Updates on Tax Jurisprudence

2014-2017
Mickey Ingles
(Cases in bold are those penned by J. Del Castillo)

GENERAL PRINCIPLES

As re: the no-estoppel rule and the lifeblood theory in taxation

• The no-estoppel rule (government cannot be estopped by the acts of its agents) is not
absolute. Hence, when the taxpayer raises the defense of prescription only on appeal
and the State does not question the timeliness of the defense, the State can be bound
by the acts of its agents. (China Bank v. CIR, G.R. No. 172509, February 4, 2015,
where it also took the BIR more than 12 years to collect the tax.)

As re: taxes implementing the state’s police power

• The Socialized Housing Tax (SHT) imposed by Quezon City is an example of a tax that
is used to implement the state’s police power. (Ferrer v. City Mayor Bautista, G.R. No.
210551, June 30, 2015, where the SC upheld the validity of the SHT which it found to
serve the regulatory purpose of removing slum areas in QC)

As re: the Constitutional exemption of non-stock, non-profit educational institutions

(covers both income tax exemption and real property exemption)
• When the revenues are actually, directly, and exclusively used for educational
purposes, the NSNP educational institution shall be exempt from income tax, VAT, and
local business tax. (CIR v. DLSU, G.R. No. 196596, November 8, 2016)
o Test: use of the income
• And when the assets are actually, directly, and exclusively used for educational
purposes, the NSNP educational institution shall be exempt from real property tax.
o Test: use of the property

As re: exemption from taxes

• The essence of tax exemption is the immunity or freedom from a charge or burden to
which others are subjected. It is a waiver of the government’s right to collect what
would have been otherwise collectible. (Secretary of Finance v. Lazatin, G.R. No.
210588, November 29, 2016)
o It is the freedom from the imposition and payment of a particular tax.
§ Hence, a Revenue Regulation that requires tax-exempt entities to pay
taxes with the possibility of a subsequent refund is invalid. The tax-
exempt entities shouldn’t be required to pay in the first place. (Secretary
of Finance v. Lazatin)

As re: set-off of taxes

• As a rule, taxes cannot be subject to compensation because the government
and the taxpayer are not creditors and debtors of each other. However, there
are some cases where the court has allowed the determination of a taxpayer’s
liability in a case for refund, thereby allowing the offsetting of taxes. Note
that these are all refund cases where the court allowed the offsetting of taxes,
because it would have been absurd to grant a refund after finding out that the
taxpayer owed the government pala.
o In these cases, the court allowed offsetting only because the
determination of the taxpayer’s liability is intertwined with the
resolution of the claim for tax refund of erroneously or illegally
collected taxes under Section 229, NIRC.
o Also, the offsetting will not be allowed if the period to assess deficiency
taxes in the excess of the amount claimed for refund has already

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 prescribed. (CIR v. Toledo Power Company, G.R. No. 196415, December
2, 2015)

INCOME TAX

As re: constitutionality of the 20% deduction provision for PWDs

• The grant of discount and the corresponding deduction for businesses have been held
as valid and constitutional, as a proper exercise of police power. (Drugstores
Association of the Philippines v. National Council of Disability Affairs, G.R. No. 194561,
September 14, 2016)

As re: minimum wage earners

• The Supreme Court has declared R.R. 10-2008 unconstitutional. The R.R. stated that
a minimum wage earner (MWE) loses his/her exempt status and is thus taxable on
his/her entire income if the MWE receives other benefits in excess of a statutory limit
(in this case, the previous P30,000 limit under exclusions from gross income). (Soriano
v. Secretary of Finance, G.R. No. 184450, January 24, 2017)
o The R.R. added a requirement that was not found in R.A. 9504. It effectively
changed the definition of a MWE. A R.R. cannot expand a law. It did not even
clarify the law.
o Hence, the proper rules are as follows:
§ A MWE who receives taxable income in excess of the minimum wage will
be taxed on the excess, but the MWE will not lose his/her status as such.
Workers who receive the statutory minimum wage as their basic pay
remain MWEs.
§ Also, the receipt of other income during the year does not disqualify
them as MWEs. But the taxable income they receive other than as MWEs
may be subjected to appropriate taxes.
• Hence, bonuses and other benefits received above the statutory
limit (which is now P82,000) are still taxable. (Soriano v.
Secretary of Finance)

