for

Atty. Nicasio C. Cabaneiro, CPA

1. Differentiate tax exemption of non-stock, non-profit
educational institutions from that of propriety educational
institutions
 Privilege granted to non-stock, non-profit educational
institutions is conditioned only on actual, direct and exclusive
use of their revenues and assets for educational purposes
 In contrast, proprietary educational institutions, including
those cooperatively owned, may be entitled to such
exemptions subject to limitations provided by law including
restrictions on dividends and provisions for reinvestment
(Const. Art. XIV, Sec. 4(3))
1. Differentiate tax exemption of non-stock, non-profit
educational institutions from that of propriety educational
institutions – cont.
 A proprietary educational institution is entitled only to the
reduced rate of 10% corporate income tax
 This rate is applicable only if the proprietary educ’al institution
is non-profit and its gross income from unrelated trade,
business or activity does not exceed 50% of its total gross
income
 Consistent with Art. XIV, Sec. 4(3) of the Constitution, these
limitations do not apply to non-stock, non-profit educ’al
institutions (CIR vs. De La Salle University, Inc., G.R. No.
196596, Nov. 9, 2016)
2. BIR assessed D (a non-stock, non-profit educational
institution) for deficiency income tax on its rental earnings
from restaurants/ canteens and bookstores operating within
the campus; deficiency DST on loans and lease contracts.
D protested and anchored its petition on Art. XIV Sec. 4(3)
that exempts all revenues and assets of non-stock, non-profit
educ’al institutions used actually, directly and exclusively for
educ’al purposes from taxes and duties.
On the other hand, CIR posits that Sec. 30 (H) of Tax Code
qualified the tax exemption granted to non-stock, non profit
educ’al institution such that the revenues and income they
derived from assets or from any of their activities conducted
for profit are taxable even if these revenues and income are
used for educ’al purposes. Decide.
 I will rule in favor of D
 Tax exemption granted to non-stock, non-profit educ’al
institutions is conditioned only on the actual, direct and
exclusive use of their revenues and assets for educ’al purposes
 A plain reading of Constitution would show that it does not
require that revenues and income must have also been
sourced from educ’al activities or activities related to the
purposes of an educ’al institution
 The phrase all revenues is unqualified by any reference to the
source of revenues
 Thus, so long as the revenues and income are used actually,
directly and exclusively for educ’al purposes, then said
revenues and income shall be exempt from taxes and duties
 Note: Taxation of revenues differs from taxation of assets
 When a non-stock, non-profit educ’al institutions is
conditioned only on the actual, direct and exclusive use of their
revenues and assets for educ’al purposes, it shall be exempted
from income tax, VAT and Local Business Tax
 On the other hand, when it also shows that it uses its assets in
the form of real property for educ’al purposes, it shall be
exempted from RPT
 Proving the actual use of taxable item will result in an
exemption, but the specific tax from which the entity shall be
exempted from shall depend on whether the item is an item of
revenue or asset (CIR vs. De La Salle Univ. Inc. G.R. No. 196596,
Nov. 9, 2016)
3. ABC is the owner and operator of the only canteen in DEF
College, where the latter charges the former Php100K
monthly rental fee.
The income derived from said agreement is used by the latter
in its school operations, including but not limited to staff and
faculty dev’t., scholarships, and purchase of library
equipment.
However, BIR assessed DEF College for deficiency income tax
from its rental income in 2009.
School protested on the ground that under the Constitution,
all revenues and assets of non-stock, non-profit educ’al
institutions used actually, directly and exclusively for educ’al
purposes shall be exempt from taxes and duties.
Is the school’s contention correct?
 Yes. To come with the ambit of constitutional exemption,
income must be used actually, directly and exclusively for
educ’al purposes by an educ’al institution which is non-stock
and non-profit although a concessionaire operates the canteen
 Where the same income from cafeteria concession fees is
commingled with the other funds that maje up the school’s
“other educational income” and income is made available for
school operations (e.g. salaries, utilities, scholarship, etc., lease
income is exempt from income tax (CIR vs. ADMU, Inc. CTA
Case Nos. 7246 & 7293, Mar. 11, 2010)
4. NPC is of the insistence that it is not subject to the
payment of franchises taxes imposed by the Province of
Isabela because all of its shares are owned by the Rep. of the
Philippines.
It is thus, an instrumentality of the Nat’l Gov’t. which is
exempt from local taxation.
As such, it is not a private corporation engaged in “business
enjoying franchise”
Is such contention meritorious?
 No. The LGC has withdrawn all tax exemptions previously
enjoyed by all persons and authorized LGUs to impose a tax on
business enjoying a franchise tax notwithstanding the grant of
tax exemption to them
 Thus. A LGU has the authority to impose and collect a local
franchise tax (PLDT vs. City of Davao, et. Al, G.R. No. 173867,
Aug. 22, 2001)
5. Distinguish withholding taxes from indirect taxes
 Indirect taxes like VAT and excise tax are different from
withholding tax
 In indirect taxes, incidence of taxation falls on one person but
the burden can be shifted to another such as when tax is
imposed on goods before reaching the consumer who
ultimately pays for it
 In case of withholding taxes, incidence and burden of taxation
falls on the same entity, the statutory taxpayer
 Burden of taxation is not shifted to the withholding agent who
merely collects, by withholding , the tax due from income
payments to entities arising from certain transactions and
remits to gov’t. (ING Bank NV vs. CIR, G.R. No. 167679, Apr. 20,
2016)
6. HK Co., a HK Corp. not doing business in the PH, holds 40% of
the shares of A Co., a PH Co, while the 60% is owned by a Filipino-
owned PH Corp.
HK Co. also owns 100% of the shares of B Co., an Indonesian co.
which has a duly licensed PH branch
Due to worldwide restructuring of the HK Co. Group, HK Co.
decided to sell all its shares in A and B Cos. and the negotiations
for the buy-out and the signing of the Agreement of Sale were all
done in the PH
Agreement provides that the purchase price will be paid to HK
Co’s. bank account in the US and that title to A and B Cos. Shares
will pass from HK Co. to P Co. in HK where stock certs. will be
delivered.
P Co. seeks your advice as to whether or not it will subject the
payments of purchase price to withholding tax (1999 Bar Exam)
 Yes, payments of purchase price will be subject to withholding
tax
 Considering that all the activities (including consummation of
sales) occurred within the PH, income is considered as income
from within, subject to PH income taxation
 HK Co. being a foreign corp., is to be taxed on its income
derived from sources within the Philippines (1 Domondon,
2013, p.189)
7. NDC, a domestic and resident corp., entered into a contract
with several Japanese shipbuilding cos. for construction of
vessels, purchase price was to come from proceeds of bonds
issued by the CB
NDC remitted to the shipbuilding cos. the total interest on
the balance of the purchase price
However, not tax was withheld by NDC
Hence, CIR held NDC liable on such tax
NDC argues that Japanese shipbuilders were not liable on
interest remitted to them because all related activities were
done in Tokyo
Is NDC’s contention liable
 No, gov’ts right to levy and collect income tax on interest
received by foreign corps. Not engaged in trade or business
within the PH is not planted upon the condition that the
activity or labor and the sale from which the interest income
flowed had its situs in the PH
 Residence of the obligor who pays the interest rater than the
physical location of the securities, bonds or notes or the place
of payment, is the determining factor of the source of interest
income.
 Interest remitted on the unpaid balance of purchase price of
vessels is interest derived from sources within the PH (National
Dev’t. Corp. vs CIR, G.R. No. L-53961, June 30, 1987)
8. Municipal Board of the City of Manila enacted an
Ordinance imposing business taxes on manufacturers,
importers or producers, doing business in the City of Manila
Mayor approved the said ordinance. Allied Thread Co., Inc.
claims exclusion from said ordinance on the ground that it
does not maintain an office or branch office in the City of
Manila, where the subject ordinance only applies
However, it admits that it does business in the City of Manila
through a broker or agent, Ker & Co., Ltd doing business in
the City of Manila
Is Allied Thread Co., Inc. exempt from the coverage of the
enacted Ordinance?
 No, the power to levy an excise upon the performance of an
act or the engaging in an occupation does not depend upon
the domicile of the person subject to the excise nor upon the
physical location of the property and in connection with the act
or occupation taxed, but depends upon the place in which the
act is performed or occupation engaged in
 Thus, the gauge for taxability under said Ordinance does not
depend on the location of the office but attaches upon the
place where the respective sale transaction is perfected and
consummated
 Since Allied Thread sells its products in the City of Manila
through its broker, Ker & Co. Ltd, it cannot escape tax liability
imposed by the ordinance (Allied Thread Co., Inc. vs. City of
Mayor of Manila, G.R. No. L-40296, Nov. 21, 1984)
9. An Asian employee of ADB who is retiring has offered to
sell his car to M which was imported tax free for his personal
use
The privilege of exemption from tax is granted to qualified
use under the ADB Charter which is recognized by the tax
authorities
If M decides to purchase the car, is the sale subject to tax?
(2005 Bar Exam)
 Yes, tax exemption does not flow to subsequent transfers of
the car to non-exempt persons
 Tax exemptions are to be construed strictly and are not
considered transferable in character
 Transfer of car to M, a non-exempt tax person is subject to tax
(1 Domondon 2013 p.113)
10. S, an American international shipping co. doing business
in PH, entered into a contract with US gov’t. to transport
military household goods and effects of US military
personnel assigned to Subic Naval Base
From said contract, S derived an income for the year 1984
amounting to Php58M and paid income tax due thereon of
1.5% amounting to Php870K
Claiming that it paid income tax by mistake because under
Art. XII (4) of RP-US Military Bases Agreement, PH gov’t
agreed to exempt from payment of PH income tax nationals
of the US, or corps. of the US, residents in the US in respect
of any profit derived under a contract made in the US with
the gov’t. of the US in connection with construction,
maintenance, operation and defense of base, a written claim
was filed with the BIR, will the claim for refund proper?
 No, law does not look with favor on tax exemptions and that he
who would seek to be thus privileged must justify it by words
too plain to be mistaken and too categorical to be
misinterpreted
 It’s obvious that the transport or shipment of household goods
and effects of US military personnel is not included in the term
“construction, maintenance, operation and defense of bases
under Art. XII (4) of RP-US Military Bases Agreement nor could
the performance of this service to the US gov’t be interpreted
as directly related to the defense and security of PH territories
 Considering that the income of S is not exempt from tax, his
claim for refund will not prosper (Sea-Land Services Inc. vs.
Court of Appeals, G.R. No. 122605, Apr. 30, 2001)
11. RA 9504 was approved and signed into law. It granted
MWEs exemption from payment of income tax on their
minimum wage, holiday pay, overtime pay, night differential
pay and hazard pay
BIR issued rev.reg. to implement RA 9504. It provided that
MWEs receiving other income such as from conduct of trade,
business, practice of profession except income subject to
final tax in addition to compensation income are not
exempted from income tax on their entire income earned
during the taxable year
SMW, holiday pay, overtime pay, night differential pay and
hazard pay shall still be exempt from w/holding tax
Mr. X assails provision of RR and argues that prorated
application of personal and addl exemptions under RR is not
the legislative intendment in this jurisdiction. Is it correct?
 Yes. RA 9504 must be liberally construed. We are mindful of
the strict rule when it comes to interpretation of tax exemption
laws
 The canon, however, is tempered by several exceptions one of
which is when the taxpayer falls within the purview of the
exemption by clear legislative intent
 In this situation, rule of liberal interpretation applies in favor of
grantee and against the gov’t.
 There is a clear legislative intent to exempt minimum wage
received by an MWE who earns additional income on top of
minimum wage
 Intent can be seen from both law and deliberations. We see no
reason why we should not liberally interpret RA 9504 in favor
of taxpayers (Soriano vs. Sec. of Finance, G.R. No. 184450, Jan.
24, 2017)
12. City of Manila assessed and collected taxes from A & B
pursuant to Sec. 15 (Tax on Wholesalers, Distributors or
Dealers) and Sec. 17 (Tax on Retailers) of the Revenue Code
of Manila
It imposed addl taxes pursuant to Sec. 21 (Tax on Business
subject to Excise, VAT or Percentage Taxes under NIRC) of the
same law as a condition for renewal of their business licenses
A & B paid under protest the tax assessed under Sec. 21
but requested for tax credit or refund. They asserted that
enforcement of Sec. 21 constitutes double taxation because
the local business taxes under Secs. 15 and 17 were already
being paid by them.
Is their contention tenable?
 Yes. Double taxation means taxing the same property twice
when it should be taxed only once. 2 taxes were imposed on
the same subject matter for the same purpose by the same
taxing authority within the same jurisdiction during the same
taxing period and taxes must be of same kind or character
 All taxes were imposed on the same subject matter (privilege
of doing business) and for the same purpose (in order to make
taxpayers contribute to the city’s revenues) by the same taxing
authority (City of Manila) and within the same jurisdiction in
the same taxing period (per calendar year) and taxes were all in
the nature of local business taxes
 Thus, enforcement of Sec. 21 constitutes double taxation
(Nursery Care Corp., et. al vs. Anthony Acevedo and City of
Manila, G.R. No. 180651, July 30, 2014)
13. A purchased a lot in Makati in 1980 at a price of P1M,
which has been leased to B, a domestic corp. owned 99% by
A. In 2007, A exchanged his Makati property for shares of
stocks of B which BIR confirmed as a tax-free exchange of
property for shares of stock and subsequently sold his entire
stockholdings in B to C for P300M
In view of a tax advice, A paid only the CGT of P29,895,000
(P100,000 x 5% + P298,900,000 x 10%), instead of the
corporate income tax of P104,650,000 (35% on P299M gain
from sale of real property)
After evaluating the CGT payment, RDO wrote a letter to A,
stating that he committed tax evasion. Is the contention of
the RDO tenable? (2009 Bar Exam)
 No. The exchange of the real state property for the shares of
stocks is considered as a legitimate tax avoidance scheme (Sec.
40[C2)]
 The sale of the shares of stocks of domestic corp., which is a
capital asset, is subject to a final tax of 5% on the 1st P100K and
10% on the amount in excess of P100K Sec. 24 [C] NIRC).
Therefore A did not commit tax evasion
 Note: The subsequent transaction after the tax-free exchange
transaction is in reality a taxable transaction since Sec. 40(C)(2)
is merely a deferment of recognition of income
 It is tax free for as long as property remains with the corp.
established under Sec. 40 (C)(2) but the moment the corp. sells
the same it is already subject to 6% CGT if what was sold is a
capital asset or the 30% regular corporate income tax if what
was sold is an ordinary asset
14. TPC, a VAT entity engaged in business of power
generation and sale of electricity, filed a claim for refund of
its unutilized input VAT under Sec. 112 of NIRC
CTA rendered a decision partially granting TPC’s claim. On its
Petition for Review with SC, TPC claims that it is entitled to
the full amount of tax refund or credit.
On the other hand, CIR contends that TPC’s claim for refund
should fail since it is still liable for deficiency VAT for its sales
of electricity to some companies which were denied VAT
zero-rating
Can the tax refund claimed by TPC be offset with liability for
deficiency VAT?
 No. While as a rule, taxes cannot be subject to compensation
because the gov’t. and taxpayer are not creditors and debtors
of each other, the Court have allowed the offsetting of taxes
where 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 Sec. 229 of NIRC
 TPC filed a claim for tax refund or credit under Sec. 112 of
NIRC, where the issue to be resolved is whether TPC is entitled
to a refund or credit. Since it is not a claim for refund under
Sec. 229 of the NIRC, the correctness of TPC’s VAT returns is
not an issue
 Thus, offsetting of taxes cannot be allowed in the instant case
(CIR vs. Toledo Power Co., G.R. No. 196415, Dec. 2, 2015)
 Note: Sec. 112 of the Tax Code that refers to refund of input
tax attributable to zero rated sales is not considered refund of
an erroneous tax since refund of the same is a matter of right
 Refund of erroneously paid taxes falls under Sec. 204 and Sec.
229 of NIRC
15. BIR sent a letter to P asking it to settle its tax liabilities for
the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd
quarter of 1992 in the total amount of P123M
P protested the demand for payment of tax liabilities stating
that it has pending claims for VAT input credit/ refund for
taxes it paid for the years 1989 to 1991 in the amount of
P120M plus interest, thus, these claims for refund should be
applied against the tax liabilities.
Are taxes subject to set-off?
 No. A distinguishing feature of a tax is that it is compulsory
rather than a matter pf bargain, thus a taxpayer cannot refuse
to pay his taxes when they fall due simply because he has a
claim against the gov’t. or that collect of tax is contingent on
the result of lawsuit it filed against the gov’t.
 P’s theory that would automatically apply its VAT input credit/
refund against its tax liabilities can easily give rise to confusion
and abuse, depriving the gov’t. of authority over the manner
by which taxpayer credit and offset their tax liabilities
 Thus, P cannot set off his claim for refund to his tax liability
(Philex Mining Corp. vs. CIR, G.R. No. 125704, Aug. 25, 1998)
16. Can an assessment for a local tax be the subject of set-off
or compensation against a final judgment for a sum of money
obtained by a taxpayer against the local gov’t. that made the
assessment?
 No. Taxes and debts are of diff. nature and character

