2019 Ust Pre Week Taxation Law

University of Santo Tomas
Faculty of Civil Law
TAXATION LAW
Pre-week Notes 2019
ACADEMICS COMMITTEE
SECRETARY GENERAL: EDREA RAMIREZ

EXECUTIVE COMMITTEE: BELLE DE LEON, ARIANNA SARMIENTO, AYA CAPARAS, PAMELA
NICOLE MANALO, RUTH SANVICTORES
TAXATION LAW COMMITTEE
COMMITTEE HEAD: JYRUS CIMATU

SUBJECT HEADS: JHOVEN PAUL TOLENTINO, BION HENRIK PRIOLO, RAFAEL MENDOZA,
SAB BORROMEO, MICHAELLA RAMIREZ, TRISTAN GONZALES, FRANS JOSEPH INCOMIO
MEMBERS: KATELEYN LEANDER, RAFAEL MENDOZA, AYA CAPARAS
ATTY. LEAN JEFF MAGSOMBOL

ADVISER
UST LAW PRE-WEEK NOTES 2019
only. It is an immunity or privilege, a freedom from

a charge or burden to which others are subjected.
BAR REMINDERS (Florer v. Sheridan, 137 Ind. 28, 36 NE 365). It is
generally prospective in application. (BAR 2001)
Non-stock, non-profit hospitals; CIR vs. St. Capital Gains Tax; Supreme Transliner vs.
Luke’s Medical Center BPI Family Savings
Although a non-stock, non-profit hospital In a foreclosure of real estate mortgage, the CGT
organized for charitable purposes, is generally accrues only after the lapse of the redemption period
exempt from income tax, it becomes taxable on because it is only then that there exists a transfer of
income derived from activities conducted for profit. property.
Services rendered to paying patients are considered
activities conducted for profit which are subject to Substituted Filing; RR No. 3-2002 in re: Sec.
income tax, regardless of the disposition of said 51, TRAIN
income. The hospital is subject to income tax of Only an individual receiving purely compensation
10% of its net income derived from the paying income, regardless of amount, from only one
patients considering that the income earned employer in the Philippines for the calendar year, the
appears to be derived solely from hospital-related income tax of which has been withheld correctly by
activities. the said employer shall qualify for substituted filing
of income tax return.
Non-stock, non-profit educational
institutions: CIR v. De la Salle University Income tax carryover: Asiaworld Properties
Article XIV, Section 4(3) of the 1987 Constitution Philippine Corporation v. CIR
provides that the assets of a non-stock, non-profit Section 76 of the NIRC of 1997 clearly states: “Once
educational institution shall be exempt from taxes the option to carry-over and apply the excess
and duties only if the same are used actually, quarterly income tax against income tax due for the
directly, and exclusively for educational purposes. taxable quarters of the succeeding taxable years has
The test of exemption from taxation is the use of the been made, such option shall be considered
property for purposes mentioned in the irrevocable for that taxable period and no application
Constitution. for cash refund or issuance of a tax credit certificate
shall be allowed therefore”. Section 76 expressly
Section 30 of the NIRC, which provides the states that the option shall be considered irrevocable
statutory exemption for non-stock non-profit for that taxable period referring to the period
educational institutions, provides that comprising the succeeding taxable years. It further
“Notwithstanding the provisions in Sec. 30, the states that no application for cash refund or issuance
income of whatever kind and character of the of a tax credit certificate shall be allowed therefore
foregoing organizations from any of their referring to that taxable period comprising the
properties, real or personal, or from any of their succeeding taxable years.
activities conducted for profit regardless of the
disposition made of such income shall be subject to Fair Market Value determination for real
tax imposed under the NIRC.” properties The FMV of a property is the higher
between the FMV as determined by the CIR, or the
However, such cannot overcome a constitutionally- FMV as shown in the schedule of values fixed by the
granted exemption. Accordingly, the last paragraph provincial and city assessors.
of Section 30 of the Tax Code is without force and
effect with respect to non-stock, non-profit Donor’s Tax; BIR Ruling DA No. 333-07
educational institutions, provided, that the non- The general renunciation of the wife’s share in the
stock, non-profit educational institutions prove inheritance during the settlement of the estate is not
that its assets and revenues are used actually, a taxable gift considering that the property is
directly and exclusively for educational purposes. automatically transferred to the other heirs by
operation of law due to her repudiation of her
Moreover, the tax-exemption constitutionally- inheritance. However, the renunciation of the wife of
granted to non-stock, non-profit educational her share in the conjugal property is taxable because
institutions, is not subject to limitations imposed it undertakes a transfer of property without any
by law. consideration which takes effect during the lifetime
of the transferor – hence, a taxable gift.
Tax amnesty and tax exemption,
distinguished Donor’s Tax, Contributions to Politicians
Tax amnesty is immunity from all criminal, civil The contributions to politicians during the campaign
and administrative liabilities arising from period will be exempt from donor’s tax if they are
nonpayment of taxes. It is a general pardon given duly reported to the Commission. Otherwise, the
to all taxpayers. It applies only to past tax periods, contributions will be subject to donor’s tax.
hence of retroactive application. (People v.
Castaneda, G.R. No. L- 46881, 1988). Tax Remedies; CIR vs. Aichi Forging
Company of Asia The two-year period to file a
Tax exemption is immunity from the civil liability claim for refund refers to the administrative claim
UNIVERSITY OF SANTO TOMAS 1 UST L A W B A R O P E R A T I O N S

FACULTY OF CIVIL LAW ACADEMICS COMMITT EE 2019
Taxation Law
and does not refer to period within which to elevate quarter when the zero-rated or effectively zero-rated
the claim to the CTA. sales were made.
Smuggling, definition (2) The CIR has 120 days from the date of
Smuggling is committed by any person who shall submission of complete documents in support of the
fraudulently import or bring into the Philippines or administrative claim within which to decide whether
assist in so doing, any article, contrary to law, or to grant a refund or issue a tax credit certificate. The
shall receive, conceal, buy, sell or in any manner 120-day period may extend beyond the two-year
facilitate the transportation, concealment or sale of period from the filing of the administrative claim if
such article after importation, knowing the same the claim is filed in the later part of the two-year
too have been imported contrary to law. period. If the 120-day period expires without any
decision from the CIR, then the administrative claim
Local Government Code; Appeal to the may be considered to be denied by inaction.
Secretary of Justice
Any question on the legality of the tax ordinance (3) A judicial claim must be filed with the CTA
can only be raised on appeal with the Sec. of Justice within 30 days from the receipt of the CIR’s decision
and the appeal shall not have the effect of denying the administrative claim or from the
suspending the effectivity of the ordinance and the expiration of the 120- day period without any action
accrual and the payment of the tax levied therein. from the CIR.
Tax Remedies; Sec. 228 of the NIRC (4) All taxpayers, however, can rely on BIR Ruling
When the finding of a deficiency tax is the result of No. DA- 489-03 from the time of its issuance on 10
mathematical error in the computation of the tax December 2003 up to its reversal by this Court in
appearing on the face of the return, a pre- Aichi on 6 October 2010, as an exception to the
assessment notice shall not be required. mandatory and jurisdictional 120+30 day periods.
Rule 8, Sec. 1 of the Revised Rules of CTA Waiver of statute of limitations: Philippine
Before the CTA en banc could take cognizance of Journalists Inc. v. CIR
the petition for review concerning a case falling Generally, a valid waiver of the statute of limitations
under its exclusive appellate jurisdiction, the for the assessment and collection of taxes must be
litigant must sufficiently show that it sought prior executed by the taxpayer and accepted by the BIR
reconsideration or moved for a new trial with the prior to the expiration of the period which it seeks to
concerned CTA Division. extend. The same must also be executed by the
taxpayer or his duly authorized representative, or in
Compliance Requirements; Section the case of a corporation, it must be signed by any of
113(b)(2)(c), NIRC its responsible officers.
If the sale is subject to zero percent VAT, the term
“zero- rated sale” shall be written or printed Period of Assessment and Collection
prominently on the invoice or receipt. Failure to The statute of limitations on assessment and
comply with this invoicing requirement is fatal to a collection of national internal revenue taxes was
claim for refund of input taxes attributable to the shortened to three (3) years. Thus, petitioner has
zero-rated sale. three (3) years from the date of actual filing of the tax
return to assess a national internal revenue tax or to
Real Property Tax: Taxability commence court proceedings for the collection
Actual beneficial use of the land shall be the thereof without an assessment. However, when it
determining factor whether such land is taxable of validly issues an assessment within the three (3)-year
not, even though it is owned by the Municipality. period, it has another three (3) years within which to
collect the tax due by distraint, levy, or court
Tax Remedies: 120-day period proceeding. The assessment of the tax is deemed
As provided by Section 112(C), 1997 NIRC, as made and the three (3)-year period for collection of
amended, one of the conditions for a judicial claim the assessed tax begins to run on the date the
of refund or credit under the VAT System is assessment notice had been released, mailed or sent
compliance with the 120+30 day mandatory and to the taxpayer. (CIR vs United Salvage and Towage
jurisdictional periods. Thus, strict compliance with (Phils), GR 197515, J. Peralta, July 2, 2014)
the 120+30 day periods is necessary for such a
claim to prosper. Then, if the Commissioner does Exceptions to Three-Year Period of
not act on the taxpayer’s claim within the 120-day Assessment and Collection
period, the taxpayer may appeal to the CTA within The 3-year period of limitation for the assessment of
30 days from the expiration of the 120-day period. internal revenue tax liabilities reckoned from the last
day prescribed by law for the filing of the return shall
The case of Mindanao II Geothermal Partnership not apply in the case where the taxpayer falsely filed
v. CIR (G.R. No. 193301, March 11, 2013) the return. Such being the case, the applicable
summarizes the rule, as follows: provision shall be Section 222(a) where the period of
limitation provides that the assessment may be made
(1) An administrative claim must be filed with the within ten (10) years after the discovery of falsity,
CIR within two years after the close of the taxable fraud or omission. (CIR vs Philippine Daily Inquirer,

GR 213943, J. Carpio, March 22, 2017) Q: What is the DOCTRINE OF WILLFUL

BLINDNESS?
Preservation of Books of Accounts and Doctrine of Willful Blindness is when a person, given
Other Accounting Books (Section 235, his experience in his business or industry, commits
NIRC) an act or omission tantamount to gross negligence in
As a rule, a taxpayer must be subject to attending to his or her tax obligations which may lead
examination and inspection by internal revenue to serious violation of tax laws like tax evasion.
officers only once in a taxable year. This will not (People v. Kintanar, CTA E.B. Crim. No. 006,
apply if there is fraud, irregularity or mistakes as December 3, 2010)
determined by the CIR.
Tax Tax Tax Amnesty
Condonation Exemption
PART I: GENERAL PRINCIPLES OF
TAXATION Tax Tax Tax Amnesty
Condonation is Exemption is is an act of
Q: What is the nature of the taxing power of the way the an existing Congress,
the State? CIR or the statutory thru crafting
Secretary of grant and passing a
A: The taxing power of the State is an inherent Finance may applying to law
power and the people need not confer it to the exercise, in its specific specifically
government through the Constitution or law for it discretion, and persons, to forego tax
to have this power. considering the entities, or liabilities
attendant facts properties already
It is also legislative in character as the Congress has of the particular falling within incurred by a
the primary power to levy taxes. But taxation is case, to forgive the definition class of
subject to its own inherent limitations and a tax debt of a of these taxpayers.
Constitutional limitations so as to temper such particular exempted
governmental power. entity or person from tax, thus
or to let go of its no incurred
This must also be for public purpose as the tax liability. tax
proceeds of taxation cannot inure to the benefit of obligation to
private entities or persons. begin with
unlike in tax
It is also generally non-delegable save for instances amnesties.
allowed by Constitution and law (such as the
delegation of power to adjust tariff rates to the Q: Supreme Corporation was able to initially
President, and power of LGUs to generate secure a BIR ruling that would exempt its
revenue). importation of certain raw materials.
Subsequently, the BIR issued another ruling
It is also territorial in operation, pecuniary in subjecting similar products to certain tax.
nature, and is an enforced charge or contribution. Thereafter, the BIR assessed Supreme
Corporation for deficiency taxes on all of its
Q: What is the purpose of Constitutional raw materials previously imported. Is the
provisions on taxation? assessment valid?
A: The power of taxations is already inherent in the A: The assessment is not valid because the BIR ruling
State. The existence of Constitutional provision on on which the assessment is based is void for being
taxation provides the limitations on this prejudicial to the taxpayer. It is provided by the Tax
destructive power of the government. Taxation is Code that the reversal or modification of rulings
destructive in the sense that is takes away property cannot be allowed when it is prejudicial to the
from the taxpayers. Therefore, the Constitutional taxpayer. In the case, Supreme Corporation has
limitations are in place to prevent unjust, already been granted an exemption and the reward of
unreasonable, and arbitrary imposition of taxes the ruling, on which the assessment is based, is
against taxpayers. prejudicial to Supreme Corp.
Q: What are the inherent limitations of the Q: What are BIR Rulings?
power of taxation?
A: BIR Rulings are rulings that contain the official
1. It must be for a public purpose; position of the BIR regarding the tax queries of a
2. It must adhere to international comity; taxpayer. A BIR ruling may confirm the exemption of
3. The government agencies, entities, and a taxpayer or clarify a particular tax issue pertinent to
instrumentalities are exempt from paying; a taxpayer.
4. Inherently legislative; and
5. Territorial in application. Q: To be able to provide for different kinds of
foods to the students of Sto. Nino Catholic

Taxation Law
University, a food court was constructed at its BIR requires for an assessment. The BIR must also
ground floor which were rented to food show that it was diligent in requesting for these
concessionaires. Each of these records.
concessionaires were charged with a rental
fee of 20,000 pesos per month. For year 2015, By showing these facts, the BIR can now use the
the University was assessed for an alleged Best Evidence Obtainable rule in the assessment of
deficiency income tax of 200,000 pesos the company.
arising from said rental income from its food
concessionaires. Q: Tridharma Marketing Corporation (TMC)
received a Preliminary Assessment Notice
Is there legal basis for the assessment? Are (PAN) from the BIR assessing it with various
there any Constitutional provisions that deficiency taxes totaling P4,640,394,039.91,
may refute such assessment? inclusive of surcharge and interest. TMC filed
a Motion for Suspension of Collection of Tax
Yes. Under to Sec. 27 of the NIRC, proprietary which the CTA granted provided the
educational institutions are imposed a 10% tax rate petitioner deposits with the court an
on their income. Sto. Nino Catholic University, as a acceptable surety bond equivalent to 150% of
proprietary educational institution, may be the assessment in the amount of
imposed a 10% tax rate for its income from the P6,701,087,822.64. Did the CTA commit
rental fees. grave abuse of discretion in requiring TMC to
file a surety bond despite the supposedly
Nevertheless, Art. XIV, Sec. 4 of the Constitution patent illegality of the assessment that was
provides that the assets and revenues of non-stock, beyond the TMC’s net worth but equivalent to
non-profit educational institutions that are used the deficiency assessment for IT and VAT?
actually, directly, and exclusively for educational
purposes are exempt from all taxes and duties. For A: YES. At this juncture, it becomes imperative to
this provision to apply in the case, the school must reiterate the principle that the power to tax is not the
show that it is a non-stock, non-profit educational power to destroy. While the requiring to post a surety
institution. It must also show that the income from bond by the CTA was within its powers, the Court
the rental fees are actually, directly, and exclusively holds, however, that the CTA in Division gravely
used for educational purposes. abused its discretion because it fixed the amount of
the bond at nearly five times the net worth of the
Q: Superman Cigar and Cigarette Company petitioner without conducting a preliminary hearing
was assessed for deficiency on its alleged to ascertain whether there were grounds to suspend
unpaid excise taxes. The BIR issued a Final the collection of the deficiency assessment on the
Assessment Notice for deficiency ground that such collection would jeopardize the
assessment in the amount of 10 million interests of the taxpayer. Although the amount of
pesos. Superman Cigar questioned the P4,467,391,881.76 was itself the amount of the
issuance of the FAN, alleging that they were assessment, it behooved the CTA in Division to
not given the enough time to refute the consider other factors recognized by the law itself
assessment. The BIR on the other hand towards suspending the collection of the assessment,
contends that the taxpayer was given like whether or not the assessment would jeopardize
enough time and just refused to heed their the interest of the taxpayer, or whether the means
requests for production of accounting adopted by the CIR in determining the liability of the
records. taxpayer was legal and valid. Simply prescribing such
high amount of the bond like the initial 150% of the
What is the meaning of “Best Obtainable deficiency assessment of P4.4 billion (or P6.7 billion),
Evidence” and when can this be used a valid or later on even reducing the amount of the bond to
basis to audit/assessed a taxpayer? equal the deficiency assessment would practically
deny to the petitioner the meaningful opportunity to
A: Under the Best Evidence Obtainable rule, contest the validity of the assessments, and would
the BIR, in the conduct of its tax investigation on a likely even impoverish it as to force it out of business.
taxpayer, may resort to any document material to (Tridharma Marketing Corporation v. CTA, G.R.
the inquiry, information from government offices, No. 215950, June 20, 2016)
or testimony of some other persons when the
reports or records requested from the taxpayer is Q: Relate the concept of pacta sunt servanda
not forthcoming (i.e. records are lost; refusal of on taxation.
taxpayer to submit such records) or the reports
submitted are false, incomplete or erroneous. A: Observance of any treaty obligation binding upon
the government of the Philippines is anchored on the
Q: In this case, what should be shown by the constitutional provision that the Philippines “adopts
BIR to justify the findings? the generally accepted principles of international law
as part of the law of the land (Art. II, Sec. 2, 1987
A: The BIR should show that there was a deliberate Constitution).
refusal from the company in producing the
accounting records and other documents that the Pacta sunt servanda is a fundamental international

