 2.5 it will be reduced further to 2M no more
exemption on sale of residential lot.
Condominium is a real property, asa sya musulod na threshold? In the 2.5 (sale of house and lot and other residential dwelling.
14
Q. Lease of a residential unit with a monthly rental not exceeding Fifteen Thousand Pesos (₱15000);
This refers to a lease of a residential unit with a monthly rental not exceeding 15thou. Before the train law it was 12thou.
It must be a residential unit not commercial not industrial.
When we say residential the purpose there is to rest. This covers house and lot, apartments, dormitories, bed spaces but it does not include motels,
hotels, pensione houses and lodging houses because these are sale of service.
Unit refers to apartment units.

Per person in the case of boarding houses…
October 19, 2018

A: Lease of residential property
When it comes to sale of real property, we have to identify if the property is an ordinary or capital asset. Automatic if capital asset, exempted from
VAT, it will be subject to capital gains tax. Now if the real property is an ordinary asset there are 4 instances when it may be exempted from VAT
* Used for socialized housing
• Price ranges from up to P450,000
• Used for low-cost housing
• Above P450,000 not exceeding P3M
When it comes to socialized and low cost housing we dont just look at the price we also look at the area. What is important is it must be duly declared
and certified by HLURB as a low-cost housing or a socialized housing. You have to qualify in the exam that for example the house is P2.8M you do not
automatically say that it is a low cost housing unless there is a certification from HLURB.
* Sale of residential lot not exceeding the threshhold of P1.5M
• Before this is P1,919,500
• Sale of residential house and lot and other residential dwellings not exceeding the threshhold of P2.5M
• before it’s P3,199,200.
Take note effective January 1, 2021, there will no more be exemption on the VAT on the sale of residential lot and the exemption on VAT on the 4th
item, the threshhold will be reduced further from P2.5M to P2.0M.
We move on to letter Q. This talks of ease of a residential unit with a monthly rental not exceeding P15,000. Before amendment, it is just P12,800. If
we say residential unit it covers apartments and houses and lots for residential purposes, buildings and units thereof used as dwelling places. Exclud-
ing lodging houses, motels, inns and pension houses since we understand them to be selling services.
For the sale of residential unit, exempted from VAT automatic if wala niexceed ug P15,000. Exempted from VAT and also percentage tax. But when
may it be subjected to VAT? If muexceed ba sa monthly rental na P15,000 exempted ba sa VAT? No because again we have to look at the threshhold.
We have to look at two things before we can say na exempted na na siya sa VAT.
• First, the monthly lease or rent of the unit must exceed P15,000
• The aggregate monthly receipt must exceed the threshhold of P3M.
What is the effect if niexceed ang monthly lease sa P15,000 but the aggregate for the taxable year do not exceed P3M? Exempt gihapon sa vat but
not under Letter Q the basis of exemption is Sec. 109 BB.
Sec. 109 BB – Sale of lease or goods or properties or the performance of service other than the transactions mentioned in the preceding paragpraph
where the annual sales or receipts do not exceed the amount of P3M.
Diha ka mufall na provision na makaingon ka na exempted ka from VAT. But take note if that is the scenario although you are exempted from VAT
you will be subjected to the 3% OPT and our basis there is Sec. 166 of Title 5. You have there
Sec.116 – Tax exempt persons exempted from VAT. Any persons whose gross sales or receipts exempt under Sec 109 bb of this code from the payment
of VAT and who is not a VAT-registered person shall pay an equivalent of 3% OPT.
If we are going to illustrate this…again residential unit atong gimean ani ha. Because if what is leased is commercial or office space then letter q is
not applicable and the exemption sad.
So to summarize:
• if monthly lease does not exceed P15,000 then the aggregate does not exceed P3M- exempted ka under letter q
• if monthly lease does not exceed P15,000 but the aggregate exceeds P3M - exempt gihapon ka under letter q
• if monthly lease exceeds P15,000 and the aggregate annual rental do not exceed P3M - you’re still exempted from VAT not under
letter q but under Sec. 109 bb but you can be subject to OPT under Sec. 116
15
• if monthly lease exceeds P15,000 and the aggregate annual rental exceeds P3M - mandatorily covered under the VAT system;
not VAT exempt
Atty. what if I have several units leased at different monthly rental? Naay uban exceed sa 15,000? How do I know asa ang exempt ug asa ang subject
to VAT? Well basically class you have to add all the proceeds of those lease not exceeding P15,000 per month separately from those exceeding
P15,000 rent.
Example if your monthly rental per unit naay portion na up to 15,000 and naa say portion exceeding 15,000. In this case even if you add the two,
wala niexceed sa P3M, then in both cases you are exempt from VAT and this is based on letter Q.
Another example: If the rent exceeds 15,000 already but the aggregate does not exceed P3M, your exemption is under Sec. 109 bb but you will not
be exempt from OPT under Sec. 116.
Last, what if naay niexceed 15,000, some do not exceed 15,000 but the aggregate annual rental exceeds P3M. How will you ascertain now? Separate
na sya. So for the residential units not exceeding 15,000 ang monthly lease - VAT exempt even if the total aggregate exceeds P3M because the
exemption here is under letter q. Take note that under letter Q ang requirement lang niya is it must be a residential unit and the monthy lease must
not exceed P15,000 for you to be exempt from VAT. No mention sa aggregate proceeds.
For the units leased more than P15,000 and the aggregate amount exceeds P3M, then not anymore exempt from VAT but for those na wala na exceed
sa 15,000 exempt pa sila.
Sir, implementation wise, unsaon ni sa BIR pagmonitor how much ang lease and the nature of the property leased? If registered man gud class as a
lessor with the BIR, because di ba in the COR you have to indicate your main line of business, part of the requirements you have to submit with the
BIR is the summary list of units leased as well as lessees to the units.
We move on to letter R. Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;
What transactions are exempted from VAT here? You have the sale of books, sale of magazines and newspapers.
If the sale is for newspaper, magazine review or bulletin, what are the conditions for them to be exempt from VAT? It must appear in regular intervals
and it must not be principally for paid advertisements. Take note of the requirement na printing and publication because there was a case na about
e-books where it raised the issue na what if sale of e-books. The BIR in one ruling in 2008 said that ebooks are covered under this provision which
means it is exempt from VAT. However during the time of Henares, in 2013, she gave a stricter interpretation of this provision and it’s not just a ruling
but a revenue memorandum circular 75-2012 wherein the BIR said that even electronic books even CDs, even USBs are not covered under this
provision so NOT VAT exempt. So kung namaligya kag e-books pwede ghapon maexempt sa VAT so long as your gross receipts do not exceed P3M
but your exemption is not under letter R but under sa Sec.109 BB. But the question is will it fall under letter R? The BIR said no it does not include e-
books.
So for the magazines what are examples na pwede maexempt sa VAT? (Cosmpolitan, FHM kuno HAHAAHAHHA sakpan). So long as not principally
devoted for paid advertisements then the printing and publication thereof should not be subject to VAT.
Again class even if the transaction is exempt from VAT lahi na sad na storya if ang tanawn nimo is kung kinsa ang nagbaligya ana na magazine. BEcause
if the one selling it is a VAT registered person then giparegister niya tanan goods under the VAT system then pwede patungan ug VAT.
We go to letter S or the transport of passengers by international carriers. When it comes to international carriers, they must be originating from the
Philippines directly going outside the country. Related ni actually to the zero-rated sale of service. So which means if that international carrier failed
to register under the VAT system then dili siya makaavail sa zero-rated VAT, anhi siya musulod sa VAT exempt transaction.
The condition again is that international carrier is doing business here in the Philippines, duly registered here in the Philippines and subject to common
carrier’s tax of 3% tax on international carrier so that they can be exempted from VAT.
Let’s go to Letter T. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;
Take note this is not limited lang to international transport operations unlike katong mga zero-rated jud, this Letter T covers domestic transport
operations. Why is this exempted? To encourage more airline companies to establish here in the Philippines. Under sa Train law kana lang diba? But
sa RR naay gipuno which is “in accordance with rules of the maritime industry” unsay pasabot ana?
16
The Marina man gud class they have this so called age limit of the vessel or of the vehicle kato bitawng 10, 15 or 5 years old…unsa gani na madam?
S: For passenger and cargo vessels 150 pounds and above, the age limit is 15 years old. For tankers the age limit is 10 years old. For high passenger
crafts the age limit is 5 years old.
A: So meaning to say kung mupalit ka second hand, example ang age niya high passenger craft kay 10 years old already, this exempt provision will
not apply to you. Pwede na ka masubject to VAT. Dapat within the age limit ang pagpurchase nimo sa passenger cargo vessels or sa aircrafts and it
makes sense kay kung mupalit na man lang ka medyo dili sad old kaayo. Again this includes equipment and spare parts.
Letter U. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; Provided that the fuel,
goods and supplies shall be used for international shipping or air transport operation . This is an old provision but naa lay gidugang si TRAIN
Familiar siya na provision. Kato bitawng zero-rated sale of goods or properties, they are more or less the same, meaning this is a fallback provision.
If you are into international shipping or airline service, wala ka nagparegister sa VAT, unya mupalit ka ug goods, fuel and supplies then you cannot
avail of the zero-rated provision but you can avail of this under Letter U. Also again if we are talking about international shipping and air transport
operation, it must originate here in the Philippines and that presupposes that they are doing business here in the country, they have landing rights
here in the Phils. But from the Philippines it goes outside to a foreign country.
Pwede diay na sir nga international business unya not doing business here in the Phils? YES pwede kanang magbaligya through a ticketing agency,
mao na ang common. So kana sila wala silay landing rights here in the Philippines.
Now unsa ang difference ani na provision under Letter U to that provision under the zero-rated sale of goods and properties? If you notice the
provision under zero-rated talks about sale of goods, supplies, equipment and fuel (GSEF) but for here, GSF only goods, supplies and fuel. Ngano
man? Because naa sa Letter E. (Sec. 109 T) But take note mas favorable if it comes to purchase of equipment because under Letter T, it covers both
domestic and international shipping or airline but in Letter U it covers international shipping or airline.
Say for example si Cebu Pacific having domestic operations, nipalit ug equipment dili siya pwede musulod sa zero-rated but exempted from VAT
under letter T.
Question from the class: Kaning importation of life saving equipment for shipping operations, naa pa ni siya?
A: Wala na na siya.
Let’s go to V. Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries;
and. These are exempt from VAT since banks and other financial intermediaries are already subjected to OPT.
Letter W is a new provision. W. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided under Republic Act
Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of Persons with Disability), respectively;
Take note that the exemption from VAT here class covers almost all VATable transaction that the PWD or the senior citizen enters into. Example from
VAT in hotels and similar lodging entities, theaters and cinemas, drugstores, land air sea travel, medical,dental and laboratory services as well as
funeral and burial expenses. I think we know that aside from VAT, another incentive for PWDs and senior citizens is the so called 20% discount. And
it is a basic rule that it pertains lang to consumption of the senior citizen (per head discount). But the question is kay diba sa pricing dapat VAT
inclusive naman? Iexempt ba nimo siya from VAT and at the same time igrant ang 20% discount?Or are they mutually exclusive ang VAT ug 20%
percent? They can avail of both actually. Walay VAT and also 20% discount.
But sir, VAT inclusive man ang pricing, asa man ko dapita magcompute sa 20% discount? On the price including the VAT or on the price excluding the
VAT? Of course the price of 20% should be on the price excluding the VAT otherwise alkansi si senior citizen.
*take note of the rule na when senior citizens eat at a restaurant with other people, sila ra ang exempt*
*take note also of the rule that when there are other discounts of the seller concurring with the senior citizen discount, apply the one which is higher*
Example: Yummy Inc is a restaurant offering a birthday promo at 10%.

• In here since mas dako ang 20% sa 10% ni Yummy Inc., then the senior citizen can get the 20% discount.
Example: Mr. A, physically incapacitated and a senior citizen, how many times will you apply the 20% discount? Also assume that Mr. A was celebrat-
ing his birthday, niya the price is P1120 (VAT inclusive), so how are going to compute the tax exposure if Yummy is a VAT registered entity and if
Yummy is not a VAT registered entity?
• Usa ra ka 20% ang iapply.
• Of course class if VAT registered si Yummy ang 120 total billing na na niya.
• Since VAT inclusive man ni kuhaon nimo una ang VAT so:
17
P1120 - VAT Inclusive amount

-P 120 - 3/28 of P1120
= P1000 - VAT exclusive amount
⁃ 200 - (20% discount x P1000)
= P800 - total amount to be paid by the senior citizen
So unsa man ang business tax na iremit ni Yummy Inc sa BIR? Supposedly it was the VAT na P120 but since exempt man siya so it is a matter of
recording na lang kay wala may cash.
Exempted ba si PWD ug senior citizen sa percentage tax? NO they are not, exempted ra sila sa VAT. Meaning to say if Yummy Inc is not VAT registered,
presumption ang P1120 ang total billing and of course wala na kay kuhaon na VAT because you are a non-VAT entity. Automatic less 20% sales
discount so the amount payable by the PWD is P896 (P1120 x 20% =896) But what’s the tax consequence here? There will be a percentage tax due
to the government kay non VAT registered man si Yummy Inc. It’s as if napasahan ug 3% percentage tax si senior citizen.
Question from the class: For purposes of presenting the ID of the senior, is it necessary for the 20% discount lang or the VAT exemption?Or both?
A: Apil na ang VAT when you present the senior citizen ID. But there was that case where the SC said na it’s not really a requirement na ang Cosca
(??)) ID ang imong ihatag basta just present a valid ID showing your birthday and that would satisfy the requirement. But it does not apply sa
pharmacies because they are very strict with that. They even have a log book kung kapila ka kapalit during the week kay naa na sila sa limit for
medicines.
Letter X. Transfer of Property pursuant to Section 40(C)(2) of the Tax Code, as amended;
Sec. 40(C)(2) provides the instances na exempted kas income tax, where there will be no gain or loss to be recognized in the transfer or purchase of
asset/shares. Usually this involves mergers and consolidations wherein you gain control of a corporation.
Sec.40(C)
(C) Exchange of Property. -
(1) General Rule. - Except as herein provided, upon the sale or exchange or property, the entire amount of the gain or loss, as the case may be,
shall be recognized.
(2) Exception. - No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation -
(a) A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a corporation, which is a party to
the merger or consolidation; or
(b) A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the stock of another
corporation also a party to the merger or consolidation; or
(c) A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities in such corporation, solely
for stock or securities in such corporation, a party to the merger or consolidation.
No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in
such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains
control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property.
If you look at Sec. 40 that is under income taxation, so obviously there will be no income tax. And that is also exempt from tax because that is
not deemed a VATable transaction or a sale for consideration in the ordinary course of business. If you look at it it is more of capital investment
on the part of the person buying, merging or consolidating and these transactions don’t happen every day. Actually kani na provision gihasolan
na jud ang BIR ani because there are many transactions na kailangan ideclare pa gyud ni BIR na wala nay VAT or it is a VAT exempt transaction.
No income tax, no VAT, no documentary stamp tax. Now you might ask sir in practice automatic na? Na during merger or consolidation auto-
matic wala na mi bayaran na income tax or VAT? NO because remember what is the rule when it comes to transfer of shares of stocks from
one entity to another in Corporation Law, you can only transfer if there is Certificate Authorizing Registration (CAR) which you can only get if
you pay the tax. So dili automatic na when you fall under these transactions ha exempt na ka from income, documentary stamp tax etc, there
is still a need to get a ruling from the BIR. It is more of a confirmatory ruling which you can then bring to the RDO for the request of issuance
of CAR and when you have the CAR matransfer dayon sa new owner of the shares of stock.
One thing you need to remember is it is not only necessary to get the BIR ruling you also need to get a certification (since there is this new law
daw under the National Competition Commission which regulates competition and avoids unfair competition) from the National Competition
Commission where they will clear and state that it is a fair competition. But for tax purposes, get a BIR ruling.
18
So we go to Letter Y. Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by
homeowners’ associations and condominium corporations established under Republic Act No. 9904 (Magna Carta for Homeowners and Home-
owners’ Association) and Republic Act No. 4726 (The Condominium Act), respectively;
It is now certain that association dues, membership fees and other assessments and chargers are exempt from VAT. We already know the
difference between a homeowners association and a condo corporation diba? Homeowner’s association kay subdivision and covered under
the Magna Carta for the Homeowners. Condominium corporations of course mga condo under the Condominium Act. Take note that from
2012 up to 2017, these dues collected by homeowner’s association and condo corporations were subjected to VAT by Henares. Ang position
man gud ni Henares is they are collecting such fees to render a service so even if there is no profit then that is still VATable kay diba we don’t
look at the profit if VAT as long as done in the ordinary course of business. However those are the only corporations, associations exempt from
VAT kay naa man others na dili. For example you are building owners in an industrial park or kanang naa sa Mepz(??) they are under an
association man which will collect dues for the maintenance of common areas, they are not covered under this exemption.
Next we have Letter Z. Sale of gold to the Bangko Sentral ng Pilipinas;. Before the Train law this is a zero-rated transaction but now it is exempt.
Then we have Letter AA. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension to beginning January 1, 2019
as determined by the Department of Health; and
Sir, naa bay qualification under this provision na dapat senior citizen or PWD ang mupalit? WALA so even if you are aged 40 basta nagmainte-
nance na kas diabetes or cholesterol then that is exempt.
By the way you might ask na sir senior citizen ko, nagmaintain kog medicine for cholesterol, duha ba ka 12% exemption plus 20% discount?
DILI usa ra dapat ka 12% exemption and one 20% discount.
Letter BB. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding para-
graphs, the gross annual sales and/or receipts do not exceed the amount of Three Million Pesos (P3,000,000.00).
This is what we discussed a while ago, if wala nakaenumerate sa Sec. 109 A to AA so meaning that is not VAT exempt but if the gross sales or
gross receipts do not exceed P3M, then it is exempted from VAT under this provision however pwede pa ka masubject to percentage tax under
Sec. 116.
Deadline for filing of the VAT - again we follow the pay as you file system. So under the VAT law, monthly and quarterly but effective January
1, 2023, the filing of the VAT will be on a quarterly basis which shall be 25 days following the close of each taxable quarter. Sir why the change?
Actually it is just synchronized with the filing deadline for percentage tax which is also done quarterly. As of now kay monthly and quarterly pa
until December 2022.
The BIR form used for the filing is 25-50M(???) and for the quarterly 25-50Q. We have to ascertain if you are a manual filer or an eFPS filer.
Manual filer= patatakan nimo manually to the BIR
eFPS filer - submission is through an eFPS account so electronically
What is the advantage if eFPS filer ka?You can file earlier but pay later provided it will not go beyond the deadline set by law. Example if I file
on the 10th then not necessarily mupay sad ko on the same date. Kay if manual filer ka the rule is when you file it then you have to pay as well.
If you are a manual filer, the deadline of the filing and payment will be on the 20th day of the month following the close of the month where
the transaction happen. While for quarterly the 25th day following the close of the taxable quarter.
But for eFPS magdepende ang imong filing kung asa ka na group na belong Group A to E (groups of industry where you belong)
You have a deadline for filing 21st, 22nd, 23rd, 24th and 25th.
Pwede ka mo file earlier than the 21st?
Like for example you belong to group E, than the answer is yes. You can file electronically earlier but no need to pay on that day. You can pay later
provided it will not go beyond the deadline of filing.
If you notice here payment will be for the monthly on the 25th must not go beyond the 25th for the quarterly also must also not go beyond the 25th
from the first taxable (di madungog).
You should learn that when it comes to filing of the tax return, you file it monthly and you file it quarterly.
But come 2023, filing and payment will be on quarterly basis.
We move on to the rates of VAT

19
For the rates of VAT we have discussed that duha na output VAT and Input VAT.
Output tax rates:
 12%
 0%.
Input Tax Rates:
 12% standard rate
 0%
 2% transitional or 12% actual input tax rate- applied to the value of the goods existing at the date a person commences business, and/or
becomes liable to VAT
 4% presumptive tax rate- applied to purchases of VAT exempt goods used as inputs by a VAT registered manufacturing or processing
“certain” food products.
 5% final withholding tax rate
What is this transitional input tax rate (TIT)?
This is the input tax that you can claim if it is the first time that you registered under the VAT system but you are operating na with previous period.
So the transitional input tax that is either 2% or 12%. 2% transitional based on the value of the beginning inventory or 12 % actual input tax rate on
the value of the beginning inventory purchase with proper substantiation, whichever is higher between the two.
Maka claim ka sa 12% input if properly substantiated ang purchases nimo. If wala kay proper substantiation then the TIT that you can claim is the 2
% transitional input tax, automatic i-multiply sa value sa beginning inventory nimo.
If you want to claim the actual value of VAT that is the 12%, you must prepare proper substantiation.
Asa makita nag beginning inventory nimo?

In your Financial Statement, no need for substantiation.
We also have the 4% presumptive input tax.
I think I've mentioned this with you this is common manufacturers or processors of certain products where the raw materials are agricultural marine
food products, nga walay input nga ipasa sa supplier but since gi process mana nila,
For example, canning inig baligya ana niya pagpasa na na siya ug 12% VAT. This is not really more on the benefit of the manufacturer or the canning
company; this is more on the benefit of the final consumer.
For example sardinas pagpalit nimo sa supplier wala kay gibayaran na VAT but gi process na nimo so when you sell it mupatong ka ug 12% VAT. Ang
VAT payable nimo to the government would be very big because wala man kay i-deduct na input. But that would be different, if naay kay ma claim
na presumptive input tax. This is will be deduction on the VAT payable of the tax payer so pwede na ang gipasa ni manufacturer effectively is not the
entire 12%.
But limited ra ni for certain food products lang. SM2NCR

S- Sardines
M- Mackerel
M- Milk
N- Noodle based food product
C- Cooking oil
R- Refined sugar
If you notice they are the basic necessities.
Then you have the 5% final withholding tax rate. The input tax rate here is what we call the standard input tax.
Pila ang standard input tax in connection with this 5% final withholding tax?
It is 7%.
Kanus-a ni mahitabo ang 5% final withholding?
20
If the buyer or the payor is the government, meaning vatable sale gbaligyaan nako si government magpasa ko ni government ug 12%. The government
will not pay me the entire 12% rather the government will withhold 5% of the total billing and that is already considered final VAT.
What’s the purpose of it?

The purpose is efficiency of collection. But since nag withhold ka ug 5% and this is final withholding, that is considered full and final payment.
So kadto na sales nimo to the government, dili na i-add nimo with the sales to other customers. You don't report output tax and output vat
It means if naa kay transaction with the government, you have to account separately your sales to the government versus your vatable sales to your
other customers.
Consequently kay wala naman kay i- report nga output wala na sad kay ma claim na input pertaining to that sale to the government. Mao ng naa kay
standard input tax of 7%.
It’s like the government is saying gi chargan ko nimo ug 12% VAT advance payment ang 5% withholding. Ang kanang 7% mao ra nay gi vat nimo.
Ma-alaknsi ka ani because if the actual input exceeds 7% the excess you cannot claim it as input. You can claim it as cost or expense. So on your part
it is just partial recovery.
What if the actual input is below 7%?

Theoretically, the law says na if below 7% dapat mag-adjust sad ka sa cost or expense nimo. So you will lower or lessen your cost and expense.
Transitional input VAT, when is this applied?

When a VAT exempt taxpayer becomes a VAT registered or voluntarily registered. This presupposes nga nag operate naka. It is just that the previous
year dili pa ka covered sa VAT system then the following year nagpa register ka under the VTA system. So arun dili ka alkansi kay you have inventory
naman, you can deduct transitional input tax to your output tax for that year. This is one way of encouraging taxpayers to register under the VAT
system especially if you already reached the threshold.
So you have again the presumptive input tax that is 4% of the value of the amount paid to purchase primary agricultural product used as inputs or
used as raw materials used in processing.
S- Sardines
M- Mackerel
M- Milk
N- Noodle based food product
C- Cooking oil
R- Refined sugar
Agricultural product so meaning walay labot ang marine food products, mao na ang naka alkansi if sardinas and mackerel. Because your main ingre-
dient is sardinas or the mackerel but you cannot claim 4% input tax on the sardines and the mackerel. It is on the agricultural food product. So kung
tomato sardines ang tomatoes ra ang maka claim ka sa 4% presumptive input tax.
This presumptive input tax applies if there is processing involved and not the simple processing. Under the regulation, processing refers to the pas-
teurization, ad activities altering the physical form, texture or inner substance of the product for a special purpose which could have not been used
in its original state.
So for the processing you have to distinguish this with simple process.
Next, we have the concept of withholding VAT.
Kasabot when we say withholding diba. We differentiated creditable withholding from final withholding. Sa vat naa sad ta gitawag na final VAT
withheld, final withholding VAT and creditable withholding vat.
The final VAT withheld applies to transactions involving the government wherein the government is your customer or you payor. The government
will withhold equivalent to 5% and the standard input tax nimo is equivalent to 7%. Kay final withholding mani, the sales to the government no need
to reporting it in your gross sales to other customers, no need for reporting output VAT so dili sad ka maka deduct ug input vat.
The other one is the creditable withholding VAT. For creditable withholding VAT What happens here is we are familiar with the concept of tax credit.
Output VAT
21
Less: Input VAT
VAT Payable
Less: VAT Tax Credit
VAT Due Payable
Pwede pa ba nimo deductan ang VAT payable?

Yes, if you have VAT tax credit. So your VAT due and payable will be lower. This is the concept of creditable withholding vat.
But when man mahitabo si creditable withholding VAT? Again what is the normal way of collecting VAT?
The normal way is the seller will pass on the VAT to the buyer and the seller will collect and the seller will remit it to the government.
The abnormal way is through withholding. If ang ka transaction nako is the government final or if ang sa transaction nako, ako si buyer, ang ka
transaction nako kay si non resident supplier or seller.
Because if non-resident seller or supplier, so outside the jurisdiction of the country, but if it is sale of service within the Philippines we know also that
it is vatable.
What is your responsiblity as a buyer?

You automatically withhold 12% vat.
What if wala ko naka withhold?

Failure to withhold could mean disallowance of the corresponding expense that you are trying to claim.
So in this case non-residence supplier or seller, the one who will withhold the VAT is the payor. Ang i-withhold ni payor is 12% and that will be
remitted within ten days to the BIR. So if it’s a zero rated transaction the withholding payor may still claim the remittance as input tax and avail the
tax credit or refund transaction.
Example:
You have a hotel and you contracted a foreign architect or designer. Then the architect supervised here in the Philippines so he rendered it here in
the Philippines. You paid a fee for that. Then in that case, you are supposed to withhold 12% vat even if it is just an isolated transaction.
Sources of input.
Input tax on capital goods
What are capital goods?

Capital goods- this refers to the goods or properties with the estimated useful like greater than 1 year and treated as depreciable assets used directly
or indirectly in the production or sale of taxable goods or service.
So is this capital asset or ordinary asset? This is ordinary asset.
If the value of the capital good is 1M so gipasahan ka ug 12% vat ni supplier.
Can you claim direcho ang 12% vat na gipasa ni supplier? Pwede ba nimo i-deduct direcho sa output vat?
NO. You have to amortize the input vat. The amortization rule is an advantage on the part of the taxpayer because ma staggered ang recognition sa
input vat nimo. But it created complexity.
But if the value is below 1 million no need to amortize.
Example:
You purchased capital goods (e.g. machinery and equipment). You bought it from ace hardware for 10 million (kailangan mu exceed ug 1 million).
Kanang 12% of 10 million, so gipasahan ka ug 1.2 million na vat. So the 1.2 M vat is the input vat. If this is a normal transaction, na deduct na nimo
from your output. But since this is a capital good, the purchase price you do not record it as expense immediately. You record it pa as asset but you
recognize depreciation expense the following years.
So if it is capital goods and the purchase price exceeds 1 million, you cannot claim the entire input vat immediately as a deduction to your output
during the period of transaction. Instead you will spread it over 60 months or 5 years or the useful life of the asset whichever is shorter. So the 1.2
million you spread it over for 5 years or the useful life of asset whichever is lower.
22
Example:
You have a capital good valued at 2 million. The estimated life is 60 months. The input vat is 240,000 (12% of 2M). Will you deduct immediately the
240,000?
No, you divide it by 60 months. in short ang monthly recognition of input tax is 4,000.
REMEMBER:
If you are purchasing capital goods with a useful life of more than 1 year, valued exceeding 1 million, you have to amortize the input vat for a
maximum period of 60 months or 5 years.
May input taxes be recognized outright as an expense for income tax purposes or added to the acquisition cost upon purchase of capital asset subject
to (dili madungog naay nagtabi)?
No. in the revenue memorandum circular, the BIR said that unutilized creditable input taxes attributable to zero-rated sales can only be recovered
through application for refund or tax credit. Therefore, if it is an unapplied input axes, it cannot be treated outright as an expense for income tax
purposes.
That is the essence of the VAT system. You have to record separately the purchase price of the item you are buying from the tax that was passed on
to you by the supplier. that is one way for the BIR to check also if the supplier where you purchased from is properly collecting the VAT and recording
it.
But here are instances where the input vat may be expense under these three scenarios:
1. The input taxes shifted or passed on by the local VAT-registered suppliers shall not be recorded as input tax in the books
2. The input taxes shall not be reflected/ reported as input tax in his VAT returns
3. The input taxes shifted or passed on is not claimed as tax refund or tax credit.
This presupposes what? This presupposes that there is no proper substantiation, no proper OR, no proper invoice.
Unsa gani to ang requirement for invoice and OR? Dapat naka separate ang vatable sale form the input vat.
Expensing input VAT is also allowed in the following instances:

1. The claim for refunds or credit was denied or rejected by the BIR for having been filed beyond the 2-year prescriptive period or for non- compliance
with the invoicing/ substantiation requirements
2. Claim for refund or credit is still pending with the BIR but voluntarily withdrawn by the taxpayer
Let us say nag claim ka ug refund or tax credit certificate, you must claim it within 2 years after the end of the taxable quarter.
What if mi file ko ni lapse na ang two years? Natural, dili ka ma refund-an.