 Taxes are assessed or the obligation of the taxpayer arising

from law while the money judgment against the gov’t. is an
obligation arising from contract, whether express or implied
 Inasmuch as taxes are not debts, it follows that the 2
obligations are not susceptible to set-off or legal compensation
 Hence, no set-off or compensation between the 2 diff. classes
of obligations is allowed (Francia vs. IAC, G.R. No. L-567649,
June 28, 1988)
17. On various dates, certain municipalities of Laguna
province issued resolutions through their respective
municipal councils granting franchise in favor of MERALCO for
the supply of electric light, heat and power within their
concerned areas.
After the LGC took effect, the province enacted an ordinance
imposing a franchise tax on businesses enjoying a franchise.
On the basis thereof, the Provincial Treasurer sent a demand
letter to MERALCO for the corresponding tax payment.
MERALCO assails the constitutionality of the said ordinance.
Is the imposition of franchise tax under the assailed
ordinance violative of the non-impairment clause of the
Constitution?
 No. The non-impairment clause of the Constitution can rightly
be invoked in contractual tax exemptions agreed to by the
taxing authority in contracts lawfully entered into by them
under enabling laws in which the gov’t. acting in its private
capacity, sheds its cloak of authority and waives its
governmental immunity
 These contractual tax exemptions are not to be confused with
tax exemptions granted under franchises. A franchise partakes
the nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution
 Art. XII, Sec. 11 of the 1987 Constitution is explicit that no
franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject
to amendment, alteration or repeal by Congress as and when
the common good so requires
 Considering that the franchise granted to MERALCO is not
strictly contractual in nature and thus falls outside the purview
of the non-impairment clause, the imposition of franchise tax
was valid (MERALCO vs. Province of Laguna, G.R. No. 131359,
May 5, 1999)
 Note: What constitutes as an impairment of obligations of
contracts is the revocation of an exemption which is founded
on a valuable consideration, because it takes the form and
essence of a contract (Manila Railroad Co. vs. Insular Collector
of Customs, 12 PHIL 146, 1915)
18. X Corp. relied on the implementing gen. circular issued by
CIR in w/holding 30% of ½ of rentals it paid for use of films.
After 3 years of relying on said circular, the CIR revoked the
same for being “erroneous for lack of legal basis” by issuing a
new circular which based the tax prescribed on the gross
income instead of on half of the income.
X was issued an assessment for the deficiency. As counsel for
X, what legal action would you take?
 I would contest the validity of retroactive application of the
new circular
 Tax code provides that any revocation, modification or reversal
of any of the rule and regulations or any rulings or circulars
promulgated by the CIR shall not be given retroactive
application if it will be prejudicial to the taxpayers
 In the interest of justice and fair play, rulings and circulars
promulgated by the CIR have no retroactive application where
to so apply them would be prejudicial to taxpayers, who relied
in good faith and religiously complied with no less than a
circular issued by the highest official of the BIR and approved
by the Sec. of Finance (ABS-CBN Broadcasting Corp. vs. CTA
G.R. No. L-52306, Oct. 12, 1981)
19. X Corp. is engaged in insurance business. Part of its
activities is lending money to its policy holders.
CIR imposes addl percentage tax on the said activity because
the former believes “X” is also a lending investor. Is the tax
official correct?
 No, when a co. is taxed on its main business, it is no longer
taxable further for engaging in an activity or work which is
merely a part of incidental to and is necessary to its main
business
 To require X to pay addl percentage tax fixed again for an
activity which is necessarily a part of the same business, CIR
must prove that there is a law expressly requiring X such addl
payment of tax because unless a stature imposes a tax clearly,
expressly and unambiguously what applies is the equally well
settled rule that imposition of tax cannot be presumed
 (CIR vs. The Philippine American Accident Insurance Co., Inc. et.
Al, G.R. No. 141658, March 18, 2005)
 Note: A statute will not be construed as imposing a tax unless
it does so clearly, expressly and unambiguously.
 As a consequence, in case of doubt, the statute is to be
construed most strongly against the gov’t. and in favor of the
taxpayer CIR vs. CA, CTA, ADMU, G.R. No. 115349, Apr. 18,
1997)
20. The Roman Catholic Church owns a 2-hectare lot in a
town in Tarlac province. The southern side and middle part
are occupied by the church and a convent, the eastern side
by the school run by the church itself. The southeastern side
by some commercial establishments, while the rest of the
property, in particular, the northwestern side, is idle or
unoccupied. May the church claim tax exemption on the
entire land?
 No, the portion of the land occupied and used by the church,
convent and school run by the church are exempt from real
property taxes while the portion of the land occupied by
commercial establishments and the portion which is idle are
subject to real property taxes. Usage or property and not
ownership is the determining factor whether or not the
property is taxable (Lung Center of the Phils. vs. Quezon City,
G.R. No. 144104, June 29, 2004)
21. Mactan-Ceby Int’l is a GOCC which operates the Mactan
Int’l Airport and Lahug Air Port. Under its charter, RA 6958, it
was exempted from RPT. Cebu City however assessed it for
RPY on the theory that tax exemption of the MCIAA was
deemed withdrawn by LGC. Should the MCIAA pay RPT?
 Yes, last paragraph of Sec. 234 of LGC unequivocally withdrew
upon its effectivity, exemptions from payment of RPT granted
to natural or juridical persons including GOCCs except as
provided in said section
 Since Petitioner is undoubtedly a GOCC, it follows that its
exemption from such tax granted it in Sec. 14 of its Charter, RA
6958, has been withdrawn.
 As a GOCC, it does not enjoy automatic exemption from
taxation.
 Thus, when the LGC withdrew its tax exemption and required it
to pay RPT, it should undoubtedly pay the tax (Manila Int’l
Airport Authority vs. City of Paranaque, G.R. No. 155650, July
20, 2006)
 Note: The decision rendered in 1996 by the SC considering
Mactan Cebu Int’l Airport Authority as GOCC was already
reversed in 2015 by SC in the case of MCIAA vs. Lapu Lapu City
and just like MIAA, they are both not gov’t instrumentalities
exempted from RPT under Sec. 234 of RA 7160
22. XYZ entered into an alleged stimulated sale of a 16 story
commercial building. XYZ authorized A, its President to sell
the building and the 2 parcels of land on which the building
stands. A purportedly sold the property for P100M to B who
in turn sold the same property on the same day to QRS for
P200M evidenced by Deed of Absolute Sale notarized on the
same day.
For the sale of property to QRS , B paid CGT of P10M. BIR
sent an assessed deficiency income tax arising from sale
alleging that XYZ evaded the payment of higher corporate
income tax of 35% with regard to the resulting gain.
Is the scheme perpetuated by A, a case of tax evasion or tax
avoidance?
 It is a tax evasion scheme. It is resorted to by X in making it
appear that there were 2 sales of the subject properties i.e.
from XYZ to B and then B to QRS cannot be considered a
legitimate tax planning (one way of tax avoidance)
 Such scheme is tainted with fraud. In this case, it is obvious
that the objective of sale to B was to reduce the amount of tax
to be paid especially that the transfer from the objective of
sale to B was to reduce the amount of tax to be paid especially
that the transfer from him to QRS would then subject the
income to only 5% individual CGT and not the 35% corporate
income tax (CIR vs. Benigno Toda Jr., G.R. No. 147188, Sept. 14,
2004)
23. Discuss the nature of tax amnesty. Can the withholding
agents with respect to their withholding tax liabilities availed
of tax amnesty?
 No. Under RA 9480, they are specifically excluded from the
coverage of the tax amnesty program. The withholding agent is
liable only insofar as he failed to perform his duty to withhold
the tax and remit the same to the gov’t.
 Liability for the tax remains with the taxpayer because the gain
was realized and received by him
 Since liability for tax belongs to the taxpayer and not to the
withholding agent, only the former may avail of the tax
amnesty (LG Electronics Phils., Inc. vs. CIR, G.R. No. 165451,
Dec. 3, 2014)
24. The City of Manila entered with LBP 2 loan agreements to
finance the redevelopment of a public plaza.
However, a group of residents led by C, invoking their
right as a taxpayer, filed a complaint against LBP and various
officers of the City, assailing the validity pf the subject loans
and praying that the commercialization of public plaza be
enjoined.
Does C have the right to institute taxpayer’s suit?
 Yes. Taxpayer is allowed to sue if: 1)Public funds derived from
taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some
irregularity is committed and 2)Petitioner is directly affected by
the alleged act
 In this case, proceeds from subject loans had already been
converted into public funds by the City’s receipt. Funds coming
from private sources become impressed with the
characteristics of public funds when they are under official
custody
 Since public plazas are of public dominion, C need not to be
privy to the loans. As long as taxes are involved, people have a
right to question the contracts entered unto by the gov’t. (Land
Bank of the Phils. Vs. Cacayuran, G.R. No. 191667, Apr. 17,
2013)
25. Y corporation engaged the services of the M law firm in
2010 to defend the corporation's title over a property used
in its business. For the legal services rendered in 2015, the
law firm billed the corporation only in 2016.
Y corporation claimed that since it is using the accrual
method, said expense could only be claimed as a deduction
from gross income in its 2016 return, because the exact
amount of the expense was determined only in 2016.
Is Y's claim proper? Reasons.
 No. The expense is deductible in the year all the requisites for
the all-events test were complied with. The test is considered
met if the liability is fixed and the amount of such liability can
be determined with reasonable accuracy.
 From the nature of the claimed deductions and the span of
time during which the firm was retained, Y can be expected to
have reasonably known the amount of the fees charged by the
firm. Hence, deduction should have been claimed in 2015 and
not 2016 (CIR vs. Isabela Cultural Corp., G.R. No. 172231, Feb.
12, 2007)
 Note: In accrual method of accounting, income is reported in
the year it is earned while expense is deducted in the year it is
incurred regardless of receipt or disbursement of cash. In cash
method of accounting, income is reported in the year
payments are received while expenses are deducted in the
year paid (2 DIZON, Taxation Law Compendium 2015 p. 1006)
26. Ms. A is the loyal store keeper of Mrs. Z who had the
habit of granting small loans to her employees at 0% interest.
Ms. A obtained a loan amounting to P90K from Mrs. Z in
2016, because Mrs. Z won in the lottery and in consideration
of her loyal service and assistance in making Mrs. Z’s
business bloom, Mrs. Z decided to condone the entire
amount.
Ms. A soon received an assessment from the BIR which
included the P90K in her gross income because it is
compensation income.
Is the BIR correct?
 Yes. NIRC provides in Sec. 32(A)(1) that gross income includes
compensation for services in whatever form paid. This includes
any condonation of a debt.
 Considering that the condonation was made in consideration
of Ms. A’s loyal service and assistance in Mrs. Z’s business, the
same was granted as a form of compensation covered by gross
income.
 Thus, BIR’s assessment covering the P90,000 condonation is
correct.
27. ABC Corp. paid insurance premiums on the life insurance
policy of Mr. Cruz, the head of its human resource dept. with
the company as its beneficiary.
Are the insurance premiums subject to compensation
income?
 No. Sec. 33 of the Tax Code imposes a final tax on life insurance
premiums in excess of what the law allows.
 Since Mr. Cruz is a managerial employee, whose life was
insured for the benefit of the company, the life insurance
premiums are not subject to compensation income but to a
final tax on fringe benefits.
28. Dr. N purchased a parcel of land in 1997 for P10M. Having
no productive use for it, he sold it for P8M in 2017.
BIR sent him an assessment for CGT arising from sale of said
property, which he contested for the reason that no gain had
been derived, and there was instead a loss. Is Dr. N correct?
 No. In Sec. 24(D) of the NIRC, the CGT is imposed on “gains
presumed to have been realized.” This is known as Gain by
Legal Fiction and is recognized by our jurisdiction even though
no gain may actually have been realized.
 Even though Dr. N incurred a loss from the sale of his real
property, under the law he is still presumed to have derived
some gain from the sale thereof.
 Hence, the 6% CGT is still demandable from him.
29. Y, A Japanese citizen, regularly visits the PH and stayed
with his relatives “on and off” for a period of 200 days in
2015. Despite the fact that he is merely a regularly visiting
tourist and is in no way engaged in trade or business, he still
earned money from the Philippines.
His cousin, a lawyer, told him that he have to declare income
earned from within the PH and pay the corresponding taxes.
His cousin helped him prepare his tax return and claimed the
appropriate deduction as a Non-Resident Citizen not engaged
in Trade or Business.
Is the BIR correct?
 No. As a non-resident citizen not engaged in trade or business,
who has resided in the PH for an aggregate period of more
than 180 days for the taxable year, Y is by operation of law
deemed a “nonresident alien doing business in the PH” and is
taxable as such.
 Given that he stayed in the PH for an aggregate period of 200
days, he is declared by Sec. 25 (A)(1) to be subject to income
tax in the same manner as an individual citizen and a resident
alien thus entitled to deductions.
 Y can claim the corresponding deductions
30. While in Manila, Ms. A, a non-resident Korean citizen sold
her house and lot in Seoul to Mr. X for P5 Million.
Upon the agreement of the parties, Mr. X should pay up front
in full amount.
BIR considered the P5 Million as income derived within the
PH since it was made in Manila thus subject to 25% gross
income tax. Is the BIR correct?
 No. Under the Tax Code, a NRA-NETB is taxable for the entire
income received from all sources with the PH. Here, the source
of income is derived from the sale of real property.
 Following the concept of situs of taxation, income derived from
sale of real property is considered as income within the PH if
such property is located in the PH.
 Considering that the subject property is outside of the PH and
the corresponding income is from sources without the PH, the
income is not taxable.
31. J Corp. grants all its employees 5% discount of the
purchase price of its products. During an audit investigation
made by the BIR, the BIR assessed the corp. for failure to
withhold the corresponding tax on the amount equivalent to
the courtesy discount received by all the employees,
contending that the courtesy discount is considered as addl
compensation for the R&F employees.
J Corp. contends that the amount is considered as de minimis
benefits and should not be taxed. Is there legal basis for the
assessment by the BIR?
 Yes. RR 5-2011 enumerates the de minimis benefits exempt
from taxation
 The list is an exclusive list. All other benefits given by
employers which are not included in the enumeration shall not
be considered as de minimis benefits hence, shall be subject to
income tax as well as withholding tax on compensation
income.
 Since courtesy discount is not one of the benefits provided
under the said enumeration, the same is taxable (RR 5-2011,
Sec. 1)
32. A tax assessment was sent to Mr. A, an employee of XYZ
Co. earning minimum wage. In addition, XYZ granted Mr. A an
apartment unit amounting to P90K, near the premise of the
former for its convenience.
BIR, in interpreting RA 9504 (exempting MWE receives
income from whatever source other than his wages in excess
of the P82K threshold for other benefits, such person would
transcend as a R&F subject to income tax. The BIR Officer
contends that Mr. A is not exempted to pay income tax since
he falls squarely on the said BIR ruling.
a. Is BIR ruling valid?
b. Is Mr. A liable to pay income tax?
c. Assuming that in the middle of 2015, Mr. A was granted
increase in wages higher than the minimum wage, is he
still exempt from payment of income tax for year 2015?
a. No. In Soriano vs. Sec. of Finance (2017), Court ruled that the
proper interpretation of RA 9504 is that it imposes taxes only
on the taxable income received in excess of minimum wage
but MWEs will not lose their exemption as such. They remain
MWEs entitled to exemption but the taxable income they
received other than as MWEs may be subjected to appropriate
taxes
In this case, there is a clear legislative intent to exempt MWE
who earns addl income on top of the minimum wage. Liberal
interpretation applies in favor of the grantee and against the
gov’t. (Soriano vs. Sec. of Finance, G.R. No. 184450, Jan. 24,
2017)
b. No. If the benefits furnished by the employer are for its
convenience, or is necessary for its trade or business, these
benefits are not income on the part of the employee. The
lodging, being a supplement, provided by XYZ to Mr. A inures
for the convenience of XYZ. The P90K worth of lodging does
not form part of income of Mr. A. Thus, Mr. A is exempted to
pay income tax since he is a Minimum Wage Earner.
c. No. When one is an MWE during a part of the year and later
earns higher than the minimum wage and becomes a non-
MWE, only earnings for that period when one is a non-MWE
is subject to tax. Improvement of one’s lot, however, cannot
justly operate to make the employee liable for tax on income
earned as an MWE.
 Note: The proper interpretation of RA 9504 is that it imposes
taxes only on the taxable income received in excess of the
minimum wage but the MWEs will not lose their exemption as
such.
 Workers who receive the statutory minimum wage remain
MWEs. The receipt of any other income during the year does
not disqualify them as MWEs.
 They remain MWEs, entitled to exemption as such but the
taxable income they receive other than as MWEs may be
subjected to appropriate taxes.
33. Mr. X, a Canadian citizen, was employed by Kimchi Inc., a
multinational co. engaged in food industry and designated
him at the regional headquarter in the PH. What is the
appropriate tax rate?
 On the assumption that Mr. X holds managerial and technical
positions in the said establishments, he is subject to 15% final
income tax (RR 02-98)
 The term “technical position” is limited only to positions which
are: a. highly technical in nature b. where there are no Filipino
who are competent, able and willing to perform the services
for which aliens are desired (RMC 41-2009)
 However, if Mr. X is a Rank & File employee, he is subject to
graduated rate of 5% to 32% as a resident alien or he is a NRA-
NETB, the 25% gross income tax shall apply
34. May a corporation, domestic or resident foreign,
registered with the BIR in the year 2015 be held liable for
income tax even if it is sustained a net loss during the taxable
period?
 Yes. A MCIT of 2% of the gross income is imposed on a
domestic and resident foreign corp. beginning on the 4th
taxable year immediately ff. the year in which such corp.
commenced its business operations (NIRC, Secs. 27 (E)(1) and
28(A)(2)). Thus, even if the deductible expense exceed gross
income, the corp. is still liable for the MCIT
 Note: Corps. that were registered in 1994 and earlier years are
covered by MCIT beginning Jan 01, 1998; Corps. which were
registered with the BIR in 1998 and the succeeding years will
be covered by MCIT after the lapse of 3 calendar years
(i.e.2002)
35. ABC Inc., a domestic corp. reported net loss in its 2010
ITR. It paid MCIT amounting to P100K. ABC reported a net
loss in its 2011 ITR. The MCT for 2011 amounted to P150K.
May ABC Inc. deduct the amount paid as MCIT for 2010 so
that it would only pay P50K for 2011?
 No. Under Sec. 27(E)(2) of the Tax Code, any excess of MCIT
over the normal income tax shall be carried forward and
credited against the normal income tax
 Thus, the excess MCIT carried from the previous taxable year
cannot be credited against the current taxable year’s income
tax if the corporation is only liable for MCIT
36. Z Films Denmark, a corp. based in Denmark, leased its
film Bjorn Legacy to SC Corp. in PH for showing. BIR sought to
collect 25% tax imposed by NIRC but Z films sought to reduce
its tax liability invoking deductions in NIRC. May Z file claim
deductions?
 No. NIRC provides for special rates for Special Non-Resident
Foreign Corps such as Z films. In its case as Cinematographic
Lessor, Sec. 28(B)(2) of the NIRC provides a tax of 25% of its
gross income from all sources within the PH.
 Given that the tax imposed on corporation’s gross income, Z
films cannot claim deduction since gross income taxation deals
with the whole income of the taxpayer without considering the
deductions.
 Thus, the 25% is to be imposed on the total gains of Z films
from PH Sources
37. YMCA is a non-stock, non-profit institution organized
exclusively for charitable purposes. It leases out portion of its
premises to small shop owners like restaurants and canteen
operators and from parking fees collected from non-
members. YMCA utilizes the receipts from rentals exclusively
in furtherance of its charitable purposes. Are the rentals
exempt from income tax?
 No. While YMCA may qualify as a corporation exempt from
income tax as a “civic league or organization not organized for
profit but operated exclusively for the promotion of social
welfare under Sec. 30 (G) of the Tax Code, the rentals are still
subject to income tax pursuant to the last paragraph of said
Section, to wit:
 “Notwithstanding the provision in the preceding paragraphs,
income of whatever kind and character of the foregoing
organization from any of their properties, real or personal or
from any of their activities conducted for profit, regardless of
the disposition made of such income, shall be subject to tax
imposed under this Code (CIR vs. CA, G.R. No. 124043, Oct. 14,
1998)
38. X Inc. is a hospital organized as a non-stock and non-
profit corporation. Hospital caters not only non-paying
patients but also those who are willing to pay for their
service.
BIR assessed X Inc. for deficiency income tax. It argued that
since X Inc. accommodates paying patients, the 10%
preferential tax rate on income of proprietary non-profit
hospitals should apply and removing the tax exemption
granted under Sec. 30(E) and (G).
Is BIR correct?
 No. X Inc. is subject to 10% income tax insofar as its revenues
from paying patients are concerned. To be clear, for an
institution to be completely exempt from income tax, Sec.
30(E) and (G) of NIRC require said institution to operate
exclusively for charitable or social welfare purpose
 But in case an exempt institution under Sec. 30(E) or (G) of the
said Code earns income from its non-profit activities, it will not
lose its tax exemption
 However, its income for profit activities will be subject to
income tax at preferential 10% rate pursuant to Sec. 27(B) CIR
vs. St. Luke’s Medical Center Inc., G.R. No. 203514, Feb. 13,
2017)
39. Air Canada is a foreign corp. and an offline int’l air carrier
engaged in selling airline tickets in the PH through Aerotel
Ltd. Corp. as its general sales agent
On the assessment made by the BIR, Air Canada claims that
the regular corp. income tax does not apply to “international
carriers” because the income it derived from sale of airline
tickets was income from services and not income from sales
of personal property
Is Air Canada subject to income tax?
 Yes. An offline int’l air carrier (IAC) selling passage tickets in the
PH through a local general sales agent is considered a resident
foreign corp.
 A resident foreign corp. refers to a foreign corp. engaged in
trade or business in the PH. Applying the doctrine in CIR vs.
British Overseas Airways Corp., an int’l air carrier with no
landing rights in the PH is a resident foreign corp. if its local
sales agent (“agent”) and issues tickets in its behalf.
 In the IRR of Rep. Act No. 7042, doing business includes
appointing representatives or distributors, operating under full
control of the foreign corp. (Air Canada vs. CIR, G.R. No.
169507, Jan. 11, 2016)
 Note: If IAC maintains flights to and from PH, it shall be taxed
at 2 ½ of Gross Phil. Billings, while IAC that don’t have flights to
and from PH but earns income from other activities in PH will
be taxed at 30% rate
40. JJ Corp. together with Mr. Song, Ms. Ji, Ms. Hyo, resident
citizens, formed X Joint Venture to engage in the construction
business. X Joint Venture profited P100M during its 1st year of
operations. Mr. Song, Ms. Ji, Ms. Hyo and JJ Corp. divided the
earnings equally.
a. Discuss the tax implications

b. Assuming that X Joint Venture is engaged in food business

and not in construction. Will your answer be the same?
a. X joint Venture us not subject to corporate tax because it is
not considered as corp. under Sec. 22 of NIRC. Song, Ji, and
Hyo’s shares are not subject to the 10% final tax on dividends
but to the graduated rates for individual taxpayers while JJ
Corp’s. share is subject to the corporate income tax of 30%
b. No. In this case, X Joint Venture will be subject to the 30%
corporate income tax. Likewise, when income is distributed
the same shall be considered as dividends.
Accordingly, Mr. Song, Ms Ji and Ms. Hyo’s shares are subject
to the 10% final tax on dividends while JJ Corp. shall be
exempt because it received the same from a domestic corp.
41. M Drug Corp. granted a total of P2M of Senior Citizen
discounts out of its P40M profits in taxable year 2006. It
attempted to claim the P2M amount as a tax credit resulting
in a P10M tax liability.
BIR, however, countered this saying that the P2M is a tax
deduction rather than a tax credit, resulting in a tax liability
of P11.4M based on the Corporate Rate of 30%
Is BIR Correct?
 Yes. Under RA 9997 or the Expanded Senior Citizen Act of
2010, the senior citizen discounts are considered as a tax
deduction rather than a tax credit
 Tax credit reduces the taxpayer’s liability, compared to a
deduction which reduces taxable income upon which tax
liability is calculated. A credit differs from deduction to the
extent that the former is subtracted from the tax while the
latter is subtracted from income before the tax is computed.
 As such, the amount of P2M must first be deducted from the
taxable income before the corporate rate of 30% is to be
applied.
 Thus, arriving at a tax liability of P11.4M
42. JM Industries Inc., a car manufacturer, leases a land and a
factory building owned by LF Realty Inc. JM Industries
claimed its rental payments to LF Realty as deductible
expenses in its 2012 ITR. BIR disallowed the rental payments
as deductible expenses and assessed JM industries for
deficiency income tax on the ground of failure to withhold
the required amount from the lessor.
JM Industries made a request for reconsideration. Pending its
request, JM Industries paid BIR the amount of withholding
tax corresponding to the rental payments.
May JM Industries claim the rentals as deductible expense?
 No. Any amount paid or payable which is otherwise deductible
from, or taken into account in computing gross income shall be
allowed as deduction only if it is shown that the tax required to
be deducted and withheld therefrom has been paid to the BIR
(NIRC, Sec. 34(K)).
 No deduction will be allowed notwithstanding payments of
withholding tax at the time of audit investigation or
reinvestigation/ reconsideration.
 Since no withholding of tax was made, JM Industries cannot
claim the rentals as deductible expense (R.R. No. 12-2013, Sec.
2, RMC 63-2013)
43. J Corporation filed its ITR wherein it claimed as
advertising expense the amount of P10M, 50% of which was
used for the protection of J’s brand franchise for its juice
product.
CIR disallowed said 50% and assessed the corp. for deficiency
income taxes. CIR maintains that the subject advertising
expense was not ordinary and thus, not deductible. Decide.
 CIR was correct. To be deductible, an ad expense should not
only be necessary but also ordinary. The deductible expense
must meet 2 conditions: First, reasonableness of the amount
incurred and Second, the amount incurred must not be a
capital outlay to create “goodwill” for the product and/or
business.
 Otherwise, expense must be considered a capital expenditure
to be spread out over a reasonable time. The subject expense
for the ad of a single product is inordinately large and is a
capital expenditure since it was intended for the maintenance
of its goodwill.
 Thus, it cannot be considered an ordinary expense deductible
under the Tax Code. (CIR vs. General Foods Inc., G.R. No.
143672, Apr. 24, 2003)
 44. Differentiate Net Operating Loss Carry Over (NOLCO)
from Net Capital Loss Carry Over (NELCO).
NELCO NOLCO
NATURE
Excess of capital loss over capital Excess of allowable deductions over
gains gross income