As re: 19-lender rule for deposit substitutes

• What does “at any one time” mean?
o It means every transaction executed in the primary or secondary market in
connection with the purchase or sale of securities.
o Hence, when funds are simultaneously obtained from more than 20
lenders/investors—whether in the primary or secondary market—the
instrument is deemed a deposit substitute. (Banco de Oro v. Republic of the
Philippines, G.R. No. 198756, January 13, 2015, where the issue of the PEACE
Bonds was finally resolved; the interpretation was upheld but applied
prospectively upon reconsideration, Banco de Oro v. Republic of the Philippines,
G.R. No. 198756, August 16, 2016)

As re: the transfer of property through expropriation proceedings

• The transfer of property through expropriation proceedings is clearly a sale
or exchange with the meaning of Section 24 (D). So, the profit from the
transaction constitutes capital gains which is subject to capital gains tax to
be paid by the seller. Capital gains tax in expropriation proceedings remains
a liability of the seller. (Republic v. Salvador, G.R. 205428, June 7, 2017)

As re: preferential tax rate of private educational institutions

• For private educational institutions, they are entitled to the reduced rate of 10%
corporate income tax, if:
o The proprietary educational institution is non-profit; and

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 o Its gross income from unrelated trade, business, or activity does not exceed
50% of its total gross income. (CIR v. DLSU, G.R. No. 196596, November 9,
2016)

As re: PAGCOR’s taxes

• PAGCOR’s income derived from gaming operations is subject to 5% franchise tax. For
income derived from the operation of other related services, it is subject to normal
corporate income tax. (PAGCOR v. BIR, G.R. No. 215427, December 10, 2014)
• PAGCOR’s contractees and licensees are subject to the same rule. (Bloombery Resorts
and Hotels, Inc. v. BIR, G.R. No. 212530, August 10, 2016)

As re: the loss of income tax exemption for income from properties of tax-exempt
corporations under Section 30
• This does not apply to non-stock, non-profit educational institutions, because the
Constitution clearly states that its revenues, as long as actually, directly, and
exclusively used for educational purposes, are exempt. (CIR v. DLSU, G.R. No. 196596,
November 9, 2016, which stated that the last paragraph of Section 30 does not qualify
the Constitution)

As re: the definition of dividends for income tax purposes

• The SC held that the cash given by a domestic corporation to a foreign shareholder for
the redemption of shares were not dividends as these were not distribution out of its
earnings or profits. (CIR v. Goodyear Philippines, Inc., G.R. No. 216130, August 3,
2016)

As re: declaration of loss for deduction purposes

• If the taxpayer fails to submit a Sworn Declaration of Loss, the deduction for casualty
loss will not be allowed. The SDL is needed to forewarn the BIR the extent of the loss
and to conduct its own investigation of the incident leading to the loss. (H. Tambunting
Pawnshop v. CIR, G.R. No. 173373, July 29, 2013)

DONOR’S TAX

As re: absence of donative intent for donor’s tax

• The absence of donative intent does not matter. Sec. 100 categorically states that the
amount by which the fair market value of the property exceeds the value of the
consideration shall be deemed a gift. (Philippine American Life and General Insurance
v. Secretary of Finance, G.R. No. 210987, November 24, 2014)
o Even if there is no actual donation, the difference in price is considered a
donation by fiction of law.
o NOTE: This has been modified by TRAIN, which allows transfers of insufficient
consideration if done in the course of business.