What if I claimed for refund but I did not present the substantiation? It will also be denied by the BIR.
There was a time nga gi disallow ni BIR but of course eventually ni liberal na ang interpretation ni BIR.
In this ruling, the BIR said that expensing of input Vat maybe allowed of the claim for refund or credit was denied or rejected by the BIR for having
been filed beyond the 2-year prescriptive period or for non-compliance of the invoicing requirement or the claim for refund or credit is still pending
with the BIR but voluntarily withdrawn by the taxpayer.
In this case alkansi ang gobyerno or dili, if ang input i claim na lang as expense?
Dili. ginansya ang government because if its claimed as expense the tax shield is only up to tax rate kung asa subjected si taxpayer.
Just to clarify on vat on sales to the government,

RR 13-2018
"The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods and/ or of services taxed at 12% VAT deduct and withhold a VAT due at the rate
of 5% of the gross payment thereof. Provided, that beginning January 1, 2021, the VAT withholding system shall shift from final to creditable system.
So instead of not including the sales to the government in your other gross sales, i-include an nimo to include your output VAT. Ang 5% na gi withhold
ni government diri na nimo i-minus as tax credit kay creditable naman. (but unya ra ni inig 2021)
FOR NOW,
23
If you are the VAT taxpayer, you are the seller of goods/ services to the government, you issue invoice or OR to the government patung ang 12% VAT.
The government will not pay the entire 12% vat to you instead the government will withhold 5% that is considered final vat.
Maka claim pa ba ka ug input tax?

Dili na kay as if naka bayad naman ka sa government since final withholding man. So the difference between the 12% and the 5%, which is 7%, that
is you standard input VAT. So if mi exceed ang actual ug 7% dungagan na lang nimo ang cost or expense. If wala mi exceed ug 7%, minusan nimo ang
gi claim nimo na cost or expenses.
VAT liability computation

In lieu of the actual input VAT directly attributable or ratably apportioned to sales to the government, the seller shall be entitled to 7% of gross
payment as standard input vat.
Should actual input VAT exceeds 7% standard input VAT- excess may form part of seller's expense or cost
If actual input VAT is less than 7% standard input VAT- difference must be closed to expense or cost.
Example
Scenario A B C
Sales to government 100 100 100
Purchases (goods and ser-

42 58 100
vices)
Output VAT (100x 12%) 12 12 12
Input VAT (actual) 5 7 12
Standard input VAT (100x

7 7 7
7%)
Difference between ac-

tual input and 7% stand- 2 0 5
ard input VAT
For case A:
Ang i-bill nimo to the government would be 112 (100+12). But the government will withhold 5% of the gross payment so ang i-keep niya would be 5.
But naa kay difference na 2, so minusan nimo ang cost or expense nimo by 2.
For B:
Since 0 man ang difference no effect to your cost or expenses.
For C:
Since mas dako man ang actual, the difference of 5 will be recognized as cost or expense.
Is it full recovery of your input tax in this case? dili. only partial.
24
What is happening under the final VAT system kung mu tan-aw ta sa VAT return, there is a separate line item for VAT withheld to sales to government.
Because dili na nimo iapil ang sales to government with the other sales to customers nimo. For disclosure purposes na lang ni na line item.
So we go to landed cost.
Landed cost= invoice amount + freight+ customs duties+ insurance + excise taxes (if any)
VAT Liability of seller
1. Tax Credit Method:

Output tax (outbound) - Input Tax (Inbound) = Tax Payable
2. When to recognize?
Output VAT- upon sales of goods and services
Input VAT- recognized upon:
Consummation- if purchase of goods or properties to be supported by VAT invoice;
Payment of compensation, royalty, rent if purchase of service as supported by VAT OR;
Payment of VAT- prior to release in BOC as supported by "import entry declaration" by BOC
INPUT > OUTPUT
Does the Input tax pertains to a 0-rated sale?
Yes
No
I. Carry-over to next taxable quarter (not

time bound) OR
Carry over to next taxable quarter
(not time- bound) II. Claim for refund or credit within 2 years
When it comes to claiming it as carry over there is what we call the irrevocability rule.
No problem here (kadtung under sa no) kay one ra man imo option but here (under sa yes) duha ang option nimo. When you say refund, refundan
ka ug refund but seldom ra na mahitabo, usually Tax Credit Certificate ang issue
The BIR will issue a TCC and you can use that nga pwede nimo i-deduct siya at any time na pwede nimo siya ma deduct as credit `within the validity
of the certificate.
There is what we call the irrevocability rule.
As declared by the Supreme Court, this irrevocability rule applies if the option exercised by teh taxpayer is to caryr over the excess input vat.
What do you mean by this?

Diba mas dako ang imong input kaysa sa output sa VAT return there will be a portion there nga mu- indicate ka kung carry over nimo or mag refund
ka or TCC.
If carry-over, then understandably the following period i-carry over nimo ang excess input. you cannot claim for refund or credit until such time na
ma use up nimo ang excess input.
Pwede ba na if ang gi- indicate nimo is claim for refund or credit pwede na later on mu revert ko to carry over?
25
Yes. the irrevocability rule applies strictly if the taxpayer avails of the carryover only. But not if the taxpayer avails of the tax refund or TCC option
under section 102.
What does apportionment input tax on mixed businesses mean?

 Persons engaged in both zero- rated sales and non- zero rated sales, the aggregate input taxes shall be allocated ratably between the zero-
rated sale and non zero- rated sale.
 Input tax cannot be directly attributed to either a VAT taxable or VAT- exempt transaction shall be pro-rated to the VAT taxable and VAT
exempt transactions and only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit.
26
Example:
Taxable sales Taxable sales  Input Tax not directly attribut-

Total sales able to any activity
Zero- rated sales Zero- rated sales  Input Tax not directly attribut-
VAT- exempt sales Exempt sales  Input Tax not directly attribut-
Total Sales able to any activity
Sales to government Sales to govt  Input Tax not directly attribut-

The point is if ang input tax cannot be directly attributable to VAT taxable sale, it must apportioned to all sales entered into by the taxpayer.
Substantiation of purchases
 Transitional input tax
o Shall be supported by an inventory of goods as shown in a detailed list submitted to the BIR
 Input tax from payments made to non- residents (sucha s for services, rentals, and royalties)
o Shall be supported by a copy of the Monthly Remittance (dili maklaro ang ppt ) filed by the resident payor in behalf of the non-
resident evidencing remittance of VAT due which was withheld by the payor.
Requirements for claiming input tax
 Recognize input tax in the appropriate period (date of OR/ Invoice)
o Goods- upon issuance of VAT invoice
o Services- upon receipt of payment as evidenced by VAT OR.
Input tax credit
 To reduce the output tax in determining the VAT payable for the taxable period
 Excess to be carried over to the succeeding taxable periods to reduce the VAT liability for such taxable periods.
Where? BIR Office- large taxpayers, RDO, one stop shop center of DOF
When: within 2 years
Section 112- CIR may grant refund or issue TCC within 90 days (3 months), if denied, appeal to CTA within 30 days from receipt of adverse
decision.
October 31, 2018
Introduction to NIRC Remedies

Tax Enforcement and Administration
Agencies Involved in Tax Administration:

1. Bureau of Internal Revenue (BIR)
- Primarily tasked to implement the provisions of NIRC when it comes to collection of taxes
2. Bureau of Customs (BOC)
- Primarily tasked to implement the customs tariff and code
- Authorized to collect the VAT when it comes to imported goods or articles prior to the release of said articles from the BOC jurisdiction
3. Provincial, city, and municipal assessors and treasurers
27
- Primarily tasked to implement the provisions under the local government code when it comes to the taxing power of the LGUs
- There is a delegation of taxing power to the LGUs as discussed in Tax 1
Our focus will center on BIR.
General Powers and Duties of the BIR (AGEE)

1. Assessment and collection of all national internal revenue
- When we say assessment: this does not mean levying of taxes because the one who will impose and levy the tax is not the BIR, it should
be the legislature
- Assessment simply means the computation of the BIR how much is your tax liability based on existing tax laws and regulations and it will
eventually collect whatever tax liability is noted
2. Give effect to and administer the supervisory and police power conferred to it by the Tax Code or other laws
3. Enforcement of all forfeitures, penalties and fines in connection therewith
4. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts
Bottom line: The mandate of the BIR is revenue-collection.
No need to enumerate these because I don't think the examiner will ask you this. Because in an essay exam bisan unsa nga statement nimo basta
musulod nganhi not necessarily verbatim, pwede na nimo ma consider as power and duties of the BIR. Basta in line lang with the assessment and
collection of taxes. DON'T ANSWER imposition and levying of taxes because that is not the mandate of the Bureau.
BIR is under the Department of Finance (DOF). DOF is under the Office of the President.
DOF Secretary - Carlos Dominguez III

Commissioner of Internal Revenue (CIR) - Caesar R. Dulay
The BIR shall be composed 1 CIR and 4 Deputy Commissioners as provided under NIRC.
During time of Aquino - nag appoint siya ug 7 Deputy Commissioners which is not in accordance with the provisions of the NIRC because NIRC says
there shall only be 4 Deputy Commissioners. Eventually the other 2 deputy commissioners appointed during Aquino's administration were relocated
from being deputy commissioners to executive head na lang.
Deputy Commissioners for:

- Information Systems
- Legal and Inspection Group
- Operations Group
- Resource Management Group
They are holding the BIR main office in QC.
Officials of the BIR

1. CIR
2. Deputy Commissioners (4)
3. Assistant Commissioners
4. Head Revenue Executive Assistants (HREA)
(Kaning 1-4 their offices is in the head office of BIR)
5. Regional Director
(Office is in the Revenue Region)
6. Revenue District Officer
(In Revenue District Offices [RDOs]
7. Revenue Officers/Examiners
For the Regional Director, during the time of Commissioner Sato (?), the PH is divided in different revenue regions, which is not the same to the
political region that we used to know. Because if political region ang hisgutan, we in Cebu City belong to political region 7. But when it comes to
revenue region, we belong to revenue region 13.
The Revenue Region 13 or regional office is located in Brgy Luz, dapit sa Grand Con kanang sa 2nd floor. The lower ground is the RDO 81.
28
You need to know where ang regional office because when it comes to request for rulings, it goes through the regional office.
For Revenue District Officers, they hold office in revenue district offices (RDOs). In Cebu there are 4 RDOs.
RDO 80 - located in mandaue (jurisdiction is mandaue, lapu-lapu, farther northern cebu)
RDO 81 - located atbang grandcon (jurisdiction is somewhere northern cebu)
RDO 82 - located atbang cit-u (jurisdiction is downtown cebu, carbon)
RDO 83 - located in talisay (jurisdiction is southern cebu)
General Powers of the CIR

Take note: the powers provided under the NIRC is primarily given to the CIR. Naay provision "CIR or his duly authorized representative". Basically
these other officials - deputy commissioners going down to revenue officer/examiners - are expected to do their job based on the authority granted
by the CIR, whose power and authority is also granted under the NIRC.
Meaning to say, whatever action being done by these lower officials (lower than the CIR), which is not authorized then that can be considered as a
void action or illegal action.
The General Powers are:

1. Power to interpret the tax code and other tax laws (exclusive and original jurisdiction)
- when we say interpret, we are referring to the revenue ruling or tax ruling
- if you are not sure if you fall within the exemption then best thing to do is to ask for a tax ruling
- take note: the ruling is an exclusive and original jurisdiction of the CIR meaning it is the CIR who will issue the ruling.
- before Kim Henares, the BIR usually delegates this rule to the regional directors, but when Kim Henares sat, gitanggal niya.
- now, all requests for rulings are directed to the national office to the so called law and legislative division of the BIR.
2. To obtain information and to summon, examine and take testimony of persons
3. To make assessments and prescribe additional requirements for tax administration and enforcement
4. To conduct inventory - taking, surveillance, and to prescribe presumptive gross sales and receipts
5. To terminate taxable period
6. To prescribe real property values (zonal valuation of the BIR)
7. To inquire into bank deposit accounts
8. To accredit and register tax agents
9. To prescribe additional procedural or documentary requirements; and
10. To delegate power to subordinates.
Take note: Basically if you look at it, the general powers are from Nos 2-10. These are the delegable powers of the CIR.
Let us discuss in detail. Don't memorize, just familiarize. Haha *chika ni sir katong viral tweet sa twitter about don't memorize just familiarize*
I. Power to interpret the tax code and other tax laws (exclusive and original jurisdiction)
- we have to distinguish power to interpret or tax/revenue ruling from revenue regulation
- difference between revenue/tax ruling vs revenue regulation
➢ Revenue regulation
= general interpretation of the tax laws seeking to explain the provision of the law, so it’s all encompassing
= issued by the DOF Secretary not the CIR
= the CIR only has recommending power regarding revenue regulations
= why is this so? because if you look at the legislating phase of the law, the entity who primarily calls for an amendment or change or passage
of a tax law is the DOF
➢ Revenue/tax ruling
= this is more specific in nature: addressing particular needs of a taxpayer but is applicable only to the requesting taxpayer; subject to review by
the Secretary of Finance
= this will only be issued by the CIR
= this applies only to a specific tax payer asking for said ruling (exemption)
= but this is under the presumption that that tax ruling should be in accordance with the revenue regulation na gi issue ni DOF
= thus, the revenue ruling will be based on the revenue regulation
If you're going to request a ruling, that applies only to you. It will be publicized by the BIR, at least it will provide guidance to the public na if you are
similarly situated.
For example there is a manufacturing company who asked a tax ruling or confirmation from the BIR if a particular transaction is exempt from tax.
The BIR agreed yes it is exempted. Example ako manufacturing company sad ko, so similarly situated mi, we have the same question, pwede na ba
ko ‘ah exempted sad ko so dili lang sad ko mu pay sa tax’? The answer is no.
29
If you are similarly situated, then at least you know there was a previous ruling favorable to the taxpayer, ikaw na similarly situated tax payer, you
also ask for a ruling applicable to your company. Once you get a favorable ruling, that's what you will attach to the tax return where you reflect that
your particular income is exempted from tax.
II. Power to decide disputed assessments, refunds, penalties & other matters under the NIRC or other laws administered by the BIR
Take note: unlike the issuance of tax ruling which is an exclusive jurisdiction of the CIR, the power to decide disputed assessments is not an exclusive
jurisdiction. In short, pwede ni ma delegate ni CIR. Usually this is delegated to the regional director. In ours, revenue region 13, it is regional director
Pagolayan.
➢ Administrative actions by taxpayers prior to the judicial action (CTA).
➢ There must be clear and unequivocal indication whenever the CIR's action on an assessment questioned by the taxpayer constitutes his
final decision/determination on the dispute.
What is disputed assessment?
Of course, first there is a deficiency assessment issued by the BIR. Once that deficiency assessment is being questioned by the taxpayer, mu ana siya
'sayop man ni nga assessment, I have this basis, I will file a protest". Once a protest is validly filed by the taxpayer, that becomes a disputed assess-
ment.
Where do you file your protest?

You start with administrative protest before you can proceed with judicial appeal. The one who is mandated to decide your administrative protest is
the CIR. It is a requirement prior to judicial action following the principle on exhaustion of administrative remedies.
The decision of the CIR must have a clear and unequivocal indication whenever the CIR's action on an assessment questioned by the taxpayer con-
stitutes his final decision/determination on the dispute.
Take note: dili lang si CIR, pwede si regional director mu-decide on this disputed assessment.
What if the regional director decided adversely on your protest?

You can go to the CTA or you can file a request for reconsideration to the CIR before you go to the CTA.
Basta take note again: Ang mu decide sa disputed assessment is the CIR or the regional director.
The revenue district officer usually dili mu-decide sa ruling because ang assessments in the region is issued by the regional office.
III. Obtain information and to summon, examine and take testimony of person.
Extent:
1.) Canvass from time to time the revenue region or district office
2.) Obtain information on regular basis - information sourced from the taxpayer (self-assessment) or 3rd party information
When we say obtain information on regular basis:
-This is reflected on the information contained in your tax return because we follow self-assessment
-The BIR can also get information from 3rd parties. This is dangerous because ang BIR mura ni ug uyab nimo. It's just that ang after niya sa imoha is
not your love and affection, ang after niya is your money. So if naa kay gitagoan nga money, imagine-a si Dulay uyab nimo, the CIR is empowered to
ask from other persons about your source of income or correct amount of your income.
- How is this possible? For example in a contract, you have the parties, common sa mga artista like judy ann, zoren legaspi, dingdong dantes. In the
contract nakabutang diha na talent fee is 50 million for this particular advertisement, ang gireport ni talent is only 10 million. You cannot expect na
the entity who is asking for your talent to do the advertisement will report or deduct only 10M kay deduction man na on the other side of the
contract. We very well know na deduction, as much as possible, you claim the entire thing. So if gi report nimo na income is only 10M but the other
party is reporting a deduction which is 50M for that particular transaction, that is already a red flag where the BIR can say that you have under
declared.
- Unsaon man ni ni BIR? Through the relief system, na ibangga. Ang summary list of sales will be compared to summary list of purchases.Kay if you
are the seller you have to submit summary list of sales where you will indicate who are your buyers or consumers, pila ang purchases during the year,
etc. Same thing on the part of consumer or buyer, you also have the summary list of purchases where you will indicate kinsa ang supplier, pila ang
amount of transaction, etc.
- So let's say for example summary list of sales ni seller naa nakabutang ABC Corporation as buyer, ang gibutang niya na gibaligya is 1M. But sa
summary list of purchases ni ABC Corporation, naay nakabutang niya kani si XYZ Corporation who is the buyer/consumer ni ABC Corporation, ang
nakabutang na purchases is 10M. So natural, inig bangga, 1M lang ang sales na gi report, pero 10M ang purchases na gi report - so natural there will
be undeclared sales na mu appear in the system of the BIR.
30
- The BIR has power to ask from 3rd party information, they can actually ask for list of properties from the city assessor's office; usually gi markan na
nila kinsa na persons who have properties of very high value and they will counter check the income tax return filings of the taxpayer. So if nag
income tax declaration lang ka of 1M in a year and your summary of properties taken from the city assessor's office, the total amount under your
name is 200M, there is already a red flag.
- There was one 2014 case, na assess ang spouses ug deficiency tax by the CIR, because of the simple fact that only the husband is reporting an
income tax return of 1M annual, but they were able to purchase several real properties (vacation houses in tagaytay). They were asked by the CIR to
explain how they purchased those properties when they are only reporting this much of income, and the wife was just a plain house wife with no
income being reported. The spouses failed to explain so the assessment of the BIR went up, and a criminal case of tax evasion was filed.
3. Take testimony of persons (under oath) as may be relevant or material to the inquiry
4. Examine any book, record, data which may be relevant to the inquiry, subject to the period to prescribe the keeping of books
5. To issue summons
Is the BSP exempt from internal revenue taxes?

No. Only Documentary Stamp Tax exemptions.
Note: Sa previous batch pa ni kay nigawas sa mock bar nila.
May the CIR and/or his subordinate issue subpoena i.e. subpoena duces tecum?
Yes. Pursuant to the CIR's power to obtain information and to summon under NIRC. However, this is not a requisite before resorting to the best
evidence obtainable.
What is this 'best evidence obtainable'?

When the BIR issues an assessment, the assessment should be based on fact and law. So the point is, dapat naay ebidensya or basis inig assess niya
sa imoha. The BIR will obtain that guided by the best evidence obtainable rule. This simply means that if the taxpayer will not cooperate (as when
the assessment is issued on the taxpayer, and the BIR will ask documents from the taxpayer to confirm the computation of the BIR), nya kung ikaw
taxpayer dili ka mu cooperate because for you corrupt tanang BIR official, way ayo ang BIR, under the best evidence obtainable rule, the BIR can take
any other information from other sources. The point is, dili na hinuon ka maka depensa ug tarong later on especially if the BIR took information from
your supplier, from the internet, from your customers.
The point is, if you receive an assessment, if you become lawyers later on, if your clients receive an assessment from the BIR, mangutana unsa
buhaton 'manirado ko?'. This happened last saturday. Gi tax map ang warehouse. Pagpaila-ila na taga BIR, ang gibuhat sa mga gwapa na empleyado
is gisirad-an ang warehouse. Unya turns out kuyog ang regional director ato. So if ikaw regional director, nagpresent ka nganha kay icheck nimo,
gisirad-an ka unya nakit-an nimo ang mga ti-il naa didto sa sulod, malipay ka? Natural ang gibuhat, a mission order was issued. It's dangerous once
you have the mission order because the BIR can open what is being closed because of the presumption that something fraudulent is happening
because gisirad-an man. Ang nahitabo, giguba ang purtahan sa warehouse. Ang ending, wa sad ko kasabot nganong gidala, gipang dala daw ang
computers.
The point is, nganong nanirado man ka kung wala kay gitago. Anyhow, if ever naay findings kay di man jud na perfect taxpayers, if ever naay lapses,
you can very well defend some of these lapses so it will be reduced. Dili pwede na if your client receives an assessment, mu ingon ra ka na 'ayaw lang
na panumbalinga, okay ra na estoryahon ra na nato'. If naa kay depensa, depensa. Ang problema, kung wala. Kay kung wala kay depensa, then you
have to bear the consequence.
IV. Make assessments

- as I've discussed, the primary jurisdiction of the BIR is to make assessments and to collect tax
When it comes to making assessments, this involves:

A. Examination of returns and determination of tax due -based on best evidence obtainable
B. Assess the proper tax
C. Conduct of inventory-taking, surveillance, and to prescribe presumptive gross sales and receipts
- Prescription of presumptive gross and receipts: this happens if the taxpayer failed to maintain the appropriate books of ac-
counts, and failed to account for its correct sales and receipts; the CIR can basically prescribe presumptive gross sales and receipts
- the basis of the CIR would be bench marking (where same entities/companies having the same nature of operation as the
taxpayer)
D. Issue jeopardy assessments
Discussion in detail:
A. Examination of returns and determination of tax due -based on best evidence obtainable
31
Again, the CIR has the power to check the return that you file. General rule again is self-assessment. But self-assessment sometimes is prone to abuse
on the part of the taxpayer by under declaring the income and over stating the expenses. This can be reviewed by the BIR, but not individually. Mao
gani na tay classification - large taxpayers, tamp taxpayers, medium taxpayer, and below that.
Those who are prioritized when it comes to the review or audit of the tax returns are the large taxpayers, tamp taxpayers, and medium taxpayers.
You will receive a notice kung large, tamp, or medium taxpayer ka. You have additional task if you are classified here. If you are not classified ana
nila, you will not be prioritized when it comes to audit and assessment. Because pasabot, gamay ra ka ug income, basically gamay ra makuha ni
government. Unahon niya ang large, tamp, and medium taxpayers.
So possible na dili ko ma-audit?

No. Pwede gihapon ka ma-audit, especially if the very reason that you are not classified as large, tamp, or medium taxpayer is you did not declare
your proper income and your proper sales. But in that case, dili na makit-an on the face of the return because wala man kay gi report.
How then will the CIR get the attention on that?

If the CIR checked 3rd party information or there is so-called anonymous complaint that the BIR received nga gi-disclose nga kani ang sales nimo, but
what you reported was lower. The one who usually send this anonymous letter are those disgruntled employees. Kanang mga employees ninyo sa
accounting or paralegal, for example mao gipahimo nimo sa tax return then ingnon pa nimo 'kana ra ha ang ireport'. Dapat panggaon jud na nimo ug
ayo kay kontrahon na nimo, that could cause trouble to you. Naa jud mga taxpayer nga na assess because of that.
A: These are usually being done by disgruntled employees kana bitawng mga employees sa accounting or mga paralegals niya mao ang mga pahimuon
nimo sa tax return niya ingnon nimo “kana ra ha, kana ray ireport”.
Balik ta sa warehouse na gidiscuss nato ganina, the inspection there happened ang suspetsa namo, because of a third party anonymous warehouse.
There could have been surveillance na mga nahitabo. Question is pwede ba magsurveillance ang BIR like the NBI? YES pwede.
You might ask makagenerate ba jud ni sir ug revenue sa Bureau? YES but very minimal kay maassess ka, once it reaches the Court, pildi si BIR because
of the procedural due process requirements na dili mafollow ni BIR. Kinsa ang alkanse? Ang government kay wala kacollect, hasta sad ang taxpayer.
Ang examining officer ang nakaginansya, no offense lol kay the common situation man gud is once a taxpayer receives an assessment, kung ako si
BIR, I don’t assess you P1M ang ako ibutang ana P50M, P20M. Inig kadawat tawn ana ni taxpayer specially if way tax background magkurog kurog na
(lol na axious), unya way lawyer so mubalik jd na sa examining officer. Diha na musulod ang corruption but only for some not all. Pahangyoon dayon
na instead P50M himuon na lang P30M. Okay pa makalusot for the first year but the disadvantage kay ig abot sa 2nd year balikan ka sa BIR officer.
The point is if your clients are businessmen na dili tax compliant will receive an assessment and settle everything under the table (UTT, facilitation
fees), tendency man gud ana the following year cycle na na. Makathink si businessman na nakaginansya siya kay kung mucomply ko I will pay taxes
this much pero kung bayran lang nako si BIR officer kani ra akong ibayad. My point is how would you know na this much ang bayaran nimo based on
the assessment you received since for all we know the assessment given is wrong or many things you can question but you failed to do so kay
nakigsettle kas BIR officer. In our case we experienced that we lowered down the tax of our client from P24M to P20M. Basta properly defended
kaya ilower down.
General Rule: Tax returns are confidential except take note lang of the mnemonic PAIFE or instances when your tax returns may be examined by
entities other than by the Commissioner of BIR.
1.) If there is written order of the President of the Philippines

2.) In aid of legislation of the Congressional Oversight Committee
⁃ usually applicable to entities exempted from taxation
⁃ this power by the CIR I think was added in the TRAIN law
⁃ CIR has the power to require reports from cooperatives registered with the CDA pursuant to the “Tinta (??)) Law
⁃ diba these cooperatives and PEZA registered companies are exempt from income taxation so the government wants to know the
revenue forgone under this exemptions which they can utilize in further legislations
3.) Material evidence in a criminal case where the government is interested in the result (usually tax evasion cases)
4.)Inspection is authorized under Finance Regulation 33
⁃this is an old rule which requires instances when the BIR official/officer can examine the tax return
5.) Requests for exchange of information by foreign tax entities
⁃this is also introduced under RA No. 10021 and under the VATKA (???)
Sources of the best evidence obtainable can come from government offices or agencies, corporations or employers, clients or patients for lawyers
and doctors. Tenants, vendees, lessees and from all other sources
32
Again the best obtainable rule coming from 3rd party information, this will only be availed of by the CIR if the tax payer fails to cooperate during the
examination.
So may returns, statements or declarations filed with the BIR be withdrawn? As a rule NO you cannot withdraw but if you do it within 3 years from
the filing of the return and there is no notice of audit or investigation served upon the taxpayer then you may amend it. It’s common among corpo-
rations na wala pa nahuman ug audit so ang buhaton nila is magfile na sila ug income tax return tentatively based on their tentative computation.
But pwede ba nila bawion na based on the corrected computation? YES but do it within the taxable year OW you can be questioned. The point is if
you are going to withdraw and amend your tax return, the period of assessment could also extend because when it comes to assessment the gov-
ernment (BIR) is only given 3 years from the date of timely filing of your tax return or if you filed it late from the date of actual filing so meaning to
say example your filing date is April 15, 2018 and then you filed it on April 13 two days before the deadline, the period of assessment would be
counted 3 years from April 15, 2018. The BIR can assess you until 2021. If the assessment goes beyond 2021, then that is already a void assessment.
If you amended it pwede maextend ang period to assess especially if the amendment is material meaning the previous tax liability you filed de-
crease/changed. For example April 13 nifile ka but you amended it sometime in July, ang liability pag April 13 is P100,000 but in July ang return nimo
is P10,000 so that can be considered as subtantial amendment so ang counting of the three year period to assess will not be on April 15 but it will be
sometime in July when you filed the return.
Unsay pasabot aning no notice of audit or investigation? This commences as soon as you receive the LOA or the letter of authority from BIR, or the
LN or the letter of notice from the BIR informing you that you have deficiency tax for this particular period’s filing.
Assessment of the proper tax, so when we say assessment this means to declare a tax to be payable. As what I’ve said this is not synonymous with
the levy or the imposition concept we discussed in Tax 1 kung asa ikaw ang maghuna huna ug pila and kung kinsa isubject ang tax. Imposition in this
case class is the computation/application of the tax law to the taxpayer. An assessment is the notice to the effect therein stated is due from the
taxpayer for the tax with a demand for payment of the same within the stated period of time.
(memorize the ff daw since these are usual defenses of the taxpayer)
• A valid assessment must inform the taxpayer in writing the law or the tax by which the assessment is made
• An assessment should not only contain a computation of the liability but there must be a definite demand for payment
• Must be served and received by the taxpayer
Basis in assessing the proper tax as what we’ve discussed before it is the best obtainable rule or the net worth method and they even have the
expenditure method.
Net worth method = BIR will compute the total assets of the taxpayer for this year and will be compared to the total assets on a given year. If the
total asset reported ten years after nisaka pag maayo but you are just reporting an income this much so ang buhaton kay ipaexplain ka sa BIR for the
reason. If you cannot explain, the BIR can check from third parties for evidence.
The net worth method this cannot just be used every time. It can only be used only in these four instances:
1. Either there are:
(a) No books of accounts or
(b) The books do not reflect the correct income or
(c) Refuses to produce the books or
(d) Books were destroyed
2. There is evidence of possible sources of income causing an increase in net worth.
3. There is fixed or opening net worth.
4. The method reflects taxpayer’s income with accuracy and certainty after various adjustment.
How does the BIR compute your net worth?