LIMITATION ON THE AMOUNT OF CARRY OVER

Amount not to exceed the net No such limitation
taxable income for the year the loss
was incurred
ALLOWABLE YEARS TO CARRY OVER
Can be carried over in the Can be carried over the next 3
succeeding taxable year consecutive taxable years
immediately ff. the year of such loss
45. Mr. D, a businessman and a doctor with his own clinic,
incurred an aggregate capital loss of P400K for the taxable
year 2016. In 2017, he sought to deduct the said loss from his
entire gross income of P1.2M. Can he do the same?
 No. Sec. 39 (C) of NIRC is clear that losses from sales or
exchange capital assets shall be allowed only to the extent of
the gains from such sales or exchanges.
 In keeping with the Principle of Matching Costs against
Revenues, capital losses can only be deducted from capital
gains.
 Given that rule, Mr. D cannot apply the Net Capital Loss Carry-
Over as losses to business gains
46. MLB Corp. owns 100% of JKB Corp. JKB Corp. owns 100%
of DDB Corp. DDB Corp. has NOLCO. DDB Corp. is merged
into JKB Corp. Will the NOLCO of DDB Corp. be transferred to
JKB Corp.?
 Yes. NOLCO shall be allowed only if there has been no
substantial change in the ownership of the business in that not
less than 75% of the paid-up capital of the corporation is held
by or on behalf of the same persons.
 The term “by or on behalf of the same persons” shall refer to
the maintenance of ownership despite change as when no
actual change in ownership is involved as in the case of merger
of the subsidiary into the parent company.
 Prior to the merger, JKB Corp. already indirectly owned DDB
Corp. i.e. DDB’s Corp’s shares were held by JKB Corp. “ on
behalf” of MLB Corp.
 After the merger, JKB Corp. already directly owns DDB Corp,
the absorbed corp., which continues to exist in JKB Corp.
 Hence, the NOLCO of DDB Corp. should be retained and
transferred to JKB Corp. (R.R. No. 14-2001)
47. X took out a life insurance policy on his own life in the
amount of P2M. He designated his wife Y as irrevocable
beneficiary to P1M and his son Z to the balance of P1M but in
the latter designation, reserving his right to substitute him
for another. X died and his wife and son went to collect the
proceeds of the life insurance policy. Are the proceeds of the
insurance subject to income tax?
 No. The law explicitly provides that the proceeds of life
insurance policies paid to the heirs and beneficiaries upon the
death of the insured are excluded from gross income and is
exempt from income taxation.
 Proceeds of life insurance received upon the death of the
insured constitute a compensation for the loss of life, hence a
return of capital, which is beyond the scope of income tax (Tax
Code, Sec. 32 (B)(1)
48. L is a known advocate for cultural preservation in the PH.
Without action on his part, he was selected as recipient of a
cash award in recognition of his cultural achievement. Is the
cash award excluded from L’s gross income?
 No. The exclusions from gross income under Sec. 32(B)(7)(c) of
the Tax Code only cover prizes and awards made primarily in
recognition of religious, charitable, scientific, educational,
artistic, literary, or civic achievement.
 L’s award in recognition of his cultural achievement is not
covered. Hence, his cash award shall form part of his taxable
income.
49. May an asset originally classified as ordinary asset be
reclassified into a capital asset?
 As a general rule, a property purchased for future use in the
business, even though this purpose is later thwarted by
circumstances beyond the taxpayer’s control, does not lose its
character as an ordinary asset. Nor does a mere
discontinuance of active use of property, change its character
previously established as a business property (R.R. No. 7-2003,
Sec. 3(a)(4)).
 However, Sec. 3(e) of RR No. 7-2003 provides that properties
classified as ordinary assets for being used in business by a
taxpayer engaged in business other than real estate business
are automatically converted into capital assets upon showing
proof that the same have not been used for more than 2 years
prior to consummation of taxable transactions involving …
 … properties (BIR Ruling No. 142-2011, May 04, 2011)

 The conversion of assets from ordinary to capital assets is

allowed only if the taxpayer is not engaged in real estate
business.
 50. Differentiate Capital Gain from Ordinary Gain.

CAPITAL GAIN ORDINARY GAIN

AS TO SOURCE
Derived from property not used in Derived from property used in trade
trade or business or business

AS TO ADJUSTMENT
Can be adjusted by the holding Not adjusted
period
AS DEDUCTIBILITY OF ORDINARY LOSSES
Ordinary losses may be deducted Only ordinary losses may be
from certain types of capital gains deducted from ordinary gains
51. Cite the rules on capital gains and losses from disposition
of property.
 Holding period – the percentages of gain or loss to be taken
into account shall be the ff.:
 100% - if the capital asset has been held for 12 months or less
(short-term assets) and 50% - if the capital asset has been held
for more than 12 months (long-term assets). Holding period
applies only to individuals (NIRC, Sec. 39 (B))
 Non-deductibility of Net Capital Loss (Loss Limitation Rule) –
capital losses are allowed only to the extent of capital gains.
Hence, net capital loss is not deductible (NIRC, Sec. 39(C))
 This is to ensure the matching of costs against revenues is
consistent with the rule that only business expenses are
deductible from gross income. Capital loss is not a business
expense.
52. A owns several real properties for rent. Subsequently, he
inherited from his mother parcels of land divided into 29 lots
which are subject to lease contracts. In addition to his other
real properties under lease, the rent from inherited lots was
the substantial source of A’s income.
3 years after the expiration of the existing lease contracts, he
sold the lots to the respective occupants on installment basis.
In his tax return, A treated his income from sale of 29 lots as
capital gains and paid the corresponding CGT. Is the tax paid
by A correct?
 No. Income from sale of lots should be considered as ordinary
income. Transaction involves transfer of ordinary asset since
the lots formed part A’s rental business. Thus, it is not subject
to CGT. (Tuason Jr. vs. Lingad, GR. No. L-24248, July 31, 1974)
53. J voluntarily surrendered several properties to the Rep. of
the Phils. Pursuant to its mandate, PCGG scheduled the
disposal of said properties to private individuals through a
public bidding. Is the transfer of properties by PCGG to
private individuals in a sale at public auction subject to CGT?
 No. Sec. 32(B)(7)(b) of the Tax Code expressly excludes from
gross income and exempts from income tax, income derived
from the exercise of any essential governmental function
accruing to the Gov’t. of the Phils. or to any of its political
subdivisions.
 Since the subject properties are presumptively owned by the
Rep. of the Phils. and the said PCGG is mandated by law to
dispose of these properties, the sale at public auction of these
properties is exempt from CGT (BIR Ruling No. 360-2014)
54. Ms. U inherited an agricultural land from her deceased
father. She subdivided the land into lots and introduced
improvements such as good roads, concrete gutters, drainage
and lighting system to make the lots saleable. Soon after, lots
were sold to the public for profit. Is the sale subject to CGT?
 No. Sale of inherited real property usually gives capital gain or
loss even though the property has to be subdivided or
improved or both to make it saleable. However, if the inherited
property is substantially improved or very actively sold or both,
it may be treated as held primarily for sale to customers in the
ordinary course of the heir’s business (Calasanz vs. CIR, GR. No.
L-26284, Oct. 8,1986)
 Improvements introduced by Ms. U are considered substantial
which effectively converted the real property from capital into
ordinary asset. So, sale of lots is not subject to CGT.
 55. Distinguish subject of Capital Gains Tax on the sale of real
properties by an individual and a corporate taxpayer.

TAXPAYER CAPITAL GAINS TAXABLE

a. Citizen (Resident or Non-
resident) Sec. 24 (D)(1), NIRC
b. Resident Alien Sec. 24 (D)(1),
NIRC
c. NRAETB or not within the PH
Sec.25 (B), NIRC
Capital gains presumed to have been
realized from sale, exchange or other
disposition of real property located in
the PH, classified as capital assets
Capital gains presumed to have been
realized from sale, exchange or other
disposition of real property located in
the PH, classified as capital assets
Capital Gains realized from sale,
exchange or other disposition of real
property
 TAXPAYER CAPITAL GAINS TAXABLE
d. NRAETB or not within the PH Capital Gains realized from sale,
Sec.25 (B), NIRC exchange or other disposition of real
property
Domestic Corporation Sec. 27 Gains presumed to have been realized
(D)(5), NIRC on the sale, exchange or other
disposition of lands and/or buildings
which are not actually used in the
business of a corp. and are treated as
capital assets.
NIRC does not impose the 6% CGT on
gains realized from sale of machineries
and equipment (SMI-Ed PH Tech., Inc.
vs. CIR, GR No. 175410, Nov. 12,2014)
56. X Co., a PH corporation, sold through the local stock
exchange 10,000 PLDT shares that it bought 2 years ago. It
sold the shares of P2M and realized a net gain of P200,000.
Determine the tax liability of X Co.
 X Co. is liable for stock transaction tax amounting to P12,000
which is 6/10 of 1% or .006 of the gross selling price or gross
value in money (P2M) of shares sold. This used to be ½ of 1%
or .005 before the TRAIN law was passed
 Before the TRAIN law, if shares are not traded through local
stock exchange, 5% of net capital gains (not over P100K) and
10% of net capital gains (in excess of P100K) shall be imposed
 After the TRAIN Law, CG from sale of shares of stock not traded
in the local stock exchange is now subject to 15% final tax
57. 6 Foreigners were employed in the US Naval Base in the
PH. They refused to file their ITR claiming that they cannot be
considered resident aliens required to file ITR. On the other
hand, BIR contended that even if exempt from paying income
tax, said aliens were not excused from filing ITR. Are they
required to file ITRs?
 Yes. What the law requires is merely physical or bodily
presence in a given place for a period of time, not a the
intention to made it a permanent place of abode. An alien
present in the PH who is not a mere transient is a resident of
PH for purposes of income tax.
 Whether he is a transient or not is determined by his
intentions with regards to the length and nature of his stay. A
mere floating intention indefinite as to time, to return to
another country is not sufficient to constitute him as transient.
(Garrison vs. CA, GR. Nos. L4450105, July 19, 1990)
58. Discuss the Kinds of Withholding Taxes
 Withholding of final tax on certain incomes – tax prescribed
on certain income payments and is not creditable against the
income tax due of the payee on other income subject to
regular rates of tax for the taxable year (i.e. final tax of 20% on
royalties)
Note: Under the FWT system, the amount of income tax
withheld by the withholding agent is constituted as a full and
final payment of the income due from the payee on the said
income. The liability for payment of the tax rates primarily rests
on the payor as the withholding agent. Thus, in case of his
failure to withhold the tax or in case of under withholding,
deficiency tax shall be collected from the payor/ withholding
agent. Paye is not required to file an ITR of that particular
income (RR No. 2-98, Sec. 25(A), Par. (1))
58. Discuss the Kinds of Withholding Taxes – cont.
 Creditable Withholding Tax – Withholding taxes on ordinary
business income which is still subjected to income tax and
therefore, it is deductible as tax credit (i.e. income derived
from the exercise of a profession)
59. G, a domestic corp. increased its authorized capital stock.
R Co., a foreign co. solely subscribed all the preferred shares
of G. The Board of Directors of G authorized the redemption
of the said preferred shares.
R withheld and remitted to the BIR the amount representing
15% FWT computed based on the difference of the
redemption price and aggregate par value of the shares.
Claiming exemption from the payment of the 15% FWT based
on the US-RP Tax Treaty, R filed a claim for refund with the
BIR. However, the same was denied.
Was the gain derived by R subject to 15% FWT on dividends?
 No. The FWT of 15% is imposed on dividends received from a
domestic corp. by a nonresident foreign corp. (Sec.
28(B)(5)(b)).
 The term “dividends” mean any distribution made by a
corporation to its shareholders out of its earnings of profits.
 The amounts paid to R was not in the nature of a recurring
return of stock, but rather a payment for the redemption of the
preferred shares (CIR vs. Goodyear Phils. Inc., GR No. 216130,
Aug. 03, 2016)
60. ING Bank was assessed by the BIR for deficiency
withholding tax on compensation for the year 1996 and 1997.
ING insists that the bonus accruals in 1996 and 1197 were not
yet subject to w/tax because these bonuses were actually
distributed only in the succeeding years of their accrual (i.e.
in 1997 and 1998) when the amounts were finally
determined.
a. Discuss the nature of withholding tax on compensation

b. Is the contention of the bank correct?