law principle that requires agreeing parties to comply with these requirements, the taxpayer is
with their treaty obligations in good faith. Hence, the immediately entitled to the enjoyment of the
application of the provisions of the NIRC must be immunities and privileges of the tax amnesty
subject to the provisions of tax treaties entered into program. But when: (a) the taxpayer fails to file a
by the Philippines with foreign countries. (Air SALN and the Tax Amnesty Return; or (b) the net
Canada vs. CIR, G.R. No. 169507, January 11, 2016) worth of the taxpayer in the SALN as of December
31, 2005 is proven to be understated to the extent
Q: Does the 20% Sales Discount for Senior of 30% or more, the taxpayer shall cease to enjoy
Citizens and Persons with Disabilities these immunities and privileges. The
violates the constitutional right of equal underdeclaration of a taxpayer's net worth, as
protection clause? referred in the second instance above, is proven
through: (a) proceedings initiated by parties other
A: NO. The equal protection clause is not infringed than the BIR or its agents, within one (1) year from
by legislation which applies only to those falling the filing of the SALN and the Tax Amnesty Return;
within a specified class. If the groupings are or (b) findings or admissions in congressional
characterized by substantial distinctions that make hearings or proceedings in administrative agencies,
real differences, one class may be treated an and in courts. Otherwise, the taxpayer's SALN is
regulated differently from another (Southern presumed true and correct. The tax amnesty law
Luzon Drug Corporation v. DSWD, G.R. No. thus places the burden of overturning this
199669, April 25, 2017). presumption to the parties who claim that there
was an underdeclaration of the taxpayer's net
DOUBLE worth. (CIR vs. Covanta Energy Philippine
TAXATION Holdings, Inc., G.R. No. 203160, January 24,
2018)
Direct Double Taxation exists when a particular
product, person, entity, or business is taxed more Q: The City of Manila assessed and collected
than once within or by the same taxing authority taxes from the individual petitioners
for the same purpose. pursuant to Sec. 15 (Tax on Wholesalers,
Distributors, or Dealers) and Sec. 17 (Tax on
EXEMPTION FROM Retailers) of the Revenue Code of Manila
TAX (Ordinance No. 7794). At the same time, the
City of Manila imposed additional taxes upon
Q: CIR issued Formal Letters of Demand the petitioners pursuant to Sec. 21 of the
and Assessment Notices against CEPHI for Revenue Code of Manila, which imposes tax
deficiency taxes for the taxable year 2001. on a person who sold goods and services in
This assessment lead to CEPHI filing a the course of trade or business based on a
Letter of Protest. certain percentage of his gross sales or
receipts in the preceding calendar year, as a
The protests remained unacted upon. Thus, condition for the renewal of their respective
CEPHI filed separate petitions before the business licenses for the year 1999. Is there
CTA, seeking the cancellation and double taxation?
withdrawal of the deficiency assessments.
After the parties' respective submission of A: YES. All the elements of double taxation
their formal offer of evidence, CEPHI filed a concurred upon the City of Manila’s assessment on
Supplemental Petition, informing the CTA and collection from the petitioners of taxes for the
that it availed of the tax amnesty. CEPHI first quarter of 1999 pursuant to Sec. 21 of the
afterwards submitted a Supplemental Revenue Code of Manila. Firstly, because Sec. 21 of
Formal Offer of Evidence, together with the the Revenue Code of Manila imposed the tax on a
documents relevant to its tax amnesty. The person who sold goods and services in the course of
CIR argued, however, that CEPHI cannot trade or business based on a certain percentage of his
enjoy the privileges attendant to the tax gross sales or receipts in the preceding calendar year,
amnesty program because its SALN failed to while Sec. 15 and Sec. 17 likewise imposed the tax on
comply with the requirements. Is CEPHI a person who sold goods and services in the course of
entitle to tax amnesty? trade or business but only identified such person with
particularity, namely, the wholesaler, distributor or
A: Yes. CEPHI is entitled to the immunities and dealer (Sec. 15), and the retailer (Sec. 17), all the taxes
privileges of the tax amnesty program upon full — being imposed on the privilege of doing business
compliance with the requirements of R.A. No. in the City of Manila in order to make the taxpayers
9480. R.A. No. 9480 governs the tax amnesty contribute to the city’s revenues — were imposed on
program for national internal revenue taxes for the the same subject matter and for the same purpose.
taxable year 2005 and prior years. Subject to Secondly, the taxes were imposed by the same taxing
certain exceptions, a taxpayer may avail of this authority (the City of Manila) and within the same
program by complying with the documentary jurisdiction in the same taxing period (i.e., per
submissions to the Bureau of Internal Revenue calendar year). Thirdly, the taxes were all in the
(BIR) and thereafter, paying the applicable nature of local business taxes (Nursery Care
amnesty tax. Upon the taxpayer's full compliance Corporation v. Acevedo, 731 SCRA 280, G.R. No.

Taxation Law
180651, July 30, 2014) Valley College, Inc. v. Aquino, 245 Phil. 83; 162
SCRA 106 (1988), cited in CIR vs. De La Salle
Q: SLMC received an Assessment Notice University, Inc., G.R. No. 196596, November 9,
informing it of its income tax deficiency 2016).
under Section 27(B) of the 1997 NIRC, for
taxable year 2005 and 2006. SLMC filed and b. and c.: NO. If the university actually, directly
administrative protest before the CIR and and exclusively uses for educational purposes the
claimed that as a non-stock, non-profit revenues earned from the lease of its school
charitable and social welfare organization, it building, such revenues shall be exempt from
is exempt from paying income tax. It income tax, VAT, local business taxes, and duties.
asseverates further that the income it derives The tax exemption no longer hinges on the use of
from operating a hospital is not income from the asset from which the revenues were earned, but
“activities conducted for profit.” On the other on the actual, direct and exclusive use of the
hand, CIR contends that SLMC does not revenues for educational purposes. To avail of the
operate exclusively for charitable or social exemption, the taxpayer must factually prove that
welfare purposes insofar as its revenues from it used actually, directly and exclusively for
paying patients are concerned. Is SLMC liable educational purposes the revenues or income
for income tax? sought to be exempted.
A: YES. SLMC is liable for income tax under Section In sum, the crucial point of inquiry then is on the
27(B) of the NIRC insofar as its revenues from use of the assets or on the use of the revenues.
paying patients are concerned. To be clear, for an These are two things that must be viewed and
institution to be completely exempt from income treated separately (CIR vs. De La Salle University,
tax, Section 30(E) and (G) of the 1997 NIRC Inc., G.R. No. 196596, November 9, 2016).
requires said institution to operate exclusively for
charitable or social welfare purpose. But in case an Q: Explain the construction of laws granting
exempt institution under Section 30(E) or (G) of tax exemptions.
the said Code earns income from its for-profit
activities, it will not lose its tax exemption. A: Tax exemptions are strictissimi juris. Indeed,
However, its income from for profit activities will taxation is the rule and tax exemption the exception.
be subject to income tax at the preferential 10% rate Tax exemptions should be granted only by clear and
pursuant to Section 27(B) thereof. (CIR v. St. unequivocal provision of law on the basis of language
Luke’s Medical Center, Inc., G.R. No. 203514, too plain to be misunderstood. (CIR v. Manila Home
February 13, 2017 J. Del Castillo) Textile, Inc, G.R. No. 203057, June 6, 2016, Del
Castillo, J.)
Q: De La Salle University leases out a
portion of its property to private PART II: NATIONAL TAXATION
concessionaires, i.e., commercial canteens
and bookstores. The lease payments were
factually proven to be used for educational INCOME
purposes. TAXATION
a. Is the land owned by De La Salle Optional 8% Income Tax (Sec. 24, Par. A., No. 2
University subject to real property tax? (b))
b. Are the lease payments received by De If the gross sales/receipts and other non- operating
La Salle University subject to income income of a self- employed/professional do not
tax? exceed the P3M VAT threshold, taxpayer may opt to
c. Are the lease payments received by De be taxed at:
La Salle University subject to VAT?
(2016 Bar) • 8% of gross sales/receipts and other non-
operating income in excess of P250,000 in lieu of
A: graduated rates and percentage tax; or
• Graduated rates income tax rates.
a. YES. The leased portion of the building may be
subject to real property tax. The test of exemption This provision is not applicable for compensation
from taxation is the use of the property for income.
purposes mentioned in the Constitution. The lease
of a portion of a school building for commercial Note: For mixed income earners, the 8% income tax
purposes, removes such asset from the property tax rate, if opted, is applied to the entire gross
exemption granted under the Constitution. There is sales/receipts, not only to the gross sales/receipts in
no exemption because the asset is not used actually, excess of P250,000.
directly and exclusively for educational purposes.
The commercial use of the property is also not Rates on PCSO and Lotto winnings
incidental to and reasonably necessary for the EXCEEDING PhP10,000.00 is subject to 20%
accomplishment of the main purpose of a final tax under the TRAIN Law. It is exempt
university, which is to educate its students (Abra from the previous tax code.

representing accrued and unpaid

Capital gains tax from sale of shares of stock dividends.
NOT LISTED OR TRADED IN THE STOCK
EXCHANGE It then filed an application for relief from
Flat rate of 15% double taxation before the International
Tax Affairs Division of the BIR to confirm
Taxable Income (Sec. 31, TRAIN) that the redemption was not subject to
Personal and additional exemptions are Philippine income tax, pursuant to the
removed under the TRAIN Law. Republic of the Philippines (RP) - US Tax
Treaty. This notwithstanding, respondent
13th month pay and other benefits threshold still took the conservative approach, and
limit is increased to 90,000 pesos as compared thus, withheld and remitted the sum of
to the 82,000 peso limit under the previous Tax Code P14,659,847.10 to the BIR on November 3,
under Sec. 32 (B)(7)(e). 2008, representing fifteen percent (15%)
FWT, computed based on the difference of
Q: Sps. Salvador are the registered owners the redemption price and aggregate par
of a parcel of land. The Republic, value of the shares.
represented by the DPWH filed a Complaint
before the RTC for the expropriation of a On October 21, 2010, respondent filed an
portion of said parcel of land for the administrative claim for refund or issuance
construction of a highway. The RTC of TCC, representing 15% FWT in the sum of
rendered judgment in favor of the Republic P14,659,847.10 before the BIR. Thereafter,
condemning the subject property. The RTC or on November 3, 2010, it filed a judicial
likewise directed the Republic to pay claim, by way of petition for review, before
respondents consequential damages the CTA.
equivalent to the value of the capital gains
tax and other taxes necessary for the Is the gain derived by GTRC subject to 15%
transfer of the subject property in the FWT on dividends?
Republic's name. The RTC reasoned that the
payment of capital gains tax and other A: YES. It must be noted, however, that GTRC is a
transfer taxes is but a consequence of the nonresident foreign corporation, specifically a
expropriation proceedings. Is the RTC resident of the US. Thus, pursuant to the cardinal
correct in awarding consequential damages principle that treaties have the force and effect of law
to the Sps. Salvador as the payment for in this jurisdiction, the RP- US Tax Treaty
capital gains tax? complementarily governs the tax implications of
respondent's transactions with GTRC. (CIR v.
A: No. It is settled that the transfer of property Goodyear Philippines, Inc., G.R. No. 216130, August
through expropriation proceedings is a sale or 3, 2016)
exchange within the meaning of Sections 24(D) and
56(A) (3) of the NIRC, and profit from the Q: PAGCOR granted to Bloomberry Resorts
transaction constitutes capital gain. Since capital and Hotels a provisional license to establish
gains tax is a tax on passive income, it is the seller, and operate an integrated resort and casino
or respondents in this case, who are liable to complex. Being one of its licensees,
shoulder the tax. petitioner, Bloomberry only pays PAGCOR
license fees, in lieu of all taxes, as contained
In fact, BIR Ruling No. 476-2013 has constituted in its provisional license and consistent with
the DPWH as a withholding agent tasked to the PAGCOR Charter or Presidential Decree
withhold the 6% final withholding tax in the (PD) No. 1869, which provides the exemption
expropriation of real property for infrastructure from taxes of persons or entities contracting
projects. As far as the government is concerned, the with PAGCOR in casino operations.
capital gains tax in expropriation proceedings
remains a liability of the seller, as it is a tax on the However, when RA No. 9337 took effect,
seller's gain from the sale of real property. PAGCOR was excluded from the enumeration
(Republic of the Philippines, represented by the of GOCCs exempt from paying corporate
DPWH, vs. Spouses Salvador, G.R. No. 205428, income tax. Consequently, BIR issued RMC
June 7, 2017, Del Castillo, J.) No. 33-2013 which includes a provision for
the taxability of PAGCOR’s contractees and
Q: The Board of Directors of Goodyear licensees on its income tax.
Philippines, Inc., a domestic corporation,
authorized the redemption of Goodyear Is the said provision valid or constitutional
Tire and Rubber Company’s (GTRC), a non- considering that Section 13(2)(b) of PD No.
resident foreign corporation, 3,729,216 1869, as amended (PAGCOR Charter), grants
preferred shares at the redemption price of tax exemptions to such contractees and
P470,653,914.00, broken down as follows: licensees?
P372,921,600.00 representing the
aggregate par value and P97,732,314.00, A: No. Section 13 of PD No. 1869 evidently states that

Taxation Law
payment of the 5% franchise tax by PAGCOR and its that do not have flights to and from the Philippines
contractees and licensees exempts them from but nonetheless earn income from other activities
payment of any other taxes, including corporate in the country will be taxed at the rate of 30% of
income tax. such income (South African Airways v.
Commissioner of Internal Revenue, February 16,
As previously recognized, the above-quoted 2010; Air Canada v. CIR, G.R. No. 169507,
provision providing for the said exemption was January 11, 2016).
neither amended nor repealed by any subsequent
laws (i.e. Section 1 of R.A. No. 9337 which amended Q: R.A. 9504 was approved and took effect
Section 27(C) of the NIRC of 1997); thus, it is still in on 6 July 2008. The law granted MWEs
effect. Guided by the doctrinal teachings in resolving exemption from payment of income tax on
the case at bench, it is without a doubt that, like their minimum wage, holiday pay, overtime
PAGCOR, its contractees and licensees remain pay, night shift differential pay and hazard.
exempted from the payment of corporate income tax On 24 September 2008, the BIR issued RR
and other taxes since the law is clear that said 10-2008 implementing the provisions of
exemption inures to their benefit. R.A. 9504. Decide the following:
We adhere to the cardinal rule in statutory a. Whether an MWE is exempt for the
construction that when the law is clear and free from entire taxable year 2008 or from 6 July
any doubt or ambiguity, there is no room for 2008 only;
construction or interpretation. As has been our b. Whether Sections 1 and 3 of RR 10-2008
consistent ruling, where the law speaks in clear and are consistent with the law in providing
categorical language, there is no occasion for that an MWE who receives other
interpretation; there is only room for application. benefits in excess of the statutory limit
(Bloomberry Resorts and Hotels, Inc. v. BIR, G.R. of P30,000 (Now at P90,000) is no
No. 212530, August 10, 2016) longer entitled to the exemption
provided by R.A. 9504.
Q: Explain the income tax implications of
operations of off-line air carriers. A:
An off-line airline having a branch office or a sales a. The MWE is exempt for the entire taxable year
agent in the Philippines which sells passage 2008. As it stands, the calendar year 2008
documents for compensation or commission to remained as one taxable year for an individual
cover off-line flights of its principal or head office, taxpayer. Therefore, RR 10-2008 cannot
or for other airlines covering flights originating declare the income earned by a minimum wage
from Philippine ports or off-line flights, is not earner from 1 January 2008 to 5 July 2008 to
considered engaged in business as an be taxable and those earned by him for the rest
international air carrier in the Philippines of that year to be tax-exempt. To do so would
and is, therefore, not subject to Gross be to contradict the NIRC and jurisprudence, as
Philippine Billings Tax provided for in Section taxable income would then cease to be
28(A)(3)(a) of the Code nor to the three percent determined on a yearly basis.
(3%) common carrier's tax under Section 118(A) of
the same Code. This provision is without prejudice NOTE: The above ruling that the MWE
to classifying such taxpayer under a different exemption is available for the entire taxable year
category pursuant to a separate provision of the 2008 is premised on the fact of one's status as an
same Code (RR 15-2002). Sec. 28 (A) (3) (a) of the MWE during the entire year of 2008.
1997 NIRC does not, in any categorical term,
exempt all international air carriers from the When the wages received exceed the minimum
coverage of Sec. 28 (A) (1) of the 1997 NIRC. wage anytime during the taxable year, the
employee loses the MWE qualification.
The general rule is that resident foreign Therefore, wages become taxable as the
corporations shall be liable for a 30% income tax on employee ceased to be an MWE. But the
their income from within the Philippines, except exemption of the employee from tax on
for resident foreign corporations that are the income previously earned as an MWE
international carriers that derive income "from remains. The improvement of one's wage
carriage of persons, excess baggage, cargo and mail cannot justly operate to make the employee
originating from the Philippines" which shall be liable for tax on the income earned as an MWE.
taxed at 2 1/2% of their Gross Philippine Billings.
An international carrier with no flights originating b. The treatment of bonuses and other benefits that
from the Philippines, does not fall under the an employee receives from the employer in
exception. excess of the P30,000 (now at 90,000) is
taxable. The treatment of this excess cannot
To reiterate, if an international air carrier operate to disenfranchise the MWE from
maintains flights to and from the Philippines, it enjoying the exemption explicitly granted by
shall be taxed at the rate of 2 1/2% of its Gross R.A. 9504(Soriano v. Secretary of Finance, G.R.
Philippine Billings, while international air carriers Nos. 184450, 184508, 184538 & 185234,

