Oct 17, 2019
How
Other Kinds of Internal Revenue Tax
Percentage tax
VAT and percentage tax are mutually exclusive
forms of taxes. They cannot be imposed at the same
time except in highly exceptional situations
particularly when the taxpayer is non-compliant
with respect to certain requirement of our laws.
Like when he has already breached the 3 million
threshold and despite breaching it, he did not
change his registration from non-VAT to VAT. He
will therefore be liable still for percentage tax
because of his non-VAT registration and because he
is mandatorily covered under the VAT system, he
will also be liable for VAT. However, he will not be
entitled to any input tax credit precisely because he
is registered as a non-VAT taxpayer.
Under normal situations, a taxpayer is liable only to
either VAT or percentage tax.
How will you know the rate of percentage tax? The
provisions of NIRC concerning percentage tax (Sec
116 onwards), there are various transactions
subject to percentage tax. But the default
percentage tax is usually fixed at 3%.
For those transactions that are specifically identified
as subject to percentage tax, you do not apply VAT
even if the gross receipts has already breached the
3 million.
Example: Amusement tax under Sec 125 of the
NIRC. Because there are fixed rates of percentage
tax under the NIRC, even if these particular
businesses would breached the 3M threshold, you
still apply the percentage tax as found here. Such as
10% is the case of boxing exhibition, 15% in the case
of professional basketball games.
One thing that is of note here is Sec 127 regarding
sale of shares listed and traded in the stock
exchange. If the shares are not listed in the stock
exchange and then you sell the share, the tax that
will be imposed is capital gains tax which is fixed at
15%. That is an income tax. But if you will be asked
what is the income tax for the sale of shares that is
listed and traded it is zero because it is exempt from
income tax but it is subject to percentage tax.
much is the percentage tax? It is 6/10 of 1% or
0.06%.
If a taxpayer is engaged in dealing with shares or a
stockbroker, and if he sells shares and his sale is 3
million, he will still not be subject to VAT because
that transaction is subject to percentage tax.
Excise tax
This refers to the excise tax on goods. There are two
kinds of excise tax: excise tax on a right and excise
tax on goods. Excise tax as a tax on right is estate
tax, donor’s tax, income tax.
There are certain products that are considered as
exciseable or those that are subject to excise tax on
goods.
They are commonly referred to as the sin articles
such as alcoholic products, cigarettes. They are sin
articles because mostly they are non-essentials.
What else are exciseable? Extraction of natural
resources like petroleum products, minerals, those
are exciseable. Sugary products also. If you will
notice, these are products that are immediately
taxable at the moment of creation or extraction in
the case of natural resources.
Documentary stamp tax
It is imposed on certain transactions identified in
the tax code. It is a tax on transaction and not on
the document. Example is stamp tax on issuance of
shares. Once there is the concept of issuance of
shares even if there is no certificate issued, there
will already be documentary stamp tax that will be
imposed.
Check the listing in the tax code.
TAX REMEDIES
On the side of the government, the government
knows how much you are obligated. But
notwithstanding this, the taxpayer will not pay
correctly his tax. There are situations where the
government will try to get more taxes than what
the taxpayer should have been liable for.
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This internal revenue tax laws are mainly
administered by the BIR. The BIR being headed by
the Commissioner of Internal Revenue or CIR. The
Commissioner represents the Bureau and any
action of the Commissioner is an action of the
Bureau. The Bureau acts through the Commissioner.
The CIR does not do things alone. He has a lot of
subordinate officials within the Bureau. The CIR has
Deputy Commissioners, Division Chiefs in the
central office. But in the various regions, Philippines
is actually divided into revenue regions. The
revenue regions are not necessarily the
geographical regions that we have. Example, Baguio
City belong to revenue region 2. So walang CAR
revenue regions. And per revenue region, we have
the district offices. Baguio for example is RDO 8 of
Revenue Region 2. Per region is the revenue
regional director who heads the revenue region.
And district office is headed by revenue district
officer or the RDO.
There are certain powers being possessed by the
BIR. All these powers can be exercised by the
commissioner. While these powers can be exercised
by the commissioner, these powers can be
delegated by the commissioner. But there are four
powers that cannot be delegated by the
Commissioner.
1. The power to recommend to the Secretary
of Finance the issuance of revenue
regulations. The CIR only recommends the
revenue regulation. It is the Secretary of
Finance who issues the regulation.
What is revenue regulation?
It is the implementing rule of an internal revenue
tax law which is issued by the Secretary of Finance
upon the recommendation of the CIR. It is therefore
in the form of subordinate legislation. And because
it is subordinate legislation, it is applicable to all
type of taxpayers.
2. The power to issue rulings of first
impression or to modify, amend, revoke or
reverse existing ones.
Rulings are considered as the best guess of the BIR
about how to apply an internal revenue tax law with
respect to facts presented before the Bureau. In a
ruling, taxpayer presents certain facts and then ask
the opinion of the BIR as to how to apply internal
revenue taxes to those set of facts. It is like asking
the BIR for an advisory opinion.
Rulings can be of various kinds. The most common
one is the ruling of first impression or ruling with
established precedent. Ruling of first impression is
the first time that the BIR is confronted with that
issue. Only the CIR can issue ruling of first
impression because first impression lasts (totoo
daw sabi ni sir ei). Because later on if the BIR is
faced with the same sets of issue, it is no longer a
ruling of first impression, it is now a ruling with
established precedent. Now it can be given to
subordinate officials because all that the
subordinate official will do is to follow how the CIR
ruled in the ruling of first impression. And it can
only be modified by another act of the CIR. Only the
CIR can reverse that ruling.
Distinguish rulings with regulations.
● Rulings are normally taxpayer initiated.
While regulation is normally government
initiated. However, there are certain types
of rulings such as a general interpretative
ruling which is an exceptional situation
because it is government initiated.
● Ruling is applicable only to a definite set of
facts thus it is applicable only to the
taxpayer who requested for the ruling. On
the other hand, regulations are subordinate
form of legislation thus it applies to all.
● Rulings are issued by the BIR while
regulations are issued by the Secretary of
Finance.
3. The power to station tax officials in
establishments where goods subject of
excise taxes are kept or produced.
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 4. The power to compromise or abate tax
liabilities.
The power to abate is the power to forego the
collection of some or all of the taxes. This power is
reserved to thr Commissioner because it is highly
sensitive discretionary power. The President does
not enjoy this power. He can forgive criminal
liabilities but he cannot forgive tax liabilities.
The power to abate can be exercied in two
situations:
● When the cost of collection will exceed the
amount of tax to be collected.
● When the tax appears to have been unjustly
or excessively assessed.
In the power to compromise, find a win-win
solution to the problem where the taxpayer will be
asked to pay some but not all. On the other hand,
the government will be able to collect some but will
not be able to collect all.
What are the taxes that can be compromised? ALL
taxes can be compromised except those involving
fraud or criminal violations of the NIRC that are
already filed in court.
Oct 19, 2019
There are many provisions of the tax code that are
actually criminal in nature. Example is just the mere
fact that you have 2 TIN is in fact criminal in nature
because you can only have one during your lifetime.
The fact also that you failed to register is criminal in
nature.
Failure to post the “ask for receipt” sign can also be
criminal in nature. Notwithstanding that, all of
those can be compromised. But once the case has
been filed in court, that cannot be the subject of
compromise anymore.
The other is even if it is not yet filed in court if it
involves fraud. Tax evasion for example.
If you will be asking for compromise, please take
note that it is not enough that your case is being
susceptible of being compromised. You also have to
identify the grounds for the compromise.
What are the grounds for compromise?
1. Financial inability to pay.
The financial position of the taxpayer demonstrates
financial inability. Wala kang makukuhang dugo sa
singkamas. If the ground is financial inability, there
are certain rules that are to be followed. For
example, the taxpayer will be asked to sign a waiver
of bank secrecy law. This is to verify and authorize
the BIR to inquire into your bank deposits. The
other requirement is the taxpayer should be
required to pay at least 10% of the basic tax. Basic
tax is the amount of tax deficiency without any
surcharge, interest or penalties.
2. Reasonable doubt regarding the liability of
the taxpayer.
Doubt can be legal doubt like difficult questions of
law. It can also be factual doubt like for example,
did the BIR undergo the process of making the
taxpayer liable such as by issuing an assessment
that conforms with the requirements of law. Was
there an assessment within the prescriptive period?
Was the taxpayer sufficiently informed of his tax
liability? Those are factual doubts.
If the ground is reasonable doubt there is no need
for the taxpayer to sign a waiver of bank secrecy
law. But you will be required to pay a minimum
amount of tax. How much is the minimum payment
for compromises based on reasonable doubt? It is
at least 40% of the basic tax.
Can you go lower than the minimum of 10% or
40%?
Yes, but the request for compromise will not just
acted upon by the Commissioner. It will be acted
upon by the National Evaluation Board. The
National Evaluation Board is the Commissioner and
the Deputy Commissioners.
GR: the power to compromise is a non-delegable
power.
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Xpn: it can be delegated if the amount of tax
liability or basic tax is not exceeding 500k pesos and
it was discovered by regional or district offices of
the bureau. There can be delegation to Regional
Evaluation Board. The REB is the regional director,
the division chiefs in the region, and the district
officer concerned. They will be acting on the
request of compromise.
Q: You are a taxpayer who was prosecuted civilly for
purposes of collecting deficiency tax, you lost the
case at the RTC, and appealed the decision before
CTA division. Can you asked for a compromise?
A: Yes on the ground of either financial inability or
reasonable doubt.
Q: You lost the case at the CTA division and
appealed the case to the CTA en banc, can you
asked for a compromise?
A: Yes, on either ground.
Q: You lost the case at the CTA en banc and appeal
to the SC. Can you asked for compromise?
A: Yes, on either ground.
Q: The SC has decided and you lost the case. But MR
was filed and which is pending. Can you asked for
compromise?
A: Yes, on either ground.
Q: Your MR was denied with finality. Can you still
asked for compromise?
A: Yes, on the ground of financial inability only.
Because there is no more doubt. You are now
declared liable by the SC.
Q: You lost the case and the decision is against you,
you are liable for the tax. During the execution
proceedings, can you ask for a compromise?
A: Yes based on financial inability. Reasonable
doubt cannot be the ground.
Q: During the execution proceedings, you asked the
BIR to give you an extended period to pay.
Unfortunately, during the extended period, you
were not able to pay. Can you ask for a
compromise?
A: Generally, no. You cannot ask based on
reasonable doubt because there is no reasonable
doubt. You cannot asked for compromise based on
inability to pay because when you move for
extension of time, you are practically admitting that
you can pay 9nly that you need more time.
Q: You are an employer. You withheld taxes from
your employees amounting to 10 million. It turned
out that your remittance to the BIR only reached 5
million. When you are being audited by the BIR,
your current financial position reveals that you
cannot pay the 5 million deficiency. Can you asked
for a compromise?
A: No because your case involves fraud. The fraud
there is that you are holding the 10 million in trust,
you should have remitted that to the BIR but you
only remitted 5 million. That means that you have
misappropriated the other 5 million. Thus, it cannot
be compromised.
Q: You failed to issue OR, can that be
compromised?
A: Yes.
Q: But before you can compromise, an affidavit
complaint has been filed against you and an
information is now pending in court, can that be
compromised?
A: No, because that is a criminal violation that is
already filed in court.
Bar problem: X is being prosecuted for a violation
of the NIRC. People vs X. Records would show thar
the BIR initially conducted the investigation. And
the results of the investigation was forwarded to
the office of the City Prosecutor. The City
Prosecutor filed the information. It appears that the
prosecutor was duly empowered by the CIR to
represent the BIR.
During the pre-trial proceedings, the judge called
the lawyer and the prosecutor and asked them to
just settle. The prosecutor asked the counsel if how
much is his client willing to pay. Defense lawyer said
that he is willing to pay half of the tax. Si fiscal sabi
nya, sige. Pay the half, show to us the proof and will
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file the necessary motion. That's what happened.
Then a motion to withdraw was filed.
Q: If you were the judge, will you grant the motion?
Take note that the motion was premised on the
compromise they have entered into.
A: No because you are allowing a compromise of a
criminal violation but the criminal violation is
already filed in court. Therefore, it cannot be the
subject of compromise anymore.
Q: Supposed that the motion to withdraw refers to
the civil action of the case, will you grant the
motion?
A: No because even if it civil or criminal, the
withdrawal is premised on a compromise. It is not
allowed for the civil aspect because the authority to
enter into compromise does not belong to
prosecutor but to the CIR.
Q: But what about the fact that the CIR authorized
the prosecutor?
A: The power to compromise is a non-delegable
power. Thus, that motion should not be allowed.
If you were the judge, do not grant the motion. Just
set the case for hearing. Anyway, if you set the
hearing, BIR officials will no longer testify because
they have unofficially entered into compromise
agreement already. For the 3rd time they did not
attend. That is the time that you will dismiss the
case for failure to prosecute. But do not allow the
compromise to be officially granted on record.
Illustration: An affidavit complaint was filed against
the CIR. The allegations in the complaint shows the
ff:
A. The CIR allegedly committed tax evasion in
connivance with the taxpayer. Because the
CIR allows the taxpayer to pay the tax much
lower than the 40%/10% required
payments and he did not refer the matter
to the NEB. And his only basis for doing that
is that the tax appears to be unjustly
assessed.
Q: If all those facts are proven, is the CIR guilty of
tax evasion?
A: No because when he invoked the ground that the
tax has been unjustly assessed, he is using the
power to abate. He is not using the power to
compromise. And in abatement, the CIR is not
bound by the 40%/10% threshold. Because in
exercising the power to abate, the CIR can forego
some or all of the tax liabilities.
Case: Republic vs Hizon
Before a TP is prosecuted whether civilly or
criminally, the law requires that the CIR should give
its consent. It is very explicit under the law that the
CIR is the one who should give his consent.
Issue: Can the CIR delegate the power to approve
the filing of tax cases against the taxpayer to
Regional Directors?
A: SC held that there are only four non-delegable
powers. The power to approve the filing of cases in
court is not one of the four. Therefore, it can be
delegated.
The powers of the BIR can be classified into: general
powers like the power to interpret tax laws and the
power to decide tax cases.
Q: How does the BIR interpret tax laws?
A: There are many ways. It can be through the
issuance of rulings, revenue memorandum circulars,
revenue memorandum orders, revenue audit
memorandum orders.
Regardless of the form of interpretation, there is
one basic rule that we always have to follow. That is
Sec 246. Prospective application of rulings.
XPNs: 1. If there is fraud on the part of the TP
2. If the tax as presented by the TP is substantially
different from the one that was presented in the
ruling.
3. If there is misrepresentation committed by the
TP.
This rule of non-retroactivity may sometimes be
perceived as clashing with another principle in
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taxation. That the government cannot be bound by
the mistakes of its agents.
Example. Congress enacted a new internal revenue
tax which is a tax on processed marine products. X
is engaged in the business of packing marine
products. X is not sure if packing is considered as
processing. So he asked your advice. What will you
do?
Ask for a ruling as regards the application of tax on
the business of X. We would like to inquire if
packing is considered as processing. We believe that
it is not considered as processing for the following
reasons.
The CIR replied and said that packing is not
processing. Therefore, do not pay the tax.
Few years past, a new CIR was installed. And when
the new CIR saw the ruling, he immediately issue a
revenue memorandum circular saying that packing
is processing. X now is being made liable for the tax
not only from the time of effectivity of this new
circular but it was also made retroactive. X