a. Under the creditable withholding tax system, the tax on
compensation income is withheld at source. The tax withheld
is intended to equal or at least approximate the tax due of
the payee on the said income. The employer is required to
collect the tax by deducting and withholding the amount
from the employee’s compensation as when paid, actually or
constructively
b. No. The obligation of the payor/employer to deduct and
withhold the related w/holding tax arises at the time the
income was paid or accrued or recorded as an expense in the
payor/employer’s books, whichever comes first. ING Bank
already recognized a definite liability on its part considering
that it had deducted as business expense from its gross
income the accrued bonuses due to its employees.
b. In this sense, there was already a constructive payment for
income tax purposes as these accrued bonuses were already
allotted or made available to its officers and employees.
Hence, ING Bank is liable for the withholding tax on the
bonuses since it claimed the same as expenses in the year
they were accrued (ING Bank N.V. vs. CIR, GR No. 167679, July
22, 2015)
61. C, who had no other means of livelihood other than his
fairly recent employment with X Corp., was paying taxes
under the System of Substituted Filing. Unbeknownst to C
who was very bad at math and had no knowledge of tax
laws.
X Corp.’s accounting dept. committed an error and a higher
amount had been deducted from C’s salary for purposed of
paying his taxes of the past 10 months.
Upon realizing this, X Corp. immediately sought to rectify the
error by filing a refund on behalf of C. Can X Corp. do the
same?
 Yes. A Withholding Agent is not only an agent of the gov’t. in
the withholding and collection of taxes but it is also an agent of
the taxpayer in the filing of ITR as well as the payment of tax.
 Being an agent as well of the taxpayer, it was deemed that the
Withholding Agent also has the legal personality to act on
behalf of the taxpayer in the filing of refund for taxes
erroneously paid.
 As such, X Corp. may file a petition for refund based on the fact
that it is the agent of C as well. (Procter & Gamble Phils. vs. CIR,
G.R. No. L-66838, Dec. 2, 1991)
62. On June 30, 2000, X tool out a life insurance policy on his
own life in the amount of P2M. He designated his wife Y as
irrevocable beneficiary to P1M and his son Z, to the balance
of P1M but in the latter designation, reserving his right to
substitute him for another.
On Sept. 1, 2003 X died and his wife and son went to the
insurer to collect the proceeds of X’s life insurance policy.
a. Are the proceeds of the insurance subject to income tax
on the part of Y and Z for their respective shares? Explain.
b. Are the proceeds of the insurance to form part of the
gross estate of X? Explain.
a. No. The law explicitly provides that the proceeds of life
insurance policies paid to the heirs or beneficiaries upon the
death of the insured are excluded from gross income and is
exempt from taxation. Proceeds of life insurance received
upon death of the insured constitute a compensation for the
loss of life, hence a return of capital, which is beyond the
scope of income taxation (Sec. 32 B (1), NIRC)
b. Only the proceeds of 1M given to the son Z, shall form part of
the gross estate of X. Under the Tax Code, proceeds of life
insurance shall form part of the gross estate of the decedent
to the extent of the amount receivable by the beneficiary
designated in the policy of the insurance except when it is
expressly stipulated that the designation of beneficiary is
irrevocable.
b. As stated in the problem, only the designation of Y is
irrevocable while the insured/ decedent reserved the right to
substitute Z as beneficiary for another person. Accordingly,
proceeds received by Y shall be excluded while the proceeds
received by Z shall be included in the gross estate of X (Sec.
85 (E), NIRC)
63. Is a donation mortis causa to non-stock, non-profit
educational institutions exempt from estate tax?
 No. Although Art. XIV, Sec. 4(4) of the Constitution provides
that all grants, endowments, donations or contributions used
actually, directly and exclusively for educational purposes shall
be exempt from tax, the foregoing Constitutional provision is
not self-executing as it requires legislative enactment providing
certain conditions for exemption. Sec. 87 of NIRC does not
include non-stock, non-profit educational institutions in the list
of exempt institutions, donation to them is thus NOT EXEMPT
from estate tax
 Note: Sec. 101(a)(3) of NIRC declared that these donations are
EXEMPT from Donor’s Tax
64. X, single but head of the family, Filipino and resident of
Pasig City, died intestate on Nov. 15, 2009. He left the ff.
properties:
House and lot (family home in Pasig) P 800,000
Vacation house and lot in Florida 1,500,000
Agricultural land in Naic, Cavite which
he inherited from his father 2,200,000
Car which is being used by his
brother in Cavite 500,000
Proceeds of life insurance where he
named his estate as irr. Beneficiary 1,000,000
Household furniture and appliances 1,000,000
Claims against a cousin who has assets
of P10K and liabilities of P100K 100,000
64. X, single but head of the family, Filipino and resident of
Pasig City, died intestate on Nov. 15, 2009. He left the ff.
properties – cont.:
Shares of stock in ABC Corp.,
a domestic enterprise P 100,000
Expenses & Charges on estate
are as follows:
Funeral Expenses P 250,000
Legal fees for settlement of estate 500,000
Medical expenses of last illness 600,000
Claims against the estate 300,000
65. Compulsory heirs of X approach you and seek your
assistance in the settlement of his estate for which they have
agreed to the above-stated professional fees. Specifically,
they request you to explain and discuss with them the ff.
questions.
a. What are the properties and interests that should be
included in the computation of gross estate of the
decedent? Explain.
b. What is the net taxable estate of the decedent? Explain.
(2010 Bar Question)
a. All properties and interest enumerated in the problem should
be included in the gross estate of the decedent. The decedent
is a citizen of the Phils. and the law requires that the
composition in the gross estate of the decedent shall include
all kinds of properties wherever situated and to the extent of
the interest that he has therein at the time of his death.
b. Net taxable estate of the decedent is P3.7M. From the gross
estate of P7M, the ff. deductions are allowed: 1. Funeral
expenses of P200K which is the max allowed by law; 2. Legal
fees amounting to P500K; 3.Medical expenses not to exceed
P500K incurred 1 year prior to death and substantiated with
receipts; 4. Claims against the estate P300K 5. Family home
equivalent to its FMV (not to exceed P1M) of P800K and 6.
Standard deduction of P1M or a total allowable deduction of
P3.3M…
b. Claim against the cousin amounting to P100K although
included in the gross estate cannot be claimed as a deduction
because the debtor is not yet declared insolvent. Likewise,
the inherited property cannot give rise to a vanishing
deduction for want of sufficient factual basis. (Prior to TRAIN
Law)
66. Mr. Z inherited an apartment in California, USA from his
father. He died within 5 years from the death of his father.
The gross estate of his father included said apartment.
Despite having shown proof that the estate tax thereon was
paid, BIR disallowed the claim for vanishing deduction by the
estate of Mr. Z.
Is the disallowance in accord with the Tax Code?
 Yes. Under Sec. 86 of NIRC, vanishing deduction may be clamed
only if the property is situated in the PH.
 Since the apartment in this case is situated in the US, property
cannot be the subject of vanishing deduction
 Disallowance was proper
67. Miguel, a citizen and resident of Mexico, donated $1,000
worth of stocks in Barack Motors Corp., a Mexican co., to his
legitimate son, Miguelito, who is residing in the Phils. and
about to be married to a Filipino girlfriend. Mexico does not
impose any transfer tax of whatever nature on all gratuitous
transfers of property.
a. Is Miguel entitled to claim a dowry exclusion? Why or why
not?
b. Is Miguel entitled to the rule of reciprocity in order to be
exempt from the Philippine donor’s tax? Why or why not?
a. No. Under Sec. 101(A)(1) of the NIRC, dowries or gifts made
by a citizen or resident of the PH to the extent of P10,000 is
exempt from donor’s tax. Since Miguel is a non-resident alien,
he is not entitled to claim a dowry exclusion. (This was
removed after the TRAIN law was passed.)
Note: In case of dowries made by spouses who are citizens
or residents of the PH, each spouse can claim separate
exemption in case of their child’s marriage (BIR Ruling No. 67-
0039; Tang Ho vs. Board of Tax Appeals, GR No. L-5949, Nov.
19, 1955)
b. No. As provided under Sec. 104 of NIRC, rule of reciprocity
applies only if the property transferred by non-resident alien
is an intangible personal property situated in PH. Rule will not
apply because donation is not subject to tax since donor is
non-resident alien and property donated is not situated in PH
68. Spouse Jose and Clara San Pedro, both Filipino citizens,
are the owners of a residential house and lot in Quezon City.
After the recent wedding of their son Mario to Maria, the
spouses donated real property to them.
At the time of donation, the real property has a FMV of P2M.
Are Jose and Clara subject to donor’s tax? If so, how much is
the taxable gift of each spouse and what rate shall be applied
to the gift? Explain. (2008 Bar Question)
• Yes, because the value of the gift exceeds P10,000 (Sec. 101
(A1), NIRC). However, they are each entitled to a deduction of
P100,000 for the net value of the gift (Sec. 99(B), NIRC)
• Each spouse shall be liable for a taxable gift worth P890,000
each at the progressive rate of 2-15% since the donee is a
relative (Prior to TRAIN Law)
69. A Corp., in a competitive bidding, acquired the Class A
shares of B in C Health Care Systems and subsequently
applied for an application for a certificate authorizing
registration/ tax clearance with the BIR to facilitate transfer
of the shares.
Thereafter, it was informed that it needed to secure a BIR
Ruling in connection with said application due to potential
donor’s tax liability and in compliance thereto, A Corp.
requested a ruling that the sale was not subject to donor’s
tax since there was no donative intent.
BIR denied the request on the ground that the sale was
subject to donor’s tax under Sec. 100 of NIRC.
Did the CIR rule correctly?
 Yes. The price difference between the selling price of the
shares and their book value as contained in the FS is subject to
donor’s tax. The absence of donative intent, if that is the case,
does not exempt the sales of stock transaction from donor’s
tax since Sec. 100 of NIRC categorically states that the amount
by which the FMV of the property exceeded the value of the
consideration shall be deemed gift.
 Therefore, even if there is no actual donation, the difference in
price is considered a donation by fiction of law (Phil. American
Life and Gen. Insurance Co. vs. Sec. of Finance and CIR, GR. No.
210987, Nov. 24, 2014)
70. A, Filipino and resident of the PH, wants to give his sister
a gift of P200K. He seeks your advice, for purposes of
reducing if not eliminating the donor’s tax on the gift, on
whether it is better for him to give all of the P200K on
Christmas 2001 or to give P100K on Christmas 2001 and the
other P100K on January 2002. Please explain your advice.
• I would advise him to split the donation. Giving the P200K as a
one time donation would mean that it will be subject to higher
tax bracket under the graduated tax structure necessitating
payment of donor’s tax
• Splitting the donation into 2 equal amounts given on 2 diff.
years will relieve payment of donor’s tax since the 1st P100K
donation in the graduated brackets is exempt (Sec. 99, NIRC).
While donor’s tax is computed on cumulative donations,
aggregation of all donations made by donor is allowed only
over 1 calendar year.
71. A is a candidate in the upcoming Senatorial elections. B,
believing in the sincerity and ability of A to introduce much
needed reforms in the country, contributed P500K in cash to
the campaign chest of A.
In addition, B purchased tarpaulins, t-shirts, umbrellas, caps
and other campaign materials that he also donated to A for
use in his campaign. Is the contribution of cash and campaign
materials subject to donor’s tax?
• Answer must be qualified. Sec. 99(C) of NIRC explicitly provides
that any contribution in cash or kind to any candidate, political
party or coalition of parties for campaign purposes shall be
governed by Election Code, as amended
• On the other hand, Sec. 13 of Rep. Act No. 7166 specifically
states that any provision of law to the contrary
notwithstanding, any contribution in cash or kind to any
candidate or political party or coalition of parties for campaign
purposes, duly reported to COMELEC shall not be subject to
payment of any gift tax
• Thus, if B reported his campaign contributions of P500K in
cash, tarpaulins, t-shirts, umbrellas, caps and other campaign
materials to the COMELEC, then BIR cannot impose donor’s tax
on such contributions. Conversely, if B failed to report these
contributions to COMELEC, such contributions would be
subject to donor’s tax
72. A non-stock, non-profit school always had cash flow
problems, resulting in failure to recruit well-trained
administrative personnel to effectively manage the school.
In 2010, Don Leon donated P100M to the school, provided
the money shall be used solely for paying the salaries, wages
and benefits of administrative personnel.
Donation represents less than 10% of Don Leon’s taxable
income for the year. Is he subject to donor’s tax?
• Yes, because the donation is to be wholly used for
administration purposes. Under Sec. 101 of the NIRC, gifts or
donation shall be exempt if made in favor of an educ’al and/or
charitable, religious, cultural or social welfare corporation,
institution, accredited non gov’t. organization, trust or
philanthropic org. or research institution or organization:
• Provided, however, that not more than 30% of said gifts shall
be used by such donee for administration purposes. In this
case, donation made is to be wholly used for administration
purposes which is beyond the 30% limit provided by law to be
exempt. Thus, Don Leon is subject to donor’s tax.
• Note: Under Sec. 101 of NIRC, to be exempt from Donor’s tax,
it is required that the donee must be duly accredited by PCNC
before being accredited by the BIR.
73. In the settlement of the estate of Mr. Barbera who died
intestate, his wife renounced her inheritance and her share
of the conjugal property in favor of their children. BIR
determined that there was a taxable gift and thus assesses
Mrs. Barbera as a donor. Was the BIR correct?
 BIR is not correct in imposing donor’s tax on the renounced
inheritance of Mrs. Barbera from Mr. Barbera. Accdg. to Sec. 11
of RR No. 2-2003: ”General renunciation by an heir, including
the surviving spouse of his/her share in the hereditary estate
left by the decedent is not subject to donor’s tax, unless
specifically and categorically done in favor of identified heirs to
the exclusion or disadvantage of other co-heirs in the
hereditary estate.”
 On the other hand, BIR is correct in imposing donor’s tax on
the renounced conjugal share of Mrs. Barbera. Sec. 11 of RR
No. 2-2003 provides that “renunciation by the surviving spouse
of his/her share in the conjugal partnership or absolute
community after the dissolution of marriage in favor of the
heirs of the deceased spouse or any other person/s is subject to
donor’s tax.”
 Proceeds from the rule that the share of conjugal property is
the share of the surviving spouse. Thus, surviving spouse is
effectively donating property when he or she makes a
renunciation.
74. X Co. is engaged in the maintenance and operation of a
geothermal power plant. Subsequently, X Co. sold a fully-
depreciated Nissan patrol car which was previously used in
its operations.
CTA found that X Co. was entitled to a refund of its
accumulated input tax credits but deducted therefrom the
output tax from the sale of Nissan patrol car.
X Co. asserts that the sale of said car is an isolated
transaction, not made in the course of its business, hence
should not be subjected to the 12% VAT. Is the sale of the car
subject to VAT? (2014 Bar Question)
 Yes. Under Sec. 105, the phrase “in the course of trade or
business” means the regular conduct or pursuit of a
commercial or an economic activity, including transactions
incidental thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, nonprofit private
organization (irrespective of the disposition of its net income
and whether or not it sells exclusively to members or their
guests), or gov’t. entity
 Here, Nissan patrol car was used as part of X Co’s. property,
plant and equipment. Hence, its sale is considered as an
incidental transaction which is subject to VAT (Mindanao II
Geothermal Partnership vs. CIR, GR. No. 193301, Mar. 11,
2013)
75. G Condominium Corp. is an existing non-stock non-profit
association of unit owners. To be able to reduce the
association dues being collected from unit owners, the Board
of Directors of the corporation agreed to lease part of the
ground flr. condominium bldg. to DEF Savings Bank for P120K
a month.
Is the non-stock, non-profit association liable to VAT? If
answer is in the negative, is it liable to another kind of
business tax? (2008 Bar Question)
 No. G Condominium Corp. is not subject to VAT because its
gross rental income for the year will be 1,440,000.
 Under Sec. 109 (V) of NIRC, sale of lease or goods or properties
or the performance of services where the gross annual sales
and/or receipts do not exceed Php1,919,500 shall be exempt
from VAT.
 However, it would be subject to the 3% percentage tax on its
gross rental income under Sec. 116 of the Tax Code
76. Mr. A is engaged in the business of leasing out residential
condominium units, which he owns, in Trump Tower, Makati
City. Monthly rental for each unit ranges from P8K – P12K. His
gross rental income for 1 year is P3M. He consults you on
whether it is necessary for him to register as a VAT taxpayer.
What would be your legal advice and why? (2009 Bar
Question)
 I will advise Mr. A that he is not required to register as a VAT
taxpayer. Under Sec. 109 (1)(Q) of NIRC in relation to RR 16-
2011, lease of residential units with a monthly rental per unit
not exceeding P12,800, regardless of the amount of aggregate
rentals received by the lessor during the year is exempt from
VAT.
 Note: If monthly rental is more than P12,800 but aggregate
rental did not exceed Php1,919,500 threshold, taxpayer shall
be liable to pay 3% percentage tax under Sec. 116 of NIRC
77. C Corp. is a VAT and PEZA registered domestic corp.
engaged in the manufacture of nickel and cobalt located
within an ecozone. It filed for a tax credit or refund for its
unutilized input tax from its domestic purchases of capital
goods, which was not acted upon by CIR. Is Coral Bay Nickel
Corp. entitled to the refund of unutilized input taxes incurred
before it became a PEZA-registered entity?
 No. An ecozone is a foreign territory separate and distinct
customs territory. Accordingly, sales made by suppliers from a
customs territory to a purchaser located within an ECOZONE
will be considered as exportations.
 Following the PH VAT system’s adherence to the Cross Border
Doctrine and Destination Principle, VAT implications are that
“no VAT shall be imposed to form part of the cost of goods
destined for consumption outside of the territorial border of
the taxing authority.”
 Since the purchases of goods and services by C Corp. that were
destined for consumption within the ecozone is free of VAT, no
input VAT was paid on such purchases.
 Hence, C Corp. is not entitled to claim a tax refund or credit
(Coral Bay Nickel Corp. vs. CIR, GR. No. 190506, June 13,2016)
78. DBP Inc. is a tax exempt entity which imported high-end
computers and office equipment into the PH. After 1 year of
use, DBP Inc. sold dome of the said computers to APA
Institute of Technologies, a non-exempt entity.
Who shall be liable to pay for the VAT? Who shall be entitled
to claim the creditable input tax?
 APA would be liable for the VAT. Sec. 107(B) states that in case
of tax-free importation of goods into the PH by persons,
entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the PH to non-
exempt persons or entities, the latter shall be considered the
importer who shall be liable for any internal revenue tax on the
importation.
 When a person who was exempt from VAT on his importation
subsequently sells in the PH such imported article to a
nonexempt person or entity, the purchaser will be required to
pay the VAT.
 Here, APA is the purchaser of the items DBP imported.
Therefore, APA would be liable for the VAT (INGLES, Tax Made
Less Taxing [2015], p. 302)
Note: The transfer of goods imported by tax exempt persons or
entity is called technical importation.
79. MEDICARD, a HMO, primarily acts as an intermediary
between purchaser of healthcare services (its members) and
the healthcare providers for a fee. Members may also choose
to directly avail the medical services of MEDICARD.
80% of the membership fees were earmarked for medical
utilization to be paid to the healthcare providers and the
remaining 20% comprises its service fee.
Is the total amount actually received by MEDICARD from its
members formed part of its gross receipts and thus, subject
to VAT?
 No. Gross receipts as defined in Sec. 4.108-4 of RR No. 4-2007
refers to the total amount of money or its equivalent xxx
actually or constructively received xxx for the services
performed or to be performed for another person, excluding
the VAT, except those amounts earmarked for payment to
unrelated 3rd party or received as reimbursement for advance
payment on behalf of another which do not redound to the
benefit of the payor.
 Accordingly, amounts earmarked and eventually paid by
MEDICARD to medical service providers do not form part of
gross receipts for VAT purposes.
 As to the 20% service fees, MEDICARD’s sale of its services is
exempt from VAT under Sec. 109(g) of the NIRC (MEDICARD vs.
CIR, GR No. 222743, Apr. 5, 2017)
80. C Corp., an affiliate of P Corp., was organized by the latter
to perform collection, consultative and other technical
services for P Corp. and its other affiliates.
BIR issued an assessment against C Corp. for deficiency VAT
for the services it rendered. C Corp. contends that profit
motive is material in ascertaining who to tax for purposes of
determining liability for VAT.
It submits that it is operating “only on reimbursement of cost
basis, without any profit” and as such it is not liable for VAT.
Is C Corp. liable for VAT?
 Yes. Contrary to C’s contention, VAT is a tax on transactions
imposed at every stage of the distribution process even in the
absence of profit attributable thereto.
 Moreover, Sec. 108 of the NIRC defines the phrase “sale of
services” as the “performance of all kinds of services for others
for a fee, remuneration or consideration.”
 As long as the entity provides service for a fee, remuneration
or consideration, then the service rendered is subject to VAT
(CIR vs. CA, G.R. No. 125355, Mar. 30, 2000)
81. Assuming that you were appointed as the BIR
Commissioner. A Sugar Farmers Association Multi-purpose
Cooperative requested you to issue a ruling on whether it is
exempt from the payment of VAT with regard to the sale of
its produce to members and non-members.
The cooperative is duly registered with the CDA and it
primarily provided the various inputs, capital and technology
transfer to its members for production of refined sugars.
Decide
 Cooperative is exempt from payment of VAT. For internal
revenue purposes, sale of raw cane sugar is exempt from VAT
because it is considered to be in its original state. On the other
hand, refined sugar is an agricultural product that can no
longer be considered to be in its original state because it has
undergone the refining process; its sale is thus subject to VAT.
 Although the sale of refined sugar is subject to VAT, such
transaction may qualify as VAT-exempt transaction if the sale is
made by a cooperative. Under Sec. 109(1) of NIRC, sales by
agricultural cooperatives are exempt from VAT provided the ff.
conditions concur, viz:
1. First, seller must be an agricultural cooperative duly
registered with the CDA.
2. Second, Cooperative must sell either exclusively to its
members or to both members and non-members, its
produce, whether in its original state or processed form.
 The second requisite differentiates cooperatives according to
its customers. If the cooperative transacts only with members,
all its sales are VAT-exempt, regardless of what it sells.
 On the other hand, if it transacts with both members and non-
members, product sold must be the cooperative’s own produce
in order to be VAT-exempt.
 Cooperative satisfies these requisites in the present case. (CIR
vs. United Cadiz Sugar G.R. Nos. 209776, Dec. 7, 2016)
82. ABC Construction Co. constructs concrete barriers for the
ADB Bank in Ortigas Center to prevent car bombs from
ramming ADB gates along ADB Ave. in Mandaluyong City.
What kind of VAT is it subject to?
 Under Sec. 108 (B)(3) of NIRC, the transaction is subject to zero
percent VAT.
 ADB is exempt from direct and indirect taxes under a special
law, thereby making the sale of services to by a VAT registered
construction company effectively zero-rated.
83. A Call Center operated by a domestic enterprise in Makati
handles exclusively the reservations of a hotel chain which
are all located in North America. The services are paid for in
USD and duly accounted for with the BSP. Discuss the VAT
implications.
 Under Sec. 108 (B)(3) of NIRC, the transaction is subject to zero
percent VAT.
 Zero-rated sales of services includes services rendered to a
person engaged in business outside the PH and consideration
is paid in acceptable foreign currency duly accounted for by
BSP.
84. A, owner and operator of a hotel, leases a part of the
hotel’s premises to PAGCOR. For Jan 1996 to Apr 1997, A
incurred VAT from its rental income and sale of food and
beverages to PAGCOR.
A shifted the said tax to PAGCOR by incorporating it in the
amount assessed to the latter but it refused to pay taxes on
account of its tax exempt status.
However, A claimed that its transaction with PAGCOR was
subject to zero rate as it was rendered to a tax-exempt entity.
Is A correct?
 Yes. Transactions with a VAT exempt taxpayer is subject to zero
rated VAT. While it was proper for PAGCOR not to pay the 10%
VAT (now 12%) charged by A, the latter is not liable for the
payment of it as it is exempt in this particular transaction by
operation of law to pay the indirect tax.
 Such exemption falls within the former Sec. 102 (b)(3) now 106
of the 1977 Tax Code which exempts “services rendered to
persons or entities whose exemption under special laws.” (CIR
vs. Acesite (Phils.) Hotel Corp., G.R. No. 147295, Feb. 16, 2007)
 Note: PAGCOR enjoys a blanket exemption taxes with no
distinction whether taxes are direct or indirect.
85. B inherited from her father a 300sqm lot which is valued
at P3M. The lot used to be the place of her father’s car wash
business until his death.
Now, the lot serves as an ancestral home to B’s family. BIR
asserts that the property is subject to VAT. Do you agree?
 Yes. Under NIRC, transfer, use or consumption not in the
course of business of goods or properties originally intended
for sale or for use in the course of B’s father’s business.
 As such, being a product of a transaction deemed sale,
property in question is subject to VAT (Sec. 106 (B)(1), NIRC)
86. S Corp., a VAT registered entity, was granted a preferred
pioneer status by BOI. NPC and S Corp. agreed that all
electricity generated by S Corp. will be purchased by the NPC.
When S Corp. filed a claim for tax refund or credit
representing its unutilized excess VAT, the same was
disallowed. Tax court based this conclusion on the ground
that no commercial sale of electricity had been made in favor
of NPC since the project was still under construction at that
time and the amount which was paid to S Corp. was equal to
the costs for producing the electricity.
Is the sale of electricity a transaction deemed sale?
 Yes. In granting the tax benefit to VAT-registered zero-rated or
effectively zero-rated taxpayers, Sec. 112(A) of NIRC does not
limit the definition of sale to commercial transactions in the
normal course of business.
 Conspicuously, Sec. 106(B) of the NIRC, which deals with the
imposition of VAT does not limit the term “sale” to commercial
sales rather it extends the term to transactions that are
“deemed sale”.
 Hence, although all the electricity generated by S Corp. was not
transferred through a commercial sale or in the normal course
of business, such transaction is deemed as a sale under the law
(San Roque Power Corp. vs. CIR, G.R. No. 180345, Nov. 25,
2009)
87. XYZ co. purchased from the national gov’t. a portion of
the Fort Bonifacio Global City. It then submitted to the BIR as
an inventory of all its real properties located therein and
claimed that it is entitled to a transitional input tax credit.
BIR argued that XYZ Co. is not entitled to a transitional input
tax credit because no taxes were paid in the acquisition of
the subject Fort Bonifacio Global City property.
a. Is prior payment of taxes required to be entitled for a
transitional input tax credit?
b. Assuming that A co. is entitled to a transitional input tax
credit, is it only limited to the value of the improvement
of real properties therein?
a. No. There is nothing indicated in the NIRC that prior payment
is necessary for the availment of a transitional input tax
credit. All that is required is for the taxpayer to file a
beginning inventory with the BIR. In this case, XYZ co.
submitted to the BIR the inventory of all the properties
involved. Hence, it can validly claim a transitional input tax
credit arising from the purchase of the subject property (Fort
Bonifacio Dev’t. Corp. vs CIR, G.R. No. 173425, Jan. 22, 2013)
b. No. Transitional input tax credit includes the value of the
improvement of the real properties as well as the value of the
real properties (Fort Bonifacio Dev’t. Corp. vs CIR, G.R. No.
173425, Jan. 22, 2013)
88. A is engaged in the business of canning tuna in General
Santos. After a year, A filed a claim for presumptive input tax
credit to the BIR. If you are the Commissioner, how will you
decide A’s claim, assuming A complied with the requirements
for filing tax credit? Explain your answer.
 I will dismiss A’s claim for presumptive input tax credit. Under
NIRC, this tax is only allowed to persons or firms engaged in the
processing of sardines, mackerel and milk and in
manufacturing refined sugar, cooking oil and packed noodle
based instant meals.
 Processing shall mean pasteurization, canning and activities
which through physical or chemical process alter the exterior
texture, form or inner substance of a product in such manner…
 … as to prepare it for special use to which it could not have
been put in its original form or condition
 In this problem, although A is engaged in the business of
canning tuna, law does not mention tuna in the enumeration.
 Thus, A cannot claim a presumptive input tax credit (Sec. 9 of
RA 9337)
89. Discuss the VAT implications of creditable input tax on
depreciable assets.
 Where a VAT registered person purchases or imports capital
goods, which are depreciable assets for income tax purposes
and the aggregate acquisition cost of which (exclusive of VAT)
in a calendar month exceeds P1M regardless of the acquisition
cost of each capital good, the input tax shall be amortized
1. Over a period of 60 months if estimated useful life is 5 years
or more
2. Over the actual months comprising the estimated useful life
if estimate is less than 5 years (NIRC, Sec. 110 (A)(2))
90. Discuss the prescriptive period for filing of refund or tax
credit for unutilized input tax.
a. For zero-rated and effectively zero-rated sales of goods,
properties or services:
Administrative claim with the CIR must be filed within 2 years
after the close of the taxable quarter when the zero-rated or
effectively zero-rated sales were made. CIR has 120 days from
the complete submission of supporting docs within which to
decide whether to grant or deny the claim (NIRC, Sec. 112)
A judicial claim must be filed with the CTA within 30 days from
receipt of CIR’s decision denying the administrative claim OR
from expiration of the 120-day period without any action from
the CIR
90. Discuss the prescriptive period for filing of refund or tax
credit for unutilized input tax – cont.
b. Cessation of business or VAT status