January 24, 2017) b. If taxable income is negative; or

c. If MCIT is greater than the NCIT due (Sec. 27
As it stands, the questioned Revenue [E], NIRC).
Regulation is moot and academic if the TRAIN
Law is to be applied as Minimum Wage Q: What is the Minimum Corporate Income
Earners are not liable to pay income tax Tax?
according to Sec. 24 of the TRAIN Law.
A: It came about as a result of the perceived
Additionally, the personal exemptions granted inadequacy of the self-assessment system in
by the previous law shall not be applied as it is capturing the true income of corporations.
not within the ambit of TRAIN Law and is
further reinforced by the fact that MWEs are Congress intended to put a stop to the practice of
not subject to pay income tax. corporations which, while having large turnovers,
report minimal or negative net income resulting in
minimal or zero income taxes year in and year out,
through under-declaration of income or over-
CORPORATE INCOME TAX deduction of expenses otherwise called tax
shelters. The MCIT serves to put a cap on such tax
shelters.
The MCIT is equal to 2% of the gross income of

the corporation at the end of the taxable quarter,
except income exempt from income tax and
income subject to final withholding tax.
Being a minimum income tax, a corporation should

pay the MCIT whenever its normal corporate
income tax (NCIT) is lower than the MCIT, or when
the firm reports a net loss in its tax return.
Conversely, the NCIT is paid when it is higher than
the MCIT (J.,Dimaampao, 2015).
Therefore, the taxable due for the taxable year will

be NCIT (30% of taxable income) or MCIT (2% of
gross income), whichever is HIGHER.
Train Amendment on Corporate Taxation
Sec. 27. Rates of Income Tax on Domestic ILLUSTRATION:
Corporations -"(D) Rates of Tax on Certain 1) A domestic corporation in its 4th year of
Passive Incomes – operations had a gross income of ₱300,000 and
"(1) Interest from Deposits and Yield or any other net taxable income of ₱100,000. How much is
Monetary Benefit from Deposit Substitutes and the income tax due for the year?
from Trust Funds and Similar Arrangements, and MCIT (₱300,000 x 2%) ₱ 6,000
Royalties. - A final tax at the rate of twenty percent NCIT (₱100,000 x 30%) ₱30,000
(20%) is hereby imposed upon the amount of Income tax due – NCIT ₱30,000
interest on currency bank deposit and yield or any (whichever is higher)
other monetary benefit from deposit substitutes 2) A domestic corporation in its 4th year of
and from trust funds and similar arrangements operations had a gross income of ₱400,000 and
received by domestic corporations, and royalties, net taxable income of ₱20,000. How much is the
derived from sources within the Philippines: income tax due for the year?
Provided, however, That interest income derived MCIT (₱400,000 x 2%) ₱8,000
by a domestic corporation from a depository bank NCIT (₱20,000 x 30%) ₱6,000
under the expanded foreign currency deposit Income tax due – MCIT ₱8,000
system shall be subject to a final income tax at the (whichever is higher)
rate of fifteen percent (15%) of such interest
income. Suspension of the imposition of MCIT
"(2) Capital Gains from the Sale of Shares of Stock Since certain businesses may be incurring genuine
Not Traded in the Stock Exchange. - A final tax at repeated losses, the law authorizes the Secretary of
the rate of fifteen percent (15%) shall be imposed Finance, upon recommendation of the BIR, to
on net capital gains realized during the taxable year suspend the imposition of MCIT if a corporation
from the sale, exchange or other disposition of suffers losses due to any of the following:
shares of stock in a domestic corporation except 1. Prolonged Labor Dispute – losses arising from a
shares sold or disposed of through the stock strike staged by the employees which lasted for more
exchange. than 6 months within a taxable period and which has
caused the temporary shutdown of business
The MCIT shall be imposed: operations;
a. If taxable income is zero; 2. Force Majeure – a cause due to an irresistible force

Taxation Law
as by ‘Act of God’ like lightning, earthquake, storm, foreign corporation does not amount to engaging in
flood and the like, and shall also include armed trade or business in the Philippines for income tax
conflicts like war or insurgency; purposes. For such a foreign corporation to be
3. Legitimate Business Reverses – include considered engaged in trade or business, business
substantial losses due to fire, theft or embezzlement transactions must be continuous (N.V. Reederij v.
or for other economic reason, as determined by the CIR, G.R. No. L-46029, June 23, 1998).
Secretary of Finance (Sec. 27 [E][3], NIRC; RR. No.
9-98, Sec. 2.27 [E] [4][b,c,d]). Improperly Accumulated Earnings of
Corporation
Applicability of MCIT where a corporation is Domestic corporations and closely-held
governed party under NCIT and partly under corporations are subject to 10% improperly
a special income tax system accumulated earnings tax on their improperly
accumulated earnings (Sec. 29 [A], NIRC).
In the case of a domestic corporation whose
operations or activities are partly covered by the Closely-held Corporations
normal income tax system (subject to 30% NCIT) and These are corporations, at least 50% in value of the
partly covered under a special income tax system, the outstanding capital stock of which or at least 50%
MCIT will apply only on operations covered by the of the total combined voting power of all classes of
regular income tax system. For example, if a BOI- stock entitled to vote is owned directly or indirectly
registered enterprise has a "registered" and an by or not more than 20 individuals (R.R. 2-2001,
"unregistered" activity, the MCIT shall apply to the Sec. 4).
unregistered activity (R.R. 9-98). NOTE: Corporations outside the above definition
are considered publicly-held corporations.
Branch profit remittance tax
Any profit remitted by branch office of a Q: What consists of “Improperly
multinational corporation to its head office is Accumulated Earnings”?
subject to 15% final tax based on total profits
applied or earmarked for remittance without A: These are the profits of a corporation that are
deduction for the tax component. accumulated, instead of distributing them to its
shareholders, for the purpose of avoiding the
A branch is classified as a resident foreign income tax with respect to its shareholders or the
corporation. As such, it is subject to income tax at shareholders of another corporation (R.R. 2-2001,
the rate of 30% on its net income derived within the Sec. 2).
Philippines. Such income items include interest,
dividends, rents, royalties, including remuneration Formula:
for technical services, salaries, wages, premiums, Taxable Income during the current year
annuities, emoluments or other fixed or Add:
determinable annual, periodic or casual gains, Income exempt from tax
profits, income and capital gains received during Income excluded from gross income
each taxable year from all sources within the Income subject to final tax
Philippines. NOLCO deducted
For purposes of branch profit remittance, income

items which are not effectively connected with the Less:
conduct of its trade or business in the Philippines are Income tax paid/payable during the year
not considered branch profits. Dividends actually or constructively paid
Amount reserved for the reasonable needs
To be ‘effectively connected’, it is not necessary that of the business
the income be derived from the actual operation of _________________________________
the branch’s trade or business. It is sufficient that the Improperly Accumulated Earnings
income arises from the business activity in which the x 10%
branch is engaged. The 15% final tax should exclude _________________________________
profits on activities registered with PEZA (Tabag, Improperly Accumulated Earnings Tax (IAET)
2015).
Touchstone of the liability
INCOME TAX ON NON-RESIDENT
FOREIGN CORPORATIONS It is the purpose behind the accumulation of the
income and not the consequences of the
A foreign corporation not engaged in trade or accumulation. Thus, if the failure to pay dividends is
business in the Philippines shall pay a tax equal to due to some other causes, such as the use of
30% of the gross income during such taxable year undistributed earnings and profits for the reasonable
from all sources within the Philippines except needs of the business, such purpose would not
capital gains from sale of shares of stock not traded generally make the accumulated or undistributed
in the stock exchange (Sec. 28 [B][1], NIRC). earnings subject to the tax. However, if there is a
determination that a corporation has accumulated
NOTE: A casual activity in the Philippines by a

income beyond the reasonable needs of the business, 2. Earnings reserved for definite corporate
IAET shall be imposed (Dimaampao, J., 2015). expansion approved by the Board of Directors or
equivalent body
Rationale: IAET is imposed in the nature of a penalty 3. Reserved for building, plant or equipment
to the corporation for the improper accumulation of acquisition as approved by the Board of Directors
its earnings and as a form of deterrent to the or equivalent body
avoidance of tax upon shareholders who are 4. Reserved for compliance with any loan covenant
supposed to pay dividends tax on the earning or pre-existing obligation
distributed to them by the corporation. If the 5. Earnings required by law or applicable
earnings and profits were distributed, the regulations to be retained
shareholders would be liable for tax on dividends 6. In case of subsidiaries of foreign corporations in
(Commissioner v. Ayala Securities Corp., 101 SCRA the Philippines, all undistributed earnings
231). intended or reserved for investments within the
Philippines (R.R. No. 2-2001, Sec. 3)
Q: How can the “reasonable needs” of the
business be determined in order to justify an Prima facie instances of accumulation of
accumulation of earnings? (2010 Bar) profits beyond the reasonable needs of a
business
A: To determine the “reasonable needs” of the 1. Investment of substantial earnings and profits of
business in order to justify an accumulation of the corporation in unrelated business or in stock or
earnings, the Courts of the United States have securities in unrelated business
invented the so-called “Immediacy Test” which 2. Investment in bonds and other long term
construed the words “reasonable needs of the securities
business” to mean the immediate needs of the 3. Accumulation of earnings in excess of 100% of
business, and it was generally held that if the paid-up capital, not otherwise intended for the
corporation did not prove an immediate need for the reasonable needs of the business (R.R. No. 2-2001,
accumulation of the earnings and profits, the Sec. 7)
accumulation was not for the reasonable needs of the
business, and the penalty tax would apply (Manila Prima facie evidence to show purpose of
Wine Merchants, Inc. v CIR, G.R. No. 26145, accumulation is Tax evasion or Tax
February 20, 1984). avoidance
The fact that:
In order to determine whether profits are 1. Any corporation is a mere: a. Holding
accumulated for the reasonable needs, it must be company – one having practically no activities
shown that the controlling intention of the taxpayer except holding property and collecting income
is manifest at the time of accumulation, not therefrom or investing therein; or
subsequently, which are mere afterthoughts. b. Investment (mutual fund) company –
Furthermore, the accumulated profits must be used when activities of the company further include or
within a reasonable time after the close of the taxable consist substantially of buying and selling stocks,
year (Cyanamid Philippines, Inc. v. CA, G.R. No. securities, real estate, or other investment
108067, January 20, 2000). properties so that income is derived not only from
investment yield but also from profits upon market
NOTE: Once the profit has been subjected to IAET, fluctuations.
the same shall no longer be subjected to IAET in later 2. The earnings or profits of a corporation are
years even if not declared as dividend. permitted to accumulate beyond the reasonable
Notwithstanding the imposition of the IAET, profits needs of the business (R.R. No. 2-2001, Sec. 7).
which have been subjected to IAET, when finally
declared as dividends shall nevertheless be subject to IAET not applicable to the following:
tax on dividends imposed under the NIRC, except in 1. Publicly-held corporations (Sec. 29 [B][2],
those instances where the recipient is not subject NIRC)
thereto (R.R. 2-2001, Sec. 5). 2. Banks and other non-bank financial
intermediaries
Q: What constitute accumulation of earnings 3. Insurance companies
for the reasonable needs of the business? 4. Publicly-held corporations
5. Taxable partnerships
A: 6. General professional partnerships
1. Allowance for the increase in accumulation of 7. Non-taxable joint ventures
earnings up to 100% of the paid-up capital 8. Enterprises duly registered with the Philippine
The basis of the 100% threshold of retention Economic Zone Authority under R.A. 7916, and
(considered within the reasonable needs of the enterprises registered pursuant to the Bases
business) shall be the paid-up capital or the Conversion and Development Act of 1992 under
amount contributed to the corporation R.A. 7227, as well as other enterprises duly
representing the par value of the shares of stock. registered under special economic zones declared
Any excess capital over and above the par by law.
(APIC/Premium) shall be excluded (RMC No. 35-
2011),

Taxation Law
Q: Kria, Inc., a Korean corporation engaged EBCC had no obligation to withhold any taxes on
in the business of manufacturing electric the interest payment for the year 2000 as the
vehicles, established a branch office in the obligation to withhold only commenced on June 1,
Philippines in 2010. The Philippine branch 2002, and thus cancelling the assessment for
constructed a manufacturing plant in deficiency FWT on interest payments arising from
Kabuyao, Laguna, and the construction EBCC' s loan from Ogden. (Edison (Bataan)
lasted three (3) years. Commercial Cogeneration Corporation vs. CIR, G.R. No.
operations in the Laguna plant began in 2014. 201665 & 201668, August 30, 2017, Del
In just two (2) years of operation, the Castillo, J.)
Philippine branch had remittable profits in
an amount exceeding 175% of its capital. TRANSFER TAXES
However, the head office in Korea instructed
the branch not to remit the profits to the Estate tax is an excise tax imposed upon the
Korean head office until instructed privilege of transmitting property at the time of
otherwise. The branch chief finance officer is death and on the privilege that a person is given in
concerned that the BIR might hold the controlling to a certain extent the disposition of his
Philippine branch liable for the 10% property to take effect upon death. Estate tax laws
improperly accumulated earnings tax (IAET) rest in their essence upon the principle that death
for permitting its profits to accumulate is the generating source from which the taxing
beyond reasonable business needs. power takes its being, and that it is the power to
(a) Is the Philippine branch of Kria subject to transmit or the transmission from the dead to the
the 10% IAET under the circumstances stated living on which the tax is more immediately based
above? (Lorenzo v. Posadas, 64 Phil 353).
(b) Is it subject to 15% branch profit
remittance tax (BPRT)? (2019 Bar) What are the classification of decedent?
Individuals liable to pay estate tax:
A: 1. No. Sec 29 (A) – IAET covers only domestic 1. Resident citizens (RC)
corporations. The branch is considered a resident 2. Non-resident citizens (NRC)
foreign corporation, thus, not subject to IAET 3. Resident alien (RA)
2. No. Sec 28 (A)(5) – BPRT is imposed only on actual 4. Non-resident alien (NRA)
remittance. Here, no remittance was made. Thus, not
subject to BPRT. NOTE: Only natural persons can be held liable for
estate tax. Domestic and foreign corporations
WITHHOLDING TAX cannot be liable because they are not capable of
Q: On 2004, Edison (Bataan) Cogeneration natural death.
Corporation [EBCC] received from the CIR a
Formal Letter of Demand and Final Determination of gross estate
Assessment Notice assessing EBCC of The value of the gross estate of the decedent shall
deficiency Final Withholding Tax (FWT) for be determined by including the value at the time of
taxable year 2000. Upon the CIR’s inaction his death of all property, real or personal, tangible
to the letter-protest filed by EBCC, the latter or intangible, wherever situated: Provided,
elevated the case to the CTA. The CTA however, That in the case of a nonresident decedent
Division held, among others, that EBCC was who at the time of his death was not a citizen of the
not liable for the deficiency FWT assessment Philippines, only that part of the entire gross estate
on interest payments on loan agreements for which is situated in the Philippines shall be
taxable year 2000 since its liability for included in his taxable estate (Sec. 86, TRAIN
interest payment became due and Law).
demandable only on 2002. The CIR
contended that EBCC was liable to pay the Composition of gross estate
interest from the date of the execution of the DONOR GROSS GIFT
contract on 2000, not from the date of the All real properties,
first payment on 2002, as the loan tangible and
agreement clearly indicated that the interest RC, NC and RA intangible personal
was to be paid separately from the principal. properties wherever
The decision of the CTA Division was located
affirmed by the CTA en banc. Is EBCC liable All real properties,
for deficiency FWT for the year 2000? tangible, and
intangible properties
A: No, EBCC's liability for interest payment NRA
located in the
became due and demandable starting 2002. The Philippines unless the
obligation of EBCC to deduct or withhold tax arises reciprocity applies
at the time an income is paid or payable, whichever
comes first, and considering further that under the Basis for the valuation of gross estate
RR 02-98, the term "payable" refers to the date the PROPERTY VALUATION
obligation becomes due, demandable or legally Real Whichever is higher between
enforceable, the CTA en banc correctly ruled that property the:

1. Fair market value as a. Expenses, losses, indebtedness, taxes, etc.

determined by the (ELIT)[JEF-TULI]
Commissioner (zonal value) i. Claims against the estate
or ii. Claims against insolvent persons
2. Fair market value as shown iii. Unpaid mortgage or indebtedness on
in the schedule of values property
fixed by the provincial and iv. Taxes
city assessors v. Losses
b. Vanishing deduction
If there is an improvement, the c. Transfer for public use
value of improvement is the d. Net share of the surviving spouse in the
construction cost per building community or conjugal property
permit or the fair market value 2. Special deductions [FAMS]
per latest tax declaration a. Family home (must not exceed
₱10,000,000)
Fair market value is the price b. Standard deduction (₱5,000,000)
at which any seller will sell and c. Amount received by heir under RA 4917
any buyer will buy both willingly
without any force or NOTE: NRA cannot avail of the special
intimidation. It is the price deductions.
which a property will bring
when it is offered by one who Exclusions from estate
desires to buy and one who is Excluded from gross estate are those provided for
not compelled to sell. under NIRC (Sections 85, 86 and 87) and under
Personal Whether tangible or intangible, special laws.
property appraised at FMV. “Sentimental
value” is practically disregarded. Exclusions under Sec. 85 and 86 NIRC:
Shares of Unlisted 1. Exclusive property (capital/paraphernal) of
stock 1. Unlisted common - book surviving spouse (Sec. 85 [H], NIRC);
value 2. Property outside Philippines of NRA decedent;
2. Unlisted preferred - par 3. Intangible personal property in the Philippines
value of NRA decedent provided there is reciprocity.
Listed – Closing rate AT THE Exclusions under Sec. 87 NIRC:

TIME of death. If none is 1. The merger of the usufruct in the owner of the
available, the FMV is the naked title
arithmetic mean between the 2. The transmission or the delivery of the
highest and lowest quotation at a inheritance or legacy by the fiduciary heir or
date nearest the date of death. legatee to the fideicommissary
3. The transmission from the first heir, legatee or
In determining the book value of donee in favor of another beneficiary, in
common shares, the following accordance with the desire of the predecessor
shall not be considered: 4. All the bequests, devises, legacies or transfers
1. Appraisal surplus to social welfare, cultural and charitable
2. The value assigned to preferred institutions, provided no part of the net income
shares, if there is any of which inures to the benefit of any individual
Right to Shall be taken into account the and that not more than 30% of the value given
usufruct, use probable life of the beneficiary in is used for administrative purposes.
or habitation, accordance with the latest basic
as well as that standard mortality table, to be Exclusions from estate under special laws:
of annuity approved by the Secretary of 1. Benefits received by members from the
Finance, upon recommendation Government Service Insurance System (PD
of the Insurance Commissioner. 1146) and the Social Security System (RA 1161,
as amended) by reason of death
Determination of net estate 2. Amounts received from the Philippine and
The basic equation to determine the next taxable United States governments for damages
estate is (gross estate – deductions) suffered during the last war (RA 227)
3. Benefits received by beneficiaries residing in
NOTE: Before you can arrive at the value of the net the Philippines under laws administered by the
estate, you have to determine first the value of gross U.S. Veterans Administration (RA 360)
estate. 4. Grants and donations to the Intramuros
Administration (PD 1616) (Mamalateo, 2014).
Deductions from estate
The deductions from the gross estate are: Exemption of certain acquisitions and
1. Ordinary deductions [VETS] transmissions

Taxation Law
1. The merger of usufruct in the owner of the naked (Sec. 11, RR 2-2003).
title
E.g. Y died leaving a condominium unit, the naked A transfer becomes complete and taxable only
title belongs to W and usufruct to F for a period of when, the donor has divested himself of all
5 years, then F died after two years. Upon the beneficial interests in the property transferred and
death of F, the usufruct will merge into the owner has no power to recover any such interest in himself
of the naked title W who shall become the absolute or his estate.
owner of the said condominium unit. The transfer
from F to W is exempt from estate tax. Transfers which may be constituted as
2. The transmission or delivery of the inheritance or donation
legacy by the fiduciary heir or legatee to the [ICL]
fideicommissary 1. Sale/exchange/transfer of property for
E.g. X dies and leaves in his will a lot to his insufficient consideration
brother, Y, who is entrusted with the obligation to 2. Condonation/remission of debt
transfer the lot to Z, a son of X, when Z reaches
legal age. Y is the fiduciary heir and Z is the Rule regarding condonation/remission of debt:
fideicommissary. The transfer from X to Y is If the creditor condones the indebtedness of the
subject to estate tax. But the transmission or debtor the following rules apply:
delivery to Z upon reaching legal age shall be 1. On account of debtor’s services to the creditor
exempt from estate tax. the same is in taxable income to the debtor.
3. The transmission from the first heir, legatee or 2. If no services were rendered but the creditor
donee in favor of another beneficiary, in simply condones the debt, it is taxable gift and
accordance with the desire of the predecessor not a taxable income.
4. All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, Rule regarding transfer for less than adequate and
provided that no part of the net income of which full consideration:
inures to the benefit of any individual and not GR: Where a property is transferred for less than
more than thirty percent (30%) of the said adequate and full consideration in money or
bequests, devises, legacies or transfers shall be money’s worth, the amount by which the FMV
used for administration purposes (Sec. 87, NIRC). exceeds the consideration shall be deemed a gift
5. Irrevocable life insurance to someone other than and be included in computing the amount of gifts
the estate, administrator, or executor; made during the calendar year. It is as if the
6. GSIS/SSS benefits; property was donated but in order to avoid paying
7. Retirement benefits of private firms approved by donor’s tax, the donor opted to transfer the
the BIR; and property for inadequate consideration.
8. Separate property of the surviving spouse (Ingles, XPN:
2018). • Where the sale, exchange, or transfer is
made in the ordinary course of business
NOTE: Bequests, devises, legacies or transfers made which is:
to educational institutions are not included. o Bona fide
o Made at arm’s length
Period for filing estate tax returns o Free from any donative intent
It is filed within 1 year from the decedent’s death.
Extension to file an estate tax return is allowed in  Where property transferred is real property
meritorious cases but not to exceed 30 days (Sec. 90, located in the Philippines considered as
NIRC). capital asset, the transfer is not subject to
donor’s tax but to a capital gains tax, which
DONOR’S TAX is a final income tax of 6% of the fair market
value or gross selling price, whichever is
Donation is an act of liberality whereby a person higher, and therefore, there can be no
(donor) disposes gratuitously of a thing or right in instance where the seller can avoid any tax
favor of another (donee) who accepts it (Art. 725, by selling his capital assets below its FMV.
Civil Code).
NOTE:
Donor’s tax is an excise tax imposed on the privilege Arm’s length transactions are described as those
of transferring property by way of a gift inter vivos dealings wherein both parties are independent of
based on pure act of liberality without any or less each other has no relationship with the other
than adequate consideration and without any legal dealing party. They are acting in their own self-
compulsion to give. interest
NOTE: The donor’s tax shall not apply unless and Determination of gross gift
until there is a completed gift. The transfer of
property by gift is perfected from the moment the GROSS GIFT NET GIFT
donor knows of the acceptance by the donee; it is All property, real or The net economic
completed by the delivery, either actually or personal, tangible or benefit from the
constructively, of the donated property to the done intangible, that was transfer that accrues

given by the donor to to the donee. value of the adequate and

the donee by way of consideration full
gift, without the shall, for the consideration
benefit of any purpose of the in money or
deduction (Sec. 104, tax imposed by money’s
NIRC). this Chapter, worth.
be deemed a
NOTE: If a mortgaged property is transferred as a gift, and shall
gift, but imposing upon the donee the obligation to be included in
pay the mortgage liability, then the net gift is computing the
measured by deducting from the fair market value of amount of
the property the amount of mortgage assumed. gifts made
during the
Composition of gross gift calendar year.
DONOR GROSS GIFT Exemption of Dowries or Exemption of
All real properties, Certain Gifts. gifts made on dowry has
tangible and intangible (Sec. 101) account of been removed.
RC, NC and RA marriage and
personal properties
wherever located before its
All real properties, celebration or
tangible, and intangible within one
NRA properties located in the year thereafter
Philippines unless the by parents to
reciprocity applies each of their
legitimate,
Donor’s Taxation recognized
Before After TRAIN natural, or
TRAIN adopted
Donor’s tax rate Donations to A flat rate of children to the
relatives: 6% is imposed extent of the
Subject to computed on first P10,000
graduated the basis of the are exempt.
donor’s tax total gifts in
rates from 2% excess of Estate Taxation
to 15%. Net P250,000 Before After TRAIN
taxable gift exempt gift. TRAIN
below Estate tax rate Subject to A flat rate of 6%
P100,000 are Distinction graduated is imposed
exempt. between estate tax rates regardless of
donations to from 5% to the value of the
Donations to relatives and 20%. Net estate.
strangers: to strangers is taxable estate
Subject to a removed. below
flat rate of P200,000 are
30% of the net exempt.
gift. Computation Funeral Funeral
Transfer for Where Additional of net estate expenses, expenses,
Less Than property, provision: A judicial judicial
Adequate and other than real sale, exchange, expenses, and expenses, and
Full property or other medical medical
Consideration. subject to transfer of expenses are expenses are
(Sec. 100) CGT, is property made deductible, no longer
transferred for in the ordinary subject to deductible.
less than an course of certain
adequate and business (a requisites.
full transaction Standard
consideration which is a Standard deduction of
in money or bona fide, at deduction of P5,000,000 is
money's arm’s P1,000,000 is allowed for
worth, then length, and allowed for resident or
the amount by free from resident or citizen
which the fair any donative citizen decedent.
market value intent), will decedent.
of the property be considered
exceeded the as made for an Standard
No standard deduction of

Taxation Law
deduction is P500,000 is clearance from precedent for

allowed for allowed for the BIR is the transfer of
nonresident non-resident required as a ownership
alien decedent. alien decedent. condition thereof in the
precedent for name of the
Family home the transfer of transferee, the
Family home deduction may ownership executor, or the
deduction may not exceed thereof in the administrator,
not exceed P10,000,000. name of the or any of the
P1,000,000 transferee, the legal heirs, as
Notice of Where the REPEALED. executor, or the the case may
death gross value of Notice of death administrator, be, shall file a
the estate no longer or any of the return under
exceeds required under legal heirs, as oath in
P20,000, the TRAIN Law. the case may duplicate.
executor, be, shall file a
administrator return under
or any of the oath in
legal heirs, as duplicate.
the case may CPA Required if Required if
be, within two certification gross estate gross estate
(2) exceeds exceeds
P2,000,000. P5,000,000.
months after Payment of If a bank has If a bank has
the decedent’s Tax knowledge of knowledge of
death, or Antecedent to the death of a the death of a
within a like the Transfer person, who person, who
period after of Shares, maintained a maintained a
qualifying as Bonds or bank deposit bank deposit
such executor Rights account alone, account alone,
or or jointly with or jointly with
administrator, another, it shall another, it shall
shall give a not allow any allow any
written notice withdrawal withdrawal
thereof to the from the said from the said
CIR. deposit deposit
Deadline of The estate tax The estate tax account, unless account,
estate tax return shall be return shall be the CIR has subject to a
returns filed within six filed within one certified that final
(6) months (1) year from estate taxes withholding
from the the decedent’s have been paid tax of 6%.
decedent’s death.
death. The There is no
Filing of Where the In all cases of administrator more limit as to
estate tax gross value of transfers of the estate or the amount of
returns the estate subject to any one of the withdrawal
exceeds estate tax, or heirs of the that may be
P200,000, regardless of decedent may, made.
(whether liable the gross value upon
to pay estate of the estate, authorization
taxes or not) or where the said by the CIR,
regardless of estate consists withdraw an
the gross value of registered or
of the estate, registrable amount not
where the said property such exceeding
estate consists as real P20,000
of registered or property, without the
registrable motor vehicle, said
property such shares of stock certification.
as real or other similar
property, property for
motor vehicle, which a PART III: LOCAL TAXATION
shares of stock clearance from
or other similar the BIR is Kinds of Local Taxes that a Province and a
property for required as a Municipality may impose
which a condition

1. Province merely sought to impose the rates as provided

- Taxes on the transfer of Property under the LGC as in fact the tax rate imposed was
- Business Taxes for those engaged in even lower than the rate authorized by the LGC.
Printing/Publishing (<50% of 1%) In effect, the assailed ordinance merely corrected
- Business Tax on those enjoying a Franchise the old ordinance so that it will be in accord with
(<50% of 1%) the LGC. (Mindanao Shopping Destination
- Those engaged in the extraction of Corporation, et. al., vs. Duterte, G.R. No. 211093,
sand/gravel/quarries (<10%) June 6, 2017)
- Professional Tax (<300)
- Amusement Tax on Concerts, Theaters, Q: After the Comprehensive Agrarian
Circus, etc. (<30%) Reform Law was passed, NDC lands were
- Annual Fixed Fee on Trucks (<500) transferred to Comprehensive Agrarian
Reform Law beneficiaries who formed
2. Municipalities themselves as the merged NDC-Guthrie
- Business Tax on Manufacturer, Distiller, Plantations, Inc. - NDC-Guthrie Estates,
Processor, etc. of Distilled Spirits, Liquors, Inc. (NGPI- NGEI) Cooperatives. Filipinas,
Etc. a private organization engaged in palm oil
- Business Tax on Wholesalers and Dealers of plantation, entered into a lease contract
the same agreement with NGPI-NGEI.
- Business Tax on Retailers
- Tax on those that Export or The Provincial-Assessor of Agusan del Sur
Manufacture/Process essential commodities (Provincial Assessor) is a government
- Tax on Contractors as defined in LGC agency in charge with the assessment of
lands under the public domain. It assessed
- Tax on Banks, Non-Banks, Performing
Filipinas' properties found within the
Financing/Banking Functions
plantation area which Filipinas assailed
- Tax on Peddlers
before the Local Board of Assessment
- Others subject to Percentage/VAT/Excise Appeals (LBAA). In its Decision, LBAA
provided it shall not exceed 2% found the assessment of the Provincial
Assessor unreasonable and rules that the
Q: Pursuant to the implementation of R.A. market valuation should be based on the
No. 7160, the Sangguniang Panglungsod of laws of Department of Agrarian Reform
Davao City, enacted an ordinance since the area is owned by the NDC, a
imposing a graduated business tax where quasi-governmental body of the
retailers would have to pay 1.25% of the Philippines. Filipinas appealed before the
gross sales/receipts exceeding CBAA which ruled that (a) Filipinas should
P400,000.00 compared to the old tax not be made to pay for the RPT on the lands
ordinance where retailers only paid ½ of owned by the Multi- purpose Cooperative
1% of the gross sales/receipts. Mindanao as well as on the roads and (b) the road
Shopping Destination Corporation and equipment and haulers are not real
other local retailers in the city contested properties, hence not subject to RPT. Is
the said ordinance for being CBAA correct?
unconstitutional and contrary to the
provisions of the LGC. They further A:
lamented that the assailed ordinance a. YES. NGPI-NGEI, as the owner of the land
increased the tax rate on them, as being leased by Filipinas, falls within the
retailers, by more than the maximum purview of the law. Section 234 of the Local
allowable rate of 0.15%, from 50% of 1% Government Code exempts all real property
(0.5%) of the gross receipts to 1.5% (now, owned by cooperatives without distinction.
1.25%) of the gross receipts, thus, violating Nothing in the law suggests that the real
Section 191 in relation to Sections 143 and property tax exemption only applies when
151 of the Code. Is the ordinance valid? the property is used by the cooperative itself.
Similarly, the instance that the real property
A: Yes, the ordinance is valid. It must be pointed is leased to either an individual or
out that the limitation under Section 191 of the corporation is not a ground for withdrawal of
LGC was provided to guard against possible abuse tax exemption.
of the LGU's power to tax. In this case, however,
strictly speaking, the new tax rate for petitioners Despite the land being leased by Filipinas
as retailers under the assailed ordinance is not a when the roads were constructed, the
case where there was an imposition of a new tax ownership of the improvement still belongs
rate, rather there is merely a rectification of an to NGPI-NGEI. As provided under Article
erroneous classification of taxpayers and tax 440 and 445 of the Civil Code, the land is
rates, i.e., of grouping retailers and wholesalers in owned by the cooperatives at the time
one category, and their corresponding rates. The respondent built the roads. Hence, whatever
amendment of the old tax ordinance was not is incorporated in the land, either naturally
intended to abuse the LGU's taxing powers but or artificially, belongs to the NGPI-NGEI as