VALUE-ADDED TAX

As re: whether amounts earmarked for third parties should be subject to VAT
• Amounts earmarked by an HMO to its medical service providers on behalf of its clients
do not form part of its gross receipts for VAT purposes. (Medicard Philippines, Inc. v.
CIR, G.R. No. 222743, April 5, 2017, where the HMO also issued two official receipts—
one pertaining to the VATable portion that represented compensation for its services,
the other pertaining to the non-VATable portion pertaining to the amounts earmarked
for medical utilization)
o By earmarking said amounts, the HMO recognizes that it possesses said funds
not as an owner but as mere administrator of the same. (Medicard Philippines,
Inc. v. CIR)

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As re: ecozones and VAT
• Since ecozones (such as the Clark Special Economic Zone and Clark Freeport Zone)
are considered foreign territories, a R.R. which imposes VAT on the importation of
petroleum products into the ecozones is invalid. (Secretary of Finance v. Lazatin, G.R.
No. 210588, November 29, 2016)
o Articles brought into and remain in ecozones are not taxable importations,
because the goods remain in foreign territory.
o As long as the goods remain in the ecozone or re-exported to a foreign
jurisdiction, they are tax-free.
§ But once introduced into the Philippines customs territory, it shall then
be considered “technical importation” subject to taxes and customs
duties. (Secretary of Finance v. Lazatin)

As re: erroneous impositions of VAT

• If suppliers erroneously impose VAT on goods sold to an entity within a separate
customs territory, the purchaser’s (i.e. the entity in the ecozone) recourse is against
the supplier, not the government. The purchaser can’t run after the government.
o The supplier is the proper party to claim the refund because VAT is an indirect
tax and the supplier is the one statutorily liable. (Coral Bay Nickel Corporation
v. CIR, G.R. No. 190506, June 13, 2016)

As re: VAT exemption of cooperatives

• To enjoy VAT exemption, the cooperative must:
o Be registered with the CDA; and
o Sell exclusively to its members, or
§ if it sells both to members and nonmembers, the sale must be of its
produce, whether in its original or processed state. (CIR v. United Cadiz
Sugar Farmers Association Multi-purpose Cooperative, G.R. No. 209776,
December 7, 2016, where the cooperative sold refined sugar—the
exemption for raw sugar didn’t apply to them, but they were still exempt
because they were an agricultural cooperative that fit the requisites for
exemption)
o In other words, if the agricultural cooperative only sells produce or goods that
it manufactures on its own, its entire sales is VAT-exempt. (CIR v. United Cadiz)

As re: invoicing requirements for VAT-zero rated sales

• For zero-rated transactions, the failure to print the word “zero-rated” on the VAT
invoices or official receipts is fatal to claims for a refund or credit of unutilized input
VAT on the zero-rated sales. (Northern Mindanao Power Corporation v. CIR, G.R. No.
185115, February 18, 2015)

DOCUMENTARY STAMP TAX

As re: DST for transfer of properties pursuant to a merger

• The transfer of real property to a surviving corporation pursuant to a merger
is not subject to DST, because the property is not deemed “sold.” Properties
subject to a merger are merely absorbed by operation of law. (CIR v. La
Tondeña Distillers, Inc., G.R. No. 175188, July 15, 2015)

GOVERNMENT REMEDIES

As re: letters of authority

• The CIR or his duly authorized representative may delegate and authorize the
examination of any taxpayer and the assessment of the correct amount of tax.

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 o Hence, it is clear that unless authorized by the CIR or his duly authorized
representative, an examination of a taxpayer cannot ordinarily be undertaken.
The authority is embodied in a Letter of Authority (LOA).
o Without the LOA, an assessment or examination is a nullity. Due process
requires that revenue officers secure a LOA before examining and assessing a
taxpayer. (Medicard Philippines, Inc. v. CIR, G.R. No. 222743, April 5, 2017)
o Speaking of LOAs, a LOA should cover a taxable period not exceeding one
taxable year. It cannot cover the audit of unverified prior years. If the audit
includes more than one taxable period, the other periods or years shall be
specifically identified. (CIR v. DLSU, G.R. No. 196596, November 9, 2016)
§ But, having a LOA that covers a specific taxable year and unverified prior
years does not make the LOA void. The assessment for the specific
taxable year indicated in the LOA is valid. (CIR v. DLSU)

As re: delegable powers of the CIR

• The CIR may also delegate the power to approve and recommend the filing of criminal
cases under the NIRC. It is not a non-delegable function. (People v. Valeriano, G.R.
No. 199480, October 12, 2016)