complained on the ground that the circular should
be retroactive.
BIR said that the government is not bound by the
mistakes of its agents.
Q: Who is correct?
A: Taxpayer. There could be no retroactive
application of the circular. Why? Because it is
prejudicial to the TP. In this case, there is no
mistake because both interpretations are actually
conformable with law. Thats why the new circular
should take effect prospectively.
Example: CIR issued revenue memorandum circular.
In the RMC, the CIR said that those TPs who wrongly
thought that they are liable for a tax and they paid
wrongly believing that they are liable, they have a
period of six years within which to file a tax refund
because their case is falling under solution indebiti
which under the Civil Code prescribes after the
period of six years.
X filed a claim for refund after 3 years from
payment.
Then a new CIR was appointed. The new CIR said
that those who wrongly paid a tax do not have six
years but instead only two years as under Sec 229
of NIRC. Because of this, a new RMC was issued
thus, the claim for refund of X was denied due to
prescription. X claims non-retroactivity of the RMC.
Q: Who is correct?
A: BIR because the government is not bound by the
mistakes of its agents. The provision of the tax code
to file a claim for refund within a period of two
years is clearly spelled out. The circular is actually
extending what is provided by the NIRC.
ADMINISTRATIVE ISSUANCES CANNOT MODIFY,
ALTER, AMEND, REVOKE OR EXTEND WHATEVER
ARE THE RIGHTS CREATED BY REASON OF STATUTE.
An administrative issuance cannot go against
provisions of law. Otherwise it is void. No one can
claim a vested rights out of a void issuance. Thus,
the BIR is correct.
Remember our discussion about claim of refund for
unutilized input tax credit. What is the period? 2
years beginning from the close of the quarter when
the sale was made. And when the claim for refund
was filed within the two year period, what is the
period to give to the government to decide? 90
days.
Example: X is a VAT-registered TP. He purchased
from A, who is also a VAT-registered TP, on January
4, 2014. Then the export sale happened May 4,
2014. So the 2-year period to file a claim for refund
of unutilized input tax will start from June 30, 2014
to June 30, 2016.
If the written claim for refund was filed June 1,
2016, the taxpayer should just give the government
the period to decide. Which prior to TRAIN LAW,
120 days. Even if June 30 will lapse, just let the
period lapse because anyway the government is
given 120 days to decide. That ruling was CIR vs
Aichi Forging 2010.
Prior to CIR vs Aichi Forging, there have been flip
flopping decisions of the SC as to what is the proper
period to file a claim for refund. In fact, there was
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even a time when the BIR issued a circular which
said that you have to beat this two-year deadline.
Now if you beat this 2 year deadline without giving
the government 120 days to decide, your case will
be dismissed because your case is premature. But
prior to CIR vs Aichi Forging, a circular was issued by
the BIR allowing premature filing of a claim for
refund. That’s why there were many TPs who
prematurely filed without giving the government
120 days to decide. They were relying on the
circular.
Are they justified in relying in the circular? If their
case was brought to the attention of the SC before
CIR vs Aichi Forging, the court said yes. They can
rely on the circular even if later on this circular was
declared void. What is the reason? The court
applied the doctrine of OPERATIVE FACT that prior
to the declaration of the circular as void, there
would acts that could be done and those acts will
be considered as valid.
They problem is this: Why in the first problem, we
did not apply operative fact? In CIR vs San Roque,
the court allowed the application of operative fact.
This is the case of CIR vs Borroughs (not sure), the
court did not apply the doctrine of operative fact
because the period to file a claim for refund on an
internal revenue tax is very clear and that is 2 years.
Therefore, it cannot be extended by a mere
administrative issuance. Thus, the administrative
issuance is void because it goes against the plain
provisions of the law.
On the other hand, in CIR vs San Roque, where the
court allowed the application of the doctrine of
operative fact, the court recognized that even the
SC itself have various rulings contrary to each other
as regards the period to file a claim for refund of
unutilized input tax credit. Therefore, the court
came to a conclusion that that issue is actually a
difficult question of law. And because it involves a
difficult question of law, taxpayers can rely on the
circular that was issued by the BIR. In fact it was
referred to as general interpretative ruling of the
BIR because it is an issuance of the BIR applicable
to all taxpayers saying that the TPs have that period
to file a claim for refund. The court said that we can
allow those TPs who relied on the circular to be
given legal recognition in so far as that circular is
concerned because anyway at that time, the
circular was not declared void.
CIR vs San Roque is an exceptional situation. So do
not apply it as a general rule. The general rule is in
the case of CIR vs Burroughs. It is only because of
the difficult question of law that the doctrine of
operative fact was applied.
POWER TO DECIDE TAX CASES
What are the cases that can be decided by the BIR?
The power to decide on disputed assessment,
refund on internal revenue taxes, payment of
penalties under internal revenue laws and other
matters or other laws that are administered by the
BIR.
What if you disagree with the decision of the BIR? A
decision concerning interpretation of a tax law and
a decision regarding your tax case.
Example. A ruling was issued and it was against your
favor. What is your recourse? Sec 4. Appeal to
Secretary of Finance if it is an interpretation of a tax
law.
The problem now is if the Secretary of Finance
dismisses your appeal. San ka pupunta? Read CIR vs
COURAGE.
From the SOF, you go to the CTA Division. What if
the power that is exercised by the BIR is the power
to decide tax cases? It is a case regarding disputed
assessment. BIR said that your client did not pay
correctly his tax. An assessment was issued. If an
assessment was issued one of your remedies is to
dispute or protest the assessment. But your protest
was denied. Where to appeal? Appeal to the CTA
Division.
Same is true with refund on internal revenue taxes.
If you file a claim for refund and it was denied, your
remedy is to appeal to the CTA Division.
So those are the general powers of the BIR. There
are also specific powers of the BIR.
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1. Some other powers possessed by the BIR is
the power to examine books of accounts,
and similar documents. Every TP is required
to maintin his books of accounts. One set
lang yan a. Hindi pwedeng may for official
purposes and meron ung for internal
purposes. That is a criminal violation.
In the Philippines, we follow the system of self-
assessment. What is self-assessment? It simply
means that the taxpayer computes his own tax
liability. But that will be subjected to validation. And
the BIR, can actually examine the return that you
file. If you are a TP whose return is being examined,
what if a BIR official goes to the place of your client
and the BIR said show me your books of accounts.
Tatawag sayo client mo, anong advice mo? Wag.
The first thing that you have to ascertain is if the
transaction of the BIR there legitimate. You will
know that by asking his Letter of Authority. And
indeed the BIR has the Letter of Authority. The
Letter of Authority is very important because it tells
the TP that he is subject of an audit by the BIR. It
informs the TP as to what kind of tax that will be
examined and what taxable year is being examined.
And as a general rule, the LOA should cover only
one taxable year.
Case in point is CIR vs Sony Philippines. In this case,
Sony Phils is following a fiscal year which starts from
April 1 to March 31. A team of BIR examiners was
formed to audit Sony. The team was tasked in the
LOA to investigate Sony concerning its liability for
1997 and unverified prior years. The problem now is
this: if we speak from 1997 of this fiscal year, it is
actually Apr 1 to Mar 31 1998 and it does not
complete the taxable year of Sony because it also
covers Jan 1 to Mar 31 1998. So the question now is
this, is it valid to indicate that it covers 1997 and
unverified prior years? If it is yes, can this cover the
period from Jan 1 to March 31, 1998?
SC said that the purpose of LOA is to sufficiently
inform the TP as to what is the subject of the audit
examination
And therefore, to indicate 1997 and unverifed prior
years, will be to deny the TP of his right to due
process. That is why the phrase unverified prior
years was disallowed.
But what about 1997? The problem is can the
period of Jan 1 to March 31 1998 be examined? SC
said no. It will deny the TP of the right to due
process.
When the BIR examiners realized that Sony is
following a fiscal year, they should have amend te
LOA to correspont with the fiscal year. If they did
not amend the LOA, the period in 1998 cannot be
examined.
THIRD PARTY VERIFICATION
There are certain situations when the BIR will
examine tax liabilities not from the taxpayer
himself. We call this as third party verification.
Lets say that X is the subject of an audit
examination. A LOA was issued against X. To
validate the tax payments made by X, transactions
of X with another individual can be inquired into. In
the book of X, it shows sales to Y amounting to 10
million. The BIR can inquire to Y. How? Through a
letter notice. So BIR will issue a letter notice (LN) to
Y. If in Y's reply to LN, he confirms the transaction
with X on that day and said that he purchased
amounting to 100 million. If it will be found out that
X was the one who underdeclared, of course that
will be the subject of an assessment. If on the
onthef hand, it was found out that Y overdeclared
his purchases, si Y ang may mali sa mga dineclare
nya. The question is can Y be the subject of
assessment already pursuant to the documents that
had beed issued?
No, Y cannot be the subject of an assessment for
that instance. Why? Because he should be given a
letter of authority. He should be subjected to a LOA.
Meaning, a LN will not suffice. There must be a LOA.
EXAMINING BOOKS OF ACCOUNTS
1) Third part verification
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 - Information did not come from you;
information may come from the
Government.
I,e,: BIR filed tax evasion case
against A, gold traders because they
sold such to the BSP, the gross sales
does not reflect the golds sold. Thus,
they compared the sales invoices
with BSP.
I,e, X a business man sued Y. Allegedly
because of the acts of Y X did not earn 100,000.
Y went to the BIR gave information about X for
his claim. BIR assessed X for tax evasion. (not
true that X was earning 100k/m)
Q: Can the complaint be used as basis of tax
liabilities
A: Yes, by virtue of Third-party verification, as
part of document submitted before the court it
can be basis of tax liabilities.
REMEDY: ask for compromise. There is nothing
in the complaint that he earned the amount.
‘He could have easily earned the amount’
income is taxable only if there is a gain realized.
He never realized that gain.
Q: Can the BIR inquire into bank deposits?
A: GR: NO, Bank secrecy law
EXPN: (1) Determination of gross estate of
decedent taxpayer
(2) By a request of foreign tax authority by
virtue of conventional agreement in which PH is
signatory [exchange of tax information of
2009]. (3) By virtue of compromise due to
financial incapacity [NOTE: the requirement is
that the owner must execute a written waiver
of bank secrecy law]
Ie; even if the bank deposits is co-owned the
bank deposits can still be open because the
estate of the decedent is at issue.
Ie; IRS can ask help of BIR the bank deposits of
the requesting foreign tax agency.
2) BIR can summon persons and take
testimonies
Ie; X is being investigate by BIR, LOA
will accompany certain documents
(request for presentation of
document) [if you did not comply
with the 1st-3rd request for
presentation of documents you can
be issued a subpoena, it is under the
power of BIR to issue subpoena, if
you still did not comply you could be
prosecuted for willfull failure to
obey subpoena Sec 266.
Q: A person was given LOA, did not comply to
presentation of document. Before the final
request issued his books of account ended up
on the books of BIR, his bookkeeper gave the
documents to BIR not withstanding non
consent. Can the books be used by BR for
assessing liability?
A: Fitness by Design. Yes, it can be used.
Because the BIR can take those documents
from any person. It is within the power of the
BIR to examine those books of accounts.
3) Power to make return for TP
- GR: TP is the one should file return
by virtue of self-assessment
EXPN: You did not file return the
Gov’t can do so. The Gov’t can use
the best evidence obtainable rule.
[when the BIR makes an assessment
the assessment must be founded on
facts, it cannot be based of facts not
on conjectures or whimsical, and the
facts are taken from the best
evidence obtainable]
CIR v HANTEXT TRADING
9
Q: Can BIR use hearsay evidence in making tax
liabilities
A: Yes, because establishing a tax liability is
admin proceedings, it is not guided by technical
rules of evidence the Gov’t. By virtue of
lifeblood theory.ie; 3rd party verification rule
Q: How about photocopies?
A: No, because the best obtainable evidence
rule should go hand in hand with best evidence
rule.
SIRs Position: the reason behind is that if
original is available despite objections by TP the
BIR can use original copies. Meaning, the best
evidence that you can obtain is the original.
4) Power to conduct surveillance etc.
- Either covert surveillance (surprise
investigation) or overt (inform TP)
- Ie; go to restaurant check if they are
issuing receipts and compare the
overall receipts from return.
5) Power to fix real property values
- Can divide ph into zones
- REQUIREMENTS: (1) PRIOR TRAIN:
consultation with competent
appraiser of both public and private
sectors
- (2) TRAIN ADDITIONAL: a.]
Automatic adjustment once every 3
years thru Sec of Finance by revenue
regulations based on Philippine
valuation standards. b.] Posting on 2
conspicuous places of the Mun/City
c.] Publication in newspaper of
general circulation d.] Prior notice to
the affected taxpayers.
Q: What if brgy A which was then
residential zone becomes commercial
zone. A sold his lot. BIR assessed CGT
FMV: 500 per sqm. APPRAISAL of the
bank: 1000 GSP: 2000. What is the
proper CTG to be imposed?
A: Use 2000. Bec. That is GSP w/c is
higher than FMV. It is the one
mandated by the NIRC
Q: Would the reclassification change the
A: CIR v. AQUAFRESH. As long as
classification is not yet change
regardless of the change of the actual
use of the properties it will not change
its original classification.
ASSESSMENT
CONCEPTS:
1) Process
-Determination of tax liability
-Most common type of assessment is
self-assessment
a.] Starts with TP filing return and there
will be an audited invesitagtion.
b.] Giving of LOA,
Q: What if the BIR found that there is
liability on the part of TP?
A: He will not be immediately assessed.
There will be a Notice of Informal
Conference. Explain your side, why an
assessment should not be issued.
Q: If you did not go to the conference
what will happen?
A: Preliminary Assessment Notice (PAN)
chance ton administratively explain your
side.
AUDIT INVESTIGATION NOTICE OF
INFORMAL CONFERENCE PRE- ASSESSMENT
NOTICE FINAL/FORMAL ASSESSMENT
NOTICE
Q: What if BIR failed to issue notice of informal
conference?
A: No notice = denial of due process. Any
assessment issue is void.
10
Q: There is notice of informal conference parts, has been sold, traded or
jumped to FAN? transferred to non-exempt persons.
Ie; SLU imported machineries for ME
A: void assessment. There is denial of due
Students, sold to A non exempt TP.
process
Importtaion is taxable the machine itself
SECTION 228: 5 instances no PRE- ASSESSMENT can be a source of taxliability. The Gov’t
IS REQUIRED TO BE ISSUED: learned that your are in possession
Gov’t can assess you immediately
(a) When the finding for any deficiency tax
without pre-assessment.
is the result of mathematical error in
the computation of the tax as appearing ASSESSMENT REQUIREMENTS:
on the face of the return; or
1) Notice to the TP of his liability with
Ie; Tax return 1Million tax, creditable demand to pay tax
withholding taxes amount ting 500k. Q: Affidavit complaint assessment?
liability:500k. You paid only 50,000. A: Affidavit is unilateral statement of
facts, it does not include demand to
(b) When a discrepancy has been
pay.
determined between the tax withheld
2) Must contain facts and law upon which
and the amount actually remitted by the
its is based otherwise it is void.
withholding agent; or
NOTE: if the notice merely contain
Ie; withheld 5m wages. In your
notice to pay with interest, surcharges it
remittance only submitted 2m.
is not considered assessment at all.
(c) When a taxpayer who opted to claim a
refund or tax credit of excess creditable
CIR v. ENRON
withholding tax for a taxable period was
It is clearly mandated by Sec. 228 of the
determined to have carried over and
Tax Code and RR No. 12-99 that the tax
automatically applied the same amount
payer must be informed of the legal and
claimed against the estimated tax
factual bases of the tax assessment
liabilities for the taxable quarter or
made against him. In this case, the CIR
quarters of the succeeding taxable year;
merely issued a formal assessment and
or
indicated there in the supposed tax,
Ie; wait for the turn out of your claim for
surcharge, interest and compromise
refund. You cannot assume that the
penalty due thereon. The Revenue
claim for refund is automatically
Officers of the CIR in the issuance of the
granted.
Final Assessment Notice did not provide
(d) When the excise tax due on exciseable
Enron with the written bases of the law
articles has not been paid; or
and facts on which the subject
Ie; goods subject to excised taxes is
assessment is based. The CIR did not
taxed from the moment of creation.
bother to explain how it arrived at such
(e) When the article locally purchased or
an assessment. More so, he failed to
imported by an exempt person, such as,
mention the specific provision of the
but not limited to, vehicles, capital
Tax Code or rules and regulations which
equipment, machineries and spare
were not complied with by Enron.