The 2-year period shall commence from the date of

cancellation of registration of the taxpayer (Associated
Swedish Steels Phils., Inc. vs. CIR, CTA Case No. 7850, Aug. 23,
2012)
91. ABC Corp., a VAT registered entity, is primarily engaged in
the generation and distribution of electricity to NAPOCOR.
After BIR’s approval of ABC Corp’s. Effective Zero Rating
application, ABC Corp. filed before the BIR an administrative
claim for refund of its excess input VAT payments.
15 days after and without waiting for the action of the CIR,
ABC Corp. filed a judicial claim with the CTA. If you are the
CTA judge, how will you rule on the claim of ABC Corp.?
 I will dismiss the judicial claim of ABC Corp. for lack of
jurisdiction. In case of denial of claim for tax refund or credit or
failure on the part of CIR to act on the application within 120
days from date of submission of complete docs in support of
the application, taxpayer has 30 days from receipt of decision
denying claim or after expiration of the 120 day period, to
appeal the decision or the unacted claim with the CTA
 Compliance with the 120 + 30 day is mandatory and
jurisdictional. ABC Corp. filed its claim with the CTA after 15
days of filing its claim with the BIR.
 Therefore, for failure to observe mandatory period, CTA did not
have jurisdiction over ABC Corp’s judicial claim (CIR vs. Mirant
Pagbilao Corp., G.R. No. 180434, Jan. 20, 2016)
92. CE Corp., a domestic corp. engaged in the business of
power generation, had an overpayment of input VAT. On Nov.
30, 2006, CE filed an administrative claim for refund of
unutilized input VAT for the taxable year of 2005 before the
BIR.
Thereafter, on Jan. 03, 2007, a judicial claim was filed before
the CTA. Tax Court denied the claim on the ground that the
claim was filed prematurely since it was filed only after the
lapse of 34 days from the time of the filing of administrative
claim with the BIR.
Was CE Corp’s. claim for tax refund prematurely filed?
 No. An exception to the mandatory and jurisdictional nature of
the 120-day period provided under Sec. 112 of NIRC is the
taxpayer’s reliance to BIR Ruling No. DA-489-03 which
expressly declared that the “taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of Petition for Review”
 As such from Dec. 10, 2003 to Oct. 06, 2010 which refers to the
interregnum when BIR Ruling No, DA-489-03 was issued
taxpayer-claimants need not observe the stringent 120-day
period. CE Corp’s. administrative and judicial claims were filed
during the period of effectivity of BIR Ruling No. DA-489-03.
Therefore, its claim for tax refund was not prematurely filed
(CE Luzon Geothermal Power Co., Inc. vs. CIR, G.R. No. 200841,
Aug. 26, 2015)
 Note: BIR Ruling No. DA-489-03 can be applied even though
the taxpayer did not specifically invoke the same. It is a general
interpretative rule because it was a response to a query made,
not by a particular taxpayer, but by a gov’t. agency tasked with
processing tax refunds and credits. Thus, it applies to all
taxpayers alike, and not only to one particular taxpayer (CIR vs.
Air Liquide Phils., Inc., G.R. No. 210646, July 29, 2015)
93. On May 15, 2015, P Corp. filed an administrative claim for
refund of unutilized input VAT for the 1st 2 quarters of 2007
with the necessary docs. On Aug. 28, 2008, additional docs
were submitted.
Thereafter, on Jan. 23, 2016, a judicial claim was filed before
the CTA due to the inaction of the CIR. When should the
submission of documents be deemed “completed” for
purposes of determining the running of 120-day period?
 The 120-day period starts to run from May 15, 2015. RMC 54-
2014 dated June 11, 2014 requires the taxpayer to file his claim
with complete supporting docs and to attest that he will no
longer submit any other document to prove his claim.
 Further, the taxpayer is barred from submitting additional docs
after he has filed his claim (Pilipinas Total Gas, Inc. vs. CIR, G.R.
No. 207112, Dec. 08, 2015)
94. A, a non-VAT registered person, is engaged in the business
of nail spa servicing clients in the city of Manila. In 2016, A
erroneously issued receipts to her clients showing his TIN,
followed with the word “VAT”
Upon assessment by the BIR, A was ordered to pay on top of
percentage taxes, an amount equivalent to 25% surcharge. Is
the liability imposed by the BIR correct?
 No. Under Sec. 113 (D) of NIRC, the issuer of receipt or invoice
who is not a VAT registered person who has erroneously issued
a VAT receipt or invoice shall, in addition to any liability to
other percentage taxes, be liable to:
a. the tax imposed in Sec. 106 or 108 without the benefit of
any input tax credit; and
b. a 50% surcharge under Sec. 248(B) of the same code
 In this case, it was incorrect for the BIR to impose only a 25%
surcharge as the law expressly provides a higher surcharge of
50% as penalty for erroneous issuance of VAT receipts.
95. E Corp., a VAT registered taxpayer, handles income
telecommunications services for non-resident foreign cos.
The non-resident foreign corp. pay E-Corp. in the US dollars
inwardly remitted through PH banks, in accordance with the
rules and regulations of BSP, E-Corp. timely filed with the BIR
its claim for refund representing excess input VAT
attributable to its effectively zero-rated sales in 2000.
BIR denied E Corp’s. claim for refund because the VAT official
receipts submitted by E Corp. did not bear the words “zero-
rated.”
Should E Corp’s claim for refund be granted?
 No. An applicant for a claim for tax refund or tax credit must
not only prove entitlement to the claim but also compliance
with all the documentary and evidentiary requirements.
 In this respect, the Court has consistently ruled on the denial of
a claim for refund or tax credit whenever the word “zero-
rated” has been omitted on the invoices or sale receipts of the
taxpayer-claimant (Eastern Telecommunications Phils., Inc. vs.
CIR, G.R. No. 183531, Mar. 25, 2015)
96. T Corp., a subcontractor, entered into a contract with B
Corp., a domestic corp. duly registered with PEZA as an
ECOZONE developer, for the purpose of constructing a local
airport. T Corp. filed its claim for tax refund covering the
taxable year of 2012 on the basis of VAT Ruling issued by the
BIR, which states that the sales of goods and services
rendered by T Corp. to B Corp. are subject to zero percent
VAT.
Claim was denied on the ground that the official receipts
presented by T Corp. were insufficient to substantiate its
claim for refund. Was the denial of the claim proper?
 Yes. A VAT invoice is the seller’s best proof of the sale of goods
or services to the buyer, while a VAT receipt is the buyer’s best
evidence of payment of goods or services received from the
seller.
 A VAT invoice and a VAT receipt should not be confused and
made to refer to one and the same thing. Certainly, neither
does the law intend the 2 to be used alternatively.
 Thus, T Corp’s claim for tax refund cannot prosper since an
official receipt is not the best evidence to prove zero-rated sale
of services (Takenaka Corp.., Inc. vs. CIR, G.R. No. 193321, Oct.
19, 2016)
97. Discuss the 2 Types of Withholding Taxes on VAT.
1. Payments made to a non-resident whose services are
considered as VAT –taxable in which case the 12% VAT will be
withheld by the payor. This is a Final Wihholding VAT (RR No.
04-2007, Sec. 4.114-2)
2. Payments made by gov’t. agencies, in which case, the gov’t.
entity will withhold 5% from its payment. This is a Creditable
Withholding VAT.
Note: The 5% Final VAT withholding rate shall represent the net
VAT payable of the seller .The remaining 7% effectively accounts
for the standard input VAT for sales of goods or services to gov’t.
of any of its political subdivisions, instrumentalities or agencies
including GOCCs in lieu of actual input VAT directly attributable or
ratably apportioned to such sales…
Note: … Should actual input VAT attributable to sale to gov’t.
exceeds 7% of gross payments, the excess may form part of the
sellers’ expense or cost. On the other hand, if actual input VAT
attributable to sale to gov’t. is less than 7% gross payment, the
difference must be closed to expense or cost. (RR No. 04-2007,
Sec. 4.114-2)
98. L Corp. imports leaf tobacco from foreign sources and
purchases locally produced tobacco to be used in its
production of cigars and cigarettes. It claimed that the
imposition of excise taxes on stemmed leaf tobacco and a
specific tax on the finished products would result in the
prohibited form of double taxation.
a. Discuss the nature of excise taxes and its different kinds.
b. Is there double taxation?
a. Excise tax is a tax on production, sale or consumption of a
specific commodity in a country. Excise taxes are essentially
taxes on property because they are levied on certain
specified goods or articles manufactured or produced in the
PH for domestic sale or consumption or for any other
disposition and on goods imported.
Excise tax based on weight, volume capacity or any other
physical unit of measurement is referred to as “specific tax”. If
based on selling price or other specified value, it is referred to
as “ad valorem tax.”
b. No. For double taxation in the prohibited sense to exist, “the
same property must be taxed twice, when it should be taxed
but price.”
Both taxes must be imposed on the same property or subject-
matter, for the same purpose, by the same taxing authority,
within the same jurisdiction or taxing district, during the
same taxing period, and they must be the same kind or
character of tax.”
In this case, there is no double taxation in the prohibited
sense because the specific tax is imposed by explicit
provisions of the Tax Code on 2 different articles or products:
1.) On the stemmed leaf tobacco and 2.) On cigar or cigarette
(La Suerte Cigar & Cigarette Factory vs. CA, G.R. No. 123546,
Nov. 11, 2014)
99. S Corp. sold and delivered petroleum products to various
int’l carriers in the PH for their use outside the PH. A portion
of these was sourced by Shell from P Corp. The excise taxes
paid by P Corp. were passed on to S Corp. and the latter sold
the same to int’l carriers net of excise taxes.
S Corp. filed administrative claims for refund or credit of the
excise taxes paid on the said sales. Excise taxes on the
portion sourced from P Corp. was disallowed on the ground
that S Corp. is not the proper party to claim the same
because pursuant to Sec. 135 of NIRC, only int’l carriers are
exempt from paying excise taxes but not the manufacturer/
producer. Should the claim for refund/ credit be granted?
 Yes. Petroleum products sold by local manufacturers/ sellers
to international carriers are exempt from the imposition of
excise taxes as these international carriers enjoy exemption
from payment of excise taxes under Sec. 135(a) of the NIRC
 Considering the S Corp. is the statutory taxpayer who is directly
liable to pay the said excise taxes, it is entitled to a refund or
credit of the excise taxes, it is entitled to a refund or credit of
the excise taxes (Pilipinas Shell Petroleum Corp.. vs. CIR, G.R.
No. 180402, Feb. 10, 2016)
100. Discuss the nature of percentage taxes. Who are liable for
percentage taxes?
• The nature of OPT is essentially a tax on the transaction and not
on the articles sold, bartered or exchanged. It is an indirect tax
which can be passed on to the buyer (Phil. Acetylene vs. CIR, G.R.
No. L-19707, Aug. 17, 1967)
• Under Sec. 116 of NIRC, any person whose sales or receipts are
exempt from payment of VAT and who is not a VAT-registered
person shall pay a tax equivalent to 3% of his gross quarterly
sales or receipts.
• Provided, that cooperatives shall be exempt from the 3% gross
receipts tax herein imposed.
101. F Pawnshop Inc. contests the deficiency assessments for
VAT and Documentary Stamp Tax imposed upon it by BIR for
the year 2004. The core of Petitioner’s argument is that it is not
a lending investor within the purview of Sec. 108(A) of NIRC, as
amended, and thus not subject to VAT. Is F Pawnshop liable to
pay VAT?
• No. For purposes of determining tax liability, pawnshops are
treated as non-bank Financial Intermediaries (H. Tambunting
Pawnshop, Inc. vs. CIR, G.R. No. 172394, Oct. 13, 2010)
• Under RA No. 9238, the services of non-bank FIs are specifically
exempted from VAT
• However, it re-imposed the 0% to 5% Percentage Tax on Gross
Receipts on other Non-bank FIs under Sec. 122 of the Tax Code
of 1997
• Hence, P pawnshop is subject to percentage tax on its gross
receipts (First Planters Pawnshop Inc. vs. CIR, G.R. No. 174134,
July 30, 2008)
102. LT Distillers Inc. (LTD) entered into a plan of merger with
several corps. As a result of the merger, assets and liabilities of
the absorbed corp. were transferred to LTD, the surviving
corp.?
BIR claimed that LTD is liable for DST with respect to the
transfer of real properties since a DST is levied on the exercise
of the privilege to convey real property regardless of the
manner of conveyance. Decide with reasons.
• Properties transferred by means of merger are not subject to
DST. Under Sec. 196 of NIRC, a DST shall be collected on
conveyances, deeds, instruments or writings whereby any land,
tenement or other realty sold shall be conveyed to the purchaser
or purchasers.
• Considering that properties subject to the merger were not sold
but merely absorbed by the surviving corporation by operation
of law, transfer does not fall under Sec. 196 and is not subject to
DST. (CIR vs. La Tondena Distillers, Inc. (LTDI) G.R. No. 175188,
July 15, 2015)
103. H Bank performs custodial services on behalf of its
investor-clients with respect to their passive investments in the
PH. H Bank managed its clients’ accounts through electronic
messages containing instructions to debit its clients’ local or
foreign currency accounts in the PH and pay a certain named
recipient also residing in the PH.
H Bank paid DST on the said messages. However, later on, H
Bank filed for tax refund for the said DST it paid, CIR denied
their claim on the ground that DST under Sec. 181 is levied on
H exercise of a privilege. Are the electronic messages subject to
DST?
• No. DST under Sec. 181 of NIRC is levied on the acceptance or
payment of a “bill of exchange purporting to be drawn in a
foreign country but payable in the PH.”
• The electronic messages of H Bank’s investor-clients are not that
kind of transaction.
• Further, such electronic messages cannot be considered
negotiable instruments as they lack the feature of negotiability.
• Therefore, they are not subject to DST (HSBC vs. CIR, G.R. Nos.
166018 & 167728, June 04, 2014)
A. TAX CREDIT/ REFUND
i. 2017 SUPREME COURT DECISIONS
1. Soriano vs. Sec. of Finance and CIR
G.R. 184450 – 01/24/17

Facts:
 CIR required the withholding of taxes from:
 Pro-rate application of the applicable tax exemptions of individuals in 2008
 The 13th month pay and other bonuses and benefits of Minimum Wage Earners
(MWEs) that exceeded the tax exempt threshold pursuant to Rev. Reg. 10-2008
dated July 8, 2008
1. Soriano vs. Sec. of Finance and CIR
G.R. 184450 – 01/24/17

Issue:
Is the requirement from the CIR valid?
1. Soriano vs. Sec. of Finance and CIR
G.R. 184450 – 01/24/17

Ruling:
 The SC required the CIR to refund the taxes withheld on the basis of
the ff. arguments:
 Rep. Act 9504 exempted MWEs from payment of income tax on their minimum
wage, holiday pay, overtime pay, night shift differential and hazard pay
 Personal and additional exemptions under RA 9504 should be applied to the
entire taxable year 2008. The exemption from income tax of MWEs is for the
entire taxable year 2008
1. Soriano vs. Sec. of Finance and CIR
G.R. 184450 – 01/24/17

Ruling – cont.:
 Sections 1 and 3 of RA 9504 added a requirement effectively declaring that an
MWE who receives other benefits in excess of statutory limit of Php30,000 is no
longer entitled to exemption provided by the same RA
 SC declared as null and void the provisions of RA 9504 and the tax exemption of
MWEs starting July 06, 2008 and disqualifies MWEs who earn pure
compensation income from the privilege of MWE exemption in case they receive
bonuses and other compensation-related benefits exceeding Php30,000
ii. 2017 CTA EN BANC CASES
1. Leo Mario Celdran vs. CIR
CTA EB 1527 – 03/14/17
Facts:
• Celdran filed a claim for refund of Expanded Withholding Tax (EWT) on his
purchase of 4 parcels of land from Star Management Ropoas Inc. (SAMRI)
which is a Special PurposeVehicle (SPV)
• Upon execution of Deed of Sale, Celdran reported and paid 3% EWT on the
transaction
• BIR alleged that the transaction is subject to 6% EWT

• Celdran paid under protest and requested a refund for the EWT
1. Leo Mario Celdran vs. CIR
CTA EB 1527 – 03/14/17
Facts – cont.:
• CIR refused the refund so Celdran appealed to CTA in Division

• CIR argued that SAMRI is not habitually engaged in real estate business but as
an SPV, is “akin to a bank or financial institution” and its sale of ROPOA,
being an ordinary asset is subject to 6% EWT
• CTA in Division sustained Celdran, prompting the CIR to elevate case to
CTA En Banc.
1. Leo Mario Celdran vs. CIR
CTA EB 1527 – 03/14/17
Issue:
Is SAMRI entitled to claim for a refund?
1. Leo Mario Celdran vs. CIR
CTA EB 1527 – 03/14/17
Ruling:
• Yes. SAMRI is entitled to refund since it is not a bank so the sale of ROPOA
is not subject to 6% EWT
• Under Sec. 15 of RA 9182 (SPV Act of 2002), sale of Non-performing Assets
(NPAs) to a 3rd party shall be exempt from EWT
• Although Celdran would have been entitled to a refund of the entire 6%
EWT, CTA En Banc held that it is constrained to grant only the 3% EWT
requested by Celdran
1. Leo Mario Celdran vs. CIR
CTA EB 1527 – 03/14/17
Ruling – cont.:
 The fundamental rule is that reliefs granted on litigant are limited to those
specifically prayed for in the complaint.
2. Philex Mining Corp. vs. CIR
CTA EB 1493 – 06/01/17
Facts:
 Philex filed its quarterlyVAT returns for the 2nd and 3rd quarters of 2012

 On 2013, Philex filed an administrative claim for refund or tax credit for
its alleged unutilized inputVAT for said quarters of 2012
 Due to the inaction of the BIR, Philex filed for a Petition for Review
2. Philex Mining Corp. vs. CIR
CTA EB 1493 – 06/01/17
Facts – cont.:
 The court partially grants the petition and ordered BIR to refund or issue
a TCC in favor of Philex for its unutilized excess inputVAT
2. Philex Mining Corp. vs. CIR
CTA EB 1493 – 06/01/17
Issue:
Whether or not Philex is entitled to a VAT refund
2. Philex Mining Corp. vs. CIR
CTA EB 1493 – 06/01/17
Ruling:
 Court said that there is nothing in the law which compels the taxpayer to
submit its sales and purchase journal in a claim for refund or tax credit
 While the nature of tax exemption is strictly construed against the
taxpayer, this rule is not absolute, especially if the taxpayer who seeks for
refund can justify the claim by words too plain to be mistaken and too
categorical to be misinterpreted.
2. Philex Mining Corp. vs. CIR
CTA EB 1493 – 06/01/17
Ruling- cont.:
 Court said that sales invoice is necessary to substantiate the actual
amount of goods sold and their selling price and taken collectively are the
best means to prove the inputVAT payments
 VAT invoice is the seller’s best proof of the sale of goods or services to
the buyer
3. Manulife Data Services, Inc. vs. CIR
CTA EB 1437 – 06/07/17
Facts:
 MDSI accumulated input VAT for 2011 from its domestic purchases of
supplies and services and from purchase of capital goods which remained
unutilized and is now the subject of this claim
 MDSI is a foreign corporation authorized by SEC to operate as a Regional
Operating Headquarters (ROHQ)
 It filed an administrative application for refund or the issuance of a TCC
for its unutilized inputVAT for 1st-4th quarters of 2011
3. Manulife Data Services, Inc. vs. CIR
CTA EB 1437 – 06/07/17
Facts – cont.:
 CIR denied the claim

