ESTATE TAX CASES
unappealable by the petitioner’s default as regards protesting
MARCOS v. CA & CIR
Taxation; Due Process; While taxes are the lifeblood of the
government and should be collected without unnecessary
hindrance, such collection should be made in accordance with
law as any arbitrariness will negate the very reason for
government itself.—It has been repeatedly observed, and not
without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the
sustenance of government. Taxes are the lifeblood of the
government and should be collected without unnecessary
hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities
and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved.
Concededly, the authority of the Regional Trial Court, sitting,
albeit with limited jurisdiction, as a probate court over estate of
deceased individual, is not a trifling thing. The court’s
jurisdiction, once invoked, and made effective, cannot be
treated with indifference nor should it be ignored with impunity
by the very parties invoking its authority. In testament to this, it
has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person
by his prospective heirs before final adjudication; to determine
who are the heirs of the decedent; the recognition of a natural
child; the status of a woman claiming to be the legal wife of the
decedent; the legality of disinheritance of an heir by the
testator; and to pass upon the validity of a waiver of hereditary
rights.
“Sec. 3. Powers and duties of the Bureau.—The powers and
duties of the Bureau of Internal Revenue shall comprehend the
assessment and collection of all national internal revenue
taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its favor by
the Court of Tax Appeals and the ordinary courts. Said Bureau
shall also give effect to and administer the supervisory and
police power conferred to it by this Code or other laws.”
The omission to file an estate tax return, and the subsequent
failure to contest or appeal the assessment made by the BIR is
fatal to the petitioner’s cause, as under the above-cited
provision, in case of failure to file a return, the tax may be
assessed at any time within ten years after the omission, and
any tax so assessed may be collected by levy upon real
property within three years following the assessment of the tax.
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Since the estate tax assessment had become final and
the validity of the said assessment, there is now no reason why
the BIR cannot continue with the collection of the said tax. Any
objection against the assessment should have been pursued
following the avenue paved in Section 229 of the NIRC on
protests on assessments of internal revenue taxes.
CIR V ESTATE OF TODA
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means
and when availed of, it usually subjects the taxpayer to further
or additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors: (1) the
end to be achieved, i.e., the payment of less than that known
by the taxpayer to be legally due, or the non-payment of tax
when it is shown that a tax is due; (2) an accompanying state
of mind which is described as being “evil,” in “bad faith,”
“willfull,” or “deliberate and not accidental”; and (3) a course of
action or failure of action which is unlawful.
Fraud in its general sense, “is deemed to comprise anything
calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust
or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage
is taken of another.”
Put differently, in cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a return,
the period within which to assess tax is ten years from
discovery of the fraud, falsification or omission, as the case
may be.
As stated above, the prescriptive period to assess the correct
taxes in case of false returns is ten years from the discovery of
the falsity. The false return was filed on 15 April 1990, and the
falsity thereof was claimed to have been discovered only on 8
March 1991. The assessment for the 1989 deficiency income
tax of CIC was issued on 9 January 1995. Clearly, the
issuance of the correct assessment for deficiency income tax
was well within the prescriptive period.
DIZON V CTA
While the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves
and are primarily intended as tools in the administration of
justice, the presentation of the BIR’s evidence is not a mere
procedural technicality which may be disregarded considering
that it is the only means by which the CTA may ascertain and
verify the truth of BIR’s claims against the Estate. The BIR’s
failure to formally offer these pieces of evidence, despite CTA’s
directives, is fatal to its cause. Such failure is aggravated by
the fact that not even a single reason was advanced by the
BIR to justify such fatal omission. This, we take against the
BIR.
It is admitted that the claims of the Estate’s aforementioned
creditors have been condoned. As a mode of extinguishing an
obligation, condonation or remission of debt is defined as: an
act of liberality, by virtue of which, without receiving any
equivalent, the creditor renounces the enforcement of the
obligation, which is extinguished in its entirety or in that part or
aspect of the same to which the remission refers. It is an
essential characteristic of remission that it be gratuitous, that
there is no equivalent received for the benefit given; once such
equivalent exists, the nature of the act changes. It may
become dation in payment when the creditor receives a thing
different from that stipulated; or novation, when the object or
principal conditions of the obligation should be changed; or
compromise, when the matter renounced is in litigation or
dispute and in exchange of some concession which the
creditor receives.