11

SAMAR-I ELECTRIC COOPERATIVE vs.
CIR
As a general rule, both Section 228 of
the NIRC of 1997 and Section 3.1.4 of RR
No. 1299 clearly require the written
details on the nature, factual and legal
bases of the subject deficiency tax
assessments.
In this case, SAMAR was sufficiently
apprised of the nature, factual and legal
bases, as well as how the deficiency
taxes being assessed against it were
computed. Records reveal that, prior to
the conduct of an informal conference,
SAMAR was already informed of the
results and findings of the investigations
made by the respondent, and were duly
furnished with a copy of the summary of
the report submitted by the Revenue
Officer. Said summary report contained
an explanation of Findings of
Investigation stating the legal and
factual bases for the deficiency
assessment. The PAN sent to SAMAR
also contains the legal and factual bases
of the assessment.
NOTE: In SAMAR, after the FAN, SAMAR
made a letter to CIR reiterating the
explanation of the factual and legal bases of
the assessment. CIR replied to such
reiterating its latter explanations. The
factual and legal basis in the reply had
enabled SAMAR to file an effective protest
and supplemental protest after the FAN was
issued. (AFTER THE FAN WAS ISSUED)
In ENRON, the explanation of the factual
and legal bases through a preliminary letter
and a copy of the audit working paper were
made during the pre-assessment stage. The
FAN issued thereafter did not contain the
factual and legal bases of the assessment.
Thus, ENRON was deprived of due process
since it was not able to make an effective
protest because of the defect of the FAN.
(BEFORE THE FAN WAS ISSUED)
October 26, 2019
What is the period for the government to make an
assessment?
General prescriptive period is Sec 203 which gives
us three years beginning the last day prescribed by
law for the filing of a return or the actual filing of
the return if it is later.
If it is for individual income tax return of 2018, the
deadline is April 15, 2019. If you filed your return on
April 15, 2019, you count it from that day, last day
as prescribed by law for the filing of the return.
If you filed your return April 1, 2019, the period to
make an assessment shall still commence from the
last day prescribed by law which is April 15, 2019
and count three years from that period.
But if you filed your return out of time, start
counting on the day of the filing of the return. So if
you filed your return April 20, 2019, start counting
from April 20, 2019.
Within that period, the government should make an
assessment. If the government fails to make an
assessment within that period, the assessment will
be void except if the situation calls for an
exceptional prescriptive period. But ordinarily, any
assessment issued beyond the three year period is
void assessment. If it is void, it cannot serve a useful
purpose. If the government attempts to collect
based on that void assessment, then you can ask
the court to prohibit collection.
What are the exceptional prescriptive periods?
1. If there is a period agreed upon in writing.
Sec 222. If the government and the TP
agrees on a different period to make an
assessment, then the agreement will be the
one that will be followed.
12
Can it be a period less than 3 years? No because
that would be against the interest of the
government and because of that the BIR official
may be prosecuted under RA 3019 (ANTI-GRAFT
AND CORRUPT PRACTICES ACT).
The agreement in writing is commonly referred to in
practice as a waiver of the right to assess within the
three year period. In fact, what the BIR will ask to
the TP to do is to sign a waiver of the Statute of
Limitations under Sec 203.
X is the subject of an audit by BIR. And the
assessment will prescribe April 15, 2019. The BIR
examiner said to X, we cannot finish the audit by
April 15, 2019. Would you be willing to extend our
period until December 31, 2019? X agrees. So X
executed his waiver of statute of limitations.
Pursuant to that, the BIR examiner was able to issue
the assessment before December 31, 2019.
When X saw the assessment, it happened that he
has no money to pay the tax assessed. So he
questioned the validity of the assessment claiming
that the right to assess was already prescribed. Did
it prescribed?
A: Yes. Because the waiver that was signed did not
validly extend the period to assess the TP. Because
that is not an agreement in writing. It is a mere
waiver which X has executed, and because it is just
a mere waiver, when X gave it to the BIR, it merely
constituted as an offer. It was not an agreement in
writing.
BIR said that when they acted on the offer it means
that there was already acceptance of the offer. And
because it was accepted, the agreement should be
followed. Valid argument?
A: No, the law requires that there must be an
agreement in writing. Acquiescence is not
agreement in writing. The law is very explicit.
What if X gave the waiver to the BIR and it was
accepted and signed by the BIR. Is the waiver valid?
The acceptance now is duly stamped on the face of
the waiver.
A: No because while the BIR might have accepted
the waiver, the acceptance was never
communicated to X. Since it was not
communicated, there is no valid agreement in
writing. There must also be evidence that the TP
received a copy of the accepted waiver.
When the BIR asked X, are you willing to extend the
period to assess? X agrees. X prepared the waiver
and submitted it to the BIR April 16, 2019. Upon
receipt, the BIR immediately write in front of X that
it was accepted and asked X to receive the accepted
copy. Is the waiver valid?
A: No. Because when X signed the waiver, the
period of the government has already prescribed.
Meaning, all these proceedings should be
undertaken prior to the expiration of the original
period to assess.
The one who signs the waiver and the one who
accepts it for the BIR should be duly authorized.
CIR vs Philippine Journalist. The one who signed the
waiver for a corporate taxpayer was a comptroller.
The SC said the waiver is not valid. For as long as it
does not appear that the comptroller was not duly
authorized, that will considered.as a valid waiver.
But after Philippine Journalist case, this
requirement was quite relaxed. In the sense that if
the person who signs the waiver had apparent
authority to represent the corporation and sign the
waiver, that apparent authority will be respected.
Those are strict requirements that must be
complied with by the BIR because we must
remember that this is a waiver of the right granted
pursuant to Sec 203. The right to be assessed within
the period of three years. It is therefore an
interrogation of that right if a TP will be asked to
waive his right. And because it is an interrogation of
a right, that act of the government will be strictly
construed against the government. That is the
13
reason of the SC in ruling in CIR vs Philippine
Journalist.
X is a TP subject of an audit. The right to assess the
TP will prescribe April 15, 2019. BIR said to X, are
you willing to extend until December 31, 2019. X
agrees but said to BIR that he will leave the period
on that waiver blank and let the BIR decide on the
period. But pursuant to the verbal agreement that it
will be finished December 31, the assessment came
out December 31, 2019. Notwithstanding that, X
questioned the validity of the assessment on the
ground that the period to assess prescribed. Did it
prescribe?
A: Yes because in case of a waiver, the extended
period must be specified as to when the assessment
would be made. This was explained in the case of
CIR vs Philippien Journalist. The taxpayer will be left
hanging. It is like according to the SC, leaving a
sword on top of the head of the TP, waiting for that
sword to fall on the head of the TP.
2. The government can assess within the
period of 10 years. When can the government have
a 10 year period to assess? If the case involves the
filing of a false or fraudulent return.
When to start counting the 10 year period? From
the moment of discovery of the fraud or falsity.
What if it is not invplving false or fraudulent return,
can there also be a ten year prescriptive period?
Yes, in case of omission to file a return. When to
start counting the 10 year period in the case of
omission? It is still on the date of discovery of the
omission.
How would you know if there is fraud?
When there is willful failure to pay correctly your
tax or there is an intent to evade payment of taxes.
Fraud is never presumed. It is incumbent upon the
government to prove the existence of fraud. If the
government cannot prove the basis for its claim
that there is fraud then the government will not
have a ten year period to assess. It must assess
within the general prescriptive period of three
years. So it is the burden of the government to
show the existence of fraud.
Slightest indication of good faith on the part of the
TP will be favorably considered. Remember the case
of Javier vs IAC. The one million dollars wrongfully
deposited in his account. The BIR was running after
him for tax deficiencies
The theory of the BIR was that the amount should
have been declared as income on the part of Javier.
But Javier never declared it. The BIR is also saying
that he is liable for fraud penalty. Substantial
underdeclaration of income can be considered as a
factor in determining fraud. While Javier did not
declare it as income in his tax return, what he did
was to place a footnote and disclosed the receipt of
that amount.
SC said that the footnote is a sign of good faith. He
is therefore not liable for fraud penalty.
Within the 10 year period, the government can
actually do two things:
A. To assess or
B. To collect even without an assessment.
3. The right of the government to collect does
not prescribe. Imprescriptible. Is there any kind of
tax which until this time, the right of the
government to collect has not prescribed? Yes,
improperly accumulated earnings tax. You do not
have any return that is required to be filed for an
IAET. Because no corporation in its right mind, if it
has a mind will declare that it is improperly
accumulating its earnings.
From those general and exceptional prescriptive
periods, any assessment made within that period
shall be considered as timely. If it is a timely
assessment, then it can be serving legal purposes
especially if the other requisites to make it valid will
be present.
Whenever the BIR issues an assessment, what they
usually do is they give you a computation. Principal
or deficiency tax, surcharge, interest, penalty. They
give you a period and they place a clause there:
"that amount as computed will be valid only if paid
14
within the period given in the notice. Otherwise, the
amount will change." A taxpayer questioned that
claiming that if there is a requirement of a formal
demand to pay, the amount should be definite. Is
the assessment valid?
A: SC said it is void because the amount being
demanded is not definite.
Effect of a valid assessment
If an assessment had already been issued, the
necessary consequence is that the government can
now proceed with collection unless the TP exercises
remedies against the assessment.
REMEDIES AGAINST AN ASSESSMENT
 PROTEST
Two forms of protest.
1. Protest in requesting for reconsideration -
No need to submit additional evidence.
2. Reinvestigation - Submit new pieces of
evidence.
The TP should specifically identify if he is requesting
for reconsideration or reinvestigation. Why? Relate
that with Sec 223. Sec 223 deals with the
suspension of the period to collect. And the request
for reconsideration will not suspend the period for
the government to collect. A request for
reinvestigation will not in itself suspend the period
to collect unless the request for reinvestigation is
granted. When it is granted, it just means to say
that the request will be given due course. It means
that the BIR will reexamine or reevaluate the pieces
of evidence.
To who do you protest? Before the Commissioner.
In practice, the assessment is issued by a Regional
Director in representation of the CIR. If that is the
case, you can address your protest to the Regional
Director. Does it prevent you from bringing the
matter to the CIR? NO.
Within what period do you protest an assessment?
30 days from receipt of the assessment Sec 228.
If you have already filed your protest within 30
days, is that the end? No because within 60 days
you have to submit the documents in support of
your protest. After submission, you have to WAIT
for 180 days. One thing that can happen within the
180 days is that there is a decision. And the decision
is that the protest was denied or granted. Another
thing that can happen is that there is inaction.
Another thing that can happen is that the BIR
collects within the period.
Do you need to pay a tax before protest? No
because protest is a remedy before payment.
November 7, 2019
During the 180 day period, many things can happen.
● First, a decision can be rendered by the BIR.
The most favorable type of decision is if
your decision is granted.
What if your protest had been denied? If denied,
the options available to the taxpayer is:
1. If the BIR is correct, then advice your client
to pay.