Icompare niya ang net worth niya of a particular taxable year versus the net worth beginning of a particular taxable year. If there is an increase in net
worth pwede niya iconsider ang non-deductible disbursements less exemptions then there will be a particular taxable income. What usually happens
is that the BIR will just compare your net worth this year versus net worth in another previous year. If there is a big difference, the BIR will check your
primarily your income tax return filing and will ask the taxpayer to explain.
Kinsa ang nabiktima aning net worth method?

Your familiar with Janet Napoles? One of the method used by BIR before they filed tax evasion case is the net worth method. Ngano man? No filings
and no books filed every year. But in the asset portion of the balance sheet substanstial ang increase niya ang gifile na income every year is very
minimal so mao to ang usa sa gibasehan nila. Of course, other than the net worth method is the information from third parties. Especially of the
33
pictures of the Facebook of Ms. Napoles noh na nagbakasyon diri didto pero ang tax gamay ra. Wala na nakaexplain si Napoles plus nigawas ang
PDAF issue ah di sakpan.
Still pursuant to the power to make assessment again the CIR may conduct inventory taking, surveillance at prescribed presumptive gross sales or
receipts.
When it comes to surveillance, there are basically 3 types

• covert surveillance - surreptitious and undercover watch on business
• overt surveillance
⁃commences from the inventory taking then actual business observation and close monitoring of the
• short duration surveillance
⁃or the tax compliance check, mao ni ang commonly termed as tax mapping. Sa tax mapping wala juy direct target, sa covert and
overt man gud naay direct target.
⁃A BIR officer magsuroy suroy sa imong business and naa na siyay check list to see if you have BIR COR, if such COR is displayed
in a conspicuous place, if you have a BIR Ask for Receipt Notice, or a Duly issued invoice or Official Receipt - these are the things
⁃Now if you cannot present that during tax mapping then there are corresponding penalties
May a BIR conduct benchmarking aside from surveillance?
Yes. There will be some sort of standard/comparatives if this taxpayer more or less is reporting the same as other taxpayers belonging to the same
industry. If you’re below the standard or the average tax paid of all those entities belonging in the same industry then pwede ka iprioritize for audit
by the BIR. This benchmarking is done to determine the VAT due and the net income tax due.
Benchmarking Guidelines:
a. Shall be separate for corporations and individuals
b. Per area, per line of industry and per tax type basis
c. Done per RDO by preparing taxpayers’s profile per taxable year
d. Based on tax returns and data from other sources within and outside the Bureau; RDOs shall determine the specific industry coverage
e. If LOA was issued, it will only be closed upon consideration of the prescribed benchmarks
Take note na unfortunately dili nila idisclose kung kinsa or giunsa nila pagcompute ang benchmarking standards.
Take note that in several cases reaching the Supreme Court, if a BIR issues an assessment, it must not be based solely on the reports of benchmarking
but should be based on tax or law. In the case of Medicard, the Court said na you can use it as basis in the issuance of letter notice or deficiency but
if not paired with other actual information then you cannot say na niviolate si taxpayer if di siya kaabot sa benchmark. Pero mao lagi nahasol na ka
sa admin level.
You also have issuance of jeopardy assessment.
Jeopardy assessment - a tax assessment made by an authorized Revenue Officer without the benefit of a complete or partial audit in light of the
Revenue Officer’s belief that the assessment and collection of the deficiency tax will be jeopardized by delay due to taxpayer’s failure to:
1.) Comply with audit and investigation requirements to present his books and or pertinent records or;
2.) Substantiate all or any of the deduction, exemption or credit claim in his return.
This is an assessment that will be issued by the BIR if the taxpayer did not cooperate with the Bureau in the examination of the books and the period
to assess is already about to lapse. Diba 3 years ra man ka pwede maassess. Example naassess ka sa 3rd year naassess ka, sigeg pangayo si BIR sa
documents to counter check but you did not cooperate, natural padugay2 ka para mavoid ang assessment. But be careful kay bisan gapadugay2 ka
naay tendency na maissue-han kag jeopardy assessment which will be based on the findings of the Bureau and if it’s their findings then expect very
high tax deficiency.
The benefit man sad of the issuance of a jeopardy assessment is it will toll or suspend the running of the three year period kay naa pa may assessment
pero naa na kay liability. You are only given 30 days to protest under the jeopardy assessment. So ang usual mahitabo hapit na muexpire unya wa pa
kacomply tagaan ug jeopardy assessment niya dili na sad makacomply so the assessment becomes final and demandable and you can no longer
appeal to the CTA.
In what instances maissue si jeopardy assessment other than this?

• Jeopardy assessment can also be issued when the taxpayer is about to retire sa business
34
• or the taxpayer is about to leave the country- kay natural you have an excuse not to comply niya maghuwat na lang kas gawas para
mulapse ang period so magissue na lang kag jeopardy assessment
V. Authority to terminate taxable periods
Next the authority of the CIR is to terminate taxable periods (nigawas kunos BAR so memorize)
Instances when tax periods may be terminated: (LR-RA)

1. Intending to leave the Philippines
2. Retiring from business
3. Intends to remove/hide/conceal his properties in the Philippines
4. Taxpayer is performing an act tending to obstruct the proceedings for collection of the tax for past or current quarter or year or to render
the same ineffective (totally or partially)
VI. Prescribe real property values - zonal valuation

Another authority of the CIR is to prescribe zonal value, you are familiar with the zonal valuation diba? Zonal valuation is used to compute the fair
market value of the property, we compare whichever is higher between the zonal value and the valuation by the city and the municipal assessor. Asa
makita ang zonal valuation? Naa sa BIR website. So iclick lang ninyo ang link naa didto then mumatter sad ang value sa location as declared in the
TCT.
The CIR also has the power to inquire into bank deposit. Again this is an exception to the Bank Secrecy Law. Especially if the purpose is to ascertain
the value of the estate tax due to the government if you apply for compromise due to the inability to pay like naay financial difficulties or incapacity.
VII. Inquire into the bank deposit

• if the CIR will determine the value of the estate tax due, no need of waiver from the taxpayer
• if the inquiry is pursuant to a compromise that you will enter into with the Bureau (usually needs a waiver na ipa open nimo ang bank
account)
⁃a compromise happens when there is a tax against you and you cannot pay; mupay na lang kag minimum percentage sa assess-
ment (usually daw 10%) but as a condition you will execute a waiver authorizing the CIR to check the bank account to ascertain na
incapable ka of paying
VIII. Accredit and register tax agents

⁃kung muingon kay tag agents these are people other than taxpayer who represents the taxpayer.
⁃Example: CPA lang ko dili lawyer and want to represent my bookkeeping clients sa BIR, I need to accredit before the BIR. Accreditation na
ako ang authorized representative of the taxpayer and authorized to transact with the Bureau.
⁃Now what is good if lawyer ka (as long as not suffering from suspension and disbarment) is no need to get an accreditation para makaap-
pear ka sa BIR
⁃Pwede man gud ka i-technical ni BIR na dili sila mutransact with you if wa kay accreditation to represent
IX. Prescribe additional procedural or documentary requirements

Does the CIR have the power to prescribe penalties for the violation of the regulation? NO. Remember Revenue Regulation? Kinsa ang muissue? Si
Secretary of FInance so it follows na ang makaprescribe ug penalties kay si Sec of Finance. Si CIR makarecommend ra.
X. Authority of the Commissioner to delegate power

GR: Delegable ang power ni Commissioner but there are some powers na dili jud madelegate such as : (RICA)
1. To recommend promulgation of the rules and regulation of the secretary of finance. If you notice every IRR is signed by the Sec of Finance below
that signature is sa CIR naay nakabutang recommended by CIR. No other person can sign.
2. To issue rulings of first impression or to reverse, revoke or modify any existing ruling. Mao ni akong giingon sa inyoha na revenue ruling it is an
exclusive and original jurisdiction of the CIR. Before Henares the power to issue tax ruling is delegated to the Regional Director especially if these
rulings are not rulings of first impression and not about reversal, revocation or modification of existing rulings. But then sa time ni Henares niana siya
siya na daw tanan so bisan dili na rulings of first impression. Now under Dulay, the authority is now in a different department of the CIR, the law and
legislative division.
So kung tanawn nimo pwede niya madelegate ang power to issue rulings pero unsa lang ang pwede iexercise ni employee- to issue a ruling na dili
ruling of first impression.
35
3. To compromise or abate any tax liability except assessments issued by the regional offices involving basic deficiency taxes of 500,000 or less
and minor criminal violations
Sa compromise, general rule si CIR.
But pwede ba i-delegate ni CIR to subordinate official with a rank equivalent to division chief or higher ang power to compromise in an exceptional
case? Yes, provided the basic deficiency tax is 500,000 or less. So pwede si regional director ang mu enter into compromise.
What is the difference between compromise and abatement?

Compromise- The BIR will still have tax collection but it will only be at a very minimal amount, percentage lang, pwede niya ma delegate 500,000 or
less
Abatement- no tax collection. gi forgive jud nimo ang liability ni taxpayer.
If you notice ang underline is sa compormise because what is covered by the exception of 500,000 or less is only compromise. If you look at the tax
code, the power to abate that cannot be delegated to other BIR revenue official, that is an exclusive power of the CIR.
If abatement ang gi request ni taxpayer, it will have to be decided solely by the CIR even of 500,000 or less.
Lahi-lahi mana ang application nga i-file nimo sa Bureau. You have to be clear, is this compromise or abatement.
Compromise, what is the reason, is it due to financial incapacity or doubtful validity of the assessment. So you have to be specific.
4. The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept.
11. Authority to make arrests and seizures

Responsible officers: CIR, Deputy Commissioner, Regional Direction, Revenue District Officers and others internal revenue officers
What does this arrest and seizure mean?

Kuan ni inflagrante delicto, when they are caught in the act, that is the time that they can make the arrest.
If nakit-an jud nila na kana na thing is an illegal thing and it violated penal laws and rules or regulations under the bureau.
Proceeding: before a competent court must follow in accordance with the law
Example:
Gi bribe nimo nihatag ka ug under the table ni Bureau Official. Pwede ba ka i-arrest ni BIR official? Yes.
Pwede ba i-sieze ni BIR official ang bribe nimo? Yes.
But i-seize na to be presented later on in a court hearing against you.
So naay gitawag si BIR na mission order. The mission order this is usually issued by the BIR pursuant to a third party anonymous complaint against
you. So a mission order is more like of a search warrant na.
12. Authority to assign internal revenue officers
1. Those involved in excise tax functions

Limitation: up to two years
2. Assignment to other special duties

Limitation:
B. Internal revenue officer assigned to perform assessment or collection function shall not remain in the same assignment for more than 3 years.
The purpose of this authority to assign internal revenue officer is double
- To avoid familiarity in the RDO where the officer is assigned. Then after three years i-reassign nasad
But as taxpayers unsay dapat ang ma realize nato nganhi?
36
If you're dealing with a revenue officer, maayo inyong relationship, that is not perpetual. That is good only for three years. Because if ma assign na
ang revenue officer in some other district or office, pwede ang mupuli ana na officer kaykayon ang records nimo. If you are not tax complainant.
Bottomline, deficiency assessment.
B. Assignment to special duties shall not exceed one year.
13. Authority to impose duties in certain officers

Unless there is a certification (CAR):
Register of deeds- no registration of transfer in the Registry of Property transferring real rights or any chattel mortgage
Debtor of the deceased shall not pay to the administrator, heir, legatee, executor, administrator, etc.
Banks shall not allow withdrawal- but pursuant to the train law, withdrawal may be made upon the death of the owner of a joint depositor but will
withhold 6% FWT.
Lawyer, notary public or any government officer must furnish copies with the BIR- So if naa kay gi notaryo supposedly furnishan nimo ug copy ana na
contract si BIR.
So kaning authority to impose duties in certain officers mao ni ang tax delegated by the CIR to other government officials.
Example:
If you are the register of deeds dili ka dapat mu transfer sa title until and unless the owner of the property will present a certificate authorizing
registration from the Bureau. If you do so you can be held liable.
14. Authority to suspend business operation of the taxpayer

RMO 3-2009- Oplan Kandado. The closure of the business shall last for a period of no less than 5 days and shall be in force until the violation is
rectified.
The BIR has this so called Oplan Kandado. The closure of the business should last for a period of no less than 5 days and shall be enforced until the
violation is rectified.
Good thing is sirad-an ang business but you will be asked to rectify it and once rectified you can open it again.
RATE- Run Against Tax Evaders
In connection with this, when pwede ipa close?

Basically pwede ipa close ang business for failure to register with the Bureau, if you failed to issue the VAT OR, VAT COC invoice. If you evade tax, like
understatement of your sales, overstatement of your expenses.
So those are the powers of the CIR but there is an added power under the TRAIN law and it is the power of the CIR to ask for reports or submission
from the cooperatives pursuant to the cooperative development act.
Four Deputy Commissioners (plus 2)

During the time of Aquino it became 6 deputy commissioners, but now it is back to FOUR.
1. Operations Group
2. Legal and Inspection group
3. Resource Management group
4. Information Systems group
5. Tax reform administrations group
6. Social Concerns Group.
But the last two wala na kay back to four naman.

Regional Directors (RD)
Regional director field service they hold office under the regional office for revenue region 13 again is across grand court(?).
Power and duties of the Regional Director (Section 10 NIRC)
37
1. Implement laws, policies, plans, programs, rules, and regulations of the department or agencies in the regional area.
2. Administer and enforce internal revenue laws, and rules and regulations, including the assessment and collection of all internal revenue taxes,
charges and fees
3. Issues Letters of Authority (LOA) for the examination of taxpayers within the region.
4. Provides economical officers and effective service to the people in the area.
5. Coordinates with the Local Government in the area
6. Coordinates with the other regional offices or other departments, bureaus and agencies in the area
7. Exercise control and supervision over the officers and employees within the region
8. Perform such other functions as may be provided under the law and as may be delegated by the CIR.
If you look at the enumeration, ang trabaho jud ni regional director is pursuant to the authority and tasks delegated to him by the CIR.
So kung pa enumerate mo ana huna-huna lang ang unsa ang task ni CIR and unsa ang pwede ma delegate.
But PLEASE DO MEMORIZE but rare ni mugawas sa BAR this is for discussion purposes.
Revenue district officer- implement program, methods and procedures necessary for the efficient, effective and economical assessment and collec-
tion of your revenue taxes in the revenue district.
So mas more on assessment and collection in the revenue district si RDO.
Composition of the RDOs:

a. Field men and examiners
b. Collection agents and clerks
What are the duties and functions of the revenue district officers and other internal revenue officers?
Authority of revenue officers (assessors/ examiners) to:

1. Examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax
2. Recommend the assessment of any deficiency tax
Take note the examination and the recommendation of the issuance of the deficiency tax should be pursuant to a LOA issued by the RD.
Basically that is Tax enforcement and administration.
So I think I discussed this with you the very first stage in remedies. Di man jud na nimo ma avail ang remedies under the Tax Code if it has no
assessment.
So the very start of it is assessment.
What is this Assessment? Again primary power of the BIR is to assess and collect when it comes to assessment and collection both have prescriptive
periods.
Assessment- is the official action of an officer authorized by law to ascertain these amount of tax due under the law from a taxpayer.
The term assessment involves:

- Giving notices of assessment
- Computation of the sum due
- Issuance of notice of demand upon the taxpayer for the payment of the tax or deficiency stated.
Basically, i-compute ni BIR kung pila and unsa ang tax liability nimo and then the BIR will issue a demand letter for you to pay the assessment.
Kinds of assessment
By the taxpayer
- Self assessment- this is the moment you file your tax return. This is done by the tapxayer in a voluntary basis. Even if you filed your tax return it
does not mean na dili na i-review and examine ni BIR.
38
So if the BIR review and examines your tax returns and it is kulang or wala ka ni file ug tax return then it becomes deficiency assessment.
By the BIR, without authority

- Illegal and void assessment
When do we say that the BIR is not authorized to assess? If the examiner does not have the LOA so it becomes an illegal and void assessment.
Therefore bisag pila pa ka million ang content ana na assessment, the taxpayer is not obliged to pay.
By the BIR, with authority

- Deficiency assessment- kulang ang tax na gi file and pay nimo. It is basically asking you to pay the lacking amount.
- Erroneous assessment- the appreciation of the BIR examiner based on fact or law is wrong.
Example: Para niya taxable na bisag exempted so the assessment becomes an erroneous assessment. By pointing out an erroneous assessment in
the assessment that you received from the bureau, that could be a reason na ma decrease or maubos ang over all assessment ni BIR.
- Jeopardy assessment- the purpose of this is to toll or suspend the running of the period to assess especially if the reason wala na nahuman or naka
start ug audit si BIR is through the inaction of the taxpayer.
- Disputed assessment- once you file a protest then we call it disputed assessment. The BIR is obliged to make a decision to a disputed assessment.
Remember the power of the CIR to issue assessment is pursuant to his power to examine returns and determine tax due as one of the powers of the
CIR under the NIRC.
General rule: to assess is three years na pwede ka audit or assess ni BIR.

Exception: It can be extended to 10 years if there is a finding of false return, fraudulent return or is there is failure to file a return.
Counted from when?

Three years- counted from the actual date of filing if filed late or deadline of filing if filed earlier or on time.
Ten years- counted from the discovery of falsity, fraud or omission.
Example: the Janet Napoles case gi assess siya for more than 10 years because wala man siya ni file and the counting is from the date of discovery.
When it comes to false return or fraudulent return, what is the difference between the two?
False return- meaning sayup ang return nimo but NOT INTENTIONAL. It can be due to simple mistake or negligence on the part of the taxpayer.
Fraudulent Return- it is INTENTIONAL. There is intent to evade. It is a matter of state of mind so dili jud na ma ascertain just by looking at the tax
return. In determining if there is intent to evade the payment of tax is guided by the manifestations of his intentions.
Manifestations:
- There is understatement of or overstatement of the correct amount wherein the understatement or overstatement exceeds 30% of the correct
amount that could be a manifestation that you have the intent to evade tax.
Example: the correct amount of income tax is 10 million but you only reported 1 million. so there is a discrepancy of 9 million or 90%. so it exceeds
30% which can be interpreted as a fraudulent act.
- When you failed to file Tax Returns for four consecutive years
In assessment the rule is if mag issue si BIR dapat in the assessment i-specify niya if it is based on falsity or fraud. So that the BIR can avail of the ten
year assessment period.
If there is no statement that the assessment is due to falsity of the return or filing of the fraudulent return, then we go back to the general rule that
the BIR or CIR only have 3 years to assess.
What is the purpose of the prescriptive period?

Prescriptive period basically benefits both the government and at the same time the taxpayer. Because the side of the government knowing that
they only have three years to assess , it will promote efficiency on their part to act on it. On the part of the taxpayer, knowing that there is this
prescriptive period at least the taxpayer will feel secured na after the three year period na dili na siya balikan sa mistakes niya sa past.
Reckoning of the ten year prescriptive period
39
(CIR v Estate of Benigno Toda GR 147188, September 14, 2004)
A false return was filed on April 15, 1990 and the falsity was discovered only on March 8 1991. The assessment for the 1989 deficiency income tax
was issued on January 9, 1995.
Supreme Court: The assessment was made well within the 10-year prescriptive peiod reckoned from March 8, 1991.
The SC did not apply the general rule but applied the ten year period.
So sa mga mag BIR diri, you must allege the findings of falsity and fraud in the assessment that you issued to the taxpayer.
Kung false or fraudulent, dapat naay assessment or failure to file returns kay in the first place wala may filing. Dili ba pwede na mudiretso si BIR sa
Court? Pwede ra and we will discuss it later.
False v Fraudulent Return

False Return- implies deviation from truth, whether intentional or not
Fraudulent return with intent to evade tax- implies intentional deceitful entry with intent to evade tax.
What constitutes "false return" which warrants the application of the ten-year prescriptive period?
1. Substantial under declaration (30%) constitutes prima facie evidence of false and fraudulent return
- Substantial under remittance of the withholding tax return on compensation
When it comes to under remittance of withholding tax, mi-remit ka sa withholding tax pero kulang ang gi remit nimo the reason na kulang is because
you have suppliers na wala nagpa withhold or sayup na withholding tax rate ang gigamit nimo.
I had a client na ang business kay construction. Then naay supplier na dili magpa withhold but supplier mana so dapat na ideclare ang ila gibayad sa
supplier they will be declaring it as an expense in their books. Unsa gani to ang consequence if you are mandated under the tax law to withhold but
you failed to withhold diba the corresponding expense to it maybe disallowed or ma allow but you will be asked to pay the withholding tax na wala
na remit sa government.
What is our action then?

You ask for a sworn statement or affidavit from that supplier that the supplier requested you to na dili magpa withhold. This is you protection so that
you won't be assessed for under remittance.
2. Absence of income in the return (filing of deficient returns) tantamount to an omission to file returns.
Reckoning of prescriptive period of assessment
A. Returns filed earlier than the last day of filing shall be counted from the last day prescribed for filing of the return.
Type of return: ITR
Prescribed Filing deadline: April 15
Actual filing: April 10
Reckoning period: April 15
So you start counting from the last day of prescribed filing which is April 15.
B. Returns filed beyond the period prescribed by law shall be counted from the day the return was filed.
Type of return: ITR
Prescribed filing deadline: April 15
Actual day of filing: April 20
Reckoning period: April 20
So na extend and counting sa three year period assessment period. So kung April 20, 2018 just add three years which is April 20, 2021.
For every type of tax, different ang tax return and different ang tax deadline.
40
Income tax return- deadline of filing is April 15 except if fiscal year si corporation, then deadline of filing is 15th day of the fourth month following
the taxable year.
Creditable withholding tax return- Deadline of filing is 10th or 11th or 15th if EFPS
Quarterly VAT return- deadline is 25th day
So the counting of the three year period will depend on this deadline if you filed on time or late.
Ang assessment ni BIR that is per tax type.
Effect of filing an amended Return

The prescriptive period to assess commences from the filing of original return. If it is sufficiently complete to enable the BIR to intelligently determine
the proper amount to be assessed.
The fact that amended returns were filed later neither start anew the running of the statute of limitations, nor extend its period.
If amended return is substantially different from the original return, the prescriptive period is counted from the filing of the amended return.
Our guide that is substantially different if there is a change in the liability contained in the return which is usually reduction of the tax liability.
Changes on reckoning of prescriptive period due to filing of amended tax return

Effect on prescriptive period of amended tax returns
Last Day of pre- Date of Actual Filing 3-year prescriptive Filed the amended 3- year prescriptive
scribed filing of re- of return period return (Substantial period
turn Amendment)
April 15, 2010 April 15, 2010 April 15, 2013 June 15, 2010 June 15, 2015
So because there is an amendment which is substantial you have a new 3 years period which will start on June 15.
How should the 3-year or 10-year prescriptive period be counted?

We follow the provision in the administrative code of 1987, wherein we will just add 3 to the years.
The Supreme Court said that the counting of the 3-year or 10-year period we follow the administrative code of 1987 and not the civil code.
When is an assessment deemed made? Diba i told you that the assessment must be within 3 years.
Kanus-a man ko considered na gi asses? The moment I received the LOA or the moment I received a letter of notice from the BIR?
An assessment is deemed made within the prescriptive period when the notice of assessment is released, mailed or sent to the taxpayer within the
prescriptive period.
We are referring to the final assessment notice. Mao na if hapit na mulapse ang three year period, no allegation of falsity or fraud magdali2 na siya
ug issue ug preliminary assessment notice then followed after lapse of 15 days mag issue ug final assessment notice.
In that case the notice of assessment is deemed issued within the prescriptive period.
Notice of assessment= Final Assessment Notice (FAN)

Example: Mu lapse na ang three year period then ang na receive nimo is only the preliminary Assessment notice, that is not considered a notice of
assessment. If na issuehan ka ug notice of final assessment notice after the lapse of the prescriptive period that is considered an illegal and void
assessment.
Taxpayer received the electronic letter of authority, informal conference and preliminary assessment notice (PAN) all within the 3-year prescriptive
period, but the final assessment notice (FAN) was released, mailed or sent beyond the 3-year assessment period. There is no valid assessment.
The FAN must be mailed, received or sent within the 3-year prescriptive period.
41
Service of tax assessment
When the notice is released, mailed or sent, it is not required that the notice be received by the taxpayer within the prescribed period. But the
sending of the notice must be clearly proven.
End of 3-year prescriptive period: August 31, 2012

Date of service/ mailing: August 29, 2012
Date of receipt: September 9, 2012
What is important is that it has been sent out, or released or mailed before the lapse of the prescriptive period.
Even if it was received by the taxpayer after the lapse of the prescriptive period but it was released or mailed before the prescription then it is
considered valid.
When it comes to releasing or sending, what is the mode? It is personal delivery or substituted service through mail.
I have one case gi-asses siya ug VAT for taxable year 2014. Kanus-a gani ang deadline of filing the quarterly return of VAT?
Kung December 2014 na VAT, the deadline would be January 25, 2015. Naka file sila on time so the counting dili mu matter if like January 1 but the
counting of the 3-year period would be January 25, 2015.
Nag buhatun sa BIR is mu-issue ug preliminary assessment notice within the 3-year period nag issue ug final assessment notice. The date in the final
assessment notice is January 24, 2018. So before January 25. Gi personal delivery na receive February 1, 2018. Okay unta kung mail niya on January
24, 2018. Unya sa personal delivery is mu sign baya ang taxpayer.
So when was it considered released? On the date the Taxpayer received it because it was personal delivery.
So pwede na muingon illegal and void assessment? Yes, because it was beyond the 3-year period.
So if gi mail, there must be the proof of mailing like registry receipt.
November 7, 2018
We have already discussed on tax enforcement and administration and we have basically discussed the functions or the powers of the BIR as well as
of the CIR. Again, the powers of the CIR or the Commissioner, as what we’ve discussed, siya jud ang gi-delegatean primarily under the law when it
comes to assessment and collection of taxes. However, these powers can further be delegated by the CIR to his/her subordinates.
Nature of assessment
ASSESSMENT is the official action of an officer authorized by law in ascertaining the amount of tax due under the law from a taxpayer.
The term assessment involves:

- Giving notice of assessment
- Computation of the sum due
- Issuance of notice of demand upon the taxpayer for the payment of the tax or deficiency stated
We move on to discuss about assessment. So again, when we say assessment, what you need to remember here is that there is this so-called pre-
scriptive period or expiry date for the BIR to assess the taxpayer. Under normal circumstances again, the prescriptive period is 3 years counted from
the date of filing if filed late, or from the deadline if filed on time or earlier. So, you count 3 years. That’s the general rule. Exception is when the 3-yr
period becomes 10 years. And under 3 circumstances diba na ma-extend ang prescriptive period to 10 years, that’s in case of non-filing of a return,
false return, and fraudulent return. Again, you have to remember the reckoning period or the start of the counting of the 10-yr period is not the date
of filing or the date of deadline, rather it is the date when the falsity, the fraud or the act of non-filing was discovered; so, upon the date of discovery.
Now, after assessment, as what we’ve discussed last meeting, assessment primarily deals with the computation of your correct tax liability. So after
you’re assessed, so muingon ta na na-assess na ka, if you have received what we call as the Final Assessment Notice (FAN). Take note there is also
what we call as the Preliminary Assessment Notice (PAN) but although the PAN is part of the due process aspect in informing the taxpayer as to
his/her correct tax liability, it is not the assessment that we are talking about which must be within the prescriptive period of 3 years; rather it is the
FAN. Now, after the FAN, the next step there that the government will do is of course, collection of tax. Since you are assessed na of your correct tax
liability, pwede nimu icounter or depensahan if you have proper support to your case. But if none, the next recourse na buhaton ni government will
be collection. And take note, when it comes to collection, there is also prescriptive period. What is the advantage of this prescriptive period? Kinsa
ang maka-benefit when it comes to setting and strictly following the prescriptive period to assess and the prescriptive period to collect? One is the
taxpayer. Given all normal circumstances, at a certain point in time, kampante na si taxpayer. How about the government? it actually benefits both
42
sides. It benefits the government, the one implementing it because it promotes efficiency on the part of its officials when it comes to assessment. At
the same time, it also benefits the taxpayer because the prescriptive period primarily gives him peace of mind na di sya kanunay gukud gukuron ni
BIR especially if the taxpayer did not do anything wrong. Of course, it’s a different story if the taxpayer evaded tax.
In connection to the prescriptive period lang, recall on the number of years when you can keep your books of accounts or records. If you look at the
Tax Code, it requires you to keep your books of account lang for 3 years primarily because the period to assess is only 3 years from the date of filing
or from the deadline if you field on time. However in a 2013 Memorandum Circular issued by Henares, the period to keep the books of accounts is
extended from 3 yrs to 10 yrs. Nganu gi-10 years naman? Primarily to coincide with the exceptional period to assess which is 10 years in case of
falsity, fraud or non-filing. So, in that case, maka-depensa pa si taxpayer especially if the allegation of the BIR is that the reason of the deficiency is
due to non-filing.
KINDS OF ASSESSMENT
➢ By the taxpayer: Self-assessment
➢ By the BIR, without authority: Illegal and void assessment
➢ By the BIR, with authority:
- Deficiency Assessment
- Erroneous Assessment
- Jeopardy Assessment
- Disputed Assessment
So, for assessments, we have differentiated the different kinds of assessment. So the most common is the self-assessment or the voluntary assess-
ment. But then again, even if it’s self-assessment, it is not an assurance na dili na nah ireview ang computation ni BIR. But when it comes to the
assessment of the BIR, it must be done within the prescriptive period; OW, the assessment is considered to be done without authority and it becomes
illegal or void assessment.
Duha nah ka-situation. Pwede ma-valid ang assessment because within prescriptive period, but if the collection is done beyond the prescriptive
period, in that case wala say ma-collect ang BIR or ang government. But this time around, we focus first on the assessment process. Then once you
receive a final assessment, usually it is a deficiency assessment, falling for payment of deficiency in taxes or lacking amount taxes. If it is being
questioned by the taxpayer, then it becomes a disputed assessment if the taxpayer files a protest to a deficiency assessment. If something is wrong
in that assessment, the computation is wrong, the appreciation of facts, and the provision in law is wrong, then it becomes an erroneous assessment.
Now, if that assessment is issued without the benefit of full audit or benefit lang of partial audit primarily because the taxpayer failed to provide the
documents or failed to provide the requirements by the examiner and the prescriptive period to assess is about to lapse, tendency is the BIR will
issue what we call as jeopardy assessment. If you will be asked to differentiate deficiency, erroneous, jeopardy and disputed assessment, you should
already have an idea.
What constitutes “false return” which warrants the application of the 10-yr prescriptive period?
1. Substantial undeclaration (30%) constitutes prima facie evidence of false and fraudulent return [Section 24(B) of the Tax Code]
- Substantial underremittance of the withholding tax returns on compensation (Samar-I Electric Cooperative, Inc. vs. CIR, CTA EB Case
No. 462, March 11, 2010)
2. Absence of income in the return (filing of deficient returns), tantamount to an omission to file returns (UCPB v. CIR, CTA EB 567 re: CTA
Case No 7259, January 12, 2011, and CIR vs. Gonzales, No. L-19495, November 24, 1966)
Reckoning of prescriptive period of assessment: Where do I begin?
A. Returns filed earlier than the last day of filing shall be counted from the last day prescribed for filing of the return.
Type of return Prescribed filing deadline Actual date of filing Reckoning period
ITR (1702) April 15 April 10 April 15
B. Returns filed beyond the period prescribed by law shall be counted from the day the return was filed.
Type of return Prescribed filing deadline Actual date of filing Reckoning period
ITR (1702) April 15 April 20 April 20
43
So general rule 3 yrs, exception, it becomes 10 years. When it comes to counting again, we follow the rule under the administrative code, wherein
you will just add 3 to the date. We do not consider if 30 or 31 days ang number of days in a month. So if the deadline, the prescribed filing deadline
again is April 15, you were able to file earlier on April 10, the start of the counting of the 3-yr period will be on the deadline which is April 15. So if it
is April 15, 2018, considered expired ang period to assess 3 yrs thereafter or April 15, 2021. So, just add 3. But if it was filed late, let’s say April 20,
then the reckoning period or the starting date would be the actual date of filing which was made late, so April 20.
Date of filing varies per type of tax return
Type of Return Date of Filing
1. Income tax return (BIR Form 1702) April 15 or 15th day of the fourth month following
the close of fiscal year
2. Creditable Withholding Tax (BIR Form 1601E) Non-eFPS* – 10th day after the end of each month
eFPS** – 11th-15th depending on industry grouping
3. Quarterly VAT Return (BIR Form 2550Q) 25th day following the close of each taxable quarter
* For December return, filing and remittance is on every January 15

** For December return, e-payment due is on January 20
Take note, it is not always April 15 ang deadline of filing because mu-matter nah sa tax type ni taxpayer because when it comes to assessments by
the bureau, it is done per tax type. So when we say per tax type, one tax type for income tax, one tax type for VAT, one tax type for percentage tax,
and one tax type for withholding taxes. And each of these tax types has its different deadlines. But of course, for bar examination purposes, usually
ang gina-focus ni examiner is only 1 tax type which is the income tax return. Di na nah siya muexpect na na memorize nimu tanan.
Effect of filing of an amended return

The prescriptive period to assess commences from the filing of original return, if it is sufficiently complete to enable the BIR to intelligently determine
the proper amount to be assessed.
The fact that amended returns were filed later neither start anew the running of the statute of limitations, nor extend its period.
(A. I. Ammen Transportation, Co., Inc. v. CIR, CTA Case No. 540, November 10, 1965)
Civil Code vs. Administrative Code

Administrative Code of 1987 (Section 31, Chapter VIII, EO 292)
▪ A year is composed of 12 calendar months, the number of days is irrelevant
▪ The 3-yr prescriptive period consists of thirty-six (36) months.
ITR filed on April 15, 2013 falls on April 15, 2016 (whether or not there is a leap year)
Supreme Court: Being the more recent law, EO 292 or the Administrative Code of 1987, governs the computation of legal periods.
(CIR v. Primetown Property Group Incorporated, G.R. No. 162155, August 28, 2007)
You can amend it provided you did not yet receive a notice of audit. And the 3-yr prescriptive period to assess will not change so long as the amend-
ment is not considered substantial amendment. But if the amendment is substantial, then the date of filing the amended return, that will be the
reckoning date or the starting date of the 3-yr prescriptive period to assess. We describe an amendment as substantial amendment if it calls for, not
necessarily 30% kay kato under declaration man to, substantial amendment if there is a reduction or a change in the tax liability of the taxpayer if
you compare the amended return and the previously filed return. In one case, even a change of mga 1% lang was considered as substantial amend-
ment of the return. It is different from substantial under declaration which is considered as a manifestation of your intent to evade payment of tax
which must exceed 30%.
When an assessment is made

An assessment is deemed made within the prescriptive period when the notice of assessment is released, mailed or sent to the taxpayer within the
44
Notice of Assessment = Final Assessment Notice (FAN)
Taxpayer received the eLA, informal conference and preliminary assessment notice (PAN) all within the 3-yr prescriptive period, but the final assess-
ment notice (FAN) was released, mailed or sent beyond the 3-yr assessment period.
So, we say an assessment is made once you receive a final assessment notice (FAN), not the preliminary assessment notice (PAN). And considered
made ang assessment once it has been released, mailed or sent which must be within the 3-yr period such that if you release, mail or send it beyond
the 3-yr prescriptive period, that assessment is considered na as void or illegal assessment because the BIR do not have anymore the authority to
assess you kay ni-prescribe na man. Mao nah ang pinaka una na tan awn ni taxpayer – release, mail or sent. When it comes to releasing, mailing or
sending, the manner of doing it is of course through personal service pero pwede sad ang substituted service if you mail it to the last known address
of the taxpayer. And if you mail it via a registered mail, of course the BIR should be able to prove the said registry receipt and the return card. The
registry receipt basically proves that it was mailed and the return card basically proves that it was received by the taxpayer. Take not if gi-mail nah,
what is important is that it must be mailed within 3 yrs. It is not necessary that it was received by the taxpayer within 3 yrs kung substituted service.
But if personal service, natural, sending ug releasing ang mumatter, kung kanus-a nah na receive ni taxpayer which must be within a period of 3 yrs.
So kung registered mail, ang pag determine kung gi himu ba within the 3-yr period is the date of mailing, not necessarily the date of receipt of the
taxpayer.
So, general rule again, when a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course of mail. So
meaning to say, kung wa nah gi deny ni taxpayer, presumption nadawat ni taxpayer. Required ban a madawat ni taxpayer? Of course, yes pursuant
to due process under the constitution. Although, what is required is dapat na-mail nimu within the 3-yr prescriptive period. Pero pwede nah madawat
even beyond such prescriptive period. Kay once na-mail na nah nimu within 3 yrs, considered naman to na masuspend ang running sa period to
assess. Now, the problem comes in if the taxpayer denies receipt of the mail. If the taxpayer denies receipt of the mail, what happens is that the
burden to prove the mailing and at the same time receipt of the mail will fall upon the BIR. And how will the BIR prove na nadawat? Of course, it will
not just present the registry receipt kay that is only a proof of mailing, not a proof of delivery and receipt by the addressee. So ang usual proof dinha
is the return card. If not the return card, an affidavit or a certification from the Bureau of Posts na nadeliver na in the last know address of the
taxpayer. Now muingon mu na what if na deliver lage but wala nadawat because I transferred address. Violation of due process gihapon? The answer
is not necessarily. The question there is when you transferred address, did you notify the BIR of such fact? Because absent such notification to the
BIR, basta ma-prove nah niya nan a-mail niya within the prescriptive period and it was delivered to your last known address, that is already considered
a valid receipt by the taxpayer. So, unsaon man pag-inform? You have this BIR Form 1905, that’s information updating. So, diba sa COR nimu, nakabu-
tang man dinha kung asa ang address nimu? So if you change your address, dapat you should also amend your COR with the bureau. That’s a proof
na nanotify nimu si BIR. In one case, napildi ang BIR because nabali ang situation. Nibalhin si taxpayer, gi-notify niya ang BIR, there was an amended
COR, but still the BIR mailed the assessment to the previous address. So, of course, it was not considered as valid mailing because the BIR was duly
notified. So, impliedly, kung dili nimu inotify that’s the fault na of the taxpayer. In that case, the assessment can become final and executory.
Service of tax assessments

When notice is released, mailed or sent, it is not required that the notice be received by the taxpayer within the prescribed period. But the sending
of the notice must be clearly proven. (Basilan Estate, Inc. vs. CIR, L-22429, Sept. 5, 1967)
End of 3-yr prescriptive period: August 31, 2012

Date of Service/Mailing: August 29, 2012
Date of Receipt: September 9, 2012
NOT PRESCRIBED
When a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course of mail.
A direct denial of the receipt of the assessment shifts the burden upon the BIR to prove that the mailed letter was indeed received by the addressee.
(Republic v. Court of Appeals, 149 SCRA 351)
Facts to raise the presumption that mail was received in the regular course of mail are:
(a) That the letter was properly addressed with postage prepaid; and
(b) That it was mailed.
(Barcelon, Roxas Securities, Inc. vs. CIR, G.R. No. 157064, August 7, 2006 citing Protector’s Services, Inc. vs. Court of Appeals, G.R. No. 386 Phil. 611,
623 (2000)]
Proof of fact of mailing

1. Registry receipt issued by the Bureau of Posts
2. Registry return card (signed by taxpayer or authorized representative
3. Certification issued by the Bureau of Posts and other documents executed with the intervention of Bureau of Posts
45
Facts to raise the presumption that mail was received in the regular course of mail are the letter was properly addressed with postage prepaid and
that it was mailed. But when it comes to proof of mailing, as declared by the SC, it is not enough na log book lang ang ipresent ni BIR. There has to
have registry receipt, registry return card, or certification issued by the Bureau of Posts. If it was personally served, of course there has to have the
received copy by the taxpayer.
Mao sad nang bantayan if you have clients later on, ipa check ninyo. Kay nganu man? Ang sending man gud ani na assessment usahay mawani or
mawala. There is even that practice in the BIR, ingnan nalang ta mu daan noh, it’s really a bad practice, there are some BIR officials na for a consid-
eration of money, naa nah silay gitawag na records destruction. Bayad ka then they will destroy the record kay let’s say for example in this case, na-
assess ka depensa ka na wa ka kadawat, destroyed na ang records nimu that you personally received it. Nya maglisud naman nag trace ang BIR.
Before nah. Now, they have the so-called routing slips kung ka kinsa ningadto in every division. But before there’s no such thing as these. So meaning
to say if ikaw ang examiner, ikaw ang nakaybaw asa nah nimu gi-archive, asa nimu gibutang. So meaning if ibalhin ka, remember ireshuffle sila for a
certain period of time, so kung ibalhin ka, another examiner will come in and tendency, walay proper jud na endorsement and papers lang ang i-
endorse. Mao nah nga ang uban ngadto musud, records destruction.
How often can I be examined?

Only once for a taxable year, except in the following cases:
1. When the Commissioner determines that fraud, irregularities, or mistakes were committed by the taxpayer
2. When the taxpayer himself requests a re-investigation or re-examination of his books of accounts
3. When there is a need to verify a taxpayer’s compliance with withholding and other internal revenue taxes as prescribed in a Revenue
Memorandum Order issued by the CIR
4. When the taxpayer’s capital gains tax liabilities must be verified
5. When the CIR exercises his power to obtain information relative to the examination of other taxpayers (Secs. 5 and 235, NIRC).
There is a certain group now trying to propose under the Trabaho Bill na dapat ang audit should be done once every 3 yrs because the purpose when
we say audit man gud, supposedly that’s corrective. Meaning to say, under normal circumstances, kung gi-audit ka naku this year, I pointed out what
are your discrepancies and mistakes. So given na under normal circumstances, the following year, you should have corrected those discrepancies or
those errors na na-commit nimu. So there’s no use supposedly na i-audit ka naku this yr, the following year i-audit na sad tika. Dapat na correct na
nah. So they are trying to propose na once every 3 yrs lang ang audit but of course, I don’t think it will pass. Why? Kay mao man nang gikabuhian sa
uban officers sa BIR. Basically, gi-audit ka every yr because naa nah silay gitawag na black book. So if you’re known na nag under the table (UTT) ka
with the BIR, apil n aka sa black book. And that black book is being turned over kuno from one examiner to the next examiner. So meaning to say, if
na-audit ka this yr, nag UTT ka, you did not correct the discrepancies or mistakes there, i-audit ka next yr. So same cycle, UTT and UTT because wala
man nimu gi correct tong gipoint out supposedly na erroneous. If you have clients later on, ok lang ma-examine or ma-audit in 1 yr but make sure
the following yr, na correct na to tanan discrepancies and compliant na sad.
What types of assessments would I receive?

Types of audit notices
1. Eletronic Letter of Authortiy (eLA)
2. Memorandum of Assignment (MOA)
3. Letter Notices (LN)
4. Mission Orders (MO)
When we say ‘types of assessments’ na madawat nimu, this is the initial document that you will receive to start the ball rolling nga ma-audit na ka ni
BIR. So, usually ang madawat nimu nganha, you have the so-called electronic letter of authority (eLA) or if not the eLA, you will receive the letter of
authority (LOA). You can also have the memorandum of assignment (MOA) or letter notices (LN) or mission orders (MO). Let’s differentiate the 4.
Among these 4 audit notices, what is required jud under the NIRC which should commence an audit or an assessment is the LOA. There are some
cases na gi invalidate jud ni SC ang assessment because there was no LOA or eLA because unsa ang purpose ani? This is some sort of a delegation
notice from the CIR or RD to a particular revenue examiner, authorizing the examiner to examine the books, the records of a particular taxpayer for
a specific period. Without such LOA, dapat di nah makahilabot si revenue examiner sa libro nimu, pacg check sa records nimu.
Letter of authority
Scope:
1. Audit or investigation of all internal revenue taxes, including withholding taxes.
2. Claims for tax refund/credit, audit of taxpayers retiring from business or undergoing corporate reorganization and other cases where TVNs
were previously authorized for audit/verification of tax liabilities and other audit-related activities.
TVN stands for Tax Verification Notice. You usually receive this if you are trying to retire your business. Diba kung mag dissolve tas business nimu,
diba ang nahibaw-an natu usually is you must apply for dissolution with the SEC. But take note, it’s not enough. You have to dissolve your business
with the LGU and you have to dissolve also with the BIR. If you do not dissolve that business, you just stopped operating and you do not file anymore
the monthly and quarterly filings, kung wa na nimu giformally terminate, that’s considered as open case. So magdagan jud until such time that you’re
going to formally terminate it. Ma-liable ka for fines and penalties.
46
Coverage: Only one taxable year (CY or FY) except:
(a) Tax fraud cases authorized by the Commissioner or Deputy Commissioner
(b) Excise tax cases
In these cases, it can cover several years but dapat the LOA must specify unsa na years ang covered niya. So pwede sya muingon for the years 2012-
2015. But in mnost cases, ang LOA 1 yr ra jud ang coverage. Why? Because before, there is this rule na dapat within 120 days, mahuman ug examine
ni examiner ang company. Kung baga naay deadline or expiration date ang LOA. Although, that is recently withdrawn na. Pero strict gihapon, nkaa-
specify dapat ang taxable year. Nag-issue nag RMO si BIR kay mao nang kanunay mapildihan niya. Why? Di man gyud ma validate ni SC if the LOA will
provide na for a particular yr and unverified prior years because that is violation of the due process clause in the constitution. It is as if mag fishing
expedition si BIR examiner sa business nimu so dapat specific. So, in this RMO, the BIR declared that…
Rule on LAs with “unverified prior years”
Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990 provides:
“3. A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing L/As covering audit of “unverified
prior years” is hereby prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be
specifically indicated in the L/A.”
(CIR v. Sony Philippines, Inc., G.R. 178697, November 17, 2010; CIR v. De La Salle University, Incorporated, CTA EB 671, June 8, 2011)
In an LOA, you have there a heading ‘LETTER OF AUTHORITY’. What is important
here is that addressed nah to the taxpayer, specified ang period covered, and
specified kinsa ang examiner from the BIR na authorized to go to your office to
check your books to communicate with you to require supporting documents
from you. Kay mag abogado man mu later on, kung muingon ang taxpayer ninyo
‘Atty, naa lage taga BIR kuno ni vist sa office, iaudit daw mi,’ you try to check
unsa na audit ang pasabot because 2 man ang audit na kuan. Pwede man short
period diba which is the tax mapping. Kung tax mapping lang, ok ra mudiretso
si BIR officer, present lang ug ID. But for tax mapping, there should be a check-
list na gidala si BIR officer and ang checklist niya only covers the compliance
requirements of the Bureau, like let’s say for example i-check lang niya dapat
kung naka display ba ang BIR COR nimu, kung nakadisplay baa ng Ask for Receipt
Notice nimu, if the company has official receipt ba with ATP, or invoice with
ATP. Kana lang ang icheck niya. In short, in tax mapping, di niya icheck if defi-
cient ba ang tax na gibayaran nimu to the government. It’s more of administra-
tive aspect. So di sya mucheck for a particular year. Di sya mag conclude kung
pila ang correct tax liability and issue deficiency assessment because for that to
be done by a BIR official, dapat naay LOA. So kung muingon na nah si BIR ‘give
me these supporting documents for your income year 2014, OR for the ex-
penses you claimed in year 2014,’ aw kana, di na nah tax mapping. Before you
comply, you ask first ‘mam, naa ba kay LOA?’ If naa, then you cooperate. Di
awayon ang BIR official kay nag trabaho ra man nah. Kung awayon nah nimu,
makontrahan na nuon ka and we don’t want that in our business. Kinsa ang mu-
issue sa LOA? The issuing officer can either come from the head office, signed
by the Commissioner, or the large taxpayer’s division, or the RD. take note be-
fore the CIR or the RD will issue a LOA, di lang nah niya i-issue out of tripping
lang. Usually, naa na nah silay idea that there is deficiency in the filings of that
taxpayer. Remember our discussion in the RELIEF system, na kadtong ibangga
ang sales na gireport ni other party versus the purchases na gireport or impor-
tation na generated from the system of BOC versus your importation reported. Once ibangga nah and the BIR notes that there is a material deficiency,
that usually triggers the issuance of a LOA. So meaning to say, when you have the LOA, ang next na madawat nimu usually is the LN. The Letter Notice
details your deficiency to tax liabilities. So naa nay computation si BIR kung unsa ang na-file and nabayaran nimu versus the supposed na bayran unta
nimu based on their system. So mao nah nga there are some taxpayers na di kaayo kasabot sa process magsunod gale nah ug release ang LOA ug LN,
para nila biased ang examiner. Biased na kay gi-prejudge na daw sila kay naa nay computation wa pa gale sila nagka-storya. Precisely, that’s their
starting point. Your talking point is the computation of the BIR. So, it’s up to you to say na ‘BIR, sayup ni kay mao ning sakto and I have proof.’ So
that’s the start of your talk with the BIR. Di kay igkadawat sa LN muingon dayun na biased ni na officer.
An example of an invalid LOA is ang nakabutang lang is UPY which stands for ‘Unverified Prior Years’. In the case of De La Salle, 2017 case, gi-invalidate
ni SC partly ang assessment niya for UPY. Ang gi-validate lang are those assessments for a particular year. Although di na ni common karon kay nag-
issue naman gyud ug regulation si BIR. So, if ever buhaton nah ni RD, pwede ma-administratively sanctioned si RD although internally being done.
(wa ko kitag image sa eLA ☹)

Naa ang period and dapat naa ang name ni examining officer.
47
Validity of LAs
- An LA must be served upon the taxpayer or his authorized representative within thirty (30) days from date of issue otherwise it becomes
invalid.
Pero usually, ang buhaton ana ni BIR if mu-expire na is irevalidate nila ang LOA to extend the 30-day period.
- Rule that the examination should be completed within 120 days from the date of issuance of LA and requirement for its revalidation of LAs
in case of failure to complete the audit within the 120-day period – withdrawn. (RMO. 44-2010)
Ay nalang nah i-mind ang 120 days. Di na nah mugawas sa Bar ninyo.
Effect of failure to revalidate an LA

Failure of the revenue officer to complete the audit within 120 days shall be subject him/her to administrative sanctions.
- RMC 23-09 (May 8, 2009) and RMO 44-2010 (May 12, 2010)
Memorandum of Assignment (MOA)
(Revenue Memorandum Order No. 069-10)
Coverage:
1. Reassignment for the continuation of the audit/investigation to another RO due to resignation/retirement/transfer of the original RO.
2. Assignment to the original RO of returned cases by the reviewing office and reassignment to another RO of returned cases in case of
resignation/retirement/transfer of the original RO.
3. Reassignment to another RO due to referral of the case to another investigating office (e.g., cases referred to SID by the RDO)
4. ONETT cases (capital gains tax/creditable withholding tax and DST involving transfers of real property or shares of stock and donor’s tax)
5. Protested cases/cases for reinvestigation
6. Refunds of foreign embassies and its personnel (RMC 080-10)
I-issue lang ni ni BIR in case there is a reassignment of an examining officer because diba sa LOA, naka-specify ang name ni examiner. So, if a new
examiner will come in, di na mag-issue ug another LOA. MOA nalang ang i-issue, informing you that this previous officer is already reshuffled and a
new officer will take charge of your case.
Kaning ONETT cases, mao ning mga one-time transaction. Kadto bitaw CGT, 6% ug 15% for sale of shares of stocks. Pwede ba ka ma-check dinha if
kulang ang gibayran nimu? Yes. Usually from the examining officer, bayaran nah nimu, then it goes to the regional office, naay mu re-evaluate ana.
So kung sayup ang computation ni examining officer, ipabalik nah sa iyaha, pa explainon then copy furnished si taxpayer. Actually, I experienced one
ONETT case before, CGT transfer sa shares of stock. Kato bitaw adjusted book value, there was a time when it was newly implemented na not all
examiners were able to follow the adjusted book value computation in the regulation of Henares. In my case, ang good thing lang is nasobrahan
instead of nakulangan so wa ko nakulbaan. Na-call ang attention ni examiner kay nganu nasobraan by around 10k-15k. The point there is mahadluk
ang uban examiner na mu-compute especially if bag-o pa sa BIR because if masayup sila, somebody will review their work and their attention will be
called. So, maapil nah sa performance appraisal nila sa bonus nila for that year. So mao nah nga if you notice, labi na if medyo tigulang na, medyo
tapulan na na BIR examiner, there are some examiners na complete na unta ang checklist nimu, ipresent nimu sa iyaha, igtan-aw niya medyo com-
plicated ang transaction, pangitaan ka ug bisan unsa na additional requirement na wala para di siya ang maka-examine para igbalik nimu the following
day, di na siya ang examining officer. Mao nah it pays to have professional friends, di jud ingon UTT ha.
Letter Notice (LN)

Coverage:
- Issued for under-declaration of sales and over-claimed purchases discovered under the Reconciliation of Listing for Enforcement System
(RELIEF) and TPM-BOC Data Program (mao ni ang overstatement or understatement of your importation).
- Covers only the tax indicated therein on a given particular period or quarter
In an LN, naa lay column showing the computation by the BIR and filings ni taxpayer. Then note kung pila ang discrepancy. Take note, as settled in
the case of Medicard Philippines, LOA is different from LN because the LOA basically empowers or authorizes the officer to examine the books of the
taxpayer. In short, si CIR mao nah ang license niya na gi-delegate to niya na power to the examining officer. The LN is just a summary of the deficiency.
It does not in any case or in any way grants authority to the examining officer to look at the books of accounts and to recompute the tax liability of
the taxpayer.
LN same nature as LA
“LN being served by the Bureau upon taxpayers who were found to have under-declared their sales or purchases through the Third Party Information
Program can be considered a notice of audit or investigation which would in effect disqualify the taxpayers concerned from amending any return
which is the subject of such audit or investigation.” RMC 40-03, July 3, 2003
So pwede nimu i-amend ang return basta wa kay nadawat na notice of audit. So unsa man nang sample sa notice of audit? LOA or LN. But take note,
although you have that RMC, it does not mean that an LN can substitute a LOA. Kay sa Medicard case, the BIR lost around 500M because it assessed
48
the Medicard 500M pursuant to an LN. in defense, niingon si Medicard na it is not a valid assessment because no LOA was issued. Si BIR niingon na
we don’t need to issued LOA because we are not examining your books of accounts. We are simply looking at the RELIEF system, third party infor-
mation and the tax reconciliation system. Everything is being done in the BIR system and from there, we noted these discrepancies. So, enough na
nang LN, no need of LOA kay di man mu bisitahon, di man icheck ang records ninyo. But the SC held that primarily, what is required by the NIRC is a
LOA. The Tax Code does not know of such thing as LN. So, even if there’s no actual examination in the books of accounts of the taxpayer, due process
dictates that a LOA should be issued to the taxpayer, informing him properly that it is being audited for this particular period and an LN is not
sufficient.
Types of LN
1. RELIEF-SLIP & Third Party Matching (TPM) – Bureau of Customs (BOC) LN – computerized matching of information/data by third party (TP)
sources against declarations per VAT return (Relief-RMO 30-03, 42-03, 24-04, 32-05, 32-07, 36-08; TPM-BOC – RMO 34-04, 46-04, 32-05,
32-07)
2. Taxpayer Reconciliation System (TRS) – LN – on information/data provided by withholding agents/payors and payees/income recipients
against taxpayers’ declaration per income/VAT/percentage/withholding tax returns (RMO 28-07 as amended by RMO 04-08)
SLSP – Summary List of Sales and Purchases. Ayaw na ni sila hinumdumi kay too technical ra.
LN – Sources of Discrepancies
1. Sales reported by seller vs purchases reported by the buyer (VAT and income tax)
2. CWT remitted by buyer vs CWT claimed by seller/supplier (CWT)
3. Income reported vs. CWT or FT paid by payor
4. Importations recorded by BOC vs importations reported in the SLSP (VAT and income tax)
If dili mag-match, it either results to overstatement/understatement of sales/purchases. So an LN can be issued. Sayup jud nah sa taxpayer? The
answer is no. Ma-depensahan nah, why? The common defense when it comes to discrepancy in the sales and purchases reported is timing defense.
meaning to say, para naku as a seller, I do not record this as sale pa because I still have a deliverable to the part of the purchaser. But on the part of
the purchaser, expense na nah kay nibayad naman siya sa akoa. So this month gi-record niya as purchases, but ako wa pa naku gi-record as sales kay
I will record such on the following month pa. So, there’s a cause of discrepancy. Can you explain it? Yes. Kadto bitaw topic natu on accounting methods
and accounting periods, recognition aspect.
Ang 4th source of discrepancy is very common among PEZA-registered companies because fot them, diba naa man nah silay importation. Ang impor-
tation lang na masulod sa system ni BOC are only the actual importations, those that come from abroad. Pero kaning PEZA entity, naa man sad nah
silay gitawag na technical importation. They purchase something from the customs territory and bring it inside the PEZA. Of course, kana na impor-
tation, it will not go through the BOC. So ang tendency, ang importation record na makuha from the BOC system is usually lower than the importation
na gina-record ni PEZA-registered entity so it creates discrepancy. Pero pwede ba nah ma-explain nimu? Yes, you just have to present there the
supporting documents. Basta properly documented lang, bahalag tanga2x ang accounting nimu, and it’s later on assessed by the BIR, pwede pa nah
nimu ma-explain.
Mission Orders (MO)

Coverage: All surveillance and stock-taking activities
Purpose: To monitor taxpayers on non-compliance with requirements on issuance of receipts, filing of returns, declaration of taxable transactions,
taxpayer registration, and payment of correct amount of taxes.
Mao ni ang pinaka controversial karon especially in Cebu City because this is what is being used by the RD in raiding Ong Kin King and the warehouse
in Mandaue City. What differentiates an MO from a LOA and LN? Ang LOA and LN, usually mag kuyog man nah sila, pahimutang o pinahiluna. The
finding of discrepancy is done in the office, in the system of the Bureau. But when we say MO, this is issued with a sense of urgency pursuant to a
third party anonymous report that a fraud is being undertaken by a particular taxpayer nga pwede mawala na the following day or the following
period. Since dinalian man, of course mag-issue2x pa jud kag LOA ug LN diha? From the word Mission Order, pareha sa military na they have a specific
mission. In the MO, naka-specify kung unsa ang buhaton. Mukuyog man nah usually si RD in the service of the MO. Naka-enumerate lang unsa ang
mission nila or unsa ang pwede buhaton. And usually, it involves inventory-taking or stock-taking, checking of the cash register or the POS machine
to check if it is duly registered with the Bureau. Understandably, if mu-go beyond the mission, dapat questionable na nah na action. But of course, if
in the process of implementing the MO, the BIR determines that there is a fraudulent act which is being undertaken by the taxpayer, pwede right
there and then, sitahon ni BIR who is implementing the MO. The problem lang is sa MO man gud, diba ang usual source man gud sa information kay
ang internal employees of the company. Kung naa gale kay employee na awayon dinha nya di ka tax compliant, di lang nah sila muadto sa DOLE or
magpalaban sa NIRC, pwede pa samukon imu negosyo and go to the BIR. And mao nang sa MO, naka-specify if asa musud or muadto ang BIR officer
kay detailed man kung asa nakatago ning mga sigarilyo for example na walay excise tax propery paid, etc. If you look at it, MO is more like a search
warrant. Actually mao nah ang issue na naforesee naku because I still have to see a jurisprudence in the SC invalidating a MO kay mahulog siya na
murag SW but it is not being issued by a judge. Diba, naa pa man toy weight of evidence before you can issue a SW or WA but, in this case,, it is not
49
apparent kung unsa ang weight of evidence before mag-issue ug MO. It is more of discretionary on the part of the RD especially if there is an anony-
mous report. Anonymous gud, in the first place, di nah nila i-concretize. As far as I know, it happened in 1 warehouse in Mandaue nga ang sayup lang
sad with that warehouse is nag tax mapping ang BIR officer, there are around 38 warehouses there, when they went to this warehouse, pagpaila na
taga-BIR, automatic nanirado and then namalong daw but klaru kaayo na naa sila sa sud. Natural ang taga-BIR unsa may mathink ana? Worse, naa
pa jud ang RD so automatic, nag issue ug MO. So gipaguba ang pultahan and based on reports daw, gipang dala daw ang computers. But I think, that
pertains to unregistered cash registers or POS kay murag laen sad kaayo alsahun ni BIR ang computer na usually kwaon ra man nah if you have
pornographic materials.
Basically, an audit starts with the issuance of a LOA. Mao gyud nang pinakaimportante. But other items which will tell you na ni-commence na ang
audit or assessment is when you receive an LN or MOA or MO. But under all these cases, if mu-go into detail na si BIR, presumably there must be a
LOA issued.
Now, we go to the assessment process.