We express our agreement with the date-of-death valuation
rule, made pursuant to the ruling of the U.S. Supreme Court in
Ithaca Trust Co. v. United States , 279 U.S. 151, 49 S. Ct. 291,
73 L.Ed. 647 (1929). First. There is no law, nor do we discern
any legislative intent in our tax laws, which disregards the date-
of-death valuation principle and particularly provides that post-
death developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are not
to be imposed, nor presumed to be imposed, beyond what the
statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government. Any doubt
on whether a person, article or activity is taxable is generally
resolved against taxation. Second. Such construction finds
relevance and consistency in our Rules on Special
Proceedings wherein the term “claims” required to be
presented against a decedent’s estate is generally construed
to mean debts or demands of a pecuniary nature which could
have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death .
Therefore, the claims existing at the time of death are
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significant to, and should be made the basis of, the
determination of allowable deductions.
DONOR’S TAX CASES
OSORIO V OSORIO
According to article 635 of the Civil Code, the donation cannot
include future property. By future property is meant that of
which the donor cannot dispose at the time of the donation.
The properties included in an existing inheritance cannot be
considered as belonging to third persons with respect to the
heirs, who by a fiction of law continue the personality of the
former owner, Nor do such properties have the character of
future property, because the heirs acquire a right to the
succession from the moment of the death of the deceased, by
the principle established in article 657 and applied by article
661 of the Civil Code, according to which the heirs succeed the
deceased by the mere fact of death. More or less time may
elapse from the moment of the death of the deceased until the
heirs enter into possession of the hereditary property, but the
acceptance in any event retroacts to the moment of the death,
in accordance with article 989 of the Civil Code. The right is
vested, although conditioned upon the adjudication of the
corresponding hereditary portion.
Future inheritance cannot be the subject of contract, except in
the cases expressly authorized by articles 177, 827, 1271, and
1331 of the Civil Code.
An inheritance already existing, which ceases to be future from
the death of the deceased, may lawfully be the object of
contract, and therefore, of donation, which is of a contractual
nature, because for its efficacy the concurrence of two wills,
that of the donor and that of the donee, is required.
It is the duty of the donee, in order that the donation may
produce legal effects, to accept the donation and notify the
donor thereof. Acceptance is necessary because nobody may
be compelled to receive a benefit against his will. The wills of
the donor and the donee concurring, the donation, as a mode
of transferring ownership, becomes perfect, according to article
623 of the Civil Code.
THE PHIL. AMERICAN LIFE & GEN. INSURANCE V SEC. OF
FINANCE

To leave undetermined the mode of appeal from the Secretary
of Finance would be an injustice to taxpayers prejudiced by his
adverse rulings. To remedy this situation, We imply from the
purpose of RA 1125 and its amendatory laws that the CTA is
the proper forum with which to institute the appeal. This is not,
and should not, in any way, be taken as a derogation of the
power of the Office of President but merely as recognition that
matters calling for technical knowledge should be handled by
the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency
mandated to adjudicate tax, customs, and assessment cases,
there can be no other court of appellate jurisdiction that can
decide the issues raised in the CA petition, which involves the
tax treatment of the shares of stocks sold.
In the recent case of City of Manila v. Grecia-Cuerdo, 715
SCRA 182 (2014), the Court En Banc has ruled that the CTA
now has the power of certiorari in cases within its appellate
jurisdiction.
Petitioner’s substantive arguments are unavailing. The
absence of donative intent, if that be the case, does not
exempt the sales of stock transaction from donor’s tax since
Sec. 100 of the NIRC categorically states that the amount by
which the fair market value of the property exceeded the value
of the consideration shall be deemed a gift. Thus, even if there
is no actual donation, the difference in price is considered a
donation by fiction of law. Moreover, Sec. 7(c.2.2) of RR 06-08
does not alter Sec. 100 of the NIRC but merely sets the
parameters for determining the “fair market value” of a sale of
stocks. Such issuance was made pursuant to the
Commissioner’s power to interpret tax laws and to promulgate
rules and regulations for their implementation.