2. If it would turn out that your client is not
supposed to be liable or the liability of your
client should be less than that demanding
by the government, then by all means
pursue available remedies.
What are these available remedies?
1. File an appeal to the CTA division. Please do
not file a MR before the CIR. Why? Because
a MR will not toll the period to appeal. If
the assessment was issued by the Regional
Director of the BIR, your protest can be
initially lodged with the Revenue Regional
Director. If it is the Revenue Regional
Director which denied your protest, you
have a further administrative remedy to
appeal to the CIR. It gives you more
15
 administrative opportunities of hearing
your side.
If it is the CIR who denied your protest, your
remedy is to appeal to the CTA Division. And by
appeal it means petition for review. The petition for
review will be similar in Rule 42. You have to appeal
within 30 days from receipt of the adverse decision.
From the CTA Division if you lost your appeal, the
proper remedy is to file a MR within 15 days. Do not
forget filing a MR because you cannot exercise
further appellate recourse if you do not file a MR.
If the MR was denied, then you can exercise further
appellate recourse. Where? Appeal next to the CTA
en banc. Your mode of appeal is via petition for
review similar to Rule 43. The period is 15 days.
You lost your case at the en banc level, where do
you go next? You may file a MR but that is not
required. In the event that you did and it was
denied or you did not file a MR at all, where is your
next recourse? SC.
● Next thing that can happen within the 180
day period is that there will be no action.
What do you do? You can consider the
inaction as implied denial and if it is an
implied denial, you can appeal the implied
denial to the CTA division. So follow the
procedure discussed above.
Q: What if you fail to appeal within 30 days from
the lapse of the 180 days? What is the effect?
See last paragraph of Sec 228. If the protest is
denied in whole or in part or is not acted upon
within a period of 180 days, the TP adversely
affected by the decision or inaction may appeal
within 30 days from the receipt of the adverse
decision or from the lapse of 180 day period
otherwise, the decision shall become final,
executory and demandable.
So if there is no action within the 180 days, the
remedy is to treat the inaction as implied denial and
appeal within 30 days from the lapse of 180 days.
But that is not the question.
What is the effect if you failed to appeal? Can you
wait further?
A: Yes. The last sentence of Sec 228 do not speak to
the consequence of inaction. It only speaks of
unappealed decision and not unappealed inaction.
You do not appeal an inaction because the law is
silent. Thus, you can wait further. That is the ruling
in Lascona Land vs CIR.
Note that it is not the assessment that will lapse
into finality but rather the unappealed decision.
If you wait further and it is adverse, the remedy is
to appeal within 30 days from receipt of the adverse
decision.
● Third possibility that can arise within the
180 day period is that the government
collects.
Case: CIR vs Union Shipping (1990)
TP was subject of an assessment. TP protested it.
While the protest was pending, BIR issued Warrant
of Distraint and Levy (WDL). A WDL is an
administrative means of collecting the tax. But the
TP just ignored it. For whatever reason, the warrant
was not enforced.
Then BIR filed a collection case against the TP. The
TP filed an answer raising the issue that there is
pending matter of protest. The TP moved for the
dismissal of the case on the ground that it is not yet
ripe for collection considering that there still a
protest that is pending. The TP treated the filing of
the collection case as an implied denial of the
protest and therefore elevating the matter to the
CTA by filing a petition for review. The BIR moved to
dismiss on the ground that 1. There was no decision
yet concerning the protest 2. If the TP will work on
the premise of implied denial, the implied denial is
to be reckoned from the issuance of WDL and not
from the filing of the collection. Thus, the appeal
will be filed out of time.
Issue: What should be regarded as implied denial?
We cannot fault the taxpayer if the TP would
believe that the issuance of the WDL is not yet the
final action of the BIR. It is therefore warranted on
the part of the TP to have waited for further actions
16
because the implied denial cannot be inferred from
the mere issuance of WDL. SO THE WDL IS NOT TO
BE REGARDED AS IMPLIED DENIAL. The BIR must
give a definitive action.
Case: CIR vs Isabela Cultural Corporation
ICC was the subject of an assessment which was
protested. While the protest was pending, the BIR
issued final notice before seizure which says that if
the TP will not pay the obligation, the BIR will issue
a WDL.
ICC treated the final notice before seizure as
implied denial an appealed to the CTA. BIR moved
to dismiss on the ground that it is premature.
SC: CTA should take cognizance of the case. The
final notice before seizure is an implied denial.
In Union Shipping, the BIR was already warned that
if the TP has a protest, the TP deserves to receive an
action on the protest and the BIR should indicate
that that is the final decision on the disputed
assessment. In this case, the court did not fault the
TP in believing the the WDL was already the final
decision. And so the TP was allowed to wait further.
Here in ICC, the court also said that they cannot
fault the taxpayer into believing that the final notice
before seizure is already the final decision of the
BIR.
AND BECAUSE THE NOTICE SAID THAT IT IS FINAL,
YOU CANNOT FAULT THE TP IN THINKING THAT
THAT IS THE FINAL DECISION ON THE DISPUTED
ASSESSMENT.
There is no need to pay a tax under protest because
protest is a remedy before payment.
Another remedy before payment is compromise.
What about remedies after payment?
1. Refund - it is a remedy available in case the
TP makes an overpayment, erroneous
payment, illegal payment (when the BIR
collects from the TP but the BIR has no
authority to demand payment) or paid
penalties under internal revenue tax laws
and the BIR has no authority to collect
penalty.
The rule on refund is governed by Sec 229.
Within what period should the TP file a claim for
refund? 2 years from payment regardless of any
supervening event.
When is payment made? When is the TP deemed to
have paid the tax? When there is a filing of a return.
Payment is made at the time of filing your return.
Q: What if there was an overpayment made by the
corporation. And the overpayment came from a
quarterly return, when do you count the 2 year
period?
A: CIR vs TMX Sales. It is from the filing of the Final
Adjusted Return FAR. Because all quarterly returns
are subject to adjustments and you can establish
final certainty your entitlement to a refund at the
time of the filing of your FAR.
Q: If you are a TP, you have the right to amend your
return once for as long as you are not yet audited.
What if you amended your return and it is
substantial, when do you count the 2 year period?
Is it from original or amended?
A: Original return. Because the rule provides that it
is 2 years from payment regardless of supervening
event. Kasi ung amendment may be perceived as a
supervening event.
Exception of course is when the TP amended the
return and introduced additional tax liability. With
respect to that additional tax liability, if and when it
will be subject to a claim for refund later on, it is
from the time of the filing of the amended retund
because it is from that time that the payment have
been made in so far as the additional tax liability is
concerned.
Q: Let's say it is a 2017 income tax liability.
Deadline of filing: pril 15, 2018
Actual filing and payment: April 1, 2018
If a claim for refund will be filed, up to when will it
be?
17
A: April 1, 2020. Sec 229. 2 years from payment
regardless of any supervening event.
CIR vs Primetown Property. It is also regardless of
any leap year.
Q: To whom do you file your claim for refund?
A: Commissioner.
Bar Question: What is the reason why you have to
file your claim for refund to the Commissioner?
A: The Commissioner will have an administrative
chance to give the refund to the TP without
undergoing the rigors of court proceedings. It is also
for purposes of burgetary considerations of the
government.
The law requires written claim for refund. You must
state with definiteness that you are demanding for
the refund of your internal revenue tax.
Exception is if on the face of the return, it shows a
clear overpayment, the return itself is already
equivalent to a written claim for refund.
Within what period should the BIR act on the claim
for refund? Is there a period mentioned in Sec 229?
Wala. Does that mean that you will wait forever?
No. Because if the BIR does not act, that would
mean that you have to monitor the 2 year period.
Because the mere filing of written claim for refund
will not toll the running of the 2 year period.
Treat the inaction as implied denial.
Q: It is a 2017 income tax liability.
Deadline of filing: April 15, 2018
Actual filing and payment: April 1, 2018
File the written calim for refund: April 1, 2019.
Supposed that 180 days lapse, will you treat that as
implied denial.
A: No. The 180 days is a period to rule on protested
assessment, not a period to rule on refund.
The decision came out October 1, 2019 and it is
adverse. What do you do?
A: appeal to the CTA Division within 30 days from
receipt of the adverse decision. Then follow the
same remedy discussed earlier.
Q: Facts are the same.
file written claim for refund: April 1, 2019
Decision: March 15, 2020, and it was denied. What
is your remedy?
A: appeal to the CTA Division within 15 days from
the receipt of the decision. Not 30 days because if
you exhaust the 30 days, you will go beyond 2
years. Your appeal must reach the CTA on or before
April 1, 2020.
Q: all the facts are the same. Except that there was
no decision. What do you do?
A: treat the inaction as implied denial. Appeal to the
CTA on or before the lapse of the 2 year period or in
this case, April 1, 2020.
Q: all facts are the same. March 31, 2020 you
discovered that you have overpayment on your
2017 income tax return.
A: april 1, 2020 go to the BIR and file a written claim
for refund and on that same day, go to the CTA and
file your petition for review alleging that you have
complied with tbe requirement and you have
discovered your error March 31, 2019 but because
your right will later on prescribed, you are
immediately bringing the matter to the attention of
the CTA.
WHAT IS THE DIFFERENCE BETWEEN SEC 229 AND
SEC 112?
As to the period to file the return
Sec 112: filing of refund is 2 years from the close of
the quarter when the sale was made.
Sec 229: 2 years from payment regardless of the
supervening event.
As to the period for the BIR to act
Sec 112: 90 days under the Train law. No implied
denial. After the lapse of 90 days, wait further.
Sec 229: no definite period for the BIR to act
18
As to the effect of the lapse of 2-year period
Sec 122: you can just let the 2 year period lapse
because there is a definite period for the
government to act (90 days).
Sec 229: monitor your 2 year deadline so that your
petition for review before the CTA should be filed
within 30 days from receipt of the adverse decision
but in no case should it go beyond the 2 year
period.
As to source
Sec 112: having an unutilized input tax credit
Sec 229: it is by reason of overpayment, excessive
payment, erroneous payment, payment of penalties
that are not authorized by law or illegal payments
November 14, 2019
Case: BPI vs CIR
There was a merger. And there was a deadline for
the filing of the return of the dissolving corporation.
But the return was not filed on the deadline and it
was filed very late. Notwithstanding the lateness of
filing the return, there was still a claim for refund.
Q: When do you count the 2-year period? Is it from
the time that you file the return or is it from the
deadline? Supposedly, it is from the time of filing of
the return because it is when the tax was deemed
paid. But unfortunately in this case, the SC counted
it from the deadline. Because according to the SC,
the TP would have known that the TP is entitled to a
refund on the deadline had it filed the return on
time.
SIR’s COMMENT: That is not supposed to be the
application. Do not take it as the general rule. You
are not supposed to count it from the deadline. It
should be from the filing of the return.
NOTE those returns that are not of an annual basis.
For example, if you are filing for is that of an
erroneously paid final tax. Your payor withheld and
remitted final tax to the government, but you are
not supposed to be subjected to final. Example you
are a non-stock non-profit educational institution,
your bank deposits may possibly exempt from final
tax. If it is a final tax then the period is 2 years from
the time of filing the return concerning that income
subject to final tax. When banks remit to the
government by way of final tax, then the two-year
period is to be counted from that time.
Case: CIR vs Mirant 2008