As re: abatements
• An application for tax abatement is considered approved only upon the
issuance of a termination letter by the BIR. The presentation of the
termination letter is essential as it proves that the taxpayer’s application for
tax abatement has been approved. Without a termination letter, the tax
assessment cannot be considered closed and terminated. (Asiatrust
Development v. CIR, G.R. No. 201530, April 19, 2017)

As re: assessments
• Since it is a demand to pay, the final assessment notice must indicate the definite
amount of tax to be paid and the due date for the payment. Without the definite
amount or the date when the tax must be paid, it is not a valid demand and is therefore
an invalid assessment. (CIR v. Fitness by Design, Inc., G.R. No. 215957, November 9,
2016)

As re: assessments and refunds

• In a case filed by a taxpayer for refund of taxes, the CIR may no longer assess
the taxpayer for deficiency taxes in excess of the amount claimed for refund,
especially if the period to assess had already prescribed. (CIR v. Toledo Power
Company, G.R. No. 196415, December 2, 2015)

As re: validity of assessments

• See Samar-I Electric Cooperative v. CIR (G.R. No. 193100, December 10, 2014), which
stated that when the legal and factual bases can be found in a series of correspondence
between the BIR and the taxpayer (and not in the formal letter of demand and final
assessment notice), there was substantial compliance with the requirements of Section
228, as the taxpayer was informed in writing.
• CIR v. Fitness by Design, Inc. has also added that the basis for allegations of fraud
(needed to extend the prescriptive period to 10 years, instead of 3) must also be
indicated in the FAN to give the taxpayer a chance to refute them.

As re: waivers
• Take note of CIR v. Next Mobile (G.R. No. 212825, December 7, 2015), where the
Supreme Court upheld waivers that did not comply with either RMO 20-90 or RDAO
05-01 because the taxpayer was estopped from questioning the validity of 5 waivers
executed by an unauthorized agent. The Court held that the taxpayer deliberately
executed defective waivers and could therefore no longer question their validity.

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 o Next Mobile does not seem to overturn CIR v. Kudos Metal Corporation (G.R.
No. 178087, May 5, 2010), as the Court still recognized the general rule that a
waiver that does not comply with BIR regulations (then RMO 20-90 and RDAO
05-01) is invalid. The Court treated Next Mobile as an exception to the rule
“due to its peculiar circumstances.”
• See CIR v. Standard Chartered Bank (G.R. No. 192173, July 29, 2015) where the
taxpayer impugned the validity of a waiver and made partial payments of the assessed
deficiency tax. The SC said that the taxpayer is not estopped as it did not waive the
defense of prescription as regards the tax deficiencies and continued to raise the
defense of prescription during trial.

As re: power of CTA to issue injunctions on national taxes

• Despite the wording of the CTA law (Section 11, RA 1125, as amended by RA 9282,
Section 9), the CTA can issue injunctive writs to restrain the collection of taxes and to
even dispense with the deposit of the amount claimed or the bond, whenever the
method employed by the CIR in the collection of the tax jeopardizes the interests of
the taxpayer for being patently in violation of the law. (Spouses Emmanuel and Jinkee
Pacquiao v. Court of Tax Appeals, G.R. No. 213394, April 6, 2016)
o Whenever the method employed by the CIR in the collection of tax is not
sanctioned by law, the bond requirement should be dispensed with.
o This prevents the absurd situation where the collection via summary methods
already violated the law yet the taxpayer still needs to file a bond just to get
an injunction.

As re: suspension of prescriptive period for reinvestigations acted upon by the BIR
• The BIR must have acted on the request before the period to collect ends. (CIR v.
United Salvage and Towage (Phils.), Inc., G.R. No. 197515, July 2, 2014, where the
CIR acted on the request for reinvestigation only after the period to collect expired.)

As re: suspension of prescriptive period for taxpayer’s change of address

• When records show that the BIR is aware of the taxpayer’s new address, the period is
not suspended, even without a formal written notice of the change of address. (CIR v.
BASF Coating + Inks Phils., Inc., G.R. No. 198677, November 26, 2014, where the
taxpayer’s records with the BIR clearly showed its new address. The BIR also still
insisted on sending the FAN to its old address, even after the PAN was “returned to
sender.”)