It starts with the issuance of the LOA. Then an audit or tax investigation will be conducted by the BIR. Based on that audit or tax investigation, the
BIR will have to note deficiency. If there is no deficiency, then there is no problem. But of course, as what I’ve told you, before the issuance of a LOA,
there is already an idea na naa kay deficiency. So more often than not, there will be deficiencies. So once the deficiencies are being noted, the
taxpayer will be informed. The BIR will issue a written report, LN, summary of the discrepancies, and the BIR will call for a notice of informal confer-
ence. So, before, 2013-2017, the notice of informal conference, gitanggal ni BIR, ni Henares, because according to her, this is a cause of corruption
daw. But recently, during the time of Dulay, he issued a revenue memorandum cicrular (RMC) reinstating the notice of informal conference. Actually,
kung tarungon lang jud nimu ug implement ang notice of informal conference, very helpful. Recently, ang usual na i-issue ni BIR is LN and then sa
ubos naa ray paragraph na notice of informal conference which will begin in a certain period of time. So, medyo useful ang notice of informal con-
ference because this is the period when the taxpayer will meet the examiner face to face. Diha sila magstorya unsa ang basis ani na assessment and
unsa ang possible defenses ni taxpayer. Of course, if you have taxpayer clients later on who will go to a notice of informal conference, in advance
nakadawat naman nah syag LN, so in advance kaybaw na ka unsa ang position ni BIR. So if ikaw si taxpayer, before ka muadto in a notice of informal
conference, you must already evaluate the computation of the BIR if sakto. For sure di jud nah sakto kay based ra gud nah sa system. If di sakto, mag
per line item na ka of your defenses and supporting documents. So mao nah ang usual na ginabuhat namu, once we receive an LN from the BIR, we
prepare 2 columns, a column based on the computation of the BIR, another column based on the computation of the taxpayer, and another column
for the remarks. Sa remarks ngadto na ishow either ang basis of the reduction is based on case law or based on a particular supporting document
kay there are many assessments man ni BIR na based lang on logic which is not supported in law or SC decisions. Ang pinaka common dinha is if there
is understatement of purchases, meaning ang gi-report naku sa tax return naku mas higher ang purchases kaysa sa supposedly sakto kuno na pur-
chases (diba overstatement unta ni? Idk ☹), so if there is understatement of purchases, ang buhaton ni BIR is i-disallow to niya na purchases and i-
assess ka niya for unpaid income because of the understatement of purchases. And we very well know diba na when we say taxable income, you only
subject it to tax kung naa to na elements na dapat there is actual receipt or constructive receipt of inflow or cash. In this case, it is a matter of
understatement of your purchases. There are many possible reasons nganu na-understate nimu ang purchases or importation nimu. So ang usual
defense dinha kay katong basic elements of a taxable income na gi-discuss natu sa Tax 1 and kadtong ‘all events test’ na defense. So, based on case
law. Usually, if you’re trying to argue with the BIR, it is either you base it on facts na naa kay supporting documents, you base it on law, or if you want
to cite ruling, you cite the ruling of the CTA or the SC. It is a no-no na mu-cite ka ug BIR ruling; worse na mu-cite ka ug RR or RMC. Why? Because
these are issuances of the BIR. So, if there is somebody who knows the intention behind those issuances, it is the BIR. It can even be overturned by
the BIR. But it is a different story if ang i-cite nimu kay ruling ni SC na sayup ni na treatment or sayup ni na logical presumption, kana mu-tuo si
examiner. Ang examiner man gud, if magpagahi gahi, mustick sa iya computation, if it goes up to the CIR level nya madaug ka sa CIR level nya
matapyasan ug 80% ang assessment ni examiner, that’s a slap on his face. BIR official sya, wa sya kaybaw unsay gibuhat niya. Mao nah tendency,
basta sakto lang ang explanation nimu during the notice of informal conference, so long as reasonable lang nah ang kastorya nimu ug wa nah nimu
gidaut pag maayo, maminaw nah. So mao nah it pays to stay kind and know your place ☺. So, that’s the notice of informal conference. Of course, di
kalikayan na mahitabu ang UTT during this notice of informal conference but that is only being done by a taxpayer na tapulan mu-depensa, tapulan
mukaykay sa records or in the first place wa juy records, in short, evader jud. So, during the notice of informal conference, diha ma-settle ni examiner
and ni taxpayer ang how much of the assessment is okay in which case willing si taxpayer mubayad, and how much of it na naay depensa si taxpayer
but dili solved or dili convinced si examiner, so it goes up. So kato na figure na wa ninyo nasabutan, it becomes a disputed assessment. If the taxpayer
does not dispute, then he can pay the tax. Pwede ba partial payment? Yes, but this partial payment is not done at this stage, na LN palang. The usual
na buhaton is after the issuance of the FAN. If the taxpayer disputes, then it will be reviewed by the assessment division of the regional office or the
CIR. Usually, it goes to the head office kung large taxpayer. Then, it will be determined if there is basis ba ang computation ni examiner. If there is no
basis, it will be dismissed favorable to the taxpayer. But if there is basis, then the next thing na mahappen is the issuance of the PAN. Upon such
issuance, the taxpayer ‘may’ respond. IOW, voluntary. The response of the taxpayer may be submitted to the BIR within a period of 15 days. But of
course, if di mu-respond si taxpayer, di pa ma-final ang assessment. If there is response and such is meritorious, i-dismiss. Pero at this stage, very
seldom na nah na i-dismiss ni BIR kay naka-issue na gud sya ug PAN. Panindigan na jud nah niya. Most likely ang finding is not meritorious. If it is not
meritorious or if there is no response filed by the taxpayer within 15 days from the date of receipt of the PAN, the next thing na mahitabu is that the
BIR will issue FAN. There are many cases na napildi si BIR because of the fact na walay formal demand. The instances ba na di gale klaru kung unsa
man, FAN na ba ni or secondary PAN ba ni, etc. Because of these issues, the SC laid down the rule that for us to ascertain na it is already a FAN, even
it is not worded that way sa heading, basta naa na gale nang demand to pay for a particular date, that is already considered a FAN. Mao nang sa
regulation issued during the time of Henares, she made it more specific. Dapat formal letter of demand and FAN. So, once you receive the FLD FAN,
50
this is now the point in time where the taxpayer is mandatorily required to protest such that if di sya mu-protest, the FLD FAN becomes final, execu-
tory and unappealable. The taxpayer must protest within 30 days from the date of the receipt of the FLD FAN. If ipa-lapse nimu ang 30-day period,
you cannot even raise the defense of prescription to the CTA because once you receive the FLD FAN, the rule there is you cannot go to the CTA via
judicial action unless you have exhausted first your administrative action, following the principle on exhaustion of administrative remedies. So, once
you receive the FLD FAN, you file a protest within 30 days to the BIR. The protest can be filed in 2 ways. It can be a request for reinvestigation or can
be a request for reconsideration. When we say request for reinvestigation, it means to say that you are trying to point out to the BIR a new or
additional evidence which is why if you file a request for reinvestigation, you are given 60 days within which to submit supporting documents. But if
it is reconsideration, more like of an MR lang. You’re just asking the BIR to take a second look of its computation. No additional document will be
issued. To be clear, when we say issuance of PAN and FLD FAN, kinsa ang mu-issue ani usually? This can be issued by the national office through the
CIR or the Deputy Commissioner. Pwede sad si regional office. Remember, the LOA can be issued by the RD. If the LOA is issued by the RD, everything
happens on a regional level. If the LOA is issued by the RD, it follows that the PAN and the FLD FAN will be issued by the RD as well. If regional ang
start sa assessment, the protest or the appeal is also at a regional level. So adto ka mu-file sa request for reinvestigation or reconsideration sa RD or
regional office. If si CIR ang ni-issue sa PAN and FLD FAN, the protest will be filed in the national office.
So, first it starts with the LOA, then you have the LN and the notice of informal conference, then you have the PAN and then the FLD FAN. 30 days
dapat ka mu-protest. It can either be a request for reinvestigation or request for reconsideration. So, ni-file na ka ug request. As a rule there, the CIR
is given 180 days from the date of the submission of documents or filing of the protest to decide on your protest. Kung reinvestigation, ang counting
sa 180-day period will only start after you have filed the supporting documents. But if it is request for reconsideration, the start of the 180-day period
will commence the moment you file your request for reconsideration. Is the 180-day period really a mandate on the part of BIR? No. If you look at it,
it is only directory na decidean niya in a span of 180 days. What if ang reinvestigation or reconsideration gi-file with the RD? Is the RD mandated to
follow the 180 days? No, it is also just directory. But the point is, if there is a decision, tan-awn nimu if the adverse decision, meaning pildi ka, it must
be delivered within the 180-day period. OW, if ni-lapse na ang 180-day, wa gihapon ang deicision, the taxpayer can immediately appeal to the CTA
within 30 days after the lapse of the 180-day period. Mao nang niingon ko na it’s more like directory lang on the part of the CIR kay even if mu-lapse
na ang 180 days, the taxpayer can wait gihapon for the receipt of the adverse decision. And only upon the actual receipt of such adverse decision will
the 30-day period to appeal be counted. So, 2 options basically if no decision was rendered within the 180-day period. If an adverse decision is
rendered within 180 days, then you can file an MR to the CIR. Take note lang mao gi-differentiate naku kung kinsa ang ni-decide if regional or national
level ba kay if the adverse decision within 180 days, or even ni-lapse but it came from the CIR and you filed for an MR, it will not toll the running of
the 30-day period to appeal to the CTA because filing of an MR to the CIR is not really sanctioned under the NIRC. IOW, the wisest thing to do is that
once you receive the adverse decision from the CIR, file an appeal immediately within 30 days to the CTA. Kana kung gikan ni CIR ang adverse decision.
If gikan gale ni RD, pwede gihapon ka mu-file ug MR but in such case, kay subordinate man, ang MR shall be filed not to the RD but to the CIR. And in
that case, the MR that you filed will not affect the running of the 30-day period to appeal to the CTA. So, even if ni-file kag MR, di mu continue ug
dagan ang period to appeal to the CTA. Usually ang wording ana, if you receive a denial from the regional level, naa na nah sa wording sa ubos,
muingon na nah si RD na you can file an MR to the CIR or within 30 days, file an appeal to the CTA. Basically, kung gi-deny nah at the regional level,
you have the option also within 30 days upon receipt of denial to appeal diretso to the CTA, instead of filing an MR to the CIR. But the point is if
decision is from region, and you file an MR to the CIR, the 30-day period to appeal to the CTA will not yet begin to run. Only when you receive an
adverse decision from the CIR and you file an MR to the CIR, mag dagan na ang 30-day period to appeal to the CTA.
So again, filing an MR will not stop the running of the 30-day period to appeal to the CTA if the adverse decision came from the CIR. If the adverse
decision came from subordinate of the CIR, even if you file an MR to the CIR, the 30-day period will not begin to run.
So, national level nalang ta para di mag libug, so CIR level. From the CIR, you file an MR. Usually, denied jud nah gud. If you file an MR and favorable
ang decision, which is seldom na mahitabu, then no problem. But if adverse decision gihapon or if you did not file an MR to the CIR, then within 30
days, appeal to the CTA. However, if you file an MR to the CIR, since this does not toll the running of the 30-day period, you really have to count on
a daily basis. Di nimu huwaton na makadawat ka sa resolution ni CIR on your MR. Basta before the lapse of the 30 days, appeal to the CTA. if the
decision of the CTA is favorable, no problem. However, if it is still unfavorable, you can file an MR to the CTA. If favorable, no problem. If unfavorable,
that is the time that you file a petition for review to the SC. Take note, CTA to SC. Mu-matter ba if 300k/400k kadtong rule sa jurisdiction sa MTC and
RTC? No, because if it is something to do with tax, automatic it goes to the CTA. Way labot si regular courts.
51
Assessment Process
Issuance of PAN
Response from
No Yes
Taxpayer?
No Meritorious? Yes Dismiss
Formal letter of demand &

final assessment notice
(FAN
Submit supporting documents

Reinvestigation within 60 days from filing of pro-
test
Becomes final
and executory; No Protest (30 days?) Yes
no CTA appeal,
COLLECTION
Reconsideration
With or without submission

of supporting documents
CIR decision within 180 days

from date of submission of
documents/filing of protest
No Decision within 180 days? Yes
Appeal to CTA w/in 30 days after lapse

of 180 days OR wait for BIR decision i.e.
from receipt of adverse decision. No Favorable to TP? Yes END for TP; SOF may review
(Lascona Case, 2012)
No File MR? Yes
Appeal to CTA w/in 30

days from receipt of No Favorable to TP? Yes END for TP; SOF may review
adverse decision
Favorable to TP? Yes END for TP;

CIR may appeal
No
Yes
Favorable to TP? PETITION FOR
File MR No
REVIEW TO SC
52
Q&A: With respect to the prescriptive period, what if the LOA covers the period of 1 yr and then the assessment pertained to a transaction in the
first quarter. Asa ang reckoning point of counting? Is it the last day of filing in the first quarter or April 15?
If it is income tax, we base it on the April 15 on the following year, dili sa quarter because that is the deadline of filing man gyud set under the Tax
Code. But if it is withholding tax, that should be on the deadline when you’re supposed to file the withholding payments. If you base it on the quarter
man gud, the examination of the income tax cannot be done on a quarterly basis. It has to be done on an annual basis. Mao nah usually April 15 of
the following year. For VAT, it is on a per quarter and even monthly basis. Same thing with OPT as well as withholding taxes. Lahi sa income tax kay
iadjust pa man nah nimu annually. I mean if i-assess ka on a per quarter basis, you can very well say na this was adjusted pa towards the end of the
year.
Which is better if regional level, file an MR to CIR or go directly to CTA?

It depends on your objective. If your objective is to prolong the process and really exhaust the administrative remedies, then might as well file an MR
to the CIR especially if you have contacts at the national level (wink). But,if the regional office is very active in the collection, remember, basta napildi
na ka regional level, pwede na baya mustart ug collection process si BIR. Ma-stop lang nang collection if a TRO is issued by the CTA. If di ka ganahan
ma-encumber imung mga real properties, ang uban labi na if daku ang figure then active kaayo ang region in collecting kay lage nakontrahan ka,
mao nah ang uban they go directly to the CTA and file a TRO. Mao nang gibuhat ni Pacquiao.
Clarification
General rule, a FAN must be issued after the lapse of the 15-day period. There are many cases like in the case of Dionisia, napildi ang BIR because the
FAN was issued 4 days after the issuance of the PAN. But there are cases na even if the FAN was issued na wala pa ni-lapse ang 15 days, ni-ok ra ang
SC because naka-file nag response si taxpayer. For example, naka-receive kos PAN. After 5 days, I filed a response. On the 6th day, gi-issue ang FAN.
So, ok na. But it will be a different story kung gi-issue ang FAN, wa pa ko naka-response, nya after 4 days, nag-issue na dayun ug FAN si BIR.
November 9, 2018
A: We move on to the assessment process
What is this assessment process?
S: You start from the issuance the LOA (Letter of Authority)
A: Then there is investigation basically there will be determination of deficiency then if there is proceed to giving a Letter Notice (LN) to be given to
the taxpayer or a tax verification office. Next?
S: If the taxpayer disputes…
A: Well before the dispute, after you receive the LN or the TVN there could still be a Notice of Informal Conference between the examiner and the
taxpayer
BTW I forgot to mention last meeting because there was a period in 2013 up to early 2018 na gisuspend ang notice of informal conference. The
difference between the previous notice of conference and now is limited na lang to 30 days ang notice of conference. Unlike before, it does not have
a period which can even extend to several years and so there can be corruption. So after receiving the LN and after conducting the notice of informal
conference within 30 days and dili magkaagree…?
S: There will be a review and then there will be an issuance of PAN (Preliminary Assessment Notice)
A: Are you required to protest on the PAN?Not mandatory but you can file a response to it voluntarily within a period of 15 days. Now of course if
the BIR did not honor your response then the next phase will be the issuance of FLD-FAN ( Formal Letter of Demand and Final Assessment Notice).
This time around are your required to protest?
S: Yes otherwise it will become unappealable. Protest must be on a period of 30 days from the date of receipt of FLD-FAN.
A: And when it comes to the form of protest you have to state whether it is a request for investigation or request for reconsideration. What’s the
difference?
S: Request for reconsideration - you are asking for a review of the computation based on existing document;
Request for reinvestigation - there will be new documents to submit which can be newly discovered evidence or additional evidence on the part of
the taxpayer
A: If request for reinvestigation you are given how many days to submit the documents?
S: 60 days
A: After you’ve submitted the documents within 60 days reinvestigation or at the moment you filed your request for reconsideration the CIR is given
how many days to resolve your protest?
S: 180 days
A: What are the possible scenario with regards to the resolution of the protest?
S: They would affirm the prior decision
A: What if it is an adverse decision or there was no decision at all?What’s the cause of action by the taxpayer?
S: The taxpayer can appeal.
A: What’s the rule when it comes to judicial action of the taxpayer?
53
A:…We have to check if there was a decision by the CIR. Check dayon if the adverse decision was made within the 180 day period or if the adverse
decision was made beyond the 180 day period or if there was no decision at all and the period already lapsed.
1.) Adverse decision within the 180 days -the taxpayer can appeal to the CTA within 30 days from the date of receipt of the decision which was issued
within 180 days for the CIR to decide. You can also file a motion for reconsideration to the CIR but as a consequence it will not toll the period to
appeal to the CTA. That is if it was issued by the CIR.
What if the adverse decision was issued by a Regional Director or a subordinate ad you file a motion for reconsideration sa CIR, will the MR toll?
It will toll. If there was a decision from a subordinate office of the CIR you have two options. One you can file to the CIR or file immediately to the
CTA an appeal 30 days from the receipt thereof. But if you file an appeal to the CIR, the 30 day period will not begin to run unless and until the CIR
issues its final decision on your MR.
Take note na kung ang decision is from a Regional Director, dili na ka karequest ug reinvestigation sa CIR. It will only be a request for reconsideration.
Kay diba if we go by the LOA, it can be issued by the CIR or a subordinate official of the BIR. So if gikan sa subordinate official, it follows that the PAN
or FAN is also issued by the subordinate official so the protest to the FAN should also be filed to the office of the subordinate official. That decision
of the subordinate if adverse sa taxpayer duha ang course of action nimo. One go directly within 30 days from the CTA upon receipt of the decision
or file an MR to the CIR.
It is a different story if everything is commenced by the office of CIR. If CIR ang nagissue sa LOA ang PAN and FAN and protest thereto should be filed
to the office of CIR. You can file an MR but it is not required under the law so the MR to their adverse decision will not toll the period to appeal to
CTA.
Take note in all these circumstances from admin to judicial action there is nothing that will stop the BIR from commencing an action for collection
which is why if you want to restrain from collecting sa imoha, you have to get a TRO from CTA.
Let us now discuss the two forms of protest: Request for reinvestigation and request for reconsideration. Both of them are similar in the sense that
both of them are *** for a violation and they involve either questions of fact or law or even both. But the request for reinvestigation is based on
newly discovered evidence or new evidence which is why you have 60 days to submit evidence. Request for reconsideration based lang ni sa existing
records like the MR in the regular courts.
Reconsideration vs. reinvestigation

Request for reconsideration does not stop the running of the 5-year 120llect
- BIR should be able to initiate collection within 5 years from issuance of FAN
• If not, the BIR loses right to collect even if the assessment has become final and executory
- If you have pending protests, check what type (recon or reinvestigation) and evaluate whether right to collect has prescribed
Request for reinvestigation suspends the running of the 5-year prescriptive period for collection.
- period between filing of protest and issuance of FDDA is excluded from the 5 years.
-Check that there is a deemed approval of the request for reinvestigation (TVN, request for documents, other indications that reinvestigation is on-
going)
• If none, request will be deemed disapproved. Running of the collection period is not suspended
A request for reinvestigation shall be deemed a mere request for reconsideration if taxpayer continues to refuse or fail to submit evidence and
cooperate in the investigation process
But what is essential if magrequest for reinvestigation or reconsideration is the fact that the latter will not stop the running of the 5 year period to
collect. Take note na sa statute of limitations, we are basically referring to the prescriptive period to assess and also period to collect.
Kanus.a tong prescriptive period to assess? Either 3 or 10 years
Kanus.a maconsider na naa nay assessment? Once ang taxpayer naa nay FLD-FAN not the LN, or even PAN. Meaning to say when he receives a FAN
mudagan na sad ang prescriptive period to collect because the period is 5 years as reckoned from the date of assessment. Kung kanus. a narelease
or namail ang FAN, diha mudagan ug sugod ang FAN. There are instances though na masuspend ang 5 year period sa pagcollect let’s say for example
if there is a request for reinvestigation and it was granted by the BIR which suspends the 5 year period to collect. The period between filing of protest
and the issuance of FDDA (Final Decision on Disputed Assessment in short nagpareinvestigate ka and then naay decision) is excluded from the 5
54
years. But if it is a request for reconsideration different sad because a request for recon will not stop the running of the period to collect. And once
niprescribe na the BIR cannot anymore collect even if the assessment is validly issued within the period.
So ang pinakauna na depensa ni taxpayer is the prescriptive period. Tanawn nimo if the assessment is within the 3 or 10 year period. If yes, check if
the collection is within the 5 year period to collect from date of assessment.
Sir nagbasa kos NIRC wala lagi ang period to collect? If you go to Sec. 203 class of the NIRC, the heading is prescriptive period to assess and not
prescriptive period to collect. Pero ang gidiscuss lang niya is prescriptive period to assess which is 3 years from the *** or earlier or 3 years from the
date of actual filing. Walay mention on the period to collect. Idk if it is an oversight. But if we base it on recent jurisprudence by SC, the cases adhere
to the 5 year period to collect and its basis is the Tax Code prior to its amendment in 1997 since before specific ang tax code na ang period is 3 years
for assessment and collection kay 5 years. We can infer from Sec. 222 anyway na in paragpraph c and d na niana sila na “any revenue or tax which
has been assessed within the period of limitation as prescribed in paragraph a hereof may be collected by distraint or levy or a proceeding in court
within 5 years following the assessment of the tax.” You also have in letter d “any internal revenue tax which has been assessed within the period
agreed upon as provided in paragraph e…(kung muingon ka assessed within the period agreed upon meaning there was a waiver of the statute of
limitations extending the prescriptive period from 3 to another date) maybe collected by distraint or levy or a proceeding in court within the period
agreed upon in writing before the expiration of the 5 year period”. So that gives us an idea that the prescriptive period is 5 years. Although there
were some cases na ingon si SC 3 years to collect but exceptional cases like katong Standard Charter Bank case.
If mugo beyond the 5 years, the BIR will lose its right to collect. But if it is request for reinvestigation, the period from the filing of the protest to the
issuance of decision and dispute of assessment is exclued from the 5 year period. But maexclude lang na class if there was approval of the request
for reinvestigation.
When can you say that your request for reinvestigation is approved? If BIR issues what we call the TVN or the tax verification notice notifying the tax
payer on his tax deficiency and verifying the correctness thereof.
What are the indications that reinvestigation is ongoing?