ABELLO V CIR
Donation has the following elements: (a) the reduction of the
patrimony of the donor; (b) the increase in the patrimony of the
donee; and, (c) the intent to do an act of liberality or animus
donandi.
Since animus donandi or the intention to do an act of liberality
is an essential element of a donation, petitioners argue that it is
important to look into the intention of the giver to determine if a
political contribution is a gift. Petitioners’ argument is not
tenable. First of all, donative intent is a creature of the mind. It
cannot be perceived except by the material and tangible acts
which manifest its presence. This being the case, donative
intent is presumed present when one gives a part of one’s
patrimony to another without consideration. Second, donative
intent is not negated when the person donating has other
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intentions, motives or purposes which do not contradict
donative intent. This Court is not convinced that since the
purpose of the contribution was to help elect a candidate, there
was no donative intent. Petitioners’ contribution of money
without any material consideration evinces animus donandi.
The fact that their purpose for donating was to aid in the
election of the donee does not negate the presence of donative
intent.
Since the purpose of an electoral contribution is to influence
the results of the election, petitioners again claim that donative
intent is not present. Petitioners attempt to place the barrier of
mutual exclusivity between donative intent and the purpose of
political contributions. This Court reiterates that donative intent
is not negated by the presence of other intentions, motives or
purposes which do not contradict donative intent.
VAT CASES
TOLENTINO VS SEC. OF FINANCE
The question is whether this amendment of § 103 of the NIRC
is fairly embraced in the title of Republic Act No. 7716,
although no mention is made therein of P.D. No. 1590 as
among those which the statute amends. We think it is, since
the title states that the purpose of the statute is to expand the
VAT system, and one way of doing this is to widen its base by
withdrawing some of the exemptions granted before. To insist
that P.D. No. 1590 be mentioned in the title of the law, in
addition to § 103 of the NIRC, in which it is specifically referred
to, would be to insist that the title of a bill should be a complete
index of its content. The constitutional requirement that every
bill passed by Congress shall embrace only one subject which
shall be expressed in its title is intended to prevent surprise
upon the members of Congress and to inform the people of
pending legislation so that, if they wish to, they can be heard
regarding it. If, in the case at bar, petitioner did not know
before that its exemption had been withdrawn, it is not because
of any defect in the title but perhaps for the same reason other
statutes, although published, pass unnoticed until some event
somehow calls attention to their existence. Indeed, the title of
Republic Act No. 7716 is not any more general than the title of
PAL’s own franchise under P.D. No. 1590, and yet no mention
is made of its tax exemption.
CIR V AMERICAN EXPRESS
Under the last paragraph quoted above, services performed by
VAT-registered persons in the Philippines (other than the
processing, manufacturing or repacking of goods for persons
doing business outside the Philippines), when paid in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP, are zero-rated.
Respondent is a VAT-registered person that facilitates the
collection and payment of receivables belonging to its non-
resident foreign client, for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in
conformity with BSP rules and regulations. Certainly, the
service it renders in the Philippines is not in the same category
as “processing, manufacturing or repacking of goods” and
should, therefore, be zero-rated. In reply to a query of
respondent, the BIR opined in VAT Ruling No. 080-89 that the
income respondent earned from its parent company’s regional
operating centers (ROCs) was automatically zero-rated
effective January 1, 1988.
The VAT is a tax on consumption “expressed as a percentage
of the value added to goods or services” purchased by the
producer or taxpayer. As an indirect tax on services, its main
object is the transaction itself or, more concretely, the
performance of all kinds of services conducted in the course of
trade or business in the Philippines. These services must be
regularly conducted in this country; undertaken in “pursuit of a
commercial or an economic activity;” for a valuable
consideration; and not exempt under the Tax Code, other
special laws, or any international agreement.
As a general rule, the VAT system uses the destination
principle as a basis for the jurisdictional reach of the tax.
Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are
taxed.
The law clearly provides for an exception to the destination
principle; that is, for a zero percent VAT rate for services that
are performed in the Philippines, “paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the [BSP].” Thus, for the supply of service to be
zero-rated as an exception, the law merely requires that first,
the service be performed in the Philippines; second, the
service fall under any of the categories in Section 102(b) of the
Tax Code; and, third,it be paid in acceptable foreign currency
accounted for in accordance with BSP rules and regulations.