As re: options of the taxpayer when the CIR’s representative does not act on his protest
• The taxpayer does not have the option to appeal to the CIR in case the CIR’s
representative does not act on his protest. The taxpayer must choose between waiting
for the decision or going straight to the CTA. (PAGCOR v. BIR, G.R. No. 208731,
January 27, 2016)

As re: the form and validity of a Final Decision on a Disputed Assessment

• The FDDA must state the facts and the law in order to give the taxpayer a chance for
an intelligent appeal with the CTA.
o If it doesn’t, it’s considered void.
o A void FDDA does not invalidate the underlying assessment (because an
assessment and a FDDA are different). If the FDDA is void, it is as if there was
no decision by the CIR—tantamount to a denial by inaction by the CIR, which
may still be appealed to the CTA. (CIR v. Liquigaz Philippines Corporation, G.R.
No. 215534, April 18, 2016)

As re: supervening events in the period to claim a refund on national taxes

• A taxpayer who realizes a transaction is tax-exempt through a BIR Ruling should not
reckon the 2-year period from the issuance of the BIR Ruling. BIR Rulings merely
confirm what is in the Tax Code. The period begins from actual payment of tax, not

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 from the discovery of excessive payment of the tax. (CIR v. Meralco, G.R. No. 181459,
June 9, 2014)

COURT OF TAX APPEALS

As re: jurisdiction of the CTA

• Banco de Oro v. Republic (G.R. No. 198756, August 16, 2016) has stated that the CTA
may take cognizance of cases directly challenging the constitutionality or validity of a
tax law, regulation, or administrative issuance (such as revenue orders, revenue
memorandum circulars, and rulings).
o The CTA likewise has jurisdiction over CIR issuances which have been reviewed
by the Secretary of Finance, such as a BIR Ruling. (BDO v. Republic)
• It is the CTA, not the CA, that has jurisdiction over appeals on tax collection cases
originally decided by the RTC.
o Hence, when the BIR wrongly appeals to the CA, the CA cannot refer the records
of the case to the CTA for proper disposition. The mode of appeal was wrong to
begin with, making the RTC judgment final and executory. (Mitsubishi Motors
Philippines Corporation v. Bureau of Customs, G.R. No. 209830, June 17, 2015)
• In local tax collection cases, the amount of the claim determines where the case should
be filed.
o When the claim does not exceed P300,000 (or P400,000 in Metro Manila), the
case should be filed in the MTC, not the RTC. The RTC exercises appellate
jurisdiction in those cases. (China Banking Corporation v. City Treasurer of
Manila, G.R. No. 204117, July 1, 2015)

As re: questioning interlocutory orders of the RTC in local tax cases

• The CTA has exclusive jurisdiction over a special civil action for certiorari
assailing an interlocutory order issued by the RTC in a local tax case. (CE
Casecnan Water and Energy, Inc. v. the Province of Nueva Ecija, G.R. 196278,
June 17, 2015)

As re: questioning interlocutory orders of the CTA

• The proper remedy for interlocutory orders issued by the CTA division is Rule 65
straight to the Supreme Court. (CIR v. CTA and CBK Power Company Limited, G.R. No.
203054, July 29, 2015)

LOCAL TAXES and REAL PROPERTY TAX

As re: local taxes accruing exclusively to LGUs

• When a provision of law redirects amusement tax collection from the city to the hands
of movie producers, that provision is void and unconstitutional. (Film Development
Council of the Philippines v. Colon Heritage Realty Corporation, G.R. No. 203754, June
16, 2015)

As re: limitations on local taxes

• A local ordinance which imposes local business tax on the gross receipts on persons
who transport passengers or freight for hire and common carriers was held invalid.
(City of Manila v. Colet, G.R. No. 120051, December 10, 2014)

As re: imposing business taxes on places of amusement

• Golf courses are also not considered places of amusement because people don’t go to
golf courses to watch a performance. They go there to play golf. (Alta Vista Golf and
Country Club v. Cebu, G.R. No. 180235, January 20, 2016—but what about people
who go there to watch golfers?)