This is regarding the interpretation of the Sec 112.
In the case, the SC said that the two-year period
should be counted from the sale by the supplier to
the TP. Because it is a refund from the input tax and
the input tax is arising from the purchase.
In this case, nothing was mentioned about by the SC
to the zero-rated sales. The SC referred to the sale
as the sale by the supplier.
But if you take a look at Sec 112, it is actually
referring to the zero-rated sale.
So which do we follow now?
We follow Mirant case which said that the 2-yer
period is from the purchase because it is the date
when the input tax had been generated by the TP.
The remedy of protest and refund are mutually
exclusive.
A TP receives an assessment. He filed a protest.
Upon losing the protest all the way to the SC, the TP
paid. After paying, he filed a claim for refund raising
the same basis as that of the protest. So you cannot
use refund or protest successively.
Q: A TP receives an assessment. He forgot to file a
protest. So naglapse. Ang ginawa niya, nagbayad.
After paying, he claim for refund. Should the claim
for refund be entertained?
A: No. You cannot use refund as a substitute for a
loss remedy of protest.
The principle behind that is that if an assessment is
undisputed or unprotested, it will lapse into finality.
And if it lapses into finality, the amount becomes
conclusive. And if it is conclusive, then you cannot
question it anymore by filing a claim for refund.
Q: A TP receives a assessment. Instead of
protesting, the TP deliberately paid the tax but
without allowing the assessment attaining finality.
19
Meaning, the payment was made within the 30-day
period. And then he filed a claim for refund. Should
the claim for refund be entertained?
 A: One school of thought tells us that the
claim for refund should still be entertained
because the TP avoided the assessment to
lapse into finality by paying the tax and so
the TP is consciously adopting the remedy
of refund in lieu of protest. Protest here can
still be availed of. But instead of availing the
remedy of protest. The TP consciously filed
a claim for refund and that should be
allowed.
 The other school of thought is the claim for
refund should not be entertained because
when the TP paid, that is an admission of
the liability as assessed by the BIR.
Otherwise, the TP would not pay if the TP
wants to question.
SIR’s Opinion: The first one is correct. Kung lumabas
daw sa Bar exam but not in our exam because he
will not ask it daw, discuss both and then take a
stand.
CASE: Vda de San Agustin vs CIR
X died. Estate taxes were settled and paid. After
paying, the BIR came up with an assessment for
deficiency estate tax with surcharge, interest and
penalties.
The administrator filed a motion to set aside the
assessment for deficiency estate tax, surcharges,
interest and penalties. The BIR treated the motion
as a protest.
While pending, the administrator paid the
deficiency estate tax without paying the surcharge,
interest and penalties. The payment was accepted
by the BIR but when the administrator paid he
made it clear that the payment is without prejudice
to the turn out of the motion to set aside the
assessment.
Then the motion was denied. The TP filed an appeal
before the CTA. In the appeal, the TP questioned
the appeal but at the same time prayed for the
refund of the tax that has been paid. BIR filed a
motion to dismiss on the ground that there is a
petition for review praying for the refund but there
was no written claim for refund that as filed with
the CIR. So a necessary precondition was not
fulfilled. Should the CTa take cognizance of the
case?
A: Yes. Technically speaking, this case involves a
decision on a disputed assessment. It is not a case
involving denial for a claim of refund. The refund
aspect here came about as an incident to a protest
because in the meantime that the protest was
pending, the taxpayer made payments. So the
refund is but a mere incident to the protest.
The SC also held that if he will require the TP to file
a claim for refund, he will be requiring the TP to
undertake useless, circuitous processes because
obviously, the BIR will deny the claim for refund
considering that it denied the motion filed by the
TP.
Q: Who has the personality to file a claim for
refund.
A: the taxpayer TP.
Q: Who is a TP?
A: any person who can be made liable for a tax.
Q: Can the withholding agent file a claim for
refund? Can it be made liable for a tax?
A: Yes. A withholding agent qualifies as a taxpayer.
It can be made liable for a tax because if the
withholding agent does not withhold, the BIR wil
run after him. So to that extend, the withholding
agent can be held liable. And therefore a
withholding agent can file a claim for refund.
CASE: CIR vs Procter and Gamble
P and G, Philippines declared dividends and because
the dividends will be received by the parent
corporation P and G, USA, there should be
withholding of the dividends tax. P and G, Phils
withheld taxes to the extent of the 35%. But P and
G, USA was invoking the tax-sparing rule and said
that the appropriate tax rate is not 35%, but 15%.
20
Ang problema it is P and G, USA that was subjected
to a higher tax rate. So it was P and G, Phils who
filed the claim for refund. But the BIR attack the
personality of P and G, Phils on the ground that it
does not have a personality, it being a mere
withholding agent.
The SC said no. Even if P and G, Phils is just a mere
withholding agent, it has the personality because it
can be held liable for the tax considering that a
withholding agent can indeed be made liable.
CASE: CIR vs SMART
In this case, the parties here really have no
connection aside from the fact that the other is the
withholding agent. And SC said in this case that it
does not matter even if there is no such thing as
commonality of interest. For as long as the taxpayer
is the withholding agent, he can be made liable for
the tax and therefore it is entitled to file a claim for
refund.
Q: You have a claim for refund. Same year when
you have that claim for refund, you are also liable
for a tax. Can you offset your claim for refund with
the tax that you are liable for?
A: No because setting-off is not allowed. You cannot
off-set a claim or refund as against a tax liability.
That is violative of the principle of setting-off.
Problem: During quarter 1 of 2018, X Corp paid a
tax of 50M, in second quarter, it paid 30M
(remember that payment of income tax return is on
a cumulative basis), third quarter, additional tax
paid 20M. So the total tax payment at the end of
quarter 3 is amounted to 100M. During the 4th
quarter, when the final adjusted return was filed, X
Corp suffered losses. So it turned out that X Corp is
only liable to 50M during that year. Thus, there was
an overpayment of 50M.
Q: What can you do with the overpayment of 50M?
A: File a claim for refund or credit it against your tax
liability for the succeeding quarters of the next
taxable years (carry-over principle of Sec 76). It is
not a violation of the principle of setting-off.
Q: For the year 2019, out of the 50M overpayment
of 2018, only 30M was utilized. So at the end of
2019, 20M was still unutilized. Can a claim for
refund be maintained for the 20M?
A: No. Because when the TP adopts the remedy of
carrying it over, it is irrevocable and there is no right
to file a claim for refund that will be entertained.
Q: If this cannot be refunded, can you utilize it as a
carry-over for the year 2020?
A: Yes.
Q: During 2020, naubos mo is 10M. So meron k
pang overpayment na 10M. Pwede mo pa bng
gamitin in 2021 ung 10M na unutilized?
A: Yes.
Q: Can you used it for 2022, kung and naubos mo
nung 2021 is 5M lang?
A: Yes because you are allowed to credit your
overpayment arising from excessive quarterly
payments as a credit against the tax liabilities of the
succeeding quarters of the next taxable years.
Hanggang maubosssss. You are allowed to exhaust
it. But what you are not allowed to do is to change
the decision from carry-over to refund.
Why? Because when you availed of the carry-over
option, it is irrevocable.
CASE: University Physicians vs CIR March 2018
There was overpayment arising from excessive
quarterly payments. Initially the TP filed a claim for
refund. After filing a claim for refund, in filing its 1st
quarter return, the TP availed of the carry-over
option. Actually this is a short period return. Short
period return happens to certain TPs who are
required to immediately file returns by reason of
some circumstances like a shift in taxable period.
And ginawa ng TP ditto, in that short period return,
the TP availed of the carry-over option. So una,
refund ung pinili nya. Tapos nung nagfile ng short
period return, carry-over na ung pinili nya. But on
that same day, the TP amended the return to go
back to refund.
Q: Should the claim for refund be entertained?
21
A: SC said no. Because when the TP filed that return
indicating carry-over, it had become irrevocable.
The Court said that irrevocability is applicable to
carry-over but it is not applicable to refund.
So if the TP initially claim for a refund, that is not
irrevocable. The TP is allowed to shift to carry-over.
CASE: Rombust Energy August 2018
There was overpayment arising from quarterly
excessive payments. When the TP filed a return, the
TP indicated that it will filing a claim for refund.
This is not a short period return ha. During the 1st
quarter of the following year, the TP carry-over. In
the 2nd quarter, wala ng carry over na nilagay. 3rd
quarter, wala si carry-over. Final adjusted return, no
carry-over. TP formally filed a claim for refund of
the overpaid tax last year. BIR denied.
Q: Should this claim for refund be entertained?
A: The SC said that when a TP makes a decision, that
is irrevocable. Whether that be refund or carry-
over, that is irrevocable.
SIR’s Opinion: Both cases are correct.
In Rombust case, I will concur the result that the
claim for refund is allowed but not with respect to
the reasoning that a claim for refund is irrevocable.
It is not irrevocable.
But once that you availed of the carry-over option,
the carry-over option is the one that is irrevocable.
So pano itong case ni case? Isn’t this irrevocable
kasi refund nung una tapos nagging carry-over?
Hindi sabi ni Sir. Because it is a quarterly
payment/return and a quarterly return cannot be
final. It cannot be final because it is always subject
to adjustments.
Ung University Physicians kasi when the TP earlier
filed a claim for refund and then shifted to carry-
over, it did so in a short period return. And a short
period return is a full return. It is not like a quarterly
return which is subject to adjustment.
November 23, 2019
INTEREST
Deficiency interest is an interest imposed by reason
of a TP's failure to pay on time. The deficiency will
be subjected to an interest because the government
was not able to make use of the money on time.
Deliquency interest is imposed if there is failure to
on time as provided in the notice given by the BIR.
If the TP failed to pay on time, there will be
deficiency. And that deficiency will be subjected to
surcharge. And then, the TP will be given by the BIR
time to pay. And if the TP failed to pay on that given
period, then the TP will be subjected to another
form of surcharge. If the TP paid within that time,
there will be payment of deficiency interest from
the time the TP should have paid the tax up to the
time that is provided in the notice when the TP paid
the tax itself. But if he fails to pay within the time
given, the TPs account becomes delinquent. And if
delinquent, there will be imposition of delinquency
interest.
How much is the interest under the TRAIN law? It is
fixed at double the legal rate of interest for the
forbearance of money. Legal rate is 6%. So double
that, 12% rate. Before TRAIN law, it is 20% interest
rate.
When to based the imposition of interest?
Income tax liability for year 2018
Deadline: April 15, 2019
On or before the deadline, the TP paid 9M. But after
the investigation of the BIR, it was discovered that
the tax liability should be 10M. So the basic tax
deficiency will be 1M. Because there is deficiency,
22
there will be imposition of surcharge of 25% or in
this problem, 250,000.
There are also certain tax violations that can lead to
imprisonment particularly criminal violations. Read
those items constituting criminal acts under the
Let's say thwt the assessment was issued March 15,
NIRC.
2020. The BIR give the TP one month to pay or April
15, 2020. The deficiency interest will be computed
at the basic tax multiply by the double the legal rate
LOCAL TAXATION
of interest for the forbearance of money or 12% per
annum and multiply it by the time factor or in this
case 1 year. So deficiency interest is 120,000.
How to describe the power of local governments to
tax? It is a power directly granted, vested and
guaranteed by the Constitution. Thus, Congress
So if the TP paid his deficiency April 15, 2020, the
cannot withhold taxing power of local government.
total amount he is required to pay is 1.37M ( 1M
This is guaranteed by Sec 5, Art 10 of the
deficiency plus 250k surcharge plus 120k deficiency
Constitution.
interest)