• if the taxpayer is required to execute waiver of the statute of limitations – mao ni ang primary requirement ni BIR before they will act on
the reinvestigation. (note: invalid waiver will not extend the period to assess and if not extended all assessments issued after it are considered void
and illegal)
A request for reinvestigation would be considered a mere reconsideration if the taxpayer continues to refuse or fails to submit or cooperate in the
investigation. There is very common kay some taxpayers given 60 days to submit evidence and want to make use of the time to delay the process,
ang ifile nila is request for reinvestigation. Magcite cite lang na silag additional documents but at the end of the day wala ni submit ug evidence.
Basically para di mo maoverwhelm sa graph, you just have to remember:
LOA>LN>PAN>FLD-FAN>Protest within 30 days (either for reinvestigation or request for reconsideration)
*if reinvestigation 60 days to submit documents; once the protest is filed on time then 180 days for CIR to decide and there can be 3 possible
scenarios:
1.) if there was a decision issued within the 180 day period - you can either appeal to CTA within 30 days from receipt or
2.) no decision within 180 days - you can wait for the adverse decision beyond the 180 day period and thereafter appeal to CTA or
3. ) upon the lapse of the 30 day period appeal to the CTA
Pro-forma protest
Now when it comes to filing a protest, the protest must not be a pro forma protest for it to not be considered as a mere scrap of paper. When can
you say that a protest is pro forma? It means it is a mere scrap of paper, not a valid pleading because there are allegations that needs to be specified
for the pleading to be considered valid.
A pro forma statement is not valid
Same thing is true for protest. When we say pro forma protest it does not present your basis of protest factually as well as legally.
Pro forma statements are usually:
1. General statement that the taxpayer disagrees with the findings and requests for their cancellation
2. Reiteration of the grounds already stated in the reply to PAN
55
3. A reference to the previously filed reply to the PAN
“We have already submitted our reply to your findings in a letter dated ____ and received by your office on ____.”
Prescribed Format
• Name of the taxpayer and address for the immediate past 3 taxable years
• Nature of request whether reinvestigation or reconsideration
• In case of reinvestigation, specify the newly discovered evidence
• Taxable periods covered
• Assessment notice numbers
• Date of receipt of assessment notice or letter of demand
• Itemized statement of the findings to which taxpayer agrees as a basis for computing the tax due
• Itemized schedule of adjustments with which the taxpayer does not agree
• A statement of facts and or law in support of the protest
Mao na usually sir sa kanang pleading diba naa man ta usually formats naa tay prefatory statement, etc. Sa protest sa FAN there is really no prescribed
format basta naa lang ni na details so mao na usually ang uban ang buhaton, diba per tax type man ang protest? Kay ang protest is done per tax type
so ipresent una ang computation ni BIR to be followed by the computation of the taxpayer and then sa bottom didto na ang questions ngano inani
ang tax amount, unsay basis in law and sa law ani na computation etc. When we say basis in law class this is not limited to the provision under the
Tax Code or the provision under the regulation. Mas mahadlok and mas mutoo si BIR if you base it on a case law decided by SC or CTA.
Sir what if naassess ko beyond the prescriptive period? O in your statement of facts you disclose it there na kani na nga date nimo nadawat. That is
very important to know if nakadawat ka beyond the 3 year period. Para dili ka ma in pari delicto. Kay dili man pwede na tagu-taguan nimo admin
level and then you just raised it last minute sa CTA or SC, that is not a safe strategy.
So again protest to the PAN is not the same as a protest to the FAN.
Venue for filing protest to FAN (&FDDA)
Receiving office for protest letters to FAN

1. Office of the Regional Director
2. Assistant Commissioner - Large Taxpayer Service
3. Assistant Commissioner -Enforcement Service
The concerned office who signed the assessment notice shall record and evaluate the protest/request for reinvestigation or reconsideration procedure
is not followed, the letter of protest or request shall be considered VOID and without force and effect.
So where to file the protest? Basta kung kinsa ang niissue sa PAN, didto sad nimo ifile ang protest. Example, ang PAN gikan sa Regional Director, then
have the protest received by him.
Prescriptive Period
A FAN/assessment issued beyond the 3-year period is invalid.
Amendment: extends the prescription period.
Possible defense:
CTA: If the original return is sufficiently complete (amendment did not introduce significant changes), prescriptive period should be reckoned from
original return
56
Extension of prescriptive period
To have time to gather the docu-

ments needed to contest the BIR’s
findings
Why should a taxpayer under exami-

nation agree to extend prescriptive
period for assessment?
To have more opportunity to re-

solve the findings at the Informal
Conference or PAN stage
We discussed this already a PAN issued beyond the 3 year period is an invalid assessment. However there are two instances na maextend ang
• If there was a substantial amendement to the assessment - the counting of the three year period to assess will start from the date of the filing of
the substantially amended return. (Substantial amendment - change in liability esp if it caused a decrease)
- Take note this does not refer to the 30% overdeclaration or underdeclaration kadto na rule muapply to on manifestations of intent to
evade tax. It is not for substantial amendment of tax
• If the taxpayer signed a waiver of the statute of limitations
- this means the taxpayer basically agrees to extend the prescriptive period for assessment.
- this waiver is required for request of reinvestigation since on the part of the taxpayer he will have more time to gather evidence. If on the
part of BIR, more chance to resolve the findings in the PAN stage or during the informal conference in short dili magdali ug examine si BIR
Validity of the Waiver as a defense
Does not extend pre-

scriptive period
INVALID WAIVER
Renders assessment
invalid
57
Requisites of a valid waiver
Old Rule (RMO 20-90) New Rule (RMO 14-16)
Must be in form provided by RMO 20-90, RMC 20-2012 May be but NOT necessarily in the form prescribed by RMO 20-
90 as long as it complies with the minimum requirements:
• Executed before expiration of assessment/collection period
(date of execution must be indicated)
• Signed by the taxpayer or duly authorized representative.In
the case of a corporation, the waiver must be signed by any of
its responsible officials
• Expiry date agreed upon to assess/collect after regular 3-year
period must be indicated
No such rule Taxpayer bears the burden of ensuring that the waiver is validly
executed by its authorized representative
Must be notarized Sufficient in writing
No such rule Shall take legal effect and be binding on the taxpayer upon its
execution
Only the authorized officials are allowed to accept the waiver The CIR’s authorized representative, the revenue district officer,
or the group supervisor designated in the Letter of Authority for
the audit are allowed to accept the waiver
November 14, 2018
QUESTIONING THE VALIDITY OF THE ASSESSMENT

In the new rule, only two dates needs to be specified.
Other than questioning the validity of the waiver, what are the possible arguments that a taxpayer may raise in the protest?
To question the validity of the assessment or in short when it comes to argument in the protest, the usual arguments that is raised by the taxpayer
are these 5 arguments:
1. FAN was issued without the PAN or the preliminary assessment notice
The tax court as well as the SC has been consistent in declaring that a FAN issued without a PAN is a violation of the due process clause of the
constitution.
So being a violation of the due process, the FAN is considered invalid because settled is the rule that PAN is part of the due process requirement or
due process clause under the constitution as provided under the nirc and as provided under the revenue regulation.
Take note, however, that is just the GENERAL RULE because there are instances na dili naka kinahanglan mag issue ug PAN. Meaning to say there
are exceptional cases where the BIR can immediately issue final assessment notice or even no assessment at all.
False or fraudulent return, basically, the bir has the option to either issue formal assessment before proceeding with collection or bir can immediately
file a case of tax evasion to collect the tax, no benefit of assessment.
As provided under the tax code, there are exceptions to the rule that A PAN MUST BE ISSUED AS PART OF DUE PROCESS, what are these instances?
(Sec 228)
 If it is a result of mathematical error as appearing in the tax return.
 Discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent.
(when it comes to withholding taxes it is not the liability of the statutory taxpayer the burden falls on the entity to whom the tax was
withheld. So the withholding agent is the agent of the government so pwedi na dritso e assess ni bir.)
 When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year;
58
(the option to carry over and the option to claim refund or tax credit is mutually exclusive. So kung nagmake kag refund or tax credit and
then you carried it over and then grefunan ka or ghatagan ka sa TCC nya na carry over sd nimo so basically double whammy in so far as the
bir is concerned so automatic pwedi ka e assess without any benefit of PAN kay nadoble man ug claim nimo.
 When the excise tax due on exciseable articles has not been paid;
(when it comes to due on exciseable articles no need of any analysis or computation naka specify man pila ang excise tax for a particular
exciseable article so automatic pwedi na FAN.
 When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
SO UNDER THESE FIVE INSTANCES THERE IS NO NEED FOR THE ISSUANCE OF PAN. BUT NOTHING PREVENTS THE BIR KUNG GANAHAN SYA E INDICATE
NA FIRST IN A PAN.
2. FAN was issued prior to lapse of the period to reply to the PAN
Meaning pila to ang period to reply to a PAN although not mandatory? 15days. Meaning to say wala pa ni lapse ang 15day period nag issue na si BIR
ug final assessment notice.
This is a situation nga nag issue ug PAN si BIR wala pa ni lapse ang 15day period nakadawat na ug FAN si taxpayer.
So the question now is, is this a violation of due process? Take note, dili automatic na violation of due process kay there are 2 possible, either it does
not constitute denial of due process, especially if there is substantial compliance on the part of bir. Kanus a ta maka ingon nga there is substantial
compliance? If the taxpayer was able to respond to the PAN. Like for example, nag issue ug PAN si bir, nadawat ni taxpayer, prepared na daan si
taxpayer, on the 5th day, nag send siya ug response sa PAN, pagka 6th day nakadawat sya ug FAN, so in that case there is no violation of due process,
kay nakareply naman si taxpayer to the PAN.
But it would be a different situation if the taxpayer has not yer replied to the PAN and the FAN was issued prior to the lapse of 15 day period, because
in that case it amounts to denial of due process.
FAN issued prior to lapse of period to reply to PAN: NOT A VIOLATION OF DUE PROCESS
CASE 1: in its appeal for cancellation of FAN, the taxpayer alleged that it was deprived of due process when the BIR issued FAN only one day after it
filed its reply to the preliminary assessment notice (PAN).
CTA: although the taxpayer was not able to take advantage of the full 15 days given for it to file its comment on the PAN or its reply was not read by
the BIR, the BIR substantially complied with the requirements of due process, considering that the taxpayer was not only given the opportunity to
refute the PAN issued by the BIR but also exercise its option to file a protest to the FAN.
FAN issued prior to lapse of period to reply to PAN: A VIOLATION OF DUE PROCESS
Case 2: the bir issued a FAN /FLD six days before the lapse of the 15-day period which was given to the taxpayer to respond to the PAN. The tax office
argued that the premature issuance of the FAN may be ignored since the same was actually received by the taxpayer a day after the 15 day period.
CTA: the CTA did not agree with the proposition of the BIR. The Court said that the 15 day period given to the taxpayer must be respected. The 15
day period provides the taxpayer the chance to fully exercise its right to due process. The premature issuance of the FAN is a clear violation of the
taxpayer’s right to due process. As such, the FAN is void.
Worst pa gyud ang depensa ni bir is dapat okay ra na because although the FAN was dated prior to the lapse of the 15 day period, it was actually
received by the taxpayer after the lapse of the 15 day period kay g-mail man niya, but still the tax code said there was violation of due process, ngano
man? Because when it comes to sending of notices, kung registered mail, we don’t care kung kanus a na na receive ni taxpayer ang counting is at the
time of mailing or sending. So ni ingon si tax court, the 15day period to provides the taxpayer supposedly the chance to fully exercise its right to due
process so the premature issuance of the FAN prior to the 15day period is a violation of due process therefore the FAN is invalid.
So two possible situations.
3. FAN was not issued in accordance with section 228 of NIRC
What does section 228 requires? That a FAN must have legal and as well as factual basis and these legal and factual basis should be expressly
indicated, specified and discussed in the final assessment notice.
In this case, compliace is mandatory.
FAN not issued in accordance with Sec. 228 of the NIRC – INVALID
The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.
Section 228 of the Tax Code

Supreme Court: Compliance with section 228 is mandatory.
Walai statement as to the fact or the law to which the assessment is based that is considered as an invalid assessment.
If the bir will charge you interest and surchage it must also cite the corresponding codal provision in the nirc nga basis niya in charging you the interest
as well as the surcharge.
59
Kung mu charge sya 50% the must be factual allegation on the commission of the fraud. So ddto nya eexplain. Everything must be stated. Dili pwedi
nga ang assessment is just a computation of your deficiency tax liability. If that is the case then that is considered as in invalid assessment or violation
under the requirements in section 228.
What is an example of an assessment declared invalid for failure to meet the mandatory requirement under sec 228.
In one case class, the assessment was just based based on the quarterly list, kadtong akong g ingon ninyo na ibangga bangga ang summary of sales
and summary of purchases or based lang on the relief system. in that case, the assessment there is termed as naked assessment. so kay naked
assessment man we tied that up to section 228 that the assessment is not based on fact or on the law.
The SC is consistent in saying that if the assessment is based lang in the relief system, or based lang on summary list of purchases or summary list of
sales, it should be verified by the bir, there should be other 3rd party information nga dapat basehan ni bir in issuing the assessment not just based
on that alone. otherwise, it is not based on facts it is based on report generated in the system so declared na as invalid assessment.
So unsa mai buhaton ni bir? basically, di ba naa na man na syay idea of the deficiency in the system, the bir should confirm it with the taxpayer and
pa explainon si taxpayer, nganong ingun ani man ni. if the taxpayer will not explain, diha na musulod ang best evidence obtainable.
Best Evidence Obtainable - the bir can check third party information. the bir can actually summon the supplier or summon the customer of the taxpayer
to present a summary of transactions pertaining to the taxpayer being audited or examined by the bureau so that in that case, ma confirm niya ang
deficiency result sa system with the existing evidence or documents. and then diha na niya e issue ang FAN.
4. That the assessment was based on the relief system.

therefore it is considered as an invalid assessment.
Naked assessment no factual and legal assessment
ASSESSMENT BASED ON RELIEF SYSTEM — INVALID!
CTA: BIR’s assessment against the taxpayer cannot be sustained since the assessment lacks factual basis. The BIR based its assessment merely on an
unverified quarterly list. The summary list if the purchases should have been verified with other externally sourced data in order to check the integrity
of the information gathered.
5. There was void FDDA
FINAL DECISION ON DISPUTED ASSESSMENT.
An FDDA is different from a FAN.
Will a void FDDA result to void or invalid FAN? in the regulation, take note, it is required that the FDDA should also be based on facts and or law and
if the fdda is not based on facts or law, that fdda is considered void fdda.
It will not result to a void or invalid FAN because ang grequire lang ni nirc na dapat based on fact and law is the assessment or the FAN, so long as
the assessment or the FAN does not violate sec 228, even if the fdda does not state factual or legal basis the assessment is deemed valid. pwedi
ghapon ka mu appeal to the CTA.
VOID FDDA: VALID FAN

A VOID FDDA DOES NOT NULLIFY A DULY ISSUED FAN
Decision v Assessment
The assailed decision arising from a void FDDA may still be appealed (denial due to inaction) and decided upon, without voiding the assessment itself.
Because again what is crucial there is the assessment notice, the FAN.
INSTANCE THAT WILL CAUSE INVALIDITY OR NULLIFICATION OF FAN

1. FAN is issued without PAN
2. FAN is issued prior to the lapse to respond to a PAN and no response has yet been filed.
3. FAN violates sec 228, not based on facts or law dili ang fdda
4. FAN is based lang on relief system
It is either your basis of protest is ni prescribe na ang period to assess, primarily wala ni extend ang period to assess because invalid ang waiver or
kadto nga situation ang foundation sa protest nimo.
What if napildi gyapon ka sa protest nimo, administrative.

Next course of action will be to appeal to the cta.
APPEALING THE ASSESSMENT TO THE COURT OF TAX APPEALS
60
So the usual guidelines when it comes to appeal to the cta, we have to take into consideration:
❖ Strength of the case
❖ Legal issues involved that cannot be resolved at the bir level
o Mao na nga ingon ko nnyo before when it comes to filing protest before the bir or admin level might as well cite decisions juris-
prudence of the cta and the sc so that when you go judicial level ready naka with your jurisprudence nga wala g honor or wala g
consider ni bir, because if you will just base our argument on circulars, rmos of the bureau of course the cta will give wait to the
argument of the bir because it is the bir who issued the ruling the rmos or the rmc.
❖ Desire to settle recurring issues
o When it comes to settlement pwedi ka musettle at the SC level at any stage so long as it is not a criminal case already filed in
court or there is no finding of criminal tax fraud case.
❖ Company Policy
❖ Cost-Benefit Consideration
Lets take for example the case of Dionisia Pacquiao.
Napildi sya BIR level so she appealed to CTA in division. Nidaog siya cta in division.
Obviously, the bir can appeal to the cta en banc and SC.
But you might ask, nidaog naman sya sa cta in division nganong mu compromise paman sya, why not fight up to the sc? take
note, fighting up to the sc could take several years before it can finally be decided.
even if mudaog siya CTA en banc because prescriptive period gud gihisgutan nya di pa gyud authorized ang ni receive. even if
mudaog sya en banc or sc take note ang kana nga 1M na tax assessed by the time 5yrs or after 10yrs is not the same 1M. di diay
mu grant ug interest si SC as part of the award? no.
because it is different class kung ikaw napildi kay kung ikaw napildi, pwedi ka collecan ug delinquency interest pero kung ikaw
mudaog sa sc dili ka collecan ug deficiency interest against the bir. mao na enter dritso compromise agreement with cir to lower
the tax liability settle and pay as early as that.
CTA JURISDICTION
When you go to the CTA we have to take into consideration the jurisdiction of the CA although we will discuss this in detail but as early as now take
note:
EXCLUSIVE APPELLATE JURISDICTION TO REVIEW:

 Decisions of the CIR in cases involving disputed assessments
 Penalties imposed or other matters arising from the NIRC
 Other laws or part of laws administered by the BIR.
o Kani ang pinaka controversial, because ang question nganhi is what if for example ang questionable is a circular issued by the
bureau. Do I still have to go to the CTA because that is a law administered by the CIR or I will go to the regular courts because it
is questioning the constitutionality of a circular. We will settle it when we reach cta jurisdiction.
PERIOD TO APPEAL
SEC 228 NIRC

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable.
Filing an appeal to CTA upon denial of protest

(Lascona Land Co. Inc v CIR GR 171251 March 5 2012)
Submission of documents -180 days- protest still not acted upon – within 30 days – taxpayer did not appeal to CTA —assessment not final and
executory
The taxpayer may await the final decision of the CIR and within 30 days from receipt of the decision, appeal the decision with the CTA.
Whose decisions are appealable?
61
o By statutory provision – decisions of the Commissioner of Internal Revenue
o RR No. 12-99 – Decision of the CIR or his duly authorized representative.
When it comes to the counting of the 180 day period it will matter if the protest is a request for reinvestigation or a request for reconsideration.
Request for reconsideration , automatic the moment you file the protest mu start ang running sa 180 day period
Request for reinvestigation, the 180 day period will begin to run after the submission of the supporting documents. Again the taxpayer is given 60
days to submit the documents.
But what if nilapse na ang 60 day period unya wala nisubmit ug additional supporting document si taxpayer? If that situation will happen, the request
for reinvestigation will just be treated as a request for reconsideration.
So in that case, dili ka mu count upon the lapse of the 60day period if there is no submission of additional documents. Instead, retroact ka upon the
filing of the request for reinvestigation you start counting the 180day period for the cir to decide.
Nganong importante man edetermine nato if it is a request for reconsideration or request for investigation?
Aside from the counting of the 180day period. Mumatter s dang prescriptive period to collect.
If it is request for recon, the 5yr prescriptive period to collect,padayon ug dagan.
But in request for reinvestigation, and it was validly granted, the 5yr prescriptive period will be suspended from the time you filed the protest, the
request for reinvestigation after the issuance of the fdda. So long as wala g appeal to the cta or sc.
So in that case, only after the issuance of the fdda, mudagan ug balik ang running sa prescriptive period.
What is its implication? Kung reinvestigation, dili magdali ug collect si bir from you. Bir will take time in sending notice of seizure, garnishment, levy
because that is reinvestigation during ***
But if it is reinvestigation and you failed to submit the documents, pwedi dali dalion ka ni bir when it comes to the collection, because take note from
the moment you receive the fan, technically bir can already start collecting from you until e prohibit sya by the cta, if there is issuance of tro or
injunction pursuant to the lifeblood doctrine.
Period to appeal
If taxpayer fails to submit relevant documents within the 60-day period, the period to appeal to the CTA is reduced to 30 days from the lapse of the
180-day period reckoned from the date the protest was filed with the BIR. The 60-day period shall not be considered in the counting of the 180 days.
(fil-hispano holdings corp v CIR, cta eb no 343 re: cta case no 7331, june 12 2008)
REMEDIES OF THE GOVERNMENT: Render unto BIR what properly belongs to the BIR so long of course the due process requirement is followed.
When does an assessed tax becomes collectible? (RMC 26-2016)

a. Failure to file a protest within 30 days from receipt of FAN/FLD
b. Failure to submit all relevant documents in support of the protest by way of request for reinvestigation within 60 days from date of filing
thereof
This is what ive been discussing a while a go. Kung motion for reinvestigation and you failed to submit the supporting document it is treated
as a motion for recon. Kung motion for recon, dili ma suspend ang running of the prescriptive period to collect, so pwedi na mucommence
ug collection si cir or bir.
c. Failure to appeal to the CIR or the CTA within 30 days from date of receipt of the FDDA issued by the CIR’s duly authorized representative
The moment you failed to appeal, it becomes final, executory and collectible.
d. Failure to appeal to the CTA within 30 days from date of receipt of the FDDA issued by the CIR
Kung ang mu issue sa fdda is the cir, even if you file a request for reconsideration or even if you file an MR to the CIR, will it toll the running
of the 30day period? No. in that case, even if nag MR pa ka, mu continue ug dagan ang 30day period and if you failed to file the appeal to
the cta within the 30day period kay gasalig ka nga nag MR ka to to CIR, considered final executory and demandable ang fan.
But it is a different story kung authorized representative, two options (1)MR to the CIR or (2) 30days appeal to the CTA.
So if you did not appeal to the cta within 30days or you did not file an mr to the cir that is the time that the fan becomes final and collectible.
e. Failure to timely file a motion for reconsideration before the CTA Division or failure to appeal to the CTA En Banc and Supreme Court
Remedial law, required man mag MR ka before kuan…
f. Failure to receive any assessment notices because it was served in the address indicated in the BIR registration database and the BIR was
not updated of the new address or cancellation of BIR registration
If the taxpayer transfers his principal office of business you need to file an application of updating of information. And your COR should
correspondingly be updated.
So that in that case whatever notice that will be sent by the bir, it should be sent to you new address. If it was sent to your old address, and
then you properly notified the bir, that is considered as invalid service.
62
But it would be a different story if ni transfer ka, wala ka nagnotify ni bir so gsend na ni bir to the old address, still that’s considered as valid
service.
When it comes to services of notice, specifically assessment, diba two options:
1. Personal service, the bir official will personally serve it to the taxpayer.
Sir what if walai tao kay nibalhin na, unsaon man na pagreport ni bir officer serving the notice in the last known address because wla
g update ni taxpayer. The rule there class is the bir officer should go to your last known address and ask for assistance from a brgy
official with two disinterested person who can attest nga either close or wla ddto ang taxpayer or wala gdawat ni taxpayer. Third party
will attest to it.
2. Substituted service via registered mail, of course, last know address gyud.
Question from Student: What if mag file ug exemption?
Atty: Because di ba naay special civil action for exemption? Take note class you cannot file a special civil action for injunction alone before the CTA.
The injunction or the TRO prayer must be ancillary to your appeal to the CTA. So dili pwede nga mu ingon ka ni CTA nga apply lang ko for injunction
because of this and that situation. You must first appeal before you pray for injunction or TRO. If ni appeal ka, then no problem in letter B. But if you
failed to appeal within the 30 day period, of course, dili nana i-entertain even if mangayo ka ug TRO or injunction because in the first place, ni lapse
na ang 30 day period. Consequence is it becomes collectible.
Q: If personal service, two disinterested persons? The BIR will give it to them or to determine kung asa siya?
Atty: No. The BIR will basically go to the last known address. And the two disinterested persons, well, naa man nay report ngadto na cannot be
located. Ang term ana nila is CBL tax payer. The two [dis]interested person will attest that the taxpayer is indeed CBL or cannot be located. Naa silay
lista sa CBL taxpayer in the BIR website na meaning ni sulay--because there are many instances nga kanang fly by night taxpayer bitaw or kanang naa
na kay hearing nga naay assessment, unya ang uban mahadlok so they will transfer to another location thinking na mawala ang assessment against
them but it's not really the case. Mu continue ang assessment nimo even if you're a CBL or cannot be located tax payer. So that's a common advice.
If you want to check kung unsa or mupalit ka ani nga company, you try to check if naa ba na siya sa CBL list of taxpayer because if naa na sa CBL list
of taxpayer most likely there should have been a notice of audit or assessment na wala niya nadawat because ni transfer ug address without informing
the BIR.
Unya mu ingon ka, so sir magtago2x na lang ko wala man nay consequence di man ko madakpan. Aw kung mahibaw an ni BIR kung asa ang properties
nimo, di ba, this becomes collectible, so proceed si BIR sa levy.. so mu continue ra jud gihapon.
If napilde si taxpayer - meaning to say the assessment becomes final, so what are the options that the taxpayer may avail?
Of course, obviously the taxpayer will have to pay the full amount, but in case the taxpayer will not pay or cannot afford to pay the full amount, the
taxpayer can just apply for compromise settlement or apply for abatement. We will have a discussion what's the difference between compromise
and abatement but as of now, remember when we say compromise settlement - naa pa gihapoy ma collect si BIR, but at a minimal amount; this is
called a compromise pay. Abatement, on the other hand, the BIR forgoes the right to collect or gipasaylo ka. But take note, the abatement only
applies only to penalties and interests - it does not apply to basic tax assessed. In both situations compromise or abatement, ang primary requirement
para i-entertain ni BIR ang application for compromise or abatement is that you must pay a prescribed amount of the basic tax assessed.
Let's say for example, ay later on na lang.
The fourth option is refuse to pay. But if you refuse to pay, the consequence there is the BIR can exercise its right to collect, distraint, sale of the
property, levy, or worse, file-an ka ug collection case civil or evasion case, criminal if there is a finding.
Remedies for collection of taxes

1. Judicial
2. Administrative
** Assessment has become final.
When it comes to collection of taxes, again it can be done judicially or it can be done administratively. Again the right to collect the tax will accrue
the moment the assessment becomes final.
When does the assessment become final?

Katong gi enumerate ka ganina. Wala ka ni protest, or if ni protest ka wala ka naka appeal within 30 days, or wala ka naka file ug MR to the CIR, etc.
Judicial Remedies
1. Filing of collection case with MTC/RTC/CTA
 ≥ P1M basic assessed tax – CTA
 < P1M basic assessed tax – RTC /MTC
63
1. Filing of BIR’s “answer” with the CTA
Where to judicially enforce the collection?
When it comes to judicial remedy either civil collection or criminal collection. But for filing of collection case na civil lang, it depends on the amount.
If the amount of the assessment does not exceed 1M, it can be filed by the BIR before the MTC or the RTC depending on the amount.
If the amount of the assessment exceeds 1M, the collection case will be filed before the CTA.
Of course very seldom mu file ug case si BIR for collection na 100k or 200k. Admin feasibility pa lang daan, that's the basic question there. Filing ana
niya happens before the CTA jud, millions and millions of pesos. Maghago2x jud na sila mu spend ug man hours just to claim for 100k? Bayad pa sa
lawyer and all, of course very seldom sa MTC or RTC. Mao na kung gamay, padak-on jud na nila (lol). It's up to you how to prove. Tinuod, even if the
correct amount of liability is 100k, they will look for other tax type para lang gyud mu abot na ug more than 1M, and they file it before the CTA. It's
up to the taxpayer to either have it invalidated or have it reduced to a very minimal amount.
The other way of collecting is if the BIR will file an answer with the CTA. Because di ba if mapilde si taxpayer, mu appeal/petition before the CTA.
Sir, kung collection sir ni appeal, kinahanglan pa jud mag separate action for collection si BIR? No. Pwede na class na iappeal na niya when the BIR
files its answer to your petition before the CTA. No need of having a reservation nga mu file ka separate civil action for collection. It's not anymore
required again following the lifeblood doctrine.
Prescription of time to collect

General Rule: Within five (5) years from the time of assessment.
When Suspended: The Commissioner is prohibited from initiating collection such as when the taxpayer requests for reinvestigation.
When it comes to collect, is there a prescriptive period? Yes.
General rule: The prescriptive period to collect is 5 years counted from the time of the assessment.
If you look at Sec 203 of the NIRC, there is really no express provision nga 5 years. Ang heading sa Sec 203 is basta murag 'prescriptive period or
statute of limitation for the assessment and collection' but the express provision there is only 3 years to assess from the date of deadline of filing or
from actual filing whichever comes later. Walay express provision for collection.
Sir nganong naa man tay 5 years from the time of assessment?
Our basis here actually is the previous provision sa previous tax code prior to its amendment in 1997. Because prior to its amendment there was an
express provision that the period to collect is 5 years from the time of assessment. Also by implication, we base it in Sec 222 (c) and (d) which says
na action to garnish or levy or distraint must be commenced within 5 years from the date of assessment. Bottomline, we use the general rule which
is 5 years from the time of assessment.
Although there are some cases na si SC ni ingon na prescriptive period to collect is 3 years. But in more recent cases, 5 years ang gina mention ni SC
and CTA.
It can be suspended, we've discussed this, when the Commissioner is prohibited from initiating collection such as when the taxpayer requests from
reinvestigation.
Basically if you look at it, two instances na prohibited si commissioner from initiating collection:
1) If there is a request for reinvestigation and the request for reinvestigation is granted
- Dili lang enough na request for reinvestigation, kay pwede man tu nag request for reinvestigation ka but wala ka ni submit sa documents so it goes
back to recon (?). So pwede mu collect.
2) If there is an injunction or temporary restraining order issued by the CTA
- No other court can issue injunction, prohibition, or TRO against collection of taxes but the CTA. But of course it's a different story when it comes to
implementation of a revenue regulation or implementation of a tax law unya mag pa TRO ka, pwede ka adto ni SC kay it has nothing to do with
assessment and collection of tax man.
*chika about general amnesty law and revised corporation code*
Prescription of time to collect

FAN and DL…...5 years
64
FAN…Protest…FDDA….5 years
FAN…Protest...FDDA….CTA/SC…...5 years
Just to make it clear when it comes to the start of the prescriptive period to collect, general rule, it will start from the date of assessment. So the
moment you receive FLD-FAN, the final assessment notice, and the demand letter. Of course that presupposes na wala ka ni protest, it becomes
collectible.
But if you filed a protest and the protest that you filed is request for reinvestigation, ma suspend ang running sa prescriptive period. So the 5 year
prescriptive period to collect, kung reinvestigation na, will begin to run upon the issuance of an adverse FDDA against the taxpayer. So mao nang
FDDA 5 years.
Kana that presupposes na upon receipt of the FDDA you failed to appeal to the CTA. What if ni appeal ka to the CTA and to the SC?
The presciptive period to collect will begin to run lang after the final decision of the CTA or the SC if an injunction or a TRO was duly issued by the
CTA. In such case, after the final decision diha pa mu begin to run si 5 year period.
But ibutang lang sa utok ninyo para dili ma libog, 5 years from the time of assessment or the moment you receive FLD FAN. And the exceptional case
nato if nag protest ka, nag reinvestigation, so kato ma suspend upon receipt of the FED.
So when the assessment becomes final, again, first option is to pay the full amount of tax. So if you're going to pay the final tax assessed, take note
ang bayaran nimo is not just the basic tax but also the increments to it. The increment I tell you could be higher than the basic tax assessed, that's
the painful part there especially if you took a long time for you to pay it. Mao na nga dili jud advisable na dugay dugayon nimo ang payment or
settlement of the tax. Pwede mu apply nga langay langayon nimo until such time that the prescriptive period to assess will prescribe. But once there
is already a final assessment within the prescriptive period, there is really no point of prolonging the process.
Parehas karon, we just learned ka ganina nga we had a pending assessment. We signed a waiver until Dec 2018. Until now November na wala pay na
issue nga PAN or preliminary assessment notice. So nangutana ang staff nako, kanang sir tawagan nako ingon ko ayaw!! Stay put ta kay naa naman
nila di ba kay nag informal conference na mi. Nag protest na mi sa informal conference unya karon sila ang wala nag issue sa PAN so we are praying
ang PAN or kung ma issue ang PAN man gani, Dec na, at least mu lapse ang 15 day period, mas nindot kung next year na ma issue ang PAN and the
FAN.
Paying the Final Assessed Tax and Increments

Again for the increments, what is the composition?
You have the interest, surcharge, and the compromise penalty.
Just to be clear, buak-buakon pa jud nato, when it comes to increments, the surcharge can either be 25% or 50% if there is a party in fraud but there
must be allegation of fraud. Of course compromise penalties, sir the same ba na sa compromise na gimention nimo ganina? No. The compromise
penalty, we will differentiate this later on. This is a penalty pinaka ubos 1k, pinaka taas up to 50k for every violation that you have committed which
you could be criminally prosecuted. But instead of prosecuting you criminally, you will just pay what we call as the compromise penalty. Mao nang
compromise kay dili ka pasakaan ug criminal case.
Unsa na violation?
Almost all violations under the NIRC can be criminally penalized. Kana lang failure to get a COR, failure to get an APP, failure to issue official receipt -
-these are actually considered criminal violations. But since that is not the mandate of BIR to prosecute you criminally, they have this so called
compromise penalty. So instead of prosecuting you criminally, then compromise penalty ang bayaran nimo.
And then interest, you have deficiency interest and delinquency interest.
Penalty Interests
 12% [twice the legal rate as set by BSP (currently legal rate is 6%)]
 Deficiency and delinquency interests shall not be assessed simultaneously.
Pila na ang interest karon under the train law?
Twice the legal rate as prescribed by the BSP.
Pila ang legal rate as prescribed by the BSP?