 CTA in Division granted the claim for refund but only in a reduced
amount
 CIR argues that CTA in Division erred in granting such claim on the
ground that the sales made by MDSI to Manufacturer’s Life Insurance Co.
(MILC) cannot qualify for VAT zero rating since MDSI failed to
substantiate its claim for refund
3. Manulife Data Services, Inc. vs. CIR
CTA EB 1437 – 06/07/17
Issue:
Whether or not MDSI is entitled to a refund
3. Manulife Data Services, Inc. vs. CIR
CTA EB 1437 – 06/07/17
Ruling:
 CTA En Banc gave credence to the Intra-Group Service Agreements
presented by MDSI since these documents confirmed that MDSI’s
customers to whom it rendered services are doing business outside the
PH
 Claim for refund was granted at a reduced amount in view of MDSI’s
failure to appeal the decision and resolution of the court in division
3. Manulife Data Services, Inc. vs. CIR
CTA EB 1437 – 06/07/17
Ruling – cont.:
 Court En Banc cannot grant any affirmative relief to MDSI other than the
relief granted in the Court in the division’s decision
 MDSI accumulated input VAT for 2011 from its domestic purchases of
supplies and services and from purchase of capital goods which remained
unutilized and is now the subject of this claim
4. CIR vs. CE Luzon Geothermal Power Co. Inc.
CTA EB 1397 – 06/07/17
Facts:
 BIR appeals the decision of the CTA in Division in allowing a partial VAT
refund of CE Luzon
 BIR alleged that CE Luzon failed to submit complete documents and that the
Court has no jurisdiction since the company violated the 120 + 30 day
requirement under the Tax Code
4. CIR vs. CE Luzon Geothermal Power Co. Inc. – cont.
CTA EB 1397 – 06/07/17
Issue:
Whether or not CE Luzon is entitled toVAT refund
4. CIR vs. CE Luzon Geothermal Power Co. Inc. – cont.
CTA EB 1397 – 06/07/17
Ruling:
 Yes. The Court En Banc ruled that upon filing its administrative claim for
VAT refund, the taxpayer has 30 days to submit the complete documents
 The 120-days commence from the submission of further documents or
expiration of the 30-day period
 Exceptions to this are:
o When taxpayer manifests that it will no longer submit any further documents
upon filing of the claim
o When the BIR, during the course of examination, requires the taxpayer
5. Manulife Data Services, Inc. vs. CIR
CTA EB 1547 – 07/05/17
Facts:
 MDSI applied for the refund of its excess input VAT which was denied by
the CIR
 CIR argued that the refund was being denied because MDSI did not show
the sales invoices and/or ORs so it failed in its substantial compliance
 MDSI argued that evidence has been comprehensively and completely
evaluated during the tax examination
 CTA in Division partially grant the refund claim and the substantiation
argument of the CIR was rejected
5. Manulife Data Services, Inc. vs. CIR
CTA EB 1547 – 07/05/17
Issue:
Whether or not the CTA in Division erred in partially granting the
refund
5. Manulife Data Services, Inc. vs. CIR
CTA EB 1547 – 07/05/17
Ruling:
Since the Petition for Review did not specify which of the VAT invoices or
receipts did not comply with the substantiation requirements in line of
cases, it was emphasized that litigants should specify in their appeal briefs
the errors alleged to have been committed by the lower court so the
reviewing court and opposing party can see what points are in controversy.
A general assignment of errors is unacceptable under the rules.
6. Philam Properties Corp. vs. CIR
CTA EB 1406 – 07/07/17
Facts:
 Philam Properties Corp. claims refund of its excess creditable
withholding taxes.
 CTA in Division denied it for insufficiency of evidence
 Thereafter, it amended its decision and partially granted the refund
6. Philam Properties Corp. vs. CIR
CTA EB 1406 – 07/07/17
Issue:
Whether or not the entire claim for refund should be granted
6. Philam Properties Corp. vs. CIR
CTA EB 1406 – 07/07/17
Ruling:
 No, without the corresponding CWT certificates to support Philam’s
prior year’s excess credit of Php43M, the said amount cannot be applied
against its reported income tax liability for year 2010
 With regard to Philam’s reliance on the ICPA report stating that it has
sufficient prior year’s excess tax credit for 2010, the CTA EB ruled that
the report is a mere tool to aid the court in the resolution of a case
 Its probative value is still within the province of the CTA EB
7. KEP (Philippines) Realty Corp. vs. CIR
CTA EB 1594 – 08/18/17
Facts:
• On 09/14/12, KEP purchased from Cebu Light Industrial Park, Inc., 5
parcels of land in Lapu-Lapu City
• On 01/07/13, KEP executed a Contract of Lease with Knowles Electronics
(Phils.) involving the land
• Knowles is an entity registered with PEZA and qualified for VAT zero rating
of its transactions with local suppliers
• KEP filed on 12/26/12 its quarterlyVAT returns for the 3rd quarter of 2012
7. KEP (Philippines) Realty Corp. vs. CIR
CTA EB 1594 – 08/18/17
Facts – cont.:
• On 09/18/14, KEP filed its administrative claim for refund and also filed a
Petition for Review before the CTA in Division on 02/06/15
• This involves a tax refund/ credit case representing KEP’s unutilized input
VAT attributable to its zero rated sales for the 3rd qtr. of 2012
• CIR argues that:
o No evidence was presented to prove that KEP has zero-rated transactions for
2012 to which input VAT may be attributed
7. KEP (Philippines) Realty Corp. vs. CIR
CTA EB 1594 – 08/18/17
Facts – cont.:
o Assuming that the claim is possible, as the property is merely rented for 25
years, ownership remains with KEP and that refund can only be made when
the property is eventually sold
o KEP is given the option to carry over to the succeeding quarters any
unutilized input VAT to file a claim for refund and availing of an option
precludes choosing that of the other
o KEP failed to prove that the input VAT being claimed remained unutilized for
taxable years 2012-2014
7. KEP (Philippines) Realty Corp. vs. CIR
CTA EB 1594 – 08/18/17
Issue:
Whether KEP is entitled to refund
7. KEP (Philippines) Realty Corp. vs. CIR
CTA EB 1594 – 08/18/17
Ruling:
• Yes, the Tax Code does not provide in a claim for refund of input VAT that
there be zero rated transactions at the time the claimed input VAT was
incurred or paid…
Nor does it state that the input tax on the purchase of land shall be refunded
only when it was sold
 Law does not provide the option to carry over to the succeeding quarters any
unutilized input tax or to file a claim for refund and avail of an option
precludes that of others
7. KEP (Philippines) Realty Corp. vs. CIR
CTA EB 1594 – 08/18/17
Ruling - cont.:
• What the law provides is that the taxpayer who has zero rated transactions
was allowed to apply for the issuance of a tax credit certificate/ tax refund, in
addition to the option to carry forward the input taxes against future tax
liabilities
• In this case, it is immaterial that there is no reported zero rated sale for 2012
as long as the input taxes should not have been applied against output taxes
B. TAX ASSESSMENT
i. 2017 SUPREME COURT DECISIONS
1. St. Luke’s Medical Center vs. CIR
G.R. 203514 – 02/13/17
Facts:
• St. Luke’s Medical Center Inc. (SLMC) was assessed by the CIR for deficiency
income tax for taxable year 2005 (P78.6M) and 2006 (P57.1M) under Sec.
27(B) based on the 10% preferential rate under Sec. 27 (B) of Tax Code

• Case was elevated by SLMC to CTA in Division which ruled on 08/26/10 that
SLMC is not liable for deficiency income tax under Sec. 27(B) since it is exempt
from paying income tax under Sec.30(E) and (G) of Tax Code

• CIR moved for reconsideration but the CTA in Division denied the same in its
12/28/10 Resolution
1. St. Luke’s Medical Center vs. CIR
G.R. 203514 – 02/13/17
Facts – cont.:
• CIR filed a Petition for Review with the CTA En Banc

• On 05/09/12, the CTA En Banc sustained the findings of the CTA in Division
that SLMC complies with all requisites under Sec. (E) & (G) of Tax Code and
they are entitled to tax exemption
• CIR filed a Motion for Reconsideration with CTA En Banc which was denied so
they filed a petition under Rule 45 of Rules of Court
• On 09/26/12, SC rendered a decision finding SLMC not entitled to exemption
as it does not operate exclusively for social welfare purpose insofar as its
revenues from paying patients are concerned
1. St. Luke’s Medical Center vs. CIR
G.R. 203514 – 02/13/17
Issue:
Is St. Lukes Medical Center liable for Income Tax?
1. St. Luke’s Medical Center vs. CIR
G.R. 203514 – 02/13/17
Ruling:
• SLMC is liable for income tax under Sec. 27(b) of the Tax Code insofar as its
revenues from paying patients are concerned and this issue has been settled in
G.R. 195909 & 195960

• SC ruled that SLMC is a corporation which is not operated exclusively for

charitable purposes
• An institution under Sec. 30(E) & (G) does not lose its tax exemption if it earns
income from for-profit activities
• Such income in the last paragraph of Sec. 30 is subject to tax previously at
ordinary corporate rate but now at preferential rate of 10% pursuant to Sec. 27
(B)
2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17

Facts:
 CIR found out that the Output VAT declared by suppliers of PDI exceeded
the InputVAT declared by PDI in its 2014VAT returns
 BIR alleged that PDI under declared its Input VAT which meant that it had
under declared purchases and its gross income
 CIR assessed PDI for deficiency VAT and income tax on the amount of
under declared gross income for 2014
2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17
Facts – cont.:
 PDI protested the assessment stating that any understatement of expenses or
purchases does not mean it understated its sales
 It was also argued that its transactions with the advertising agencies should
not be treated as Cost of Sales since these were “not materials” required by
PDI to generate income
 Due to inaction of CIR on PDI’s protest, PDI appealed to CTA which
cancelled the CIR’s assessment
2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17
Facts – cont.:
 In determining whether the taxes were assessed on time, CTA determined
whether the returns filed by PDA was fraudulent

 This is in view of the execution by PDI of 3 Waivers of Defense of Prescription

 CTA ruled that while the 1st and 2nd Waivers were executed in 3 copies which
complies with the regulation, the CIR was not provided with copies of the
waivers and the officer who signed the 3rd Waiver has no authority to do so
2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17
Facts – cont.:
 CTA concluded that the 3-year prescriptive period was not extended due to
such defects
 CTA also rejected the CIR’s theory that an under declaration of Input VAT
and purchases translated to taxable income
 CTA ruled that the CIR erroneously imposed deficiency income tax based
on under declared Input VAT
 CIR appealed to the Supreme Court
2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17
Issue:
1. Did PDI refused CIR’s assessment?

2. Did PDI file a false or fraudulent return in which the 10-year

prescriptive period would apply?

3. Are the waivers executed by PDI valid?

2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17
Ruling:
1. No. PDI failed to sufficiently refute CIR’s assessment.
The services rendered by PDI’s agencies are meant to promote PDI’s
services so it should be part of Cost of Services (which may be grossed up
to compute for under declared income) instead of general and
administrative expenses or operating expenses
2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17
Ruling – cont.:
2. PDI did not file a false or fraudulent return.
Citing the Aznar case decided by SC in 1974, a false return implies
deviation from the truth, whether intentional or not, while a fraudulent
return implies intent to evade taxes due.
There is a distinction between false and fraudulent return. Hence,
despite PDI failing to refute the assessment, CIR’s assessment is still void
due to prescription.
2. Phil. Daily Inquirer vs. CIR
G.R. 213943 – 03/22/17
Ruling:
3. The waivers are invalid.
While the 1st and 2nd Waivers were executed in 3 copies, CIR failed to
provide the office accepting the Waivers with the 3rd copy of each as these
were still attached to the docket of the case.
Moreover, the 3rd Waiver was not executed in 3 copies. Thus, the 3-year
prescriptive period was not extended and the assessments by the CIR are
void.
3. Power Sector Assets & Liabilities Management
(PSALM) Corp. vs. CIR
G.R. 198146 – 08/08/17

Facts:
 PSALM filed a Petition for Review seeking the reversal of the earlier
decision and resolution of the CA nullifying the decision of the Sec. of
Justice
 Issues on the case include whether the DOJ Secretary has jurisdiction
over the case and the resolution on whether the sale of Pantabangan-
Masiway Plant and Magat Plant is subject to VAT
3. Power Sector Assets & Liabilities Management
(PSALM) Corp. vs. CIR
G.R. 198146 – 08/08/17

Facts – cont.:
 It was noted that the DOJ is vested by law to have jurisdiction over
this case pursuant to Pres. Decree No. 242 which states that all
disputes and claims solely between gov’t. agencies, offices and GOCCs
shall be administratively settled by the Sec. of Justice, Solicitor
General or the Gov’t. Corporate Counsel
3. Power Sector Assets & Liabilities Management
(PSALM) Corp. vs. CIR
G.R. 198146 – 08/08/17
Ruling:
 SC ruled that the sale of power plants is not subject to VAT since the sale was
made pursuant to PSALM’s mandate to privatize NPC assets and was not
undertaken in the course of trade or business
 PSALM was merely exercising a governmental function under EPIRA law

 Petition was granted and the court set aside the decision and resolution of the
CA
 Earlier decision and resolution of the Sec. of Justice were reinstated
4. Phil. Aluminum Wheels, Inc. vs. CIR
G.R. 216161 – 08/09/17
Facts:
• BIR filed a Petition for Review on Certioriari seeking the reversal of
the earlier decisions of CTA First Division and CTA En Banc on the
cancellation and withdrawal of the 2001 deficiency tax assessments
issued against PAWI

• PAWI was issued with assessment notices, preliminary and final and
later a Final Decision on Disputed Assessment (FDDA)
• PAWI also availed of the tax amnesty under R.A. 9489
4. Phil. Aluminum Wheels, Inc. vs. CIR
G.R. 216161 – 08/09/17
Facts - cont.:
• Despite the availment, the BIR challenged and assessed PAWI as it
argued that the tax amnesty had no effect on the assessment due to the
finality of the FDDA prior to PAWI’s availment of the amnesty
4. Phil. Aluminum Wheels, Inc. vs. CIR
G.R. 216161 – 08/09/17
Ruling:
• Court believes otherwise as Sec. 1 of R.A. 9480 states that the coverage
shall be all Nat’l Internal Revenue Taxes for taxable year 2005 and prior
years, with or without assessments duly issued
• It was also argued that the situation is included as an exception on Sec. 8
of R.A. 9480 that cases subject to final and executory judgment by the
courts should not be covered by the tax amnesty
4. Phil. Aluminum Wheels, Inc. vs. CIR
G.R. 216161 – 08/09/17
Ruling – cont.:
• Court disagrees since the FDDA issued by the BIR is not a tax case subject
to final and executory judgment by the courts but a mere assessment
• Petition for Review was denied by the SC
5. Edison Bataan Cogeneration Corp. vs. CIR
G.R. 201668 – 08/30/17
Facts:
• EBCC filed a Petition for Review on Certioriari seeking the reversal of the
CTA En Banc decision holding it liable to deficiency FWT on interest
payments
• BIR assessment arose from the loan extended by OGDEN to EBCC that is
accordingly subject to FWT assessment on interest payments as early as year
2000
• It was the position of the BIR that EBCC should be held liable to interest
from the date of execution of Loan agreement (Jan. 05, 2000) and not the
date of the 1st payment of loan (June 01, 2002)
5. Edison Bataan Cogeneration Corp. vs. CIR
G.R. 201668 – 08/30/17
Facts – cont.:
• The loan agreement indicated that the interest is to be paid separately
from the principal

• EBCC insists otherwise and maintains its position that it should not be
liable for any deficiency taxes
5. Edison Bataan Cogeneration Corp. vs. CIR
G.R. 201668 – 08/30/17
Ruling:
• SC considered the provisions of Rev. Reg. 2-98 which provides that the
obligation of EBCC to deduct or withhold tax arises by the time the income is
paid or payable, whichever comes first

• Considering further that under the said regulation, the term “payable” refers
to the date the obligation becomes due, demandable or legally enforceable
• Consequently, the SC finds no reason to reverse the earlier decision of the
CTA En Banc
ii. 2017 CTA EN BANC CASES
1. IP Contact Center Outsourcing, Inc. vs. CIR
CTA EB 1415 – 06/05/17
Facts:
 IPCCO was assessed with deficiency taxes
 It executed waivers of the defense of prescription with the BIR
 However, the assessment was eventually brought before the CTA 3rd
Division which cancelled the assessment due to the defects in the
execution of the waivers
1. IP Contact Center Outsourcing, Inc. vs. CIR
CTA EB 1415 – 06/05/17
Issue:
Whether or not the waivers executed between IPPCO and the BIR are
valid
1. IP Contact Center Outsourcing, Inc. vs. CIR
CTA EB 1415 – 06/05/17
Ruling:
 Yes, BIR is estopped from questioning the validity of the waivers

 Given that it was able to benefit from the waivers, it was given the chance
to submit the documents and contest the assessment in the administrative
level
 BIR is now estopped from challenging the validity of the waivers
 The doctrine in the Next Mobile Case applies
2. LBC Express, Inc. vs. CIR
CTA EB 1365 – 06/22/17
Facts:
 LBC was assessed for several deficiency taxes

 Among its alleged liabilities per assessment were compromise penalties

 LBC filed for an abatement of compromise penalties and made a partial

payment
 LBC was able to avail of tax amnesty, however, its application for abatement
of penalties was eventually denied and the balance was being collected by the
BIR
 LBC brought the matter before the CTA. The Court in Division ruled for
LBC
2. LBC Express, Inc. vs. CIR
CTA EB 1365 – 06/22/17
Issue:
Whether LBC is liable for the balance of the compromise penalties
2. LBC Express, Inc. vs. CIR
CTA EB 1365 – 06/22/17
Ruling:
 The Court En Banc sustained the findings of the CTA in Division that the
liability being assessed are actually compromise penalties
 As a rule, compromise penalties are agreed upon by the taxpayer and the
BIR so these may not be imposed against the will of the taxpayer
 Hence, the alleged deficiency should be cancelled
3. Derek Arthur P. Ramsay vs. CIR
CTA EB 1413 – 06/22/17
Facts:
• Ramsay was assessed with deficiency income andVAT

• He claimed that he was not served any assessment notices with the FLD and
that the FLD did not state a definite date of demand
• Upon bringing the matter to the CTA, the Court in Division voided the
assessment for failure to afford the taxpayer his right to due process
• The BIR appealed the same to the Court En Banc
3. Derek Arthur P. Ramsay vs. CIR
CTA EB 1413 – 06/22/17
Issue:
Whether or not the assessment is valid
3. Derek Arthur P. Ramsay vs. CIR
CTA EB 1413 – 06/22/17
Ruling:
• No, the Court En Banc sustained the findings of the CTA in Division

• Failure to serve the taxpayer the assessment notices with the FLD is a violation of the
taxpayer’s right to due process

• Under the law, a taxpayer must be informed of the facts and the law on which the
assessment is based

• The service of an assessment notice is part of keeping that mandate

• Moreover, failure to indicate the due date in the demand of payment is also fatal to
the assessment

• Hence, the finding of the Court in Division must be sustained

4. Q-Clean Living Phils. Corp. vs. CIR
CTA EB 1435 – 06/23/17
Facts:
 BIR appealed the findings of the CTA in Division, particularly the ruling that
the protest to the FLD/ FAN was filed on time
 Since the FLD/ FAN was served by registered mail, there is a presumption
that the same was received within a reasonable amount of time
 Hence, when the taxpayer filed its protest 3 months after the same was
mailed, it should be considered as being filed out of time
 Moreover, the BIR contends that the Petition for Review was filed out of
time, being received by the Court beyond the 30-day period from receipt of
the FDDA
4. Q-Clean Living Phils. Corp. vs. CIR
CTA EB 1435 – 06/23/17
Issue:
Whether or not the Court has jurisdiction over the Petition for Review
4. Q-Clean Living Phils. Corp. vs. CIR
CTA EB 1435 – 06/23/17
Ruling:
 Yes. As to the protest, it is incumbent upon the BIR to prove that the
taxpayer received FLD/ FAN within 30 days from mailing the same
 The BIR failed to do so but the taxpayer was able to prove that it received
the FLD/ FAN subsequently, and filed its protest 30 days thereafter
 As to the Petition for Review, although the Court received the Petition
beyond 30 days from the taxpayer’s receipt of the FDDA, it was proved that
the Petition was actually filed by registered mail within the said period. The
court acquired the jurisdiction
5. Fort Bonifacio Dev’t. Corp. (FBDC) vs. CIR
CTA EB 1410 – 07/11/17
Facts:
 FBDC was found to be liable for deficiency VAT, WTC, EWT, FWT on
fringe benefits, DST and IT by the CIR
 CTA in Division cancelled the assessment covering deficiency WTC
 The other assessments were affirmed but with modifications

 Both parties appealed through Petition for Review

5. Fort Bonifacio Dev’t. Corp. (FBDC) vs. CIR
CTA EB 1410 – 07/11/17
Facts:
 FBDC was found to be liable for deficiency VAT, WTC, EWT, FWT on
fringe benefits, DST and IT by the CIR
 CTA in Division cancelled the assessment covering deficiency WTC
 The other assessments were affirmed but with modifications

 Both parties appealed through Petition for Review

5. Fort Bonifacio Dev’t. Corp. (FBDC) vs. CIR
CTA EB 1410 – 07/11/17
Issue:
Whether or not the Court in Division’s decision should be revered or set
aside
5. Fort Bonifacio Dev’t. Corp. (FBDC) vs. CIR
CTA EB 1410 – 07/11/17
Ruling:
 The petition is dismissed

 The CTA EB noted that both parties directly filed Petitions for Review
without filing a prior MR or MNT
 Due to this procedural lapse, the amended decision has already attained
finality insofar as the CIR is concerned
5. Fort Bonifacio Dev’t. Corp. (FBDC) vs. CIR
CTA EB 1410 – 07/11/17
Ruling – cont.:
 CTA EB also cited the Asia Trust case, wherein the SC pronounced that in
order for the CTA EB to take cognizance of an appeal via a Petition for
Review, a timely MR or MNT must first be filed with the CTA in
Division that issued the assailed decision and that failure to file such is a
ground for the dismissal of its Petition for Review.
6. EDS Manufacturing, Inc. vs. CIR
CTA EB 8830 – 08/03/17
Facts:
 Petitioner EDS was assessed with various deficiency taxes

 EDS questioned the same before the CTA

 It was found out that there was no LOA issued to Revenue Officers
 The ROs were only issued a Memorandum of Agreement

 EDS claims that the assignment is void

6. EDS Manufacturing, Inc. vs. CIR
CTA EB 8830 – 08/03/17
Facts – cont.:
 CIR insists that there was no need to issue an LOA for the investigation
since there was no need to examine the documents
 The assessment was based purely on legal issue so there was no need to
examine any document and issue an LOA
6. EDS Manufacturing, Inc. vs. CIR
CTA EB 8830 – 08/03/17
Issue:
Whether or not the assessment is valid
6. EDS Manufacturing, Inc. vs. CIR
CTA EB 1493 – 08/03/17
Ruling:
 CTA EB stressed the importance of the issuance of LOA

 It applied the SC’s decision in the Medicard case where the SC ruled that
regardless of whether actual documents of the taxpayer were examined
or not, an LOA must be duly issued to the Revenue Officers who are
conducting the audit
 Without a valid LOA authorizing such officers, the assessment is void
7. Hoya Glass Disk Philippines vs. CIR
CTA EB 1524 & 1529 – 08/16/17
Facts:
• During a special meeting of the Board of Directors on 12/22/06, the Board
declared a cash dividend to stockholders as of 03/31/06 payable on
01/31/07
• Hoya paid the cash dividends to its stockholders on 02/02/07

• Hoya filed its monthly remittance form of Final Income Tax Withheld (Form
1601-F) on 03/10/07
• It also paid the FWT on 03/10/07 but was only confirmed on 03/12/07
7. Hoya Glass Disk Philippines vs. CIR
CTA EB 1524 & 1529 – 08/16/17
Facts – cont.:
• On 01/28/13, Hoya received a PAN dated 01/09/13 assessing Hoya for
penalties to the supposed late payment of the FWT on cash dividends
• Hoya filed its reply to the PAN on 02/27/13 and received the Assessment
Notice with FLD reiterating the assessment of the PAN
• On 03/22/13, Hoya filed its protest
7. Hoya Glass Disk Philippines vs. CIR
CTA EB 1524 & 1529 – 08/16/17
Facts – cont.:
• The CTA in division found that the return filed was false due to the fact that
it declared in its FWT return that the dividend payment was a February
transaction instead of January (it was declared that the cash dividends were
payable on or before 01/31/07)
• Pursuant to RR 2-98, the FWT Return and FWT should have been filed and
paid on or before 02/10/07
7. Hoya Glass Disk Philippines vs. CIR
CTA EB 1524 & 1529 – 08/16/17
Issue:
Whether or not CIR’s authority to assess Hoya for deficiency FWT on
dividends is already barred by prescription
7. Hoya Glass Disk Philippines vs. CIR
CTA EB 1524 & 1529 – 08/16/17
Ruling:
• The CTA EB disagrees with the CTA in division’s findings

• Hoya’s act was a mistake, but such mistake is not considered a falsity that would
trigger the operation of the 10-year prescriptive period

• First, there was no design to mislead on the part of Hoya

• Second, there was no intentional omission to put the BIR at a disadvantage since the
BIR was not prevented from issuing the deficiency assessment within the 3-year
general prescriptive period

• There was no fraudulent intent to evade the payment if the correct amount of tax
C. DOF/ BIR Tax updates for 2017
 i. REVENUE REGULATIONS

Issuances signed by the Sec. of

Finance that define rules and
regulations for the effective
enforcement of the provisions of the
NIRC and related statutes
1. Rev. Reg. No. 2-2017 (01/13/17)
Payment of Taxes thru Credit/ Debit/ Prepaid card
(Amends Rev. Reg. 3-2016)
• Payment of taxes through these cards shall be made on the date and time
appearing in the system-generated payment confirmation receipt issued to the
taxpayer-cardholder by the AAB-Acquirer

• In case of late/ non-remittance of taxes to the BIR (despite the timely issuance
of a valid confirmation receipt by the AAB-Acquirer to the taxpayer-
cardholder) liability to pay the tax rests upon the AAB-Acquirer since the latter
becomes the trustee of the gov’t. with the obligation to remit payment on time
to the BIR
2. Rev. Reg. No. 1-2017 (01/24/17)
Prescribing Regulations for VAT Refund (under Sec.
112 prior to RMC 54-2014)
• Administrative claim must be made within 2 years after the close of the taxable
quarter when sales were made

• Documents must be completed within the 2-year period

• Pending administrative claims prior to the effectivity of RMC 54-2014 shall be

processed by the concerned offices based on available documents within the 2-
year period
2. Rev. Reg. No. 1-2017 (01/24/17) – cont.
Claims not Covered:
• Claims beyond the 2-year prescriptive period

• Those denied in writing by approving authority

• Those approved fully or partially by the approving authority

• Those already appealed to and pending with the CTA unless there is proof of
withdrawal of the case filed with the CTA
3. Rev. Reg. No. 3-2017 (02/24/17)
Implementation of Microfinance NGO’s Act (Rep. Act
10693)
• Pursue a program of poverty eradication wherein poor Filipino families are
encouraged to undertake in entrepreneurial activities to meet their basic needs
• It aims to encourage these institutions to work with the gov’t. to pursue
economic dev’t.