What is the authority of Congress in so far as the

But if the TP did not pay on or before April 15, 2020,
taxing power of the local government is concerned?
there will be delinquency interest. How much is the
The power of Congress is limited to providing
deliquency interest? 12% per annum multiply by the
guidelines and limitations. And those guidelines and
amount that is delinquent or the full amount of
limitations are embodied in the LGC Local
1.37M.
Government Code. So those are not taxes in
themselves but they are mere guidelines. Thus, a
local government cannot collect a tax based on the
COMPROMISE PENALTY
provisions of the LGC. There must first be a local tax
ordinance.

If a TP failed to file his return even if there is no tax

liability, the TP will have open cases before the BIR.
If a province enacts a provicial tax ordinance and
And that is still a tax violation and for every tax
failed to include the imposition of sand and gravel
violation, there will be an imposition of compromise
tax. Despite the failure, the local government is still
penalty. Compromise penalty is a mutually agreed
collecting sand and gravel tax. A TP questioned it.
imposition or payment. But there is a schedule
But the local government raised the claim that it is
already of compromise penalty as provided by the
still allowed even if not included in the ordinance
BIR. So the only question left to the TP is if he is
because it is already provided in the LGC. Is it
willing to accpet it or not.
tenable?

If a TP enter into a compromise by paying the

No because the LGC merely provides guidelines but
compromise penalty, that will be in lieu of all
they are not taxes in themselves. LGC is not a
possible criminal and civil prosecution that the
source of tax obligation. In fact, it does not
government may take against the TP. If the TP will
particularly fixed a rate. The LGC provides ranges or
not pay, the BIR will continuously run after the TP
ceilings for a rate.
because of unsettled compromise penalty.

23
Can Congress prevent local governments from
imposing certain tax by providing certain guidelines
or limitations?
Yes.
Can it prohibit from taxing certain TPs?
Yes that is within the parameter of providing
guidelines or limitations.
Can it compel local governments to impose certain
taxes?
No. It will violate local autonomy.
If a tax is already levied by the national
government, can the same tax be levied by a local
government? Is it constirutionally prohibited?
No. But Congress can probihit LG from imposing
those taxes by way of providing guidelines or
limitations. This is the principle of pre-emption in
local taxation. It is also known as exclusionary rule
in local taxation. Under the rule on pre-emption,
when the national government elects to tax a
particular subject within a LGU, it is impliedly
withholding from the local government the power
to tax the same subject.
In the Philippines, do we adhere to the rule on pre-
emption? Yes. Sec 133 of the LGC provides for the
common limitations in the exercise of local taxing
power. Except as otherwise provided in the LGC,
taxes, fees and charges by LGU shall not extend to
the levy of the following:
● those taxes that are already levied under
the NIRC such as income tax, estate tax,
VAT, percentage tax, excise tax,
documentary stamp tax.
● those taxes that are already levied under
the Tariff and Customs Code. (prohibition of
taxing goods simply by reason of passage,
that is import duty. Thus it is not allowed)
Pero ibahin nyo yan sa imposition based on
police power.
Example: to prevent the entry swine flu, there is an
imposition of swine inspection fee, the purpose of
which is to defray the expenses from inspecting and
preventing the entry of affected pigs. That is
different. It is not simply by reason of passage. It is
actually by reason of prevention. But what is
prohibited is un nga, simply by reason of entry.
● taxes that are already paid national setting.
Example: Taxes and fees for registration of vehicles
including permits for the driving of those vehicles.
The motor vehicle registration is actually the road
user's tax. It is for the purpose of constructing
roads. Thats why local governments cannot impose
taxes for a regustratuon of a vehicle. That is already
a national tax.
But in Sec 133 there is exemption provided there.
That is tricycles.
So who has the authority to issue a permit to drive a
tricycle and correspondingly has the power to get
the fees for purposes issuing a permit to drive a
tricycle?
LTO vs Butuan. The SC came to a conclusion that it
is stilk lodged with the LTO.
24
With that, what do we mean therefore by Sec 133 ● barangay micro business enterprises or
in LGC? BMBEs.

● cannot impose taxes on the national

governmet, its agencies and
The meaning of that exception is that if a person
instrumentalities and as well as other local
will operate a tricycle as a PUV, then the authority
governments.
to operate the tricycle as a PUV is with the local
government.

You cannot impose burdens on the very creator of

the law or the very authority that created it.
● taxes on business that are enjoying special
protection by reason of some government
policy.
So ordinarily, local government CANNOT impose
these taxes.

Example: local governments are prohibited from

imposing taxes on cooperatives registered under
Can they impose these taxes? Yes if the Local
the CDA.
Government Code expressly allows them.

Philreca vs DILG
Province of Bulacan vs CA

Electric cooperative registered with the NEA is

Here is the Province of Bulacan collecting sand and
questioning why is it that electric cooperative
gravel tax. Sand and gravel tax is already levied
registered with the CDA are free from local tax?
under the NIRC. Question now is can it levy the sand
While electic cooperatives registered with the NEA
and gravel tax?
are subject to local tax? They said that it is a
violation of equal protection.

SC: Yes but it is limited only to what is allowed by

the LGC. And the LGC allows provinces to collect
SC said no and sustain the validity of the distinction.
sand and grave tax only when the quarrying is done
The court said that there are substantial differences
in public lands of bodies of water. Therefore,
between those electric cooperative registered with
quarrying between private properties is preempted.
the NEA and those electric cooperative registered
It is not allowed to be imposed.
with the CDA. Electric cooperatives that are
registered with the CDA are following the principles
of cooperativism that there must be mutual
benefits of all the members involved. Which is not Case: A municipality near Baguio enacted a tax
the idea behind electric cooperative registered with ordinance that would impose taxes on minerals that
the NEA. are extracted within the municipality. VALID OR
NOT?

● businesses that are enjoying preferential

tax treatments under the Omnibus A: it is not valid because it is amounting to an excise
Investments Code. tax.

25
 no. Because tax on a petroleum products is an
excise tax. The second pre-emption therefore refers
Case: A municipality near Baguio enacted an
to the business itself.
ordinance that will levy a tax on all businesses
engaged in mining. Valid?

Case: A City of Baguio revised its lax ordinance

saying that anyone who wants to engage in the City
A: Valid. Because that is a local business tax. And a
of Baguio should have to pay a local business tax of
local business tax is allowed by LGC. It is not an
2% of their gross sales or gross receipts. Valid?
excise tax because what is being tax there is the
business and not on the act of extraction of
minerals.
A: Invalid because it is a percentage tax. And
percentage taxes cannot be imposed except if
authorized by the LGC.
Case: A municipality near Baguio enacted a tax on ll
businesses engaged in mining at a rate 2% of the
gross value of the minerals extracted. Valid?
Therefore, if the tax falls under Sec 133 then it is
the burden of the local government to prove the
basis of the imposition.
A: No, because it is an excise tax but disguised in
the form of local business tax.

Case: What if a local government official ask you,

we want to impose a tax but we cannot find any
If you tax extraction, production of certain things,
provision under thr LGC that will authorize us to
that amounts to excise tax and therefore invalid.
impose a tax. Can we impose that tax?
But if you tax the business, that is valid.

A: Yes. RESIDUAL POWER TO TAX. Sec 186 of the

PETRON vs Tiangco
LGC.

Can a local government impose a tax on refining

A local government can levy a tax even if there is no
petroleum products? No because it is an excise tax.
express authorization for as long as there is no
prohibition.

Can a local government impose a tax on the

business of refining petroleum products? No also.
Extent of authority of specific local government
See Sec 133H of the LGC. Local governments are
units
prohibited from imposing excise taxes and taxes,
fees and charges on petroleum products.