6% so twice of it is 12%.
The interest now will be 12% for deficiency interest and 12% delinquency.
65
The same ba si deficiency interest and delinquency interest? No.
Deficiency Interest vs. Delinquency Interest

Failure to pay tax/assessment due at the time/s required shall be imposed interests as follows:
Interest Legal Basis Cause Period
Deficiency Sec 249 (B), NIRC Failure to pay tax due Date prescribed for its pay-
ment until full payment
thereof or upon issuance of
notice or demand by the CIR
whichever comes earlier
Delinquency Sec 249 (C) (3), NIRC Failure to pay the deficiency Due date appearing in the no-
tax or the full assessed tice and demand of the Com-
amount missioner until the amount is
fully paid
When we say deficiency interest, this is collected if there is failure to pay the tax due or if the tax due paid is lower than the correct amount of tax
due.
Delinquency, on the hand, if there is failure to pay the deficiency tax or the full assessed amount as reflected in the final assessment notice or FAN.
Ang question nganhi is, kanus-a mu begin to run si deficiency interest and si delinquency interest. Again remember, ma consider delinquent lang ka
if there has already been a formal demand by the BIR for you to pay at this particular date and if you failed to pay at that particular date the delin-
quency interest begins to run.
As it is, kung tan awon nimo sa assessment process, mu issue ug formal demand to pay si BIR upon the issuance of the PAN, mao bitaw tu nga FLD-
FAN. So the delinquency interest therefore begins to run from FLD-FAN up to the actual date of payment. But the deficiency interest is a different
story. Ang tan-awon nato is the date of filing and payment, if there is finding of deficiency.
Penalty Interests
Prior to Jan Due date of Deficiency interest

1 2018 Filing and Payment Date of FAN Date of actual payment
|-------------------------------------------------|--------------------------------->
20%
|---------------------------------> Delinquency interest
20%
On or after Due date of Deficiency interest

Jan 1 2018 Filing and Payment Date of FAN Date of actual payment
|-------------------------------------------------| Delinquency interest
|--------------------------------->
If you look at it, if i-timeline na nato, the running of the deficiency interest will begin to run from the due date of filing or payment but the delinquency
interest will begin to run the moment the government will issue formal demand to pay.
Take note there is a change other than the rate sa train law, they made it more reasonable. Kay sauna man gud, there is a time nga si deficiency
interest will be imposed together with delinquency interest so duha ka interest ang bayaran nimo. And before amending it to 12% the interest before
was 20%. So imagine, patongan ka from this point [box: prior jan 1 2018; due date of filing and payment]. Ang interpretation ni BIR before is than
even if there is FAN up to the date of payment you are deficient kay kulangan man jud ka. So mag continue ug run ang deficiency interest and at this
point mu-run na sad ang delinquency interest.
So at this point, [check box prior jan 1 2018] ang additional nimo is 20% deficiency (first line), and here 20% deficiency + 20% delinquency + 25%
surcharge, so pila nana 65%. So mao tu ingon ko ninyo usahay mas dako pa ang increment kaysa basic tax assessed especially before train law. So
66
because of that dili fair situation, because if you look at it man sad gud, kung mu ingon tag interest di ba icollect lang na nimo under a debtor-creditor
relationship di ba. So in this case doble ang interest na gina collect nimo. Dapat there should only be one interest na icollect sa imo because that
would be burdensome on the part of the taxpayer.
So mao na nga under train law they made it clear that the deficiency interest will begin to run lang from the due date of filing and payment up to the
date when the taxpayer received an FLD-FAN. The moment the taxpayer receive an FLD-FAN up to the date of actual payment, ang magdagan na
lang na interest should be delinquency interest. So usa na lang ka interest over the entire duration nga debtor-creditor relationship kay di ba consid-
ered man ka debtor ni government if deficient ka, so usa lang ka interest.
Kay di ba if you look at the normal loan transaction kung utangan, ang debtor nimo failed to pay on the maturity date, you do not issue di ba from
the maturity date or from the date of demand up to actual date of payment. If nag agree mo nga 12% interest, from that date dili man doble deficiency
as well as delinquency ang icollect nimo. Only one interest will be collected. So naka realize sila so kausa na lang, but different - deficiency here, and
here delinquency. Sad part is, this begins January 1 2018. Good thing is there is a 4th coming general tax amnesty. So mao na kung wala pa na assess
might as well avail of that amnesty.
Question: di ba deficiency ang first iassess then delinquency once there is formal demand, inig compute sa delinquency sir, ang original tax payable,
ang pag compute sa interest sa delinquency is the tax payable plus the [failing?] deficiency?
Atty: Good question. Asa ang computation ni delinquency interest? It will be based on the amount demanded by the government in the FLD FAN so
kung tan-awon nimo na include ang deficiency interest but at least dili na duha ka 12%. Actually that's one of the reasons nganong gi usa lang ka
interest. Kay if tan awon nimo duha ka 20% and then ang basis of computation pa jud of the delinquency is the amount demanded in the FLD FAN.
So as it is, delinquency na lang but based on the amount demanded. So mao tu ni ingon ko ninyo, it's not very advisable nga dugay dugayon gyud
nimo ang payment especially if you already received the FLD FAN and you know nga wala kay proper grounds for protest. Kung naa kay proper
grounds for protest then no problem.
So if you're going to pay again, of course that you're going to prepare is BIR form 0605. Take note the payment should be made separately for each
tax type. Di ba ni ingon man ko ninyo prescriptive period pa lang to assess and to collect will differ for each tax type. The payment also should be
separate for each tax type and for each taxable year or taxable period. So income tax lahi, value added tax lahi, percentage tax lahi, etc. if you opt to
pay.
Administrative Remedies – Warrant of Distraint, Levy, or Garnishment

Upon issuance by the Commissioner or Regional Director of the final decision on the disputed assessment (FDDA) against the taxpayer or upon
issuance by the CTA in division or en bank of its decision upholding the assessment. (RMO 39-07 and 42-10)
What if wala ka nibayad and the assessment becomes final? What is the remedy of the government?
Di ba na discuss na to na either judicial or admin. So if dili iexercise ni government ang judicial remedy, the government can avail of the so-called
administrative remedies by issuing warrants of distraint, levy, or garnishment.
These warrants can be issued upon issuance by the commissioner or regional director of the FDDA against the taxpayer or upon issuance by the CTA
in division or en banc of its decision upholding the assessment.
So mao toh, if you don't want na issue-han ka ani nga warrant, you file for injunction or TRO before the CTA. Let's discuss this in detail.
What's the difference between distraint and levy?

Distraint - the taxes are enforced by means of collection of goods and personal properties. It pertains to personal properties.
Levy - pertains to real properties.
Is there a minimal amount na dili pwede i-distraint?

If the value of the personal property does not exceed 100 pesos. Kinsa man sad mu distraint ug personal property na di mu exceed 100, ballpen
siguro nimo.
When we say distraint, again, this covers also garnishment, garnishment basically of your bank accounts and interest in that particular bank account.
Let's focus first on distraint.
Meaning of “distraint”
Distraint – collection of delinquent taxes is enforced on the goods, chattels, or effects and other personal property of whatever character of the
taxpayer, including stocks and other securities, debts, credits, and garnishment of bank accounts and interests in and rights to personal property.
[Sec 205 (A), Tax Code]
67
There are two types of distraint:
1. Actual
2. Constructive
What's the difference between actual distraint and constructive distraint?
Actual - it is effected a list distraint properties or serving a warrant of distraint or garnishment and there is actual taking of the personal property.
The BIR will take your personal property.
Constructive - more on preservation of the BIR with respect to the personal property of the taxpayer. The BIR will not take possession of your property
but your property is considered in custodia legis meaning to say you cannot dispose your property pending your case before the BIR.
Actual Distraint Procedure  Actual taking of the property of the delinquent taxpayer
 Applies only where the taxpayer is delinquent
Constructive Distraint  Tax payer or person having possession or control is prohibited

from disposing of the properties
 Applies whether the taxpayer is delinquent or not under the
following instances: Retiring from business; Intending to leave
the Philippines; Intending to conceal his properties, and In-
tending to obstruct collection proceedings.
Sir what is the purpose of the distraint?

The purpose basically is, kung muingon ta constructive distraint, preservation of the property. After the constructive distraint it can lead to actual
distraint because there must be actual distraint. So that after the taking of the property, dili man sad na gamiton ni RDO noh, what happens next is
the sale of the property and proceeds of the sale will be used to satisfy the tax liability. If not enough, the BIR can garnish your bank account, levy
your real property. Take note, bisan asa nganhi pwede i exercise ni BIR there is no specific sequence nga distraint una, or levy. Pwede simultaneous
buhaton ni BIR, i-distraint ang personal property nimo, i-levy sad ang real property nimo.
 For actual distraint again as discussed, actual taking of property. But this applies only to delinquent taxpayer. A taxpayer is considered
delinquent if there is already FLD FAN or formal demand to pay and you did not file a protest and it became final etc.
 For constructive distraint on the other hand, applies to a taxpayer or person having possession or control of the property prohibited from
disposing the properties and this applies whether the taxpayer is delinquent or not, specifically if the taxpayer is retiring from business,
intending to live the PH, intending to conceal his properties, and intending to obstruct collection of proceedings. In that case, pwede naay
constructive distraint.
As what I've mentioned, constructive distraint is just a preventive measure insofar as the BIR is concerned. Later on if naa gyud tax liability unya wala
nabayran, from constructive distraint it will be actual distraint and then afterwards there will be sale of the property.
For the bank account, we don't term it as distraint, it is termed as garnishment. In short, i-freeze ang bank account, dili maka withdraw si taxpayer
up until ma settle ang tax liability.
The process or procedure of distraint and garnishment, let's not go into specific details na lang. Kani na lang just to be give you an idea.
Procedure in Distraint and Garnishment

First, there will be service of warrant of distraint or garnishment. Of course if it is warrant of garnishment, it will be served to the bank where the
taxpayer has an account. Then after than, especially if it is actual distraint, there will be posting of notice of sale. The posting of the notice of the sale
which must be done in two public places in the city or municipality where the distraint is made specifying the time and place of the sale. Then you
have sale at public auction to the highest bidder. Then disposition of the proceeds of the sale. As what we've discussed, kung pila ang proceeds,
iapply tu sa liability. If sobra nag proceeds then it will be returned to the taxpayer.
Levy of Real Property

Nature: An act of seizure of real property of the taxpayer in order to enforce the payment of taxes.
How: By serving upon the taxpayer and the Register of Deeds a written notice of levy.
When: After expiration of the time required to pay the tax.
So the other option of the BIR is levy of real property. Again when we say levy of real property this is an act of seizure of the real property to enforce
the payment of taxes. The government will seize the property simply by serving notice of levy to the tax payer and to the register of deeds. After
service of the notice of levy, the BIR can proceed with the sale of the real property.
68
Handling warrants of distraint and/or levy

(RMO 39-07 as amended by RMO 41-07)
Scope:
 Disputed assessments finally decided by the Commissioner or Regional Director
 Assessments upheld by the CIA in division/en banc whether or not appealed
So handling warrants of distraint or levy, so the scope disputed assessment is finally decided by the commissioner or regional director or the assess-
ments upheld by the CTA in division or en banc whether or not appealed. In short, ma final na ang assessment nimo. So you're recourse would be to
pre-empt. Naa man tay gitawag nga right of pre-emption and naa sa tay gitawag nga right of redemption.
General Rule: Appeal to the CTA will NOT suspend the collection of taxes
Exception: When in the opinion of the CTA the collection may jeopardize the interest of the government and/or taxpayer
So again, general rule appeal to CTA will not suspend the collection of taxes except if there is a TRO or injunction issued by the CTA. And two instances
lang when the CTA will issue this injunction or TRO:
1) When in the opinion of the CTA the collection will prejudice the right of the taxpayer and the government
2) If the taxpayer is able to post a bond which is equivalent to twice the amount of the tax liability
Does it make sense na mao bitaw na mag pa TRO or pa enjoined because the taxpayer doesn't or cannot pay the tax?
Take note class, that bond is a surety bond. So all that the taxpayer will do is to contract with a bonding company or surety company and mubayad
lang sila ug amount for the premium. Kana sad bitaw mga bail bond so mga surety company man na.
“Last Opportunity to pay”

 The Final Notice Before Seizure should be considered as a denial of request for reconsideration of the disputed assessment. Thus deemed
as commissioner’s final decision.
 The Notice should be deemed as the BIR’s last act.
 The letter clearly stated that responded was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to
distraint and levy.
 (CIR vs Isabela Corp, GR 135210, July 11 2001)
What is this last opportunity to pay?
Mao ni ang gitawag nato nga implied denial of your reconsideration. Di ba we said man na dapat naay FDDA or final decision on disputed assessment.
But there are instances that even if the BIR did not issue the FDDA, deemed appealable na ang action ni BIR, because considered implied denial. What
are these?
1) If the BIR issues what we call as final notice before seizure. That is considered impliedly as denial of the request.
2) Within 30 days upon receipt of the final notice before seizure you can already appeal to the CTA
3) Of if you receive a demand letter which states that this is your last opportunity to pay otherwise your property will be distrained or levied, in such
case, you can appeal within 30 days to the CTA
Take note lang for the demand letter, kung ang demand letter labeled lang na as preliminary collection letter or notice, dili pa na deemed nga
appealable or dili pa na implied denial of your request for reconsideration. Except if you received na gyud final demand letter.
So if this happens, kung naa na kay final notice before seizure, of course next thing nga mahitabo will be seizure, distraint, or levy. And once it is
actually distraint and once it is levied, what happens next is the sale of the property distrained or levied.
Sale of Property Distrained

 Notification of the sale in at least 2 public places in the munipality or city where the distraint is made.
 Sale after at least 20 days after notice to the owner or possessor of the property
 Residual amount from the BIR’s entire claim, including expenses shall be returned to the owner.
As what I've mentioned there must be notice in two public places in the municipality or city where the distraint is made and the tax payer must be
notified at least 20 days and if naay sobra the residual amount from the BIR's entire claim including expenses shall be returned to the owner.
Sir na distrain na, unsa ang remedy ni tax payer?
As what I've mentioned, the taxpayer retains the right of pre-emption or the right of redemption.
69
When we say pre-emption you are trying to prevent the auction sale. If you want to prevent the auction sale, you must exercise this before the
designated time of auction sale by paying the entire amount of your basic tax assessed as well as increments.
What if you failed to exercise your right of pre-emption, so nabaligya ang property?
The next option of the tax payer is redemption.
Redemption by the Owner

subject to the following conditions:
 Period to Redeem: within one year from the date of registration of the certificate of sale
 Redemption price: total claim of BIR plus 15% on purchase price from the date of purchase to the date of redemption
Mao na nga dili kaayo advisable kung ang paliton nimo is a property in an auction sale kay dili gyud ka maka benefit entirely the moment you purchase
it kay the owner basically is given one year to redeem that property from the date of the registration of the sale. Take note, not from the date of the
auction sale but from the date of the registration of the certificate of sale. When we say registration of the certificate of sale we are referring to the
date when this was registered in the registry of deeds - chattel or real property - didto na. And the redemption price shall be the total amount plus
15% on purchase price from the date of purchase to the date of redemption.
Nagkasinabot ta? So actual distraint - levy - pre-emption - kung walay pre-emption - sale - redemption.
And then garnishment constructive distraint, basically more of preventive.
Next meeting: compromise and abatement
November 16, 2018
A: What was our discussion last time?

S: We started our discussion by summarizing the procedures when it comes to assessment and then we said that assessments starts by sending a
Letter of Authority and then the issuance of a Letter Notice. After that there will be an issuance of PAN and the taxpayer has the option to file a
protest. There is the protest and after there will be the FLD-FAN by which the taxpayer has the option to protest. It’s either for reconsideration or
reinvestigation. After the lapse o 180 days or after the decision of CIR is rendered, the taxpayer must appeal to the CTA otherwise the assessment
becomes final and when it does the right to collect accrues and the 5 year period begins.
A: Difference for reconsideration and reinvestigation?

S: Reinvestigation requires submission of new documents as you will ask for the review of assessment based on newly discovered evidence but
reconsideration will be based on the existing findings.
A: Will reinvestigation have any effect on the prescriptive period?
S: Reinvestigation tolls the running of the prescriptive period while reconsideration does not.
A: How about on the arguments questioning the validity of the assessment?
We go first to the issuance of FAN without PAN, is that a violation of due process?
S: It is. There must be an issuance of PAN first before there is FAN except if there is false or fraudulent return
A: Correct, kung naay false or fraudulent return pwede ka assessment diretso or pwede gani ka ikaso diretso. Other exceptions?
S: When the deficiency tax is a result of a mathematical error, it not necessary.
A: What about another common defense of a taxpayer?
S: When there is void or disputed final assessment.
A: Will it make the assessment void also?
S: It does not nullify the FAN.
A: Alright what makes the FDDA void in the first place?
S: When it issued not based on legal or factual basis.
A: But take note class dili na required under the NIRC, it’s just required in the regulation. Mao na na even if the FDDA is void because it does not state
the legal and/or factual basis, so long as that FAN states the legal and factual basis under Sec. 228, the FAN or the assessment is valid. Problematic
man kung both the FAN and FDDA both do not state the legal and factual basis. Basta ang important si FAN ang mustate sa legal and factual basis.
What are some other defenses which can invalidate an assessment?
S: - when it is merely reliant on the relief system or also called as naked assessment or it means it has no factual or legal basis
⁃when it does not follow the requisites under Art. 228 of the NIRC
70
⁃when the FAN is issued prior to the lapse of the 15 day period to respond
A: But kanus.a ra gani to maconsider na violation?

S: If there is no response from the taxpayer.
A: What are the two types of distraint again?

S: Actual distraint - where there is actual taking of the property
Constructive distraint - taxpayer is merely prohibited from disposing his property; preventive
A: Again constructive distraint is more on preventive lang but when it comes to selling the property there has to be actual distraint
What is the process if there is a sale of personal property?
Take note class actual distraint is more applicable if the taxpayer is already delinquent, there is already final demand by the BIR but still the taxpayer
failed to pay. Constructive distraint not necessarily delinquent because it can be that the taxpayer wants to retire the business or intends to leave
the country.
Also distraint is more sa personal properties while levy is for real property.
When it comes to bank account, it is called garnishment or the funds in the bank are frozen pending the settlement of the tax liability.
We move on now to compromise and abatement. Primary difference between the two is when we say compromise, the government may still collect
from the taxpayer but at a certain minimal amount, there is collection. Abatement means the government forgoes the liability of the taxpayer, no
collection. Para dili malibog kaganina katong distraint, levy ug sale of real property remedy ni sa side of the government but for compromise and
abatement this is a taxpayer’s remedy kay napildi na and final na ang FAN.
Compromise of tax liability

Compromise-is a contract whereby the parties by making concessions avoid litigation or put an end to one already commenced.
-Article 2028, Civil Code of the Philippines
Cases that can be compromised

(RR 30-02 as amended by RR 08-04 and RR 09-13)
1. Delinquent accounts;
Take note lang for the cases covered, this basically covers delinquent accounts. Delinquent if naa nay FLDFAN niya wa pa ka nibayad and so mubegin
sad ug dagan ang delinquency interest but under TRAIN, wala nay deficiency interest but naa pay delinquency interest.
2. Cases under administrative protest after the issuance of FAN to taxpayer which are still pending
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts
5. Criminal violations except;
a. Those already filed in court
b. Those involving criminal tax fraud
If you look at it in any stage of the assessment and collection process, you can actually apply for compromise except if criminal case na already filed
in court and those involving criminal tax fraud.
What if the criminal violation is not yet filed in court? When the criminal action is still within the prosecutor pwede ba na icompromise? YES.
Is there a need for consent with the prosecutor? NO NEED but once it is filed with the prosecutor, pwede gihapon icompromise provided the prose-
cutor consented to the compromise. Once the prosecutor filed it na before the court, there is no more compromise even if the prosecutor consented
to the application for compromise.
Unsaon pag enter sa compromise? Musend lang ba mig letter? No there is a specific BIR form if you want to apply.
Exceptions
(RR 30-02 as amended by RR 08-04 and RR 09-13)
71
1. Withholding tax cases, unless the applicant- taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold;
The statutory taxpayer if it is a withholding tax is just an agent of the government so he holds the withholding tax in trust for the government so no
compromise allowed. Pwede ba muraise si statutory taxpayer in terms of his obligation to really collect the tax? YES that is the point of the phrase
“unless the applicant- taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold”
Because when it comes to compromise there are two possible reasons you can raise.
a. Compromise due to financial incapacity
b. Due to the doubtful validity of the claims of the BIR
When it comes to withholding tax di ka pwede makacompromise due to financial incapacity but posible makacompromise sa doubtful validity of
claims, questioning the assessment.
Example of this: Non resident seller and as the buyer you have the obligation to withhold from the non resident seller but you can defend that there
is this agreement that the non resident seller is subject only to the tax in the foreign country. So I am not mandated to withhold.
2. Criminal tax fraud cases confirmed as such by the CIR or his duly authorized representative;
In the assessment there must be a finding of the fraud and the instances or the manifestations of how the fraud happened
3. Criminal violations already filed in court;

Sir unsay kalahian sa criminal tax fraud cases ug sa criminal violations? Are they not the same?
Criminal tax fraud - there is intent to evade payment of taxes
Criminal violations - not necessarily fraudulent kay any violation under the NIRC is considered “criminal violations”
4. Delinquent accounts with duly approved schedule of installment payments;

You can pay in installments upon the BIR’s approval.
Basic rule when asking favor sa government: Ayaw dobleha ang asking of favors. If you asked for favor at one time, don’t ask for another one.
5. Final reports of reinvestigations or reconsideration have been issued; taxpayer signed the agreement form for the reduced assessment;
6. Cases which ebcome final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the
assessment and
7. Estate tax cases where compromise is requested on the grounds of financial incapacity of the taxpayer
If naka ask na kag compromise, dili na ka kaask ug additional compromise. If a compromise on the ground of doubtful validity has already been
granted, dili ka pwede muenter on that same tax type due to financial incapacity. Mutually exclusive.
Grounds for compromise

a.) DOUBTFUL VALIDITY - There is reasonable doubt as to the validity of the claim against the taxpayer
b.) FINANCIAL INCAPACITY - The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
When is there doubtful validity of assessment?

(RR No. 30-02 as amended by RR No. 08-04)
1. Assessment is one resulting from a jeopardy assessment
There is jeopardy assessment when there is no benefit of formal audit but it was issued because the prescriptive period was about to lapse
and he cannot complete the audit due to the delays caused by the taxpayer for his non-cooperation. So pwede ka makaraise ug doubtful
validity of assessment. However that presupposes that nakaprotest ka timely sa jeopardy assessment because of course if the jeopardy
assessment becomes final and executory it might be difficult for you to question the propriety of the computation.
2. The assessment seems to be arbitrary in nature;
Take note there is no definition as to what is meant by arbitrary so this is on a case-to case basis. For example sole proprietorship ka and
then giassess ka ug billions of pesos and wala ka kabalo unsay basis. So you can allege those things
3. Failure to file an administrative protest for alleged failure to receive notice of assessment and there is reason to believe that the assessment is
lacking in legal and or factual basis;
This is what was used by Mommy Dionisia when she entered into a compromise agreement with BIR kay with the issuance pa lang daan of
the PAN it was already doubtful, in terms of the receipt and contents.
4. Failure to file a request for reinvestigation/reconsideration within 30 days from FAN and there is reason to believe that the assessment is lacking
in legal and or factual basis;
Even if you failed to protest the FAN, your last resort is to enter into a compromise or abatement before the CIR.
5. Failure to appeal to the CTA within 30 days from receipt of final decision and there is reason to believe that the assessment is lacking in legal and/or
factual basis
72
Meaning to say if ang i-allege nako is prescription of the period to assess, dili naman nako na maappeal sa CTA because I failed to protest
within 30 days from the receipt of the FAN. Pwede pa nato gamiton to siya if you want to raise doubtful validity of assessment. So you
apply for compromise and you raise there the reason for the doubtfulness. But that is discretionary on the part of CIR how he/she will
interpret your reason.
6. Assessment failed to comply with the formalities prescribed under the Tax Code
What are these formalities prescribed? Katong mga must be based on factual and legal basis. And if there is waiver, it must be valid.
7. Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe that the same can be disputed by sufficient and
competent evidence;
Usually kanus.a muresort si BIR sa Best Evidence Obtainable Rule? This is resorted to if the taxpayer failed to cooperate with the BIR, so
third party information or bench marking will be used in determining how much was the deficiency. But of course if later on na final ang
assessment because you did not appeal, pwede ba ka makacompromise? YES you can but cast doubt on the assessment and present com-
petent evidence.
8. Validity or authenticity of taxpayer’s execution of Waiver of Statute of Limitations is at issue and there is strong reason to believe and evidence to
prove that it is not authentic
Not following the requisites for a valid waiver.
9. The assessment involves an issue where a court made an adverse decision against the Bureau but for which the Supreme Court has not decided
upon with finality.
What does this mean?This is a situation where napildi si BIR sa CTA but wala pay final decision before the SC.
Compromise on the ground of financial incapacity
When is one considered financially incapable? Bankrupt or insolvent? Are they even the same?
Insolvency – you still have assets although they are lower than your liabilities
Bankruptcy – wala na jud ka, creditors cannot receive anything
Taxpayers availing compromise based on financial incapacity must execute waiver of right to secrecy of bank deposit
When it comes to financial incapacity, the CIR is empowered to request the taxpayer availing the compromise based on financial incapacity to execute
a waiver of right to secrecy of bank deposits. So pwede mutan-aw si BIR sa deposits ni taxpayer.
Examples:
1. Corporation ceased operation or is already dissolved
Chika si sir about one case they had:
Naay foreign parent company sa Japan and naay subsidiary diri sa Philippines na ni cease ang operations although wala na formally closed.
So when the Japanese parent company applies for IPO (initial public offering -selling shares of stock to public) in Japan, icheck all subsidiaries
and so makita na wala naformally dissolve in the Philippines and walay income ang subsidiary. Negative impact na sa company. The BIR
had to close it.
2. Impairment in the original capital by at least 50% based on latest BS submitted to the BIR
Conditions:
i. The amounts payable or due to stockholders, other than business-related transactions are ocnsidered as part of capital and not liability
ii. The taxpayer has no sufficient liquid asset to satisfy the tax liability
One thing lang na I have to clarify is diba if insolvent; liability > assets? But what if majority of that liability is payable to the shareholders or owners?
Iapil ba na nimo ug compute sa imong liability to declare na niexceed sa assets nimo? NO in so far as the BIR is concerned
3. The taxpayer is suffering from a net worth deficit (total liabilities > total assets) based on the latest audited FS.
Total Liabilities
Total Assets (net of prepaid ex- (net of deferred credits and amounts paya-
penses, deferred charges, pre -op- - ble to stockholders/owners reflected as lia- Net Deficit
erating expense, and appraisal bilities, except business-related transac- =
inreases in fixed assets) tions
In the case of an individual taxpayer, no other leviable properties other than his family home.
Note: Your assets must be on cash basis not accrual basis. Whatever physical assets you have will be the only thing considered.
73
4. The taxpayer is a:
a. Compensation income earner
b. No other source of income
c. Monthly income does not exceed P10,500 or if married combined income does not exceed P21,000;
d. No other leviable or distrainable assets other than his family home
- You might ask ngano maliable man siya na compensation income earner ra man siya? Pwede ni musulod before sa estate taxes, katong biyaan sa
decedent and then ikaw ang maliable to pay or the estate is not liquid (no cash) so pwede muenter into compromise.
5. The taxpayer has been declared by any competent authority/body/tribunal/government agencies as insolvent
Exceptions:
Taxpayer has:
a. TCC or pending claim for refund or credit;
In short, you still have receivables with the BIR
b. Existing or prospective agreement with any party that could result to an increase in the equity at a definite time
When you enter into a compromise, the usual question there is if there is a pending joint venture agreement in the subscription for the
shareholders because that could mean future inflow of cash so you can’t really say that you are financially incapable. Your compromise
application based on financial incapacity may be denied then.
Minimum compromise amounts (financial incapacity)

1. For cases of financial incapacity–
A. Individual – 10%
B. Where the taxpayer is under any of the following conditions
i. Zero/Negative net worth – 10%
ii. Dissolved corporations – 20%
iii. Non operating companies for a period of:
3 years or more as of date of application -10%
less than 3 years-20%
C. Impairment in original capital by at least 50% – 40%
In short, your capital assets suddenly decreased in value. Mahitabo ang impairment if the assets are not anymore used in the industry like
naa nay bag-o na equipment or even the existence of a calamity.
D. Declared insolvent or bankrupt, unless classified as any of the above – 20%
2. For doubtful validity of assessment – 40% of basic tax assessed (increments are not included in the basic tax assed. Increments refer to interests)
Example: If the basic tax assessed is P1M, and you want to compromise due to financial incapacity, ang minimum amount na pwede nimo
bayaran is 10% of P1M or P100,000. You can even go lower than 10% basta approved by NEB.
Note: Lower amount subject to approval by the NEB – National Evaluation Board composing of the Commissioner and the other 4 Deputy Commis-
sioners.
Compromise
COMPROMISE COMPROMISE PENALTY
Definition An amount of money paid by the taxpayer to settle his An amount of money paid to com-
civil liability for tax assessed promise a tax violation that he has
committed, which may be the sub-
ject of criminal prosecution
Basis of Basic tax assessed Gross sales or receipts during the

amount paid year of the tax due
Minimum The limitation depends on the legal grounds used by Depends on the nature of the tax
amount the taxpayer violation and the minimum
amount is generally not less than
Php 1,000
What happens when I file for compromise?