• A duly-registered MF NGO shall pay a 2% tax based on gross receipts from

microfinance operations in lieu of all national taxes
3. Rev. Reg. No. 3-2017 (02/24/17) – cont.
Implementation of Microfinance NGO’s Act (Rep. Act
10693)
• Provided, that preferential tax treatment shall be entitled to this privilege only
when its primary purpose is microfinance to alleviate property, catering to the
poor and low-income individuals
• A Certificate of Accreditation issued by SEC is essential to avail of the 2%
preferential tax treatment
• The basis of this tax treatment only applies to gross receipts from MF
operations related to lending and insurance activities
• All others shall be subject to applicable rates
4. Rev. Reg. No. 4-2017 (03/07/17)
Issuance of Authority to Release Imported Goods
(ATRIGs)
• This amends certain provisions of Rev. Reg. 2-2016 particularly in issuance of
ATRIGs for imported automobiles already released from customs custody
 For foreign embassies and recognized international organizations, a one-time
ruling confirming exemption from ATRIG on importation of automobiles shall
first be secured from the International Tax Affairs Division (ITAD) of the BIR

 This will be presented to Bureau of Customs prior to release of imported

automobiles from customs custody
5. Rev. Reg. No. 5-2017 (04/20/17)
Act Expanding the Benefits and Privileges of PWDs
(Rep. Act 10754)
• This regulation implements Rep. Act 10754

• This prescribes the guidelines for the availment of tax incentives for
establishments granting 20% sales discount and exemption from VAT under
Rep. Act 9442 (Magna Carta for Persons with PWD)
• Qualified Persons With Disability shall be entitled to the 20% discount from
certain establishments to sale of goods and services for personal consumption
6. Rev. Reg. No. 6-2017 (09/25/17)
Use of Internal Revenue Stamps
• This regulation amends certain provision of Rev. Reg. 7-2014 prescribing
affixture of Internal Revenue Stamps on Imported and Locally Manufactured
Cigarettes
• This also prescribes the use of Internal Revenue Stamps Integrated System
(IRSIS) for monitoring the affixture of stamps
• After approval of the order of stamps and prior to release from the APO
designated plant, the importer or local manufacturer of cigarette shall pay to
APO (P0.15) per IRS
6. Rev. Reg. No. 6-2017 (09/25/17) – cont.
Use of Internal Revenue Stamps (IRS)
• The IRS shall be affixed at the upper portion of the immediate container of the
cigarettes
• Cigarettes packed in 5 and 10 sticks bundled in pack of 20s and other
packaging combinations of not more than 20 shall be taxed as one but the IRS
stamps affixed to these cigarettes shall be equivalent to the number of packs
bundled together
• All locally manufactured packs of cigarettes shall be affixed with new Internal
Revenue Stamps pursuant to the transitory provisions of the Revenue
Regulation
7. Rev. Reg. No. 7-2017 (11/23/17)
BSP’s Obligation as Withholding Agent of CWT
• This amends the pertinent provision of Rev. Reg. 2-98 which reduced BSP’s
obligation as withholding agent of the Creditable Withholding Tax from 5% to
1%

• This refers to income payments on purchases of minerals and quarry resources

such as gold, silver and other materials

• However, BSP as the constituted agent shall only collect the 1% Creditable
Withholding Tax on its purchase of metallic minerals and the 2% excise tax due
thereon.
 ii. REVENUE MEMORANDUM
CIRCULAR

Issuances that published pertinent and

applicable portions as well as
amplification of laws, rules, regulations
and precedents issued by the BIR and
other agencies
1. Rev. Memorandum Circular 1-2017 (12/22/16)
Unitary Excise Tax Rate on Cigarette Tax Stamps
• This Circular clarifies Sec. 2(C) of RR No. 7-2014 on the colors of cigarette
tax stamps in relation to the effectivity of unitary excise tax rate
• Effective 01/01/17, all removal/ withdrawal/ importation of cigarettes
(whether packed by hand or machine) shall be subject to the unitary excise tax
rate of P30
• To monitor implementation, the Excise Large Taxpayer Field Operations
Division shall conduct inventory count of all unused/ unissued and unaffixed
Internal Revenue Stamps in the possession of cigarette manufacturers,
importers and exporters as of 12/13/16
1. Rev. Memorandum Circular 1-2017 (12/22/16) – cont.
Unitary Excise Tax Rate on Cigarette Tax Stamps
• Thereafter, all removal and importation using old Internal Revenue Stamps
shall pay the differential Excise Tax due through Electronic Filing System using
BIR Form No. 2200-T
2. Rev. Memorandum Circular 18-2017 (03/01/17)
Issuing CTE to Cooperatives
• Under a Memorandum of former Comm. Henares dated 02/24/15, BIR
officials were directed to refrain from issuing CTE to cooperatives not
specifically identified under RA 9520 (labor contracting, professionals,
construction, mining and other cooperatives similarly created)

• Upon recommendation of the Deputy Comm. of Legal Group, the

Commissioner approved that service cooperatives must not be totally
prohibited from availing of tax incentives (Rep Act 9520) provided that they are
registered with the CDA and issued Certificates of Good Standing to show that
they are bona fide cooperatives
2. Rev. Memorandum Circular 18-2017 (03/01/17) –
cont.
Issuing CTE to Cooperatives
• The service cooperatives will also be subject to prost audit verification to check
on whether they are just being used as tax shield or evade tax payment
3. Rev. Memorandum Circular 23-2017 (03/07/17)
Vat Exemption Identification Card (VEIC)
• This Circular prescribes a new VEIC for qualified diplomats, officials and
dependents of the US Embassy

• BIR received reports that the use of VEIC on personal purchase of goods and
services by the holders has caused confusion among business establishments due
to the existing layout of cards that appears to be issued by the US Embassy
rather than the BIR

• All VEICs duly issued before the issuance of this RMC shall remain valid until
their expiry dates
4. Rev. Memorandum Circular 24-2017 (03/08/17)
Suspension of Enrollment to eFPS
• This prescribes the addendum of RMC No. 14-2017 on the temporary
suspension of enrollment to eFPS
o Taxpayers required to secure the BIR’s Importer’s Clearance Certificate (ICC),
Broker’s Clearance Certificate (BCC) and Gov’t. Bidder’s Tax Clearance are
exempted from provisions, suspending eFPS enrollment during the period of
Mar 1 to Apr 30 of every year
o RDO shall continue to process eFPS applications of said taxpayers and activate
accounts upon verification of completeness of documents submitted
4. Rev. Memorandum Circular 24-2017 (03/08/17) –
cont.
Suspension of Enrollment to eFPS
o Taxpayers who successfully enrol to eFPS shall file their tax returns through
eFPS facility
o Taxpayers who do not receive an auto-email notification of successful enrolment
within 24 hours shall file their returns thru BIR forms facility until such time
they receive their notification
o The conditions under this RMC shall apply only for the duration of suspension
of eFPS enrolment from March 1 to April 30 of every year
5. Rev. Memorandum Circular 27-2017 (03/28/17)
Basis of Tax on Sale, Exchange of Real Property
• This Circular clarifies the basis for imposition of tax on the sale, exchange or
other disposition of real property
o CGT/ Income Tax and Withholding tax on sale, exchange or other disposition of
real property shall be based on the gross selling price or FMV as determined
under Sec. 6€ of the Tax Code, whichever is higher
o FMV of the property shall be the FMV as determined by the Commissioner or
the FMV as shown in the Schedule of Values of the Provincial and City Assessors,
whichever is higher
5. Rev. Memorandum Circular 27-2017 (03/28/17) –
cont.
Basis of Tax on Sale, Exchange of Real Property
o Revenue Official shall not apply any basis (such as comparative sales) other than
those mentioned above for the imposition of tax on sale, exchange or other
disposition of real property
6. Rev. Memorandum Circular 31-2017 (04/12/17)
Microfinance NGOs Act
• This Circular covers the advisory issued by the Microfinance NGO Regulatory
Council as to the implementation of the tax provisions of Rep. Act No. 10963
(Microfinance NGOs Act)

• Microfinance NGOs certified by the SEC to have no derogatory information

are entitled to avail of the 2% gross receipts on its income from microfinance
operations

• All Microfinance NGOs that were able to secure a Certificate of No

Derogatory Information are advised to update their registration using BIR
Form 1905 and submit the certificate issued from 2016 to present
7. Rev. Memorandum Circular 34-2017 (04/26/17)
Filing, Receiving and Processing of 2016 ITR
• This Circular clarifies paragraph 6 of RMC 28-2017 as to the guidelines in the
filing, receiving and processing of 2016 Income Tax Return and all its
attachments

• Attachments shall be submitted to the LTS/ RDO or AABs located within the
territorial jurisdiction of the LTS/ RDO where the taxpayer is registered.
7. Rev. Memorandum Circular 34-2017 (04/26/17) – cont.
Filing, Receiving and Processing of 2016 ITR
 Taxpayers who filed electronically shall also submit online a copy of ITR and
its attachments with Filing Reference Number (FRN) thru an eFPS facility or
an email Tax Return Receipt Confirmation within 15 days from the deadline of
filing or date of electronic filing at the return whichever comes later
8. Rev. Memorandum Circular 35-2017 (04/27/17)
Payment of Capital Gains Tax
• This Circular clarifies the imposition of CGT on sale, exchange or other
dispositions of a real property

• Payment of CGT is a direct consequence of the sale, exchange or transfer

• It is not the transfer of ownership per se that subject these transactions to CGT
but the profit presumed to be realized by the seller

• Mere issuance of a tax declaration in the absence of any sale or exchange is not
subject to CGT
9. Rev. Memorandum Circular 36-2017 (05/03/17)
Format of Certificate of Availment
• This Circular prescribes BIR Accountable Forms relative to the implementation
of RMO 3-2017
• This is regarding the format of Certificate of Availment/ Approval of Denial
relative to the Application for Compromise Settlement and/ or Abatement of
Penalties

BIR Form No. Form Name

2342 Certificate of Availment – Compromise Settlement

2343 Certificate of Availment – Abatement of Penalties

0427 Notice of Denial – Application for Compromise Settlement
0428 Notice of Denial – Application for Abatement of Penalties
10. Rev. Memorandum Circular 42-2017 (06/09/17)
Certificate of Update of Exemption and /of Employer
and Employees Information
• This Circular prescribed the revised BIR Form No. 2305 (Certificate of Update
of Exemption and/ of Employer and Employee’s Information)

• This reflects the provision of Rev. Reg. 5-2017 implementing Rep. Act 10754
(Act Expanding the Benefits and Privileges of Person with Disability (PWD)

• This discusses the tax privileges of PWD

11. Rev. Memorandum Circular 43-2017 (06/09/17)
Update of Exemption of Employees Data Entry
Module
• This Circular announces the availability of the new versions of Update of
Exemption of Employees (UEE) Data Entry Module and Batch File Validation
Module used in the filing of BIR No. 2305 Batch File Validation Module

• Updates in the new version include the acceptance of PWD pursuant to Rep.
Act. 10754
11. Rev. Memorandum Circular 43-2017 (06/09/17) –
cont.
Update of Exemption of Employees Data Entry
Module
• Each employer should ascertain whether a PWD, regardless of age, who
claimed as a dependent, is qualified by satisfying that he is a Filipino citizen
within the 4th civil degree of consanguinity or affinity to the taxpayer, not
employed and dependent upon living with the taxpayer/ benefactor
 iii. REVENUE MEMORANDUM
ORDER

Issuances that provide directives,

guidelines and procedures necessary
in the implementation of stated
policies goals and programs of the BIR
in all areas of operations except audit
1. Rev. Memorandum Order 8-2017 (03/28/17)
Preferential Tax Treaty Benefits
• This RMO prescribes the new procedure claiming preferential tax treaty
benefits on dividend, interest and royalty income amending RMO 72-2010
o Filing of a Tax Treaty Relief Application (TTRA) is no longer required to avail
relief for dividends, interests and royalties
o Provisions of RMO No. 72-2010 shall apply on other types of income
o Reduced tax rate of 15% on intercorporate dividends paid to non-resident
foreign corporation under Sec. 28(B)(5)(b) of Tax Code shall be covered by a
separate issuance
2. Rev. Memorandum Order 12-2017 (05/16/17)
Welfare of Underprivileged and Homeless Sectors
• This RMO aims to improve level of taxpayer service for underprivileged and
homeless sectors of society
• Expedite issuance of Certificate of Tax Exemption (CTE) and electronic
Certificate Authorizing Registration (eCAR) for transfer of raw lands to HOA
intended for socialized housing projects under the Community Mortgage
Program (CMP of RA No. 7279
• Amplify laws decongesting requests for tax exemption on said transfer of raw
lands
• Delineate functions of offices involved in processing transfer
3. Rev. Memorandum Order 18-2017 (08/07/17)
Handling “Inactive” Business Taxpayers
• This RMO was issued to define and set criteria in tagging taxpayers as “inactive”
providing policies, clean up the Taxpayer Registration Database and including
this status in the Integrated Tax System
• Taxpayer shall be considered “inactive” if a registered business taxpayer was
identified to have failed to file all the required internal revenue tax returns for
all types that they are registered
• Cannot be located taxpayers are those that cannot be served Letter of Notices
due to failure to locate the subject taxpayers after exhausting all possible means
4. Rev. Memorandum Order 28-2017 (04/25/17)
PERA Act of 2008 (RA 9505)
• This RMO was issued to revise reportorial requirements on the guidelines in
the implementation of Personal Equity and Retirement Account
• The objective is to establish a more effective data gathering measures for proper
implementation of the undertaking under this RMO
• This will also ease submission of PERA reports in favor of both the PERA
administrators and processing office by simplifying reports on transactions
5. Rev. Memorandum Order 30-2017 (09/29/17)
Amendment of Signatories in the eCAR
• This RMO was issued to amend signatories in the eCAR provided in RMO 55-
2016

• For expedient taxpayer service, either the RDO or the ARDO may sign an
eCAR in cases one is absent

• In instances where both are absent, the Chief of the Assessment Section may
sign on their behalf
iv. REMEDIES
1. Rev. Reg. No. 18-2013 (Tax Audit in the PH)
a. PAN instead of Informal Conference
• In RR 12-99, the findings and alleged deficiency taxes from tax assessment in
the PH shall be contained in a Notice for Informal Conference/
Preliminary Findings giving the taxpayer 5 to 15 days to respond either
through informal discussion with handling paper or position paper to the
Notice for Informal Conference

• Under the new rules, issuance of Notice of Informal Conference has been
deleted and a Preliminary Assessment Notice (PAN) shall be issued

• Taxpayer may pay deficiency taxes in the PAN or file a reply within 15 days
When is PAN No Longer Required?
Under Sec. 228 of the tax code, PAN shall no longer be required
in the ff. cases:
o When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax appearing on the face of the tax
return
o When a discrepancy has been determined between the tax withheld and
the amount actually remitted by the withholding agent
o When a Taxpayer who opted to claim a Refund/ Tax Credit of excess
CWT for a taxable period have carried over the same amount claimed
against future tax liabilities
When is PAN No Longer Required ? – cont.
Under Sec. 228 of the tax code, PAN shall no longer be required
in the ff. cases – cont.:

o When the excise tax due on excisable articles has not been paid

o When an article locally purchased or imported by an exempt person has

been sold to non-exempt persons
1. Rev. Reg. No. 18-2013 (Tax Audit in the PH)
b. Issuance of FAN/ FLD within 15 days from PAN
• Upon issuance of PAN, BIR will issue a Final Assessment Notice – Formal
Letter of Demand (FAN-FLD) within 15 days

• Wording of this regulation is silent as to the impact of the reply to the PAN
timely filed within 15 days from receipt thereof

• Taxpayer may pay deficiency taxes in the FAN-FLD issued within the
prescriptive period of the BIR to issue or file the protest to the FAN-FLD with
factual and legal basis within 30 days from receipt thereof then submit
complete supporting docs within 60 days from filing the protest
 What if there are Several Findings in FLD/
FAN?
o In this case, a Collection Letter will be issued with regard to those tax
deficiency findings which are not protested by the taxpayer as the same shall
be considered Final and Executory like those protested items where the
taxpayer fails to state the factual or legal basis in support of his protest

o The Collection Letter shall include payment of the said deficiency tax,
inclusive of applicable surcharge and/ or interest
Request for Reconsideration vs. Request for
Reinvestigation
o Request for Reconsideration – plea for re-evaluation of an assessment
on the basis of existing records which were already presented before. Since
there is no need for additional evidences, the 60-day rule for submission of
supporting documents does not apply

o Request for Reinvestigation – plea for re-evaluation of an assessment on

the merits of newly discovered evidences that a taxpayer intends to present
on the reinvestigation. The taxpayer has 60 days from the filing of the protest
to submit its supporting documents
Requirement for filing of Protest letter
c. Final and executory of undisputed findings
• In filing the protest, taxpayer should dispute all alleged findings on deficiency
internal revenue taxes

• Any item stated in the assessment that has not been disputed will become final
and executory where the taxpayer will be required to pay upon filing the
protest

• Protests filed without payment on undisputed findings will not be accepted

by the BIR
Requisites of a Valid Protest
It must be made in writing, addressed to the Commissioner of Internal
Revenue, contains below information and complies with the following
conditions:
o Name of taxpayer and address for the immediate past three (3) taxable years

o Nature of request whether reinvestigation or reconsideration

o Taxable periods covered

o Assessment Number

o Date of Receipt of Assessment Notice or Letter of Demand

Requisites of a Valid Protest – cont.
o Itemized statement of the findings to which the taxpayer agrees as a basis for
computing the tax due, which amount should be paid immediately upon the
filing of the protest
For this purpose, the protest shall not be deemed validly filed unless payment of
the agreed portion of the tax is paid first

o Itemized schedule of the adjustments with which the taxpayer does not agree

o Statement of facts and/ or law in support of the protest

Failure of the taxpayer to comply here renders the protest void even if the
protest submitted by the taxpayer is accepted
Guidelines on Protest Letters and Requests for
Reinvestigation/ Reconsideration
RMC No. 39-2013 outlines the following procedures:
1. All Protest Letters, Requests for reinvestigation/ reconsideration shall be
made with the Office of the concerned Regional Director (RD), Asst.
Commissioner -Large Taxpayers Service (ACIR-LTS) and Asst.
Commissioner - Enforcement Service (ACIR-ES) who signed the PAN, FAN
and Formal Letters of Demand, for proper recording

This procedure must be strictly followed by taxpayers since failure to do so

would render the Protest Letter/ Requests void and without force and
effect
Guidelines on Protest Letters and Requests for
Reinvestigation/ Reconsideration – cont.
2. After filing is made, Revenue Officers are mandated to ensure that the
protests are properly prepared in the prescribed form and promptly
submitted to the CIR every Monday of each week in hard and soft copies

3. Based on the weekly report submitted, CIR’s office shall create a

database of all protests and requests received by the different offices of
the BIR