CIR V COMASERCO
Contrary to COMASERCO’s contention the above provision
clarifies that even a non-stock, nonprofit, organization or
government entity, is liable to pay VAT on the sale of goods or
services. VAT is a tax on transactions, imposed at every stage
of the distribution process on the sale, barter, exchange of
goods or property, and on the performance of services, even in
the absence of profit attributable thereto. The term “in the
course of trade or business” requires the regular conduct or
pursuit of a commercial or an economic activity, regardless of
whether or not the entity is profit-oriented.
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Section 108 of the National Internal Revenue Code of 1997
defines the phrase “sale of services” as the “performance of all
kinds of services for others for a fee, remuneration or
consideration.” It includes “the supply of technical advice,
assistance or services rendered in connection with technical
management or administration of any scientific, industrial or
commercial undertaking or project.”
It is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its
affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a
fee, remuneration or consideration, then the service rendered
is subject to VAT.
It is a rule that because taxes are the lifeblood of the nation,
statutes that allow exemptions are construed strictly against
the grantee and liberally in favor of the government. Otherwise
stated, any exemption from the payment of a tax must be
clearly stated in the language of the law; it cannot be merely
implied therefrom. In the case of VAT, Section 109, Republic
Act 8424 clearly enumerates the transactions exempted from
VAT. The services rendered by COMASERCO do not fall
within the exemptions.
Both the Commissioner of Internal Revenue and the Court of
Tax Appeals correctly ruled that the services rendered by
COMASERCO to Philamlife and its affiliates are subject to
VAT. As pointed out by the Commissioner, the performance of
all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT.
As the government agency charged with the enforcement of
the law, the opinion of the Commissioner of Internal Revenue,
in the absence of any showing that it is plainly wrong, is
entitled to great weight.
CONTEX V CIR
At this juncture, it must be stressed that the VAT is an indirect
tax. As such, the amount of tax paid on the goods, properties
or services bought, transferred, or leased may be shifted or
passed on by the seller, transferor, or lessor to the buyer,
transferee or lessee. Unlike a direct tax, such as the income
tax, which primarily taxes an individual’s ability to pay based on
his income or net wealth, an indirect tax, such as the VAT, is a
tax on consumption of goods, services, or certain transactions
involving the same. The VAT, thus, forms a substantial portion
of consumer expenditures.
The amount of tax paid may be shifted or passed on by the
seller to the buyer. What is transferred in such instances is not
the liability for the tax, but the tax burden. In adding or
including the VAT due to the selling price, the seller remains
the person primarily and legally liable for the payment of the
tax. What is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of the tax. Stated
differently, a seller who is directly and legally liable for payment
of an indirect tax, such as the VAT on goods or services is not
necessarily the person who ultimately bears the burden of the
same tax. It is the final purchaser or consumer of such goods
or services who, although not directly and legally liable for the
payment thereof, ultimately bears the burden of the tax.
Petitioner rightly claims that it is indeed VAT-Exempt and this
fact is not controverted by the respondent. In fact, petitioner is
registered as a NON-VAT taxpayer per Certificate of
Registration issued by the BIR. As such, it is exempt from VAT
on all its sales and importations of goods and services.
Petitioner’s claim, however, for exemption from VAT for its
purchases of supplies and raw materials is incongruous with its
claim that it is VAT-Exempt, for only VAT-Registered entities
can claim Input VAT Credit/Refund.
The point of contention here is whether or not the petitioner
may claim a refund on the Input VAT erroneously passed on to
it by its suppliers. While it is true that the petitioner should not
have been liable for the VAT inadvertently passed on to it by its
supplier since such is a zero-rated sale on the part of the
supplier, the petitioner is not the proper party to claim such
VAT refund.
CIR V SEAGATE
From the above-cited laws, it is immediately clear that
petitioner enjoys preferential tax treatment. It is not subject to
internal revenue laws and regulations and is even entitled to
tax credits. The VAT on capital goods is an internal revenue
tax from which petitioner as an entity is exempt. Although the
transactions involving such tax are not exempt, petitioner as a
VAT-registered person, however, is entitled to their credits.