Taxation Law
the landowner. 252. Its failure to prove that this requirement has
been complied with renders its administrative
Although the roads were primarily built for protest under Section 226 of the LGC without any
Filipinas’ benefit, the roads were also being effect. No protest shall be entertained unless the
used by the members of NGPI and the public. taxpayer first pays the tax. (National Power
Furthermore, the roads inured to the benefit Corporation v. The Provincial Treasurer of
of NGPI-NGEI as owners of the land not only Benguet, et al.,G.R. No. 209303, November 14,
by right of accession but through the express 2016)
provision in the lease agreement.
Q: Is the National Grid Corporation of the
b. NO. The road equipment and mini haulers Philippines (NGCP) exempt from real
shall be considered as real property, subject property taxes?
to real property tax.
A: YES. Section 9 of RA 9511 states that NGCP’s
The Provincial Assessor is correct in claiming payment of franchise tax is in lieu of payment of
that the phrase pertaining to physical facilities “income tax and any and all taxes, duties, fees and
for production is comprehensive enough to charges of any kind, nature or description levied,
include the road equipment and mini haulers as established or collected by any authority
actually, directly, and exclusively used by whatsoever, local or national, on its franchise,
respondent to meet the needs of its operations rights, privileges, receipts, revenues and profits,
in palm oil production. Moreover, "mini-haulers and on properties used in connection with its
are farm tractors pulling attached trailers used franchise.” Section 9 of RA 9511 clearly stated that
in the hauling of seedlings during planting the NGCP’s “in lieu of all taxes” clause includes
season and in transferring fresh palm fruits taxes imposed by the local government on
from the farm [or] field to the processing plant properties used in connection with NGCP’s
within the plantation area." The indispensability franchise. However, NGCP’s tax exempt status on
of the road equipment and mini haulers in real property due to the “in lieu of all taxes” clause
transportation makes it actually, directly, and is qualified: NGCP shall be liable to pay the same
exclusively used in the operation of respondent's tax as other corporations on real estate, buildings
business. (Provincial Assessor of Agusan del and personal property exclusive of their franchise
Sur v. Filipinas Palm Oil Plantation, Inc., G.R. (National Grid Corporation of the Philippines vs.
No. 183416, October 5, 2016) Oliva, G.R. No. 213157. August 10, 2016).
Q: National Power Corporation alleges that Q: The City of Manila assessed Cosmos local
payment under protest under Section 252 of business taxes and regulatory. Cosmos
the LGC is required when the protested the assessment through a letter
reasonableness of the amount assessed is arguing that Tax Ordinances have been
being questioned. Challenging the very declared null and void and argued that the
authority and power of the assessor to collection of local business tax under two
impose the assessment and of the treasurer provisions of the same Ordinance
to collect the tax is an attack on the very constitutes double taxation. Cosmos
validity on any increase and not merely on received a letter from the City Treasurer
the amounts of increase in tax. Thus, such denying their protest, thus constrained to
payment is not a condition sine qua non for pay the assessment and filed its complaint
the LBAA to entertain the NPC's challenge with the RTC praying for the refund or
on the validity of the tax imposed on its tax- issuance of a tax credit certificate. The RTC
exempt properties. Is NPC correct? in its decision ruled in favor of Cosmos but
denied the claim for refund. Cosmos'
A: NO. As settled in jurisprudence, a claim for motion for partial reconsideration was also
exemption from the payment of real property taxes denied, hence, the Petition for Review
does not actually question the assessor's authority before the CTA. CTA ruled in favor of
to assess and collect such taxes, but pertains to the Cosmos. Petitioner instead of filing a
reasonableness or correctness of the assessment by motion for reconsideration or new trial, the
the local assessor, a question of fact which should petitioners directly filed with the CTA En
be resolved, at the very first instance, by the LBAA. Banc a petition for review. Whether the CTA
En Banc correctly dismissed the petition for
NPC's failure to comply with the mandatory review?
requirement of payment under protest in
accordance with Section 252 of the LGC was fatal to A: Yes. The filing of a motion for reconsideration or
its appeal. We note that it is not the first occasion new trial before the CTA Division is an
where this Court ruled that the NPC, in claiming tax indispensable requirement for filing an appeal
exemption, questions the reasonableness or before the CTA En Banc. The CTA En Banc was
correctness of the assessment by the local assessor correct in interpreting Section 18 of R.A. No. 1125
and not the legality of the assessment or his as requiring a prior motion for reconsideration or
authority to assess real property tax. As such, new trial before the same division of the CTA that
petitioner should have first complied with Section rendered the assailed decision before filing a

petition for review with the CTA En Banc. Failure franchise, that it is liable to pay taxes for the
to file such motion for reconsideration or new trial period 1996 to 1999. Whether the the City of
is cause for dismissal of the appeal before the CTA Pasig had valid basis for its imposition of
En Banc. (City of Manila vs. Cosmos Bottling franchise tax for the period 1996 to 1999?
Corporation, G.R. No. 196681, June 27, 2018)
A: No. Under the Local Government Code (LGC) of
Q: On June 17, 2004, the Philippine Ports 1991 unlike a city, a municipality is bereft of authority
Authority (PPA) received a letter from the to levy franchise tax, thus, the ordinance enacted for
City Assessor of Davao for the assessment that purpose is void. The conversion of the
and collection of real property taxes against municipality into a city does not lend validity to the
its administered properties. It appealed the void ordinance. Neither does it authorize the
assessment via registered mail to the Local collection of the tax under said ordinance. The power
Board of Assessment Appeals. While the to impose franchise tax belongs to the province by
case was pending, the City of Davao posted virtue of Section 137 of the LGC. (City of Pasig vs.
a notice of sale of delinquent real Manila Electric Company, G.R. No. 181710, March 7,
properties, including the three (3) 2018)
properties of PPA. The Local Board of
Assessment Appeals dismissed the PPA’s Q: Can a golf course be considered a place of
appeal for having been filed out of time. PPA amusement and therefore be within the
appealed before the Central Board of power of LGU to impose amusement tax?
Assessment Appeals, but this appeal was
denied in the Central Board of Assessment A: No. Section 42 of the Revised Omnibus Tax
Appeals. Thus, it filed an appeal with the Ordinance, as amended, imposing amusement tax
Court of Tax Appeals. The PPA claimed that on golf courses is null and void as it is beyond the
it did not receive any warrant of levy for the authority of respondent Cebu City to enact under
three (3) properties, which were sold to the LGC. A golf course cannot be considered a
respondent City of Davao, or any notice that place of amusement. People do not enter a golf
they were going to be auctioned. It was course to see or view a show or performance.
informed that it had one (1) year to redeem Proprietor or operators of the golf course, do not
the property. Thus, it filed a petition for actively display, stage, or present a show or
certiorari and injunction with the Court of performance. People go to a golf course to engage
Appeals. Does CA had jurisdiction? themselves in a physical sport activity.
A: No. In real property tax cases such as this, the An LGU may exercise its residual power to tax
remedy of a taxpayer depends on the stage in which when there is neither a grant nor a prohibition by
the local government unit is enforcing its authority to statute; or when such taxes, fees, or charges are not
impose real property taxes. Moreover, law confers otherwise specifically enumerated in the LGC,
jurisdiction. PPA has failed to cite any law supporting NIRC, or other applicable laws. In the present case,
its contention that the Court of Appeals has Section 140, in relation to Section 131(c), of the
jurisdiction over this case. On the other hand, Section LGC already explicitly and clearly cover
7, paragraph (a)(5) of Republic Act No. 1125, as amusement tax and Cebu City must exercise its
amended by Republic Act No. 9282, provides that the authority to impose amusement tax within the
Court of Tax Appeals has exclusive appellate limitations and guidelines as set forth in said
jurisdiction over decisions of the Central Board of statutory provisions (Alta Vista Golf and Country
Assessment Appeals in the exercise of its appellate Club v. The City of Cebu, G.R. No. 180235, January
jurisdiction over cases involving the assessment and 20, 2016).
taxation of real property originally decided by the
provincial or city board of assessment appeals. Q: Capitol Wireless is in the business of
(Philippine Ports Authority vs. City of Davao, G.R. providing international
No. 190324, June 06, 2018) telecommunications services. Capwire has
signed agreements with other local and
Q: On 26 December 1992, the Sangguniang foreign telecommunications companies
Bayan of the Municipality of Pasig enacted covering an international network of
Ordinance No. 25 which, under its Article 3, submarine cable systems. The local
Section 32, imposed a franchise tax on all government of Batangas considered the
business venture operations carried out submarine cable systems as real property
through a franchise within the municipality. subject to real property tax. Is the local
By virtue of Republic Act (R.A.) No. 7829, government of Batangas correct?
which took effect on 25 January 1995, the
A: YES. Submarine or undersea communications
Municipality of Pasig was converted into a cables are akin to electric transmission lines which
highly urbanized city to be known as the City are “no longer exempted from real property tax”
of Pasig. On 24 August 2001, the Treasurer’s and may qualify as “machinery” subject to real
Office of the City Government of Pasig property tax under the LGC. Both electric lines and
informed the Manila Electric Company communications cables, in the strictest sense, are
(MERALCO), a grantee of a legislative not directly adhered to the soil but pass through

Taxation Law
posts, relays or landing stations, but both may be

classified under the term “machinery” as real However, the assessment pertaining to the
property under Article 415(5) of the Civil Code machinery is proper. The definition of “machinery”
because such pieces of equipment serve the owner’s under Section 199 of the LGC includes machines
business or tend to meet the needs of his industry which may or may not be attached, permanently or
or works that are on real estate. temporarily, to the real property. (Provincial
Assessor of Agusan del Sur vs. Filipinas Palm Oil
Moreover, a portion of the submarine cable falls Plantation, Inc., G.R. No. 183416)
within what the UNCLOS would define as the
country’s territorial sea (to the extent of 12 nautical Q: Can administrative remedies be dispensed
miles outward from the nearest baseline over which with in disputes involving real properties?
the country has sovereignty. Further, under Article
79 of the UNCLOS, the Philippines clearly has A: Yes. In disputes involving real property taxation,
jurisdiction with respect to cables laid in its the general rule is to require the taxpayer to first
territory that are utilized in support of other avail of administrative remedies and pay the tax
installations and structures under its jurisdiction. under protest before allowing any resort to a judicial
And as far as LGUs are concerned, the areas action, except when the assessment itself is alleged
described above are to be considered subsumed to be illegal or is made without legal authority. For
under the term “municipal waters” which, under example, prior resort to administrative action is
the LGC, includes “not only streams, lakes, and required when among the issues raised is an
tidal waters within the municipality, x x but also allegedly erroneous assessment, like when the
marine waters included between two lines drawn reasonableness of the amount is challenged, while
perpendicularly to the general coastline from direct court action is permitted when only the
points where the boundary lines of the municipality legality, power, validity or authority of the
or city touch the sea at low tide and a third line assessment itself is in question. Stated differently,
parallel with the general coastline and 15 the general rule of a prerequisite recourse to
kilometers from it.” (Capitol Wireless, Inc. vs. administrative remedies applies when questions of
Provincial Treasurer of Batangas, G.R. No. fact are raised, but the exception of direct court
180110. May 30, 2016) action is allowed when purely questions of law are
involved. (Capitol Wireless, Inc. vs. Provincial
Q: Filipinas Palm Oil Plantation, Inc. is a Treasurer of Batangas, G.R. No. 180110. May 30,
private organization engaged in palm oil 2016)
plantation. It leases the land from NGPI-
NGEI Cooperative. The LBAA assessed PART IV: TARIFF AND CUSTOMS
Filipinas of real property taxes on the land it
leases, on the road it built primarily for the Q: Pilipinas Shell Petroleum Corporation
benefit of the plantation, and on the (Shell) was ordered to pay the amount of
machineries that are not attached to the land. P936,899,883.90, representing the total
dutiable value of its 1996 crude oil
Is the assessment of LBAA proper? importation, which was considered as
abandoned in favor of the government by
A: NO. Under Section 133(n) of the LGC, the taxing operation of law.
power of LGUs shall not extend to the levy of taxes,
fees, or charges on duly registered cooperatives The CTA ruled that since Shell filed the
under the Cooperative Code. NGPI-NGEI, as the Import Entry and Internal Revenue
owner of the land being leased by respondent, falls Declaration beyond the 30-day period
within the purview of the law. Section 234 of the LGC prescribed under 1301 of the TCCP, the
exempts all real property owned by cooperatives subject importation was deemed
without distinction. Nothing in the law suggests that abandoned in favor of the government in
the real property tax exemption only applies when accordance with Sections 1801 and 1802 of
the property is used by the cooperative itself. the TCCP. Moreover, due to the
Similarly, the instance that the real property is abandonment, the government became the
leased to either an individual or corporation is not a owner of the subject shipment, thus Shell
ground for withdrawal of tax exemption. has no right to withdraw the same and
should be held liable to pay for the total
The roads that Filipinas Palm constructed within the dutiable value of said shipment at the time
leased area should not be assessed with real property of withdrawal.
taxes. The roads constructed became permanent
improvements on the land owned by the NGPI-NGEI Shell contends that: (a) it has paid the
by right of accession under Article 440 and 445 of the proper duties on its importation and
Civil Code. Hence, whatever is incorporated in the therefore not liable anymore; and (b) it is
land, either naturally or artificially, belongs to the not deemed to have abandoned the subject
NGPI-NGEI as the landowner. Although the roads shipment.
were primarily built for Filipinas Palm’s benefit, the
roads were also being used by the members of NGPI Did the failure to file an entry constitute and
and the public. abandonment?

A: YES. When an importer after due notice fails to Moreover, under Section 108 (B)(3), of the 1997
file and Import Entry and Internal Revenue NIRC as amended, services rendered to persons or
Declaration within an unextendible period of 30 entities whose exemption under special laws
days from the discharge of the last package, the effectively subjects the supply of such services to
imported article is deemed abandoned in favor of zero percent (0%) rate are considered zero-rated.
the government. Considering the law does not provide for any
additional qualification or disqualification, the BIR
The rationale of strict compliance with the non- cannot deny the application on the ground that HP
extendible period of 30 days within which import International already enjoys income tax holiday.
entries (IEIRDs) must be filed for imported articles
are as follows: (a) to prevent considerable delay in An administrative agency may not enlarge, alter or
the payment of duties and taxes; (b) to compel restrict a provision of law. It cannot add to the
importers to file import entries and claim their requirements provided by law. To do so constitutes
importation as early as possible under the threat of lawmaking, which is generally reserved for
having their importation declared as abandoned Congress. (Soriano v. Secretary of Finance, et al.,
and forfeited in favor of the government; (c) to G.R. Nos. 184450, 184508, 184538, 185234,
minimize the opportunity of graft; (d) to compel January 24, 2017)
both the BOC and the importers to work for the
early release of cargo, thus decongesting all ports of Q: UCSFA-MPC is a multi-purpose
entry; (e) to facilitate the release of goods and cooperative with a Certificate of
thereby promoting trade and commerce; and (f) to Registration issued by the Cooperative
minimize the pilferage of imported cargo at the Development Authority refined sugar from
ports of entry. The aforesaid policy considerations the refinery. UCSFA-MPC paid under
were significant to justify a firm observance of the protest.
aforesaid prescriptive period. (Pilipinas Shell
Petroleum Corporation v. Commissioner of The CIR argues that the exemption granted
Customs, G.R. No. 195876, December 5, 2016) by the Cooperative Code and NIRC, on
which the Certificate of Tax Exemption and
BIR Ruling No. ECC-015-08 issued in favor
PART V: VAT AND VAT REFUND of UCSFA-MPC were based, only covers VAT
on the sale of produced sugar. It does not
Q: SMZ, Inc., is a VAT-registered enterprise include the exemption from the payment of
engaged in the general construction advance VAT in the withdrawal of refined
business. HP International contracts the sugar from the sugar mill. Is the contention
services of SMZ, Inc. to construct HP of the CIR correct?
International’s factory building located in
the Laguna Techno Park, a special economic A: NO. The sale of refined sugar by an agricultural
zone. HP International is registered with cooperative is exempt from VAT. To be clear, the
the Philippine Economic Zone Authority transaction subject to VAT is still the sale of refined
(PEZA) as an ecozone export enterprise, sugar. The withdrawal of sugar is not a separate
and, as such, enjoys income tax holiday transaction subject to VAT. It is only the payment
pursuant to the Special Economic Zone Act thereof that is required to be made in advance.
of 1995.
While the payment of advance VAT on the sale of
SMZ, Inc., files an application with the refined sugar is, in general, required before these
Bureau of Internal Revenue (BIR) for the goods may be withdrawn from the refinery/mill,
VAT zero-rating of its sale of services to HP cooperatives are exempt from this requirement
International. However, the BIR denies because they are cooperatives.
SMZ, Inc.’s application on the ground that
HP International already enjoys income tax Revenue regulations specifically provide that such
holiday. withdrawal shall not be subject to the payment of
advance VAT if the following requisites are present,
Is the BIR correct in denying SMZ, Inc.’s viz:
application? Explain your answer. (2017
Bar) First, the withdrawal is made by a duly accredited
and registered agricultural cooperative in good
A: NO. All sales of goods, properties, and services standing. It was later clarified that a cooperative is
made by a VAT-registered supplier from the in good standing if it is a holder of a certificate of
Customs Territory to an ecozone enterprise shall be good standing issued by the CDA.
subject to VAT, at zero percent (0%) rate, regardless
of the latter’s type or class of PEZA registration. Second, the cooperative should also the producer of
(Coral Bay Nickel Corporation v. CIR, G.R. No. the sugar being withdrawn.
190506, June 13, 2016, citing CIR v. Toshiba
Information Equipment (Phils.), Inc., G.R. No. Third, the cooperative withdrawing the refined
350154, August 9, 2005) sugar should subsequently sell the same to either

Taxation Law
its members or another agricultural cooperative. refund or credit.