● PROVINCES SEC 134

The court said there are two aspects in that

provision. If we assume that the second pre-
tax on the transfer of real property ownership.
emption which is the tax on petroleum products is
not present, would that mean that petroleum
products can be taxed by local governments? Still
26
For local tax purposes, any form of taxes either
gratuitous or onerous can be the subject of local
transfer tax.
It is ½ of 1% but cities can impose a tax at a rate
50% higher.
tax on the business of printing and publication
franchise tax
It is the businesses which requires a special
franchise for their operations such as public utilities,
telecommunications.
sand and gravel tax
It must be imposed on quarrying within public
lands.
Lepanto Consolidated Mining vs Ambanloc
Lepanto is a mining company in Benguet. Ambanloc
was the former provincial treasurer of Benguet.
Province of Benguet wanted Lepanto to pay sand
and gravel tax by reason of it being engaged in
quarrying. Lepanto have to move materials as an
incidents of its mining operations. Should it pay
sand and gravel tax?
A: Yes. The law does not distinguish between an
incidental activity or main activity for as long as
quarrying was done.
The SC said that the concept of the main activity is
taxed therefore you should not tax incidental
activity, that is applicable only if you are dealing
with business tax. We are not dealing here with the
business tax. We are dealing here with an excise tax
in the form of sand and gravel tax.
professional tax
Who are professionals? Those that are authorized
to practice their profession by the PRC or SC.
Pano kung marami kang profession? How many
orofessional taxes you need to pay? One for every
profession.
What if may satellite office ka sa La Trinidad,
Pangasinan. Where do you pay your professional
tax? In the place where you have your principal
office and it will allow you to practice your
profession anywhere in the Philippines.
amusement tax
It is a tax imposed on the gross admission fees in
theaters, cinemas, concert halls, circuses, boxing
stadia and other places of amusement.
What do we mean by other places of amusement?
Felizloy Realty vs The Province of Benguet
Felizloy Realty is the owner of the Palmgrove. The
province of Benguet enacted a provincial tax
ordinance levying an amusement tax on resorts and
27
tourist spots. Can a resort be the subject of
amusement tax?
SC: No. In a resort, people can be visually engaged
but mere visual engagement will not suffice. There
must be a show or performance. Thus, resorts
cannot be the subject of a local amusement tax.
fixed tax on delivery trucks
● MUNICIPALITIES
The main source of taxing authority of municipality
is the local business tax. The usual basis of local
business tax is the gross receipt for the preceding
calendar year.
It is based on calendar year not fiscal year.
Are gross sales and gross receipts the same? No. In
Erickson Telecommunications vs City of Pasig, the
SC said that gross sales includes all sales whether
paid or not. In gross receipts, there is payment that
has been received.
In Sec 143, the imposition of local business tax is
not based on percentage. They are based on
brackets. Why? Because as much as possible the
LGC wants to do away with percentage tax by
reason of pre-emption. But in some situations there
are allowable forms of percentage tax.
Case: You have a business and the main office is in
Baguio but you have sales outlet La Trinidad, Bokod
etc. Where to pay your local business tax?
A: The local business tax will be paid not only in
your principal office but in all areas where you have
your sales outlet.
Case: Principal office is is Baguio. You are selling
also in other areas but practically you do not have
sales outlet (example: truck). Where do you pay
your business tax?
A: Sec 150 on situs of local taxation. If there is no
sales outlet, the sales will be registered as if they
were sales of the principal office.
Case: For the longest time Tuba is struggling on how
to collect business tax on Philex. Kasi sabi natin, the
local government can impose tax on the business.
But the problem is, Philex principal office is not in
Tuba but in Pasig. So all sales are booked in Pasig.
Solution: If you have a plantation or factory, actually
70% of the gross receipts by the principal office is
taxable in the place where you have the plant,
plantation or factory.
But even if Tuba will do that, Philex can still resist.
Point of argument is how can you identify if what
can be attributable to Tuba and which portion is
attributable to Itogon.
Then Tuba and Itogon came up with an agreement
on how to divide the sharing and that is not
prohibited by LGC so eventually they were able to
benefit from it.
Read the rest of Sec150
Local business tax can be imoosed only to
taxpaywrs who are engaged in business
28

In Yamane vs BA Lepanto Condominium, the
question was can a condominium corporation be
the subject of a local business tax?
SC: No. The main purpose why condominium
corporation is created is solely to administer the
common areas and not for business motive.
Note: Lawyering is not a business but a profession.
So you cannot be liable to business tax.
● CITIES
Cities can impose any tax that may be impose by
provinces or municipalities. In fact it can impose a
rate 50% higher than what may be impose by
provinces or municipalities except in two
occassions: amusement tax and professional tax.
Knowing the extent of the local government taxing
power, the question now is what if the government
go beyond the local taxing power?
REMEDIES AVAILABLE TO LOCAL TAXATION
5. Sec 187 of the LGC. Appeal to the SOJ
regarding a newly enacted tax ordinance.
What do you appeal before the SOJ?
Questions involving constitutionality or
legality of a newly enacted tax ordinance. It
must be a newly enacted ordinance
because the law requires you to question its
legality within 30 days from its effectivity.
The SOJ has 60 days to act. He can act but he may
not act. But if he decides not to act, treat that as
implied denial. So what do you do next? Appeal it
before court of competent jurisdiction or the RTC
having jurisdiction over the local government.
You can consider filing a petition for declaratory
relief. If you file a petition for declaratory relief,
chances are the local government will raise this
argument, declaratory relief is a petition that is
available if no breach has been committed. That is
why you are asking for the declaration of your right.
When this taxpayer did not pay the tax then breach
has been committed. Therefore, it is not ripe
anymore for a declaratory relief. What is your
argument?
A: A tax obligation is a continuing obligation. Even
assuming that there was breach, because this is a
continuing obligation in so far as future taxes are
concerned, then that is why it is still ripe for judicial
declaration based on a declaratory relief petition.
Pagdating sa RTC natalo ka. Where do you appeal
next?
A: If it is a pure question of law, appeal to SC. If it is
a mixed question of fact and law, appeal to CA.
(Sir's opinion)
NOVEMBER 30, 2019
With respect to local taxation, there is no specific
directive or prohibition that trial courts cannot issue
writs of injunction. Hence, once the requisites of
injunction are porved, then a writ of injunction may
be issued.
Nature of remedy before the Secretary of Justice.
What you will bring before the SOJ would be
questions regarding constitutionality or legality.
Question of constitutionality such as denial of due
process, denial of equal protection or any other
29
possible constitutional violations. Questions of
legality such as the procedure for the enactment of
an ordinance has not been met because in Sec 187,
there is a procedure like public hearing and
consultation.
If the secretary denies or does not act, the remedy
will be to bring an appeal to court of competent
jurisdiction or RTC of the place having jurisdiction
over the government. If can be an action for
declaratory relief or an action for injunction or any
possible actions that you may take of. But in any
case, if you loss the case in the RTC level, your
appellate process will dependent also on the appeal
that you will bring. If pure questions of law, you
have to bring it to SC. If it is a combined question of
facts and law, bring it to CA (Sir's suggestion) but
some are saying that you should bring it to the CTA.
How do you know that it is new? It is new because
there is a cut-off period for filing this. It is within 30
days from effectivity.
What if a local government is assessing you for a
tax. The local treasurer issues as assessment for
local tax. But you disagree with the assessment.
What is your remedy? Protest under Sec 195 of the
LGC. When you protest, do you need to pay under
protest? No. To whom do you protest? Before the
local treasurer. You have 60 days to do that. Attach
necessary documents for purposes of the protest.
Suppose that the local treasurer denies or fails to
act, what is your recourse?
Appeal to a court of competent jurisdiction. What is
that competent jurisdiction? Scenario. You are
being assessed for a tax worth 250,000, you
protested before the Local Treasurer, Treasurer
denies. Where do you appeal? Appeal before the
RTC. (This is a matter of opinion kanu ni Sir kasi
there is no settled jurispudence yet.) Sir's
justification:It is with the RTC because it is an action
incapable of pecuniary estimation because your
concern in appealing is not to recover that amount,
your concern actually to question the action of the
treasurer of assessing you.
The law makes use of appeal in Sec 195 of the LGC.
But take not that it is not technically an appellate
process also. So what then is the action that you will
bring before the RTC? In practice, we place there
"Appeal under Sec 195." It is a generic petition.
From the RTC you lose the case, where do you
appeal next? Appeal to CTA Division.
What if the RTC committed grave abuse of
discretion and you are tending to file petition for
certiorari, where do you bring the case? Appeal it to
CTA also. If your appeal is to be lodged before the
CTA, necessarily certiorari jurisdiction is also vested
with the CTA to avoid the possibility of conflicting
decisions.
After CTA Division, CTA en banc and eventually
Supreme Court.
Protest is a remedy before payment. Is there a
remedy after payment? Yes, refund. Within what
period can a taxpayer file a claim for refund for a
local tax? 2 years from payment. What if there are
supervening events? For local tax purposes, we take
into consideration supervening events.
In local tax, it is two years from payment or from
the entitlement thereto. It would mean that we will
consider supervening events that will entitle the
taxpayer to the refund. Where to file your claim for
refund? File it before the local treasurer. Is there
any definite period for the LT to decide on your
claim for refund? Sec 196. There is no definite
period for the LT to act. Does that mean that the LT
30
can take forever in deciding? No. As a TP, you
should monitor your two-year period because the
mere filing of your claim for refund does not toll the
running of the two-year period.
So, if it continues to run, you have to beat the two-
year deadline. What if the treasurer decides and it is
against you? There is no definite period to appeal
stated in Sec 196 of the LGC. So what does that
mean? It means that even if the LT has already
decided, your only time frame that you should
monitor is the two year period. So from that period,
you must be able to file your request for refund
with the LT, and bring a petition for refund before
court with competent jurisdiction.
You want to file a claim for refund of a local tax
amounting to 500,000. Where to file your claim for
refund? Treasurer. LT denies where do you go? RTC.
RTC denies? Appeal to CTA division. Then, MR. After
MR, CTA en banc. Then SC.
Refund for a tax of 250,000, LT denies. Where to file
your petition? MTC because you main interest is to
recover an amount from the Local Government. If
MTC denies, appeal it to RTC. If RTC dismiss you
appeal, appeal it further to CTA en banc.
If the RTC is acting in its original jurisdiction (like in
the case of protest), you appeal is in CTA division.
But if it is acting in its appellate jurisdiction (like in a
claim for refund), CTA en banc.
What if you want to file a claim for refund of a local
tax amounting to more than 1 million? Treasurer
and if LT denies, RTC. If it is beyond the
jurisdictional amount of the MTC, always go before
the RTC regardless if it is millions.
THERE IS NO ORIGINAL JURISDICTION OF THE CTA
WHEN IT COMES TO LOCAL TAXATION.
With respect to the right of the government to
collect a local tax, tge government can collect it
through summary remedies or judicial remedies.
Summary can be administrative action of distraint
or levy and then judicial action is filed in court.
Whether or not it is summary or judicial, the period
for local governement to collect a local tax is 5
years. Exceptional period is 10 years in case of
falsity or fraud.
REAL PROPERTY TAX
What are real properties? For purposes of real
property tax, we do not adhere to the listing
provided under Art 415 of the Civil Code. Because
for RPT, the LGC gives us a description of what are
real properties. Example, for as long as those
machineries are exclusively used for the trade or
the business of the taxpayer, that may fall already
within the concept of real properties.
Caltex vs CBAA
Caltex is constructing a gasoline station on a leased
land and the agreement is Caltex will have to
remove these machineries after the expiration of
the fixed term. Are they considered real properties
for purposes of local taxation? Yes. They have a
certain degree of permanence because within that
duratuon, you won't remove them.
Other example of real properties for taxation
purposes are pipelines, electric posts, cable lines
and cable wires.
Pilipinas Palm Oil vs The Provincial Government of
Agusan
31