Viewed broadly, the VAT is a uniform tax ranging, at present,
from 0 percent to 10 percent levied on every importation of
goods, whether or not in the course of trade or business, or
imposed on each sale, barter, exchange or lease of goods or
properties or on each rendition of services in the course of
trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added
to such goods, properties or services by the seller, transferor
or lessor. It is an indirect tax that may be shifted or passed on
to the buyer, transferee or lessee of the goods, properties or
services. As such, it should be understood not in the context of
the person or entity that is primarily, directly and legally liable
for its payment, but in terms of its nature as a tax on
5
consumption. In either case, though, the same conclusion is
arrived at.
Zero-rated transactions generally refer to the export sale of
goods and supply of services. The tax rate is set at zero. When
applied to the tax base, such rate obviously results in no tax
chargeable against the purchaser. The seller of such
transactions charges no output tax, but can claim a refund of or
a tax credit certificate for the VAT previously charged by
suppliers.
Applying the special laws we have earlier discussed,
respondent as an entity is exempt from internal revenue laws
and regulations. This exemption covers both direct and indirect
taxes, stemming from the very nature of the VAT as a tax on
consumption, for which the direct liability is imposed on one
person but the indirect burden is passed on to another.
Respondent, as an exempt entity, can neither be directly
charged for the VAT on its sales nor indirectly made to bear, as
added cost to such sales, the equivalent VAT on its purchases.
Ubi lex non distinguit, nec nos distinguere debemus. Where
the law does not distinguish, we ought not to distinguish.
Tax refunds are in the nature of such exemptions. Accordingly,
the claimants of those refunds bear the burden of proving the
factual basis of their claims; and of showing, by words too plain
to be mistaken, that the legislature intended to exempt them. In
the present case, all the cited legal provisions are teeming with
life with respect to the grant of tax exemptions too vivid to pass
unnoticed. In addition, respondent easily meets the challenge.
NIPPON EXPRESS V CIR
In a claim for refund under Section 112 of the National Internal
Revenue Code (N/RC), the claimant must show that: (1) it is
engaged in zero-rated sales of goods or services; and (2) it
paid input VAT that are attributable to such zero-rated sales.
Otherwise stated, the claimant must prove that it made a
purchase of taxable goods or services for which it paid VAT
(input), and later on engaged in the sale of goods or services
subject to VAT (output) but at zero rate. There is a refundable
sum when the amount of input (VAT (attributable to zero-rated
sale) is higher than the claimant's output VAT during one
taxahle period (quarter).
LUZON HYDRO V COMMISSIONER
A claim for refund or tax credit for unutilized input VAT may be
allowed only if the following requisites concur, namely: (a) the
taxpayer is VAT-registered; (b) the taxpayer is engaged in
zero-rated or effectively zero-rated sales; (c) the input taxes
are due or paid; (d) the input taxes are not transitional input
taxes; (e) the input taxes have not been applied against output
taxes during and in the succeeding quarters; (f) the input taxes
claimed are attributable to zero-rated or effectively zero-rated
sales; (g) for zero-rated sales under Section 106(A)(2)(1) and
(2); 106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas; (h) where there are both zero-rated or
effectively zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly and entirely attributable to
any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and ( i) the claim is filed
within two years after the close of the taxable quarter when
such sales were made.
TEAM ENERGY CORPORATION V COMMISSIONER
Claimants of tax refunds have the burden to prove their
entitlement to the claim under substantive law and the factual
basis of their claim. Moreover, in claims for VAT refund/credit,
applicants must satisfy the substantiation and invoicing
requirements under the NIRC and other implementing rules
and regulations. Under Section 110(A)(1) of the 1997 NIRC,
creditable input tax must be evidenced by a VAT invoice or
official receipt, which must in turn reflect the information
required in Sections 113 and 237 of the Code.
This Court reiterates that to claim a refund of unutilized or
excess input VAT, purchase of goods or properties must be
supported by VAT invoices, while purchase of services must
be supported by VAT official receipts. For context, VAT is a tax
imposed on each sale of goods or services in the course of
trade or business, or importation of goods “as they pass along
the production and distribution chain.” It is an indirect tax,
which “may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services.” The output tax
due from VAT-registered sellers becomes the input tax paid by
VAT-registered purchasers on local purchase of goods or
services, which the latter in turn may credit against their output
tax liabilities. On the other hand, for a non-VAT purchaser, the
VAT shifted forms part of the cost of goods, properties, and
services purchased, which may be deductible as an expense
for income tax purposes.