(CIR v. United Cadiz Sugar Farmers Association
Multi-Purpose Cooperative, Verily, if the taxpayer had paid the input VAT, the
G.R. No. 209776, December 7, 2016) proper recourse is not against the Government but
against the seller who had shifted to it the output VAT
Q: Relate the destination principle and (Coral Bay Nickel Corp. vs. CIR, G.R. No. 190506,
ECOZONES. June 13, 2016).
A: Consistent with the destination principle, the OUTPUT AND INPUT

purchases of goods and services destined for VAT
consumption within an ECOZONE should be free
of VAT; hence, no input VAT should then be paid Malayan Insurance, as Owner, and St. Francis
on such purchases. With no input VAT paid, there Square Realty Corp, as Developer, executed a
is nothing to be refunded or credited under Sec. 112 Joint Project Development Agreement for the
of the NIRC. (Coral Bay Nickel Corp. v. CIR, G.R construction and development of a
No. 190506, June 13, 2016) condominium Project. St. Francis was not
able to complete the Project. The parties
Q: Is a taxpayer located within an entered to an agreement where Malayan
ECOZONE, entitled to the refund of its undertook to complete the Project. The basis
unutilized input taxes incurred before it for the distribution and disposition of the
became a PEZA-registered entity? condominium units is the parties’ respective
capital investments in the Project. Despite the
A: NO. With the issuance of RMC 74-99, the completion of the Project, the issue of actual
distinction under the old rule was disregarded and cost of construction has not been resolved to
the new circular took into consideration the two the mutual satisfaction of the parties.
important principles of the Philippine VAT system:
the Cross Border Doctrine and the Destination St. Francis contends that, among others,
Principle. Input VAT should not be treated as part of
construction cost. It claims that even from an
The old VAT rule for PEZA-registered enterprises accounting standpoint, input tax is not
was based on their choice of fiscal incentives: (1) If entered into the books as part of cost; input
the PEZA- registered enterprise chose the five VAT is treated as account in a different
percent (5%) preferential tax on its gross income, in account, either under “Other assets” or
lieu of all taxes, as provided by Rep. Act No. 7916, as “Input Tax”, which is an asset account.
amended, then it would be VAT-exempt; (2) If the Besides, the input VAT is offset or credited
PEZA-registered enterprise availed of the income tax against output VAT to determine the net VAT
holiday under Exec. Order No. 226, as amended, it due or payable to the government.
shall be subject to VAT at ten percent (10%). Such
distinction was abolished by RMC No. 74-99, which St. Francis finally notes that since input
categorically declared that all sales of goods, VAT had already been claimed by Malayan,
properties, and services made by a VAT-registered and its audited financial statements show
supplier from the Customs Territory to an ECOZONE the offsetting of input VAT against output
enterprise shall be subject to VAT, at zero percent VAT, then justice and equity dictate that it
(0%) rate, regardless of the latter's type or class of should not be allowed to claim it as part of
PEZA registration. the ARCC.
Furthermore, Section 8 of R.A. No. 7916 mandates Rule on the above contention of St. Francis.
that PEZA shall manage and operate the ECOZONE
as a separate customs territory. The provision The contention of St. Francis is without merit.
thereby establishes the fiction that an ECOZONE is a Input VAT should be allowed as part of the
foreign territory separate and distinct from the construction cost. In determining whether input
customs territory. Accordingly, the sales made by VAT should be included as part of the construction
suppliers from a customs territory to a purchaser cost, the issue is not the technical classification of
located within an ECOZONE will be considered as taxes under accounting rules, but whether such tax
exportations. Following the Philippine VAT system's was incurred and paid as part of the construction
adherence to the Cross Border Doctrine and cost. Given that input VAT is, strictly speaking, a
Destination Principle, the VAT implications are that financial cost and not a direct construction cost, it
"no VAT shall be imposed to form part of the cost of cannot be denied that Malayan had to pay input
goods destined for consumption outside of the VAT as part of the contract price of goods and
territorial border of the taxing authority" properties purchased, and services procured in
order to complete the project.
As such, the purchases of goods and services by the
taxpayer that were destined for consumption within Anent the claim that it would be unjust and
the ECOZONE should be free of VAT; hence, no input inequitable if Malayan would be allowed to include
VAT should then be paid on such purchases, its input VAT in the construction cost, as well as to
rendering the taxpayer not entitled to claim a tax offset such tax against its output tax, the Court held

that such coincidence does not result in unjust erroneously considers petroleum and petroleum
enrichment at the expense of St. Francis. Unjust products brought into a FEZ as taxable importations.
enrichment claims do not lie simply because one Second, it unreasonably burdens FEZ enterprises by
party benefits from the efforts or obligations of making them pay the corresponding taxes
others, but instead it must be shown that a party - an obligation from which the law specifically
was unjustly enriched in the sense that the term exempts them - even if there is a subsequent
unjustly could mean illegally or unlawfully. In opportunity to refund the payments made.
offsetting its input VAT against output VAT,
Malayan is merely availing of the benefits of the tax a) it effectively amends the law (i.e., RA 7227, as
credit provisions of the law, and it cannot be said to amended by RA 9400) and thereby encroaches upon
have benefitted at the expense or to the damage of the legislative authority reserved exclusively by the
St. Francis. After all, Malayan is justified in Constitution for Congress. The power of the CIR to
including in the construction cost the input VAT it interpret tax laws is not absolute. The rule is that
had paid as part of the contract price of the goods, regulations may not enlarge, alter, restrict, or
properties and services it had procured to complete otherwise go beyond the provisions of the law they
the project (Malayan Insurance, Inc. vs. St. administer; administrators and implementors
Francis Realty Square Realty Corporation, G.R. cannot engraft additional requirements not
Nos. 198916-17, January 11, 2016, J. Peralta). contemplated by the legislature. (Secretary of
Finance v. Lazatin, G.R. No. 210588, November 29,
NOTE: In Malayan Insurance, Inc. vs. St. Francis 2016)
Realty Square Realty Corporation, the Court
further held that St. Francis would also be entitled Q: Acesite is the owner and operator of the
to avail of the same tax credit provisions upon the Holiday Inn Manila. It leases a portion of its
eventual sale of its proportionate share of the hotel’s premises to PAGCOR for casino
reserved units allocated and transferred to it by operations. Acesite passed VAT on rental
Malayan. The allocation of and transfer of such income to PAGCOR, but PAGCOR refused to
units to St. Francis is subject to output VAT which pay the passed-on VAT, invoking its franchise
Malayan could offset against its input VAT. In turn, which exempts PAGCOR from tax. Acesite
St. Francis would incur input VAT which it may still paid VAT on the rental income from
later offset against its output VAT upon the sale of PAGCOR to the BIR as it feared the legal
the said units. This is in accordance with the tax consequences of non-payment of the tax.
credit method of computing the VAT of a Acesite belatedly arrived at the conclusion
taxpayer whereby the input tax shifted by the that its transaction with PAGCOR was subject
seller to the buyer is credited against the to zero rate as it was rendered to a tax-exempt
buyer’s output taxes when it in turn sells the entity. Acesite filed for a claim for refund.
taxable goods, properties or services. Should the claim for refund be granted?
Q: The CIR signed RR 2-2012, which A: YES. PAGCOR is exempted from “tax of any
requires the payment of value-added tax kind or form, income or otherwise, as well as fees,
(VAT) and excise tax on the importation of charges or levies of whatever nature, whether
all petroleum and petroleum products National or Local”. The exemptions granted in the
coming directly from abroad and brought franchise for earnings derived from the operations
into the Philippines, including Freeport and conducted under the franchise shall inure to the
economic zones (FEZs). It then allows the benefit of and extend to corporations or individual
credit or refund with whom the Corporation or operator has any
contractual relationship in connection with the
of any VAT or excise tax paid if the taxpayer operations of the casinos authorized to be
proves that the petroleum previously brought conducted under PAGCOR’s Franchise. PAGCOR’s
in has been sold to a duly registered FEZ franchise goes one step further by granting tax
locator and used pursuant to the registered exempt status to persons dealing with PAGCOR in
activity of such locator. Is the Revenue casino operations. By this extension, the legislature
Regulation valid? clearly granted exemption also from indirect taxes.
Section 106(A)(2)(c) of the NIRC specifies that
A: No. RR 2-2012 is invalid and unconstitutional sales to persons or entities whose exemption under
because: special laws or international agreements to which
the Philippines is a signatory effectively subjects
a) it illegally imposes taxes upon FEZ enterprises, such sales to zero-rate. (CIR v. Acesite
which, by law, enjoy tax-exempt status. The tax (Philippines) Hotel Corporation, G.R. No. 147295,
exemption enjoyed by FEZ enterprises covers February 16, 2007)
internal revenue taxes imposed on goods brought
into the FEZ, including the Clark FEZ, such as VAT Related case: The payments made by PAGCOR to
and excise tax. Since the tax exemptions enjoyed by its catering service contractor are subject to zero-
FEZ enterprises under the law extend even to VAT rated (0%) VAT (CIR v. Secretary of Justice, G.R.
and excise tax, it follows and we accordingly rule that No. 177387, November 9, 2016)
the taxes imposed by Section 3 of RR 2-2012 directly
contravene these exemptions. First, the regulation

Taxation Law
VAT Dismiss on ground of prescription. It alleged

REFUND that the Petition for Review was filed out of
time on the ground of having been filed
What is the prescriptive period for the beyond the two-year prescriptive period.
assessment of deficiency taxes? How is it
counted? What is the prescriptive period for Was the administrative claim for tax
collection of taxes? credit/refund been timely filed?
The prescriptive period for the assessment of A: YES. In the instant case, the administrative claim
deficiency taxes is generally 3 years counted from or application for tax credit/refund of its allegedly
the filing of the return or the last day of filing excess and unutilized input VAT for the first quarter
whichever is later. In cases, however, when no of taxable year 2007 was filed on March 31, 2009 or
return is filed, a false return or a fraudulent return within the two- year prescriptive period. Respondent
is filed, the prescriptive period is 10 years from the had 120 days or until July 29, 2009 to determine the
discovery of the omission, the falsity or the fact of validity of the claim. However, petitioner filed an
being fraudulent of the return. The period of appeal by way of a petition for review on April 17,
collection, on the other hand, is 5 years from the 2009 or 17 days after the filing of the administrative
assessment. claim. Apparently, petitioner did not wait for the
decision of the CIR or the lapse of the 120- day period
Q: Are sales invoices sufficient evidence to and this is in clear contravention of Section 112(D)
prove its zero-rated sale of services to [now Section 112(C)] of the 1997 NIRC, as amended,
support an administrative claim for tax and of the doctrine laid down in the Aichi case.
refund or tax credit?
Accordingly, we find the filing of an appeal by way of
A: NO. Section 113 of the NIRC of 1997 provides a petition for review before this Court's former
that a VAT invoice is necessary for every sale, barter Second Division is strikingly similar with that of the
or exchange of goods or properties, while a VAT facts in the Aichi Case. In both cases, the taxpayer
official receipt properly pertains to every lease of (petitioner in the instant case) did not wait for the
goods or properties; as well as to every sale, barter decision of the CIR or the lapse of the 120-day period
or exchange of services. before the filing of an appeal by way of a petition for
review before this Court.
To distinguish, a "sales or commercial invoice" is a
written account of goods sold or services rendered It is undisputed that the aforementioned date of filing
indicating the prices charged therefor or a list by falls within the period following the issuance of BIR
whatever name it is known which is used in the Ruling No. DA-489-03 on December 10, 2003 but
ordinary course of business evidencing sale and before the promulgation of the Aichi case on October
transfer or agreement to sell or transfer goods and 6, 2010. In accordance with the doctrine laid down in
services. San Roque, we rule that petitioner's judicial claim
had been timely filed and should be given due course
A "receipt" oh the other hand is a written and consideration by the CTA. (Deutche Knowledge
acknowledgment of the fact of payment in money Services PTE LTD. v. CIR, G.R. No. 197980,
or other settlement between seller and buyer of December 1, 2016)
goods, debtor or creditor, or person rendering
services and client or customer. Q: Sitel Philippines Corporation (Sitel) filed
a claim for tax refund/credit of input VAT
A VAT invoice is the seller's best proof of the sale of attributable to zero-rated or effectively
goods or services to the buyer, while a VAT receipt is zero-rated sales citing Section 108(B)(2) of
the buyer's best evidence of the payment of goods or the NIRC as legal basis. Sitel submitted as
services received from the seller. A VAT invoice and a documentary evidence Certifications issued
VAT receipt should not be confused and made to refer by the SEC and Agreements between Sitel
to one and the same thing. Certainly, neither does the and its foreign clients. Is Sitel entitled to a
law intend the two to be used alternatively. tax refund/credit?
(Takenaka Corporation – Philippine Branch v. CIR,
G.R. No. 193321, October 19, 2016) A: NO. The Court clarified that an essential
condition to qualify for zero-rating is that the
Q: On March 31, 2009, Deutsche filed an service-recipient must be doing business outside
application for Tax Credit/Refund of its the Philippines. Moreover, the Court emphasized
allegedly excess and unutilized input VAT for that a taxpayer claiming for a VAT refund or credit
the 1st quarter of the calendar year 2007 in under Section 108(B) has the burden to prove not
the amount of P12,549,446.30 with the CIR. only that the recipient of the service is a foreign
corporation, but also that said corporation is doing
On April 17, 2009, citing inaction on the part business outside the Philippines.
of the CIR, Deutsche filed a Petition for
Review. In this case, the submitted documentary evidence
of Sitel failed to prove that the recipients of its call
On June 8, 2009, CIR filed a Motion to services are foreign corporations doing business

outside the Philippines or have a continuity of substantiated tax credits may be carried-over to the
commercial dealings outside the Philippines. (Sitel succeeding year and may be applied against the
Philippines Corporation v. CIR, G.R. No. 201326, income tax due in the succeeding year.
February 8, 2017) (Commissioner of Internal Revenue vs. Cebu
Holdings, Inc., G.R. No. 189792, June 20, 2018)
Q: What is transitional input tax credit?
A: Transitional input tax credit is that amount Q: On April 16, 2007. University Physicians
imposed on the inventory goods of a company for Services Inc.-Management, Inc. (UPSI-MI)
purposes of deducting it from its output tax filed its Annual Income Tax Return (ITR) for
liabilities. Now, it is 2% of the value of the inventory the year ended December 31, 2006 with the
goods of the company. This is a method for the Bureau of Internal Revenue (BIR), reflecting
State to soften the blow for new businesses from the an income tax overpayment of 5,159,341.00.
“harshness” of the value-added system of taxation. Subsequently, on November 14, 2007,
petitioner filed an Annual ITR for the short
Q: Bases Conversion and Development period fiscal year ended March 31, 2007,
Authority (BCDA) filed a petition for review reflecting the income tax overpayment of 5,
with the CTA in order to preserve its right to 159, 341 from the previous period as "Prior
pursue its claim for refund of the Creditable Year’s Excess Credit", On the same date,
Withholding Tax (CWT), which was paid petitioner filed an amended Annual ITR for
under protest in connection with its sale of the short period fiscal year ended March 31,
the BCDA-allocated units as its share in the 2007, reflecting the removal of the amount of
Serendra Project pursuant to the Joint the instant claim in the ''Prior Year's Excess
Development Agreement with Ayala Land, Credit". Thus, the amount thereof was
Inc. The petition for review was filed with a changed from ₱5,159,341 to ₱2,231,507.
Request for Exemption from the Payment of
Filing Fees. The CTA First Division denied On October 10, 2008, petitioner filed with the
BCDA's Request for Exemption. BCDA respondent's office, a claim for refund and/or
moved for reconsideration which was issuance of a Tax Credit Certificate (TCC) in
denied by the CTA First Division and the amount of ₱2,927.834.00, representing
ordered to pay the filing fees within five the alleged excess and unutilized creditable
days from notice, otherwise, the petition for withholding taxes for 2006. Can UPSI-MI
review will be dismissed. BCDA filed a recover its excess creditable tax trough
petition for review with the CTA En Banc, refund or TCC?
which petition was returned and not
deemed filed without the payment of the A: No. UPSI-MI is barred from recovering its excess
correct legal fees. BCDA once again creditable tax through refund or TCC. It is
emphasized its position that it is exempt undisputed that despite its initial option to refund its
from the payment of such fees. Is BCDA 2006 excess creditable tax, UPSI-MI subsequently
exempt from payment of legal fees? indicated in its 2007 short-period FAR that it carried
over the 2006 excess creditable tax and applied the
A: Yes. BCDA is a government instrumentality vested same against its 2007 income tax due. The CTA was
with corporate powers. As such, it is exempt from the correct in considering UPSI-MI to have
payment of docket fees required under Section 21, constructively chosen the option of carry-over, for
Rule 141 of the Rules or Court, SEC. 21. Government which reason, the irrevocability rule forbade it to
exempt. – The Republic of the Philippines, its revert to its initial choice. Once the carry- over option
agencies and instrumentalities, are exempt from is taken, it becomes irrevocable such that the
paying the legal fees provided in this rule. Local taxpayer cannot later on change its mind in order to
governments and government-owned or controlled claim a cash refund or the issuance of a tax credit
corporations with or without independent charters certificate of the very same amount of overpayment
are not exempt from paying such fees. (Bases or excess income tax credit. (University Physicians
Conversion and Development Authority vs. Services Inc. - Management, Inc. vs. Commissioner
Commissioner of Internal Revenue, GR No. 205925, of Internal Revenue, G.R. No. 205955, March 7,
Jun 20, 2018) 2018)
Q: The Cebu Holdings Inc. (CHI) filed a claim Q: Is the 120-day period for refund a
for refund of excess creditable withholding mandatory period?
tax. CHI used its prior year’s excess credits to
pay for its current year’s income tax due. The A: Yes. Failure to comply with the 120-day waiting
Commissioner of Internal Revenue (CIR) period violates a mandatory provision of law. It
disallowed the same because the prior year’s violates the doctrine of exhaustion of
excess credits were unsubstantiated. Is CIR administrative remedies and renders the petition
correct? premature and thus without a cause of action, with
the effect that the CTA does not acquire jurisdiction
A: Yes. When the taxpayer opted to just carry-over to over the taxpayer's petition.
the succeeding year its prior year’s excess credits and
creditable taxes that is subject of the refund, only the One of the conditions for a judicial claim of refund