74
You file BIR Form for compromise and specify the ground whether for financial incapacity (in which case a waiver of bank secrecy law before the BIR
is required) or doubtful validity of assessment (w/ the basis of why it is doubtful).
You are also required to pay based on the minimum compromise that you are trying to avail. If your reason is financial incapacity, for BIR to entertain
your application, you have to pay 10% of the P1M. But if doubtful validity, then pay at least 40% to the BIR before you application may be approved.
Otherwise if denied, then the payment you made will just be considered as an advance payment of your total due.
November 17, 2018

ABATEMENT
When it comes to abatement, take note, this is an exclusive power of the CIR, kay sa compromise pwedi man to edelegate ni cir to subordinate
official with a rank no lower than a division head. If the basic tax assessed is less than 500k.
But when it comes to abatement this exclusively belongs to the CIR and unsa lang ang pwedi e abate or unsa lang amg pwedi di ka pabayron?
This applies only to:
1. Surcharges
2. Compromise penalty
3. interest
Legal basis
Sec 204. Authority of the Commission to Compromise, Abate, and Refund or Credit Taxes. – The Commissioner may –
“(b) Abate or cancel a tax liability, when:

The tax or any portion thereof appears to be unjustly or excessively assessed; or
The administration and collection costs involved do not justify the collection of the amount due.”
Exceptions
Abatement shall not be available in the following cases:
1. Disputed assessments pursuant to the provisions of sec 228 of the Tax Code and its implementing rules and regulations; and
2. Assessments, which are void from the beginning.
Kung void ang basic tax assessed natural it follows whatever increment involved is also void so no need to abate it.
Instances of abatement on ground that tax being assessed is unjust or excessive
1. Filing of the return/payment of the tax at the wrong venue
Unsa to ang effect if mufile ka at the wrong venue? Like lets say for example you belong to RDO 18 but sa tax return nimo ang gbutang
nimo rdo 19, it is considered non filing so consequence from the moment you filed at the wrong venue up to the time na ni file ka correctly
will be assessed with interest, penalties and surcharges.
But as a remedy, specially if muingon ka na naka file ko but at the wrong venue pwedi ka muapply for abatement
Kay mao man na ang issue, sir, pwedi ba na e offset nalang nako kay naka file man gyud ko before the bir but it is just at the wrong rdo?
The answer really is no. your proper remedy is to ask for abatement of the the interest, penalties and surcharges.
2. Taxpayer’s mistake in payment of his tax is due to erroneous written official advice of a revenue officer;
When it comes to an advice of a revenue officer, you don’t rely especially if that advice is just verbal kay dali ra kaayu na manghunaw. You
have to ask for a formal ruling. If it is a written advice, you can ask for abatement.
3. Failure to file/pay on time due to substantial losses from prolonged labor dispute, force majeure, legitimate business reverses
-covers only the surcharges and compromise penalties and not the interest
4. Non compliance due to a difficult interpretation of the law;
wala ka ni take sa aggressive side ug sa conservative side. Wala na lang gyud noon ka mibayada
5. Circumstances beyond the control of the taxpayer (only surcharge and compromise penalty)
Walai labot ang interest.
6. Other similar or synonymous cases.
Sauna class, especially the early days of EFPS ang common situation na ma penalize si taxpayer is dib a electronic filing unya ang bayad is
thru the bank so ang uban ang nahitabo before mu electronically file, but the release of payment with the bank happens two days after.
Ang penaltihan ni bir ana is late filing and late payment man so for filing wala ky problem but for payment you are considered late. So
subject ka surcharge interest and penalty. So ground to for abatement. Bank notices na late ug musulod sa system, gina allow.
But now this ONE DAY LATE DUE TO BANK CUT OFF is not anymore being covered under abatement. Even if muingon ka this is not your
fault but the bank, pabayaron gyapon ka sa penalties, interest and surcharges.
Abatement under meritorious circumstances
75
Late payment under meritorious circumstances (use of wrong tax form, surcharge erroneously charged, filing of amended return under meritorious
cases, etc.
One of the reasons nga e grant ang abatement is:

Instances of abatement on ground that collection costs are more than tax sought
Collection costs are more than the tax sought
(Revenue Regulations NO. 13-01)
1. Assessment confirmed by lower court but appealed by the taxpayer to a higher court;
2. Withholding tax assessment under meritorious circumstances;
3. Delayed installment payment under meritorious circumstances;
4. Assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment ; and
5. Other analogous instances subject to approval of the CIR
This is more na on kana bitawng si taxpayer naglibog kung unsaman gyud e fight niya until the last available remedy to the sc or mu compromise. So
pwedi ko muingon na I already appealed this to the sc but I can drop that appeal if you allow me to enter into abatement of penalties and surcharges.
As what weve discussed, from the moment the taxpayer receives the FAN ang magdagan gyud ana on a daily and yearly basis is the delinquency
interest. So there are some instances nga gamay lang gyud ang basic tax assessed but what made it big is the increment to the point nga kung ma
abate lang ang increment willing mubayad si taxpayer and in that case, admin feasibility maka save si bir kay they will not have to deal with my
appeal before the cta enbanc or sc.
What are the remedies of the taxpayer other than abatement? So kani more on recap nalang ni.
Remedies of the taxpayer: Prohibition against undue taking of property is constitutionally guaranteed.
Primary remedy:
1. Administrative-
A. Before payment-
i. Protest
ii. Entering into a compromise
if protest pildi, appeal to the cta
or by filing criminal complaint against the erring bir employee. But this is not to cancel necessary ** or assessment this is more on the attack on the
personality of the one assessing you.
B. After payment – filing of claim for refund or tax credit within two years from date of payment regardless of any supervening cause.
2. Judicial –
A. Civil action
i. Appeal to CTA – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the
Commissioner;
ii. Action to contest forfeiture of chattel; and
iii. Action for damages
B. Criminal action –
i. Filing of criminal complaint against erring BIR official and employee; and
ii. Injunction- when the CTA in its opinion, considers that the collection by BIR may jeopardize taxpayer.
This cannot be raised as an independent or separate action, this must be anxilliary to your appeal.
Remedies of Taxpayer
Protest of assessment, either request for reinvestigation or request for reconsideration.
Protest of Assessment
1. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment
For reinvestigation, file supporting documents within a period 60days.
A. Request for reinvestigation
A plea for re-evaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the
reinvestigation. It involves a question of fact or law or both.
B. Request for reconsideration

A plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence. Involves a question of fact
or law or both. (R.R No. 12-85)
2. Within 60 days from filing of protest, all relevant supporting documents should have been submitted, otherwise, the assessment shall
become FINAL. (cannot be appealed). (Sec. 228 NIRC)
76
Remedy of the Taxpayer if Protest is Denied
If the LOA starts in the revenue region, the PAN is also issued by the revenue region the decision is also laid out by the regional director. And if that
happens, two options:
You file a reconsideration to the cir or within 30days upon rceeipt appeal to the cta. What you need to remember lang is the MR that you will file to
the CIR will toll or suspend the running of the 30day period walai 30day period nga appeal to the cta nga mudagan. But if it is from the nationa office,
from the cir, the cir is the one who issued the loa, the pan and made the decision.
If it is an adverse decision you file an mr to the cir, it will not suspend the running of the 30day period to appeal to the cta.
a. If the protest is denied in whole or in part by the CIR or his duly authorized representative:
i. Appeal to the CTA within 30 days from date of receipt of the decision or
ii. File an administrative appeal to the CIR through request for reconsideration within 30 days from date or receipt of
the decision but only issues raised in the decision of the duly authorized representative shall be entertained (denial by
authorized rep)
b. If the administrative appeal is denied by the CIR

a. File a motion for reconsideration with the CIR or
b. Appeal to the CTA within 30 days from date of receipt of decision.
c. If the protest is denied, in whole or in part by the CIR
a. Appeal to the CTA within 30 days from date of receipt of decision
b. File an MR with the CIR (Fishwealth Canning Corp. V CIR, G.R. No. 179343, 2010)
Taxpayer’s suit.
This is also deemed as a remedy on the part of the taxpayer but not in connection to a specific assessment for a particular tax liability, because a
taxpayer suit this is raised by taxpayer under these requisites:
Requisites:
1. The tax money is being extracted and spent in violation of specific Constitutional protections against abuses of legislative power
2. That public money is being deflected to any improper purpose
3. That the petitioner seeks to restrain the respondents from wasting public fund through enforcement of invalid or unconstitutional law.
If youre trying to question a statute that will passed by congress which involves spending of public money.
 However, the Supreme Court has discretion whether or not to entertain a taxpayer’s suit and could brush aside the lack of locus standi
where the issues are transcendental importance in keeping with the court’s duty to determine that public officers have not abused the
discretion given to them.
Tax Refund or Tax Credit (Sec. 229 vs Sec. 112)
This is also a remedy of the taxpayer.
For section 229, that pertains to erroneously or illegally collected taxes.
And you have to distinguish this with refund or tax credit under sec 112.
For section 112, this pertains to refund ir tax credit for excess input vat in connection with a zero rated transaction.
 Grounds:
1. Tax is collected erroneously or illegally;
2. Penalty is collected without authority;
3. Sum collected is excessive
For section 228 and 229,
Requisites:
1. Claim must be in writing;
2. It must be filed with the Commissioner within two years (2) after the payment of the tax or penalty; and
3. Show proof of payment.
Sa section 229 and 112 both talks about refund but the difference is that in section 229 this refers to refund of erroneously or illegally collected
taxes.but section 112, this is a refund of excess input vat which is not erroneously or illegally collected in connection with a zero rated transaction.
What complicates it more is that aside from mentioning tax refund, under both provisions, the refund must be filed within a period of two years.
But the differencen is the 2yr period under section 229 covers both admin as well as judicial action.
But the 2yr period in section 112 covers only administrative action.
Under sec 229, pila ka days dapat decidan ni cir? Within a period of 180days,
In 112, within a period of 120days
77
Tax Refund or Tax Credit
Starting date for counting the 2-year period

GENERAL RULE: from the date of payment, regardless of any supervening cause that may arise after payment.
So kay erroneous and illegal collected man ni, so dapat collected, dapat nakabayad si taxpayer.
EXCEPTIONS:
1. Corporate Income Tax – Where a corporation paid quarterly income taxes in any of the first 3 quarters during the taxable year but incurs a
net loss during the taxable year, the 2-year period for the filing of the claim for refund or credit shall be counted from the date of the filing
of the annual corporate ITR.
The counting of the 2yr period there if it is corporate tax it should be from the date of filing of the annual corporate itr. Because again we
follow the rule ‘Pay as you file.’
2. Income tax paid in installments- taxes are deemed paid for purposes of determining the commencement of the 2-year period for filing a
written claim for the refund or credit therefore on the date the last installment was paid.
Tax Refunds (SECTION 229)
Grounds: Erroneous, illegal, or Excessive Assessment and/or collection.

Procedure:
1. File a written claim for refund with the CIR within 2 years from the date of payment of the tax/penalty;
2. The claim filed must state a categorical demand for re-imbursement;
3. The suit of proceeding for recovery must be commenced in court within two (2) years from the date of payment of the tax or penalty
regardless of any supervening event that will arise after payment. (Sec. 229, NIRC)
Mao to nga miingon ko nnyo nga the 2yr period under section 229 covers both admin as well as judicial. Such that, of course, admin gyud ka una class,
exhaustion of admin remedy.
But what if lets say for example, hapit na mu expire ang 2yr period unya wala pa ni decide si cir or wlaa pa ni lapse ang 180day period but the 2yr
period is about to lapse na, can you go na ba to the cta due to the inaction of the cir? Yes. Because the 2yr period in this case, covers both admin and
judicial action.kay pwedi man di ba mu claim for refund ka, so karon ang payment ning claim for refund ka pagka 1yr and 10months, diha pa ka
nagclaim ug refund so 2months nalang mu lapse na ang 2yrs. So una lang ka sa cir and then cta, prior to the lapse of the 2yr period.
Note: The CIR may grant a refund or credit even without a written claim thereto if the taxpayer files a tax return which on its face shows OVERPAY-
MENT. A return filed showing an overpayment is itself considered a written claim for credit or refund. (Section 76 and 204, NIRC)
RULE IN SEC 229

1. There must be payment from the taxpayer or collection by the govt
2. That payment or collection is erroneously or illegally collected.
Unsaon namo pagkahibaw na illegally collected? Example, you received a FAN unya ni lapse na diay to ang prescriptive period nya gdemand ka for
payment and you paid sd without thinking of anything and you discovered na ni lapse na diay ang prescriptive period to assess so that is already an
erroneous and illegal payment kay wala namn silay authority to collect from you. Samot if di gyud ka liable to pay because youre exempted under the
law and you were made to pay. So in that case you can file under section 229 but it must be within 2yrs from the date of payment.
Unsa ang proof of payment ang e present? Tax return, showing your payment nga gparefundan nimo. Other than that you have to show proof that
indeed exempted ka there is this provision in law or certification from the bir declaring you as an exempt person or entity.
This also applies to void or illegal assessments which you paid.
This presupposes that you questioned it.
Ahm, kadtong prescriptive period no, you received the fan, it already prescribed so it becomes final executory and collectible, you cannot anymore
question it.
But it would be a different story if you received a FAN you filed a protest, di ba we said man nga except when reinvestigation like kung reconsideration
mu continue ang running sa period to collect maka initiate ug collection si bir so pending resolution of the reconsideration, g levy ni bir ang real
propery nimo, or pending appeal to the cta, na happen to kay walai tro or injunction. Then that falls here. So later if there is an fdda, or if there is a
final resolution by the cta or sc, then you can claim for refund.
So mao to ang g ingon nako sa inyoha even if you win sa sc and na collecta na to ni bir so midaog ka sa sc, the sc will basically tell the bir to invalidate
the assessment so your next course of action is to claim for refund from the bir.
Will the bir pay interest from the time that you won until you receive the refund? Answer is no.
So some taxpayers the moment they won sa cta in division they enter into compromise just to pay and finish everything.
78
Tax Refunds (SECTION 112)
The tax refund that we are referring to here does not pertain to an erroneous or illegal collection.
It is just that your input vat is higher than your output vat because you are a zero rated taxpayer. Zero output but you can claim input from your
suppliers and that right is granted under the law, there is no error or illegality to speak of.
Refund lang ako e discuss kay wala mai TCC under the trabaho bill.
The refund under sec 112 must be filed within 2yrs.

But unlike sec 229, the 2yr period covers only administrative.
So walai situation nganhi nga wala pa nakadecide si cir magdali dali ka ug appeal to the cta kay hapit na mulapse ang two year period. It should not
happen under sec 112 unlike sec 229.
Summary of rules on Prescriptive Periods for Claiming Refund or Credit of Input VAT (Section 112, NIRC) (Silicon Philippines v CIR, G.R. No. 173241,
March 25, 2015)
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made.
(San Roque)
Not when payment or collection was made unlike in sec 229. Kay di ba ang counting sa sec 229 kay kung kanus a ka ni bayad because
primarily you have to prove collection and payment.
But here, input vat man ni, what we are after is the date when the sales were made.
Exception lang is this period from june 8 2007 to sept 12 2008 or the atlas case.
3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the VAT
return and payment of the tax. (San Roque)
In this case, nasayop ang SC ug interpret. During this period ang interpretation ni sc class is that ang counting of the two yr period will start from the
filing of the return and the payment of the tax which should not be the case.
Dapat when the sales were made not necessarily… because remember when it comes to vat ang filing baya sa return and payment happens on the
month after the close of the quarter.
Lets say for example ang date of sales nimo is march 2018 ang deadline of filing and payment is on or before april 25 2018 kay di ba 25th day of the
month following the close of the quarter. So mu vary gyud ang start of the counting of the 2yr period.
If we base it on the date when the sales was made, earlier mu prescribe ang two years.
If we base it on the actual date of filing of the vat and payment, muprolong gamay ang filing sa two yr prescriptive period.
Exception lang during this period.

That is on the counting of the 2yr period.
Under section 112, pila ka days dapat decidan ni cir?

Unlike sa 229 nga 180 days.
Under 112, decidan na niya 120 days but under the enhanced vat refund system, reduced na further into 90 days.
As of now, what is effective pa? effective pa is the 120days.

B. 120+30 Day Period
So the taxpayer received a denial of the received denial within the 120days period, ang remedy niya is to appeal to the cta within 30days from the
receipt of the adverse decision.
But what if no decision was rendered by the cir within a period of 120days? Automatic upon the lapse of the 120days period within 30days shall appeal
to the cta.
No option to wait for the decision despite the lapse of the 120day period because that pertains lang to protest.
1. The taxpayer can file an appeal in one of two ways; (1) file the judicial claim within thirty days after the Commissioner denies the claim
within 120- day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does
not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October 2010, when BIR
Ruling No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)
79
Exception lang sd on this 120+30 day period rule is from dec 2003 to october 2010. Mao sd ni situation nga si bir mismo ang nalibog because the
interpretation of the bir in this case is that pwedi or pareha sa sec 229 nga ang 2yr period covers both admin and judicial. So during this period gina
allow even if wala pa ni lapse ang 120day period but about to lapse na ang 2yr period maka appeal to the cta si taxpayer which should not be the
case because that is available only for sec 229.
*If non zero rated transaction then your option there would be carry over. You have an option to carry over or claim for a refund.
If you have a mixed transaction and you cannot properly trace the input, you must apportion it. There should only be a specific portion na e claim
nimo for the zero rated and for the 12%.
What if mixed, zero rated and 12% but I don’t want nalang to claim the refund or tax credit certificate, pwedi ba e carry over nalang nako tanan under
the tax return? The answer is yes you can carry over but you should still properly input it in the line item.
Prescriptive period for the ASSESSMENT of taxes:

Another defense that a taxpayer may raise is of course, prescription.
2 prescriptions that you need to check.

1. Prescriptive period to assess, 3yrs from the deadline of filing or actual date of filing whichever comes later.
2. Prescriptive period to collect, 5yrs from the issuance of the notice of assessm
But then again if gprotestahan ang notice of assessment and reinvestigation then the counting of the 5yr period will be suspended until a final decision
of disputed assessment is issued.
There is really no specific provision kung pila ka years gyud ang prescriptive period to collect but we can infer that in sec 222 of nirc.
GENERAL RULE: three years after the date the return is due or filed, whichever is later.
EXCEPTIONS:
1. Failure to file a return; ten (10) years from the date of the discovery of the omission to file the return;
2. False or fraudulent return with intent to evade the tax; the (10) years from the date of the discovery of the falsity or fraud;
3. Agreement in writing; to the extension (not reduction) of the period to assess between the Commissioner and the taxpayer before the
expiration of the three- year period;
4. Waiver or renunciation of the original three (3) year limitation, signed by the taxpayer.
Prescriptive period for the COLLECTION of taxes:

NIRC does not provide for prescriptive period.
Section 203 vis-à-vis Section 222

 Grounds for suspension of the running of prescriptive period for assessment and collection
1. When the Commissioner is prohibited from making the assessment or beginning the distraint or levy or proceeding in court and for sixty
days therafter;
2. When the taxpayer requests for a reinvestigation which is granted by the Commissioner.
3. When the taxpayer cannot be located in the address given by him in the return, unless he informs the Commissioner of any change in his
address;
4. When the warrant of distraint or levy is duly served, and no property is located and
5. When the taxpayer is out of the Philippines.
Amended return
If it is amended substantially, the prescriptive period to assess is also extended, counting will begin on the date of the substantially amended return
was filed.
Allowed when:
1. The amendment is made within 3 years from the date of filing the original return; and
2. No notice of audit or investigation of such return has, in the meantime, been actually served upon the taxpayer.
Effect on prescription- The prescription period starts to run from the filing of the original return, if the same is sufficiently complete to
enable the CIR to intelligently determine the proper amount of tax to be assessed.
However, where the amended return is substantially different from the original, the right to assess is counted form the filing of the
amended return.
Prescriptive period for the filing of CRIMINAL ACTION: five (5) years from the day of the commission of the violation, and if not known, from the
discovery thereof and the institution of judicial proceedings for its investigation and punishment.
Grounds for interruption of the period:

80
1. When proceedings are instituted against the guilty persons
2. It begins to run again of the proceedings are dismissed for reasons not constituting jeopardy
3. Offender is absent from the Philippines.
Retroactivity of BIR Rulings
Revenue ruling, di pwedi mu retroact it is prospective.
 GENERAL RULE: Prospective
 EXCEPTIONS:
1. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR;
2. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; and
3. Where the taxpayer acted in bad faith.
BIR Lost P220M in VAT deficiency assessment for failure to issue an LOA
In this case the bir differentiated loa from lm and the bir also invalidated an assessment based lang on the relief system describing it as a naked
assessment.
Medicard Philippines Inc. V CIR, G.R. No. 222743, April 5, 2017

The no-contract-audit approach includes the process of computerized matching of sales and purchases data contained in the Schedules of Sales and
Domestic Purchases and Schedule of Importation submitted by VAT taxpayers under the RELIEF System pursuant to RR No. 7-95, as amended by RR
Nos. 13-97, 7-99 and 8-2002. This may also include the matching of data from other information or returns filed by the taxpayers with the BIR such
as Alphalist of Payees subject to Final or Creditable Withholding Taxes.
Under this policy, even without conducting a detailed examination of taxpayer’s books and records, if the computerized/manual matching of sales
and purchases/expenses appears to reveal discrepancies, the same shall be communicated to the concerned taxpayer through the issuance of LN.
The LN shall serve as a discrepancy notice to taxpayer similar to a Notice for informal Conference to the concerned taxpayer. Thus, under the RELIEF
System, a revenue officer may begin an examination of the taxpayer even prior to the issuance of an LN or even in the absence of a LOA with the aid
of a computerized/manual matching taxpayers’ document/records.
The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR himself.
First, an LOA addressed to a revenue officer is specifically required under the NIRC before an examination of a taxpayer may be had while an LN is
not found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR’s RELIEF System.
Second, an LOA is valid only for 30 days from the date of issue while an LN has no such limitation.
Third, an LOA gives the revenue officer only a period of 120 days from receipt of LOA to conduct his examination of the taxpayer whereas an LN
does not contain such a limitation.
Simply put, LN is entirely different and serves a different purpose than an LOA. Due process demands, as recognized under RMO No. 32-2005, that
after an LN has serve its purpose, the revenue officer should have properly secured an LOA before proceeding with the further examination and
assessment of the petitioner. Unfortunately, this was not done in this case.
“Naked Assessment” NOT allowed

Agrinurture, Inc. V CIR, CTA Case 8345, May 29, 2013
The prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation; i.e., it is arbitrary and
capricious. Where the BIR has come out with a “naked assessment,” the determination of the tax is without rational basis; hence, the determination
must find support in credible evidence.
With respect to VAT, VAT can be imposed only when it is shown that the taxpayer received an amount of money or its equivalent from a taxable sale
of goods or services, and not when there are under-declared purchases.
An assessment must be based on actual fact. The presumption of correctness of assessment being a mere presumption, cannot be made to rest on
another presumption (i.e., the under-declared purchases would automatically result in undeclared income or additional taxable sales, which would
in turn increase petitioner’s income tax and VAT liabilities.
You must confirm it with 3rd party information.
81

Tax 2 Prefi Transcript Reduced Font

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Tax 2 Prefi Transcript Reduced Font

Caricato da

Copyright:

Formati disponibili

Taxation II - Atty.

Kim Aranas SMLP | SDB | KDA | AC | JT

So what are these zero-rated transactions in the sale of goods.

October 12, 2018

Zero-rated Transactions (Sale of goods) under TRAIN

Zero-rated transactions (Sale of goods)

Zero-rated transactions (Sale of services) under TRAIN

Automatic 0-rating vs. Effective 0-rating

Zero-rated Effectively zero-rated

ENHANCED VAT REFUND SYSTEM

Within 2 years Decision:

Within 120 days Within 30 days

Period within which refund of input taxes shall be made (TRAIN)

Within 2 years Decision: - Approval

Within 90 days Within 30 days

VAT-EXEMPT TRANSACTIONS OR PERSONS

What is the difference between a VAT-exempt and a zero-rated transaction?

3. Claim for input VAT on

4. Relief on the Taxpayer Total Partial

Features of a VAT-Exempt Transaction

VAT Exempt Transaction (Section 109, NIRC)

October 17, 2018

How many products are exempted?

What is the definition of a specialty feed?

Why do you say so?

What is exempted here?

So how may I be exempted?

How about the sale of the fertilizers to the local market?

E. Services subject to percentage tax under Title V

What if nagpa OPD (out-patient) ko?

(Doctor and lawyer daw bagay. Relationship guru na si sir)

Ang F wala na nato na gi discuss kay na discuss na nato sa A.

I. Services rendered by individuals pursuant to an employeremployee relationship

O. Export sales by persons who are not VAT-registered;

Unit refers to apartment units.

October 19, 2018

Example: Yummy Inc is a restaurant offering a birthday promo at 10%.

P1120 - VAT Inclusive amount

We move on to the rates of VAT

Asa makita nag beginning inventory nimo?

We also have the 4% presumptive input tax.

But limited ra ni for certain food products lang. SM2NCR

If you notice they are the basic necessities.

Kanus-a ni mahitabo ang 5% final withholding?

What’s the purpose of it?

What if the actual input is below 7%?

Transitional input VAT, when is this applied?

Next, we have the concept of withholding VAT.

Pwede pa ba nimo deductan ang VAT payable?

What is your responsiblity as a buyer?

What if wala ko naka withhold?

What are capital goods?

So is this capital asset or ordinary asset? This is ordinary asset.

If the value of the capital good is 1M so gipasahan ka ug 12% vat ni supplier.

But if the value is below 1 million no need to amortize.

Expensing input VAT is also allowed in the following instances:

What if mi file ko ni lapse na ang two years? Natural, dili ka ma refund-an.

Just to clarify on vat on sales to the government,

Maka claim pa ba ka ug input tax?

VAT liability computation

Sales to government 100 100 100

Purchases (goods and ser-

Output VAT (100x 12%) 12 12 12