Our VAT system is invoice-based, i.e., taxation relies on sales
invoices or official receipts. A VAT-registered entity is liable to
VAT, or the output tax at the rate of 0% or 10% (now 12%) on
the gross selling price of goods or gross receipts realized from
the sale of services. Sections 106(D) and 108(C) of the Tax
Code expressly provide that VAT is computed at 1/11 of the
total amount indicated in the invoice for sale of goods or official
receipt for sale of services. This tax shall also be recognized
as input tax credit to the purchaser of the goods or services.
Strict compliance with substantiation and invoicing
requirements is necessary considering VAT’s nature and VAT
6
system’s tax credit method, where tax payments are based on
output and input taxes and where the seller’s output tax
becomes the buyer’s input tax that is available as tax credit or
refund in the same transaction. It ensures the proper collection
of taxes at all stages of distribution, facilitates computation of
tax credits, and provides accurate audit trail or evidence for
BIR monitoring purposes. The Court of Tax Appeals further
pointed out that the noninterchangeability between VAT official
receipts and VAT invoices avoids having the government
refund a tax that was not even paid. It should be noted that the
seller will only become liable to pay the output VAT upon
receipt of payment from the purchaser. If we are to use sales
invoice in the sale of services, an absurd situation will arise
when the purchaser of the service can claim tax credit
representing input VAT even before there is payment of the
output VAT by the seller on the sale pertaining to the same
transaction. As a matter of fact[,] if the seller is not paid on the
transaction, the seller of service would legally not have to pay
output tax while the purchaser may legally claim input tax
credit thereon. The government ends up refunding a tax which
has not been paid at all. Hence, to avoid this, VAT official
receipt for the sale of services is an absolute requirement.
REMEDIES CASES
MEDICARD PHILIPPINES V CIR
It is clear that unless authorized by the CIR himself or by his
duly authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be undertaken.
The circumstances contemplated under Section 6 where the
taxpayer may be assessed through best-evidence obtainable,
inventory-taking, or surveillance among others has nothing to
do with the LOA. These are simply methods of examining the
taxpayer in order to arrive at the correct amount of taxes.
Hence, unless undertaken by the CIR himself or his duly
authorized representatives, other tax agents may not validly
conduct any of these kinds of examinations without prior
authority.
The Court said that the main difference between an HMO and
an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through
participating physicians while insurance companies simply
undertake to indemnify the insured for medical expenses
incurred up to a pre-agreed limit. In the present case, the VAT
is a tax on the value added by the performance of the service
by the taxpayer. It is, thus, this service and the value charged
thereof by the taxpayer that is taxable under the NIRC. To be
sure, there are pros and cons in subjecting the entire amount
of membership fees to VAT. But the Court’s task however is
not to weigh these policy considerations but to determine if
these considerations in favor of taxation can even be implied
from the statute where the CIR purports to derive her authority.
This Court rules that they cannot because the language of the
NIRC is pretty straightforward and clear.
CIR V FITNESS BY DESIGN
An assessment “refers to the determination of amounts due
from a person obligated to make payments.” “In the context of
national internal revenue collection, it refers to the
determination of the taxes due from a taxpayer under the
National Internal Revenue Code of 1997.”
The formal letter of demand and assessment notice shall state
the facts, jurisprudence, and law on which the assessment was
based; otherwise, these shall be void. The taxpayer or the
authorized representative may administratively protest the
formal letter of demand and assessment notice within 30 days
from receipt of the notice.
The rationale behind the requirement that taxpayers should be
informed of the facts and the law on which the assessments
are based conforms with the constitutional mandate that no
person shall be deprived of his or her property without due
process of law. Between the power of the State to tax and an
individual’s right to due process, the scale favors the right of
the taxpayer to due process.
The purpose of the written notice requirement is to aid the
taxpayer in making a reasonable protest, if necessary. Merely
notifying the taxpayer of his or her tax liabilities without details
or particulars is not enough.