Taxation Law
or credit under the VAT System is compliance with Q: Does the Protest letter request for
the 120+30 day mandatory and jurisdictional reconsideration toll the period to collect?
periods. Thus, strict compliance with the 120+30
day periods is necessary for such a claim to prosper, A: No, request for reconsideration does not toll the
whether before, during or after the effectivity of the period to collect. Only a request for reinvestigation
Atlas doctrine, except for the period from the does toll the period to collect
issuance of BIR Ruling No. DA- 489-03 on
December 10, 2003 to October 6, 2010 when the Q: GJM filed its Annual Income Tax Return
Aichi doctrine was adopted, which again reinstated for the taxable year 1999 on April 12, 2000.
the 120+30 day periods as mandatory and BIR sent FAN through registered mail on
jurisdictional (CIR v. Mirant Pagbilao Corp., G.R. April 14, 2003, well within the 3-year
No. 180434, January 20, 2016). prescriptive period. GJM however denies
having received any FAN. BIR failed to prove
Note: Under the TRAIN Law, Sec 112C amended that GJM received the FAN. Should the
the previous mandatory 120 days. It states that the assessment be given due course?
Commissioner shall grant a refund for creditable
input tax within 90 days from the date of A: NO. When an assessment is made within the
submission of the official receipts or invoices and prescriptive period, as in the case at bar, receipt by
other documents. the taxpayer may or may not be within said period.
But the rule does not dispense with the requirement
Q: Is payment under protest required for a that the taxpayer should actually receive the
valid protest? assessment notice, even beyond the prescriptive
period. If the taxpayer denies having received the
A: Although the general rule is that payment under assessment from the BIR, it then becomes incumbent
protest is not required when one questions the upon the latter to prove by competent evidence that
validity of an assessment, this is subject to several such notice was indeed received by the addressee.
exceptions such as in the case of real property tax
and customs cases as well as when there are several Here, the onus probandi has shifted to the BIR to
issues, some of which are undisputed in which case show by contrary evidence that GJM indeed received
the undisputed ones will have to be paid before a the assessment in the due course of mail. While it is
protest is made. Here, the tax involved is real true that an assessment is made when the notice is
property tax, thus, there must be payment before sent within the prescriptive period, the release,
protest. RPT falls under one of the exceptions. mailing, or sending of the same must still be clearly
and satisfactorily proved (CIR v. GJM, G.R. No.
PART VI : REMEDIES 202695, February 29, 2016).
Q: In 1999, a Letter of Authority (LOA) was Q: What is a letter of authority?

issued authorizing the BIR officers to A: A letter of authority is a document issued by either
examine Lancaster's books of accounts and the CIR or a Revenue Regional Director to a revenue
other accounting records for all internal officer authorizing him/her to conduct an audit of the
revenue taxes due from taxable year 1998 to books of account and records of a taxpayer and look
an unspecified date. The deficiency tax for possible deficiency tax. The LOA must only cover
assessment which the BIR eventually issued one taxable period.
against the taxpayer was based on
disallowance of expenses reported in fiscal Q: The FDDA issued by the CIR to Liquigaz
year 1999, or for the period April 1, 1998 to merely contained a table of Liquigaz’s
March 31, 1999. Is the assessment valid? supposed tax liabilities, without providing
any details. The CIR explains that the FDDA
A: No. Even though the date after the words "taxable still complied with the requirements of the
year 1998 to" is unstated, it is not at all difficult to law as it was issued in connection with the
discern that the period of examination is the whole PAN and FLD/FAN, which had an attachment
taxable year 1998. This means that the examination of the details of discrepancies. Hence, the CIR
of Lancaster must cover the FY period from concludes that Liquigaz was sufficiently
1April1997 to 31March1998. It could not have informed in writing of the factual bases of the
contemplated a longer period. The examination for assessment. Is the CIR correct?
the full taxable year 1998 only is consistent with the
guideline in Revenue Memorandum Order (RMO) A: NO. It is undisputed that the FDDA merely
No. 43- 90, dated 20 September 1990, that the LOA showed Liquigaz’ tax liabilities without any details
shall cover a taxable period not exceeding one taxable on the specific transactions which gave rise to its
year. The taxable year covered by the assessment supposed tax deficiencies. While it provided for the
being outside of the period specified in the LOA in legal bases of the assessment, it fell short of
this case, the assessment issued against Lancaster is, informing Liquigaz of the factual bases thereof. The
therefore, void. (Commissioner of Internal Revenue CIR erred in claiming that Liquigaz was informed
v. Lancaster, G.R. No. 183408, July 12, 2017) of the factual bases of the assessment because the
FDDA made reference to the PAN and FAN/FLD,
which were accompanied by details of the alleged

discrepancies. may appeal to the CTA within 30 days from receipt of

the whole or partial denial of the protest.
The rules specifically require that the decision of 2. If the protest is wholly or partially denied by the CIR's
the CIR or his duly authorized representative on a authorized representative, then the taxpayer may
disputed assessment shall state the facts, law and appeal to the CIR within 30 days from receipt of the
rules and regulations, or jurisprudence on which whole or partial denial of the protest.
the decision is based. Failure to do so would 3. If the CIR or his authorized representative failed to
invalidate the FDDA. To rule otherwise would act upon the protest within 180 days from submission
tolerate abuse and prejudice. Taxpayers will be of the required supporting documents, then the
unable to file an intelligent appeal before the CTA taxpayer may appeal to the CTA within 30 days from
as they would be unaware on how the CIR or his the lapse of the 180-day period.
authorized representative appreciated the defense
raised in connection with the assessment (CIR v. To further clarify the three options: A whole or partial
Liquigaz Philippines Corp., G.R. No. 215534, April denial by the CIR’s representative may be appealed to
18, 2016). the CIR or the CTA. A whole or partial denial by the
CIR may be appealed to the CTA. The CIR or the
Q: What is the effect of a void FDDA? CTA’s authorized representative’s failure to act may
be appealed to the CTA. There is no mention of an
A: FDDA that does not inform the taxpayer in appeal to the CIR from the failure to act by the CIR's
writing of the facts and law on which it is based authorized representative.
renders the decision void. The written notice
requirement for both the FLD and the FAN is in PAGCOR did not wait for the RD or the CIR’s
observance of due process — to afford the taxpayer decision on its protest. PAGCOR made separate and
adequate opportunity to file a protest on the successive filings before the RD and the CIR before it
assessment and thereafter file an appeal in case of filed its petition with the CTA. PAGCOR rendered the
an adverse decision. second option moot when it formulated its own rule
and “elevated an appeal” to the CIR without any
However, a void FDDA does not ipso facto render decision from the RD. The third option states that the
the assessment void. The assessment remains valid remedy for failure to act by the CIR or his authorized
notwithstanding the nullity of the FDDA because representative is to file an appeal to the CTA within
the assessment itself differs from a decision on the 30 days after the lapse of 180 days from the
disputed assessment. An FDDA that does not submission of the required supporting documents.
inform the taxpayer in writing of the facts and law PAGCOR clearly failed to do this. If we consider, for
on which it is based renders the decision void. the sake of argument, PAGCOR’s submission before
Therefore, it is as if there was no decision rendered the CIR as a separate protest and not as an appeal,
by the CIR. It is tantamount to a denial by inaction then such protest should be denied for having filed
by the CIR, which may still be appealed before the out of time. It is clear that PAGCOR failed to make
CTA and the assessment evaluated on the basis of use of any of the three options described above.
the available evidence and documents (CIR v. Indeed, PAGCOR’s lapses in procedure have made
Liquigaz Philippines Corp., G.R. No. 215534, April the BIR’s assessment final, executor and demandable
18, 2016). (PAGCOR v. BIR, G.R. No. 208731, January 27,
2016).
Q: PAGCOR received a FAN on January 17,
2008 for payment of deficiency Fringe JUDICIAL REMEDIES
Benefit Tax. 7 days later, it filed a protest to
the FAN addressed to RD Misajon of Q: On March 7, 1991, CIR issued a Pre-
Revenue Region No. 6 of the BIR. On August Assessment Notice (PAN) against BPI for
14, 2008, PAGCOR elevated its protest to deficiency taxes, for taxable year 1986. The
CIR, there being no action taken thereon as counsel for BPI filed its protest against the
of that date. On March 11, 2009, PAGCOR PAN on April 22, 1991. On May 6, 1991, issued
filed a Petition for Review before the CTA a Letter, with attached Assessment Notices,
alleging respondent’s inaction in its protest. demanding for the payment of the deficiency
CTA Division dismissed the petition for taxes within thirty (30) days from receipt
being filed out of time. CTA En banc thereof. CBC filed its Protest against the
affirmed CTA Division’s ruling. In its assessments on May 27, 1991. The CIR did not
Petition for Review before the SC, PAGCOR act upon the protest.
argues that its protest before the CIR on
August 14, 2008 starts a new period from CIR insists that on February 5, 1992 it
which to determine the last day to file its mailed the assessment to BPI which must be
petition before the CTA. Is PAGCOR the reckoning point to protest and BPI
correct? failed to elevate the tax assessment against
it to the CTA within the required period.
A: NO. The rules give a protesting taxpayer three BPI, on the other hand, claims that it never
options: received any final decision on the disputed
1. If the protest is wholly or partially denied by the CIR assessment from CIR granting or denying
or his authorized representative, then the taxpayer the same, whether in whole or in part. Is the

Taxation Law
BPI correct? should first conduct a preliminary hearing for

the proper determination of the necessity of a
A: Yes. The assessment notice dated May 6, 1991 surety bond or the reduction thereof. In the
should be deemed as the final decision of the CIR conduct of its preliminary hearing, the CTA
on the matter, in which BPI timely protested on must balance the scale between the inherent
May 27, 1991. While a mailed letter is deemed power of the State to tax and its right to
received by the addressee in the ordinary course of prosecute perceived transgressors of the law,
mail, this is still merely a disputable presumption on one side; and the constitutional rights of
subject to controversion, and a direct denial of the petitioners to due process of law and the equal
receipt thereof shifts the burden upon the party protection of the laws, on the other. In this
favored by the presumption to prove that the case, the CTA failed to consider that the
mailed letter was indeed received by the addressee. amount of the surety bond that it is asking
(Commissioner of Internal Revenue vs. Bank of the Globesmart to pay is more than its net worth.
Philippine Islands, G.R. No. 224327, June 11, 2018) Thus, it is necessary for the CTA to first
conduct a preliminary hearing to give taxpayer
Q: Globesmart Services, Inc. received a FAN an opportunity to prove its inability to come up
with FLD from the BIR for deficiency with such amount.
income tax, VAT, and withholding tax for
the taxable year 2016 amounting to P48 Q: Asiatrust Development Bank, Inc.
million. Globesmart filed a protest against (Asiatrust) received from the CIR Formal
the assessment, but the CIR denied the Letters of Demand (FLD) with Assessment
protest. Hence, Globesmart filed a petition Notices for deficiency internal revenue
for review in the CTA with an urgent motion taxes. Asiatrust timely protested the
to suspend the collection of tax. assessment notices. Due to the inaction of
the CIR on the protest, Asiatrust filed before
After hearing, the CTA Division issued a the CTA a Petition for Review praying for the
resolution granting the motion to suspend cancellation of the tax assessments for
but required Globesmart to post a surety deficiency taxes and also claimed that it
bond equivalent to the deficiency availed of the Tax Amnesty Law. The CTA
assessment within 15 days from notice of Division partially affirmed the CIR’s
the resolution. Globesmart moved for the decision, but declared void some tax
partial reconsideration of the resolution assessments for having been issued beyond
and for the reduction of the bond to an the three-year prescriptive period. CIR filed
amount it could obtain. The CTA Division a Motion for Partial Reconsideration of the
issued another resolution reducing the assessments assailing the CTA Division's
amount of the surety bond to P24 million. finding of prescription. The CTA Division
The latter amount was still more than the amended its decision. Unsatisfied, both
net worth of Globesmart Services, Inc. as parties appealed to CTA En Banc. The CTA
reported in its audited financial statements. En Banc denied the CIR' s appeal for failure
to file a prior motion for reconsideration of
a. May the collection of taxes be the Amended Decision. The CIR contends
suspended? that the CTA En Banc erred in dismissing his
appeal for failing to file a motion for
b. Is the CTA Division justified in requiring reconsideration on the Amended Decision
Globesmart to post a surety bond as a as a perusal of the Amended Decision shows
condition for the suspension of the that it is a mere resolution, modifying the
deficiency tax collection? (2017 Bar) original Decision. Is the contention of CIR
meritorious?
A:
a. YES. As provided by RA No. 1125, as A: NO. Section 1, Rule 8 of the Revised Rules
amended by RA No. 9282, that when in the provide that an appeal to the CTA En Banc must be
opinion of the Court the collection by the preceded by the filing of a timely motion for
aforementioned government agencies may reconsideration or new trial with the CTA Division.
jeopardize the interest of the Government Failure to do so is a ground for the dismissal of the
and/ or the taxpayer, the Court any stage of appeal as the word "must" indicates that the filing
the proceeding may suspend the said of a prior motion is mandatory, and not merely
collection and require the taxpayer either to directory. Due to this procedural lapse, the
deposit the amount claimed or to file a surety Amended Decision has attained finality insofar as
bond for not more than double the amount the CIR is concerned. The CIR, therefore, may no
with the Court. longer question the merits of the case before the SC.
(Asiatrust Development Bank, Inc. vs. CIR, G.R.
b. NO. The Supreme Court, in the case of No. 201530, April 19, 2017, Del Castillo, J.)
Tridharma Marketing Corporation v. CTA
(G.R. No. 215950, June 20, 2016), cited the Q: What is the effect of filing a Petition for
case of Pacquiao v. CTA (G.R. No. 213394, Review with the CTA En Banc without filing
April 6, 2016) where it ruled that the CTA a prior motion for reconsideration or new

trial before the CTA Division? National Internal
A: The filing of a motion for reconsideration or new Revenue Code (NIRC), which periods it claims to be
trial before the CTA Division is an indispensable jurisdictional, then the proper remedy that
requirement for filing an appeal before the CTA En petitioner should have availed of was indeed a
Banc. Failure to file such motion for petition for certiorari under Rule 65, an original or
reconsideration or new trial is cause for dismissal independent action premised on the public
of the appeal before the CTA En Banc. (City of respondent having acted without or in excess of
Manila v. Cosmos Bottling Corporation, G.R. No. jurisdiction or with grave abuse of discretion
196681, June 27, 2018) amounting to lack or excess of jurisdiction.
Q: KEPCO Corporation (KEPCO) filed with However, since a certiorari petition is not a
the BIR its claim for refund in the amount of continuation of the appellate process borne out of
P449,569,448.73 representing input tax the original case but is a separate action focused on
incurred for the first and second quarters of actions that are in excess or wanting of jurisdiction,
the CY 2000 from its importation and then it cannot be filed in the same tribunal whose
domestic purchases of capital goods and actions are being assailed but is instead cognizable
services for the production and sales of by a higher tribunal which, in the case of the CTA, is
electricity to NAPOCOR. CTA First Division this Court. In the case involving petitioner, the
rendered a decision in favor of KEPCO. The petition could have been filed directly with this
said decision became final and executory, Court, even without any need to file a motion for
hence the court issued a Writ of Execution. reconsideration with the CTA division or En Banc, as
CIR filed a petition for annulment of the case appears to fall under one of the recognized
judgment with the CTA en banc praying for exceptions to the rule requiring such a motion as a
the following reliefs: (1) that the Decision be prerequisite to filing such petition. (Commissioner
annulled or set aside; (2) that the Entry of of Internal Revenue vs Kepco Corporation, G.R. No.
Judgment and Writ of Execution be 199422, June 21, 2016)
nullified; and (3) that the CTA First Division
be directed to re- open the case. KEPCO Q: Team Sual Corporation (TSC) filed its
contends that CIR is not lawfully entitled to administrative claim for refund for taxable
annulment of judgment on the ground that year 2001 on March 20, 2003, well within the
the CTA en banc is bereft of jurisdiction on two-year period. provided for by law. TSC
the premise that the Rules of Court, RA No. then filed two separate judicial claims for
9282, and the Revised Rules of the Court of refund: one on March 31, 2003 for the first
Tax Appeals do not expressly provide a quarter of 2001, and the other on July 23,
remedy on annulment of judgments. Did the 2003 for the second, third, and fourth
CTA en banc correctly deny the petition for quarters of the same year. Does CTA has
annulment of judgment? jurisdiction to act on TSC' s two judicial
claims for refund?
A: YES. The petition designated as one for
annulment of judgment was legally and A: Between the March 31 and the July 23 petitions
procedurally infirm and, thus, was soundly for review filed by TSC, the CTA Division only
dismissed by the CTA En Banc on such ground. acquired jurisdiction over the latter. In order for the
Also, the CTA could not have treated the petition as CTA to acquire jurisdiction over a judicial claim for
an appeal or a continuation of the case before the refund or tax credit arising from unutilized input
CTA First Division because the latter's decision had VAT, the said claim must first comply with the
become final and executory and, thus, no longer mandatory 120+30-day waiting period. Any judicial
subject to an appeal. claim for refund or tax credit filed in contravention
of said period is rendered premature, depriving the
Instead, what remained as a remedy for the CTA of jurisdiction to act on it (Team Sual
petitioner was to file a petition for certiorari under Corporation vs. Commissioner of Internal Revenue,
Rule 65, which could have been filed as an original G.R. Nos. 201225-26, 201132, 201133, April 18,
action before this Court and not before the CTA En 2018)
Banc. Certiorari is available when there is no appeal
or any other plain, speedy and adequate remedy in Q: Disputing the assessment, PAGCOR
the ordinary course of law, such as in the case at appealed to the Secretary of Justice, on the
bar. Since the petition below invoked the gross and basis of Sections 66 and 67 of the Revised
palpable negligence of petitioner's counsel which is Administrative Code, which provides that
allegedly tantamount to its being deprived of due “all disputes/claims and controversies,
process and its day in court as party- litigant and, solely between or among the departments,
as it also invokes lack of jurisdiction of the CTA bureaus, offices, agencies and
First Division to entertain the petition filed by instrumentalities of the National
private respondent since the same allegedly fails to Government, including government -owned
comply with the reglementary periods for judicial and - controlled corporations, such as those
remedies involving administrative claims for arising from the interpretation and
refund of excess unutilized input VAT under the application of statues, contracts or