The facilities that was used for carrying palm
located with the vicinity of the plantation are
regarded to be real propertues for local taxation
purposes because they are there being used
exclusively for the business of the taxpayer.
If a property is considered a real property for local
taxation purposes, the default characteristic by law
is that it is taxable.
GR: All real properties are taxable.
Xpns:
Sec 234 of the LGC. Categories of exemptions
1. Sec 234 a. Exemption by ownership are
those properties that are owned by the
national government, its agencies and
instrumentalities as well as other local
governments except if the beneficial use
has beed granted to a taxable person.
Example: A building is owned by the DILG. The top
most floors are used as the offices of the DILG. But
the lower floors are being leased to tenants. Will
the property be subject to real property tax? Yes
but only in so far as the lower floors are concerned.
Who will be liable for the RPT? The beneficial users.
As a rule, ownership should be determinative of
liability. But if the owner is exempt, whoever is the
beneficial user will be the one ti be held liable.
Case: Testate Estate of Concordia Lim vs CA and
the City of Manila
The properties are being leased by Concordia Lim to
several tenants. Lim obtained a loan from GSIS and
executed a real estate mortgage in fvor of GSIS. For
failure to pay the loans, GSIS foreclosed the
mortgage. Lim failed to redeem and GSIS able to
consolidate its ownership. For the period 1977 to
1979, because GSIS is exempt from paying RPT, GSIS
din not pay RPT.
In 1979, Lim was able to repurchase the properties.
So the properties character was restored to taxable.
The problem now is that that City of Manila is
looking for a RPT in the period of 1977 to 1979. So
the City of Manila now is runninf before Lim for the
unpaid tax within the said period. Lim aaid that he
was not liable because he was neither the owner
nur the user at that time. GSIS said that it cannot be
held liable because it i exempt from RPT.
Should GSIS be held liable? No.
Should Concordia Lim be liable? No also because
she is neither the owner nor the beneficial user?
Who should be held liable? The tenants should be
held liable. But in this case the tenants were not
held liable because the tenants were not impleaded
as parties.
● Another exemption by ownership is found
in Sec 234 d, properties owned by
cooperatives.
In the case Pilipinas Palm Oil, lands were awarded
to farmer tenants, they gathered all these lands and
transferred it into a cooperative. Now the
cooperative is owning the land. The cooperative
leased the land to Pilipinas Palm Oil. Provincial
government of Agusan was trying to collect real
property tax from emPilipinas Palm Oil being the
one who is using the property because the
32
cooperative is free from property tax. Should it be
held liable?
No. Because the property is exempt. REASON: Sec
234d does not provide for a qualification there.
That is why if the property is owned by the
cooperative even if it is being leased to a taxable
person, it would not make the property taxable.
2. Exemptiom by Character. Sec 234b
Churches, mosques, parsonages, non profit
cemeteries are exempt by reason of their character
as such.
3. Exemption by reason of usage. Part of Sec
234b, Sec 234c, Sec 234e
All properties that are actually, directly and
exclusively used for religious, charitable,
educational purposes. (Part of Sec 234c)
Case: Lung Center of the Philippines vs Quezon City
This Lung Center of the Philippines is a government
hospital created for charitable purposed. Part of the
Lung Center is used as an orchidarium, some are
used for the clinics of their doctors, some are used
for charity patients and some are paying patients.
Should Lung Center be held liable for property tax?
The SC said that exclusive means solely and not just
primarily. Incidental exemption is no longer
allowed. Applying that part used as an orchidarium,
is it taxable? Yes because it is not used for exempt
purpose. The portion used by doctors for their own
patients, taxable? Yes.
The portion used to charity patients? Not taxable
because it is consistent with its nature as a
charitable hospital.
The portion used by paying patients? Not taxable
because when a charitable hospital accepts paying
patients but the payments of the patients are used
for purposes of running the charity portion of the
hospital, it does not in itself lose the charitable
character of the hospital.
Charity means gift to many.
Test of charity: Is this charity performing a task that
will otherwise rest in the hands of the government?
And to become charitable, you must not only
organize as charitable, you must be operated as
charitable.
Sir Barlis opinion: So do not use as a defense,
incidental exemption. But rather raise the defense
that it is necessary.
What if a property is owned by a taxable person but
it is being leased? But the lessee is using tge
peopeety actuall, directly and exclusively for
religious, educational and charitable purposes. Will
the property be subject to or exempt from RPT?
Sir Barlis opinion: it should be exempt to RPT
because it is actually, directly and exclusively used
for an exempt purpose. If you say kasi exemption by
usage, you have to look on how the property is
used.
33
Mam Tin: it should be subject to RPT because in so
far as the owner is concerned, he is using the
Please take note the mere fact that the property is
property for leasing purposes.
used for purposes that are beneficial to the public,
that is not automatically result into an exemption.

Another instance of exemption by usage is found in

Sec 234c. Properties that are actually, directly and
LRTA vs CBAA
exclusively used by government corporations for
water and power used by local water districts and
for purposes of power generation.
LRTA is running a transportation system. It has his
carriage ways and terminal stations. It has ita
charter but its charter is prior to the enactment of
Case: Napocor entering into an agreement with a
the LGC. LRTA now is being made liable for RPT. The
private entity wherein the private entity will
defense of LRTA is that it enjoys exemption from
construct a power facility. That private entity or a
RPT, it is using the property that us beneficial to the
joint venture of that private entity with the Napocor
public and the properties are just like roads and
will be running the power facility but all tax
roads are not subject to RPT.
consequences will be shouldered by Napocor.

SC: The exemption is prior to the enactment of the

Local government will impose RPT on the power
LGC therefore, under Sec 193 that is deemed
facility. And whenever the private entity will receive
revoke. The court said you cannot equate those
the assessement, that will be transmitted by private
properties as similar to roads because they are
entity to Napocor so that Napocor will tax charged
located above the road. Hahaha. But the main
of the tax consequence. Then Napocor will invoke
reason there was they are not like roads because
Sec 234c for exemption. Is the property qualified for
unlike roads that can be used by anyone, the used
exemption under Sec 234c?
of your carriage ways and terminal stations are
exclusively for your system.

No because Sec 234c is very clear. In this case, it is

not the Napocor that is using the property actually,
LRTA cannot invoke also exemptions simply because
directly and exclusively but it is a private
your properties are used for purposes that are
corporation or the joint venture.
beneficial to the public because there is no such
principle. Mass transportation is a propriety venture
and therefore must be subject to RPT.
Sec 193 is provision in the LGC that speaks of
revocation of all prior tax exemptions. Why is that
important? Because by reason of Sec 193, even real
If taxable, how will that property enter the tax
property tax exemptions that were granted prior to
system? It is usually done through declaration. Who
the enactment of the LGC are already deemed
has the obligation to declare the property for RPT
revoked. So if a GOCC will invoke an exemption by
purposes? The first declaration is on the taxpayer:
reason of its charter, tignan nyo if the charter is
owner or administrator of the property should
prior to the LGC. Because if it is prior to the LGC,
declare the property for taxation purposes. Kaya ka
then that exemption is deemed revoke by reasn of
nga nagkakaroon ng tax declaration because you
Sec 193. If the charter was enacted after the LGC,
declare your property for taxation purposes.
then there is a restoration of tge exemption or
there is a granting of the exemption.
34
If you do not declare, the assessor can declare the
property for you. The local government can collect
back taxes for a period of 10 years.
Geodetic engineers also have the obligation pag
nagsurvey sila. They have to give the copy of their
surveys to the assessor. Notary public also has the
obligation to submit the documents to the assessor
that you are notarizing.
Sec 198. Properties shall be taxed at its current fair
market value FMV and it shall be taxed using its
actual use.
Who determines the valuation of the property for
taxation purposes? It is the owner who has the
initial obligation to declare. Get a Sworn Declaration
of Real Property Ownership form to the assessor.
Then it will be subject to validation by the Local
Assessor.
You declare your property at 2M. Assessor on the
other hand, valued it at 20M. Can you go to the
assessor and ask for the reconsideration of his
valuation?
No. Callanta vs Office of the Ombudsman, the SC
said that the assessor has no jurisdiction to
entertain MR. Because if he comes up with the
valuation, there are remedies available to the
taxpayer but it is not to file a MR. REMEDY IN THAT
CASE IS THE LOCAL BOARD ON ASSESSMENT
APPEALS LBAA.
Will the FMV be the basis of the tax? Not yet
because we have to consider also the actual use.
For lands, the LGC has identified the following as
possible uses of lands.
1. Residential
2. Agricultural
3. Commercial
4. Industrial
5. Special
6. Timberland
7. Mineral
Depending on how the land is used, there is a
taxable percentage of that particular property.
Example, if it is residential, the allowable taxable
percentage is 20%. The LGC provides for the ceiling
of the taxable percentage so the actual rate is to be
defined in RPT ordinance.
Lets say that the property is located in a local
government which adoprted the 20%. That 20%
taxable percentage is known as the assessment
level. So that property is used for residential
purposes will be taxable only up to 20% of the FMV.
The assessed value, unless there are further
adjustment allowed by the local government, is the
taxable value of the property. It is the tax base for
RPT.
This assessed value is also the same concept of
assessed value that you used on remedial law for
purposes of determining jurisdiction of real actions.
For purposes of computing real property tax,
multiply the assessed value to real property tax
rate. For provinces, maximum allowable tax rate is
1%. For cities, maximum allowable tax rate is 2%.
For municipalities, there is no real property taxing
authority cor except if the municipality is within
Metro Manila where in that case is 2%. The amount
that will you get after multiplying the assessed
value to RPT rate is called the BASIC Real Property
Tax. There are possible additions to the basic real
property tax such as special educational fund tax
(for purposes of augmenting the budget of local
school board), idle land tax (please know when is a
35
property is considered as idle such as agricultural
lands more one hectare in area and at least ½ is
unutilized and non-agricultural lands 1000 sqm in
area and at least ½ is unutilized), and special levy on
real property otherwise known as special
assessment (when the local government finances a
structure within a LGU, it can actually recover part
of the cost of the infrastructure project from the
real property benefited but under Sec 240, there
must be an ordinance that will fix the period of
recovery which is not less than 5 years but not more
that 10 years, and the ordinance should also fixed
the amount to be recovered which should not be
more than 60% of the cost of the project and only
those property owners who benefited should be
made liable for the special assessment).
Remember that you can also pay your RPT on an
installment basis like quarterly.
REMEDIES
1. SEC 187. Appeal to the SOJ because a RPT
ordinance is still a tax ordinance.
2. Appeal to LBAA with regards to differences
with the assessor regarding the valuation of
your property or classification if your
property.
3. If you lose your case to LBAA, net recourse
is to appeal it to the CBAA.
4. After CBAA, appeal it to the CTA en banc.
Remember tatlo na ang kaso ng CTA en banc.
● Those appealed from CTA division.
● Local tax case wherein RTC is acting in its
appellate jurisdiction.
● Decisions from the CBAA.
5. Protest
You were issued an assessment by the Local
Treasurer LT. Si LT sabi sayo hindi ka nagbayad ng
RPT. Sabi mo naman, nagbayad ka na. Now you
protest the action of the treasurer. If you protest
the action of the treasurer, what do you do? Do you
need to pay the assessment under protest? As a GR,
yes. But then again you have to consider what is the
nature of the assessment against the TP.
If the assessment is under erroneous assessment,
you have to pay the tax under protest. But there is
also a situation where the assessment is illegal. If
illegal then remedy is not to pay under protest, but
judicial. It is through injunction. The assement is
illegal if the LT is acting independently without any
authority of law.
Example of an erroneous assessment is when you as
a TP calim that you are exempt but the treasurer
said that you are nit exempt.
Example of illegal assessment is a situation where
the real tax liability of a TP was increased by 400%.
Case: Meralco vs Barlis
The City of Muntinlupa through the Treasurer wrote
MERALCO which contains the following:
"Ikinalulugod po naming ipaalam sa inyo na meron
po kayong hindi pa nababayarang buwis sa halagang
____. … bayaran ang naturanf buwis sa loob ng
____ na araw."
Question: Should MERALCO pay the tax under
protest. The court took a look into that notice and
the court said that that notice is not an assessment
therefore, there is no need to pay the tax under
protest. It is a mere collection letter.
36
 local government to show that there is compliance
with the requirement of validity for the tax sale.
6. Refund.

Period to file a claim for refund is two years from

payment or from the entitlement thereto. File it
with the LT. If LT denies, LBAA. After that CBAA.
Then CTA en banc.

7. Redemption of property sold for real

property tax purposes.

If your property was levied, there is a remedy to

redeem one year from the date of sale not from
registration except if the charter of the local
government provides for a different period.

8. Action to question the validity of the tax

sale. Sec 267

A local government can only sell your property for

tax delinquency if you are really delinquent. If not,
then there is no authority for the local government
to sell your property. Even if you are tax delinquent,
there are still procedural matters that are to be
complied with by the government. If it does not
comply with these requirements, then you have an
action to question the validity of the tax sale. If you
are to question the validity of the tax sale then you
are required to deposit the amount for which your
properrt is sold plus 2% interest per month. That is
a pre-condition.

If your property is sold but not at the time when

you are tax delinquent since the local government
has no authority, then you may not comply with the
requirement of depositing.

With regards to Sec 267, the government cannot

rely to the concept of presumption of regularity in
performing public functions. It is incumbent for the

37