Due process requires that taxpayers be informed in writing of
the facts and law on which the assessment is based in order to
aid the taxpayer in making a reasonable protest. To
immediately ensue with tax collection without initially
substantiating a valid assessment contravenes the principle in
administrative investigations “that taxpayers should be able to
present their case and adduce supporting evidence.”
The prescriptive period in making an assessment depends
upon whether a tax return was filed or whether the tax return
filed was either false or fraudulent. When a tax return that is
neither false nor fraudulent has been filed, the Bureau of
Internal Revenue may assess within three (3) years, reckoned
from the date of actual filing or from the last day prescribed by
law for filing.
The issuance of a valid formal assessment is a substantive
prerequisite for collection of taxes. Neither the National Internal
Revenue Code nor the revenue regulations provide for a
“specific definition or form of an assessment.”
CIR V PHIL. DAILY INQUIRER
7
Under Section 203 of the NIRC, the prescriptive period to
assess is set at three years. This rule is subject to the
exceptions provided under Section 222 of the NIRC. The CIR
invokes Section 222(a) which provides: SEC. 222. Exceptions
as to Period of Limitation of Assessment and Collection of
Taxes.—(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection
thereof.
While the filing of a fraudulent return necessarily implies that
the act of the taxpayer was intentional and done with intent to
evade the taxes due, the filing of a false return can be
intentional or due to honest mistake. In CIR v. B.F. Goodrich
Phils., Inc., 303 SCRA 546 (1999), the Court stated that the
entry of wrong information due to mistake, carelessness, or
ignorance, without intent to evade tax, does not constitute a
false return. In this case, we do not find enough evidence to
prove fraud or intentional falsity on the part of PDI. Since the
case does not fall under the exceptions, Section 203 of the
NIRC should apply. It provides: SEC. 203. Period of Limitation
Upon Assessment and Collection.—Except as provided in
Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing
of the return, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the
expiration of such period. Provided, That in a case where a
return is filed beyond the period prescribed by law, the three
(3)-year period shall be counted from the day the return was
filed. For purposes of this Section, a return filed before the last
day prescribed by law for the filing thereof shall be considered
as filed on such last day. Indeed, the Waivers executed by the
BIR and PDI were meant to extend the three-year prescriptive
period, and would have extended such period were it not for
the defects found by the CTA. This further shows that at the
outset, the BIR did not find any ground that would make the
assessment fall under the exceptions.
CIR V GONZALES & LMCEC
A notice of assessment is: [A] declaration of deficiency taxes
issued to a [t]axpayer who fails to respond to a Pre-
Assessment Notice (PAN) within the prescribed period of time,
or whose reply to the PAN was found to be without merit. The
Notice of Assessment shall inform the [t]axpayer of this fact,
and that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course. The
formal letter of demand calling for payment of the taxpayer’s
deficiency tax or taxes shall state the fact, the law, rules and
regulations or jurisprudence on which the assessment is
based, otherwise the formal letter of demand and the notice of
assessment shall be void.

As it is, the formality of a control number in the assessment

notice is not a requirement for its validity but rather the
contents thereof which should inform the taxpayer of the
declaration of deficiency tax against said taxpayer. Both the
formal letter of demand and the notice of assessment shall be
void if the former failed to state the fact, the law, rules and
regulations or jurisprudence on which the assessment is
based, which is a mandatory requirement under Section 228 of
the NIRC.

Tax amnesty is a general pardon to taxpayers who want to

start a clean tax slate. It also gives the government a chance to
collect uncollected tax from tax evaders without having to go
through the tedious process of a tax case. Even assuming
arguendo that the issuance of RR No. 2-99 is in the nature of
tax amnesty, it bears noting that a tax amnesty, much like a tax
exemption, is never favored nor presumed in law and if granted
by statute, the terms of the amnesty like that of a tax
exemption must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.

Given the explicit conditions for the grant of immunity from

audit under RR No. 2-99, RR No. 8-2001 and RR No. 10-2001,
we hold that respondent Secretary gravely erred in declaring
that petitioner is now estopped from assessing any tax
deficiency against LMCEC after issuance of the
aforementioned documents of immunity from
audit/investigation and settlement of tax liabilities. It is
axiomatic that the State can never be in estoppel, and this is
particularly true in matters involving taxation. The errors of
certain administrative officers should never be allowed to
jeopardize the government’s financial position.