Taxation Law
agreements shall be administratively wherein the appellate court may annul a decision of
settled or adjudicated by the Secretary of the regional trial court, or the latter court may
Justice as Attorney-General of the National annul a decision of the municipal or metropolitan
Government and as ex officio legal adviser trial court. The laws creating the CTA and
of all government- owned or - controlled expanding its jurisdiction (RA Nos. 1125 and 9282)
corporations if involving only questions of and the court’s own rules of procedure (the Revised
law.” Rules of the CTA) do not sanction such a procedure.
The CIR contends that the CTA has The CTA sitting En Banc cannot annul a decision of
jurisdiction pursuant to Section 7(1) of R.A. one of its divisions. The divisions are not considered
No. 1125, which grants the CTA the exclusive separate and distinct courts but are divisions of one
appellate jurisdiction to review, among and the same court; there is no hierarchy of courts
others, the decisions of the Commissioner within the Court of Tax Appeals, for they each
of Internal Revenue “in cases involving remain as one court notwithstanding that they also
disputed assessments, refunds of internal work in divisions. By analogy, the Supreme Court
revenue taxes, fees or other charges, sitting En Banc is not an appellate court vis-à-vis its
penalties imposed in relation thereto, or divisions, and it exercises no appellate jurisdiction
other matters arising under the NIRC or over the latter. Thus, it appears contrary to these
other law or part of law administered by the features that a collegial court, sitting En Banc, may
Bureau of Internal Revenue. be called upon to annul a decision of one of its
divisions which had become final and executory, for
Is PAGCOR correct? it is tantamount to allowing a court to annul its own
judgment and acknowledging that a hierarchy exists
A: NO. Following the rule on statutory within such court. (CIR v. Kepco Ilijan Corporation,
construction involving a general and a special law, G.R. No. 199422, June 21, 2016)
then P.D. No. 242 should not affect R.A. No. 1125.
R.A. No. 1125, specifically Section 7 thereof on the Q: Can the SC take cognizance of a petition
jurisdiction of the CTA, constitutes an exception to for annulment of a decision of the CTA
P.D. No. 242. Disputes, claims and controversies, Division or of the CTA en banc?
falling under Section 7 of R.A. No. 1125, even
though solely among government offices, agencies, A: NO. A direct petition for annulment of a
and instrumentalities, including GOCCs, remain in judgment of the CTA to the Supreme Court,
the exclusive appellate jurisdiction of the CTA. meanwhile, is unavailing, for the same reason that
Such a construction resolves the alleged there is no identical remedy with the High Court to
inconsistency or conflict between the two statutes. annul a final and executory judgment of the Court of
(CIR v. Secretary of Justice, G.R. No. 177387, Appeals. RA No. 9282, Section 1 puts the CTA on the
November 9, 2016, citing Philippine National Oil same level as the Court of Appeals, so that if the
Company v. Court of Appeals, G.R. Nos. 109976 latter’s final judgments may not be annulled before
and 112800, April 26, 2005) the SC, then the CTA’s own decisions similarly may
not be so annulled. And more importantly,
In CIR v. Secretary of Justice, to restate, as a annulment of judgment is an original action, yet, it is
general rule, all disputes/claims and controversies, not among the cases enumerated in the
solely between or among the departments, bureaus, Constitution’s Article VIII, Section 5 over which the
offices, agencies and instrumentalities of the SC exercises original jurisdiction. Annulment of
National Government, including GOCCs, such as judgment also often requires an adjudication of
those arising from the interpretation and facts, a task that the Court loathes to perform, as it is
application of statues, contracts or agreements not a trier of facts. (CIR v. Kepco Ilijan Corporation,
shall be administratively settled or adjudicated by G.R. No. 199422, June 21, 2016)
the Secretary of Justice or the Solicitor General.
(Secs. 66-68, Revised Administrative Code) TAXPAYERS BILL OF RIGHTS
As an exception, when the disputes/claims and For a better understanding of administrative

controversies involves a tax assessment, even when and judicial remedies in a nutshell, the BIR
the parties to the dispute are departments, has released the Taxpayers Bill of Rights
bureaus, offices, agencies and instrumentalities of which is a comprehensive and simplified
the National Government, including GOCCs, the guide for tax remedies and recourses.
exclusive appellate jurisdiction remains with the
CTA. (Sec. 7, RA 1125) 1. When does the audit process begin?
Q: Can the CTA en banc entertain a petition The audit process commences with the service of a
for annulment of a decision of the CTA duly issued electronic Letter of Authority (eLA)
Division? to a taxpayer who has been selected for audit.
A: NO. Annulment of judgment implies power by An eLA is a Letter of Authority to examine the
a superior court over a subordinate one, as taxpayers’ books and records for a particular
provided for in Rule 47 of the Rules of Court, period.

5. Under what instances is PAN no longer

2. How many times can a taxpayer’s books of accounts required?
and records be subjected to examination and
inspection? A PAN shall not be required in any of the following
cases, in which case, issuance of the Final
For income tax purposes, such examination and Assessment Notice for the payment of the
inspection shall be made only once in a taxable taxpayer’s deficiency tax liability shall be
year, sufficient:
Except in the following cases: (a) When the finding for any deficiency tax is the
result of mathematical error in the computation
(a) When the Commissioner determines that fraud, of the tax appearing on the face of the tax return filed
irregularities, or mistakes were committed; by the taxpayer; or
(b) When the taxpayer requests reinvestigation;
(c) When there is a need to verify the taxpayer’s b) When a discrepancy has been determined between
compliance with withholding tax laws and the tax withheld and the amount actually
regulations; remitted by the withholding agent; or
(d) When the taxpayer’s capital gains tax liabilities
must be verified; and
(e) When the Commissioner chooses to exercise his (c) When a taxpayer who opted to claim a refund
power under Section 5(B) of the NIRC to obtain or tax credit of excess creditable withholding tax
information from other persons, in which case, for a taxable period was determined to have carried
another or separate examination and inspection over and automatically applied the same amount
may be made. claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable
3. Within what time period must an year; or
assessment be made?
(d) When the excise tax due on excisable articles
GR: An assessment must be made within three (3) has not been paid; or
years from the last day prescribed by law for the
filing of the tax return, for the tax that is being (e) When an article locally purchased or
subjected to assessment or from the day the return imported by an exempt person, such as, but not
was filed, if filed late. (Section 203, NIRC). limited to vehicles, capital equipment, machineries
and spare parts, has been sold, traded or
XPNs: transferred to non-exempt persons (Section
1. False or fraudulent return, or of failure to 228, NIRC).
file a return, the Bureau has ten (10) years
from the date of discovery of such falsity, 6. What is a Final Assessment Notice (FAN)?
fraud, or omission within which to make
the assessment. (Section 222, NIRC). An FLD/FAN is a written demand to pay
deficiency taxes (RR 18-2013 dated November 28,
2. The period to assess may be extended 2013 and RMC 11-2014 dated February 18, 2014)
through the execution by the taxpayer of a issued to a taxpayer who fails to respond to a
written Waiver of the Statute of Limitations PAN within the prescriptive period of time, or
before the expiration of the prescriptive whose reply to the PAN was found to be without
period to assess. (Section 222, NIRC) merit, whether in full or in part.
4. What is a Preliminary Assessment Notice The FAN/FLD calling for payment of the taxpayer’s
(PAN)? deficiency tax or taxes shall state the facts, the law,
rules and regulations, or jurisprudence on which the
The PAN is a written communication issued assessment is based, otherwise, the FAN/FLD shall
by the Commissioner of Internal Revenue or his be void.
duly authorized representative informing a
taxpayer who has been audited of the 7. What is the recourse of a taxpayer who cannot
findings of his deficiency tax/es, showing submit the documents being required of him
in details the facts and the law, rules and within the prescribed period?
regulations, and/or jurisprudence on which
the assessment is based. A taxpayer, believing that he cannot present his
books of accounts and/or other accounting records,
If the taxpayer disagrees with the findings who intends to request for more time to present these
stated in the PAN, he shall then have fifteen documents may execute what is referred to as a
(15) days from his receipt of the PAN to Waiver of the Defense of Prescription under
file a written reply contesting the proposed the Statute of Limitations of the NIRC.
assessment. (RR12-1999, as amended by RR 18-
2013 dated November 28, 2013) This recourse does not apply when a Subpoena Duces
Tecum has already been issued.

Taxation Law
discovered or additional evidence he intends to

8. What is a Waiver of the Defense of Prescription present if it is a request for reinvestigation,
under the Statute of Limitations of the NIRC? b) date of the assessment notice, and
c) the applicable law, rules and regulations or
The Waiver of the Defense of Prescription under jurisprudence on which his protest is based,
the Statute of Limitations is a signed written otherwise, his protest will be considered void and
statement, executed before the expiration of without force and effect.
the period to assess or to collect, whereby the
taxpayer conveys his agreement to extend For request for reinvestigation, the taxpayer shall
within a specific future date the period within submit all relevant supporting documents in
which the Bureau may validly issue and support of his protest within sixty (60) days from
assessment for and/or collect deficiency date of filing of his letter of protest, otherwise, the
taxes. assessment shall become final. The term ”relevant
supporting documents” refer to those documents
If a taxpayer opts to execute a waiver of the Statute necessary to support the legal and factual bases in
of Limitations, he shall likewise be, in effect, disputing a tax assessment as determined by the
waiving his right to invoke the defense of taxpayer.
prescription for assessment issued after the
reglementary period. The sixty (60)-day period for the submission of all
relevant supporting documents shall not apply to
No waiver of Statute of Limitations shall be requests for reconsideration.
considered valid unless it is accepted by a duly
authorized Bureau official. (RMO 14-2016 dated Furthermore, the term “the assessment shall become
April 4, 2016) final“ shall mean the taxpayer is barred from
disputing the correctness of the issued assessment by
9. If a taxpayer does not agree with the introduction of newly discovered or additional
assessment made following an audit, can he evidence, and the FDDA shall consequently be issued
protest this assessment? denying the protest. If the taxpayer fails to file a valid
protest against the FLD/FAN within thirty (30) days
A taxpayer has the right to contest an assessment from date of receipt thereof, the assessment shall
and may do so by filing: become final, executory and demandable (RR 18-
2013 dated November 28, 2013)
a) a response to the PAN within 15 days
from receipt of the PAN; 11. In the event that the protest is denied in whole
b) b) a Protest to the FLD/FAN within 30 or in part, or is not acted upon by the
days from date of receipt of the FLD/FAN Commissioner’s duly authorized representative,
either through a Request for what alternative recourse of action is open to a
Reconsideration or a Request for Taxpayer?
Reinvestigation.
If the protest is denied, in whole or in part, by the
Request for Reconsideration – refers to Commissioner or his duly authorized representative,
a plea for re-evaluation of an the taxpayer may either:
assessment on the basis of existing a) appeal to the Court of Tax Appeals, through
records without need of additional a Petition for Review, within thirty (30) days from
evidence. receipt of the said decision; or
b) elevate his protest through request for
It may involve a question of fact or of law or both. reconsideration to the Commissioner within
thirty (30) days from date of receipt of the said
Request for Reinvestigation – refers to a plea for decision.
re-evaluation of an assessment on the basis of
newly discovered or additional evidence that No request for reinvestigation shall be
a taxpayer intends to present in the reinvestigation. allowed in administrative appeal and only
It may also involve a question of fact or of law or issues raised in the decision of the Commissioner’s
both. (RR 18-2013 dated November 28, 2013) duly authorized representative shall be entertained
by the Commissioner.
10. What are the characteristics of a valid
protest? If the protest is not acted upon by the
Commissioner’s duly authorized representative
The taxpayer must file a protest within thirty within one hundred eighty (180) days counted
(30) days from the date of receipt of the from the date of filing of the protest in case a
FLD/FAN and shall state in his protest: request for reinvestigation, the taxpayer may either:
1) appeal to the CTA within thirty (30) days after
a) The nature of protest whether the expiration of the one hundred eighty (180) day
reconsideration or reinvestigation, period; or
specifying the desire for submission of newly 2) await the final decision of the Commissioner’s
duly authorized representative on the disputed

assessment. (Section 228, NIRC and RR 18-2013 3. The only other rule is the Atlas ruling, which
dated November 28, 2013) applied only from 8 June 2007 to 12 September
2008. Atlas states that the two-year prescriptive
12. What recourse is open to a Taxpayer if his request period from filing a claim for tax refund or credit of
for reconsideration (administrative appeal) is unutilized input VAT payments should be counted
denied by the Commissioner? from the date of filing of the VAT return and
payment of the tax. (San Roque)
If the request for reconsideration is denied by the
Commissioner, the taxpayer may appeal such B. 120+30 Day Period
Final Decision to the CTA, within 30 days after 1. The taxpayer can file an appeal in one of two
receipt of a copy of such decision (RR 18-13 dated ways:
November 28, 2013) (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day
19. If the Taxpayer is not satisfied with the CTA’s period, or
decision, can he appeal the decision to a higher court?
(2) file the judicial claim within the thirty days from
Yes, he can, Decision of a Division of the Court of the expiration of the 120-day period if the
Tax Appeals may be appealed with the Court of Commissioner does not act within the 120-day
Tax Appeals (en banc), within fifteen (15) period.
days from the Taxpayer’s receipt of the
questioned Decision or Resolution. (Revised 2. The 30-day period always applies, whether there is
Rules of CTA) a denial or inaction on the part of the Commissioner.
In the event that the Taxpayer is likewise 3. As a general rule, the 30-day period to appeal is
unsatisfied with the decision of the Court of Tax both mandatory and jurisdictional. (Aichi and San
Appeals (en banc), he may appeal this decision Roque)
with the Supreme Court, within fifteen (15)
days from receipt of the 4. As an exception to the general rule, premature
Decision/Resolution. (Rules of Court) filing is allowed only if filed between 10 December
2003 and 5 October 2010, when BIR Ruling No. DA-
20. Can a taxpayer claim a refund or tax credit 489-03 was still in force. (San Roque)
for erroneously or illegally collected taxes?
5. Late filing is absolutely prohibited, even during the
Yes, he can. The taxpayer may file a written claim time when BIR Ruling No. DA489-03 was in force.
for refund, with the Commissioner of Internal (San Roque) (Silicon Philippines v. Commissioner of
Revenue, with a categorical demand for the Internal Revenue, G.R. No. 173241, March 25, 2015)
recovery of erroneously or illegally collected taxes, In case of taxpayer’s claim for VAT refund, under the
within two (2) years from the date of TRAIN Law, effective January 1, 2018, such claim
payment of the tax or penalty sought to be should be acted upon within the 90-day period (RR
refunded. 13-2018)
Failure of the taxpayer to file such claim within II. Claim for refund under Section 229 of the NIRC of
this prescribed period shall result in the 1997, as amended.
forfeiture of his right to the refund or tax credit.
(Section 229, NIRC). The claim for refund of excessively or erroneously
collected taxes under Section 229 should be made
21. If a taxpayer has filed a claim for refund and the within two (2) years from the date the taxes are paid.
Bureau has yet to render a decision on this claim, Both the administrative and judicial claims should be
can the taxpayer elevate his claim to the CTA? brought within the two (2)- year prescriptive period.
The rules are as follows: Otherwise, they shall forever be barred. Thus, the
taxpayer may elevate his claims to the CTA if the two
I. Claim for refund under Section 112 of the (2) year prescriptive period is about to expire and the
NIRC of 1997, as amended. BIR has not yet rendered a decision on his claim.
(CBK Power Company Ltd. Vs. Commissioner of
A. Two-Year prescriptive Period Internal Revenue,750 Phil. 748 [2015])
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)

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University of Santo Tomas

Faculty of Civil Law

SECRETARY GENERAL: EDREA RAMIREZ

TAXATION LAW COMMITTEE

COMMITTEE HEAD: JYRUS CIMATU

ATTY. LEAN JEFF MAGSOMBOL

only. It is an immunity or privilege, a freedom from

UNIVERSITY OF SANTO TOMAS 1 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 2 UST L A W B A R O P E R A T I O N S

GR 213943, J. Carpio, March 22, 2017) Q: What is the DOCTRINE OF WILLFUL

UNIVERSITY OF SANTO TOMAS 3 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 4 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 5 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 6 UST L A W B A R O P E R A T I O N S

representing accrued and unpaid

UNIVERSITY OF SANTO TOMAS 7 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 8 UST L A W B A R O P E R A T I O N S

January 24, 2017) b. If taxable income is negative; or

The MCIT is equal to 2% of the gross income of

Being a minimum income tax, a corporation should

Therefore, the taxable due for the taxable year will

UNIVERSITY OF SANTO TOMAS 9 UST L A W B A R O P E R A T I O N S

For purposes of branch profit remittance, income

UNIVERSITY OF SANTO TOMAS 10 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 11 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 12 UST L A W B A R O P E R A T I O N S

1. Fair market value as a. Expenses, losses, indebtedness, taxes, etc.

Listed – Closing rate AT THE Exclusions under Sec. 87 NIRC:

UNIVERSITY OF SANTO TOMAS 13 UST L A W B A R O P E R A T I O N S

UNIVERSITY OF SANTO TOMAS 14 UST L A W B A R O P E R A T I O N S

given by the donor to to the donee. value of the adequate and

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deduction is P500,000 is clearance from precedent for

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1. Province merely sought to impose the rates as provided

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posts, relays or landing stations, but both may be

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its members or another agricultural cooperative. refund or credit.

A: Consistent with the destination principle, the OUTPUT AND INPUT

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VAT Dismiss on ground of prescription. It alleged

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Q: In 1999, a Letter of Authority (LOA) was Q: What is a letter of authority?

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discrepancies. may appeal to the CTA within 30 days from receipt of

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BPI correct? should first conduct a preliminary hearing for

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trial before the CTA Division? National Internal

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As an exception, when the disputes/claims and For a better understanding of administrative

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5. Under what instances is PAN no longer

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discovered or additional evidence he intends to

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1. It is only the administrative claim that must be