4. Any Protests/ Requests allegedly filed by any taxpayer but not included in
the database shall be deemed not officially filed with the BIR and shall not
be used as basis for granting or denying the Protests/ Requests
 Guidelines on Protest Letters and Requests for
Reinvestigation/ Reconsideration – cont.
• While RMC No. 39-2013 will aid the BIR in monitoring Protests/ Requests, it
raises some concerns on the part of the taxpayers, specifically #4 above, which
considers invalid any Protests/ Requests not included in the CIR database

• Since the creation of the CIR database is largely dependent on human effort, it
cannot be absolutely free of human errors

• If this rule is strictly implemented, taxpayer who have faithfully filed their Protest
Letters may stand to lose simply because of possible procedural lapses on the part of
the BIR

• If necessary, Taxpayers may need to secure a certification from the CIR that their
Protest Letter is already included in the CIR database
Rules for Administrative Appeal
d. Administrative Appeal
• Tax assessment process would be undertaken by the Commissioner or Regional
Directors

• In this event, a taxpayer has the option to elevate the tax assessment case in the
PH with the CTA through Petition for Review within 30 days:
o Denial of the protest to the FAN-FLD
o Inaction on the protest within 180 days

• Under the new rules, if a denial or inaction has been made by the
Commissioner’s authorized representative, the taxpayer has the option to
elevate it with the CIR instead of having the same with the CTA
Service of Notices
e. Service of Tax Assessment Notices to taxpayers
• Under RR No. 12-99, services of notices such as PAN and FAN-FLD shall be made
either by personal delivery or by registered mail only
• In this new rules of tax assessment in the PH under this Rev. Reg., the ff. new
modes of serving notices have been introduced that are aligned with the Rules of
Court of the SC
o Service to taxpayer in its business address or residence
o Service to professional courier under service by mail
o Service to the OIC of the office or legal resident at residence or with the barangay
officials under substituted service
o Service to tax agent

• BIR has more options now for the service of notices for each taxpayers under tax
assessment
Penalties & Interest
• Under the Tax Code in addition to basic taxes, failure of the taxpayer to file returns
and pay taxes shall result in the imposition of the 25% surcharge based on the
amount of basic tax

• In case of false or fraudulent return, 50% surcharge is imposable

• In case of Deficiency Tax Assessment, there is also a surcharge of 25% based on the
amount of the deficiency tax

• Moreover, a deficiency interest of 20% per annum (computed from the date
prescribed for payment of the tax until full payment) is imposed on the amount of
basic tax

• There is also a compromise penalty depending on the violation based on a Schedule

of Compromise Penalties prescribed by the BIR
Delinquency Interest
f. Imposition of Delinquency Interest
• Delinquency interest – interest being imposed upon a taxpayer as an addition
to the tax (from the time required to be paid as stated in the FAN-FLD up to such
time of full payment)

• RR No. 18-2013 expressly provides that delinquency interest should be imposed

• The base for the computation of such delinquency interest includes deficiency
interest from the time required by law for the return to be filed or from late filing
until the date required to be paid as stated in the FAN-FLD

• Deficiency interest will generate delinquency interest similar to a compounded

interest
Deficiency and Delinquency Interest Under RR 18-2013
 20% deficiency interest shall be assessed from the date prescribed for the
payment of the tax until the full payment thereof

 20% delinquency interest shall be collected from the due date appearing on
the Notice and Demand of the Commissioner until the amount is fully paid
Remedies of the Govt. for Collection of Delinquent Taxes
If the assessment against the taxpayer becomes final, executory and demandable,
the BIR may effect the collection of taxes and incremental penalties by:
o Distraint of personal property which includes stocks, debts, credits, bank
accounts and rights over personal property
o Garnishment in case of money

o Levy upon real property and interest over real property

o Civil or criminal action

Above remedies may be pursued simultaneously until full amount of tax is paid.
Remedies of the Govt. for Collection of Delinquent Taxes
 Another remedy of the BIR to enforce collection of delinquent taxes is by
issuing Warrant of Garnishment of money of a delinquent taxpayer in the
possession of a bank, employer or debtor

 BIR issued RMO No. 30-07 in 2007 intended to convert the long standing
delinquent accounts into revenue through the issuance of warrant of distraint/
levy and/or garnishment on delinquent accounts that are still pending with the
various BIR offices, to be signed and approved by the concerned BIR official
based on prevailing revenue delegation authority orders
Remedies of the Govt. for Collection of Delinquent Taxes
• Upon issuance, Revenue Officers in charge of collection should immediately
identify the properties and specific accounts owned by and in the name of the
taxpayer that shall be levied, forfeited, seized or garnished in favor of the
government

• A Notice of Tax Lien and Notice of Levy shall be sent out to place such identified
properties under seizure/ forfeiture/ garnishment

• There will be proper annotations of the lien on the document evidencing the
ownership of the taxpayer

• The sale through public auction will be made in accordance with the existing
rules and regulations unless full payment of the delinquency taxes are duly paid
 Amended Sec. 6(E) of NIRC - TRAIN
• Prescribing Real Property Values - CIR is authorized by the Tax Code to
divide the country into different zones or areas.

• He shall, upon consultation with the competent appraisers both from private
and public sectors with prior notice to affected taxpayers, determine the FMV
of real properties located in each zone or area. This is referred to as the zonal
value.

 The FMV shall be subject to automatic adjustment once every 3 years through
rules and regulations issued by the Sec. of Finance based on the current Phil.
valuation standards.
 Amended Sec. 6(E) of NIRC
 No adjustment in zonal value shall be valid unless published in a newspaper of
general circulation or in its absence shall be posted in the province, city or
municipality concerned and in 2 conspicuous public places
• For purposes of computing any Internal Revenue Tax, the value
of the property shall whichever is the higher of:
1. FMV as determined by the Commissioner
2. FMV as shown in the Schedule of Values of the Provincial and City
Assessors. (Sec. 6[e] tax code)
 The basis of any valuation shall be public records open to any inquiry of the
taxpayer
Procedure for Levy of Real Estate
1. Preparation of a Duly Authenticated Certificate showing the Name of
the Taxpayer and the Amount of the Tax Delinquency, the certificate shall
operate with the force of a legal execution throughout the Philippines

2. Writing upon said Certificate a Description of the Property upon which levy
is made

3. Service of Written Notice to Delinquent Taxpayer or Occupant of the

Property. The proper Register of Deeds of the province of city where the
property is located shall also be notified of the levy
Procedure for Levy of Real Estate – cont.
4. Advertisement of the time and place of sale of the Taxpayer’s property or so
much thereof as may be necessary to satisfy the claim within 20 days after levy
and it shall cover a period of at least 30 days

5. Sale at public auction to the highest bidder

6. Disposition of proceeds of sale - In case the proceeds of the sale exceed

the claim (assessed taxes, penalties and interest) and cost of the sale, the excess
shall be turned over to the owner of the property.
Real property placed under levy may be sold at public auction for less than its
market value since the delinquent taxpayer is given the right to redeem.
Remedies of the Govt. for Collection of Delinquent Taxes
 In case of Warrant of Garnishment, the same may be issued not only to
banks where the delinquent taxpayer may possibly maintain bank accounts but
may also be applied to the delinquent Taxpayer’s Compensation Income from his
employers and to the Taxpayer’s Receivables from contracts and similar
agreements with the private and government sectors

 In case of Real Property registered in the name of the delinquent taxpayer, a

Notice of Levy shall be filed with the concerned Register of Deeds

 In case of Personal Property, a Notice of Actual Seizure of Personal

Property shall immediately be seized following the procedures in the collection
manual
Remedies of the Govt. for Collection of Delinquent Taxes
• Notice of Sale of Real/ Personal Property levied/ distrained shall immediately
be published and the sale shall be conducted through a public auction in the
manner prescribed under existing revenue issuances
• In case there are no qualified bidders or no bidders at all, a Declaration of
Forfeiture shall immediately be issued and filed with the concerned Register of
Deeds to transfer the title to the Republic of the Philippines after the lapse of
the redemption period
• In the event the summary remedies do not succeed, the docket of the case shall
be referred to the Legal Service Division for the filing of civil or criminal
action against the taxpayer
Resale of Real Estate taken for Taxes
CIR shall be in-charge of any real estate obtained by the government in payment
or satisfaction of the taxes, penalties or costs arising under the Tax Code and in
compromise or adjustment of any claim therefor:

o He may upon giving not less than twenty (20) days notice, sell and dispose
of the same at public auction, or with the approval of the Sec. of Finance,
may dispose of the same at a private sale

o In either case, the proceeds of the sale shall be deposited in the National
Treasury, and an account of the same shall be rendered to the Commission
on Audit
Redemption of Property Sold or Forfeited – cont.
Person Entitled to Redeem – the Delinquent Taxpayer or anyone for him
shall have the right to redeem the property sold or forfeited

Time to Redeem – the right of redemption may be exercised within one (1)
year from the date of the sale or forfeiture

The one year period begins from the Registration of the Deed of Sale or
Declaration of Forfeiture.
The rationale behind this is that the owners of the properties sold for
delinquency may be notified of the act taken in connection with their
properties.
This one year redemption period is not extendible by the courts.
Redemption of Property Sold or Forfeited – cont.
Possession of property pending redemption – the owner (Delinquent
Taxpayer) shall not be deprived of the possession of the property sold and shall
be entitled to the rents and other income until the expiration of the time
allowed for its redemption

Thus, the right of the highest bidder who purchased the property is merely
inchoate

It becomes absolute only upon the expiration of the one-year redemption

period
Redemption of Property Sold or Forfeited – cont.
Price of redemption – the person redeeming the property shall pay to the
Internal Revenue Officer the amount of the taxes and incremental penalties
from the date of delinquency to the date of sale at public auction together with
interest on said purchase price at the rate of 15% per annum from the date of
purchase to the date of redemption

The property may be sold for less than its fair market value upon the theory
that the lesser the price, the easier it is for the owner to buy back the property
Redemption of Property Sold or Forfeited – cont.
Right of redemptioner – the person making the redemption shall be
entitled to the delivery of:
o The certificate issued to the purchaser
o The certificate from the Internal Revenue Officer that he has redeemed the
property

After the redemption, the Internal Revenue Officer shall pay over to the
purchaser the amount by which such property has been redeemed

Thereafter, the property shall be free from lien of taxes and penalties
Remedies of the Govt. for Collection of Delinquent Taxes
Tax lien – Taxpayers who after demand, neglects or refuses to pay the tax
assessment, the amount thereof shall constitute a lien on all property and rights to
property belonging to the taxpayer from the time the assessment is made until
fully paid

However, the lien shall not be valid against any 3rd party until notice of such lien is
filed with the Register of Deeds of the province or city where the property of the
taxpayer is situated

The tax lien will subsist from the time the tax assessment is made until full
payment of the unpaid tax and incremental penalties
Remedies of the Govt. for Collection of Delinquent Taxes
Inquiring into Bank Deposit Accounts - despite Rep. Act 1405 on Secrecy
of Bank Deposits, CIR is authorized by the Tax Code to inquire into the bank
deposits of :

o A Decedent or Deceased Person to determine his gross estate

o Any Taxpayer who has filed an application to compromise his Tax Liability
under Sec. 204 of the Tax Code by reason of financial incapacity to pay his tax
liability

o The taxpayer should waive in writing his privilege under R.A. 1405 before his
compromise request could be given due course
Remedies of the Govt. for Collection of Delinquent Taxes
Third Party Verification – In ascertaining the correctness of any return or in
making a return when none has been made, the CIR or his authorized
representative may:

o Obtain information on a regular basis from any person other than the taxpayer
under audit, or from any office of the National and Local Government
including the BSP and GOCC

o To summon any person having custody of the Books of Accts and other
accounting records pertaining to the taxpayer under audit
Remedies of the Govt. for Collection of Delinquent Taxes
Inventory-taking of stock-in-trade and making surveillance –CIR may
at any time during the taxable year order inventory-taking of the stock-in-trade of
any taxpayer as a basis for determining his internal revenue tax liabilities

o CIR may place the business operations of any person under surveillance if there
are reasons to believe that such person is not declaring his correct income

o CIR’s findings can be used as a basis of assessment and shall be deemed prima
facie correct
Remedies of the Govt. for Collection of Delinquent Taxes
Prescribing Presumptive Gross Sales or Receipts – The CIR after taking
into account the sales, receipts, income, other taxable base of other persons
engaged in similar businesses under similar situations or after considering other
relevant information may prescribe a minimum amount of such gross receipts, sales
and taxable base

Under RMO 5-2012, BIR prescribed the guidelines and procedures in the conduct
of industry performance benchmarking method

Former BIR Commissioner Henares emphasized that the Performance

Benchmarking Method is a “surgical measure to detect tax leakages and
improve collections on VAT, income and other taxes”
Remedies of the Govt. for Collection of Delinquent Taxes
 RMO 5-2012 is more structured than RMO 4-2006 which was issued by the BIR in 2006
because it clearly defined the process in determining the basis for benchmark and
identifying potential Non-compliant Taxpayers

 “Benchmarking”, as defined in the RMO, “is a point of reference for measurement or a

set of standard used to measure the performance or compliance of taxpayers in a particular
industry

 RMO focuses on Income Tax and Value Added Tax (VAT) compliance

 Presumption of non-compliance must not be made arbitrarily

 BIR must ensure the integrity of the data collected and that there are acceptable, rationale
bases for adopting a benchmarking method
Remedies of the Govt. for Collection of Delinquent Taxes
Expenditure Method – In the case of CIR vs. Antonio Villan Manly
(G.R. 197590) decided by SC on Nov. 24, 2014, the use of the
expenditure method to assess a taxpayer was allowed
This is a method of reconstructing a taxpayer’s income by deducting
the aggregate yearly expenditures from the declared yearly income
This happens when the amount of money that a taxpayer spends
during a given year exceeds his reported or declared income and the
source of such money is unexplained, it may be inferred that such
expenditures represent unreported or undeclared income
Remedies of the Govt. for Collection of Delinquent Taxes
Net Worth Method of Investigation - Net Worth Expenditures Formula for
determining increases in taxable income goes this way: “Increase in net worth plus non-
deductible expenses, minus Non-taxable Receipts, equals Taxable net income”

This is the method which brought longest time U.S. Mobster Alfonse “Scarface”
Capone to jail for tax evasion

While Al Capone was able to get away with murder or mulcting money, it took a
simple audit of his fabulous expenditures that led to the filing of Tax Evasion
charges against him for which he pled guilty on June 16, 1931
Remedies of the Govt. for Collection of Delinquent Taxes
Tax-mapping – BIR has been regularly conducting inspection of business
establishments throughout the country and doing what is popularly known as “tax-
mapping”

Its purpose is to inspect compliance of business establishments to registration,

invoicing, bookkeeping and other rules and regulations of the BIR and to catch Tax
Evaders

This is usually done by a BIR Representative unannounced

Thousands of business establishments have already been filed with charges under
this Tax Compliance Verification Drive
Remedies of the Govt. for Collection of Delinquent Taxes
Tips to legally avoid paying penalties in case of Tax Mapping:
a. Register your business with the BIR.

b. Pay Annual Registration Fee (BIR Form 0605) on or before Jan. 31 of each year.

c. Display in your establishment:

o BIR Certificate of Registration (BIR Form 2303)
o Annual Registration Fee for the current year (BIR Form 0605)
o Notice to the Public “Ask for Receipt” signage.
Remedies of the Govt. for Collection of Delinquent Taxes –
cont.
d. Issue receipts/ invoices for your sale of goods or services

e. Register your company’s manual receipts/invoices with the BIR

f. Register your company’s Cash Register Machine (CRM), Point of Sales

Machine (POS) or similar devices with the BIR

Any violation made regarding issuance of receipts shall be penalized with a fine
of not less than P500K but not more than P10M and imprisonment of not
less than 6 years but not more than 10 years
- Amended Sec. 264 of NIRC
Remedies of the Govt. for Collection of Delinquent Taxes
g. Attach original sticker in the machine authorizing the use of CRM/ POS or
similar device

h. Register Books of Accounts with the BIR and maintain it in the business
establishment

i. Withhold and remit the tax on the following with the BIR: Compensation of
Employees (BIR Form 1601c), Payments subject to Final and Creditable
Withholding Tax (BIR Form 1601e)
Failure to Transmit Data Entered on CRM/ POS
 A taxpayer required to transmit sales data to BIR’s Electronic Sales
Reporting System but fails to do so shall pay a penalty of 1/10 of 1% of
annual net income as reflected in AFS for the 2nd year preceding the
current taxable year for each day or P10K whichever is higher

 Should the aggregate no. of days of violation exceed 180 days within a
taxable year, an additional penalty of permanent closure of taxpayer
shall be imposed except if due to force majeure
Judicial Remedies of the Govt. for Collection of Delinquent
Taxes
 Civil or Criminal Action for the collection of taxes may also be pursued by the
BIR

 Civil Action refers to actions filed in the Regular Courts (Regional Trial
Courts, Metropolitan Trial Courts and Municipal Trial Courts) depending on
the amount involved after the assessment has become final and executory

 It includes filing by the government with probate courts of claims against

deceased taxpayers

 The claim for unpaid taxes must be filed within the period of limitation
prescribed in the Tax Code under Sections 203 & 223
Judicial Remedies of the Govt. for Collection of
Delinquent Taxes
• Criminal Action is now a direct mode for collection of delinquent taxes.
The judgment in the criminal case shall not only impose the penalty but also
order payment of the taxes subject to the criminal case as finally decided by
the CIR
• An assessment of tax deficiency is not necessary to a criminal prosecution
for tax evasion. The crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intend to evade and defeat the tax
(Cusi vs. Ungab, May 30, 1980)
• This ruling was qualified in Fortune Tobacco Corp. Case where it was ruled
that for a criminal prosecution to proceed, there must be a prima facie
showing of willful attempt to evade.There is a dissenting opinion
Judicial Remedies of the Govt. for Collection of
Delinquent Taxes
Effect of Acquittal in the Criminal Case - Such acquittal does not
exonerate taxpayer from his civil liability to pay the tax due

Government may still collect the tax in the same action

The reason is that the payment of tax is an obligation imposed by statute and
does not arise from a criminal act

Thus, taxpayer is still liable where acquittal is based on the fact that the failure
to pay was due to a reasonable cause and not to willful neglect

Likewise, satisfaction of the civil liability for the taxes will not operate to
extinguish taxpayer’s criminal liability
Judicial Remedies of the Govt. for Collection of
Delinquent Taxes
Form and Mode of Proceeding – Civil and Criminal actions for collection
of delinquent taxes are brought in the name of the government of the
Philippines and are conducted by the Legal Officers of the BIR

The government of the Philippines would be the plaintiff in the case

However, when the taxpayer files an action in the CTA for the refund or credit
of Internal Revenue Taxes, the CIR and not the government should be made the
defendant
Judicial Remedies of the Govt. for Collection of
Delinquent Taxes
Approval of Commission of Internal Revenue is essential – Law
requires that no civil and criminal action for the collection of delinquent taxes
shall begin without the approval of the CIR

The rationale of this requirement is to allow taxpayers to enter into

compromise agreements with the BIR, particularly in meritorious cases

It is best that any contemplated action against a taxpayer be first studied and
acted upon by the agency charged with the enforcement of internal revenue
laws since taxation is a technical subject
Judicial Remedies of the Govt. for Collection of
Delinquent Taxes
Approval of Regional Director is sufficient – The Regional Director, as head of a
Regional District has been given Delegated Authority and Power to approve Filing of
Civil and Criminal actions in court since it is not among the power exclusively
belonging to the CIR under Sec. 7 of the Tax Code which are as follows:
o Power to recommend rules and regulations to the secretary of finance
o Power to issue rulings of first impression
o Power to compromise or to abate under Sec. 204 of the Tax Code except if the
amount of Basic Deficiency Taxes is Php500,000 or less
o Power to assign or reassign Internal Revenue Offices to establishments where
articles subject to excise tax are produced or kept
Recourse if documents could not be submitted
 In cases there are reasons where the taxpayer cannot submit his Books of
Accounts, Accounting Records and other documents requested in the
Electronic Letter of Authority (eLA)

 He may request for an extension of time within which to submit the same to
avoid the issuance of a Jeopardy Assessment, provided he executed a
Waiver of the Statute of Limitations
What is a “Jeopardy Assessment”?
Consequence if Taxpayer refuses to Execute a Waiver
 Jeopardy Assessment is a tax assessment made by an authorized Revenue
Officer without complete or partial audit since he believes that the
assessment and collection of a deficiency tax will be jeopardized by delay due
to taxpayer’s failure to comply with submission of his books of accounts
and/ or pertinent records for audit purposes

 This is an assessment usually made to beat the prescriptive period for the
issuance of the final assessment
Effect of Failure to Comply With eLA
 If the taxpayer still fails or ignore the submission of the records and
documents requested in the eLA issued by the BIR, the taxpayer will
soon receive a Subpoena DucesTecum

 Taxpayer is advised for prudence sake not to take the situation into a very
compromising one

 It is because the taxpayer will lose his bargaining power to settle the tax
deficiencies that the Examiner may come up with
Effect of Failure to Comply With eLA – cont.
 There are instances when the BIR requests for a copy of the tax return from
the taxpayer.

 While the taxpayer knows that one is not actually required to submit the
returns being asked by the BIR because they are expected to have these
returns on their files, for prudence sake, they should comply with the
request.

 This is to facilitate the immediate conclusion of the investigation by the BIR.

Period within which an Audit may be Conducted
 A Revenue Officer is allowed only 120 days from the date of receipt of a
Letter of Authority by the taxpayer to conduct the audit and submit the
required report of investigation

 If the Revenue Officer is unable to submit his final report of investigation

within the 120-day period, he must then submit a Progress Report to his
head of office, and surrender the Letter of Authority for revalidation