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As re: whether it is mandatory to go to the DOJ Secretary in questioning the validity of an
ordinance
• In pure questions of law, the appeal to the DOJ is not mandatory. It can be brought
straight to the RTC. (Alta Vista Golf and Country Club v. Cebu, G.R. No. 180235,
January 20, 2016)

As re: which law will govern in real property taxes between the Civil Code or the Lcoal
Government Code
• As between the Civil Code and the LGC, the latter shall prevail, as it is a special law
granting the LGUs the power to impose real property tax. (Manila Electric Company v.
City Assessor and City Treasurer of Lucena City, G.R. No. 166102, August 5, 2015)
• Hence, in determining whether machinery is real property subject to RPT, the definition
and requirements under the LGC are controlling over the Civil Code. (Manila Electric
Company v. City Assessor and City Treasurer of Lucena City, which stated that the
1964 case of Board of Assessment Appeals v. Manila Electric Co. is no longer controlling
because of the enactment of the LGC)
o In this case, MERALCO insisted that their transformers, electric posts,
transmission lines, insulators, and electric meters were not immovables under
the Civil Code because Article 415 (5) imposed additional requirements for
machinery to be considered immovable. (The additional requirements were 1)
being placed in the tenement by the owner of such tenement and 2) destined
for use in the industry or work in the tenement).
o The SC stated that this would mean imposing additional requirements for
classifying machinery as real property for RPT purposes not provided for in the
LGC.
• The transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO may qualify as “machinery” under the LGC subject to RPT. (Manila Electric
Company v. City Assessor and City Treasurer of Lucena City, G.R. No. 166102, August
5, 2015)
o Using the LGC definition of “machinery,” the SC stated that even if these are
not permanently attached, they are still actually, directly, and exclusively used
to meet the needs of the particular industry and by their very nature and
purpose necessary for the business’ purpose.

As re: Special Education Fund

• The LGU can impose SEF at a rate of less than 1%. Nothing in the LGC states that it
has to be 1%. (Demaala v. COA, G.R. No. 199752, February 17, 2015)

As re: exemption from RPT of government instrumentalities

• The Philippine Economic Zone Authority (PEZA) is also exempt from real property tax
as it is an instrumentality. (City of Lapu-Lapu v. Philippine Economic Zone Authority,
G.R. No. 184203, November 26, 2014)

As re: exemption from RPT of cooperatives

• The RPT exemption given to cooperatives applies even if the land owned by the
cooperative is leased to a taxable entity.
o The exemption is given without distinction. The law doesn’t care if the property
owned by the cooperative is used by the cooperative or not. (Provincial Assessor
of Agusan del Sur v. Filipinas Palm Oil Plantation, Inc., G.R. No. 183416,
October 5, 2016, where the cooperative leased the land to a private
corporation)

As re: payment under protest in RPC cases

• The protest contemplated here is needed when there is a question on the
reasonableness or correctness of the amount assessed. It involves a question of fact.
o A claim for tax exemption, whether full or partial, raises a question of
correctness. Hence, payment under protest is required. It does not question the

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 authority of the local assessor to assess real property tax. (National Power
Corporation v. Province of Quezon, G.R. No. 171586, January 25, 2010)
• However, when the taxpayer questions the legality or validity of an assessment—a
question of law—direct recourse to the local courts is allowed. (National Power
Corporation v. Municipal Government of Navotas, G.R. No. 192300, November 24,
2014, where what was being questioned was the authority of the assessor to impose
the assessment and the authority of the treasurer collect real property taxes. The issue
involved the interpretation of a BOT contract and as to which party actually, directly,
and exclusively used machinery and equipment for exemption purposes under Section
234 (c))
• Posting a surety bond before filing an appeal of the assessment with the LBAA is
substantial compliance of the requirement of payment under protest. (Manila Electric
Company v. City Assessor and City Treasurer of Lucena City, G.R. No. 166102, August
5, 2015)

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